2014 (5) TMI 313 - AT - Income Tax

Denial of deduction u/s 80M on the ground that dividend was subject to dividend distribution tax u/s 115-O - Whether the provisions of section 115-O, which has been brought in the statute by the Finance Act, 2003, w.e.f. 1st April 2003, can be made to be applicable so to deny the statutory deduction u/s 80M of the Act Held that - The purpose and intent of section 115-O is entirely different inasmuch as it sought to tax the dividend at the time of declaration / distribution / payment and such payment of tax cannot be claimed as deduction under any section or any other provision thus, the deduction is allowable u/s 80M to the assessee is not overridden by section 115-O as held by the AO as well as the CIT(A) the claim of deduction u/s 80M is clearly allowable as all the conditions mentioned has been fully complied with. Distribution of dividend - Whether the dividend has been distributed from the profits of assessment year 2003-04 or not Held that - The assessee has distributed the same quantum of amount of dividend which was received in September 2002 to its shareholders on 29th October 2003 - The assessee had the time limit for such distribution up to the date of filing of the return of income - the presumption can be drawn that the dividend has been distributed out of the same quantum of dividend received only, unless something is brought on record that the said dividend income has been specifically used for some other purpose. This has not been controverted by the AO - he is only drawing a presumption that this amount of dividend distributed is out of the profits of the assessment year 2004-05 and not assessment year 2003-04 - There is no material on record to the conclusion of the AO, especially when in the original round of scrutiny proceedings u/s 143(3), the assessee s contention has been accepted - the assessee s claim of deduction u/s 80M is clearly allowable as the same is within the mandate of section 80M, as all the conditions mentioned stands fulfilled for which there is no dispute by the Department - provisions of section 115-O will not negate the assessee s claim for deduction u/s 80M in the year, as the provisions of section 115-0 is for different purpose altogether Decided in favour of Assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under section 147.
2. Disallowance of deduction under section 80M.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:

The assessee challenged the reopening of the assessment under section 147 of the Income Tax Act, 1961, arguing that it was based on a "change of opinion" by the Assessing Officer (AO). Initially, the assessment was completed under section 143(3), allowing the deduction under section 80M. The reassessment was initiated based on the AO's belief that the deduction under section 80M was impermissible due to the provisions of section 115-O(5). The Tribunal noted that the original assessment proceedings had already considered and allowed the deduction under section 80M. Therefore, reopening the assessment without any new material constituted a "change of opinion," which is not permissible under the law, as upheld by the Hon'ble Supreme Court in CIT v/s Kalvinator of India Ltd. [2010] 320 ITR 561 (SC). Consequently, the Tribunal found the reopening under section 147 to be invalid.

2. Disallowance of Deduction under Section 80M:

The primary contention was whether the deduction under section 80M was allowable despite the provisions of section 115-O(5). The assessee received dividend income from Asian Electronics Ltd. on 24th September 2002 and distributed dividends to its shareholders on 29th October 2003, before the due date of filing the return for the assessment year 2003-04. The AO disallowed the deduction, arguing that the dividend distributed was subject to tax under section 115-O, and hence, no deduction under section 80M was allowable.

The Tribunal examined the provisions of section 80M, which allowed a deduction for dividends received and redistributed before the due date of filing the return. The Tribunal noted that section 80M was applicable for the assessment year 2003-04, as it was omitted from the statute w.e.f. the assessment year 2004-05. The Tribunal further clarified that section 115-O, introduced w.e.f. 1st April 2003, imposed an additional tax on dividends distributed but did not negate the deduction under section 80M. The purpose of section 115-O was to tax dividends at the time of distribution, and it did not conflict with the deduction provisions of section 80M.

The Tribunal concluded that the assessee fulfilled all conditions under section 80M, as the dividend was received and distributed within the stipulated time. The AO's presumption that the dividend was distributed from the profits of the assessment year 2004-05 lacked any material evidence. Therefore, the Tribunal held that the deduction under section 80M was allowable, and the provisions of section 115-O did not override this deduction.

Conclusion:

The Tribunal allowed the assessee's appeal on both grounds. The reopening of the assessment under section 147 was deemed invalid due to it being a "change of opinion." On merits, the Tribunal held that the deduction under section 80M was allowable, as the provisions of section 115-O did not negate the statutory deduction. The appeal was thus decided in favor of the assessee.