2024 (12) TMI 1344 - HC - Income Tax

Reopening of assessment u/s 147 - Entitlement for deduction to the broken period interest (BPI) on purchase of hold to maturity (HTM) securities - order passed u/s 148A (d) rejecting the petitioner s reply to the show cause notice - HELD THAT - 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 2024 (10) TMI 875 - SUPREME COURT 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 2024 (11) TMI 1386 - BOMBAY HIGH COURT 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. Thus 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. 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 2024 (10) TMI 875 - SUPREME COURT .

Issues Involved:

1. Whether the petitioner is entitled to deduction for broken period interest (BPI) on purchase of hold to maturity (HTM) securities.
2. Legality of the reopening of assessment under Section 148 of the Income Tax Act, 1961.
3. Application and binding nature of judicial precedents on revenue authorities.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction for Broken Period Interest (BPI):

The core issue in the proceedings was whether the petitioner/assessee is entitled to a deduction for the broken period interest on the purchase of HTM securities. The petitioner argued that the issue of broken period interest being allowable as a deduction while computing income is settled by the Supreme Court in the case of Bank of Rajasthan Ltd. vs. Commissioner of Income-tax and other precedents. The petitioner relied on consistent judicial decisions which have affirmed that broken period interest is deductible, including the decisions in American Express International Banking Corporation vs. CIT and CIT vs. Citibank N.A. The court found substance in the petitioner's arguments, noting that the position in law regarding the deduction of broken period interest is well settled. The court concluded that the petitioner's entitlement to the deduction is no longer res integra, meaning it is not open to further dispute.

2. Legality of Reopening of Assessment:

The petitioner challenged the legality of the reopening of assessment under Section 148 of the Income Tax Act, arguing that the reopening was initiated without jurisdiction and was contrary to established legal principles. The court observed that the notice under Section 148A (b) was issued based on the claim that income had escaped assessment due to the non-addition of broken period interest in the final assessment order. The court noted that the reasons for reopening were not sufficient, given the settled legal position on broken period interest. The court highlighted that the reopening of assessment was based on a fundamental error, as the broken period interest was indeed allowable as a deduction. The court found the reopening of assessment to be without legal basis and in violation of the principles laid down by higher judicial authorities.

3. Application and Binding Nature of Judicial Precedents:

The court emphasized the importance of adhering to judicial precedents, particularly decisions of the jurisdictional High Court and the Supreme Court. It criticized the revenue authorities for not following the decision in Hexaware Technologies Ltd., which was binding on them. The court underscored that the principles of judicial discipline require revenue officers to follow the decisions of higher appellate authorities unreservedly. The court noted that the approach of the revenue authorities, in this case, amounted to defiance of the law laid down by the Constitutional Court. The court directed that all assessing officers should not resort to proceedings contrary to the decisions of the jurisdictional High Court, and emphasized the need for adherence to judicial discipline to prevent undue harassment to assessees.

Conclusion:

The court allowed the petition, quashing the impugned notices and orders issued under Sections 148A and 148 of the Income Tax Act. It held that the proceedings initiated by the revenue authorities were without legal basis and contrary to established legal principles. The court reiterated the binding nature of judicial precedents and directed revenue authorities to comply with the decisions of the jurisdictional High Court.

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