ORDER
Pramod Kumar, Accountant Member. – By way of this appeal, the assessee has called into question correctness of CIT(A)'s order dated, 16-12-2008, in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2005-06.
2. In Ground No. 1, the assessee has raised the following grievance:
The learned CIT(A) erred in disallowing the claim of deduction of bonus paid of Rs. 1,05,008 under section 43B, despite the fact that the appellant had paid bonus prior to the due date of filing of return of income under section 139(1).
3. The relevant material facts are like this. In the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed Rs. 1,00,508 towards payment of bonus to the employees. However, in the return of income filed by the assessee on 24-10-2005, there was no proof for the same. The Assessing Officer asked the assessee to show cause as to why the unpaid bonus amount of Rs. 1,00,508 should not be disallowed. In response to Assessing Officer's aforesaid requisition, it was submitted by the assessee that, out of the provision of Rs. 1,05,008 in respect of bonus, an amount of Rs. 75,512 was paid before 31-10-2005 i.e., before the due date of filing of return of income. The Assessing Officer however rejected the claim by observing that "as per tax audit report, the assessee has not paid bonus amount of Rs. 1,05,008, either during the previous year or on the date of the tax audit report, nor has furnished any evidence for payment of bonus of Rs. 75,512 before 31-10-2005 along with the return of income". It was also observed that the assessee has not furnished any evidence of such payment before 31-10-2005. It was in this backdrop that the Assessing Officer rejected the claim of the assessee. The assessee carried the matter in appeal before the CIT(A) but without any success. The CIT(A) noted that, in terms of the requirements of section 43 B, not only that the amount has to be paid before the due date of filing the Income-tax return but also the evidence of such payment has to be furnished along with the return of income. In the present case, even though payment of bonus was made before the due date of filing the Income-tax return, i.e., 31-10-2005, since the payment was made after the actual date of filing the Income-tax return, i.e., 24-10-2005, the evidence of payment of bonus was admittedly not attached with the return of income filed by the assesse. This, according to the CIT(A), clearly shows that the conditions set out in section 43B were not satisfied on the facts of this case. The disallowance was thus confirmed. Not satisfied by the stand so taken by the CIT(A) as well, the assessee is in further appeal before us.
4. Having heard the rival contentions and having perused the material on record, we see merits in the grievance of the assessee. It is well-settled, in view of Hon'ble Supreme Court's judgment in the case of Commissioner Of Income Tax v. Alom Extrusions Limited [2009] 319 ITR 306/185 Taxman 416 that deletion of second proviso to section 43B by Finance Act, 2003 is retrospective and it would operate with effect from 1-4-1988. Accordingly, the amount paid before the date of filing of the return under section 139(1) of the Act is not hit by disallowance under section 43B. No doubt, the assessee is required to furnish evidence of such payment along with the Income-tax return but then in the present case, the return was filed on 24-10-2005 and the bonus payment is made after the date of filing of the return i.e., 30-10-2005. While the payment was made within permissible time, due to Income-tax return having been filed prior to that date, it was an impossibility to furnish the evidence of payment, along with the Income-tax return. In our considered view, substantive requirement is payment within the time permissible for filing of Income-tax return under section 139(1) and furnishing the evidence is a procedural requirement. The evidence of payment was duly furnished before the CIT(A) and is filed before us as well. We have also noted that the Assessing Officer's observation to the effect that no evidence was filed during assessment proceedings has been called into question in the statement of facts filed before the CIT(A). Bearing in mind all these facts, as also treating the furnishing of evidence as a procedural requirement which has now been fully complied with, we are of the considered view that the disallowance was indeed wrongly sustained by the CIT(A). We disapprove his action, and, accordingly, delete the impugned disallowance.
5. Ground No. 1 is thus allowed.
6. Ground No. 2 relates to disallowance of Rs. 5,000 towards payment of donation.
7. Having heard the rival contentions and having perused the material on record, we do not find any infirmity in the order of the CIT(A) to interfere. It is noted that the assessee has paid Rs. 5,000 towards donation for temple construction but no proof of exemption, under section 80G, was filed at any stage of proceedings. In view of this, we uphold the order of the CIT(A). This ground is dismissed.
8. In the third and fourth ground of appeal, the assessee has raised the following grievances:
"3. The ld. CIT(A) erred in disallowing the claim of deduction of interest of Rs. 2,92,593 and while doing so he amongst other failed to appreciate that:
(a)
in the appellate order in appellants own case for assessment year 2001-02, the claim of deduction of interest was allowed as deduction.
(b)
provisions of section 14A was not applicable to the facts of appellants case insofar as there was no income which was exempt under the provisions of the Act.
4. The ld. CIT(A) erred in disallowing lump sum amount of Rs. 1,00,000 without any basis."
9. In the course of the assessment proceedings, the Assessing Officer noticed that the assessee has investments amounting to Rs. 62,89,527, and the assessee has also paid interest on borrowings. When the Assessing Officer probed matter further from the point of view of making disallowance under section 14A, it was pointed out to him that the investments were made from own funds in the preceding years and, as such, no part of the interest payments could be attributed to these investments. This explanation, however, did not impress the Assessing Officer. He was of the view that since assessee has a negative net worth, it cannot be said that borrowed amounts have not been used in investments. He was further of the view that the onus is on the assessee to establish that borrowings attributable to interest claimed as deduction have been used for business purposes and not investments. He was also of the view that some expenses have to be treated as attributable to investments. It was in this backdrop that he proceeded to allocate interest in the ratio of investments to total funds, and disallow Rs. 2,92,593 under section 14A of the Act. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Relying upon Hon'ble Punjab & Haryana High Court's judgment in the case of Commissioner Of Income-Tax v. Abhishek Industries Ltd.. [2006] 286 ITR 1/156 Taxman 257 , he approved the action of the CIT(A) and declined to interfere in the matter. A disallowance of Rs. 1 lakh was made, on lump sum basis, in respect of expenses incurred on earning exempt income by way of dividends etc., which has been confirmed in appeal by the CIT(A) as well. The assessee is not satisfied on both of these counts and is in further appeal before us.
10. Having heard the rival contentions and having perused the material on record, we are not inclined to uphold the stand of the authorities below. When investments are made from own funds, merely because the assessee had to subsequently borrow the funds for business use, it cannot be said that the borrowed funds have been used for the purposes of investments. The pricniple laid down in Abhishek Industries Ltd.'s case (supra) have not been approved by Hon'ble Supreme Court in a series of cases, including the case of Munjal Sales Corpn. v. CIT [2008] 298 ITR 298/168 Taxman 43 . There was no such disallowance in the earlier years and the investments are old investments. In these circumstances, the assessee is quite justified in contending that no part of the interest paid on borrowings could be treated as having been used for the purposes of investments, and, accordingly, no disallowance under section 14A can be made in respect of the same. The disallowance in respect of interest is deleted. Having held so, however, a reasonable portion of management expenses can indeed be disallowed under section 14A, and for that limited purpose and for fresh adjudication in the light of principles laid down by Hon'ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.) , the matter is restored to the file of the Assessing Officer.
11. Ground No. 3 is thus allowed and ground No. 4 is thus allowed for statistical purposes in the terms indicated above.
12. Ground No. 5 reads as under :--
The ld CIT(A) erred in not allowing loss of Rs. 21,382 on sale of preference shares by denying indexation benefit notwithstanding the fact that 3rd proviso to section 48 denies indexation benefit only to bonds & debentures.
13. As far as this grievance of the assessee is concerned, it is sufficient to take note of the fact that the Assessing Officer has declined to grant indexation benefit in terms of second proviso to section 48, on the ground that since prices of preference shares donot fluctuate, and since these shares cannot be treated as par with equity shares, indexation benefits cannot be granted in respect of the same. In appeal, the CIT(A) has confirmed the action and rationale of the Assessing Officer. The assessee is not satisfied and is in further appeal before us.
14. Having heard the rival submissions and having perused the material on record, we are unable to see any merits in the stand of the authorities below. The provisions of law are quite clear and unambiguous. Second proviso to section 48 provides that, "where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively been substituted". The only exception to this provision is that it shall not apply to "the long-term capital gain arising from the transfer of a long-term capital asset being bond or debenture other than capital indexed bonds issued by the Government". Once shares are specifically covered by indexation of costs, and unless there is a specific exclusion clause for 'preference shares', it cannot be open to the Assessing Officer to decline indexation benefits to preference shares. We uphold the plea of the assessee, and direct the Assessing Officer to grant indexation in the computation of capital gains, as is the scheme of the Act. The assessee gets the relief accordingly.
15. Ground No. 5 is thus allowed.
16. In ground No. 6, the assessee is aggrieved that "the ld CIT(A) erred in increasing Rs. 2,92,593 under clause (f) to Explanation 1 to section 115JB."
17. The CIT(A) has confirmed this adjustment for the short reason that the disallowance under section 14A for Rs. 2,92,593 has been confirmed by him. For this short reason, and our having deleted the impugned disallowance, the very foundation of impugned disallowance ceases to hold good in law. We need not go any further than that and delete this adjustment as well.
18. Ground No. 6 is thus allowed.
19. In ground No. 7, the assessee has raised that the learned Commissioner of Income-tax (Appeals) erred in not reducing Rs. 25,34,023 from the net profit as per profit and loss account as per clause (iii) to Explanation 1 to section 115JB.
20. As far as this grievance of the assessee is concerned, it is sufficient to take note of the fact that in the impugned order the CIT(A) has rejected all the contentions of the assessee rather summarily by treating the issue as covered against the assessee by ruling given by the Authority for Advance Ruling in the case of Rashtriya Ispat Nigam In re [2006] 285 ITR 1/155 Taxman 60 (AAR – New Delhi) . Learned counsel does not dispute that the issue before the Hon'ble Authority for Advance Ruling was the same as in this case, but he points out that it is only elementary that advance rulings, despite their persuasive value and respect, donot bind a judicial authority. It is also pointed out that certain aspects of the matter, which are crucial to determination of legal issues, did not come up for consideration before Hon'ble AAR. Our attention is also invited to the binding judicial precedents, such as in the case of Amline Textile (P.) Ltd v. ITO [2009] 27 SOT 152 (Mum.) , which have not been considered at all by the CIT(A). Learned Departmental Representative, on the other hand, submits that the ratio of Hon'ble AAR ruling deserves utmost respect and consideration.
21. It is, however, only elementary a ruling given by the Authority for Advance Ruling is not even binding on the Commissioner of Income-tax, and authorities subordinate thereto, in any case except in the case of the very assessee in which the such a ruling is given and even in such a case it is binding in respect of transaction in respect of which the ruling is given. Whatever be the respect and deference judicial authorities indeed have for the rulings given by the Authority, the Authority for Advance Ruling, not being a part of the judicial hierarchy, cannot lay down a binding precedence for anyone - the revenue, the assessees or the appellate authorities. While the ruling indeed deserves highest respect and consideration, it cannot be open to anyone to treat this as a binding judicial precedent. If there is something which has not been considered in the process of arriving at their conclusions in the ruling, the same has to be considered and adjudicated upon. It is in sharp contrast with the binding judicial rulings which are binding even if the rulings have not dealt with a particular argument is raised later. As laid down by the Apex Court in the case of Ambika Prasad Mishra v. State of UP AIR 1980 SC 1762, "Every new discovery nor argumentative novelty cannot undo or compel reconsideration of a binding precedent....A decision does not loose its authority merely because it was badly argued, inadequately considered or fallaciously reasoned....". This principle, however, would not apply to an AAR ruling, and therefore, the CIT(A) was required to deal with all the contentions of the assessee, and it was not open to the CIT(A) to simply brush them aside on the ground that the issue is covered against the assessee by an AAR ruling. The CIT(A) was, therefore, clearly misguided in treating the matter as covered against the assessee by the AAR ruling. He ought to have decided the matter on merits and by way of a speaking order dealing with all the contentions of the assessee by way of a speaking order.
22. In view of the above discussions, we deem it fit and proper to remit the matter to the file of the CIT(A) for adjudication de novo in accordance with the law, by way of a speaking order, after giving assessee yet another opportunity of hearing to the assessee and dealing with specific contentions raised by the assessee. We direct so.
23. Ground No. 7 is thus allowed for statistical purposes in the terms indicated above.
24. In the result, the appeal is partly allowed in the terms indicated above.