2013 (7) TMI 194 - AT - Income Tax

Premium paid on redemption of premium notes disallowed - The Assessing Officer observed that since the income arising out of investment made in shares / bonds of Reliance Utilities and Power Ltd. is not taxable in view of exemption under section 10(23G) and also why such the premium paid should not be disallowed under section 14A. - Held that - The premium paid by the assessee on redemption of premium notes is allowable and the same cannot be disallowed even under section 14A as relied on Delite Enterprises (P.) Ltd. 2008 (2) TMI 654 - ITAT MUMBAI as confirmed by High Court 2009 (2) TMI 498 - BOMBAY HIGH COURT - Decided in favor of assessee.

Summary

Issues involved:
Challenge against disallowance of premium paid on redemption of premium notes under section 143(3) of the Income Tax Act, 1961 for the assessment year 2004-05.

Detailed Analysis:
The main issue challenged in the appeal was the disallowance of a premium amount paid on redemption of premium notes. The Tribunal considered the arguments presented by both parties. The assessee argued that a similar issue had been decided in their favor in a previous case by the Tribunal. The Departmental Representative acknowledged that the issue was covered by the previous decision. After reviewing the Assessing Officer's findings and the Commissioner (Appeals) order, the Tribunal found that the premium paid by the assessee was not in the nature of expenditure for business purposes and could not be disallowed under section 14A. The Tribunal considered the uncertainties and contingencies regarding the exemption under section 10(23G) and concluded that the premium paid could not be considered as expenditure exclusively related to earning exempt income.

The Tribunal referenced a previous case involving a similar issue where the Tribunal upheld the decision allowing a deduction for interest paid on borrowed funds used for investments. The Tribunal also highlighted a judgment by the Bombay High Court affirming the Tribunal's decision in that case. The Tribunal emphasized that when the High Court affirms a decision, it becomes a binding precedent. The Tribunal applied this principle to the present case and decided in favor of the assessee, following the High Court's decision in the previous case. The Tribunal concluded that the premium paid on redemption of premium notes was allowable and could not be disallowed under section 14A.

In conclusion, the Tribunal set aside the Commissioner (Appeals) order and allowed the appeal in favor of the assessee. The decision was based on the precedent set by the High Court in a similar case, emphasizing the binding nature of such decisions. The Tribunal's decision was in line with the previous ruling and held that the premium paid on redemption of premium notes was allowable and could not be disallowed under section 14A.