TaxTMI 
TaxTMI 
2012 (9) TMI 467
X X X X Extracts X X X X
X X X X Extracts X X X X
....uthorities below have not able to find any specific fault in the allocation made by the appellant or the basis. 3.2 The disallowance u/s 14A has been made by applying Rule 8D in a mechanical manner resulting in absurd conclusions and contrary to the stand of the department regarding allocation of expenses incurred for earning of interest and dividends in the earlier years. 4. Interest charged u/s 234 is wrong 5. Interest withdrawn u/s 244A is wrong." 2. Briefly stated the facts of the appeals are that the AO processed the returns of the appellants u/s 143(1) of the I.T.Act, 1961 (hereinafter referred to as "the Act") and the cases were selected for scrutiny under CASS and consequently notices u/s 143(2) and 142(1) were issued and served upon the appellants. The assessee's representative attended the proceedings and books of accounts submitted by him were examined on test check basis. The AO considered the computation filed by the assessees and disallowance as per Rule 8D was made amounting to Rs.46,49,831 in the case of Span India Pvt. Ltd. in ITA No.4118/Del/2010 and under the same provision, a disallowance of Rs.7,50,033 was made in the case of Span Holdings Pvt. Ltd.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... held as investment or as a stock in trade, expenditure incurred to earn the dividend is to be disallowed irrespective of the fact was whether any dividend income was earned or not during the year. Following the above two decisions of the Special Bench, the disallowance of Rs.46,49,831/- is upheld." 5. We have heard rival arguments of both the parties and carefully perused the record before us. The counsel appearing for the assessee submitted that the ld. CIT(A) grossly erred in interpretation of Section 14A(2) of the Act that the provision is of retrospective effect. He further submitted that the judgement of ITAT Special Bench in the case of Daga Capital (supra) was delivered on 20.10.2008 and after that judgement, Hon'ble Jurisdictional High Court of Delhi in the case of Maxopp Investment Ltd. vs CIT reported as (2011) 203 Taxman 364 held that Rule 8D of the Rules, which was introduced by virtue of Notification No.45/2008 dated 24.3.2008 is prospective in operation and cannot be regarded as being retrospective. And the Hon'ble High Court also held that though sub-sections (2) & (3) of Section 14A of the Act were introduced with prospective effect from AY 2007-08 onw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. Rule 8D 30. As we have already noticed, sub-section (2) of Section 14A of the said Act refers to the method of determination of the amount of expenditure incurred in relation to exempt income. The expression used is - "such method as may be prescribed". We have already mentioned above that by virtue of Notification No.45/2008 dated 24/03/2008, the Central Board of Direct Taxes introduced Rule 8D in the said Ru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee. The third component is an artificial figure - one half percent of the average value of the investment, income from which does not or shall not form part of the total income, as appearing in the balance sheets of the assessee, on the first day and the last day of the previous year. It is the aggregate of these three components which would constitute the expenditure in relation to exempt income and it is this amount of expenditure which would be disallowed under Section 14A of the said Act. It is, therefore, clear that in terms of the said Rule, the amount of expenditure in relation to exempt income has two aspects - (a) direct and (b) indirect. The direct expenditure is straightaway taken into account by virtue of clause (i) of sub-rule (2) of Rule 8D. The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment, as indicated above. And, in cases where the indirect expenditure is not by way of interest, a rule of thumb figure of one half percent of the average value of the investment, income from which does not or shall not form part of the total income, is taken. Do sub-sections (2) and (3) of Section 14A and Rule 8D appl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that Rule 8D was inserted in the said rules, but the Central Board of Direct Taxes did not make it retrospective. He submitted that whenever the CBDT felt it necessary to introduce a rule with retrospective effect, it did so by making the rule expressly retrospective. As an example, he referred to Rule 11EA which was inserted by the Income-tax (Ninth Amendment) Rules, 1997 with retrospective effect, from 01/10/1994. 34. On the other hand, it was contended on behalf of the revenue and, particularly, by Mr Sanjeev Sabharwal that since Section 14A was introduced with retrospective effect from 01.04.1962, the principles of Section 14A would have to be considered as having always been a part of the said Act and, therefore, sub-sections (2) and (3) of Section 14 A and Rule 8D of the said Rules were only machinery provisions and ought to be read retrospectively so as to give meaning to Section 14A(1). 35. We are of the view that Rule 8D would operate prospectively. We agree with the submissions made by Dr Rakesh Gupta that if the said Rule were to have retrospective effect, nothing prevented the Central Board of Direct Taxes from saying so, particularly, in view of the fact that ....