ITAT Mumbai: ₹62.16 lakh Dividend Exemption Disallowance Set Aside
The ITAT in Mumbai overturned a disallowance of ₹62.16 lakh regarding dividend exemption under section 10(34) for the assessment year 2013-14.
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The Income Tax Appellate Tribunal (ITAT) in Mumbai has set aside a disallowance of ₹62.16 lakh concerning dividend exemption under section 10(34) of the Income Tax Act for the assessment year 2013-14. This ruling was issued on 9 June 2026, following an appeal against an order from the National Faceless Appeal Centre (NFAC).
The appellant, an individual, filed his return on 30 July 2013, reporting a total income of ₹1,52,85,230. He declared exempt dividend income of ₹1,03,34,660 under section 10(34). During the scrutiny of his return, the Assessing Officer (AO) mistakenly calculated the eligible dividend amount. The AO referred to a proposed dividend of ₹3.55 crore listed in the company’s balance sheet as of 31 March 2013, which was meant for approval and distribution in the subsequent financial year.
As a result of this miscalculation, the AO concluded that the appellant was entitled to only ₹41,13,440 as eligible dividend income, leading to the denial of the ₹62.16 lakh exemption. The ITAT highlighted that this determination failed to correctly distinguish between a proposed dividend and an actual receipt.
Upon review, the Tribunal found that the appellant had received ₹1,02,83,600 on 14 August 2012, based on his holding of 41,13,440 shares in Galaxy Surfactants Limited. The dividend was calculated at ₹2.50 per share and was approved during the annual general meeting held on 3 August 2012. This dividend pertained to the financial year ending on 31 March 2013, which was relevant for the assessment year in question.
The ITAT determined that the AO had incorrectly substituted the subsequent year’s proposed dividend for the current year’s actual receipt. The Tribunal noted that a proposed dividend and an approved dividend received by a shareholder cannot be treated as the same without proper context.
Accordingly, the ITAT directed the Assessing Officer to allow the exemption under section 10(34) for the actual dividend receipt of ₹1,02,83,600 and set aside the disputed disallowance of ₹62,16,690. The decision clarifies the significance of accurately interpreting financial statements and shareholder resolutions in tax assessments.
This ruling is a substantive decision, providing clarity on the assessment process for similar cases in the future. The Tribunal’s order illustrates the necessity for tax practitioners to understand the distinctions between different types of dividends and their approval dates.
