NOKHA TRADING LLP,BANGALORE vs. DCIT, CIRCLE-1(1)(1), BANGALORE

Prayer 3.1. The grounds of appeal

The ld. CIT(A) confirmed the action of the ld. AO. He held that assessment was completed after giving sufficient opportunity of hearing to the assessee and further merely because the return is accepted, did not preclude the AO from making a lawful adjustment to the total income. The assessee further stated that as the dividend income is exempt, there is no reason to treat it under the head income from other sources or under any head of income. The ld. CIT(A) held that burden is on the assessee to show that dividend income is to be treated as business income. Accordingly the appeal of the assessee was dismissed.

The ld. AR, Mr. Ankit Marlecha, CA explained before us and submitted that though the AO has accepted the returned income of the assessee by making an adjustment u/s. 143(3) of the Act, has not granted the assessee deduction u/s. 10(34) as well as u/s.10(35) of the Act. He otherwise submitted that in the return of income the assessee has claimed the above exemption which was examined by the ld. AO in detail, but while preparing the computation sheet, the error has occurred. He submitted that the ld. CIT(A) despite submitting all the details which are reproduced in his order, did not grant the relief.

The ld. DR, Shri Subramanian S., JCIT, relied upon the orders of the ld. lower authorities.

We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. Briefly stated the facts of the case show that assessee is a limited liability partnership firm, which filed its return of income for AY 2018-19 on 24.10.2018 declaring total income of Rs.12,84,99,020. Later on, this income was revised by filing a revised income on 13.2.2019 at the same income. The return was picked up for scrutiny for verification of dividend income along with other issues. During the course of hearing 4 notices were issued and assessee submitted 4 replies on respective dates.

The ld. AO passed an assessment order u/s. 143(3) r.w.s. 144B of the Act accepting the returned income as it is stating that all the points involved in CASS selection reasons were examined. However, while preparing the computation sheet to be attached along with the order, the total income was assessed at Rs.14,19,43,870. The difference that arose in the income tax return of the assessee as well as the computation sheet attached to the assessment order was under the head profits & gains of business or profession. As per income tax return the assessee has shown the profits & gains of business or profession at Rs.8,58,49,868, whereas as per assessment order computation sheet same was taken at Rs.9,92,94,720, thus there was a difference of Rs.1,34,44,852. This sum is explained by the assessee as exempt dividend income of Rs.1,38,92,666 of dividend income from mutual funds and Rs.5,52,186 being dividend income from equity shares. Out of that, deduction was granted by the AO in the computation sheet u/s. 115BBDA of the Act of Rs.10 lakhs. Thus the net addition of Rs.1,34,44,852 was made by the AO.

Before the ld. AO and the ld. CIT(A), the assessee has submitted the complete details of dividend income received from mutual funds and on the dividend, income received from the shares. The assessee has received dividend of Rs.1,38,92,666 from IIFL Real Estate Fund, Franklin India Fund and Motilal Oswal Fund. There is other 37 companies from whom dividend income was received of Rs.5,52,185.

According to the provisions of section 10(34) of the Act, dividend income earned by the assessee which is covered u/s. 115O of the Act is exempt. Therefore, naturally sum of Rs.5,52,185 was divided received from 37 companies is exempt under the above section. Further according to section 10(35) of the Act, income received from specified

We are really concerned with the fact that when the assessment order passed by the ld. 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 asse u/s. 115BBDA of the Act. Further the 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.

Further the ld. CIT(A), even after recording the complete facts of the case from page 7 to 34 of his appellate order 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. The ld. CIT(A) did not apply his mind at all that dividend income shown by the assessee of Rs. Rs.1,44,44,852 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. Further the assessment order passed by the ld. AO is not in dispute, but only the 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.

In the result, the appeal of the assessee is partly allowed.