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Facts
The assessee filed a return declaring income of Rs.30,51,986/- and received a refund. The CPC made an adjustment of Rs.3,90,187/- by treating dividend income from shares and mutual funds as business income. The CIT(A) confirmed this order.
Held
The Tribunal held that the dividend income from equity shares was within the exemption limit under Section 115BBDA, and dividend income from mutual funds was exempt under Section 10(35). The adjustment made by the CPC treating it as business income was erroneous and bad in law.
Key Issues
Whether dividend income from equity shares and mutual funds was correctly treated as business income by the CPC and confirmed by the CIT(A) through a rectification order.
Sections Cited
154, 143(1), 115BBDA, 10(35)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH KOLKATA
Before: Shri Sonjoy Sarma & Shri Rakesh Mishra
Assessment Year: 2018-19 Gita Devi Himatsingka (since deceased) Represented By L/H Pramode Kumar Himatsingka…………….………..……..…………………....Appellant 2C, Queens Park, Ballygunge, Kol-19. [PAN: AARPH3735N] vs. ITO, Ward-30(1), Kolkata…………....…..………………….…..... Respondent Appearances by: Shri Manoj Kataruka, Advocate, appeared on behalf of the appellant. Shri Ranu Biswas, ACIT-Sr. DR, appeared on behalf of the Respondent. Date of concluding the hearing : July 30, 2025 Date of pronouncing the order : July 31, 2025 आदेश / ORDER
Per Sonjoy Sarma, Judicial Member:
This appeal has been preferred by Shri Pramod Kumar Himatsingka, legal heir of Smt. Geeta Devi Himatsingka (deceased), against the order of the Ld. CIT(A), dated 19.02.2025, confirming the rectification order passed under Section 154 of the Income-tax Act, 1961, dated 30.10.2019, by the CPC, Bangalore, for the assessment year 2018–19.
Brief facts of the case are that the assessee is an individual who filed the return of income for the Assessment Year 2018-19, declaring a total income of Rs.30,51,986/-. The return was processed under Section 143(1) of the Income-tax Act on 07.12.2018, and a refund of Rs.40,800/- was determined and granted to the assessee. Subsequently, the CPC passed a rectification order dated 30.10.19 by Gita Devi Himatsingka which made an adjustment of Rs.3,90,187/- to the returned income by treating the income received from equity shares and mutual funds exceeding Rs.10,000/- as income under the head "Profits and Gains from Business or Profession", instead of as originally shown by the assessee in return of income.
Aggrieved by the order of the CPC assessee preferred an appeal before the ld. CIT (A) where the Ld. CIT(A) also upheld the order of CPC, leading to the present appeal before the Tribunal.
At the time of hearing the Ld. Authorised Representative (AR) submitted that the assessee’s main source of income of assessee was interest and capital gains and the entire dividend income on equity shares (₹6,99,463) was within the exemption limit of ₹10,00,000, as per Section 115BBDA (as then applicable). The dividend from mutual funds (₹6,90,724) was exempt under Section 10(35) of the Act and was outside the purview of Section 115BBDA. The CPC erroneously treated ₹3,90,187 as taxable under the head “business income” without basis. The AR argued that the rectification order under Section 154, passed without properly verifying the facts and without applying the law correctly, was bad in law. The CPC’s classification of income into “special” to Business income was also pointed out to be factually and legally incorrect.
On the other hand, the Ld. Departmental Representative (DR) relied on the orders of the CPC and CIT(A), but could not controvert the factual contention that dividend income from mutual funds is exempt under Section 10(35) and dividend income on equity shares was less than ₹10 lakh, and hence not chargeable to tax under Section 115BBDA of the Act.
Gita Devi Himatsingka 6. We, after the hearing the parties and on perusal of the records and considering the rival submissions, find that it is clear that the assessee received dividend income on equity shares amounting to ₹6,99,463, which is within the ₹10 lakh exemption limit under Section 115BBDA (applicable for A.Y. 2018–19) and the dividend income from mutual funds (₹6,90,724) is specifically exempt under Section 10(35) of the Act. The CPC, however, erroneously considered total dividend income exceeding ₹10,00,000, and made an adjustment of ₹3,90,187 under Section 143(1)/154, treating it as taxable under the head “Business Income”. We therefore find that the rectification order dated 30.10.2019 suffers from legal infirmity and is not sustainable, as it fails to consider the correct nature and treatment of dividend income. In view of the above we find that the adjustment made by CPC by passing a rectification order under Section 154 of the Act dated 30.10.2019, is erroneous and bad in law. Therefore, the amount of ₹3,90,187, wrongly added as taxable business income, is liable to be deleted. Accordingly, the impugned order of the Ld. CIT(A) dated 19.02.2025 is set aside, and the adjustment made by the CPC is directed to be deleted.
In terms of the above the appeal of the assessee is allowed. Kolkata, the 31st July, 2025.