Span India Pvt. Ltd, New Delhi V. ACIT, New Delhi

ITA 4118/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61732 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 02-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P N SHASTRY; SURJANI MOHANTY
• Keywords: Opportunity of being heard; Earning of tax free income; Retrospective amendment
• Section: 244A; 142(1); 14A; 147

Judgement Text

ITA NOS.4118 & 4119/D/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `G NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER I.T.A.NO.4118/DEL/2010 ASSESSMENT YEAR : 2007-08 SPAN INDIA PVT. LTD., VS ACIT, 220, OKHLA INDUSTRIAL ESTATE, C IRCLE 9(1), NEW DELHI. NEW DELHI. ( PAN AAACSS0079A) I.T.A.NO.4119/DEL/2010 ASSESSMENT YEAR : 2007-08 SPAN HOLDINGS PVT. LTD., VS ACIT, 220, OKHLA INDUSTRIAL ESTATE, CIRCLE 9(1), NEW DELHI. NEW DELHI. ( PAN AAACS0294H) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI M.P. RASTOGI RESPONDENT BY : SHRI P.N. SHASTRY & SMT. SURJANI MOHANTY, SR.DR O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER BOTH THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-XII, NEW DELHI DATED 4.8.2010 FOR A.Y. 2007- 08. THE GROUNDS OF APPEAL IN BOTH THE APPEALS ARE SAME, THEREFORE, FOR THE SAKE OF CONVENIENCE, ITA NOS.4118 & 4119/D/2010 2 THESE ARE BEING DISPOSED OF BY THIS COMMON ORDER. THE GROUNDS OF APPEAL IN BOTH THE APPEALS ARE REPRODUCED AS UNDER:- 1. THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLO WANCE MADE BY THE LD. AO UNDER RULE 8D READ WITH SECTION 14A OF THE INCOME TAX ACT, 1961. 2. THE CIT(A) HAS ERRED IN CONFIRMING THE ADDITION MADE BY THE AO DESPITE THE FACT THAT NO NEXUS HAS BEEN ESTABLISHED BETWEEN THE EXPENSES ALLEGED TO BE INCU RRED FOR EARNING OF TAX EXEMPT INCOME. 3.1 THAT BOTH THE AUTHORITIES BELOW HAVE NOT ABLE TO FIND ANY SPECIFIC FAULT IN THE ALLOCATION MADE BY THE APPELL ANT OR THE BASIS. 3.2 THE DISALLOWANCE U/S 14A HAS BEEN MADE BY APPLY ING RULE 8D IN A MECHANICAL MANNER RESULTING IN ABSURD CONCLUSIONS AND CONTRARY TO THE STAND OF THE DEPART MENT REGARDING ALLOCATION OF EXPENSES INCURRED FOR EARNI NG 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 SC RUTINY UNDER CASS AND CONSEQUENTLY NOTICES U/S 143(2) AND 142(1) WERE ISS UED AND SERVED UPON THE APPELLANTS. THE ASSESSEES REPRESENTATIVE ATTENDED THE PROCEEDINGS AND BOOKS OF ACCOUNTS SUBMITTED BY HIM WERE EXAMINED ON TEST CHECK BASIS. THE ITA NOS.4118 & 4119/D/2010 3 AO CONSIDERED THE COMPUTATION FILED BY THE ASSESSEE S AND DISALLOWANCE AS PER RULE 8D WAS MADE AMOUNTING TO RS.46,49,831 IN T HE CASE OF SPAN INDIA PVT. LTD. IN ITA NO.4118/DEL/2010 AND UNDER THE SAM E PROVISION, A DISALLOWANCE OF RS.7,50,033 WAS MADE IN THE CASE OF SPAN HOLDINGS PVT. LTD. IN ITA NO.4119/DEL/2010. 3. THE APPELLANTS INVOKED THE CIT(A) BUT THE APPEAL S WERE DISMISSED BY THE IMPUGNED ORDERS. THE LD. CIT(A) HELD THAT IT I S A DISALLOWANCE U/S 14A OF THE ACT R/W RULE 8D OF THE INCOME TAX RULES, 196 2 (HEREINAFTER REFERRED TO AS THE RULES) AND HE FURTHER HELD THAT IN THE CA SE OF DAGA CAPITAL MANAGEMENT LTD. REPORTED AS 117 ITD 169 (ITAT MUMBA I SPECIAL BENCH) , IT WAS DECIDED THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE RETROSPECTIVE, CLARIFICATORY AND PROCEDURAL. THE O PERATIVE PART OF ABOVE JUDGEMENT IS BEING REPRODUCED AS UNDER:- .THAT SECTION 14A BEING THE SPECIAL PROVISION OF LAW WILL OVERRIDE THE GENERAL PROVISIONS OF LAW AND CONSEQUENTLY, THE EXPENDITURE INCURRED IN RELATION TO EXEMPTED INCOME WOULD BE DISALLOWANCE EVEN THOUGH S UCH EXPENDITURE WOULD HAVE BEEN ALLOWABLE EITHER U/S 36(1)(III) OR SECTION 57 OR UNDER ANY OTHER SECTION MEANT FOR COMPUTATION OF TOTAL INCOME UNDER EITHER OF THE HEADS IT HAS BEEN FURTHER HELD THAT:- THAT THE PROVISIONS OF SUB-SECTION 2 & 3 OF SECT ION 14A ARE MERELY PROCEDURAL AND CLARIFICATORY IN NATU RE AND THEREFORE WOULD APPLY WITH RETROSPECTIVE EFFECT. R ELIANCE ITA NOS.4118 & 4119/D/2010 4 IS PLACED ON THE VARIOUS DECISIONS OF THE TRIBUNAL NAMELY MOHANLAL M.SHAH VS DCIT REPORTED IN 111TTJ 886 (MUM), ACIT VS CITY CORP FINANCE INDIA LTD. REPORTE D IN 108 ITD 457 (MUM.) DCIT VS SEKSARIA BISWAN SUGAR FACTORY LTD. REPORTED IN 14 SOT 66(MUM.) DCIT VS SM ITA CONDUCTORS LTD. REPORTED IN 16SOT 571 (MUM) AND ITO VS RHINO BAGA P. LTD. REPORTED IN 12 SOT 571(MUM.). T HE DECISION OF THE SPECIAL BENCH IN THE CASE OF ACQUAR IUS TRAVELS PVT. LTD. 111 ITD 53(DEL).(SB) IS CITED IN SUPPORT OF THE PROPOSITION THAT THE PROVISION OF SECTION 14 A CAN BE INVOKED BY THE APPELLATE AUTHORITIES EVEN THOUGH, T HE SAME WAS NOT APPLIED BY THE LOWER AUTHORITIES. 4 . THE LD. CIT(A) CONCLUDED AND UPHELD THE DISPUTED DI SALLOWANCE WITH THE FOLLOWING OBSERVATIONS:- THE SPECIAL BENCH OBSERVED THAT PROCEDURE AND MECHANISM FOR WORKING OUT EXPENDITURE IN RELATION T O INCOME WHICH IS EXEMPT IS GOVERNED BY RULE 8D WHICH PRESCRIBES THE METHOD BY WHICH THE AO HAS TO DETERM INE THE DISALLOWANCE OF EXPENDITURE AS RELATABLE TO THE EXEMPT INCOME. FURTHER IN THE CASE OF M/S CHEMINVEST LTD. VS ITO AS REPORTED IN 317 ITR, THE SPECIAL BENCH, DELHI HA S OBSERVED THAT IN CASE WHERE DIVIDEND INCOME IS EXEM PTED FROM TAX, REGARDLESS OF WHETHER, SHARES ARE HELD AS INVESTMENT OR AS A STOCK IN TRADE, EXPENDITURE INCU RRED 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 . ITA NOS.4118 & 4119/D/2010 5 5. WE HAVE HEARD RIVAL ARGUMENTS OF BOTH THE PARTIE S AND CAREFULLY PERUSED THE RECORD BEFORE US. THE COUNSEL APPEARIN G FOR THE ASSESSEE SUBMITTED THAT THE LD. CIT(A) GROSSLY ERRED IN INTE RPRETATION OF SECTION 14A(2) OF THE ACT THAT THE PROVISION IS OF RETROSPE CTIVE 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 AFT ER THAT JUDGEMENT, HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE C ASE OF MAXOPP INVESTMENT LTD. VS CIT REPORTED AS (2011) 203 TAXMA N 364 HELD THAT RULE 8D OF THE RULES, WHICH WAS INTRODUCED BY VIRTU E OF NOTIFICATION NO.45/2008 DATED 24.3.2008 IS PROSPECTIVE IN OPERAT ION AND CANNOT BE REGARDED AS BEING RETROSPECTIVE. AND THE HONBLE HI GH COURT ALSO HELD THAT THOUGH SUB-SECTIONS (2) & (3) OF SECTION 14A OF THE ACT WERE INTRODUCED WITH PROSPECTIVE EFFECT FROM AY 2007-08 ONWARD, THE Y WOULD BE WORKABLE ONLY WITH EFFECT FROM THE DATE OF INTRODUCTION OF R ULE 8D WHICH GAVE CONTENT TO EXPRESSION SUCH METHOD AS MAY BE PRESCRIBED AP PEARING IN SECTION 14A(2) OF THE ACT. WE FIND IT APPROPRIATE TO RESPE CTFULLY REPRODUCE THE RELEVANT PARA OF JUDGMENT OF MAXOPP INVESTMENT LTD. VS CIT (SUPRA) AS UNDER:- 29. SUB-SECTION (2) OF SECTION 14 A OF THE SAID AC T PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME. ITA NOS.4118 & 4119/D/2010 6 HOWEVER, IF WE EXAMINE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSING OFFICER IS REQUIRED TO DETE RMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF THE ASSES SING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELA TION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE SAID ACT. IN OTHER WORDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WOULD BE TRIGGERED ONL Y IF THE ASSESSING OFFICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDENT FOR THE ASSESSING OFFI CER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME I S THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE AS SESSEE IN RESPECT OF SUCH EXPENDITURE. SUB-SECTION (3) IS NOTHING BUT AN OFFSHOOT OF SUB-SECTION (2) OF SECTION 14A. SUB- SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE CLA IMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, SUB-SECTION ( 2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POS ITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH D OES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITURE HAD BEEN INCURRED IN RE LATION TO EXEMPT INCOME. IN BOTH CASES, THE ASSESSIN G OFFICER, IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF T HE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, A S THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATI ON 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 C ORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT T HE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE THE ITA NOS.4118 & 4119/D/2010 7 AMOUNT OF EXPENDITURE INCURRED IN RELATI ON TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED ME THOD. THE PRESCRIBED METHOD BEING THE METHOD STIPULAT ED IN RULE 8D OF THE SAID RULES. WHILE REJECTING TH E CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXE MPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICAT E COGENT REASONS FOR THE SAME. RULE 8D 30. AS WE HAVE ALREADY NOTICED, SUB-SECTIO N (2) OF SECTION 14A OF THE SAID ACT REFERS TO THE METH OD 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 A LREADY MENTIONED ABOVE THAT BY VIRTUE OF NOTIFICATIO N NO.45/2008 DATED 24/03/2008, THE CENTRAL BOARD OF DIRECT TAXES INTRODUCED RULE 8D IN THE SAID RULES. THE SAID RULE 8D ALSO MAKES IT CLEAR THAT WHERE THE ASS ESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THA T NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT FOR SUCH PREVIOUS YEAR, THE ASSESSING OFF ICER SHALL DETERMINE THE AMOUNT OF THE EXPENDITURE IN R ELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB- RULE (2) OF RULE 8D. WE MAY OBSERVE THAT RU LE 8D(1) PLACES THE PROVISIONS OF SECTION 14A(2) AND (3) IN THE CORRECT PERSPECTIVE. AS WE HAVE ALREADY SEEN, WHI LE DISCUSSING THE PROVISIONS OF SUB-SECTIONS (2) AND (3) OF SECTION 14A, THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER TO HIMSELF DETERMINE THE AMOUNT OF EXPENDI TURE IS THAT HE MUST RECORD HIS DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE OR WITH THE CORRECTNESS OF THE CLAIM MA DE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. ITA NOS.4118 & 4119/D/2010 8 IT IS ONLY WHEN THIS CONDITION PRECEDENT IS SATISFIED THAT THE ASSESSING OFFICER IS REQUIRED TO DETERM INE THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INC LUDABLE IN TOTAL INCOME IN THE MANNER INDICATED IN SUB-RULE (2) OF RULE 8D OF THE SAID RULES. 31. IT IS, THEREFORE, CLEAR THAT DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOM E UNDER RULE 8D WOULD ONLY COME INTO PLAY WHE N THE ASSESSING OFFICER REJECTS THE CLAIM OF THE ASSESSEE IN THIS REGARD. IF ONE EXAMINES SUB-RULE (2) OF RULE 8D, WE FIND THAT THE METHOD FOR DETERMINING THE EXPENDITU RE IN RELATION TO EXEMPT INCOME HAS THREE COMPONENTS . THE FIRST COMPONENT BEING THE AMOUNT OF EXPENDITUR E DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PAR T OF THE TOTAL INCOME. THE SECOND COMPONENT BEING COMPUTED O N THE BASIS OF THE FORMULA GIVEN THEREIN IN A CASE W HERE THE ASSESSEE INCURS EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INC OME OR RECEIPT. THE FORMULA ESSENTIALLY APPORTIONS T HE AMOUNT OF EXPENDITURE BY WAY OF INTEREST [OTHE R THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I)] INCURRED DURING THE PREVIOUS YEAR IN THE RATIO OF TH E AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, TO THE AVERAGE O F THE TOTAL ASSETS OF THE 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 LA ST 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 I S, THEREFORE, CLEAR THAT IN TERMS OF THE SAID RULE, TH E AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME HAS TWO ASPECTS (A) DIRECT AND (B) INDIRECT. THE DIREC T EXPENDITURE IS STRAIGHTAWAY TAKEN INTO ACCOUNT BY V IRTUE OF CLAUSE (I) OF SUB-RULE (2) OF RULE 8D. THE INDIREC T ITA NOS.4118 & 4119/D/2010 9 EXPENDITURE, WHERE IT IS BY WAY OF INTEREST, IS COM PUTED THROUGH THE PRINCIPLE OF APPORTIONMENT, AS INDICATE D ABOVE. AND, IN CASES WHERE THE INDIRECT EXPENDITU RE IS NOT BY WAY OF INTEREST, A RULE OF THUMB FIGURE OF ONE H ALF PERCENT OF THE AVERAGE VALUE OF THE INVESTMENT, INC OME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE T OTAL INCOME, IS TAKEN. DO SUB-SECTIONS (2) AND (3) OF SECTION 14A AND RULE 8D APPLY RETROSPECTIVELY ? 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, W AS WITH RETROSPECTIVE EFFECT FROM 01.04.1962. THE PROVISO W AS INSERTED BY VIRTUE OF THE FINANCE ACT, 2002 AND IT WAS MADE CLEAR THAT NOTHING IN SECTION 14A EMPOWERED TH E 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 LIA BILITY OF THE ASSESSEE UNDER SECTION 154, FOR ANY ASSESSME NT YEAR BEGINNING ON OR BEFORE THE FIRST DAY OF APRIL, 2001. THUS, IN RESPECT OF ALL THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR BEGINNING ON OR BEFO RE THE 1ST DAY OF APRIL, 2001, CONCLUDED ASSESSMENT S COULD NOT BE DISTURBED DESPITE THE FACT THAT SE CTION 14A HAD BEEN EXPRESSLY MADE RETROSPECTIVE WITH EFFECT FROM 01.04.1962. THE PROVISIONS OF SECTION 14A, WHICH W ERE RETROSPECTIVE WITH EFFECT FROM 01.04.1962 ARE NOW ENCAPSULATED IN SUB-SECTION (1) OF SECTION 14A. IT IS ALSO CLEAR THAT SUB-SECTIONS (2) AND (3) OF SECTION 14A WERE INTRODUCED SUBSEQUENTLY BY VIRTUE OF THE FINANCE ACT, 2006 AND WERE INTRODUCED WITH E FFECT FROM 01.04.2007. HOWEVER, ALTHOUGH SUB-SECTIONS ( 2) AND (3) HAD BEEN INTRODUCED WITH EFFECT FROM 01.04.2007, 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, 200 8 ITA NOS.4118 & 4119/D/2010 10 WHICH WAS NOTIFIED BY THE CENTRAL BOARD OF DIRECT TAXES BY ITS NOTIFICATION NO.45/2008 DATED 24/03 /2008. 33. DR RAKESH GUPTA, THE LEARNED COUNSEL, WHO HAD APPEARED FOR SOME OF THE ASSESSEES, SUBMITTED T HAT SECTION 295 OF THE SAID ACT EMPOWERED THE CENTRAL B OARD 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 E ARLIER 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 IMPLIC ATION), NO RETROSPECTIVE EFFECT WAS TO BE GIVEN TO ANY RULE SO AS TO PREJUDICIALLY AFFECT THE INTERESTS OF THE ASSESSEES . HE FURTHER SUBMITTED THAT RULE 8D WAS INSERTED IN THE SAID RULES, BUT THE CENTRAL BOARD OF DIRECT TAXES DID NO T MAKE IT RETROSPECTIVE. HE SUBMITTED THAT WHENEVER THE C BDT 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 BEHA LF OF THE REVENUE AND, PARTICULARLY, BY MR SANJEEV SABHARWAL THAT SINCE SECTION 14A WAS INTRODUCED WITH RETROSPECTI VE EFFECT FROM 01.04.1962, THE PRINCIPLES OF SECTION 1 4A WOULD HAVE TO BE CONSIDERED AS HAVING ALWAYS BEEN A PART OF THE SAID ACT AND, THEREFORE, SUB-SECTIONS (2) AN D (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 14 A(1). 35. WE ARE OF THE VIEW THAT RULE 8D WOULD OPERA TE PROSPECTIVELY. WE AGREE WITH THE SUBMISSIONS MADE BY DR RAKESH GUPTA THAT IF THE SAID RUL E WERE TO HAVE RETROSPECTIVE EFFECT, NOTHING PREVENTED THE CE NTRAL ITA NOS.4118 & 4119/D/2010 11 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 SA ID ACT. INSTEAD OF MAKING RULE 8D RETROSPECTIVE, CLAUSE 1( 2) OF THE INCOME-TAX (FIFTH AMENDMENT) RULES, 2008 MADE I T CLEAR THAT THE RULES WOULD COME INTO FORCE FROM THE DATE OF THEIR PUBLICATION IN THE OFFICIAL GAZETTE. IT IS, T HEREFORE, 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 BOMBA Y HIGH COURT IN GODREJ AND BOYCE MFG. CO. LTD V D CIT: (2010) 328 ITR 81 (BOM), WHEREIN IT HAS, INTER ALIA , BEEN HELD THAT THE PROVISIONS OF RULE 8D OF THE SAID RULES HAS PROSPECTIVE EFFECT AND SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09 ONWARDS. 6. LD. DR SUPPORTED THE IMPUGNED ORDER BUT HE DID N OT DISPUTE THE POINT THAT HONBLE JURISDICTIONAL HIGH COURT OF DELHI HAS HELD THAT SECTION 14A OF THE ACT R/W RULE 8D OF THE RULES ARE PROSPECTIVE IN OPERATION AND CANNOT BE REGARDED AS BEING RETROSPECTIVE. ON CAREFUL PERUSA L OF ABOVE JUDGEMENT WE MAY ALSO POINT OUT THAT THE HONBLE HIGH COURT OF D ELHI ALSO TOOK NOTICE OF JUDGEMENT OF HONBLE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYC E MFG. CO. LTD. VS DCIT (2010)328 ITR 81 WHEREIN IT HAS, INTER ALIA, BEEN HELD THAT THE PROVISIONS OF RULE 8D OF THE RULES HA VE PROSPECTIVE EFFECT AND SHALL APPLY WITH EFFECT FROM AY 2008-09 ONWARDS. 7. IN THE APPEALS IN HAND PERTAINING TO AY 2007-08 , THE ACTION OF AO AND ITS CONFIRMATION BY CIT(A) ARE NOT SUSTAINABLE IN THE LIGHT OF JUDGEMENT OF HONBLE DELHI HIGH ITA NOS.4118 & 4119/D/2010 12 COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT (SUPRA) AND JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT (SUPRA). THEREFORE, THE IMPUGNED ORDE R IS PERVERSE AND SUPPORTED BY MISINTERPRETATION OF THE PROVISIONS OF THE ACT AND RULES MADE THEREUNDER. ACCORDINGLY, WE SET ASIDE THE SAME AND RESTORE IT TO THE FILE OF AO WITH THE DIRECTION THAT THE ISSUE BE DECIDED DE NOVO IN THE LIGHT OF ABOVE JUDGEMENT AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE APPELLANT ASSESSEES. 8. THE APPEALS OF THE ASSESSEE ARE DISPOSED OF IN T HE MANNER AS INDICATED ABOVE AND THESE MAY BE TREATED AS ALLOWED FOR STATI STICAL PURPOSES. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2.7.2012. SD/- SD/- (S.V. MEHROTRA) (CHANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 2 ND JULY, 2012 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER DEPUTY REGISTRAR ITA NOS.4118 & 4119/D/2010 13