Rule 8D applicable from A.Y. 2008-2009, however direct and indirect expenses to earn exempt Income has to be disallowed under Section 14A

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CIT Vs. Galileo India Pvt Ltd (Delhi HC) - Rule 8D has been held to be prospective in nature and applicable from assessment year 2008-09 by this Court in Maxopp Investment Ltd. v. CIT, New Delhi in ITA No.687/2009 dated 18.11.2011. However, in the said decision it has been observed that direct and indirect expenses have to be disallowed under Section 14A, when an assessee earns exempt income. In the present case no disallowance was made under Section 14A. In these circumstances, the CIT was justified in invoking supervisory jurisdiction under Section 263 of the Act. The said jurisdiction can be invoked when two conditions are satisfied. If the order by the Assessing Officer is erroneous and prejudicial to the interests of the revenue. An order is erroneous, when the Assessing Officer does not correctly apply a provision or does not make enquiries which are required. When the order passed is contrary to law and not in conformity with the Act, it is erroneous and can be revised by the Commissioner. In the present case Section 14A was not applied and no disallowance was made by the Assessing Officer, though the assessee is a company and has admittedly earned exempt income of Rs.28,20,145/-.