Indian Oil Corporation Ltd Vs ACIT (ITAT Mumbai)
Mumbai ITAT: Exempt Dividend Cannot Be Taxed Merely Due to Wrong Schedule Reporting in ITR; Technical Error Cannot Override the Act
The Mumbai ITAT allowed the appeal of Indian Oil Corporation Ltd., holding that an inadvertent error in reporting exempt dividend income in the return of income cannot convert statutorily exempt income into taxable income. The Tribunal directed deletion of the addition of ₹129.95 crore made by CPC while processing the return under Section 143(1)(a).
The CPC had treated the assessee’s dividend income of ₹129.95 crore, exempt under Sections 10(34) and 10(35), as taxable business income because the amount was disclosed in Schedule BP but was inadvertently omitted from Schedule EI, resulting in a mismatch in the return. The assessee contended that this was a mere reporting error and that, during the scrutiny assessment, the Assessing Officer himself had accepted the exempt nature of the dividend while computing the disallowance under Section 14A.
The Tribunal observed that the omission to disclose the dividend income in Schedule EI was only a reporting mistake and did not alter the intrinsic character of the income. The exemption flowed from the substantive provisions of Sections 10(34) and 10(35) and could not be denied merely because the income was reflected in an incorrect schedule of the return.
The Tribunal further held that accepting the Revenue’s stand would lead to an anomalous situation where the very same dividend income would be taxed as business income while simultaneously being treated as exempt income for computing disallowance under Section 14A, resulting in impermissible double taxation. Relying on its earlier decision in TML Benefic Trust, the Tribunal reiterated that a technical reporting mismatch cannot override the substantive provisions of the Act, nor can it change the true nature of exempt income.
Accordingly, the Tribunal held that the CPC was not justified in treating the exempt dividend income as taxable merely because it was not reflected in Schedule EI, directed the Assessing Officer to grant the exemption under Sections 10(34) and 10(35) and delete the addition. The assessee’s appeal was allowed.
Cases Discussed
- TML Benefic Trust v. CIT (ITAT Mumbai), ITA Nos. 7826/Mum/2025 and 7756/Mum/2025
- TLG India (P.) Ltd. v. Dy. CIT (Bombay HC), [2019] 111 taxmann.com 376 / [2020] 269 Taxman 295 / 421 ITR 418
FULL TEXT OF THE ORDER OF ITAT MUMBAI
Present appeal filed by the assessee is directed against the order passed by Learned Commissioner of Income Tax, Appeals, Addl./JCIT(A), Faridabad [hereinafter referred to as “Ld.CIT(A)”] dated 30/06/2025 for A.Y. 2018-19, on the following grounds of appeal:-
“Addition of exempt income of Rs. 1299,46,50,672
1. The CIT(A) erred in upholding the action of the learned Assistant Director-CPC of making an addition of Rs. 1299,46,50,672 in respect of dividend income earned by the appellant which is exempt under sections 10(34) and 10(35) of the Act.
2. The CIT(A) ought to have appreciated that the inconsistency in the amount reported in Schedule BP [Sr.No.5(c)] and amount reported in Schedule EI-Exempt Income (Sr.No.2) is only due to inadvertent error made by the appellant in filling up the income-tax return form. Such inadvertent error should not result in adding back an income which is exempt from tax as per the provisions of the Act.
3. The CIT(A) erred in upholding the action of the learned Assistant Director-CPC without appreciating the fact that the adjustment made by learned Assistant Director-CPC related to overstatement of total income by Rs. 1855,39,15,035 which comprised of exempt dividend income of Rs. 1299,46,50,672, had already been addressed in the assessment order dt. 19th September 2021 passed under section 143(3) of the Act read with rectification order dt. 6th October 2021 passed by the Jurisdictional Assessing Officer.
4. The CIT(A) erred in upholding the action of the learned Assistant Director-CPC without appreciating the fact the Assessing Officer after considering the exempt dividend income, made disallowance of Rs. 58,71,18,000 under section 14A in the assessment order dt. 19th September 2021 passed under section 143(3) of the Act.
Opportunity of personal hearing not granted to the appellant
5. The CIT(A) erred in passing the order without application of mind and without providing fair opportunity of hearing and personal opportunity of being heard which was specifically requested by the appellant, which are contrary to the principles of natural justice and provisions of e-Appeals Scheme, 2023.
6. Ld. CIT(A) has failed to seek the explanation of the assessee before taking adverse view which is against the ratio laid down by TLG India (P) Ltd. v. Dy. CIT [2019] 111 taxmann.com 376/[2020] 269 Taxman 295/421 ITR 418 (Bombay). The order passed is unsustainable in law, bad in law and hence liable to be quashed.
General
7. The appellant prays for relief as per the grounds of appeal.
8. Each one of the above grounds of appeal is without prejudice to the other.
9. The appellant reserves the right to amend, alter or add to the grounds of appeal.
2. Brief facts of the case are as under:-
The assessee, Indian Oil Corporation Limited, a Public Sector Undertaking, filed its original return of income for A.Y. 2018–19 on 26/11/2018, declaring total income of Rs.21,665,45,22,630 under the normal provisions of the Act and Rs.27,124,57,58,046 u/s. 115JB, claiming a refund of Rs.26,65,14,670. Subsequently, a revised return was filed on 28/03/2019, declaring total income of Rs.21,682,65,27,660 under the normal provisions and Rs. 27,124,57,58,046 u/s. 115JB, with a revised refund claim of Rs. 27,87,10,520.
2.1. Thereafter, the Assistant Director of Income-tax, CPC issued a notice dated 29/05/2020 u/s. 143(1)(a), proposing an adjustment of Rs. 1,855,39,15,035 on account of (i) inconsistent reporting of ICDS adjustment amounting to Rs. 555,92,64,363, and (ii) inconsistent reporting of exempt income of Rs. 1,299,46,50,672 in the return of income. The assessee filed an online response objecting to the proposed adjustments and furnished explanations in support of its claim.
2.2. However, while processing the return, the CPC issued an intimation dated 23/06/2020 u/s. 143(1), without considering the assessee’s response, making the proposed adjustments and consequently raising a demand of Rs. 650,34,73,660.
Aggrieved by the order passed by Ld.AO, the assessee preferred an appeal before the Ld. CIT(A).
2.3. Before the Ld. CIT(A), the assessee inter alia challenged the adjustments made by CPC u/s. 143(1) on account of alleged inconsistency in reporting ICDS adjustments of Rs.5,55,92,64,363 and exempt dividend income of Rs.1,299,46,50,672, besides issues relating to short grant of TDS credit, denial of relief u/s. 90 and levy of interest u/s. 234C. During the appellate proceedings, the assessee furnished written submissions along with supporting documents, including the return of income, the intimation passed u/s.143(1) and the audit report in Form No. 3CD. After considering the material placed on record, the Ld.CIT(A) held that the issue relating to ICDS adjustment required factual verification and accordingly restored the matter to the Jurisdictional Assessing Officer for verification. The claim relating to short grant of TDS credit was also restored to the Jurisdictional Assessing Officer for verification in terms of section 199 read with Rule 37BA. However, the addition made on account of exempt dividend income was upheld by holding that there was an inconsistency between Schedule BP and Schedule EI in the return of income. The ground relating to relief u/s.90 was dismissed as withdrawn since the issue had already been rectified by the Assessing Officer, while the challenge to levy of interest u/s.234C was treated as consequential. Consequently, the appeal was partly allowed.
Aggrieved by the order passed by Ld.CIT(A), assessee is in appeal before this Tribunal.
3. Ground No.1 raised by the assessee is against the disallowance of Rs.1299,465,072/- made by the Ld. AO by treating the dividend income earned by the assessee, which was claimed to be exempt u/s.10(34) and 10(35) of the Act, as taxable business income.
3.1. The Ld.AR submitted that, in the revised return of income filed by the assessee, exemption of Rs.1299,465,072/- was claimed u/s 10(34) and 10(35) of the Act in respect of the dividend income earned during the previous year relevant to assessment year under consideration. He drew our attention to page 41 of the paper book, wherein the said claim was made under Schedule BP. The Ld.AR submitted that, however, inadvertently, the assessee omitted to report the said amount in Schedule EI relating to exempt income. Referring to page 70 of the paper book, he submitted that Schedule EI forming part of the return of income was left blank. It was submitted that the inconsistency between the amounts reported in Schedule BP and Schedule EI occurred solely due to an inadvertent error while filing the return of income.
3.2. Referring to page 84 of the paper book, the Ld. AR submitted that, while issuing the intimation u/s 143(1)(a) dated 23/06/2020, the CPC added the aforesaid dividend income to the business income of the assessee. He further submitted that, during the reassessment proceedings, the Ld. AO specifically raised a query regarding the exempt income earned during the year under Query 12, a copy of which is placed at page 121 of the paper book. The Ld. AO also called upon the assessee to furnish details of the exempt income earned during the relevant previous year. Thereafter, a show cause notice dated 31/03/2021 was issued, a copy of which is placed at page 126 of the paper book, wherein details of the investments made and the exempt income earned during the year were sought.
3.3. The Ld.AR submitted that, in response to the aforesaid show cause notice, the assessee, vide reply dated 14/01/2021, furnished all the relevant details, including the break-up of the dividend income earned, which is placed at page 149 of the paper book. Further, vide reply dated 07/04/2021, the assessee furnished the break-up of the investments along with the details of those investments which had yielded exempt income during the relevant previous year. The said details are placed at page 167 of the paper book.
3.4. The Ld. AR submitted that, while considering the issue of exempt income, the Ld. AO computed the disallowance u/s 14A by taking into consideration the very same dividend income which had already been treated as taxable business income in the intimation issued u/s 143(1)(a) dated 23/06/2020. Thus, according to the Ld. AR, on the one hand, the dividend income was taxed as business income while processing the return u/s 143(1)(a), whereas, on the other hand, during the assessment proceedings, the same income was treated as exempt for the purpose of computing the disallowance u/s 14A. He submitted that even the first appellate authority failed to appreciate this inconsistency and erroneously upheld the addition by treating the exempt dividend income as business income in the hands of the assessee.
Per contra, the Ld. DR relied upon the orders passed by the authorities below.
We have perused the submissions advanced by both sides in light of the record placed before us.
4. It is an undisputed position that the assessee earned dividend income of ₹1,299,465,072/-, which is exempt under sections 10(34) and 10(35) of the Act. It is also not in dispute that while filing the return of income, the said exempt income was not reflected in Schedule EI, though the same was disclosed in Schedule BP, resulting in an apparent inconsistency between the two schedules.
4.1. On account of the aforesaid reporting mismatch, the CPC, while processing the return under section 143(1)(a), treated the exempt dividend income as taxable business income. In our considered view, the omission to report the exempt income in Schedule EI is merely a reporting error and does not alter the intrinsic character of the income. The exemption available under sections 10(34) and 10(35) flows from the substantive provisions of the Act and cannot be denied merely because of an inadvertent error in the manner of reporting the income in the return.
4.2. Accepting the Revenue’s stand would result in the very same dividend income being subjected to tax while simultaneously being regarded as exempt income for the purposes of computing disallowance under section 14A of the Act. Such a consequence would amount to taxing the same income twice, which is contrary to the scheme of the Act and cannot be sustained.
4.3. We place reliance on the decision of the Coordinate Bench of the Tribunal in TML Benefic Trust v. CIT in ITA Nos. 7826/Mum/2025 and 7756/Mum/2025, wherein the Tribunal observed and held as under:
“13. Once a regular assessment has been framed accepting the exemption claim, the earlier processing under section 143(1) cannot survive to the extent it takes a contrary view on the same issue. A summary intimation cannot override or contradict a concluded scrutiny assessment. To hold otherwise would lead to an incongruous situation where a mechanical processing adjustment continues to subsist in the face of a conscious assessment order on the very same point.
14. The adjustment under section 143(1), therefore, stands vitiated both on jurisdictional grounds and on account of its inconsistency with the scrutiny assessment. The scheme of the Act does not contemplate parallel and conflicting determinations on the same issue for the same assessment year.
15. The CPC has primarily proceeded on the premise that the exempt income was reflected in an incorrect schedule or column of the return. Even assuming there was any reporting mismatch, such a technical aspect cannot render an otherwise disclosed and statutorily exempt receipt taxable. The character of income must be determined on the basis of substantive provisions of the Act and not merely on placement within a particular column of the return.”
4.4. Respectfully following the aforesaid decision of the Coordinate Bench, we hold that the CPC was not justified in treating the exempt dividend income of ₹1,299,465,072/- as taxable merely because it was not reflected in Schedule EI. Accordingly, we direct the Ld.AO to grant exemption in respect of the said dividend income in accordance with sections 10(34) and 10(35) of the Act and delete the addition made on this account.
Accordingly, effective grounds raised by assessee stands allowed.
In the result appeal filed by the assessee stands allowed
Order pronounced in the open court on 06/08/2026.
