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TMI Blog2015 (3) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... . He has also filed a copy of the aforesaid Order dated 10.9.2014 passed by this Tribunal and requested that appeal filed by the Revenue may be dismissed. Ld. Counsel of the assessee also filed a Paper Book containing pages 1 to 152 having the details of revised computation; method of computation of disallowance; segment wise financial statements; statement of capital gains; audited financial; audit report and copy of decisions of ITAT, Hon'ble High Court and Hon'ble Supreme Court of India in support of his contention. 3.1 On the contrary, Ld. DR relied upon the order passed by the Assessing Officer. 4. We have heard both the counsel and perused the relevant records, especially the orders passed by the Revenue authorities alongwith the Order dated 10.9.2014 passed by the ITAT, 'B"Bench, Delhi in ITA Nos. 494, 729 & 730/Del/2011 (AY. 2006-07 and 2007- 08) on 10.9.2014 in the case of Consolidated Finvest & Holdings Ltd. vs. ACIT. 5. In this case the return of income was filed by the assessee on 27.11.2006 declaring total income at Rs. 1,28,57,983/- under the provisions of MAT. On 7.4.2007, revised return was filed declaring an income at Rs. 94,29,542/- under MAT. Assessment was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O for deciding the issue of 14A for the relevant AY. One from the Hon'ble ITAT in the appellant own case to consider the Bombay High Court decision in the case of Godrej Boyce Mfg. Co. Ltd. while deciding the disallowance u/s. 14A. The other direction was from the Hon'ble High Court of Delhi in the appellant's own case to consider the case of Maxopp Investment Ltd. vs. CIT while computing the disallowance u/s. 14A. However, from the order passed by the AO it is seen that none of the above two directions were complied with by the AO. The AO has merely made the disallowance u/s 14A of an amount of Rs. 1,OO,94,103/- after stating that since the issue was still unsettled, the disallowance u/s 14A would be passed once its gets finality. I have perused the order of the Hon'ble Bombay High Court in the case of Gordrej Boyce Mfg Co. Ltd v DCIT & Anr. 328 ITR 81 (2010) the Court observed as under:- "The following principles would emerge from Section 14A and the decision in Walfort: (a) The mandate of Section 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee; (b) Section 14A(1) is enacted to ensure tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rules would come into force from the date of their publication in the official Gazette. It is therefore clear that Rule 8D which was introduced by virtue of the Notification No.45/2008 dated 24/03/08 was prospective in operation and cannot be regarded as being retrospective. We may also point out that we have had the benefit of the decision of the Bombay High Court in of Godrej Boyce Mfg. Co. Ltd v DCIT (2010) 328 ITR 81 (Born.) wherein it has, inter alia, been held that the provisions of Rule 8D of the said Rules has prospective effect and shall apply w.e.f. AY 08-09 onwards." Rule 8D 30. As we have already noticed, sub-section (2) of Section 14A of the said Act refers to the method of determination of the amount of expenditure incurred in relation to exempt income. The expression used is - "such method as may be prescribed". We have already mentioned above that by virtue of Notification No.45/2008 dated 24/03/2008, the Central Board of Direct Taxes introduced Rule 80 in the said Rules. The said Rule 80 also makes it clear that where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A to be worked for the period prior to the introduction of Rule 8D? 41. Sub-section (2) of section 14A, as we have seen, stipulates that the Assessing Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income "in accordance with such method as may be prescribed", Of course, this determination can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of sub-sections (2) & (3) would require the assessing officer to first reject the claim of the assessee' with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is than that the question of determination of such expenditure by the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng done so, the assessing officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment." Therefore it is clear that Rule 8D will not be applicable to the case of the appellant since it pertains to AY 06-07. A reading of the two decisions makes it clear that Rule 8D cannot be applied retrospectively Section 14A however would be applicable for pre Rule 8D period, thus whenever the issue of 14A arises the AO should ascertain the correctness of the claim of the appellant in respect of expenditure incurred or not incurred in relation to income which does not form part of the total income under the Act. In the case the AO is satisfied with the claim of the appellant. The AO should accept the claim of the appellant so far as the quantum of disallowance is concerned. In case the AO after giving the appellant an opportunity of being heard, is not satisfied with the correctness of the claim of the appellant, he should reject the claim after giving reasons. The AO is to then determine the amount of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act [Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001.]." 16. From sub-section (1) of Section 14A, it is evident that the legislature has provided that no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to income which does not form part of total income. Therefore, incurring of some expenditure by the assessee in relation to exempt income is essential so as to invoke the provisions of Section 14A(1) by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not find any justification to interfere with the order of learned CIT(A). The same is sustained and Revenue's appeal is dismissed." 8. Keeping in view the facts and circumstances of the case and precedent relied upon by the Ld. Counsel of the assessee, we find that Ld. CIT(A) has rightly observed that that Rule 8D will not be applicable to the case of the assessee since it pertains to AY 06-07. We also find that Ld. CIT(A) has also observed that a reading of the two decisions as mentioned above of the Hon'ble High Courts make it clear that Rule 8D cannot be applied retrospectively, Section 14A however would be applicable for pre Rule 8D period, thus whenever the issue of 14A arises the AO should ascertain the correctness of the claim of the assessee in respect of expenditure incurred or not incurred in relation to income which does not form part of the total income under the Act. Ld. CIT(A) noted that the AO is satisfied with the claim of the assessee and he further noted that the AO should accept the claim of the assessee so far as the quantum of disallowance is concerned. Ld. CIT(A) has further observed that the AO after giving the assessee an opportunity of being heard, is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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