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HDFC Bank Ltd vs. DCIT (Bombay High Court)
March, 07th 2016

S. 14A/ Rule 8D: Severe strictures passed against the ITAT for taking the view that the presumption laid down in HDFC Bank 366 ITR 505 (Bom) and Reliance Utilities 313 ITR 340 (Bom) that investments in tax-free securities must be deemed to have come out of own funds and (ii) Law laid down in India Advantage (Bom) that s. 14A and Rule 8D does not apply to securities held as stock-in-trade cannot be applied as both propositions are contrary to Godrej & Boyce 328 ITR 81 (Bom). ITAT's order reversed on the ground that it is "Judicial Indiscipline" leading to complete chaos and anarchy in the administration of law

The ITAT passed an order in HDFC Bank Limited vs. DCIT in which it held that the presumption laid down in HDFC Bank 366 ITR 505 (Bom) and Reliance Utilities 313 ITR 340 (Bom) that investments in tax-free securities must be deemed to have come out of own funds and (ii) Law laid down in India Advantage (Bom) that s. 14A and Rule 8D does not apply to securities held as stock-in-trade cannot be applied as both propositions are contrary to Godrej & Boyce 328 ITR 81 (Bom). On a Writ Petition filed by the assessee HELD by the High Court reversing the Tribunal and passing severe strictures against it:

(i) In our system of Jurisprudence the theory of Precedents and the hierarchical structure are an inherent part of our dispute resolution/justice obtaining apparatus i.e. Courts / Tribunal. The theory of precedent ensures that what has been done earlier would be done subsequently on identical facts. To wit, like cases are to be treated alike. Thus, the doctrine of precedent ensures certainty of law, uniformity of law and fairness meeting some of the essentials ingredients of Rule of Law (Union of India vs. Raghuvir Singh 1989 (2) SCC 754, Collector of Central Excise Vs. Dunlop India Ltd. 154 ITR 172 and East India Commercial Co. Ltd. Calcutta and Anr. vs. Collector of Customs, Calcutta 1962 SC SC 1893 referred)

(ii) The only basis for proceeding on the basis that there is a conflict between the two decisions of this court which emerges from the impugned order is that in petitioner’s own case in HDFC Bank Ltd. (supra), reliance was placed upon the decision of this Court in Reliance Utilities and Power Ltd. (supra) to conclude that where both interest free funds and interest bearing funds are available and the interest 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 and Power Ltd. (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 and Boyce Manufacturing Co. Ltd. (supra) had considered the decision of this Court in Reliance Utilities and Power Ltd. (supra), which is factually not so. The decision of this Court in Godrej and Boyce Manufacturing Co. Ltd. (supra) only makes a reference to the decision of this Court in Reliance Utilities and 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 and Boyce Manufacturing 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 not the principles laid down in Reliance Utilities and Power Ltd. (supra) can be invoked while applying Section 14A of the Act. Thus by no stretch of reasoning can it be countenanced that there is conflict in the decisions of this Court in Godrej and Boyce Manufacturing Co. Ltd.(supra) and HDFC Bank Ltd.(supra). The decision in Godrej and Boyce Manufacturing Co. Ltd.(supra) is not a precedent for the issue arising before the Tribunal and could not be relied upon in the impugned order of the Tribunal to disregard the binding decision in HDFC Bank Ltd.

(iii) It is clear that for the first time in the case of HDFC Bank Ltd. (supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities and Power Ltd. (supra) with regard to investment in tax free securities coming out of assessee’s own funds in case the same are in excess of the investments made in the securities (notwithstanding the fact that the assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd. (supra) while considering Section 36(1)(iii) of the Act would apply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (supra) on the above issue has also been accepted by the Revenue inasmuch as even though they have filed an appeal to the Supreme Court against that order on the other issue therein viz. broken period interest, no appeal has been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities and Power Ltd. (supra) in its application to Section 14A of the Act. Therefore, the issue which arose for consideration before the Tribunal had not been decided by this Court in Godrej and Boyce Manufacturing Co. Ltd.(supra). It arose and was so decided for the first time by this Court in HDFC Bank Ltd. (supra). Thus, there is no conflict as sought to be made out by the impugned order. Thus, the impugned order has proceeded on a fundamentally erroneous basis as the ratio decindi of the order in Godrej and Boyce Manufacturing Co. Ltd.(supra) had nothing to do with the test of presumption canvassed by the petitioner before the Tribunal on the basis of the ratio of the decision of this Court in HDFC Bank Ltd.(supra).

(iv) The impugned order of the Tribunal seems to question the decision of this Court in HDFC Bank Ltd. (supra) to the extent it relied upon the decision of this Court in Reliance Utilities and Power Ltd. (supra). This is by observing that the decision in Reliance Utilities and Power Ltd.(supra) it must be appreciated was rendered in the context of Section 36(1)(iii) of the Act and its parameters are different from that of Section 14A of the Act. This Court in its order in HDFC Bank Ltd.(supra) consciously applied the principle of presumption as laid down in Reliance Utilities and Power Ltd. (supra) and in fact quoted the relevant paragraph to emphasize that the same principle / test of presumption would apply to decide whether or not interest expenditure could be disallowed under Section 14A of the Act in respect of the income arising out of tax free securities. It is not the office of Tribunal to disregard a binding decision of this court. This is particularly so when the decision in Reliance Utilities and Power Ltd. (supra) has been consciously applied by this Court while rendering a decision in the context of Section 14A of the Act.

(v) We also note that the impugned order of the Tribunal has an observation therein that there is no such thing as estoppel in law and by virtue of that gives itself a licence to decide the issue before it ignoring the binding precedent in the petitioner’s own case in HDFC Bank Ltd(supra). Once there is a binding decision of this Court, the same continues to be binding on all authorities within the State till such time as it stayed and / 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.

(vi) 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 1975(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 coordinate bench would continue to be binding till it is corrected by a higher Court. This principle laid down in respect of a coordinate 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 uniformity of law, all authorities within the State are bound to follow the orders passed by us in all like matters, which by itself implies that if there are some distinguishing features in the matter before the Tribunal and, therefore, unlike, then the Tribunal is free to decide on the basis of the facts put before it. However till such time as the decision of this court stands it is not open to the Tribunal or any other Authority in the State of Maharashtra to disregard it while considering a like issue. In case we are wrong, the aggrieved party can certainly take it up to the Supreme Court and have it set aside and / or corrected or where the same issue arises in a subsequent case the issue may be reurged before the Court to impress upon it that the decision rendered earlier, requires reconsideration. It is not open to the Tribunal to sit in appeal from the orders of this Court and not follow it. In case the doctrine of precedent is not strictly followed there would complete confusion and uncertainty. The victim of such arbitrary action would be the Rule of law of which we as the Indian State are so justifiably proud.

(vii) It is in the above circumstances that we are of the view that we have to exercise our powers under Article 227 of the Constitution of India. This is in view of the manner in which the impugned order of the Tribunal has chosen to disregard and/or circumvent the binding decision of this Court in respect of the same assessee for an earlier assessment year. This is a clear case of judicial indiscipline and creating confusion in respect of issues which stand settled by the decision of this Court.

(viii) It is in the above view, that we set aside the impugned order of the Tribunal dated 23rd September, 2015 in its entirety and restore the issue to the Tribunal to decide it afresh on its own merits and in accordance with law. However the Tribunal would scrupulously follow the decisions rendered by this Court wherein a view a has been taken on identical issues arising before it. It is not open to the Tribunal to disregard the binding decisions of this Court, the grounds indicated in the impugned order which are not at all sustainable. Unless the Tribunal follows this discipline, it would result in uncertainty of the law and confusion among the tax paying public as to what are their obligations under the Act. Besides opening the gates for arbitrary action in the administration of law, as each authority would then decide disregarding the binding precedents leading to complete chaos and anarchy in the administration of law.

 
 
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