Judgment :- Ramachandran Nair, J. 1. This is an appeal filed by the Revenue challenging the order of the Tribunal holding that the respondent assessee is entitled to claim deduction under Section 80M of the Income Tax Act on the gross dividend received by it. Respondent assessee is a scheduled bank engaged mainly in banking and was also making substantial investments in U.T.I. and in companies leading to the receipt of substantial dividend income. In fact, during the relevant assessment year 1995-96, as against the declared business income of around Rs.7.4 crores, the dividend income declared was as much as Rs.10.8 crores, which is more than the business income. When the assessee claimed deduction under Section 80M on the gross dividend amount, the assessing officer, by relying on Section 80AA, restricted it to the net dividend, that is, on the net amount of dividend computed after deducting estimated expenditure for earning the dividend income. Even though the first appeal was rejected, the Tribunal, by relying on two decisions of the Madhya Pradesh High Court, one reported in Commissioner of Income-Tax v. Madhya Pradesh Audyogik Vikas Nigam Limited (274 I.T.R. 625) and the other in State Bank of Indore v. Commissioner of Income-Tax (275 I.T.R. 23), allowed the claim in assessee’s case by holding that no estimated expenditure can be reduced from the gross dividend for the purpose of granting deduction under Section 80M of the Act. It is against this order of the Tribunal, the Revenue has filed this appeal. 2. We have heard standing counsel appearing for the Revenue and Sri. P. Balakrishnan appearing for the respondent Bank. 3. The question whether deduction under Section 80M is to be granted from gross dividend or from net dividend, that is the dividend obtained after allowing admissible deduction under the Act was first considered by the Gujarat High Court in C.I.T. (Additional) v. Cloth Traders P. Ltd. (97 I.T.R. 140) wherein they held that deduction under Section 80M is admissible only on the net dividend after reducing the deductions admissible under the I.T. Act from the gross dividend. Even though Supreme Court in the decision reported in Cloth Traders Pvt. Ltd. V. Addl. Even though Supreme Court in the decision reported in Cloth Traders Pvt. Ltd. V. Addl. C.I.T. (118 I.T.R. 240) reversed the decision of the Gujarat High Court, the decision of the Supreme Court was neutralized and the position declared in the Gujarat decision was restored through a statutory amendment introducing Section 80AA of the Act. Later, when the amendment itself was challenged before the Supreme Court, the Supreme Court in the case reported in Distributors (Baroda) P. Ltd. V. Union of India (155 I.T.R. 120) reversed their earlier view and held that deduction under Section 80M on dividend income is admissible only on the dividend computed in accordance with the provisions of the I.T. Act and not with reference to gross dividend. In view of the decision of the Supreme Court and the express provision contained in Section 80AA, which was in the statute during the assessment year involved in this case, the assessee is entitled to deduction only on the net dividend income computed in accordance with the provisions of the Act and not with reference to the gross dividend based on which claim is made and allowed by the Tribunal. However, the question to be considered is whether in the facts of this case the assessing officer was justified in estimating the actual expenditure attributable for earning the dividend income and reduced the same from the gross dividend for the purpose of granting deduction under Section 80M. 4. Standing counsel for the appellant submitted that the order of the Tribunal is contrary to the decision of the Supreme Court and express provision of Section 80AA of the Act. On the other hand, counsel for the assessee heavily relied on a decision of the Madhya Pradesh High Court in C.I.T v. Madhya Pradesh Audyogik Vikas Nigam Ltd. reported in (274 I.T.R. 625) and contended that under no circumstances estimated expenditure, which is only notional expenditure, could be reduced from the gross dividend for the purpose of granting deduction under Section 80M of the Act. In the first place, we are constrained to observe that, what is prohibited by the Madhya Pradesh High Court is against deduction of notional expenditure and not the actual expenditure. In the first place, we are constrained to observe that, what is prohibited by the Madhya Pradesh High Court is against deduction of notional expenditure and not the actual expenditure. In other words, the question to be considered is whether actual expenditure incurred by the assessee for earning the dividend income could be deducted from the gross dividend for the purpose of granting deduction under Section 80M. We do not think there can be any controversy on this because, Section 80AA makes it very clear that deduction under Section 80M is admissible only on the dividend income computed in accordance with the provisions of the Act. The Supreme Court has also confirmed the position in the case referred to above. In our view, the controversy arose in this case on account of the mistake committed not only by the assessee but also by the assessing officer. Assessee certainly cannot claim that they have no expenditure for earning dividend income, which, as already noted by us during the relevant previous year, was more than the business income. However, the entire expenditure debited in the profit and loss account was claimed and got allowed in the computation of business income because, no disallowance is made while computing business income as attributable to earning of dividend income. Even though the assessing officer, without dispute, allowed the entire expenditure claimed in the computation of business income, he made an estimate of expenditure attributable to investment income and reduced that from the gross dividend for the purpose of granting relief under Section 80M. The question to be considered is whether the assessing officer is justified in estimating the expenditure attributable to earning of dividend income for the purpose of computation of relief under Section 80M read with Section 80AA in the absence of any specific claim of deduction by the assessee under Section 57 of the I.T. Act. In this context, we have to necessarily consider the scope of Section 80AA, which reads as follows: “Computation of deduction under Section 80M. In this context, we have to necessarily consider the scope of Section 80AA, which reads as follows: “Computation of deduction under Section 80M. -- Where any deduction is required to be allowed under Section 80M in respect of any income by way of dividends from a domestic company which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, the deduction under that section shall be computed with reference to the income by way of such dividends as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) and not with reference to the gross amount of such dividends.” 5. In the normal course, while filing the return, the assessee should compute income under each head separately showing gross income, admissible deductions under the provisions of the Act and the net income assessable under each head. In this case, it appears that the assessee claimed the entire expenditure towards business income and declared gross dividend income as net income under “income from other sources”. Consequently, deduction under Section 80M was also claimed on the gross dividend income. On a reading of Section 80AA extracted above, we are of the view that, irrespective of whether assessee make specific claim of any deduction in the computation of dividend income under Chapter IV-F, the assessing officer is bound to consider whether assessee has, under any other head, claimed deductions, which are allowable on the computation of dividend income under the provisions of the Act and if so, to reduce such deductions and take into account only the net dividend, on which, deduction under Section 80M is allowable as provided in Section 80AA of the Act. Of course, if the assessee has not claimed any deduction while preparing the profit and loss account, then there is no scope for any disallowance under Section 80AA as well. In this case, it is not a case of assessee declining to claim any deduction in the computation of dividend income under Section 57 of the Act. But, what happened is that the entire expenditure is debited to the profit and loss account and so much so, the assessee got the claim allowed in the computation of business income. In this case, it is not a case of assessee declining to claim any deduction in the computation of dividend income under Section 57 of the Act. But, what happened is that the entire expenditure is debited to the profit and loss account and so much so, the assessee got the claim allowed in the computation of business income. It is in this context, the assessing officer estimated the expenditure attributable to the earning of dividend income and reckoned the same under Section 80AA for the purpose of granting deduction under Section 80M. We do not think that the decision of the Madhya Pradesh High Court stands in the way of the officer reducing from the gross dividend actual expenditure incurred by the assessee for earning the income, which are admissible deductions under the Act and which got allowed, though wrongly, in the computation of business income. In other words, what is disallowable to the assessing officer on estimate basis is not notional expenditure, but actual expenditure, which got wrongly allowed in the computation of business income. We, therefore, allow the appeal by reversing the order of the Tribunal and by holding that actual expenditure for earning dividend income has to be determined and deduction under Section 80M should be granted only on the net dividend income in terms of Section 80AA of the Act. However, we find force in the contention of the counsel for the assessee that the bifurcation of expenditure incurred and allowed in the computation of business income between expenditure attributable for earning business income and for earning dividend income is done in an arbitrary manner. Since none of the lower authorities considered the reasonableness of the estimate, which is nothing but part of the actual expenditure incurred and allowed in the computation of total income, we have to necessarily remand the matter to the assessing officer to bifurcate the expenditure that are admissible in the computation of business income and expenditure that are admissible in the computation of dividend income and to make fresh assessment. The assessing officer shall make fresh assessment computing income from business and income from dividend under separate heads granting eligible deductions under the relevant provisions of the Act and then grant admissible deduction to the assessee under Section 80M on the net dividend computed in accordance with the provisions of the Act.