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Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: Shri Joginder Singh, & Shri N.K. Pradhan
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The assessee as well as the Revenue is in cross appeals for the Assessment Years 2012-13 and 2013-14, against the impugned orders all dated 24/11/2016 of the Ld. First Appellate Authority, Mumbai. First, we shall take up the appeal of the assessee for Assessment Year 2012-13, wherein, first ground raised pertains to disallowing of Rs.16,47,500/- under section 14A of the Income Tax Act, 1961 (hereinafter the Act) read with Rule-8D (iii) of the Income Tax Rules, (hereinafter the Rules).
During hearing, Shri Hero Rai, Ld. counsel for the assessee, contended that the issue in hand is covered in favour of the assessee by the order of the Tribunal for Assessment Year 2009-10 and 2010-11, for which our
3 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 attention was invited to page-28 to page 30 of the paper book.
The ld. counsel claimed that own funds are more than the investment made by the assessee, for which reliance was placed upon the decision from Hon'ble jurisdictional High Court in the case of Reliance Utilities and Power Ltd. (313 ITR 340)(Bom.), CIT vs HDFC Bank Ltd (2014) 366 ITR 505 (Bom.) and HDFC Bank Ltd.(2016) 383 ITR 529(Bom.). On the other hand, the Ld. DR, Ms. Arju Garodia, defended the addition made by the Ld. Assessing Officer. It was submitted that the factual matrix needs to be examined at the level of the Ld. Assessing Officer.
2.1. We have considered the rival submissions and perused the material available on record. In view of the above submissions, we are reproducing hereunder the relevant portion of the order from Hon'ble jurisdictional High Court in the case of Reliance Utilities and Power Ltd. (313 ITR 340)(Bom.) for ready reference and analysis:-
“The assessee claimed deduction of interest on borrowed capital. The Assessing Officer recorded a finding that the sum of Rs. 213 crores was invested out of its own funds and Rs. 147 crores was invested out of borrowed funds. Accordingly he disallowed interest amounting to Rs. 4.40 crores calculated at 12 per cent. per annum for three months from January, 2000 to March, 2000. The Commissioner (Appeals) found that the 4 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 assessee had enough interest-free funds at its disposal for investment and accordingly deleted the addition of Rs. 4.40 cores made by the Assessing Officer and directed him to allow the deduction under section 36(1)(iii) . The order of the Commissioner (Appeals) was upheld by the Tribunal. On appeal to the High Court : Held, dismissing the appeal, that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact both by the Commissioner (Appeals) and the Tribunal. The interest was deductible. 2.2. We note that the Hon'ble High Court, while coming to the aforesaid conclusion, relied upon the decisions in the case of EAST INDIA PHARMACEUTICAL WORKS LTD. v. CIT [1997] 224 ITR 627 (SC) and WOOLCOMBERS OF INDIA LTD. v. CIT [1982] 134 ITR 219 (Cal) and also considered the cases in S. A. Builders Ltd. v.
CIT (Appeals) [2007] 288 ITR 1 (SC) (para 3) and Woolcombers of India Ltd. v. CIT [1982] 134 ITR 219 (Cal).
2.3. Likewise, in the case of CIT vs HDFC Bank Ltd. (2014) 366 ITR 505(Bom.), the Hon'ble High Court held as under:-
Held, dismissing the appeal, (i) that the finding of fact given by the Tribunal was that the assessee's own funds and other non-interest bearing funds were more than the investment in the tax-free securities. This factual position was not one that was disputed. Undisputedly, the assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax- free securities. In view of this factual position, it would have to be presumed that the investment made by the assessee would be out of the interest-free funds available with the assessee.
5 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 2.4. While coming to the aforesaid conclusion, the Hon'ble High Court considered the decision in the case of CIT v. RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (Bom) ,AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION v. CIT [2002] 258 ITR 601 (Bom) and CIT v.
LORD KRISHNA BANK LTD. [2014] 366 ITR 416 (Bom). The Hon'ble Court also considered the cases of CIT v. Bank of Rajasthan Ltd. [2009] 316 ITR 391 (Raj) (para 2)CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) (para 4) CIT v. Lord Krishna Bank Ltd. [2014] 366 ITR 416 (Bom) (para 7)
East India Pharmaceutical Works Ltd. v. CIT [1997] 224 ITR 627 (SC) (para 4)Southern Technologies Ltd. v. Joint CIT [2010] 320 ITR 577 (SC) (para 2)Vijaya Bank Ltd. v. Addl. CIT [1991] 187 ITR 541 (SC) (para 2)Woolcombers of India Ltd. v.
CIT [1982] 134 ITR 219 (Cal) (para 4).
2.5. Thereafter the Hon'ble High Court in the case of HDFC Bank Ltd. vs DCIT )2016) 383 ITR 529 (Bom.) held as under:-
“This petition under articles 226 and 227 of the Constitution of India challenges the order dated September 23, 2015 passed by the Income- tax Appellate Tribunal (Tribunal) under section 254(1) of the Income-tax Act, 1961 (the Act). By the impugned order dated September 23, 2015
6 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 (HDFC Bank Ltd. v. Deputy CIT [2016] 45 ITR (Trib) 529 (Mumbai)), the Tribunal dismissed the petitioner's appeal relating to the assessment year 2008-09 on the issue of applicability of section 14A of the Act to disallow a portion of the interest paid on borrowed funds in respect of investments made in tax-free securities. This when it has own funds in excess of investments made in the securities and further these securities are held as stock-in- trade. This dismissal of the appeal, submit the petitioner, in spite of the issue being concluded on both the grounds in its favour by the binding decisions of this court.
However, Mr. Suresh Kumar the learned counsel for the Revenue urged that as there is an alternative remedy of an statutory appeal available under section 260A of the Act from the impugned order of the Tribunal this court should not exercise its extraordinary jurisdiction under article 226 of the Constitution of India. It is submitted that the issue raised in this petition could be examined in appeal. It is true that an order passed under section 254(1) of the Act by the Tribunal, such as the impugned order is amenable to an appeal to this court under section 260A of the Act. Normally we would have directed the petitioner to adopt its statutory alternative remedy. However, the grievance of the petitioner here is not so much to the merits or demerits of the impugned order, but the refusal of the Tribunal to follow the binding decision of this court in the case of the petitioner itself being CIT v. HDFC Bank Ltd. [2014] 366 ITR 505 (Bom) for an earlier assessment year 2001-02 on identical issue of applicability of section 14A of the Act to partially disallow interest expenditure when interest-free funds available with the petitioner are in excess of investments made in tax-free securities. Thus, the endeavour of the petitioner is to bring to our notice that in passing the impugned order dated September 23, 2015, the Tribunal has exceeded the bounds of its authority, by disregarding the binding decisions of this court, which if not corrected, may sound the death knell of two established practices of our judicial system, viz., doctrine of precedent, i.e., treating like cases alike and the hierarchical structure of our judicial system or jurisprudence where each lower forum or tier is bound by the orders of the higher tier on like issues till such time as it is set aside by a further higher forum. It is in the aforesaid circumstances, that we are compelled to examine the grievance of the petitioner in the context of our supervisory jurisdiction under article 227 of the Constitution of India.
Factual Matrix :
(a) For the assessment year 2008-09, the petitioner filed its return of income declaring an income of Rs. 241.72 crores. The petitioner had in its return of income also declared an income of Rs. 5.81crores from the invest ments in securities which were exempt from tax. These investments were treated by the petitioner as stock-in-trade. The petitioner had during the subject assessment year paid interest on borrowed funds and had claimed the same as an expenditure. However the petitioner did not disallow any expenditure on the income earned on the tax-free securities on the ground that the investments in tax-free securities was made out of its own tax-free funds as is evidenced by the fact that it had ample funds of its own to make investments. Thus no disallowance was made on the expenditure claimed as the interest paid on borrowed funds.
7 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 (b) By an order dated December 22, 2010, passed under section 143(3) of the Act, the Assessing Officer assessed the petitioner's income at Rs. 1067.93 crores. This after disregarding the petitioner's contention that section 14A of the Act would not apply in respect of its tax-free securities as it had ample interest-free funds available and the same was utilised from a common pool consisting of interest bearing funds and interest-free funds to purchase the tax-free securities. This only on the ground that the petitioner was not able to indicate or lead evidence that the investments made in tax-free securities came out of its interest-free funds. In the cir cumstances the Assessing Officer invoked section 14A of the Act read with rule 8D of the Income-tax Rules, 1962 (Rules) to disallow an amount of Rs. 3.39 crores on account of interest and Rs. 0.27 crores as other expenses aggregating to Rs. 3.66 crores under section 14A of the Act as being an expenditure incurred for earning tax exempt income of Rs. 5.81 crores.
(c) Being aggrieved with the order dated December 22, 2010 of the Assessing Officer, the petitioner preferred an appeal to the Commissioner of Income-tax (Appeals) (CIT(A)). By an order dated November 21, 2011, the Commissioner of Income-tax (Appeals) dismissed the petitioner's appeal upholding the order of the Assessing Officer.
(d) Being aggrieved, the petitioner inter alia carried the issue of dis allowance of interest to the extent of Rs. 3.39 crores under section 14A read with rule 8D of the Rules in appeal to the Tribunal. Before the Tribunal, the petitioner raised two grounds with regard to the above issue as under :
(i) It possessed interest-free funds which were more than the tax- free investments. Thus no disallowance of expenditure on account of inter est paid could be made in view of the binding decision of this court in the petitioner's own case in HDFC Bank Ltd. (supra) ; and (ii) The tax-free securities were held by it as its stock-in-trade. Thus no disallowance of any expenditure under section 14A of the Act could be made in view of the binding decision of this court in CIT v. India Advan tage Securities Ltd. I. T. A. 1131 of 2013 decided on April 13, 2015— [2016] 380 ITR 471 (Bom).
However, the Tribunal by the impugned order did not accept the peti tioner's submission on both the grounds. It disregarded the binding deci sion of this court by holding that an earlier decision of this court in Godrej and Boyce Manufacturing Co. Ltd. v. Deputy CIT [2010] 328 ITR 81 (Bom), which was not brought to the notice of this court in HDFC Bank Ltd. (supra) would hold the field. Further on the second issue of stock-in- trade the impugned order after holding that it was raised for the first time before the Tribunal, yet on the merits holds that the decision of this court in India Advantage Securities Ltd.'s case (supra) cannot apply. This for the reason that this court in India Advantage Securities Ltd.'s case (supra) dismissed the Revenue's appeal at the stage of admission on the ground that no question of law arises for consideration from the order of the Tribunal.
8 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 Submissions :
5. Mr. Mistry, learned senior counsel in support of the petition submits as under :
(a) The issue which arose for consideration before the Tribunal with regard to the applicability of section 14A of the Act in respect of the tax- free income earned on investments in case of a party possessed of interest- free funds in excess of the investments made in tax-free securities stood concluded in favour of the petitioner by the binding decision of this court as rendered in the petitioner's own case, viz., HDFC Bank Ltd. (supra) on identical facts. Nevertheless the binding decision is disregarded by seeking to hold that the issue is covered by an earlier decision of this court in Godrej and Boyce Mfg. Co. Ltd. (supra), when in fact it has not decided the issue ;
(b) There is no conflict between the decisions of this court in Godrej and Boyce Mfg. Co. Ltd. (supra) and HDFC Bank Ltd. (supra). This is for the reason that this court has in Godrej and Boyce Mfg. Co. Ltd. (supra) has not ruled on the issue of disallowance of interest under section 14A of the Act on the ground of presumption where sufficient interest-free funds are available to make investment in tax-free instruments. This issue was only decided later by this court for the first time in the petitioner's own case in HDFC Bank Ltd. (supra).
(c) In view of the fact that there is only one decision viz. HDFC Bank Ltd. (supra) of this court reigning, it was not open to the Tribunal to dis regard a decision of this court by merely holding the decision in HDFC Bank Ltd. (supra) was per incuriam. This on the ground that in HDFC Bank Ltd. (supra) attention was not invited to the decision of this court in Godrej and Boyce Mfg. Co. Ltd. (supra). This is more particularly so when Godrej and Boyce Manufacturing Co. Ltd. (supra) has no application to the present facts ;
(d) In fact the Tribunal has been consistently following the ratio of the decision of this court in HDFC Bank Ltd.'s case (supra) in other cases before it, but HDFC Bank itself, i.e., the petitioner does not get its benefit.
(e) Similarly, the alternative submissions urged before the Tribunal that these investments in securities are its stock-in-trade and consequently section 14A of the Act is not applicable is also concluded in favour of the petitioner as held by this court in India Advantages Securities Ltd. (supra). However the impugned order ignores the same on the ground that this court in the above case only dismissed the Revenue's appeal before it and therefore not binding. Further the impugned order also places reliance upon the decision of this court in Godrej and Boyce Mfg. Co. Ltd. (supra) even when it has no application to the facts before it.
6. Per contra Mr. Suresh Kumar, learned counsel for the Revenue in support of the impugned order submits as under :
(a) This petition should not be entertained as there is an alternative remedy available to the petitioner under section 260A of the Act by way of an appeal to this court from the impugned order of the Tribunal.
9 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 (b) The appeal filed by the petitioner before the Tribunal arose from orders of the Assessing Officer and the Commissioner of Income-tax (Appeals) holding that the petitioner was unable to establish that its inter est-free funds were utilised for the purposes of investment in securities. Consequently, it is submitted that the decision of this court in HDFC Bank Ltd. (supra) would not have any application to the facts of the present case.
(c) In the facts of the present case the decision of this court in Godrej and Boyce Mfg. Co. Ltd. (supra) was applicable and not the decision ren dered by this court in HDFC Bank Ltd. (supra). In support reliance is placed upon the impugned order of the Tribunal.
(d) The alternative contention that the investment in securities are the petitioner's in stock-in-trade, was raised for the first time only before the Tribunal and thus could not be entertained. In any case the decision of this court in India Advantage Securities Ltd. (supra) would have no application as the Revenue's appeal was dismissed by this court at the stage of admis sion.
It is, therefore, submitted that the impugned order passed by the Tri bunal calls for no interference by this court in its extraordinary jurisdiction under articles 226 and 227 of the Constitution of India.
Consideration :
In our system of jurisprudence the theory of precedents and the hierarchical structure are an inherent part of our dispute resolution or justice obtaining apparatus, i.e., courts/Tribunals. The theory of precedent ensures that what has been done earlier would be done subsequently on identical facts. To wit, like cases are to be treated alike. Thus, the doctrine of precedent ensures certainty of law, uniformity of law and fairness meeting some of the essential ingredients of rule of law. In fact, the Supreme Court in Union of India v. Raghubir Singh [1989] 178 ITR 548 (SC) ; [1989] 2 SCC 754 while setting out the objectives of the doctrine of precedence observes at paras 7, 8 and 9 thereof as under (page 555) :
"India is governed by a judicial system identified by a hierarchy of courts, where the doctrine of binding precedent is a cardinal feature of its jurisprudence . . .
Taking note of the hierarchical character of the judicial system in India, it is of paramount importance that the law declared by this court should be certain, clear and consistent. It is commonly known that most decisions of the courts are of significance not merely because they constitute an adjudication on the rights of the parties and resolve the dispute between them, but also because in doing so they embody a declaration of law operating as a binding principle in future cases. In this latter aspect lies their particular value in developing the juris prudence of the law.
The doctrine of binding precedent has the merit of promoting a cer tainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transactions forming part of his daily affairs. And,
10 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 therefore, the need for a clear and consistent enunciation of legal principle in the decisions of a court." (emphasis supplied)
Further the apex court in the case of Asst. Collector of Central Excise v. Dunlop India Ltd. [1985] 154 ITR 172 (SC) has observed as under (page 180) :
"We desire to add and as was said in Cassell and Co. Ltd. v. Broome [1972] AC 1027 (HL), we hope it will never be necessary for us to say so again that 'in the hierarchical system of courts' which exists in our country, 'it is necessary for each lower tier', including the High Court, 'to accept loyally the decisions of higher tiers'. It is inevi table in a hierarchical system of courts that there are decisions of the supreme Appellate Tribunal which do not attract the unanimous approval of all members of the judiciary . . . But the judicial system only works if someone is allowed to have the last word and that last word, once spoken, is loyally accepted' (See observations of Lord Hail sham and Lord Diplock in Broome v. Cassell). The better wisdom of the court below must yield to the higher wisdom of the court above. That is the strength of the hierarchical judicial system. In Cassell and Co. Ltd. v. Broome [1972] AC 1027 (HL) commenting on the Court of Appeal's comment that Rookes v. Barnard [1964] AC 1129 (HL), was rendered per incuriam, Lord Diplock observed (page 1131) :
'The Court of Appeal found themselves able to disregard the deci sion of this House in Rookes v. Barnard by applying to it the label per incuriam. That label is relevant only to the right of an appellate court to decline to follow one of its own previous decisions, not to its right to disregard a decision of a higher appellate court or to the right of a judge of the High Court to disregard a decision of the Court of Appeal.'
It is needles to add that in India under article 141 of the Consti tution, the law declared by the Supreme Court shall be binding on all courts within the territory of India and under article 144 all authorities, civil and judicial, in the territory of India shall act in aid of the Supreme Court." (emphasis supplied)
9. Although both the above decisions are rendered in the context of the decision of the Supreme Court, the same principle with equal force would apply to the decisions of the High Court within the State over which it exercises jurisdiction. This issue is long settled by the apex court in East India Commercial Co. Ltd. v. Collector of Customs, AIR 1962 SC 1893, wherein it has been held as under :
"29 . . . This raises the question whether an administrative Tribunal can ignore the law declared by the highest court in the State and ini tiate proceedings in direct violation of the law so declared. Under arti cle 215, every High Court shall be a court of record and shall have all the powers of such a court including the power to punish for con tempt of itself. Under article 226, it has a plenary power to issue orders or writs for the enforcement of the fundamental rights and for any other purpose to any person or authority, including in appropri ate cases any Government, within its territorial jurisdiction. Under article 227, it has jurisdiction over all courts and tribunals throughout the territories in relation to which it
11 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 exercises jurisdiction. It would be anomalous to suggest that a tribunal over which the High Court has superintendence can ignore the law declared by that court and start proceedings in direct violation of it. If a tribunal can do so, all the sub ordinate courts can equally do so, for there is no specific provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior tribunal that all the tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working : otherwise, there would be confusion in the administration of law and respect for law would irretrievably suffer. We, therefore, hold that the law declared by the highest court in the State is binding on autho rities or tribunals under its superintendence, and that they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceeding. If that be so, the notice issued by the authority signifying the launching of proceedings contrary to the law laid down by the High Court would be invalid and the proceedings themselves would be without jurisdiction." (emphasis1 supplied)
Thus, the law declared by the decisions of the High Court will be binding upon all authorities and tribunals functioning within the State. Consequently, the decisions of this court would be binding upon all authorities, tribunals and courts subordinate to the High Court within the State of Maharashtra.
One more aspect which needs to be adverted to and that is that a decision would be considered to be a binding precedent only if it deals with or decides an issue which is the subject matter of consideration or decision before a coordinate or subordinate court. It is axiomatic that a decision cannot be relied upon in support of the proposition that it did not decide. (see Mittal Engineering Works P. Ltd. v. Collector of Central Excise [1997] 106 STC 201 (SC) ; [1997] 1 SCC 203. Therefore, it is only the ratio decidendi, i.e., the principle of law that decides the dispute which can be relied upon as precedent and not any obiter dictum or casual observations. (See Girnar Traders v. State of Maharashtra [2007] 7 SCC 555 and Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. [2005] 127 Comp Cas 97 (SC) ; [2005] 7 SCC 234.
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 presumption that the investment which has been made in the tax-free securities has 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
12 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 interest, no appeal on this issue as raised before the Tribunal has been challenged before the Supreme Court ; and (b) In any 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 dis allowance can be made under section 14A of the Act in respect of exempted income arising from stock-in-trade.
The impugned order of the Tribunal in so far as contention (a) above is concerned, chose to disregard the binding decision of this court in the 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 and 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 and 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 and Boyce Mfg. Co. Ltd. (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 and 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 emphasised 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 and Boyce Mfg. Co. Ltd. (supra) reference was made to CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (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 and Boyce Mfg. Co. Ltd. (supra) has not decided the issue of applicability of Reliance Utilities and 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 Ltd. (supra), reliance was placed upon the decision of this court in Reliance
13 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 Utilities and Power Ltd. (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 and Power Ltd. (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 and Boyce Manufacturing Co. Ltd. (supra) had considered the decision of this court in Reliance Utilities and Power Ltd. (supra), which is factually not so. The decision of this court in Godrej and Boyce Manufacturing Co. Ltd. (supra) only makes a reference to the decision of this court in Reliance Utilities and 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 and 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 and 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 and Boyce Manufacturing Co. Ltd. (supra) and HDFC Bank Ltd. (supra). The decision in Godrej and 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 order 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 and Power Ltd. (supra) with regard to investment in tax-free securities coming out of the 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 July 23, 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 has been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities and 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 and 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 decidendi of the order in Godrej and 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).
14 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 16. At the hearing Mr. Suresh Kumar, learned counsel for the Revenue urged that on the facts of this case no fault can be found with the order of the Tribunal. It is submitted that, the petitioner was not able to establish before the Assessing Officer and the Commissioner of Income-tax (Appeals) that the amounts invested in the interest-free securities came out of interest-free funds available with the petitioner. In that view of the matter, it is submitted by him that the order of this court in HDFC Bank Ltd. (supra) would not apply to the facts of the present case. We are unable to understand the above submission. The Assessing Officer passed the assessment order on December 22, 2010 under section 143(3) of the Act. The Commissioner of Income-tax (Appeals) passed an order on November 21, 2011 dismissing the petitioner's appeal. On both the dates, when the orders were passed by the Assessing Officer and Commissioner of Income- tax (Appeals), the authorities did not have the benefit of the order of this court in HDFC Bank Ltd. (supra) rendered on July 23, 2014. Once the issue is settled by the decision of this court in HDFC Bank Ltd. (supra), there is now no need for the assessee to establish with evidence that the amounts which has been invested in the tax-free securities have come out of interest-free funds available with it. This is because once the assessee is possessed of interest-free funds sufficient to make the investment in tax-free securities, it is presumed that it has been paid for out of the interest-free funds. Consequently, we do not find any merit in the above submission made at the hearing on behalf of the Revenue.
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 co- ordinate benches of the Tribunal in applying the presumption laid down by this court in Reliance Utilities and 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 September 24, 2014, wherein question (b) as formulated by the Revenue raised the same issue, namely, applicability of the Godrej and 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).
The alternative submission (b) which was put forth by the petitioner before the Tribunal that the investment in securities are its stock-in- trade. Consequently, section 14A of the Act would be inapplicable by placing reliance upon the decision of this court in India Advantage Securities Ltd. (supra). However, this was also disregarded by the impugned order on the ground that this court did not entertain an appeal of the Revenue from the order of the Tribunal holding that section 14A of the Act is inapplicable where the investment has been made in stock-in- trade. This non-entertainment of an appeal being on the ground that this court found no substantial question of law. Therefore, the impugned order
15 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 holds that the decision relied upon in India Advantage Securities Ltd. (supra) does not lay down any binding proposition of law.
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 regard 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 and Boyce Mfg. Co. Ltd. (supra) to deny the claim. On this issue no decision was rendered by this court in Godrej and 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 Tribunal. Once the Tribunal has considered the issue on the merits and dealt with it in detail, it is not open to the Revenue to urge an objection when the Tribunal has itself decided the issue on the 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 the 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 the 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.
16 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 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 v. Harpal Singh Abnashi Singh Sawhney, AIR 1975 Bom 120 has observed that a co-ordinate 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 till 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 it is not open to the Tribunal or any other Authority in the State of Maharashtra to disregard it while considering alike 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 reurged 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 be 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.
Tribunal dated September 23, 2015 in its entirety and restore the issue to the Tribunal to decide it afresh on its own merits and in accordance with law. However the Tribunal would scrupulously follow the decisions rendered by this court wherein a view has been taken on identical issues arising before it. It is not open to the Tribunal to disregard the binding decisions of this court, the grounds indicated in the impugned order which are not at all sustainable. Unless the Tribunal follows this discipline, it would result in It is in the above view, that we set aside the impugned order of the Tribunal uncertainty of the law and confusion among the tax paying public as to what are their obligations under the Act. Besides opening the gates for arbitrary action in the administration of law, as each authority would then decide disregarding the binding precedents leading to complete chaos and anarchy in the administration of law.
17 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 26. Accordingly, the Rule is made absolute in above terms. No order as to costs.” 2.5. Considering the totality of facts and the aforesaid decisions from Hon'ble jurisdictional High Court, the claim of the assessee before us is that own funds are more than the investment made by the assessee, therefore, we direct the Ld. Assessing Officer to examine the claim of the assessee and decide in accordance with law. The assessee be given opportunity of being heard with further liberty to furnish necessary evidence to substantiate its claim, therefore, this ground of the assessee is allowed for statistical purposes.
Thus, the appeal of the assessee is allowed for statistical purposes.
3. Our above view will also cover the identical ground raised by the assessee for Assessment Year 2013-14, therefore, on the same reasoning/direction, this appeal is allowed for statistical purposes.
4. Now, we shall take up the appeal of the Revenue for Assessment Year 2012-13, wherein, the first ground pertains to deleting the addition of Rs.1,95,85,340/- on account of bad debts. The crux of argument advanced by Ld. DR is that while
18 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 deleting the addition, the Ld. Commissioner of Income Tax (Appeal) ignored the factual matrix that the assessee did not fulfill the conditions stipulated under section 36(1)(vii) r.w.s.
36(2) of the Act and further ignored that the assessee is a share broker.
4.1. On the other hand, the ld. counsel for the assessee defended the impugned addition by contending that the issue in hand is covered in favour of the assessee by the decision from Hon'ble jurisdictional High Court in the case of CIT vs Shreyas S. Morakhia (342 ITR 285)(Bom.), order of the Tribunal in the case of assessee itself for Assessment Years 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12. This factual matrix was not controverted by the Revenue. However, the ld. DR relied upon the assessment order by advancing arguments, which are identical to the ground raised.
4.2. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the order of the Tribunal for Assessment Year 2011-12 (ITA
19 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 No.5727/Mum/2015), order dated 03/04/2017 for ready reference and analysis:-
“Challenging the order dtd.10.09.2015,of the CIT(A)-51,Mumbai the Assessing Officer(AO)has filed the present appeal. Assessee-company is engaged in the business of share broking, filed its Return of income of 30/09/2011 declaring income of Rs.1,10,25,71,740/-.Later on a revised return was filed on 25.10.2012 declaring income of Rs.109.20 crores.The AO completed the assessment on 28/03/2014 u/s.143(3) of the Act determining his income at Rs.110.29 crores.
2.Effective Ground of appeal is about disallowance of claim of bad debts u/s. 36(1)(vii) r.w.s.
36. (2).In his Ground the AO has objected to deleting the disallowance by the First Appellate Authority (FAA) by relying on the case of Shreyas S. Morakhia (342ITR385).
2.1.During the course of hearing before us, the Representatives of both the sides stated that identical issue was decided in favour of the assessee and against the AO by the Tribunal in its order dated 24.03.17 (ITA 5581/Mum/2015, AY 2009-10).We find that the Tribunal has dealt with the issue as under :-
“2.First ground of appeal filed by the AO deals with deleting the addition, amounting to Rs. 5. 48 crore,made by him towards bad debts. During the assessment proceedings, the AO found that the assessee had made a claim of Rs.5,48,62,845/- under the head bad debts claiming that the amount was receivable from the clients in the course of the business carried out. It was further claimed that due to disputes with the clients amount in question was no more receivable and was written off as bad debts. However the AO was not convinced and held that the amount claimed as bad debt had never been taken into account for computing the income of the assessee, that same did not fulfill the conditions set forth in the section 36. (2) of the Act.Finally,he disallowed the claim made by the assessee. 2.1.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA)and made elaborate submissions before him. After considering the submission of the assessee and the assessment 20 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 order, he referred to the case of Shreyas S Morakhiya(342 ITR 285) of the Honorable Bombay High Court and allowed the claim made by the assessee. 2.2. During the course of hearing before us, representatives of both the sides argued that while deciding the appeals for the two earlier assessment years i.e.2007-08(ITA/9065/Mum/2010-&ITA/1027/Mum/2011-AY.2007-08, dtd.15.05.2015) and 2008-09 (ITA.s.6350 and 6999/ Mum/2011-AY.2008- 09,dtd.30/09/2016.),the Tribunal had decided the issue against the AO. We would like to reproduce the relevant portion of the order of the Tribunal for the AY. 2007 - 08(supra), and it reads as under: 6. Apropos ground No.1, the only grievance of the Revenue in this ground is that Ld. CIT(A) has erred in allowing relief on the basis of decision in the case of Shreyas S. Morakhia Special Bench (Mum) as the same is not accepted by the Department. Now it is the case of Ld. AR that Hon’ble Bombay High Court has upheld the said decision of Special Bench in the appeal filed by the Revenue and reference was made to the decision in the case of CIT vs. Shreyas S.Morarkia, 342 ITR 285(Bom). 6.1 Ld. AO disallowed a sum of Rs.1,18,82,970/-, Rs.90,035 and Rs.52,283/- ,which were claimed as bad debts written off in the P&L account. Ld. CIT(A) allowed the same on the basis of Special Bench decision in the case of Shreyas S. Morarkhia (supra). Against the aforementioned decision of Special Bench, the Revenue took up the matter in further appeal before Hon’ble Bombay High Court and it was held that the value of the shares transacted by the assessee as stock broker on behalf of his clients was as much a part of the debt as was charged brokerage by the assessee on the transaction. The brokerage having been credited to the P&L account of the assessee, it was evident that a part of the debt was taken into account in computing the income of the assessee. The fact that the liability to pay brokerage may arise at a point in time anterior to the liability to pay the value of the shares transacted would not make any material difference to the position. Both constitute a part of the debt which arises from same transaction involving the sale or, as the case, purchase of shares. Since both form a part of component of debt, the requirement of section 36(2)(i) are fulfilled, where a part thereof is taken into account in computing the income of the assessee. Therefore, it was held that assessee is entitled to deduction by way of bad debt under section 36(1)(viii) r.w.s. 36(2) in respect of amount which could not be recovered from its clients in respect of transactions effected by him on behalf of his clients.
7. In this view of the situation, after hearing both the parties, we found no infirmity in the relief granted by Ld. CIT(A), therefore, Ground No.1 of the Revenue’s appeal is dismissed. Respectfully, following the above order, we decide first ground of appeal against the AO.” Considering the above Effective ground of appeal is decided against the AO.
21 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 As a result appeal filed by the AO stands dismissed.”
4.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the case of the assessee is squarely covered from the decision of the Tribunal in the case of ACIT vs M/s Bank of Baroda for A.Y. 2005-06 (ITA No.2927/Mum/2011 etc.) order dated 25/07/2014. The following cases also supports the case of the assessee. i) South Indian Bank v/s CIT, 262 ITR 579 (Kar.); ii) DCIT v/s Catholic Syrian Bank Ltd., 267 ITR 52, ITAT Cochin Special Bench; iii) State Bank of Bikaner & Jaipur v/s DCIT, [2001[ 74 ITD 203 (Jaipur Bench); iv) Bank of Baroda v/s JCIT, ITAT “B” Bench, Mumbai, for A.Y. 1996–97, 1997–98 and 2000–01; v) TRF Ltd. v/s CIT, 323 ITR 397 (SC) and Vijaya Bank v/s CIT (SC) 323 ITR 167.
4.4. Even otherwise, in view of the amendment in the taxation laws with effect from 01st April, 1989, the requirement
22 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 of demonstrating that the debts has become bad has been dispensed with and only requirement remains that it should be “written off” in books of accounts of the assessee, which has been further clarified by CBDT Circular No.551 dated 23/01/1990. Our view find support from the ratio laid down in CIT vs Brilliant Tutorials Pvt. Ltd. 292 ITR 399 (Mad.), CIT vs Morgan Securities and Credits Pvt. ltd. (210 CTR 336)(Del.), DCIT vs Oman International Bank Saog. (313 ITR 128)(Bom.), CIT vs Star Chemicals (Bom.) Pvt. Ltd. 220 CTR 319 (Bom.), CIT vs Global Capital Ltd. 201 taxation 210 (Del.), CIT vs M/s Excel Fashion Pvt. Ltd. (201 taxation 216)(Del), CIT vs Auto meters Ltd. 292 ITR 345 (Del.). So far as, the reliance upon the decision in Kashmir Trading Company vs DCIT and Ahamadabad Electricity Company Ltd. (supra), the decision from Hon’ble Rajasthan High court and Gujarat High Court are concerned, the Hon’ble Apex Court, later on, in T.R.F. Ltd. vs CIT 323 ITR 397 (SC). Likewise, Hon'ble jurisdictional High Court in the case of Shreyansh S. Morakhiya 342 ITR 285 (Bom.), while dismissing the appeal held that the value of the shares transacted by the assessee as a stock broker on behalf
23 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 of his client was as much a part of the debt as was the brokerage charged by the assessee on the transaction. The brokerage having been credited to the profit and loss account of the assessee, it was evident that a part of the debt was taken into account in computing the income of the assessee.
The fact that the liability to pay the brokerage may arise at a point in time anterior to the liability to pay the value of the shares transacted would not make any material difference to the position. Both constitute a part of the debt which arises from the very same transaction involving the sale or, as the case may be, purchase of shares. Since both form a component part of the debt, the requirements of section 36(2)(i) are fulfilled where a part thereof is taken into account in computing the income of the assessee. Therefore, the assessee was entitled to deduction by way of bad debts under section 36(1)(vii) read with section 36(2) in respect of the amount which could not be recovered from its clients in respect of transactions effected by him on behalf of his clients.
The Hon'ble Court while coming to a particular conclusion followed the decision from Hon'ble Delhi High Court CIT v.
24 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 BONANZA PORTFOLIO LTD. [2010] 320 ITR 178 (Delhi) and affirmed the decision of the Tribunal of the Special Bench in the case of DEPUTY CIT v. SHREYAS S. MORAKHIA [2010] 5 ITR (Trib) 1 (Mumbai) and also considered the decisions in CIT v. Bonanza Portfolio Ltd. [2010] 320 ITR 178 (Delhi) (para 13), CIT v. Bonanza Portfolio Ltd. [2010] 328 ITR (St.) 9 (SC) (para 13), CIT (Deputy) v. Shreyas S. Morakhia [2010] 5 ITR (Trib) 1 (Mumbai) [SB] (para 8)CIT v. Veerabhadra Rao (T.), K.
Koteswara Rao and Co. [1985] 155 ITR 152 (SC) (para 11) and T. R. F. Ltd. v. CIT [2010] 323 ITR 397 (SC) (para 7). Thus, considering the provision of section 36(1)(vii), prior to April, 1, 1989 and post amendment held that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable and the aforesaid decisions from Hon'ble Apex Court/Hon'ble High Courts, we are of the view that mere written off in its accounts is enough, thus, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal), resultantly, this ground of the Revenue is dismissed.
25 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 5. Our above view will also cover identical grounds (a)
& (b) raised by the Revenue for Assessment Year 2013-14 also, consequently, the same is also dismissed.
The next ground raised by the Revenue pertains to directing the Assessing Officer to treat the loss of Rs.1,93,62,202/- as business loss instead of speculation loss.
The crux of the argument advanced on behalf of the Revenue is that while coming to a particular conclusion, the First Appellate Authority, ignored the fact that the loss has arisen out of the transactions of shares carried out by the assessee company, therefore, in view of explanation to section 73 of the Act, the said loss is speculation loss.
6.1. On the other hand, the ld. counsel for the assessee claimed that the issue in hand is covered in favour of the assessee by the decision of the Tribunal, in the case of assessee itself for Assessment Years 2007-08 to 2010-11. This claim of the assessee was not controverted by the Revenue with the help of any positive material.
6.2. We have considered the rival submissions and perused the material available on record. So far as the issue of 26 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 settlement loss treated as speculative, is concerned and in view of the assertions made by the Ld. respective counsel, we are reproducing hereunder the relevant portion from the order of the Tribunal for Assessment Year 2009-10 and 2010-11 (ITA Nos.5470/Mum/2013 and order dated 24/03/2017 for ready reference and analysis:-
“3.Next ground of appeal is about deleting the addition of Rs. 1.92 crore that was treated as speculative loss,under section 73 of the Act, by the AO. During the assessment proceedings, the AO found that assessee had claimed settlement loss of Rs.1,92,57,672/-. He directed the assessee to show cause as to why the same should not be treated as speculation loss. In its reply the assessee contended that loss was on account of a trade,that due to disputes with the clients for the transactions it did not change the relation principle, that assessee for business consideration chose not to recover the losses, that the losses were in the course of business and should be allowed as such under section 28 of the Act. However, the AO rejected the claim made by the assessee and treated the transaction as speculation transaction in view of the Explanation to section 73 of the Act and made a disallowance of Rs. 1.92 crore. 3.1.Aggrieved by the order of the of the AO, the assessee preferred an appeal before the FAA.After considering the submissions of the assessee and the assessment order, the FAA held that the assessee had incurred losses due to the fact that certain clients did not own up the purchase of shares, that it had to take delivery and to sell the same, that the loss had risen from such incidents, that such loss did not arise from any purchase of the shares made by the assessee for itself,that there was no doubt about the genuineness of the losses. Referring to the order of his predecessor for the assessment year 2008 – 09, he allowed the appeal filed by the assessee.
27 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 3.2.During the course of hearing before us, the Authorised Representative(AR) and the Departmental Representative(DR) agreed that issue stands decided against the AO by the orders of the Tribunal for the A.Y.s 2007-08 and 2008-09(supra).We are reproducing the relevant portion of the order for the assessment year 2007-08 that deals with the issue before us and it reads as under: 8. XXX….. Applying explanation to section 73 of the Act Ld. AO has held such transaction as speculation transaction and in this manner a sum of Rs.2,32,77,523/- was disallowed. While allowing the relief Ld. CIT(A)has taken into consideration the fact that the assessee is one of the dominant retail stock broking house in India and is having a net work of 159 own branches and 1000 plus business partners across the country. The cliental of the assessee is over ten lacs retail customers and has a DP cliental of approximately ten lacs clients and it employs 3500 personnel operating in 360 cities nationwide. In view of these facts, Ld. CIT(A) has observed that there are chances of mistake which resulted into disown by the person in whose account such transaction has been entered . Keeping in view all these facts Ld. CIT(A) has held that explanation to section 73 would not be applicable in view of the decision of ITAT in the case of M/s. Parker Securities Ltd. vs. DCIT, 102 TTJ 235. Ld. CIT(A) has reproduced the relevant portion from the said decision and has granted impugned relief to the assessee. The Revenue is aggrieved, hence, has filed aforementioned ground. 8.1 Ld. DR relied upon the order passed by AO, as against that Ld. AR has relied upon the following decisions:
8.2 It was contended that Ld. CIT(A)did not commit any error in granting the relief to the assessee and aforementioned decisions support the case of the assessee.
We have heard both the parties and their contentions have carefully been considered. In the case of ACIT vs. IDFC SSKI Securities Ltd. (supra), similar ground was raised by the Revenue. The ground raised in that case read as under:
28 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 “1.On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in allowing the loss of Rs.2,36,36,821/- as business loss even when the same is specifically covered under section 73 of the Act. 2. The appellant craves to leave to add, to amend and/or alter any of the grounds of appeal, if need be”” 9.1 The assessee placed reliance upon following decisions:
ITO vs. GDV Share & Stock Broking Services Ltd., 88 TTJ (Cal) 352 2. M/s.Parker Securities Ltd. vs. DCIT, 102 TTJ (Ahd) 235. 3.33 CCH 124 (Mum-Trib) HSBC Securities & Capital Markets India P. Ltd., vs. ACIT 4.139 R 149 (AP), CIT vs. Shah Pratapchand Nowpaji 5. 91TTJ 57 (Del-Trib) ACIT vs. Subhash Chandra Shorewala. 6.50 SOT 592 (Ahd-Trib) ITO vs. Rajiv Securities P. Ltd. After considering these decisions the Tribunal has held as under:
We have heard both the parties and their contentions have carefully been considered. Right from the assessment proceedings it was the case of the assessee that the impugned loss has occurred to the assessee in respect of error trade. Due to dispute with the clients, for the transaction, it does not change the relation of principal and the agent. The assessee for business consideration chooses not to recover the losses. These losses are in the course of business and should be allowed as such under section 28 of the Act. All these contentions of the assessee have been recorded in the assessment order in para 3.3. The AO has not brought any material on record to suggest that these contentions of the assessee are either false or incorrect. No material has also been brought on record that these losses are on account of assessee’s own trading in shares. If it is so, the loss accrued to the assessee will be governed by the aforementioned decisions of Tribunal where consistent view has been taken that loss occurred to share broker on account of client disowning transaction is business loss and not speculative loss. Therefore, we are of the opinion that Ld. CIT(A) did not commit any error in accepting the claim of the assessee.
29 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 Accordingly, we decline to interfere and Departmental appeal on this ground is dismissed. 5.1 Before parting of the Departmental appeal it may be mentioned that amount stated by the Department in its grounds of appeal is wrongly mentioned as Rs.2,36,36,821/-, whereas the same is Rs.2,65,07,464/-. In view of the above discussions the Departmental appeal is dismissed. In the aforementioned decision both of us are parties. Therefore, following the aforementioned view we hold that Ld. CIT(A) has rightly decided the issue and we decline to interfere and this ground of the Revenue is dismissed. Respectfully, following the above order, we dismiss second ground raised by the AO.”
6.3. Considering the arguments advanced from both sides and in view of the above decision of the Tribunal that too in the case of assessee itself, we find no infirmity in the conclusion drawn by the Ld. Commissioner of Income Tax (Appeal), resultantly, this ground of the Revenue is dismissed.
7. Our above view will also cover identical ground raised for Assessment Year 2013-14 also.
8. The last ground raised by the Revenue pertains to deleting the disallowance made by the Ld. Assessing Officer under section 14A of the Act read with rule-8D ignoring the decision in Godrej & Boyce Mfg. Company Ltd. 328 ITR 81(Bom.). So far as this issue is concerned, while adjudicating
30 M/s Sharekhan Ltd. 469, 1187 & 1188/Mum/2017 the assessee’s appeals (ITA No.468 & 469/Mum/2017), we have remanded this issue to the file of the Ld. Assessing Officer for fresh adjudication, therefore, on the same reasoning, the related grounds in both the appeals, raised by the Revenue, are allowed for statistical purposes.
Finally, the appeals of the assessee as well as of the Revenue are partly allowed for statistical.
This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 03/07/2018.