In a recent decision, the High Court of Punjab & Haryana observed that if the appellate authority deems that the expenditures entitled to be deducted are computed under wrong head, the matter shall be remitted to the assessing officer by directing him to consider the matter afresh.In the instant case, the expenditure incurred to yield dividend under section 80M was deducted by the officer under section 56 instead of section 57(i)(iii) of the Act.The Court found that, the appellate Tribunal invalidated the assessment order without remanding the matter back to the Assessing officer.
In the instant case, the assessing officer passed an order against the assessee by making additions by disallowing certain expenses including the expenses on foreign travel of Director’s wives etc. The Officer further made addition on account of the proportionate management expenses allocated against dividend income for the purpose of computation of deduction u/s 80M.
Regarding taxability of expenses on foreign travel of Director’s wives, the assessee contended that the same constitutes business expenditure since it was incurred under the contractual obligations and under normal business practice.the CIT(A)rejected the contention of the assessee on the ground that no evidence was adduced before the authority in support of the said claim.The Tribunal, on second appeal, reversed this order by allowing the expenditure based on its earlier decisions in the case of the assessee. In the opinion of the court, the question whether the expenditure incurred is for the purpose of the business or not would depend on the facts of each case.While quashing the order of the Tribunal, the Court observed that “We are unable to uphold the decision of the Tribunal in this regard. The issue cannot be decided on the basis of the result of the assessment proceedings relating to the same question in another assessment year. Whether a Director’s spouse has traveled with him for business purpose or not, is essentially a question of fact not only in respect of each year but in respect of each tour. One visit may be for business purpose and another visit may not be for any business purpose whatsoever. The decision of the Tribunal, therefore, is incorrect for the nature and purpose of the visits that the Tribunal considered in respect of the assessment year 1990-91, would be different from the visits that the Tribunal had to consider in respect of the present assessment year.”
Further, the Court considered the validity of the order of the Tribunal deleting the proportionate management expenses allocated against dividend income for purpose of computation of deduction u/s 80M. The addition was deleted by the Tribunal mainly on ground that held that the Assessing Officer cannot be permitted to take a contrary stand while computing the income from dividend under section 56 and by allowing deductions under section 80M.
While rejecting the findings of the Tribunal, the Court held that “The deductions under section 80M must be computed in accordance with the provisions of section 80M. If the Appellate Authorities find that the expenses liable to be deducted have been considered under the wrong head, they must direct the Assessing Officer to rectify that error for all purposes. We have by our judgment passed today in ITA No. 52 of 2003 Commissioner of Income Tax (Central) Ludhiana v. M/sHero Cycles Ltd. Ludhiana, held that where income is considered under the wrong head in the computation of income, the Assessing Officer must be directed to pass a fresh assessment order after considering it under the correct head for all purposes including for the purpose of computation of income for deductions under section 80HHC. It would follow then that the same rule ought to apply also to expenses which are entitled to be deducted. They must be deducted qua/in respect of the correct head of income. In the present case the expenditure incurred to yield dividend under section 80M must be deducted under section 57(i)(iii) of the Act.”
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