2010 (12) TMI 423

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....of expenditure under Section 14A. The grounds raised are also identical except difference in figures. Ground for AY 2005-06 is reproduced below:-   "1. That on the facts and in the circumstances on the case the disallowance of expenditure u/s 14A at Rs.5,42,920/- is neither justified nor legal since no expenditure was incurred to earn dividend income and hence applicability of Rule 8D is also illegal and unjustified in view of the decision of Hon'ble Punjab and Haryana High Court in the case of CIT vs. Hero Cycles Ltd. in the present case for which submission were made before the authorities below in this regard, which is not considered while framing the Asst. u/s 143(3) by the A.O."   2. For other assessment years, the figu....

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....come and relying upon the decision of Hon'ble Supreme Court in the case of Vegetable Products - 88 ITR 192, it was held that where two constructions of the statute are possible, one favouring the assessee should be adopted. Thus, it is the case of the learned AR who had argued this appeal that disallowance made by the AO should be deleted for the reason that Rule 8D cannot be held to be retrospective in nature and secondly that no expenditure had been identified to be incurred for earning such exempted dividend and it is the case of the assessee right from the beginning that it had surplus funds from where the investment was made, therefore no expenditure whatsoever was incurred on account of interest and also no administrative expenses hav....

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.... the AO to decide the same in the line directed in the aforementioned two cases of Super Auto India and Overseas Carpets Ltd.   9. We have carefully considered the rival submissions in the light of material placed before us. The facts are not disputed. The disallowance has been made by the AO by referring to Rule 8D as per decision of Special Bench in the case of Daga Capital Management (supra). Hon'ble Bombay High Court in the case of Godrej and Boyce (supra) has held that Rule 8D cannot be applied retrospectively. Therefore, reference to Rule 8D while making the disallowance is not in accordance with the decision of Hon'ble Bombay High Court. At the same time, in the said case, it was held that even prior to AY 2008-09 when Rule 8....