HDFC BANK LTD (SUCCESSOR TO BUSINSS OF CENTURION BANK OF PUNJAB LTD),MUMBAI vs. DCIT 2(3), MUMBAI

Briefly stated, the assessee, a resident company, is engaged in the business of banking. For the assessment year under dispute, assessee filed its return of income declaring total income of Rs.291,92,11,551/-. Subsequently, assessee filed a revised return of income on 12-08-2009 declaring total income of Rs.241,72,24,633/-. In course of assessment proceedings, the assessing officer, while verifying the return of income filed by the assessee noticed that the assessee had earned exempt income of Rs.5,81,22,000/- towards interest earned on tax free bonds and dividend on shares and mutual funds. Noticing the above, the assessing officer called upon the assessee to furnish the details of interest and other expenses incurred for earning the exempt income in terms of rule 8D. In response to the query raised by the assessing officer, assessee furnished its reply stating that since the investments generating tax free income were made during

Shri J.D. Mistri, the learned senior counsel appearing for the assessee submitted, in case of banks all securities and investments are held as stock in trade of the business. Drawing our attention to circular No.18/2015 dated 02-11- 2015, learned senior counsel submitted, after the decision of the Hon’ble Supreme Court in case of CIT vs Nawanshahar Central Co-operative Bank Ltd (2007) 160 Taxmann 48 (SC), even, the CBDT has issued the circular stating that in case of investment made by a banking concern, the income arising from such investment is attributable to the business of banking falling under the head “Profits and gains of business or profession”. Thus, he submitted, since the securities, shares and bonds are held as stock in trade, no disallowance under section 14A r.w.r. 8D can be made in respect of exempt income earned thereon. He submitted, the aforesaid legal principle has also been reiterated by the Hon’ble Supreme Court in case of Maxopp Investment Ltd vs CIT 402 ITR 640 (SC) and in case of South Indian Bank Ltd vs CIT Civil Appeal No.9606 of 2011 judgement dated 09-09-2021. Additionally, he also relied upon the following decisions:- 1. CIT vs Karnataka State Co-operative Apex Bank 251 ITR 194 (SC) 2. PCIT vs State Bank of Patiala 391 ITR 218 (P&H High Court) 3. CIT vs M/s India Advantage Securities Ltd (Bom HC) (ITA No1131 of 2013) 4.DCITvsM/s India Advantage Securities Ltd(TM)(Mum)(ITA 6711/M/20-11) 5.HDFC Bank Ltd vs DCIT (Bom HC) (383 ITR 529(para 18-10)

He submitted, even in assessee’s own case in assessment year 2011-12, the Tribunal has expressed identical view.

Without prejudice to the aforesaid submission, learned senior counsel submitted, no interest expenditure can be disallowed under rule 8D(2)(ii) as the assessee had sufficient interest free funds available with it. Drawing our attention to the balance-sheet of the assessee and a chart showing the availability of fund with the assessee, a copy of which is at page 233 of the paper book, he submitted, as on 31-03-2007, assessee had interest free funds available of Rs.3421.14 crores, whereas, tax free investments were to the tune of Rs.56 crores. He submitted, as on 31-03-2008, assessee had interest free funds of Rs.4,171.20 crores and tax free investments of Rs.52 crores. He submitted, if the shares received from Lord Krishna Bank on amalgamation amounting to Rs.44.34 crores which had no cost of investment is reduced, the actual investment made during the year by the assessee is only Rs.7.08 crores. Thus, he submitted, interest free fund available with the assessee is much more than the investment made during the year. 11. Proceeding further, he submitted, taking note of very same facts and figures qua assessee’s contention that interest free fund available is more than the investment made, the Hon’ble High Court, while deciding the writ application filed by the assessee against the order of the Tribunal, relied upon its own

Without prejudice, he submitted, the assessee has surplus interest income even after set off of the interest expenditure. Therefore, no interest expenditure can be disallowed under rule 8D(2)(ii). In support, he relied upon the following decisions:- 1. PCIT vs Nirma Credit & Capital (P) Ltd 85 taxmann.com 72 Tax Appeal No.409 & 514 of 2017 (Guj HC) (Para 5-14)

CIT vs Jubiliant Enterprises Pvt Ltd (ITA 1512/2014, order Dated 28/02/2017 (Bom HC)

On the contrary, he submitted, in case of Avon Cycles Ltd vs CIT (23015) 53 taxmann.com 297, the Hon’ble Punjab & Haryana High Court has held that interest expenditure relatable to investment in tax free funds has to be computed under rule 8D(2)(ii) in a case where the assessee has mixed funds. Therefore, the interest paid by the assessee is also an interest on the investment made. He submitted, while coming to such conclusion, the Hon’ble High Court, though, took note of the decision of the Hon’ble jurisdictional High Court in Reliance Utilities and Power Ltd (supra); however, they observed that unlike the case of Reliance Utilities and Power Ltd (supra), there is no clear finding of fact that the assessee had interest free fund of its own generated during the year. He submitted, the aforesaid decision of the Hon’ble Punjab & Haryana High Court was upheld by the Hon’ble Supreme Court in case of Maxopp Investment Limited vs CIT (supra). He submitted, in assessee’s case facts relating to availability of interest free fund are not established. Thus, he submitted, there cannot be any presumption that the investment made is out of interest free funds unless the assessee establishes the nexus. In support, he relied upon the following decisions:- 1. ACIT vs Citicorp Finance India Ltd (2007) 12 SOT 248 (Mum) 2. Maxopp Investment Limited vs CIT 402 ITR 640 (SC) 3. ITO vs Daga Capital Management (P) Ltd 312 ITR (AT) 1 (Bom) 4. Hatkesh Co-operative Housing Society Ltd vs ACIT ITXA 328 of 2014, ITXA 372 of 2014 and other appeals

Godrej and Boyce Mfg Co Ltd vs DCIT and Another (2010) 328 ITR 81 (Bom)

Indian Metal and Ferro Alloys Ltd vs CIT (1992) 193 ITR 344(Orissa)

We have given a thoughtful consideration to the rival submissions in the light of decisions relied upon and perused the materials on record. Undisputedly, the disallowance made by the assessing officer under section 14A comprised of disallowance of interest expenditure made under rule 8D(2)(ii) and administrative expenditure under rule 8D(2)(iii). As far as disallowance of interest expenditure under rule 8D(2)(ii) is concerned, the primary contention of learned senior counsel for the assessee is, since, as on the date of balance-sheet the interest free fund available with the assessee is much more than the investment made, no disallowance out of interest expenditure can be made. On a perusal of the balance-sheet of the assessee as on 31-03-2007 reveals that interest free fund available with the assessee are as under:- Share capital Rs. 15669 lakhs Reserves & Surplus Rs. 121490 lakhs Current Account deposits from banks and others Rs. 204955 lakhs Total Rs.342114 lakhs Similarly as on 31-03-2008, the interest free fund available is as under:- Share capital Rs. 19066 lakhs Reserves & Surplus Rs. 182691 lakhs Current Account deposits from banks and others Rs. 215363 lakhs Total Rs.417120 lakhs 24. As against the interest free funds available with the assessee, the investments stood at Rs.5600 lakh as on 31-03-2007 and Rs.5202 lakh as on 31- 03-2008. Further, if shares received from Lord Krishna Bank on amalgamation and earlier year’s investments are reduced, the net investment made during the year is to the tune of Rs.768 lakhs. Thus, the interest free fund available with the assessee is much more than the investment made. In fact, the net profit shown by the assessee as on 31-03-2008 amounting to Rs.117198 lakh, itself is much more than the investments made.

Thus, prima facie, the facts and materials on record establish that the interest free fund available with the assessee is much more than the investment made. In case of CIT vs Reliance Utilities and Power Ltd (supra), the jurisdictional High Court, while considering the issue of disallowance of interest expenditure made under section 36(1)(iii), has observed that if the assessee has a common pool of interest free and interest bearing funds and if the interest free funds are sufficient to meet the investment, it has to be presumed that investments are made out of interest free funds. Though, this legal proposition was laid down by the Hon’ble jurisdictional High Court in the context of disallowance made under section 36(1)(iii); however, the same principle was reiterated by the Hon’ble jurisdictional High Court in respect of disallowance made under section 14A in case of CIT vs HDFC Bank Ltd (supra). The aforesaid proposition was also upheld by the Hon’ble Supreme Court in case of CIT vs Reliance Industries Ltd (2019) 410 ITR 466 (SC).

Pertinently, as discussed earlier, against the order passed earlier by the Tribunal in the present appeal, the assessee had preferred a writ application before the Hon’ble Jurisdictional High Court. It is noteworthy, while deciding the writ petition, the Hon’ble High Court deliberated at length on the issue as to what constitutes a binding precedent and after considering identical factual position relating to availability of surplus fund as on the date of balance-sheet observed in the following manner:- “11. Keeping the aforesaid position of law in mind, we shall now examine the impugned order of the Tribunal. The issue before the Tribunal as raised by the petitioner was that Section 14A of the Act would have no application to disallow interest expenditure on fund borrowed in respect of the tax free returns on the securities, for the following two reasons:- (a) The petitioner was possessed of sufficient interest free funds of Rs.2153 crores as against the investment in tax free securities of Rs.52.02 crores. Consequently, there is a resumption that the investment which has been made in the tax free Securities as come out of the interest free funds available with the petitioner. This is so as it has been held by this Court in the petitioner’s own case for an earlier Assessment year being HDFC Bank Ltd. (supra). This decision on the above issue has been accepted by the Revenue. This is evidenced by the fact although an appeal has been filed to the Supreme Court with regard to another issue arising from the order in HDFC Bank Ltd. (supra) namely broken period interest, no appeal on this issue as raised before the Tribunal has been challenged before the Supreme Court; and (b) In an event, the tax free investment in securities were the petitioner’s stock-in-trade. Consequently, there would be no occasion to invoke Section 14A of the Act as held by this Court in India Advantage Securities Ltd. (supra) wherein the Revenue’s appeal from the order of the Tribunal was dismissed, to contend that no disallowance can be made under Section 14A of the Act in respect of exempted Income arising from stock-in-trade. 12. The impugned order of the Tribunal insofar as contention (a) above is concerned, chose to disregard the binding decision of this court in petitioner's own case being HDFC Bank Ltd.(supra). The impugned order of the Tribunal after recording that it is conscious that the decision of this Court are binding upon it proceeds on the basis that it had to decide which of the two decisions rendered in Godrej & Boyce Mfg. Co. Ltd. (supra) and HDFC Bank Ltd.(supra). is to be followed. Thereby implying and proceeding on the basis that there is a conflict between the two decisions rendered by this Court in Godrej & Boyce Mfg. Co. Ltd. (supra) and HDFC Bank Ltd. (supra). We are unable to understand on what basis the impugned order has proceeded on the basis that there is a conflict between the two decisions. This is so as with the assistance of the Counsel we closely examined the decision of this court in Godrej & Boyce Mfg. Co. Lid. (supra). On examination we find that the issue arising in this case before the Tribunal viz. where interest free funds are available with an Assessee which are more than the investments made in the tax free securities, then a presumption arises that the investments were made from its interest free funds, was not decided therein. In fact, no view even as an obiter dictum on the issue was expressed by this court in the above case. This issue along with other issues were restored by this Court in Godrej & Boyce Mfg. Co. Ltd. (supra) to the Assessing officer for passing an order afresh, after the Court upheld the Constitutionality of Section 14A of the Act.

One more fact which must be emphasized is that merely because a decision has been cited before the Court and a reference to that has been made in the order of the Court such as in the case of Godrej & Boyce Mfg. Co Ltd. (supra) reference was made to CIT v. Reliance Utilities & Power Ltd. (2009]_313 ITR 340/178 Taxman 135 Bom.) by itself would not lead to the conclusion that Reliance Utilities and Power Ltd. (supra) has been considered and the opinion on the same has been rendered in the case of Godrej and Boyce Manufacturing Co. Ltd. (supra). The test to decide whether or not two decisions are in conflict with each other is to first determine the ratio of both the cases and if the ratio in both the cases are in conflict with each other, then alone, can it be said that the two decisions are in conflict. We find that no such exercise has been done. If it was done, the Tribunal would have noted that this Court in Godrej & Boyce Mfg. Co. Ltd. (supra) has not decided the issue of applicability of Reliance Utilities & Power Ltd. (supra) inasmuch as it has restored the entire issue to the Assessing Officer after upholding the constitutional validity of Section 14A of the Act.

The only basis for proceeding on the basis that there is a conflict between the two decisions of this court which emerges from the impugned order is that in petitioner's own case in HDFC Bank Lid. (supra), reliance was placed upon the decision of this Court in Reliance Utilities & Power Lid. (supra) to conclude that where both interest free funds and interest bearing funds are available and the interest free funds are more than the investments made, the presumption is that the investment in the tax free securities would have been made out of the interest free funds available with the assessee. Though, the decision of this Court in Reliance Utilities & Power Lid. (supra) was rendered in the context of Section 36(1)(iii) of the Act, it was consciously applied by this Court while interpreting Section 14A of the Act in HDFC Bank Ltd. (supra), The impugned order of the Tribunal proceeds on the basis that Godrej & Boyce Manufacturing Co. Lid. (supra) had considered the decision of this Court in Reliance Utilities and Power Lid. (supra), which is factually not so, The decision of this Court in Godrej & Boyce Manufacturing Co, Lid. (supra) only makes a reference to the decision of this Court in Reliance Utilities & Power Ltd. (supra) and gives no findings on the issue which arose in that case and its applicability while interpreting Section 14A of the Act. This Court in Godrej & Boyce Mfg. Co. Ltd. (supra) has in fact restored all the issues to the Assessing Officer for fresh consideration. This Court in Godrej and Boyce Manufacturing Co. Ltd. (supra) did not decide whether or not the principles laid down in Reliance Utilities & Power Ltd. (supra) can be invoked while applying Section 14A of the Act. Thus by no stretch of reasoning can it be countenanced that there is conflict in the decisions of this Court in'Godrej & Boyce Manufacturing Co. Ltd. (supra) and HDFC Bank Ltd.(supra). The decision in Godrej & Boyce Manufacturing Co. Ltd. (supra) is not a precedent for the issue arising before the Tribunal and could not be relied upon in the impugned or of the Tribunal to disregard the binding decision in HDFC Bank Ltd. (supra).

It is clear that for the first time in the case of HDFC Bank Ltd. (supra). that this Court took a view that the Presumption which has been laid down in Reliance Utilities & Power Ltd. (supra) with regard to investment in lax free securities coming out of assessee's own funds in case the same are in excess of the investments made in the securities (notwithstanding the fact that the assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court In Reliance Utilities and Power Ltd. (supra) while considering Section 36(1)(iii) of the Act would apply while Considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (Supra) on the above issue has also been accepted by the Revenue inasmuch as even though they have filed an appeal to the Supreme Court against that order on the other issue therein viz. broken period interest, no appeal as been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities & Power Ltd. (supra) in its application to Section 14A of the Act. Therefore, the issue which arose for consideration before the Tribunal had not been decided by this Court in Godrej & Boyce Mfg. Co. Ltd. (supra). It arose and was so decided for the first time by this Court in HDFC Bank Ltd. (supra). Thus, there is no conflict as Sought to be made out by the impugned order. Thus, the impugned order has proceeded on a fundamentally erroneous basis as the ratio decindi of the order in Godrej & Boyce Mfg. Co. Ltd. (supra) had nothing to do with the test of presumption canvassed by the petitioner before the Tribunal on the basis of the ratio of the decision of this Court in HDFC Bank Ltd. (supra).

At the hearing before us the Petitioner drew our attention to various orders of the Tribunal where a consistent view has been taken by the coordinate benches of the Tribunal in applying the presumption laid down by this Court in Reliance Utilities & Power Ltd. (supra) as well as the decision of this Court in HDFC Bank Ltd. (supra) while deciding on application of Section 14A of the Act to disallow interest claimed as expenditure. Besides reliance is also placed upon a decision of this Court in the case of the petitioner itself before this Court in Income Tax Appeal No.860 of 2012 rendered on 24th September, 2014 wherein question (b) as formulated by the Revenue raised the same issue namely applicability of the Godrej & Boyce Mfg. Co. Ltd. (supra) while interpreting Section 14A of the Act in the context of the test of presumption as arising in the appeal before the Tribunal. For the purposes of this order, we are not taking into account the above decisions as they were not cited at the hearing before the Tribunal. Thus we are only examining whether the action of the Tribunal is within the bounds of its authority on the basis of the materials placed before it leading to the impugned order and we unfortunately find it is not so. This is for the reason that it failed to follow the binding precedent in HDFC Bank Ltd. (supra).

We are unable to comprehend how and why the impugned order of the Tribunal is of the view that if an appeal is not admitted from an order of the Tribunal, then it is open to the Tribunal in another case to decide directly contrary to the view taken by the earlier order of the Tribunal; which is not entertained by this court in appeal. This without even as much as a whisper of any explanation with regards to how and why the facts of the two cases are different warranting a view different from that taken by the Tribunal earlier. In fact when an appeal is not entertained then the order of the Tribunal holds the field and the coordinate benches of the Tribunal are obliged to follow the same unless there is some difference in the facts or law applicable and the difference in fact and / or law should be reflected in its order taking a different view. Moreover the impugned order of the Tribunal places reliance upon the decision of this Court in Godrej & Boyce Mfg. Co. Ltd. (supra) to deny the claim. On this issue no decision was rendered by this court in Godrej & Boyce Mfg. Co. Ltd.(supra) and therefore how could it be relied upon to deny the claim of the petitioner is beyond comprehension. This again shows that the Tribunal has acted beyond the limits of its authority.

Mr. Suresh Kumar on behalf of the Revenue states that this ground was raised for the first time before the Tribunal and not urged before the lower authorities and therefore no fault can be found with the order of the Tri: nal. Once Tribunal has considered the issue on merits and dealt with it in detail, it is not open to the venue to urge an objection when the Tribunal has itself decided the issue on merits.

The impugned order of the Tribunal seems to question the decision of this Court in HDFC Bank Ltd. (supra) to the extent it relied upon the decision of this Court in Reliance Utilities and Power Ltd. (supra). This is by observing that the decision in Reliance Utilities and Power Ltd.(supra) it must be appreciated was rendered in the context of Section 36(1) (iii) of the Act and its parameters are different from that of Section 14A of the Act. This Court in its order in HDFC Bank Ltd. (supra) consciously applied the principle of presumption as laid down in Reliance Utilities and Power Ltd. (supra) and in fact quoted the relevant paragraph to emphasize that the same principle / test of presumption would apply to decide whether or not interest expenditure could be disallowed under Section 14A of the Act in respect of the income arising out of tax free securities, It is not the office of Tribunal to disregard a binding decision of this court. This is particularly so when the decision in Reliance Utilities and Power Ltd. (supra) , has been consciously applied by this Court while rendering a decision in the context of Section 14A of the Act.

We also note that the impugned order of the Tribunal has an observation therein that there is no such thing as estoppel in law and by virtue of that gives itself a licence to decide the issue before it ignoring the binding precedent in the petitioner's own case in HDFC Bank Ltd (supra). Once there is a binding decision of this Court, the same continues to be binding on all authorities within the State till such time as it stayed and / or set aside by the Apex Court or this very Court takes a different view on an identical factual matrix or larger bench of this Court takes a view different from the one already taken. 23. We are conscious of the fact that we are fallible and, therefore, an order passed by us may not meet the approval of all and some may justifiably consider our order to be incorrect. However the same has to be corrected/rectified in a manner known to law and not by disregarding binding decisions of this Court. In fact our court in Panjumal Hassomal Advani Vs.Harpal Singh Abnashi Singh Sawhney & Ors. AIR 2975(Bom)120 has observed that a coordinate bench cannot refuse to follow an earlier decision on the ground that it is incorrect and / or rendered on misinterpretation. This for the reason that the decision of a co-ordinate bench would continue to be binding til] it is corrected by a higher Court, This principle laid down in respect of a co-ordinate Court would apply with greater force on subordinate Courts and Tribunals. We are also conscious of the fact that we are not final and our orders are subject to appeals to the Supreme Court. However, for the purposes of certainty, fairness and uniformity of law, all authorities within the State are bound to follow the orders passed by us in all like matters, which by itself implies that if there are some distinguishing features in the matter before the Tribunal and, therefore, unlike, then the Tribunal is free to decide on the basis of the facts put before it. However till such time as the decision of this court stands iris not open to the Tribunal or any other Authority in the State of Maharashtra to disregard it while considering a like issue. In case we are wrong, the aggrieved party can certainly take it up to the Supreme Court and have it set aside and / or corrected or where the same issue arises in a subsequent case the issue may be re-urged before the Court to impress upon it that the decision rendered earlier, requires reconsideration. It is not open to the Tribunal to sit in appeal from the orders of this Court and not follow it. In case the doctrine of precedent is not strictly followed there would complete confusion and uncertainty. The victim of such arbitrary action would be the Rule of law of which we as the Indian State are so justifiably proud.

It is in the above circumstances that we are of the view that we have to exercise our powers under Article 227 of the Constitution of India. This is in view of the manner in which the impugned order of the Tribunal has chosen to disregard and/or circumvent the binding decision of this Court in respect of the same assessee for an earlier assessment year. This is a clear case of judicial indiscipline and creating confusion in respect of issues which stand settled by the decision of this Court.”

Thus, from the aforesaid observations, it is very much clear that the Hon’ble jurisdictional High Court has again expressed the view that in case of common pool of funds available with the assessee, the presumption of investments having been made out of interest free funds would apply. Though, learned counsel for the revenue made an attempt to impress upon us that in view of the decision of the Hon’ble Supreme Court in case of Maxopp Investment Ltd (supra), apportionment of expenditure has to be made; however, we are not convinced. In our view, the issue has now been set at rest by the decision of the Hon’ble Supreme Court in case of South Indian Bank vs CIT (supra), wherein, after taking note of its own decision in case of Maxopp Investment Ltd (supra), the Hon’ble Court has held as under:- “17. In a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest-bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. For accepting such a proposition, it would be helpful to refer to the decision of the Bombay High Court in Pr. CIT v. Bombay Dyeing and Mfg. Co. Ltd where the answer on the question, whether the Tribunal was justified in deleting the disallowance under Section 80M of the Act on the presumption that when the funds available to the assessee were both interest free and loans, the investments made would be out of the interest free funds available with the assessee, provided the interest free funds were sufficient to meet the investments. The resultant SLP of the Revenue challenging the Bombay High Court judgment was dismissed both on merit and on delay by this Court. The merit of the above proposition of law of the Bombay High Court would now be appreciated in the following discussion. (Emphasis by us)

In the above context, it would be apposite to refer to a similar decision in Commissioner of Income Tax (Large Tax Payer Unit) Vs. Reliance Industries Ltd3 where a Division Bench of this Court expressly held that where there is finding of fact that interest free funds available to asses see were sufficient to meet its investment it will be presumed that investments were made from such interest free funds.

Thus, the aforesaid observations of the Hon’ble Supreme Court would make it clear that while approving the theory of presumption that in case of common pool of funds, it will be presumed that interest free funds have been utilized for making the investments, the Hon’ble Court went a step further and opined that in respect of payments made out of mixed funds, it is the assessee, who has the right of appropriation and also the right to assert from which part of the funds a particular investment is made and it may not be permissible for the revenue to make an estimation of a proportionate figure. While doing so, the Hon’ble Supreme Court has approved the view expressed by the Hon’ble Jurisdictional High Court in case of HDFC Bank Ltd vs DCIT (supra). Thus, the law declared by the Hon’ble Supreme Court, as aforesaid, being the law of the land as per Article 141 of the Constitution of India, would be binding on all subordinate courts / tribunals / authorities, etc. Therefore, if we apply the ratio laid down by the Hon’ble Supreme Court to the facts of the present case, it can be seen that though the assessee has common pool of funds; however, interest free fund available with the assessee is far in excess of the investments made. Therefore, the presumption that investments have been made out of interest free funds would automatically get triggered.

At this stage, it would be necessary to deal with the submissions made by the learned counsel for the revenue that availability of interest free fund has to be seen with reference to date of investment and not the balance-sheet date. In this regard, we must observe, if the contention of the learned counsel for the revenue is accepted, applying the theory of presumption of surplus fund being used for the purpose of investments would not at all arise. If availability of interest free fund as on the date of investment is to be seen, then a direct nexus is established between the fund available and the investment made. The applicability of presumption would only arise in a case where the assessee has sufficient interest free funds available with it, being part of a common pool of funds, which is more than the investments made. Therefore, the position of interest free funds available with the assessee has to be seen as on the date of balance-sheet. Acceptance of revenue’s contention that availability of interest free funds has to be seen as on the date of investment, in our view, would lead to absurdity. This is so, because, on each date of investment a balance-sheet has to be drawn up which is neither possible nor practicable. Therefore, the fund position of the assessee has to be seen as on the date of balance-sheet which is drawn up at the end of the financial year. This view of ours gets further strengthened by the decision of the Hon’ble jurisdictional High Court in case of CIT vs Reliance Utilities and Power Ltd (supra), wherein, the Hon’ble High Court has observed that availability of interest free fund has to be seen as on the date of balance-sheet.

Thus, if we apply the ratio laid down in the decisions discussed herein before to the facts of the present case, the inescapable conclusion would be, as per the balance-sheet the assessee had sufficient interest free fund available with it to take care of the investment. That being the factual position, presumption would be, the investments have been made out of the interest free funds available with the assessee. Hence, no disallowance under rule 8D(2)(ii) can be made.

As regards the contention of learned counsel for the revenue that the Tribunal in the order passed in M.A.Nos. 18 to 20/Mum/2015 has held that availability of interest free fund has to be seen with reference to the date of investment, we are of the view that we cannot take cognizance of the said order of the Tribunal nor the order passed by the assessing officer while giving effect to the said order passed in miscellaneous application, as, the issue is sub–judice before the Hon’ble High Court and as a matter of fact, the order giving effect to passed by the assessing officer has been stayed.

One more contention raised by the learned counsel for the revenue is, all the decisions cited by the learned counsel for the assessee including the decision of the Hon’ble Supreme Court in case of South Indian Bank Ltd vs CIT (supra) were in respect of assessment years prior to assessment year 2008-09 wherein Rule 8D was introduced. We are of the view that even if the decisions are prior to introduction of Rule 8D; however, it will not make any difference as the legal principle laid down in the decisions discussed herein before would apply even to assessment years subsequent to introduction of Rule 8D. In fact, in case of PCIT vs Ashok Apparels P Ltd (supra), even in respect of assessment years 2008-09 and 2009-10, which are post introduction of Rule 8D, the Hon’ble jurisdictional High Court has reiterated the theory of presumption regarding availability of interest free funds being utilized for the purpose of investment. In fact, in assessee’s own case in assessment year 2011-12 in dated 08-07-2020 and for assessment year 2012-13 in ITA No.5672/Mum/2017 dated 16-07-2021, the Tribunal has expressed identical view that if on the date of balance-sheet the assessee had sufficient interest free funds available with it, the presumption would be, the investments were made out of such interest free funds. The aforesaid decisions of the Hon’ble superior Courts as well as the co-ordinate benches are binding precedents qua the issue arising for consideration before us. That being the case, adhering to the norms of judicial discipline and decorum, we are bound to follow them.

In view of the aforesaid, having found that the assessee had sufficient interest free funds available to take care of the investment made, we hold that no disallowance of interest expenditure under rule 8D(2)(ii) can be made. Accordingly, we delete the disallowance made under rule 8D(2)(ii).

As regards the contention of the learned counsel for the revenue that the assessee has misrepresented facts before the jurisdictional High Court while challenging the earlier order of the Tribunal in the present appeal by way of writ application, in our view, it is neither necessary nor relevant for deciding the present appeal. In any case of the matter, if there was any misrepresentation of facts by the assessee before the Hon’ble High Court, it was for the revenue to bring it to the notice of the Hon’ble High Court. Therefore, we cannot consider an issue which is not in our domain.

As far as disallowance under rule 8D(2)(iii) is concerned, the limited submission of learned senior counsel for the assessee is, such disallowance should be computed only with reference to the investments yielding exempt income during the year. In view of the ratio laid down by the Special Bench of this Tribunal in case of ACIT vs Vireet Investments Pvt Ltd (2017) 82 taxmann.415 (Del)(SB), we accept the aforesaid contention. Accordingly, we direct the 8D(2)(iii) considering only those investments which have yielded exempt income during the year.

Before we proceed further, it is necessary to observe, the learned counsel for the assessee had made a submission before us that in case of a bank, since securities and investments are made in course of its business, they have to be regarded as stock in trade. Therefore, the provisions of section 14A will not be applicable. Countering the aforesaid submission of learned counsel for the assessee the learned standing counsel for the revenue has submitted that neither before the assessing officer nor before the appellate authorities, the assessee has furnished necessary evidence to show that the investments claimed to be stock in trade are non SLR. In this context, he drew our attention to certain observations of the Hon’ble Supreme Court in case of South Indian Bank Ltd vs CIT (supra).

Having considered rival submissions, we are of the view that the issue whether the investments held by the assessee are in the nature of stock in trade or investment has become academic in the facts of the present case, since, we have deleted the disallowance made under rule 8D(2)(ii) and has directed the assessing officer to compute the disallowance under rule 8D(2)(iii) by considering only those investments which yielded exempt income during the year. Suffice to say, as per the ratio laid down by the Hon’ble Supreme Court in case of Maxopp Investment Ltd (supra) and South Indian Bank Ltd vs CIT (supra), the non SLR investments have to be treated as stock in trade. Hence, provisions of section 14A would not apply.

In ground 2 assessee has challenged the disallowance of expenses incurred towards employee stock option plan (ESOP).

Briefly the facts are, in course of assessment proceedings, the assessing officer noticed that the assessee has amortised ESOP expenses. Referring to the decision of the Tribunal in case of Ranbaxy Laboratories Ltd and some other decisions, the assessing officer held that since ESOP results in issuance of share, which, in effect, results in increase in the share capital base of the company; it being a capital expenditure is not allowable. Accordingly, he disallowed the deduction claimed. Learned Commissioner (Appeals) also confirmed the disallowance.

Before us, learned counsel for the assessee submitted, amount of Rs.8.21 crore claimed as deduction is restricted to the difference between the market price of the option as on the date of grant and option price, i.e. the price on the date of exercising of option, amortized over the period of grant. In this context, he drew our attention to the note to the financial statements. He submitted, the assessee has not claimed any further deduction on account of difference between the market price of the option and the option price as on the actual date of exercise, though, it is entitled to claim such deduction in view of the decision of the Special Bench of this Tribunal in case of Biocon Ltd vs DCIT 144 ITD 21. 41. Learned standing counsel for the revenue has relied upon the observations of the departmental authorities. 42. Having considered rival submissions, we are of the view that assessee’s claim of deduction of ESOP expenses by way of amortization over the period of grant has to be allowed keeping in view the decision of the ITAT, Special Bench in case of Biocon Ltd vs DCIT (supra), wherein, it has been held that ESOP expenses are allowable as revenue expenditure under section 37(1) of the Act. Even, the Hon’ble Delhi High Court in case of PCIT vs New Delhi Television Ltd 398 ITR 657 (Del) has expressed identical view. In view of the aforesaid, we direct the assessing officer to allow assessee’s claim of deduction. This ground is allowed. 43. In the result, appeal is partly allowed.