M/s. LUPIN MARKETING PVT. LTD., MUMBAI v. ITO -10(1)(4), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI H BENCH MUMBAI BEFORE SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) AND SMT. ASHA VIJAYARAGHAVAN (JUDICIAL MEMBER) ITA NO.3076/MUM./2008 ASSESSMENT YEAR : 2003-04 DATE OF HEARING 26.3.2010 LUPIN MARKETING P. LTD. 159 CST ROAD KALINA MUMBAI 400 098 AAACL1077B .. APPELLANT VS INCOME TAX OFFICER WARD 10(1)(4) AAYAKAR BHAVAN M.K. ROAD MUMBAI 20 RESPONDENT APPELLANT BY : SMT. VASANTI PATEL RESPONDENT BY : SHRI S.K. PAHWA O R D E R PER PRAMOD KUMAR A.M. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IN THIS APPEAL IS WHETHER OR NOT THE IMPUGNED REVISION ORDER DATED 3 RD MARCH 2008 PASSED BY THE LEARNED COMMISSIONER FOR THE ASSESSMENT YEAR 2003-04 IS SU STAINABLE IN LAW. LUPIN MARKETING P. LTD. ITA NO.3076/MUM./2008 [2] 2. THE MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE BEFO RE US IS AN INVESTMENT COMPANY AND IN THE RELEVANT PREVIOUS YEAR IT HAD RECEIVED DIVIDENDS AMOUNTING TO RS.1 00 36 000/-. IN RESPECT OF THESE DIVIDENDS AS SESSING OFFICER ALLOWED A DEDUCTION U/S 80M OF RS.25 20 000/- BEING DIVIDENDS DECLARED AND PAID . THE ASSESSING OFFICER ALSO TOOK NOTE OF FINANCE CHARGES OF RS.66 80 281/- TO EARN THE DIVIDEND AND ACCORDINGLY TAXED THE NET DIVIDEND I NCOME OF RS.33 55 719/-. IT WAS IN THE BACKDROP OF THESE FACTS THAT THE LEARNED COM MISSIONER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER SO PAS SED BY THE ASSESSING OFFICER NOT BE SUBJECTED TO REVISION PROCEEDINGS AS THE ASSESSING OFFICER HAS ALLOWED DEDUCTION U/S 80M ON GROSS DIVIDEND RECEIPTS AND N OT ON THE INCOME RECEIVED BY WAY OF DIVIDEND. IN THE PROCEEDINGS WHICH FOLLOWED BEFORE THE COMMI SSIONER IT WAS CONTENDED BY THE ASSESSEE THAT NO EXPENSES EXCEPT FINANCE CHARGES HAVE BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSES OF EARNI NG DIVIDEND WHILE LEARNED COMMISSIONER DID NOT REJECT THIS CONTENTION ON MERI TS HE WAS SOMEWHAT DISMISSIVE OF THE SAME AND OBSERVED THAT IT WAS HOWEVER FOR THE A.O. TO EXAMINE WHETHER OTHER EXPENSES HAVE BEEN INCURRED TO EARN T HE DIVIDEND AND TO GIVE A FINDING TO THIS EFFECT IN THE ASSESSMENT ORDER . LEARNED COMMISSIONER THEN PROCEEDED TO SET ASIDE THE ASSESSMENT ORDER FOR FRESH ADJUDICATION A ND OBSERVED AS FOLLOWS:- I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSEL AND GONE THROUGH THE ASSESSMENT ORDER AND ASSESSMENT RECORDS. THE FA CTS WHICH ARE NOT IN DISPUTE ARE THAT THE ASSESSEE HAS RECEIVED GROSS DI VIDENDS AT RS.1 00 36 000/- AGAINST WHICH ASSESSEE HAS ADMITTE D INCURRING OF ONLY FINANCE CHARGES AND NO OTHER EXPENDITURE. IT IS AGA INST THIS AMOUNT THAT ASSESSEE HAS CLAIMED DEDUCTION U/S 80M RESTRICTING THE SAME TO DIVIDEND DECLARED AS REQUIRED U/S 80M READ WITH SEC. 115-O. DEDUCTION U/S 80M IS ADMISSIBLE ON DIVIDEND INCOME AND NOT ON DIVIDEN D RECEIPTS THAT MEANS THAT ALL THE EXPENSES WHICH HAVE BEEN INCURRE D IN RELATION TO THE EARNING OF THE DIVIDEND SHOULD BE TAKEN INTO CONSID ERATION AND NOT MERELY FINANCE CHARGES. IT IS NOW A SETTLED POSITIO N OF LAW THAT PROPORTIONATE MANAGEMENT EXPENSES ARE ALSO TO BE DE DUCTED FROM THE GROSS DIVIDEND AS HELD IN THE CASE OF UNITED GENERA L TRUST LTD. 200 ITR 488 (SC). ATLEAST AN EFFORT SHOULD HAVE BEEN MADE B Y THE A.O. TO DETERMINE THE NET INCOME FROM DIVIDEND RECEIPTS AND ONLY THAT DIVIDEND INCOME SHOULD HAVE BEEN ALLOWED AS DEDUCTION U/S 80 M RESTRICTED TO LUPIN MARKETING P. LTD. ITA NO.3076/MUM./2008 [3] DIVIDENDS DECLARED U/S 115-O. THE SAME HAS NOT BEEN DONE BY THE A.O. TO THAT EXTENT THE ASSESSMENT ORDER PASSED BY THE A .O. U/S 143(3) IS ERRONEOUS AND SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. IN VIEW OF THE ABOVE DISCUSSION THE ASSESSMENT OR DER PASSED BY THE A.O. U/S 143(3) DATED 29.12.2005 IS HELD TO BE ERRONEOUS AND SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE WI THIN THE MEANING OF SEC. 263 AND THE ASSESSMENT ORDER IS SET ASIDE T O THE EXTENT OF DECIDING THE CLAIM OF DEDUCTION U/S 80M AFRESH AFTE R ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE IN VIEW OF THE ABOVE DISCUSSION. 3. THE ASSESSEE IS AGGRIEVED OF THE ORDER SO PASSED BY THE LEARNED COMMISSIONER AND IS IN APPEAL BEFORE US. 4. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUS ED THE MATERIAL ON RECORD WE FIND THAT THERE WAS NO MATERIAL BEFORE T HE COMMISSIONER TO REASONABLY COME TO THE CONCLUSION THAT GRANTING OF DEDUCTION U /S 80M TO THE TUNE OF RS.25 20 000/- WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. EVEN IF ENTIRE EXPENSES INCURRED BY THE ASSESSEE WERE TO BE TREATED AS EXPENSES INCURRED TO EARN THE DIVIDEND OF RS.1 00 36 000/- THE DEDUC TION U/S 80M COLD NOT HAVE BEEN LESS THAN RS.25 20 000/- AS THE FACTOR LIMITING DED UCTION WAS DIVIDEND PAYOUT. A PLAIN LOOK AT THE ASSESSMENT ORDER WOULD SHOW ANALY SIS OF EXPENSES INCURRED BY THE ASSESSEE THAT APART FROM FINANCE CHARGES OF RS.66 8 0 281/- WHICH THE ASSESSEE HAD SUO MOTU REDUCED FROM DIVIDEND RECEIPTS THE ONLY O THER EXPENSES WERE PRELIMINARY EXPENSES WRITE-OFF OF RS.1 43 638/- AND OTHER EXPENSES ON ACCOUNT OF RENT DEMAT AND BANK CHARGES AMOUNTING TO RS.44 86 6/-. ASSSUMING THAT ALL THESE EXPENSES IN ENTIRETY WERE TO BE REDUCED FROM GROS S DIVIDENDS THE NET AMOUNT CANNOT FALL BELOW RS.25 20 000/-. WE HAVE ALSO NOTE D THAT THE LEARNED COMMISSIONER HAS NOT EVEN REJECTED ON MERITS ASSE SSEES CLAIM THAT ONLY EXPENSES INCURRED TO EARN THE DIVIDEND WERE FINANCE CHARGES. MERELY BECAUSE THE ASSESSING OFFICER HAS NOT GIVEN A DETAILED FINDING ABOUT ALLO CATION OF EXPENSES CANNOT BE A LUPIN MARKETING P. LTD. ITA NO.3076/MUM./2008 [4] GOOD GROUND FOR SUBJECTING THE ORDER PASSED BY THE ASSESSING OFFICER TO REVISION PROCEEDINGS. IN VIEW OF THESE DISCUSSIONS AND BEAR ING IN MIND ENTIRETY OF THE CASE WE VACATE THE IMPUGNED REVISION ORDER. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 5. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. PRONOU NCED IN THE OPEN COURT TODAY ON 30 TH OF APRIL 2010. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI; 30 TH DAY OF APRIL 2010 COPIES OF THE ORDER FORWARDED TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT MUMBAI (4) CIT(A) MUMBAI (5) DR H BENCH (6) GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PRADEEP J. CHOWDHURY MUMBAI BENCHES SR. PRIVATE SECRETARY LUPIN MARKETING P. LTD. ITA NO.3076/MUM./2008 [5] DATE INITIAL 1. DRAFT DICTATED ON 22.4.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 22.4.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 23.4.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 23.4.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 23.4.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 30.4.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 30.4.2010 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER