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

ITA 2397/BANG/2025

AI Insights

Nokha Trading LLP appealed against the order of the National Faceless Appeal Centre, which confirmed the assessment made by the National Faceless Assessment Centre. The primary contention was regarding the incorrect computation of business income in the assessment order, particularly the inclusion of exempt dividend income under the head 'profits and gains from business or profession'. The Tribunal examined the submissions and found that the dividend income from mutual funds and shares was correctly exempt under sections 10(34) and 10(35) of the Income Tax Act, and thus should not have been added to the business income. The Tribunal directed the correction of the computation sheet to reflect the correct business income as per the return filed by the assessee.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 837571 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2018-2019
• Appeal Filed On: 27-10-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ANKIT MARLECHA
• Keywords: Business income; Capital Gains; Earning of tax free income
• Section: 143(3)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.2397/Bang/2025 Assessment year : 2018-19 Nokha Trading LLP, 14, Nokha House, 7th Cross, Jai Bharath Nagar, Bangalore – 560 033. PAN : AAMFN 4734A Vs. The Deputy Commissioner of Income Tax, Circle 1(1)(1), Bangalore. APPELLANT RESPONDENT Appellant by : Shri Ankit Marlecha, CA Respondent by : Shri Subramanian S., Jt.CIT(DR)(ITAT), Bengaluru. Date of hearing : 17.02.2026 Date of Pronouncement : 19.02.2026 O R D E R Per Prashant Maharishi, Vice President 1. This appeal is filed by Nokha Trading LLP (the assessee/appellant) for the assessment year 2018-19 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 19.8.2025 wherein the appeal filed by the assessee against the assessment order dated 21.6.2021 passed u/s. 143(3) r.w.s. 144B of the Printed from counselvise.com ITA No.2397/Bang/2025 Page 2 of 10 Income Tax Act, 1961 [the Act] by the National Faceless Assessment Centre, Delhi [ld. AO] was dismissed. 2. The assessee has raised the following grounds of appeal :- “ 1. General Grounds 1.1. The National Faceless Assessment Centre, Delhi (`A0') has erred in passing the assessment order under section 143(3) r.w.s 144B of the Income Tax Act, 1961 (`the Act') in the manner passed by him and the Commissioner of Income Tax-(Appeals), National Faceless Appeal Centre, Delhi (`CIT(A)') [collectively known as 'lower authorities'] has erred in confirming the said assessment order. The assessment order so passed is bad in law and liable to be quashed. 2. Grounds relating to incorrect computation of business income in the computation sheet 2.1. The learned AO erred in incorrectly calculating the income taxable under the head profits and gains from business or profession in the computation sheet annexed to the assessment order and the learned CIT(A) erred in confirming such incorrect computation. 2.2. The learned AO erred in (a) passing a non-speaking order as the impugned adjustment was made without providing any cogent reasons for the same; (b) not providing a show cause notice as required under the provisions of section 144B of the Act before making variation to returned income; 2.3. The learned CIT(A) erred in confirming the impugned addition to business income, without appreciating that (a) dividend income is taxable as income from business or profession, by virtue of specific mention under section 56(2)(i) and not under business or profession; Printed from counselvise.com ITA No.2397/Bang/2025 Page 3 of 10 (b) the learned AO in the assessment order had positively accepted the returned income after due diligence and not treated the same as business income; (c) CIT(A) cannot supplement reasons and explanations contrary to the findings of the AO in the assessment order; and (d) Incomes exempt under section 10 are not considered in the total income irrespective of the head of income. 2.4. Without prejudice, the lower authorities erred in not appreciating that (a) Impugned difference in so far as it relates to dividend income, is exempt from tax under section 10(35) (b) the Appellant had disclosed the dividend income under Schedule EI of the ITR and the same was accepted by the learned AO in the assessment order; and (c) Assuming without admitting, the tax if any, ought to have been limited to section 1 15BBDA at the rate of 10 percent 2.5. On facts and circumstances of case and law, the order of the CIT(A) deserves to the quashed and the impugned addition made in the computation sheet of the assessment order deserves to be deleted in its entirety. 3. Prayer 3.1. The grounds of appeal raised by the Appellant herein are without prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. The Appellant prays accordingly.” 3. The brief facts of the case show that assessee is a limited liability partnership company, filed its return of income on 13.02.2019 declaring total income of Rs.12,84,99,020. The return of income was Printed from counselvise.com ITA No.2397/Bang/2025 Page 4 of 10 picked up for scrutiny and notice u/s. 143(2) of the Act issued to the assessee on 22.9.2019. After several hearings and submission of details, the ld. AO noted the issues involved in CASS selection reasons which were examined and in the light of submission of the assessee, assessment is completed accepting the returned income by the assessment order dated 21.6.2021. The reasons for selection of scrutiny were dividend income, capital gains, etc. The ld. AO also attached a computation sheet of even date with the assessment order wherein the total income of the assessee was assessed at Rs.14,19,43,870, compared to the return of income filed by the assessee at Rs.12,84,99,020. Thus despite accepting the return of income of the assessee, in the computation sheet the ld. AO has computed the different income. 4. The assessee preferred an appeal before the ld. CIT(A). The grievance of the assessee is that the business income shown by the assessee as per return of income which was accepted by the AO was Rs.8,58,49,868 whereas the ld. AO in the computation sheet has taken the business income as Rs.9,92,94,720. Thus there was difference of Rs.1,34,44,852. The claim of the assessee that there is total dividend income earned by the assessee of Rs.1,44,44,852 as per return of income. The ld. AO has made the addition of Rs.1,34,44,852, out of that by allowing a deduction of Rs.10 lakhs as per section 115BBDA. 5. Before the ld. CIT(A), the assessee submitted that in the return of income and Schedule EI assessee has disclosed an income of Printed from counselvise.com ITA No.2397/Bang/2025 Page 5 of 10 Rs.1,44,44,852 which is the dividend income exempt. A sum of Rs.1,38,92,666 is exempt dividend from mutual funds and further dividend of Rs.5,52,186 was divided income from the shares. The assessee submitted that dividend from mutual funds is exempt u/s. 10(35) of the Act. The dividend income from the shares of Rs.5,52,185 is fully exempt u/s. 10(34) of the Act. Therefore the addition made by the ld. AO of Rs. Rs.1,44,44,852 and thereafter granting the deduction of Rs.10 lakhs u/s. 115BBDA of the Act is not correct. The assessee submitted that when the complete details are submitted before the AO which were examined and accepted by the ld. AO but has made a different computation in the computation sheet deserves to be deleted. Thus, the claim of the assessee was to exclude the above dividend income from the total taxable income u/s. 10(35) and 10(34) of the Act. 6. 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. Printed from counselvise.com ITA No.2397/Bang/2025 Page 6 of 10 7. 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. 8. The ld. DR, Shri Subramanian S., JCIT, relied upon the orders of the ld. lower authorities. 9. 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. 10. 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 Printed from counselvise.com ITA No.2397/Bang/2025 Page 7 of 10 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. 11. 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. 12. 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 Printed from counselvise.com ITA No.2397/Bang/2025 Page 8 of 10 mutual fund u/s. 10(23D) of the Act is also exempt. The claim shown by the assessee of Rs.1,38,92,666 is received income from mutual funds. Therefore this income is also exempt u/s. 10(35) of the Act. As the complete dividend income received by the assessee is exempt under the provisions of section 10, the above income is not included in the total income of the assessee. As there is no total income in this case included in income from dividends, the deduction of Rs.10 lakhs u/s. 115BBDA of the Act is not applicable. In view of the above facts, the adjustment made by the ld. AO in the computation sheet attached to the assessment order of Rs. Rs.1,34,44,852 is devoid of any merit. Therefore such computation is required to be correct by the ld. AO by taking the profits & gains of business of the assessee at Rs.8,58,49,868 against Rs.9,92,94,720 taken erroneously. 13. 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. Printed from counselvise.com ITA No.2397/Bang/2025 Page 9 of 10 14. 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. 15. Ground No.1 is general in nature and hence dismissed. 16. In the result, the appeal of the assessee is partly allowed. Pronounced in the open court on this 19th day of February, 2026. Sd/- Sd/- ( KESHAV DUBEY ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 19th February, 2026. /Desai S Murthy / Printed from counselvise.com ITA No.2397/Bang/2025 Page 10 of 10 Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. Printed from counselvise.com "