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TMI Blog2024 (12) TMI 1344X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 reasse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision on the same issue of Hon'ble Telengana High Court and SLP of the Revenue in the case of M/s. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 Income-tax (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, 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 quasi-judicial 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 susp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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