Unnathan Shekhar Vs ACIT (ITAT Mumbai)
Next Year’s Proposed Dividend Cannot Reduce This Year’s Exemption: ITAT Corrects a Balance-Sheet Mix-Up
The Wrong Year Produced the Wrong Disallowance
The Mumbai Tribunal held that dividend actually received during the relevant financial year could not be restricted by referring to a proposed dividend relating to the subsequent year. The Assessing Officer had mistaken a later dividend proposal appearing in the company’s balance sheet for the dividend distributed during the year under assessment.
On examining the financial statements and shareholders’ resolutions, the Tribunal directed allowance of exemption under section 10(34) for dividend of ₹1,02,83,600 and set aside the disputed denial of exemption of ₹62,16,690. The appeal was allowed on merits.
Dividend Declared in the Return
The assessee, an individual, filed his return on 30 July 2013, declaring total income of ₹1,52,85,230. The order records that he also reported aggregate exempt dividend income of ₹1,03,34,660 under section 10(34).
During scrutiny, the assessee furnished financial statements of Galaxy Surfactants Limited, from which he had received dividend. He held 41,13,440 equity shares, representing approximately 11.60% of the company’s paid-up equity capital.
The controversy did not arise from a rejection of dividend exemption in principle. Rather, the Assessing Officer questioned the quantum by calculating what he considered the assessee’s eligible dividend from a figure appearing in the company’s annual report.
Proposed Dividend Mistaken for Actual Distribution
The Assessing Officer selected the proposed dividend of ₹3,55,00,000 appearing in the company’s balance sheet as at 31 March 2013. That proposal represented dividend at ₹1 per share, intended for approval and distribution in financial year 2013–14.
Using the assessee’s shareholding, the Assessing Officer calculated dividend of ₹41,13,440 and treated this as the eligible amount for financial year 2012–13, relevant to assessment year 2013–14.
He consequently denied exemption to the extent of ₹62,16,690, as recorded in the assessment and appellate proceedings. The Tribunal noted that this exercise had been undertaken without a specific query addressing the distinction between the proposed dividend and the actual receipt.
The Commissioner (Appeals), through the National Faceless Appeal Centre, upheld the denial by order dated 9 June 2026, essentially reiterating the Assessing Officer’s reasoning without resolving the year-wise mismatch.
Two Financial Years, Two Different Dividend Rates
Before the Tribunal, the assessee produced the company’s financial statements for the years ended 31 March 2012 and 31 March 2013, together with certified copies of the relevant annual general meeting resolutions.
For the year ended 31 March 2012, the company had proposed dividend of ₹8,86,36,800, calculated at ₹2.50 per share. The shareholders approved that dividend at the annual general meeting held on 3 August 2012.
The assessee accordingly received ₹1,02,83,600 on 14 August 2012, representing 41,13,440 shares multiplied by ₹2.50 per share. This receipt fell within financial year 2012–13 and therefore related to the assessment year under appeal.
The separate proposal of ₹1 per share concerned the year ended 31 March 2013. It was supported by another shareholders’ resolution dated 6 September 2013 and related to distribution in financial year 2013–14, corresponding to assessment year 2014–15.
Documentary Evidence Establishes the Correct Year
The Revenue relied on the assessment order and the Commissioner (Appeals)’s order. The Tribunal, however, found that the documentary record clearly established the distinction between the two dividends.
It observed that the same page of the financial statements contained the relevant previous-year dividend information at ₹2.50 per share. The Assessing Officer had selected the subsequent year’s proposed dividend of ₹1 per share while overlooking the information explaining the actual distribution.
The shareholders’ resolutions and dividend particulars supported receipt of ₹1,02,83,600 during the relevant financial year. The Tribunal therefore concluded that the Assessing Officer had misconstrued the balance-sheet figures and incorrectly substituted the subsequent year’s dividend for the current year’s receipt.
Exemption Allowed Without Remand
The Tribunal directed the Assessing Officer to allow exemption under section 10(34) for the dividend receipt of ₹1,02,83,600 and set aside the disputed disallowance of ₹62,16,690.
This was a substantive decision allowing the assessee’s claim. The matter was not remanded for a fresh examination, and the appeal was not merely allowed for statistical purposes.
Author’s Comments
The decision illustrates how an assessment can go wrong when a financial-statement figure is read without identifying the transaction and year to which it relates. A proposed dividend and an approved dividend received by a shareholder cannot be mechanically interchanged.
For practitioners, the useful evidence is the complete chain: financial statements, shareholders’ approval, applicable dividend rate and actual receipt particulars.
The order contains numerical inconsistencies between the aggregate dividend reported, the estimated eligible amount and the stated disallowance. Those figures should not be silently reconciled. Nevertheless, its operative direction is clear. The ruling concerns section 10(34) for assessment year 2013–14 and should be understood within that historical exemption framework.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT MUMBAI
The present appeal filed by the Assessee against an order dated 09-06-2026 passed by National Faceless Appeal Centre u/s 250 of the Income Tax Act, 1961 (in short, the Act), for the assessment year 2013-14, arising out of an assessment order under Section 143(3) of the Act dated 31-03-2016.
2. The appellant-assessee has raised the following grounds of appeal:
The Appellant files the present appeal under section 362 of the Income-tax Act, 2025 (the Act) against the appellate Order dated 09.06.2026 passed by the National Faceless Appeal Centre (the NFAC), on the following amongst other grounds each of which is in the alternative and without prejudice to any others:
1. That the NFAC erred in denying the claim of exemption in respect of the dividend income to the extent of Rs. 62,16,690 under section 10(34) of the Income-tax Act, 1961.
2. That the NFAC erred in referring to the information relating to proposed dividend as appearing in the audited financial statements for financial year 2012-13. The dividend in the present case of Rs. 1,02,83,600 (being Rs. 2.50 per share) relates to financial year 2011-12 which was approved at the AGM held on 03.08.2012 and received by the appellant as a shareholder on 14.08.2012.
3. The Appellant craves leave to add to, amend OR alter any of the aforesaid grounds of appeal.
3. The brief relevant facts of the case are that the Assessee is an individual, and filed his return of income on 30-07-2013, declaring his total income of ₹1,52,85,230/-, along with reporting of exempted dividend income of ₹1,03,34,660/- u/s 10(34) of the Act. Subsequently, the case was selected for scrutiny assessment, in response to notices u/s 142(1), the assessee furnished various details, financial statements of M/s Galaxy Surfactants Limited from whom he had received dividend, to prove the genuineness of the dividend income. However, the assessing officer examined the annual report of M/s Galaxy Surfactants Limited and observed that assessee was holding equity shares no. 41,13,440 in the said company, that being 11.60% shareholding of total paid-up equity. Thereafter, without any specific query, the AO picked up proposed dividend amount of Rs. 3,55,00,000/- from balance sheet of Galaxy Surfactants Ltd, appearing for 31-03-13, and applied shareholding percentage @ 11.60% on such proposed dividend to calculate estimate dividend amount at Rs. 41,13,440/- ( as proposed dividend for payment in FY 13-14 was @ 1/- per share), instead of actual receipt of Rs. 103,34,660/- received by assessee in current FY 2012-13, reported and claimed eligible exemption u/s 10(34) of the Act. Based upon this arbitrary calculation, AO held that the assessee has claimed the excess exemption u/s 10(34) by Rs.62,16,690/- (1,03,34,660–41,13,440/-), accordingly, rejected the exemption to that extent.
4. The assessee being aggrieved by the reduction of exemption by Rs.62,16,690/-, preferred an appeal before the Learned Commissioner of Income Tax (Appeals), who also upheld that rejection of exemption to the extent of ₹62,16,690/-, out of the total dividend shown at Rs. 1,03,34,690/-, without specific reason, merely, reiterated the reasons of assessing officer as his findings.
5. Now, Assessee before us, contesting through learned authorized representative (Ld. AR) of the assessee submitted the financial statements of M/s Galaxy Surfactants Limited for the financial year ended on 31-03-2013 & 31-03-2012, certified copy of the resolution dated 03/08/2012 passed by Galaxy Surfactants Ltd at the AGM for grant of an approval by shareholders for distribution of dividend relating to year ended as on 31/03/2012 in FY 12-13 (AY 2013-14), similarly, another resolution dated 06/09/2013 also for dividend distribution for the year ended 31 March, 2013 in the FY 2013-14 ( AY 2014-15). Through these documents, he had explained that the amount of proposed dividend Rs.3,55,00,000/- appearing in Schedule 2 of the Balance sheet for the year ended as on 31-03-2013, for distribution in FY 2013-14 after the getting approval from shareholders in AGM to be held in FY 2013-14. Whereas, in the present case, for the year ended as on 31-03-2012, the proposed dividend of Rs.8,86,36,800/- ( @ Rs 2.50 per share) at Page 56 of Paper Book is appearing in the same schedule 2 of Balance sheet for distribution in FY 2012-13( AY 2013-14). This amount was subsequently approved by share holders in AGM dated 03-08-2012, accordingly, the assessee has received dividend of Rs 102,83,600/- ( on 41,13,440 shares @ 2.50 per share) on 14-08-2012.
6. It is noticed that assessing officer misunderstood the figures of balance sheet of that company, and mistakenly/ wrongly picked up the proposed dividend to be distributed in next financial year FY 13-14, contrary to actual receipt of dividend on 14-08-2012 i.e. in AY 2013-14 and corresponding figures of Rs. 8,86,36,800/- visible on same page.
7. The assessee received the total dividend of ₹1,02,83,600 for the shares held by him, accordingly, in terms of provisions of the Income Tax Act, 1961, the receipt of dividend during the assessment year 2013-14 has been declared on receipt basis and claimed eligible exemption under Section 10(34) of the Act.
8. Per contra, ld. DR relied upon the assessment order and order of the Ld.CIT (Appeals).
9. We have considered the rival submission, perused the material pressed on record, a paper book running into page number 1-99, and observed that the assessee has received a dividend of Rs. 1,02,83,600/- on 41,13,440 shares at the rate of Rs. 2.50 per share, as approved by the AGM of the company held on 03-08-2012. The assessing officer has picked up proposed dividend @ 1/- per share to be place for approval of sharesholders in AGM to be held in FY 2013-14 and treated that assessee’s dividend Income would have been Rs 41,13,440/- for the FY 2012-13. However, at the same page ( PB 56) previous year’s dividend rate @ Rs. 2.50 per share dividend is also mentioned, which was relating to the financial year ending on 31st March 2012 and distributed in FY 2012-13, on 14-08-2012. Thus, actual receipt of dividend took place in the assessment year 2013-14, the resolutions of company have been furnished by the assessee, details of dividend declared during the financial years 2012-13 and 2013-14 by the company are also provided.
10. Therefore, we found that assessee has received dividend of Rs. 1,02,83,600/- during the year under consideration i.e. AY 2013-14 and declared that in return of income, accordingly, claimed the exemption under section 10(34) of the Act. Learned assessing officer has accepted the exemption of dividend under section 10(34), but picked up the amount of dividend relating to immediate subsequent assessment year 2014-15 and calculated eligible dividend amount Rs 41,13,440/-, accordingly, reduced that the amount from the current year’s dividend receipt and concluded that difference of Rs 62,16,690/- was the excess claim of exempted dividend, so, not eligible for the exemption under section 10(34) of the Act.
11. Noticed that assessing officer has misconstrued the balance sheet amounts and incorrectly picked up subsequent year’s divided as of current year. This fact is verified from balance sheet.
12. Thus, we hereby direct assessing officer to allow the claim of exemption u/s 10(34) of the Act of dividend receipt of ₹1,02,83,600/- and set aside the disallowance of exemption of ₹62,16,690.
13. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 08.10.2026
