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TMI Blog2013 (11) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... Invocation of section 14A read with Rule 8D with retrospective effect from 1.4.1962 - For AY 2005-06, 2006-07, assessee had received the Dividend Income of Rs.1,30,66,287/- (AY 05-06) and Rs.1,50,76,485/- (AY 06-07) stated to be on equity shares of Sun Pharmaceuticals Ltd. Dividend was claimed exempt u/s.10(34) r.w.s. 115-O of IT Act - expenses like interest on the funds borrowed for investment relating to the earning of exempt income be disallowed u/s.14A of IT Act – Held that:- Relying upon the decision in the case of M/s.Daga Capital Management Pvt.Ltd[2008 (10) TMI 383 - ITAT MUMBAI ], it was held that the provisions of section 14A(2)&(3) of the I.T.Act being clarificatory in nature will apply retrospectively even though they have been introduced by Finance Act, 2006 w.e.f. 1.4.2007. Section 14A has been inserted retrospectively by Finance Act, 2001, with effect from 1.4.1962 – As provisions of section 14A(2) & 14A(3) are also retrospective in nature and in result Rule 8D will also apply accordingly. In the present case, the Comm.(A) has held that in the absence of “fundflow- statement” an amount @ 10% of the dividend received was to be disallowed towards interest incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT 114 ITR 654 (Bom), R.Dalmia vs CIT 133 ITR 169 (Del), CIT vs M.S. Venkateshwaran 222 ITR 163 (Mad), K.Somasundaram Brothers vs CIT 238 ITR 939 (Mad), CIT vs Motor General Finance Ltd. 254 ITR 449 (Del) [confirmed by the Supreme Court: 267 ITR 381] and CIT vs Abhishek Industries Ltd. 286 ITR 01 (P H). 2. Facts in brief as emerged from the corresponding assessment orders both passed u/s.143(3); respectively dated 27.12.2007 and 05/12/2008, wherein it was mentioned that the assessee-company is in the business of trading of pharmaceutical products as a distributor. On scrutiny of accounts, it was noted that the assessee-company had charged interest from its sister-concerns; at lower rate, i.e. 9.5% or only 9%. 2.1. However, the AO was of the view that the assessee had paid a high rate of interest at 10.5%, hence claimed excessive interest expenditure. A differential amount was calculated which was respectively taxed at Rs.35,85,857/- for AY 2005-06 and Rs.30,49,530/- for AY 2006-07 by invoking the provisions of section 36(1)(iii) of the Act. It has also been noted by the AO that in the past AYs, i.e. 2001-02 2003-04, the CIT(A) has given a decision in assessee s favour. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest. For the years under consideration, in the absence of any contrary material placed on record from the side of the Revenue, we are left with no option but to follow the past precedent as held in assessee s favour vide series of orders cited supra. Therefore, the result is that the ground as raised by the Revenue stood covered in assessee s favour, hence dismissed. 5. Ground No.2 for AYs 2005-06 2006-07 is again identically worded; reproduced below:- 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of differential amount of interest of Rs.4,79,22,795/- (for A.Y. 2006-07 of Rs.65,10,131/-) on overdue bills of M/s.Sun Pharmaceuticals Industries Ltd. (SPIL), an associate concern, paid @ 15% when the assessee had charged interest on its advances @ 9.5% to 9% and had paid interest to the banks @ 13% only (for A.Y.2006-07 9% and had paid interest to the banks @ 11% only), which clearly reflected collusive nature of payment of excessive amount in the face of M/s.SPIL being entitled to deduction of 100% profits u/s.80IB, thus resulting in overall avoidance of tax by an arrangement between the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of Rs.13,56,629/- incurred for earning dividend income exempt u/s.10(33). 7.1. The third ground of A.Y. 2006-07 reads as under: 3(a) On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in deleting the disallowance u/s.14A(2) r.w.s. rule 8D Rs.21,33,019/- incurred for earning dividend income exempt u/s.10(34) r.w.s.115-O. 3(b) On the facts and in the circumstances of the case and in law, the learned CIT(A) did consider the decision of hon. ITAT, Spl.Bench, Mumbai in ITA no.8057/Mum/2003 in the case of M/s.Durga Capital Management Pvt.Ltd. for A.Y. 2001-02, where it was clearly held that the provisions of section 14A(2) (3) of the I.T.Act being clarificatory in nature will apply retrospectively even though they have been introduced by Finance Act, 2006 w.e.f. 1.4.2007. Section 14A has been inserted retrospectively by Finance Act, 2001, with effect from 1.4.1962. Hon. Special Bench has held that provisions of section 14A(2) 14A(3) are also retrospective in nature and in result Rule 8D will also apply accordingly. 7.2 Facts in brief in respect of above grounds for AY 2005-06, 2006-07 were that the assessee had received the Dividend Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between such expenditure and dividend income. According to the Learned Commissioner of Income Tax (Appeals) it was a notional disallowance which cannot be upheld. The Learned Departmental Representative has submitted that the issue should be restored to the file of the Learned Assessing Officer for fresh adjudication in the light of the decision of Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy Commissioner of Income-tax (2010) 328 ITR 81(Bom). The Learned Authorised Representative of the assessee has agreed to restoring back the issue regarding disallowance of interest of Rs.10,08,219/- and other expenses to the file of the Learned Assessing Officer as interest and other expenditures have been disallowed by the Learned Assessing Officer with regard to investments made in this year. Regarding the disallowance of interest and other expenses of Rs.10,15,012/- the Learned Authorised Representative of the assessee submitted that as no disallowance for interest and other expenses was made in earlier years therefore, the order of the Learned Commissioner of Income Tax (Appeals) should be confirmed in respect thereof. We find from the Assessment Order th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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