SHOBHA HARISH THAWANI,MUMBAI vs. DCIT - CC 8(4), MUMBAI

ITA 5045/MUM/2026Status: DisposedITAT Mumbai23 September 2026AY 2016-1714 pages
AI SummaryRemanded

What were the facts?

The assessee, Shobha Harish Thawani, filed an appeal against the order of the CIT(A) 50, Mumbai, which upheld the Assessing Officer's (AO) addition of Rs. 52,42,753/- as Short Term Capital Gain (STCG) for Assessment Year 2016-17. The AO had treated the claimed exempt income of Rs. 52,42,753/- arising from redemption of mutual funds as STCG. The assessee initially claimed this as Long Term Capital Gain (LTCG) under Section 10(38), but later argued it was dividend income exempt under Section 10(35) due to reinvestment in dividend reinvestment plans. The AO rejected this, stating that reinvestment created new units, and redemption within three years constituted STCG, especially as the funds were debt-oriented and not eligible for Section 10(38) exemption. The CIT(A) confirmed the AO's action, holding that reinvested dividends become capital investment and are subject to capital gains tax upon transfer.

What did the Tribunal hold?

The Tribunal noted that while dividend income itself is exempt under Section 10(35), the reinvestment of such dividend results in the fresh acquisition of capital assets. The redemption of these units constitutes a transfer under Section 2(47) of the Act. Consequently, any gains arising from such a transfer are to be computed under Section 45. If the holding period is less than thirty-six months, these gains are taxable as short-term capital gains. The Tribunal found that the assessee had not furnished crucial details like unit-wise acquisition data, dividend reinvestment schedules, aggregate cost computation, and a capital gains working to demonstrate that redemption proceeds equaled the cumulative investment cost. The Tribunal also acknowledged the assessee's request to admit additional evidence. Considering the need for factual appreciation of these details, the Tribunal set aside the appellate order and remanded the entire matter to the CIT(A) for a de novo order. The CIT(A) was directed to examine all relevant details, including any additional evidence, to arrive at a just and fair decision regarding the nature of reinvestments and the applicability of capital gains provisions.

What were the issues?

1. Whether the amount realized upon redemption of debt mutual fund units acquired under dividend reinvestment plans represents exempt dividend income under Section 10(35) of the Income-tax Act, 1961, as claimed by the assessee, or taxable short-term capital gain as held by the AO? (Mixed question of law and fact, turning on Sections 10(35), 45, 48, and 2(47) of the Act). Assessee's contentions: The surplus on redemption is merely accumulated dividend income, which is exempt under Section 10(35) as tax is borne by the mutual fund under Section 115R. Reinvestment of dividend increases the cost of acquisition, and the difference between redemption proceeds and cost of acquisition, including reinvested dividend, should not be taxed as capital gain. Taxing this amount would amount to triple taxation, violating the principle upheld in Mahaveer Kumar Jain vs. CIT (SC). Revenue's contentions: The AO and CIT(A) argued that each reinvestment of dividend creates fresh units with a new acquisition date. Redemption of these units constitutes a transfer under Section 2(47). Since units were redeemed within thirty-six months of acquisition, gains are taxable as STCG under Sections 45 and 48. The assessee failed to provide unit-wise acquisition details, dividend reinvestment schedules, and comprehensive cost computation to prove the absence of capital gains.

Which sections of the Income-tax Act were involved?

Section 10(38),Section 10(35),Section 115R,Section 45,Section 48,Section 2(47)

AI-generated summary — verify with the full judgment below

Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR

For Appellant: Shri Fenil Bhatt,AR
For Respondent: Shri Rajesh Sakhardande,(Sr.DR)
Hearing: 27.08.2026Pronounced: 23.09.2026

PER PRABHASH SHANKAR [A.M.] :- The instant appeal arising from the appellate order dated 28.02.2026 is preferred by the assessee against the order passed by the Learned Commissioner of Income-tax, Appeal, CIT(A) 50, Mumbai [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 28.12.2018 for the Assessment Year [A.Y.] 2016-17. P a g e | 2 A.Y. 2016-17 Shobha Harish Thawani 2. The grounds of appeal are as under: i. That the Ld. CIT(A) has erred in law and

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