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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 ..... ch has restricted disallowance under section 14A of the "Act" read with Rule 8D (supra) from Rs. 1,83,11,520/- to Rs. 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 Rs. 1,89,98,424/-. In 'scrutiny' proceedings, the Assessing Officer noticed that during the previous year relevant to the impugned assessment year, the assessee had earned dividend income of Rs. 79,15,087/- and on the closing date of the impugned assessment year i.e. 31.03.2008, its portfolio stood at Rs. 127,58,96,880/-. Therefore, he was of the opinion that section 14A(3) of the "Act" providing for computation of expenditure in earning exempt income would be applicable inspite of the fact that the concerned assessee claims not to have incurred any expenditure. Accordingly, he invoked the said provision as well as Rule 8D of the Rules and made disallowance of Rs. 1,83,11,520/-. In the assessment order dated 31.12.2010, he recomputed assessee's loss from Rs. 1,89,98,424/- to Rs. 6,86,904/- by reducing the disallowance of Rs. 1,83,11,520/-. 5. The assessee carried the matter in appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 expression "such method as may be prescribed" got meaning only by the introduction of Rule 8D by virtue of the Income-tax (Fifth Amendment) Rules, 2008 which was notified by the Central Board of Direct Taxes by its notification No.45/2008 dated 24/03/2008. 34. Dr Rakesh Gupta, the learned counsel, who had appeared for some of the assessees, submitted that Section 295 of the said Act empowered the Central Board of Direct Taxes to make rules for the whole or any part of India for carrying out the purpose of the said Act. He referred to sub-section (4) of Section 295 and submitted that the power to make rules conferred on the Central Board of Direct Taxes included the power to give retrospective effect, from a date not earlier than the date of the commencement of the said Act, to the rules or any of them and, unless the contrary was permitted (whether expressly or by necessary implication), no retrosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years." 38. Furthermore, in the Memorandum explaining the provisions in the Finance Bill, 2006 [281 ITR (ST) at pages 281-281], it is once again stated with reference to clause 7 which pertains to the amendment to Section 14A of the said Act that:- "This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years." 39. We may also refer to the CBDT Circular No.14/2006 dated December 28, 2006 and to paragraphs 11 to 11.3 thereof. Paragraph 11 dealt with the method for allocating expenditure in relation to exempt income and paragraphs 11.1 and 11.2 explained the basis and logic behind the introduction of sub-section (2) of Section 14A of the said Act. Paragraph 11.3 specifically provided for applicability of the provisions of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectively (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 the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort (supra) to the following effect:- "The theory of apportionment of expenditure between taxable and nontaxable has, in principle, been now widened under section 14A." So, even for the pre-Rule 8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment 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 expenditure, as being incidental to earning dividend income, under section 14-A of the Act although no actual expenditure was incurred? 2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in not appreciating that as per Section 14-A only that actual expenditure incurred in relation o income which does not form part of total income shall be disallowed?" 2. Learned counsel appearing for the assessee as well as learned standing counsel appearing for Revenue submits that the issue involved in this Tax Case (Appeal) is covered by a decision of this Court dated 08.08.2012 in T.C.(A) No. 2287 of 2006 in the case of M/s. EID Parry (India) Limited v. The Joint Commissioner of Income Tax, wherein this Court pointed out that in the absence of any materials regarding incurring of expenditure, the Tribunal was justified in confirming the order of the Commissioner of Income Tax (Appeals) that the deduction of 2% managerial expenses had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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