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:-
