Income Tax Act, 1961 - Section 148, 148A(b), 148A(d) and 151A - The petitioner, challenged the reassessment proceedings initiated under Section 148A(b) and subsequent issuance of notices under Section 148, alleging that income escaped assessment due to disallowed broken period interest (BPI) on securities. The petitioner contended that BPI is an allowable deduction, a matter previously adjudicated in its favor by the Supreme Court in Bank of Rajasthan Ltd. v. CIT and other judgments. The reassessment arose three years after a finalized assessment by NFAC, which initially excluded BPI from taxable income - Whether the reassessment proceedings initiated under Section 148A(b) were legally sustainable - Whether broken period interest on purchase of HTM securities is allowable as a revenue deduction - Whether reassessment proceedings violated principles of judicial discipline in light of binding precedents from the Supreme Court and High Court – HELD - The Court held that reassessment proceedings were without jurisdiction as they contradicted settled principles in Bank of Rajasthan Ltd. v. CIT and CIT v. Citibank N.A., which allow BPI as a revenue deduction. The Assessing Officer's reliance on pending Supreme Court cases, without a stay on binding precedents, was legally untenable - Broken period interest was ruled deductible as per consistent accounting practices and established jurisprudence, reaffirmed by the Supreme Court and the Bombay High Court in similar cases like American Express International Banking Corp. v. CIT - The Court criticized the Revenue's disregard for binding precedents, emphasizing that decisions of constitutional courts are binding until overturned. It directed the CBDT to ensure compliance with judicial orders to prevent undue harassment of taxpayers - The Court quashed the reassessment notices issued under Sections 148A(b) and 148, affirming that the initiation of reassessment proceedings lacked jurisdiction and violated binding judicial precedents. The petition was allowed with explicit directions to enforce judicial discipline among tax authorities

 

2024-VIL-248-BOM-DT

Neutral Citation: 2024:BHC-OS:21311-DB

 

IN THE HIGH COURT OF JUDICATURE AT BOMBAY

ORDINARY ORIGINAL CIVIL JURISDICTION

 

WRIT PETITION NO. 4946 OF 2024

 

DATE: 02.12.2024

 

BANK OF INDIA

 

Vs

 

1. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE – 2(1)(1), MUMBAI

2. CHIEF COMMISSIONER OF INCOME TAX, MUMBAI-1, MUMBAI.

3. UNION OF INDIA, THROUGH THE JOINT SECRETARY & LEGAL ADVISORS, BRANCH SECRETARIAT,

DEPARTMENT OF LEGAL AFFAIRS, MINISTRY OF LAW AND JUSTICE, MUMBAI

 

For the Petitioner: Mr. P.J. Pardiwalla, Senior Advocate a/w. Mr. Jeet Kamdar i/b. Atul K. Jasani.

For the Respondents: Ms. Samiksha Kanani a/w. Prasanna Pawar.

 

CORAM

G. S. KULKARNI & ADVAIT M. SETHNA, JJ.

 

Oral Judgment (Per G. S. Kulkarni, J.):

 

1. Rule, made returnable forthwith. Respondents waive service. By consent of the parties, heard finally.

 

2. A short issue which arises for consideration in the present proceedings is whether the petitioner/assessee is entitled for deduction to the broken period interest (BPI) on purchase of hold to maturity (HTM) securities.

 

3. This petition under Article 226 of the Constitution of India is filed praying for the following substantive reliefs:

 

“a) that this Hon’ble Court be pleased to issue a Writ of Certiorari, or a Writ in the nature of Certiorari, or any other appropriate Writ, order or direction under Article 226 of the Constitution of India, calling for the records of the petitioner’s case and after examining the legality and validity thereof quash, cancel and set aside the impugned show cause notice dated August 1, 2024 (Exhibit L), the impugned order dated August 30, 2024 (Exhibit O) and the impugned notice dated August 30, 2024 (Exhibit P) issued by respondent no. 1.

 

b) that this Hon’ble Court be pleased to issue a Writ of Mandamus, or a Writ in the nature of Mandamus, or any other appropriate Writ, order or direction under Article 226 of the Constitution of India, ordering and directing respondents to withdraw and cancel the impugned show cause notice dated August 1, 2024 (Exhibit L), the impugned order dated August 30, 2024 (Exhibit O) and the impugned notice dated August 30, 2024 (Exhibit P) issued by respondent no. 1.

 

c) that this Hon’ble Court be pleased to issue a Writ of Prohibition, or a Writ in the nature of Prohibition, or any other appropriate Writ, order or direction under Article 226 of the Constitution of India, ordering and directing respondent no. 1 to permanently refrain from giving effect to and/or proceeding further by way of reassessment or otherwise in any manner in respect of the impugned show cause notice dated August 1, 2024 Exhibit L), the impugned order dated August 30, 2024 (Exhibit O) and the impugned notice dated August 30, 2024 (Exhibit P) issued by respondent no. 1.”

 

4. It is seen that the reliefs prayed by the petitioner has its genesis from the proceedings initiated against the petitioner under Section 148 of the Income Tax Act, 1961 (for short, “the I.T. Act”), which revolves around the addition as made by the Assessing Officer in regard to the broken period interest on purchase of securities.

 

5. The relevant facts are: -

The assessment year in question is assessment year 2018-19. The petitioner filed its return of income declaring a total loss of an amount of Rs.64,16,21,52,964/-. On 31 March 2018, revised return of income was filed declaring total loss of Rs.63,96,27,72,352/-. The petitioner contends that the notes appended to the computation of income at Sr. No. 1.12 provided details of broken period interest paid on purchase of securities.

 

6. In regard to the return filed by the petitioner, on 22 September 2019, for the assessment year in question, a notice under section 143(2) of the I.T. Act was issued to the petitioner. Thereafter, on 1 January 2020, a notice under Section 142(1) was issued to the petitioner, which was followed by similar notices dated 14 January 2020 and 19 March 2021.

 

7. The petitioner, by its letter dated 26 March 2021 addressed to respondent no. 1, provided all the details of the broken period interest paid on securities, which was a total amount of Rs.249,45,00,000/-. A statement of calculation in that regard was enclosed to such communication as Annexure 4. On 4 August 2021, a draft assessment order was passed under Section 143(3) read with Section 144B of the I.T. Act by the National Faceless Assessment Centre (for short “NFAC”) making an addition of Rs.9,557.32 crores, which included an addition of amounts towards the broken period interest of Rs.249.45 crores. In such order, the said revenue expenditure in regard to securities held as stock-in-trade, was rejected by the Assessing Officer and the same was treated as capital in nature.

 

8. Thereafter, a show cause notice dated 4 August, 2021 came to be issued to the petitioner by the NFAC to show cause as to why the variation as proposed should not be made as per the draft assessment order. The petitioner submitted its reply dated 10 August, 2021 raising its objections to the issues as raised in the show cause notice, in which the petitioner addressed each of the issues as raised in the draft assessment order. The petitioner also made a reference to its prior letter dated 26 March, 2021, which we have noted hereinabove, explaining the expenditure in regard to the broken period interest. Thereafter, a hearing was granted to the petitioner on 23 September, 2021 as also submissions were filed by the petitioner on 24 September, 2021.

 

9. On 28 September, 2021, NFAC passed an assessment order under Section 143(3) read with Section 144B making an addition of Rs.9307.87 crores and deleted addition on broken period interest made in the draft assessment order. Also on the even date, a computation sheet as also a notice of demand was issued by the Assessing Officer. All these documents form part of the record of this petition at Exhibits ‘J’ & ‘K’ to the petition.

10. On such backdrop, on 1 August, 2024, which is almost after about 3 years of the assessment order being passed by the NFAC, the impugned show cause notice was issued to the petitioner by respondent no. 1 under Section 148A(b) recording that income has escaped assessment as revealed in the objections as raised by the revenue audit, by referring to the draft assessment order, wherein an addition of Rs.249.45 crores was made on account of broken period interest on purchase of HTM securities, but no addition was made in the final assessment order. Also, additions in regard to the broken period interest were made, during the scrutiny assessments for AY 2015-16 and AY 2016-17. Also the show cause notice has made a reference to the assessment orders in the case of Central Bank and Dena Bank for AY 2018-19 where similar additions were made. The petitioner also furnished copy of the audit objection.

 

11. On 8 August, 2024, the petitioner filed its reply to the impugned show cause notice inter alia relying on Section 151A as also providing various details on broken period interest. The petitioner also relied on the order passed by the CIT(A) for AY 2015-16 and AY 2016-17 in the petitioner’s own case where broken period interest was allowed and before the Tribunal, appeal of the department was disposed of. It was also contended that the Tribunal had passed an order for AY 2011-12 where broken period interest was allowed relying on the decision in the petitioner’s own case. It is on such backdrop, on 30 August, 2024 the impugned order under Section 148A(d) was passed by respondent no. 1 rejecting the petitioner’s objection to the show cause notice inter alia observing that the issue under Section 151A was pending before the Supreme Court in the case of PCIT & Ors. vs. Hexaware Technologies Ltd. [SLP (C) No. 21188 of 2024] and The Income Tax Officer & Ors. vs. Kankanala Ravindra Reddy [SLP (C) No. 3574 of 2024]. Insofar as the broken period interest was concerned, the impugned order under section 148A(d) records that in the case of CIT vs. HDFC Bank Ltd. in SLP No. 1448 of 2021 the issues are pending before the Supreme Court and that this is a fit case for issuing notice under Section 148 of the Act and accordingly by rejecting the petitioner’s objections by the said order, impugned notice dated 30 August, 2024 came to be issued to the petitioner under Section 148 of the I.T. Act.

 

12. It is on the above backdrop, the petitioner is before the Court assailing the impugned notice under section 148A(b) as also the impugned order passed thereon under Section 148A(d) dated 30 August, 2024 and a consequent notice dated 30 August, 2024 issued under Section 148 of the Act.

 

13. Reply affidavit of Mr. Ganesh S. Iyer, Deputy Commissioner of Income-tax, Circle 2(1)(1), Mumbai is filed on behalf of the Revenue opposing this petition, which is primarily the stand of the Revenue in rejecting the petitioner’s objection to the reopening of the assessment.

 

Submissions on behalf of the petitioner: -

14. Mr. Pardiwalla, learned senior counsel for the petitioner would submit that the sole ground on which the notice under Section 148A(b) is issued to the petitioner, is on the count that the amounts qua the broken period interest ought to be added, as seen in paragraph 3 of the impugned notice. It is submitted that the issue sought to be raised by respondent no. 1 is no more res integra inasmuch as such action to reopen the assessment of the petitioner on the issue of broken period interest, being allowable as a deduction while computing income now stands settled, in view of the decision of the Supreme Court in the case of Bank of Rajasthan Ltd. vs. Commissioner of Income-tax [(2024) 167 taxmann.com 430 (SC)] and CIT vs. Citibank N.A. [Civil Appeal No. 1549 of 2006 (SC)] as also the decision of this Court in American Express International Banking Corporation vs. CIT [(2002) 258 ITR 601 (Bom.)] . Additionally, drawing the Court’s attention to the decision of this Court in Hexaware Technologies Ltd. (supra), it is submitted that if the impugned action is tested by applying the principles as laid down in this decision, the same will be required to be quashed and set aside as being initiated without jurisdiction by the Jurisdictional Assessing Officer.

 

15. Apart from the ground that the impugned notice issued under Section 148A(b) and the Section 148 notice being issued without jurisdiction, hence clearly illegal on the applicability of the principles in Hexaware Technologies (supra), the petitioner has raised an issue of a fundamental error of the Assessing Officer in taking a decision to reopen the assessment and to make additions on the broken period interest, which according to the petitioner, was certainly allowable as deduction while computing business income, as held by the Supreme Court in Bank of Rajasthan Ltd. (supra) and CIT vs. Citibank N.A. (supra), on the basis of which, the petition would be required to be allowed.

 

16. In supporting the contention on broken period interest, the petitioner has placed reliance on a recent decision of this Bench in HDFC Bank Ltd. vs. The Deputy Commissioner of Income-tax [Income Tax Appeal No. 58 of 2006 dated 13 November, 2024], in which the question of law which had fell for consideration of this Court was “Whether the ITAT erred in holding that the appellant was not entitled to a deduction in respect of the broken period interest paid by it”. Question nos. 1 and 2 pertain to the broken period interest, which were answered by this Court in favour of the assessee and against the Revenue taking into consideration the decisions in the case of Vijaya Bank Ltd. vs. Additional Commissioner of Income-tax [(1991) 187 ITR 541 (SC)] as also the decision of this Court in American Express International Banking Corporation (supra) and CitiBank N.A. vs. Commissioner of Income Tax [ITA No. 278 of 1997] against which the Revenue’s appeal was rejected by the Supreme Court by an order dated 12 August, 2008. This Court also took into consideration the decision of the Supreme Court in CIT vs. Citibank N.A. [Civil Appeal No. 2641 of 2004 decided on 12 August, 2008] , which was on an appeal filed by the Revenue against the decision of this Court being rejected by the Supreme Court. The Court also referred to the decision of the Supreme Court in Bank of Rajasthan (supra) wherein the Supreme Court affirmed the view which was taken by this Court in Citibank NA (supra), American Express International Banking Corporation (supra) as also in HDFC Bank Ltd. vs. CIT [(2014) 49 taxmann.com 335].

 

17. On behalf of the Revenue, the aforesaid legal position is not being disputed.

 

Reasons and conclusion: -

18. Having heard learned counsel for the parties and having perused the record, we find substance in the contentions as urged on behalf of the petitioner. At the outset, we may observe that the impugned notice in clause (b) of Section 148A of the I.T. Act has recorded the issue of broken period interest as the only ground to make the additions. Such reasons as set out in the impugned notice reads thus:

 

“3. It was noticed from the Draft Assessment order dated 23.04.2021 (Sr. 7) that addition of Rs.249,45,00,000/- on account of broken period interest (BPI) on purchase of HTM Securities was made. It was mentioned in the Review Report dated 12.05.2021 (Sr.6) that the broken period interest of Rs.249,45,00,000/- which relates to securities bought in the year but held in the stock requires to be disallowed and added to the income of assessee. However, it was noticed from the final assessment order dated 28.09.2021 that no addition has been made in this regard. The reasons for non addition of the same was not mentioned in the final assessment order nor the same was available in the records produced to audit. It was seen that additions of broken period interest were made during scrutiny assessments for AY 2015-16 and 2016-17. The addition made by the department for AY 2015-16 was not deleted by ITAT as seen from the order giving effect to ITAT order. It was also noticed from Assessment orders for AY 2018-19 in respect of Central Bank of India and Dena Bank that additions in this regard have been made by the department. This resulted in under assessment of income of Rs.249,45,00,000/- with consequent short levy of tax of Rs.86,32,96,560/- excluding interest as detailed below.

 

 

19. As noted earlier, the petitioner replied to the said show cause notice wherein the petitioner has set out the entire legal position before the Assessing Officer and most importantly relying on the decisions which we have noted hereinabove. However, in the impugned order passed by respondent no. 1 in rejecting the contentions as urged by the petitioner on law, it was simplicitor recorded that the petitioner could not be raising such contention, as the issue which had arisen on the broken period interest was pending before the Supreme Court in the case of CIT vs. HDFC Bank Ltd. (supra). The finding as recorded in this regard by the Assessing Officer in the impugned order passed under Section 148A(d) rejecting the petitioner’s reply to the show cause notice are also required to be noted, which reads thus:

 

“5.2 In this regard, it is to be stated that the department has filed SLP against the judgment of the Hon'ble jurisdictional Bombay High Court in Hexaware Technologies Ltd. on the issue of the jurisdiction of Jurisdictional Assessing Officer (JAO) to initiate the reopening of assessment u/s. 148A of the Income Tax Act, 1961. SLP of the Revenue has been admitted against the earlier decision on the same issue of Hon'ble Telengana High Court and SLP of the Revenue in the case of Ms. Hexaware Technologies Ltd. has been filed by the department vide diary No.37843/2024. This order is being passed subject to the outcome of the judgment of Hon'ble Supreme Court.

 

Analysis of merit of the contention of the assessee on the issue of broken period interest (BPI) on purchase HTM Securities of Rs. 249,45,00,000/-:-

 

5.3 It is the contention of the assessee that it has claimed the deduction amounting to Rs. 249,45,00,000/- being broken period interest (BPI) on purchase HTM Securities relying on its consistent accounting practice and relied on the decision of the jurisdictional Id. ITAT, Mumbai in own case in ITA No.4491/Mum/2016 for AY 2011-12 wherein the Ld. ITAT has relied on the Hon'ble jurisdictional High Court in the case of CIT vs State Bank of India. It is the contention of the assessee that the Revenue's appeal against the learned Tribunal's decision in own case for AY 2015-16 was dismissed vide order dated 11.12.2020.

 

5.4 This office records showed that revenue has filed appeal to the Hon'ble Apex Court and Revenue's appeal on the same issue in the case of CIT V/S HDFC Bank Ltd in SLP No. 1448/2021 relying upon the decision Registered on 22-01-2021 is pending with Hon'ble Apex Court. Hence, in order to continue with the stand of the revenue that the same is not allowable as deduction while computing the business income, the ratio in own case in earlier years is not found as stopping initiation of income escaping assessment for this year since the same is based on 'information' falling under clause (ii) of explanation one to section 148.”

(emphasis supplied)

 

20. We have given our anxious consideration to the issues as involved. We are inclined to accept the petitioner’s contention on the position in law in regard to the broken period interest on the purchase of HTM securities, which appears to be well settled in view of the decision as rendered by the Supreme Court in the case of Bank of Rajasthan (supra) and other decisions which are referred by us. Similar question had recently fell for the consideration of the Division Bench of which one of us (G. S. Kulkarni, J.) was a member, as pointed out on behalf of the petitioner in the case of HDFC vs. DCIT (supra) wherein on question of law nos. 1 and 2 which were recorded in paragraph 2 of the order of the Division Bench, the Court answered the questions in the affirmative in favour of the assessee and against the revenue, when it was held that the Income-tax Appellate Tribunal had erred in holding that the appellant therein (HDFC) was not entitled to a deduction in respect of the broken period interest paid by it. The relevant observation made by the Court taking into consideration the said decisions reads thus:

 

“2. By an order dated 19 November, 2008, a co-ordinate Bench of this Court admitted the present appeal on the following substantial questions of law:

 

“1. Whether the ITAT erred in holding that the appellant was not entitled to a deduction in respect of the broken period interest paid by it?

 

2. Whether the ITAT’s observations regarding the method of accounting followed by the appellant in respect of broken period interest are vitiated by factual errors?

 

3. Whether the ITAT erred in holding that the appellant was not entitled to a deduction in respect of the expenditure incurred by it on the issue of FCD’s?”

 

3. We have heard Mr. Mistri, learned senior counsel for the appellant and Mr. Suresh Kumar for the respondent.

 

Questions of Law No. 1 and

2 4. The facts relevant to the questions of law no. 1 and 2 need to be noted: The appellant is inter alia engaged in the business of providing long term finance in the course of which, various securities are held as stock in trade. These securities are purchased from time to time, which carry interest. The purchase price includes the component of interest for the broken period. The securities which remain unsold at the end of the year are shown in the closing stock at cost. However, while computing the income, the assessee claims deduction on account of interest for the broken period in respect of unsold securities since according to assessee, the entire interest income accrues to the assessee on the fixed date falling after the end of previous year. However, the assessee offered the interest income in respect of such securities in the next year either when the securities were sold or when interest is received. As observed by the Tribunal, for the assessment year 1991-92 (subject matter of one of the appeals), the broken period interest amounted to Rs.1,32,88,488/- which included the sum of Rs.95,05,870/- pertaining to earlier years. The Assessing Officer rejected the claim of the assessee and disallowed the sum of Rs.37,82,618/- (Rs.1,32,88,488 – Rs.95,05,870). Similarly, disallowances were made for the assessment year in question. The reason for disallowance was that broken period interest formed part of the price of the asset purchased, which has already been debited to Profit & Loss Account and, therefore, question of allowing deduction did not arise in view of the Supreme Court judgment in the case of Vijaya Bank Ltd. vs. Additional Commissioner of Income-tax [(1991) 187 ITR 541 (SC)] .

 

5. The assessee was aggrieved by such view taken by the Assessing Officer and carried the matter in appeal before the Commissioner of Income-tax (Appeals) (for short “CIT(A)”), who also agreed with the Assessing Officer and accordingly confirmed the order passed by the Assessing Officer. Against such orders passed by the CIT(A), the appellant carried the matter to the Tribunal. The Tribunal also did not accept the contentions as urged on behalf of the assessee that the interest on securities is taxable as business income, since securities are held as stock in trade, as also that the interest which was paid on purchase of securities would be on revenue account, which would entitle the assessee to claim as revenue loss, being the consistent accounting method followed by the assessee, which according to the assessee, would entitle it to set-off such loss against its income. The Tribunal in rejecting the assessee’s contention was of the view that when the securities are purchased by the appellant along with interest thereon, the price paid becomes the cost of the asset which is to be debited to Profit & Loss Account. The Tribunal observed that the assessee debited the entire cost of the purchase including broken period interest to Profit & Loss Account as per the commercial practice. Hence, if the security is sold, then profit would form part of the Profit & Loss Account as sales would be credited. It was observed that when such security was not sold, then as per the settled principle of accountancy, it has to be shown in the closing stock either at cost or market price whichever is lower. There is no other method of accounting for computing business profit. The Tribunal rested its view referring to the decision of Supreme Court in Chainrup Sampatram vs. Commissioner of Income-tax [(1953) 24 ITR 481 (SC)]. It is for such reason the Tribunal was of the considered opinion that the question of allowing any deduction separately did not arise.

 

6. Mr. Mistry has submitted that the questions of law no. 1 and 2 would no more be res integra. In support of such contention, Mr. Mistry has drawn our attention to the orders passed by the Division Bench of this Court in American Express International Banking Corporation vs. Commissioner of Incometax [(2002) 258 ITR 601(Bom)] wherein similar questions as the present questions had fell for consideration of the Division Bench. The key issue which fell for consideration there was in regard to the correct treatment of the broken period interest needs to be accorded under the I.T. Act and whether the broken period interest (net) paid by the assessee at the time of purchase of securities was a part of the capital costs of the investment and, therefore, the purchase price of the securities cannot be bifurcated into interest accrued up to the date of purchase and balance of the price. The Court considered the Revenue’s contention that the payment for the broken period interest (net) cannot be claimed as a revenue expenditure and it was the assessee’s contention that the banks were valuing the securities/interest held by it at the end of each year and offered to tax, the appreciation in their value by way of profits/interest earned. In answering such question, the Court considered the decision of the Supreme Court in Vijaya Bank Ltd. (supra), the question was answered in favour of the assessee in the following terms:

 

“Therefore, under either method, the same amount is offered for tax, The Department has not been able to show in this case as to why the method adopted by the assessee-bank ought to be rejected. On the other hand, the Department has not been able to explain as to why broken period interest received should be taxed whereas broken period interest payment should be disallowed. In the circumstances, we uphold the order of the Tribunal.

 

……..

 

In the light of what we have discussed hereinabove, we find that the assessee's method of accounting does not result in loss of tax/revenue for the Department. That, there was no need to interfere with the method of accounting adopted by the assessee-bank. That, the judgment in the case of Vijaya Bank Ltd., had no application to the facts of the case. That, having assessed the income under Section 28, the Department ought to have taxed interest for the broken period interest received and the Department ought to have allowed deduction for the broken period interest paid.”

 

7. The decision of the Division Bench in American Express International Banking Corporation (supra) was assailed before the Supreme Court in the proceedings of Special Leave to Appeal (Civil) CC.301-303/2004, which came to be rejected by an order dated 27 January, 2004.

 

8. Mr. Mistry has also drawn our attention to an order passed by this Court in ITA No. 278 of 1997 in the case of CitiBank N.A. vs. Commissioner of Income Tax wherein similar issues had arisen for consideration of the Court, when the Court answered the questions in favour of the assessee. The order dated 16 April, 2003 passed by the Division Bench was carried to the Supreme Court in the proceedings of Civil Appeal No. 1549 of 2006 in Commissioner of Income Tax vs. CitiBank N.A. The Supreme Court rejected the Revenue’s appeal by its judgment dated 12 August, 2008 where the Supreme Court referring to the decision in Vijaya Bank Ltd. vs. Additional Commissioner of Income Tax, Bangalore (supra) as also the decision of this Court in American Express (supra) rejected the Revenue’s appeal. The following are the observations of the Supreme Court:

 

“The facts in the present case are similar to the facts in American Express (supra). Agreeing with this view and accepting the distinction pointed out by the Bombay High Court, this Court dismissed the two special leave petitions filed by the revenue, one of which was dismissed by a three Judge Bench.

 

After going through the facts which are similar to the facts in American Express (supra), since the tax effect is neutral, the method of computation adopted by the assessee and accepted by the revenue cannot be interfered with. We agree with the view expressed by the Bombay High Court in American Express (supra) that on the facts of the present case, the judgment in Vijaya Bank Ltd. (supra) would have no application.

 

For the reasons given above, the question posed before us is answered in the affirmative i.e. in favour of the assessee and against the revenue.

 

The Appeal is dismissed accordingly. Parties to bear their own costs.”

 

9. Similar view was taken by the Supreme Court in dismissing another appeal filed by the Revenue in the case of Commissioner of Income Tax vs. Citi Bank N.A., [Civil Appeal No. 2641 of 2004 decided on 12 August, 2008.] for AY 1982-83.

 

10. Mr. Mistry has also drawn our attention to an order passed by this Court in assessee’s own case (Housing Development Finance Corporation Ltd. - the assessee as formerly known), which was on three Income-tax Appeals filed for the A.Ys. 1991-92, 1992-93 and 1994-95, wherein following the decision of this Court in American Express International Banking Corporation (supra) and CitiBank N.A. (supra), the appeals filed by the appellant were allowed in favour of the assessee. Such orders passed by this Court need to be noted, which read thus:

 

“1. These three Appeals under Section 260A of the Income Tax Act, 1961 (the Act), challenge the order dated 4th August, 2005 passed by the Income Tax Appellate Tribunal (the Tribunal). The common impugned order dated 4th August, 2005 disposes of the Appeals for Assessment Years 1991-92, 1992-93, 1993-94 and 1994-95. These three Appeals relate to Assessment Years 1991-92, 1992-93 and 1994-95.

 

2. The above three Appeals were admitted on 19th November, 2008 on the following identical substantial questions of law:

 

“(a) Whether the Tribunal erred in holding that the Appellant was not entitled to a deduction in respect of the broken period interest paid by it?

(b) Whether the Tribunal's observations regarding the method of accounting followed by the Appellant in respect of broken period interest are vitiated by factual errors?”

 

3. It is an agreed position between the parties that the issue raised herein stands concluded against the Respondent Revenue and in favour of the Appellant Assessee by the decision of this Court in American Express International Banking Corporation v/s. CIT 258 ITR 601, CIT v/s. HDFC Bank Ltd., 366 ITR 505 and the decision of the Supreme Court in CIT v/s. Citi Bank N.A. (Civil Appeal No. 1549 of 2006) decided on 12th August, 2008.

 

4. In view of the above, both the substantial questions of law are answered in the affirmative i.e. in favour of the Appellant Assessee and against the Respondent-Revenue.

 

5. Accordingly, all the Appeals are Allowed.”

 

11. Our attention is also drawn to a recent decision of the Supreme Court in Bank of Rajasthan Ltd. vs. Commissioner of Income-tax [(2024) 167 taxmann.com 430 (SC)] wherein the Supreme Court affirmed the view taken by this Court in Citi Bank NA (supra), American Express International Banking Corporation(supra) as also in HDFC Bank Ltd. vs. CIT [(2014) 49 taxmann.com 335] .

 

12. Mr. Suresh Kumar, learned counsel for the Revenue would not dispute the aforesaid legal position.

 

13. In this view of the matter, questions of law nos. 1 and 2 are answered in affirmative in favour of the assessee and against the Revenue.”

 

21. In this view of the matter, we are in agreement with the petitioner that the issue on the entitlement of the petitioner to the deduction of the broken period interest is no more res integra. On this count, the petition needs to succeed.

 

22. Before parting, we will be failing in our duty if we do not comment on the approach of the Revenue when the Assessing Officers are confronted with the decision rendered by this Court in the case of Hexaware Technologies Ltd. (supra), such decision is rendered by the Division Bench and by Constitutional Court; and that too by the Jurisdictional High Court. Hence, such decision when it lays down the law interpreting the provisions of Section 144(b), Section 151A, Section 148A, Section 148 and Section 147 of the IT Act under the settled principles of constitutional jurisprudence and the binding nature of the decisions of the Constitutional Courts, the Revenue officials would be bound by the decisions of the Division Bench. Mr. Pardiwalla has taken pains to point out that the decision of this Court in Hexaware Technologies Ltd. (supra) has laid down substantial principles of law interpreting such provisions. Hence, any action on the part of the Revenue officials, which is contrary to the mandate of such decision, would be rendered illegal and invalid. In such decision, the Division Bench was pleased to hold that the Jurisdictional Assessing Officer would not have jurisdiction to initiate any proceedings under Section 148A and/or to issue notice under Section 148 of the I.T. Act so as to reopen the assessment and necessarily the Revenue would be required to resort to faceless mechanism. No doubt such a decision as rendered by this Court is subject matter of challenge before the Supreme Court, however, what concerns us is in regard to the approach of the department. Merely for the reason that the decision of this Court in Hexaware Technologies Ltd. is assailed by the Revenue before the Supreme Court, repeatedly a position is being taken by the Assessing Officers that such decision is not binding on the department, hence, routinely an approach is being adopted to issue notices under Section 148A and orders being passed thereon and consequently notices are being issued under Section 148 and also in many cases, the Assessment Orders are being passed on such basis. We would have agreed with the Assessing Officer to have adopted such approach provided that there was a stay to the operation of the judgment so that it would be permissible for the officers of the Revenue to adopt such approach, when the effect of decision of this Court in Hexaware Technologies Ltd. is taken away, and is not required to be complied. However, the position is not such. We are informed at the Bar that although proceedings are filed before the Supreme Court and are pending, no stay is being granted by the Supreme Court to the applicability and/or the operation of such decision.

 

23. Thus, certainly the decision in Hexaware Technologies Ltd. is binding on the Revenue and accordingly, there cannot be any actions which could be taken by the Assessing Officers contrary to the law as laid down in the decision of this Court. In our opinion, an approach of defiance, which appears to be quite brazen, has brought about a situation of disobedience and/or non-adherence to the law as laid down by the Constitutional Court, by the Revenue officials, who are otherwise bound by the decision of the Jurisdictional High Court. In our opinion, this is an issue which touches public policy as also a matter seriously concerning administration of justice, for the reason that it cannot be countenanced that once the law is declared by the Constitutional Court, it is according to such principles of law as laid down in the decision of the Constitutional Court that the Revenue authorities would be required to proceed and not otherwise. If the approach to act exactly contrary to the law as laid down by the High Court, as in the present case i.e. in the teeth of the principles of law as taken in Hexaware Technologies Ltd. is to be accepted, it would not only render a decision of the Constitutional Court meaningless and a paper decision but would bring about a regime that such decisions are left to be implemented only at the whims and fancies of the Revenue officials. This can never be an acceptable position under the Rule of Law and the principles of Constitutional governance and more particularly, when there is no stay granted by the Supreme Court.

 

24. We have noticed that after the decision in Hexaware Technologies Ltd. (supra) was rendered by this Court, large number of notices are issued by the Revenue contrary to the law laid down by this Court in Hexaware Technologies Ltd., resultantly multitude of litigation has reached this Court. All such assessees who have been issued such notices have knocked the doors of this Court, resulting in hundreds of petitions being filed. Considering this situation which the Court has encountered day in and day out, we are of the opinion that the Revenue officials are required to have an appropriate guidance in this regard from the CBDT, as this concerns a matter of public policy in relation to the law laid down by the Constitutional Court and its implementation.

 

25. Mr. Pardiwalla has rightly drawn our attention to the decision of this Court in Commissioner of Income-tax vs, Smt. Godavaridevi Saraf [(1978) 113 ITR 589] as also the recent decision of the co-ordinate Bench of this Court in Samp Furniture (P.) Ltd. vs. Income-tax Officer [(2024) 165 taxmann.com 581 (Bom.)] of which one of us (Justice G.S. Kulkarni) was a member, wherein the Court categorically observed that the Revenue having not “accepted” the judgment of the High Court would not mean that till the same is set aside in a manner known to law, it would loose its binding force. Referring to the decision of the Supreme Court in Union of India vs. Kamlakshi Finance Corporation Ltd. [1992 taxmann.com 16 (SC)], the Court observed that the approach of the officials of Revenue of treating decisions being “not acceptable” was criticized by the Supreme Court. In such decision, following are the relevant observations made by the Supreme Court:

 

6. Sri Reddy is perhaps right in saying that the officers were not actuated by any mala fides in passing the impugned orders. They perhaps genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual malafides but with the fact that the officers, in reaching in their conclusion,by-passed two appellate orders in regard to the same issue which were placed before them,one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasijudicial issues before them, revenue officers are bound by the decisions of the appellate authorities; The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.

 

*****

 

12. We have dealt with this aspect at some length, because it has been suggested by the learned Additional Solicitor General that the observations made by the High Court, have been harsh on the officers. It is clear that the observations of the High Court, 17 1992 taxmann.com 16 (SC) seemingly vehement, and apparently unpalatable to the Revenue, are only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assesses-public without any benefit to the Revenue. We would like to say that the department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and the utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them.”

 

26. In this view of the matter, we deprecate the action of respondent no.1/ Assessing Officer. In light of the aforesaid discussion, we direct that henceforth, all Assessing Officers who are bound by the decision of the Jurisdictional High Court, unless the law would otherwise permit them, shall not resort to any proceedings which are contrary to the decisions of this Court and, as observed by the Supreme Court, following the principles of judicial discipline, so as to add to the chaos already caused and as observed by the Supreme Court at the cost of undue harassment being caused to the assessees.

 

27. These observations as made by us shall be circulated to all the Jurisdictional Assessing Officer by the concerned Principal Commissioner of Income-tax. A copy of this order be also forwarded to CBDT insofar as these observations are concerned.

 

28. In view of the above discussion, we are of the clear opinion that there was no basis in law whatsoever for respondent no. 1 to initiate the impugned proceedings against the petitioner and which are in the teeth of the principles of law as laid down by this Court and as confirmed by the Supreme Court as also reaffirmed by the Supreme Court in the recent decision in the case of Bank of Rajasthan (supra).

 

29. The petition accordingly succeeds. It is allowed in terms of prayer clause (a). Rule is made absolute in such terms. No costs.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that publisher is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.