The Income Tax Appellate Tribunal (ITAT), while providing relief to Hero Motocorp ruled that no disallowance under section 14A can be made by invoking provisions of Rule 8D retrospectively.
The assessee, Hero Motocorp raised the issue in respect of the disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 amounting to Rs.3,26,03,500. It was urged that in the return of income, the assessee had shown to have earned exempt dividend income of Rs.14,41,51,497 from investments held in shares and mutual funds.
The assessee said that the CIT (A) confirmed the disallowance made by the assessing officer under section 14A of the Act to the extent of Rs.3,26,03,500 being 0.5% of the total investments on the assumption that certain administrative expenses must have been incurred to earn exempt income. It was pointed out that further, the Ld. CIT (A) remanded the disallowance to the extent of Rs. 78,55,100/- on account of interest expenditure to the assessing officer who, vide set aside order dated 31.03.2017, deleted the disallowance made under section 14A of the Act to the extent of Rs.78,55,100/-.
The assessee submitted that the disallowance of Rs. 3,26,03,500/- which was sustained by the Ld. CIT (A) deserves to be deleted at the threshold itself since disallowance under section 14A of the Act cannot be made by applying the provisions of Rule 8D since the provisions of said Rule are prospective in nature and are, thus, applicable from assessment year 2008-09 onwards and were not applicable during the relevant assessment year 2005-06.
The coram of O.P.Kant and Sudhanshu Shrivastava ruled that the Assessing Officer has made disallowance under section 14A by invoking provisions of Rule 8D of the Income Tax Rules, 1962. Since Rule 8D is not retrospective, the same is not applicable in the present assessment year.
The tribunal restored the matter back to the file of the AO to compute disallowance on the same basis in the year under consideration after taking requisite details from the assessee and giving opportunity of hearing by following the principle of natural justice.
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