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2. This appeal when alongwith several appeals were heard on 16.11.2016, this Court noticed that in batch of cases, four questions have arisen. The present batch of cases of which Civil Appeal No. 2165 is a leading case relates only to Question No.2, which is to the following effect:
“Whether subsection (2) and subsection (3) of Section 14A inserted with effect from 01.04.2007 will apply to all pending assessments?
Whether Rule 8D is retrospectively applicable?”
3. All these appeals raising only above question of law have been heard together and are being decided by this common judgment. For deciding all these appeals, it shall be sufficient to refer facts and proceedings in Civil Appeal No. 2165 of 2012.
Civil Appeal No. 2165 of 2012
4. This appeal has been filed against the judgment of Bombay High Court dated 12.09.2011 in Income Tax Appeal (L) No. 947 of 2011 by which judgment the High Court has dismissed the appeal filed by the Commissioner of Income Tax following an earlier judgment of the Bombay High Court dated 12.08.2010 in the case of Godrej Boyce and Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax, Mumbai & Anr., reported in (2010) 328 ITR 81(Bom.). The assessment year in issue is 2003 2004. The assessee (respondent in appeal) filed his return of income on 01.12.2003 declaring a loss of Rs.69,92,67,527/. A notice under Section 143(2) was issued to the assessee. The Assessing Officer vide its order dated 27.03.2006 held that during the year under consideration, the assessee company was in receipt of both taxable and nontaxable dividend income. Accordingly, the dividend on investment exempt under Section 10(23G) was considered by the A.O. for the purpose of disallowance U/S.14A. Hence, proportionate interest relating to investment on which exemption u/s.10(23G) is available as per the working amounting to Rs.26 crores was disallowed U/S.14A r.w.s. 10(23G) of the I.T. Act.
5. The assessee filed an appeal, which was partly allowed by order dated 05.03.2009. The assessee filed an appeal before the ITAT. The ITAT allowed the assessee’s appeal relying on the Bombay High Court’s judgment in Godrej and Boyce Manufacturing Company Limited versus Deputy Commissioner of Income Tax, Mumabi & Another., reported in (2010) 328 ITR 81(Bom.). The ITAT held that Rule 8D is only prospective and in the year under consideration Rule 8D was not applicable. ITAT set aside the order of CIT(A) and restored the issue back to the file of the Assessing Officer for de novo adjudication without invoking the provisions of Rule 8D. Against the order of ITAT, the revenue filed an appeal before the High Court. The High Court following its earlier judgment of Godrej and Boyce Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax, Mumbai & Anr. (supra) dismissed the appeal. The Commissioner of Income Tax aggrieved by the judgment of the High Court has come up in this appeal.
6. In the appeal, the only question, which has been pressed for our consideration is the first question, which was raised before the High Court, which is to the following effect:
“Whether on the facts and circumstance of the case and in law, the Hon’ble ITAT is right in holding that applicability of Rule 8D is only prospective in operation and for the year under assessment it was not applicable?”