2010 (2) TMI 27 - HC - Income Tax

Court rules in favor of assessee, finding assessing officer exceeded jurisdiction in reopening assessment.

The court ruled in favor of the assessee, finding that the assessing officer exceeded jurisdiction in reopening the assessment based on irrelevant ... Notice u/s 148 – AO reopening the assessment stated that the issues involved as mentioned in the recorded reasons is that, the assessee claimed deduction u/s.80M of the Act in respect of dividend distributed by the assessee company, wherein the assessee failed to pay additional income tax as per provisions of section 115-O within the stipulated time. Since the assessee has not complied the provisions of section 115-O of the Act, then the deduction u/s.80M is not allowable to the assessee. – held that – . Under Section 80-M the deduction is not in respect of the amount declared or distributed by way of dividend. The deduction that was stipulated under Section 80-M was in respect of dividend received by a domestic company from another domestic company. The extent of the deduction was, however, subject to a monetary ceiling, the ceiling being that the deduction should not exceed the amount distributed by way of dividend on or before the due date for the filing of a return. The assessing officer by adverting to the provisions of Section 115-O has proceeded to reopen the assessment on a plainly extraneous ground. - assessing officer has clearly acted in excess of the restraints on his jurisdiction to reopen an assessment in exercise of the powers under Section 147 read with Section 148 – notice u/s 148 quashed. Issues Involved:1. Reopening of assessment under Section 148 of the Income Tax Act.2. Entitlement to deduction under Section 80M of the Income Tax Act.3. Compliance with Section 115-O of the Income Tax Act regarding additional tax on distributed dividends.4. Validity of the assessing officer's reasons for reopening the assessment.5. Jurisdictional limits of the assessing officer under Section 147.Issue-wise Detailed Analysis:1. Reopening of Assessment under Section 148:The assessee challenged the reopening of the assessment for the Assessment Year 2003-04 based on a notice dated 28th March 2008. The reopening was initiated by the Deputy Commissioner of Income Tax, who believed that the income chargeable to tax had escaped assessment.2. Entitlement to Deduction under Section 80M:During the Assessment Year 2003-04, Section 80M allowed a deduction for intercorporate dividends. The assessee received a dividend income of Rs. 5.59 Crores and distributed an interim dividend of Rs. 4.48 Crores on 26th March 2003 and a final dividend of Rs. 1.13 Crores on 26th June 2003. The assessee claimed a deduction under Section 80M for the entire amount of Rs. 5.59 Crores, which was initially allowed by the assessing officer but later partially disallowed, restricting the deduction to Rs. 5.31 Crores.3. Compliance with Section 115-O:The assessing officer contended that the assessee failed to comply with Section 115-O, which required the payment of additional income tax on distributed dividends within the stipulated time. This non-compliance was cited as a reason for disallowing the deduction under Section 80M.4. Validity of the Assessing Officer's Reasons:The assessee argued that the reopening of the assessment was based on a mere change of opinion, which is not a valid ground for reopening under Section 147. The original assessment was consistent with the decisions of the Tribunal in similar cases, which had not been overturned. The Tribunal's decisions in cases like Silvassa Industries and Castle Investment supported the assessee's claim for deduction under Section 80M.5. Jurisdictional Limits under Section 147:The court observed that the power to reopen an assessment under Section 147 must be exercised with tangible material and not on arbitrary or mechanical grounds. The assessing officer's reasons for reopening were found to be extraneous to the entitlement of the deduction under Section 80M. The court cited previous judgments, such as German Remedies v. Deputy Commissioner of Income Tax, emphasizing that a mere change of opinion cannot justify reopening an assessment.Conclusion:The court concluded that the assessing officer had acted beyond his jurisdiction by reopening the assessment based on irrelevant grounds. The assessee was entitled to the deduction under Section 80M as the dividends were distributed before the due date for filing the return. The notice dated 28th March 2008 was set aside, and the rule was made absolute, with no order as to costs.