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2022 (6) TMI 1245 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - AR submits that the provisions of Rule 8D have only prospective application and could not have been applied in the assessment year prior to the assessment year 2008-09 - HELD THAT:- The provisions of section 14A prescribe that where an assessee earns exempt income, the expenditure incurred in connection with earning of exempt income cannot be allowed - As the provisions prescribing the method of computation of quantum of disallowance are prescribed under Rule 8D w.e.f. 1.4.2007. These provisions are held to be prospective and should not be applied for any assessment year prior to the assessment year 2008-09, as held in the case of CIT vs. Essar Teleholdings Ltd.2018 (2) TMI 115 - SUPREME COURT]. However, the ld. CIT(A) rightly held that the provisions of Rule 8D have no retrospective application and restricted disallowance to sum of Rs.70,000/- on ad-hoc basis. Since the respondent-assessee is not in appeal challenging amount of disallowance, we have no option, but to confirm the findings of the ld. CIT(A). Thus, we do not find any merit in the ground of appeal no.1 raised by the Revenue. Accordingly, the ground of appeal no.1 raised by the Revenue stands dismissed. Set-off of brought forward business losses and unabsorbed depreciation losses relating to the demerged undertaking - HELD THAT:- In the present case, admittedly, after the scheme of demerger, the appellant had not carried on any business of demerged undertaking and the fact that the assets transferred to the demerged unit were held for sale goes to demonstrate the intention of the appellant that they had no intention of carrying on business of demerged undertaking. The scheme of demerger was carried out only with sole object to avail the benefit of set-off of brought forward business losses and unabsorbed depreciation losses of demerged undertaking. Therefore, for this very reason, the Assessing Officer had denied the benefit of set-off of brought forward business losses. According to us, the reasoning of the Assessing Officer is consistent with object behind enactment of provisions of section 72A of the Act. Furthermore, sub-section (5) of section 72A has been enacted empowering the Assessing Officer to deny the benefit of set-off of brought forward business losses, which means that merely because the scheme of demerger was approved by the Hon’ble High Court ipso facto would not entitle the assessee for the benefit of set-off of brought forward business losses, contrary to the objects behind the enactment of the provisions of section 72A of the Act. CIT(A) had granted the benefit of set-off of brought forward business losses in a perfunctory manner without looking into the objects behind the enactment of provisions of section 72A and appears to have been carried out by the submissions of the assessee that once the scheme of demerger is approved by the Hon’ble High Court, the assessing authority cannot go behind the scheme of demerger ignoring the provisions of section 72A, which governed the set-off of brought forward business losses in the case of amalgamation/demerger etc, which prescribes the conditions to avail the benefit of the scheme. In the circumstances, we find that the order of ld. CIT(A) is illegal and unreasonable. Therefore, the order of the ld. CIT(A) is reversed and the ground of appeal no.2 and 3 filed by the Revenue stands allowed.
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