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TMI Blog2024 (8) TMI 1516X X X X Extracts X X X X X X X X Extracts X X X X ..... wn case, we hereby held that the interest income and miscellaneous income earned by the assessee are directly related to the business of the assessee and assessable as "business income" only and not as "income from other sources". Thus the Ground no.1 raised by the Revenue is hereby rejected. Disallowance of interest expenses - AO made disallowance of interest expenses at 12% of capital work-in-progress (CWIP) as despite booking of capital work-in-progress in the books of account, no interest expenses were capitalized by the assessee - HELD THAT:- We find force in the contentions of the assessee, AO failed to understand the concept of "Capitalization of Borrowing Costs". A.O. has made addition out of the interest expenditure treating the same as attributable to the CWIP without appreciating the facts that the expenditure was in respect of existing building which was already put to use in earlier years and hence there was no question of capitalization any interest on account of the same. The interest on borrowed capital is capitalized to correctly account the cost of asset in the books. This interest is added to the cost of the long-term asset, so that the interest is not recogniz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.6,97,664/- (iii) Interest income on IT Refund of Rs.10,49,47,929/- (iv) Interest income treated as "other sources" of Rs.13,36,99,000/- (v) Dividend Income exempt u/s. 10(34/35) of Rs.12,07,96,095/- (vi) Adjustment in Book Profit under 115JB including the disallowance u/s. 14A. 4. Aggrieved against the assessment order, the assessee filed an appeal before Ld. CIT(A). Regarding the first issue of disallowance u/s. 14A, the Ld. CIT(A) considered the appellate orders passed by his predecessors for the Asst. years 2008-09 to 2014-15 and observed as under: "…..In the current assessment year, the appellant has claimed to have paid 1.59 lacs as interest on working capital. There is no fresh investment during the year under consideration. Hence, the AO is directed to recompute the disallowance u/s 14A as per Rule 8D according to the following directions: 1. The interest paid on working capital borrowing of Rs.1.59 lacs will not be considered for making disallowance out of interest expenses. 2. If the disallowance u/s14A r.w.r. 8D computed in view of above directions comes to less than the dividend income of 1207.96/- crores treated as exempt by the AO, then in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer for fresh adjudication by the Co-ordinate Bench of this Tribunal by following earlier Asst. Year 2008-09 by observing as follows: "…..10. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, there is no ambiguity that the Learned CIT (A) has decided the issue on hand after relying on the order of his predecessor for the Assessment Year 2008-09 which was subsequently set aside by the ITAT for fresh adjudication. ………………………… 10.1 As the facts of the case on hand are identical to the facts of the case as discussed above which has been set aside to the file of the AO for fresh adjudication as per the provisions of law, by the ITAT as discussed above. Respectfully following the order of this Coordinate Bench in the own case of the assessee, we set aside the issue on hand to the file of the AO for fresh adjudication in terms of the finding of the ITAT in its own case for the Assessment Year 2008-09 (Supra) as well as in accordance to the provisions of law. Hence, the ground of appeal of the assessee and the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 14A of the I.T. Act is covered under Clause (f) of Explanation 1 to Section 115JB(2) of the I.T. Act and accordingly the disallowance made u/s 14A of the I.T. Act is required to be added in computing the Book Profit u/s 115JB of the I.T. Act. [iv] It is, therefore, prayed that the order of the Ld. CIT (A) may be set aside and that of the Assessing Officer may be restored to the above extent. [v] The appellant craves leave to add, alter, amend and/or withdraw any grounds of appeal either before or during the course of appellate proceedings. 9. Ground No. 1 of the Revenue appeal namely Interest income from staff loans and advances of Rs.119.88 lacs and Misc. Income of Rs.9.15 lacs as 'business income' instead of 'Income from other sources'. 9.1 Ld. Counsel Shri Manish J. Shah appearing for the assessee submitted that this issue is covered against the Revenue's appeal before the High Court of Gujarat in Tax Appeal No. 63 of 2020 wherein it was held as follows: "… 13 With regard to question No.2[d], the Assessing Officer noticed that as per Schedule 14, the assessee has shown other income consisting of interest on loan and advances, incentives from CPSU, etc. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and advances of Rs. 26.74 lakhs under consideration, though disallowed by the Ld. AO, the same was subsequently allowed by the Ld. CIT(A) on the basis of the order passed by the Coordinate Bench in assessee's own case. In this respect, the assessee further relied upon the judgment passed in the matter of DCIT vs. Gujarat Urja Vikas Nigam Ltd. in ITA No. 569/Ahd/2019. wherein similar ground was allowed in favour of the assessee, a copy whereof was also submitted before us. …………….. 14. The case made out by the assessee therein is not akin to the case made out by the assessee before us. Though interest on other loans and advances has been contended as was of business exigencies on the assessee, it has not been able to demonstrate by the assessee that the nature of this income is from business activities particularly when separate head for interest income in the return of income has been shown which is to be included in other income. Neither the miscellaneous income has been able to be shown from routine business activities of the assessee. The assessee failed to demonstrate that the income which is not revenue from operations as required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record. 10. The Tribunal therefore ought to have considered such aspect while deciding the Misc. Application under section 254(2) of the Act. … … … … … … … … … 12. From the above observation of the Tribunal it is clear that though the Tribunal has referred to the decision of the Coordinate Bench as well as the binding decision of this Court which is a Jurisdictional High Court and has relied upon the decision of the Hon'ble Orissa High Court on the ground that as per the view of the Tribunal, the interest earned on the staff loan and advances incidental to the assessee's business is factually incorrect as the loan advances given to the employees are not mandatory incentive given to the staff and cannot be termed as incidental to the business. The Tribunal could not have taken different view than what was already taken by the Coordinate Bench which is confirmed by this Court in Tax Appeal No. 63/2020. Thus, there is a mistake apparent on the face of the record in the order dated 24.08.2022 passed by the Tribunal which ought to have been considered by the Tribunal and the Misc. Application preferred by the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... denial of justice, and is furthermore destructive of one of the basic principles in the administration of justice based as it is in this country on a hierarchy of courts. If a subordinate Tribunal refuses to carry out directions given to it by a superior Tribunal in the exercise of its appellate powers, the result will be chaos in the administration of justice.... A direct question arose before the Supreme Court in East India Commercial Co. Ltd. vs Collector of Customs, AIR 1962 SC 1893. In that case, proceedings were initiated by the Collector of Customs against the petitioner-company on allegations that it had violated conditions of licence and illegally disposed of goods and thereby committed an offence punishable under the Customs Act. The High Court confirmed the order of acquittal passed by the trial court holding that it cannot be said that "a condition of the licence amounted to an order under the Act" and, therefore, no offence was committed by the company. The High Court also passed an order directing the seized/goods to be sold and the sale proceeds to be deposited in the court. After those proceedings, a notice was issued by the Collector on the company to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 authorities 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." The above view has been reiterated by the Supreme Court in a number of subsequent decisions (see M. Padmanabha Setty v,K.P. Papiah Setty, AIR 1966 SC 1824; Kausalya Devi Bogra v. Land Acquisition Officer, AIR 1984 SC 892 and Bishnu Ram Borah v.Parag Saikia, AIR 1984 SC 898). In our opinion, the submission of learned counsel for the petitioner, is well-founded and deserves to be upheld. It is not even the case of the Department that the decision of this court in Bharat Textile Works' case [1978] 114 ITR 28 has been stayed by the Supreme Court. Hence, so far as this court is concerned, the point is concluded. It is settled law that unless and until the decision is reversed by a superior court, it holds the field. It also cannot be gainsaid that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt are bound by it and must scrupulously follow the said decision in letter and spirit. Since the second respondent has not decided the matter in accordance with law laid down by this court in the case of Bharat Textile Works [1978] 114 ITR 28 , the order passed by him requires to be quashed and set aside." 15. IN view of the above conspectus of law, the decision of the jurisdictional High Court is binding up on the Tribunal. In such circumstances, not following the binding decision is mistake apparent on record. The impugned orders are accordingly quashed and set aside. The matter is remanded back to the Tribunal to pass fresh orders in Misc. Application preferred by the petitioner in view of the observation made in this order. Rule is made absolute to the aforesaid extent. No order as to costs." 11.1. In the above case Hon'ble High Court categorically observed the order passed by the Tribunal by not following the decisions of the Co-ordinate Bench on the identical facts, which is confirmed by the Hon'ble High Court is binding up on the Tribunal. Not following the Judgement passed by Jurisdictional High Court is clear mistake apparent on the record and against the Judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case on hand and when it has been found that the assessee was having interest-free funds far in excess of investments and therefore, it can be said that the investments are made out of interest-free funds and therefore, the AO was not justified in making additions and/or making disallowance under section 36(1)(iii) of the IT Act. Under the circumstances, no error and/or illegality has been committed by the learned ITAT in deleting the disallowance made by the AO under section 36(1)(iii) of the IT Act. No question of law much less substantial question of law arise with respect to deletion of the disallowance made by the AO under section 36(1)(iii) of the IT Act. " 13. Per contra Ld. D.R. appearing for the Revenue supported the order passed by the A.O. 14. We have carefully considered the facts on the records, the submission of the assessee and that of the Department. We find force in the contentions of the assessee, the Ld. Assessing Officer failed to understand the concept of "Capitalization of Borrowing Costs". The Ld. A.O. has made addition of Rs. 6,97,664/- out of the interest expenditure treating the same as attributable to the CWIP without appreciating the facts that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in holding that adjustment made on account of disallowance u/s.14A of the Act in computation of book profit u/s. 115JB of the Act is not as per law without appreciating that the amount disallowable under section 14A is covered under clause (f) of Explanation to section 115JB(2) and, thus, said amount has to be added back while computing amount of book profit? 22. The Hon'ble Gujarat High Court has replied this question as under: 7. So far as issue Nos.(iii) and (iv) are concerned, the learned counsel for the assessee has relied on the decision of this court in the case of Commissioner of Income tax-I v. Gujarat State Fertilizers & Chemicals Ltd., reported in (2013) 358 ITR 323 (Gujarat) Where this court has held in paragraph Nos.6 to 6.5 this court has observed as under: 6. So far as the fourth question is concerned, it pertains to addition of Rs.1,14,43,040/under Section 115JB of the Act being the expenditure estimated on earning of dividend income under Section 14A of the Act. 6.1 The Assessing Officer on referring to the said provision of Section 115JB(2) of the Act added the said amount considering that any amount of expenditure relatable to the income exempted und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the case of Bengal Finance & Investments P. Ltd. (supra) and replied as under: (b) Whether on the facts and in the circumstances of the case, and in law, the ITAT is justified in deleting the addition of Rs.78,84,387/- under clause (f) of Explanation 1 to Section 115JB relying upon the decision in the case of Goetze (India) Ltd. Vs. CIT (2009) 32 SOT 101 (Del.), which has been followed by ITAT, Mumbai in the cases referred to in para 5 of the impugned order without appreciating that the above decision in the case of Goetze (India) Ltd. was rendered by the ITAT, Delhi Bench on completely distinguishable set of facts, peculiar to the said case?" …... 4. So far as question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. Vs. DCIT in ITA No.3850/Mum/2010 to held that an amount disallowed under section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue's Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.438 of 2012 rendered on 7th August, 2014. In view of the above, question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue is relating to Interest Income and Misc. Income to be treated as "Income from Other Sources". This ground is already dealt by us in Para 9 to 11.2 of this order in ITA No. 223/Ahd/2022 wherein it is held Interest income and Misc. Income earned by the assessee are directly related to the business of the assessee and assessable as "business income" only. Thus Ground N. 2 raised by the Revenue is hereby rejected. 21. Ground No. 3 is adjustment made on account of disallowance u/s. 14A to be added in the computation of book profit u/s. 115JB of the Act. This issue is directly covered against the Revenue by Hon'ble High Court of Gujarat in assessee's own case in Tax Appeal No. 63 of 2020 which was considered by us in Para 15 to 15.1 of this order in ITA No. 223/Ahd/2022. Respectfully following the same, this Ground No. 3 raised by the Revenue is hereby dismissed. 22. Ground No. 4 is general in nature which does not require separate adjudication. 23. In the result, the appeal filed by the Revenue in ITA No. 293/Ahd/2024 is partly allowed. 18. In the combined result, the appeal filed by the Assessee in ITA No. 231/Ahd/2024 and the appeal filed by the Revenue in ITA No. 293/Ah ..... X X X X Extracts X X X X X X X X Extracts X X X X
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