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TMI Blog2019 (6) TMI 1251X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant is in receipt of the order dated 07 December 2016 passed by the learned Commissioner of Income-tax (Appeals) - 3, Mumbai ["Ld. CIT(A)"] under section 250 of the Income-tax Act, 1961 ("the Act") in connection with the appeal filed by the Appellant against the order dated 31 January 2015 passed by the Assessing Officer ("AO") under section 143(3) read with section 254 of the Act. The Appellant being aggrieved by the order passed by the Ld. CIT(A) has preferred this appeal on the following grounds, which are without prejudice to each other: 1. Disallowance under section 14A of the Act: a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the adhoc disallowance under section 14A of the Act without appreciating the fact that no expenditure has been incurred by the Appellant in relation to earning exempt income. b) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in giving a finding that the Appellant failed to point out mistake in working of the AO inasmuch the arguments were duly placed on record and deliberated, however, the same were not considered and discussed in the order; c) Wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of an exempt income was made by invoking provisions of Section 14A of the 1961 Act read with Rule 8D of the Income Tax Rules, 1962 . The assessee had an average investment of Rs. 53.16 crores while dividend income of Rs. 206.36 lacs was earned by the assessee which was claimed as an exempt income. The matter went up to tribunal , wherein the tribunal vide orders dated 30.04.2013 in ITA no. 6064/Mum/2010 was pleased to set aside the matter back to AO relating to the disallowance of expenses incurred in relation to earning of an exempt income by invoking provisions of Section 14A with the direction to re-compute reasonable estimate of indirect expenses which can be attributable to investments. In the second round of litigation , the AO made further addition of 5% of miscellaneous expenses and other expenses aggregating to Rs. 1.5 crores debited in P&L account which led to disallowance of Rs. 7.5 lacs u/s 14A of the 1961 Act. The assessee has suo motto vide letter dated 18.09.2014 submitted that 5% of salary of CFO and other staff which works out to Rs. 77,815/- be disallowed u/s. 14A , which ultimately led to total disallowance of Rs. 8,27,815/- , vide assessment order dated 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure incurred in relation to earning of an exempt income was made by invoking provisions of Section 14A of the 1961 Act read with Rule 8D of the Income Tax Rules, 1962 . It is pertinent to mention that impugned assessment year before us is AY 2006-07 which is prior to AY 2008-09. As we will see later in this order that Rule 8D of the 1962 Rule is applicable from AY 2008-09. The assessee had an average investment of Rs. 53.16 crores while dividend income of Rs. 206.36 lacs was earned by the assessee which was claimed as an exempt income. The matter went up to tribunal in first round of litigation , wherein the tribunal vide orders dated 30.04.2013 in ITA no. 6064/Mum/2010 was pleased to set aside the matter back to AO relating to the disallowance of expenses incurred in relation to earning of an exempt income u/s 14A with the direction to re-compute reasonable estimate of indirect expenses which can be attributable to investments. 6.2 In the second round of litigation , the AO made further addition of 5% of miscellaneous expenses and other expenses aggregating to Rs. 1.5 crores debited in P&L account , which led to disallowance of Rs. 7.5 lacs u/s 14A of the 1961 Act. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding vires of Section 14A. In para 36 of the judgment, this Court noticed that with regard to retrospectivity of provisions Revenue had filed appeal, hence the said question was not gone into the aforesaid appeal. In the above case, this Court specifically left the question of retrospectivity to be decided in other appeals filed by the Revenue. We thus have proceeded to decide the question of retrospectivity of Rule 8D in these appeals. 50. In view of our opinion as expressed above, dismissal of the appeal by the Bombay High Court is fully sustainable. As held above, the Rule 8D is prospective in operation and could not have been applied to any assessment year prior to Assessment Year 2008-09." 6.4 We have also observed that Mumbai-tribunal in assessee's own case for AY 2007-08 in ITA no. 1304/Mum/2011 vide orders dated 29.07.2016 has upheld disallowance of expenses u/s 14A of the 1961 Act @2% of dividend income as reasonable expenses in relation to earning of an exempt income, , by holding as under: " 4. We have heard the rival contentions and perused the orders of the authorities below. For the Assessment Year under consideration i.e. Assessment Year 2007-08, the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid in time. So far as interest levied u/s 234D, it is claimed that the same is consequential in nature and this issue may also be restored to the file of the AO for verification. It is agreed by learned counsel for the assessee that levying of interest u/s 234C and 234D is mandatory and there is no dispute as far as mandatory nature of the interest u/s 234C and 234D is concerned but keeping in view facts and circumstances of the case no interest is exigible. Reference is made to the decision of Hon'ble Supreme Court in the case of Anjum M. H. Ghaswala(supra). The Ld. DR did not objected if the matter is restored back to the file of the AO for verification of the contentions of the assessee and for deciding the quantum of interest u/s 234C and 234D in accordance with law. Thus ,keeping in view facts and circumstances of the case, we are of the considered view that this matter need to be restored to the file of the AO for verification of contentions of the assessee that there is no shortfall in payment of advance tax and thereafter quantification of interest u/s. 234C leviable on the assessee be determined by the AO in accordance with law. Similarly, we are restoring the issue of qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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