2026 (2) TMI 1047 - AT - Income Tax

Exempt dividend income is not subject to section 115BBDA, so excluded from taxable computation and business profits corrected.

Dividend income exempt under section 10, including dividends under specified mutual funds and companies, is not includible in total income, and provisions ... Application of section 115BBDA - assessee submitted that dividend from mutual funds is exempt u/s.10(35) AND dividend income from the shares is fully exempt u/s. 10(34) - HELD THAT:- When the assessment order passed by AO completely states that return of income filed by the assessee is accepted as it is, as the assessee has completely satisfied the AO by submitting the details of dividend income before him, how there could be any addition of the exempt income and how automatically the deduction of Rs. 10 lakhs could have been granted to the Assessee u/s. 115BBDA of the Act. Deduction u/s. 115BBDA of the Act is only applicable in case of a dividend in the hands of the assessee which is chargeable to tax. Here the complete dividend income received by the assessee is exempt u/s. 10(34) and 10(35) of the Act. CIT(A), even after recording the complete facts of the case dismissed the grounds of appeal of the assessee stating that the facts have been verified by the AO and no new facts are produced before him. CIT(A) did not apply his mind at all that dividend income shown by the assessee is completely exempt u/s. 10(34) & 10(35) of the Act and there is no applicability of the provisions of section 115BBDA of the Act. In view of this, the order of the ld. CIT(A) is not sustainable and is reversed. Computation of the income as per the computation sheet is in dispute, therefore the ld. AO is directed to correct the computation sheet by reducing the business income of the assessee under the profits & gains of business to Rs. 8,58,49,868 against Rs. 9,92,94,720. Accordingly ground No.2 of the appeal of the assessee is allowed. Issues: (i) Whether the addition of Rs. 1,34,44,852 in the computation sheet representing dividend income and the consequent application of section 115BBDA were sustainable, and whether the computation sheet should be corrected to exclude dividend income exempt under section 10.Analysis: The Tribunal examined the assessment order and the attached computation sheet against the material placed before the Assessing Officer and the Commissioner of Income Tax (Appeals). The assessee had disclosed dividend receipts in the return and provided supporting details showing dividends from specified mutual funds and companies. The Tribunal considered the statutory exemptions under section 10(34) and section 10(35) and the condition for invocation of section 115BBDA which applies only to dividend income that is chargeable to tax. The Tribunal found that the Assessing Officer's main assessment recorded acceptance of the return, that the dividend particulars were examined and accepted, and that the computation sheet wrongly included exempt dividend income and applied section 115BBDA despite the dividends being exempt under section 10.Conclusion: The addition of Rs. 1,34,44,852 in the computation sheet is incorrect and the computation sheet is to be corrected by treating profits and gains of business at Rs. 8,58,49,868 instead of Rs. 9,92,94,720; the appeal is allowed on this ground in favour of the assessee. The general ground is dismissed.Ratio Decidendi: Dividend income exempt under section 10 (including sections 10(34) and 10(35)) is not includible in total income and section 115BBDA is not applicable to dividends that are exempt and not chargeable to tax.