INDIAN OIL CORPORATION LTD,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX 14(1)( 1), MUMBAI

आदेश / ORDER PER BEENA PILLAI, JUDICIAL MEMBER: 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. 1

ITA 4408/MUM/2025 INDIAN OIL CORPORATION LTD 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

General

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.

ITA 4408/MUM/2025 INDIAN OIL CORPORATION LTD 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 3

ITA 4408/MUM/2025 INDIAN OIL CORPORATION LTD 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.

3.1. 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

ITA 4408/MUM/2025 INDIAN OIL CORPORATION LTD 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

ITA 4408/MUM/2025 INDIAN OIL CORPORATION LTD 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.

4.1. 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

ITA 4408/MUM/2025 INDIAN OIL CORPORATION LTD 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 7

ITA 4408/MUM/2025 INDIAN OIL CORPORATION LTD 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.

Sd/- Sd/-

ARUN KHODPIA BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai Dated: 06/08/2026 SC, Sr. P.S.

ITA 4408/MUM/2025 INDIAN OIL CORPORATION LTD Copy to: INDIAN OIL CORPORATION LTD , INDIAN OIL BHAVAN, G-9, ALI YAVAR 1 JUNG MARG, BANDRA (EAST), MUMBAI-400051, MAHARASHTRA

ASSISTANT COMMISSIONER OF INCOME TAX 14(1)( 1), 2 AAYAKAR BHAVAN, M.K ROAD,, MUMBAI-400020, MAHARASHTRA

3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE