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TMI Blog2012 (11) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax (Appeal) erred in confirming addition/disallowance to the extent of Rs.₹ 9,76,466/- u/s 14A of Income-tax Act, 1961. The addition made by A.O. was not sustainable and CIT(A) should have deleted the entire addition/disallowance made u/s 14A of the Income-tax Act, 1961. 2. On the facts and circumstances of case and in law, the CIT(A) erred in giving retrospective effect to Rule 8D of Income-tax Rules 1962. The appellant craves leave to add one or more ground of appeal or to alter, modify the existing ground before or at the time of hearing of appeal. 2. Facts, in brief, as per relevant orders are that return declaring income of Rs.₹ 7,96,610/- filed on 30th October, 2004 by the assessee, engaged in the business of sale/purchase of shares, after being processed on 10.2.2005 u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act), was selected for scrutiny with the service of a notice u/s 143(2) of the Act, issued on 4.10.2005. During the course of assessment proceedings, the Assessing Officer[AO in short] noticed that though the assessee reflected tax free dividend income of Rs.18,49,757/- and incurred financial charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to restrict the disallowance to Rs. 9,76,466/-. As a result, the appellant gets relief of Rs. 48,208/-. 4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). At the outset, both the parties are agreed that the matter required readjudication in the light of decision of Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Company Ltd. vs. CIT,328 ITR 81(Mom.), holding that Rule 8D was not applicable in the year under consideration. 5. We have heard both the parties and gone through the facts of the case as also the aforesaid decision. We find that Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Company Ltd. (supra) while adjudicating a similar issue in the context of provisions of sec. 14A of the Act and Rule 8D of the IT Rules, 1962 concluded that Rule 8D, inserted w.e. f 24.3.2008 cannot be regarded as retrospective because it enacts an artificial method of estimating expenditure relatable to tax-free income. It applies only w.e. f AY 2008-09. For the assessment years where Rule 8D does not apply, the AO will have to determine the quantum of disallowable expenditure by a reasonable method having r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f computing the total income under this Chapter" which makes it clear that various heads of income as prescribed under Chapter IV would fall within section 14A. The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further, section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59 quantify the total income chargeable to tax. The permissible deduct ions enumerated in sections 15 to 59 are now to be allowed only with, reference to income which is brought under one of the above heads and is chargeable to tax. If an income like dividend income is not a part of the total income, the expenditure/deduct ion though of the nature specified in sections 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-section (2) of section 14A. Prior to that, the assessing was free to adopt any reasonable and acceptable method. 42. Thus, the fact that we have held that sub-sections (2) (3) of section 14A and Rule 8D would operate prospectively (and, not retrospectively) does not mean that the assessing officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort Share Stock Brokers (P.) Ltd. (supra) to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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