Case Law Details
RELEVANT PARAGRAPH
7. The scope of section 263 has been determined by the propositions pro-founded by the Hon’bie Apex Court as well as other courts. For the revenue, an incorrect assumption of fact, incorrect assumption of law, failure to or routinely to conduct investigation in to the issue together with the ‘prejudicial to the interest of revenue’ are the approved grounds for assuming the jurisdiction u/s 263. Limiting the aspects of ‘incorrect assumption of law7, which is the issue in the instant case, as well as ‘prejudicial to the interest of revenue’, the view of the supreme court and the High court of Bombay in the cases of Malabar Industrial Co Ltd (243 ITR83) and Gabriel India Ltd (203 ITR108)(Bom) respectively are relevant. In the case of Malabar Industrial Co Ltd (supra), the Hon’bie Supreme Court has held that the phrase ‘prejudicial to the interest of revenue’ has to be read in conjunction with the erroneous order passed by the AO. Ever loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the revenue. For example, when an ITO adopted one of the courses permissible in law and it has resulted in the loss of revenue; or where two views are possible and the UO has taken one view with which the Commissioner does not agree, it cannot be treated as and erroneous order prejudicial to the interests of the revenue, unless the view taken by he ITO is unsustainable in law. In the case of Gabriel India Ltd (supra), the Jurisdiction High Court has also held that where the AO has made inquiries with regard to nature of the expenditure incurred by the assessee in the light of detailed explanations furnished by the assessee, the order of the AO cannot be called to be erroneous and prejudicial to the interest of revenue. Relevant observations in this regard are extracted here under:-
“that the ITO in this case had made inquiries in this regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of he assessee. This decision of the ITO could not be held to be erroneous simply because in his order he did not make an elaborate discussion in that regard.”
Thus, where the CIT may not agree with the view taken by the AO while allowing the claim of the assessee but the view taken by the AO cannot be called to be absurd and non-plausible/ impossible view. It bas been repeatedly held by the various High Courts and Apex Court that if two views are possible and AO has taken one of it, such view cannot be revised under section 263 of the Income tax Act. Similar view were expressed by the Tribunal also following the aforesaid judgments in large number of the case such as Usha Martin Industries Ltd (86 ITD261) etc.
8. In the light of the above scope, the factual matrix of the instant case has been examined. In our opinion, the A07s undisputed questionnaire with item no 6 as well as the two-page-long- elaborate reply of the assessee on the issue of allow ability of the deduction u/s 80-M, confirms the fact that the issue of deduction u/s 80-M was within the scrutiny scope of the AO. In asking the assessee to justify the said deduction u/s 80-M, the AO has gone on record in not only doing the requisite investigation but also in applying his mind. Further, absence of discussion in the assessment order as why claim of deduction u/s 80-M is allowed by the AO is no ground for coming to the conclusion that AO did not apply his mind on the issue. Assessee has also done his job of proving that the dividend in question has suffered dividend tax with in the meaning of section 115-0(1) by filing the copies of the challans u/s 115-0 of the Act. Considering (i) the detailed questionnaire; (ii) the reply of the assessee along with evidences; and (iii) the 10 page long assessment order, we shall not subscribe to the inference that the AO has routinely decided this issue on merits.
9. Regarding the existence of two views, it is noticed that while the assessee argues that the provisions of section 80-M provides for deduction when the condition of the said section are met, the revenue relies on the provisions of section 115-0 for the proposition that the claim of the deduction u/s 80-M is subjected to the provisions of sub-section (5) of section 115-0. Relevant provisions of section 80-M (omitted by the Finance Act, 2003 with effect from 1.4.2004) and section 115-0 (1)& (5) read as under.
“Deduction in respect of certain inter-corporate Dividends.
80M. Deduction in respect of certain inter-corporate dividends.-( 1) Where the gross total income of a domestic company, in any previous year, includes any income by way of dividends from another domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of such domestic company, a deduction of an amount equal to so much of the amount of income by way of dividends from another domestic company as does not exceed the amount of dividend distributed by the first-mentioned domestic company on or before the due date.
(2) Where any deduction, in respect of the amount of dividend distributed by the domestic company, has been allowed under sub-section (1) in any previous year, no deduction shall be allowed in respect of such amount in any other previous year.
Explanation. – For the purposes of this section, the expression “due date” means the date for furnishing the return of income under sub-section (1) of section 139.”
“Tax on distributed profits of domestic companies.
115-0(1) Notwithstanding anything contained in any other provisions of this Act and subject to the provisions of this section, in addition to the income tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or other wise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income tax (hereafter referred to as tax on distributed profits) at the rate of twelve and one-half percent.
(2)….
(3)….
(4)….
(5) No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the amount which has been charged to tax under sub section(l) or the tax thereon.”
10. From the above, it is true that the sub-section (5) refers to the amounts mentioned in sub-section (1) of section 115-0(5), meaning thereby, the amounts which has been subjected to tax under subsection (l)-Df section 115-0 must not be allowed deduction under any other provisions of the Act, which include deduction under section 80-M too. In the instant case also the amounts in question are paid after 1.4.2003 only. But the facts are that the section 80M refers to a couple of types of dividends: (i) the dividend received from the other domestic company and (ii) the other dividend is the one which has been subjected to tax. The later one, being tax suffered amounts, provides only for the purpose of quantification of the allowable deduction u/s 80-IW. Thus, the existence of two views is obvious and in such case, the C1T can not assume jurisdiction.
11. Thus, from the point of views of both (i) application of mind of the AO; (ii) the existence of two views and further, in the light of the existing evidences on records as well as the judicial pronouncements, the CIT assuming jurisdiction is not valid and thus, the proceedings u/s 263 are quashed restoring the order of the AO.
