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TMI Blog2017 (6) TMI 1124X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in shares and securities and advancing moneys and borrowing moneys to/from industrial enterprises. The assessee had filed its return of income showing income of Rs. 6,17,39,487/-. However, the tax was paid u/s 115JB at an income of Rs. 32,18,30,990/-. 3.1 The AO noticed that the assessee had shown income from operation at Rs. 43,98.75.523/- which included the following incomes under various heads, as follows: i. Speculation profit- (profit/loss) on F&O Rs.-185/- ii. Interest Income Rs. 44,44,186/- iii. Short term gain on sale of investments Rs. 7,10,20,860/- iv. Winning from Race Horses Rs. 486/- Rs. 7, 54.65,532/- 3.2 He further noted that as per Schedule 13 & 14 of the P&L A/c, the assessee had claimed expenses at a total amount of Rs. 3,42,11,767/- [under the head "salary & other benefits" at Rs. 2,00,035/- and "administration and other expenses" at Rs. 3,40,11,732/-]. This included the amount of Rs. 1,19,257/- towards horse race expenses. The AO, accordingly, concluded that apart from the horse race expenses, in respect of which an income of Rs. 486/-had been shown by the assessee, the expenses claimed by the assessee were at Rs. 3,40,92,510/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of R.s 25,686/- had been taken as the amount disallowable u/s 94(7) in respect of short term capital gain. 3.8 On perusal of the details, the AO noticed that the amount of Rs. 64,000/- was the net loss on sale/ purchase of various mutual funds. He found that assessee had claimed loss on sale of investment in contravention of provisions of sec. 94(7),,as, the investment had been cleared by the assessee within a period of 3 months prior to the record date for dividend and were within a period of 3 months after such record date. He, accordingly, made an addition of Rs. 64,000/-and Rs. 25,686/-. 3.9 The AO further noticed that assessee company had given loans to various persons and entities as noted at page 8 para IV.3 of his order. From the details furnished, the AO found that except in the case of SNAM Investment Pvt. Ltd., to which interest @ 6% had been charged, no interest had been charged/ received by the assessee in respect of loans/ advances given to the other parties. 3.10 After considering the assessee's reply, he made addition to assessee's total income on account of interest income computed @ 12% as per details given from pages 11 to 12 of his order and made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, directed the AO to add only Rs. 22,93,407/- (being 24.9% of Rs. 91,95,698/-) of the disallowance of expenditure upheld by him. Revenue is aggrieved by the finding of Id. CIT(Appeals) in considering only Rs. 22,93,407/-instead of Rs. 91,95,698/- for making adjustment of disallowance computed under section 14A, read with Rule 8D, while computing 'book profit' under section 115JB of the Act. 3.15 As regards the disallowance of sum of Rs. 89,686/- u/s 94(7) by AO, the assessee pointed out before ld. CIT(A) that there has been an arithmetical error in computation of disallowance u/s 94(7). The computation was done with respect to date of receipt of dividend while section 94(7) specifies the reference date as the record date. He, accordingly, revised computation u/s 94(7) with reference to record date, which was submitted before ld. CIT(A), according to which disallowance worked out to Rs. 2,884/- only, which, ld. CIT(A) referred to the AO for verification. 3.16 As regards the addition of Rs. 4,02,58,032/- as notional interest income on interest free loans and advances given by the assessee, ld. CIT(A) deleted the addition, inter alia, observing that assessee had not cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in upholding the action of the assessing officer in making upward adjustment of disallowance computed under section 14A, read with Rule 8D, while computing 'book profit' under section 115JB of the Act. 2.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in not appreciating that disallowance computed under section 14A of the Act read with Rule 3D of (he Rules does not represent actual expenditure incurred for earning exempt income and the same, therefore, need not to be added back while computing 'book profit' under section 1J5JB of the Act." 3.19 The assessee has filed application for condonation of delay in filing the memorandum of cross objections. It is stated in the petition that there is a delay of approximately 686 days in filing the cross objection is because when the appeal was decided by ld. CIT(Appeals), the then counsel advised for not filing the appeal/cross objection. However, the cross-objection has been filed on legal advice of new counsel, engaged by assessee. Further, from the facts narrated in the petition, it is evident that since no effective hearing took place between 4-4-2012 to 10-2-2014, the assessee was prevented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JB which are reproduced hereunder: "Special provision for payment of tax by certain companies. 115.JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012 is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part 11 of Schedule VI to the Companies Act, 1956 (1 of 1956); or ** ** ** Explanation 1 - For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (c) of sub-section (3) or sub section (3A), as the case may be. of that section. He pointed out that, as per the assessee. the book profit had to be reduced by the amount of deduction admissible, computed with reference to book profit. The Revenue, on the other hand, contended that deduction u/s 80HHC admissible under the normal provisions of the Act. had only to be reduced from the book profit. He pointed out that it was held that section 115J/ 115JA/ 115JB being complete code, deduction admissible u/s SOHHC, to be reduced from book profit, in terms of clause (iv) of .'the Explanation had to be computed with reference to book profit. He has relied on various decisions in support of his contention. 4.6 Ld. counsel further pointed out that in certain decisions, in context of provisions of clause (iii) of Explanation 1 to Section 115JB of the Act, it has been held that lower of loss or unabsorbed depreciation had to be determined in accordance with the figures appearing in the books of a/c and not on the basis of normal provisions. 4.7 Ld. counsel has submitted that clause (f) and clause (ii) of section 115JB are based on matching principles of accounting. The written submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nents of expense making up the cost of goods sold are recognised at the same time as the income derived from the sale of the goods. However, the application of the matching concept under this Framework does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities." (emphasis supplied) On perusal of the above extracts of the Framework, it will be appreciated that under the matching principle, only those costs are recognized in the profit and loss account which have direct association with the earning of income. The above matching principle has also been discussed by the Supreme Court in the case of Rotork Controls India Pvt. Ltd. v. CIT: 314 ITR 62 @ 73, while upholding deduction of warranty liability provided in the books, as under: "13. In this case' we are concerned with Product Warranties. To give an example of Product Warranties, a company dealing in computers gives warranty for a period of 36 months from the date of supply. The said company considers following options: (a) account for warranty expense in the year in which it is incurred; (b) it makes a provision for warranty only when the customer makes a cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. Whether this should be done-through a pro - rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. In our view, on the facts and circumstances of this case, provision for warranty is rightly made by the appellant-enterprise because it has incurred a present obligation as a result of past events. There is also an. outflow of resources. -A reliable estimate of the obligation was also possible: Therefore, the appellant has incurred a liability, on the facts and circumstances of this case, during the relevant assessment year which was entitled to deduction under section 37 of the 1961 Act. Therefore, all the three conditions for recognizing a liability for the purposes of provisioning stands satisfied in this case. It is important to note that there are four important aspects of provisioning. They are - provisioning which relates to present obligation, it arises out of obligating events, it involves outflow of resources and lastly it involves reliable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee that the term 'expenditure incurred' appearing in Sec. 14A(1) of the Act would mean actual expenditure incurred. Thus, the provisions of sec. 14A of the Act would be applicable only when the assessee had actually incurred certain expenditure which had proximate nexus with earning of exempt income. 4.11 Ld. counsel pointed out that the contention of Revenue that disallowance calculated u/s 14A read with Rule 8D of the I.T. Rules should be ipso facto incorporated in clause (f) of Explanation 1 of section 115JB of the Act on the ground that the scope of both the provisions are similar is not correct inasmuch as while u/s 14A the expression used is 'in relation', u/s 115JB of the Act, the term used is 'relatable to'. 4.12 Ld. counsel submitted that this reasoning is legally untenable because sec. 14A contained in Chapter IV of the Act begins with the phrase "for the purposes of computing the total income under this Chapter". It was pointed out that income under the normal provisions of the Act is computed under the five heads specified in section 14. Provisions relating to computation of income under different heads are contained in sections 14 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that scope of section 14A and section 115JB of the act are entirely different. He submitted that u/s 14A of the Act disallowance is made of expenditure in relation to the earning of income not forming part of the total income. Thus, section 14A takes within its sweep both direct and indirect expenditure having proximate connection with earning of exempt income. However, under clause (f) of Explanation 1 to section 115JB of the Act, only those expenditure debited to the profit and loss amount, which are relatable to earning of income exempt u/s 10 (excluding section 10(38) or section 11 or section 12 are added back while computing adjusted book profit. Thus, only direct expenditure associated with the earning of said income would be added back. 4.19 Ld. Senior Counsel vide his petition dt. October 8, 2016, pointed out that Hon'ble Delhi High Court in the case of Pr. CIT V. Bhushan Steel Ltd.: ITA No.593/2015 has upheld the decision of the Tribunal in holding that disallowance under section 14A read with Rule 8D cannot be added while computing book profits as per section 115JB as Explanation to that section does not specifically mentions section 14A of the Income Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he is entitled to claim deduction permissible under the respective head, whether or not computation under each head results in taxable income; (ii) if the income of an assessee arises under any of the heads of income but from different items, e.g., different house properties or different securities, etc., and income from one or more items alone is taxable whereas income from the other item is exempt under the entire permissible expenditure in earning the income from that head is deductible; and (ii) in computing the "profits and gains of business or profession when an assessee is carrying on business in various ventures and some among them yield taxable income and the others do not, the question of allowability of the expenditure under section 37 of the Income-tax Act, 1961, will depend on : (a) fulfillment of requirements of that provision, namely, that (i) the expenditure should not be in the nature of capital expenditure or personal expenses of the assessee; (ii) it should have been laid out or expended wholly and exclusively for the purposes of the business or profession; and (ii) it should have been expended in the previous year; and (b) on the fact whether all the ventures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions - both under section 10(2) (vi) and section 10(2)(xiv) of the 1922 Act or both under section 32(1) (ii) and section 35(1) (iv) of the 1961 Act. : 5.4 Ld. Principal CIT(DR), therefore, submitted that the contention of ld. counsel for the assessee that under clause (f) to Explanation 1 to section 115JB only direct expenditure are contemplated is against the basic principle of taxation. He submitted that 'proximate' will mean direct as well as indirect expenditure and depends on facts of each case. Ld. CIT(DR) submitted that the expression 'in relation to' used in section 14A and the expression 'expenditure relatable to any income' as used in clause (f) of explanation 1 to section 115JB are in the same context and will, therefore, have to be understood in the same sense. He submitted that the expression used in clause (f) to Explanation 1 of Section 115J'B(2) will take colour from the expression in relation to as used in section 14A. 5.5 Ld. Principal CIT(DR) further pointed out that in' the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel fairly conceded the matter in the Hon'ble Delhi High Court, the Hon'ble Delhi High Court was not required to repeat the reasons as stated in the court by the ld. counsel for the assessee for conceding the same. Rather it agreed with it and gave its decision. Ld. CIT(DR), therefore, submitted that AO is empowered to adopt the disallowance u/s 14A while making the addition as contemplated under clause (f) of Explanation 1 to sec. 115JB(2). Ld. CIT(DR), therefore, submitted that this issue is, therefore, no longer res integra and, therefore the question referred to by Hon'ble President for answer is squarely covered by the decision of Hon'ble Delhi High Court. 5.11 As regards reliance placed by ld. Senior Counsel on the decision of Hon'ble Delhi High Court in the case of Bhushan Steel (supra), ld. CIT(DR) submitted that the said decision has been rendered without considering the binding decision of co-ordinate bench of equal strength and, therefore, cannot hold the field. 6. We have considered the submissions of both the parties and have perused the record of the case. There cannot be any quarrel with the submissions of ld. Sr. counsel for the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed in the section itself and the starting point of the same is the net profit as shown in the P&L a/c prepared in accordance with Schedule VI to the Companies Act, which is to be increased by various items contemplated in the explanation and also to be reduced by various items, mentioned in the explanation itself. The adjustments contemplated in the explanation are broadly the same as are being made while computing profits of business in case of companies under normal provisions of Act. Under this Chapter specific items have been prescribed for computation of book profit. The same have to be followed and the computation as contemplated under Chapter IV of the Income-tax Act for computation of business income cannot be imported in whole sum per se under this Chapter. However, the contention of Ld.CIT (DR) is that the provisions of clause (f) to Explanation 1 to section 115JB requires the net profit as, shown in the P&L A/c to be increased by the amount or amounts of .expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply and as per clause (ii) of the explanation, the net profit is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin a e limit in cases where lesser amounts have been paid. The petitioners argued that where no payments had been made and where nil assessments e been made, there would be no application of this rule and no demand could be raised. The Supreme Court observed that we cannot take a literal interpretation in such a case. It should be an interpretation in the context which I mean appropriately that the word "paid" would include "ought to have been paid" and assessments would cover 'nil' assessment. The machinery of the tax - s stem should be made workable and the clear intention should not be prevented." 6.6 In the case of Asstt. Collector of Central Excise v. National Tobacco Company Ltd. AIR 1972 SC 2563, the Hon'ble Supreme Court has observed as under: " This is a case under the Central Excises Act and Rules 1944 (as they 7 stood before 1-8-1959) where the Rules 10 and 10A have again come for further discussion even after it was settled in Sanjana's case (AIR 1971 SC 2039) that .while Rule 10 was for short-levy (for specified reasons), Rule 10 A was for non-levy or short-levy or for reasons other than in Rule 10. Rule 10 covered cases of inadvertence, error, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y interpreted broadly Rule 10 to conclude that the demand did not fall in that rule. That clearly goes against the legislative might . The Supreme Court therefore set aside the High Court order and upheld the demand under Rule 10A though that rule was not quoted in the demand doing so the Supreme Court upheld the basic principle of legislative intent and purpose." 6.7 Again in the case of K.P. Varghese v. ITO AIR 1981 SC 1922, while examining the true meaning of section 52(2), which enabled the revenue to charge tax on the capital gains deemed to accrue, wherever the declared value for transfer of property was less by 15% or more compared to the fair market value, the Hon'ble Supreme Court refused to accept the strict literal meaning, calling it absurd. The Hon'ble Court gave some examples on the basis of strict interpretation and pointed out that it would be absurd and unreasonable to apply sec. 52(2) according to its strict literal construction. The Hon'ble Court further observed that - "We must, therefore, give up literalness in the interpretation of sec. 52(2) and try to arrive at an interpretation which avoids this absurdity and mischief and makes the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ascribed a restrictive meaning as compared to the term used "in relation to" in section 14A. Both terms are with the same purport and object. 6.12 Ld. counsel has submitted that the AO cannot go beyond audited financial statements of the assessee while computing book profits u/s 115JB. However, the submission of ld. CIT(DR) IS that this argument is fallacious, because here the AO is not going beyond the audited accounts but is computing the expenditure debited in the P&L A/c, which is relatable to earning of exempt income. This is as per clause (f) itself. 6.13 Further reasoning advanced by ld. CIT(DR) is that section 14A has been incorporated much after the incorporation of Chapter XIIB in 1987. Section 14A was incorporated just after section 14, which classifies the head of income for computation of total income. This section was made applicable with respect to determination of total income. The MAT provisions are for computation of income from business in case of specific companies. Therefore, it cannot be said that section 14A had no applicability to MAT provisions, which were existing when section 14A was introduced for the first time. Therefore, section 14A is applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT provisions. Therefore, the submission is that when we resort to comparison between computation under normal provisions of the Income-tax Act and MAT provisions, the comparison will not be on same footing. Submission of ld. CIT(DR) is that it cannot be denied that the legislative intent regarding disallowance of expenditure relating to earning of exempt income was same, whether under normal provisions or under the MAT provisions. Hence, the whole object of comparison between the total income under normal provisions and MAT provisions will get frustrated. 6.18 Ld. CIT(DR) submitted that the above interpretation, will ensure in arriving at the same figure of expenditure relatable to exempt income under normal provisions and also while computing the book profits u/s 115JB. If different modes of computation are followed u/s 14A and in clause (f) of Explanation 1 to section 115JB(2), then the comparison will not be on same footing and will produce absurd results. He further clarified that even if we resort to plain meaning rule, the phrase "in relation to" used in section 14A and the phrase "expenditure relatable to earning of exempt income", under clause (f) of Explanation 1 to sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 115JB(2) clause (f). The Assessing Officer it is stated had made an addition of Rs. 88,292 to the book profits towards expenditure incurred having nexus with dividend income, which were exempt under section 10(33). Recording the said statement, the first question is answered in favour of the appellant-Revenue and against the respondent-assessee." 6.20 Thus, it cannot be said that Hon'ble Delhi High Court has not considered this issue and merely allowed the revenue's appeal on concession. The substantial question of law framed by Hon'ble Delhi High Court clearly shows that the specific issue was whether disallowance u/s 14A was required to be made while computing book profit u/s 115JA/ 115JB. The Hon'ble Delhi High Court has not only recorded assessee's plea of merely not contesting the issue in view of specific provisions but has recorded that the counsel fairly conceded. The expression "fairly" implies that Hon'ble High Court was also of the view that the provisions of section 14A were applicable with full force to the corresponding provisions u/s 115J. 6.21 Ld. Principal CIT(DR) has, in this regard, referred to the decision of Hon'ble Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, untrue." Thus, it is evident that in every case it is not necessary that long drawn reasoning should be given before arriving at any conclusion more particularly when both the parties are agreed on certain provision of law. We, therefore, reject the assessee's contention that the decision of Ho'nble jurisdictional High Court in Goetze (India) Ltd. does not constitute a binding precedent more particularly in respect of subordinate courts including Tribunal functioning within its jurisdiction. However. Ld. Senior Counsel has relied on the decision in the case of Bhushan Steel (supra) wherein it has been held as under:- ITA 593/2015 PR. CIT ..........Appellant Through: Mr. N.P. Sahni, Senior Standing counsel with Mr. Nitin Gulati, Advocate. versus BHUSHAN STEEL LTD Respondent Through: Ms. Kavita Jha, Advocate with Ms. Roopali Gupta, Advocate. ORDER 29.09.2015 ** ** ** 1. ** ** ** 7. Question No. 6 concerns deletion of addition of Rs. 89,00,000 made by the AO fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no nexus has been established with the dividend income, the expenditure could not be disallowed under clause (f) of the Explanation, As per the decision of Hon 'ble Supreme Court in the case of Apollo Tyres Ltd., the Assessing Officer is not entitled to tinker with the book profits as determined as per provisions of Company's Act unless the amount is specified in clauses (a) to (h) of the Explanation. The amount of Rs. 88,290/- has not been established to have nexus with the dividend income. The amount of Rs. 88,290/- has been estimated at 1% of the income. In our view, no disallowance could be made. Accordingly, we direct the Assessing Officer to delete the amount of Rs. 88,290/- from the bookprofit." Thus, he submitted that the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. was duly considered by Tribunal before taking contrary view in the matter. But Hon'ble Delhi High Court did not accept the Tribunal's reasoning Ld. CIT (R) further submitted that the decision in the case of Bhushan Steel has been rendered without taking into consideration the decision in the case of Goetze (India) Ltd. (supra) of co-ordinate bench of equal strength as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be preferred if reached after full consideration of the earlier decisions. Ld. Principal CIT(DR) has also relied on following decisions :- - CIT v. Pamwi Tissues Limited, 313 ITR 137 - Indian Oil Corporation Ltd. v. State of Bihar, 167 ITR 897 - Kunhayamraed & Ors. v. State of Kerala & Anr., 245 ITR 360 Ld. Principal CIT(DR) has submitted following written submissions in this regard :- "The assessee had filed a compilation of case laws on 20/04/2017 and the Deptt. had to reply to the above. The reply of the Deptt. is as follows:- 1. The decision of the Hon'ble Supreme Court in the case of Sundeep Kumar Bafna v. State of Maharashtra and another AIR 2014 SC 1745 has held as follows in para 12 of the judgment :- "if the third sentence of para 48 is discordant to Niranjan Singh, the view of the co-ordinate bench of earlier vintage must prevail, and this discipline demands and constrains as also to adhere to Niranjan Singh, ergo, we reiterate............" Again in para 15 of the judgment it has been stated as follows.:- 15 "It cannot be over - emphasized that the discipline demanded by a precedent or the disqualification or dimunition of a decision on the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e passing observations. At the highest, they may be treated as an obiter dictum, that is to say the expression of opinion on a point which it was not necessary for the decision of the case. Even if they are conceivably regarded as obiter dictum it is settled that if an opinion is expressed by the supreme court on the interpretation of a section after careful consideration and such opinion is deliberately and advisedly given, the opinion would be binding on the High Court See Mohandas Issardasv. A.N. Sattanathan [1955] 56 BLR 1156; AIR 1955 Bom 113. Under these circumstances, were are unable to accede to this submission made on behalf of the Revenue. (2) CIT v. AP Riding Club 168 ITR pages 393, 404 It is now-settled that even the obiter dictum of their Lordships of the s. Supreme Court is binding on the High Courts under article 141 of Constitution of India. The 'obiter dicta' of Supreme Court has to be followed. Hence, .both the cases of Sandeep Kumar Bafna and Mamaleshwar Prasad v. Kanhaiya Lal - make it very clear that the earlier decision constitutes the 'binding precedent' and should be followed in preference . to the later decision given in ignorance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state the law more elaborately and accurately. We are of the view that decision in the case of Cassel & Co. Ltd. v. Broome (supra) should guide the course of action wherein it has been observed as under:- "Though a judgment rendered per incuriam can be ignored even by a lower court, yet it appears that such a course of action was not approved by the House of Lords in Cassell & Co. Ltd. v. Broome [1972] 1 All ER 801,wherein the House of Lords disapproved the judgment of the Court of Appeal treating an- earlier judgment of the House of Lords as per incurium. Lord Hailsham observed (at page 809) : 'It is not open to the Court of appeal to give gratuitous advice to judges of first instance to ignore decisions of the House of Lords in this way'. It is recognized that the rule of per incuriam is of limited application and will be applicable only in the rarest of rare cases. Therefore, when a learned single judge or a Division Bench doubts the correctness of an otherwise binding precedent, the appropriate course would be to refer the case to a Division Bench of Full Bench, as the case may be, for an authoritative pronouncement on. the question involved as indicated above. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognized by this court in several of its decisions." Hon' Supreme Court held as under: - "We must first determine what is the meaning of the expression "the amount of the tax, if any, payable by him" in section271(l)(a)(i). Does it mean the amount of tax assessed under section 143 or the amount of tax payable under section 156. The word "assessed" is a term often used in taxation law. It is used in several provisions in the Act. Quantification of the tax payable is always referred to in the Act as a tax "assessed". A tax payable is not the same thing as tax assessed. The tax payable is that amount for which is a demand notice is issued under section 156. In determining the tax payable, the tax already paid has to be deducted. Hence, there can be no doubt that the expression "the amount of the tax, if any, payable by him" referred to in the first part of section 271(1) (a) (i) refers to the tax payable under a demand notice." We have ; therefore, to follow the later decision of Ho'nble Delhi High Court in the case of Bhushan Steel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ast day of the previous year. (3) For the purposes of this rule, the "total assets" shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets.]" 7.1 In the present case, we are only concerned with clause (iii) to Rule 8D(2), reproduced above. The assessee's first contention is that while considering the average value of investment, only those investments are to be taken into consideration which have yielded exempt income and not those investments, which did not yield any exempt income during the year. The second contention is that phrase "shall not" in clause (iii), refers only to those investments, from which income earned can never be taxable income. The contention is that merely because the income is exempt in a particular year, but can become taxable on account of amendment in subsequent year, then the said investments are not to be taken into consideration while computing the average value of investment. 8. . Ld: counsel submitted that as regards investments, not yielding exempt income, there can be two types of investments - (a) Investment, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AY 2003-04. The exemption was again restored by insertion of section 10(34) by Finance Act 2003. Thus, he submitted that it is not necessary that, if, in any of the year, any item of income is exempt, then the same would continue remain exempt in future also. 8.5 Similarly, he pointed out that with respect to exemption from tax of long term capital gain the legislative history is as under: Section 10(38), providing exemption of LTCG earned on sale of equity shares/ securities on which STT is paid, was inserted by Finance Act, 2004 w.e.f. 1-4-2005. Prior thereto, such LTCG was also chargeable to tax. It is further to be noted that until amendment being made vide Finance Act 2006, w.e.f. 01.04. 2007 in clause (ii) to Explanation 1 to section 115JB, such LTCG remained taxable under MAT even though the same was exempt under normal provisions by virtue of section .10(38) of the Act. 8.6 Ld. counsel relied on the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Holcem India Pvt. Ltd. (ITA no. 486/2014 and 299/14), 8.7 He pointed out that one of the assessment years involved in the above appeals before the Hon'ble High Court was assessment year 2008-09 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance could be made by invoking the provisions of section 14A and this argument was rejected by Special Bench following the decision of Hon'ble Supreme Court in the case of Rajendra Prasad Moody (supra). 10. In rejoinder ld. counsel reiterated the submissions which were advanced before the Special Bench of the ITAT in the case of Cheminvest Ltd. v. ACIT 317 ITR (AT) 86. Ld. Counsel vide his letter dt. September 7, 2045 submitted that Hon'ble Delhi High Court vide .order dt.02.09:2015 in the case of Cheminyest Limited v..CIT in ITA No. 749/2014 reversed the decision, of Special Bench and, following the earlier; decision of the Hon'ble High Court in the case of CIT v. Holcim India (P) Ltd.: 272 CTR 282. held that where no exempt income has been received by the assessee in the previous year, disallowance under section 14A of the Act is not warranted. The Hon'ble High Court has further held that reliance placed by the Special bench on the decision of the Hon'ble Supreme Court in the case of Rajendra Prasad Moody: 115 1TR 519 was misplaced. It has been observed by the Hon'ble High Court that decision of Hon'ble Supreme Court in the case of Rajendra Prasad Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; ** (4) The Appellate Tribunal or Court, hearing such appeal or reference, shall have regard to the orders, instructions or directions issued under sub-section (!) and the circumstances under which such appeal or application for reference was filed or not filed in respect of any case." He, therefore, submitted that the decision in the case of cheminvest of Hon'ble Delhi High Court has no precedent value. In this regard he also filed instructions of CBDT on object of insertion of Section 268A which, inter-alia, reads as under:- " Where an income-tax authority has not filed any appeal or application for reference on any issue in the case of an assessee for any assessment year, due to abovementioned order/instruction/direction of the Board, such authority shall not be precluded from filing an appeal or application for reference on the same issue in the case of- (a) the same assessee for any other assessment year; or (b) any other assessee for the same or any other assessment year." He, therefore, submitted that, in view of statutory provisions, circular should be given due weightage. Ld. CIT(DR) further referred to 378 1TR 22 (JOURNAL SECTION) wherein it is comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Textile Industries Ltd. 319 ITR 204 (P&H) - CIT v. M/s Lakhani Marketing ITA 970 of 2008 (P&H) - Corrtech Energy Pvt. Ltd. [2015] 372 ITR 97 (Guj.). - CIT v. Hero Cycles Ltd. 323 ITR 518. 11.2 The submission of ld. Principal CIT(DR) is that ITAT in the case of Delhi Special Bench in the case of Cheminvest Ltd. (supra) has specifically held that even if there is no exempt income, the provisions of section 14A are applicable in view of the decision of Hon'ble Supreme Court in the case of Rajednra Prasad Moody (supra). His submission is that the decision of Hon'ble Delhi Court reversing the decision of Special Bench in Cheminvest should not be followed because that is contrary to the principles laid down in Rajendra Prasad Modi(supra). 11.3 It is against these submissions, we first refer to the facts as were obtaining in these two decisions. 11.4 In the case of Cheminvest Ltd. (supra), the assessee had borrowed funds of Rs. 8,51,65,000/- and during the previous year relevant to assessment year 2004-05 paid interest of Rs. 1,21,02,367/-thereon. Out of this unsecured loan, the assessee invested a sum in purchase of shares, which was shown as investment for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that it is the purpose of the expenditure that is relevant in determining the applicability of section 57(iii) and that purpose must be making or earning of income. It was further held that section 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of section 57(iii) to suggest that the purpose, for which the expenditure is made, should fructify into any benefit by way of return in the shape of income. 11.7 Thus, in both the decisions viz. in the case of Cheminvest Ltd. (supra), and in the case of Rajendra Prasad Moody (supra), the issue related to allowability of expenditure which had direct nexus with the earning of income. The borrowing in both the cases has not been disputed being for acquiring shares. Hon'ble Delhi High Court has specifically held in para 21 as under:- "21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moddy (supra) was rendered in the context of allowability of deduction under Section 57(Hi) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) observed that the respondent-assessee had been set up with the business objective of making investment in cement industry after due approval given by the Government of India, Ministry of Commerce and Industry vide letter dated 18.12.2002 and 20.12.2012. It was observed that in fact, the respondent-assessee was not to undertake any manufacturing activity themselves. After considering the FIPS approval and the purchase of shares in the said company of Rs. 1850.91 crores, ld. CIT(A), inter alia, observed that the assessee was engaged in the business of holding of investment and was entitled to claim expenditure provided. There was a direct connection between expenditure incurred and business of the assessee company. However, he pointed out that since the business of the respondent assessee was to act as a holding company for downstream investment and as it was an accepted fact that they had incurred expenses to protect their business and explore new avenues of investment, the provisions of section 14 A were applicable. 11.11 The Hon'ble High Court observed that the reasoning given by the CIT(A) was ambiguous and unclear and on clarity being sought from the Revenue it was po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (li) Kanpur, v. Mis. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held:- "As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the C1T(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/- made by the Assessing Officer was in order" "15. Income exempt under Section 10 in a particular ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may refer to the following decisions: (i) CIT v. Thana Electricity Supply Ltd. (1994) 206 ITR 727 (Bom.), wherein on the issue of "whose decision-is binding on whom", the. Hon'ble Bombay Court considered in detail the hierarchy of the courts and has observed as under: "It is also well-settled that though there is no specific provision 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 the Tribunals subject to its supervision would conform to the law laid down by it. It is in that view of the matter that the Supreme Court in East India Commercial Co. Ltd. v. Collector of Customs, AIR 1962 SC 1893 (at page1905) declared: "We, therefore', hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and they cannot ignore it. ...." This position has been summed up by the Supreme Court in Mahadeolal Kanodia v. Administrator General of West Bengal, AIR 1960 SC 936 (at page 941) as follows: "Judicial decorum no less than legal propriety forms the basis of judicial procedure. If one thing is more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to interest on such refund calculated up to the date of the order passed consequent upon an appeal or revision of the original assessment, this view had not been accepted by the Bombay High Court, the Allahabad High Court and the Kerala High Court. Respondent No.1, accordingly, chose to accept the view of the Bombay, Allahabad and Kerala High Courts in preference to the view of the Calcutta High Court. In my view, the order of respondent No. 1 cannot be sustained on the simple ground that respondent No. 1 is an authority operating within the State of West Bengal and is bound by the decisions of the Nigh Court of this State ( see CIT v. Indian Press Exchange Ltd. [1989] 176 ITR 331 (Col) ; East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1993, paragraph 29). In that view of the matter, the impugned order must be set aside and the Commissioner is directed to consider the matter afresh in keeping with the decisions of this court after giving the petitioners an opportunity of being heard. At least 48 hours clear notice must be given to the petitioners. The Commissioner will communicate the final order to the petitioner within eight weeks from the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -, we find that the entire addition had been made because assessee did not charge any interest from loanees. However, admittedly assessee had not claimed any interest expenditure and, therefore, there was no reason for making any addition on the ground of interest being not charged by assessee. Ld. counsel has relied on following decisions for the proposition that only real income can be taxed and not notional income. - Shoorji Valtabhdas & Co. 46 1TR 144 (SC); - Godhra Electricity Co. Ltd.. CIT 225 ITR 746 (SC); - CIT v. A. Raman & Co. 67 ITR ll (SC); - UCO Bank v. CIT 237 ITR 889 (SC); - Airport Authority of India v. CIT 340 ITR 407 (Del. XFB); - CIT v. Motor Credit Co. P. Ltd. 127 ITR 572 (Mad.); - JCIT v. Pankaj Oxygen Ltd.78 TTJ 119 (Nag.) - ACIT v. Manick Chand Damani 72 TTJ 675 (Cal.) 13.1 After hearing both the parties, we do not find any reason to interfere in the order of ld. CIT(A), because the issue that only real income and not notional income is taxable, is no more res-intgra in view of aforementioned decisions, particularly when no interest was paid by assessee on its borrowings. We, therefore, confirm the order of ld. CIT(A). This ground is dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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