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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri Joginder Singh & Shri Rajendra
आदेश / O R D E R Per Joginder Singh (Judicial Member)
The assessee is aggrieved by the impugned order dated 24/09/2012 of the ld. First Appellate Authority, Mumbai.
During hearing, the ld. counsel for the assessee, Shri K.A. Vaidyalingam did not press grounds no.3 to 6, in the grounds of appeal, to which the ld. DR, Shri M. Murli had no objection, therefore, these grounds are dismissed as not pressed.
2.1. The only grounds agitated by the ld. counsel for the assessee are grounds no. 1 and 2, which pertains to upholding the disallowance of interest amounting to Rs.9,93,457/- made u/s 36(1)(iii) of the Act without appreciating the facts that own funds were utilized for acquisition of capital asset and not the borrowed funds. Reliance was placed by the assessee upon the decision from Hon’ble jurisdictional High Court in CIT vs HDFC Bank Ltd. (2014) 366 ITR 505 (Bom.) order dated 23/07/2014 and also writ petition in HDFC Bank Ltd. vs DCIT (W.P. no.1753 of 2016) order dated 25/02/2016.
2.2. On the other hand, the ld. DR, Shri M. Murli, merely relied upon the decision of the Assessing Officer/Commissioner of Income Tax (Appeals).
2.3. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is engaged in import of rough diamonds, cutting polishing and export of diamonds, declared income of Rs.21,76,42,072/- filed on 23/09/2008. The case of the assessee was selected for scrutiny, therefore, notices u/s 143(2) and 142(1) were served upon the assessee. It was observed by the Assessing Officer that the assessee paid interest on business advanced obtained from banks to the tune of Rs.19,48,21,282/- on the total loans as on close of balance sheet, it was Rs.620.99 crores and the reserve and capital was only Rs.124.53 crores. The assessee company gave advance for purchase of business premises in Bharat Diamond Boars and other immovable properties including Amby Valley Projects, Gujarat Hira Boars, Everest Electricals, Suzlon Energy and Vestas RRB Indi, etc. The average balance, during the year was computed at Rs.6,08,05,929/-. Since, there were advances for fixed assets and they were not put to use, therefore, proportionate disallowance of interest was proposed. It was further observed by the Assessing Officer that there were no specific borrowings made for making this payment and the assessee company had own funds in the form of share capital, share premium and accumulated profit of Rs.124.54 crores and unsecured interest free loans of Rs.74.78 crores on the last day of the year. The ld. Assessing Officer was of the view that when the assessee was having own funds then why the interest to the tune of Rs.19,48,21,282/- was paid to banks and since the accounts are mixed and no nexus was proved by the assessee, therefore, he made disallowance of the claimed interest of Rs.9,93,475/-. On appeal, the ld. Commissioner of Income Tax (Appeals) affirmed the stand of the Assessing Officer. The assessee is in further appeal before this Tribunal.
2.4. 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 ratio laid down in CIT vs Reliance Utilities and Power Ltd (2009) 313 ITR 340 (Bom.), wherein, the assessee was having sufficient interest free funds of its own and apart from substantial share holder funds, it is presumed that investment in sister concern were made by the assessee out of interest free funds, thus, no part of interest on borrowings can be disallowed on the basis that investment were made out of interest bearing funds, supports the case of the assessee. Likewise, Hon’ble High Court in CIT vs HDFC Bank Ltd. (366 ITR 505) (Bom.), took identical view. It is noteworthy that while coming to a particular conclusion, the Hon’ble jurisdictional High Court, duly considered the decision in Reliance Utilities and Power Ltd. (supra) along with the case of American Express International Banking Corporation vs CIT (2002) 258 ITR 601, CIT vs M/s Lord Krishna Bank Ltd. (now merge with HDFC Bank Ltd.) order dated 04/07/2014 (ITA No.1079 of 2012). Identically, the Hon’ble High Court in HDFC Bank Ltd. vs DCIT (W.P. No.1753 of 2016) order dated 25/02/2016 in para 11 (a) observed as under:-
One more aspect which needs to be adverted to and that is a decision would be considered to be a binding precedent only if it deals with/decides an issue which is subject matter of consideration/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. (Mittal Engineering v. Coll,of Central Excise 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. (Girnar Tea vs. State of Maharashtra 2007(7) SCC 555 and Shin Estu Chemical Co. Ltd v. Aksh opticfibre Ltd. 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 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: The petitioner possessed of sufficient interest free funds of Rs.2153 crores against the investment in tax free securities of Rs. 52.05 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 been held by this Court in the petitioner’s own case for an earlier AY being HDFC Bank Ltd. In any event, the tax free investments in securities were the petitioner’s stock in trade. Consequently, there would be no occasion to invoke Section 14A as held by this Court in India Advantage Securities Ltd. wherein the Revenue’s appeal from the order of the Tribunal was dismissed, to contend that no disallowance can be under Section 14A in respect of exempted Income arising from stock in trade. 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 and Boyce Manufacturing
Co. Ltd. reference was made to CIT Vs. Reliance Utilities and Power Ltd. 313 ITR 340 by itself would not lead to the conclusion that Reliance Utilities and Power Ltd. been considered and the opinion on the same been rendered in the case of Godrej and Boyce Manufacturing Co. Ltd. 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 cases are in conflict to each other, then alone, can it be said that the two decisions are in conflict. We find that no such exercise has been done in current case. It is clear that for the first time in the case of HDFC Bank Ltd., this court took a view that the presumption which has been laid down in Reliance Utilities and Power Ltd. with regard to investment in tax free securities coming out of assessee’s own funds in case the same are in excess of the investment made in the securities applies, when applying sec.14A. Thus decision of this court in HDFC Bank Ltd. for the first time on 23rd July,2014 has settled the issue by holding that the test or presumption as held by the court in Reliance Utilities and Power Ltd. would apply while considering the application of sec.14A. The above decision has also been accepted by the revenue inasmuch no appeal has been filed against this order in apex court. Therefore the issue which arose for consideration before the tribunal had not been decided by this court in Godrej and Boyce Manufacturing Ltd. 328 ITR 81. It arose and was so decided for the first time by this court in HDFC Bank Ltd. Thus there is no conflict as sought to be made out of the order. Thus the order of tribunal has proceeded on a fundamentally erroneous basis.
In the present appeal, the accounts were mixed and the disallowance was made by the ld. Assessing Officer on the plea that the assessee could not prove that only surplus funds were given for acquisition of fixed asset. However, the claim of the assessee is that the own networth of the assessee is 124.54 crores and unsecured interest free loans from the promoter was Rs.74.78 crores and even the current year net profit is much more than the investment in capital asset. In such a situation, respectfully following the aforesaid decisions, from Hon’ble High Court, the appeal of the assessee is allowed.
Finally, the appeal of the assessee is allowed.
This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 21/03/2016.
Sd/- Sd/- (Rajendra) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 21/03/2016 f{x~{tÜ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file.