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TMI Blog2021 (8) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the disallowance made under Section 14A was not applicable to the Assessment Year 2002-03 as the same was brought into the statute book by Finance Act, 2006 with effect from 01.04.2007?" 3.The assessee filed its return of income disclosing a loss and the return was processed under Section 143(1) of the Act and was accepted. Subsequently, during the scrutiny proceedings, it was observed that the assessee had received a loan amounting to Rs. 3 Crores from M/s.Accel ICIM, a company in which, the assessee holds more than 10% of the shares carrying voting rights. The Assessing Officer was of the view that in terms of the provisions of Section 2(22)(e) of the Act, any loan or advance received from a company in which, the assessee holds more than 10% of the shares with voting powers, shall be deemed to be a dividend taxable under the Act. For such reason, notice under Section 148 of the Act dated 28.01.2009 was issued. The assessee objected to the reopening of the assessment. The objections were disposed of by order dated 23.07.2009 stating that only during the remand proceedings, when the ledger account was examined, it came to the knowledge of the Assessing Officer that a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 14A, no deduction is permissible in respect of expenditure in relation to exempt income. Accordingly, the CIT held that the order of assessment was erroneous and prejudicial to the interest of Revenue. 7.With regard to the limitation issue, which was raised by the assessee, it was held that the contentions does not merit acceptance. Challenging the said order, the assessee had filed appeal before the Tribunal. So far as the issue relating to limitation is concerned, it was decided against the assessee holding that the assessment order passed by the Assessing Officer under Section 143(3) read with Section 147 of the Act by itself is independently amenable to revisional jurisdiction of the CIT. Against such finding, the assessee is not on appeal before us. 8.The only issue is with regard to whether the disallowance made under Section 14A was justified and whether the CIT could have invoked the power under Section 263 of the Act 9.Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the appellant submitted that the Tribunal has rendered an erroneous finding by observing that Section 14A has been brought into statute book by Finance Act, 2006 with eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. 11.We have elaborately heard the learned counsels for the parties and carefully perused the materials placed on record. 12.The undisputed fact being that Section 14A stood inserted by Finance Act, 2001 with retrospective effect from 01.04.1962. If such is the situation whether based on such insertion, would it be a case where the Assessing Officers could be entitled to reopen the assessment. The case on hand appears to be one such case because the notice under Section 148 was issued on 28.01.2009, presumably taking note of the fact that the insertion of Section 14A was made with retrospective effect from 01.04.1962. Identical issue was subject matter of consideration in the case of Essar Teleholdings Ltd. (supra). The question, which fell for consideration before the Hon'ble Supreme Court was whether sub-section (2) and sub-section (3) of Section 14A inserted with effect from 01.04.2007 will apply to all pending assessments? And whether Rule 8D is retrospectively applicable? 13.It is the submission of Mr.T.Ravikumar, learned Senior Standing Counsel that the substantial questions of law, raised by the Revenue in this appeal are nothing to do with sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: "1. (1) These rules may be called the Income-tax (Fifth Amendment) Rules, 2008. (2). They shall come into force from date of their publication in the Official Gazette." It is, however, well settled that the mere date of enforcement of statutory provisions does not conclude that the statute is prospective in nature. The nature and content of statute have to be looked into to find out the legislative scheme and the nature, effect and consequence of the statute." 15.The submission, which was pressed into service by the Revenue, was that Section 14A of the Act being clarificatory in nature having retrospective operation, Rule 8D, which is a machinery provision, has also to be held to be retrospective to make machinery provision workable. This submission was answered against the Revenue on the following terms:- "35.It is to be noted that Section 14A was inserted by Finance Act, 2001 and the provisions were fully workable without their being any mechanism provided for computing the expenditure. Although Section 14A was made effective from 01.04.1962 but Proviso was immediately inserted by Finance Act, 2002, providing that Section 14A shall not empower assessing officer either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erated that the functional operation of Section 14A is not applicable to the assessment year, which was impugned before it. Thus, we find that the finding rendered by the Tribunal in paragraph 7 sets out the correct legal position. The Tribunal, not stopping with that, examined the scope of enquiry made by the CIT to examine as to whether the revision order is sustainable or not. On taking into consideration the factual position, the Tribunal held that general observations are not sufficient to hold an assessment order erroneous and prejudicial to the interests of the Revenue. It noted the submission of the assessee that dividend income has been received from its hundred per cent subsidiary and the assessee has not incurred any expenditure whatsoever in earning that dividend income and therefore, there was no occasion for the assessee to claim any such expenditure in computing its taxable income. The Tribunal found fault with the CIT by observing that when such was the stand taken by the assessee, it is necessary for the CIT to at least record a prima facie finding that certain amount claimed by the assessee as deduction in its computation of income de facto related to earning of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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