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ICICI Ltd. Versus V. Nagaprasad, Jt. Commissioner of Income Tax and Another

2016 (7) TMI 755 - BOMBAY HIGH COURT

Reopening of assessment - quantum of expenses to be deducted from the gross dividend for allowing the benefit of Section 80M - Held that:- From the reading of the reasons as a whole, it is very clear that the Assessing Officer has not alleged any failure on the part of the petitioners to disclose truly and fully all material facts necessary for assessment. In the above view and bearing in mind that the assessments were finalized for each of the five years under Section 143(3) of the Act, the pro .....

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e impugned notices namely, the quantum of expenses to be deducted from the gross dividend for allowing the benefit of Section 80M of the Act. It was on consideration of this very issue that the Assessing Officer in all the five assessment years held that 1% of the gross dividend received would be deductible for the purposes of claiming benefit under Section 80M of the Act. Therefore, in view of the aforesaid fact, it is very clear that the impugned Notices seeking to reopen the assessment is onl .....

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iew the order of the Appellate Authority on the very issue which was considered by the Appellate Authority. Thus, on the above ground also the five impugned notices are without jurisdiction - Decided in favour of assessee. - Writ Petition No. 2016 of 2000 - Dated:- 14-7-2016 - M. S. Sanklecha And A. K. Menon, JJ. Ms. Aarti Vissanji a/w Mr. S.J. Mehta for the petitioner Mr. Suresh Kumar a/w Ms. Samiksha Kanani for the respondent P. C. 1. This petition under Article 226 of the Constitution of Indi .....

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ner had claimed deduction under Section 80M of the Act in respect of gross dividend received. In its return of income it had claimed expenses for earning the dividend at ₹ 20,000/per year. The Assessing Officer in his orders passed under Section 143(3) of the Act in regular assessment proceedings, on consideration as reflected in his orders, while allowing the claim for deduction under Section 80M of the Act, reduced the deduction by increasing the expenses to 1% to gross dividend income. .....

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ue filed appeals to the ITAT and at the time of issuing the five impugned notices, the appeals of the Revenue were pending. 5. The reasons in support of the impugned Notices dated 11th January, 2000 are identical in respect of all the five assessment years, save and except the difference in amounts for each of the years. In the above view, we are reproducing herein the reasons recorded in issuing the impugned Notice dated 11th January, 2000 for A.Y. 1989-90, which read as under : The assessee fi .....

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ssee incurred interest expenditure of ₹ 33.71 crores during the year ending 31.03.1989 as against ₹ 308.41 crores during the year ending 31.03.1988. The interest payment was made in respect of interest bearing borrowed fund of ₹ 4141.82 crores. The assessee had non interest bearing fund in the form of paid up share capital of ₹ 80.05 crores besides reserves and surplus of ₹ 304.52 crores totaling to ₹ 384.57 crores as on 31.03.1989 against ₹ 320.85 crore .....

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ncurred for earning dividend income at ₹ 6.61 lakhs, being 1% of the gross dividend on estimate basis and reduced the same from gross dividend income to arrive at the net dividend income on which deduction u/s 80M was allowed of ₹ 3.92 crores. It is seen from the record that the assessee has been borrowing funds from the market in various forms by paying substantial interest. During the A.Y. 1989-90, loan funds have gone up to ₹ 4141.82 crores from ₹ 3322.62 crores as on .....

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s. It is an admitted fact (confirmed by the assessee in writing in course of assessment proceedings for A.Y. 1997-98) that the assessee does not maintain separate books and records for various sources of fund and investments made out of the borrowed funds. It is a common pool into which the borrowed fund is deposited and investments are made and loans are advanced to various customers in various forms out of such fund. The assessee claimed entire interest expenditure of ₹ 330.71 crores u/s .....

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has to be calculated with reference to amount of dividend computed in accordance with provisions of the Act and forming part of gross total income i.e. after deduction of interest on money borrowed for earning such income and not with reference to full amount of dividend received by assessee. This decision corroborated and clarified the Honourable Supreme Court decision in the case of Distributors (Baroda) P. Ltd. Vs. Union of India 155 ITR 120. In the case of Kota Cooperative Marketing Society .....

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re the entire business of the assessee is one and for earning income from different sources, the expenditure incurred which is relatable to that income which is taxable is allowable u/s 37. If the assessee had maintained separate accounts then expenditure has to be determined by the I.T.O. on the basis of such evidence which the assessee might have produced. In the absence of such evidence, there is no other option except to allocate the expenditure relating to taxable and nontaxable income on p .....

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st the respective income. Consequent to Honourable Bombay High Court judgment (236 ITR 456), the interest expenditure incurred on borrowed funds has to be proportionally apportioned against the dividend income as a part of the borrowed fund was utilized for investment in shares of other domestic companies. Thus, under the head Income from Other Sources , only the net dividend income after reducing the proportional interest and administrative expenditure should be determined after allowing such e .....

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Sources works out to loss of ₹ 1.74 crores and deduction allowable u/s 80M would be NIL. In the return the assessee claimed deduction of ₹ 3.97 crores and the A.O. Allowed the same at ₹ 3.92 crores u/s 80M. As discussed above the assessee is not entitled to any deduction u/s 80M. Thus, the assessee has been allowed excess deduction of ₹ 3.92 crores and income to that extent escaped assessment within the meaning of Sec. 147. 6. Mr. Suresh Kumar, learned Counsel for the Re .....

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