Bombay High Court
Bank Of India 2018 19 vs Assistant Commissioner Of Income Tax … on 2 December, 2024
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
Digitally
2024:BHC-OS:21311-DB
PRASHANT
signed by
PRASHANT
VILAS RANE
52.WP4946_2024.DOC
VILAS
Date:
RANE 2024.12.23
20:17:59
+0530
Vidya Amin
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 4946 OF 2024
Bank of India )
C-5, G-Block, Star House, )
Bandra Kurla Complex, )
Bandra (East), Mumbai - 400 051 ) ...Petitioner
Vs.
1. Assistant Commissioner of Income-tax, )
Circle - 2(1)(1), Mumbai )
Room No. 561, 5th Floor, Aayakar Bhavan, )
Maharishi Karve Road, Mumbai-400 020 )
2. Chief Commissioner of Income Tax, )
Mumbai-1, Mumbai. )
Room No. 323, 3rd Floor, Aayakar Bhavan, )
Maharishi Karve Road, Mumbai-400 020 )
3. Union of India )
Through the Joint Secretary & Legal )
Advisors, Branch Secretariat, Department of )
Legal Affairs, Ministry of Law and Justice, )
2nd Floor, Aayakar Bhavan, M. K. Marg, )
New Marine Lines, Mumbai - 400 020 ) ...Respondents
__________
Mr. P.J. Pardiwalla, Senior Advocate a/w. Mr. Jeet Kamdar i/b. Atul K. Jasani
for the Petitioner.
Ms. Samiksha Kanani a/w. Prasanna Pawar for the Respondents.
__________
CORAM: G. S. KULKARNI &
ADVAIT M. SETHNA, JJ.
DATE: 2 DECEMBER, 2024. Page 1 of 24 2 December, 2024 ::: Uploaded on - 23/12/2024 ::: Downloaded on - 27/12/2024 23:26:49 ::: 52.WP4946_2024.DOC Oral Judgment (Per G. S. Kulkarni, J.) :-
1. Rule, made returnable forthwith. Respondents waive service. By
consent of the parties, heard finally.
2. A short issue which arises for consideration in the present
proceedings is whether the petitioner/assessee is entitled for deduction to
the broken period interest (BPI) on purchase of hold to maturity (HTM)
securities.
3. This petition under Article 226 of the Constitution of India is filed
praying for the following substantive reliefs:
“a) that this Hon’ble Court be pleased to issue a Writ of
Certiorari, or a Writ in the nature of Certiorari, or any other
appropriate Writ, order or direction under Article 226 of the
Constitution of India, calling for the records of the petitioner’s
case and after examining the legality and validity thereof quash,
cancel and set aside the impugned show cause notice dated August
1, 2024 (Exhibit L), the impugned order dated August 30, 2024
(Exhibit O) and the impugned notice dated August 30, 2024
(Exhibit P) issued by respondent no. 1.
b) that this Hon’ble Court be pleased to issue a Writ of
Mandamus, or a Writ in the nature of Mandamus, or any other
appropriate Writ, order or direction under Article 226 of the
Constitution of India, ordering and directing respondents to
withdraw and cancel the impugned show cause notice dated
August 1, 2024 (Exhibit L), the impugned order dated August 30,
2024 (Exhibit O) and the impugned notice dated August 30,
2024 (Exhibit P) issued by respondent no. 1.
c) that this Hon’ble Court be pleased to issue a Writ of
Prohibition, or a Writ in the nature of Prohibition, or any other
appropriate Writ, order or direction under Article 226 of the
Constitution of India, ordering and directing respondent no. 1 to
permanently refrain from giving effect to and/or proceeding
further by way of reassessment or otherwise in any manner in
respect of the impugned show cause notice dated August 1, 2024
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(Exhibit L), the impugned order dated August 30, 2024 (Exhibit
O) and the impugned notice dated August 30, 2024 (Exhibit P)
issued by respondent no. 1.”
4. It is seen that the reliefs prayed by the petitioner has its genesis from
the proceedings initiated against the petitioner under Section 148 of the
Income Tax Act, 1961 (for short, “the I.T. Act“), which revolves around the
addition as made by the Assessing Officer in regard to the broken period
interest on purchase of securities.
5. The relevant facts are:-
The assessment year in question is assessment year 2018-19. The
petitioner filed its return of income declaring a total loss of an amount of
Rs.64,16,21,52,964/-. On 31 March 2018, revised return of income was
filed declaring total loss of Rs.63,96,27,72,352/-. The petitioner contends
that the notes appended to the computation of income at Sr. No. 1.12
provided details of broken period interest paid on purchase of securities.
6. In regard to the return filed by the petitioner, on 22 September 2019,
for the assessment year in question, a notice under section 143(2) of the I.T.
Act was issued to the petitioner. Thereafter, on 1 January 2020, a notice
under Section 142(1) was issued to the petitioner, which was followed by
similar notices dated 14 January 2020 and 19 March 2021.
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7. The petitioner, by its letter dated 26 March 2021 addressed to
respondent no. 1, provided all the details of the broken period interest paid
on securities, which was a total amount of Rs.249,45,00,000/-. A statement
of calculation in that regard was enclosed to such communication as
Annexure 4. On 4 August 2021, a draft assessment order was passed under
Section 143(3) read with Section 144B of the I.T. Act by the National
Faceless Assessment Centre (for short “NFAC”) making an addition of
Rs.9,557.32 crores, which included an addition of amounts towards the
broken period interest of Rs.249.45 crores. In such order, the said revenue
expenditure in regard to securities held as stock-in-trade, was rejected by the
Assessing Officer and the same was treated as capital in nature.
8. Thereafter, a show cause notice dated 4 August, 2021 came to be
issued to the petitioner by the NFAC to show cause as to why the variation
as proposed should not be made as per the draft assessment order. The
petitioner submitted its reply dated 10 August, 2021 raising its objections to
the issues as raised in the show cause notice, in which the petitioner
addressed each of the issues as raised in the draft assessment order. The
petitioner also made a reference to its prior letter dated 26 March, 2021,
which we have noted hereinabove, explaining the expenditure in regard to
the broken period interest. Thereafter, a hearing was granted to the
petitioner on 23 September, 2021 as also submissions were filed by the
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petitioner on 24 September, 2021.
9. On 28 September, 2021, NFAC passed an assessment order under
Section 143(3) read with Section 144B making an addition of Rs.9307.87
crores and deleted addition on broken period interest made in the draft
assessment order. Also on the even date, a computation sheet as also a
notice of demand was issued by the Assessing Officer. All these documents
form part of the record of this petition at Exhibits ‘J’ & ‘K’ to the petition.
10. On such backdrop, on 1 August, 2024, which is almost after about 3
years of the assessment order being passed by the NFAC, the impugned
show cause notice was issued to the petitioner by respondent no. 1 under
Section 148A(b) recording that income has escaped assessment as revealed
in the objections as raised by the revenue audit, by referring to the draft
assessment order, wherein an addition of Rs.249.45 crores was made on
account of broken period interest on purchase of HTM securities, but no
addition was made in the final assessment order. Also, additions in regard
to the broken period interest were made, during the scrutiny assessments for
AY 2015-16 and AY 2016-17. Also the show cause notice has made a
reference to the assessment orders in the case of Central Bank and Dena
Bank for AY 2018-19 where similar additions were made. The petitioner
also furnished copy of the audit objection.
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11. On 8 August, 2024, the petitioner filed its reply to the impugned
show cause notice inter alia relying on Section 151A as also providing
various details on broken period interest. The petitioner also relied on the
order passed by the CIT(A) for AY 2015-16 and AY 2016-17 in the
petitioner’s own case where broken period interest was allowed and before
the Tribunal, appeal of the department was disposed of. It was also
contended that the Tribunal had passed an order for AY 2011-12 where
broken period interest was allowed relying on the decision in the
petitioner’s own case. It is on such backdrop, on 30 August, 2024 the
impugned order under Section 148A(d) was passed by respondent no. 1
rejecting the petitioner’s objection to the show cause notice inter alia
observing that the issue under Section 151A was pending before the
Supreme Court in the case of PCIT & Ors. vs. Hexaware Technologies Ltd.
[SLP (C) No. 21188 of 2024] and The Income Tax Officer & Ors. vs.
Kankanala Ravindra Reddy [SLP (C) No. 3574 of 2024]. Insofar as the
broken period interest was concerned, the impugned order under section
148A(d) records that in the case of CIT vs. HDFC Bank Ltd. in SLP No.
1448 of 2021 the issues are pending before the Supreme Court and that this
is a fit case for issuing notice under Section 148 of the Act and accordingly
by rejecting the petitioner’s objections by the said order, impugned notice
dated 30 August, 2024 came to be issued to the petitioner under Section
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148 of the I.T. Act.
12. It is on the above backdrop, the petitioner is before the Court
assailing the impugned notice under section 148A(b) as also the impugned
order passed thereon under Section 148A(d) dated 30 August, 2024 and a
consequent notice dated 30 August, 2024 issued under Section 148 of the
Act.
13. Reply affidavit of Mr. Ganesh S. Iyer, Deputy Commissioner of
Income-tax, Circle 2(1)(1), Mumbai is filed on behalf of the Revenue
opposing this petition, which is primarily the stand of the Revenue in
rejecting the petitioner’s objection to the reopening of the assessment.
Submissions on behalf of the petitioner :-
14. Mr. Pardiwalla, learned senior counsel for the petitioner would
submit that the sole ground on which the notice under Section 148A(b) is
issued to the petitioner, is on the count that the amounts qua the broken
period interest ought to be added, as seen in paragraph 3 of the impugned
notice. It is submitted that the issue sought to be raised by respondent no. 1
is no more res integra inasmuch as such action to reopen the assessment of
the petitioner on the issue of broken period interest, being allowable as a
deduction while computing income now stands settled, in view of the
decision of the Supreme Court in the case of Bank of Rajasthan Ltd. vs.
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Commissioner of Income-tax1 and CIT vs. Citibank N.A.2 as also the
decision of this Court in American Express International Banking
Corporation vs. CIT3. Additionally, drawing the Court’s attention to the
decision of this Court in Hexaware Technologies Ltd. (supra), it is
submitted that if the impugned action is tested by applying the principles as
laid down in this decision, the same will be required to be quashed and set
aside as being initiated without jurisdiction by the Jurisdictional Assessing
Officer.
15. Apart from the ground that the impugned notice issued under
Section 148A(b) and the Section 148 notice being issued without
jurisdiction, hence clearly illegal on the applicability of the principles in
Hexaware Technologies (supra), the petitioner has raised an issue of a
fundamental error of the Assessing Officer in taking a decision to reopen
the assessment and to make additions on the broken period interest, which
according to the petitioner, was certainly allowable as deduction while
computing business income, as held by the Supreme Court in Bank of
Rajasthan Ltd. (supra) and CIT vs. Citibank N.A. (supra), on the basis of
which, the petition would be required to be allowed.
16. In supporting the contention on broken period interest, the
1
(2024) 167 taxmann.com 430 (SC)
2
Civil Appeal No. 1549 of 2006 (SC)
3
(2002) 258 ITR 601 (Bom.)
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petitioner has placed reliance on a recent decision of this Bench in HDFC
Bank Ltd. vs. The Deputy Commissioner of Income-tax 4, in which the
question of law which had fell for consideration of this Court was “Whether
the ITAT erred in holding that the appellant was not entitled to a deduction
in respect of the broken period interest paid by it”. Question nos. 1 and 2
pertain to the broken period interest, which were answered by this Court in
favour of the assessee and against the Revenue taking into consideration the
decisions in the case of Vijaya Bank Ltd. vs. Additional Commissioner of
Income-tax5 as also the decision of this Court in American Express
International Banking Corporation (supra) and CitiBank N.A. vs.
Commissioner of Income Tax6 against which the Revenue’s appeal was
rejected by the Supreme Court by an order dated 12 August, 2008. This
Court also took into consideration the decision of the Supreme Court in
CIT vs. Citibank N.A.7, which was on an appeal filed by the Revenue
against the decision of this Court being rejected by the Supreme Court. The
Court also referred to the decision of the Supreme Court in Bank of
Rajasthan (supra) wherein the Supreme Court affirmed the view which was
taken by this Court in Citibank NA (supra), American Express
International Banking Corporation (supra) as also in HDFC Bank Ltd. vs.
4
Income Tax Appeal No. 58 of 2006 dated 13 November, 2024
5
(1991) 187 ITR 541 (SC)
6
ITA No. 278 of 1997
7
Civil Appeal No. 2641 of 2004 decided on 12 August, 2008
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CIT8.
17. On behalf of the Revenue, the aforesaid legal position is not being
disputed.
Reasons and conclusion:-
18. Having heard learned counsel for the parties and having perused the
record, we find substance in the contentions as urged on behalf of the
petitioner. At the outset, we may observe that the impugned notice in
clause (b) of Section 148A of the I.T. Act has recorded the issue of broken
period interest as the only ground to make the additions. Such reasons as
set out in the impugned notice reads thus:
“3. It was noticed from the Draft Assessment order dated
23.04.2021 (Sr. 7) that addition of Rs.249,45,00,000/- on
account of broken period interest (BPI) on purchase of HTM
Securities was made. It was mentioned in the Review Report
dated 12.05.2021 (Sr.6) that the broken period interest of
Rs.249,45,00,000/- which relates to securities bought in the year
but held in the stock requires to be disallowed and added to the
income of assessee. However, it was noticed from the final
assessment order dated 28.09.2021 that no addition has been
made in this regard. The reasons for non addition of the same was
not mentioned in the final assessment order nor the same was
available in the records produced to audit. It was seen that
additions of broken period interest were made during scrutiny
assessments for AY 2015-16 and 2016-17. The addition made by
the department for AY 2015-16 was not deleted by ITAT as seen
from the order giving effect to ITAT order. It was also noticed
from Assessment orders for AY 2018-19 in respect of Central Bank
of India and Dena Bank that additions in this regard have been
made by the department. This resulted in under assessment of
income of Rs.249,45,00,000/- with consequent short levy of tax
of Rs.86,32,96,560/- excluding interest as detailed below.
8
(2014) 49 taxmann.com 335
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Under assessment of income Rs.249,45,00,000/-
30% tax Rs.74,83,50,000/-
Surcharge @ 12% Rs.8,98,02,000/-
Cess @ 3% Rs.2,51,44,560/-
Total tax Rs.86,32,96,560/-
19. As noted earlier, the petitioner replied to the said show cause notice
wherein the petitioner has set out the entire legal position before the
Assessing Officer and most importantly relying on the decisions which we
have noted hereinabove. However, in the impugned order passed by
respondent no. 1 in rejecting the contentions as urged by the petitioner on
law, it was simplicitor recorded that the petitioner could not be raising such
contention, as the issue which had arisen on the broken period interest was
pending before the Supreme Court in the case of CIT vs. HDFC Bank Ltd.
(supra). The finding as recorded in this regard by the Assessing Officer in
the impugned order passed under Section 148A(d) rejecting the petitioner’s
reply to the show cause notice are also required to be noted, which reads
thus:
“5.2 In this regard, it is to be stated that the department has filed
SLP against the judgment of the Hon’ble jurisdictional Bombay
High Court in Hexaware Technologies Ltd. on the issue of the
jurisdiction of Jurisdictional Assessing Officer (JAO) to initiate the
reopening of assessment u/s. 148A of the Income Tax Act, 1961.
SLP of the Revenue has been admitted against the earlier decision
on the same issue of Hon’ble Telengana High Court and SLP of
the Revenue in the case of Ms. Hexaware Technologies Ltd. has
been filed by the department vide diary No.37843/2024. This
order is being passed subject to the outcome of the judgment of
Hon’ble Supreme Court.
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Analysis of merit of the contention of the assessee on the issue of
broken period interest (BPI) on purchase HTM Securities of Rs.
249,45,00,000/-:-
5.3 It is the contention of the assessee that it has claimed the
deduction amounting to Rs. 249,45,00,000/- being broken period
interest (BPI) on purchase HTM Securities relying on its
consistent accounting practice and relied on the decision of the
jurisdictional Id. ITAT, Mumbai in own case in ITA
No.4491/Mum/2016 for AY 2011-12 wherein the Ld. ITAT has
relied on the Hon’ble jurisdictional High Court in the case of CIT
vs State Bank of India. It is the contention of the assessee that the
Revenue’s appeal against the learned Tribunal’s decision in own
case for AY 2015-16 was dismissed vide order dated 11.12.2020.
5.4 This office records showed that revenue has filed appeal to
the Hon’ble Apex Court and Revenue’s appeal on the same issue
in the case of CIT V/S HDFC Bank Ltd in SLP No. 1448/2021
relying upon the decision Registered on 22-01-2021 is pending
with Hon’ble Apex Court. Hence, in order to continue with the
stand of the revenue that the same is not allowable as deduction
while computing the business income, the ratio in own case in
earlier years is not found as stopping initiation of income escaping
assessment for this year since the same is based on ‘information’
falling under clause (ii) of explanation one to section148.”
(emphasis supplied)
20. We have given our anxious consideration to the issues as involved.
We are inclined to accept the petitioner’s contention on the position in law
in regard to the broken period interest on the purchase of HTM securities,
which appears to be well settled in view of the decision as rendered by the
Supreme Court in the case of Bank of Rajasthan (supra) and other decisions
which are referred by us. Similar question had recently fell for the
consideration of the Division Bench of which one of us (G. S. Kulkarni, J.)
was a member, as pointed out on behalf of the petitioner in the case of
HDFC vs. DCIT (supra) wherein on question of law nos. 1 and 2 which
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were recorded in paragraph 2 of the order of the Division Bench, the Court
answered the questions in the affirmative in favour of the assessee and
against the revenue, when it was held that the Income-tax Appellate
Tribunal had erred in holding that the appellant therein (HDFC) was not
entitled to a deduction in respect of the broken period interest paid by it.
The relevant observation made by the Court taking into consideration the
said decisions reads thus:
“2. By an order dated 19 November, 2008, a co-ordinate
Bench of this Court admitted the present appeal on the following
substantial questions of law:
“1. Whether the ITAT erred in holding that the
appellant was not entitled to a deduction in respect of the
broken period interest paid by it?
2. Whether the ITAT’s observations regarding the
method of accounting followed by the appellant in respect
of broken period interest are vitiated by factual errors?
3. Whether the ITAT erred in holding that the
appellant was not entitled to a deduction in respect of the
expenditure incurred by it on the issue of FCD’s?”
3. We have heard Mr. Mistri, learned senior counsel for the
appellant and Mr. Suresh Kumar for the respondent.
Questions of Law No. 1 and 2
4. The facts relevant to the questions of law no. 1 and 2 need
to be noted: The appellant is inter alia engaged in the business of
providing long term finance in the course of which, various
securities are held as stock in trade. These securities are purchased
from time to time, which carry interest. The purchase price
includes the component of interest for the broken period. The
securities which remain unsold at the end of the year are shown in
the closing stock at cost. However, while computing the income,
the assessee claims deduction on account of interest for the broken
period in respect of unsold securities since according to assessee,
the entire interest income accrues to the assessee on the fixed date
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falling after the end of previous year. However, the assessee
offered the interest income in respect of such securities in the next
year either when the securities were sold or when interest is
received. As observed by the Tribunal, for the assessment year
1991-92 (subject matter of one of the appeals), the broken period
interest amounted to Rs.1,32,88,488/- which included the sum of
Rs.95,05,870/- pertaining to earlier years. The Assessing Officer
rejected the claim of the assessee and disallowed the sum of
Rs.37,82,618/- (Rs.1,32,88,488 – Rs.95,05,870). Similarly,
disallowances were made for the assessment year in question. The
reason for disallowance was that broken period interest formed
part of the price of the asset purchased, which has already been
debited to Profit & Loss Account and, therefore, question of
allowing deduction did not arise in view of the Supreme Court
judgment in the case of Vijaya Bank Ltd. vs. Additional
Commissioner of Income-tax9.
5. The assessee was aggrieved by such view taken by the
Assessing Officer and carried the matter in appeal before the
Commissioner of Income-tax (Appeals) (for short “CIT(A)”), who
also agreed with the Assessing Officer and accordingly confirmed
the order passed by the Assessing Officer. Against such orders
passed by the CIT(A), the appellant carried the matter to the
Tribunal. The Tribunal also did not accept the contentions as
urged on behalf of the assessee that the interest on securities is
taxable as business income, since securities are held as stock in
trade, as also that the interest which was paid on purchase of
securities would be on revenue account, which would entitle the
assessee to claim as revenue loss, being the consistent accounting
method followed by the assessee, which according to the assessee,
would entitle it to set-off such loss against its income. The
Tribunal in rejecting the assessee’s contention was of the view that
when the securities are purchased by the appellant along with
interest thereon, the price paid becomes the cost of the asset which
is to be debited to Profit & Loss Account. The Tribunal observed
that the assessee debited the entire cost of the purchase including
broken period interest to Profit & Loss Account as per the
commercial practice. Hence, if the security is sold, then profit
would form part of the Profit & Loss Account as sales would be
credited. It was observed that when such security was not sold,
then as per the settled principle of accountancy, it has to be shown
in the closing stock either at cost or market price whichever is
lower. There is no other method of accounting for computing
business profit. The Tribunal rested its view referring to the
decision of Supreme Court in Chainrup Sampatram vs.
Commissioner of Income-tax10. It is for such reason the Tribunal
was of the considered opinion that the question of allowing any
9
(1991) 187 ITR 541 (SC)
10
(1953) 24 ITR 481 (SC)
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deduction separately did not arise.
6. Mr. Mistry has submitted that the questions of law no. 1
and 2 would no more be res integra. In support of such
contention, Mr. Mistry has drawn our attention to the orders
passed by the Division Bench of this Court in American Express
International Banking Corporation vs. Commissioner of Income-
tax11 wherein similar questions as the present questions had fell for
consideration of the Division Bench. The key issue which fell for
consideration there was in regard to the correct treatment of the
broken period interest needs to be accorded under the I.T. Act and
whether the broken period interest (net) paid by the assessee at the
time of purchase of securities was a part of the capital costs of the
investment and, therefore, the purchase price of the securities
cannot be bifurcated into interest accrued up to the date of
purchase and balance of the price. The Court considered the
Revenue’s contention that the payment for the broken period
interest (net) cannot be claimed as a revenue expenditure and it
was the assessee’s contention that the banks were valuing the
securities/interest held by it at the end of each year and offered to
tax, the appreciation in their value by way of profits/interest
earned. In answering such question, the Court considered the
decision of the Supreme Court in Vijaya Bank Ltd. (supra), the
question was answered in favour of the assessee in the following
terms:
” Therefore, under either method, the same amount is offered for
tax, The Department has not been able to show in this case as to why the
method adopted by the assessee-bank ought to be rejected. On the other
hand, the Department has not been able to explain as to why broken
period interest received should be taxed whereas broken period interest
payment should be disallowed. In the circumstances, we uphold the
order of the Tribunal.
……..
In the light of what we have discussed hereinabove, we find that
the assessee’s method of accounting does not result in loss of tax/revenue
for the Department. That, there was no need to interfere with the
method of accounting adopted by the assessee-bank. That, the judgment
in the case of Vijaya Bank Ltd., had no application to the facts of the
case. That, having assessed the income under Section 28, the
Department ought to have taxed interest for the broken period interest
received and the Department ought to have allowed deduction for the
broken period interest paid.”
7. The decision of the Division Bench in American Express
International Banking Corporation (supra) was assailed before the
Supreme Court in the proceedings of Special Leave to Appeal
(Civil) CC.301-303/2004, which came to be rejected by an order
dated 27 January, 2004.
11
(2002) 258 ITR 601(Bom)
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8. Mr. Mistry has also drawn our attention to an order passed
by this Court in ITA No. 278 of 1997 in the case of CitiBank N.A.
vs. Commissioner of Income Tax wherein similar issues had arisen
for consideration of the Court, when the Court answered the
questions in favour of the assessee. The order dated 16 April,
2003 passed by the Division Bench was carried to the Supreme
Court in the proceedings of Civil Appeal No. 1549 of 2006 in
Commissioner of Income Tax vs. CitiBank N.A. The Supreme
Court rejected the Revenue’s appeal by its judgment dated 12
August, 2008 where the Supreme Court referring to the decision
in Vijaya Bank Ltd. vs. Additional Commissioner of Income Tax,
Bangalore (supra) as also the decision of this Court in American
Express (supra) rejected the Revenue’s appeal. The following are
the observations of the Supreme Court:
” The facts in the present case are similar to the facts in
American Express (supra). Agreeing with this view and accepting
the distinction pointed out by the Bombay High Court, this
Court dismissed the two special leave petitions filed by the
revenue, one of which was dismissed by a three Judge Bench.
After going through the facts which are similar to the
facts in American Express (supra), since the tax effect is neutral,
the method of computation adopted by the assessee and
accepted by the revenue cannot be interfered with. We agree
with the view expressed by the Bombay High Court in
American Express (supra) that on the facts of the present case,
the judgment in Vijaya Bank Ltd. (supra) would have no
application.
For the reasons given above, the question posed before
us is answered in the affirmative i.e. in favour of the assessee and
against the revenue.
The Appeal is dismissed accordingly. Parties to bear their
own costs.”
9. Similar view was taken by the Supreme Court in dismissing
another appeal filed by the Revenue in the case of Commissioner
of Income Tax vs. Citi Bank N.A.,12 for AY 1982-83.
10. Mr. Mistry has also drawn our attention to an order passed
by this Court in assessee’s own case (Housing Development
Finance Corporation Ltd. – the assessee as formerly known), which
was on three Income-tax Appeals filed for the A.Ys. 1991-92,
1992-93 and 1994-95, wherein following the decision of this
Court in American Express International Banking Corporation
(supra) and CitiBank N.A. (supra), the appeals filed by the
appellant were allowed in favour of the assessee. Such orders
passed by this Court need to be noted, which read thus:
12
Civil Appeal No. 2641 of 2004 decided on 12 August, 2008.
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“1. These three Appeals under Section 260A of the Income
Tax Act, 1961 (the Act), challenge the order dated 4th August,
2005 passed by the Income Tax Appellate Tribunal (the
Tribunal). The common impugned order dated 4th August,
2005 disposes of the Appeals for Assessment Years 1991-92,
1992-93, 1993-94 and 1994-95. These three Appeals relate to
Assessment Years 1991-92, 1992-93 and 1994-95.
2. The above three Appeals were admitted on 19th
November, 2008 on the following identical substantial
questions of law:
“(a) Whether the Tribunal erred in holding that the
Appellant was not entitled to a deduction in respect of the
broken period interest paid by it?
(b) Whether the Tribunal’s observations regarding the
method of accounting followed by the Appellant in respect
of broken period interest are vitiated by factual errors?”
3. It is an agreed position between the parties that the issue
raised herein stands concluded against the RespondentRevenue
and in favour of the AppellantAssessee by the decision of this
Court in American Express International Banking Corporation
v/s. CIT 258 ITR 601, CIT v/s. HDFC Bank Ltd., 366 ITR 505
and the decision of the Supreme Court in CIT v/s. CitiBank
N.A. (Civil Appeal No. 1549 of 2006) decided on 12th August,
2008.
4. In view of the above, both the substantial questions of
law are answered in the affirmative i.e. in favour of the
AppellantAssessee and against the Respondent-Revenue.
5. Accordingly, all the Appeals are Allowed.”
11. Our attention is also drawn to a recent decision of the
Supreme Court in Bank of Rajasthan Ltd. vs. Commissioner of
Income-tax13 wherein the Supreme Court affirmed the view taken
by this Court in CitiBank NA (supra), American Express
International Banking Corporation(supra) as also in HDFC Bank
Ltd. vs. CIT14.
12. Mr. Suresh Kumar, learned counsel for the Revenue would
not dispute the aforesaid legal position.
13. In this view of the matter, questions of law nos. 1 and 2 are
answered in affirmative in favour of the assessee and against the
Revenue.”
13
(2024) 167 taxmann.com 430 (SC)
14
(2014) 49 taxmann.com 335
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21. In this view of the matter, we are in agreement with the petitioner
that the issue on the entitlement of the petitioner to the deduction of the
broken period interest is no more res integra. On this count, the petition
needs to succeed.
22. Before parting, we will be failing in our duty if we do not comment
on the approach of the Revenue when the Assessing Officers are confronted
with the decision rendered by this Court in the case of Hexaware
Technologies Ltd. (supra), such decision is rendered by the Division Bench
and by Constitutional Court; and that too by the Jurisdictional High Court.
Hence, such decision when it lays down the law interpreting the provisions
of Section 144(b), Section 151A, Section 148A, Section 148 and Section
147 of the IT Act under the settled principles of constitutional
jurisprudence and the binding nature of the decisions of the Constitutional
Courts, the Revenue officials would be bound by the decisions of the
Division Bench. Mr. Pardiwalla has taken pains to point out that the
decision of this Court in Hexaware Technologies Ltd. (supra) has laid down
substantial principles of law interpreting such provisions. Hence, any action
on the part of the Revenue officials, which is contrary to the mandate of
such decision, would be rendered illegal and invalid. In such decision, the
Division Bench was pleased to hold that the Jurisdictional Assessing Officer
would not have jurisdiction to initiate any proceedings under Section 148A
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and/or to issue notice under Section 148 of the I.T. Act so as to reopen the
assessment and necessarily the Revenue would be required to resort to
faceless mechanism. No doubt such a decision as rendered by this Court is
subject matter of challenge before the Supreme Court, however, what
concerns us is in regard to the approach of the department. Merely for the
reason that the decision of this Court in Hexaware Technologies Ltd. is
assailed by the Revenue before the Supreme Court, repeatedly a position is
being taken by the Assessing Officers that such decision is not binding on
the department, hence, routinely an approach is being adopted to issue
notices under Section 148A and orders being passed thereon and
consequently notices are being issued under Section 148 and also in many
cases, the Assessment Orders are being passed on such basis. We would
have agreed with the Assessing Officer to have adopted such approach
provided that there was a stay to the operation of the judgment so that it
would be permissible for the officers of the Revenue to adopt such
approach, when the effect of decision of this Court in Hexaware
Technologies Ltd. is taken away, and is not required to be complied.
However, the position is not such. We are informed at the Bar that
although proceedings are filed before the Supreme Court and are pending,
no stay is being granted by the Supreme Court to the applicability and/or
the operation of such decision.
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23. Thus, certainly the decision in Hexaware Technologies Ltd. is
binding on the Revenue and accordingly, there cannot be any actions which
could be taken by the Assessing Officers contrary to the law as laid down in
the decision of this Court. In our opinion, an approach of defiance, which
appears to be quite brazen, has brought about a situation of disobedience
and/or non-adherence to the law as laid down by the Constitutional Court,
by the Revenue officials, who are otherwise bound by the decision of the
Jurisdictional High Court. In our opinion, this is an issue which touches
public policy as also a matter seriously concerning administration of justice,
for the reason that it cannot be countenanced that once the law is declared
by the Constitutional Court, it is according to such principles of law as laid
down in the decision of the Constitutional Court that the Revenue
authorities would be required to proceed and not otherwise. If the approach
to act exactly contrary to the law as laid down by the High Court, as in the
present case i.e. in the teeth of the principles of law as taken in Hexaware
Technologies Ltd. is to be accepted, it would not only render a decision of
the Constitutional Court meaningless and a paper decision but would bring
about a regime that such decisions are left to be implemented only at the
whims and fancies of the Revenue officials. This can never be an acceptable
position under the Rule of Law and the principles of Constitutional
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governance and more particularly, when there is no stay granted by the
Supreme Court.
24. We have noticed that after the decision in Hexaware Technologies
Ltd. (supra) was rendered by this Court, large number of notices are issued
by the Revenue contrary to the law laid down by this Court in Hexaware
Technologies Ltd., resultantly multitude of litigation has reached this Court.
All such assessees who have been issued such notices have knocked the
doors of this Court, resulting in hundreds of petitions being filed.
Considering this situation which the Court has encountered day in and day
out, we are of the opinion that the Revenue officials are required to have an
appropriate guidance in this regard from the CBDT, as this concerns a
matter of public policy in relation to the law laid down by the
Constitutional Court and its implementation.
25. Mr. Pardiwalla has rightly drawn our attention to the decision of this
Court in Commissioner of Income-tax vs, Smt. Godavaridevi Saraf 15 as also
the recent decision of the co-ordinate Bench of this Court in Samp
Furniture (P.) Ltd. vs. Income-tax Officer 16 of which one of us (Justice G.S.
Kulkarni) was a member, wherein the Court categorically observed that the
Revenue having not “accepted” the judgment of the High Court would not
mean that till the same is set aside in a manner known to law, it would loose
15
(1978) 113 ITR 589
16
(2024) 165 taxmann.com 581 (Bom.)
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its binding force. Referring to the decision of the Supreme Court in Union
of India vs. Kamlakshi Finance Corporation Ltd. 17, the Court observed that
the approach of the officials of Revenue of treating decisions being “not
acceptable” was criticized by the Supreme Court. In such decision,
following are the relevant observations made by the Supreme Court:
6. Sri Reddy is perhaps right in saying that the officers were
not actuated by any mala fides in passing the impugned orders.
They perhaps genuinely felt that the claim of the assessee was not
tenable and that, if it was accepted, the Revenue would suffer. But
what Sri Reddy overlooks is that we are not concerned here with
the correctness or otherwise of their conclusion or of any factual
malafides but with the fact that the officers, in reaching in their
conclusion,by-passed two appellate orders in regard to the same
issue which were placed before them,one of the Collector
(Appeals) and the other of the Tribunal. The High Court has, in
our view, rightly criticised this conduct of the Assistant Collectors
and the harassment to the assessee caused by the failure of these
officers to give effect to the orders of authorities higher to them in
the appellate hierarchy. It cannot be too vehemently emphasised
that it is of utmost importance that, in disposing of the quasi-
judicial issues before them, revenue officers are bound by the
decisions of the appellate authorities; The order of the Appellate
Collector is binding on the Assistant Collectors working within his
jurisdiction and the order of the Tribunal is binding upon the
Assistant Collectors and the Appellate Collectors who function
under the jurisdiction of the Tribunal. The principles of judicial
discipline require that the orders of the higher appellate authorities
should be followed unreservedly by the subordinate authorities.
The mere fact that the order of the appellate authority is not
“acceptable” to the department – in itself an objectionable phrase –
and is the subject matter of an appeal can furnish no ground for
not following it unless its operation has been suspended by a
competent court. If this healthy rule is not followed, the result will
only be undue harassment to assessees and chaos in administration
of tax laws.
*****
12. We have dealt with this aspect at some length, because it has
been suggested by the learned Additional Solicitor General that
the observations made by the High Court, have been harsh on the
officers. It is clear that the observations of the High Court,
17
1992 taxmann.com 16 (SC)
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seemingly vehement, and apparently unpalatable to the Revenue,
are only intended to curb a tendency in revenue matters which, if
allowed to become widespread, could result in considerable
harassment to the assesses-public without any benefit to the
Revenue. We would like to say that the department should take
these observations in the proper spirit. The observations of the
High Court should be kept in mind in future and the utmost
regard should be paid by the adjudicating authorities and the
appellate authorities to the requirements of judicial discipline and
the need for giving effect to the orders of the higher appellate
authorities which are binding on them.”
26. In this view of the matter, we deprecate the action of respondent
no.1/ Assessing Officer. In light of the aforesaid discussion, we direct that
henceforth, all Assessing Officers who are bound by the decision of the
Jurisdictional High Court, unless the law would otherwise permit them,
shall not resort to any proceedings which are contrary to the decisions of
this Court and, as observed by the Supreme Court, following the principles
of judicial discipline, so as to add to the chaos already caused and as
observed by the Supreme Court at the cost of undue harassment being
caused to the assessees.
27. These observations as made by us shall be circulated to all the
Jurisdictional Assessing Officer by the concerned Principal Commissioner
of Income-tax. A copy of this order be also forwarded to CBDT insofar as
these observations are concerned.
28. In view of the above discussion, we are of the clear opinion that there
was no basis in law whatsoever for respondent no. 1 to initiate the
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impugned proceedings against the petitioner and which are in the teeth of
the principles of law as laid down by this Court and as confirmed by the
Supreme Court as also reaffirmed by the Supreme Court in the recent
decision in the case of Bank of Rajasthan (supra).
29. The petition accordingly succeeds. It is allowed in terms of prayer
clause (a). Rule is made absolute in such terms. No costs.
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