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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 ..... xamine 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 tax-free income. Thus, it was held that in the absence of any such prima facie finding, the reassessment was erroneous. Thus, we find that the Tribunal rightly held in favour of the assessee. - T.C.A.No.421 of 2012 - - - Dated:- 2-8-2021 - Honourable Mr.Justice T.S.Sivagnanam And Honourable Mr.Justice Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in the books of the assessee that they have received a loan of ₹ 3 Crores from its subsidiary company. The Assessing Officer discussed various aspects and completed the assessment vide order dated 18.11.2009. 4.The Commissioner of Income Tax, Chennai-I (for brevity, the CIT ) on perusal of the assessment order dated 18.11.2009, observed that the assessee has received dividend to the tune of ₹ 2,56,12,828/- and such income was claimed to be exempt under Section 10(33) of the Act and as per the provisions of Section 14A of the Act, no deduction is allowable in respect of expenditure incurred in relation to income, which does not form part of the total income. Further, the assessee did not disallow any expenditure in relation to earning of such exempt dividend income while computing taxable income and this aspect has not been examined by the Assessing Officer and the failure has resulted in allowance of deduction of expenditure, which was otherwise not allowable under Section 14A of the Act. Therefore, the CIT was of the prima facie view that the assessment was erroneous, insofar as it is prejudicial to the interest of the Revenue and notice under Section 263 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal. In support of his contention, the learned counsel placed reliance on the decision of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT reported in (2018) 402 ITR 0640 (SC) and by referring to paragraph 32 of the judgment, it is submitted that as per Section 14A(1) of the Act, deduction of that expenditure is not to be allowed, which has been incurred by the assessee in relation to income, which does not form part of the total income under the Act . It is that expenditure alone, which has been incurred in relation to the income, which is includible in total income that has to be disallowed and if an expenditure incurred has no capital connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income, which is to be treated as part of total income. Further, the learned counsel also referred to the findings recorded by the Hon'ble Supreme Court in paragraphs 33 and 34 of the judgment. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01.04.2007. 14.Before we consider the said submission, we shall take note of the decision of the Hon'ble Supreme Court in Essar Teleholdings Ltd. (supra) . It was argued by the Revenue that the provisions of Section 14A being clarificatory in nature and Rule 8D is a procedural provision, which provides only a machinery for the implementation of sub-sections (2) and (3), Rule 8D is retrospective in nature. Further, it was submitted that the machinery provisions by which the charging section is to be implemented or workable are to be given retrospective effect which is co-terminus with the period of operation of the main charging provision. It was further submitted that the charging Section, i.e., Section 14A admittedly being retrospective, the machinery provision, i.e., Rule 8D has also to be retrospective. Answering the said submission was not accepted by the Hon'ble Supreme Court and while answering the said issue, it was held as follows:- 32. Explanatory memorandum issued with the Finance Bill, 2006 and the CBDT circular dated 28.12.2006, thus, clearly indicates that department understood that sub-section (2) and sub-section (3) was to be implemented wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 154, for any assessment year beginning on or before 01.04.2001. Thus, all concluded transactions prior to 01.04.2001 were made final and not allowed to be re-opened. 36.The memorandum of explanation explaining the provisions of Finance Act, 2006 has clearly mentioned that Section 14 sub-section (2) and subsection (3) shall be effective with effect from the assessment year 2006-07 alone which is another indicator that provision was intended to operate prospectively. 16.Thus, a cumulative reading of the above decision will clearly show that the insertion of Section 14A with retrospective effect from 01.04.1962 is not with a view to reopen all concluded transactions prior to 01.04.2001 and the memorandum of explanation explaining the provisions of the Finance Act, 2006 has clearly mentioned that Section 14(2) and Section 14(3) shall be effective with effect from the assessment year 2006-07 alone, which is another indicator that the provision was intended to operate prospectively. 17.Bearing the above legal principles in mind, if we examine the order passed by the Tribunal, we find that the Tribunal has not committed an error in holding as if Section 14A(1) ..... 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