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TMI Blog2022 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... 8) TMI 119 - BOMBAY HIGH COURT] Thus, the law declared by the Hon ble Supreme Court, as aforesaid, being the law of the land as per Article 141 of the Constitution of India, would be binding on all subordinate courts / tribunals / authorities, etc. Therefore, if we apply the ratio laid down by the Hon ble Supreme Court to the facts of the present case, it can be seen that though the assessee has common pool of funds; however, interest free fund available with the assessee is far in excess of the investments made. Therefore, the presumption that investments have been made out of interest free funds would automatically get triggered. Availability of interest free fund has to be seen with reference to date of investment and not the balance-sheet date. In this regard, we must observe, if the contention of the learned counsel for the revenue is accepted, applying the theory of presumption of surplus fund being used for the purpose of investments would not at all arise. If availability of interest free fund as on the date of investment is to be seen, then a direct nexus is established between the fund available and the investment made. The applicability of presumption would only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and has directed the assessing officer to compute the disallowance under rule 8D(2)(iii) by considering only those investments which yielded exempt income during the year. Suffice to say, as per the ratio laid down by the Hon ble Supreme Court in case of Maxopp Investment Ltd [ 2018 (3) TMI 805 - SUPREME COURT ] and South Indian Bank Ltd vs CIT (supra), the non SLR investments have to be treated as stock in trade. Hence, provisions of section 14A would not apply. Disallowance of expenses incurred towards employee stock option plan (ESOP) - HELD THAT:- We are of the view that assessee s claim of deduction of ESOP expenses by way of amortization over the period of grant has to be allowed keeping in view the decision of the ITAT, Special Bench in case of Biocon Ltd vs DCIT [ 2013 (8) TMI 629 - ITAT BANGALORE] wherein, it has been held that ESOP expenses are allowable as revenue expenditure under section 37(1) of the Act, we direct the assessing officer to allow assessee s claim of deduction. Also see NEW DELHI TELEVISION LTD. [ 2017 (2) TMI 1399 - DELHI HIGH COURT] - This ground is allowed. - I.T.A. No.374/Mum/2012 - - - Dated:- 13-1-2022 - Shri G.S.Pannu (Hon ble Preside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing a sum of ₹ 3,66,00,000/- u/s HA r.w.r.SD of the Income Tax Rules, 1962 ( the rules ) 2. He further erred in applying rule 8D automatically without considering the facts of the Appellant. 3. He further erred in not considering the Appellant's submissions that the investments has been made from own funds and internal cash accrual. 4. The Appellant prays that the disallowance u/s 14A r.w.r 8D of ₹ 3,66,00,000/- be deleted. 5. Without prejudice, the Appellant prays that disallowance be appropriately reduced. GROUND NO. II 1. On the fact and circumstances or the case and in law, the Hon'ble CIT(A)-6 erred in confirming the action of AO of disallowing the sum of ₹ 8,21,32,798/- on the alleged ground that the expenses incurred under the Employees Stock Option Plan ( ESOP ) are notional and incurred to increase the capital base and therefore they are to be treated as capital expenditure and not an allowable expenditure under the Act. 2. He further erred in not considering that since there is no such taxing principle in relation to the allowability or otherwise of the ESOP expenditure, the accounting principle will guide the taxatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention, assessee relied upon a number of judicial precedents. The assessing officer, however, was not convinced with the submissions of the assessee. The assessing officer observed, though, the assessee stated that the investment in exempt income yielding assets had come from a common pool of funds; however, no evidence was furnished by the assessee to establish the nexus between the investments made and the interest free funds available with the assessee. He observed, as per the RBI guidelines, banks have to maintain statutory liquidity ratio (SLR). The SLR has to be maintained in the form of investment in government owned securities and PSU bonds. He observed, since tax free bonds and investment in shares are meant to be held for long term, it cannot be said that current account balance are used for investing in such bonds, shares and units. Thus, he ultimately rejected assessee s contention that investment in tax free bonds, shares and mutual funds have been made out of interest free funds. Having held so, he proceeded to compute disallowance under rule 8D r.w.s. 14A as under:- Under Rule 8D(2) (i) Expenses directly i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted, even in assessee s own case in assessment year 2011-12, the Tribunal has expressed identical view. 10. Without prejudice to the aforesaid submission, learned senior counsel submitted, no interest expenditure can be disallowed under rule 8D(2)(ii) as the assessee had sufficient interest free funds available with it. Drawing our attention to the balance-sheet of the assessee and a chart showing the availability of fund with the assessee, a copy of which is at page 233 of the paper book, he submitted, as on 31-03-2007, assessee had interest free funds available of ₹ 3421.14 crores, whereas, tax free investments were to the tune of ₹ 56 crores. He submitted, as on 31-03-2008, assessee had interest free funds of ₹ 4,171.20 crores and tax free investments of ₹ 52 crores. He submitted, if the shares received from Lord Krishna Bank on amalgamation amounting to ₹ 44.34 crores which had no cost of investment is reduced, the actual investment made during the year by the assessee is only ₹ 7.08 crores. Thus, he submitted, interest free fund available with the assessee is much more than the investment made during the year. 11. Proceeding fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 order dated 08/01/2015 (Bom HC) 13. As regards disallowance of administrative expenditure under rule 8D(2)(iii), learned senior counsel submitted, such disallowance should be computed by considering only those investments which yielded exempt income during the year. 14. Shri PC Chhotaray, learned special counsel appearing for the revenue strongly opposed the submissions of the assessee. He submitted, it was never the case of the assessee either before the assessing officer or even before learned Commissioner (Appeals) that investments in government securities, shares, mutual funds, bonds, etc.are held as stock in trade. He submitted, the assessing officer has given a categorical finding that whatever investments made by the assessee in tax free bonds, securities, mutual funds, etc. are in compliance with RBI guidelines to maintain SLR. Thus, he submitted, the investment made for the purpose of maintaining SLR cannot be considered to be in regular course of business so as to treat it as stock in trade. He submitted, CBDT circular 18 of 2015 would be of no help to the assessee. Further, he submitted, in case of South Indian Bank Ltd vs CIT (supra), the Hon ble Supreme Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest free fund has to be seen on the date of investment. He submitted, since rule 8D has come into statute with effect from 01-04-2008, the assessing officer has to compute the disallowance following the mandate of Rule 8D. He submitted, the ratio laid down in case of South Indian Bank Ltd vs CIT (supra) would not be applicable as it is prior to introduction of Rule 8D and the Hon ble Court had no occasion to examine the applicability of Rule 8D. 16. On the contrary, he submitted, in case of Avon Cycles Ltd vs CIT (23015) 53 taxmann.com 297, the Hon ble Punjab Haryana High Court has held that interest expenditure relatable to investment in tax free funds has to be computed under rule 8D(2)(ii) in a case where the assessee has mixed funds. Therefore, the interest paid by the assessee is also an interest on the investment made. He submitted, while coming to such conclusion, the Hon ble High Court, though, took note of the decision of the Hon ble jurisdictional High Court in Reliance Utilities and Power Ltd (supra); however, they observed that unlike the case of Reliance Utilities and Power Ltd (supra), there is no clear finding of fact that the assessee had interest free fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of balance-sheet. To demonstrate that the assessee had sufficient interest free fund available on the date of balancesheet, learned senior counsel again drew our attention to the profit loss account and balance-sheet as at 31-03-2008. 19. As regards the contention of learned counsel for the revenue regarding absence of any material furnished by the assessee to reveal that the investments are held as stock in trade, learned senior counsel drew our attention to the submissions made before the assessing officer and the statement of facts filed before learned Commissioner (Appeals), wherein, the assessee has submitted that investment made are in regular course of business. Further, drawing our attention to the financial statements and computation of income, he submitted, the profit derived from sale of investment shown as business income has been accepted by the revenue. He submitted, the capital gain offered by the assessee is with regard to the depreciable assets. Therefore, he submitted, there cannot be any dispute that the investments are held as stock in trade. 20. With regard to the decision of Avon Cycles Ltd vs CIT (supra), learned senior counsel submitted, the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent Account deposits from banks and others ₹ 215363 lakhs Total ₹ 417120 lakhs 24. As against the interest free funds available with the assessee, the investments stood at ₹ 5600 lakh as on 31-03-2007 and ₹ 5202 lakh as on 31-03-2008. Further, if shares received from Lord Krishna Bank on amalgamation and earlier year s investments are reduced, the net investment made during the year is to the tune of ₹ 768 lakhs. Thus, the interest free fund available with the assessee is much more than the investment made. In fact, the net profit shown by the assessee as on 31-03-2008 amounting to ₹ 117198 lakh, itself is much more than the investments made. 25. Thus, prima facie, the facts and materials on record establish that the interest free fund available with the assessee is much more than the investment made. In case of CIT vs Reliance Utilities and Power Ltd (supra), the jurisdictional High Court, while considering the issue of disallowance of interest expenditure made under section 36(1)(iii), has observed that if the assessee has a common pool of interest free and interest beari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner s stock-in-trade. Consequently, there would be no occasion to invoke Section 14A of the Act as held by this Court in India Advantage Securities Ltd. (supra) wherein the Revenue s appeal from the order of the Tribunal was dismissed, to contend that no disallowance can be made under Section 14A of the Act in respect of exempted Income arising from stock-in-trade. 12. The impugned order of the Tribunal insofar as contention (a) above is concerned, chose to disregard the binding decision of this court in petitioner's own case being HDFC Bank Ltd.(supra). The impugned order of the Tribunal after recording that it is conscious that the decision of this Court are binding upon it proceeds on the basis that it had to decide which of the two decisions rendered in Godrej Boyce Mfg. Co. Ltd. (supra) and HDFC Bank Ltd.(supra). is to be followed. Thereby implying and proceeding on the basis that there is a conflict between the two decisions rendered by this Court in Godrej Boyce Mfg. Co. Ltd. (supra) and HDFC Bank Ltd. (supra). We are unable to understand on what basis the impugned order has proceeded on the basis that there is a conflict between the two decisions. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest free funds are more than the investments made, the presumption is that the investment in the tax free securities would have been made out of the interest free funds available with the assessee. Though, the decision of this Court in Reliance Utilities Power Lid. (supra) was rendered in the context of Section 36(1)(iii) of the Act, it was consciously applied by this Court while interpreting Section 14A of the Act in HDFC Bank Ltd. (supra), The impugned order of the Tribunal proceeds on the basis that Godrej Boyce Manufacturing Co. Lid. (supra) had considered the decision of this Court in Reliance Utilities and Power Lid. (supra), which is factually not so, The decision of this Court in Godrej Boyce Manufacturing Co, Lid. (supra) only makes a reference to the decision of this Court in Reliance Utilities Power Ltd. (supra) and gives no findings on the issue which arose in that case and its applicability while interpreting Section 14A of the Act. This Court in Godrej Boyce Mfg. Co. Ltd. (supra) has in fact restored all the issues to the Assessing Officer for fresh consideration. This Court in Godrej and Boyce Manufacturing Co. Ltd. (supra) did not decide whether or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Tribunal on the basis of the ratio of the decision of this Court in HDFC Bank Ltd. (supra). 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 CIT(A) 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 Lid (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 22nd December, 2010 under Section 143(3) of the Act. The CIT (A) passed an order on 21st November, 2011 dismissing the petitioner's appeal. On both the dates, when the orders were passed by the Assessing Officer and CIT (A), the authorities did not have the benefit of the order of this Court in HDFC Bank Ltd. (supra) rendered on 23rd July, 2014. Once the issue is settled by the decision of this Court in HDFC Bank Ltd. (supra), there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee . non-entertainment of an appeal being on the ground that this Court found no substantial question of law. Therefore, the impugned order holds that the decision relied upon in India Advantage Securities Ltd. (supra) does not lay down any binding proposition of law. 19. We are unable to comprehend how and why the impugned order of the Tribunal is of the view that if an appeal is not admitted from an order of the Tribunal, then it is open to the Tribunal in another case to decide directly contrary to the view taken by the earlier order of the Tribunal; which is not entertained by this court in appeal. This without even as much as a whisper of any explanation with regards to how and why the facts of the two cases are different warranting a view different from that taken by the Tribunal earlier. In fact when an appeal is not entertained then the order of the Tribunal holds the field and the coordinate benches of the Tribunal are obliged to follow the same unless there is some difference in the facts or law applicable and the difference in fact and / or law should be reflected in its order taking a different view. Moreover the impugned order of the Tribunal places reliance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / or set aside by the Apex Court or this very Court takes a different view on an identical factual matrix or larger bench of this Court takes a view different from the one already taken. 23. We are conscious of the fact that we are fallible and, therefore, an order passed by us may not meet the approval of all and some may justifiably consider our order to be incorrect. However the same has to be corrected/rectified in a manner known to law and not by disregarding binding decisions of this Court. In fact our court in Panjumal Hassomal Advani Vs.Harpal Singh Abnashi Singh Sawhney Ors. AIR 2975(Bom)120 has observed that a coordinate bench cannot refuse to follow an earlier decision on the ground that it is incorrect and / or rendered on misinterpretation. This for the reason that the decision of a co-ordinate bench would continue to be binding til] it is corrected by a higher Court, This principle laid down in respect of a co-ordinate Court would apply with greater force on subordinate Courts and Tribunals. We are also conscious of the fact that we are not final and our orders are subject to appeals to the Supreme Court. However, for the purposes of certainty, fairness and un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Ltd (supra), the Hon ble Court has held as under:- 17. In a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest-bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. To put it another way, in respect of payment made out of mixed fund, it is the assessee who has such right of appropriation and also the right to assert from what part of the fund a particular investment is made and it may not be permissible for the Revenue to make an estimation of a proportionate figure. For accepting such a proposition, it would be helpful to refer to the decision of the Bombay High Court in Pr. CIT v. Bombay Dyeing and Mfg. Co. Ltd where the answer on the question, whether the Tribunal was justified in deleting the disallowance under Section 80M of the Act on the presumption that when the funds available to the assessee were both interest free and loans, the investments made would be out of the interest free funds available with the assessee, provided the interest free funds were sufficient to meet the investments. The resultant SLP of the Revenue ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that while approving the theory of presumption that in case of common pool of funds, it will be presumed that interest free funds have been utilized for making the investments, the Hon ble Court went a step further and opined that in respect of payments made out of mixed funds, it is the assessee, who has the right of appropriation and also the right to assert from which part of the funds a particular investment is made and it may not be permissible for the revenue to make an estimation of a proportionate figure. While doing so, the Hon ble Supreme Court has approved the view expressed by the Hon ble Jurisdictional High Court in case of HDFC Bank Ltd vs DCIT (supra). Thus, the law declared by the Hon ble Supreme Court, as aforesaid, being the law of the land as per Article 141 of the Constitution of India, would be binding on all subordinate courts / tribunals / authorities, etc. Therefore, if we apply the ratio laid down by the Hon ble Supreme Court to the facts of the present case, it can be seen that though the assessee has common pool of funds; however, interest free fund available with the assessee is far in excess of the investments made. Therefore, the presumption that inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that availability of interest free fund has to be seen with reference to the date of investment, we are of the view that we cannot take cognizance of the said order of the Tribunal nor the order passed by the assessing officer while giving effect to the said order passed in miscellaneous application, as, the issue is sub judice before the Hon ble High Court and as a matter of fact, the order giving effect to passed by the assessing officer has been stayed. 32. One more contention raised by the learned counsel for the revenue is, all the decisions cited by the learned counsel for the assessee including the decision of the Hon ble Supreme Court in case of South Indian Bank Ltd vs CIT (supra) were in respect of assessment years prior to assessment year 2008-09 wherein Rule 8D was introduced. We are of the view that even if the decisions are prior to introduction of Rule 8D; however, it will not make any difference as the legal principle laid down in the decisions discussed herein before would apply even to assessment years subsequent to introduction of Rule 8D. In fact, in case of PCIT vs Ashok Apparels P Ltd (supra), even in respect of assessment years 2008-09 and 2009-10, which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore we proceed further, it is necessary to observe, the learned counsel for the assessee had made a submission before us that in case of a bank, since securities and investments are made in course of its business, they have to be regarded as stock in trade. Therefore, the provisions of section 14A will not be applicable. Countering the aforesaid submission of learned counsel for the assessee the learned standing counsel for the revenue has submitted that neither before the assessing officer nor before the appellate authorities, the assessee has furnished necessary evidence to show that the investments claimed to be stock in trade are non SLR. In this context, he drew our attention to certain observations of the Hon ble Supreme Court in case of South Indian Bank Ltd vs CIT (supra). 37. Having considered rival submissions, we are of the view that the issue whether the investments held by the assessee are in the nature of stock in trade or investment has become academic in the facts of the present case, since, we have deleted the disallowance made under rule 8D(2)(ii) and has directed the assessing officer to compute the disallowance under rule 8D(2)(iii) by considering only those ..... X X X X Extracts X X X X X X X X Extracts X X X X
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