K. Vinod Chandran, J v. Learned Standing Counsel Appearing For The

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNESDAY, THE 18TH DAY OF MARCH 2020 / 28TH PHALGUNA, 1941 RP.No.1136 OF 2019 IN ITA. 78/2011 AGAINST THE ORDER/JUDGMENT IN ITA 78/2011 OF HIGH COURT OF KERALA REVIEW PETITIONER: THE PRINCIPAL COMMISSIONER OF INCOME TAXKOCHI - 1, KOCHI. RESPONDENT: BY ADV. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) THE FEDERAL BANK LTDFEDERAL TOWERS, ALUVA. OTHER PRESENT: SR.V.ABRAHAM MARKOS THIS REVIEW PETITION HAVING BEEN FINALLY HEARD ON 18.03.2020,THE COURT ON THE SAME DAY PASSED THE FOLLOWING: O R D E R Dated this the 18thday of March, 2020 K. Vinod Chandran, J. The Review Petition has been filed against thedeletion of disallowance made under Section 14A of theIncome Tax Act, 1961 (For brevity, 'the Act of 1961).This Court, in very many appeals, filed by both theRevenue and the assessee, found that, as per thebinding precedent of the Hon'ble Supreme Court inCommissioner of Income Tax V. Essar Teleholdings Ltd.[(2018) 401 ITR 445 (SC),such dis-allowance could bemade only from the assessment year 2007-2008. This washeld to be so for reason of the incorporation of themachinery provisions under Rule 8D of the Income TaxRules in the year 2006, the Explanatory Notes in theFinance Bill 2006, clarification in the Circular dated28.12.2006 and the methodology having been changed inthe year 2016, which was expressly stated to beprospective. 2.Learned Standing Counsel appearing for the Revenue submitted that the decision inEssar Teleholdings (supra)itself finds that Section 14A ofthe Act is fully workable without there being anymechanism provided for computing the expenditure asnoticed in para 36. 3. We have to immediately notice that it is not the dictum of the decision and their Lordshipsexpressed otherwise in paragraphs 36, 37 & 40, all ofwhich we extract hereunder: 36. It is to be noted that Section 14-A wasinserted by the Finance Act, 2001 and theprovisions were fully workable without theirbeing any mechanism provided for computingthe expenditure.Although Section 14-A wasmade effective from 1-4-1962 but proviso wasimmediately inserted by the Finance Act,2002, providing that Section 14-A shall notempower the assessing officer either toreassess under Section 147 or pass an orderenhancing the assessment or reducing a refundalready made or otherwise increasing theliability of the assessees under Section 154,for any assessment year beginning on orbefore 1-4-2001. Thus, all concludedtransactions prior to 1-4-2001 were madefinal and not allowed to be reopened. 37.The memorandum of explanationexplaining the provisions of the Finance Act,2006 has clearly mentioned that Section 14sub-section (2) and sub-section (3) shall be effective with effect from Assessment Year2006-2007 alone which is another indicatorthat provision was intended to operateprospectively. XXX XXX XXX 40. In the present case, methodology asprovided under Rule 8-D was neither a well-known nor well-settled mode of computation.The new mode of computation was brought inplace by Rule 8-D. No assessing officer, evenin his imagination could have applied themethodology, which was brought in place byRule 8-B. Thus, retrospective operation ofRule 8-B cannot be accepted on the strengthof law laid down by this Court in the abovecase. Underlining by us for emphasis It cannot hence be said that there could have been acomputation applied even without the machineryprovision. 4.The learned Standing Counsel placedreliance on the decision of the Hon'ble Supreme Courtin Godrej & Boyce Manufacturing Co. Ltd V. Deputy-Commissioner of IncomeTax and Another [(2017) 394 ITR449 (SC)to contend that even beforeEssarTeleholdings'case, Honourable Supreme Court had Underlining by us for emphasis It cannot hence be said that there could have been acomputation applied even without the machineryprovision. 4.The learned Standing Counsel placedreliance on the decision of the Hon'ble Supreme Courtin Godrej & Boyce Manufacturing Co. Ltd V. Deputy-Commissioner of IncomeTax and Another [(2017) 394 ITR449 (SC)to contend that even beforeEssarTeleholdings'case, Honourable Supreme Court had accepted that dis-allowance under Section 14A of theAct, was valid and possible especially looking at thelegislative intend of the provision. We need onlyextract para of Essar Teleholdings to reject the abovecontention: 50. It is relevant to note that the impugnedjudgmentin this appeal relies on the earlierjudgment of the Bombay High Court in Godrej &Boyce Mfg. Co. Ltd. v. CIT, where the DivisionBench of the Bombay High Court afterelaborately considering the principles todetermine the prospectivity or retrospectivityof the amendment has concluded that Rule 8-D isprospective in nature. Against the aforesaidjudgment of the Bombay High Court dated 12-8-2010 an appeal was filed in this Court whichhas been decided vide its judgment in Godrej & Boyce Mfg. Co. Ltd. v. CIT[(2017) 7 SCC 421 ].This Court, while deciding the above appeal,repelled the challenge raised by the assesseeregarding vires of Section 14-A. In para 36 ofthe judgment, this Court noticed that withregard to retrospectivity of provisions Revenuehad filed appeal, hence the said question wasnot gone into the aforesaid appeal. In theabove case, this Court specifically left thequestion of retrospectivity to be decided inother appeals filed by the Revenue. We thushave proceeded to decide the question of-retrospectivity of Rule 8D in these appeals. Underlining by us for emphasis We need not hence place any reliance on Godrej & BoyceMfg. Co. Ltd. (supra) to decide on the retrospectivity. 5.We also rely on a three Judge Benchdecision of the Hon'ble Supreme Court in Commissioner-of IncomeTax, Bangalore v. B.C. Srinivasa Setty[(1981) 128 ITR 294]. There, the question was slightlydifferent in so far as the computation provisions notbeing applicable, in which event it was held that theissue was not intended to fall within the chargingsection. We are concerned with the declaration that“the Charging section and the computation provisiontogether constitute an integrated provision”. Hence,only when the machinery provisions for computation cameinto the Rules, there could have been a dis-allowanceunder Section 14A of the Act especially when sub-sections (2) & (3) of Section 14A came into the statutein 2006, just before Rule 8D. 6.We also notice that in another appeal, ITANo.830 of 2009 dated 06.12.2018, wherein the question raised was answered in favour of the assessee and against the Revenue, again relying onEssar Teleholdings, the Revenue took it up before the Hon'bleSupreme Court and the SLP stood dismissed by an orderdated 06.12.2018. For all the above reasons, we find no reasonto review the judgment to the extent of the finding onapplicability of Section 14A. The review petition isdismissed inlimine. jma Sd/- K.VINOD CHANDRAN, JUDGE Sd/- V.G.ARUN, JUDGE