2009 (4) TMI 540 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of CIT u/s 263.
2. Allowability of deduction u/s 80M in light of section 115-O(5).

Summary:

Jurisdiction of CIT u/s 263:

The CIT-III, Mumbai invoked section 263 of the Income-tax Act, finding the assessment order dated 30-12-2005 erroneous and prejudicial to the interest of the revenue. The CIT observed that the Assessing Officer (AO) allowed the deduction u/s 80M without discussion or examination of its admissibility, and that the payment of dividend tax u/s 115-O(5) barred such a deduction. The assessee argued that the AO had conducted requisite enquiries and that there were two views on the issue, thus the CIT wrongly assumed jurisdiction. The Tribunal noted that the AO had issued a detailed questionnaire and received a comprehensive reply from the assessee, indicating application of mind. Citing the Supreme Court in Malabar Industrial Co. Ltd. v. CIT and the Bombay High Court in CIT v. Gabriel India Ltd., the Tribunal held that the AO's order was not erroneous as it was based on one of the permissible views. Therefore, the CIT's assumption of jurisdiction u/s 263 was invalid, and the proceedings were quashed.

Allowability of Deduction u/s 80M:

The Tribunal examined the provisions of section 80M and section 115-O(5). Section 80M allows deduction for dividends received from another domestic company, while section 115-O(5) prohibits deductions for amounts subjected to tax u/s 115-O(1). The Tribunal acknowledged the existence of two views: one supporting the deduction u/s 80M despite section 115-O(5), and another opposing it. The Tribunal referred to the Bombay High Court's decision in Saumya Finance & Leasing Co. Ltd., which upheld the deduction u/s 80M. Consequently, the Tribunal concluded that the AO's order was not erroneous or prejudicial to the revenue's interest. On merits, the Tribunal held that the assessee rightly claimed the deduction u/s 80M, and the assessment order dated 30-12-2005 was upheld.

Conclusion:

The appeal of the assessee was allowed, quashing the CIT's order u/s 263 and restoring the AO's assessment order.