TaxTMI 
TaxTMI 
2016 (6) TMI 284
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....rmal provisions of the Act and a book loss of Rs. 39,49,30,120 under the provisions of section 115JB of the Act. It is the assessee's contention that during the year under consideration, it had received a miniscule sum of Rs. 34,563 as dividend income on the shares of seven companies which had been claimed as exempt under section 10(34) of the Act. The AO, however, disallowed an amount of Rs. 6,04,09,910 under section 14A of the Act. The findings of the AO are stated in para 16 of the assessment order which for the sake of convenience is extracted herein below: "16. In view of the above, assessee's contention that no expenditure was incurred in respect if exempt income in rejected and expenses disallowable in this regard is computed as under as per procedure given in Rule 8D of the Income Tax Rule, 1962- Direct Expenditure Nil b. Interest not attributable to any specific Income or receipt Rs. 4,86,05,050/- (420383000x2360972000/20419946000) c. Rs. 1,18,04,860/- c. 0.5% of average investment (2360972000x0.5%) Total Expenses disallowable u/s 14A Rs. 6,04,09,910/- Thus an amount of Rs. 6,04,09,910/- is disallowed and added to the assessee's income computed under no....
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.... Rs. 1,00,000/- in the shares of other companies on which no dividend income was earned during the year. 5. The Ld. AR further submitted that while making the aforesaid disallowance, the Assessing Officer has held that in view of Rule 8D of the Rules, there is no onus on the AO to establish direct nexus between the exempted income and expenses. He submitted that the AO has made a general observation that the investment is not a mindless activity which does not involve expertise or use of a conscious mind. The AO has stated in the order that investments decisions are very important as well as complicated decision are taken only at the top level of management. In view of the aforesaid, the AO rejected the claim of the assessee that no expenditure was incurred to earn the income which does not form part of the total income. 6. The Ld. AR submitted that on appeal, the Ld. CIT(A) granted partial relief to the assessee but upheld the disallowance made by the AO under rule 8D(2)(iii) of the Rules amounting to Rs. 1,18,04,860. He submitted that the Ld. CIT (A) has grossly erred in firstly failing to appreciate that there was absolutely no basis to hold that the assessee had incurred any ....
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....ed dividend of Rs. 34,562 in respect of only such shares which were received by the assessee as a result of amalgamation of GBCPL. As stated above, all the remaining investments of Rs. 237,79,77,000 has been made out of own funds (interest free) in the subsidiary companies and bottler companies and on such investments, no dividend income has been earned. It was submitted that since the aforesaid investments have not been made with an intention to earn dividend but have been made only to acquire the controlling interest in such companies as such, such investments were outside the purview of section 14A of the Act. Reliance was placed on the judgment of the Hon'ble Delhi High Court in the case of CIT vs Oriental Structural Engineers Pvt. Ltd (ITA No 605/2012), wherein investments made in the shares of subsidiary companies out of commercial expediency was not taken into consideration for making the disallowance under section 14A of the Act. The Ld. AR also submitted that apart from the investment of Rs. 3,34,000, on the remaining investment of Rs. 237,80,77,000/- no dividend income has been earned and unless dividend income is earned, such investments cannot be considered for making t....
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....have heard the rival submissions and carefully perused the relevant material placed on record. Before we proceed to adjudicate the issue at hand, it will be worthwhile to refer to the judgment of the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs CIT 347 ITR 272 (Del) wherein the Hon'ble High Court has discussed the entire controversy surrounding the retrospective application of sub-sections (2) and (3) of section 14A and Rule 8D. Paragraphs 32 to 42 of the High Court judgment lay down the entire law and they are reproduced under for a ready reference:- "32. While examining the legislative history of Section 14A and Rule 8D, we have already noted that Section 14A, as introduced by virtue of the Finance Act, 2001, was with retrospective effect from 01.04.1962. The proviso was inserted by virtue of the Finance Act, 2002 and it was made clear that nothing in Section 14A empowered the Assessing Officer to either re-assess under Section 147 or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year beginning on or before the first day of April,....
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....ction 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 it had the power to make a rule retrospective by virtue of Section 295(4) of the said Act. Instead of making Rule 8D retrospective, clause 1(2) of the Income-tax (Fifth Amendment) Rules, 2008 made it clear that the rules would come into force from the date of their publication in the Official Gazette. It is, therefore, clear that Rule 8D, which was introduced by virtue of the Notification No.45/2008 dated 24.03.2008, was prospective in operation and cannot be regarded as being retrospective. We may also point out that we have had the benefit of the decision of the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd v DCIT: (2010....
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.... and sub-sections (2) and (3) of Section 14A remained unworkable. 41. Sub-section (2) of section 14A, as we have seen, stipulates that the Assessing Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income "in accordance with such method as may be prescribed". Of course, this determination can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of subsections (2) & (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer w....