2014 (12) TMI 978 - HC - Income Tax

Notice for reopening of assessment u/s 148 - Deduction u/s 80M claimed on the dividend received as a shareholder Invocation of provisions of section 115-O - Held that - During the subject AY 2003-04, Section 115O of the Act was not in the Act - It only came into force from the AY 2004-05 in Godrej Agrovet Limited Versus The Deputy Commissioner of Income Tax 2010 (2) TMI 27 - BOMBAY HIGH COURT it has been held that u/s 147 of the Act, the AO has a power to reopen the assessment by issuing a notice for the same provided that he has reason to believe that income escaped assessment - The reopening of an assessment cannot be on a mere change of opinion - the basis of reopening of the assessment was the payment of dividend u/s 115 O - Section 80M as it stood during the AY 2003-04 allowed an assessee to claim deduction u/s 80 M of the Act so long as the amount of dividend received is less than the amount of dividend distributed before the due date of filing the return of income - the AO seeking to deny the benefit of tax u/s 80 M on account of Section 115O, has proceeded on an extraneous ground - Section 115O of the Act could not have been invoked to disallow the deduction available u/s 80 M of the Act in the AY 2003-04. The date of filing of return was 31st October, 2003 and the assessee had distributed the dividend on 6th October, 2003 - all conditions necessary for claiming deduction on the dividend received u/s 80M of the Act including the monetary cap of being less than the dividend distributed was satisfied - Thus, AO could not have had any reason to believe that income chargeable to tax has escaped the assessment for AY 2003-04 - It was not open to the AO to invoke provisions of Section 115 O which were not in the Act for the AY 2003-04 to deny the benefit of deduction u/s 80M. The deduction being claimed by the assessee u/s 80 M is not on the amounts which have been distributed as dividend by the assessee to its shareholders and on which the tax is paid u/s 115 O of the Act - The deduction u/s 80M of the Act claimed is on the dividend received by the Petitioner as a shareholder thus, Section 115 O (5) of the Act will have no application thus, the notice issued u/s 148 is set aside Decided in favour of assessee.

Summary

Issues:
1. Validity of notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2003-04.
2. Interpretation of Section 80M and Section 115O of the Income Tax Act.
3. Application of Section 115O (5) to disallow deduction under Section 80M.

Analysis:

Issue 1:
The Petitioner challenged the notice dated 27th December, 2006, seeking to reopen the assessment for Assessment Year 2003-04 under Section 148 of the Income Tax Act. The notice was based on the Assessing Officer's belief that income chargeable to tax had escaped assessment due to the deduction claimed under Section 80M. The Petitioner objected to the reasons recorded in the notice, arguing that the deduction was correctly taken as per law. The Assessing Officer rejected this objection, leading to the legal dispute.

Issue 2:
The crux of the matter revolved around the interpretation of Section 80M and Section 115O of the Act. Section 80M allows a domestic company to claim a deduction in respect of dividends received from another domestic company, subject to certain conditions. On the other hand, Section 115O imposes additional income tax on distributed profits by a domestic company. The dispute arose from the Assessing Officer's contention that Section 115O (5) disentitled the Petitioner from claiming the benefit of Section 80M, as the dividend had been charged to tax under Section 115O.

Issue 3:
The Court analyzed the provisions of Section 80M and Section 115O in detail to determine the applicability of Section 115O (5) to disallow the deduction under Section 80M. The Court emphasized that Section 115O (5) prohibits deduction in respect of amounts charged to tax under Section 115O (1), which pertains to the dividend distributed by the company. The deduction claimed under Section 80M, however, was on the dividend received by the Petitioner, not on the distributed amounts subject to tax under Section 115O. Therefore, the Court held that Section 115O (5) did not apply to the facts of the case, and the Assessing Officer could not deny the deduction under Section 80M based on Section 115O.

In conclusion, the Court set aside the notice issued under Section 148 of the Act, ruling in favor of the Petitioner based on the interpretation of Sections 80M and 115O. The judgment highlighted the importance of correctly applying tax provisions and ensuring that deductions are allowed in accordance with the law.