UNION BANK OF INDIA, V. A.C.I.T.-LTU,

MA 141/MUM/2011

• Counselvise Citation: [2012] 123 COUNSELVISE.COM (IT) 8186 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2001-2002
• Appeal Filed On: 04-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Keywords: Retrospective amendment
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI BEFORE : SHRI J.S.REDDY, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER MISCELLANEOUS APPLICATION NO.141 /MUM/2011 ASSESSMENT YEAR: 2001-2002 UNION BANK OF INDIA, 239,VIDHAN BHAVAN MARG, NARIMAN POINT, MUMBAI- 400 021 PAN NO.AAACU0564G ACIT, RG.2(2), MUMBAI. APPELLANT VS. RESPONDENT APPELLANT BY : MR. C. NARESH RESPONDENT BY : MR. V.V. SHASTRI DATE OF HEARING : 25 TH MAY 2012 DATE OF PRONOUNCEMENT : 25 TH MAY 2012 O R D E R PER AMIT SHUKLA (J.M.) : THE PRESENT MISCELLANEOUS APPLICATION HAS BEEN FILED BY THE ASSESSEE UNDER SECTION 254(2), AGAINST THE ORDER DATED 4-6-2009, PASSED BY THE ITAT IN ITA NO.9061/MUM/2004 FOR THE QUANTUM OF ASSESSMENT FOR THE ASSESSMENT Y EAR 2001-2002. THE ONLY GRIEVANCE OF THE ASSESSEE IN THE PRESENT APP LICATION IS WITH REGARD TO GROUND NO.3 ONLY WHICH READS AS UNDER :- THE CIT(A) ERRED IN DISALLOWING A SUM OF ` .119,61,55,997 UNDER SECTION 14A ON ESTIMATE BASIS. THE CIT(A) OUGHT TO HAVE NOTED THAT THE APPELLANT HAD NOT INCURRED ANY SPECIFIC EXPENDITURE FOR EARNING THE TAX FREE INCOME FROM THE QUESTION OF ESTIMATING ANY EXPENDITURE AS HAVING BEEN INCURRED TO EARN TAX FREE INCOME IS MA NO : 141/MUM/2011 2 BEYOND JURISDICTION. RELIANCE IS PLACED ON VARIOUS JUDICIAL DECISIONS WHEREIN IT HAD BEEN HELD THAT NO ESTIMATED DISALLOWANCE CAN BE MADE UNDER SECTION 14A. 2. THE ITAT HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE FOLLOWING THE JUDGMENT OF SPECIAL BENCH IN THE CASE OF M/S DAGA CAPITAL MANAGEMENT PRIVATE LI MITED, 216 SOT 603(MUM) AND SET ASIDE THE MATTER TO THE ASSESSING OFFICER TO MAKE THE DISALLOWANCE UNDER SECTION 14A IN ACCORDANCE WITH THE RATIO OF THE SPECIAL BENCH. THE RELEVANT OBSERVATION AND THE FINDING OF THE ITAT FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREUNDER :- 11. WE HEARD BOTH THE PARTIES. FIRS TLY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE EARLIER YEARS HAD NOT CONSIDERED THE APPLICABILITY OF SECTION 14A. SECONDLY, THE ASSESSEES COUNSEL RELIED ON THE DECISION OF MUMBAI HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD WHEREIN IT HAS BEEN HELD THAT WHEN INVESTMENTS WERE MADE OUT OF OWN FUNDS THERE CAN BE NO ADHOC ALLOCATION OF THE INTEREST PAYABLE OF THE BORROWED FUNDS AS BEING RELATED TO INVESTMENTS. THE ASSESSEE ALSO SUBMITTED THAT EVEN IF RULE 8D IS APPLIED THERE CAN BE NO DISALLOWANCE OF EXPENDITURE. WE FIND THE DECISION RELIED ON BY THE ASSESSEE WERE NOT DECIDED IN THE CONTEXT OF DISALLOWANCE U/S. 14A. 12. THE ISSUE NOW IS SETTLED IN VIEW OF THE DECISION OF THE SPECIAL BENCH IN THE CASE OF M/S DAGA CAPITAL MANAGEMENT PVT. LTD., 216 SOT 603(MUM). IN THIS VIEW OF THE MATTER, WE SET ASIDE THE ISSUE TO THE FILES OF AO TO REWORK THE DISALLOWANCE U/S. 14A IN ACCORDANCE WITH THE RATIO OF THE SPECIAL BENCH IN THE CASE OF M/S DAGA CAPITAL MANAGEMENT PVT. LTD. (SUPRA) AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE TO MAKE THEIR SUBMISSIONS ON THIS ISSUES. THIS ISSUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. MA NO : 141/MUM/2011 3 3. THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE JUDGMENT OF THE SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAGEMENT PRIVATE LIMITED (SUPRA) HAS BEEN OVERRULED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND MFG. COMPANY LI MITED VS. DCIT, REPORTED IN (2010) 328 ITR 81(BOM) , AND, THEREFORE, THE FINDING OF THE ITAT FOLLOWING THE SPECIAL BENCH IS A MISTAKE APPARENT FROM THE RECORD WHICH DESERVES TO BE RECTIFIED IN CONSONANCE WITH THE HIGH COURTS JUDGMENT. IN SUPPORT OF THIS CONTENT ION, RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF ACIT VS. SAURASHTRA KUTCH STOCK EXCHANGE LTD., REPORTED IN (2008) 305 ITR 227 (SC) . 4. ON THE OTHER HAND, LEARNED SENIOR DR SUBMITTED THAT THE ITAT HAS MERELY SET ASIDE THE ISSUE TO THE FILE OF THE AO TO WORK OUT THE DISALLOWANCE IN ACCORDANCE WITH THE SPECIAL BENCH DECISION AND, THEREFORE, THERE IS NO INFIRMITY OR MISTAKE APPARENT FROM THE RECORD WITHIN THE MEANING OF SECTION 254 (2). 5. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS OF THE PARTIES AND ALSO PERUSING THE RECORD, WE FIND THAT WHILE DECIDING THE ISSUE OF APPLICABILITY OF SECTION 14A, THE TR IBUNAL HAS DECIDED THE ISSUE OF DISALLOWANCE U/S.14A BY FOLLOWING THE RATIO LAID DOWN BY THE SPECIAL BENCH IN THE CASE OF DAGA CAPI TAL MANAGEMENT PRIVATE LIMITED (SUPRA). THE SAID JUDGMENT HAS NOW BEEN OVERRULED BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 12 TH AUGUST, 2010, IN THE MA NO : 141/MUM/2011 4 CASE OF GODREJ AND BOYCE MF G. COMPANY LIMITED (SUPRA), WHEREIN THE HONBLE HIGH COURT CAME TO THE FOLLOWING CONCLUSION :- (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APPLY WITH EFFECT FROM THE ASSESSMENT YEAR 2008-2009: (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-2009, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE GERMANE MATERIAL ON THE RECORD; (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002-03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR INDI RECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 6 . THE ISSUE BEFORE US IS, W HETHER SUBSEQUENT DECISION OF JURISDICTIONAL HIGH COURT CAN CON STITUTE MISTAKE APPARENT FROM THE RECORD WITHIN THE MEANING OF SECTION 254(2) IN THE ORDER PASSED BY THE TRIBUNAL. THIS ASPECT OF THE MATTER HAS BEEN SUBJECTED TO JUDICIAL MA NO : 141/MUM/2011 5 SCRUTINY BY THE HONBLE SUPREME COURT IN THE CASE OF ACIT VS. SAURASHTRA KATCH STOCK EXCHANGE OF INDIA (SUPRA) , WHEREIN THEIR LORDSHIPS HAVE OBSERVED AND HELD AS UNDER :- 40. THE CORE ISSUE, T HEREFORE, IS WHETHER NON-CONSIDERATION OF A DECISION OF JURISDICTIONAL COURT (IN THIS CASE A DECISION OF THE HIGH COURT OF GUJARAT) OR OF T HE SUPREME COURT CAN BE SAID TO BE A 'MISTAKE APPARENT FROM THE RECORD'? IN OUR OPINION, BOTH THE TRIBUNAL AND THE HIGH COURT - WERE RIGHT IN HOLDING THAT SUCH A MISTAKE CAN BE SAID TO BE A MISTAKE APPARENT FROM THE RECORD' WHICH COULD E RECTIFIED UNDER SECTION 254(2). 41. A SIMILAR QUESTION CA ME UP FOR CONSIDERATION BEFORE THE HIGH COURT OF GUJARAT N SUHRID GEIGY LIMITED V. COMMISSIONER OF SURTAX, GUJARAT, (1999) 237 ITR 834 (GUJ). IT AS HELD BY THE DIVISION BENCH OF THE HIGH COURT THAT IF THE POINT IS COVERED BY A DECISION OF THE JURISDICTIONAL COURT RENDERED PRIOR OR EVEN SUBSEQUENT TO THE ORDER OF RECT IFICATION, IT COULD BE SAID TO BE 'MISTAKE APPARENT FROM THE RECORD' UNDER SECTION 254 (2) OF THE ACT AND COULD BE CORRECTED BY THE TRIBUNAL. 42. IN OUR JUDGMENT, IT IS ALSO WELL-SETTLED THAT A JUDICIAL DECISION ACTS RETROSPECTIVELY. ACCORDING TO BLACKSTONIAN THEORY, IT IS NOT THE FUNCTION OF THE COURT TO PR ONOUNCE A `NEW RULE' BUT TO MAINTAIN AND EXPOUND THE `O LD ONE'. IN OTHER WORDS, JUDGES DO NOT MAKE LAW, THEY ONLY DISCOVER OR FIND THE CORRECT LAW. THE LAW HAS ALWAYS BEEN THE SAME. IF A SUBSEQUENT DECISION ALTERS THE EARLIER ONE, IT (THE LA TER DECISION) DOES NOT MAKE NEW LAW. IT ONLY DISCOVERS THE CORRE CT PRINCIPLE OF LAW WHICH HAS TO BE APPLIED RETROSPECTIVELY. TO PUT IT DIFFERENTLY, EVEN WHERE AN EARLIER DECISION OF THE COURT OPERATED FOR QUITE SOME TIME, THE DECISION RENDERED LATER ON WOULD HAVE RETROSPECTIVE EFFECT CLARIFYING THE LEGAL POSITION WH ICH WAS EARLIER NOT CORRECTLY UNDERSTOOD. MA NO : 141/MUM/2011 6 43. SALMOND IN HIS WELL-KNOWN WORK STATES; 'THE THEORY OF CASE LAW IS THAT A JUDGE DOES NOT MAKE LAW; HE MERELY DECLARE S IT; AND THE OVERRULING OF A PREVIOUS DECISION IS A DECLARATION THAT THE SUPPOSED RULE NEVER WAS LAW. HENCE ANY INTERM EDIATE TRANSACTIONS MADE ON THE STRENGTH OF THE SUPPOSED RULE ARE GOVERNED BY T HE LAW ESTABLISHED IN THE OVERRULING DECISION. THE OVERRULING IS RETROSPECTIVE, EXCEPT AS REGARDS MATTERS THAT ARE RES JUDICATAE OR ACCOUNTS THAT HAVE BEEN SETTLED IN THE MEANTIME'. (EMPHASIS SUPPLIED) 44. IT IS NO DOUBT TRUE THAT AFTER A HISTORIC DECISION IN GOLAK NATH V. UNION OF INDIA, (1967) 2 SCR 762, THIS COURT HAS ACCEPTED THE DOCTRINE OF `PROSPECTIVE OVERRULING'. IT IS BASED ON THE PHILOSOPHY: 'THE PAST CANNOT ALWAYS BE ERASED BY A NEW JUDICIAL DECLARATION' . IT MAY, HOWEVER, BE STATED THAT THIS IS AN EXCEPTION TO THE GENERAL RULE OF THE DOCTRINE OF PRECEDENT. 45. RECTIFICATION OF AN ORDER STEMS FROM THE FUNDAMENTAL PRINCIPLE THAT JUSTICE IS ABOVE ALL. IT IS EXERCISED TO REMOVE THE ERROR AND TO DISTURB THE FINALITY. THUS, IT IS SETTLED PRINCIPLE OF LAW THAT THE DECISION OF THE JURISDICTIONAL HIGH COURT OR THE HONBLE SUPREME COURT RENDERED PRIOR TO OR EVEN SUBSEQUENT TO THE ORDER, WILL CONSTITUTE MISTAKE APPARENT FROM THE RECORD WITHIN THE MEANI NG OF SECTION 254 (2) AND IT SHOULD BE CORRECTED BY THE TRIBUNAL. 7 . WE ACCORDINGLY, MODIFY THE DIRECTI ONS AND THE ORDER OF THE ITAT PASSED IN ITA NO.9061/MUM/2004, VIDE ORDER DATED 4 TH JUNE, 2009 AND DIRECT THAT ASSESSING OFFICER WILL NOT APPLY RULE 8D IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ MA NO : 141/MUM/2011 7 AND BOYCE MFG. CO. LTD. (SUPRA) AND WORK OUT THE DISALLOWANCE UNDER SECTION 14A IN CONSONANCE WITH THE RATIO LAID DOWN THEREIN BY ADOPTING REASONABLE BASIS IN ACCORDANCE WITH THE FACTS AND MATERIAL ON RECORD AND AFTER GIVING DUE AND REASONABLE OPPORTUNITY TO THE ASSESSEE, TO PLACE ALL THE RELEV ANT MATERIALS AND ITS ACCOUNTS HAVING BEARING ON THE ISSUE INVOLVED. 8. IN THE RESULT THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE IS TREATED AS ALLOWED AS PER THE DIRECTIONS GIVEN ABOVE. ORDER PRONOUNCED ON THIS 25 TH DAY OF MAY, 2012. SD/- SD/- ( J.S.REDDY ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT: 25 TH MAY, 2012 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI PKM