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TMI Blog2013 (1) TMI 786X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER PER S.S. Godara, Judicial Member This assessee s appeal challenges correctness of the order of the Commissioner of Income Tax (Appeals) III, Chennai dated 27.06.2012 in ITA No. 768/2010-11/A.III for the assessment year 2008-09, in proceedings under section 143(3) of the Income Tax Act 1961 [in short the Act ]. 2. Reiterating the pleadings raised in the grounds, the AR representing the assessee has submitted that the Assessing Officer as well as CIT(A) have erred in applying section 14A of the Act read with Rule 8 D of Income Tax Rules. To buttress his argument, he has also placed reliance on the case law of Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272 (Delhi) and prayed for acceptance of the appeal. 3. Opposing this, the Revenue has placed strong reliance on the order of the CIT(A) which has restricted disallowance under section 14A of the Act read with Rule 8D (supra) from ₹ 1,83,11,520/- to ₹ 30,44,234/- and prayed for upholding the same. 4. Admitted facts of the case are that the assessee is an investment company. On 29.09.2008, it had filed its return declaring loss of ₹ 1,89,98,424/-. In scrutiny proceedings, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2001, was with retrospective effect from April 1, 1962. The proviso was inserted by virtue of the Finance Act, 2002 and it was made clear that nothing in Section 14A empowered the Assessing Officer to either reassess under Section 147 or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year beginning on or before the first day of April, 2001. Thus, in respect of all the assessment years prior to the assessment year beginning on or before the 1st day of April, 2001, concluded assessments could not be disturbed despite the fact that Section 14A had been expressly made retrospective with effect from 01.04.1962. The provisions of Section 14A, which were retrospective with effect from April 1, 1962 are now encapsulated in sub-section (1) of Section 14A. It is also clear that sub-sections (2) and (3) of Section 14A were introduced subsequently by virtue of the Finance Act, 2006 and were introduced with effect from 01.04.2007. However, although sub-sections (2) and (3) had been introduced with effect from April 1, 2007, they remained empty shells inasmuch as the expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax (Fifth Amendment) Rules, 2008 made it clear that 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 March 24, 2008, 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 Godrej and Boyce Mfg. Co. Ltd v DCIT: (2010) 328 ITR 81 (Bom), wherein it has, inter alia, been held that the provisions of Rule 8D of the said Rules has prospective effect and shall apply with effect from assessment year 2008-09 onwards. 37. Insofar as sub-sections (2) and (3) of Section 14A are concerned, they have also been introduced by virtue of the Finance Act, 2006 with effect from April 1, 2007. This is apparent, first of all, from the Notes on Clauses of the Finance Bill, 2006 [Reported in 281 ITR (ST) at pages 139-140]. The said Notes on Clauses refers to clause 7 of the Bill which had sought to amend Section 14A of the said Act. It is specifically mentioned in the said Notes on Clauses that:- This amendment will take effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 subsection (2) of section 14A. Prior to that, the assessing was free to adopt any reasonable and acceptable method. 43. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has declared dividend income of ₹ 79,15,087/- as exempt income. As per the above said judicial precedent, the disallowance for earning exempt income for the accounting period 01.04.2007 to 23.03.2008 has to be computed by adopting reasonable method. At this stage, we observe that it is open to us to remit the issue back to the file of the Assessing Officer to compute the disallowance. However, with a view to end the litigation between both parties as well as in the larger interest of the justice, we take the task of computing the above said disallowance in question upon ourselves and by exercising jurisdiction in the light of latest judgment of Hon ble Jurisdictional High Court in T.C.(A.) No. 2621 of 2006 titled as M/s. Simpson and Co. Ltd. vs. DCIT decided on 15.10.2012, wherein it has been held as under: This Tax Case (Appeal), filed at the instance of the assessee as against the order of the Income Tax Appellate Tribunal for the assessment year 2001-02, was admitted on the following substantial questions of law: 1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding the estimated disallowance of 2% of the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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