JUDGEMENT
S.N. Rotho, Accountant Member -
(1.)THESE two appeals filed by the department are heard together and disposed of by this common order for the sake of convenience.
(2.)The only common ground in both these appeals relating to the assessment years 1977-78 and 1978-79 states as below:
That on the facts and in the circumstances of the case, CIT (Appeals), C-III erred in law and in facts in deleting the order passed by the ITO under Section 154 to give effect to the amendment of the provisions of Sections 80AA read with Section 80M of the IT Act, which was amended with retrospective effect from 1-4-1968.
In the original assessments, the Income-tax Officer allowed relief under Section 80M of the Act on the gross dividends received by the assessee. In those assessments, there was no mention anywhere as to whether the assessee had incurred any expense for earning those dividends and if so, what was the said amount. Subsequently, the Income-tax Officer rectified those original assessments under Section 154 of the Act. In the rectification orders passed by the Income-tax Officer, the Income-tax Officer took the positive incomes earned by the assessee under the different heads (ignoring the loss from the business). Then, he totalled up the expenses incurred by the assessee. Out of the said expenses, he took a portion which bore the same proportion to the total expenses as the dividend income bore to the aforesaid total positive incomes. Thus, the Income-tax Officer estimated the expenses which, in his opinion, related to the earning of the dividend income. He deducted these estimated expenses from the gross dividends and allowed relief under Section 80M of the Act only on the balance. In other words, the Income-tax Officer reduced the relief under Section 80M of the Act by following the above process in the rectification orders passed by him. It may be stated in this connection that the gross dividend has been included in the total income of the assessee and subjected to tax in both the years under consideration and no expenses relatable to the earning of the dividend has been determined and deducted from the gross dividend for the purpose of taxing the dividend income in both the years under consideration.
(3.)THE assessee appealed against the rectification orders passed by the Income-tax Officer and urged that the rectifications were not justified. THE CIT(A) agreed with the contentions raised by the assessee before him. He stated that in a rectification order, the Income-tax Officer cannot apply a formula and estimate the amount of expense attributable to the earning of the income. THEre could be a honest difference of opinion as to the question whether there was any expense at all for earning the dividend in view of what has been done by the Income-tax Officer himself in the original assessment orders. Again, there could be differences of opinion as to what was the amount that could be said to have been spent for earning the dividend income. In other words, the formula adopted by the Income-tax Officer is open to challenge, and debate. Relying on the decision in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50 (SC), the CIT(A) quashed the rectification orders for both the years and allowed the assessee's appeals.
Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.