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2022 (2) TMI 976 - AT - Income TaxDisallowing the exempt dividend income and taxing the same as 'Dividend Stripping' u/s. 94(7) - consequent reducing the loss claimed by the Appellant - contention of the assessee before the CIT(Appeals) was that amount was out of the scope of Section 94(7) as the dividend included dividend from mutual funds, which was not covered under the provisions of Section 94(7) - CIT(Appeals) sustained the addition - HELD THAT - As contention of the assessee is not rebutted by the Revenue. Moreover, the assessee had furnished the details of mutual funds before the learned CIT(Appeals). Hence, the finding of learned CIT(Appeals) that the assessee has not provided break up of dividend is erroneous. Therefore, same cannot be sustained - we hereby direct the Assessing officer to delete the addition. - Decided in favour of assessee.
Issues:
1. Disallowance of expenditure by the Assessing Officer. 2. Taxation of exempt dividend income under section 94(7) of the Income Tax Act. 3. Appeal against the order of the learned CIT(A) pertaining to the assessment year 2016-17. Issue 1: Disallowance of Expenditure The original return of income declared by the assessee amounted to ?31,59,720, which was later revised to total income of Rs. Nil. During scrutiny, the Assessing Officer disallowed expenditure of ?29,532 related to delayed payment charges, DP charges, and auction charges, deeming them unrelated to the business. The Assessing Officer also noted exempt dividend income of ?4,09,867 claimed under section 10(34) of the Act, while the assessee declared a loss of ?36,59,514 in the profit and loss account. The Assessing Officer issued a show cause notice regarding the discrepancy in the declared dividend income. The assessee explained that the discrepancy was inadvertent and not intended to avoid tax, as a significant portion of the dividend was offered for taxation. However, the Assessing Officer proceeded to make an addition of ?1,45,547. Issue 2: Taxation of Exempt Dividend Income The assessee appealed to the CIT(A) against the addition of ?1,45,547 on account of exempt dividend income under section 94(7) of the Act. The CIT(A) partly allowed the appeal by deleting the disallowance of ?29,532 but upheld the addition of ?1,45,547 related to exempt dividend income. The assessee contended that the provisions of section 94(7) were not applicable to their case and that the explanation provided was not adequately considered. The Revenue opposed the submissions, arguing that the assessee failed to provide sufficient material to support their claim. The assessee reiterated that relevant material was submitted to substantiate their claim. Issue 3: Appeal Against CIT(A) Order The assessee approached the Tribunal against the CIT(A)'s decision. The Tribunal noted that the CIT(A) did not accept the assessee's explanation and sustained the addition based on section 94(7) of the Act. The assessee presented a detailed synopsis, highlighting the breakdown of dividend income from shares and mutual funds, with a portion of the income claimed as exempt being from mutual funds held as investments. The Tribunal observed that the Revenue did not rebut the assessee's contentions and that the details of mutual funds were provided during the CIT(A) proceedings. Consequently, the Tribunal directed the Assessing Officer to delete the addition of ?1,45,547, thereby allowing the assessee's appeal. In conclusion, the Tribunal allowed the assessee's appeal, directing the deletion of the addition related to exempt dividend income under section 94(7) of the Income Tax Act. The Tribunal found that the assessee had provided sufficient details and explanations to support their claim, and the CIT(A)'s decision to uphold the addition was deemed erroneous.
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