ITAT Mumbai rules in favor of appellant, deletes deemed dividend under Income Tax Act

The ITAT Mumbai partially allowed the appeal, deleting the addition of deemed dividend of Rs. 28,74,875 under section 2(22)(e) of the Income Tax Act, 1961. The appellant successfully argued that since it was not a shareholder in Tainwala Holdings Pvt. Ltd., the amount received from them could not be taxed as deemed dividend in its hands, citing the judgment of the Hon'ble Bombay High Court. The Revenue did not contest this, resulting in the deletion of the said amount from the appellant's tax liability.

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Issues:
1. Addition of deemed dividend under section 2(22)(e) of the Income Tax Act, 1961.
2. Interpretation of the judgment of Hon'ble Bombay High Court in the case of CIT vs. Universal Medicare Pvt. Ltd.

Analysis:
1. The appellant company challenged the addition of deemed dividend totaling Rs. 37,80,390 under section 2(22)(e) of the Income Tax Act, 1961. This amount consisted of two components: Rs. 9,05,515 received from Tainwala Trading & Investment Company Ltd. and Rs. 28,74,875 from Tainwala Holdings Pvt. Ltd. The appellant chose not to press the first component, leading to its dismissal. However, regarding the second component, the appellant argued that it should not be considered as deemed dividend based on the judgment of the Hon'ble Bombay High Court in CIT vs. Universal Medicare Pvt. Ltd., 324 ITR 263 (Bom). The appellant contended that since it was not a shareholder in Tainwala Holdings Pvt. Ltd., the amount received from them could not be taxed as deemed dividend in its hands. The Revenue did not dispute this contention, leading to the deletion of the addition of Rs. 28,74,875 by the ITAT Mumbai. Consequently, the appellant partially succeeded in its appeal against the addition of deemed dividend.

2. The key issue in this case was the interpretation of the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Universal Medicare Pvt. Ltd. The appellant relied on this judgment to argue that the amount received from Tainwala Holdings Pvt. Ltd. should not be treated as deemed dividend since the appellant was not a shareholder in that company. The ITAT Mumbai accepted this argument and directed the Assessing Officer to delete the addition of Rs. 28,74,875 made in the hands of the appellant. This decision was based on the principle that a dividend cannot be taxed in the hands of an entity that is not a shareholder in the company distributing the dividend. The ITAT Mumbai's ruling was in line with the interpretation of the judgment provided by the appellant, resulting in the partial success of the appeal.

In conclusion, the ITAT Mumbai partially allowed the appeal of the appellant, deleting the addition of deemed dividend of Rs. 28,74,875 based on the interpretation of the judgment of the Hon'ble Bombay High Court.

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