The Delhi High Court upheld the deletion of disallowance under Section 80M of the Income Tax Act, 1961 thereby granting relief to SIL Investments Ltd.
The respondent/assessee filed its Return of Income (ROI) for AY 2003-04 on 27.11.2003, whereby, it declared income amounting to Rs. 1,14,29,476/-. However, the respondent/assessee paid tax as per Section 115JB on the book profit amounting to Rs. 10,63,49,082/-.
The ROI was processed under section 143(1) of the Act. 8.2 The assessee’s case was, thereafter, picked up for scrutiny, and an assessment order under Section 143(3) of the Income Tax Act was framed. The order pegged the income of the respondent/assessee at Rs. 1,14,29,476 [the same income disclosed by the respondent/assessee in its ROI]. However, book profit, this time, was increased to Rs. 13,53,28,238/-.
The assessed income factored in included two disallowances: i) disallowance of deduction claimed by the respondent/assessee under Section 80IA/80IB, amounting to Rs. 4,32,65,725/- on the ground that profits of two (2) eligible units were not adjusted against unabsorbed losses of the other (3) eligible units and brought forward losses of earlier years; and ii) disallowance under section 80M amounting to Rs. 3,97,34,475/-. The said disallowance was ordered as dividend received by the respondent/assessee had not been distributed to its shareholders.
Insofar as the disallowance of the claim made by the respondent/assessee under Section 80M of the Income Tax Act was concerned, the CIT(A) noticed that the total amount received by the respondent/assessee in the form of dividend was Rs. 5,09,19,998/-, out of which Rs. 3,97,34,475/- was distributed to its shareholders. Therefore, the disallowance was uncalled for.
Section 80IA(5) provides that to quantify the deduction under Section 80IA(1) of an assessee for an AY [post the initial AY in which such deduction is claimed], the profits and gains of the eligible business should be computed as if it is the only source of income of the assessee. It does not mandate that losses that have been adjusted against the profits of other non-eligible businesses have to be, once again, adjusted against the profits of the eligible business, or that absorbed losses against the eligible businesses of the time before the second AY in which deduction is claimed must be notionally carried forward and adjusted.
A Division Bench comprising Justices Rajiv Shakdher and Girish Kathpalia held that “This is a finding of fact that remains undisturbed and, therefore, in our view, the deletion of disallowance ordered by the CIT(A) and the Tribunal under Section 80M was correct.”
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