MADISON TEAMWORKS FILM PROMOTIONS AND ENTERTAINMENT PRIVATE LIMITED,MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX- 10(2)(2), MUMBAI, MUMBAI

ITA 3533/MUM/2025

AI Insights

The case involves Madison Teamworks Film Promotions and Entertainment Private Limited (the appellant) appealing against the penalty imposed by the Deputy Commissioner of Income Tax under Section 271(1)(c) of the Income Tax Act, 1961, for the Assessment Year 2013-14. The penalty was related to the addition of INR 55,00,000 as deemed dividend under Section 2(22)(e) of the Act. The Tribunal examined whether the imposition of the penalty was justified given the circumstances of the case, including the fact that the same amount was also taxed in the hands of a common shareholder and the legal interpretations of deemed dividend taxation.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 793098 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 20-05-2025
• Other Referred Cases: CIT v. Madhur Housing and Development Company, ACIT Vs. Bhaumik Colour (P.) Ltd., CIT Vs. Universal Medicare (P.) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANNAVARAMKOSURI
• Assessee Lawyers: SIDDESH CHAUGULE; MANMEET KAUR SAINI
• Keywords: Deemed dividend; Right to appeal; Revision of order; FORM 26AS
• Section: 147; 143(3); 271(1)(c); 40A(3); 2(22)(e)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI “D” BENCH : MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 3533/Mum/2025 Assessment Year : 2013-14 Madison Teamworks Film Promotions and Entertainment Private Limited, 1st Floor, 349 Business point, Western Express Highway, Andheri (East), Mumbai-400069. PAN : AAECM1006B vs. Deputy Commissioner of Income Tax-10(2)(2), Aayakar Bhavan, M.K. Road, Mumbai-400020. (Appellant) (Respondent) For Assessee : Mr. Siddesh Chaugule & Ms. Manmeet Kaur Saini For Revenue : Shri Annavaram Kosuri, Sr.DR Date of Hearing : 23-09-2025 Date of Pronouncement : 26-09-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 28-03-2025 wherein he has sustained the levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 („the Act‟) pertaining to Assessment Year (AY) 2013-14 wherein the assessee has taken the following grounds of appeal: Printed from counselvise.com 2 ITA No. 3533/Mum/2025 1. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income tax-(Appeals) has erred in dismissing the appeal filed against penalty order under Section 271(1)(c) of the Income-tax Act, 1961 ('the Act'), on the premise that quantum appeal is not maintainable. 2. On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income tax (Appeals) has erred in upholding penalty order passed under Section 271(1)(c) of the Act on the alleged deemed dividend amounting to INR 55,00,000 in the hands of the Appellant. 3. On the facts and in the circumstances of the case and in law, the Learned Deputy Commissioner of Income Tax-10(2)(2), Mumbai has erred in computing the incorrect amount of penalty in the order passed under Section 271(1)(c) of the Act, by considering surcharge on the taxable income. 4. The Appellant craves leave to add, alter, amend or withdraw the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appellate hearing. 2. Briefly the facts of the case are that the assessee filed its return of income, which was selected for scrutiny and assessment proceedings were completed u/s. 143(3) of the Income Tax Act, 1961 („the Act‟), wherein the AO brought to tax a sum of Rs. 55 lakhs as deemed dividend u/s. 2(22)(e) of the Act besides an amount of Rs. 20,28,653/- on account of 26AS mismatch and made a disallowance of expenditure u/s. 40A(3) of the Act amounting to Rs. 48,784/-. Simultaneously, penalty proceedings u/s. 271(1)(c) of the Act were initiated while issuance of notice u/s. 274 r.w.s. 271(1)(c) of the Act, dt. 30-10-2015. 3. The assessee thereafter carried the matter in appeal before the Ld.CIT(A) challenging the addition on account of mismatch of income vis-à- vis Form-26AS and it was partly in favour of the assessee. However, as far as the other additions made by the AO in respect of deemed dividend u/s 2(22)(e) and disallowance u/s. 40A(3) of the Act, the assessee did not file any appeal. 4. Subsequently, the AO again issued a show cause u/s. 271(1)(c) of the Act dt. 07-03-2019. In response, there was no compliance on the part Printed from counselvise.com 3 ITA No. 3533/Mum/2025 of the assessee, thereafter the AO proceeded and passed the order u/s. 271(1)(c) of the Act, dt. 28-03-2019. The AO referred to the findings in the assessment order and the findings by the Ld.CIT(A) and has stated that the Ld.CIT(A) has not disputed the findings made by the AO in the assessment proceedings that the assessee-company‟s transactions with its related concerns are covered by the provisions of section 2(22)(e) of the Act. Further, the Ld. CIT(A) has confirmed the disallowance made u/s. 40A(3) of the Act and partly confirmed the addition made on account of Form- 26AS mismatch. The AO accordingly held that the facts clearly indicate that the assessee has furnished inaccurate particulars of income by claiming such inadmissible expenses and by not offering the income on account of deemed dividend and Form-26AS mismatch and he accordingly held that it is a fit case for imposition of penalty u/s. 271(1)(c) r.w. Explanation-1(B), in respect of the disallowance of Rs. 55,57,613/- and the penalty order accordingly was passed levying penalty amounting to Rs. 18,89,032/- being 100% of tax sought to be evaded. 5. The assessee carried the matter in appeal before the Ld.CIT(A), who has since confirmed the order and the findings of the AO, stating that the order imposing penalty u/s. 271(1)(c) of the Act is consequential to the assessment order passed u/s. 143(3) of the Act. It has been further held by the Ld.CIT(A) that the assessee has preferred an appeal against the assessment order u/s. 143(3) of the Act on the quantum addition of Rs. 55 lakhs on account of deemed dividend u/s. 2(22)(e) of the Act, which has been dismissed by the Ld.CIT(A) being not maintainable and hence, the present appeal was also dismissed. Against the said findings, the assessee is in appeal before us. Printed from counselvise.com 4 ITA No. 3533/Mum/2025 6. During the course of hearing, the Ld.AR submitted that the assessee had originally accepted the assessment order on the ground of addition of Rs. 55 lakhs u/s 2(22)(e) of the Act as deemed dividend and contested the assessment only on the ground of mismatch of income vis-à-vis form 26AS of Rs.20,28,653/- by filing an appeal before the Ld.CIT(A). The Ld.CIT(A) provided a substantial relief by reducing the addition of Rs. 20,83,653/- to Rs. 8,829/- only. Further, in its appeal, the assessee didn‟t take any ground on addition u/s. 40A(3) of Rs.48,784/- given the quantum involved. 7. It was submitted that subsequently, when the assessment of Mr. Sam Balsara, a common shareholder in both the assessee-Company (MATES) and Madison Communications Private Limited, was reopened u/s. 147 of the Act, the same amount of Rs. 55 lakhs on account of deemed dividend was again taxed in the hands of Mr. Sam Balsara, as deemed dividend. 8. It was submitted that the assessee-company, realizing the issue of taxation twice on the same amount, filed a revision application u/s. 264 of the Act before the Ld.PCIT to revise the assessment order of MATES and prayed for deleting the addition u/s.2(22)(e) of Rs. 55 lakhs, as the amount had already been assessed in the hands of Mr. Sam Balsara in his personal assessment. However, the Ld.PCIT disposed off the revision petition without deciding the issue on merit and without providing any relief to the assessee. While deciding the matter, it was observed by the Ld.PCIT that the assessee had not waived its right to appeal before Ld.CIT(A), and also rejected the petition of the assessee for inordinate delay in filing revision application. Subsequently, the assessee filed an appeal for the second time before the Ld.CIT(A) on 24-12-2019 against the assessment order passed u/s. 143(3) dated 30-10-2015 on the ground of Printed from counselvise.com 5 ITA No. 3533/Mum/2025 deemed dividend u/s 2(22)(e) of the Act which was not contested by the assessee initially when it filled appeal u/s. 246A of the Act. This appeal filed for the second time with new grounds of appeal, was dismissed by the Ld.CIT(A) being not maintainable, for the reason that an appeal before Ld.CIT(A) filed multiple times with new grounds of appeal cannot be admitted as per law. It was accordingly submitted that on the first occasion, the assessee didn‟t file any appeal on the issue of deemed dividend and on the second occasion, though a specific ground was raised but the appeal was held not maintainable by the Ld.CIT(A) and in light of the same, it was submitted that the findings of the AO in the penalty order that the Ld.CIT(A) has not disputed the findings made by the AO in the assessment proceedings that the assessee-company‟s transactions with its related concerns are covered by the provisions of section 2(22)(e) of the Act is factually incorrect. At the same time, it was submitted that as far as quantum proceedings are concerned, the same has attained finality and the amount has already been brought to tax in the hands of the assessee and separately, in the hands of the common shareholder. 9. It was further submitted that during the course of assessment proceedings, the AO observed that the assessee-company had received loan amounting to Rs. 55 lakhs from Madison Communications Private Limited (MCPL). The AO further observed that both the assessee-company and MCPL have a common shareholder who owns 72.5% and 87.38% shares in the assessee-company and MCPL respectively. Further he noticed that MCPL had accumulated profits as on 31st March 2013. In view of the above, the AO concluded that the loan received by the assessee- company from MCPL gets covered by the deeming provisions of the Section 2(22)(e) of the Act. Accordingly, an addition of Rs. 55 lakhs (in relation to loan received from MCPL) was made in the hands of the assessee-company Printed from counselvise.com 6 ITA No. 3533/Mum/2025 u/s. 2(22)(e) of the Act in the captioned year. It was submitted that there were contradictory judicial precedents on the taxability of deemed dividend i.e., whether the same should be taxed in the hands of shareholder vis-a- vis the recipient company at that point in time. In light of the said contradictory judicial precedents, the assessee-company accepted the position adopted by the then AO i.e., the dividend u/s. 2(22)(e) of the Act is taxable in the hands of recipient company and accordingly, did not challenge the said issue before the Ld. CIT(A). However, the controversy on this issue was later on settled by the Hon'ble Supreme Court's decision in case of CIT v. Madhur Housing and Development Company (Civil Appeal No. 3961 of 2013, dated 5th October 2017) wherein it was held that “the deemed dividend can be taxed only in the hands of the shareholder and not the recipient company”. 10. In this regard, the Ld.AR has placed reliance on the following judicial precedents: a) ACIT Vs. Bhaumik Colour (P.) Ltd. (2009) 120 TTJ 865 (Mumbai Tribunal). In this ruling, the Hon'ble Special Bench of the Tribunal has held “that the intention behind the provisions of section 2(22)(e) is to tax dividend in the hands of shareholder”. \"The deeming provisions as it applies to the case of loans or advances by a company to a concern in which its shareholder has substantial interest, is based on the presumption that the loan or advances would ultimately be made available to the shareholders of the company giving the loan or advance. The intention of the legislature is therefore to tax dividend only in the hands of the shareholder and not in the hands of the concern.\" b) CIT Vs. Universal Medicare (P.) Ltd. [2010] 190 Taxman 144 (Bombay High Court). In the said decision, the Hon'ble Bombay High Court held as under: Printed from counselvise.com 7 ITA No. 3533/Mum/2025 “Consequently, the effect of clause (e) of section 2(22) is to broaden the ambit of the expression 'dividend by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently, in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder. The Tribunal was, in the circumstances, justified in coming to the conclusion that, in any event, the payment could not be taxed in the hands of the assessee”. 11. It was submitted that, in view of the above judicial precedents, the law is very clear now and clearly the deemed dividend is not taxable in the hands of the recipient company (ie. the assessee Company) and can be taxed only in the hands of the registered shareholder and hence the penalty on the same cannot survive. 12. It was further submitted that in view of the aforementioned Apex Court's judgement, an assessment order u/s. 147 of the Act has also been passed in the case of the common shareholder, wherein the AO has relied on the said Apex Court's decision in the case of CIT v. Madhur Housing and Development Company (Civil Appeal No. 3961 of 2013, dated 5th October, 2017) and has charged the very same amount of Rs. 55 lakhs to tax as deemed dividend in the common shareholder's assessment for the AY. 2013-14 (which was already taxed in the hands of the assessee- company). It was submitted that the common shareholder respectfully accepting the Hon'ble Supreme Court's decision discharged the tax liability arising due to the said addition. As can be seen from above, the same income is taxed twice Le, once in the hands of assessee-company and once in hand of the common shareholder. In view of the above facts and Hon'ble Apex Court‟s ruling, the deemed dividend (though not challenged) is clearly not taxable in the hands of the assessee-company and hence, prayed to delete the penalty. Printed from counselvise.com 8 ITA No. 3533/Mum/2025 13. Further, on the issue of levy of penalty on disallowance u/s 40A(3) of the Act, it was again submitted that though the assessee didn‟t appeal against the addition u/s. 40A(3) of Rs.48,784/- given the quantum involved, at the same time, there is no basis for levy of penalty u/s 271(1)(c) as mere disallowance doesn‟t automatically leads to levy of penalty. 14. Per contra, the Ld. DR is heard, who has relied on the order passed by the AO as well as that of the Ld. CIT(A). 15. We have heard the rival contentions and perused the material available on record. The matter under consideration relates to levy of penalty u/s 271(1)(c) of the Act as to whether there is concealment of particulars of income or furnishing of inaccurate particulars of income in relation to a specified loan transaction amounting to Rs. 55 lakhs received by the assessee company from MCPL wherein both the assessee-company and MCPL have a common shareholder by name of Mr Sam Balsara, who owns 72.5% and 87.38% shares in the assessee-company and MCPL respectively and the fact that MCPL had accumulated profits as on 31st March 2013. The said loan transaction has been characterized and brought to tax by the AO as deemed dividend invoking provisions of section 2(22)(e) of the Act in the hands of the assessee company. The assessee didn‟t challenge the addition initially, however, later on, the assessee seeks to challenge the same and moved an application before the Ld.PCIT u/s 264 and thereafter, appeal before the Ld.CIT(A), however without any success. The quantum proceedings have thus attained finality and are not under any further challenge. It is a settled legal proposition that assessment and penalty proceedings are separate proceedings and merely addition alone in the quantum proceedings cannot be a basis for Printed from counselvise.com 9 ITA No. 3533/Mum/2025 levy of penalty and the conditions specified therein need to be satisfied before levy of penalty. In the penalty proceedings, the AO has merely referred to the fact the quantum proceedings have attained finality without specifying as to how the assessee has furnished inaccurate particulars of income and has gone ahead and levied the penalty u/s 271(1)(c) of the Act. 16. Further, we find that during the appellate proceedings against the levy of penalty, the assessee has submitted that even though the addition has been made in its hands, however, basis the decisions of the Tribunal and Courts, the said amount cannot be brought to tax in its hands and therefore, penalty should not be leviable and reference was specifically drawn to the decision of the Special Bench of the Tribunal in case of Bhaumik Colours (P) Ltd, Hon‟ble Bombay High Court decision in case of Universal Medicare (P) Ltd and Hon‟ble Supreme Court decision in case of Madhur Housing and Development company affirming the decision of the Hon‟ble Bombay High Court in case of Madhur Housing and Development Corporation and Hon‟ble Delhi High Court in case of CIT vs Ankitech (P) Ltd. It was also brought to the notice of Ld.CIT(A) that basis the decision of Hon‟ble Supreme Court decision in case of Madhur Housing and Development company, the AO has reopened the case of the common shareholder and brought the said amount to tax as deemed dividend in his hands. The Ld.CIT(A) has summarily rejected the submissions so made and has held that the levy of penalty is consequential in nature and since the addition has been confirmed, the levy of penalty was confirmed by him without elaborating as to how the assessee has furnished inaccurate particulars of income and the matter calls for levy of penalty and that too, on face of various decisions brought to his notice wherein it has been held that deemed dividend cannot be taxed in the hands of loan recipient entity Printed from counselvise.com 10 ITA No. 3533/Mum/2025 but taxable in the hands of common shareholders having substantial interest in both entities. 17. In our considered opinion, there is clearly no legal and justifiable basis for levy of penalty u/s 271(1)(c) in the instance case for the reason that the AO has failed to specify as to how the charge of furnishing inaccurate particulars of income is satisfied in the instant case. The loan transaction and the factum that the assessee and MCPL are group concerns having common shareholder with substantial holding is apparent on the face of the financial statements read with notes to accounts. The AO referring to the same has called for further information and explanation from the assessee during the course of assessment proceedings and basis examination thereof, has brought the loan amount to tax as deemed dividend. The fact that loan transaction has been re- characterized and taxes as deemed dividend cannot be held as furnishing of inaccurate particulars of income where all relevant facts were available on record as part of audited financial statements and/or called for during the assessment proceedings. 18. Secondly, equally relevant to note is that the decision of Special Bench of the Tribunal in case of Bhaumik Colours (P) Ltd, Hon‟ble Bombay High Court decision in case of Universal Medicare (P) Ltd and Madhur Housing and Development company were rendered well before the passing of the assessment order u/s 143(3) dated 30-10-2015 and date of issuance of first show-cause u/s 271(1)(c) on 30-10-2015 and decision of the Hon‟ble Supreme Court in case of Madhur Housing and Development company was rendered on 05-10-2017 well before passing of the penalty order u/s 271(1)(c) on 28-03-2019 and therefore, the assessee has strong basis to rely on these decisions to submit that the amount of loan transaction Printed from counselvise.com 11 ITA No. 3533/Mum/2025 cannot be brought to tax in its hands as deemed dividend u/s 2(22)(e) of the Act. 19. The fact that the AO has went ahead and taxed the amount as deemed dividend in the hands of the assessee and the assessee didn‟t challenge initially or couldn‟t challenge successfully later on and accepted its fate of the closure of the quantum proceedings cannot disturb the legal basis so held by the Coordinate Bench and the Hon‟ble Courts that the amount cannot legally be brought to tax in its hands and has to be brought to tax in the hands of the common shareholders. Interestingly, the AO of the common shareholder seeks to rely on the very same decision rendered by the Hon‟ble Supreme Court in case of Madhur Housing has reopened the case of the common shareholder and has brought the same amount to tax as deemed dividend in the hands of the shareholder. 20. We therefore find merit in the contention advanced by the Ld.AR that where the Courts have held the amount as not taxable in the hands of the assessee, there is legally and justifiably no basis for levy of penalty u/s 271(1)(c) of the Act. 21. Further, on the issue of disallowance u/s 40A(3), we find that mere fact that the amount has been disallowed cannot lead to levy of penalty as the AO has again failed to satisfy how the assessee has furnished inaccurate particulars of income. Printed from counselvise.com 12 ITA No. 3533/Mum/2025 22. In light of aforesaid discussion and in the entirety of facts and circumstances of the case, the penalty so levied u/s 271(1)(c) amounting to Rs. 18,89,032/- is hereby directed to be deleted. 23. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 26-09-2025. Sd/- Sd/- (RAHUL CHAUDHARY] [VIKRAM SINGH YADAV] JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated: 26-09-2025 TNMM Copy to : 1) The Appellant 2) The Respondent 3) The CIT concerned 4) The D.R, ITAT, Mumbai 5) Guard file By Order Dy./Asst. Registrar I.T.A.T, Mumbai Printed from counselvise.com "