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Category: Direct Taxes

Sanction For Reassessment – Retrospective Applicability Of Proviso To Section 151

The authors examine whether the 2023 amendment to Section 151, aligning sanctioning authorities with Section 149’s extended time limits, applies retrospectively. For reassessment notices issued beyond three years between 2021 and 2023, the Ahmedabad Tribunal deemed the proviso clarificatory, validating sanctions by the Principal Commissioner. Conversely, the Mumbai Tribunal and Bombay High Court ruled the amendment prospective, finding such sanctions invalid without Principal Chief Commissioner approval. They emphasize that Section 149(2) subordinates limitation periods to Section 151’s mandates. Although the Finance Act 2023 resolved this for subsequent notices, earlier cases remain contested.

ISSUE FOR CONSIDERATION

The time limit for issue of notices for reassessment under section 148 are contained in section 149(1) of the Income Tax Act, 1961 (“the Act”). This time limit (as it stood on 1st April 2022) was 3 years from the end of the relevant assessment year, unless an asset, expenditure in respect of a transaction, event or occasion or entry in books of account, of a value of more than Rs.50 lakh, had escaped assessment, in which case the time limit was 10 years from the end of the relevant assessment year.

This time limit stood extended by the third and fourth provisos to section 149(1) (applicable from 1st April 2021 till 1st September 2024), which read as under:

“…Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded:

Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly…”

Section 151 of the Act stipulates the authority who is required to grant sanction for issue of notice under section 148. From 1st April 2021 till 31st March 2023, section 151 read as under:

“Specified authority for the purposes of section 148 and section 148A shall be,—

(i) Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than three years have elapsed from the end of the relevant assessment year;

(ii) Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year:”

This section 151 was amended with effect from 1st April 2023, by insertion of a proviso to this section, which read as under:

“Provided that the period of three years for the purposes of Clause (i) shall be computed after taking into account, the period of limitation as excluded by the third, fourth and fifth provisos or extended by the sixth proviso to sub section (1) of Section 149 of the Act.”

An issue has arisen before the Tribunal as to whether the insertion of the above proviso to section 151 with effect from 1st April 2023 is clarificatory in nature and therefore retrospective in operation. In particular, for the period from 1st April 2021 to 31st March 2023, where a notice was issued under section 148 on any date subsequent to the expiry of the relevant time limit of 3 years for issue of such notice (i.e. beyond the period of 3 years), by applying the third or fourth proviso to section 149(1), which was the relevant authority for grant of sanction for issue of notice – the Principal Commissioner of Income Tax (“Pr CIT”) or Principal Chief Commissioner of Income Tax (“Pr CCIT”)? In other words, could there be different time limits for issue of notice and for sanctioning of such a notice? Once the time limit for issue of notice is extended, will it also be extended to the power of the Pr. CIT to sanction such a notice, which otherwise was required to be sanctioned by Pr. CCIT only?

The reassessment Authority Rift

While the Ahmedabad bench of the Tribunal has taken a view that the insertion of the above proviso, extending the date for sanction of issue of notice, is clarificatory in nature and therefore applies retrospectively, and that the sanction by the Pr. CIT in such a case was valid, the Mumbai bench of the Tribunal has held that the proviso operated prospectively, and therefore sanction by the Pr. CIT was invalid in such a case. In other words, the issue is about the authority who should have sanctioned the notice within the extended time; the Pr. CIT or the Pr. CCIT. The amendment by the Finance Act, 2023 seeks to settle this conflict for notices issued and sanctioned on or after 1st April, 2023.

PINKIBEN RIDDHESHKUMAR BHANDARI’S CASE

The issue recently came up before the Ahmedabad Bench of the Tribunal in the case of DCIT vs Pinkiben Riddheshkumar Bhandari, TS-954-ITAT-2026 (AHD).

This was a case pertaining to AY 2018-19, where a notice under section 148A, asking the assessee to show cause as to why proceedings under section 148 should not be initiated, was issued on 11th March 2022, to which the assessee filed a reply on 19th March 2022. A notice under section 148 was subsequently issued on 7th April 2022, after obtaining the approval of the Pr. CIT, alleging that income of Rs.44.19 lakh had escaped assessment.

The reassessment proceedings were completed by making the addition of Rs.44.19 lakh on account of bogus long-term capital gains, based on information obtained from the Insight Portal.
In first appeal, the Commissioner (Appeals) deleted the addition made by the AO both on legal grounds as well as on merits. The Commissioner (Appeals) noted that the income alleged to have escaped assessment was less than Rs.50 lakhs. He observed that as per the provisions of section 149 as in force during the relevant period, no notice under section 148 could have been issued for the relevant assessment year if three years had elapsed from the end of the relevant assessment year, unless the case fell under clause (b). As the case of the assessee was clearly covered under section 149(1)(a), the three years’ time period from the end of the relevant year expired on 31 March 2022. Since the notice was issued on 7 April 2022, the same was held to be time barred by the Commissioner (Appeals).

The Commissioner (Appeals) also noted that no notice under section 148 could be issued without the prior approval of the specified authority. As per the provisions of section 151 as in force during the relevant period, the specified authority for the purpose of section 148 and section 148A was the Pr. CIT if three years or less than three years had elapsed from the end of the relevant assessment year. In other cases, it was the Pr. CCIT where more than three years had elapsed from the end of the relevant assessment year.

The Commissioner (Appeals) observed that the relevant assessment year in this case was AY 2018-19, and the three-year time period had elapsed on 31 March 2022, and also that the notice under section 148 was issued on 7 April 2022 after obtaining the prior approval of the Pr. CIT. Since, as per the provisions of section 151(ii), the competent authority to give approval after the lapse of three years from the end of the relevant assessment year was the Pr. CCIT, therefore the notice issued under section 148 was liable to be quashed.

In further appeal, the Tribunal examined the third and fourth provisos to section 149(1) as they then stood for the relevant period. It observed that these provisos had escaped the attention of the Commissioner (Appeals). The notice under section 148A(b) was issued by the AO on 11 March 2022, and the reply to that was filed by the assessee on 19 March 2022. As per the third proviso to section 149(1), the limitation period stopped running on 11 March 2022 and restarted on 19 March 2022. Further, as per the fourth proviso, if, after exclusion of the time period allowed to the assessee for filing reply to the notice under section 148A(b), the period of limitation available to the AO for passing order under section 148A(d) was less than seven days, the remaining period was extended to seven days. The Tribunal accordingly held that after excluding the time period of eight days from the date of issue of notice under section 148A(b) till the date of filing of reply by the assessee to this notice, the order under section 148A(d) was passed in time and the notice under section 148 had been issued well within the limitation period.

The Tribunal held that, for the purposes of section 151, the limitation period as provided under section 149, including the extended period under the third and fourth provisos for calculating the time period of three years, would also apply. Therefore, in the view of the tribunal, the three years from the end of the relevant year had to be counted as per the provisions of section 149 for obtaining approval of the specified authority.

The Tribunal observed that it would be an implausible, far-fetched and unconvincing interpretation of the relevant provisions of Sections 149 read with Section 151, to interpret that the three years’ limitation period for issuing of notice u/s 148 as prescribed u/s 149 and that for obtaining approval of the specified authority u/s 151, were different. Both the provisions of Sections 149 and 151, as held by the Tribunal, were required to be read in consonance and in harmony with each other as they operated collectively and not in isolation to each other. Therefore, the three-year period from the relevant assessment year for issuing notice under section 148 and for obtaining section under section 151 had to be counted after excluding the extended period as provided under the third and fourth provisos to section 149.

The Tribunal further noted that this anomaly stood removed by the insertion of the proviso to section 151 by the Finance Act, 2023 with effect from 1 April 2023, which read as under:

“… Provided that the period of three years for the purposes of clause (1) shall be computed after taking into account the period of limitation as excluded by the third or fourth or fifth provisos or extended by the sixth proviso to sub-section (1) of section 149.”

The Tribunal was of the view that this proviso was clarificatory in nature, and supported the view taken by it. Merely because this proviso had been inserted with effect from 1 April 2023, in the view of the tribunal, that would not lead to any conclusion that, before such insertion, the provisions of section 151 were to be read on a standalone basis and in isolation from the provisions of section 149. As per the view taken by the tribunal, even before the insertion of the proviso to section 151, the provisions of sections 149 and 151 had to be read together to arrive at a harmonious view. Hence the period of three years could not be different for the purpose of computing limitation for the issuance of notice under section 148 and for obtaining approval of the specified authority under section 151.

The Tribunal therefore decided this issue against the assessee and in favour of the revenue, holding that the sanction by the Pr. CIT (instead of the Pr. CCIT), during the extended period, was valid.

SHABBIR TAHERI’S CASE

The issue had come up earlier before the Mumbai bench of the tribunal in the case of Shabbir Taheri v ITO, ITA No 1574/Mum/2025, adjudicated by the order dated 15 October 2025.

In this case, the AO had issued show cause notice under section 148A(b) on 20 March 2022. In response to this notice, the assessee furnished his reply on 30 March 2022. After considering the reply of the assessee, the AO passed an order under section 148A(d) on 6 April 2022. Simultaneously, the AO issued notice under section 148 on 6 April 2022, proposing to reassess the income for AY 2018-2019, after obtaining the prior approval of the Pr. CIT on the same day.

The issue of sanction by the Pr. CIT was contested in appeal by the assessee but the appeal was dismissed by the Commissioner (Appeals).

Before the Tribunal, it was argued on behalf of the assessee, that after the expiry of three years from the end of the assessment year under dispute, as per section 151(ii), the specified authority who could grant sanction/approval under section 148A and 148 was only the Pr. CCIT. Since the approval/sanction in the case had been obtained from the Pr. CIT, it was invalid. Hence, all actions taken by the AO pursuant to such approval were also invalid.

On behalf of the revenue, reliance was placed upon a decision of the Mumbai bench of the tribunal in the case of Albert Joseph Rosario v ITO, ITA No 1168/Mum/2025, order dated 22nd July 2025. In this case, a view had been taken that the limitation prescribed under section 149(1) for issuance of notice under section 148 would authorise the Pr. CIT to grant sanction for issue of notice as provided under section 151. As per the reasoning of the bench in that decision, applying the provisions contained in third and fourth proviso to section 149(1) as it then stood, the three year period in terms with section 151(i) was to be determined after excluding the time allowed to the assessee as per show cause notice issued under section 148(b); and further additional time of seven days thereafter to the AO to issue the notice under section 148. The Tribunal chose not to follow the ratio of this decision in view of the other decisions referred to by it in the order.

In adjudicating the appeal in the case under consideration, i.e. Shabbir Taheri’s case, the bench, including the Vice-President of the Tribunal, analyzed the provisions relating to reassessment prior to 1 April 2021, and those as amended by the Finance Act, 2021 with effect from 1 April 2021. The Tribunal noted that section 149(2) provided that the limitation prescribed under section 149(1) for issuance of notice shall be subject to the provisions of Section 151. As per the Tribunal, the use of the word ‘shall’ in section 149(2) made it clear that the limitation prescribed u/s. 149 for issuance of notice u/s. 148 was subject to the timeline prescribed u/s. 151. In other words, the limitation prescribed u/s. 149(1) would not override the timeline prescribed for grant of approval by the specified authority u/s. 151.

The Tribunal noted that the specified authority for grant of sanction before expiry of 3 years from the end of the assessment year was the Pr. CIT, while if more than three years had elapsed, the specified authority was the Pr. CCIT. It found it noteworthy that while the third and fourth provisos were added to section 149(1) effective from 1st April 2021, no corresponding amendment was made to section 151. The proviso to section 151 was added only by the Finance Act, 2023 effective from 1st April 2023. Therefore, as per section 151, as it stood prior to the 2023 amendment, the limitation prescribed under clause (i) of section 151 was three years from the end of the relevant assessment year, without the benefit of further extension as under third, fourth or fifth proviso to section 149(1).

Therefore, according to the Tribunal, keeping in view the provision contained under sub section (2) of section 149 (which made the limitation provided u/s. 149(1) subject to the timeline provided u/s. 151) the limitation provided u/s. 149(1) (including the provisos), could not get imported for the purpose of extending the limitation u/s. 151(i), prior to the amendment of section 151 by Finance Act, 2023. That being the case, the timeline for sanction by specified authority fixed u/s. 151 of the Act had to be scrupulously followed.

The Tribunal relied upon the following decisions of the Bombay High Court, where it had been held that the sanctioning authority for notices issued after expiry of three years was the Pr. CCIT and that the proviso to section 151 would not be applicable in such cases:

Vodafone India Limited, WP No 2678 of 2022

Mystique Media Pvt Ltd v ITO, WP(L) No 12562 of 2024

Punrima Jitendra Navsariwala v ITO, WP No 7 of 2024

Agnello Oswin Dias v ACIT 161 taxmann.com 16 (Bom)

The Tribunal also noted that the Mumbai bench of the Tribunal, after considering the Bombay High Court decision in the case of Vodafone India, had considered the identical issue in the following cases, and decided the matter in favour of the assessee:

Davos International Fund v ACIT, ITA No 1190/Mum/2024

Asha P Kedia 174 taxmann.com 99 (Mum)

The Tribunal also observed that sections 149 and 151 had been enacted for different purposes and operated in different situations. While section 149 prescribed limitation for issuance of notice u/s. 148 and 148A, section 151 prescribed the timeline for the specified authority to grant sanction for sections 148 and 148A. It reiterated that in absence of any enabling provision u/s. 151, the third, fourth, fifth or sixth provisos of section 149(1) could not be read into section 151 to authorise the Pr. CIT to grant sanction for issue of notice under section 148 during the extended time limit u/s. 151(i).

The Tribunal therefore set aside the notice under section 148 for want of sanction from the appropriate authority, and therefore quashed the resultant reassessment order.

OBSERVATIONS

At the outset it is relevant to note that the Tribunal, in holding that the sanction by the Pr. CIT for issue of notice u/s 148 in extended time, was valid in cases of both Pinkiben Riddeshkumar Bhandari (supra) as well as Albert Joseph Rosario (supra), the Bombay High Court decisions on the subject, as well as the earlier decision of Mumbai bench of the Tribunal in Davos International Fund’s case (supra), had not been cited nor considered by the Tribunal.

In Vodafone India’s case (supra), the Bombay High Court held as under:

“3. The impugned order and the impugned notice both dated 7% April 2022 state that the Authority that has accorded the sanction is the PCIT, Mumbai 5. The matter pertains to Assessment Year (“AY”) 2018-19 and since the impugned order as well as the notice are issued on 7th April 2022, both have been issued beyond a period of three years. Therefore, the sanctioning authority has to be the PCCIT as provided under Section 151 (ii) of the Act. The proviso to Section 151 has been inserted only with effect from 1 April 2023 and, therefore, shall not be applicable to the matter at hand.

4. In this circumstances, as held by this Court in Siemens Financial Services Private Limited Vs. Deputy Commissioner of Income Tax & Ors.,’ the sanction is invalid and consequently, the impugned order and impugned notice both dated 7th April 2022 under section 148A(d) and 148 of the Act are hereby quashed and set aside.”

In Mystique Media’s case (supra), the Bombay High Court’s order reads as under:

“4. The impugned order and the impugned notice both dated 5th April 2022 state that the Authority that has accorded the sanction is the PCIT, Mumbai. The matter pertains to Assessment Year (“AY”) 2018-2019 and since the impugned order as well as the notice are issued on 5th April 2022, both have been issued beyond a period of three years. Therefore, the sanctioning authority has to be the PCCIT as provided under Section 151(ii) of the Act. The proviso to Section 151 of the Act has been inserted only with effect from 1 April 2023 and, therefore, shall not be applicable to the matter at hand.

5. In the circumstances, as held by this Court in Siemens Financial Services Private Limited Vs. Deputy Commissioner of Income Tax & Ors, the sanction is invalid and consequently, the impugned order and impugned notice both dated 5 April 2022 under Sections 148A(d) and 148 of the Act are hereby quashed and set aside.”

In Purnima Navsariwala’s case (supra), the conclusion of the Bombay High Court is as under:

“4…..The matter pertains to Assessment Year (“AY”) 2018-2019. Since the impugned order as well as the notice are both issued on 7th April 2022, both have been issued beyond a period of three years, therefore, the sanctioning authority has to be the PCCIT as provided under Section 151(iii) of the Act. The proviso to Section 151 of the Act has been inserted only with effect from 1 April 2023 and, therefore, shall not be applicable to the matter at hand.

5. In these circumstances, Mr. Shah submits that as held by this Court in Siemens Financial Services Private Limited v. Deputy Commissioner of Income Tax & Ors, the sanction is invalid. Mr. Rattesar agrees. Consequently, the impugned order passed under Sections 148A(d) of the Act and impugned notice issued under Section 148 of the Act, both dated 7″ April 2022, are hereby quashed and set aside.”

A similar view has been taken by the Bombay High Court in Alag Property Construction Pvt. Ltd. v. ACIT(2025) 179 taxmann.com 578 (Bom) and in Skypak Travels (P.) Ltd. vs. Income-tax Officer [2026] 185 taxmann.com 963 (Bombay). The Court held that where the period of three years from the end of the relevant assessment year has expired, sanction under section 151(i) could not have been accorded by the Principal Commissioner, and such sanction renders the reassessment proceedings void ab initio.

In Davos International Fund’s case (supra), the Tribunal, after considering the ratio of the Bombay High Court decision in the case of Vodafone India (supra), observed as under:

“8….In the decision of the Vodafone Idea (supra), the Hon’ble High Court has given a specific finding that the proviso to section 151 extending the time limit as per the third, fourth or fifth proviso to section 149 is not applicable for AY 2018-19 as the same is inserted only w.e.f. 01.04.2023. When we apply the said ratio to assessee’s case, in our considered view, the claim of the revenue that the period of 3 years expires only on 09.04.2022 is not correct and that revenue cannot take shelter under the proviso to section 151 which came into effect only from 01.04.2023. Accordingly, the notice issued on 04.04.2022 by the AO is issued beyond three years and therefore the approval should have been obtained by the authorities as specified under section 151(ii) Principal Chief Commissioner. As already stated the approval in assessee’s case is obtained from CIT(IT) and therefore we are inclined to agree with the contention of the assessee that the notice under section 148 has been issued without obtaining the approval from the correct authority as specified under section 151. Respectfully following the above decisions of the Hon’ble Bombay High Court we hold that the notice issued by the AO under section 148 without obtaining approval from correct appropriate authority is invalid and the assessment done under section 147 r.w.s. 144(13) of the Act is liable to be quashed.”

A similar view has been taken by the Mumbai bench of the Tribunal, following the decision in the case of Shabbir Taheri (supra), in the cases of Sanjay Shantilal Dave v Asst Unit 186 taxmann.com 138 (Mum), and Shailesh Asalaraj Jain v Pr CIT, 184 taxmann.com 745 (Mum).

Judicial propriety would have required both benches of the Tribunal to follow the ratio of these decisions. Had these decisions been considered, the view taken by the Tribunal in the cases of Pinkiben Riddeshkumar Bhandari (supra) as well as Albert Joseph Rosario (supra) would have been different.

Further, both these decisions did not consider the impact of section 149(2), as considered by the Tribunal in Shabbir Taheri’s case (supra), which states that the limitation prescribed under section 149(1) shall be subject to the provisions of section 151, and that therefore the provisions of section 151 would override that of section 149(1).

Therefore, the view taken by the Mumbai bench of the Tribunal in Shabbir Taheri’s case (supra), is evidently the better view of the matter, that the extension of time limit under the third and fourth provisos to section 149(1) does not apply to section 151 so as to authorise the Pr. CIT to grant sanction for issue of notice under section 148 during the period extended by third and fourth provisos to section 149. Of course, this controversy no longer survives for notices issued on or after 1st April 2023 by the Finance Act 2023, given the insertion of the proviso to section 151 from that date. After the amendment, the issue of notice u/s 148 on or after 1st April, 2023 during the extended period on sanction by the Pr. CIT is valid in law.

Sanand Properties P. Ltd. vs. JCIT: Reopening assessment based on fresh information uncovering the true nature of transactions is valid and not a change of opinion.

6. Sanand Properties P. Ltd. Vs. JCIT – (2026) 488 ITR 337 –SC

Reopening of assessment – Mere disclosure at the time of original assessment does not preclude the Assessing Officer from reopening the assessment where fresh information emerges which prima facie indicates that certain income has escaped assessment.

Reason to believe – It is immaterial whether the Assessing Officer, at the time of making the original assessment, could or could not have found, through further enquiry or investigation, whether the transaction was genuine or not, if, on the basis of subsequent information, the Assessing Officer has reasons to believe that income chargeable to tax has escaped assessment.

To constitute a “change of opinion”, there must first be a conscious application of mind and formation of an opinion during the original assessment proceedings.

The validity of a reopening must be tested solely on the basis of the reasons recorded at the time of issuing the notice under Section 148.

SPPL, a private limited company, had entered into an agreement dated 29.04.2003 with M/s. Raviraj Kothari & Co. (hereinafter referred to as “RKC”) to constitute an Association of Persons (“AOP”) titled Fortaleza Developers for the purpose of developing a parcel of land into residential housing projects.

SPPL had duly filed its returns of income for AYs 2007-08 and 2008-09 within the prescribed statutory time. Both returns were selected for scrutiny assessment under Section 143(3) of the Income Tax Act, 1961, and the respective assessment orders were passed on 21.12.2009 and 20.07.2010 respectively.

However, on 11.01.2011, the Revenue issued two notices under Section 148 of the Income Tax Act, 1961, for reopening the assessments for AYs 2007-08 and 2008-09 on the ground that the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment within the meaning of Section 147 of the IT Act. Although the reasons recorded for reopening the assessments for AYs 2007-08 and 2008-09 were recorded separately, they were nearly identical except for the numerical figures pertaining to the respective assessment years.

The reasons recorded stated that a Survey under Section 133A of the IT Act had been conducted at the business premises of SPPL on 23.12.2010, during which the books of account and six documents were seized and impounded. These documents included the original copy of the AOP Agreement dated 29.04.2003 and a copy of the audited financial statements of M/s Fortaleza Developers for FY 2007-08.

Moreover, the statement of one Shri Ashok V. Suratwala, Director of SPPL, was also recorded on oath under Section 131 of the IT Act. According to the ‘reasons recorded’ under Section 148 of the IT Act, all these materials indicated that the income received by SPPL from the AOP was not a share of its profits but a share of its revenue, as it was consideration received against the development rights over the land sold/surrendered by SPPL in favour of the AOP. The AOP had shown such amount paid to SPPL as part of its profits in order to claim a deduction under Section 80IB(10) of the IT Act. SPPL had claimed in its return of income that, since tax on the income of the AOP was payable by the AOP itself under Section 167B(2) of the IT Act, no tax was liable to be paid by SPPL in respect of its share of profit from the AOP. However, in the ‘reasons recorded’, the Assessing Officer concluded that the income received by SPPL from the AOP, being a 35% share of the gross sale receipts and not its share of profits, was not exempt income but was taxable in the hands of SPPL. Since such income had escaped assessment, the Revenue was justified in reopening the assessment under Section 148 of the IT Act.

In response, SPPL, vide letter dated 19.03.2011, filed its objections to the reopening of the assessment, contending that four out of the six documents impounded during the survey under Section 133A, on the basis of which the assessments were sought to be reopened, were already part of the record of the Assessing Officer while finalizing the assessments for AYs 2007-08 and 2008-09. However, the objections submitted by SPPL were dismissed by the Assessing Officer vide a speaking order dated 14.07.2011, holding that the reopening of the assessments for AYs 2007-08 and 2008-09 had been validly initiated.

Aggrieved by the Order dated 14.07.2011, the SPPL challenged the reopening of the assessments by filing Writ Petition (C) No. 1647 of 2011 and Writ Petition (C) No. 1648 of 2011 before the Bombay High Court for AYs 2007-08 and AY 2008-09, respectively.

While the High Court set aside the notice reopening the assessment for AY 2007-08 as invalid, it upheld the notice reopening the assessment for AY 2008-09 as valid.

With respect to AY 2007-08, the High Court, while referring to the Supreme Court’s decision in Commissioner of Income Tax, Delhi v. Kelvinator of India Limited [(2010) 320 ITR 561], observed that although the power of the Assessing Officer to reopen assessment under Section 148 is much wider than the position that existed prior to the amendment brought about by the Direct Tax Laws (Amendment) Act, 1987, the power to reopen an assessment is nevertheless conditional upon the existence of a reason to believe that income has escaped assessment. Post the Direct Tax Laws (Amendment) Act, 1989, the Assessing Officer has no power to review his assessment, nor can an assessment be reopened merely on the basis of a change of opinion. For the Assessing Officer to validly reopen an assessment in law, there must be tangible material on the basis of which he arrives at the conclusion that income has escaped assessment.

The High Court then went on to observe that the material on record indicates that the return of income by SPPL contained a disclosure of the profits received by it from the AOP, which SPPL claimed to be exempt in light of Section 167B(2) of the IT Act. The High Court placed reliance on the note appended to the return of income, as well as the profit and loss account and ledger extract of SPPL’s capital account with the AOP, which disclosed the share of profits received from the AOP.

More particularly, the High Court focused on two aspects of the assessment order passed under Section 143(3) dated 21.12.2009. First, paragraph 4 of the assessment order stated that SPPL had earned an income of INR 3.49 Crore in the form of profits from the AOP. Secondly, the Assessment Order contained a statement reflecting the Assessing Officer’s awareness that the gross sale proceeds were to be shared between SPPL and its collaborator in the ratio of 35% and 65% respectively. Although the High Court clearly observed that the assessment order referred to the 35:65 ratio of sharing the gross sale proceeds in relation to the Joint Venture Agreement dated 26.08.2002 between SPPL and M/s Raviraj Kothari and Associates (hereinafter referred to as “RKA”), and not to the AOP Agreement dated 29.04.2003, it nevertheless held that these statements, significantly demonstrated that the Assessing Officer was aware that (i) SPPL had returned an income of INR. 3.49 Crore as its share of profits from the AOP; and (ii) under the terms of the agreement, SPPL was entitled to a 35% share of the gross sale proceeds.

The High Court further noted that the order dated 14.07.2011, passed by the Assessing Order rejecting the objections filed by SPPL, did not dispute the factual position that, except for the two documents (namely, an internal audit note and a standard sale agreement, both of which, according to the High Court, did not carry the matter further), the material had in fact been submitted during the course of the assessment proceedings.

The High Court further observed that since the AOP had been duly assessed and had been subjected to an assessment order in which neither the existence nor the validity of the AOP was not questioned, SPPL was not liable to pay income tax with respect of its share of the income of the AOP in view of Section 86 read with Section 67A and Section 167B of the IT Act.

In the aforesaid view of the matter, the High Court held that the Assessing Officer had purported to reopen the assessment for AY 2007-08 in the absence of any valid tangible material and that the reopening amounted to nothing more than a mere change of opinion. Accordingly, the High Court quashed the notice dated 11.01.2011 issued under Section 148 for reopening the assessment for AY 2007-08.

Aggrieved by the said judgment, the Revenue filed Civil Appeal No. 744 of 2013 before the Supreme Court.
Thereafter, when the writ petition challenging the reopening of assessment for AY 2008-09 came up for hearing before the High Court, SPPL argued that since the grounds for reopening the assessment were substantially similar to those for AY 2007-08, and there were no material differences in the factual matrix between the two assessment years, the notice for reassessment for AY 2008-09 should likewise be set aside.

However, with respect to the reopening of assessment for the AY 2008-09, the High Court reached a conclusion different from that in respect of AY 2007-08. This time, the High Court held that the notice issued under Section 148 seeking reopening of the assessment for AY 2008-09 was valid.

The High Court distinguished AY 2007-08 from AY 2008-09 on the basis of the assessment orders passed in the case of the AOP for the respective assessment years. It laid emphasis on the following three aspects in support of its decision concerning AY 2007-08: (i) the assessment order of the AOP for AY 2007-08 contained no discussion regarding the nature of the receipt accruing to SPPL, (ii) the High Court, in its order dated 23.09.2011 relating to AY 2007-08, had noted that neither the existence nor the validity of the AOP had been questioned; and (iii) the Revenue had not sought to reopen the assessment of the AOP for AY 2007-08.

In sharp contrast, the assessment order of the AOP for AY 2008-09 dated 29.12.2010, contained a detailed discussion of the nature of the AOP agreement and concluded that the AOP agreement was based on revenue sharing. Since these detailed observations regarding the nature of the AOP Agreement formed part of the assessment order of the AOP for AY 2008-09, the High Court held that the reopening of of SPPL’s assessment for AY 2008-09 was based on tangible material and, dismissed the writ petition.

Being aggrieved, SPPL filed Civil Appeal No. 9107 of 2012 before the Supreme Court.

In the aforesaid circumstances, both SPPL and the Revenue were before the Supreme Court by way of separate appeals.

According to the Supreme Court, the following questions fell for its consideration:

(i) Whether the reopening of the assessments of SPPL for AYs 2007-08 and 2008-09, respectively, was valid?
(ii) Whether the amount accrued to SPPL from the AOP, based on Clause 7 of the AOP Agreement dated 29.04.2003, was liable to be taxed in the hands of SPPL for AYs 2008-09 and 2009-10, respectively?

The Supreme Court noted that, in the present matter, the Revenue had sought to reopen assessments on the basis of the books of account and six documents impounded during the survey dated 23.12.2010 conducted at the premises of SPPL. Along with impounding the aforesaid documents, the statement of Shri Ashok V. Suratwala, Director of SPPL, was recorded on oath under Section 131 of the Act. The relevant portion of the reasons recorded under Section 148, (which was identical for both AYs 2007-08 and 2008-09) read as follows:

“The statement of Shri Ashok V. Suratwala, Director of Assessee Company was recorded on oath Under Section 131 of the Act.

5.The evidences indicate that the assessee has received a share at 35% from the gross receipts on sale of residential units in Fortaleza Complex. The audited financial statements of AOP M/s Fortaleza Developers show that assessee was given 35% of the gross receipts from sale of residential units in the said complex. It did not indicate that assessee has received its share out of the profits of AOP, M/s Fortaleza Developers. This finding was confronted to Shri Ashok V. Suratwala, Director of Assessee Company. In reply he has stated thus:

The development rights over the land belonged to us which are precious. Because of many other factors affecting the output of construction business, the returns that we should have received from those rights could not be exposed to the inherent risks of business. In pursuit of this and in order to safeguard the value of those rights we have devised a formula by which we are entitled to 35% of the gross receipts out of sales of flats in Fortaleza. Amount of the sales do not include other incidental charges charged to the customers like MSEB charges, maintenance charges, legal charges and administrative charges, etc.

5.1 Thus it is clear that assessee has received its share from the gross sale proceeds and not the share of profit. Further, the following facts came to notice.

  • The assessee does not have any employee on its muster.
  • It does not have any stake in the construction of the said Fortaleza Complex except the land it has given to the AOP against which it receives 35% of the sale proceeds of flats.
  • It has been stated that the assessee is the owner of the land and when the land is to be finally transferred to the society/community that will be formed after all the residential unit are sold, the assessee company will sign the conveyance as transferor and AOP as a confirming party.
  • The AOP, M/s Fortaleza Developers, has claimed deduction Under Section 80IB(10) of the Act on the profits and gains of business derived by it from sale of flats in Fortaleza Complex.

6. Thus, it is found that the assessee is not receiving the share of the profit from the AOP, but is receiving the consideration in the form of 35% share in proceeds of sale, against the development rights in a land surrendered by it to other member of AOP and finally to the purchaser of the flat / residential units.

7. In view of this, the income received by Assessee from AOP M/s Fortaleza Developers is not a share of profit, but consideration received against the development rights sold/surrendered. Hence the income of [Rs.3,49,18,587/- for AY 2007-08 & Rs.14,18,52,156 for AY 2008-09] is not an exempt income but taxable in the hands of assessee. Therefore, income of [Rs.3,49,18,587/- for AY 2007-08 & Rs.14,18,52,156 for AY 2008-09] chargeable to tax has escaped assessment within the meaning of sub-clause (iv) of clause (c) of Explanation 2 to Section 147 of the Act. In order to bring the income escaped assessment, assessment is reopened Under Section 148 of the Act. Issue notice Under Section 148 of the Act.”

Before the Supreme Court, learned Counsel for SPPL drew the Court’s attention to the following statement made by SPPL in its return of income for the relevant assessment years to demonstrate that the Assessing Officer was aware of the income accrued to SPPL from the AOP:

“1. The Assessee is a member in the Association of Persons doing business under the name and style of “Fortaleza Developers”. The tax on the income of AOP being payable in the case of the AOP itself. Under Section 167B(2) of the Act, no tax is payable by the Assessee in respect of its share of income from the AOP.

2. For computation of book profit Under Section 115JB of the Income-tax, 1961, share of profit from the AOP has been considered as a ‘non-income’ category as spelt out in Mumbai Tribunal decision in the case of Income-tax officer v. Suraj Jewellery India Ltd. As such this income is deducted from book profit to arrive at profit chargeable under that section.”

Upon a perusal of the material on record, the Supreme Court observed that a copy of the AOP Agreement had indeed submitted by SPPL to the Assessing Officer during the scrutiny assessments for both AYs 2007-08 and 2008-09 . SPPL had submitted a copy of the AOP Agreement, along with other documents, by its letter dated 06.11.2009, during the course of scrutiny assessment for that year. On another occasion, SPPL submitted a copy of the AOP Agreement with its letter attached 01.07.2010 during the course of the assessment proceedings for AY 2008-09.

However, according to the Supreme Court, the materials on record indicated that SPPL had not disclosed the primary fact that the income which it had declared as its share of the ‘profit’ of the AOP was, in fact, a 35% share of the gross sale receipts from the residential units sold by the AOP. When the information gathered form the impounded documents and the statement of SPPL’s director came to the knowledge of the Revenue, the true nature of the transaction between SPPL and the AOP came to light.

The Supreme Court was of the view that mere disclosure of the existence of the AOP and the quantum of income derived by SPPL from the AOP at the time of the original assessment does not preclude the Assessing Officer from reopening the assessment where fresh information emerges which prima facie indicates that certain income has escaped assessment. The statements made by SPPL regarding the AOP in its return of income or during the course of the original assessment did not amount to discharging its duty to provide the Assessing Officer with the primary facts relevant to determining the issue in dispute. A perusal of the materials on record indicate that SPPL had merely informed the Revenue that certain income had accrued to it as its share of the profits of the AOP. Even though a copy of the AOP Agreement had been submitted to the Assessing Officer, the specific provision in the agreement, namely Clause 7, which lay at the heart of the dispute, was not specifically brought to the Assessing Officer’s attention.

Upon a detailed reading of the assessment orders for AYs 2007-08 and the 2008-09, respectively, the Supreme Court found that the Revenue had accepted SPPL’s declaration regarding the income derived from the AOP at face value without examining the fundamental nature of the income . In other words, the Revenue had proceeded with the assessments without considering whether the income in question was, in fact, a share of the profits of the AOP. Although the assessment orders were not entirely silent on this income, the discussion therein pertained to entirely different issues.

In the assessment order dated 21.12.2009 passed in the case of SPPL for AY 2007–08, the income accrued to SPPL from the AOP was mentioned only briefly in paragraph No. 4. The relevant extract from paragraph 4 of the assessment order for AY 2007-08 is as follows:

“4. As per the agreement the assessee company received 333.56 lacs, i.e. 35% of the sales proceeds from Raviraj Kothari & Associates. Assessee has also earned Income of Rs.349.19 lacs in the form of share of profit from AOP i.e. M/s. Fortaleza Developers.”

The Supreme Court observed that the ‘agreement’ referred to in the above-mentioned paragraph no. 4 was the Joint Venture Agreement dated 26.08.2002 (hereinafter referred to as “the JV Agreement”), between SPPL and RKA, and not the AOP Agreement dated 29.04.2003 between SPPL and RKC . While the assessment order examined the JV Agreement in great detail, there was no discussion on the AOP Agreement beyond the lone sentence in the above-mentioned paragraph no. 4. This peripheral reference to the income derived from the AOP clearly demonstrated that the Assessing Officer had never formed an opinion on whether such income constituted a share of the AOP’s profit or its revenue. The High Court, however, erroneously conflated the references to the 35:65 gross receipt-sharing arrangement contained in Clause 11 of the JV Agreement with Clause 7 of the AOP Agreement. According to the Supreme Court, despite the superficial resemblance between these two clauses regarding the 35:65 ratio for sharing the sale proceeds between the respective parties, the Assessing Officer’s analysis of the JV Agreement could not be construed as an opinion on Clause 7 of the AOP Agreement or the nature of the income accrued from the AOP. To constitute a “change of opinion”, there must first be a conscious application of mind and the formation of an opinion during the original assessment proceedings.

According to the Supreme Court, in the present case, the Assessing Officer’s discussion in the assessment order for the AY 2007-08 was confined to the JV Agreement. There was perceptible lack of any inquiry or adjudication regarding the specific terms of the AOP Agreement, particularly the nature of the income under Clause 7. In the absence of such an initial inquiry, the plea of “change of opinion” was legally untenable. A change of opinion presupposes the existence of a previously formed opinion. Where no such opinion was formed in the first instance, the Revenue is not precluded from reopening the assessment upon the discovery of facts suggesting that income has escaped assessment. The Supreme Court thus concluded that, since the Revenue had not formed any opinion on the fundamental nature of the income accrued to SPPL from the AOP, namely whether it was a share of profit or revenue, the Revenue retained the authority to reassess the income upon coming across information which prima facie indicated that the income was taxable revenue and not tax-exempt profit.

Coming to the assessment order for AY 2008-09, the Supreme Court found that there was some discussion regarding the income accrued to SPPL from the AOP, but on an issue wholly different from the reasons for reopening assessment. The issue discussed pertained to whether the income, despite being a share of the profits of the AOP, would nevertheless be excluded from the net profit to arrive at its book profit under Section 115JB of the Act. The assessment order indicated that the assessment had proceeded on the assumption that the subject income was profit, without verifying whether that assumption was correct.

Thus, the Supreme Court found that, in the assessment orders for both AYs 2007-08 and 2008-09, the Assessing Officer had not formed any opinion on the fundamental nature of the income accrued to SPPL from the AOP. Hence, when ‘tangible material’ in the form of the impounded documents and the Director’s statement shed light on the manner in which SPPL received its income from the AOP, it gave rise to ‘reasons to believe’ that income chargeable to tax has escaped assessment. The Supreme Court noted that, in Phool Chand Bajrang Lal and Ors. v. Income Tax Officer and Ors. [ (1993) 4 SCC 77], it had observed that it would be immaterial whether the Income Tax Officer, at the time of making the original assessment, could or could not have found through further enquiry or investigation whether the transaction was genuine, if, on the basis of subsequent information, the Income Tax Officer had reasons to believe that income chargeable to tax had escaped assessment. The Income Tax Officer may inititate reassessment proceedings either because fresh facts come to light which were not previously disclosed or because information regarding previously disclosed facts subsequently comes into his possession and tends to expose the untruthfulness of those facts. In such circumstances, it is not a case of mere change of opinion or of the drawing a different inference from the same facts as previously available, but of acting upon fresh information. Applying the principle laid down in Phool Chand (supra), the Supreme Court held that, when fresh information was obtained during the survey conducted on 23.12.2010 which prima facie led the Assessing Officer to believe that the true nature of the income was revenue and not profit, and that such income had escaped assessment, the reopening could not be discarded as being based merely on change of opinion.

The Supreme Court, therefore, held that the notices reopening SPPL’s assessments for AYs 2007-08 and 2008-09 were issued on the basis of fresh information and not merely on a change of opinion, and were therefore held valid.

However, the Supreme Court clarified that the validity of the reopening of the assessment would not no bearing on the merits of the reassessment orders that may ultimately be passed upon completion of the reopening proceedings.

While the Supreme Court upheld the ultimate conclusion reached by the High Court regarding the validity of the reopening of assessment for the AY 2008-09, it found the reasoning adopted by the High Court to be flawed. According to the Supreme Court, in determining the validity of the reassessment proceedings, the High Court had erroneously travelled beyond the reasons recorded under Section 148 by relying upon the assessment order of the AOP for AYs 2007-08 and the AY 2008-09. According to the Supreme Court, such an approach defeated the principles of natural justice as well as the statutory object underlying the requirement to record reasons and was impermissible in law. In doing so, the High Court overlooked the fact that the reasons recorded under Section 148 serve the important purpose of informing the assessee of the grounds on which the assessment is sought to be reopened, thereby enabling the assessee to file meaningful objections.

The Supreme Court observed that it is a settled law that the validity of a reopening must be tested solely on the basis of the reasons recorded at the time of issuing the notice under Section 148.

Notes: (1) In the above case, after the High Court delivered its judgments on the validity of Notices issued under Sec. 148 for AYs 2007-2008 and 2008-2009, the Revenue passed the reassessment order for AY 2008-2009 and the assessment order for AY 2009-2010. Both these orders were challenged by the assessee and the appeals eventually came up before the Supreme Court. The Supreme Court also dealt with these issues (with reference to the second question framed by it for consideration). However, those aspects are beyond the scope of this write-up, which is confined onlyto the validity of the notices issued under Sec. 148.

(2) The Judgement of the Supreme Court in Kelvinator of India Ltd. [320 ITR 561], referred to in the above case, was analyzed by us in the “Closements” column in the June 2010 issue of BCAJ.

Section 148 : Reassessment – service of notice – date of digital signature and date of issuance and receipt.

9. Shreenath Finstock Private Ltd. Vs. Union of India & Ors.

WP (C) NO. 3526 OF 2022, Dated: 06/07/2026, (Bom)(HC)

AY 2013-14.

Section 148 : Reassessment – service of notice – date of digital signature and date of issuance and receipt.

The short ground on which the Notice u/s. 148 and the Assessment Order are challenged was that though the impugned Notice under Section 148 is dated 31st March 2021 and digitally signed on 31st March 2021, it was received by the Petitioner only on 1st April 2021 via e-mail dated 1st April 2021 at 5:51 a.m. If this be the case, then the re-assessment proceedings cannot continue under the unamended provisions of Section 148 of the Act and the same would have to comply with the provisions which were brought into effect by the Finance Act of 2021, which came into effect from 1st April 2021.

The Petitioner, pointed out that the impugned Notice issued under Section 148 of the Act was issued to the Petitioner via email. It was clear from the snapshot of the email that the Notice was received by the Petitioner only on 1st April 2021 at 5:51 a.m. He thus submitted that the date of issuance of the Notice must be considered as 1st April 2021 and, consequently, the Department must comply with the procedure as introduced by the new provisions of the Act w.e.f. 1st April 2021. He submits that the ITBA Portal was entirely under the control of the Income Tax Department and any delay in triggering the issuance of the Notice in the system would be attributable to the Department. To fortify this proposition, he relies on these two judgments of the High Courts:

a) Daujee Abhushan Bhandar (P.) Ltd. vs. Union of India [2022] 136 taxmann.com 246 (Allahabad) and

b) Suman Jeet Agarwal vs. Income-tax Officer [2022] 143 taxmann.com 11 (Delhi).

The learned counsel for the Respondents, submitted that it was an admitted position that the impugned Notice is dated 31st March 2021 and also digitally signed on 31st March 2021. The Assessing Officer had uploaded the Notice on the ITBA Portal also on 31st March 2021. The digital signature, whenever affixed, bears the real time and in the present case it bears the time of 31st March 2021 at 1:32 p.m. The ITBA system, immediately after the digital signature, in a way, ousts the Assessing Officer, who cannot make any change in the document or stop the outward transmission. Having done so, it was beyond the control of the Assessing Officer once the Notice was uploaded on the ITBA Portal and the Notice was dispatched through the ITBA Portal and intimated to the Petitioner. He thus submitted that the Notice must be deemed to have been ‘issued’ the moment it left the hands of the Assessing Officer i.e. in this case, 31st March 2021 at 1:32 PM. He also submitted that the date of email should not be regarded as the date of issuance of Notice as sending an email is a measure adopted by the Assessing Officer merely out of abundant caution and the actual date of uploading the Notice on the ITBA Portal should be taken as the date to determine the date of issuance of Notice.

To narrow down the controversy and to seek clarification regarding the date on which the email dispatching the impugned Notice was triggered in the system of the Department, the court had passed order to enable the Revenue to bring on record as to when was the e-mail dispatching the Section 148 Notice was triggered in the system of the Income Tax Department.

Thereafter, on written instructions from the Assessing Officer i.e. Deputy Commissioner of Income-tax 3(2)(1), Mumbai, who is Respondent No. 2, it was submitted that as per the system delivery report, the ‘Notice Sent’ time stamp is reflected as 1st April 2021 at 05:51:42 a.m., while the ‘Delivered’ time stamp is reflected as 1st April 2021 at 05:51:47 a.m. Thus, there is no doubt that the email dispatching the impugned Notice itself was triggered on 1st April 2021 from the ITBA Portal and subsequently received by the Petitioner at 5:51 a.m. on 1st April 2021. In view of the above the impugned Notice would be deemed to have been issued on 1st April 2021.

In this context, reliance was placed on the observations of the Hon’ble Delhi High Court in Suman Jeet Agarwal (supra), wherein the Hon’ble Court had carved out different categories of impugned Notices based on the actual date mentioned in the Notice, date of digital signature and date of issuance and receipt. The Category – C in the aforesaid judgement reads as under:

“Category C: is in respect of writ petitions where Notice is dated 31st March, 2021 or before, digitally signed on or before 31st March, 2021, however sent and received on or after 1st April, 2021.”

The case of the Petitioner would fall in ‘Category C’ i.e. where Notices were dated 31st March 2021 or before, digitally signed on or before 31st March 2021, however sent and received on or after 1st April 2021. The Hon’ble Court, in respect of Notices falling under ‘Category C’, held as under:

“26.22 We answer question no. (III) against the Department and hold that the time taken by the ITBA’s e-mail software system in triggering the email and transmitting the said e-mails from the ITBA servers is attributable to the Department and therefore for the e-mails despatched on 1st April 2021 or thereafter, the Notices are held not to have been issued on 31st March 2021.”

A similar issue came up in the case of Jose Kattadyil Joseph vs. Assistant Commissioner of Income Tax 19(1), Mumbai & Ors. [Writ Petition No. 430 of 2023 (OS)] wherein we observed that the impugned Notice under Section 148 of the I.T. Act, though dated 31st March 2021, was deemed to be issued on 1st April 2021 (as it was digitally signed on 1st April 2021).

The Hon’ble Supreme Court in Union of India & Ors v/s Ashish Agarwal (444 ITR 1) observed that Notices issued under the unamended law after 1st April 2021 shall be deemed to have been issued under Section 148A of the I.T. Act as substituted by the Finance Act, 2021 and treated to be Show Cause Notices in terms of Section 148A(b) of the Act.

The Hon Court held that the impugned Assessment Order dated 30th March 2022, passed under Section 147 read with Section 144B, and any consequential notices / orders thereof were quashed and set aside. The impugned Notice under Section 148 of the Act issued to the Petitioner under the unamended Section 148 of the Act shall be deemed to be issued under Section 148A of the Act as substituted by the Finance Act, 2021 and treated to be a Show Cause Notice in terms of Section 148A(b).

The Assessing Officer shall, within thirty days from the date of uploading this order, provide to the Petitioner information and material relied upon by the Revenue, so that the Petitioner can reply to the Show Cause Notice within two weeks thereafter.

All defences which may be available to the Petitioner, including those available under Section 149 of the Act, and all rights and contentions which may be available to it and the Revenue under the Finance Act, 2021, and in law, shall continue to be available.

In the aforesaid terms the Writ Petition was disposed of.

Section 69A and 153A –Search action – Information – Foreign Asset – no incriminating material – Burden of proof – Addition not justified based on base note – contents of the Base Note incomplete.

8. Pr. Commissioner of Income Tax Central -4, Mumbai Vs. Arunkumar Ramniklal Mehta,

[ITXA. 118 OF 2020 with ITXA. 132 OF 2020, dated 01/07/2026 (Bom)(HC)] Assessment Year 2006-07.

Section 69A and 153A –Search action – Information – Foreign Asset – no incriminating material – Burden of proof – Addition not justified based on base note – contents of the Base Note incomplete.

Two Appeals have been filed against the same order, as one of them raises issues arising out of an Appeal filed by the Revenue before the Tribunal, whereas the other one is concerned with issues arising from the Appeal filed by the Assessee.

The Respondent-Assessee was a promoter and director in various entities forming part of the Rosy Blue Group. He filed his original Return of Income for Assessment Year 2006-07 on 31.07.2006 declaring a total income of Rs.18,16,910. Since his Return of Income was not selected for scrutiny, the intimation as issued under Section 143(1) of the Act had become final.

Information in the form of a Base Note was received by the Government of India from the French Government inter alia, suggesting that the Assessee was a beneficiary of a private discretionary Trust being the Oak Trust, which held certain shares in a company being White Cedar Investments Ltd. (formed and registered in British Virgin Islands). Further, he was also referred to as a beneficiary in respect of another company being Ruby Enterprises Inc. (again formed and registered in British Virgin Islands). Both the said companies [White Cedar Investments Ltd. and Ruby Enterprises Inc.] had bank accounts with the HSBC Bank in Geneva. The peak balance lying in the said bank account of White Cedar Investments Ltd. for the year under consideration stood at USD 44,861,171, while such peak balance lying in the bank account of Ruby Enterprises Inc. stood at USD 4,020.02.

Pursuant to receipt of the above information, on 25th and 26th August 2011, a search action was carried out on the entities in the Rosy Blue Group, including the Assessee. It is an admitted position that no assessment proceedings were pending in his case for this year at the time of search. Hence, the assessment proceedings did not abate in terms of the second proviso to Section 153A of the Act. Also, no incriminating material was found during the course of the search as relatable to this year.

During the course of search, Mr. Russell Mehta (being the Assessee’s son) clarified that his uncle Mr. Dilip Mehta (being the Assessee’s brother, and then a resident of Belgium) was acting as a legal representative of the Estate of Late Mr. Ramniklal R Mehta (being the Assessee’s father), and who would be aware of the said foreign bank accounts. Based thereon, the Investigation Wing of the Income-tax Department which had carried out the search action, sought information from Mr. Dilip Mehta, who responded by his letter dated 06.01.2012. His statement on oath was also recorded by them under Section 131 of the Act on 10.01.2012. In his statement, he explained that the Late Mr. Ramniklal Mehta owned certain natural pearls and some rubies which had been given by him to his close friend being Mr. Abdul Sultan Meherali, who before his demise handed over the same to his son-in-law Mr. Mohammedali Hassanali. It was his intention that the said assets should be applied for the benefit of the family. As per the directions of Mr. Dilip Mehta, the said assets were sold by Mr. Hassanali around December 2003 realising approximately USD 27,95,000 which were remitted by him in the account of the Estate of Late Mr. Ramniklal Mehta. This position has also been confirmed by Mr. Hassanali by a letter. Mr. Dilip Mehta had invested the said amount in an investment company by name of White Cedar Investments Limited on behalf of the Estate through the Oak Trust. White Cedar Investments Ltd. was an independent investment company with several subscribers. The said investment made by Mr. Dilip Mehta comprised of 5.73% interest in the said company. These facts also stood confirmed by Mr. Karl French, a director of White Cedar Investments Ltd., by a letter. He also confirmed that the present Assessee, including the other beneficiaries, had neither visited nor opened or operated the account of White Cedar Investments Ltd. This fact also stood confirmed by HSBC Bank, Geneva by its letter dated 22.12.2011. Though Mr. Dilip Mehta believed that the said amount would not be chargeable to tax in India, with a view to buy peace, he offered to tax USD 25,70,545 (being 5.73% of USD 4,48,61,171) equivalent to INR 11,46,72,012 based on the exchange rate of INR 44.61 to 1 USD prevailing as on 31.03.2006 in the statement recorded under section 131 of the Act. This was based on a specific understanding that the offer was made to avoid litigation and regularise the Estate’s position and that no penalty shall be levied. For the purposes of payment of taxes arising thereon, he also had to liquidate the said investment in White Cedar Investments Limited.

In view of the search action, a notice dated 14.02.2013 came to be issued under Section 153A of the Act directing the Assessee to file his Returns of Income for the Assessment Years 2006-07 to 2011-12. Pursuant thereto, on 06.03.2013, the Assessee filed his Returns of Income for the said years, including the year under consideration. Similar notices were also issued to other members of the Mehta family, and in the Return of Income as filed by the Estate of Late Mr. Ramniklal Mehta, the aforesaid amount of Rs.11,46,72,012 was offered for tax.

In the Assessment Order dated 30.05.2014 passed under Section 153A in the case of the said Estate, the entire rupee equivalent of the peak balance lying in the HSBC bank account of White Cedar Investments Limited (being Rs.2,00,12,56,838) was added by their Assessing Officer as unexplained money under Section 69A of the Act. The said Assessment Order passed in the case of the Estate has been found by the Tribunal to be unjustified for various technical reasons.

The Returns of Income filed by the Assessee were selected for scrutiny. In the course of the assessment proceedings, the Assessee reiterated and confirmed that he did not have any bank account outside India. The assets and investments as held by him are only those as reflected in his Return of Income. Reliance was placed on the letter dated 06.01.2012 and the statement recorded on 10.01.2012 of Mr. Dilip Mehta. Reference was also invited to the letter dated 27.12.2011 from Mr. Hassanali, the letter dated 22.12.2011 from the HSBC Bank Geneva, and the letter dated 27.12.2011 from Mr. Karl French. Emphasis was laid on the fact that before making an addition in respect of unexplained money, it is incumbent on the Revenue to show that ownership of the same belonged to the Assessee. In the present case, this burden of proof was not discharged. Further, though the Estate had offered for tax an amount of Rs.11,46,72,012 in its Return of Income filed pursuant to notice issued under Section 153A of the Act, in the Assessment Order passed in its case, the rupee equivalent of the entire peak amount being Rs.200,12,56,838 already stands assessed to tax. Further, separate affidavits dated 09.03.2015 [from Mr. Dilip Mehta] and 10.03.2015 [from Mr. Karl French] were also filed confirming the position explained by them in their earlier letters/statements recorded under Section 131 of the Act. A letter dated 05.03.2015 from Solicitors Charles Russel Speechlys was also filed confirming the aforesaid position. Rejecting the aforesaid submissions, the Assessing Officer has made exhaustive reference to the Base Note. The burden of proving/disproving the Assessee’s interest in the said bank accounts held by White Cedar Investments Ltd. and Ruby Enterprises Inc. in HSBC Bank, Geneva has been placed on the Assessee, and it is alleged that the Assessee has not discharged the said burden. Consequent thereto, an amount of USD 4,020.02 equivalent to Rs.1,79,333 belonging to Ruby Enterprises Inc. and USD 4,48,61,171 equivalent to Rs.2,00,12,56,838 was assessed to tax in the Assessee’s hands as unexplained money under Section 69A of the IT Act. In respect of the amount lying in the bank account of White Cedar Investments Ltd., a substantive addition of Rs.28,58,93,834 was made to the extent of 1/7th of the total amount of Rs.2,00,12,56,838 (as there were seven beneficiaries as per the Base Note). The balance amount of Rs.1,71,53,63,004 representing 6/7th of the aggregate amount, was added on a protective basis.

The Assessee filed an Appeal before the Commissioner of Income-tax (Appeals), which was partly allowed by him by his Appellate Order dated 31.03.2017. The submissions made by the Assessee before him with respect to the scope of an Assessment under Section 153A being restricted to such additions based on incriminating material found in the course of search and justification in respect of Assessment of the amount of Rs.1,79,333 lying in the bank account of Ruby Enterprises Inc. were dismissed by him. However, he deleted the addition of Rs.2,00,12,56,838 being Rupee equivalent of the USD funds lying in the bank account of White Cedar Investments Ltd.

Aggrieved by the aforesaid Appellate Order, both the Assessee as well as the Revenue filed Appeals before the Tribunal. The Assessee inter alia urged that the additions made by the Assessing Officer were beyond the scope of Section 153A as they were solely based on the Base Note which was already available with him before conducting the search. The Base Note was not a document found in the course of the search. Admittedly, the assessment proceeding for the year under consideration was not pending at the time of search. Hence, the assessment did not abate as per the second proviso to Section 153A of the Act. In such circumstances, no addition could be made in the Assessment Order passed under Section 153A of the IT Act, unless incriminating material in support of such addition was found in the course of search. Further, the USD equivalent of Rs.1,79,333 was found to be lying in the bank account of Ruby Enterprises Inc. with HSBC Bank, Geneva, ownership of which could not be attributed to the Assessee. Hence, addition of the said amount in his hands was not justified. In the Appeal filed by the Revenue before the Tribunal, it was urged that the USD equivalent of Rs.2,00,12,56,838 lying in the bank account of White Cedar Investments Ltd. should be assessed as unexplained money in the hands of the Assessee.

The Tribunal, allowed the appeal filed by the Assessee as well as dismissed the Appeal filed by the Revenue. With respect to the preliminary issue being the scope of assessment under Section 153A, the Tribunal has given a finding of fact that no incriminating material in respect of the bank accounts maintained by White Cedar Investments Ltd. and Ruby Enterprises Inc. with HSBC Bank, Geneva was found during the course of the search. Hence, the additions made by the AO in respect of funds lying in the bank accounts belonging to White Cedar Investments Ltd. and Ruby Enterprises Inc. were not supported by any incriminating material found in the course of search. The Tribunal upheld the Assessee’s contention that the additions as made by the AO based on the Base Note were not justified in the assessment made under Section 153A.

Separately, on the merits of the case also, it held that the Assessee has been expressing his unawareness about the contents of the Base Note right from the beginning. Mr. Dilip Mehta had given an explanation with respect to the investments made in White Cedar Investments Ltd. to the extent of USD 27,95,000 including the source of such investment. For invoking the provisions of section 69A of the Act, the Assessee must be found to be the owner of the money, bullion, jewellery or other valuable article. There was nothing on record to indicate that the Assessee, was the owner of the bank account operated and maintained in the name of White Cedar Investments Ltd. and Ruby Enterprises Inc. HSBC Bank, Geneva also confirmed by its letter that the Assessee herein had neither visited nor opened and operated any bank account and that no payments were received or made by him in relation to the said account. Further, the statement recorded under Section 131 and the affidavit given by Mr. Dilip Mehta, letters from Mr. Hassanali, Mr. Karl French and Solicitor Charles Russel Speechlys also supported the case of the Assessee. Since the Revenue could not prove with necessary material that the said bank accounts belonged to the Assessee herein, the provisions of Section 69A of the Act could not be invoked, was the finding of the Tribunal. It has also observed that the sole basis for addition is the Base Note received from the French Government, but which is an unauthenticated document not received from the bank directly. Though the information exchanged between two sovereign countries cannot be ignored, but the contents of the Base Note are incomplete. Based thereon, the Tribunal deleted both the aforesaid additions made by the AO.

On appeal by the Revenue the Court held that the issue of incriminating material was no more a substantial question of law, as the same is covered by the decision of the Hon’ble Supreme Court in Abhisar Buildwell Pvt. Ltd. (2023) 454 ITR 212 (SC). As regards question on addition of 69A, it was pointed out that having regard to the plain reading of the section, it is apparent that the burden is on the Revenue to establish that the Assessee, in whose hands an addition is proposed under Section 69A, is to be found as the owner of the asset. The Tribunal has found as a matter of fact that the Assessee was not the owner of the bank account, the balance wherein is sought to be assessed in his hands, and therefore, the addition cannot be sustained. In this view of the matter, no substantial question of law arose for consideration. The court also noted that the Base Note, which was the only evidence relied upon be the Revenue itself, makes it clear that the bank accounts belonged to White Cedar Investments Ltd. and Ruby Enterprises Inc.

It was an admitted position that the Government of India had received a Base Note from the French Government disclosing that the Respondent Assessee was a beneficiary of the Oak Trust, being a private discretionary trust which held investments in a company being White Cedar Investments Ltd. The said company and Ruby Enterprises Inc. had bank accounts with HSBC Bank in Geneva. Pursuant thereto, a search and seizure action was carried out at the premises of entities belonging to the Rosy Blue Group, including the Assessee herein. On the date of search, i.e. on 25 and 26.08.2011, no assessment proceedings were pending in the case of the Assessee for the Assessment Year 2006-07. The intimation issued under Section 143(1) of the IT Act for the year under consideration became final in the absence of any notice for scrutinising the assessment being issued under Section 143(2) of the IT Act. Hence, the assessment did not abate. In such circumstances, in the Assessment Order passed under Section 153A of the IT Act, only such additions could be made which were based on incriminating material found in the course of the search. That the Base Note, which formed the sole basis for the additions as made by the Assessing Officer in respect of balances lying in the bank account of White Cedar Investments Ltd. and Ruby Enterprises Inc. held with HSBC Bank, Geneva, which was already available with the Revenue before the search, does not qualify as incriminating material found in the course of search.

Further, a bare perusal of Section 69A of the Act also shows that, for invoking the said provision, the Revenue has to first find an Assessee to be the owner of any money, bullion, jewellery or other valuable article, and such asset has not been recorded in his books of account. Once this condition is fulfilled, the Assessee is under an obligation to explain the source from which such asset has been acquired. Only in such cases where the Assessee is unable to offer any explanation or the explanation as offered by him is found to be not satisfactory, the money or the value of the assets may be deemed to be the income of the Assessee for such Financial Year. In the present case, the Revenue has not discharged the burden of showing that the Respondent Assessee is the owner of the money lying in the said bank accounts. On the face of it, the bank accounts with HSBC Bank, Geneva are of White Cedar Investments Ltd. and Ruby Enterprises Inc. It stands confirmed by the said Bank that the Assessee herein neither visited nor opened or operated the said bank accounts held by the aforesaid two entities. Further, Mr. Dilip Mehta has repeatedly explained the investments made by the Estate of Late Mr. Ramniklal Mehta through the said White Cedar Investments Ltd. to the extent of USD 27,95,000, and that the said company was an investment vehicle in which the Estate only held 5.73% interest. He has also explained the source of funds from which the said investments were made. The said facts are also confirmed by a letter dated 27.12.2011 from Mr. Karl French, being the Director of White Cedar Investments Ltd., and a letter dated 22.12.2011 from the HSBC Bank, Geneva. In such circumstances, the Tribunal was fully justified in holding that the first condition for invoking Section 69A of the Act viz., the Assessee should be found to be the owner of the money in the said bank accounts, has not been satisfied. Hence, the Tribunal was also justified in deleting the additions.

Both the Appeals filed by the Revenue were dismissed.

Section 144 and 144B: Assessment – Service of notice on wrong email ID- Breach of principles of natural justice – without granting a fair and effective opportunity of hearing.

7. Hero Products India Pvt Ltd Vs. National Faceless Assessment Centre & Ors.

[WP No. 5730 OF 2026, Dated: 13/07/2026. (Bom) (HC)]

Section 144 and 144B: Assessment – Service of notice on wrong email ID- Breach of principles of natural justice – without granting a fair and effective opportunity of hearing.

The Petitioner’s registered primary email address on the income tax portal was dhanashree.sawant@apac.hero.ca and its registered secondary email address was chandrasekhar.ella@apac.hero.ca.

The secondary email address, namely chandrasekhar.ella@apac.hero.ca, was also reflected in the database of the Ministry of Corporate Affairs. It is further the case of the Petitioner that while filing its return of income in response to notice under Section 148 on 20th October 2021, the Petitioner had specifically mentioned its email addresses as dhanashree.sawant@apac.hero.ca.

It is the case of the Petitioner that despite the Petitioner’s primary and secondary email IDs being available with the Respondents, all subsequent notices, including notice under Section 143(2) of the Act, were sent to tarini.03@gmail.com. According to the Petitioner, though the said email ID was reflected in the Return of Income for Assessment Year 2015-16, the said email ID does not belong to the Petitioner and appears to have been mentioned by the earlier tax consultants handling the compliance aspects of the Petitioner Company. The Petitioner further states that in the Return of Income for A.Y.2016-17, the email ID rushabhapatel30@gmail.com was mentioned, which pertained to the Chartered Accountant appointed as the Auditor and tax consultant of the Petitioner, who had ceased to represent the Petitioner during the assessment proceedings.

According to the Petitioner, though certain communications appear to have been received on tarini.03@gmail.com and rushabhapatel30@gmail.com, the crucial statutory notices, including the Show Cause Notice and the notice proposing additions, were not effectively served on the Petitioner’s registered email IDs. According to the Petitioner, it was therefore denied a fair and effective opportunity to place its explanation and supporting documents on record before the passing of the impugned Assessment Order. The Petitioner therefore contends breach of principles of natural justice.

It is the case of the Respondents that notices were uploaded on the e-filing portal and were also sent on the email address of the Petitioner. The Respondent submitted that the Petitioner had responded to the notice issued under Section 148 of the Act by seeking the reasons of reopening. The said notice in addition to being uploaded on the ITBA portal, was also sent to the mail ID tarini.03@gmail.com and rushabhapatel30@gmail.com. Thereafter, sufficient notices/ opportunities were given to the Petitioner. The Petitioner could have intimated the National Faceless Assessment Centre about change of their mail on account of change of their CA. In the facts of the present case, no deficiency could be found with the assessment proceedings.

The Court held that it was not in dispute that the Petitioner had furnished its email address being dhanashree.sawant@apac.hero.ca in the return filed in response to notice under Section 148. The secondary email address, namely chandrasekhar.ella@apac.hero.ca, was also registered on the income tax portal and was also reflected in the database of the Ministry of Corporate Affairs. It was also not in dispute that none of the notices were sent on either of these two email addresses registered on the portal.

The Court held that the assessment proceedings culminating into the impugned Assessment Order, had been completed without granting the Petitioner a fair and effective opportunity to respond to the proposed additions. Further that disputes had arisen between the Petitioner and its Auditor, who subsequently resigned on 21st January 2022. In view thereof, further notices issued by the Respondents on the email ID of the said Auditor do not appear to have been effectively communicated to the Petitioner. In view of these peculiar facts, the Petitioner did not get an adequate opportunity to place on record its explanation and supporting documents before passing of the impugned Assessment Order. Therefore, the court directed the Assessing Officer to grant a fresh hearing to the Petitioner on the show cause notice issued, provide an opportunity to the Petitioner to submit its response, and thereafter pass a fresh Assessment Order.

Search and seizure — Assessment of third person — Notice for reassessment — Meaning of period of six or ten assessment years from “relevant assessment year” for which assessment can be made — How to compute “Six years immediately preceding assessment year relevant to previous year in which search is conducted” — Ten assessment years to be reckoned from end of assessment year pertaining to previous year in which search was conducted — Distinct from preceding year spoken of in case of six relevant assessment years — Date of search falling during F. Y. 2024-25 — A. Y. 2025-26 would be first assessment year and A. Y. 2016-17 would be tenth assessment year — Notice issued for A. Y. 2015-16 falls beyond period of ten years prescribed — Notice issued for A. Y. 2015-16 barred by limitation and accordingly invalid.

26. Jayantibhai Karamshibhai Maniya v. ITO: (2026) 488 ITR 90 (Guj): 2026 SCC OnLine Guj 2776

A. Y. 2015-16: Date of order 05/01/2026

Sections. 148, 149(1)(b), 153A(1)(b), Expln 1, and 153C of ITA 1961

Search and seizure — Assessment of third person — Notice for reassessment — Meaning of period of six or ten assessment years from “relevant assessment year” for which assessment can be made — How to compute “Six years immediately preceding assessment year relevant to previous year in which search is conducted” — Ten assessment years to be reckoned from end of assessment year pertaining to previous year in which search was conducted — Distinct from preceding year spoken of in case of six relevant assessment years — Date of search falling during F. Y. 2024-25 — A. Y. 2025-26 would be first assessment year and A. Y. 2016-17 would be tenth assessment year — Notice issued for A. Y. 2015-16 falls beyond period of ten years prescribed — Notice issued for A. Y. 2015-16 barred by limitation and accordingly invalid.

The assessee petitioner was engaged in the business of job work of diamonds during the year under consideration. The petitioner filed the return of income for the A. Y. 2015-16 on March 31, 2016 declaring a total income of Rs.19,85,220. The respondent Assessing Officer issued a notice dated March 31, 2025 u/s. 148 of the Income-tax Act, 1961 for the A. Y. 2015-16 stating therein that a search was initiated u/s. 132 of the Act on May 9, 2024 in the case of the person in respect of whom the petitioner is assessable under the Act. Further, it was stated that the respondent is satisfied, with the approval of the Principal Commissioner or Commissioner, that the books of account or documents seized or requisitioned under Section 132 or Section 132A of the Act in the case of Sushil Kumar Keval Kishan Goyal pertain to the petitioner or the person in respect of whom the petitioner is assessable under the Act, and hence, the notice dated March 31, 2025 has been issued under Section 148 of the Act after obtaining prior approval of Chief Commissioner of Income-tax, Ahmedabad-1.

The petitioner filed a writ petition and challenged the notice contending that the notice is barred by time. The Gujarat High Court allowed the petition and held as under:

“i) Section 149(1)(b) of the Act refers to the limitation period of ten years, which has elapsed from the end of the “relevant assessment year”. The relevant assessment year in the present case is 2015-2016, which is prior to the cut-off date of April 1, 2021, as specified in the first proviso. The link between section 149 and Sections 153A and 153C of the Act is found in the first proviso to Section 149(1) of the Act. The expression “relevant assessment year” is explained under Explanation 1 to the fourth proviso to Section 153A(1). The first proviso to Section 149(1) of the Act bars the issuance of notice under Section 148 of the Act for the relevant assessment year beginning on or before April 1, 2021, if a notice under Section 148 or Section 153A or Section 153C of the Act could not have been issued at that time on account of it being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of Section 149 of the Act or Section 153A or Section 153C of the Act. In the present case, the notice under Section 148 of the Act emanates from the search proceedings undertaken under Sections 132/132A of the Act, and hence the provisions of Sections 153A and 153C of the Act would get attracted, and the reassessment of the petitioner has to be examined by keeping in mind the limitation provided under Sections 153C of the Act, which is pari materia to Section 153A of the Act.

ii) The provisions of Section 153A/153C of the Act find place in the proviso to Section 149 of the Act and, hence, the limitation as provided in Sections 153A/153C of the Act gets triggered upon the initiation of assessment proceedings emanating from a search under Section 132/132A of the Act. We may, at this stage, mention that the Delhi High Court as well as the Madras High Court have already considered the implications of Explanation 1 to Section 153A of the Act to the limitation and the expression “relevant assessment year” used therein in Explanation 1 to Section 153A of the Act.

iii) The statute prescribes different modes of computation for six years and ten years. We reiterate that the provisions of Section 153A(1)(b) of the Act stipulate that the Assessing Officer shall assess or reassess the total income of six years immediately preceding the assessment year relevant to the previous year in which the search is conducted. However, the ten assessment year period, consequently, is to be reckoned from the end of the assessment year pertaining to the previous year in which the search was conducted, as distinct from the preceding year which is spoken of in the case of the six relevant assessment years. Thus, the contention with regard to the computation of six years as well as ten years under the provisions of Section 153A of the Act has already been gone into by the Delhi High Court as well as the Madras High Court, and we have no convincing reason to take a divergent view from the view expressed hereinabove. Applying the aforesaid computation to the facts of the present case, taking the date of the search as May 9, 2024 during the F. Y. 2024-25, the A. Y. 2025-26 will become the first assessment year and, in the same manner, the A. Y. 2016-17 will become the tenth assessment year. Thus, the year under consideration, namely, A. Y. 2015-16, for which the impugned notice has been issued under Section 148 of the Act, would fall beyond the period of ten years prescribed under the statute as it stood immediately before the commencement of the Finance Act, 2021 ((2021) 432 ITR (St) 52), and hence, on this count, the impugned notice can be said to be barred by limitation.

iv) For the foregoing reasons, the impugned notice dated March 31, 2025 issued under Section 148 of the Income-tax Act, 1961 by the respondent-Department seeking to reopen the income-tax assessment of the petitioner for the respective assessment year is hereby quashed and set aside. The petitions are allowed accordingly.”

Refund — Section 244A — Return of income — Intimation issued u/s. 143(1) in 2019 — Refund determined along with interest — Interest upto the date of intimation under Section 143(1) — Refund paid only in 2023 — Assessee’s request to grant interest till the date of payment of refund to the assessee — Rejection by the AO — The AO does not have jurisdiction to decide the question of exclusion of period and deny interest — Delay due to system failure — Cannot be held against the assessee — Once refund determined in the proceedings – Interest runs till the date of payment.

25. Bedmutha Industries Limited v. ACIT

TS-917-HC-2026(Bom.)

A. Y. 2017-18: Date of order 15/06/2026

S. 244A of ITA 1961

Refund — Section 244A — Return of income — Intimation issued u/s. 143(1) in 2019 — Refund determined along with interest — Interest upto the date of intimation under Section 143(1) — Refund paid only in 2023 — Assessee’s request to grant interest till the date of payment of refund to the assessee — Rejection by the AO — The AO does not have jurisdiction to decide the question of exclusion of period and deny interest — Delay due to system failure — Cannot be held against the assessee — Once refund determined in the proceedings – Interest runs till the date of payment.

The Assessee filed its return of income for A. Y. 2017-18 on 29/10/2017 claiming a refund of Rs.1,60,47,550. Subsequently, the return of income was revised on 31/01/2019 once again claiming the refund. The return was processed and intimation under Section 143(1) of the Income-tax Act, 1961, was issued on 14/11/2019 determining the refund along with interest under Section 244A. The interest was determined at Rs.25,67,600 upto the date of intimation.

The assessee’s case was selected for scrutiny and the assessment was completed under Section 143(3) of the Act accepting the loss returned by the assessee and accepting the refund determined by the assessee in the return of income.

While the refund was determined, the same was not paid to the assessee. As a result, the assessee addressed several communications for the release of refund to the assessee and submitted the bank account details. The assessee also raised grievances on the portal in this regard. Finally, the refund was issued on 10th March 2023.

Thereafter, in April 2024, the assessee made an application for grant of interest u/s. 244A upto the date when the refund amount was actually credited to the assessee. However, the Assessing Officer, vide order dated 25/04/2024 rejected the request of the assessee on the ground that delay in release of refund was on account of the assessee due to incorrect bank details and therefore, the assessee was not entitled to interest upto the date of payment.

Against the said order passed by the Assessing Officer rejecting the grant of interest till the date of payment, the assessee filed a petition before the Hon’ble High Court, inter alia, on the ground that firstly, the question regarding the period to be excluded on account of delay attributable to the assessee ought to be decided by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner under Section 244A(2) and therefore the Assessing Officer could not have assumed the jurisdiction to determine the exclusion of any period and deny interest for such period. Secondly, the reference to proceeding resulting in refund refers to the proceeding in which the refund is determined and since in the present case, the refund was determined in the intimation issued under Section 143(1) on 14/11/2019 it could not be said that the proceedings were delayed on account of any act attributable to the assessee. The assessee had submitted multiple bank accounts and the refund was being attempted to be credited to a bank account which was not the chosen account in the return of income for the relevant assessment year. Further, despite submitting new bank account details, the system continued to re-initiate refund to another bank account. It was also submitted that where the refund cannot be processed due to technical difficulty, the Board’s instructions permit manual payment of refund.

On the other hand, the Department contended that the delay was on account of the details of the assessee’s bank account which was solely attributable to the assessee.

The Bombay High Court allowed the petition of the assessee and held as under:

“i) The proceedings resulting in the refund were the intimation under Section 143(1) dated 14th November 2019 and the Assessment Order under Section 143(3) is dated 24th December 2019. There is no finding anywhere that either of these proceedings was delayed for reasons attributable to the Petitioner. Once the refund stood determined in those proceedings, the statutory consequence under Section 244A(1) was that interest had to run till the date on which the refund was granted. Section 244A(2) does not deal with administrative or post-determination delays in actual remittance of the refund. No such case has been made out here.

ii) There is yet another reason why the impugned order is unsustainable. Section 244A(2) itself provides that where any question arises as to the period to be excluded, it shall be decided by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, whose decision thereon shall be final. The impugned order has been passed by the Assessing Officer i.e., Assistant Commissioner of Income-tax-1, Nashik. Therefore, even assuming that the Revenue wished to invoke Section 244A(2), the Assessing Officer had no jurisdiction to decide the question of exclusion of period and deny interest on that basis. On this count also, the impugned order is bad in law.

iii) Even otherwise, the factual foundation on which the impugned order proceeds, is found to be at variance with the record, especially the affidavit filed by Shri Sairaj of CPC. First, they show that till 25th August 2021, approval itself had not been granted by the JAO. Therefore, the suggestion that the entire delay was on account of incorrect bank details furnished by the Petitioner is plainly inaccurate. Second, CPC’s own affidavit shows that the first release in September 2021 was to a bank account which was not the selected account for the relevant year in the Return of Income. Third, once a new bank account was validated and nominated on 25th March 2022 [though the Petitioner has filed a screenshot from the portal which shows that request for validation of this account was made on 31st December 2021 and the same was validated only on 12th January 2022], the system nonetheless continued to re-initiate refund to another account. It was only on 15th March 2023, that the refund was credited to the bank account already validated on 12th January 2022. Thus, the record disclosed by the CPC itself points to a systemic and administrative failure rather than to any default attributable to the Petitioner.

iv) We are unable to accept the Revenue’s broad submission that because some refund attempts failed for bank-related reasons, the entire period of delay must be attributed to the Petitioner. Technology and automated processing are intended to facilitate administration and not to defeat statutory rights. If the system continued to route refund to an incorrect or earlier bank account despite subsequent validation and nomination of another account, that is plainly a system issue. Such system deficiency cannot be held against the Petitioner. Further, if the Department found that automated re-issue was not fructifying despite repeated attempts and grievances, it was always open to it to resort to a manual refund. The Department cannot retain monies admittedly refundable and thereafter deny statutory interest by relying upon its own technological limitations.

v) The Supreme Court in Union of India v. Tata Chemicals Ltd. (2014) 363 ITR 658 (SC) has held that refund due and payable to the assessee is a debt owed by the Revenue and that interest follows as a matter of course as compensation for the use and retention of the money. The Supreme Court observed that the State, having received money without any right and retained and used it, is bound to make the party good.

vi) In these circumstances, the impugned order dated 25th April 2024 cannot be sustained. The Petitioner is entitled to interest under Section 244A on the refund amount till the date on which the refund was actually paid.”

Order giving effect to CIT(A) Order — Order not passed within time limit as provided under Section 153 — Validity and effect of — Order passed by the CIT(A) with direction to re-characterise receipts and apply beneficial tax rate after opportunity of being heard — Order giving effect to CIT(A) Order not passed within statutory time limit provided u/s. 153 — Order passed beyond the time limit — Original assessment does not survive — Return of income to be treated as accepted.

24. Global Hospitality Licensing SARL v. A/DCIT (IT)

2026 (6) TMI 1344 (Bom)

A. Y. 2009-10: Date of order 22/06/2026

S. 153 of ITA 1961

Order giving effect to CIT(A) Order — Order not passed within time limit as provided under Section 153 — Validity and effect of — Order passed by the CIT(A) with direction to re-characterise receipts and apply beneficial tax rate after opportunity of being heard — Order giving effect to CIT(A) Order not passed within statutory time limit provided u/s. 153 — Order passed beyond the time limit — Original assessment does not survive — Return of income to be treated as accepted.

The assessee is a company and a tax resident of Luxembourg. The assessee is engaged in the business of providing marketing activities on a central / group basis to Mariott chain of hotels worldwide. The assessee filed its return of income declaring total income at NIL. The receipts by the assessee under the International Marketing Program Participation Agreement assigned to it by a group company were claimed to be not taxable in India as per the Act and accordingly refund of TDS was claimed by the assessee. In the scrutiny assessment, the Assessing Officer did not agree with the stand taken by the assessee and held that receipts under the IMPPA were taxable as business profits under the provisions of the Act and taxed the same at 40% plus applicable surcharge and cess. The Assessing Officer did not allow any credit of tax deducted at source. Interest under Section 234A and 234B was levied and simultaneously penalty proceedings were initiated under Section 271(1)(c) of the Income-tax Act, 1961.

The CIT(A) held that the receipts under the IMPPA were in the nature of royalty and directed the Assessing Officer to apply the beneficial rate of tax and also directed the Assessing Officer to allow the credit for tax deducted if found in order. The CIT(A) directed the Assessing Officer to grant the assessee an opportunity of being heard before passing an order in pursuance of the CIT(A)’s order.

Against the said order of the CIT(A), the assessee filed an appeal before the Tribunal. In the mean while the assessee found that time limit as provided under Section 153 to pass an order giving effect to the order of CIT(A) has expired but the Assessing Officer has not passed an order giving effect to the order of CIT(A) and accordingly, the assessment has abated.

In the circumstances, there was no need of an order from the Tribunal in the appeal filed by the assessee. Therefore, the assessee, vide a letter, withdrew the appeal on the premise that since no order giving effect to the CIT(A)’s order was passed by the Assessing Officer within the statutory time limits, the assessment had abated. The Tribunal permitted the withdrawal of appeal.

Thereafter, the assessee filed an application before the Assessing Officer seeking refund of the excess tax deducted against the amount liable to be paid by the assessee stating that the assessment proceedings had abated and any tax collected in excess of the amount payable by the assessee was liable to be refunded along with interest.

Penalty notice issued along with the assessment order was initially kept in abeyance. Subsequently, the Assessing Officer issued a show cause notice why the order imposing penalty under Section 271(1)(c) of the Act should not be passed. In response to the notice, the assessee submitted that since the assessment stood abated no penalty could be levied. The assessee also submitted a detailed response as to why penalty should not be levied. However, the Assessing Officer, vide order dated 30/03/2023 levied penalty under Section 271(1)(c) of the Act.

Against the said penalty order, the assessee filed a writ petition before the High Court challenging the validity of the penalty order on the ground that the underlying assessment proceedings had abated on account of failure on the part of the Assessing Officer to pass order giving effect to the order of CIT(A) within the period of limitation provided under Section 153 of the Act.

The Bombay High Court allowed the petition and held as under:

“i) Section 153(5) of the IT Act inter alia provides that where effect to an order passed by the CIT(A) is to be given otherwise than by passing a fresh assessment, such effect shall be given within a period of three months from the end of the month in which order of the CIT(A) is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be.

ii) As per the second proviso to Section 153(5) of the IT Act, where as a consequence of the order of the CIT(A), verification of any issue by way of submission of any document by the Assessee or any other person is necessary or where an opportunity of being heard is to be provided to the assessee, the order giving effect shall be made within the time specified in sub-section (3). Thus, the larger time limit of nine months as provided for in sub-section (3) is made applicable to cases governed by sub-section (5) which require verification or the grant of an opportunity of being heard, as is the fact in the present case.

iii) In the present case, the CIT(A) has altered the very basis of taxation and directed application of the beneficial rate of taxation applicable to royalty. Consequently, even though the assessed income remained the same, nevertheless, the original computation of tax liability was set at naught and required fresh determination through a valid order giving effect. So far as the submission of the Revenue as to the nature of an order passed in consequence of orders of the appellate authorities with a view to giving effect to the directions contained therein, it is difficult to hold that such an order is an Administrative Order. An order contemplated by Section 153(5) is not ministerial in nature but quasi-judicial, as it determines the rights and liabilities of the assessee in accordance with the appellate directions. It may involve verification, quantification of income, re-computation of tax liability and net sum payable by the assessee-all of which, collectively or independently have substantive civil consequences. Therefore, such an order cannot be trivialised as administrative so as to escape the rigor of limitation. The power coupled with an obligation on the Assessing Officer is to make an assessment u/s. 143 or 144 of the IT Act. The final order after giving effect to the orders of the appellate authorities is an order of assessment and the same is complete only upon computation of the total income and the net tax payable by an assessee.

iv) Respondent No. 1 in the present case also had to verify and allow the credit of the tax deducted at source to arrive at the tax payable by the Petitioner. The term ‘assessment’ bears a comprehensive meaning. It comprehends the whole procedure for ascertaining the total income and the determination of tax liability. The latter is as crucial as the former. The Assessing Officer in terms of Section 143(3) has to determine, by an order in writing, not only the total income but also the net sum which will be payable by the assessee, in consequence of such an order.

v) As far as the consequence of not passing the order giving effect within the time limit as provided for in Section 153 of the IT Act is concerned, an identical controversy arose before this Court in the case of Laqshya Media Limited v. Asst/Dy. CIT [WP no. 468 of 2026], wherein it was held that where the Assessing Officer was obliged to comply with the directions of the Tribunal and complete the assessment upon remand, the inaction on his part to pass any assessment order within the limitation cannot disturb the income returned by the Petitioner.

vi) We disagree with the contention of the Department that the assessment proceedings do not abate merely because the Assessee is entitled to interest under Section 244A(1A) of the IT Act for any delay in passing the OGE. Section 244A(1A) operates solely for the benefit of an assessee by providing compensatory interest, where there is a delay on the part of the Department in granting a refund. It is probably meant to cover a case where an order is passed in time, but the refund is not granted.

vii) However, the grant of such interest cannot validate or cure a belated Assessment Order. Further, in a situation where demand is sought to be raised, the Department cannot impose a tax liability if the OGE is not passed within the period of limitation provided for. It is a settled principle that the Department cannot take advantage of its own default. Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. Consequently, any excess tax collected must be refunded, and Section 244A(1A) of the IT Act merely compensates an assessee for delays in grant of such refunds; it does not legitimise proceedings or orders that are otherwise time-barred.

viii) In the present case no order giving effect has been passed pursuant to the appellate order within the time limit provided for in Section 153 of the IT Act as stated above. This has resulted in the assessment abating, and the return of income of the Petitioner is to be regarded as accepted. The penalty proceedings were initiated in the course of the original assessment proceeding where Respondent No. 1 had assessed the Petitioner’s receipt from the IMPPA as its business income. That basis no longer survives. A penalty u/s. 271(1)(c) is levied on the amount of tax sought to be evaded. As in the present case there is no tax that is evaded as it is the income that is declared in the return that now represents the income that is assessed, the levy of penalty is unsustainable. When the very foundation of the penalty proceedings does not survive, the penalty order dated 30 March 2023, therefore, is unsustainable in law.”

House Rent Allowance — Section 10(13A) — Rent paid by employer to the landlord — Recovered from employee’s salary — House Rent Allowance denied by the AO on the ground that the employee did not pay rent and was living in the accommodation provided by the employer — Mode of payment of rent does not change the character of the payment — Incurring of the rent has to be seen — Not the mode of payment to the landlord — Disallowance was not sustainable.

23. Kuldeepkumar D. Kaura v. DCIT

2026 (6) TMI 1458 (Guj.)

A. Y. 2006-07: Date of order 22/06/2026

S. 10(13A) of ITA 1961

House Rent Allowance — Section 10(13A) — Rent paid by employer to the landlord — Recovered from employee’s salary — House Rent Allowance denied by the AO on the ground that the employee did not pay rent and was living in the accommodation provided by the employer — Mode of payment of rent does not change the character of the payment — Incurring of the rent has to be seen — Not the mode of payment to the landlord — Disallowance was not sustainable.

The assessee is an individual and the CEO and COO of one Sterlite Industries India Ltd. The assessee’s return of income was selected for scrutiny on the ground that the assessee had one house property in Delhi which was claimed as self-occupied and therefore exempt. However, the assessee was in Mumbai in a leased premises of the company where the assessee was employed as the CEO.

The assessee claimed exemption of House Rent Allowance (HRA) under Section 10(13A) of the Income-tax Act, 1961, in respect of the leased premises. It was submitted that being the employee of the company, the employer company paid the lease rent and recovered the same from the salary of the assessee on a monthly basis. The assessee therefore claimed that the assessee was paid HRA by the employer and claimed exemption of Rs.16,19,940 under Section 10(13A) of the Act. The Assessing Officer denied the assessee’s claim for exemption under Section 10(13A) on the ground that the assessee did not pay any rent to the landlord directly and that the assessee was in occupation of premises provided by the employer.

The CIT(A) allowed the appeal filed by the assessee and held that the Assessing Officer’s reasoning that the employee did not pay rent directly to the landlord and therefore the employee is not eligible for exemption under Section 10(13A) was ill founded. It was observed by the CIT(A) that in the big cities, the rent agreement is often entered between the landlord and the employer to safeguard the interests of the landlord.

The Tribunal, reversed the decision of the CIT(A) and restored the order of the Assessing Officer, holding that the amount was chargeable as perquisite under Section 17(2) of the Act as there was no reimbursement of rent by the employee and the rent was paid directly by the employer to the landlord. Therefore, the ingredients of Section 10(13A) were not fulfilled.

The Gujarat High Court allowed the appeal filed by the assessee and held as under:

“i) It is clear that the said provision is inserted with effect from 06/10/1964 and any special allowance granted to the assessee by employer to meet the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee, as may be prescribed, and to that extent such special allowance would be exempt from the income and would not form part of the total income.

ii) In view of the above unambiguous position of Section 10(13A) of the Act, the CIT(A) was justified in holding that it is immaterial as to who pays the rent, more particularly when in the facts of the case, the assessee has not been provided rent free accommodation by the employer, in fact, the rent of same amount is recovered from the salary of the assessee, which is paid by the employer to the landlord.

iii) Therefore, the reimbursement of the amount which otherwise would have been payable by the assessee but is paid by the employer and recovered from the salary of the assessee and paid to the landlord by the employer, would not make any difference for granting exemption of the HRA under Section 10(13A) of the Act.

iv) Circular No. 90 [F.No. 275/79/72-ITJ] dated 26/6/1972 issued by the CBDT also clarifies the entitlement of eligibility of exemption under Section 10(13A) of the Act in Para-4 of the Circular. It is also clarified that it is not necessary for rent receipt from the assessee but expenditure on rent is required to be actually incurred and only clarification is to be made regarding the fact that the employee concerned has incurred the expenditure on rent. Similarly, letter F. No. 12/19/64-IT (A-1) dated 02/01/1967 issued by the Department also clarifies of the expenditure which have been actually incurred for the purpose of claiming exemption under Section 10(13A) of the Act.

v) Only in a case where the employee is not incurring any actual expenditure of rent or is residing in his own house, then special allowance paid by the employer to meet with the expenditure on rent by the employee is not eligible for exemption. In the facts of the case, it is not in dispute that the amount of rent is actually recovered from the employee from the salary of the employee by the employer to be paid to the landlord and, therefore, in effect the employee has incurred expenditure on payment of rent, which was first paid on his behalf by the employer. The effect of both the said transactions is same as payment of special allowance by the employer to meet the actual expenditure incurred by the employee on the rent paid.

vi) The question is answered in favour of the assessee and against the revenue as the Tribunal was not right in law in reversing the order of CIT(A) and confirming the addition and was also not right in confirming the addition of HRA of Rs.16,19,940/- by denying exemption under Section 10(13A) of the Act. The order of the CIT(A) deleting the addition is, therefore, restored and the Assessing Officer is directed to allow the claim of the appellant.”

Article 12 of India-USA DTAA – Consideration received for providing access to publicly available information through a database does not constitute royalty. Provision of marketing support services does not encompass ‘making available’ technical knowledge; hence, consideration received will not constitute ‘fees for included services’.

10. [2026] 184 taxmann.com 667 (Delhi – Trib.)

Coforge BPS America Inc. vs. ACIT(IT)

A.Y.: 2021-22 Dated: 09 March 2026

Article 12 of India-USA DTAA – Consideration received for providing access to publicly available information through a database does not constitute royalty. Provision of marketing support services does not encompass ‘making available’ technical knowledge; hence, consideration received will not constitute ‘fees for included services’.

FACTS:

The Assessee, a US company, was engaged in ITES sector, providing title search services to its AEs. The database contained information from public domain about property titles, property tax, mortgage status, etc., for American properties. Indian AE monetized the database by conducting title search reports for customers of US AE, such as banks and insurance companies. The Assessee received an amount of INR 7.73 Crores for providing access to a database and claimed that it was not taxable under India-USA DTAA. The AO observed that such receipts were royalty under Article 12(3) of DTAA as they encompassed commercial experience. The DRP upheld the action of the AO.

Aggrieved by the final order, the Assessee preferred an appeal before the ITAT.

HELD I:

Commercial experience under Article 12(3) of DTAA requires transfer of specialised knowledge or know-how that can be applied by the service recipient on its own.

Tax authority did not bring any evidence on record to prove that the Assessee had shared the search methodology or any information with Indian AE. Providing access to information obtained from public sources cannot result in use or right to use commercial experience. Reliance was placed on coordinate bench in Uptodate Inc v. Dy. CIT [2023] 150 taxmann.com 231 (Delhi-Trib).

Having regard to the foregoing, the ITAT held that consideration received for providing access to database cannot constitute royalty under Article 12(3) of India-USA DTAA

FACTS II:

The Assessee rendered marketing support services (“MSS”) including advice/guidance, suggestions on customer queries, customer identification, etc. The Assessee was remunerated on a cost-plus 10% mark-up basis. During the relevant year, consideration was INR 28.45 Crores. The Assessee contended that income earned by it was not taxable under India-USA DTAA. However, the AO held that consideration was taxable as fees for included services (“FIS”). The DRP upheld the action of the AO.

Aggrieved by the final order, the Assessee preferred an appeal before the ITAT

HELD II:

MSS were in the nature of advisory services, which should be classified as consultancy services. In terms of Article 12(4) of India-USA DTAA, a service must satisfy the make available condition to be regarded as FIS. In the instant case, MSS did not satisfy make available requirement.

Having regard to the foregoing, the ITAT held that consideration received towards MSS was not taxable as FIS under Article 12(4) of India-USA DTAA.

Article 13(5) of India-Netherlands DTAA – Gains derived from alienation of shares by way of buyback are covered within the ambit of ‘reorganization’ under Article 13(5) of DTAA; hence, taxable only in the country of residence

9. [2026] 184 taxmann.com 602 (Delhi – Trib.)

Huntsman Investment [Netherlands] BV vs ADIT (IT) A.Y.: 2009-10 Dated: 25 March 2026

Article 13(5) of India-Netherlands DTAA – Gains derived from alienation of shares by way of buyback are covered within the ambit of ‘reorganization’ under Article 13(5) of DTAA; hence, taxable only in the country of residence

FACTS I:

The Assessee, a tax resident of Netherlands, held a 99.98% stake in an Indian entity. Pursuant to a buyback under Section 77A of the Companies Act, 1956, the Assessee alienated 24% of equity shares at INR 23.10/share. It filed return of its income declaring capital gain aggregating to INR 49.43 Crores. The TPO determined arm’s length price (“ALP”) of shares at INR 80.77/share. Pursuant to ALP determination, the AO recomputed the capital gains at INR 123.41 Crores.

Before the DRP, the Assessee raised two contentions – (i) transaction of buyback was exempted from capital gains by virtue of Section 47(iv) of the Act and (ii) alternatively, in terms of Article 13(5) of India-Netherlands DTAA, gains, if any, were taxable only in Netherlands. DRP rejected both contentions, and as regards Section 47(iv) of the Act, the benefit was denied since the Assessee did not hold whole of the share capital of Indian entity.

Aggrieved by final order, the Assessee preferred an appeal before ITAT.

The issue before the ITAT was whether the buyback transaction fell within the ambit of ‘Corporate Reorganisation’ under Article 13(5) of the India-Netherlands DTAA. While Accountant Member held that benefit of Article 13(5) should be available in case of buyback of shares, Judicial Member held otherwise. Hence, the issue was referred to third member.

HELD :

According to the ‘exception to exception’ rule under Article 13(5)1, if gains are derived in the course of global reorganization or parent company reorganization, then such gains are taxable only in resident state of alienator.

1Under Article 13(5), any gains derived from alienation of shares of Indian Company that is forming part of at least 
10% interest in capital are taxable in India, if the buyer is a resident of India. However, 
if such alienation is on account of corporate reorganisation, then such gains is taxable only in Netherlands

While the percentage ownership remained the same post-buyback, the quantum of overall holding decreased on account of buyback.

In P. Ramanatha Aiyar’s Major Law Lexicon, the term ‘reorganization’ includes substantial change in a company’s capital structure. ICAI Guidance Note provides that buyback is covered under the definition of “Capital and Finanical Structuring”. ICSI guidance states that buyback is part of corporate reorganization.

Intent of Article 13(5) of India-Netherlands DTAA is to provide taxing rights to resident state in respect of gains arising from corporate reorganization involving the transfer of shares within the same group. Accordingly, buyback of shares should qualify as a corporate reorganization.

Having regard to the foregoing, the Third Member held that benefit of Article 13(5) should be available in case of buyback of shares, Accordingly, the gains were taxable only in Netherlands.

Sec. 37(1) – Business expenditure – Disallowance of ‘discount/claim/shortage/deduction’ expenses made solely on proportionate comparison with preceding year without enquiry into supporting details or defects in books – Not sustainable – Matter restored for de novo assessment Sec. 250(6) – Commissioner (Appeals) – Ex parte dismissal of appeal for non-prosecution without adjudicating issues on merits, without specifying points for determination, decision thereon and reasons – Order unsustainable and liable to be set aside.

42. [2026] 134 ITR(T) 49 (Agra – Trib.)

Hari Om Agarwal v. Income-tax Officer

A.Y.: 2017-18 DATE: 17.01.2025

Sec. 37(1) – Business expenditure – Disallowance of ‘discount/claim/shortage/deduction’ expenses made solely on proportionate comparison with preceding year without enquiry into supporting details or defects in books – Not sustainable – Matter restored for de novo assessment Sec. 250(6) – Commissioner (Appeals) – Ex parte dismissal of appeal for non-prosecution without adjudicating issues on merits, without specifying points for determination, decision thereon and reasons – Order unsustainable and liable to be set aside.

FACTS

The assessee, a proprietary concern engaged in trading of grains and pulses, filed return of income declaring income of Rs.7.89 lakhs for A.Y. 2017-18. During the relevant previous year, the assessee’s turnover increased to Rs.16.36 crores as against Rs.6.62 crores in the preceding year.

The Assessing Officer observed that general administration and selling expenses had increased to Rs.68.92 lakhs from Rs.13.74 lakhs and that expenditure under the head ‘Discount/claim/shortage/deduction’ had increased to Rs.59.18 lakhs from Rs.12.18 lakhs.

Though the assessee explained that such expenditure was related to damage, shortage, quantity and weight reduction in goods sold and had furnished ledger accounts containing party-wise details, the Assessing Officer held that the increase in such expenditure was not commensurate with the increase in turnover and disallowed Rs.29.10 lakhs on proportionate basis.

On appeal, the Commissioner (Appeals) issued multiple notices; however, except seeking adjournment on one occasion, the assessee did not effectively participate, and the appeal was dismissed ex parte confirming of the assessment order.

Aggrieved, the assessee preferred appeal before the Tribunal.

HELD

The Tribunal observed that the assessee had placed on record ledger accounts containing details of parties and amounts debited under the relevant expenditure head and had thus discharged the primary onus cast upon it.

It was noted that the Assessing Officer had not made any enquiry with the concerned parties, had not examined the correctness of the claim through independent verification, and had not pointed out any specific defect or deficiency in the books or supporting details. The disallowance had been made merely because the expenditure had risen at a rate higher than turnover as compared to the preceding year.

The Tribunal held that such proportionate or comparative disallowance, made only on assumptions and without factual enquiry, was unsustainable in law.

The Tribunal further observed that the Commissioner (Appeals) was statutorily obliged under section 250(6) to decide the appeal on merits by specifying the points for determination, the decision thereon and the reasons for such decision.

Since the appellate order had been passed ex parte without adjudicating the controversy on merits, without calling for records and without seeking any remand report or further enquiry, the same was also unsustainable.

Accordingly, both the assessment order and appellate order were set aside and the matter was restored to the file of the Assessing Officer for de novo assessment after granting proper opportunity of hearing to the assessee. The appeal was allowed for statistical purposes.

Where CIT(E) granted registration under section 12AB and approval under section 80G by following the binding judgment of the jurisdictional High Court, imposition of conditions making such registration, approval and all consequential benefits subject to the outcome of a proposed challenge before the Supreme Court was unjustified.

41. (2026) 187 taxmann.com 1010 (Mum Trib)

Keshavlal Vajechand Kapadia Charity Trust v. CIT(E)

A.Ys.: 2027-28 to 2031-32 Date of Order : 24.06.2026

Sections: 12AB, 80G

Where CIT(E) granted registration under section 12AB and approval under section 80G by following the binding judgment of the jurisdictional High Court, imposition of conditions making such registration, approval and all consequential benefits subject to the outcome of a proposed challenge before the Supreme Court was unjustified.

FACTS

The assessee trust had applied for renewal of registration under section 12AB and approval under section 80G. CIT(E), by separate orders dated 14.02.2026, rejected both applications primarily on the ground that the trust deed did not contain an express clause declaring the trust irrevocable.

Aggrieved, the assessee filed appeals before ITAT. During pendency of the appeals, the Bombay High Court, in the case of Chamber of Tax Consultants v. CIT (Exemptions) [2026] 184 taxmann.com 374 (Bombay), held that a public charitable trust is presumed to be irrevocable by operation of law unless the trust instrument specifically provides for revocation, and directed that registration/approval not be rejected merely for absence of an express irrevocability clause. Following this judgment, CIT(E) granted registration under section 12AB and approval under section 80G to the assessee; however, while granting registration / approval, CIT(E) recorded certain observations, stating that the Revenue was contemplating challenge to the said judgment before the Supreme Court and therefore, by way of abundant caution, the assessee trust, donor entities and other stakeholders were being informed that the registration, approval and consequential benefits flowing therefrom would remain subject to the ultimate outcome of the proceedings before the Supreme Court.

Aggrieved by these observations and caveats, the assessee preferred appeals before ITAT.

HELD

The Tribunal observed as follows:

(a) It is a fundamental principle governing judicial discipline that a judgment rendered by the jurisdictional High Court is binding upon all authorities functioning within its territorial jurisdiction so long as it continues to hold the field. The efficacy and binding character of such a judgment do not depend upon whether one of the parties proposes to challenge it before a superior forum. A contemplated appeal, a proposed special leave petition or even a pending challenge before a higher court does not dilute the binding force of the judgment unless its operation is stayed, modified or reversed by a competent judicial authority. Therefore, once CIT(E) accepted the binding nature of the judgment of the Bombay High Court and proceeded to grant registration and approval on that basis, it was not open to simultaneously dilute the effect of such grant by incorporating observations founded merely upon a possible future contingency.

(b) The observations incorporated by CIT(E) travelled beyond the scope of the directions issued by the High Court. The High Court directed that applications should not be rejected solely on the ground of absence of an express irrevocability clause. CIT(E), while implementing those directions, was required to grant or refuse registration in accordance with law and on the basis of the facts before him. Once registration and approval were granted, the statutory recognition so conferred could not be converted into a tentative or conditional recognition by referring to a possible future challenge. Such observations do not emanate from any provision of the Act and are unsupported by any statutory mechanism permitting a registration order to remain perpetually subject to an anticipated future event.

(c) Such caveats also have wider practical ramifications. Registration under section 12AB and approval under section 80G are not merely procedural recognitions. They constitute the foundation upon which charitable institutions organise their activities, mobilise resources and secure public participation. Donors, contributors and stakeholders often evaluate the legal status of a charitable institution on the basis of the registration and approvals granted under the Act. An observation by the statutory authority itself suggesting that the approval presently granted may remain subject to an uncertain future outcome is capable of creating avoidable ambiguity and hesitation in the minds of stakeholders. Such uncertainty is neither contemplated by the statutory scheme nor warranted by the judicial directions pursuant to which the approval has been granted.

(d) The validity and efficacy of the registration granted to the assessee must be examined with reference to the law as it exists on the date of grant and not on the basis of speculative future developments. Needless to state, if at any future point of time any superior judicial forum lays down a different legal position, the consequences, if any, would follow in accordance with law. However, such hypothetical future possibilities cannot furnish a legal basis for qualifying a registration that presently stands validly granted.

Noting that the identical issue came up before coordinate bench in ILLA Rajesh Foundation v. CIT (Exemptions) (IT Appeal Nos. 4488 to 4491 of 2026, dated 15.05.2026), the Tribunal held that the impugned observations and caveats which made such registration and consequential benefits subject to the outcome of a proposed challenge before the Supreme Court, are directed to be deleted and the assessee shall be entitled to registration under section 12AB and approval under section 80G as granted by CIT (E) without any such qualification, restriction or conditional rider.

In the result, the appeals of the assessee were allowed.

Where the assessee initially filed Form No. 10AB under an incorrect clause and thereafter filed a fresh application under the correct clause during registration proceedings, such filing was a curative step and continuation of the original proceedings and rejection of registration on the ground that the corrected application was time-barred was not justified.

40. (2026) 187 taxmann.com 993 (Mum Trib)

Akashdeep Education Trust v. ITO

A.Y.: 2026-27 Date of Order : 24.06.2026

Sections: 12A(1)(ac), 12AB

Where the assessee initially filed Form No. 10AB under an incorrect clause and thereafter filed a fresh application under the correct clause during registration proceedings, such filing was a curative step and continuation of the original proceedings and rejection of registration on the ground that the corrected application was time-barred was not justified.

FACTS

The assessee was constituted under a trust deed dated 28.10.1991 and registered with the Charity Commissioner, on 07.03.1992, and had been running educational institutions for over three decades. An earlier application under section 12AA had been rejected by the CIT(E), but on appeal in 2018, the Tribunal had directed grant of registration after examining the trust’s charitable objects and genuineness of activities. Under the regime introduced by the Finance Act, 2020, the assessee was granted provisional registration under section 12AB in Form No. 10AC on 07.04.2023, valid up to 31.03.2025. Before expiry of the provisional registration, the assessee filed Form No. 10AB on 26.03.2025 to convert the provisional registration into regular registration but inadvertently selected “sub-clause (ii): of section 12A(1)(ac) instead of “sub-clause (iii)”. On noticing the defect, CIT(E) issued a show-cause notice on maintainability of the application. The assessee accepted the mistake and filed a fresh Form No. 10AB on 03.09.2025 under the correct sub-clause, clarifying that it was merely a rectification of the earlier inadvertent error.

By order dated 27.03.2026, the CIT(E) rejected the application, holding that the application filed under the correct sub-clause was beyond the prescribed period and time-barred.

Aggrieved, the assessee filed an appeal before the Tribunal.

HELD

The Tribunal observed as follows:

(a) The assessee was not a newly established institution but an educational trust in existence since 1991, whose charitable character and genuineness of activities had already been recognised by the Tribunal in its own earlier case. The CIT(E)’s approach of invoking the ‘commencement of activities’ limb of section 12A(1)(ac) proceeded on a factual premise wholly inconsistent with the admitted position on record.

(b) The original Form No. 10AB was filed on 26.03.2025, prior to expiry of the provisional registration on 31.03.2025, demonstrating the assessee’s intention to seek conversion within the prescribed period. The defect pointed out by CIT(E) was confined to selection of a sub-clause within the same statutory provision and it was not a case that no application had been filed.

(c) The distinction between a fresh claim and a corrective claim is well recognised in law. In the present case, the subsequent application did not introduce any new claim, new relief, new factual foundation or new cause of action. It merely corrected the procedural defect arising from selection of an incorrect statutory limb while seeking the very same relief. The trust deed remained the same; the objects remained the same; the registration sought remained the same; and the supporting documents remained the same. The subsequent application was therefore, in substance and effect, a continuation of the original proceedings and merely rectified a procedural irregularity. Such a curative exercise cannot be construed in a manner that extinguishes the original application which had admittedly been filed before expiry of the provisional registration.

(d) Even assuming, for the sake of argument, that the corrected application was to be viewed independently, the statute itself had conferred upon CIT(E) the power to condone delay where reasonable cause exists. The proviso inserted by the Finance (No.2) Act, 2024 was very much in force both on the date of filing of the corrected application and on the date of passing of the impugned order. Once such a power stood vested in the authority, it became incumbent upon CIT(E) to examine whether the circumstances leading to the filing of the corrected application constituted reasonable cause.

(e) Despite issuance of notices and conduct of proceedings over time, CIT(E) had not recorded a single adverse finding regarding the trust’s charitable objects, genuineness of activities, utilisation of funds, maintenance of accounts or compliance with statutory requirements; the rejection was founded entirely on limitation. To deny registration in such circumstances would amount to elevating procedural form over substantive justice.

The Tribunal held that having regard to the long-standing existence of the trust since 1991, the earlier Tribunal order directing registration, the provisional registration already granted, the undisputed timely filing of the original Form No. 10AB, the curable nature of the defect, the corrective filing, the statutory power of condonation available with CIT, and the complete absence of any adverse finding regarding charitable objects or genuineness of activities, the impugned order of the CIT(E) is liable to be set aside and the CIT(E) was directed to grant regular registration to the assessee trust in accordance with law.

In the result, the appeal filed by the assessee was allowed.

Payment for availing Google AdWords advertising services through Google’s standardised, automated self-service platform could not be characterised as fees for managerial, technical or consultancy services under section 194J and deduction of tax at 2% under section 194C was proper.

39. (2026) 187 taxmann.com 871 (Hyd Trib)

DCIT v. Head Digital Works (P.) Ltd.

A.Y.: 2018-19 Date of Order : 19.06.2026

Sections: 194C, 194J

Payment for availing Google AdWords advertising services through Google’s standardised, automated self-service platform could not be characterised as fees for managerial, technical or consultancy services under section 194J and deduction of tax at 2% under section 194C was proper.

FACTS

The assessee-company, running an online gaming website, availed online advertising space under the Google AdWords program from Google India Pvt. Ltd. and deducted TDS at 2% under section 194C, treating the payments as an advertising contract.

During a survey under section 133A conducted to verify TDS compliance, the AO held that the payments were fees for technical services under section 194J, observing that the AdWords platform involved sophisticated automated algorithms, real-time bidding, data analytics and interfaces, and hence constituted managerial, technical or consultancy services under Explanation 2 to section 9(1)(vii). Accordingly, he passed orders under sections 201(1)/201(1A), treating the assessee as an assessee in default for short deduction of TDS (computed at Rs. 2,55,90,804) with consequential interest under section 201(1A) (Rs.57,75,297).

On appeal, the CIT(A) accepted the assessee’s contention, following CBDT Circular No. 715 dated 8.8.1995 and the decision of Google India (P.) Ltd. v. DCIT, (2022) 143 taxmann.com 302 (Bangalore – Trib.) and accordingly, held that the payments fell under section 194C.

Aggrieved, the Revenue filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) For payment to be characterized as “Fee for Technical Services” under Section 194J read with Explanation 2 to Section 9(1)(vii) of the Act, the services rendered must be managerial, technical or consultancy in nature. Technical services require application of human skill, intelligence or direct human intervention; mere use of a highly sophisticated automated technology or standard software interface by the consumer does not mean the service provider is rendering technical services.

(b) In the Google AdWords program, the platform is a standard, automated, self-service portal: the advertiser logs in, selects keywords, sets budgets and uploads ad copy, while matching of keywords, auctioning of ad rank and publishing of the ad are all managed automatically via Google’s algorithm. Presence of a sophisticated automated technology facility does not equate to rendering of technical services; the consumer merely uses an automated facility to purchase advertising space. Reliance on Bharti Cellular Ltd. was misplaced, as the Supreme Court in that case did not decide the issue on merits but remanded it to verify human intervention.

(c) Advertising is specifically covered by section 194C, which includes contracts for advertising. Once the Legislature has consciously made advertising the subject matter of section 194C, it cannot be brought within section 194J merely because the medium is electronic or technologically advanced — a specific provision overrides a general one. This is reinforced by CBDT Circular No. 714 dated 3.8.1995, clarifying that section 194J applies to advertising agencies making payments for professional services, whereas advertising in print or electronic media is governed by section 194C.

(d) The amendment to section 194J by the Finance Act, 2020, reducing the TDS rate on FTS (other than professional services) from 10% to 2%, was intended to reduce litigation on the conflict between sections 194C and 194J. Although effective from A.Y. 2020-21, the rationale justifies extending the benefit to earlier years; since the assessee had already deducted TDS at 2% (matching the amended rate), the order treating it as an assessee in default could not be upheld on this count either.

Accordingly, the Tribunal held that the payments made by the assessee to Google India Pvt. Ltd. for “Google AdWords program” constituted a simple advertising contract in electronic media falling under section 194C, and the assessee had rightly deducted TDS at 2%.

In the result, the appeal filed by the Revenue was dismissed.

Addition for payment of on-money cannot be sustained merely on the basis of a statement which per statement per se cannot be considered as evidence against third party unless it is tested by cross examination.

38. 2026(6) TMI 1385 – ITAT – Mumbai

Nitish Baburao Bhatkar v. ITO

A.Y.: 2019-20 Date of Order : 23.6.2026

Sections: 28, 132

Addition for payment of on-money cannot be sustained merely on the basis of a statement which per statement per se cannot be considered as evidence against third party unless it is tested by cross examination.

FACTS

The Assessing Officer (AO), on the basis of information obtained from the Investigation Wing that in the course of search on GNP Group, an incriminating document was found and seized, which revealed details of on-money collected by GNP Group, reopened the assessment of the assessee on the ground that the assessee has paid on-money of Rs.30 lakh for purchase of immovable property.

The assessee submitted that he had purchased the industrial unit on 27.8.2020 for a consideration of Rs.27 lakh. Payment of Rs.27 lakh plus other amounts such as development charges, etc was made by cheques, details whereof were furnished. The AO was of the view that since the particulars of the unit purchased by the assessee viz. Unit No. 7 on 1st floor matched with details mentioned on seized material, he concluded that the assessee has made initial payment of Rs 30 lakh in AY 2019-20.

The AO made an addition of Rs.30,00,000 under section 69C disregarding the registered agreement, receipts issued by the builder, bank statement, affidavit of the assessee stating consideration for purchase of immovable property was paid by cheques and also the contention that the seized document mentioned name of one “Mr Anup Tejwani”.

Aggrieved, the assessee preferred an appeal to CIT(A) who confirmed the action of the AO by passing a non-speaking order.

Aggrieved, the assessee preferred an appeal to the Tribunal where on behalf of the assessee, reliance was placed on the decision in the case of Monica Anand Gupta v. ITO [ITA No. 5561/Mum./2018; Order dated 21.4.2022] where a similar addition made on the basis of a search conducted on COSMOS Group was adjudicated by the Tribunal.

HELD

The Tribunal observed that the AO made additions solely on the basis of a report prepared by the investigation team. No cognizance of various documentary evidence furnished by the assessee was taken by the AO or the CIT(A). The AO has not brought any other corroborative evidence of actual payment of on-money on record. There is specific reference about the name of assessee in the Excel sheet relied on by the AO. While the said document contained reference of “Anup Tejwani”, the AO has not explained such name on the seized paper. The statement of the key person is general and the name of assessee was not disclosed.

The Tribunal held that statement per se cannot be considered as evidence against third party unless it is tested by cross examination. It stated that co-ordinate bench of this Tribunal in Prakash Bhaguji Katkade v. ITO [ITA No. 7402/M/2025], deleted similar addition which was made on the basis of search on Cosmos Group. Further, similar additions were deleted in case of Bharat Laxman Bhiwapurkar v. ITO [ITA No.3413/M/2023 dated 04.03.2024], and in Anand Gupta V. ITO [ITA No.5561/Mum/2018].

Considering the aforementioned decisions of the Tribunal on similar set of facts, the Tribunal deleted the addition made by the AO and allowed the appeal filed by the assessee.

What the Assessing Officer could not have done directly while exercising jurisdiction under sections 147/148, the CIT(A) cannot be permitted to do indirectly while exercising powers under section 251. What cannot be done directly cannot be permitted to be achieved indirectly. Where no addition survives on the issue for which the assessment was reopened, the Revenue cannot independently assess income on issues unconnected with the reasons recorded for reopening. Power of enhancement is only ancillary to appellate jurisdiction and cannot become an independent source of jurisdiction to assess income which the Assessing Officer himself could not have assessed in the reassessment proceedings If Revenue’s argument that the CIT(A) can at any stage introduce a completely new source of income unrelated to the issue for which reassessment proceedings were initiated, is accepted, then it would virtually render the statutory limitations prescribed under sections 147 to 149 otiose.

37. TS-9340-ITAT-2026(Chandigarh)

Ritu Chopra v. ITO

A.Y.: 2013-14 Date of Order : 22.6.2026

Sections: 147, 251

What the Assessing Officer could not have done directly while exercising jurisdiction under sections 147/148, the CIT(A) cannot be permitted to do indirectly while exercising powers under section 251. What cannot be done directly cannot be permitted to be achieved indirectly.

Where no addition survives on the issue for which the assessment was reopened, the Revenue cannot independently assess income on issues unconnected with the reasons recorded for reopening.
Power of enhancement is only ancillary to appellate jurisdiction and cannot become an independent source of jurisdiction to assess income which the Assessing Officer himself could not have assessed in the reassessment proceedings

If Revenue’s argument that the CIT(A) can at any stage introduce a completely new source of income unrelated to the issue for which reassessment proceedings were initiated, is accepted, then it would virtually render the statutory limitations prescribed under sections 147 to 149 otiose.

FACTS

The assessment of the assessee was reopened to examine source of investment of Rs.79,20,000 made by the assessee in Panchkula Property. The Assessing Officer (AO) not being satisfied with the explanations furnished, added the said sum of Rs.79,20,000 to the total income as unexplained investment under section 69A of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who was satisfied that the investment was made out of sale proceeds of the property at Manesar. Consequently, the CIT(A) deleted the addition of Rs.79,20,000 made by the AO but noticed that the assessee has sold the property at Manesar for a consideration of Rs.1.20 crore and no capital gains thereof has been offered for taxation. The CIT(A), exercising the powers under section 251 of the Act, enhanced the income of the assessee by computing LTCG of Rs.98,94,000.

Aggrieved by the action of the CIT(A), the assessee preferred an appeal to the Tribunal, where on behalf of the assessee it was contended that the addition made by CIT(A) is wholly without jurisdiction since the capital gain in respect of Manesar property was not a subject matter of reassessment and once the basis of reopening stood extinguished, by reason of CIT(A) having accepted the source of investment of Rs.79,20,000, the CIT(A) could not have introduced a new source of income while exercising powers under section 251 of the Act.

HELD

At the outset, the Tribunal noticed that the reassessment was initiated to verify the source of investment of Rs.79,20,000 in property at Panchkula. The reasons recorded under section 148, the notices issued during reassessment proceedings and the assessment order passed under section 147 read with section 144 clearly revealed that the entire enquiry conducted by the AO was confined to examining the source of such investment. The AO never examined the issue relating to taxability of capital gains arising from sale of the Manesar property. No enquiry was conducted by him from the standpoint of taxability of such gains and no finding whatsoever was recorded in the assessment order in this regard.

It noted that issue under consideration stands directly covered by the decisions of the Supreme Court in the cases of CIT v. Rai Bahadur Hardutroy Motilal Chamaria [66 ITR 443] and CIT v. Shapoorji Pallonji Mistry [44 ITR 891] where it has been categorically held that although the powers of the first appellate authority are wide, such powers do not extend to bringing to tax a new source of income which was not considered by the AO. Similar view has been expressed by the Full Bench of the Hon’ble Delhi High Court in the case of CIT v. Sardari Lal & Co. [251 ITR 864].

Further, the Delhi High Court in the case of Ranbaxy Laboratories Ltd. v. CIT [336 ITR 136] and the Bombay High Court in the case of CIT v. Jet Airways (I) Ltd. [331 ITR 236] have categorically held that where no addition survives on the issue for which the assessment was reopened, the Revenue cannot independently assess income on issues unconnected with the reasons recorded for reopening. The jurisdiction under section 147 is founded upon the reasons recorded and cannot be enlarged to unrelated matters once the very basis of reopening fails.

It held that –

i) the Act prescribes specific statutory conditions and time limits for reopening an assessment and bringing to tax income alleged to have escaped assessment. The reassessment jurisdiction is not an unbridled jurisdiction but is circumscribed by the limitations consciously imposed by the legislature. If the contention of the Revenue is accepted that the CIT(A) can, at any stage, introduce a completely new source of income unrelated to the issue for which reassessment proceedings were initiated, it would virtually render the statutory limitations prescribed under sections 147 to 149 otiose;

ii) such an interpretation would confer upon the Appellate Authority a power wider than that available to the AO himself. The consequence would be that although the AO may be precluded from examining a particular issue due to statutory limitations or jurisdictional restrictions, the same issue could nevertheless be brought to tax years later by the Appellate Authority under the guise of enhancement. Such a consequence could never have been intended by the Legislature;

iii) the powers conferred under section 251 are undoubtedly wide; however, they cannot be interpreted in a manner which defeats the safeguards and limitations built into the reassessment provisions. The power of enhancement is only ancillary to appellate jurisdiction and cannot become an independent source of jurisdiction to assess income which the AO himself could not have assessed in the reassessment proceedings;

iv) stated differently, what the AO could not have done directly while exercising jurisdiction under sections 147/148, the CIT(A) cannot be permitted to do indirectly while exercising powers under section 251 of the Act. The settled principle of law is that what cannot be done directly cannot be permitted to be achieved indirectly. Therefore, viewed from this angle also, the enhancement made by the CIT(A) cannot be sustained.

Following the aforesaid judicial precedents and for the reasons recorded hereinabove, the Tribunal held that the enhancement made by the CIT(A) by bringing to tax Long Term Capital Gain of Rs.98,94,000 is beyond the scope of his jurisdiction and is liable to be deleted.

Denial of claim under section 54F cannot be sustained where the case of the assessee was selected for limited scrutiny with the notice under section 143(2) stating verification of large cash deposits in savings bank account to be the reason therefor. Once a revised return is filed, the original return stands replaced. Consequently, the assessment made on the basis of original return by ignoring the revised return which reduced the total income needs to be quashed.

36. 2026(6) TMI 1392 – ITAT – Delhi

Paluri Raghavan Gopala v. ACIT

A.Y.: 2015-16 Date of Order : 24.6.2026

Sections: 139, 143

Denial of claim under section 54F cannot be sustained where the case of the assessee was selected for limited scrutiny with the notice under section 143(2) stating verification of large cash deposits in savings bank account to be the reason therefor.

Once a revised return is filed, the original return stands replaced. Consequently, the assessment made on the basis of original return by ignoring the revised return which reduced the total income needs to be quashed.

FACTS

The assessee preferred an appeal against the appellate order passed under section 250 of the Act by National Faceless Appeal Centre confirming the additions made by the Assessing Officer while assessing the total income of the assessee under section 143(3) of the Act.

Aggrieved, the assessee preferred an appeal where it raised two additional grounds viz. (i) that the CIT(A) erred in confirming the addition to total income as a result of disallowance of claim under section 54F on the ground that the same was beyond the scope of limited scrutiny; and (ii) the assessment framed on the basis of original return which stood replaced by revised return is bad in law and needs to be quashed.

HELD

The Tribunal noted that the notice under section 143(2) merely mentioned cash deposit in savings bank account to be the reason for examination under limited scrutiny. The mere assertion of the Assessing Officer (AO) that issue of transfer of properties being part of limited scrutiny is not sufficient. It held that the AO travelled beyond the scope of limited scrutiny mentioned in the notice issued under section 143(2) of the Act.

As regards the second ground the Tribunal noticed that the assessee has filed a revised return wherein the total income has been reduced. The case of the assessee was that the notice under section 143(2) of the Act was issued with reference to the original return and not with reference to the revised return and that upon filing of revised return, the original return stood replaced.

The DR submitted that the revised return was filed after issuance of notice under section 143(2) of the Act and therefore no cognizance thereof was required to be taken.

The Tribunal held that the issue seems to be settled in favour of the assessee by decision of Tripura High Court in the case of Tripura State Electricity Corporation Ltd. v. PCIT [(2025) (8)TMI 1193 (Tripura HC)] wherein the High Court has held that once revised return is filed, the original return stand obliterated.

The Tribunal noted that in the case of assessee, when the assessment order was passed while re-computing taxable income on the basis of disallowance of capital gain and considering the same to be under the head of business income, the AO has taken return income of Rs. 57,71,360 which admittedly was total income in the original return dated 26.08.2015. Thus, a revised return seems to be completely ignored by the AO.

In view of the aforesaid discussion, the Tribunal allowed the additional ground raised by the assessee.

The enhanced rate of 60% under section 115BBE is applicable only from AY 2018-19. Consequently, during the AY 2017-18, in respect of the professional receipts surrendered in the course of survey, the AO could not have applied the enhanced rate.

35. 2026(6) TMI 1328 – ITAT – Agra

Vikas Chandra Mittal v. ACIT

A.Y.: 2017-18 Date of Order : 24.6.2026

Section: 115BBE

The enhanced rate of 60% under section 115BBE is applicable only from AY 2018-19. Consequently, during the AY 2017-18, in respect of the professional receipts surrendered in the course of survey, the AO could not have applied the enhanced rate.

FACTS

During the survey action conducted u/s 133A of the Act at the business premises of the assessee on 31.08.2016, the assessee surrendered Rs. 20,00,000/- out of professional receipts said to have been invested in building construction. The Assessing Officer (AO) subjected this amount to tax under the provisions of section 115BBE @ 60% as against the normal rate of tax @ 30% paid by the assessee and added to the income of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) which was dismissed.

Aggrieved, the assessee preferred an appeal to the Tribunal where it relied upon the order of the Madras High Court in W.P (MD) No.2078/2020 and WMP (MD) No. 1742/2020 in S.M.I.L.E Microfinance Ltd v. ACIT and also on the order dated 03.02.2025 passed by the Agra Bench in ITA No. 209/Agr/2023 (A.Y.2017-18) in the case of Jai Narayan Maheshwari v. ITO, wherein, the tribunal has referred and relied upon S.M.I.L.E Microfinance Ltd. (supra).

HELD

The Tribunal observed that the main point for determination under appeal is whether impugned amount of Rs. 20,00,000 surrendered by the assessee during the survey conducted on 31.08.2016, for A.Y. 2017-18, has to be taxed at normal rate i.e. @ 30% as against 60% invoked by the revenue u/s 115BBE of the Act.
It noted that it is an undisputed fact that assessee, during the survey conducted on 31.8.2016, relevant to A.Y. 2017-18, disclosed Rs.20,00,000/- as income from professional receipts.
The Tribunal held that in view of the order dated 19.11.2024 passed by Madras High Court in S.M.I.L.E Microfinance Ltd (supra), section 115BBE of the Act applying tax @ 60% cannot be applied in the instant case, which is related to A.Y. 2017-18 and the AO is empowered to impose only @ 30% u/s 115BBE of the Act. The Tribunal decided the issue in favour of the assessee and against the revenue.

Payment made by the assessee to its teachers qualified for deduction of tax at source under section 194J and not under section 192. Regulations, restrictions, guidelines and control exercised in regard to logistical and administrative functions of the workforce are not unique to an education organisations and it is difficult to identify any establishment that does not exercise some degree of control over the administrative and logistical functioning of the workforce, be they salaried or otherwise called as a consultant

34. TS-931-ITAT-2026(Cochin)

Brilliant Study Centre Pvt. Ltd. v. ITO, TDS

A.Y.: 2023-24 Date of Order : 16.6.2026

Sections: 192, 194J, 201, 201(1A)

Payment made by the assessee to its teachers qualified for deduction of tax at source under section 194J and not under section 192.

Regulations, restrictions, guidelines and control exercised in regard to logistical and administrative functions of the workforce are not unique to an education organisations and it is difficult to identify any establishment that does not exercise some degree of control over the administrative and logistical functioning of the workforce, be they salaried or otherwise called as a consultant

FACTS

Consequent to a survey conducted on the assessee, engaged in imparting coaching for medical and engineering aspirants, under section 133A(2A) of the Act, the Assessing Officer (AO) issued a show cause notice to the assessee seeking explanation as to why tax has been deducted at source under section 194J and not under section 192 of the Act in respect of payments made to 121 teachers.

The AO, in the show cause notice, observed that assessee has appointed 121 teachers who are treated as professionals and not employees. He also noted that they were initially treated as employees but subsequently, to meet market competition, were regarded as professionals. He observed that when teachers joined from other institutes they were treated as professionals. The teachers were appointed on the basis of verbal agreement with the management as faculty members. They were paid on hourly basis and were to take lectures for 5 to 7 hours a day. They were not allowed to take lectures in other institutes and were promised an increment of approximately 10%. The assessee responded that all these are administrative measures and that the teachers are not employees but are professionals.

The AO held that in view of the fact that the effective control, set working hours, termination procedure, policies and applicable leave rules along with the non-compete clause, monthly payment of remuneration, medical insurance and provision of transport services are all indicative that the teachers are employees. However, he admitted that each of the teachers have filed their respective returns of income and have offered income for taxation under section 44ADA of the Act which returns have been accepted by the revenue. Relying on certain judicial precedents he held that the relationship of the assessee with the teachers was an employer-employee relationship and therefore tax ought to have been deducted under section 192 and not under section 194J as has been done by the assessee. He passed an order under section 201 demanding the amount of tax short deducted and also interest thereon u/s 201(1A).

Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal where the submissions made earlier were reiterated and reliance was placed inter alia on the decision of the Mumbai Bench of the Tribunal in ITA No. 1352/Mum/2014 and 5227/Mum/2014 dated 11.1.2017 wherein it has been held that the payment made to radio jockey on similar terms and conditions has been held to be payment for professional services liable for TDS under section 194J.

HELD

The Tribunal, at the outset, noted that the only issue involved is the section under which tax is required to be deducted at source by the assessee in respect of payments made by the assessee to the teachers engaged by it. The Tribunal noted that the teachers were referred to as ‘consultants’ and fell within the category of visiting teachers. Remuneration was a fixed amount along with a variable component and is termed as `professional fees’. They are not entitled to any statutory benefits like PF, Gratuity, Bonus, Medical reimbursement, leave encashment, etc. Working hours are stipulated and the teachers are expected to be available for extra lectures. Teachers cannot go to other coaching classes. The assessee does not exercise control, intervention or direction over the exercise of professional duties by them and the teachers are free to teach in their own way subject to curriculum. There is no indemnity between the assessee and the teachers and there is no written agreement / contract.

The Tribunal observed that the key distinction is between a contract for service and one of service and depends on several factors. It held that the regulations, restrictions, guidelines and control exercised in regard to logistical and administrative functions of the workforce are not unique to an education organisation and it is difficult to identify any establishment that does not exercise some degree of control over administrative and logistical functioning of the workforce, be they salaried employees or otherwise called as consultants.

The Tribunal found that the identical issue arose before the Madras High Court in case of Dr. Mathew Cherian vs. Assistant Commissioner of Income-tax [(2023) 450 ITR 568 (Madras)] wherein all those decisions relied upon by the revenue authorities are considered and the High Court has held that ‘Where agreement between doctors and hospital revealed that doctors were not entitled for any statutory benefits and doctors held full responsibility for their medical decisions without any interference of hospital, it could be said that intention of parties were to engage in a relationship of equals and not one of master-servant and therefore, department was not justified in issuing reassessment notice under section 148A for taxing income returned by assessees as salary income’.

Following the decision of the Madras High Court, the Tribunal held that the payment made by the assessee to the teachers engaged by it qualified for deduction of tax at source under section 194J of the Act. Accordingly, the order passed by the AO under section 201 / 201(1A) and the order of the CIT(A) confirming the action of the AO were quashed.

Glimpses Of Supreme Court Rulings

5. L.K. Trust vs. Commissioner of Income Tax and Ors.- SC

Civil Appeal No. 527/2012 decided on 07.05.2026

Deduction – Interest – Section 36(1)(iii) – The provisions of Section 36(1)(iii) concern capital borrowed and not other debts or liabilities – for determining the allowability, the court should examine the transfer of borrowed funds from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits.

The Assessee borrowed a sum of Rs.3.80 crore from Corporation Bank to purchase shares of Shaw Wallace and Company Limited in pursuance of an Agreement dated 19-11-1987. Under the said Agreement, the Company had committed to sell 7.80 lakh shares for a total consideration of Rs.3.8 crore.

The Assessee filed its return of income for the Assessment year 1989-90 declaring total income of Rs.7,55,67,530/-. The return was processed under Section 143(1)(a) of the Act, and later a notice was issued under Section 143(2). While passing the Assessment Order in 1992, the Assessing Officer noted that the Assessee had availed a loan of Rs.3,80,00,000/- from Corporation Bank and had paid interest of Rs.21,74,234/-. However, the AO further noted that the amount had been transferred to M/s Gayatri Holdings Private Limited, a group company, through purchase of its shares, which in turn transferred the amount to Shri G Venkateshwaran for the purchase of shares of M/s Shaw Wallace and Company Limited.

In the circumstances referred to above, the AO took the view that the Assessee was not entitled to claim deduction under Section 36(1)(iii) of the Act and, accordingly, the interest paid on the loan was disallowed.

The Assessee went in appeal before the CIT(A). The CIT(A) also disallowed the deduction. The matter then went in appeal before the ITAT. The ITAT allowed the appeal preferred by the Assessee.

The ITAT noted that the Hon’ble Supreme Court, in the case of Madhav Prasad Jatia v. CIT, (118 ITR 200), while dealing with Section 10(2)(iii) of 1922 Act (which was akin to the present section 36(1)(iii) of the Income-tax Act, 1961), laid down three pre-requisites to be complied with before allowing the deduction of interest expenses. First, the loan must have been borrowed by the Appellant; second, it must have been borrowed for the purpose of Appellant’s business; and third, the Appellant must have paid interest on the loan and claimed deduction for the same.

According to ITAT, the first condition, namely, that the Assessee must have borrowed the monies, is fully satisfied in the instant case. The second condition was also satisfied, in its view, on the basis of detailed discussion in its decision wherein it was concluded that the money had been raised and utilized for the purposes which were integral to the business of the Appellant. Thirdly, the Assessee had paid the entire interest of Rs.21,74,234/- to the bank on the borrowings made by it and had claimed the said amount as a deduction by way of charge to P&L A/c.

The ITAT observed that the Appellant had more than one source of income under the head ‘business’ as it was deriving income from businesses of money-lending, speculation business, film distribution, and investment in shares. The Appellant-trust had maintained only one common set of books of account in which entries pertaining to these businesses of film distribution, money lending, investments, speculation etc. were incorporated. The management of the entire set of operations was vested in the trustees, and there was complete interlocking of funds. Therefore, according to ITAT, the business of the Appellant was a composite one in as much as it carried on several businesses, including the business of investment in shares through its subsidiaries.

The ITAT noted that the Hon’ble Supreme Court of India, in the case of CIT v. Associated Fibre and Rubber Industries (P) Ltd. (236 ITR 471), had opined that as long as the assets purchased from borrowings had been treated as business assets, the interest outgo on such borrowings was allowable. Also, the Apex Court in Veecumsees v. CIT (220 ITR 185) had taken the view that so long as the loans had been obtained for the purposes of business, the fact that the particular part of the business for which the loans had been obtained was closed or transferred subsequently did not alter the fact that the loans had (when raised), been for the purpose of Assessee’s business; and, that the interest paid on such loans could not be denied as the management was common, though the line or branch of business for which loan was raised had been closed down.

According to the ITAT, an irresistible inference that could be drawn from a reading of the judgments of the Apex Court was that the existence or otherwise of the composite nature of a business is essential in considering the allowability of interest on loans borrowed by an Assessee, and in the present case, it was found that the business was composite nature.

The ITAT concluded that a sum of Rs.21,74,234/- paid by the Appellant-trust as interest to Corporation Bank on borrowings of Rs.3.80 crore was eligible for deduction under Section 36(1)(iii) of Income-tax Act.

The Revenue, being dissatisfied with the Order passed by the ITAT, went before the High Court.

The High Court answered the questions of law referred to it in favour of the Revenue, holding as under:

“That the Appellant Trust has borrowed a loan from the Bank in order to invest the same in its share business. It is also not in dispute that a sum of Rs.3,80,00,000/- has been transferred to M/s. Gayathri Holdings Private Limited by the Assessee. It is also not in dispute that the Assessee has paid the interest payable to the Bank on the entire borrowings. It is also not in dispute that out of Rs.3,80,00,000/- transferred to M/s. Gayathri Holdings Private Limited, certain amounts of shares of Shaw Wallace and Company are also transferred to the name of the Assessee. Therefore, we are of the view that the Assessing Officer was justified in granting the relief to the Assessee in respect of the value of the shares purchased by it through M/s. Gayathri Holdings Private Limited in respect of shares of Shaw Wallace and Company Limited. We are also of the view that the Assessing Officer is justified in disallowing the interest paid by the Assessee to the Bank in respect of the amount which was lying with M/s. Gayathri Holdings Private Limited in the account of the Assessee.”

In the circumstances referred to above, the Assessee filed an appeal before the Supreme Court.

According to the Supreme Court, the short point that fell for its consideration was whether the Appellant – Assessee was entitled to a deduction of Rs.21,74,234/- being the interest paid by it in respect of the loan availed from the Corporation Bank under Section 36(1)(iii) of the Income-tax Act 1961.

On reading of the provisions of section 36(1)(iii) of the Act, the Supreme Court observed that the sub-section has three important words or phrases, i.e, (i) Interest, (ii) Borrowed and, (iii) For the purpose of business or profession.

The Supreme Court noted that the definition of “interest” in Section 2(28A) means “interest payable in any manner in respect of any moneys borrowed or debt incurred”. However, for the purposes of Section 36(1)(iii), “interest” is restricted to that on money borrowed and not on debt incurred. In other words, the essence of interest is that it is a payment which becomes due because the creditor has not had his money at his disposal. It may be regarded either as representing the profit he might have made if he had the use of his money, or conversely, the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation.

The provisions of Section 36(1)(iii) concern capital borrowed and not other debts or liabilities. A loan of money undoubtedly results in a debt, but every debt does not involve a loan. Liability to pay a debt may arise from diverse sources, and a loan is one of such sources. The legislature has, under this clause, permitted as an allowance interest paid on capital borrowed for the purposes of the business; and the capital, in this context, means money and not any other asset purchased on credit [Bombay Steam Navigation Co. Pr. Ltd. v. CIT, 56 ITR 52 (SC)].

The Supreme Court further noted that the expression “for the purpose of business” occurs in Section 36(1)(iii) and also in Section 37(1). A similar expression, with different wording, also occurs in Section 57(iii), which reads as “for the purpose of making or earning income”. This issue came up for consideration before this Court in the case of Madhav Prasad Jatia v. CIT reported in (SC) 118 ITR 200. The Court held that the expression occurring in Section 36(1)(iii) is wider in scope than the expression occurring in Section 57(iii). Thus, meaning thereby that the scope for allowing a deduction under Section 36(1)(iii) would be much wider than the one available under Section 57(iii).

On a plain reading of the impugned order, it appeared to the Supreme Court that, according to the High Court, the business of the subsidiary company could not be considered in law as the business of the Assessee. The High Court took the view that the finding of the Tribunal based on commercial expediency was not correct. The High Court went on to observe that the amount borrowed was ultimately utilised for the benefit of the subsidiary company of the Assessee and not for the business of the Assessee as such.

According to the Supreme Court, the High Court fell into error in taking the aforesaid view.

The Supreme Court observed that in Sharp Business System v. CIT, reported in 479 ITR 1, one of the questions considered by it was whether interest on borrowed funds invested by the Assessee in its sister concern and its directors is an allowable business expenditure.

In aforesaid context, the Supreme Court made an analysis of Section 36 of the Income Tax Act, 1961, more particularly, Section 36(1) (iii) thereof. After referring to its earlier decision in S.A. Builders v. CIT, reported in 288 ITR 1, it opined that the court should examine the transfer of borrowed funds from the point of view of commercial expediency and not from the point of view of whether the amount was advanced for earning profits.

In the facts of that case, it was held that the Assessee was entitled to claim allowance of interest on the borrowed funds invested in a sister concern for acquiring a controlling interest.

The Supreme Court agreed with the line of reasoning assigned by the ITAT insofar as the interpretation of Section 36(1) (iii) of the Act 1961 was concerned. In the result, the Appeal of the Assesee-Appellant was allowed and the impugned Judgment and Order passed by the High Court was set aside.

The Supreme Court declared that the Assessee was entitled to seek deduction of the amount of the interest paid in respect of the capital borrowed to the tune of Rs.3.80 crore for the purposes of the business.

TDS — Section 195 — Payment of interest to a Non-resident — Payment under a judgment debt — Execution of decree — Retains the character of a judgment debt — Cannot be subjected to deduction of tax in the absence of a provision in the decree.

22. DLF Home Developers Limited v. Anto Thomas

2026 (6) TMI 505 – (Ker):

Date of order 19/05/2026:

S. 195 of ITA 1961

TDS — Section 195 — Payment of interest to a Non-resident — Payment under a judgment debt — Execution of decree — Retains the character of a judgment debt — Cannot be subjected to deduction of tax in the absence of a provision in the decree.

A dispute between the Petitioner and the Respondent was referred to an Arbitrator, and by way of an award dated 16/07/2018, the Arbitrator directed the Petitioner to refund the amount paid by the Respondent along with interest. The arbitration award was challenged in appeal before the High Court, and the High Court dismissed the appeal filed by the Petitioner. The Petitioner further challenged the order of the High Court by way of an SLP, which also came to be dismissed by the Supreme Court.

Subsequently, the Petitioner submitted a calculation statement regarding the balance amount payable. The said amount was computed after deducting TDS. The amount, as per the statement, was
deposited. The Respondent raised a dispute regarding the deduction of TDS from the interest amount payable. The District Court directed the Petitioner to pay the amount of TDS deducted to the Respondent.

Being aggrieved by the said order of the District Court, the Petitioner filed a writ petition before the High Court and contended that there was a statutory obligation to deduct TDS from the interest payable to a non-resident and, since the Respondent was a non-resident, the amount was paid after deducting TDS to avoid any action from the Income-tax Department.

The Kerala High Court dismissed the petition and held as follows:

“i) As per the judgment of a learned Single Judge of the Delhi High Court in Voith Hydro Ltd. & Ors. v. NTPC Ltd. [2021 SCC OnLine Del. 1325], TDS was not liable to be deducted on amounts payable under a decree.

ii) The Delhi High Court in the said judgment has relied on the judgment of the Hon’ble Supreme Court in All India Reporter Ltd. v. Ramachandra D. Datar [AIR 1961 SC 943] and the decision of the High Court of Bombay in Islamic Investment Co. v. Union of India [(2002) 3 Mah. LJ 555], Sino Ocean Ltd. v. Salvi Chemicals Industries Ltd. [2017 SCC OnLine Bom. 9401] and DSL Enterprises Pvt. Ltd. v. Maharashtra State Electricity Distribution Co. Ltd. [EP No.422 of 2018, decided on 13.03.2018], which are also judgments which took the same view.

iii) In All India Reporter (supra), the Hon’ble Supreme Court held that under the scheme of the Civil Procedure Code, a decree has to be executed as it stands, subject to such deductions or adjustments as are permissible under the Code and as between the judgment debtor and the decree holder, the amount payable represented a judgment debt. The Court held that for payment of income tax on such debts, no provision was made in the decree and the judgment debtor cannot hence deduct at source the tax payable by the decree holder.

iv) Section 195 of the Income Tax Act, 1961 which requires to deduct TDS does not speak of a decretal debt. The definition of ‘interest’ in Section 2(28A) says that ‘interest’ means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation). The said definition also does not include interest payable on a decree amount. In view of the judgments in All India Reporter Ltd. (supra), Voith Hydro Ltd. (supra), Islamic Investment Co. (supra) and Sino Ocean Ltd. (supra), I do not find any reason to interfere with the order dated 10/11/2025 in EP No.202 of 2023 of the 2nd Additional District Court, Ernakulam.”

Stay of demand — S. 220(6) — Pre-deposit of 20% of the disputed demand — Not a mandatory condition — Issue is decided by the Jurisdictional High Court — Assessee eligible for grant of complete stay of demand.

21. Cadence Design Systems India Pvt. Ltd. v. PCIT:

TS – 652 – HC – 2026 (Del.):

A. Ys. 2020-21 & 2021-22: Date of order 04/05/2026:

S. 220(6) of ITA 1961

Stay of demand — S. 220(6) — Pre-deposit of 20% of the disputed demand — Not a mandatory condition — Issue is decided by the Jurisdictional High Court — Assessee eligible for grant of complete stay of demand.

In the scrutiny assessments for A. Y. 2020-21 and A. Y. 2021-22, additions were made by disallowance in relation to the expenditure incurred in respect of the employee stock option plan. The assessment were completed and demands were raised for both the years. The assessee filed appeals and filed applications for stay of demand u/s. 220(6) of the Income-tax Act, 1961. The assessee’s application for stay of demand was rejected, and the assessee was required to deposit 20% of the demand.

The assessee filed a writ petition before the High Court challenging the rejection of stay of demand, primarily on the ground that when the issue is decided in favour of the assessee by the jurisdictional High Court, the requirement of deposit of 20% of the demand would not be applicable.

The Delhi High Court allowed the petition and held as under:

“i) The leeway granted in the circular which gives the impression that the Assessing Officer may ask the assessee to deposit a lesser amount than 20%, cannot be construed to mean that in every case the Assessing Officer or the Competent Authority shall ask the assessee to deposit 20% of the due demand.

ii) Once the jurisdictional High Court has taken a view, in normal circumstances, the Assessing Officer or the Competent Authority deciding an application u/s. 220(6) of the Act of 1961 is supposed to grant a complete stay, because judgments of High Court are binding on all the authorities, including the authority deciding the stay application.

iii) The writ petitions are allowed and the impugned orders passed by the Deputy Commissioner of Income Tax, Circle 4(2) Delhi dated 21/05/2024 (2020-21) and 18/08/2025 (2021-22) and the order dated 15.09.2025 passed by the Competent Authority for both A. Ys. (2020-21 and 2021-22), to the extent they require 20% of demand pursuant to the impugned assessment orders dated 27/09/2023 (2020-21) and 23/12/2024 (2021-22) to be deposited as a condition for grant of stay of remaining recovery, are set aside. Needless to observe that till disposal of the appeals, the recovery proceedings against the petitioner shall remain stayed. The Assessing Officer to do requisite entry in Income Tax Business Application (ITBA) Portal.”

Settlement of case — Application for settlement in assessment pursuant to search and seizure — Undisclosed income in jewellery business — Modus operandi of inflation of refinery loss — Full and true disclosure in application of the manner in which undisclosed income derived — Rejection of application on ground of failure to make a full and true disclosure — Single Judge of the High Court dismissed the writ petition — Division Bench of the High Court allowed the appeal and held that failure of competent authority to scrutinize the assessee’s application in detail resulted in the dismissal of the writ petition — Order in the writ petition and order rejecting application for settlement of the case set aside — Matter remanded to the competent authority with a direction to scrutinize the application.

20. Khazana Jewellery (P) Ltd. v. Income-Tax Settlement Commission:

(2026) 487 ITR 19 (Mad): 2026 SCC OnLine Mad 3939:

A. Y. 2011-12 to 2017-18: Date of order 16/02/2026:

Ss. 245C(1) and 245D(4) of ITA 1961

Settlement of case — Application for settlement in assessment pursuant to search and seizure — Undisclosed income in jewellery business — Modus operandi of inflation of refinery loss — Full and true disclosure in application of the manner in which undisclosed income derived — Rejection of application on ground of failure to make a full and true disclosure — Single Judge of the High Court dismissed the writ petition — Division Bench of the High Court allowed the appeal and held that failure of competent authority to scrutinize the assessee’s application in detail resulted in the dismissal of the writ petition — Order in the writ petition and order rejecting application for settlement of the case set aside — Matter remanded to the competent authority with a direction to scrutinize the application.

The petitioner/assessee is a company engaged in the business of manufacturing and trading of jewels. A search u/s. 132 of the Income-tax Act, 1961 was conducted at its premises on April 21, 2016. During the course of the search proceedings, the Managing director admitted, in response to question No. 8 in his sworn statement, that the company’s inflated refinery loss would be around three per cent. to five per cent and that excess gold from the refining process was siphoned off and sold in the black market. By virtue of the inflation of refinery loss, the assessee had generated a sum of Rs. 70.66 crores during A. Ys. 2011-12 to 2016-17, which was stated by the assessee in its letter dated June 29, 2016. In the aforesaid letter dated June 29, 2016, the assesee had offered an amount of Rs. 80 crores (268.200 kgs. of gold bullion) towards stock-in-trade kept with and held by the employees, goldsmiths, agents, etc., in the year of search, i. e., A. Y. 2017-18.

During the pendency of the assessment u/s. 153 of the Act pursuant to the search, the assessee submitted a settlement application dated October 16, 2018 before the competent authority. The application came to be rejected.

The rejection order was challenged by filing writ petition. The learned single judge of the Madras High Court, vide impugned order (Khazana Jewellery Pvt. Ltd. v. ITSC [(2026) 487 ITR 1 (Mad).]), concluded that, in order to be eligible for settlement, the provisions contained in section 245C(1) of the Act require full and true disclosure. As the Settlement Commissioner arrived at the conclusion that there was no full and true disclosure, the rejection of the application could not be faulted. Moreover, it was held that the question of changing the stand by converting the undisclosed portion of income into the income u/s. 69B of the Act was beyond the scope of settlement proceedings.

The assessee filed an appeal. The Division Bench allowed the appeal and held as under:

“i) We have perused the application filed by the writ petitioner before the authority. The application itself titles “Confidential Enclosure ‘D’: The manner in which the additional income has been derived”. This contains the details of the assessee’s involvement in inflating refinery loss. The process of refinery, as to how the loss was being assumed and periodically accumulated has been explained in great detail. The details run in as many as 25 paragraphs.

ii) The order passed by the authority rejecting the application, however, says that full and true particulars of the materials and evidence have not been disclosed with regard to the manner in which the undisclosed income, i. e., Rs. 80 crores was derived.

iii) We are of the view that the assessee has submitted details of the manner in which the undisclosed income, i. e., Rs. 80 crores was derived. According to the assessee, the stock-in-trade is directly related to Rs. 80 crores which in turn was a result of inflation of refinery loss, which perhaps the assessee was not correct in claiming as such, and this appears to be only a device not to disclose an income which the assessee otherwise had accumulated.

iv) The aforesaid aspect, in our view, was not taken into consideration in a proper manner by the competent authority. Since the rejection of the application for settlement not only results in imposition of interest, penalty, but also in prosecution, we are of the view that the competent authority was required to closely examine and scrutinise the manner in which income was derived, as was stated by the assessee in his application dated October 16, 2018.

v) We are, therefore, of the view that interest of justice would be served if the competent authority scrutinises in detail the manner in which the assessee derived undisclosed income of Rs. 80 crores. We make it clear that even according to the Revenue, as far as the remaining Rs. 70 crores is concerned, the writ petitioner is already eligible for settlement.

vi) In view of the above consideration, the impugned order passed by the learned single judge (Khazana Jewellery Pvt. Ltd. v. ITSC, 1) is set aside. Consequently, the order dated June 11, 2020 is also set aside. The case is remanded to the competent authority for consideration afresh of the writ petitioner’s application for settlement, keeping in view the observations made by this court, more particularly, the detailed application filed by the writ petitioner explaining the manner in which it derived the undisclosed income.”

S. 115BBE — Scope of amendment — Enhancement of rate of tax from 30% to 60% — Prospective or retrospective operation of taxing statutes — Absence of express retrospective language — Onerous fiscal amendment — Applicable prospectively from 01/04/2017 and not from F. Y. 2016-17.

19. Deepak Maratha (S/o Ramchandra Maratha) v. UOI:

2026 (6) TMI 371 – (Raj):

A. Y. 2017-18: Date of order 27/05/2026

Ss. 115BBE and 271AAC of ITA 1961

S. 115BBE — Scope of amendment — Enhancement of rate of tax from 30% to 60% — Prospective or retrospective operation of taxing statutes — Absence of express retrospective language — Onerous fiscal amendment — Applicable prospectively from 01/04/2017 and not from F. Y. 2016-17.

The Assessee was engaged in the business of jewellery and bullion. During F. Y. 2016-17, the assessee deposited a sum of Rs. 66.17 lakhs (including Specified Bank Notes) in his bank account during November – December 2016, i.e., the demonetisation period. The assessee filed his return of income on 30/10/2017 declaring a total income at Rs. 7,92,860.

Subsequently, the assessee’s case was selected for scrutiny, and the assessment was completed vide an order dated 21/12/2019 passed u/s. 144 of the Act. The books of account of the assessee were rejected u/s. 145(3) of the Act, and it was held that the assessee could not explain the cash deposit of Rs. 66,17,500 in the bank account. Accordingly, the said amount was treated as unexplained money and was added to the total income u/s. 68 of the Act. Further, tax was computed at 60% on the addition of Rs. 66,17,500, and a separate penalty notice was issued under the newly inserted section 271AAC of the Act.

Section 115BBE was amended by way of the Taxation Laws (Second Amendment) Act, 2016, enhancing the rate of tax from 30% to 60% with an additional surcharge of 25% on such tax, resulting in an effective rate of 75% plus 10% of tax as penalty with cess, resulting in an aggregate tax liability of 83.25% w.e.f. 01/04/2017 on income falling u/ss. 68 to 69D of the Income-tax Act, 1961.

The assessee challenged the retrospective application of the amended provisions of section 115BBE, whereby income earned prior to 01/04/2017 was taxed at the higher rate of 60% plus surcharge and penalty was also imposed.

The assessee challenged the order by way of a writ petition challenging the validity and vires of the retrospective operation of the amended provisions of section 115BBE of the Act. The core issue before the Hon’ble High Court was as follows:

Whether the amendment to Section 115BBE, which enhanced the rate of tax from 30% to 60%, can lawfully be applied to income arising from transactions completed during Financial Year 2016-17 w.e.f. 01/04/2016 to 31/03/2017, and/or more specifically, whether such enhanced rate operates from 15/12/2016, being the date of notification/Presidential assent to the amending Act, or only from 01/042017, being the effective date expressly specified in the amending provision itself?

The Rajasthan High Court allowed the petition and held as follows:

“i) The assessee had voluntarily disclosed that the relevant sum of Rs.66,17,500/- deposited in his bank accounts during November/December, 2016 was part of his business income for F. Y. 2016-2017. True, the Assessing Officer was not satisfied the explanation of the assessee about this income. But the fact remains that there was absolutely no concealment of income by the assesse in this case.

ii) The rate prescribed in the principal charging section, Section 115BBE itself, is an integral and inseparable component of the substantive tax liability. It determines the precise fiscal consequence that attaches to the taxable event. An assessee who completes a transaction under a regime prescribing 30% tax acquires, at that moment, a vested right to be assessed at that rate. The subsequent doubling of that rate, from 30% to 60%, without express retrospective language, cannot reach back to alter the consequence of a transaction already complete.

iii) The distinction between “imposing a new tax” and “enhancing an existing rate” has never been recognised as a basis for implying retrospectivity in taxing statutes. Both create or increase a fiscal burden on the subject. As Vatika (supra) holds, citing Halsbury: “retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment.” An enhancement of the rate from 30% to 60%, i.e., doubling the burden, plainly “affects or alters” existing rights and cannot be treated as a mere procedural or clarificatory change.

iv) In our opinion, enhancement of principal tax certainly creates new liability. The rate prescribed in the principal charging section is an integral and inseparable component of the substantive tax liability. It defines the precise fiscal consequence that attaches to the taxable event, and an assessee who completes a transaction under a regime prescribing 30% acquires, at that moment, a vested right accrues in his favour to be assessed at that rate. The subsequent doubling of that rate, without any express language for retrospectivity of the doubling of rate of tax cannot relate back and to alter the legal consequences of a transaction already completed.

v) The fundamental rule of interpretation is that legislation is presumed to operate prospectively unless a contrary intention clearly appears, grounded in the principle of lex prospicit non respicit, i.e., law looks forward not backward, since every person is entitled to arrange his affairs by relying on existing law without finding later on that his plans have been upset retrospectively.

vi) The correct legal position which emerges is summarized as below:

“(a) The law applicable to an assessment year is the law in force on the first day of that year — i.e., 01st April. A provision coming into force after that date, without express retrospective language, cannot be applied to assessments for that year.

(b) Changes in law occurring after the commencement of a financial year cannot govern the tax liability for that year unless the amendment is expressly made retrospective.

(c) The amendment to Section 115BBE came into force on 01/04/2017 i.e. the first day of F. Y. 2017-18. For F. Y. 2016-17, the law in force on 01/04/2016, prescribing a rate of 30%, must govern. The enhanced rate of tax @60% came into force on 01/04/2017 and can apply only from that date, i.e. from financial year 2017-18 onwards.

(d) The Taxation Laws (Second Amendment) Act, 2016 contains no express language for its retrospective effect of section 115BBE. We thus hold that the Taxation Laws (Second Amendment) Act, 2016 is prospective in effect as specified therein (from 15/12/2016, except the amendment of Section 115BBE, which is effective from 01/04/2017).” ‘

vii) The question framed in para 8.1, in the preceding part, is answered accordingly. The appellate authority shall therefore proceed further to adjudicate the assessment order impugned before it keeping in mind what has been enunciated hereinabove, in accordance with law.”

Revision u/s. 264 — Scope of power of Commissioner u/s. 264 — Capital gain — Exemption u/s. 54F — Failure to claim exemption u/s. 54F in the return — Revised return not filed — Claimed raised in revision u/s. 264 — Commissioner rejected application u/s. 264 — Held by the High Court that the Power of Commissioner is wide enough to grant relief even for the assessee’s errors and mistakes — Power u/s. 264 is intended to prevent miscarriage of justice and grant relief even where errors are committed by the assessee — Rejection order quashed and set aside — Matter remanded to the Principal Commissioner to consider afresh and decide in accordance with law.

18. Nisarg Ajaykumar Vakharia v. Principal CIT:

(2026) 488 ITR 75 (Bom): 2026 SCC OnLine Bom 3455:

A. Y. 2022-23: Date of order 03/02/2026:

S. 54F and 264 of ITA 1961

Revision u/s. 264 — Scope of power of Commissioner u/s. 264 — Capital gain — Exemption u/s. 54F — Failure to claim exemption u/s. 54F in the return — Revised return not filed — Claimed raised in revision u/s. 264 — Commissioner rejected application u/s. 264 — Held by the High Court that the Power of Commissioner is wide enough to grant relief even for the assessee’s errors and mistakes — Power u/s. 264 is intended to prevent miscarriage of justice and grant relief even where errors are committed by the assessee — Rejection order quashed and set aside — Matter remanded to the Principal Commissioner to consider afresh and decide in accordance with law.

For A. Y. 2022-23, the assessee filed the return of income on July 19, 2022, declaring his income at Rs. 18.10 crores. The assessee’s income included long-term capital gains of Rs. 11.69 crores. The assessee had purchased an immovable property for Rs. 23.06 crores in December 2020, which was registered on February 1, 2021. The assessee had disclosed the new property under Schedule AL (Assets and Liabilities) of the income-tax return for A. Y. 2022-2023. Accordingly, the assessee was entitled to claim any deduction u/s. 54F but by mistake the assessee had not claimed any such deduction u/s. 54F. The return was processed, and an intimation order u/s. 143(1) of the Income-tax Act, 1961 was passed on October 19, 2022.

Therefore, the assessee filed a revision application u/s. 264 making a claim for deduction u/s. 54F. The assessee submitted that while filing the income-tax return for A. Y. 2022-2023, an inadvertent mistake had crept in as he did not make a claim u/s. 54F of the Income-tax Act against the long-term capital gains on the sale of shares. The assessee also submitted a copy of the intimation order, the sale deed, computation of income, etc.

The Principal Commissioner of Income-tax concluded that since the petitioner had not made the claim in his original return and had also not filed any revised return, he could not make the aforesaid claim before the Commissioner u/s. 264, for the first time. Accordingly, the Principal Commissioner dismissed the application filed by the assessee u/s. 264 of the Income-tax Act. While doing so, the Principal Commissioner relied upon the decision of the hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [(2006) 284 ITR 323 (SC); 2006 SCC OnLine SC 1446.].

The assessee filed a writ petition and challenged the order. The Bombay High Court allowed the petition and held as under:

“i) We find that the issue raised in the above writ petition is squarely covered by several decisions of this court in favour of the petitioner. This court has time and again held that revisional powers u/s. 264 are not only wider in their scope but are also intended for preventing miscarriage of justice and providing relief to an assessee, which it is otherwise entitled to.

ii) This court has also taken into consideration the decision of the Hon’ble Supreme Court in Goetze (India) Ltd. v. CIT [(2006) 284 ITR 323 (SC); 2006 SCC OnLine SC 1446.] and held that the said decision would be wholly inapplicable since the Hon’ble Supreme Court was not considering the revisional powers as conferred under the provisions of section 264 of the Income-tax Act, but was in the context of a deduction claimed by the assessee by a letter, after the return was filed, without filing of a revised return. If one needs to take support from any decision of this court, the decision rendered in Swaminarayan Mandir Trust v. CIT (Exemptions) [(2026) 488 ITR 65 (Bom).] (Writ Petition No. 2162 of 2025, decided on December 24, 2025) would be apposite.

iii) In view of the aforesaid settled position in law, we are clearly of the view that respondent No. 1 ought to have considered the revision application of the petitioner (filed u/s. 264) even though mistakes/errors were committed by the petitioner itself in the return of the income. Once we are of this view, the impugned order passed u/s. 264 cannot be sustained and would have to be set aside.

iv) The matter is remanded to the Principal Commissioner for fresh disposal in accordance with law.”

Charitable trust — Charitable purpose — Exemption — Filing of audit report within the prescribed time is a condition precedent — Assessee, a trust engaged in providing medical aid to the underprivileged — Delay of 687 days in filing of audit report not condoned by CIT(E) — High Court held that, considering the nature of the work done by the assessee and the fact that the audit report had already been filed, and that the reason for the delay in filing was bona fide, this was a fit case to condone the delay.

17. Manav Vikas Bahuuddeshiya Gramin Seva Sanstha v. CIT (Exemption):

(2026) 486 ITR 427 (Bom): 2025 SCC OnLine Bom 6396:

A. Y. 2017-18: Date of order 03/03/2025

S. 119(b) of ITA 1961

Charitable trust — Charitable purpose — Exemption — Filing of audit report within the prescribed time is a condition precedent — Assessee, a trust engaged in providing medical aid to the underprivileged — Delay of 687 days in filing of audit report not condoned by CIT(E) — High Court held that, considering the nature of the work done by the assessee and the fact that the audit report had already been filed, and that the reason for the delay in filing was bona fide, this was a fit case to condone the delay.

The assessee is a trust engaged in providing medical aid to the underprivileged. There was a delay of 687 days in filing audit report in Form 10B for the accounting years 2016-17. Therefore, on August 18, 2018, the assessee filed an application before the Commissioner of Income-Tax (Exemption) for condonation of delay of 687 days in filing the audit report in form 10B. The reason given for delay was that the Chartered Accountant of the petitioner was not aware of the online filing requirement, which was newly introduced, and that the mistake was unintentional and due to oversight. By an order dated July 25, 2024, the Commissioner of Income-Tax (Exemption) rejected the application, holding that it was not a genuine reason for the grant of condonation of delay u/s. 119(b) of the Income-tax Act, 1961.
The assessee filed a writ petition challenging the order. The Bombay High Court allowed the writ petition and held as under:

“i) Considering that the petitioner is a trust, engaged in providing medical aid to the underprivileged, considering what has been held in Al Jamia Mohammediyah Education Society v. CIT (Exemptions) [[2025] 482 ITR 41 (Bom); 2024 SCC OnLine Bom 1157; [2024] DGLS (Bom) 1521.] and the nature of work being done by the petitioner and the fact that the audit report has already been filed and considering the reason appears to be an honest one, we deem it a fit case to condone the delay.

ii) In view of this, the impugned order is quashed and set aside. and the delay in filing the audit report in form 10B was to be condoned subject to costs of Rs. 10,000 to be paid to the Raman Science Centre and Planetarium, Subhash Road, Empress City, Nagpur, Maharashtra 440 018.”

Article 5 of India-Denmark DTAA – Software sold through a distributor’s channel on a principal-to-principal basis cannot constitute a dependent agent permanent establishment.

8. [2026] 184 taxmann.com 194 (Delhi – Trib.)

Milestone Systems A/S vs. ACIT(IT)

A.Y.: 2022-23 Dated: 06 March 2026

Article 5 of India-Denmark DTAA – Software sold through a distributor’s channel on a principal-to-principal basis cannot constitute a dependent agent permanent establishment.

FACTS:

The Assessee, a Danish company, was engaged in the business of distributing video management and surveillance software through its distributor channel in India. It contended that the receipts constituted business income and, in the absence of a Permanent Establishment (“PE”) in India, were not taxable in India. Accordingly, it claimed a refund of taxes withheld by distributors.

The AO observed that the Assessee sold customised software and exercised significant control over the distributors’ operations, including the price at which the software could be sold to customers. The AO noted that resellers in the distribution channel were approved by the Assessee. The AO held that the distributors constituted dependent agents and triggered dependent agency PE (“DAPE”) for the Assessee.The AO attributed 50% of receipts from distribution of software as profit attributable to DAPE. The Ld. DRP upheld the finding of DAPE but restricted the profit attribution to 25% of the receipts. The primary contention of the Assessee was that the transactions between it and the distributors were on a principal to principal basis and not that of principal-agent.

Aggrieved by the final order, the department preferred an appeal before the ITAT.

HELD

The AO has not demonstrated that the distributors concluded contracts or played a principal role leading to their conclusion on behalf of the Assessee. Under the distribution agreement, the distributors sold the software on their own account and assumed the associated risks.

The distributors were free to determine the sale price of the software, subject only to the condition that the price should not exceed the maximum retail price. This restriction on ceiling retail price cannot establish that the Assessee exercised control over the distributor’s operations.

The distributors were also distributing competitors’ products. On comparison, the revenue generated from the Assessee’s products constituted a minuscule portion of their overall sales.

The approval of resellers in the distribution chain was intended solely to ensure the quality of service and product installation, and it could not be equated with control over the distributors’ business operations.

Based on the above, the ITAT held that distributors do not constitute a DAPE of the Assessee. Accordingly, in the absence of a PE, the business income was taxable only in Denmark.

Article 4 & 12 of India-USA DTAA – Even in the absence of a specific reference in Article 4(1)(b) of the DTAA, a single-member LLC is entitled to the benefits of the DTAA as it satisfies the ‘liable to tax’ requirement. The consideration for offshore repairs to aircraft engines is taxable only in the US in the absence of fulfillment of the make-available condition.

7. [2026] 184 taxmann.com 238 (Delhi – Trib.)

GE Engine Services LLC vs. ACIT

A.Y.: 2021-22

Dated: 11 March 2026

Article 4 & 12 of India-USA DTAA – Even in the absence of a specific reference in Article 4(1)(b) of the DTAA, a single-member LLC is entitled to the benefits of the DTAA as it satisfies the ‘liable to tax’ requirement. The consideration for offshore repairs to aircraft engines is taxable only in the US in the absence of fulfillment of the make-available condition.

FACTS I:

The Assessee, a single-member LLC owned by a US resident, was engaged in aircraft repair services. The Assessee obtained a tax residency certificate (“TRC”) from the US tax authorities. During the year, it earned INR 37.71 Lacs and claimed a refund of INR 60.22 Lacs. The AO noted that the Assessee received a sum of INR 471.64 Crores towards repairs of aircraft (including supply of parts), which was not offered to tax.

The AO observed that a single-member LLC was regarded as a fiscally transparent entity (“FTE”) in the USA and was not specifically included as a resident under Article 4(1)(b) of India-USA DTAA; hence, it was not entitled to treaty benefits. The Ld. DRP confirmed the draft order.

Aggrieved by the final order, the tax authority preferred an appeal before the ITAT.

HELD I:

The Assessee was allotted a tax identification number and also obtained a TRC from the US tax authorities. As per the TRC, the Assessee was certified to be a business unit of a US resident, and the US resident discharged tax on the LLC’s income.

The coordinate benches in the cases of General Motors Company USA v. ACIT (IT) [2024] 209 ITD 60 (Delhi-Trib), Wild West Domains, LLC v. ACIT [IT Appeal No.1774 (Delhi) of 2022, dated 29-7-2024] and Go Daddy.Com LLC v. Dy. CIT [2025] 123 ITR(T) 29 (Delhi – Trib.) held that while an LLC is not specifically referred to under Article 4(1)(b) of the India-US DTAA, it satisfied the requirement of being ‘liable to taxation’ by virtue of the tax being discharged by the US owners on the LLC’s income. The term ‘liable to tax’ is used in the treaty to determine fiscal domicile and refers to the powers of taxation, while the actual incidence/payment of tax may differ.

Following the coordinate bench rulings, the ITAT held that the Assessee was entitled to the benefits of the India-USA DTAA.

FACTS II:

Without prejudice, the AO treated the receipts from aircraft engine repair services as FTS under the Act and the DTAA, contending that the Assessee had provided technical guidance and expertise to its customers, enabling them to identify issues requiring repair.

HELD II:

The ITAT observed that the AO failed to produce any evidence demonstrating that the Assessee had made available technical knowledge, experience, or skill to its customers.

The customers’ learning or expertise acquired through their interactions with the Assessee over the years did not amount to the Assessee making such knowledge available. There must be a conscious effort by the Assessee to make such knowledge available.

Post-repairs, the customers remained dependent on the Assessee for future repairs and were not enabled to perform such services independently.

Based on the above, the ITAT held that the offshore repair services do not satisfy the make available condition; hence, in the absence of a permanent establishment, the receipts are taxable only in the US.

Amounts deposited in the bank account of a Chartered Accountant for payment of clients’ taxes, supported by corresponding tax challans and matching debits, cannot be treated as unexplained money under section 69A in his hands.

33. (2026) 186 taxmann.com 1084 (Chennai Trib)

Bose Saravanan v. DCIT

A.Y.: 2016-17  Date of Order: 11.05.2026

Section: 69A

Amounts deposited in the bank account of a Chartered Accountant for payment of clients’ taxes, supported by corresponding tax challans and matching debits, cannot be treated as unexplained money under section 69A in his hands.

FACTS

The assessee was a Chartered Accountant. He filed his return of income for AY 2016-17 on 14.10.2016 declaring total income of Rs.2,95,197. The A.O received information that the assessee had deposited substantial amount of cash into his bank account. Since the income declared by the assessee in the return of income was not commensurate with the cash deposit, the A.O held that he had a reason to believe that the income of the assessee had escaped assessment and accordingly reopened the assessment by issuing notice under section 148. The assessee submitted before the A.O that the said bank account was opened for the purpose of paying taxes on behalf of the clients and that the entire amount deposited was with respect to the amount received from the clients towards payment of various taxes such as income tax, VAT, TDS, service tax, etc. The A.O, however, did not accept the submissions of the assessee and proceeded to make addition of Rs. 23 Crores under section 69A.

Aggrieved, the assessee filed an appeal before the CIT(A), who enhanced the addition by Rs. 6,87,60,832, by considering the credits in another bank account as unexplained.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

Considering the affidavit filed by the assessee and the various other documents, the Tribunal observed:

(a) On sample basis, the tax challans matched with the debits reflected in the bank account of the assessee and that the lower authorities, while making the addition, had completely ignored the debits in the bank account of the assessee, which in the narration clearly mentioned the various government authorities.

(b) Considering the overall facts and circumstances, there was merit in the submission that the assessee had acted as a conduit for payment of taxes on behalf of the clients and that the deposits reflecting in the bank account of the assessee did not belong to the assessee.

Accordingly, the Tribunal directed the AO to delete the addition.

In the result, the appeal of the assessee was allowed.

Where assessee deposited employees’ contribution to PF and ESI after due date under the respective Acts but before due date of return under section 139(1) during COVID-19 period, since issue regarding deductibility was debatable and pending before Supreme Court, adjustment under section 143(1) was not permissible.

32. (2026) 186 taxmann.com 1020 (Jodhpur Trib)

Yadvendra Dhabhai v. ITO

A.Y.: 2021-22

Date of Order: 21.05.2026

Sections: 36(1)(va), 143, 154

Where assessee deposited employees’ contribution to PF and ESI after due date under the respective Acts but before due date of return under section 139(1) during COVID-19 period, since issue regarding deductibility was debatable and pending before Supreme Court, adjustment under section 143(1) was not permissible.

FACTS

The assessee filed his return of income for AY 2021-22. The return was processed by the CPC under section 143(1) making an addition of Rs. 1,85,03,917 on account of delayed deposit of employees’ contribution as per due dates prescribed under the PF and ESI Acts, though such payments were admittedly deposited before the due date of filing the return of income under section 139(1). The assessee filed a rectification application under section 154 with a request to grant relief since the delay was due to unprecedented disruption caused by COVID-19 pandemic. However, the CPC rejected the said application.

Aggrieved, the assessee filed an appeal before CIT(A), who did not grant any relief.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) Recently, the Supreme Court had issued a notice in the case of Woodland (Aero Club) Pvt. Ltd. v. ACIT [SLP No. 1532 of 2026, dated 15-1-2026] to examine the issue of due date for deposit of employer contribution to PF and ESI interpretation amid lingering conflicts where the proceedings were pending and judgment was awaited. Thus, the claim for deduction on deposit of employer contribution to PF and ESI before the due date under respective Acts or due date of filing of return of income u/s 139(1) of the Act was a debatable issue.

(b) Considering the EPFO Circular (infra) on granting relaxation from levy of damages and penalty for delay deposit during the lockdown period and that the issue was sub-judice for review before the Supreme Court, showed that it was an issue which involved interpretation of law at the level of Supreme Court, which was out of the scope of section 143(1) which allows for making prima facie adjustments by the CPC to the return of income of the assessee.

(c) The relaxation from penalties, made by EPFO vide Circular dated 15.05.2020, made it apparently clear that the EPFO authorities had acknowledged genuine hardship, and hence, intended to grant relief to the assessee from levy of penalty on acceptance of delayed payments under the exceptional circumstances such as the COVID-19 pandemic. Meaning thereby, that the relaxation of penalty by the competent authority from the Employees Fund Organization, Ministry of Labour and Employees, Government of India, acknowledged the genuine hardship and intended to grant relief.

(d) In circumstances of the COVID-19 pandemic, the non-levy of penalty tantamounted to acceptance of delay under exceptional circumstances and the absence of formal extension of due date did not negate the intent of relief. Therefore, such delays during the COVID-19 pandemic deserved to be viewed pragmatically and not in a strict technical manner.

Accordingly, the Tribunal held that the impugned order of CIT(A) rejecting the application under section 154 was perverse to the facts on record and did not appreciate the genuine hardships of the COVID-19 period as duly acknowledged by EPFO authorities, and thereby deleted the addition.

As a result, the appeal of the assessee was allowed.

A trust engaged in teaching of Islamic studies, Quranic texts or Arabic language to the public, without conducting religious rituals, ceremonies, or worship, is carrying on an educational activity rather than a religious activity and accordingly, such trust is eligible for registration under section 12AB and approval under section 80G.

31. (2026) 186 taxmann.com 769 (Bang Trib)

An-Nauman Educational Religious Social Charitable and Welfare Trust v. CIT(E)

A.Y.: N.A.

Date of Order: 19.05.2026

Sections: 12AB, 80G

A trust engaged in teaching of Islamic studies, Quranic texts or Arabic language to the public, without conducting religious rituals, ceremonies, or worship, is carrying on an educational activity rather than a religious activity and accordingly, such trust is eligible for registration under section 12AB and approval under section 80G.

FACTS

The assessee was a charitable trust established on 8.4.2013 with the primary object to establish, set up and run educational institutions. It was also imparting religious education on the tenets of Islam in Arabic and governed by the SUNNI-HANAFI sect of school of thought. It was also decided to set-up an Arabic Madarasa for imparting Arabic courses after generating funds and creating regular infrastructure such as building.

It filed applications for grant of registration under section 12AB and approval under section 80G. The CIT(E) observed that the nature of the trust was religious-cum-charitable since the building intended for use as an educational institution was proposed to be constructed in the land belonging to a Masjid, and that the trust was imparting religious education on tenets of Islam and running a Madarasa. Accordingly, he rejected the applications under section 12AB and section 80G.

Aggrieved, the assessee filed appeals before ITAT.

HELD

The Tribunal observed as follows:

(a) The trust was not doing any religious activities except to impart Arabic education which was nothing but a language. Similarly, the tenets of Islam were also taught to the public and not to any particular group of persons.

(b) The tax department did not have any documentary proof to show that the assessee trust was carrying on religious activities such as religious worship, rituals, ceremonies or propagation. When there was no proof to show that the trust was doing these activities, merely relying on some words in the trust deed would not be a reason to treat the trust as a religious trust.

(c) Nowhere in the trust deed was there a restriction that the education was to be imparted to a particular group of persons, and in fact, the trust served the entire public at large.

(d) Learning a language as well as owning a Madarasa (which was nothing but a place for education) could not be treated as religious in nature. (e) The assessee trust was carrying on various activities such as relief to the poor, provision of education, etc. and therefore the trust could not be treated as carrying out the religious activities.

(e) The assessee trust was carrying on various activities such as relief to the poor, provision of education, etc. and therefore the trust could not be treated as carrying out the religious activities.

(f) Imparting of education in Arabic language and Islamic academic instruction could at best be termed as education and not providing any religious practice. When the assessee trust was not engaging in any religious worship or rituals, it could not be presumed that the assesse was engaging in religious activities, and on that basis, a trust could not be termed as a religious trust.

(g) The teaching of Islamic studies, Quranic texts or Arabic language academically did not amount to religious worship or religious activity. When the assessee’s trust deed was examined, it was noticed that the dominant objective was to impart education, establish institutions, provide scholarships, develop knowledge, operate libraries and offer language, professional and technical courses. The aforesaid activities were not for a particular religious community but to the general public.

(h) The academic teaching of religious texts at best could be termed as an educational activity whereas the religious worship, rituals or propagation could be termed as a religious activity. In the present case, the assessee trust was engaged in the imparting of education and therefore the assessee trust could not be termed as a religious trust. There was no evidence to show that the assessee trust was engaged in religious activities such as religious worship, rituals, ceremonies and propagation.

(i) Relying on the madarasa to term the assessee trust as doing the religious activity was also not correct. The teaching of Arabic and establishing an Arabic madarasa could not be treated as doing the religious rituals. In fact, several universities in India were having Arabic departments and therefore the imparting of education in the Arabic language could not be treated the institution as a religious trust. The madarasa was performing the function of a school, i.e. imparting structured learning, teaching languages, moral studies, general subjects or vocational skills and therefore the madarasa could at the best be treated as educational institution and no religious worship was carried out in that place and therefore the madarasa could not be equated with mosque. Mosque was a place of religious worship whereas madarasa was a school imparting academic instruction. When the dominant purpose is providing education, the other incidental things done by the assessee could not term the assessee as a religious trust.

Accordingly, the Tribunal set aside both the rejection orders and directed the CIT(E) to grant registration under section 12AB to the assessee trust as a public charitable trust and also grant approval under section 80G.

As a result, the appeals of the assessee were allowed.

Utilization of borrowed funds does not alter the character of investment transactions where other indicators of business activity are absent. In terms of para 3(b) of CBDT Circular No. 6/2016, the Assessing Officer is bound to accept the treatment adopted by the assessee where shares are held for more than 12 months and are consistently reflected as investments in the balance sheet and there is no allegation of bogus or sham transactions.

30. TS-590-ITAT-2026 (Ahmedabad)

DCIT v. Kutir Navinchandra Patel

A.Y.: 2017-18

Date of Order: 23.4.2026

Sections: 28, 45

Utilization of borrowed funds does not alter the character of investment transactions where other indicators of business activity are absent.

In terms of para 3(b) of CBDT Circular No. 6/2016, the Assessing Officer is bound to accept the treatment adopted by the assessee where shares are held for more than 12 months and are consistently reflected as investments in the balance sheet and there is no allegation of bogus or sham transactions.

FACTS

The assessee, an individual engaged in the business of manufacturing corrugated boxes and trading in cloth filed his return of income for assessment year 2017-18 declaring total income of Rs. 8,62,20,910, which included Short Term Capital Gain (STCG) of Rs. 8,51,46,889 and exempt Long Term Capital Gain (LTCG) of Rs. 4,58,83,452 arising from sale of listed equity shares.

In the course of assessment proceedings, the Assessing Officer (AO) issued a show cause notice proposing to treat the capital gains as business income. The assessee filed reply along with documentary evidences explaining that the shares were held as investments, transactions were delivery-based, and investments were made out of own funds and business surplus. The assessee also submitted that the shares were consistently reflected as investments in the books and that there was no intention to carry on trading activity.

However, the AO rejected the explanation primarily on the ground that the assessee had utilized unsecured loans for making investments in shares and that such loans were repaid upon sale of shares, indicating a systematic and profit-oriented activity akin to business. The AO held that the entire activity constituted business activity. Accordingly, he treated both STCG of Rs. 8,51,46,889 and LTCG of Rs. 4,58,83,452 aggregating to Rs. 13,10,30,341 as business income and made addition under the head “Profits and Gains of Business or Profession.”

Aggrieved, the assessee preferred an appeal to the CIT(A) where he inter alia submitted that even if borrowed funds were used, the same would not ipso facto convert investment transactions into business transactions.

The CIT(A) allowed the appeal and held that the AO had failed to carry out any objective analysis of relevant factors such as intention, holding period, frequency, and accounting treatment, and had instead proceeded merely on presumptions regarding use of borrowed funds. With regard to LTCG, the CIT(A) held that in terms of para 3(b) of CBDT Circular No. 6/2016, the AO was bound to accept the treatment adopted by the assessee. On these specific facts, the CIT(A) held that the LTCG of Rs. 4.58 crores was rightly claimed as exempt under section 10(38) and could not be recharacterized as business income.’

As regards STCG, the CIT(A) applied the judicially settled tests, and having examined the specific facts of the assessee’s case, held the gains to be on investment account.

On the issue of borrowed funds, the CIT(A) held that the AO’s reliance on this factor was misplaced and contrary to settled law.

Aggrieved, the Revenue preferred an appeal to the Tribunal.

HELD

The CIT(A) has passed a well-reasoned and speaking order after duly appreciating the factual matrix and the settled legal position governing the issue. The Tribunal noted that there is no allegation by the AO that the transactions in shares are bogus, sham or in the nature of penny stock transactions. The genuineness of purchase and sale of shares, supported by demat statements, contract notes and banking channels, has not been doubted. Also, admittedly, the shares giving rise to Long Term Capital Gains were held for more than the stipulated period of 12 months and were consistently reflected as “investments” in the books of account of the assessee.

The CIT(A) has correctly applied the binding CBDT Circular No. 6/2016 dated 29.02.2016, particularly para 3(b), which mandates that where listed shares are held for more than 12 months and the assessee treats the same as investments, the AO shall not dispute the characterization of income as capital gains. It observed that the AO, in the present case, has disregarded the said binding circular without recording any finding that the transactions were non-genuine. Therefore, the CIT(A) was justified in holding that the LTCG of Rs. 4,58,83,452 is to be assessed under the head “Capital Gains” and is eligible for exemption under section 10(38) of the Act.

With regard to the STCG, the Tribunal observed that the CIT(A) has examined the issue in the light of well-settled judicial principles governing distinction between investment and trading. The factual findings recorded by the CIT(A) were not controverted by the Revenue, clearly demonstrating that the shares were held on delivery basis in dematerialized form, the investments were largely concentrated in a single scrip, there was no frequency or multiplicity of transactions indicative of systematic trading, and the assessee did not have any infrastructure or organized activity for dealing in shares as a business. Further, the accounting treatment consistently reflected the shares as investments and not as stock-in-trade. These factual findings, according to the Tribunal, establish that the intention of the assessee was to hold the shares as investments and not to trade.

It observed that the sole basis adopted by the AO for recharacterizing the income is the alleged use of borrowed funds. It held such reasoning is unsustainable in law. It noted that the jurisdictional High Court in CIT vs. Bhanuprasad D. Trivedi (HUF) [(2017) 87 taxmann.com 137 (Guj)], following the earlier decision in CIT vs. Rewashanker A. Kothari [(2006) 283 ITR 338 (Guj)], has categorically held that mere utilization of borrowed funds or volume of transactions does not alter the character of investment into stock-in-trade if the intention of the assessee is to hold the shares as investments.

The Tribunal dismissed the appeal filed by the Revenue.

Once the assessee has demonstrated that capital gains has been substantially invested in construction of a residential house, the deduction cannot be denied merely on the ground that certain additional documents such as approval letters, possession certificate or complete set of bills were not furnished. The provisions of section 54/54F are beneficial in nature and are intended to promote investment in residential housing. Therefore, the same should be interpreted liberally. Substantive compliance of the conditions is sufficient, and the claim cannot be denied on mere technicalities.

29. TS-571-ITAT-2026 (Bangalore)

Javaji Naga Darshan v. ITO

A.Y.: 2022-23

Date of Order: 15.4.2026

Sections: 54, 54F

Once the assessee has demonstrated that capital gains has been substantially invested in construction of a residential house, the deduction cannot be denied merely on the ground that certain additional documents such as approval letters, possession certificate or complete set of bills were not furnished.

The provisions of section 54/54F are beneficial in nature and are intended to promote investment in residential housing. Therefore, the same should be interpreted liberally. Substantive compliance of the conditions is sufficient, and the claim cannot be denied on mere technicalities.

FACTS

The assessee, in his return of income returned long term capital gains of Rs 33,18,773 on sale of immovable property and claimed entitlement to deduction under section 54 of Rs 45,00,000, but restricted the same to Rs 33,18,773 being amount of capital gains.

In the course of assessment proceedings, the Assessing Officer (AO) called for details and evidence such as purchase of land, evidence for construction and proof of ownership of constructed property. The assessee furnished only sample copies of bills of construction material which were held to be insufficient. The AO, accordingly, denied the claim for deduction of Rs 33,18,773 under section 54 of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) and submitted that the AO has not appreciated the fact that the assessee had entered into a Joint Development Agreement and a copy thereof was placed on record to establish ownership and development of the property. The CIT(A) dismissed the appeal filed by the assessee.

Aggrieved, the assessee preferred an appeal before the Tribunal where it was submitted that copy of sale deed of original property, Joint Development Agreement, details of reinvestment in construction of residential house, bank statements evidencing flow and utilisation of funds and sample copies of invoices relating to construction have been furnished.

It was contended that the assessee has established that the amount of capital gains stood reinvested and that the claim for deduction has been denied on alleged deficiencies in documents without disproving the core fact of investment; substantive compliance cannot be denied on technical lapses; once the source of funds and their utilisation for construction is established, minor deficiencies such as non-submission of certain documents such as approval letters or complete bills cannot be a ground to deny exemption. The claim has been denied on mere suspicion and that neither the AO nor CIT(A) have conducted an independent enquiry. Such an action is violative of principles of natural justice.

HELD

The Tribunal noted that from the facts on record that it is not in dispute that the assessee has earned capital gain on sale of immovable property and has claimed deduction on account of construction of a residential house. The only basis for denial of the claim by the lower authorities is alleged insufficiency of documentary evidence.

On perusal of the records, it observed / held that –

(i) the assessee has furnished a Joint Development Agreement (JDA) entered between the assessee and his family members to substantiate the claim of construction of residential house. The CIT(A) has rejected the same by observing that the agreement mentions nil consideration and is executed on a stamp paper of Rs. 200, thereby treating it as doubtful; the Tribunal held the reasoning of the CIT(A) to be not sustainable;

(ii) the JDA placed on record evidences the arrangement for construction and cannot be disregarded merely on the ground that the consideration mentioned therein is nil or that the stamp duty is nominal, especially when the arrangement is within family members. It held that these factors, by themselves, do not disprove the factum of construction activity undertaken by the assessee;

(iii) the assessee has furnished sample bills for the purchase of building materials aggregating to Rs. 24,25,282. The Revenue authorities have rejected such evidence in a general manner without pointing out any specific defect or discrepancy in such bills. The Tribunal held that in absence of any adverse finding regarding genuineness of these documents, the same cannot be brushed aside as insufficient;

(iv) it is also pertinent to note that the assessee has furnished details of construction expenses exceeding Rs. 21 lakhs incurred through banking channels, along with the names of parties and nature of materials purchased or services availed but formal bill or voucher was not available. It held that such evidence clearly demonstrates the flow and utilization of funds towards construction. It also held that, the lower authorities have failed to consider these details in proper perspective and have proceeded to reject the claim without any verification or rebuttal.

The Tribunal held that the approach adopted by the AO as well as by the CIT(A) is hyper-technical. Once the assessee has demonstrated that the capital gains have been substantially invested in construction of a residential house, the deduction cannot be denied merely on the ground that certain additional documents such as approval letters, possession certificate, or complete set of bills were not furnished. It is well settled that the provisions of section 54/54F are beneficial in nature and are intended to promote investment in residential housing. Therefore, the same should be interpreted liberally. Substantive compliance of the conditions is sufficient, and the claim cannot be denied on mere technicalities. Considering the JDA, material purchase bills, and details of expenditure incurred through banking channels, the Tribunal held that the assessee has satisfactorily demonstrated the construction of a residential house and utilization of capital gains for the said purpose. Accordingly, the Tribunal deleted the disallowance made by the AO and confirmed by the CIT(A) amounting to Rs. 33,18,773 as not sustainable.

In the absence of consideration and absolute possession, capital gains cannot be taxed u/s 45(1).

28. TS-567-ITAT-2026(HYD)

Vasudeva Rao v. ITO

A.Y.: 2014-15

Date of Order: 17.4.2026

Sections: 2(47), 45

In the absence of consideration and absolute possession, capital gains cannot be taxed u/s 45(1).

FACTS

The assessee, for the first time, filed a return of income in response to a notice issued under section 147 of the Act, declaring total income to Rs 11,029 being interest income. In the course of assessment proceedings, the assessee denied any liability to capital gains tax on account of execution of Joint Development Agreement (JDA) dated 11.1.2013, in respect of which the Assessing Officer (AO) had information in his possession. Since the share of the assessee in respect of land which was subject matter of JDA was 1/8th, the AO taxed 1/8th of the total consideration of Rs 5.30,50,000 under JDA i.e. Rs 66,31,250 to be the long-term capital gains taxable in the hands of the assessee.

Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.

The primary issue raised by the assessee before the Tribunal was that during the year under consideration there is no taxable event of `transfer’ u/s 2(47) of the Act since during the year under consideration neither was any consideration received under the JDA nor was absolute possession granted by the assessee. This proposition was sought to be supported by the decision of the jurisdictional High Court in the case of Smt. Shantha Vidyasagar Annam vs. ITO (170 taxmann.com 754).

HELD

The Tribunal observed that, on perusal of clauses 1 to 3 of the JDA, it is evident that the possession of the property has been handed over by the assessee to the developer only for the limited purpose of development of the property, and not as an absolute transfer of possession in terms of section 53A of the Transfer of Property Act, 1882. It also noted that there is also no dispute about the facts that the assessee has not received any consideration from the developer on account of the said JDA during the year under consideration.

The Tribunal noted that the jurisdictional High Court in the case of Smt. Shanta Vidyasagar Annam (supra) has, in paras 17 and 18, categorically held that unless consideration is received by the assessee or possession is handed over in the manner contemplated under section 53A of the Transfer of Property Act, no “transfer” can be said to have taken place for the purpose of section 45 of the Act.

Since Revenue did not bring on record any material to demonstrate that the assessee has received any consideration, whether monetary or otherwise, during the year of execution of the JDA and neither was there any material to show that the possession was handed over to the developer in a manner other than for the limited purpose of development, the Tribunal held that the very foundation for invoking section 45(1) of the Act in the year under consideration fails.

Following the binding decision of the jurisdictional High Court in the case of Smt. Shantha Vidyasagar Annam vs. ITO (supra), it held that no taxable capital gain arose in the hands of the assessee during the year under consideration.

The issuance of valid notice u/s. 143(2) by a jurisdictionally competent AO is a mandatory requirement for completing assessment u/s. 143(3) of the Act and failure to issue such a notice, or issuing it without proper jurisdiction vitiates the entire assessment and renders it void ab initio. Section 292BB is only confined to service of notice and does not apply to issuance of notice.

27. TS-500-ITAT-2026(DEL)

Rachit Jain v. DCIT

A.Y.: 2019-20

Date of Order: 6.3.2026

Sections: 143(2), 153A, 292B

The issuance of valid notice u/s. 143(2) by a jurisdictionally competent AO is a mandatory requirement for completing assessment u/s. 143(3) of the Act and failure to issue such a notice, or issuing it without proper jurisdiction vitiates the entire assessment and renders it void ab initio.

Section 292BB is only confined to service of notice and does not apply to issuance of notice.

FACTS

The Tribunal in an cross appeal by the assessee was required to decide the legal issue viz. that a notice under section 143(2) issued by a non-jurisdictional Assessing Officer (AO) renders such a notice illegal, invalid, non-est and without jurisdiction and the consequent assessment order to be illegal. The facts relevant for deciding the issue were as under –

In the assessment proceedings u/s. 153A r.w.s. 143(3) of the Act for AY 2019-20, the AO claimed to have issued a notice u/s. 143(2) dated 30.9.2020. However, as per the record, the jurisdiction over the case was transferred to DCIT, Central Circle-31, New Delhi only on 15.10.2020, vide order u/s. 127 of the Act which was communicated to the assessee only on 25.02.2021. Therefore, on the date of issuance of notice, the AO did not have valid jurisdiction over the assessee. Also, on the assessee’s e-filing portal, a notice under section 143(2), a copy of the first page of the appraisal report was attached in place of the statutory notice.

During the appellate proceedings before CIT(A), the assessee raised the specific ground that no valid notice u/s. 143(2) had been issued by a jurisdictionally competent Assessing Officer (AO). However, in response thereof, the CIT(A) called for a remand report from the AO and in the remand report, the AO reiterated the issuance of notice dated 30.09.2020. The AO, however, failed to address that jurisdiction under section 127 was assumed after the date of notice. Despite this fact, the CIT(A) upheld the validity of the notice, holding that since the notice was visible on the portal and the assessment was completed u/s. 153A, the defect was curable.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The issuance of valid notice u/s. 143(2) by a jurisdictionally competent AO is a mandatory requirement for completing assessment u/s. 143(3) of the Act and failure to issue such a notice, or issuing it without proper jurisdiction vitiates the entire assessment and renders it void ab initio. It is settled law that section 292BB is only confined to service of notice and does not apply to issuance of notice.

The Tribunal observed that the Apex Court in the case of ACIT vs. Hotel Blue Moon [(2010) 324 ITR 372 (SC)] has held that in the absence of the notice u/s. 143(2) of the Act, the assessment framed by the Assessing Officer is liable to be quashed.

The Tribunal held that the notice u/s. 143(2), which is mandatory, has not been served on the assessee and thus, the consequent assessment order is void ab initio and deserves to be quashed. It directed accordingly.

Since the Tribunal quashed the assessment on jurisdictional ground in the assessee’s appeal, the appeal filed by the revenue was held to have become infructuous and was dismissed as such.

Applicability Of Presumptive Taxation To Partners Of A Partnership Firm

Sections 44AD and 44ADA provide presumptive taxation of business or professional income. A Controversy exists as to whether partner remuneration and interest constitute “gross receipts” for the purpose of these schemes. The Madras and Bombay High Courts have held that these receipts are distributions of firm profits rather than independent turnover, thereby making partners ineligible. Conversely, the Delhi ITAT allowed a professional partner to avail the benefit of section 44ADA, holding that there is no legal requirement for independent activity. While the restrictive view currently carries judicial weight, the Supreme Court must ultimately resolve this conflict.

ISSUE FOR CONSIDERATION

Section 44AD and 44ADA deal with the presumptive scheme of taxation for computing the profits and gains from business or profession respectively, subject to fulfillment of the prescribed conditions. Quite often, the issue arises as to whether these provisions, dealing with computation of profits and gains on a presumptive basis, can be applied in respect of the interest and remuneration received by a partner from a partnership firm.

The Chennai bench of the tribunal had earlier taken a view that the provisions of section 44AD are not applicable for computing the income arising from remuneration received by the partner from a partnership firm. In contrast, the Delhi bench of the tribunal recently held that an individual assessee, who was a partner in a firm of chartered accountants, was entitled to compute his income arising from the remuneration received from the said firm on a presumptive basis under section 44ADA.

A. ANANDKUMAR’S CASE

The issue first came up for consideration before the Chennai bench of the tribunal in the case of A. Anandkumar v. ACIT (ITA No. 573/Chny/2018).

In this case, for assessment year 2012-13, the assessee, who was a partner in a few firms, had received remuneration and interest from partnership firms aggregating to Rs.58,53,000. The income of the firms were computed under the regular provisions of the Act without applying the presumptive taxation provisions. While filing return for the relevant assessment year, the assessee had applied the presumptive rate of 8% under section 44AD of the Act and returned Rs.4,68,240 as income from the such remuneration and interest. The Assessing Officer was of the opinion that section 44AD could be availed only by an eligible assessee engaged in an eligible business. According to him, the assessee was not carrying on any independent business but was merely a partner in the firms. Further, according to the Assessing Officer, the assessee had no turnover, and the receipts on account of remuneration and interest from the firms could not be construed as “gross receipts” mentioned under section 44AD of the Act. He, therefore, denied the benefit of section 44AD and brought to tax the entire amount of remuneration and interest received from the firms. The appeal filed by the assessee before the CIT (A) was also dismissed.

Before the tribunal, the assessee submitted that section 28(v) of the Act clearly specified that interest, salary, bonus, commission or remuneration received by, or due to, a partner of a firm from such firm had to be assessed under the head “Profits & gains of business or profession”. Section 44AD enabled an assessee having turnover or gross receipts from an eligible business to apply the presumptive rate of 8% in computing his income from business or profession. By virtue of the Explanation to Section 44AD, “eligible business” included any business other than the business of plying, hiring or leasing goods carriages referred to therein. The assessee contended that since remuneration and interest were considered as profits and gains of business or profession by virtue of section 28(v) of the Act, such receipts became receipts from an eligible business. Since the gross receipts of the assessee from interest and remuneration was below ₹1 crore for the relevant assessment year, the assessee argued that he was eligible to apply the presumptive rate of 8% on such receipts for estimating the income. The assessee placed reliance on the judgement of Hon’ble Apex Court in Munjal Sales Corporation v. CIT (289 ITR 298) (SC) and an order of Kolkata bench of the tribunal in Sagar Dutta v. DCIT in ITA No.692/Kol/2012 dated 03.05.2013.

The Partner Presumptive Tax Puzzle

After examining the scheme of taxation applicable to partnership firm and partners, the Tribunal held that if remuneration and interest paid to partners had not been charged in the accounts of the firm, the taxable profits of the firm would have been higher, resulting in a higher tax liability for the firm. The payments of interest and remuneration, therefore, had to be construed indirectly as a form of distribution of profits of a firm, on which the firm would otherwise have been taxed. Though the legislature, in its wisdom, chose to tax such remuneration and interest as profits and gains from business or profession in the hands of the partners, that by itself, would not convert such remuneration and interest into gross receipts or turnover arising from the business of being partners in firms. In other words, such receipts in the hands of a partner could not be construed as gross receipts or turnover of a business independently carried on by the partner.

By referring to the Explanatory Notes to the provisions of the Finance (No. 2) Act, 2009 vide Circular No. 5/2010 dated 3-6-2010, the Tribunal observed that the intention behind the provision was to help small businesses to comply with the taxation provisions, and it was never intended to treat a partner’s remuneration or interest as business turnover. The decisions relied upon by the assessee were held to be not applicable on the ground that they did not relate to the provisions of section 44AD. On this basis, the tribunal dismissed the appeal of the assessee and affirmed the view which was taken by the lower authorities.

RANU GUPTA’S CASE

The issue recently came up for consideration before the Delhi bench of the tribunal in Ranu Gupta v. ACIT (ITA No. 2224/Del/2025).

In this case, for the assessment year 2018-19, the assessee had received the remuneration of Rs.27,00,000 as a partner of a firm of Chartered Accountants. The assessee had offered 50% of the same as his income under the provisions of section 44ADA of the Act. Before the Assessing Officer, the assessee contended that he was eligible to compute the income under section 44ADA since he had fulfilled all the conditions provided prescribed therein. The remuneration was received by him in his capacity as a Chartered Accountant holding a certificate of practice issued by the Institute of Chartered Accountants of India. The assessee relied upon the decisions in Sagar Dutta (ITA No. 692/Kol/2012), the decision of the Hon’ble Supreme Court in Ramnik Lal Kothari (1969) 74 ITR 57 (SC,) and the decision of the Hon’ble ITAT Delhi in Aman Tandon (ITA No. 3469/Del/2015).

The Assessing Officer did not accept the claim of the assessee stating that the remuneration was received by him as a working partner of the firm and not as an individual independently carrying on the profession specified u/s. 44AA(1). The Assessing Officer also relied upon the Circular No. 3 of 2017 dated 20-10-2017, wherein it was stated that section 44ADA was introduced to reduce compliance burden of small taxpayers earning professional and to facilitate ease of doing business. The Assessing Officer further noted that the assessee himself had declared the entire remuneration received from the firm as business income in AY 2016-17 and 2017-18. Distinguishing the decisions relied upon by the assessee, the Assessing Officer placed reliance on the decision of the Chennai bench of the tribunal in A. Anandkumar (supra). Finally, the Assessing Officer held that a partner’s remuneration from the firm could not be treated as gross receipts for the purposes of section 44ADA in view of section 28(v) and 40(b) of the Act.

The CIT (A) concurred with the view of the Assessing Officer and held that the remuneration was not received for carrying on or practicing the profession, but was received in the capacity of a working partner of the firm. The remuneration received by the partner was distinct and separate from income from profession. The CIT (A) relied upon the decision in A. Anandkumar (supra), which had been affirmed by the Hon’ble Madras High Court. In so far as reliance was placed by the assessee on the decision in Ramnik Lal Kothari (1969) 74 ITR 57 (SC), the CIT (A) observed that the Assessing Officer had not allowed any expenditure against the remuneration, since no details were furnished by the assessee in spite of the specific show cause issued in that regard.

Before the tribunal, nobody appeared on behalf of the assessee. The revenue contended that the assessee had neither claimed any expenditure, as noted by the Assessing Officer during the assessment proceedings, nor was he entitled to claim benefit of the presumptive scheme under section 44ADA in respect of the remuneration received from the partnership firm.

The tribunal held that there was no merit in the revenue’s twin arguments, as there was no such pre-condition in section 44ADA either to claim the corresponding expenditure (in light of sub-section (2) thereto) nor was he supposed to carry out his independent professional activities otherwise than as a partner in any establishment. On this basis, the tribunal invoked rule of strict interpretation by relying upon the decision in the case of Commissioner of Income-tax v. Dilip Kumar (2018) 9 SSC 1 (SC) to reject the Revenue’s foregoing arguments and directed the Assessing Officer to assessee the income of the assessee under section 44ADA of the Act.

OBSERVATIONS

Section 44AD and 44ADA provide for determination of profits and gains arising from the business or profession carried on by the assessee on presumptive basis, subject to fulfillment of certain conditions. Under these provisions, the income of an eligible assessee is computed on a presumptive basis, and a specified percentage of the turnover or the gross receipts is deemed to be the profits and gains of the business or profession carried on by the assessee.

Primarily, two conditions are required to be satisfied for the application sections 44AD or 44ADA. First, the assessee should be engaged in business or profession i.e. the business or profession in respect of which the income is sought to be computed on a presumptive basis should belong to the assessee. Secondly, there must be the turnover or gross receipts from such business or profession on basis of which the income can be computed at the prescribed percentage.

In so far as the first condition is concerned, it is the partnership firm that carries on the business or profession, albeit through its partners. It is true that the business carried on by the partnership firm has been regarded as nothing but the business carried on by the partners collectively. In this regard, the reference can be made to the decision of Gujarat High Court in the case of CIT v. Rasiklal Balabhai (1979) 119 ITR 303, wherein it was held that the assessee must be considered to be carrying on business when such business is that of a partnership firm since a partnership firm has no legal entity and is merely a compendious expression for all the partners.

In the context of section 44AD or 44ADA, the requirement is to compute the income on a presumptive basis at the specified percentage of the turnover or gross receipts of the concerned business or profession. A difficulty may arise, in the context of the Income Tax Act and particularly under the presumptive taxation, in contending that the firm and the partner are carrying on the same business and that the turnover of the business or profession is the same for both assessees, it may then become difficult to contend that the same business has resulted in different amount of turnover or gross receipts in the hands of the partnership firm and in the hands of the partners.

The view taken by the Chennai bench of the tribunal in the case of A. Anandkumar (supra) has been affirmed by the Madras High Court [Anandkumar vs. Assistant Commissioner of Income Tax, Circle-2, Salem [2020] 122 taxmann.com 252 (Madras)]. The Madras High Court held that, in order to avail the benefits of section 44AD, the assessee must establish that he is an eligible assessee engaged in an eligible business and that such business has total turnover or a gross receipt. Admittedly, the assessee, being a partner was not carrying on any business resulting in such turnover. Therefore, the remuneration and interest received by the assessee from the partnership firm could not be termed as the turnover of the assessee, who was merely a partner in the firm. Similarly, a partner could not contend that such receipts constituted his gross receipts. The High Court referred to the definition of the term ‘turnover’ as provided in the statement issued by the ICAI on the Companies (Auditors report) Order 2003, wherein it was defined to mean the aggregate amount for which sales are effected or services rendered by an enterprise. Admittedly, the assessee, being a partner in the firm, had neither effected any sales nor rendered any services independently, but had merely received remuneration and interest from the partnership firms, which amounts had already been debited in the profit and loss account of the firms. Therefore, the High Court agreed with the revenue’s contention that remuneration and interest could not be treated as turnover or gross receipts.

Further, the High Court observed that the payment of interest and remuneration had to be construed indirectly as a type of distribution of profits of a firm, on which the firm would otherwise have been taxed. Therefore, though the legislature, in its wisdom, chose to treat such remuneration and interest as part of profits and gains from business or profession, that could never translate into gross receipts or turnover arising from the business of being partner in a firm.

The Delhi bench of the tribunal, however, did not follow the decision of the Madras High Court in the case of A. Anandkumar (supra) although the same had been relied upon by the CIT (A).

In Perizad Zorabian Irani vs. Principal Commissioner of Income-tax [2022] 139 taxmann.com 164 (Bombay), the Bombay High Court also agreed with the view expressed by the Hon’ble Madras High Court in the case of A. Anandkumar v. Asstt. CIT (supra) and held that a partner’s remuneration cannot be treated as gross receipts from profession.

There is one more aspect which is equally important for deciding the issue under consideration. The amount treated as deemed profits under section 44AD or 44ADA is either the sum computed in the manner prescribed therein or a higher sum claimed to have been earned by the assessee. Indirectly, this implies that, for the purpose of explaining investments in assets, or otherwise, the assessee may not be able to claim that he had earned the income higher than the amount of profits computed on a deemed basis under section 44AD or 44ADA, if he opts for these provisions. In other words, for purpose such as explaining the source of investment made out of the income etc., the assessee may not be able to contend that the actual income from business or profession was higher than the deemed profits offered to tax on a presumptive basis. Therefore, one should be cautious of this limitation while taking a view that income in respect of interest or remuneration received from a partnership firm can be computed on a presumptive basis.

In our respectful submission, the view taken by the Chennai bench of the tribunal appears to be the correct view, particularly since the same has also been upheld by the High Courts of Madras and Bombay. However, the contrary view is also possible, and therefore one will ultimately have to await the decision of the Supreme Court on the issue.

Glimpses Of Supreme Court Rulings

4. Aspinwall and Co. Ltd. Vs. Inspecting Assistant Commissioner

Civil Appeal No. 7796 of 2012 and Ors. decided on 13.04.2026

Kerala Agricultural Income Tax Act, 1991 – Accumulated losses – Set off in hands of amalgamated company – The accumulated losses in the balance sheet of amalgamating company could not be set-off against the income of the amalgamated company – Even otherwise the losses pertained to a period beyond 8 years the same could not be set off

A company named “Pullangode Rubber & Produce Co. Ltd.” was amalgamated with the Appellant company. The scheme of amalgamation was sanctioned in November 2006. The appointed date was fixed as 01.01.2006. As there were accumulated losses in the balance sheet of amalgamating company, the issue is, as to whether the same could be claimed as a set-off against the income of the amalgamated company.

According to the Appellant, in terms of the provisions of Section 54 of the Kerala Agricultural Income Tax Act, 1991, the amalgamated company as successor of the amalgamating company shall be entitled to set-off of the losses suffered. In terms of Section 12 of the Kerala Act, the losses suffered by an Assessee can be carried forward for a period of 8 years for set-off against the income of subsequent years. Relying upon the judgment of the Supreme Court in Dalmia Power Ltd. and Anr. v. Assistant Commissioner of Income-Tax (2020) 420 ITR 339, it was submitted that once the scheme of amalgamation is approved, all the clauses contained therein stand approved. The rights of the parties flow therefrom. In the aforesaid judgment, no objection was raised by the Income Tax Department to various clauses of the scheme. Hence, the same were held to be binding. In the case in hand as well, no objection was raised to the scheme of amalgamation. Clause 14(2) thereof clearly provides for set-off of losses incurred by amalgamating company against the profits of the amalgamated company. The findings recorded by the High Court in the impugned order were erroneous and are totally contrary to the law laid down in Dalmia Power Ltd.’s case (supra). In fact, the judgment of the High Court was delivered prior to the judgment of the Supreme Court in the aforesaid case. The Appellant prayed for setting aside the judgment of the High Court and allowing the Appellant’s claim for setting off accumulated losses of the amalgamating company with the profits of the amalgamated company.

In response, the Respondent submitted that reliance on the judgment of this Court in Dalmia Power Ltd.’s case (supra) was totally misplaced. The core argument raised by the Appellant, is that once the scheme of amalgamation has been approved with no objection raised by the Respondents therein, the terms and conditions contained therein have to be given full effect thereto. It was submitted that in the aforesaid case, the Supreme Court has specifically noticed that despite notice, the Income Tax Department had not raised any objection to any of the terms contained in the scheme of amalgamation whereas in the case in hand, State of Kerala was never issued noticed during the process of amalgamation.

It was further submitted that in terms of provisions of the Section 12 of Kerala Act, set-off of accumulated losses can be claimed only by the Assessee who suffered the losses. As the Appellant/amalgamated company had not suffered those losses, no set-off can be claimed. In any case, in Dalmia Power Ltd.’s case (supra), the only issue was regarding filing of returns which was allowed. The issue on merit regarding entitlement of the relief was not gone into. Even as per the conditions laid down in the scheme of amalgamation, especially Clause 17.1, the amalgamating company stands dissolved without winding up. Meaning thereby, the Assessee under the Kerala Act, who had suffered the losses, is no longer in existence to claim any set-off.

The Respondent further submitted that the language of Section 72A of the Income Tax Act, 1961 was altogether different when compared with the provisions of the Kerala Act. Section 2(7) of the Kerala Act defines an Assessee. Section 2(20) defines a person whereas Section 3 thereof is the charging section. Section 12 thereof deals with carry forward of losses, whereas Section 48 deals with legal representatives of a person who dies. Section 54, which talks about succession of a business, also does not come to the rescue of the Appellant as nothing contained therein provides that amalgamated company/Appellant can claim set-off of the losses suffered by amalgamating company. Proviso to the aforesaid section provides that if there is any existing tax demand against the amalgamating company, the same can always be recovered from successor, namely, the amalgamated company, but no other benefit accrues. Sections 57 to 59 of the Kerala Act deal with the assessment of a person transferring property, assessment in case of discontinued business of a company, firm or association and assessment of the firm/association which has been dissolved or has discontinued its business. Section 60 of the Kerala Act deals with a case where a company is in liquidation.

As the amalgamating company has ceased to exist, the Appellant cannot claim any set-off of the losses suffered by it. In support of the arguments, reliance was placed upon the judgment of the Supreme Court in General Radio & Appliances Co. Ltd. v. M.A. Khader (1986) 2 SCC 656, Saraswati Industrial Syndicate Ltd. v. CIT 1990 Supp SCC 675, Singer India Limited v. Chander Mohan Chadha and Ors. (2004) 7 SCC 1, CIT v. Maruti Suzuki (India) Ltd. (2020) 18 SCC 331 and Religare Finvest Ltd. v. State (NCT of Delhi) (2024) 1 SCC 797.

He further referred to the impugned order dated 23.09.2011 passed by the High Court where a specific finding has been recorded that the losses for which the set-off is sought to be claimed by the Appellant/amalgamated company pertains to a period beyond 8 years, which otherwise also is not permissible in terms of Section 12 of the Kerala Act.

The Supreme Court considered the provisions of the Kerala Act which were relevant for consideration of the arguments raised by the parties.

According to the Supreme Court, from a perusal of the relevant provisions it was evident that Section 2(7) defines an Assessee to mean a person liable to pay tax under the Kerala Act. Section 2(20) defines a person to mean an individual etc. owning, possessing or holding property which includes a corporate as well. Section 3 of the Kerala Act, which is the charging section, provides for charging of tax as per the rates prescribed in the aforesaid Act on the agricultural income. Section 12 of the Kerala Act enables any person to carry forward any loss sustained in any year for set-off against the income of subsequent years. Such loss can be carried forward for a maximum period of 8 years. Section 48 of the Kerala Act provides that in case, a person dies, his legal representatives shall be liable to pay tax, which the deceased would have been liable to pay under the aforesaid Act, if he had not died. Any proceedings for the purpose can be against the legal heirs of such deceased person, who shall be deemed to be an Assessee under the aforesaid Act.

Further, Section 54 of the Kerala Act deals with succession to business. It provides that where a person carrying on any business has been succeeded in such capacity by another person, such person and such other person shall each be assessed in respect of their actual share of agricultural income in the previous year. Proviso to the aforesaid section provides that in case a person who succeeded cannot be found, action can be taken against a person who is succeeding such person. The succeeding person is liable to pay tax, if any, due from the succeeded person.

Section 60 of the Kerala Act deals with the status of a company in liquidation. In terms thereof, a liquidator of a company, being wound up under Order of the court or otherwise, has to issue notice to the Agricultural Income Tax Officer, who in turn has to specify to him, the amount of tax due under the aforesaid Act.

Section 72A of the 1961 Act deals with carry forward and set off of accumulated losses and unabsorbed depreciation allowance in the cases of amalgamation or demerger. The provision, starting with a non-obstante clause, clearly provides that accumulated losses and unabsorbed depreciation of the amalgamating company shall be deemed to be loss or as the case may be, allowance for unabsorbed depreciation of the amalgamated company for the previous year in which amalgamation was effected.

The Supreme Court noted following Clause 14.2 of the scheme of amalgamation, which was relied upon by the Appellant.
“Clause 14.2. With effect from the Appointed Date, all the profits or Income accruing or arising to PRPL or expenditure or losses arising or incurred by PRPL shall, for all purposes, be treated as and shall deemed to accrue as the profits or income or expenditure or losses, as the case may be, of Aspinwall & Co.”

The Supreme Court also noted that the Appellant had not disputed that no notice of amalgamation proceedings was issued to the State of Kerala to raise objection with reference to any terms referred to with the amalgamation scheme.

According to the Supreme Court, Section 394-A of the Companies Act, 1956 makes it mandatory on the Tribunal to issue notice in every application filed under Sections 391 or 394 to the Central Government and any objections raised are to be considered. Section 394 of the aforesaid Act talks about amalgamation of the companies. The Ministry of Corporate Affairs, Government of India, had issued a Circular dated 15.01.2014 bearing F. No. 2/1/2014 providing that while responding to the notices issued to the Government Under Section 394-A, the Regional Director shall invite specific comments from the Income Tax Department within 15 days. If no response is received from the Income Tax Department during the aforesaid period, it may be presumed that the Income Tax Department has no objection to the action proposed under Section 391 or 394, as the case may be. It is in the light of the aforesaid provision and the circular that the comments of the Income Tax Department are mandatory.

The Supreme Court observed that in Dalmia Power Ltd.’s case (supra) the Court was dealing with a case under the Companies Act, 2013 where similar provision is contained in Section 230(5) specifically and in Rule 8(3) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. There is a specific finding recorded in the aforesaid judgment that despite notice, Income Tax Department did not raise any objection, within the stipulated time, to the scheme, as proposed. The same was approved. As the scheme was approved, all terms and conditions contained therein stood approved and could be acted upon.

According to the Supreme Court, the facts in the present case were distinguishable. Neither there was any statutory requirement for issuing notice to the State Government before any scheme of amalgamation is approved by the Court under the 1956 Act nor such notice was issued. Hence, to state that the judgment in Dalmia Power Ltd.’s case (supra) covers the case of the Appellant, was misconceived and deserves to be rejected.

According to the Supreme Court, the Appellant had not been able to refer to any provision under the Kerala Act in terms of which the losses suffered by amalgamating company could be set-off against the income of the amalgamated company. Its main reliance was only on the Clause 14.2 in the scheme of amalgamation. In view of what has been stated hereinbefore, the argument addressed with reference thereto stands rejected.

According to the Supreme Court, there was another finding on facts recorded by the High Court in the impugned order dated 23.09.2011 dealing with the Assessment Year 2006-07, i.e. that the loss of the amalgamating company / Pullangode Rubber & Produce Co. Ltd. pertained to a period beyond 8 years. Assessment years in all other appeals are subsequent to that. Hence, in terms of Section 12 of the Kerala Act the Appellant/Aspinwall and Co. Ltd. would not be entitled to any set-off. It was a case wherein the Appellant had lost in all fora. To challenge the aforesaid findings of fact recorded by the High Court in the impugned order, no specific ground had been raised in the petitions filed before the Court.

For the reasons mentioned above, the Supreme Court did not find any merit in the present appeals. The same were accordingly dismissed.

Section 170A- modified return of income- Assessment – Limitation – restricted to the modified return of income or to give effect to the Order of amalgamation and not seek to re-open the entire assessment:

6. Technoforce Solutions (I) Pvt. Ltd vs. Deputy Commissioner of Income Tax, Circle-1 Nashik & Ors,

[Writ Petition no. 2041 of 2026, dated 1st April 2026 (Bombay HC)] Assessment Year : 2023-24.

Section 170A- modified return of income- Assessment – Limitation – restricted to the modified return of income or to give effect to the Order of amalgamation and not seek to re-open the entire assessment:

The Petitioner filed its return of income for A.Y. 2023-24 on 27.11.2023 declaring a total income of Rs.5,32,85,870/-. An intimation under Section 143(1) was issued on 05.12.2023 without making any adjustment to the income declared. The Petitioner had filed an application before the NCLT on 28.12.2021 for amalgamating its wholly owned subsidiary company, M/s. Promatics Solutions (I) Pvt. Ltd., for which the Appointed Date was fixed as 01.04.2021. The NCLT, by order dated 05.07.2024, approved the amalgamation of M/s. Promatics Solutions (I) Pvt. Ltd. with the Petitioner w.e.f. 01.04.2021.Thereafter, the Petitioner filed a modified return of income under Section 170A of the Act for A.Y. 2023-24, on 23.01.2025 on the Income-tax Portal, declaring total income of Rs.5,26,82,860/. The assessment for A.Y. 2023-24 became time barred on 31.03.2025 in terms of the fourth proviso to Section 153(1) of the Act. Subsequently, in response to the modified return Respondent No.3 issued a Notice under Section 143(2) for A.Y. 2023-24 on 23.06.2025. The Petitioner filed a reply to the aforesaid Notice on 07.07.2025 and stated that the reply was without prejudice to the contention that the Notice was barred by limitation. In this reply it was explained that the effect of Amalgamation is reduction of income of the Petitioner by a sum of Rs. 6,01,077/-, being the interest charged by the Petitioner to M/s. Promatics Solutions (I) Pvt. Ltd. on its loan amount. The Petitioner received a Notice u/s. 142(1) on 21.01.2026 for A.Y. 2023-24.

The Petitioner filed the present Petition seeking quashing of the Notice under Section 143(2) dated 23.06.2025 and Notice under Section 142(1) dated 21.01.2026 on the ground that both the Notices are issued after the assessment of the Petitioner’s income for A.Y. 2023-24 has become time barred on 31.03.2025 and therefore, both Notices are bad in law and without jurisdiction. Secondly, the notice under Section 143(2) of the Act cannot be issued after a period of three months from the end of the assessment year, , after 30.06.2024.

According to the Petitioner, with effect from 01.04.2022, Section 170A has been introduced in the Act by the Finance Act 2022. The said Section, as amended by the Finance Act 2023 with effect from 01.04. 2023, deals with the effect of business reorganisation. Sub-Section (1) of Section 170A of the Act mandates that where prior to the date of the order in respect of business reorganisation, if an assessee has furnished its return of income for any assessment year relevant to the previous year to which such order applies, the successor shall furnish within a period of six months from the end of the month in which the order was issued, a modified return in such form and manner as may be prescribed. As per sub-Section (2) of Section 170A of the Act, in so far as it is relevant for the present purpose, where the assessment proceedings for an assessment year, relevant to a previous year to which the order in respect of reorganisation applies, are completed on the date of furnishing of the modified return, the assessing officer is required to pass an order modifying the total income of the relevant assessment year in accordance with the order of the business reorganisation, and taking into account the modified return so furnished.

The Hon’ble Court observed that, in the present case, the original return of income filed under Section 139(1) on 27.11.2023 for A.Y. 2023-24, had been accepted under Section 143(1) of the Act by issuance of the intimation dated 05.12.2023. Thereafter, no notice under Section 143(2) of the Act had been issued on or before 30.06.2024, as prescribed under the proviso to Section 143(2) of the Act. Therefore, the assessment proceedings stood completed and were not pending at the time of filing of the modified return of income on 23.01.2025. Accordingly, as per Section 170A(2)(a) of the Act, Respondent No.3 was under an obligation to pass an order modifying the total income of A.Y. 2023-24, as determined under the intimation issued under Section 143(1), in accordance with the order of amalgamation passed by the NCLT on 05.07.2024 and after taking into account the modified return furnished by the petitioner.

The Petitioner contended that the impugned notice dated 23.06.2025 issued under Section 143(2) of the Act and thereafter the notice dated 21.01.2026 issued under Section 142(1), called for accounts, documents, and information unrelated to the order of reorganization. According to the petitioner, no inquiry was being conducted regarding giving effect to the amalgamation order of the NCLT, which was the sole reason for filing the modified return of income under Section 170A(1) of the Act. It was further contended that, since the assessment for the assessment for A.Y. 2023-24 stood completed on the date of filing the modified return, clause (a) of sub-Section (2) of Section 170A specifically required the Assessing Officer to pass an order modifying the total income determined under Section 143(1) in accordance with the amalgamation order dated 05.07.2024 and after taking into account the modified return of income furnished on 23.01.2025. The petitioner further submitted that both the aforesaid notices lacked jurisdiction. The notice under Section 143(2) could not have been issued after 30.06.2024 in view of the proviso to Section 143(2), and since the assessment for A.Y. 2023-24 could not be completed after 31.03.2025 in terms of the fourth proviso to Section 153(1) of the Act, there was no pending assessment proceeding in relation to which any inquiry could be conducted. Consequently, the notice issued under section 142(1) of the Act also could not survive.

The Respondents contended that the present writ petition was liable to be dismissed since it challenged notices issued for completing the assessment in respect of the modified return of income filed by the Petitioner on 23.01.2025 and, therefore, the challenge was premature. It was submitted that the Petitioner had proceeded on an erroneous assumption that filing of a modified return under Section 170A of the Act does not permit fresh assessment proceedings. According to the respondents, section 170A had been introduced to enable the Assessing Officer to correctly assess the total income in cases of business reorganisation approved by a Court or Tribunal after the return of income for the relevant assessment year had already been filed. The learned Counsel for the Respondents further submitted that a return of income filed under Section 170A was also required to be verified by using the machinery provisions under the Act, and therefore, the interpretation suggested by the Petitioner would render Section 170A unworkable. It was further contended that the notice under Section 142(1) of the Act could not be faulted merely because it sought information beyond the amalgamation order passed by the NCLT. The respondents also submitted that issuance of notices under Sections 143(2) and 142(1) did not amount to a “back door reassessment”. According to them, the respondents had acted strictly within the framework of the Act and had not exceeded their jurisdiction.

In rejoinder, the learned Counsel appearing for the Petitioner submitted that the modified return of income filed under Section 170A was required to be dealt with strictly in accordance with sub-section (2) thereof.. It was further submitted that the notices had been challenged on the ground of limitation and lack of jurisdiction According to the petitioner, the notice under Section 143(2) for A.Y. 2023-24 could not have been issued after 30th June 2024 in view of the proviso to Section 143(2) of the Act. Further, since the assessment for A.Y. 2023-24 was required to be completed on or before 31.03.2025, no notice under Section 142(1) could thereafter be issued to scrutinise the modified return filed under Section 170A. Consequently, both notices are without jurisdiction and liable to be quashed. The petitioner further submitted that clause (a) of sub-Section (2) of Section 170A specifically provides that where the assessment stands completed on the date of filing the modified return, the Assessing Officer is only required to pass an order modifying the total income already determined so as to give effect to the order of business reorganisation passed by the Tribunal or the Court. On the other hand, where the assessment is pending on the date of filing the modified return, in such circumstances the Assessing Officer shall pass an order assessing the total income of the relevant assessment year in accordance with the order of the business reorganisation and taking into account the modified return so furnished. Accordingly, it was argued that section 170A constitutes a complete code in itself. In the present case, since the assessment stood completed on the date of filing of the modified return, the Assessing Officer could not seek information beyond the scope of the amalgamation order as contemplated under clause (a) of sub-Section (2) of Section 170A. In support of the aforesaid submissions, reliance was placed upon the decision of this Court in the case of Bajaj Electricals Limited v. Assistant Commissioner of Income-tax, Circle-2(1)(1), Mumbai [Writ Petition (L) No. 40696 of 2025 decided on 9th February 2026]. It was further submitted that the Assessing Officer were permitted to scrutinise the modified return in the same manner as an original assessment, even in cases where the assessment had already stood completed on the date of filing the modified return, then no distinction would survive between cases falling under clause (a) and those covered under clause (b) of sub-Section (2) of Section 170A of the Act.

Section 170A comes into operation, where, prior to the date of the order in respect of business reorganisation, the assessee has furnished a return of income for any assessment year relevant to the previous year to which such order applies. The consequence of the application of Section 170A is that, under sub-Section (1) thereof, the successor is obligated to furnish a modified return of income, in the prescribed manner and limited to the order of business reorganisation, within six months from the end of the month in which such order was passed.

In the present case, the Petitioner had filed its original return of income for the A.Y.2023-24 on 23.11.2023. The scheme of amalgamation of M/s. Promatics Solutions (I) Private Limited with the Petitioner was approved by the NCLT on 05.07.2024.. Therefore, the Section 170A(1) of the Act squarely applied to the petitioner’s case, pursuant to which the Petitioner filed the modified return of income on 23.01.2025.

Section 170A(2) of the Act makes a clear distinction between two scenarios, clause (a) applies where the assessment stood completed on the date of furnishing of the modified return of income, whereas clause (b) applies where the assessment was pending on the date of furnishing of the modified return of income. In cases falling under clause (a), the assessing officer is required to pass an order modifying the total income already determined in the completed assessment, in accordance with the order of reorganization and considering the modified return. In contrast, clause (b), which deals with pending assessment, contemplates passing of an order assessing or reassessing the total income in accordance with the order of reorganization and after taking into account the modified return. According to the Hon’ble Court, the distinction between clauses (a) and (b) of sub-Section (2) of Section 170A of the Act is clear and deliberate. Clause (a) only provides for modification of the assessed income to give effect to the order of reorganisation while considering the modified return of income. There is no scope under clause(a) for issuance of notices under Sections 143(2) and 142(1) for making a de novo assessment.

An assessment which is already stands completed can only be modified under Section 170A(2)(a) by taking into consideration the modified return and giving effect to the order of amalgamation. For this limited purpose, information can be called for by the Assessing Officer by invoking the relevant provisions of the Act.

On the other hand, Section 170A(2)(b) contemplates passing of an Order of assessment or re-assessment, which necessarily requires issuance of notices under the Act for determination of the total income of the assessee.

In the present case, since the Petitioner’s fell under Clause (a) of sub-Section (2) of Section 170A, the impugned notice dated 23rd June, 2025 and 21st January, 2026 issued under Sections 143(2) and 142(1) were held to be unsustainable. The Court observed that the notices were not confined to the modified return of income or to giving effect to the amalgamation order, but instead sought to re-open the entire assessment of the Petitioner for Assessment Year 2023-2024. In these circumstances, the impugned notices, as well as the consequential assessment order passed under Section 143(3), read with Section 144B, were held to be unsustainable and were accordingly quashed and set aside.

Respondent No.3 was directed to pass a fresh order modifying the total income determined pursuant to the intimation issued under Section 143(1) dated 5th December, 2023 and to give effect to the modified return filed on 23rd January, 2025.

Sec 148 – Reassessment – beyond a period of three years – Approval – the specified authority was the authority contemplated by Section 151(ii), and not in Section 151(i) – Defect not a mere procedural irregularity – Approval by a wrong authority – Proviso to Section 151 cannot be read retrospectively

5. Skypak Travels Private Limited vs. Income-Tax Officer Ward- 2(3)(1) and Ors.

[Writ Petition no. 5456 of 2024, Order dated 24th April 2026 (Bombay HC)] Assessment Year 2018-19.

Sec 148 – Reassessment – beyond a period of three years – Approval – the specified authority was the authority contemplated by Section 151(ii), and not in Section 151(i) – Defect not a mere procedural irregularity – Approval by a wrong authority – Proviso to Section 151 cannot be read retrospectively

The Petitioner is a company incorporated in India. The Petitioner had not been engaged in any active business for several years and had not filed its Return of Income for the relevant period. It was the specifically contended by the Petitioner that, at the relevant time, it did not even have an account on the income-tax e-filing portal, and such account came to be opened only on 16 October, 2024 after the Petitioner became aware of the reassessment and penalty proceedings.

For Assessment Year 2018-19, a notice dated 23 March 2022 was issued under Section 148A(b) of the Act alleging that information had been flagged on the portal in accordance with the risk management strategy and that the Petitioner had sold immovable property valued at Rs.2,29,23,500/- without filing any return of income. The Petitioner contended that the said notice was never served either physically or electronically. Thereafter, an order dated 06 April 2022 was passed under Section 148A(d) of the Act, followed by issuance of notice dated 07 April 2022 under Section 148 of the Act. According to the petitioner, these were also never served. The Petitioner further contended that both the said notice and the order themselves recorded that approval had been obtained from the Principal Commissioner of Income Tax. Subsequently, the reassessment proceedings were carried forward by issuance of notices under Section 142(1) and Show cause notices alleging that the Petitioner had sold immovable property and proposing to add Rs.2,29,23,500/- under Section 50C of the Act.

The Petitioner contended that none of the aforesaid notices had ever been served upon it. In fact, the reassessment order itself records that the notice sent by speed post had been returned with the remark “Left”, and that the Inspector deputed for service had reported that the address of the Assessee was inaccurate and that no company in the name of the Petitioner existed at the stated address in Raja Bahadur Compound. The Petitioner contended that, despite this, the Department continued to proceed on the basis of incorrect address. On 26 March 2024, Respondent No.1 passed an order under section 147 read with Section 144 of the Act, treating Rs.2,29,23,500/- as short-term capital gains under Section 50C and raising a tax demand of Rs.1,79,72,560/-. Thereafter, by orders dated 23 September 2024, penalty under Section 270A amounting of Rs.1,51,58,394/- and penalty under Section 272A(1)(d) amounting of Rs.50,000/- were levied.

According to the Petitioner, it became aware of these proceedings only when the assessment order and penalty orders were received by its director on 10 October 2024. Thereafter, an e-filing account was created on 16 October 2024, upon which the Petitioner downloaded various notices and orders.

The Petitioner submitted that the impugned notice under Section 148 and the order under Section 148A(d) are wholly without jurisdiction since they had been issued after expiry of three years from the end of Assessment Year 2018-19, whereas the approval admittedly been granted by the Principal Commissioner of Income Tax. According to the petitioner, in such a case, the competent specified authority under Section 151(ii), as it then stood, ought to have been the Principal Chief Commissioner / Principal Director General or, in their absence, the Chief Commissioner / Director General, and not the Principal Commissioner. Reliance was placed upon the decision in Vodafone Idea Limited vs. Deputy Commissioner of Income Tax in Writ Petition No. 2768 of 2022 decided on 06 February 2024, wherein the Court, in an identical case, held that where the notice under Section 148 and order under Section 148A(d) had been issued beyond three years from the end of the relevant assessment year, sanction granted by the Principal Commissioner was invalid and the sanctioning authority ought to have been the authority specified under Section 151(ii). The petitioner also relied upon Kpmg Llp vs. Assistant Commissioner of Income Tax, International Tax Circle 2(1)(2), Delhi & Ors., Writ Petition (ST) No. 5390 of 2024 decided on 21 February 2024, wherein, following Vodafone Idea Limited (supra), the Court quashed the order under Section 148A(d) and notice under Section 148 on the ground that the sanction was accorded by the Principal Commissioner even though the matter pertained to Assessment Year 2018-19 and the impugned action had been taken beyond three years. It was further pointed out that the Special Leave Petition preferred against the said decision in KPMG (supra) had also been dismissed by the Hon’ble Supreme Court.

The importance of prior approval under Section 151 was emphasized by the Supreme Court in Union of India & Ors. vs. Rajeev Bansal [(2024) 469 ITR 46 (SC)], wherein it was held that Section 151 imposes an important check on the power of the Revenue to reopen assessments and that grant of sanction by the appropriate authority is a pre-condition for assumption of jurisdiction under Section 148. Non-compliance with the statutory requirement as to sanction goes to the root of the matter and renders the entire proceedings void.

The Hon’ble Court observed that, as Section 151 stood at the relevant point of time, where more than three years had elapsed from the end of the relevant assessment year, the specified authority was the authority contemplated under Section 151(ii), and not the authority mentioned in Section 151(i). The period of three years was required to be computed from the end of the relevant assessment year. In the present case, the impugned order and notice themselves indicated that approval had been granted by the Principal Commissioner of Income Tax. This fact was also admitted in the Reply Affidavit. He was not the competent authority in law for a case falling beyond the three-year period from the end of the relevant assessment year.

The Hon’ble Court observed that the issue was squarely covered by the decision of this Court in Vodafone Idea Limited vs. Deputy Commissioner of Income Tax decided on 06 February 2024. In that case also, for Assessment Year 2018-19, the notice under Section 148 and the order under Section 148A(d) had been issued beyond three years, and sanction had been accorded by the Principal Commissioner. Incidentally, the notice in the said case was also dated 07 April 2022. The Court held that the sanctioning authority ought to have been the Principal Chief Commissioner as contemplated under Section 151(ii) and that the proviso to Section 151, inserted only with effect from 01 April 2023, would not apply.

The same view was reiterated by the High Court in Kpmg Llp vs. Assistant Commissioner of Income Tax, International Tax Circle 2(1)(2), Delhi & Ors. decided on 21 February 2024. In that case as well,, the Court held that since the impugned notice and order for Assessment Year 2018-19 were issued beyond three years, sanction granted by the Principal Commissioner was invalid and the matter was governed by Section 151(ii). The Court specifically observed that the proviso to Section 151 had been inserted only with effect from 01 April 2023 and, therefore, had no application to the facts of that case. The Special Leave Petition against the said decision was also dismissed in SLP(C) Diary No. 23377/2025.

The Hon’ble Court further noted that Hon’ble Supreme Court in case of Rajeev Bansal had clearly explained the importance of sanction under Section 151 and held that grant of sanction by the appropriate authority is a pre-condition for the Assessing Officer to assume jurisdiction under Section 148. Section 151 is not an empty formality; rather it is statutory safeguard and check against arbitrary reopening. Non-compliance with the said requirement goes to the root of jurisdiction itself.

According to the Hon’ble Court, the defect in the present case was not a mere procedural irregularity. It was a case where approval had been granted by an incompetent authority. Consequently, the assumption of jurisdiction itself was invalid.

The Hon’ble Court further observed that the fifth and sixth proviso (erstwhile third and fourth provisos) to Section 149(1) were not applicable for the purposes of Section 151 of the Act. The provisos themselves make it clear that they are only for the purposes of computation of period of limitation under Section 149 of the Act. It was this reason that a special proviso had subsequently been inserted in Section 151 of the Act.

Further, the proviso inserted to Section 151 cannot be treated as retrospective. The Legislature had specifically inserted the proviso with effect from 01 April 2023. Had the Legislature intended
retrospective operation, it could have said so expressly. In the absence of such indication, and particularly since the provision relates to jurisdiction, it cannot be construed so as to retrospectively validate an action which was without jurisdiction when originally taken.

The Court also noted that the proviso to Section 151 refers to four provisos to Section 149(1). Two of those provisos i.e., third and fourth proviso to Section 149(1) were inserted with effect from 01 April 2023. The original third and fourth provisos were made fifth and sixth provisos. There is no case made out or even argued that even third and fourth proviso to Section 149(1) are retrospective in nature. Once, the third and fourth proviso to Section 149(1) are undisputedly prospective and effective from 01.04.2023, then the proviso to Section 151 which was inserted at the same time, and which makes a reference to such provisos cannot be held to be retrospective. Thus, it was observed that the proviso to Section 151 cannot be read retrospectively so as to govern notices and orders issued in April 2022.

The objection raised by the Revenue regarding availability of an alternate remedy was rejected. Consequently, the impugned order passed under Section 148A(d) dated 06 April 2022, the impugned notice issued under Section 148 dated 07 April 2022, the assessment order dated 26 March 2024 passed under section 147 read with Section 144, the notice of demand issued pursuant thereto, and the penalty orders dated 23 September 2024 under Sections 270A and 272A(1)(d), being consequential to proceedings initiated without jurisdiction, were quashed and set aside.

Section 143(3), rws 144B – Faceless Assessment – Show Cause notice not granting sufficient time to reply – Violation of principles of natural justice – Standard Operating Procedure dated 03.08.2022 :

4. Wrode and Wire Pvt Ltd vs. National Faceless Assessment Centre (formerly known as National E-Assessment Centre) & Ors

[Writ petition no. 3533 of 2022, dated April 24, 2026 (Bombay HC)] Assessment Year 2018-19

Section 143(3), rws 144B – Faceless Assessment – Show Cause notice not granting sufficient time to reply – Violation of principles of natural justice – Standard Operating Procedure dated 03.08.2022 :

The Petitioner had filed its return of income declaring a total income of Rs.6,19,860/- for the relevant Assessment Year 2018-19. The case of the Petitioner was selected for scrutiny through issuance of notice under Section 143(2) of the Act. The Respondents issued several notices, and the Petitioner duly filed various submissions/explanations along with the relevant documentary evidence. A direction was also issued for conducting special audit under Section 142(2A) of the Act, and the special audit report was submitted to Respondent No. 1.

Thereafter, the Petitioner received a Show Cause Notice cum Draft Assessment Order dated 06.01.2022 (Thursday), calling upon the Petitioner to show cause as to why the assessment should not be completed in terms of the Draft Assessment Order, where the Assessing Officer proposed an addition of Rs. 116,38,23,790/. The said notice was digitally issued and signed at around 07:06 p.m., and the Petitioner was required to comply with the same by 23:59 hours of 09.01.2022 (which was a Sunday). On 08.01.2022, the Petitioner sought an adjournment and requested extension of time upto 23.01.2022. However, Respondent No.1 directly passed the impugned assessment order under Section 143(3), read with Section 144B, on 12.01.2022, whereby an addition of Rs. 65,68,23,520/- was made and a Demand of Rs. 70,85,60,500/- was raised.

The Petitioner, challenged the said Assessment Order by the way of the Writ Petition and contended that, under the Show Cause Notice dated 06.01.2022, proposing an addition of Rs. 116,38,23,790/-, the time granted to the Petitioner was merely 2.5 days, which included Saturday and Sunday. It was submitted that the Assessment proceedings were conducted in a high pitched and hurried manner. According to the petitioner, the period of merely 2.5 days was wholly insufficient and resulted in violation of the principles of natural justice, which require sufficient, adequate, and reasonable opportunity of being heard to the assessee. The petitioner further contended that paragraph 1.3 of the Standard Operating Procedure dated 03.08.2022 issued by the National Faceless Assessment Centre itself directed the assessment units to grant at least seven days’ time to assessees for responding to show-cause notices.

It was also contended that, despite the Petitioner having filed an adjournment request on 08.01.2022, no communication regarding acceptance or rejection of such request was ever made to the Petitioner, and the impugned assessment order was directly passed on 12.01.2022. Further, no opportunity for personal hearing was granted to the petitioner. It was submitted that the draft Assessment Order violated the provisions of Section 144B(7)(vii), as they stood at that relevant point of time.

The petitioner additionally contended that, in the final Assessment Order dated 12.01.2022, a separate disallowance of Rs. 7,46,488/- in respect of travelling expenses had been made; although no such disallowance had ever been proposed in the Draft Assessment Order. Thus, an addition had been made directly in the final Assessment Order without issuance of any Show Cause Notice in respect thereof. According to the petitioner, the assessment proceedings had been completed in a high-pitched manner and in undue haste.

The learned counsel appearing on behalf of the Respondents supported the contentions of Respondent No.1 as set out in the impugned Final Assessment Order and relied upon the Affidavit in Reply dated 04.05.2022 as well as an Additional Affidavit in Reply dated July, 2022. It was also contended that the Petitioner ought to be directed to avail the alternate remedy available under the statute.

The Hon’ble Court held that it would not be appropriate to relegate the Petitioner to avail to the alternate remedy of appeal under the statute when there had been a breach of the principles of natural justice on the part of Respondent No.1. According to the Hon’ble Court, the matter was a fit case to interfere in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India.

Accordingly, the Hon’ble Court held quashed and set aside the final Assessment Order dated 12.01.2022 passed under Section 143(3), read with Section 144B of the Act, along with all consequential notices. The matter was remanded to the Jurisdictional Assessing Officer for fresh consideration from the stage of issuance of the Draft Assessment Order dated 06.01.2022 and for passing such order as may deemed fit in accordance with law, after affording the Petitioner an opportunity to respond to the Draft Assessment Order and also granting a personal hearing.

TDS — Credit for tax deducted — S. 199 — Assessee bank received sale proceeds from auction of borrower’s property under SARFAESI Act — Tax was deducted at source u/s. 194-IA — Property ownership remained with borrower — Sale consideration was not bank’s income — Assessee bank was entitled to credit/refund of TDS from sale proceeds.

16. Pr.CIT v. Punjab National Bank:

(2026) 185 taxmann.com 1003 (Del.)

A. Y. 2020-21: Date of order 21/04/2026

S. 199 of ITA 1961/S. 390 of ITA 2025

TDS — Credit for tax deducted — S. 199 — Assessee bank received sale proceeds from auction of borrower’s property under SARFAESI Act — Tax was deducted at source u/s. 194-IA — Property ownership remained with borrower — Sale consideration was not bank’s income — Assessee bank was entitled to credit/refund of TDS from sale proceeds.

The Assessee is a Bank. The Assessee sold an immovable property by way of an auction under the SARFAESI Act on account of default by the borrower. The sale proceeds were credited to the Assessee after deduction of tax at source u/s. 194-IA of the Income-tax Act, 1961.

In the assessment proceedings, it was the contention of the Assessee that the Assessee was entitled to refund of the amount deducted from the sale proceeds. It was submitted that the Assessee was merely a custodian of the sale proceeds and did not receive the same in the capacity of the owner and that the Assessee was liable to return the excess consideration over the liability to the borrower. However, the Department contended that the Assessee can neither claim credit of TDS nor claim refund unless the Assessee Bank offered the corresponding income in respect of the sale of immovable property.

The CIT(A) decided the appeal in favour of the Assessee and the Tribunal affirmed the decision of the CIT(A).

The Delhi High Court dismissed the appeal filed by the Department and held as follows:

“i) When the tax is deducted in relation to the amount paid/received qua purchase/sale of the property, then one has to bear in mind the nature of transaction.

ii) In case of auction/sale of a property under the provisions of the SARFAESI Act, the Bank cannot be treated to be the owner, as it only has possession of the property for having security interest in the property and corresponding rights to sell the same for recovery of its dues. The property neither factually nor by any legal fiction  belongs to the Bank. It is actually the borrower who is the owner of the property having created a security interest in relation to the property in favour of the Bank or secured creditor.

iii) The Bank during the course of assessment proceedings, had clearly explained before the Assessing Officer that it had charged interest on the loan amount and has adjusted all expenses from the sale proceeds it received consequent to the auction. When the secured assets are sold by the Bank, it is only a trustee or custodian of the sale proceeds and any excess amount received in relation to the property over and above its outstanding dues and expenses incidental to the auction, has to be returned to the borrower. Similarly, in case there is any deficit, the Bank can recover the same from the borrower in accordance with law.

iv) The property does not belong to the Bank and therefore, irrespective of  the fact that the amount has been deducted u/s. 194IA of the Act, from the sale proceeds, the Bank is entitled to get refund of that amount because, Bank’s asset was not sold by the Bank. The respondent Bank is entitled to get refund of the amount deducted from the sale proceeds, as has been rightly held by the CIT(A). We therefore, do not find any error in the orders of the CIT(A) so also of the Tribunal. They are hereby affirmed.”

Revision — S. 263 — Lack of enquiry and inadequate enquiry — Explanation 2 to section 263 of the Act invoked for verification of documentary evidence regarding the claim of utilization out of accumulations made u/s. 11(2) of the Act — No prior show cause notice issued for invocation of Explanation to section 263 —Assessee furnished details during the assessment proceedings — Enquiry was made and possible view taken — Commissioner cannot re-open the matter u/s. 263 because there was another view or because the Commissioner desires further enquiry.

15. CIT(E) v. Impact Foundation (India)

2026 (5) TMI 331 (Bom.)

A. Y. 2016-17: Date of order 04/05/2026

S. 263 of ITA 1961

Revision — S. 263 — Lack of enquiry and inadequate enquiry — Explanation 2 to section 263 of the Act invoked for verification of documentary evidence regarding the claim of utilization out of accumulations made u/s. 11(2) of the Act — No prior show cause notice issued for invocation of Explanation to section 263 —Assessee furnished details during the assessment proceedings — Enquiry was made and possible view taken — Commissioner cannot re-open the matter u/s. 263 because there was another view or because the Commissioner desires further enquiry.

The Assessee is a non-profit company registered u/s. 25 of the Companies Act, 1956 and registered u/s. 12AA of the Income-tax Act, 1961 and is formed for helping organisations to improve implementation of programs which help women and children in education, health and livelihoods. The Assessee filed its return of income declaring total income at Rs. NIL. The Assessee, being registered u/s. 12AA, also claimed benefit u/s. 80G and claimed exemption u/s. 11 of the Act. The Assessee’s case was selected for scrutiny assessment and the income returned by the Assessee was accepted without any additions.

Thereafter, a notice u/s. 263 of the Act was issued for revision of assessment on the ground that as per the schedule of return of income, the Assessee claimed that it had utilised `6 crores from accumulations u/s. 11(2) and since the Assessee had not furnished any documentary evidence for the utilisation of Rs.6 crores and the Assessing Officer had not verified the issue and therefore, the assessment order was erroneous and prejudicial to the interest of the revenue. The CIT(E) without considering the contentions of the Assessee invoked the Explanation 2 to section 263 of the Act and held that the Assessing Officer had not verified the documentary evidences, he had also not verified whether the utilisation was as per the Memorandum of Association, third party verifications and therefore the order was erroneous and prejudicial to the interests of the revenue.

The Tribunal allowed the appeal filed by the assessee and held that the CIT(E) could not invoke his power of revision u/s. 263 where the Assessing Officer had conducted enquiries and applied his mind. The Tribunal observed that prior to the passing of assessment order, the Assessing Officer had, after making enquiry, taken the view that the utilisation of funds done by the Assessee was appropriate and completed the assessment without making any addition. Therefore, the assessment was not erroneous and prejudicial to the interest of revenue and the invocation of section 263 was bad in law.

The Bombay High Court dismissed the appeal filed by the Department and held as under:

“i) We are of the view that the ITAT has correctly reached the conclusion that the order passed by the Assessing Officer dated 12th December 2019 was not erroneous and prejudicial to the interest of the Revenue, inasmuch as, the said order was passed on a verification of all the materials submitted by the Assessee before the Assessing Officer. We are also of the view that the Assessee, as recorded in the order of the ITAT, had submitted before the Assessing Officer all the details as called for, in respect of the accumulation of funds in the earlier years, and also submitted details of the amounts utilized out of those funds. The Respondent-Assessee had furnished all the relevant details of Rs. 6 crores spent by it during the year under consideration, out of the amounts accumulated in the preceding year, and therefore the CIT (Exemption), erroneously held that the Respondent-Assessee had furnished utilization of accumulated amounts under broad heads. The CIT (Exemptions), was therefore of the view that the Assessing Officer could have asked for breakup details, and examined with supporting evidences that the said utilization is as per the objects of the Respondent-Assessee.

ii) Such view and approach to our mind, did not warrant invoking the provisions of Section 263 of the Act, inasmuch as it is not the case that the Assessing Officer had not verified any details. In fact, it is very clear that the Respondent-Assessee had, by letters dated 30th January 2019 and 3rd December 2019, along with the required board resolutions, Form No. 10, and details of utilization of funds, along with details of the accumulation of funds made u/s. 11(2) of the Act, given complete details to the Assessing Officer, and on the basis of the verification thereof, the Assessing Officer had passed the assessment order dated 12th December 2019. Thus, the order of the Assessing Officer could not be revised by the CIT (Exemptions), merely on the ground that further details were required to be called for.

ii) It is settled law that the consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue must be based on materials on record of the proceedings called for by him, and if there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such conclusion, the very initiation of proceedings by him would be illegal and without jurisdiction. The ITAT has therefore rightly come to the conclusion that the CIT (Exemptions), could not have initiated proceedings with a view to start de novo or a fishing inquiry in matters or orders which are already concluded, unless he was able to hold that the Assessing Officer’s view on the issue was unsustainable in law.

iii) The ITAT has rightly considered the provisions of section 11(2) and (3) of the Act so as to reach to a conclusion that the Respondent-Assessee had shown that the accumulation and utilization of funds has been rightly made, and therefore, if at all, the taxability of the same was to be decided, then it had to be decided in the year in which the expiry of the accumulated amount takes place, i.e., AY 2022-2023, inasmuch as the funds were accumulated in AY 2016-2017. The ITAT has rightly come to the conclusion that as far as the relevant facts of the present case are concerned, a perusal of Form-10 revealed that the accumulated amount in AY 2016-17 was to the tune of `14.51 crores up to 31st March 2021, i.e. AY 2021-22, and therefore the non-utilization of the accumulated amount as per Section 11(3) (c) would attract taxation in the previous year immediately following the expiry of the period, i.e. AY 2022-23.

iv) It is also not the case that the CIT (Exemptions) had come to the conclusion that there had been non-utilization of the amount accumulated in AY 2016-17. The only issue which the CIT (Exemptions), had flagged was regarding the non-examination by the Assessing Officer of Rs.6 crores expended by the Respondent-Assessee in the relevant AY out of the accumulated amount of Rs.14.51 crores, which is a situation which attracted clause (a) or clause (d) of Section 11(3) of the Act. As rightly held by the ITAT, such situation of invoking the provisions of clause (a) or (d) would only arise in the year after the expiry of the accumulated period, that is AY 2022-23, and not in the relevant AY.’

v) Prior to the invocation of the provisions of Explanation 2 to Section 263 of the Act, the show-cause notice was required to specify that the aforesaid Explanation is to be invoked against the Assessee, and if the show-cause notice does not mention that the Explanation is to be invoked, then the provisions of Section 263 of the Act cannot apply. As the Respondent-Assessee was not confronted with the aforesaid Explanation, hence, such an order, without confronting the Respondent-Assessee with the invocation of Explanation 2 to Section 263 was not appropriate and sustainable in law. We are therefore in agreement with learned Counsel on behalf of the Respondent-Assessee on this issue.

vi) The reliance placed by the learned Counsel for the Appellant-Revenue on the decision of the Sesa Starlite Ltd (supra) is not well founded in to the facts of the present case, as in such case, this Court upheld the proceedings u/s. 263 of the Act on the ground that on the issue of deduction u/s. 10B claimed by the Assessee, there was absolutely no consideration by the Assessing Officer, and hence the assessment order was passed on a non-application of mind to the material on record, it was hence held that, revisionary powers exercised by the Commissioner of Income-Tax u/s. 263 of the Act were correct and not bad in law. However in the facts of the present case, the decision of Sesa Starlight Ltd (supra) would not be applicable, as prior to the passing the assessment order dated 12th December 2019, the Assessing Officer had raised specific queries regarding the utilization of accumulated funds by the Respondent Assessee, and hence it was not a case of non-application of mind on the part of the Assessing Officer which warranted the CIT (Exemptions), Mumbai to exercise his powers u/s. 263 of the Act. The Respondent Assessee has demonstrated the utilisation of the accumulated funds u/s. 11(2) of the Act, and hence it is not a case of ‘no consideration’ by the Assessing Officer. The Respondent-Assessee has in fact by letters dated 30th January 2019 and 3rd December 2019 replied to all the queries as raised by the Assessing Officer prior to passing the assessment order dated 12th December 2019.

vii) The ITAT has rightly set aside the order of CIT (Exemptions), seeking to revise the assessment order by holding that the CIT (Exemptions) had erred in exercising the jurisdiction u/s. 263 of the Act, and to reach to a conclusion that the Assessing Officer had conducted necessary enquires regarding utilisation of the accumulated income of `6 Crores for the purpose for which it was accumulated, and had accepted the same as a possible view. Resultantly, the impugned order passed by the ITAT does not give rise to any substantial questions of law requiring interference or consideration in the present Appeal.”

Reassessment — New procedure — Time limit for issue of notice u/s. 148 — Exclusion of period for computation of period of limitation — Effect of decision of Supreme Court in case of Ashish Agarwal and Rajeev Bansal — “Surviving period” referred to by Court — Exclusion of time allowed to assessee to respond to initial notice — Held by High Court that Number of days remaining for passing order of issuance of notice would be two days — Period of two days expiring on 10/06/2022 or 27/06/2022 — Notice issued on 27/07/2022 issued much after surviving period — Notice barred by limitation.

14. Hitesh Ramniklal Shah v. ACIT: (2026) 486 ITR 281 (Bom): 2025 SCC OnLine Bom 5960

A. Y. 2014-15: Date of order 11/11/2025

Ss. 147, 148, 148A and 149 of ITA 1961

Reassessment — New procedure — Time limit for issue of notice u/s. 148 — Exclusion of period for computation of period of limitation — Effect of decision of Supreme Court in case of Ashish Agarwal and Rajeev Bansal — “Surviving period” referred to by Court — Exclusion of time allowed to assessee to respond to initial notice — Held by High Court that Number of days remaining for passing order of issuance of notice would be two days — Period of two days expiring on 10/06/2022 or 27/06/2022 — Notice issued on 27/07/2022 issued much after surviving period — Notice barred by limitation.

For the A. Y. 2014-15, the petitioner filed his return of income on September 29, 2014, declaring a total income of ₹64,86,660 in respect of which no scrutiny assessment was made. Respondent No. 1 issued a notice dated June 29, 2021 under the unamended provisions of section 148 of the Income-tax Act, 1961 after obtaining the approval of the Principal Commissioner of Income-tax, Mumbai-19. The petitioner filed his return of income on November 18, 2021 in response to the notice issued u/s. 148 of the Act declaring the same income that was declared in the original return of income.

After the judgment of the hon’ble Supreme Court in Union of India v. Ashish Agarwal [(2022) 444 ITR 1 (SC); (2023) 1 SCC 617; 2022 SCC OnLine SC 543.] delivered on May 4, 2022, respondent No. 1 issued a notice dated May 25, 2022 u/s. 148A(b) of the Act and called upon the petitioner to furnish his reply within two weeks to show cause as to why a notice u/s. 148 of the Act should not be issued to the petitioner. In reply thereto, the petitioner filed a letter dated June 3, 2022 requesting respondent No. 1 to drop the reopening proceedings. A further reply was filed on June 17, 2022, inter alia, pointing out that the notice is time barred as per section 149 of the Act; that there was no information with respondent No. 1 which suggested that income chargeable to tax has escaped assessment; and submissions were made on the merits to demonstrate that no income has escaped assessment. The petitioner filed another reply on June 25, 2022 pointing out that the same information was already considered while seeking to reassess the income for the A. Y. 2015-16 and, hence, the reopening for the A. Y. 2014-15 should be dropped. However, respondent No. 1 passed an order u/s. 148A(d) dated July 26, 2022 rejecting the submissions of the petitioner and issued a notice dated July 27, 2022 u/s. 148 of the Act.

The assessee filed a writ petition challenging the order and the notice on the ground of limitation. The Bombay High Court allowed the petition and held as under:

“i) After considering the above exclusion period, we observe that the remaining days for conclusion of the procedure for passing of an order in terms of section 148A(d) and issuance of the notice u/s. 148 of the Act would be two days. In the present case, whichever way we see it, the period of two days would expire on June 10, 2022 or June 27, 2022 respectively and, therefore, the notice u/s. 148 of the Act issued on July 27, 2022 is time barred, inasmuch as it is issued much after the surviving period.

ii) We concur with the judgments of the co-ordinate Bench in Dhanraj Govindram Kella v. ITO [(2025) 480 ITR 612 (Guj); 2025 SCC OnLine Guj 4831.] and of the Delhi High Court in Ram Balram Buildhome Pvt. Ltd. v. ITO [(2025) 477 ITR 133 (Delhi); 2025 SCC OnLine Del 481.] which have dealt with the surviving period and quashed the notices issued u/s. 148 of the Act passed beyond the surviving period.

iii) In view of the above, it is apparent that respondent No. 1 has acted beyond jurisdiction and we accordingly set aside the impugned notice issued u/s. 148 of the Act as well as all the subsequent notices issued u/s. 142(1) and the show-cause notice on the above ground.”

Penalty — Limitation u/s. 275(1)(c) — Penalty u/s. 271E — Acceptance and repayment of deposits in cash in excess of prescribed limit — Assessment order passed on 31/12/2010 with initiation of penalty proceedings — Reference to Additional Commissioner made on 07/06/2011 and penalty order passed on 30/12/2011 — Held by High Court that penalty order barred by limitation — Six months’ limitation period u/s. 275(1)(c) has to be reckoned from date of initiation of penalty proceedings.

13. Principal CIT v. Thapar Homes (P) Ltd.: (2026) 486 ITR 149 (Del): 2025 SCC OnLine Del 11073 (2025) 347 CTR 184 (Del)

A. Y. 2009-10: Date of order 01/08/2025

Ss. 269T, 271E and 275(1)(c) of ITA 1961

Penalty — Limitation u/s. 275(1)(c) — Penalty u/s. 271E — Acceptance and repayment of deposits in cash in excess of prescribed limit — Assessment order passed on 31/12/2010 with initiation of penalty proceedings — Reference to Additional Commissioner made on 07/06/2011 and penalty order passed on 30/12/2011 — Held by High Court that penalty order barred by limitation — Six months’ limitation period u/s. 275(1)(c) has to be reckoned from date of initiation of penalty proceedings.

For the A. Y. 2009-10, the Assessing Officer passed the assessment order on 31/12/2010 u/s. 143(3) of the Income-tax Act, 1961, with initiation of penalty proceedings u/s. 271E for contravention of section 269T. The reference was made by the Assessing Officer to the concerned Additional Commissioner of Income-tax (ACIT) on 07/06/2011 and pursuant to the notice issued by the Additional Commissioner of Income-tax, the penalty order dated 30/12/2011 u/s. 271E of the Act was passed. The penalty imposed was for ₹3,44,15,000, which is equivalent to the amount paid contrary to section 269T of the Act.

The CIT(A) set aside the penalty order holding that the order was passed beyond the period of limitation u/s. 275(1)(c). The Tribunal affirmed the order and held that the imposition of the penalty u/s. 271E was to have been made before 30/06/2011 and not 31/12/2011.

The Delhi High Court dismissed the appeal filed by the Department and held as under:

“i) The facts in the Pr. CIT v. Thapar Homes Ltd. [(2025) 483 ITR 248 (Delhi); 2023 SCC OnLine Del 7020; 2023 : DHC : 7808-DB.] are identical to the case in hand. The conclusion drawn by this court is that the limitation u/s. 275(1)(c) of the Act had expired on June 30, 2011. The observation of this court that the appellant-Revenue cannot extend the period of limitation by deciding at his whims and fancies when the notice has to be issued. In the case at hand, the reference having been only on June 7, 2011, surely a notice pursuant to the said reference would have been issued after June 7, 2011, which resulted in the penalty order dated December 30, 2011, hence in that regard, the issue is covered by the decision as referred to by Mr. Bhatia, fairly which is, in favour of the respondent-assessee and against the Revenue.

ii) We are of the view as the issue in hand is covered by the judgment in the case of Pr. CIT v. Thapar Homes Ltd. [(2025) 483 ITR 248 (Delhi); 2023 SCC OnLine Del 7020; 2023 : DHC : 7808-DB.], no substantial question of law arises to be decided in the present appeal. The appeal is dismissed against the Revenue and in favour of the assessee.”

Income from Other Sources — S. 56 — Buy-back of shares at a price lower than the fair market value — Buy-back of shares as per section 68 of the Companies Act, 1956 — Extinguishment of shares — Cannot be held as purchase of property or acquisition of capital asset — S. 56 (2) (x) not applicable.

12. Pr.CIT v. Globe Capital Market Ltd.

(2026) 185 taxmann.com 513 (Del.)

A.Y. 2018-19: Date of order 07/04/2026

S. 56 of ITA 1961 and Rule 11UA of the ITR 1962

Income from Other Sources — S. 56 — Buy-back of shares at a price lower than the fair market value — Buy-back of shares as per section 68 of the Companies Act, 1956 — Extinguishment of shares — Cannot be held as purchase of property or acquisition of capital asset — S. 56 (2) (x) not applicable.

The Assessee was engaged in the business of share broking and clearing of trades. In the course of assessment proceedings being conducted u/s. 153A of the Act, the Assessing Officer made an addition of Rs.16.33 crores on account of buy back of shares u/s. 56(2)(x) of the Act. The Assessing Officer held that the Assessee had bought back the shares at the rate of Rs.313.40 per share whereas the fair market value of each shares as per Rule 11UA was Rs.370.46 per share, therefore the difference was taxable u/s. 56(2)(x) of the Act. It was held that though the shares purchased by the Assessee were its own shares, however, shares constitute capital asset and since the shares were purchased by the Assessee at a lower rate than the fair market value, the difference was liable to be taxed as Assessee’s income.

The CIT(A) allowed the appeal and held that the nature of transaction was not that of a mere purchase of shares but was a purchase of own shares under buy-back which resulted in reduction of share capital. The Tribunal also decided the issue in favour of the Assessee and the appeal filed by the Department was dismissed.

The Delhi High Court dismissed the appeal filed by the Department and held as follows:

“i) But for Section 68 of Companies Act and the procedure provided thereunder, there is no way can a company buy its own shares. Because buying of own shares is otherwise alien to concept of corporate entity and the provisions of the Companies Act. Securities or shares of a Company can, in a given case be a property in the hands of a Corporate entity but for the issuing company, it is a certificate issued to its members in lieu of the contribution they have made towards the capital or for subscribing to the shares. Buy-back of shares essentially means reduction of capital of the company, which otherwise is impermissible, if recourse to Section 68 of the Companies Act is not taken.

ii) One has to bear in mind that sub-section (vii) of section 68 of the Companies Act mandates that after the completion of the buy-back under this Section, the company shall extinguish and physically destroy the shares or security so bought back.

iii) Section 68 of the Companies Act in so many words expresses that the buy-back of share is reduction of the share capital. There can be no doubt that as per sub-section (vii), the respondent-company must have mutilated or destroyed the shares or so-called property which the Assessing Officer has sought to tax.

iv) A person cannot be taxed for so-called deemed profit from the property (shares) which accrues to it consequent to destruction of the very same property. Because, once the shares are bought back, the purported property extinguishes or vanishes. Hence, the very hypothesis that the respondent company had acquired an asset at lesser rate than the fair market value has no legs to stand on. Buy back of its own shares is antitheses to buying an asset.

v) We are of the considered opinion that the CIT(A) was perfectly justified in allowing the appeal. The view which the Assessing Officer had taken in treating the buyback of shares of the company to be a transaction leading to generation of profit/deemed profit is clearly flawed and untenable in the eye of law. The appeal therefore, fails.”

Exemption u/s. 11 — Educational trust — Denial of exemption — Form 10B filed manually within prescribed period — Electronic filing made after delay of 2,732 days — Application for condonation of delay rejected — Held by High Court that assessee’s conduct neither informed with lethargy nor indolence — Rejection of application for condonation of delay in electronically filing unsustainable and orders set aside.

11. The Borivli Education Society v. CIT: (2026) 486 ITR 652 (Bom): 2025 SCC OnLine Bom 1871

A. Y. 2014-15: Date of order 17/02/2025

S. 11 of ITA 1961

Exemption u/s. 11 — Educational trust — Denial of exemption — Form 10B filed manually within prescribed period — Electronic filing made after delay of 2,732 days — Application for condonation of delay rejected — Held by High Court that assessee’s conduct neither informed with lethargy nor indolence — Rejection of application for condonation of delay in electronically filing unsustainable and orders set aside.

The assessee is an educational trust. For the A. Y. 2014-15 the assessee filed the audit report in Form 10B manually within the prescribed period. But failed to upload it electronically due to the belief of its Chartered Accountant that electronic filing was not mandatory. The Assessing Officer denied the exemption u/s. 11 of the Income-tax Act, 1961 without assigning reasons and without issuing the mandatorily required show-cause notice. Subsequent applications for rectification and for condonation of delay were rejected without affording any opportunity of hearing to the assessee.

The assessee filed writ petition challenging the orders. The Bombay High Court allowed the writ petition and held as under:

“i) Based on the aforesaid facts and circumstances, we are satisfied that the petitioner filed form 10B manually or physically within the prescribed period. True, form 10B was not uploaded electronically. At the same time, the petitioner was not intimated for a long time that this was the requirement for which the exemption was being denied. Belatedly, the petitioner was informed that this was one of the reasons. Therefore, the petitioner took expedient steps.

ii) The petitioner also explained that she had nothing to gain from non-compliance. The non-compliance, if any, was due to the advice of a professional chartered accountant. Even the chartered accountant filed an affidavit explaining her bona fides and the factum of the advice. After the petitioner became aware of the reasons, she took several steps and ultimately uploaded form 10B electronically. Still, the application for condonation of delay has been rejected without adequate compliance with the principles of natural justice and fair play.

iii) In all such matters, there is bound to be some lapse on the part of the assessee seeking condonation. However, the delay should be condoned as long as such lapse is not mala fide and the assessee has not derived any undue advantage out of his own lapse. Besides, in such matters, though the length of the delay is one of the considerations, it is not sole consideration. The quality of the explanation offered is crucial, and the focus must be the quality of the cause shown in the explanation.

iv) Besides, in this case, though the delay appears considerable, there is some merit in Dr. Shivaram’s contentions that the delay should be construed from the day the petitioner was informed of the real reason for the denial of exemption. After it was informed of the real reason, the petitioner’s conduct cannot be said to be either informed with lethargy or indolence. The petitioner took several steps and time and again pointed out that form 10B was already filed manually within the prescribed time.

v) For all the above reasons and upon cumulative consideration of the facts and circumstances about which there was no serious dispute, we are satisfied that discretion should have been exercised, and the delay should be condoned.

vi) Accordingly, we set aside the impugned orders dated October 10, 2024 and November 13, 2024 and condone the delay in electronically uploading form 10B.”

Section 5(2)(a) of the Act – Receipt of salary by a non-resident in an Indian NRE Account for services rendered outside India cannot be taxed on a receipt basis

6. [2026] 183 taxmann.com 532 (Ahmedabad – Trib.)

Kaushal Ganpatbhai Patel vs. ITO (International Taxation)

IT APPEAL NO. 434 (AHD) OF 2025

A.Y.: 2019-20 Dated: 09 February 2026

Section 5(2)(a) of the Act – Receipt of salary by a non-resident in an Indian NRE Account for services rendered outside India cannot be taxed on a receipt basis

FACTS

The Assessee, a non-resident, was employed with a company in Seychelles. The salary for the services rendered was credited to his NRE account in India. Since the salary was credited to the NRE account in India, the AO was of the view that the salary was taxable on receipt basis under Section 5(2)(a) of the Act.

The DRP upheld order of the AO.

Aggrieved with the final order, the Assessee appealed to ITAT.

HELD

The Agra ITAT in Arvind Singh Chauhan [2014] 42 taxmann.com 285 (Agra – Trib.) observed that “income received in India” connotes first receipt of income, i.e. when the assessee obtains the money in his own control. Such receipt may be real or constructive. An employee would have right to receive his salary only at the place of his employment. The constructive receipt was consummated at the place of rendering employment, and receipt of salary in an NRE account can only be regarded as an application of salary.

In Arvind Singh Chauhan’s case the taxpayer was a seafarer. Vide Circular No. 13/2017, CBDT has clarified that salary received by a seafarer in an Indian bank in respect of service rendered outside India was not taxable under section 5(2)(a) of the Act. The ITAT noted that the conclusion arrived at by the Agra ITAT was based on an interpretation of provisions of law without relying on the said circular. Since the tax authority did not cite any decision of a higher judicial authority, the ITAT held that salary received by the employer for exercising employment outside India could not be taxed on receipt basis under Section 5(2)(a) of the Act.

Article 24 of India-Denmark DTAA – Limitation of deduction under Section 94B of Income-tax Act, 1961, in respect of interest paid to non-resident AEs is discriminatory in terms of Article 24 of India-Denmark DTAA

5. [2026] 184 taxmann.com 579 (Chennai – Trib.)

Vestas Wind Technology India (P.) Ltd vs. ITO (Corporate Circle)

IT APPEAL NO. 320 (CHNY) OF 2025

A.Y.: 2018-19 Dated: 09 March 2026

Article 24 of India-Denmark DTAA – Limitation of deduction under Section 94B of Income-tax Act, 1961, in respect of interest paid to non-resident AEs is discriminatory in terms of Article 24 of India-Denmark DTAA

FACTS

The Assessee, an Indian company, was engaged in the business of manufacturing wind turbine generators. The Assessee was ultimate subsidiary of Vestas Wind Systems A/s (“Vestas Denmark”). The Assessee had obtained external commercial borrowings (“ECB”) from Vestas Denmark. The rate of interest on ECB was at arm’s length and in accordance with the bilateral advance pricing arrangement (“BAPA”). In return of its income, the assessee suo moto disallowed interest of INR 9.34 Crores under Section 94B of Act. The TPO recomputed disallowance under Section 94B of the Act as INR 18.47 Crores. The CIT(A) upheld the assessment order.

Aggrieved with the final order, the department preferred appeal before ITAT.

The Assessee further raised an additional ground that disallowance under Section 94B of the Act is discriminatory under Article 24(4) of India-Denmark DTAA and requested deletion of the entire amount of INR 18.47 Crores.

HELD

Article 24(4) of India-Denmark provides that payments made to residents of Denmark will be deductible, subject to the same conditions that are applicable if such payments were made to residents of India. Further, Article 24(4) is subject to any restrictions imposed on arm’s length conditions prescribed under Article 12(7) of India-Denmark DTAA.

Section 94B of the Act imposes restrictions on deductibility of interest paid to non-resident associated enterprises (“AE”) as compared to resident AEs. Therefore, restriction based on residential status falls under the ambit of discrimination envisaged under Article 24(4) of India-Denmark DTAA.

Article 12(7) of India-Denmark DTAA was not applicable, as the interest paid was at arm’s length, and in accordance with the BAPA entered into by the assessee.

Unlike India-Australia DTAA, India-Denmark DTAA does not contain any explicit restriction on application of non-discrimination Article against thin capitalisation rules.

Accordingly, ITAT held that the limitation on deduction of interest under section 94B of the Act was discriminatory in terms of Article 24(4) of India-Denmark DTAA and allowed deduction of interest paid to non-resident AEs.

Article 12 of India-UK DTAA – Amended definition of royalties in Explanation 6 to section 9(1)(vi) of the Act could not be read into India-UK DTAA unless DTAA language was amended, and hence, service fee paid for uplinking and downloading satellite signals for television broadcasting was not in nature of royalties under India-UK DTAA.

4. [2026] 182 taxmann.com 365 (Mumbai – Trib.)

ITO (International Taxation) vs. Bennett Coleman & Co. Ltd.

IT APPEAL NOS. 5246 & 5257 (MUM) OF 2025 AND OTHERS

A.Y.: 2018-19 & 2019-20 Dated: 14 January 2026

Article 12 of India-UK DTAA – Amended definition of royalties in Explanation 6 to section 9(1)(vi) of the Act could not be read into India-UK DTAA unless DTAA language was amended, and hence, service fee paid for uplinking and downloading satellite signals for television broadcasting was not in nature of royalties under India-UK DTAA.

FACTS

The Assessee, an Indian Company, had been engaged in the business of media publishing services and also operated media channels. To broadcast television channels in India, Assessee entered into an agreement with Intelsat Global Sales and Marketing Limited (“Intelsat UK”) for uplinking and downlinking of signals. The Assessee paid service fee to Intelsat UK for use of transponder. Out of abundant caution, the Assessee grossed up tax on service fee and withheld it. The AO held that transponder charges were chargeable to tax in India as royalty for ‘use of’ or ‘right to use of process’ as per Explanation 6 to section 9 (1)(vi). Therefore, the Assessee preferred appeal before CIT(A).

Following the decisions of the Bombay High Court in Pr. CIT v. NEO Sports Broadcast (P.) Ltd. [2019] 264 Taxman 323 (Bombay) and Delhi High Court in DIT v. New Skies Satellite BV [2016] 382 ITR 114 (Delhi), the CIT(A) held that payment towards the use of transponder could not be regarded as royalty under Article 12 of India-UK DTAA. The CIT(A) held that transmission services were in the nature of standard services and, hence, could not be regarded as fees for technical services.

Aggrieved by order of CIT(A), the tax authority preferred appeal before ITAT.

HELD

As per the terms of the agreement between the Assessee and Intelsat UK, the latter transmitted signals of service recipients using its own satellite or that of third parties. The provision of service did not create any interest in assets in favour of service recipients.

The Assessee was responsible for obtaining the required licenses/authorisations for all earth station facilities used to transmit signals. The Assessee did not have any access/rights/control over the satellites owned by Intelsat UK.

The Finance Act 2012 amended Section (9)(1(vi) of the Act by inserting explanation 6 to define the term ‘process’. In New Skies Satellite BV (supra), Delhi High Court, in the context of India-Netherlands DTAA, held that unless both parties had bilaterally amended the DTAA, the definition in Section 9(1)(vi) of the Act r.w. explanation could not be read automatically into DTAA. The definition of Royalty in India-Netherlands DTAA was pari materia with India-UK DTAA.

The Chennai ITAT in the case of Intelsat UK [IT(TP)A No.49/Chny/2018 dated 16.10.2023] held that consideration received by Intelsat UK for providing transponder services cannot be regarded as process royalty.

Following the jurisprudence, the ITAT held that payments made for transmission of signals cannot constitute royalty under India-UK DTAA and hence, they were not subject to tax withholding under Section 195 of the Act.

Sec. 145 – Method of accounting – Builder and developer consistently following project completion method – AS-7 applicable only to construction contractors – Revenue recognition under AS-9 dependent upon transfer of risks and rewards – Revenue having accepted method in earlier years – Addition by applying percentage completion method resulting in double taxation deleted Sec. 69A r.w.s. 144 – Loose diary seized during search containing receipt entries – Surrender made by director representing gross receipts – No corroborative evidence regarding actual undisclosed income or expenditure – Entire amount could not be taxed – Addition restricted on estimated basis.

26. [2025] 128 ITR(T) 270 (Jaipur – Trib.)

Kaizen Enterprises (P.) Ltd. v. ACIT

ITA NO.: 156 & 390 (JPR) OF 2024

A.Y.: 2013-14 AND 2017-18 DATE: 18.02.2025

Sec. 145 – Method of accounting – Builder and developer consistently following project completion method – AS-7 applicable only to construction contractors – Revenue recognition under AS-9 dependent upon transfer of risks and rewards – Revenue having accepted method in earlier years – Addition by applying percentage completion method resulting in double taxation deleted

Sec. 69A r.w.s. 144 – Loose diary seized during search containing receipt entries – Surrender made by director representing gross receipts – No corroborative evidence regarding actual undisclosed income or expenditure – Entire amount could not be taxed – Addition restricted on estimated basis.

FACTS

The assessee-company was engaged in the business of real estate development and was consistently following the project completion method for recognition of revenue. During scrutiny assessment for A.Y. 2017-18, the Assessing Officer held that the assessee ought to have followed percentage completion method and accordingly taxed advances received from customers amounting to Rs.3.71 crores as business income.

The Assessing Officer observed that substantial construction work had been completed and significant consideration had already been received from customers. Accordingly, relying upon percentage completion method, addition was made to the income of the assessee.

On appeal, the Commissioner (Appeals) deleted the addition holding that the assessee had consistently followed project completion method which had been accepted by the department in earlier years.

In separate proceedings relating to A.Y. 2013-14 arising out of search action, a diary containing certain monetary notings was seized from the premises of the assessee group and the director of the assessee made a statement surrendering an amount of Rs.1.35 crores. The Assessing Officer treated the entire amount as undisclosed income and made addition accordingly.

The Commissioner (Appeals) partly sustained the addition. Aggrieved, both the assessee and the revenue preferred appeals before the Tribunal.

HELD

The Tribunal observed that the assessee was a builder and developer and not a construction contractor and therefore Accounting Standard-7 relating to construction contracts was not applicable. It was held that the case of the assessee was governed by Accounting Standard-9 relating to revenue recognition.

The Tribunal noted that under the terms of agreements executed with buyers, transfer of ownership and possession was contingent upon receipt of full consideration and execution of conveyance documents. It was further observed that buyers had the right to cancel bookings and seek refund of amounts paid and therefore risks and rewards of ownership had not been fully transferred.

The Tribunal further observed that the assessee had consistently followed project completion method over the years and the same had been accepted by the department in preceding assessment years. No justifiable reason had been brought on record by the Assessing Officer for deviating from the settled method of accounting regularly followed by the assessee.

It was also noted that income from the project had already been offered to tax by the assessee in subsequent assessment years following project completion method and the same had been accepted by the revenue. Therefore, taxing the same advances again during the year under consideration would result in impermissible double taxation.

Relying upon the decision of the Supreme Court in CIT v. Excel Industries Ltd., the Tribunal upheld the order of the Commissioner (Appeals) deleting the addition made by applying percentage completion method.

With regard to the addition based on diary notings, the Tribunal observed that though the assessee had surrendered Rs.1.35 crores during search proceedings, neither the revenue had substantiated that the entire amount represented net undisclosed income nor had the assessee produced evidence regarding expenditure incurred for earning such receipts.

The Tribunal held that the surrender represented gross receipts and therefore the entire amount could not be assessed as income. Applying principles governing best judgment assessment under section 144 and relying upon the decision of the Supreme Court in Brij Bhushan Lal Parduman Kumar v. CIT, the Tribunal held that only reasonable profit element could be brought to tax.

Accordingly, the Tribunal restricted the addition to Rs.10 lakhs and granted substantial relief to the assessee.

Sec. 68 – Share capital and share premium – Preferential shares issued to holding company – Identity, genuineness and creditworthiness established through ROC records, financial statements and banking trail – Investment reflected in books of investor and compliant with FEMA/RBI regulations – Addition deleted Sec. 14A r.w. Rule 8D – Interest disallowance – Own funds substantially exceeding investments yielding exempt income – Presumption that investments made out of interest-free funds – Disallowance deleted.

25. [2025] 128 ITR(T) 128 (Mumbai – Trib.)

ACIT vs. Doshion Veolia Water Solution (P.) Ltd

A.Y.: 2009-10 AND 2012-13 DATE: 18.07.2024

Sec. 68 – Share capital and share premium – Preferential shares issued to holding company – Identity, genuineness and creditworthiness established through ROC records, financial statements and banking trail – Investment reflected in books of investor and compliant with FEMA/RBI regulations – Addition deleted

Sec. 14A r.w. Rule 8D – Interest disallowance – Own funds substantially exceeding investments yielding exempt income – Presumption that investments made out of interest-free funds – Disallowance deleted.

FACTS

During A.Y. 2012-13, the assessee-company had raised share capital and share premium aggregating to Rs.47.44 crores through issue of preferential shares to its holding company. The Assessing Officer treated the said amount as unexplained cash credit under section 68 on the ground that the assessee failed to satisfactorily establish the identity, genuineness and creditworthiness of the investor. The Assessing Officer further made disallowance under section 14A read with Rule 8D(2)(ii) in respect of interest expenditure attributable to exempt dividend income.

On appeal, the Commissioner (Appeals) deleted both additions after examining additional evidences, remand reports and financial records.

Similarly, for A.Y. 2009-10, additions made under section 68 in respect of share capital/share premium received from foreign investor and disallowance under section 14A were also deleted by the Commissioner (Appeals).

Aggrieved by the relief granted by the Commissioner (Appeals), the revenue preferred appeals before the Tribunal.

HELD

The Tribunal observed that detailed evidences including ROC records, share registers, bank statements, financial statements of the holding company and remand reports clearly established the identity and creditworthiness of the investor as well as genuineness of the transactions relating to issue of preferential shares.

It was noted that the holding company had duly reflected the investments in its financial statements and that the source of investment was also explained through secured borrowings obtained from NBFCs. The Tribunal further observed that payments were routed through proper banking channels and corresponding investments were reflected in the books of both entities.

The Tribunal held that the Commissioner (Appeals), after detailed examination of evidences and remand proceedings, had rightly concluded that the requirements of section 68 stood fully satisfied. Accordingly, deletion of addition relating to share capital and share premium was upheld.’

With regard to disallowance under section 14A, the Tribunal observed that the assessee’s own funds comprising share capital and reserves were substantially higher than the investments yielding exempt income.

Relying upon the decision of the Bombay High Court in CIT v. HDFC Bank Ltd., the Tribunal held that where sufficient interest-free funds are available, a presumption arises that investments are made from such funds and therefore no disallowance of interest expenditure under Rule 8D(2)(ii) is warranted.

Accordingly, deletion of disallowance under section 14A was also upheld and both appeals of the revenue were dismissed.

In the absence of any adverse finding regarding charitable nature of objects or genuineness of activities, CIT(E) cannot reject registration under section 12AB / 80G on the ground that the charity granted scholarship to Indian students for education abroad which amounted to application of income outside India in violation of section 11(1)(c).

24. (2026) 185 taxmann.com 747 (Mum Trib)

Yogayatan Jankalyan Trust v. CIT(E)

A.Y.: N.A. Date of Order: 20.04.2026

Section : 12AB

In the absence of any adverse finding regarding charitable nature of objects or genuineness of activities, CIT(E) cannot reject registration under section 12AB / 80G on the ground that the charity granted scholarship to Indian students for education abroad which amounted to application of income outside India in violation of section 11(1)(c).

FACTS

The assessee was a trust engaged in charitable activities and filed applications in Form No. 10AB on 29.05.2025 seeking registration under section 12AB as well as approval under section 80G. CIT(E) rejected the application for registration under section 12AB primarily on the ground that the assessee granted scholarship to an Indian student pursuing education abroad, which was hit by section 11(1)(c). It was further observed that the object clause permitted application of funds outside India. Consequently, in the absence of registration under section 12AB, the application for approval under section 80G was also rejected.

Aggrieved by the orders, assessee preferred appeals before Tribunal against such rejection of registration under section 12A and section 80G.

HELD

Noting the decision of the Tribunal in ITO (E) v. J N Tata Endowment for Higher Education of Indians [2024] 166 taxmann.com 126 (Mum-Trib) wherein it has been held that disbursal of loan scholarships to Indian students for pursuing higher education abroad constitutes application of income for charitable purposes in India and observing that there was adverse finding regarding the charitable nature of objects and genuineness of activities of the assessee, the Tribunal held that the reasoning of CIT(E) was not sustainable and accordingly, directed the CIT(E) to grant registration under section 12AB and approval under section 80G to the assessee.

In the result, both appeals of the assessee were allowed.

Where the assessee earned long-term capital gains from the sale of certain shares and claimed exemption under section 54F, while also incurring long-term capital loss on the sale of other shares and carried forward such loss, such carry forward was allowable since section 54F overrides section 70(3) for the purpose of computation.

23. (2026) 185 taxmann.com 711 (Mum Trib)

Nikesh Bhagwandas Mehta v. ITO

A.Y.: 2022-23 Date of Order: 15.04.2026

Sections: 45, 54F, 70

Where the assessee earned long-term capital gains from the sale of certain shares and claimed exemption under section 54F, while also incurring long-term capital loss on the sale of other shares and carried forward such loss, such carry forward was allowable since section 54F overrides section 70(3) for the purpose of computation.

FACTS

The assessee filed his return of income for AY 2022-23 on 29.8.2022 reporting total income of Rs.49,53,740. During the year, the assessee had earned long term capital gain on sale of shares of Rs.69,84,283 which was claimed as exempt under section 54F. He had also carried forward long term capital loss of Rs.37,72,601 on sale of certain other shares incurred during the year. Return was processed by CPC under section 143(1) wherein the carry forward of said long term capital loss was disallowed.

Aggrieved, the assessee filed an appeal before CIT(A) who upheld the disallowance by holding that first inter head loss is to be adjusted and then only, exemption under section 54F can be claimed on the amount of net capital gain.

Aggrieved, the assessee filed appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) From section 45(1), it is noted that the chargeability of profit or gain arising from the transfer of capital asset is subject to what is provided in section 54 to 54H, which includes section 54F. Thus, the chargeability itself factors in the benefit available to the assessee under section 54F. Heading of the section 54F mentions that capital gain on transfer of certain capital assets is not to be charged in case of investment in residential house. Thus, when the conditions as prescribed under section 54F are complied with by the assessee, the capital gain arising out of the transfer of certain capital assets gets an exit from the charging section 45. Clause (a) of section 54F(1) prescribes that the whole of capital gain shall not be charged under section 45, when the cost of new asset is more than the net consideration in respect of the original asset which was transferred and gave rise to capital gain. Thus, the scheme of section 45 to 55A provide for computation of capital gains and the effect has to be given first as per series of exemption section of 54.

(b) Section 70(3) mentions that where there is a loss because of computation made under section 48 to 55, assessee is entitled to set off such a loss against income, if any, arrived at under similar computation for any other capital asset not being short term capital asset. Thus, section 70(3) will apply once capital gain has been computed as per the provisions of section 48 to 55 wherein exemption available under section 54F is subsumed for the purpose of computation. Accordingly, provisions of section 54F will prevail over the provisions of section 70(3).

(c) It is not necessary that one should first apply section 70(3) and thereafter only the assessee could invest the capital gain/net consideration arising from the transaction of long term capital asset as required under section 54F. Scheme of section 45 to 55A provides for computation of capital gains and the effect has to be given first to the provision of capital gains as provided under the said sections and then apply the provisions of section 70. To put it in other words, section 70 would come into the computation Aqof total income only when the capital gains has been computed in accordance with the provisions of section 45 to 55A.

Relying on CIT v. Vijay M. Mahtaney (2013) 35 taxmann.com 228 (Madras) and Naresh Jain v. Asstt. CIT [2020] 118 taxmann.com 519 (Jaipur – Trib), the Tribunal held that the assessee was eligible for exemption under section 54F towards long term capital gain of Rs. 69,84,283 earned on sale of certain long term equity shares. At the same time, assessee was also eligible to carry forward long term capital loss of Rs.37,72,601 incurred by him on sale of another set of long term equity shares, and directed that carry forward of long term capital loss claimed by the assessee in his return is to be allowed.

In the result, the appeal of the assessee was allowed.

Where the cancellation proceedings under section 12AB were initiated by CIT(E) on the basis of reference made by the Assessing Officer under second proviso to section 143(3), CIT(E) was required to provide a copy of such reference to the assessee. In order to cancel registration under Section 12AB, CIT(E) must clearly specify the relevant category of “specified violation” under the Explanation to Section 12AB(4) applicable to the assessee.

22. (2026) 185 taxmann.com 275 (Mum Trib)

National Payments Corporation of India v. CIT

A.Y.: 2022-23 Date of Order: 25.03.2026

Sections: 12AB, 143(3)

Where the cancellation proceedings under section 12AB were initiated by CIT(E) on the basis of reference made by the Assessing Officer under second proviso to section 143(3), CIT(E) was required to provide a copy of such reference to the assessee.

In order to cancel registration under Section 12AB, CIT(E) must clearly specify the relevant category of “specified violation” under the Explanation to Section 12AB(4) applicable to the assessee.

FACTS

The assessee was incorporated as a non-profit company under section 25 of the Companies Act, 1956 in 2008. The company’s shares were majorly held by several large banks. It was granted regular registration under section 12A(1)(ac)(i) dated 23.09.2021 for 5 years from A.Y. 2022-23 to 2026-27. It filed its return of income for AY 2022-23 declaring nil income after claiming exemption under section 11. The assessee’s case was then selected for complete scrutiny during which the AO had made a reference for cancellation of registration to CIT(E) on the ground that the assessee had committed “specified violations” as per Explanation to section 12AB(4). However, copy of such reference was not made available to the assessee.

During cancellation proceedings, CIT(E) observed that the assessee was deriving income from activities of providing payment gateway services in relation to the business of its member banks and their customers charging fee which were not of charitable purpose as per section 2(15). Further, it was contended that the assessee had provided service of National Financial Switch which connects ATMs of different banks into one shared network, which enables cash withdrawal, balance enquiry, mini statement etc. i.e. giving seamless access to ATMs across India to various major banks for the banking business, including its 10 promoter banks. Resultantly, the assessee was said to have applied its income for benefit of a “specified person” in violation of the provisions of section 13(1)(c) read with section 13(3). Accordingly, CIT(E) held that there was no charitable activity in providing such gateway platform for ATMs, IMPS, CTS, RuPay, NACH and AEPS transactions, which were carried on for member banks who in-turn provided such services to their customers which were chargeable and not free of service. Therefore, as the assessee trust solely was engaged in activities which were profitable in nature, not benefiting public at large, CIT(E) held the activities of the assessee were in violation of the provisions of section 12A and 12AB especially committing “specified violation” as per section 12AB(4). Accordingly, registration was cancelled, denying benefit of exemption under section 11 and 12 with effect from 23.09.2021.

Aggrieved, the assessee filed appeal before the Tribunal.

HELD

The Tribunal observed as follows:

(a) Though second proviso to section 143(3) does not expressly mention about supplying the reference for cancellation to the assessee, it is a settled principle of law where courts have consistently held that any adverse material relied upon by the Department should be disclosed to the assessee which form the basis of action, and failure to comply with this would violate audi alteram partem, that is, the right to be heard. If it is purely an internal administrative communication which is not relied upon for decision making, then the authorities may resist such disclosure but not the reference for initiating cancellation proceeding.

b) It was evident that in order to cancel a registration of the trust, CIT(E) will have to specify which category of the “specified violation” under Explanation to section 12AB(4), the assessee would fall under. Where there are multiple reasons amounting to violation, neither the show cause notice nor the order for cancellation should suffer from vagueness. In the absence of clear particulars of the alleged violation along with facts and materials proposed to be relied upon, the assessee would be deprived of a meaningful opportunity to respond.

Accordingly, without expressing any opinion on the merits, the Tribunal directed CIT(E) to provide to the assessee copy of the reference relied upon by him. The Tribunal also remanded the issue back to the file of CIT(E) for denovo adjudication and to give sufficient opportunity of hearing to the assessee, by setting out the exact charge / specified violation for the proposed cancellation of registration. Thereafter, the CIT(E) can decide the issue on the merits as well in accordance with law by a speaking order.

Where AO fails to record satisfaction in the assessment order that the assessee has under-reported his income and/or fails to direct initiation of penalty proceedings, the initiation of penalty under section 270A is bad in law and the proceedings need to be quashed.

21. TS-656-ITAT-2026 (Chennai)

Shariq Javed L/R of Late Jawad Alam v. ITO

A.Y.: 2017-18 Date of Order: 29.4.2026

Section: 270A

Where AO fails to record satisfaction in the assessment order that the assessee has under-reported his income and/or fails to direct initiation of penalty proceedings, the initiation of penalty under section 270A is bad in law and the proceedings need to be quashed.

FACTS

The assessee, for AY 2017-18, filed return of income declaring total income of Rs.2,13,23,700 which included long term capital gain (LTCG) of Rs.1,99,10,377. The Assessing Officer (AO) while assessing the total income vide order dated 16.12.2019, passed under section 143(3) of the Act, disallowed indexed cost of improvement and assessed the LTCG to be Rs.3,92,77,906. Aggrieved, the assessee preferred an appeal to the CIT(A) who held the LTCG to be Rs 3,01,41,697. The assessee did not prefer any appeal against the order of CIT(A).

The Assessing Officer (AO) vide notice issued on 30.12.2019 initiated penalty proceedings. The penalty notice was neither signed manually / digitally and was issued only on 30.12.2019 whereas the assessment order was passed on 16.12.2019. During the course of penalty proceedings, the assessee passed away and the AO passed an order in the name of legal heir levying a penalty of Rs.12,20,784 being 50% of tax allegedly sought to be evaded for under-reporting of income.

Aggrieved by the order of AO levying penalty, the legal heir preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved, an appeal was preferred to the Tribunal where the assessee challenged the jurisdiction of the AO to have imposed penalty under section 270A on the ground that the AO during the assessment proceedings neither directed nor recorded satisfaction that the assessee has under-reported its income and shall be liable to pay penalty on it. It was contended that in the absence of such an endorsement, the impugned penalty is bad in law.

HELD

The Tribunal, at the outset, took note of the provisions of section 270A(1) of the Act and held that the AO has not recorded his `satisfaction / direction’ that the assessee has under-reported his income and shall be liable to pay penalty on under-reported income. Omission to record satisfaction and direct penalty under section 270A in the course of assessment proceedings vitiates the initiation of proceedings for levy of penalty under section 270A of the Act.

The Tribunal also observed that it is a fact evidenced by e-filing portal website that while the notice initiating penalty is dated 16.12.2019 it was issued on 30.12.2019. Therefore, it is clear that the penalty was not initiated in the course of assessment proceedings but 14 days from the date of framing the assessment order which does not satisfy the requirement of section 270A(1) of the Act.

The Tribunal held that in the absence of AO recording his satisfaction in the assessment order that the assessee has under-reported his income and failure to direct that proceedings for levy of penalty under section 270A be initiated vitiate the initiation of penalty under section 270A against the assessee and therefore the levy of penalty is bad in law. The Tribunal quashed the order of penalty under section 270A.

Proviso to section 68 mandates establishing source of source.

20. TS-566-ITAT-2026 (Mumbai)

DCIT v. Jumbo Electronics Corporation Pvt. Ltd.

A.Y.: 2018-19 Date of Order : 7.4.2026

Section: 68

Proviso to section 68 mandates establishing source of source.

FACTS

The assessee engaged in business of retailing in consumer electronics, IT equipment, mobiles, personal electronic items and allied accessories e-filed the return of income for AY 2018-19 declaring therein a loss of 54,15,955. During scrutiny assessment proceedings, the Assessing Officer (AO) noticed that the assessee company had taken a loan of Rs 11,00,16,395 from Aasman Management Services Private Limited (AMSPL).

The AO observed that the net worth of AMSPL was not sound enough to advance the loan of the magnitude which it had, further AMSPL had filed a return of income declaring total income of Rs 8,050; had not shown the loan advanced to the assessee in its ITR and a perusal of bank statement of AMSPL revealed that it had identical amounts in its bank account immediately before it advanced funds to the assessee company. Therefore, he concluded that the assessee company had failed to establish creditworthiness of AMSPL and made an addition of Rs. 11,00,16,395 to the total income of the assessee company.

Aggrieved, the assessee preferred an appeal to CIT(A) who allowed this ground of appeal holding that the assessee has discharged the primary burden cast on it; the AO has not made further enquiries; he has not established that it was the assessee’s own money which came back; law does not prohibit a person from lending out of borrowing, etc.

Aggrieved, the revenue preferred an appeal to the Tribunal where it was submitted that the assessee is a wholly owned subsidiary of AMSPL and that the loan was taken from holding company to repay the outstanding balance of cash credit and to pay off trade creditors. Also, from the balance sheet of AMSPL it was shown that AMSPL has written off the amount advanced to the assessee company.

HELD

At the outset, the Tribunal noticed that the CIT(A) had allowed the appeal mainly by observing the conduct of the AO and by holding that the AO has not made any independent enquiries. He has not found out the person from whom AMSPL received the money advanced to the assessee.

The Tribunal held that it was unable to subscribe and persuade itself to concur with the view of CIT(A) which was totally based on failure on the part of AO to make enquiries or not give attention to the transaction. The Tribunal remarked that the powers of the CIT(A) are co-terminus with those of the AO and the CIT(A) having observed that the AO has failed to conduct enquiries or take actions which are necessary, it was the duty of the CIT(A) to decide the issue by making enquiries himself or through the AO in case further enquiries are necessary to arrive at a logical conclusion.

The Tribunal held that certain information like source of funds advanced by AMSPL was not there before the AO. The Tribunal observed that the first proviso is applicable w.e.f. 1.4.2013 and the assessee has not furnished details of credit entries in the bank statement of AMSPL qua their nature and source which though were pointed out by CIT(A) but were not even sought during the proceedings before him so as to reach a justifiable reasoning after satisfying the mandate of law before directing to delete the addition.

The Tribunal set aside the order of CIT(A) with a direction to revisit the issue by making or getting done the necessary enquiries which he noted were required to be done and decide the issue afresh as per provisions of section 68.

The Tribunal further held that in the absence of mandatory information about source of source which is requisite in present case as per first proviso to section 68 of the Act which was not fulfilled, the case laws relied upon by the assessee regarding discharge of primary onus, addition merely on the basis of conjectures and surmises cannot help in the present case. It observed that the argument of accounting treatment in the books of the lender does not determine the genuineness of the loan may have some substance but first the mandatory conditions of section 68 must be satisfied. This contention remains consequential in nature.

Claim for deduction under section 54 made for the first time in return of income filed in response to reassessment notice cannot be denied merely on the ground that such a claim was not made in the original return of income

19. ITA No. 7998/Mum. /2025

Mohd. Azam Hasan Sheikh v. ITO

A.Y.: 2017-18 Date of Order: 09.4.2026

Section: 10(10AA)

Claim for deduction under section 54 made for the first time in return of income filed in response to reassessment notice cannot be denied merely on the ground that such a claim was not made in the original return of income

FACTS

The assessee had not filed return of income under section 139 of the Act. The Department, based on the information that during the year under consideration the assessee has purchased an immovable property showing a value of Rs. 45,00,000 issued a notice under section 148 of the Act. The assessee filed a return of income in response to notice issued under section 148 in which he claimed exemption under section 54 of the Act to the tune of Rs.49,00,000 (sic Rs 45,00,000) against capital gains arising on sale of a residential property owned by the assessee jointly with Ms. Binu Azmi on the ground that the entire sale consideration has been invested in acquisition of a new residential property jointly purchased with Ms. Binu Azmi at Thakur Residency, Ulwe, Navi Mumbai for a total consideration of Rs. 45,00,000.

In the course of assessment proceedings u/s 147 of the Act, the AO considered the claim of the Assessee, however, by observing “that the Assessee has not filed original return of income and therefore, the exemption under section 54 is not allowable”, eventually made the addition of Rs. 31,38,256/- by disallowing the amount claimed by the Assessee under section 54 of the Act.

Aggrieved, the assessee preferred an appeal to the CIT(A) who affirmed the aforesaid addition more or less on the same reason as of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the only controversy involved in the instant case relates to the consideration of exemption claimed under section 54 of the Act, which has been declined to be entertained by the authorities below mainly on the reason that the Assessee failed to file original return of income and/or without filing original return of income, the claim under section 54 of the Act is not sustainable and/or the long term capital gain disclosed/claimed by way of return filed in response to the notice under section 148 of the Act is not entertainable/allowable.

The Tribunal observed that the Commissioner while affirming the aforesaid addition and/or the decision of the AO for not allowing the deduction claimed under section 54 of the Act, has interalia relied on judgment passed by the Hon’ble Apex Court in the case of CIT v. Sun Engineering Works (P.) Ltd. [198 ITR 297 (SC)] whereas the co-ordinate Bench of the Tribunal in the case of Sanjay Gopaldas Bajaj v. ITO [ITA No. 5944/M/2025 decided on 20.01.2026] has dealt with identical issue and also considered the judgment in the case of Sun Engineering Works (P.) Ltd. (supra) and ultimately restored back the matter to the file of the AO to consider the case of the Assessee, within the parameters stipulated under section 54 of the Act.

In the above judgment, reliance was also placed on the judgment of the decision of co-ordinate Bench of the Tribunal in the case of Smt. Amina Ismail Rangari v. ITO [(2017) 86 taxmann.com 160 (Mumbai-Trib.)], wherein it has been held that the provision of section 54F do not prescribe filing of return within the time stipulated under section 139, as a condition precedent for claiming the deduction and that claim raised in the return in response to notice under section 148 of the Act cannot be rejected merely on the ground of delay in filing the return.

The Tribunal relying on the above judgments allowed the appeal of the Assessee, and remanded the case to the file of the AO for decision afresh on the claim of the Assessee under section 54 of the Act within the parameters and/or conditions set out in section 54 of the Act but not otherwise.

Compensation received from RERA is taxable as Capital Gains and not Income from Other Sources.

18. TS-572-ITAT-2026(Delhi)

Prem Narayan Chourasia v. ACIT

A.Y.: 2020-21 Date of Order: 6.4.2026

Sections: 45, 56

Compensation received from RERA is taxable as Capital Gains and not Income from Other Sources.

FACTS:

The assessee in financial year 2005-06 booked a plot being Plot No 412, Sector -15, Sunnywood Enclave Wave City, Ghaziabad and up to FY 2015-16 paid amounts aggregating to Rs.13,13,318. During the year under consideration he received from the builder a sum of Rs 32,47,185 which included compensation of Rs 19,33,867 received under provisions of RERA. The amount received was offered for taxation under the head capital gains.

The Assessing Officer (AO) while assessing the total income under section 147 of the Act charged the amount of compensation to tax as Income from Other Sources.

Aggrieved, assessee preferred an appeal to CIT(A) who confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that it found no merit in the Revenue’s vehement contentions supporting the impugned addition on the ground that compensation is nothing but interest in common parlance liable to be assessed u/s 56 of the Act.

The Tribunal took note of section 18(1) of the Real Estate (Regulations and Development) Act, 2016 stipulating “compensation” to be computed as per the prescribed interest rate than interest (inclusive of the payments already made) and also of section 2(47)(ii) whereby “extinguishment of any rights” in relation to a capital asset constitutes “transfer” thereof and concluded that such a compensation could not be assessed under section 56 of the Act as “income from other sources”. The Tribunal held that the assessee had rightly declared the amount of compensation as representing his long term capital gains.

TDS credit deducted during the current year is allowable despite the fact that revenue has been offered for taxation in an earlier year i.e. TDS credit is allowable despite the timing mismatch between the year of recognition of income and year of deduction of tax.

17. TS-505-ITAT-2026 (Delhi)

BPTP Ltd. v. DDIT

A.Y.: 2020-21 Date of Order: 01.4.2026

Section: 143(1), 190

TDS credit deducted during the current year is allowable despite the fact that revenue has been offered for taxation in an earlier year i.e. TDS credit is allowable despite the timing mismatch between the year of recognition of income and year of deduction of tax.

FACTS

The assessee, engaged in the business of real estate filed its return for the relevant assessment year 2022-23 under Section 139(1) of the Act claiming TDS credit of Rs.19,93,700 as appearing in Form 26AS. However, while processing the return of income, CPC allowed credit of only Rs.18,14,094.

The assessee moved rectification application under Section 154 of the Act before the CPC, Bangalore. In an order passed under section 154 of the Act, CPC did not grant any further credit as was claimed but also reduced the amount of interest allowed under Section 244A of the Act in intimation under Section 143(1) of the Act from Rs. 1,08,840 to Rs. 27,211.

The assessee filed another rectification application and an order under section 154 of the Act was passed increasing demand to Rs. 99,770 as against earlier demand of Rs. 81,620.

Aggrieved, the assessee preferred an appeal before the CIT(A) who remitted the issue to the file of the Assessing Officer (AO) to verify the facts and rectify intimation and recalculate the interest payable to the assessee.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the short point for adjudication before it is allowance of TDS credit of Rs. 1,79,606, which was short allowed by the AO while processing return under Section 143(1) of the Act.

The Tribunal noted that the assessee is engaged in real estate business and follows percentage of completion method for recognition of Revenue.

On behalf of the assessee it was submitted that due to introduction of IND-AS 115 with effect from 1st April, 2018 relevant to assessment year 2019-20, revenue was recognized on offer of possession to customers. Due to specific nature of business and timing difference in revenue recognition in books and receipt of amount from customers in different periods, TDS is deducted by the customers at the time of making payment to the assessee irrespective of the fact when the invoice was raised by the assessee or when the revenue is recognized by the assessee. It was further submitted that the revenue is recognized in different periods and amounts are paid and TDS deducted in different periods by customers and therefore, there is bound to be difference in the receipts as per profit & loss account and return of income and as per Form 26AS.

The Tribunal observed that there is no dispute about TDS deducted of Rs 19,93,696 but TDS credit was allowed only to the extent of Rs. 18,14,094. The assessee company explained that it booked revenue in earlier years on the basis of offer of possession given to customers and customers deducted and deposited TDS during assessment year 2022-23. As the assessee cannot claim TDS in respect of revenue booked in earlier assessment years as time to file revised return is over, hence, TDS was claimed as and when TDS was deducted and deposited, that is the case in assessment year 2022-23. Assessee’s claim was that it offered higher income in earlier years and claimed credit for TDS as and when customers deducted TDS and deposited TDS.

The Tribunal found the assessee’s plea to be quite reasonable and as per law. But, since the facts need to be verified whether any TDS deducted by these parties on whose account the assessee company booked revenue in the earlier years on the basis of offer of possession to the customers.

The Tribunal remitted this issue to the file of the AO just for the purpose of verification whether the assessee has offered revenue in the earlier years on the basis of offer of possession. It directed the AO to allow credit for TDS deducted in the current year in case revenue is booked in the earlier year.

TDS credit cannot be denied merely because corresponding income is not taxable in the hands of the assessee. Rule 37BA which stipulates grant of TDS credit does not mandate corresponding income being offered for tax.

16. TS-570-ITAT-2026 (Hyderabad)

Transmission Corporation of Telangana v. DCIT

A.Y.: 2018-19

Date of Order: 30.3.2026

Section: 199, Rule 37BA

TDS credit cannot be denied merely because corresponding income is not taxable in the hands of the assessee. Rule 37BA which stipulates grant of TDS credit does not mandate corresponding income being offered for tax.

FACTS

The assessee company engaged in business of transmission of electrical energy in state of Telangana filed its return of income declaring a loss of Rs.119.05 crore. Subsequently, a revised return of income was filed declaring a loss of Rs.227.33 crore and a profit of Rs.102.46 crore under MAT provisions. The Assessing Officer (AO) while assessing the total income of the assessee interalia made an addition of Rs.121.92 crore on account of interest from deposits of unutilised Lift Irrigation Scheme (LIS) Fund. The assessee had not offered this income for taxation but the credit for TDS on this interest income was claimed. The AO also rejected the claim of TDS on interest receipt.

Aggrieved, the assessee preferred an appeal to the CIT(A) who, following the order of the Tribunal in the assessee’s own case in earlier year, held that interest income was not chargeable to tax. However, he also held that the assessee is not entitled to claim TDS credit in respect of such income which has been claimed to be not taxable which claim was upheld by him.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that there is no dispute that the interest income on which tax has been deducted at source has been accounted in the books of the assessee. The deposit claimed to have been made with the deductor has in fact been made and that the deductor has furnished details of deduction of TDS in TDS return reflecting assessee as a deductee and consequently the amount is reflected in Form 26AS of the assessee. The Tribunal held that in this factual background it found merit in the contention of the assessee that merely because the corresponding income is not taxable in the hands of the assessee, TDS credit cannot be denied.

The Tribunal having gone through the provisions of Rule 37BA held that the said Rule provides that credit for tax deducted at source shall be given to the person to whom payment has been made or credit has been given, on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority. It observed that in the instant case, the deductor has furnished the information to the income-tax authority specifying assessee as the deductee. Therefore, primary requirement of Rule 37BA stood satisfied. It further observed that Rule 37BA also contemplates a situation where the deductee furnishes a declaration to the deductor that credit of TDS is to be given to another person. However, in the present case no such declaration having been furnished, the said provision is not applicable to the facts of the present case.

The Tribunal held that the contention of the DR that TDS credit can be allowed only if corresponding income is offered to tax is not borne out from the plain reading of Rule 37BA. The Tribunal held that it does not find any such pre-condition in the said Rule. It further held that the scheme of TDS credit is based on the principle that once tax has been deducted and paid to the Central Government and the same is reflected in the account of the deductee, the credit thereof should ordinarily be granted to such deductee.

The Tribunal, with a view to avoid possibility of double credit of TDS set aside the matter to the AO for limited verification whether TDS credit has been claimed elsewhere or whether there is any possibility of double credit. The AO was directed to allow TDS credit if it is found that there is no double claim of TDS.

Glimpses Of Supreme Court Rulings

3. Central Bureau of Investigation vs. Baljeet Singh

Criminal Appeal (Arising out of Special Leave Petition (Crl.) No. 12486 of 2025) decided on 10.03.2026

Prosecution – Bribe – Charge of conspiracy and/ or charge of demand and acceptance – If the charge under the Indian Penal Code read with the Prevention of Corruption Act, 1988 linked with the charge of conspiracy, was the only one levelled, then if one is acquitted, the other cannot be convicted – However, if there is another charge of demand and acceptance against both, which, as against the two, is not inextricably linked by a definite charge of conspiracy, the second charge can be proved against both or against one independently

PW1, the complainant, was a partner of a firm whose Assessing Officer under the Income-tax Act, 1961 was the 1st Appellant/1st Accused (A1). A notice had been issued to the Assessee for the assessment year 2008-09, which was pending in the office of A1.

To finalize the same, PW1 approached the 2nd Appellant/2nd Accused(A2), an Income-tax Inspector who was a subordinate of A1.

It was the complaint of PW1 that in October 2010, he had met both the Appellants concerned in connection with the scrutiny of the accounts of the firm in which he was a partner, pursuant to which he was directed to furnish information, which was duly submitted. On 27.12.2010, PW1 went to the Income-tax Office, where he met A2, who took him to A1. After discussions, when PW1 was coming out with A2, A2 made a demand of Rs.5 lakhs, purportedly on behalf of A1.

PW1 protested, and when the second Appellant persisted, he haggled for a lesser amount, pointing out that in October 2010, the demand was for a far lesser amount of Rs.1,50,000/-. The second Appellant refused to budge, which prompted PW1 to approach the CBI with a complaint.

The complaint was verified by PW22, referred to as the Trap Laying Officer (TLO). The TLO called for two independent witnesses from the House Taxes Department of the Municipal Corporation of Delhi, PW10 and PW18. In the presence of the independent witnesses, there was a telephonic conversation between PW1 and A2, which was recorded on a Digital Voice Recorder (DVR) and transferred to a CD.

PW1 is alleged to have informed A2 that he had only Rs.2 lakhs in his possession, upon which A2 directed PW1 to come to his office in the Drum shaped Building, IP Estate, New Delhi. The pre-trap proceedings were carried out in the presence of the independent witnesses, wherein 200 notes of Rs.1,000/- each, smeared with phenolphthalein powder, were prepared. After noting down their serial numbers, the notes were kept in an envelope, which was also smeared with the powder.

The entire proceedings were recorded and reduced to writing in the Handing Over Memo (HOM), signed by the complainant, the TLO and the independent witnesses. PW1 was given a DVR to record the conversation likely to take place between PW1 and A2.

The team reached the Income Tax Office, upon which PW1, followed by the TLO and the other members of the team, entered the building. PW1, on reaching the office of A2, was informed that he was in A1’s room. PW1 then went to A1’s office room, where he found only A2, to whom he handed over the envelope, which A2 put in his coat pocket.

PW1 walked out of the room, followed by A2, and, as prearranged, touched his shoe to signal the TLO. The TLO gave a signal to the team, confronted A2, and took him back into the room. The independent witnesses also entered the room, PW18 along with the TLO, and PW10 a little later with the other members of the team. The TLO and another constable caught hold of A2’s hands, and one of the independent witnesses, PW18, was asked to search A2. As pointed out by PW1, the envelope was recovered from A2’s coat pocket by PW18 and handed over to the TLO.

The notes were taken out from the envelope recovered from A2’s coat pocket, and both the hands of A2, when submerged in two separate tumblers of Sodium Carbonate solution, turned pink, revealing the taint of acceptance of the powdered envelope with the marked notes.

The TLO asked for A1, who was said to be in the Commissioner’s office. The TLO proceeded to the Commissioner’s office and, after making a request to the Commissioner, escorted A1 back to his room, where the trap team had detained A1. Statements were taken from both A1 & A2, and their arrest were recorded.

After investigation, charges were framed for conspiracy under Section 120B of the Indian Penal Code and for the offence under Section 7 of the Prevention of Corruption Act, 1988 (for brevity, “the PC Act”). The prosecution examined twenty-three witnesses and produced relevant documents, as well as transcript of the conversation between PW1 and A2 over telephone and in person, recorded on the DVR.

The defense examined three witnesses, two of whom were officers of the Income Tax Department, and DW2, a Junior Judicial Assistant at the record room of the Sessions Court at Patiala House Courts. The Trial Court listed fifteen circumstances found to be established and held that the charges against both the accused were proved.

Convicting the Accused under Section 120B of the Indian Penal Code r/w Section 7 of the PC Act, and separately under Section 7 of the PC Act, the court imposed a sentence, of years’ rigorous imprisonment on each count and a fine of Rs.1 lakh on each count for both accused, with default sentences of simple imprisonment for months each.

The High Court, by the impugned decision, found that no conspiracy was proved and that there was no proof of a demand having been made by A2 and A1. While disbelieving the conspiracy angle, it noted the trite principle that conspiracy is always difficult to establish since it is invariably conceived and executed in secrecy

Upon examining the evidence, it was found that merely because A1 was the Assessing Officer and A2 was assisting him, this by itself was not sufficient to establish a prior meeting of minds between A1 and A2 in furtherance of the commission of the crime.

In the absence of proof of the conspiracy theory and finding no evidence of demand for a bribe, the High Court overturned the conviction of both the accused.

The Central Bureau of Investigation (the “CBI”) which laid the trap at the instance of the complaint made by PW1, appealed before the Supreme Court.

The Supreme Court observed that, in addition to the charge under Section 120B of IPC, both the accused were separately alleged to have demanded money and accepted it. This demand and acceptance, even as per the statement of PW1, was not established against A1 but very much present against A2. According to the Supreme Court, the statement that A2 informed PW1 that the bribe was for A1 was of no consequence insofar as A1’s culpability is concerned. However, since A2 was also an officer of the Department carrying on the assessment, actively participating in the assessment proceedings as stated by PW1, A2 was in a position of authority to influence the assessment proceedings, as far as PW1 was concerned, and that was the purpose for which the demand for a bribe was made.

According to the Supreme Court, if the charge under the PC Act linked with the charge of conspiracy was the only one levelled, then if one is acquitted, the other cannot be convicted. However, in this case, there was another charge of demand and acceptance against both, which, as against the two, are not inextricably linked by a definite charge of conspiracy. The second charge can be proved against both or against one independently, as there is no meeting of minds alleged.

The Supreme Court noted from the evidence of PW22 that, after fully corroborating the trap, it was deposed that, on being challenged, A2 remained silent. It was also testified that A2 attempted to escape and take out the money. PW1 pointed out the upper pocket of A2’s coat where he had kept the envelope, which was recovered by PW18, as fully corroborated by PW22. PW10 also stated that the person apprehended in A1’s room turned pale. All these constituted relevant conduct of A2 pointing to his guilt, fortified by the recovery of the marked cash from his body and the fact that his hands, coat and sweater, when washed in the test solution, turned pink, as deposed by the witnesses.

The Supreme Court was unable to accept the order of acquittal passed by the High Court insofar as A2 was concerned, especially noting that the demand had been specifically spoken of by PW1 and had also been stated in his complaint before the CBI. The pre-trap proceedings were clearly established by the evidence of PW1, PW10, PW18 and PW22. Insofar as the trap proceedings are concerned, there was complete corroboration of the testimony of PW1 by that of PW22, the TLO. There was also sufficient corroboration from PW10 and PW18, the independent witnesses, regarding the apprehension of a person, who was identified in Court by PW10. Though not identified by PW18, it was PW18 who recovered the envelope from the coat pocket of the apprehended person, who was A2. The hand wash of A2 was also established beyond doubt. The marked notes were identified from the numbers recorded in the HOM at the time of pre-trap proceedings, corroborated by all the above witnesses. The Supreme Court held that the High Court had rightly observed that there was neither proof of demand nor acceptance by A1, except for the statement of PW1 that A2 demanded the bribe on behalf of A1. No reliance can be placed on such a statement made by the co-accused, and no conviction can be entered on that basis.

However, the Supreme Court was inclined to set aside the acquittal insofar as A2 was concerned and restore the order of the Trial Court convicting him for the offence under Section 7 of the PC Act, there being no conspiracy under Section 120B of the Indian Penal Code established. The sentence of four years of rigorous imprisonment imposed by the Trial Court was modified to one year, considering the age of A2, along with a fine of Rs. 1 lakh and a default sentence of simple imprisonment of three months, as awarded by the Trial Court, which would stand restored and confirmed. A2 was ordered to surrender within a period of four weeks from the date of the order.

The appeal was accordingly allowed to the extent indicated above.

S. 119(2)(b) – Intimation u/s. 143(1) – mistake in the original computation – Delay in filing application – In the absence of any intimation or order raising the demand, recovery of such non-existent demand cannot be made – The actual intimation has not been brought on record, nor any proof of service.

3. Paresh M. Shetti Versus Principal Commissioner of Income-Tax (PCIT) – 41

[ WRIT PETITION (L) NO. 10371 OF 2025 Dated: APRIL 15, 2026 ]

S. 119(2)(b) – Intimation u/s. 143(1) – mistake in the original computation – Delay in filing application – In the absence of any intimation or order raising the demand, recovery of such non-existent demand cannot be made – The actual intimation has not been brought on record, nor any proof of service.

The Petitioner is a Computer Training Institute, a franchisee of the Computer Management and Information Technology (CMIT), and has been a regular taxpayer for the last 25 years. For the Assessment Year 2008-2009, the Petitioner filed his Income Tax Return through his Chartered Accountant on 31st July 2008. This was the first year of filing e-returns, as the Income Tax Department had transitioned from paper filing to an e-filing mode. According to the Petitioner, the online software through which data was to be entered into the portal did not generate auto-populated tax amounts against the declared incomes. This led to errors, and the amount had to be entered manually.

The Petitioner’s Return was filed on 31st July 2008, which was the last date for filing the Return within the due date. According to the Petitioner, for the Assessment Year in question, he did not receive any intimation under Section 143(1) by post, nor was any intimation visible upon logging into his Income Tax Account electronically.

It transpires that for A.Y. 2018-2019, the Petitioner had claimed a refund of R9,040/- in the return filed with the Income Tax Department. This return was duly processed under Section 143(1) by accepting the income as filed, and the said refund amount, along with interest under Section 244, was approved. However, the Petitioner did not receive credit for this refund because it was purportedly adjusted against an alleged demand for earlier years. This came as a shock to the Petitioner, as he had no knowledge of any such pending demand. It was at this stage that the Petitioner came to know from the portal that a demand of Rs 96,812/- for A.Y. 2008-2009 was outstanding. To ascertain the factual situation, the Petitioner addressed a communication dated 26th November 2019 to the Income Tax Officer, to which there was no response. It is further stated that the Petitioner’s Chartered Accountant also visited the Income Tax Department, and, upon speaking to the concerned ward officials, was advised to lodge a complaint/grievance through the online portal.

Accordingly, the Petitioner filed a grievance on the e-Nivaran portal on 24th January 2020, requesting rectification to nullify the demand. Thereafter, due to the COVID-19 pandemic, from March 2020, all offices were closed, and the Petitioner’s case with respect to the above rectification was temporarily stalled. It has been stated in the Petition that during the period of 2020-2021, the Petitioner and his family faced significant hardship, and the Petitioner was diagnosed with COVID-19 twice during the said period. Due to the severity of his condition, it took considerable time for him to recover. The Petitioner also lost close relatives during this period. Owing to these circumstances, the Petitioner was unable to focus on work-related matters and could not follow up on the grievance filed with the Income Tax Department.

The grievance of the Petitioner filed on the portal was closed on 26th May 2020. The resolution for the grievance stated that the return for A.Y. 2008-2009 declared the income at Rs 5,31,714/- and the credit for prepaid taxes of Rs 35,450/- had already been given. Since the Petitioner contended that the income for that year was Rs 2,81,713, the office was unable to process the rectification request due to the discrepancy between Rs 5,31,714/- and Rs 2,81,713.

Thereafter, upon closely examining the Return filed for A.Y. 2008-2009, the Petitioner found that there was a clear mistake in the original computation, namely, that the Loss from House Property of Rs. 1,50,000/-, was not included in the Return. This occurred because the Petitioner had availed a housing loan at that time, and had claimed such deductions in earlier as well as subsequent years. However, it was inadvertently omitted for A.Y. 2008-2009.

The Petitioner subsequently filed an application under Section 119(2)(b) dated 12th October 2023 with the PCIT-41, seeking permission to file a revised Return for A.Y. 2008-2009 to bringing on record the correct figures. This application was rejected by order dated 25th November 2024, and hence, the present Petition.

The Petitioner contended that the Respondent had rejected the application despite the fact that no intimation under Section 143(1) was either issued or served upon the Petitioner, and therefore, no demand could legally exist. If no demand exists, the question of adjusting the refund for Assessment Year 2018-2019 against a non-existent demand of A.Y. 2008- 2009 does not arise. On this basis, the learned counsel for the Petitioner submitted that the impugned demand of Rs 1,78,495/-, as reflected on the Income Tax e-portal on 10th March 2025, be set aside, and consequently, the interest levied/accrued thereon also be quashed.

The Petitioner, relied upon the decision of this Court in Udayan Bhaskaran Nair Vs. Deputy Commissioner of Income Tax-42(3)(1), Mumbai and Ors. (Writ Petition No. 1363 of 2025 decided on 13th January 2026) as well as in the case of Capgemini Technology Services India Ltd. Vs. Deputy Commissioner of Income Tax, Circle-1(1), Pune and Ors. (Writ Petition No. 16068 of 2024 decided on 24th March 2026).

The Revenue contended that there had been negligence on the part of the Petitioner in approaching the Respondent under Section 119(2)(b) for filing the revised Return, and therefore, the Respondent had rightly declined to entertain the application. The Revenue also tendered an email dated 15th April 2026, enclosing a screenshot of the Income Tax Department portal, which appeared to suggest that an intimation under Section 143(1) was /issued on 22nd September 2009 and served on 2nd October 2009. However, the actual intimation was not been brought on record, nor was there any proof of service. This position was admitted.

The Hon. Court observed that, in the case of Udayan Bhaskaran Nair (supra), it had been held that service of intimation under Section 143(1) is mandatory for raising a demand on the assessee. In the absence of such intimation or any independent notice of demand, recovery of such a non-existent demand cannot be made against the Assessee.

Further, the decision in Udayan Bhaskaran Nair (supra) was reiterated in Capgemini Technology Services India Ltd. (supra), Where the Court held that when the Department failed to produce the order giving rise to the demand, despite RTI applications and court directions, the demand was liable to be quashed. The Bench held that, in the absence of any intimation or order raising the demand, recovery of such non-existent demand cannot be sustained.

It was mandatory for the Income Tax Department to serve the intimation under Section 143(1) on the Assessee before any demand could be raised. In the facts of the present case, admittedly, apart from the screenshots produced, no intimation under Section 143(1) was brought on record, nor was any material placed to establish that the said demand had in fact been served on the Petitioner.

The Court Was Of The View That No Refund Could Have Been Adjusted Against A Non-Existent Demand. Accordingly, The Petition Was Allowed.

A. Recovery of demand of predecessor company — High Court held that recovery of old demand without assessment order — Unsustainable; B. Power of High Court under Article 226(2) — Territorial jurisdiction of High Court — Cause of action — Assessee successor company post amalgamation — Recovery notice issued upon the assessee in respect of the outstanding demand of the predecessor company — Notice issued in the name of the predecessor company by the AO in Delhi — Transfer of jurisdiction from Delhi to Pune u/s. 127 vide order dated 13/12/2023 — Office of the AO in Delhi — Functus officio — Amendment in Constitution – Place of cause of action determinative — Part cause of action in Pune — Bombay High Court has jurisdiction in the petition filed by the assessee.

10. Capgemini Technology Services India Limited v. DCIT:

TS-455-HC-2026(BOM):

A. Ys. 2001-02 to 2003-04: Date of order 24/03/2026:

S. 127 and 220 of ITA 1961 and Article 226(2) of the Constitution

A. Recovery of demand of predecessor company — High Court held that recovery of old demand without assessment order — Unsustainable;

B. Power of High Court under Article 226(2) — Territorial jurisdiction of High Court — Cause of action — Assessee successor company post amalgamation — Recovery notice issued upon the assessee in respect of the outstanding demand of the predecessor company — Notice issued in the name of the predecessor company by the AO in Delhi — Transfer of jurisdiction from Delhi to Pune u/s. 127 vide order dated 13/12/2023 — Office of the AO in Delhi — Functus officio — Amendment in Constitution – Place of cause of action determinative — Part cause of action in Pune — Bombay High Court has jurisdiction in the petition filed by the assessee.

The assessee is a company. The assessee company is the successor company following two successive amalgamations, that is:

a. Felxtronics Software Systems Limited amalgamated into Kappa Investment Limited vide order dated 16/05/2007. The name of the said company was changed to Arcient Technologies (Holdings) Limited.

b. Arcient Technologies (Holdings) Limited amalgamated into the assessee company vide order dated 23/12/2022.

In February 2023, the assessee received a recovery notice u/s. 220 of the Act from the Assessing Officer in Delhi requiring the assessee to pay the outstanding demands aggregating to Rs.33.39 lakhs for the A. Ys. 2001-02, 2002-03 and 2003-04. The said notice was in the name of the first mentioned company viz. Felxtronics Software Systems Limited.

Since the assessee was not aware of any such outstanding demands, the assessee filed an application under the Right to Information Act, 2005 (RTI Act) seeking copies of orders from which the demands were emanating. The assessee received a response from Assessing Officer in Delhi that the demands were on account of rectification / intimation orders, however, no such orders were provided to the assessee. Some screenshots of the computation sheets were provided and for A. Y. 2003-04, it was stated that no records were available.

The assessee filed appeal under the RTI Act wherein directions were issued to the Assessing Officer in Delhi to furnish full information. Despite the directions, no orders were supplied.

The assessee filed a petition before the Bombay High Court, contending that the demands were non-existent and the recovery was bad in law. A transfer of jurisdiction had taken place from Delhi to Pune and an order (dated 13/12/2023) to that effect was produced by the assessee.

The core issue before the High Court was as to whether the Hon’ble Bombay High Court had the territorial jurisdiction under Article 226 of the Constitution to entertain a writ petition challenging the recovery notice and tax demands originally raised by the Assessing Officer in Delhi against an erstwhile (amalgamated) entity, after the jurisdiction was transferred to Pune and the successor assessee company’s registered office is in Pune.

The High Court allowed the petition and held that it had jurisdiction and on merits, the recovery notices were not maintainable. The High Court held as follows:

“i) The jurisdictional issue of High Court to issue writs against authorities located outside its territories has evolved significantly; Highlighting the provisions of Article 226(2) of Constitution of India as it stood prior to amendment by Constitution (Fifteenth Amendment) Act, 1963,

ii) In the present case, the erstwhile entity has amalgamated with the Petitioner, which has its registered office in Pune, within the jurisdiction of this Court; the recovery notice was received in Pune, within the jurisdiction of this Court; the recovery notice and the demands, even if originating from orders passed in Delhi, have a direct impact on the Petitioner in Pune which is within the jurisdiction of this Court; the Petitioner who is within the jurisdiction of this Court, would be affected by the recovery notice and the alleged demands; the consequences of the recovery notices and the alleged demand will be felt in Pune, within the jurisdiction of this Court; it is the Petitioner, who is within the jurisdiction of this Court, who has to defend the proceedings and face the coercive recovery actions. Therefore, a part of the cause of action has clearly arisen within the territorial jurisdiction of this Court. Further, future recovery notices would be issued by the assessing officer in Pune and he is the Officer who would initiate recovery proceedings. Since, the assessing officer in Pune is an authority within the jurisdiction of this Court therefore, the cause of action, at least in part, has arisen so as to confer this Court with the jurisdiction to entertain the present Petition.

iii) Further, in the present case, vide the transfer order dated 13/12/2023, the jurisdiction is transferred from Delhi to Pune u/s. 127 of the Act. Thus, a transfer [u/s. 127] implies that all proceedings under the Act in respect of any year which may be pending or which may have been completed or which is yet to be initiated is transferred to the transferee officer. Thus, the jurisdiction over the completed assessments of A.Y.2001-02 to A.Y.2003-04 also stands transferred to the Pune Officer i.e., Respondent No.1. The Delhi Officer is now functus officio. Any relief regarding the impugned demands can only be granted by the Pune Officer (Respondent No.1). The Petitioner is, therefore, correct in contending that since the officer who is to defend the case, redress grievances, and deal with recovery of the alleged demand, is now in Pune. Therefore, he is the right officer to whom a writ can be issued.

iv) Article 226(2) has used the phrase “may also be exercised” which clearly suggests that Article 226(2) is not an additional condition but an alternate condition. Moreover, Article 226(1), as interpreted by the Apex Court provides for a Court to issue a writ only to the authorities within the territories of that Court, whereas Article 226(2) provides that notwithstanding that the seat of Government or authority or the residence of such person is not within those territories, a writ can be issued by a Court where part or whole of cause of action arise. The two clauses are mutually exclusive and both cannot apply simultaneously by the very wordings of the clauses. Therefore, it is not correct to argue that for Article 226(2) to apply, Article 226(1) has to trigger. If this view is accepted, then perhaps, Article 226(2) would become redundant. The whole purpose of introducing Article 226(2) was to alleviate the inconvenience caused to the Petitioners by dragging them to the Court which exercises jurisdiction over the authority or the Respondent within the territorial jurisdiction of such Court.

v) Accordingly, we reject the preliminary objection regarding territorial jurisdiction. We are of the considered view that at least part of the cause of action has arisen within the territorial jurisdiction of this Court, and therefore, we proceed to deal with the merits of the case.

vi) In the present case, there is absolutely no material on record to substantiate the existence of valid orders giving rise to the impugned demands. The Respondents have failed to produce the orders and service records, despite repeated opportunities. The failure of Respondent No.2 to respond and the inability of the Pune Officer to locate records leads to the inevitable conclusion that no such valid orders exist or were ever served upon the Petitioner. An adverse inference must necessarily be drawn against the Respondents.

vii) Old matters and demands cannot be allowed to suddenly surface on the portal without the underlying orders being available and served. Consequently, the impugned demands cannot be sustained.”

Re-assessment — Original assessment completed u/s. 143(3) —Re-opening of assessment on same set of facts — Issue considered and accepted by the assessing officer in the original assessment — Re-opening on same issue — Change of opinion — Impermissible —Order u/s. 148A(d) and notice u/s. 148 quashed.

9. Suresh P. Bhadani (HUF) vs. ITO:

TS-40-HC-2026-Guj:

A. Y. 2018-19: Date of order 06/01/2026:

Ss. 143(3), 147, 148 and 148(d) of ITA 1961

Re-assessment — Original assessment completed u/s. 143(3) —Re-opening of assessment on same set of facts — Issue considered and accepted by the assessing officer in the original assessment — Re-opening on same issue — Change of opinion — Impermissible —Order u/s. 148A(d) and notice u/s. 148 quashed.

The Karta of the Assessee HUF purchased an office, the agreement for purchase of which was executed on 20/06/2017 and thereafter registered sale deed was executed on 28/06/2017. The return of income for the A. Y. 2018-19 was filed declaring NIL total income. The case was selected for scrutiny and notice u/s. 143(2) of the Act was issued. The assessment was completed u/s. 143(3) of the Act accepting the returned income of the assessee.

Subsequently, in March 2022, re-assessment proceedings were initiated for the reason that the difference in price at which the property was purchased by the assessee and the valuation as per the stamp duty was taxable in the hands of the assessee u/s. 56(2)(x) of the Act. The Assessing Officer passed an order u/s. 148A(d) on 01/04/2022 holding the case to be fit case for re-opening of assessment and issued notice u/s. 148 of the Act for re-opening the assessment.

The Assessee challenged the order passed u/s. 148A(d) and the notice issued u/s. 148 of the Act on the ground that the same issue was considered during the course of original assessment proceedings and the submissions of the assessee were accepted and the income returned by the assessee was accepted without any modification. Therefore, re-opening of assessment on the same issue amounted to change of opinion which was impermissible even under the new provisions of re-opening of assessment.

The Gujarat High Court allowed the petition of the assessee and held as follows:

“i) The reasons recorded in the Order issued u/s. 148A(d) of the Act was already considered by the Assessing Officer in the Assessment Order dated 30/11/2020. The Assessing Officer does not have the power to review his own assessment arrived at during the original assessment. The petitioner had provided all the information which was considered by the respondent. It was also categorically accepted by learned Senior Standing Counsel Mr. Rutvij Patel that the initiation of the reassessment proceedings was on the basis of reassessment made in the case of co-owner Ms. Bhavnaben. However, the issue which was already concluded by way of assessment order dated 30/11/2020, cannot be reopened again on the very same material

ii) It is settled law that the proceedings u/s. 148 of the Act cannot be initiated to review the earlier stand adopted by the Assessing Officer. The Assessing Officer cannot initiate reassessment proceedings to have relook with the documents filed in the original assessment proceedings. The power to re-examine cannot be exercised from time to time. This issue has been categorically settled by the Hon’ble Apex Court in case of Commissioner of Income Tax, Delhi v. Kelvinator of India Limited reported in (2010) 320 ITR 561. In view of the above, the present petition is required to be allowed and the same is hereby allowed. The impugned order dated 01/04/2022 passed u/s. 148A(d) of the Act and the notice of same date issued u/s. 148 of the Act are hereby quashed and set aside.”

Charitable institution — Exemption u/s. 11 and 12 — Registration of trust — Retrospective effect — Assessee educational society granted registration u/s. 12AA with effect from 01/04/2019 despite conclusion of assessment for A. Y. 2016-17 — Appeal assessment pending before Appellate Tribunal — Held by High Court that appeal being continuation of original assessment proceeding deemed to be pending proceeding within meaning of first proviso to section 12A(2) — proviso curative and retrospective in nature to mitigate hardship and ensure fairness — Registration to operate retrospectively — Exemption u/s. 11 and 12 allowable.

8. Chhattisgarh Rajya Open School v. Dy. CIT(Exemption): (2026) 485 ITR 349 (Chhattisgarh)

A. Y. 2016-17: Date of order 10/06/2025

Ss. 11, 12, 12A(2) and proviso, 12AA of ITA 1961

Charitable institution — Exemption u/s. 11 and 12 — Registration of trust — Retrospective effect — Assessee educational society granted registration u/s. 12AA with effect from 01/04/2019 despite conclusion of assessment for A. Y. 2016-17 — Appeal assessment pending before Appellate Tribunal — Held by High Court that appeal being continuation of original assessment proceeding deemed to be pending proceeding within meaning of first proviso to section 12A(2) — proviso curative and retrospective in nature to mitigate hardship and ensure fairness — Registration to operate retrospectively — Exemption u/s. 11 and 12 allowable.

The appellant-assessee society was established with the direction of the Education Department, State of Chhattisgarh on January 10, 2008. The assessee filed its return for the A. Y. 2016-17 on March 31, 2018 declaring the income as Rs. nil. On September 30, 2018, the case of the assessee-society was selected for scrutiny assessment u/s. 143(2) of the Income-tax Act, 1961. In the meanwhile, the appellant herein filed an application for registration u/s. 12AA of the Income-tax Act in the prescribed form claiming exemption on the ground that it is an education institution and involved in charitable purposes which was eventually rejected on April 29, 2019 against which it has preferred an appeal and ultimately, on second round, on July 14, 2023, the Commissioner of Income-tax (Exemptions) granted approval u/s. 12AA of the Income-tax Act to the appellant with effect from April 1, 2019. However, the scrutiny assessment was completed and the Assessing Officer declined the assessee’s claim for exemption of the excess of income over expenditure of Rs.5.24 crores (approximately) u/s. 10(23C)(iiiab) of the Income-tax Act and passed the assessment order on December 12, 2018 against which the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) which was ultimately rejected on October 17, 2019.

The assessee preferred an appeal before the Income-tax Appellate Tribunal questioning the order of the Assessing Officer as affirmed by the Commissioner of Income-tax (Appeals) and an additional ground was taken that the approval u/s. 12AA of the Income-tax Act has been granted by the Commissioner of Income-tax (Exemptions) on July 14, 2023 and, therefore, by virtue of the first proviso to section 12A(2) of the Income-tax Act, exemption would apply retrospectively.

The Tribunal by the impugned order rejected the appeal holding that the first proviso to section 12A(2) of the Income-tax Act has wrongly been construed, as the assessment proceeding was not pending before the Assessing Officer on the date of registration, i.e., July 14, 2023 and accordingly proceeded to dismiss the appeal.

The assessee filed appeal to High Court u/s. 260A of the Act and raised the following substantial question of law:

“Whether the Income-tax Appellate Tribunal is justified in dismissing the appeal by ignoring the order granting approval u/s. 12AA of the Income-tax Act which was passed on July 14, 2023 during the pendency of appeal by holding that first proviso to sub-section (2) of section 12A is not attracted and further ignoring the fact that the appeal was already pending before it (ITAT), by recording a finding which is perverse to the record?”

The Chhattisgarh High Court allowed the appeal and held as under:

“i) It is not in dispute that the assessment proceeding u/s. 143(2) of the Income-tax Act was adjudicated by the Assessing Officer on December 12, 2018 and on that day, though the appellant-assessee made application u/s. 12AA of the Income-tax Act, it was rejected on July 29, 2019 and after assessment by the Assessing Officer, on second round, ultimately, exemption was granted on July 14, 2023 with effect from April 1, 2019 and thereafter, the assessment proceeding was subjected to appeal by the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) also dismissed the appeal on October 17, 2019, as such, on the date of registration, i.e., on July 14, 2023, appeal u/s. 253 of the Income-tax Act was pending before the Income-tax Appellate Tribunal, but the Income-tax Appellate Tribunal rejected the contention of the appellant herein holding that the first proviso to section 12A(2) of the Income-tax Act would not be applicable as the assessment proceedings were not pending as on the date of registration and, therefore, the first proviso to section 12A(2) would not be applicable to the appellant herein.

ii)
A careful perusal of the aforesaid circular would show that it mandates that registration will have the effect for the period prior to the year of registration or in respect of which the assessment proceedings are pending and the provisions of section 12A of the Income-tax Act entailed unintended consequences of non-application of registration for the period prior to the year of registration and, thereby, non-grant of exemption under sections 11 and 12 up to grant of registration. This position was also recognised by the Central Board of Direct Taxes while issuing the Explanatory Notes to the provisions of the Finance (No. 2) Act, 2014 ((2014) 366 ITR (Stat) 21), vide Central Board of Direct Taxes Circular No. 1 of 2015, dated January 21, 2015 ((2015) 371 ITR (Stat) 22). It is, thus, a curative proviso, which is but merely declaratory of the previous law. It has, by removal of the hardship, rendered the procedure more relief oriented. It adequately complies with the natural justice principle of fairness to all. Hence, it has to be presumed and construed as retrospective in nature, in order to give the section a purposive interpretation. (See CIT (Exemptions) v. Shree Shyam Mandir Committee, [(2018) 400 ITR 466 (Raj); 2017 SCC OnLine Raj 4367.] paragraph 26.)

iii) In the instant case, admittedly, on the date of registration, i.e., July 14, 2023, the assessment proceeding which has been affirmed by the Commissioner of Income-tax (Appeals), was pending before the Income-tax Appellate Tribunal, which came to be dismissed on September 7, 2023. The question for consideration would be, whether the assessment proceeding as stated in the first proviso to section 12A(2) of the Income-tax Act can be taken as pending appeal, in other words, whether the assessment proceeding pending in appeal can be taken to be the proceeding pending before the Assessing Officer? Since the appeal was pending before the Income-tax Appellate Tribunal u/s. 253 of the Income-tax Act, though it was the second appeal, but in that appeal, substantial question of law was not required to be formulated which was required to be formulated in appeal u/s. 260A of the Income-tax Act, as such, that appeal pending before the Income-tax Appellate Tribunal against the assessment order affirmed by the Commissioner of Income-tax (Appeals) is the continuation of original assessment proceedings by the Assessing Officer.

iv) It is a settled position of law that an appeal is a continuation of the proceedings of the original court. Ordinarily, the appellate jurisdiction involves a rehearing on law as well as on fact and is invoked by an aggrieved person. The first appeal is a valuable right of the appellant and therein all questions of fact and law decided by the trial court are open for reconsideration. Therefore, the first appellate court is required to address itself to all the issues and decide the case by giving reasons. The court of first appeal must record its findings only after dealing with all issues of law as well as fact and with the evidence, oral as well as documentary, led by the parties. The judgment of the first appellate court must display conscious application of mind and record findings supported by reasons on all issues and contentions (see : Santosh Hazari v. Purushottam Tiwari, [(2001) 251 ITR 84 (SC); (2001) 3 SCC 179; 2001 SCC OnLine SC 375.] followed in Madhukar v. Sangram, [(2001) 4 SCC 756; 2001 SCC OnLine SC 682.], B.M. Narayana Gowda v. Shanthamma, [(2011) 15 SCC 476; (2014) 2 SCC (Civ) 619; 2011 SCC OnLine SC 673.], H.K.N. Swami v. Irshad Basith, [(2005) 10 SCC 243; 2004 SCC OnLine SC 731.] and Sri Raja Lakshmi Dyeing Works v. Rangaswamy Chettiar, [(1980) 4 SCC 259; 1980 SCC OnLine SC 102.]).

v) It is held that an appeal pending before the Income-tax Appellate Tribunal against the order of the Commissioner of Income-tax (Appeals) affirming the order of the Assessing Officer is the continuation of the original proceedings of the Assessing Officer and thus, the assessment proceeding in appeal pending before the appellate court, i.e., Income-tax Appellate Tribunal is deemed to be the assessment proceeding before the Assessing Officer within the meaning of the first proviso to section 12A(2) of the Income-tax Act and we accordingly hold that appeal proceedings pending before the Income-tax Appellate Tribunal are deemed to be the assessment proceeding before the Assessing Officer within the meaning of section 12A of the Income-tax Act. The impugned order so passed after the effective date of grant of registration and subsequent grant of registration on July 14, 2023 operates retrospectively for all relevant years in the present case, the assessment year 2016-17, though registration was granted with effect from April 1, 2019, as we find that the object of the appellant-society is charitable in nature
within the meaning of section 12A(2) of the Income-tax Act and on which there is absolutely no dispute.

vi) The substantial question of law is answered in favour of the assessee and against the Revenue.

vii) Accordingly, we are unable to sustain the impugned order and set aside the same. The appellant-society is entitled for exemption u/s. 11 and 12 of the Income-tax Act. The Assessing Officer is directed to pass consequential order as stated above for the A. Y. 2016-17, expeditiously.

Assessment — International transaction — Computation of arm’s length price — Reference to TPO — No variation made by TPO in his order — Whether assessee is “eligible assessee” — Assessee is neither non-resident nor foreign company as contemplated u/s. 144C(15)(b)(ii) — Assessee can be stated to be an “eligible assessee” only if there is variation referred to in section 144C(1) consequent to order of TPO u/s. 92CA(3) — Assessee is not eligible assessee u/s. 144C(15)(b) — Held by High Court that AO cannot pass draft assessment order u/s. 144C(1) — Draft assessment order, final assessment order and notice of demand and penalty set aside.

7. Classic Legends (P) Ltd. v. Assessment Unit: (2026) 484 ITR 550 (Bom):

Date of order 09/09/2025:

Ss. 92CA(3), 143(3), 144C, 156, 270A, and 271AAC of ITA 1961

Assessment — International transaction — Computation of arm’s length price — Reference to TPO — No variation made by TPO in his order — Whether assessee is “eligible assessee” — Assessee is neither non-resident nor foreign company as contemplated u/s. 144C(15)(b)(ii) — Assessee can be stated to be an “eligible assessee” only if there is variation referred to in section 144C(1) consequent to order of TPO u/s. 92CA(3) — Assessee is not eligible assessee u/s. 144C(15)(b) — Held by High Court that AO cannot pass draft assessment order u/s. 144C(1) — Draft assessment order, final assessment order and notice of demand and penalty set aside.

In respect of the international transaction of the assessee company the Assessing Officer made a reference to the Transfer Pricing Officer u/s. 92CA of the Income-tax Act, 1961. Pursuant to this reference, the Transfer Pricing Officer issued notices to the petitioner and thereafter passed an order u/s. 92CA(3) accepting that the international transactions entered into by the assessee with its associated enterprises were at arm’s length price. In other words, the Transfer Pricing Officer made no variation. Thereafter, the Assessing Officer to passed draft assessment order and the final assessment order u/s. 144C r.w.s. 143(3) of the Act.

The assessee filed a writ petition challenging the order. The Bombay High Court allowed the writ petition and held as under:

“i) It is not in dispute that the petitioner is not a non-resident or a foreign company as contemplated u/s. 144C(15)(b)(ii). The question is whether the petitioner would fall within the definition of “eligible assessee” as contemplated u/s. 144C(15)(b)(i). On a plain reading of the said provision, the petitioner can be stated to be an “eligible assessee” only if there is a case of variation referred to in the said sub-section (1) and which arises as a consequence of the order passed by the Transfer Pricing Officer under sub-section (3) of section 92CA. In the facts of the present case, it is an admitted position that there was no variation in the income of the petitioner by virtue of the order of the Transfer Pricing Officer. That being the position, the petitioner cannot be stated to be an “eligible assessee” as defined in clause (b) of sub-section (15) of section 144C of the Income-tax Act. Once this is the case, the entire procedure for issuance of a draft order calling for the petitioner’s objections thereon and taking further steps as laid down u/s. 144C would, therefore, not apply.

ii) We are unable to agree with the contention of the Revenue that the word “variation” appearing in section 144C(1) and 144C(15) would also include “no variation”. This is clear from section 144C(1) itself which categorically states that the Assessing Officer would have to forward a draft assessment order to the “eligible assessee”, if he proposes to make, on or after October 1, 2009, any variation which is prejudicial to the interest of such assessee. When there is no variation, there is no question of any prejudice being caused to the assessee which would then entail him to file any objections to the draft order as contemplated under sub-section (2) of section 144C. We, therefore, find that the arguments canvassed by the Revenue on this aspect is contrary to the statutory provisions.

iii) It is clear that the petitioner in the present case, not being an “eligible assessee” in terms of section 144C(15)(b) of the Income-tax Act, the Assessing Officer was not competent to pass the draft assessment order u/s. 144C(1) of the Income-tax Act. Consequently, there was no occasion for him to thereafter pass a final assessment order u/s. 143(3) read with section 144C(3) read with section 144B of the Income-tax Act. Accordingly, the draft assessment order dated March 8, 2025; the final assessment order dated April 7, 2025 and the demand notice dated April 7, 2025 as well as the show-cause notices dated April 7, 2025 seeking to impose penalty, are all hereby quashed and set aside.”

Assessment — Adjustment — ICDS adjustment — Issue of show cause notice before making adjustment — Show cause notice issued proposing to make adjustment on three issues — No prior show cause notice issued for making huge ICDS adjustment — No opportunity of being heard provided to the assessee — Breach of principles of natural justice — Impugned adjustment to be quashed and set-aside.

6. Rallis India Ltd. vs. CPC:

(2026) 183 taxmann.com 176 (Bom.):

A. Y. 2022-23: Date of order 19/01/2026:

Ss. 143(1) and 145 of ITA 1961

Assessment — Adjustment — ICDS adjustment — Issue of show cause notice before making adjustment — Show cause notice issued proposing to make adjustment on three issues — No prior show cause notice issued for making huge ICDS adjustment — No opportunity of being heard provided to the assessee — Breach of principles of natural justice — Impugned adjustment to be quashed and set-aside.

The Assessee filed its return of income wherein the assessee made a suo moto adjustment of Rs.1.15 crores u/s. 145(2) of the Income-tax Act, 1961 (the Act) in respect of the Income Computation and Disclosure Standards (ICDS). Subsequently, in December 2022, a notice u/s. 143(1)(a) of the Act was issued proposing to make adjustments u/s. 36(1)(va), 145A and 35(1)(iv) of the Act. The Assessee’s case was selected for scrutiny u/s. 143(2) of the Act.

Thereafter, the Assessee received intimation u/s. 143(1) of the Act wherein an adjustment of Rs.1284 crores was made in respect of ICDS as against suo moto adjustment of Rs.1.15 cores made by the assessee. The adjustment of Rs.1,284 crores made in the intimation issued u/s. 143(1) of the Act was not proposed in the notice issued u/s. 143(1)(a) of the Act issued in the month of December 2022.

The Assessee filed a rectification application u/s. 154 of the Act to rectify the mistake apparent on record. The Assessee also filed an application for stay of demand before the Assessing Officer and an appeal was filed before the CIT(A) challenging the intimation issued u/s. 143(1).

The assessment was completed u/s. 143(3) without making any variation to the total income on the issues raised in the show cause notice, but computing the income of the assessee adopting the income as given in the intimation issued u/s. 143(1) which was determined after the adjustment of Rs.1,284 crores made to the income returned by the assessee without considering the assessee’s plea to delete the adjustment. The Assessee challenged this order by way of an appeal filed before the CIT(A). The Assessee also filed a letter pointing out that the addition made in the assessment order emanates from intimation and requested that both the appeals be clubbed and heard together.

The CIT(A) dismissed the appeal filed by the assessee against the assessment order and stated that the issue arising from intimation could not be decided in appeal filed against the assessment order and the issue fell beyond statutory boundaries. The CIT(A) dismissed the appeal with liberty to the assessee to file the appeal against the intimation without considering the fact that an appeal against the said intimation was already filed and was pending adjudication.

The assessee filed a writ petition challenging the intimation and the adjustment made in the said intimation. The Bombay High Court allowed the petition of the assessee and held that:

“i) The first and second proviso to Section 143(1) of the IT Act specifically provides that no adjustment shall be made unless an assessee is given an intimation of the adjustment either in writing or in electronic mode and the response received from the assessee must be considered before making any such adjustment.

ii) In the present case, admittedly the Petitioner has not been given any intimation of the ICDS adjustment before passing the impugned intimation. The proposed adjustment u/s. 143(1)(a) of the IT Act on 14 December 2022 did not raise any issue with regard to the ICDS adjustment of Rs.1284,66,97,880/-, and no opportunity of being heard was granted to the Petitioner on this issue before the intimation was passed. This is, therefore, a clear breach of the principles of natural justice, and in any event in contravention of the jurisdictional requirements laid down in the first and second proviso to Section 143(1) of the IT Act.

iii) The fact that the Petitioner had exercised alternate remedy does not debar the Petitioner from invoking the jurisdiction of this Court. The breach of principles of natural justice is one exception that is consistently applied in negating a challenge in a writ petition on the ground of alternate remedy [see Whirlpool Corporation v. Registrar of Trade Marks (1998) 8 SCC 1 (SC)].

iv) In the present case more than two years have elapsed since the Petitioner availed of the alternate remedy and yet no effective hearing of the Petitioner’s appeal has taken place. The Petitioner’s appeal against the order u/s. 143(3) was disposed off summarily without dealing with the merits of the adjustment made. The Petitioner has undertaken to withdraw the appeal before Respondent No. 3 within a period of 15 days from this order, which undertaking is accepted. In these circumstances we have entertained and disposed-off the present petition. In view of the aforesaid discussion, the adjustment made in the intimation u/s. 143(1) in respect of the ICDS adjustment of Rs.1284,66,97,880/- is hereby quashed and set aside.”

Articles 5 and 7 of India-Netherlands DTAA – Consideration received for the use of a digital platform hosted outside India by users to book accommodation did not constitute a fixed or dependent agent permanent establishment.

3. [2026] 183 taxmann.com 201 (Delhi – Trib.)

Booking.Com B.V. vs. ACIT (International Taxation)

A.Y.: 2018-19

Dated: 06.02.2026

Articles 5 and 7 of India-Netherlands DTAA – Consideration received for the use of a digital platform hosted outside India by users to book accommodation did not constitute a fixed or dependent agent permanent establishment.

FACTS

The Assessee was a tax resident of the Netherlands. It held a valid tax residency certificate (“TRC”). The Assessee had developed a digital platform that showed the availability of hotels/guesthouse accommodation to users and enabled them to make reservation. The users and hotels directly entered into contracts for accommodation, and the Assessee acted merely as an intermediary. The Assessee was entitled to a commission, which was payable only after the user made payment for the accommodation, which was not refundable. The platform was hosted outside India.

For the relevant year, the Assessee did not furnish a return of income (“ROI”). Annual Information Return (“AIR”) and Form 26AS of the Assessee reflected certain transactions. Hence, the AO issued show-cause notice under section 148A(b) of the Act. As the AO did not receive any response from the Assessee, the AO reopened the matter by issuing a notice under section 148.

In response to the notice under section 148, the Assessee furnished ROI disclosing ‘nil’ income. The AO alleged that the Assessee had a fixed place and dependent agency permanent establishment
(“PE”) in India. Accordingly, the AO attributed the entire receipts as income. The DRP upheld the order of
the AO.

Aggrieved by the final order, the Assessee appealed to ITAT.

HELD

The Assessee was a tax resident of the Netherlands and was entitled to benefits under the India-Netherlands DTAA. The digital platform that enabled users to reserve hotel accommodation was hosted on servers outside India.

The Assessee did not have any place of business or any equipment owned or at its disposal in India. It also did not have any agent or personnel in India. Further, the hotels had not made accommodation available to the Assessee.

The AO had failed to establish with evidence that (i) the Assessee had an identified place in India at its disposal; and (ii) the Assessee carried on its business in India through such place. Hence, the Assessee did not have a fixed PE in India.

The Assessee was entitled to a commission at a fixed rate, which was computed on accommodation charges received by hotels/guesthouses from users. The terms of the agreement between the Assessee and accommodation providers were on a principal-to-principal basis. Hence, there was no element of agency involved.

Accordingly, the ITAT held that the commission, being booking fees received by the Assessee for enabling users to book accommodation, was taxable only in the Netherlands.

Authors’ Note – During the hearing, Revenue argued that commission should be taxable as royalty / FTS following Delhi ITAT ruling in Sabre Decision Technologies International LLC [2023] 152 taxmann.com 51 (Delhi – Trib.). The ITAT did not comment on the same. The said case pertained to an American LLC providing airline booking application, passenger solutions and consulting services. In the absence of TRC, it was held that consideration was taxable as royalty towards use of process or imparting of information / experience under the domestic law without evaluating scope of treaty provisions.

Additions based on loose sheets/excel data seized during search – Assessee being a salaried employee with no business activity – No ownership or nexus of entries established – Entries found to be group financial projections and borrowings – No corroborative evidence or unexplained assets – Additions deleted.

15. [2025] 128 ITR(T) 368 (Chandigarh- Trib.)

DCIT v. Kapil Romana

A.Y.: 2017-18, 2018-19 AND 2019-20

DATE: 16.06.2025

Section: 68 r.w.s. 69C & 115BBE

Additions based on loose sheets/excel data seized during search – Assessee being a salaried employee with no business activity – No ownership or nexus of entries established – Entries found to be group financial projections and borrowings – No corroborative evidence or unexplained assets – Additions deleted.

FACTS

A search and seizure operation was conducted in the case of the Homeland Group and the assessee, who was a salaried employee managing the financial affairs of the group. During the course of the search, certain loose papers and excel sheets titled “BTD-2011” were found containing details of credit limits, financial arrangements, and names of certain parties with amounts mentioned therein.

The Assessing Officer treated such entries as representing unsecured loans and unexplained expenditure of the assessee and made additions under sections 68 and 69C read with section 115BBE, alleging that the assessee had raised unaccounted funds.

On appeal, the Commissioner (Appeals) observed that the seized documents did not contain the name of the assessee and merely reflected financial details and projections relating to group entities. It was further noted that the assessee was only a salaried employee with no independent business activity and that no nexus between the entries and the assessee had been established. Accordingly, the additions were deleted.

Aggrieved, the Revenue preferred an appeal before the Tribunal.

HELD

The Tribunal observed that the seized documents reflected details of credit facilities, borrowings, and financial arrangements of various group concerns and supported the assessee’s explanation that he was managing the financial affairs of the group.

It was noted that the assessee was deriving only salary income and was not maintaining any personal books of account, and no material was brought on record to show that the assessee was engaged in any independent business activity.

The Tribunal further observed that certain entries in the seized documents were found to be reflected in the books of group concerns, thereby supporting the contention that the documents related to group transactions and financial projections rather than personal transactions of the assessee.

It was emphasized that no unexplained assets, investments, or money were found during the course of the search of the assessee, which could corroborate the alleged undisclosed income.

The Tribunal held that the Assessing Officer had failed to establish ownership of the seized documents or any nexus between the entries and the assessee, and that additions were made merely on the basis of assumptions and misinterpretation of documents.

Accordingly, concurring with the findings of the Commissioner (Appeals), the Tribunal held that the additions made under sections 68 and 69C were unsustainable and dismissed the Revenue’s appeals.

Cash deposits – Source explained as advance received under agreement to sell agricultural land and agricultural income – Unregistered agreement supported by affidavits – No requirement of registration for such agreement – Affidavits not rebutted – Explanation held reasonable – Addition deleted.

14. [2025] 128 ITR(T) 544 (Amritsar – Trib.)

Anbhao Parkash vs. ITO

A.Y.: 2012-13

DATE: 30.06.2025

Section: 69

Cash deposits – Source explained as advance received under agreement to sell agricultural land and agricultural income – Unregistered agreement supported by affidavits – No requirement of registration for such agreement – Affidavits not rebutted – Explanation held reasonable – Addition deleted.

FACTS

The assessee, an agriculturist, had deposited cash amounting to ₹16.75 lakhs in his bank account. Based on such deposits and the absence of a return of income, proceedings under section 147 were initiated, and the Assessing Officer made an addition under section 69, treating the cash deposits as unexplained.

The assessee explained that a sum of ₹10 lakhs was received in cash as advance against an agreement to sell agricultural land, and the balance amount was sourced from agricultural income earned from land cultivated jointly with his father, including leased land.

The assessee furnished a copy of the agreement to sell, executed on stamp paper and affidavits of witnesses confirming the transaction. However, the Assessing Officer and the Commissioner (Appeals) rejected the explanation primarily on the ground that the agreement was unregistered and that the supporting documents were not acceptable.

Aggrieved, the assessee preferred an appeal before the Tribunal.

HELD

The Tribunal observed that there is no legal requirement for compulsory registration of an agreement to sell agricultural land, and therefore, the validity of such agreement cannot be doubted merely on the ground of non-registration.

It was noted that the affidavits of witnesses confirming the receipt of advance were not controverted by the Assessing Officer through cross-examination, and therefore, such evidence could not be disregarded.

The Tribunal held that, in the absence of any material to the contrary, the explanation of the assessee that the cash deposit of ₹10 lakhs was sourced from advance received under the agreement to sell was reasonable and acceptable.

With respect to the balance deposits, the Tribunal observed that agricultural income earned from cultivated land, including leased land, was supported by documentary evidence such as J-forms and lease agreements, and the genuineness of the agricultural activity had not been disputed by the revenue.

Accordingly, the Tribunal held that the assessee had satisfactorily explained the source of cash deposits and that the addition made under section 69 was not sustainable. The addition was therefore deleted, and the appeal of the assessee was allowed.

Where the assessee-trust was generating receipts from certification fees, membership fees and training programmes which were incidental to its main object of imparting education and skill development, and the assessee was not engaged in profit maximisation or charging disproportionately high fees, the activities could not be regarded as commercial activities but fell within “education” and were not hit by proviso to section 2(15).

13. (2026) 184 taxmann.com 634 (Chennai Trib)

DCIT vs. ICT Academy of Tamil Nadu

A.Y.: 2017-18

DATE: 25.03.2026

Section: 2(15)

Where the assessee-trust was generating receipts from certification fees, membership fees and training programmes which were incidental to its main object of imparting education and skill development, and the assessee was not engaged in profit maximisation or charging disproportionately high fees, the activities could not be regarded as commercial activities but fell within “education” and were not hit by proviso to section 2(15).

FACTS

The assessee was a society registered under section 12A and was engaged in activities relating to skill development, training, certification, and employability enhancement of students and faculty in coordination with Government bodies and educational institutions. It conducted structured training programmes, faculty development initiatives, and vocational courses aligned with national skill development policies. For AY 2017-18, the assessee filed its return of income declaring a total income as Nil after claiming exemption under section 11.
The case of the assessee was selected for scrutiny through CASS. The AO held that the said activities fell under the limb of “general public utility” and invoked the proviso to section 2(15) on the ground that the assessee was generating receipts from certification fees, membership fees, and other related activities, which were in the nature of trade, commerce or business. Accordingly, he denied exemption under section 11 and brought to tax the excess of income over revenue expenditure of ₹2.36 crores.

Aggrieved, the assessee filed an appeal before CIT(A), who held that the assessee was carrying on educational activities and was entitled to exemption under section 11 and, therefore, deleted the addition made by the AO.

Aggrieved, the Revenue filed an appeal before the ITAT.

HELD

Considering the ratio laid down by the Supreme Court in ACIT v. Ahmedabad Urban Development Authority, (2022) 449 ITR 1 (SC), the Tribunal observed as follows:

(a) The dominant object of the assessee was to impart skill-based education and training with the objective of enhancing employability. Such activities, in the present socio-economic context, formed an integral part of the educational framework. The programmes conducted by the assessee were structured, curriculum-based, and aimed at systematic development of skills and knowledge. Therefore, the same could not be equated with mere commercial or business activities.

(b) The receipts earned by the assessee from certification fees, membership fees and training programmes were incidental to its main object of imparting education and skill development. There was nothing on record to indicate that the assessee was engaged in profit maximization or that the fees charged were disproportionately high so as to characterize the activities as trade, commerce or business.

(c)  The finding of CIT(A) that the assessee did not charge fees at market-driven commercial rates and that the surplus, if any, was ploughed back into its charitable activities remained uncontroverted by the Revenue.

(d)  The Revenue failed to demonstrate, on the basis of cogent material, that the assessee’s activities were driven by a profit motive or that they constituted business activities in substance. The mere presence of receipts from training or certification programmes could not, in isolation, lead to the conclusion that the proviso to section 2(15) was attracted.

(e) The financial statements for the impugned year indicated that the assessee had incurred deficits in several years. This clearly showed that the activities were not driven by a profit motive.

Accordingly, the Tribunal upheld the order of CIT(A) and held that the activities of the assessee fell within the ambit of “education” under section 2(15) and were not hit by the proviso thereto Consequently, the assessee was entitled to exemption under sections 11 and 12.

In the result, the appeal of the revenue was dismissed.

Merely because one of the objects in the trust deed was “advancement of any other object of general public utility”, or that the receipts from an activity exceeded the 20% threshold, it could not, by itself, be decisive to deny registration under section 12AB unless CIT(E) examined the actual activities carried on by the trust and determined under which limb of Section 2(15) the activity would fall, and whether the receipts were independent commercial receipts or were merely incidental and ancillary to attainment of the objects.

12. (2026) 184 taxmann.com 591 (Mum Trib)

Govardhan Eco Village Trust v. CIT(E)

A.Y.: N.A.

DATE: 23.03.2026

Section: 2(15), 12AB

Merely because one of the objects in the trust deed was “advancement of any other object of general public utility”, or that the receipts from an activity exceeded the 20% threshold, it could not, by itself, be decisive to deny registration under section 12AB unless CIT(E) examined the actual activities carried on by the trust and determined under which limb of Section 2(15) the activity would fall, and whether the receipts were independent commercial receipts or were merely incidental and ancillary to attainment of the objects.

FACTS

The assessee was originally granted registration under section 12A in 1998 for the charitable objects of “advancement of educational and social activities”, and “advancement of any other object of general public utility”. In accordance with the new section 12AB introduced in 2021, the assessee obtained provisional registration in 2021 and was subsequently granted registration in 2024 for AY 2022-23 to 2026-27. The trust deed was amended vide instrument dated 19.4.2024, adding an additional object. Hence, the assessee applied for registration under section 12AB in respect of the amended trust deed.

During the registration proceedings, CIT(E) called for various details, including year-wise details of rental income, the purpose thereof, and copies of rent agreements/MOUs for A.Ys. 2022-23 to 2025-26, etc. He also noted that the trust deed, as originally settled in 1988, contained, inter alia, the objects of “advancement of educational and social activities” and “advancement of any other object of general public utility”.

Proceeding on that basis, the CIT(E) formed a view that the receipts from rent and sale of agro and goshala products were commercial in nature, and that the aggregate of such receipts exceeded 20% of the total receipts in each of the concerned years. Accordingly, the application under section 12AB(1)(ac)(ii) was liable to be rejected and, consequentially, approval under section 80G was also to be denied.
Aggrieved, the assessee filed appeals before the ITAT against the rejection of application under section 12AB and section 80G.

HELD

The Tribunal observed as follows:

(a) It was an admitted position that the assessee had already been granted provisional registration, which remained valid up to A.Y. 2025-26. The proceedings arose in the context of the assessee’s application for registration under section 12A(1)(ac)(ii). At that stage, the enquiry was confined to the objects of the trust, the genuineness of its activities, and compliance with the statutory conditions governing registration. Therefore, while examining such application, the CIT(E) was required to determine, on the basis of the trust deed, the actual activities carried on and the supporting material, whether the assessee’s objects were charitable in law, whether the activities were genuine and carried out in furtherance of such objects, and whether the statutory scheme disentitled the assessee from the grant of registration.

(b) Merely because one of the objects in the trust deed referred to “advancement of any other object of general public utility”, it would not, by itself, conclude the matter unless the CIT(E) also examined the dominant and actual activities carried on by the assessee during the relevant period and determined under which limb of section 2(15) such activities properly fell. If, on facts, the activities were found to be in the nature of education, yoga, preservation of environment, or other specific charitable heads, the matter would stand on a footing distinct from a case falling purely under the residuary category of “advancement of any other object of general public utility”.

(c) The mere exceedance of the 20% threshold, by itself, could not have been treated as determinative unless the CIT(E) first arrived at a clear finding, on the basis of the objects and actual activities of the assessee, that the case fell under the residuary limb of “advancement of any other object of general public utility” as contemplated under section 2(15).

(d) Likewise, the character of receipts from agro/goshala products and rent could not have been concluded merely on the basics of nomenclature, without examining whether such receipts were intrinsically connected with and incidental to the attainment of the assessee’s stated charitable objects.

Accordingly, the Tribunal restored the matter to the file of CIT(E) for fresh adjudication on –

(i) whether having regard to the assessee’s objects, actual activities and the material on record, the assessee was entitled to registration under section 12A(1)(ac)(ii);

(ii) whether the activities carried on by the assessee fell under the specific charitable limbs of section 2(15) or under the residuary limb of general public utility;

(iii) whether the receipts from rent and sale of agro/goshala products were independent commercial receipts or were merely incidental and ancillary to the attainment of the main charitable objects;

(iv) whether the reliance placed by the assessee on CBDT Circular No. 11 of 2022 (to contend that the assessee should be deemed to be registered under the new regime and that there was no requirement to issue a provisional registration) was applicable in the facts of the case; and

(v) whether the alleged room-renting activity was, in fact, attributable to the assessee itself.

The Tribunal also clarified that the remand should not be construed as disturbing the provisional registration for its stated period of validity, i.e.,, up to AY 2025-26.

Accordingly, the appeals were allowed for statistical purposes.

Where a tenant received a residential flat on the redevelopment of property in lieu of surrendering tenancy rights, the value of such flat cannot be assessed as income from other sources under section 56, since tenancy rights constitute a capital asset Therefore, its surrender is chargeable to tax as capital gains, and the assessee is eligible to claim exemption under Section 54F.

11. (2026) 184 taxmann.com 174 (Mum Trib)

ITO vs. Varun Jaisingh Asher

A.Y.: 2020-21

DATE: 06.03.2026

Section: 54F, 56

Where a tenant received a residential flat on the redevelopment of property in lieu of surrendering tenancy rights, the value of such flat cannot be assessed as income from other sources under section 56, since tenancy rights constitute a capital asset Therefore, its surrender is chargeable to tax as capital gains, and the assessee is eligible to claim exemption under Section 54F.

FACTS

The assessee and his brother became tenants of a family-owned property after the outgoing tenant vacated the premises i 2013 upon receipt of ₹2.75 crores. They occupied the vacated portion and paid rent of ₹5,000 per month to the owner, supported by rent receipts and electricity bills.

Subsequently, the property was proposed to be redeveloped. The redeveloper required a formal agreement, and therefore, a tenancy agreement was registered on 5.8.2014. The owners entered into a joint development agreement on 11.08.2014; a Permanent Alternate Accommodation Agreement was executed with the developer in March 2017, after which possession was handed over for redevelopment.

Upon receipt of the Occupation Certificate (OC) in February 2020, the assessee received possession of one residential flat of approximately 1,550 sq. ft. in lieu of surrendering tenancy rights. The assessee filed a return of income for AY 2020-21, claiming exemption under section 54F amounting to ₹11.68 crores on the ground that the flat was consideration for transfer of tenancy rights (a capital asset).

During scrutiny proceedings, the AO disregarded the tenancy agreement, treating it as a colourable device, and taxed the value of the flat under section 56(2)(x)(b) as income from other sources, and also denied exemption under section 54F.

Upon appeal, CIT(A) allowed the claim of the assessee and deleted the addition.

Aggrieved, the Revenue filed an appeal before the ITAT.

HELD

The Tribunal observed as follows:

(a) It was evident that the assessee had placed substantial documentary evidence to establish the existence of tenancy rights, including rent receipts, electricity bills, the registered tenancy agreement dated 05.08.2014, MHADA verification records, and the Permanent Alternate Accommodation Agreement executed with the developer. These documents clearly demonstrated that the assessee had been occupying the premises as a tenant since 01.04.2013 and that the tenancy rights continued until their surrender in the course of redevelopment of the property. The fact that the tenancy agreement was formally registered in 2014 did not invalidate the existence of tenancy, particularly when the surrounding documentary evidence corroborated continuous occupation and payment of rent.

(b) Tenancy rights constitute a capital asset within the meaning of section 2(14) and the surrender thereof amounts to a transfer under section 2(47). The allotment of a residential flat by the developer under the redevelopment scheme represents consideration received in exchange for such surrender of tenancy rights. Therefore, the transaction squarely falls within the ambit of capital gains and cannot be brought to tax under the residuary provisions of section 56(2)(x).

Noting the orders of the Bombay High Court in the case of assessee’s brother in Vivek Jaisingh Asher v. ITO [2024] 162 taxmann.com 127 (Bom), as well as the Coordinate bench in Vasant Nagorao Barabde v. DCIT, (2025) 174 taxmann.com 1015 (Mum-Trib), the Tribunal upheld the order of CIT(A), who had concluded that the assessee possessed valid tenancy rights and that the flat received on redevelopment constituted consideration for surrender of such rights. Consequently, the addition made by the AO under section 56(2)(x) was directed to be deleted, and the assessee’s claim of exemption under section 54F was allowed.

Accordingly, the Tribunal dismissed the appeal of the revenue

The revised notification enhancing the ceiling of exemption under section 10(10AA)(ii) to Rs. 25 lakhs operates only from 01.04.2023, and the benefit of the enhanced limit does not apply to employees who had retired earlier.

10. 2026 (4) TMI 918 – ITAT AHMEDABAD

Madan Lal Grover v. ITO

A.Y.: 2020-21

DATE: 10.4.2026

Section: 10(10AA)

The revised notification enhancing the ceiling of exemption under section 10(10AA)(ii) to Rs. 25 lakhs operates only from 01.04.2023, and the benefit of the enhanced limit does not apply to employees who had retired earlier.

FACTS

The Assessee retired from the services of RBI (Samadhan) Unit handling HRO operations for RBI Region in F.Y. 2019-20 (on 31.05.2019) and, upon retirement, received Rs. 15,90,734/- as “Leave Encashment” benefit in terms of section 10(10AA) of the Act.

The assessee filed his return of income on 07.12.2020 (Later Revised on 08.01.2021), claiming the entire amount of Leave Encashment of ₹15,90,734/- u/s 10(10AA)(ii) of the Act. In an intimation dated 8.12.2021, generated upon processing the return of income u/s 143(1)(a) of Act, the amount of leave encashment was restricted to ₹3,00,000, considering that the assessee did not fall within the category of Central/State Govt. Employees u/s 10(10AA)(ii) of Act.

Aggrieved, the assessee preferred an appeal before the CIT(A), who dismissed the same.

Aggrieved, the assessee preferred an appeal to the Tribunal where it was contended that the Assessee has retired from service of Reserve Bank of India during the year under consideration. The disallowance is contrary to the CBDT’s Notification dated 24.05.2023 (No. 31/2023/F.No. 200/3/2023-ITA-1). In view of the notification section 10(10AA)(i) and 10(10AA)(ii) both are at par & since it is clear that as per explanatory memorandum that no person is being adversely affected by giving retrospective effect to this notification.

HELD

The Tribunal noted that the Kerala High Court, in the case of Ramesan P. A. vs. Union of India (WP(C) No. 28983 of 2021 order dated 29.01.2024), had held that the benefit of the notification is not applicable to employees who had retired before 1.4.2023. The Tribunal, having noted the ratio of this decision of the Kerala High Court, held that it is bound by the same. Accordingly, the Tribunal upheld the addition made and dismissed the appeal filed by the assessee

The procedural requirement of filing Form No.10DA is directory in nature, and mere delay in filing does not warrant denial of the deduction claimed in the return of income.

9. 2026 (4) TMI 841 – ITAT PUNE

Expert Global Solutions Private Limited v. DCIT

A.Y.: 2021-22

DATE: 10.4.2026

Section: 80JJAA

The procedural requirement of filing Form No.10DA is directory in nature, and mere delay in filing does not warrant denial of the deduction claimed in the return of income.

FACTS

The assessee filed its return of income on 16.02.2022 declaring a total income of Rs. 8,12,99,130/- after claiming a deduction of Rs. 26,06,220/- u/s 80JJA of the Act. For the assessment year under consideration, the due date for filing the income tax return was on or before 30.11.2021, which was extended up to 15.03.2022. However, the assessee filed Form No.10DA for assessment year 2021-22 on 27.01.2023. The due date for filing Form No.10DA for the assessment year 2021-22 was one month prior to the due date for furnishing the return of income u/s 139(1).

The CPC, vide Intimation u/s 143(1) dated 28.12.2022, made an addition of ₹26,06,220/- on account of the belated filing of Form No.10DA, i.e., after the due date of filing of the return.

Aggrieved, the assessee preferred an appeal before the Addl. / JCIT(A), who dismissed the appeal filed by the assessee. While doing so he noted that the due date for filing of income tax return for assessment year 2021-22 was on or before 30.11.2021, which was extended up to 15.03.2022. Since the assessee filed the return of income on 16.02.2022, the same was within the due date u/s 139(1) of the Act. However, the assessee filed Form No.10DA for assessment year 2021-22 on 27.01.2023. The due date for filing Form No.10DA for assessment year 2021-22 was one month prior to the due date for furnishing the return of income u/s 139(1). Since the assessee filed Form No.10DA on 27.01.2023, the same was after the due date for filing the income tax return. He referred to CBDT Circular No.1/2022 dated 11.01.2022, according to which the CBDT has extended the due date for filing various audit reports up to 15.02.2022. In view of the above, the Addl. / JCIT(A) held that the assessee was not eligible to claim deduction u/s 80JJA of the Act. He, therefore, upheld the order of the CPC in rejecting the claim of deduction u/s 80JJA of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal, where it contended that the procedural requirement of filing Form No.10DA is directory in nature, and mere delay in filing does not warrant denial of the deduction claimed in the return of income. It was also submitted that when the deduction claimed in the formative year has been examined and accepted by the Income Tax Authorities, the balance deduction claimed in subsequent years should not be disturbed until the deduction has been denied or subsequently withdrawn by the tax authorities.

HELD

The Tribunal noted that it is an admitted fact that, due to non-submission of Form No.10DA within the stipulated period, the CPC disallowed the claim of deduction u/s 80JJA of the Act and made an addition of ₹26,06,220/- to the returned income. It also observed that the Addl. / JCIT(A) dismissed the appeal filed by the assessee on the ground that the assessee failed to file Form No.10DA one month prior to the due date for furnishing the return of income u/s 139(1) for assessment year 2021-22, therefore was not eligible for deduction u/s 80JJA of the Act. The Tribunal held that it finds merit in the arguments of the Counsel for the assessee. It further observed that an identical issue had come up before the Kolkata Bench of the Tribunal in the case of Tarasafe International (P.) Ltd. vs. DDIT [(2024) 168 taxmann.com 514 (Kolkata–Trib.)], wherein, under identical circumstances, the Tribunal had allowed the claim of deduction u/s 80JJA of the Act by setting aside the order of the Addl. / JCIT(A).

The Tribunal, having considered the observations in the case of Tarasafe International (P.) Ltd. (supra), held that since the facts of the instant case are identical to those of the said case, and in the absence of any contrary material brought on record by the DR, the order of the Addl. / JCIT(A) was set aside. The Assessing Officer / CPC was directed to allow the deduction to the assessee u/s 80JJA of the Act as claimed. Accordingly, the grounds raised by the assessee were allowed.

Date of allotment is paramount for considering deduction under section 54, and possession of property has, ipso facto, no effect on claim of deduction under section 54. Deduction under section 54 is allowable in respect of an investment made in booking of a flat under construction one year before the date of transfer of the original asset, even though the scheduled date of completion of the flat booked was beyond three years from the date of transfer of the original asset.

8. [2026] 184 taxmann.com 429 (Mumbai – Trib.)

Arvinder Singh Sahni v. DCIT

A.Y.: 2015-16 Date of Order: 12.3.2026

Section : 54

Date of allotment is paramount for considering deduction under section 54, and possession of property has, ipso facto, no effect on claim of deduction under section 54. Deduction under section 54 is allowable in respect of an investment made in booking of a flat under construction one year before the date of transfer of the original asset, even though the scheduled date of completion of the flat booked was beyond three years from the date of transfer of the original asset.

FACTS

During the assessment year under consideration, the assessee earned long-term capital gains of ₹2.31 crore upon the sale of a residential house purchased by him in 2011. The house giving rise to long-term capital gain (original asset) was sold on 19.12.2014. The long-term capital gains arising on transfer of the original asset were claimed to be exempt on the ground that the assessee had, on 31.10.2014, booked a new residential house. The booking being within a period of one year prior to the date of transfer of the original asset giving rise to long-term capital gains, meant that the cost of the house booked on 31.10.2014 qualified for deduction under section 54.

The Assessing Officer (AO), while assessing the total income, denied the claim of deduction under section 54 on the ground that, as per the agreement dated 31.10.2014, possession of the new flat was scheduled to be handed over on 31.12.2018, whereas the time period of three years from the date of sale of the original asset expired on 19.12.2017.

Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO on the ground that the assessee has not satisfied the conditions of section 54 of the Act.

HELD

At the outset, the Tribunal noted that it was not in controversy that the assessee had purchased a new property within one year prior to the date of sale of the original asset on which the capital gain had been earned. The only controversy that arose related to the date of possession of the new property purchased. The authorities below have emphasized that the assessee was required to purchase or construct a property within the time period prescribed under the law, but in the agreement for sale, the proposed date of possession of the newly purchased property, was 31.12.2018.

It observed that –

i) the Jurisdictional High Court in the case of Pr. CIT v. Vembu Vaidyanathan [(2019) 413 ITR 248 (Bom)], a celebrated judgment on the issue, held that the allottee gets title to the property on the issuance of the allotment letter, and that payment of instalments and delivery of possession are merely follow up action and formalities;

ii) It further observed that this judgment of the High Court was subsequently considered by the Apex Court in Pr. CIT v. Vembu Vaidyanathan [(2019) 265 Taxman 535 (SC)], and ultimately affirmed by dismissal of the Special Leave Petition (SLP) filed by the Revenue;

iii) The Karnataka High Court in Pr. CIT v. C. Gopalaswamy [(2016) 384 ITR 307 (Kar)], also dealt with an identical issue, where the date of possession of the property was much beyond the time available for construction as per Section 54F. The Hon’ble High Court rejected the Revenue’s contention that since construction was not completed, , the benefit should not be allowed, and held that the essence of the provision is whether the assessee has invested the capital gains in a residential house. Once it is demonstrated that the consideration received on transfer has been invested in purchase or construction of a residential house, even i the transactions is not complete in all respects, the benefit cannot be denied;

iv) The ratio of the decisions of the Bombay High Court in CIT v. Girish L. Ragha [(2016) 69 taxmann.com 95 (Bom) and the Delhi High Court in CIT v. Kuldeep Singh [(2014) 49 taxmann.com 167 (Delhi)] also support the assessee’s case.

The Tribunal held –

i) Considering the ratio of the decision of the Bombay High Court in the case of Vembu Vaidyanathan (supra), the date of allotment is paramount for considering the deduction claimed under section 54, and possession of the property has, ipso-facto, no effect on the claim under section 54;

ii) from the aforesaid judgments, it has become clear that the assessee is required to comply with the conditions by purchasing a residential property within one year prior to, or two years after, the date of sale of the property, or by constructing a house within three years after the date of sale of property/earning the capital gain. Therefore, it agreed with the contention of the assessee that possession is not a ‘sine qua non’ for claiming or denying the benefit under section 54;

iii) In the instant case, admittedly, the assessee, within one year prior to the date of sale of the old property and/or earning the capital gain, had purchased a residential property. Therefore, the assessee is entitled to the benefit of the provisions of section 54, and accordingly, the addition made by the Assessing Officer, as affirmed by the Commissioner, is deleted.

The appeal filed by the assessee was allowed

Rebate granted to the assessee, pursuant to contractual terms, does not constitute real income.

7. TS-258-ITAT-2026(DEL)

Satya Prasan Rajguru v. DCIT

A.Y.: 2021-22

Date of Order: 26.2.2026

Section: 56

Rebate granted to the assessee, pursuant to contractual terms, does not constitute real income.

FACTS

For the assessment year under consideration, the assessee filed the return of income on 31.12.2021, which was subsequently revised on 31.03.2022, declaring a total income of ₹1,94,39,080/- and claiming deduction u/s 54F of the Act to the tune of ₹9,65,05,033/-. The Assessing Officer (AO) denied the claim of deduction under section 54F of the Act.

Further, the AO observed that the assessee has purchased an apartment in Gurugram for a consideration of ₹32,95,29,561 and had received a rebate of ₹9,81,39,230/- from the developer. The AO rejected the contentions of the assessee that the rebate amount cannot result in an addition to the total income, since the stamp duty value of the apartment was lower than the consideration (net of rebate). The AO considered the rebate of ₹9,81,39,230 to be taxable under section 56(1) of the Act.

Aggrieved, the assessee preferred an appeal before the CIT(A), who was of the opinion that a rebate of about 28% to 30% is unheard of and beyond preponderance of probabilities. The CIT(A) confirmed the action of the AO.

Aggrieved, the assessee preferred an appeal before the Tribunal, where, on a without prejudice basis, it contended that the stamp duty value (SDV) of the apartment was ₹14,68,00,000, whereas the flat was purchased for ₹23,13,90,331; therefore, even the provisions of section 56(2)(x) were not applicable.

HELD

The Tribunal observed that the lower authorities have taxed the rebate as income under the head `Income from Other Sources’, but it is questionable whether, in the absence of a specific deeming provision, such an action can be sustained. It further observed that there is no real income; rather, it is a benefit by way of rebate, which the department sought to tax as income, which could have been possible only if the stamp duty value was greater than the consideration.

The Tribunal noted that under the Apartment Buyers Agreement, the rebate of ₹9,81,39,230 allowed to the assessee comprised of the following : Down Payment Rebate of ₹4,27,83,490; Move-in Rebate of ₹2,22,90,000; Special Rebate of ₹1,82,05,740; and Timely Payment Rebate of ₹1,48,60,000. It was observed that the assessee had established that this rebate was not something that accrued suddenly at the conclusion of the deal but was very much part of the terms and conditions contained in the apartment buyer’s agreement. It held that this is not a case where the rebate has been earned by the assessee out of any act beyond the terms and conditions of the agreement so as to be even considered as income `earned’; rather, it was a contractual concession given by the builder for complying with the payment schedule. By way of illustration, the Tribunal observed that the Move In Rebate @ ₹3,000 per sq. feet was allowable for timely completion as per the terms and conditions of the agreement, which appeared to be a prudent approach by the builder to ensure that such high-value properties are not left idle or treated merely as investment asset rather than being occupied by actual users.

The Tribunal held that such rebates are neither uncommon nor unprecedented, so as to appear artificial, but are usually granted by builders to encourage timely or early payments. Therefore, treating such rebates as income u/s 56(1) is not sustainable. It further remarked that the CIT(A) had approached the issue from a common man’s perspective of such high-value real estate transactions, without acknowledging that such transactions command a premium due to the amenities and facilities provided.. It held that questioning the business prudence of the builders in granting such rebates cannot be subject matter of inquiry from the purchaser’s end, and thus, the findings of CIT(A) sustaining the additions on the basis of deemed income u/s 56 of the Act cannot be upheld.

Despite the income being exempt, upon the turnover exceeding the specified amount, the requirement of getting the statutory audit done and obtaining the required audit report u/s 44AB of the Act in Form-3CD is mandatory.

6. TS-184-ITAT-2026(Kol)

Jalpaiguri Zilla Regulated Market Committee v. ITO

A.Y.: 2017-18

Date of Order : 10.2.2026

Section: 44AB, 271B

Despite the income being exempt, upon the turnover exceeding the specified amount, the requirement of getting the statutory audit done and obtaining the required audit report u/s 44AB of the Act in Form-3CD is mandatory.

FACTS

M/s. Jalpaiguri Zilla Regulated Market Committee (AOP) did not file its return of income for AY 2017-18. In view of the information available with the Department that the assessee had deposited cash in its bank account during the FY 2016-17, a notice u/s 142(1) of the Act was issued asking the assessee to furnish its return of income for the AY 2017-18, but there was no response from the assessee in this regard. Therefore, a show cause notice was issued to the assessee, which also resulted in non-compliance.

The Assessing Officer (‘AO’) therefore completed the assessment u/s 144 of the Act by treating the total credits amounting to ₹2,40,65,509/- in its bank account as the total turnover of the assessee. The net profit of the assessee was estimated @8% of the total receipts, which came to ₹19,25,400/- (8% of ₹2,40,65,509/-) for AY 2017-18.

Since the total turnover in this case was estimated at ₹2,40,65,509/- and sufficient & reasonable opportunities were provided to the assessee, but the assessee failed to get its accounts audited as required u/s 44AB of the Act, penalty proceeding u/s 271B of the Act were initiated for non-filing of the Audit report. The AO levied a penalty of ₹1,20,330/- u/s 271B of the Act.

Aggrieved, the assessee filed an appeal before the CIT(A), who, vide order dated 19.09.2025, dismissed the appeal of the assessee on the ground of non-prosecution.

Aggrieved, the assessee preferred an appeal the Tribunal, where it claimed that its income was exempt, being an Agricultural Produce Market Committee constituted under State law, which is entitled to full tax exemption under section 10(26AAB) of the Act. It was further contended that such an Agricultural Produce Market Committee or Regulated Market Committee is generally not required to undergo a tax audit under section 44AB or to file income tax returns for such exempt income, provided it is used for statutory purposes. The statutory audit, as specified under the relevant Act, was claimed to have been carried out.

HELD

The Tribunal held that, as per the third proviso to section 44AB, in a case where a person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes, by that date, the report of the audit as required under such other law and a further report by an accountant in the form prescribed under this section.

It held that the assessee was required to get the audit report u/s 44AB of the Act, in addition to the statutory audit carried out in this case, which had not been done. As regards the contention of the assessee that since its income was exempt, it was not liable for audit u/s 271B of the Act, the Tribunal held that a perusal of section 44AB as well as 271B of the Act shows that the requirement of audit and the penal consequence are dehors the findings of the assessment proceedings relating to computation of income, and the audit under section 44AB of the Act is required on the basis of turnover exceeding the prescribed threshold limit. Hence, despite the income being exempt, since the turnover had exceeded the specified amount for the purpose of getting the statutory audit done, the required audit report u/s 44AB of the Act on Form-3CD was required to be filed.

As regards the contention that the assessee had a reasonable cause for not getting the audit carried out, the Tribunal observed that no such reasonable cause was mentioned before it, except for stating that the income was exempt. Therefore, in the interest of justice and fair play, the Bench considered it appropriate to remand the matter to the CIT(A) for giving another opportunity to the assessee to present its case that it had a reasonable cause for not getting the audit done, who shall decide the issue as per law.

Validity Of Manually Filed Forms Where E-Filing Mandatory

This feature addresses the validity of manually filed tax forms where e-filing is mandatory. While the Gemini Communication case held a company’s manual return invalid due to strict regulatory mandates, other rulings like Shri Vasavi Gold & Bullion took a liberal view, asserting that procedural rules should not override statutory rights. Generally, courts treat e-filing as a directory requirement, accepting manual submissions if there is justification for technical difficulties or if the form is subsequently e-filed to ensure substantive justice is not denied on mere technicalities.

ISSUE FOR CONSIDERATION

Over the past couple of decades, the manner of filing of many income tax forms and returns has been converted from manual filing to electronic filing (e-filing). Such filings include income tax returns, tax audit reports, various certifications required under tax laws, income tax appeals to the Commissioner (Appeals), etc. In most such cases, e-filing is mandatory as per the Income Tax Rules, 1962.

It is, however, common to come across cases where a person files a return, etc., manually instead of through the mandatory e-filing/digital filing/uploading process. At times, the authorities ignore such filings, though made within time, resulting in denial of benefits attached to statutory compliance. Many a time, the person filing manually is not technology efficient, or has no access to the technology required for digital filing, or the power supply or internet connection is not available at that time, or the person is not conversant with the latest requirements.

The issue has arisen before the High Courts and Tribunal as to whether, when a return or form is filed manually before the due date, with e-filing done later belatedly, such manual filing is valid or not.

While the Madras, Bombay and Andhra Pradesh High Courts have taken a liberal view that such manual filing would be valid, recently, the Madras High Court has held that a manually filed income tax return was not valid, since the return was required to be e-filed.

The Paper Trail vs. the Digital Gate is manual tax filling still valid

SHRI VASAVI GOLD & BULLION’S CASE

The issue had come up before the Madras High Court in the case of CIT vs. Sri Vasavi Gold & Bullion (P) Ltd 278 Taxman 352.

In this case, pertaining to Assessment Year 2009-10, a reassessment order was passed under section 143(3) read with section 147 on 29th March 2016. The assessee filed an appeal in physical form before the Commissioner (Appeals) on 25th April 2016, within the time limit of 30 days. The appeal memorandum was kept pending in the office of the Commissioner (Appeals) till 12th December 2018.

On 13th December 2018, the Commissioner (Appeals) issued a notice to the assessee stating that, in terms of Rule 45 of the Income Tax Rules, 1962, with effect from 1st March 2016, it was mandatory to file appeals only by way of e-filing, for which the due date had been extended to 15th June 2016. The Commissioner (Appeals) proposed to treat the appeal as non est and called upon the assessee to state whether any appeal had been filed electronically; and if so, to bring it to the notice of the office of the CIT(A) immediately, along with a copy of such e-filed appeal within 10 days from the date of receipt of the said notice, failing which the manual appeal filed would be treated as invalid and disposed of accordingly.

The Commissioner (Appeals) noted that the show cause notice was served on the assessee, but the assessee neither filed the e-appeal nor replied to the notice. Hence, the Commissioner (Appeals) concluded that, in the absence of any material placed by the assessee to demonstrate that there was no negligence, inaction or lack of due diligence in not filing the e-appeal, sufficient cause had not been established by the assessee. Accordingly, the manual appeal filed by the assessee was dismissed in limine.

The assessee preferred a further appeal before the Tribunal, which was allowed, remanding the matter back to the Commissioner (Appeals) for denovo consideration and for disposal of the appeal on merits.

On appeal by the Revenue, before the High Court, , it was contended that the Tribunal erred in holding that the manual appeal filed by the assessee before the Commissioner (Appeals) was a valid appeal even where the e-appeal was not filed as mandated, and in remanding the matter back to the Commissioner (Appeals). It was argued that the Tribunal ought to have appreciated that Rule 45 of the Income-tax Rules mandated assessees to file only e-appeals with effect from 1st March 2016, which time limit was extended till 15th June 2016, only vide Circular No. 20/2016 dated 11th July 2016. It was also contended that the Tribunal ought to have held that the manual appeal filed by the assessee was non-est in view of the mandate under Rule 45 of the Rules. It was further submitted that the assessee could not plead ignorance of law, especially when assisted by professionals, and that there was no reason for the Tribunal to interfere with the order passed by the Commissioner (Appeals).

On behalf of the assessee, it was submitted that the manual appeal in Form No. 35 was filed well within the period of limitation; that the Commissioner (Appeals) did not intimate the assessee for over three years; and that only on 13th December 2018, was a notice issued, an aspect that was rightly taken note of by the Tribunal while upholding the validity of the manual appeal filed before the CIT(A) and allowing the appeal filed by the assessee.

The Madras High Court observed that there could be no quarrel with the proposition that once the statutory rules mandated a particular procedure requiring an appeal to be e-filed, the same should be filed in such manner, only and not in any other manner. The Court, however, noted the decisions of the Supreme Court wherein it was held that procedural rules are only handmaidens of justice, and if there is a failure to adhere to the procedure, and such failure is pitted against a statutory right of appeal, then such statutory right should not be abdicated or rejected on technical reasons.

Perusing CBDT Circular 20/2016, the High Court noticed that the CBDT had taken note of cases where taxpayers who were required to e-file Form 35 but were unable to do so due to lack of knowledge of the e-filing procedure and/or technical issues, among other reasons.

In order to mitigate the inconvenience caused to taxpayers on account of the new requirement of mandatory e-filing of appeals, the CBDT had extended the time limit for filing such e-appeals to 15th June 2016, and all e-appeals filed within this extended period were treated as appeals filed in time, provided the assessees filed such e-appeals within the extended period.

The High Court observed that the assessee had manually filed the appeal in Form No. 35 in the office of the Commissioner (Appeals) well within the time limit of 30 days. There were two options available to the office of the Commissioner (Appeals), first, to refuse to accept the manual filing citing Rule 45 of the Rules; or second, to receive the appeal and then return it to the assessee with a covering note stating that the relevant rule mandated e-filing of appeal with effect from 1st March 2016. However, the office of the Commissioner (Appeals) did not exercise either of these options and, therefore, the assessee was led to believe that the appeal had been accepted.

The assessee came to know that the manual appeal filed in Form No. 35 would not be entertained only when a notice was issued by the Commissioner (Appeals) after a period of three years. The show-cause notice clearly indicated that the office of the Commissioner (Appeals) was not aware as to whether the assessee had filed any appeal electronically. The facts clearly showed that, at the relevant point of time, the process of integration of manual and digital systems was not in place, as observed by the Court.

The High Court took note of the fact that in courts and tribunals, where a defective appeal is filed or an appeal is not properly presented, there exists a provision to regularize such defects, often upon payment of court fee. It further noted that where there is a lack of jurisdiction, appeal papers are immediately returned with a memo giving the party an opportunity to re-present them after rectifying defects. At the relevant time, in the present case, the office of the Commissioner (Appeals) did not have any such procedure in place to ease these difficulties.

The Madras High Court eventually held that that the manual appeal filed before the Commissioner (Appeals) should be decided on merits and not be dismissed on technical grounds, especially when the assessee was informed only after a period of three years that the manual appeal filed in Form No. 35 was not acceptable. The High Court was of the clear view that the right of appeal, being a statutory and valuable right, should not be denied on technicalities.

A similar view in favour of admitting appeals and forms filed manually has been taken by other High Courts as under:

1. The Bombay High Court, in the case of Nav Chetana Charitable Trust vs. CIT 169 taxmann.com 543, in the context of filing the option in Form 9A manually within time, and e-filing the form after a delay of 799 days.

2. The Bombay High Court, in the case of Borivli Education Society vs. CIT 304 Taxman 34, in the context of filing the audit report in Form 10B manually, which was e-filed only upon being informed of the requirement of uploading Form 10B electronically during the hearing of the rectification application filed  after receipt of intimation under section 143(1) rejecting exemption.

3. The Andhra Pradesh High Court, in the case of Electron Volt Renewables (P) Ltd 168 taxmann.com 378, in the context of filing an appeal to the Commissioner (Appeals) manually due to issues arising in affixing digital signatures for online filing.

GEMINI COMMUNICATION’S CASE

The issue came up again recently before the Madras High Court in the case of CIT vs. Gemini Communication Ltd 182 taxmann.com 197.

In this case, the assessee company filed a return of income manually for AY 2008-09 on 30th September 2008 and e-filed its return of income on 6th November 2008 belatedly. The assessment under Section 143(3) was passed on 31st December 2010, rejecting the deduction claimed under section 80-IC on the ground that the return filed electronically was belated, as the provisions of section 80AC required that, for the purpose of claiming deduction under section 80-IC, the return ought to have been filed in time.

The appeal by the assessee to the Commissioner (Appeals) was dismissed. On further appeal, the Tribunal allowed the appeal of the assessee, expressing the view that the scheme for electronic filing of returns of income has been framed only by the CBDT, and that there was nothing in the Act which made it mandatory for the assessee to file a return only electronically. The Tribunal remanded the case back to the AO to consider the deduction under section 80-IC of the Act as per law.

The Madras High Court observed that the issue in question boiled down to whether the assessee had an option to file its return of income manually. It examined the provisions of section 139 and noted that it did not specify the manner of filing of the return for it to be a valid. It then noted that Rule 12(3), inserted with effect from 14th May 2007, stipulated that all assessees, including companies, were required to file their returns of income electronically. The only option available to the assessee while e-filing was whether to digitally sign the e-return or submit a physical ITR V after e-filing of the return.

The High Court observed that there was no option, under the rule, for filing of a return manually, followed by an electronic return thereafter, especially, beyond the due date. The High Court also noted subsequent amendments to the Rules mandating almost all persons to e-file their returns.

The Madras High Court noted that, in the case before it, the assessee was a company, and in light of the prescription under Circular No.9/2006 dated 10.10.2006, which stated that “All corporate taxpayers are necessarily required to furnish the return for assessment year 2006-07 electronically after 24-7-2006. Thus, a company has to necessarily file e-return either under digital signature or in accordance with two step procedure explained in para 2 or in accordance with the Scheme mentioned at para 3(i). However, for other class of taxpayers, it is optional to furnish an e-return”, it became incumbent upon such assessee to file a return of income electronically following the procedure set out in that Circular. There was no further avenue available for a company to continue filing manual returns of income.

It was also pointed out on behalf of the Revenue that the company had e-filed its earlier two years returns. The High Court observed that the assessee was therefore not unaware of the procedure for submission of the e-return of income.

The High Court further observed that, while it was true that the impetus for the e-filing scheme emanated from the CBDT, there was nothing improper in that, as the CBDT is the apex body for streamlining and managing tax administration. Hence, there was no merit in the Tribunal’s conclusion that the CBDT had overridden statutory stipulations and rules. The necessary amendments to the Rules to enable such mechanisms had been made, and circulars were issued from time to time. The inception of the e-filing schemes was in the interest of administrative efficiency, and was a necessary incident of progress.

The Madras High Court allowed the appeal of the revenue, holding that the manually filed return was an invalid return, and therefore, the deduction claimed under such a return u/s 80IC was not allowable.

OBSERVATIONS

Generally, the Courts have found that the manual return and such other filings under the Act are valid, and that any claim made thereunder are allowable and not to be denied. In some cases, the courts have found the subsequent e-filings to be a factor that strengthens the case of the assessee filing manual return, forms, or reports, more so where difficulties in e-filing have necessitated such manual filings. Besides the decisions referred to above, in various cases where difficulties in e-filing have been pointed out by assessees, the High Courts have permitted manual filing of returns or forms. One may refer to the following cases:

Samir Narain Bhojwani vs. Dy CIT 115 taxmann.com 70 (Bom) – In this case, the Bombay High Court held that procedure of filing return of income cannot bar an assessee from making a claim which he is entitled to. The Court directed the assessee to make an application to the CBDT and, in the meantime, to file the return in electronic form as well as in paper form with the AO and return of income would be taken up for consideration only after the decision of CBDT.

Cosmo Films Limited [TS-282-HC-2019(DEL)] – In this case, the Delhi High Court directed the CBDT to either allow assessee (claiming Sec.10AA deduction) to file return of income manually or alter online utility to enable the assessee to file the return claiming the carry forward of losses of its ineligible unit. The High Court took note of the decision of the Madras High Court in Tara Exports vs. Union of India 98 taxmann.com 363 and observed that ‘when faced with the situation of a software glitch that prevents an Assessee from either filing a return or claiming a benefit, the Courts have repeatedly had to permit the manual filing of return/claims and have directed the Respondents to act on such manual filing of returns.’

Shyam Century Ferrous Ltd vs. ACIT ITA No 1 of 2025 dated 26.6.2025 (Meghalaya HC) – In this case, the Tribunal had held that a mistake could be corrected by filing a revised return and had directed CPC/AO to consider the revised return, if filed. The assessee approached the High Court for directions as it was unable to e-file the revised return, which was mandatory. The Department conceded, and the High Court directed that the CPC/AO would accept the revised returns filed manually/physically, for due consideration.

In Gemini Communication’s case, from a reading of both the High Court’s order and that of the Chennai bench of the Tribunal (144 ITD 634), the facts are not clear as to what was the difficulty that prompted the assessee to file a manual report before the due date and then subsequently e-file an identical return. No such difficulty appears to have been brought to the notice of either Tribunal or the High Court, which necessitated the filing of the manual return.

The only argument taken up seems to have been that the CBDT exceeded its powers in requiring e-filing. This contention, though valid, did not appeal to the court, which, without providing reasons for not accepting it, held in favour of mandatory e-filing of the return.

One aspect that had been appreciated by the Tribunal in Gemini Communication’s case, was that filing of return electronically was a directory requirement and, if the return is filed manually on or before due date, such return should not be ignored. The Tribunal observed that, at most, the AO could have done was require the assessee to file the return again electronically so that the technical requirement of processing was satisfied.

The Madras High Court does not seem to have addressed this aspect of directory versus mandatory requirement while deciding the appeal and instead considered only whether the CBDT requirement was in accordance with the Rules Importantly, the Court did not consider its own ruling in Shri Vasavi Gold & Bullion’s case, which, if cited, may have led the court to decide differently.

There have been a number of decisions where Courts have taken a view that filing of a form was mandatory, but that the time limit laid down in the rules for such filing is a directory requirement, and have therefore accepted belated filing of the form. Similarly, violation of the procedure for e-filing is, in substance, violation of a directory requirement, and not a mandatory requirement, particularly where the return is otherwise complete in all respects. When the same return is subsequently e-filed, that should constitute sufficient compliance with the requirement, particularly in cases where there is adequate justification for not being able to e-file the return.

The better view therefore seems to be that if a return or form is filed manually instead of being e-filed, it will still be valid filing. Where the same return or form is subsequently e-filed, there would certainly be a strong case for accepting the manual filing, particularly where there is a valid justification for the inability to e-file the return or form.

Glimpses Of Supreme Court Rulings

1. Dr. Doma T Bhutia vs. UOI

(2025) 481 ITR 501 (SC)

Exemption – Sikkimese Persons – The definition of the term “Sikkimese” under section 10 clause (26AAA) of Explanation (v) of the Income-tax Act, 1961, by the Finance Act 2023, is only for the purpose of the Income-tax Act, 1961, and not for any other purpose

A writ petition had been filed by a designated Senior Advocate, Dr. Doma T. Bhutia, as a Public Interest Litigation (PIL) before the High Court of Sikkim, Gangtok, challenging the vires to Explanation (v) contained under clause (26AAA) of section 10 of the Income Tax Act, 1961, which was introduced by way of amendment in terms of the Finance Act, 2023, insofar as it dealt with the definition of the term “Sikkimese”. According to the writ petitioner, this amendment to the definition of the term “Sikkimese” under section 10 clause (26AAA) of Explanation (v) of the Income-tax Act, 1961, by the Finance Act2023, was in violation of Article 371F(k) of the Constitution of India. According to the writ petitioner, it was the responsibility of the State of Sikkim to ensure protection of the old laws, including their preservation/protection, as provided under Article 371F(k) of the Constitution of India, in public interest.

The High Court dismissed the writ petition in view of the clarification provided as per the “Press Release” dated 04th April, 2023, namely, that the term “Sikkimese” defined for the purpose of clause (26AAA) of section 10 of the Income-tax Act, 1961, by the Finance Act, 2023, was only for the purpose of Income-tax Act, 1961, and not for any other purpose.

The Supreme Court noted that the Explanation to Section 10 (26AAA) of the Income-tax Act, 1961, had been amended pursuant to its judgment in W.P. (C) No.59 of 2013 [Association of Old Settlers of Sikkim and Ors. vs. Union of India and Anr.].

Learned counsel for the petitioner submitted before the Supreme Court that the term “Sikkimese” has been expanded by virtue of the amendment and, therefore, the identity “Sikkimese” people has been lost.

The Supreme Court did not accept the said contention, as according to the Supreme Court, the expression “Sikkimese” has been defined only for the purpose of the Explanation which is to Section 10 (26AAA) of the Income-tax Act, 1961.

According to the Supreme Court, if the Parliament, in order to grant a benefit, has expanded the scope of the expression “Sikkimese” under the Explanation to Section 10 (26AAA), the petitioner could have no grievance as that is a matter of policy and the Parliamentary intent.

The Supreme Court however, observed that the expression “Sikkimese” is expanded only for the purpose of grant of benefit to such persons who come within the scope of the Explanation to Section 10 (26AAA) and not for any other purposes as such. Hence, there was no reason to entertain this Writ Petition any further. The Writ Petition was, accordingly, disposed.

The Supreme Court went further to suggest that the Union of India may also issue a formal notification with regard to what has been stated in the press release if not already issued.

2. PCIT vs. Indo Rama Synthetics (I) Ltd

(2025) 481 ITR 660 (SC)

Reassessment – When records (reasons of reopening the assessment) could not be produced before the High Court despite its directions, it could not be demonstrated that findings returned by CIT and the Tribunal were perverse qua the objections and in such circumstances, the High Court had no option but to dismiss the appeal of the Revenue.

Reopening of assessment was questioned by the assessee on multiple grounds including that (i) reasons-recorded for initiating the proceedings were never furnished to the assessee; (ii) there was no suppression of information; (iii) consequent to the amendment, vide Finance Act, 2008, assessee filed a revised return including the amount debited towards deferred tax for the purposes of Section 115JB; (iv) objection to reopening of concluded assessment was not disposed of; and (v) there cannot be reopening of assessment on mere change of opinion.

The objections raised by the assessee to the reopening of the assessment were sustained by the CIT while allowing the appeal(s) vide order dated 30.06.2011, and the appeal(s) preferred by Revenue were dismissed by the Tribunal vide order dated 31.01.2018.

In the course of the appeal preferred by the Revenue against the order of the Tribunal, the High Court directed the Revenue to produce a copy of the ‘reasons to believe’ recorded, and the original order under Section 143(3) of the Income Tax Act, 1961. This was obviously to test the correctness of the findings returned by the CIT and the Tribunal. Those records were, however, not produced by the Revenue despite repeated opportunities on a lame excuse that the records are not traceable. In such circumstances, the High Court concluded that Revenue is not interested in pursuing the appeal and the appeal was, accordingly, dismissed by the impugned order.

On 20.11.2019, the Supreme Court issued a limited notice on the question whether, on mere non-filing of the relevant document, the High Court ought to have drawn an adverse inference on the Revenue’s appeal.

The Supreme Court, having regard to the reasons recorded in detail by the CIT and the Tribunal, was of the view that the direction to produce the records was to test the correctness of the findings returned by the CIT and the Tribunal. When records could not be produced, it could not be demonstrated that findings returned by CIT and the Tribunal were perverse qua the objections. In such circumstances, the Supreme Court was of the view that the High Court had no option but to dismiss the appeal, though it could have desisted from observing that the Revenue was not interested in pursuing the appeal.

According to the Supreme Court, in any view of the matter, the fact remained that in the absence of relevant materials, the findings returned by CIT, affirmed by the Tribunal, were not liable to be interfered with. Consequently, the Supreme Court did not find merit in this appeal. The same was, accordingly, dismissed.

Notice and assessment order passed, in the name of a non-existent entity – scheme of amalgamation – Department intimated.

JSW Steel Coated Products Limited vs. National Faceless Assessment Centre (Assessment unit) & Ors.

[Writ Petition No. 4296 of 2024 dated : 4th March, 2026 (Bombay High Court) ] Assessment Year 2022-23

Notice and assessment order passed, in the name of a non-existent entity – scheme of amalgamation – Department intimated.

The Petitioner (‘JSW Steel Coated Products Limited’) is a company incorporated under the Companies Act, 1956, engaged in the manufacturing of steel, including special steel products. Vide Order dated 19.05.2023, the National Company Law Tribunal (NCLT) approved the scheme of amalgamation of JSW Vallabh Tinplate Private Limited (“erstwhile/transferor company’) with the Petitioner, whereby the former company got amalgamated into the Petitioner. Pursuant to the NCLT Order, Form No. INC-28, being notice of the order of the Tribunal, was filed with the Registrar of Companies (‘RoC’) on 26.06.2023.

Pursuant to the amalgamation, the Petitioner, vide its letter dated 29.06.2023, duly communicated to the Authorities the amalgamation of the erstwhile/transferor company, namely ‘JSW Vallabh Tinplate Private Limited’ (hereinafter referred to as“JSW Vallabh Tinplate”)

For A.Y. 2022-23, Respondent No.1 issued a Notice dated 02.06.2023 under Section 143(2) of the Act in the name of JSW Vallabh Tinplate, intimating that its case has been selected for faceless scrutiny. Further, despite the fact of amalgamation being duly communicated by the Petitioner, Respondent No.1, vide Notice dated 18.10.2023, proceeded with the assessment proceeding against JSW Vallabh Tinplate on its PAN, in terms of Section 143(2) and 144B of the Act for A.Y. 2022-23

Respondent No.1 without considering the preliminary objection of the Petitioner that JSW Vallabh Tinplate was not in existence, proceeded with the issuance of further notices dated 27.01.2024 and 07.02.2024 in the name of JSW Vallabh Tinplate, in terms of Section 142(1) of Act, seeking production of various accounts/ documents/ information. The Petitioner, thereafter, vide its letter dated 08.02.2024, once again requested Respondent No.1 not to proceed with the assessment proceedings in light of the fact that JSW Vallabh Tinplate was no longer in existence.

Subsequently, Respondent No. 1 issued a show cause notice dated 01.03.2024 in the name of JSW Vallabh Tinplate. The Petitioner, vide its letter dated 06.03.2024, responded to the said notice under its own name and seal.

Respondent No.1, thereafter, passed the Assessment Order on 21.03.2024 under Section 143(3) of the Act in the name of ‘JSW Vallabh Tinplate Private Limited’ in respect of AY 2022-23. Further, the Notice of demand under Section 156 of the Act and the notice for initiating the penalty proceedings were also issued in the name of ‘JSW Vallabh Tinplate Private Limited’.

The Petitioner contended that upon a scheme of amalgamation being sanctioned, the amalgamating company/transferor company ceases to exist in the eyes of law, as held by the Hon’ble Apex Court in the case of Saraswati Industrial Syndicate Ltd vs. CIT [(1990) 53 Taxman 92 (SC)] and PCIT vs. Maruti Suzuki India Ltd. [(2019) 107 taxmann.com 375 (SC)]. Once, such a transferor company ceases to exist, it cannot fall within the definition of a ‘person’ as defined under Section 2(31) of the Act. Consequently, no proceedings can be conducted in respect of a ‘person’ that no longer exists. Thus, the notices and the impugned Assessment Order, having been issued in the name of a non-existent entity, were void ab initio and bad in law.

The Respondent, relying upon the Affidavit in Reply dated 31.07.2025, submitted that the initiation as well as completion of the assessment proceedings were valid in law, and the assessment would not be rendered invalid merely because it was framed in the name of JSW Vallabh Tinplate. In support of the above, the Revenue placed reliance on the decision of the Hon’ble Supreme Court in Principal Commissioner of Income Tax vs. Mahagun Realtors (P) Ltd. [(2022) SCC OnLine SC 407] and the decision of Hon’ble Madras High Court in the case of Vedanta Limited vs. DCIT [(2021) 438 ITR 680 (Mad)].

The Hon. Court observed that it is an undisputed fact that the Petitioner had made Respondent No. 1 aware about the amalgamation of “JSW Vallabh Tinplate Private Limited” with the Petitioner during the assessment proceedings for A.Y. 2022-23. Despite the aforesaid, Respondent No.1 issued Notices under Section 142(1) in the name of JSW Vallabh Tinplate; proceeded to issue the Show Cause Notice in the name of JSW Vallabh Tinplate; and ultimately even passed the assessment order, issued notice of demand under Section 156, and issued a penalty notice, all in the name of JSW Vallabh Tinplate.

The Hon. Court observed that the issue regarding the invalidity of a notice issued to a non-existent entity was no longer res integra and was covered by the decision of the Hon’ble Supreme Court in Principal Commissioner Income Tax vs. Maruti Suzuki India Ltd. (supra).

The Court further observed that the decision in Mahagun Realtors (P) Ltd. (supra) must be appreciated bearing in mind the peculiar facts and circumstances of that case, including the conduct of the assessee therein. It was those facts which appear to have weighed upon the Supreme Court to hold against the assessee. The present case was clearly distinguishable from the facts in the case of Mahagun Realtors (P) Ltd. (supra) because (i) in that case, there was no intimation by the resultant company i.e., Mahagun India Pvt. Ltd., regarding the amalgamation of Mahagun Realtors (P) Ltd. into it, to the Income Tax Authorities; (ii) the Assessment Order was made in the name of both the amalgamating company and the resultant company; and (iii) the resultant company also participated in the assessment proceeding holding itself out as the amalgamating company.

The Hon. Court noted that the Petitioner had, at the very threshold, objected to the continuation of the assessment proceeding in the name of a non-existent entity and had consistently maintained such objection throughout. Hence, the decision rendered by the Hon’ble Supreme Court in Mahagun Realtors (P) Ltd. (supra) was wholly inapplicable to the factual situation in the present matter.

The Hon. Court further distinguished the decision of the Hon’ble Madras High Court in the case of Vedanta Limited (supra) wherein the error pertained to multiple changes of the name of an existing company without any change in the PAN, and a corrigendum was also issued to rectify the error, after which the proceedings were continued. However, in the present case, the assessment has been framed in the name, and PAN, of a company which had admittedly ceased to exist upon amalgamation. The said decision in Vedanta Limited (supra) was therefore, held to be distinguishable.

The Hon. Court held that Respondent No.1 has committed a jurisdictional error by issuing notices and passing the Order of Assessment in the name of a non-existent entity. It was no longer res integra that proceedings undertaken in the name of a non-existent entity are void. The Hon. Court relied on the case of J. M. Mhatre Infra Pvt. Ltd. (Erstwhile J M Mhatre, Partnership firm) vs. UOI [WPL 16514 OF 2023 decided on 16.12.2025] and Paras Defence and Space Technologies Ltd. vs. Deputy Commissioner of Income Tax 15(1)(1) and Others [Writ Petition No.4934 of 2022 decided on 27th January 2026].

Thus, the impugned notices issued under Section 142(1), the Show Cause Notice issued on 01.03.2024, the impugned Order of Assessment passed under Section 143(3) read with Section 144B dated 21.03.2024, and the consequential notice issued raising a demand under Section 156, as well as the penalty notice issued under Section 274 read with Section 270A, all being in the name of a non-existent entity [i.e. JSW Vallabh Tinplate], were held to be void and bad in law.

Stay Application – Pendency of Appeal before CIT(A) – Addition made based on statement recorded of third party which was retracted – Assessee salaried employee – unconditional stay granted and attachment on bank account lifted.

1. Hoshang Jamshed Mohta vs. Income Tax Officer Ward 42(2)(3) & others

[Writ Petition (L) no. 4937 of 2026 dated 23/2/2026 BOMBAY HIGH COURT) A. Y. 2022-23 :

Stay Application – Pendency of Appeal before CIT(A) – Addition made based on statement recorded of third party which was retracted – Assessee salaried employee – unconditional stay granted and attachment on bank account lifted.

During the year under consideration, the Petitioner sold ancestral land admeasuring 4,775 sq. mtrs. in Vesu, Surat, Gujarat to Bhavya Developers (a partnership firm) on 18th October, 2021 for a consideration of ₹10 Crores. This was done by a Registered Conveyance Deed, on which the requisite stamp duty on the value of ₹10 Crores was also paid.

The Petitioner invested a part of the sale consideration in a residential property and purchased a Flat in Mumbai on 20th December, 2021 from Keystone Realtors Pvt. Ltd. for ₹5,27,00,000. The Petitioner claimed deduction of ₹5,03,06,880/- under Section 54F of the Act, and offered the balance to tax as Long Term Capital Gains on the sale of land.

During the course of the scrutiny assessment proceedings, Respondent No.3 issued notice under Section 142 (1) of the Act, seeking details on 7 issues, which included a working of capital gains. It was stated that during the course of a search under Section 132 on 3rd December, 2021 on M/s. Sumangal Safe Deposit Vault LLP and a group key member, Mahendra Champaklal Mehta, certain incriminating documents and material were found. It was, therefore, alleged that the Petitioner had sold one immovable property for a consideration of ₹54,02,80,000/- and received ₹44,02,80,000/- in cash. This was duly replied to by the Petitioner.

Finally, the Assessing Officer passed the Assessment Order under Section 143(3) of the Act, not only denying the Petitioner’s deduction of capital gains under Section 54F, but also adding ₹44.02 Crores to his income under Section 69A of the Act.

Being aggrieved by this Order, the Petitioner preferred an Appeal before the CIT(A), which was pending. The Stay Application filed by the Petitioner had been dismissed by the Assessing Officer, and an attachment had also been levied on the petitioner’s bank account.

The Petitioner approached the Hon. Court seeking a stay of the entire demand and release of the attachment on the bank account till the disposal of the appeal filed by the Petitioner before the CIT(A).

The Hon. Court observed that, in the facts of the present case, a case was made out for an unconditional stay. According to the Revenue, the Petitioner had received a total sum of ₹54.02 Crores for the sale of his ancestral property in Surat, out of which ₹44.02 Crores was received in cash. This was primarily based on the statement of Mr. Mahendra C. Mehta made during the search proceedings conducted under Section 132 of the Act. From the record, it was also clear that the aforesaid statement has thereafter been retracted by the said Mahendra C. Mehta vide his Affidavits dated 8th December, 2021 and 11th March, 2024 respectively.

On these facts, and considering that the amount sought to be added to the income of the Petitioner was four times the sale price of the property, the Hon. Court granted unconditional stay of the demand. The Court had noted that the Petitioner stated in his application seeking a stay that he did not have the means to deposit even 20% of the demand, which amounted to approximately to ₹9 Crores. The Petitioner was a salaried employee of Godrej & Boyce Manufacturing Co. Ltd., and it would not be possible for him to deposit such a huge amount.

The Hon. Court set aside the impugned Order dated 22nd December, 2025 and directed that, till the Appeal filed by the Petitioner against the Assessment Order is heard by the CIT(A), any demand arising out of the Assessment Order shall remain stayed. The Court also directed that the lien marked on the petitioner’s bank account shall be forthwith lifted, and the Petitioner shall be entitled to operate the bank account as if there was no lien marked.

A. TDS — Certificate for deduction at lower rate u/s 197 — Validity — Certificate is valid for the assessment year specified in the certificate unless cancelled earlier — Effective throughout the assessment year and not prospectively from the date of certificate. B. Assessee in default u/s. 201(1) — Since certificate operates for the entire assessment year the assessee cannot be deemed as assessee in default — Consequent interest u/s. 201(1A) is unjustified.

5. CIT(TDS) vs. National Highways Authority of India: 2026

TMI 338 – MP:

A. Y. 2009-10: Date of order 06/03/2026:

Ss. 197 and 201 of ITA 1961:

A. TDS — Certificate for deduction at lower rate u/s 197 — Validity — Certificate is valid for the assessment year specified in the certificate unless cancelled earlier — Effective throughout the assessment year and not prospectively from the date of certificate.

B. Assessee in default u/s. 201(1) — Since certificate operates for the entire assessment year the assessee cannot be deemed as assessee in default — Consequent interest u/s. 201(1A) is unjustified.

One SECCL entered into a contract with the assessee for the development of national highways. The assessee made a payment to SECCL after deducting tax at source u/s. 195 of the Income-tax Act, 1961 at marginal rates mentioned in the order of the Assessing Officer passed u/s. 197 for different assessment years.

The assessee was treated as the person responsible for making payments to the foreign contractor, deducting tax at source and filing a return u/s. 206 of the Act. On verification, it was noticed that the assessee had made payment of a contract worth of ₹19,61,36,514/- to the deductee company from 01/04/2008 to 30/06/2008 without proper deduction of tax at source. Upon issuance of notice, the assessee filed an explanation that the payments were made with a lower deduction of tax at source because of the order issued u/s. 195/197 by their Assessing Officer on 30/06/2008 for the F.Y. 2008-09.

The Assessing Officer opined that the payments were made by the assessee for a sum of ₹19,61,36,513/- for the period from 10/04/2008 to 24/06/2008, when no certificate for non-deduction of tax at source was in force, meaning thereby, at the time of making such payment or crediting such payment, there was no certificate. The certificate dated 30/06/2008 came into effect from the date of its issuance. Therefore, the period prior to 30/06/2008 suffered a lower deduction of tax at source than the rate prescribed under the Act. The Assessing Officer, passed an order dated 04/03/2011, assessed ₹31,03,54,504/- as total default of TDS and imposed the interest and directed for initiation of proceedings for penalty, in total of ₹41,89,78,580/-.

The CIT(A) dismissed the appeal filed by the assessee. The Tribunal allowed the appeal and held that the assessee was not an assessee in default as contemplated u/s. 201 of the Act.

The Madhya Pradesh High Court admitted the appeal filed by the Department on the following substantial questions of law:-

“1. Whether on the facts and in the circumstances of the case, the ITAT was justified in law inholding that the assessee could not be held to be assessee in default u/s 201(1)? and 201(1A) of the Act and thereby granting the relief?

2. Whether, on the facts and in the circumstances of the case, the ITAT was justified in law in deleting the interest levied u/s 201(1A) of the Act, while failing to appreciate that the deductor cannot consider the assessment status of the deductee unless and until a certificate u/s 197 of the Act is granted by the Assessing Officer?”

The High Court dismissed the appeal filed by the Department and held as follows:

“i) It is clear from the language of Section 197 that if the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income tax at any lower rate or no deduction of income tax, as the case may be, the Assessing Officer shall on an application made by the assessee in his behalf, give him such certificate as may be appropriate. Under Sub-section (2), where any such certificate is given, the person responsible for paying the income tax shall deduct the income tax at the rate specified in such certificate unless the same is cancelled by the Assessing Officer throughout the assessment year. As per sub-rule (2) of Rule 28AA, the certificate shall be valid for the assessment year to be specified in the certificate, unless it is cancelled at any time before the expiry of the specified period. The assessment in income tax is always for the entire assessment year. Every provision of the Income Tax Act is liable to be applied for a particular assessment year. Even the tax liabilities are fixed on the assessee for the entire assessment year.

ii) As per the proviso to Section 201, any person, including Principal Officer or Company, shall not be deemed to be an assessee in default in respect of such tax, if he furnishes a certificate to this effect from the accountant in such form. In view of the above, the question of law No.1 is answered against the revenue that the respondent cannot be held as an assessee in default u/s. 201 and Section 201(1A).

iii) And so far as the question of law No.2 is concerned, the ITAT was justified in deleting the interest levied u/s. 201(1A) of the Act because the assessee had certificate u/s. 197 for an entire assessment year.”

A. Reassessment — Income escaping assessment — Audit Objections — Relevant details submitted and on record before the AO during original assessment — It amounts to review of assessment — Re-considering of same material to arrive at different conclusion cannot be permitted — Re-opening of assessment bad-in-law. B. Reassessment — Time limit for issuance of notice for A. Y. 2016-17 — Time limit of four years from the end of the relevant Assessment Year applicable prior to 01/04/2021 — Notice u/s. 148 issued on 31/03/2023 — Beyond a period of four years — First proviso to section 149 — No notice could have been issued under the pre-amended provisions — Notice and subsequent proceedings barred by limitation.

4. Sapphire Foods India Ltd. vs. ACIT:

(2026) 183 taxmann.com 506 (Del.):

A.Y.: 2016-17: Date of order 16/02/2026:

Ss. 147, 148, 148A and 149 of ITA 1961:

A. Reassessment — Income escaping assessment — Audit Objections — Relevant details submitted and on record before the AO during original assessment — It amounts to review of assessment — Re-considering of same material to arrive at different conclusion cannot be permitted — Re-opening of assessment bad-in-law.

B. Reassessment — Time limit for issuance of notice for A. Y. 2016-17 — Time limit of four years from the end of the relevant Assessment Year applicable prior to 01/04/2021 — Notice u/s. 148 issued on 31/03/2023 — Beyond a period of four years — First proviso to section 149 — No notice could have been issued under the pre-amended provisions — Notice and subsequent proceedings barred by limitation.

The assessee is a company. In the original assessment for AY 2016-17, an addition of ₹24,80,39,169 was made u/s. 56(2)(viib) of the Income-tax Act, 1961 on account of premium charged in excess of the fair market value of the shares by adopting book value instead of the DCF method adopted by the Assessee. The appeal filed before the CIT(A) was partly allowed and the second appeal before the Tribunal was pending for orders.

Meanwhile, on 22/03/2023, show cause notice u/s. 148A(b) was issued along with scanned copy of the audit objections raised by the local audit party informing that there was information in possession which suggests that income chargeable to tax for A. Y. 2016-17 has escaped assessment and the assessee was called upon to show cause why notice u/s. 148 of the Act should not be issued.

The audit objections provided along with the show cause notice contained two reasons for re-opening of assessment. The first reason being that the total amount of premium was ₹30,23,74,146 and premium disallowed in the original assessment was only ₹24,80,39,16 and the balance premium of ₹5,43,34,977 was not disallowed. Thus, there was escapement of income. The second reason for re-opening of assessment pointed out by the audit party was that there was no justification why huge bonus was paid by the assessee to its MD / shareholders in the first year when the turnover of the company was negligible. The expenses were not allowable as business expense.

The Assessee filed its response. Based on the response filed by the Assessee, the re-opening of assessment on the first issue regarding share premium was dropped. However, as regards the second issue, the conclusion of the audit party was adopted by the Assessing Officer.

The assessee filed petition before the High Court challenging the order passed u/s. 148A(d) and the notice issued u/s. 148 of the Act. The Delhi High Court allowed the petition and held as follows:

“i) We are of the view that reopening the assessment on the basis of the objections of the Audit Party, shall in the above facts, amount to reviewing the assessment already made, as the relevant material was available with the assessing officer during that assessment. It is necessary to draw a distinction between a case where the assessee failed to provide some material /information during the assessment, which was flagged by the Audit Party, as against a case where all information was provided by the assessee, but was not considered or commented upon by the Assessing Officer in the assessment order, resulting in a subsequent audit objection. The latter cannot be subject matter of reassessment, as it shall have the effect of reconsidering the same material to arrive at a different conclusion, which cannot be permitted. The attempt of the Revenue to now hold that the amounts are chargeable to tax certainly amounts to a change of opinion, which cannot be sustained.

ii) It is trite law that the Revenue can reopen assessments based on audit objections to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of the Act. In fact, Clause (ii) to Explanation 1 of Section 148 of the Act, which was incorporated into the Act by virtue of the Finance Act, 2022 empowers the Assessing Officer to issue notice reopening the assessment when audit objections suggests that income has escaped assessment. However, the first proviso to Section 148 states that no notice shall be issued under the provision, unless the Assessing Officer has information with him which suggests that income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year. The question that arises now is whether notice can be issued u/s. 148, notwithstanding the fact that the issue flagged by the Audit Party was subject matter of examination in the assessment proceedings and a final decision in terms of an assessment order. We are of the view that the mere fact that objections were raised by the Audit Party cannot change or expand the nature of the power vested in the Assessing Officer to assess/reassess the income of the assessee to a power to review an already concluded assessment.

iii) It is clear that the audit objection pointing out that there is no justification available in the file as to why the amounts were paid, cannot be said to be ‘information’ for the respondent to initiate reassessment proceedings, when the Assessing Officer was in possession of the information and necessary documents at the time of the assessment proceedings. As such, the impugned action of the respondents is unsustainable.

iv) In the present case, the assessee had made a return of its income on 18/10/2016 for the relevant assessment year and had provided all necessary material for its assessment. As such, the extended period of six years for reopening the assessment would not be available to the Revenue u/s. 147 of the Act as it existed prior to April 1, 2021. The period of limitation is thus, four years from the end of AY 2016-17. It is a matter of record that the notice u/s. 148 has been issued on 31/03/2023, which is beyond the said period of four years. Therefore, in view of the first proviso to Section 149 of the Act, no notice could have been issued u/s. 148, as no such notice could have been issued under the provisions that were in force prior to April 1, 2021. We hold that the notice dated 31/03/2023 and the subsequent proceedings are barred by limitation.

v) We are of the view that the impugned notice and order, both dated 31/03/2023 need to be set aside. The assessment proceedings initiated pursuant to the same also need to be quashed. We order accordingly.”

Provisional attachment of property — Powers u/s. 281B — Power must be exercised cautiously — Before attachment authorities must examine whether assessee is a regular taxpayer — Mere reliance on factors such as bank loans or hypothetical future demand is incorrect — Attachment without objective satisfaction is impermissible.

3. ARL Infratech Limited vs. DCIT:

2026 (3) TMI 495 – Raj.:

A. Ys. 2021-22 to 2026-27: Date of order 06/03/2026:

S. 281B of ITA 1961:

Provisional attachment of property — Powers u/s. 281B — Power must be exercised cautiously — Before attachment authorities must examine whether assessee is a regular taxpayer — Mere reliance on factors such as bank loans or hypothetical future demand is incorrect — Attachment without objective satisfaction is impermissible.

A search was conducted at the premises of the assessee and assessment order was passed and on the basis of the appraisal report, Investigation Wing made an addition of ₹4.40 lakhs. The assessee filed an appeal before the CIT(A) which is pending.

The Assessing Officer issued notice u/s. 148 of the Act for A. Ys. 2021-22, 2022-23 and 2024-25 and on the basis of apprehension that demand of ₹1.30 crores may be created for A. Ys. 2022-23 and 2024-25, a provisional attachment order was passed by the Assessing Officer exercising powers u/s. 281B of the Income-tax Act, 1961 making a provisional attachment of the industrial plot which was owned by the assessee.

The Assessee challenged the said provisional attachment order before the Rajasthan High Court by way of a petition. The Assessee, inter alia, submitted before the High Court that it had paid ₹45.43 crores for the A. Ys. 2021-22 to 2026-27 and that the attachment was contrary to the guidelines laid down by the CBDT vide Circulars and OM dated 29/02/2016 and 31/07/2017. Further, due to the past record of the assessee, there was no basis to conclude that there was a possibility of non-payment of demand.

The High Court allowed the petition and held as follows:

“i) While Section 281B of the Act of 1961 gives unequivocal power to the authority to put the properties under attachment, the Hon’ble Apex Court has time and again held that such power has to be exercised by taking into consideration all the aspects as noticed in the case of Radha Krishan Industries (supra) and the contentions prescribed in the statute must be strictly fulfilled. Once such provision has to be treated as draconian in nature, in the opinion of this Court, the minimum requirement is to give an opportunity to the concerned assessee to make the payment or part of it as required in the Office Memorandum issued by the CBDT. A presumption cannot be drawn that the assessee would not make the payment. Principles of natural justice to that extent would be inherent as the civil rights are likely to be harmed, if action is taken u/s. 281B of the Act of 1961

ii) Before invoking power u/s. 281B of the Act of 1961, the authorities must examine whether the assessee before it is a person who has been a regular tax payer. Merely because he may have taken loan from the Bank for his business, may not be the only sufficient ground to attach the properties. Such attachment, even if provisional, creates a sense of apprehension and fear in the minds of bankers who are giving loans to the concerned units for their businesses. Their public reputation is seriously hampered. Therefore, invoking of such provision has to be done by exercising great caution and care and so as not to harm the reputation of an honest income tax payer.

iii) Even if a demand is raised, the same can be challenged in appeal and maximum amount to be deposited for settling the remaining demand is 20% of the said demand. In the present case, demand of ₹1,30,11,024/- has been provisionally assessed and as of today even the demand has not been raised. Therefore, issuing of provisional attachment order would be wholly unjustified and would go contrary to the purpose sought to be achieved.

iv) We, therefore, disapprove the approach adopted by the respondents and set aside the order of attachment dated 01/01/2026. However, we direct the petitioner-assessee to deposit 20% of the demand, provisionally assessed, with the authorities within a period of one week.

v) It is made clear that, ultimately, if the demand is found to be unjustified or deserves to be reduced or waived, the amount as directed by us to be deposited, shall be refunded with interest to the assessee.”

Collection and recovery of tax — Company —Recovery from director of the Company — Attachment of the Bank Account of the wife of the Director — Unjustified — S. 179 is applicable to the Director of the Company — Cannot be extended to the wife of the Director of the Company.

2. Manjulaben Mafatlal Shah vs. TRO:

(2026) 183 taxmann.com 746 (Bom.):

Date of order 17/02/2026:

Ss. 226 r.w.s. 179 of ITA 1961:

Collection and recovery of tax — Company —Recovery from director of the Company — Attachment of the Bank Account of the wife of the Director — Unjustified — S. 179 is applicable to the Director of the Company — Cannot be extended to the wife of the Director of the Company.

A notice u/s. 226(3) was issued upon the Assessee attaching the bank account of the Assessee in respect of liability of one Shri Ram Tubes Private Limited. The Assessee was the wife of the Director of the said Shri Ram Tubes Private Limited and she had nothing to do with the company. She was neither the Director, nor the Shareholder nor the employee of the said company. In view of the facts, it was the contention of the Assessee that the Department did not have the power to attach the bank account of the Assessee which stood in her sole name.

The Assessee challenged the notice and the action of the Department by way of writ petition filed before the Bombay High Court. The High Court allowed the petition and held as follows:

“i) The factual position has not been disputed by the revenue. It is not the case of the revenue that the petitioner was ever a director of the company, and against whom an income tax liability arises.

ii) Once this is the case, the Income Tax Department cannot attach the bank account of the Petitioner, and which stands in her sole name, only on the basis that she is the wife of a Director of Shri Ram Tubes Private Limited. Though the Income Tax Department may probably be able to proceed against the Petitioner’s husband by invoking provisions of Section 179, the same is wholly inapplicable to the Petitioner.”

Assessment — Validity of assessment order — Revised return filed within time — Revised return filed during pendency of scrutiny proceedings based on an audit objection — Assessment order passed based on the original return — CIT (Appeals) annulled the assessment order — Tribunal, proceeding on the erroneous basis that revised return was filed beyond period of limitation, set aside order of CIT (Appeals) and restored matter to the AO — High Court held that where revised return filed is validly filed, the assessment order cannot be passed on basis of the original return — Once a revised return is filed, original return stands obliterated — Assessment order set aside, order of CIT (Appeals) modified, and matter remitted to the AO — AO directed to determine taxable income on the basis of revised return.

1. Tripura State Electricity Corporation Ltd. vs. Principal CIT: (2026) 484 ITR 405 (Tri): 2025 SCC OnLine Tri 552:

A. Y. 2013-14: Date of order 14/08/2025:

Ss. 139(1), (5) and 143(2), (3) of ITA 1961:

Assessment — Validity of assessment order — Revised return filed within time — Revised return filed during pendency of scrutiny proceedings based on an audit objection — Assessment order passed based on the original return — CIT (Appeals) annulled the assessment order — Tribunal, proceeding on the erroneous basis that revised return was filed beyond period of limitation, set aside order of CIT (Appeals) and restored matter to the AO — High Court held that where revised return filed is validly filed, the assessment order cannot be passed on basis of the original return — Once a revised return is filed, original return stands obliterated — Assessment order set aside, order of CIT (Appeals) modified, and matter remitted to the AO — AO directed to determine taxable income on the basis of revised return.

The appellant assessee is the Tripura State Electricity Corporation Ltd. The appellant is engaged in the business of sale and distribution of electricity within the State of Tripura. For the A. Y. 2013-2014, the appellant had filed its return of income-tax on September 26, 2013 disclosing the total income computed at a loss figure of (-) ₹182,05,36,779 as against the loss as per the profit and loss account of (-) ₹13,32,27,00,075. The return of the appellant was taken up for scrutiny under the Computer Assisted Scrutiny Selection (CASS), and accordingly, a notice u/s. 143(2) of the Act was issued on September 4, 2014 to the appellant, and the details were furnished by the appellant on September 23, 2014.

During the pendency of the said proceedings initiated through the notice u/s. 143(2) of the Act issued on September 4, 2014, the appellant, on February 23, 2015, filed a revised return based on an audit objection by the Comptroller and Auditor General. In the meantime, due to a change in the incumbent in the office of the assessing authority, a notice u/s. 142(1) of the Act was issued on June 8, 2015. Subsequent notices were also issued on August 4, 2015 and October 11, 2016. Thereafter, after issuing a show-cause notice on February 26, 2016, the Assistant Commissioner of Income-tax, Agartala Circle, Agartala completed the assessment on March 18, 2016 by disallowing a deduction of ₹40,36,51,685 u/s. 40(a)(ia), 68 and 37 of the Act and determining the income at ₹1,41,68,85,094.

The Commissioner of Income-tax (Appeals) allowed the appeal filed by the assessee. The CIT (Appeals) held as under:

i) The Assessing Officer did not address the filing of the revised return; Though a revised return was filed on February 23, 2015 after the issuance of the notice dated September 4, 2014 under section 143(2) of the Act, and since the revised return was filed within time, the original return did not survive and stood substituted by the revised return; Therefore, it was not open for the Assessing Officer to advert to the original return. Certain decisions of the High Court of Punjab and Haryana, Karnataka and Gujarat were referred to by the Commissioner of Income-tax (Appeals). He held that the Assessing Officer was required to issue a notice u/s. 143(2) on the revised return, and since the assessment order was completely silent about the revised return filed on February 23, 2015, the assessment order could not be sustained and was annulled.

ii) U/s. 139(5) of the Act, revised return may be filed if the assessee discovers any omission or any wrong statement in the return filed under section 139(1) or in response to the notice issued under section 142(1) of the Act; Such revised return must be filed before expiry of one year from the end of the relevant assessment year or before the completion of assessment, whichever is earlier. In the instant case, the revised return could have been filed by March 31, 2016; it was however filed within time on February 23, 2015; Since the revised return was filed due to comments made by the Comptroller and Auditor General, there was sufficient bona fide reason for filing of the revised return. It was also noted by the appellate authority that, in the report of the Assessing Officer, it was stated that there was no violation of provisions of law while filing the revised return.

iii) Once a revised return has been validly filed, an assessment order cannot be passed on the basis of the notice issued u/s. 143(2) on the original return. It was not open for the Assessing Officer to refer to the original return or the statements filed along with the it, and only the revised return has to be taken into account for the purpose of making the assessment.”

In the appeal filed by the Revenue before the Tribunal, the Department contended that the Commissioner of Income-tax (Appeals) could not have annulled the assessment order because the assessee failed to bring to the knowledge of the Assessing Officer during the continuation of the proceeding under section 143(2) on the original return, that the assessee filed a revised return subsequent to the receiving of notice u/s. 143(2) on the original return, and that too at the appellate stage.

The Tribunal allowed the appeal filed by the Revenue and held that, in the cases cited by the assessee, it was observed that when a revised return is filed, the original return stands obliterated, and the determination of the taxable income is to be made on the basis of the revised return; but in those cases it was not held that issuance of notice under section 143(2) on the revised return was mandatory, failing which the entire assessment proceedings would be vitiated.

The Tribunal erroneously noted that the revised return had been filed on March 17, 2016 (though it had been filed on February 23, 2015), and that this was not known to the Assessing Officer, as the return had been filed at the receipt counter, making it impossible for the Assessing Officer to take cognizance of such a fact in such a short period of time.

It, therefore, held that it was only an irregularity and not an illegality, and that it could have been cured by the first appellate authority by calling a remand report from the Assessing Officer after redetermination of the income on the basis of the revised return; however, the assessment order could not be declared as null and void.

It therefore set aside the order of the Commissioner of Income-tax (Appeals) and restored the matter to the file of the Assessing Officer, and directed him to redetermine the taxable income of the assessee after taking the details from the revised return of income.

On appeal by the assessee, the Tripura High Court framed the following substantial question of law for consideration:

“i) “Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified and correct in law in holding that non-issuance and/or non-service of notice u/s. 143(2) in respect of a valid return furnished u/s. 139(5) during the continuance of a scrutiny assessment proceeding u/s. 143(3) was a mere irregularity and not an illegality, and therefore, in not annulling the assessment order u/s. 143(3)?

ii) Whether the learned Tribunal acted perversely in not setting aside the order of the assessing authority in spite of noticing that the appellant had filed a revised return and accepting the legal position that such revised return will obliterate the original return ?”

The High Court allowed the appeal and held as under:

“i) Once the revised return is filed, it is well settled that the original return stands obliterated as rightly held by the Commissioner of Income-tax (Appeals) in his order dated July 24, 2018 placing reliance on the judgments in CIT vs. Rana Polycot Ltd., [(2012) 347 ITR 466 (P&H); 2011 SCC OnLine P&H 17591.] and Beco Engineering Co. Ltd. v. CIT, [(1984) 148 ITR 478 (P&H); 1984 SCC OnLine P&H 800.] , etc. So the Assessing Officer can only take into account the revised return for the purpose of making assessment, and he cannot act upon the original return which stood obliterated.

ii) For some reason in the instant case, the Assessing Officer took no notice of the revised return, and continued the proceedings on the basis of the original return and passed an assessment order on March 18, 2016. This is a clear illegality vitiating his order.

iii) The Commissioner of Income-tax (Appeals) noted the correct legal position as set out above, and also gave a finding of fact that there was a bona fide mistake that impelled the assessee to file the revised return on February 23, 2015, i.e., it was necessitated due to comments given by the Comptroller and Auditor General. It also noted that once a valid revised return is filed, the Assessing Officer has to take cognizance of the same, and he had to issue notice u/s. 143(2) on the revised return. The assessment order was totally silent about the revised return which disclosed a loss of (-) ₹194,75,04,007, and that loss had not been considered in the final computation of income. He, therefore, rightly held that the assessment proceeding was vitiated.

iv) Consequently, he ought to have remitted the matter back to the Assessing Officer after setting aside the assessment order passed on March 18, 2016, and directed him to pass an assessment order after taking into consideration the revised return. Instead he merely annulled the assessing authority’s order.

v) In the order passed by the Income-tax Appellate Tribunal, there is a clear error in noting that the revised return was filed on March 17, 2016, just a day prior to the passing of the order on March 18, 2016. The revised return had been filed on February 23, 2015 itself, and the Tribunal, had it noted the correct date of filing of the revised return, because there was at least a one year gap between the filing of the revised return and the passing of the assessment order, would not have come to the conclusion that it was impossible for the Assessing Officer to take cognizance of the revised return. This is because a year’s time is good enough for the Assessing Officer to take note of the revised return, ignore the original return, and then pass the assessment order on the basis of the revised return.

vi) Its view that the step taken at the end by the assessee would frustrate the whole assessment machinery is clearly perverse because once the assessee has a right to file a revised return, and such a revised return was filed within time, the Assessing Officer has no choice, but to act on the revised return only because the original return stood obliterated. Once the statute permits the filing of the revised return by giving such a right to the assessee, the Income-tax Department cannot question the wisdom of Parliament in providing such a right to the assessee, and the Tribunal cannot hold that filing of the revised return would frustrate the assessment machinery.

vii) Its view that it is only an irregularity and not an illegality, is also unsustainable having regard to the judgments cited in the decision of the Commissioner of Income-tax (Appeals) and also more particularly the judgment of the Supreme Court in CIT vs. Mahendra Mills, [(2000) 243 ITR 56 (SC); (2000) 3 SCC 615; 2000 SCC OnLine SC 577.] and other connected matters confirming the judgment in Chief CIT (Administration) vs. Machine Tool Corporation of India Ltd., [(1993) 201 ITR 101 (Karn); 1992 SCC OnLine Kar 202.]

viii) In our view, the Assessing Officer committed a clear illegality by ignoring the revised return, and the Tribunal got misled by noting the date of filing of the revised return incorrectly, and came to the perverse conclusion that it would only be an irregularity, and not an illegality.

ix) Therefore, the Tribunal ought to have modified the order of the Commissioner of Income-tax (Appeals) by setting aside the order of the assessing authority and remitted the matter back to the Assessing Officer for redetermining the taxable income of the appellant after taking the details from the revised return of income. Instead, it set aside the order of the Commissioner of Income-tax (Appeals), but restored the matter to the file of the Assessing Officer without setting aside the assessment order passed on March 18, 2016. This is a clear error of law.

x) Therefore, the second substantial question of law framed by us is held in favour of the appellant, and so we modify the decision of the Income-tax Appellate Tribunal in the following manner:

            (a) The assessment order dated March 18, 2016 is set aside;

            (b) The order of the Commissioner of Income-tax (Appeals) is modified, and the matter is remitted to the Assessing Officer to redetermine the taxable income of the assessee after taking the details from the revised return of income, and this exercise should be carried out after providing due opportunity of hearing to the assessee.

xi) Having regard to this view taken by us, it is not necessary to decide the first substantial question of law, but we hold that the reference to section 139 in sub-section (1) of section 143 would include a revised return filed under sub-section (5) of section 139 also, and section 143 cannot be applied only to original returns, and should be applied to revised returns too. The appeal is partly allowed as above.

Articles 13 and 24(4A) of India-Singapore DTAA – Entities interposed to take benefit under DTAA were not entitled to qualify for benefit under capital gains article. Accordingly, the gains arising from alienation of shares acquired before 01 April 2017 were taxable in India.

[2026] 183 taxmann.com 125 (Delhi – Trib.)

Hareon Solar Singapore (P.) Ltd. vs. DCIT (International Taxation)

IT APPEAL NOS. 2226 (DELHI) OF 2024

A.Y.: 2020-21

Dated: 30 January 2026

Articles 13 and 24(4A) of India-Singapore DTAA – Entities interposed to take benefit under DTAA were not entitled to qualify for benefit under capital gains article. Accordingly, the gains arising from alienation of shares acquired before 01 April 2017 were taxable in India.

FACTS

The Assessee, a tax resident of Singapore, was incorporated in 2015. The Assessee was a subsidiary of Hareon Hong Kong, which, in turn, was owned by Hareon China. The Singapore tax authorities had granted a tax residency certificate (“TRC”) to the Assessee. The Assessee was incorporated pursuant to a joint venture (“JV”) between Hareon China and third-party entities from India. As part of the JV commitment, investment in Indian Company was made through Hareon Singapore. The Assessee made investments in the form of equity and compulsorily convertible debentures (“CCD”) into an Indian Company.

The Indian Company had received a contract to set up a power generation plant. Hareon China, one of the leading solar PV module manufacturers, agreed to supply PV Modules to the Indian Company.

The Assessee sold the shares and CCDs of an Indian entity and claimed that, under Article 13 of the India-Singapore DTAA, income was taxable only in Singapore.

The AO observed that the Assessee had no employees on its rolls and incurred no expenditure on operating or utility costs, except for payments to consultants. The majority of the board of directors were located outside of Singapore. Hence, control and management of the Assessee was not in Singapore. Even the banking facilities were managed by directors outside of Singapore. Hence, the AO was of the view that the Assessee was a conduit or shell entity, interposed with the primary motive of obtaining a tax benefit that would not have been available if the investment had been made from China or Hong Kong. Accordingly, the AO invoked Article 24A (which is the principal purpose test limitation in the treaty) and denied the claim of treaty benefits. The DRP upheld the order of the AO.

Aggrieved by the final order, the Assessee appealed to ITAT.

HELD

The entity operated as an investment entity with investments in an Indian Company and two other entities (India and Singapore). The investments were funded by the parent company.

The majority of expenses pertained to fair value losses or impairments of investments. Other operating expenditure consisted of (i) forex loss and (ii) professional charges paid to consultants. No employee costs, director’s salary, or other operating expenses were incurred in Singapore.

The majority of directors present at the meeting to decide on an investment in an Indian Company were based outside Singapore. While Assessee claimed director’s meeting held in Singapore to make investment decisions, evidence such as travel tickets, passports, or immigration information was not produced to prove directors’ presence in Singapore.

The JV agreement was signed by one of the directors of the Assessee, who was a Vice President of Hareon China, and his address for communication was listed as USA. The KYC submitted to the bank was signed by the US director, and directors outside Singapore controlled the bank’s facilities.

Hareon China, having contracted to supply PV modules to an Indian Company, decided to invest in the same company through Hareon Singapore. Hence, the sole purpose of investment from Singapore was to
obtain a tax benefit that would otherwise not be available if the investment were made from China or Hong Kong.

The TRC could not be considered as conclusive evidence without considering surrounding circumstances, and in the instant case, such circumstances were against the Assessee.

Based on the above, the ITAT held that the Assessee was not entitled to benefit of Article 13 and hence, gains arising to the Assessee from alienation of shares and CCDs were taxable in India.

Author’s Note – As the hearing of this case was concluded much before Apex Court pronouncement in Tiger Global [2026] 182 taxmann.com 375 (SC), the ITAT had merely placed on the record the fact that the Tiger Global ruling was delivered.

Articles 13 and 24(4A) of India-Singapore DTAA – On facts, in absence of any primary motive of tax avoidance, gains from alienation of shares acquired before 01 April 2017 were taxable only in Singapore

1.[2025] 180 taxmann.com 241 (Mumbai – Trib.)

Fullerton Financial Holdings Pte. Ltd. vs. ACIT (International Taxation)

IT APPEAL NOS. 1137 (MUM) OF 2025

A.Y.: 2022-23 Dated: 28 October 2025

Articles 13 and 24(4A) of India-Singapore DTAA – On facts, in absence of any primary motive of tax avoidance, gains from alienation of shares acquired before 01 April 2017 were taxable only in Singapore

FACTS

The Assessee, a tax resident of Singapore, was incorporated in 2003. The Assessee was an indirect subsidiary of Temasek Holdings Private Limited, an entity owned by the Singapore Government through its Minister of Finance. The Singapore tax authorities had granted a tax residency certificate (“TRC”) and expressed their satisfaction with the Assessee’s operating expenditure. The Assessee operated as an investment company for the group in the financial sector and had investments across Asia. The Assessee, along with its group entity, had investments in India. The Assessee sold its stake in Indian company shares, which were acquired before 1 April 2017 to a Japanese entity for ₹681.32 Crores and it claimed that the gains arising from sale of shares of Indian company were taxable only in Singapore under Article 13(4A) of India-Singapore DTAA.

The AO observed that the Assessee had no employees on its rolls, and the group entities made all management decisions relating to the investment. A major portion of expenses pertained to management charges paid to group entities. Hence, the AO was of the view that the Assessee was a conduit or shell entity with the primary motive of obtaining tax benefit. Accordingly, the AO invoked Article 24A of India-Singapore DTAA and denied treaty benefits. The DRP upheld the order of the AO.

Aggrieved by the final order, the Assessee appealed to ITAT.

HELD

The examination of the Principal Purpose Test (“PPT”) requires consideration of various factors, such as the commercial rationale, the government framework, economic substance, and transaction’s functional controls.

A ‘conduit company’ means an intermediary that would not have real economic or commercial substance of its own. In the case of the Assessee, it acted as an investment and portfolio company for Temasek Holdings, which was owned by the Singapore Government. Hence, it could not be characterised as a conduit or pass-through entity.

From the functioning of the board of the Assessee, it was evident that all the activities relating to the affairs of the Assessee were managed and controlled from Singapore.

The fact that management of affairs was carried out through group entities could not, by itself, justify ignoring the expenditure test. The Assessee satisfied the S$ 200,000 expenditure-on operations test, and which was substantiated by a confirmation from the Singapore Revenue Authorities and a certificate issued by statutory auditors. Based on management control and expenditure tests, it was evident that the Assessee was not a shell or conduit entity.

The investment of the Assessee in the Indian entity was a long-term strategic investment, and the sale was a commercial realisation of that investment.

The Assessee had demonstrable substance and an independent economic presence in Singapore, and the investment was aligned with the regional expansion objective and not tax-motivated. Further, the ultimate beneficial owner of the investment was the Government of Singapore; hence, it cannot be said that obtaining benefit was the principal purpose of the transaction.

Based on the above, the ITAT held that in terms of Article 13(4A) of India-Singapore DTAA, gains arising from alienation of shares were chargeable to tax only in Singapore.

Author’s Note – The case was decided before the Apex Court ruling in the case of Tiger Global [2026] 182 taxmann.com 375 (SC).

Sec. 54F – Capital gains exemption – Investment in residential plot for construction – Possession not handed over and construction not commenced within prescribed period due to reasons beyond assessee’s control – Subsequent surrender of plot and reinvestment in new residential property – Deduction allowable considering beneficial nature of provision.

5. [2025] 128 ITR(T) 246 (Delhi- Trib.)

Rajni Kumar vs. ITO

A.Y.: 2017-18

DATE: 17.09.2025

Sec. 54F – Capital gains exemption – Investment in residential plot for construction – Possession not handed over and construction not commenced within prescribed period due to reasons beyond assessee’s control – Subsequent surrender of plot and reinvestment in new residential property – Deduction allowable considering beneficial nature of provision.

FACTS

The assessee sold an immovable property and declared long-term capital gains, against which a deduction under section 54F was claimed on the basis of an investment made in a residential plot intended for construction of a house. The assessee had made substantial payments towards the purchase of the plot within the prescribed period.

However, possession of the plot was not handed over by the builder, and consequently, the assessee could not commence construction within the stipulated period. The delay was attributed to factors such as prolonged disputes relating to the Dwarka Expressway project, intervention by Government authorities, regulatory restrictions, and issues concerning the builder. Due to continued non-delivery of possession, the assessee eventually surrendered the allotment, received refund of the investment, and thereafter purchased another residential property.

The Assessing Officer denied the deduction under section 54F on the ground that no residential house was constructed within the prescribed time and that possession of the plot was not obtained. The Commissioner (Appeals) upheld the disallowance.

Aggrieved, the assessee preferred an appeal before the Tribunal.

HELD

The Tribunal observed that the assessee had invested the entire sale consideration in the purchase of a residential plot with the bona fide intention of constructing a residential house and had complied with the investment requirement within the prescribed time.

It was noted that the failure to obtain possession of the plot and consequent inability to commence construction was due to circumstances beyond the control of the assessee, including governmental and regulatory delays as well as defaults on the part of the builder.

The Tribunal held that section 54F is a beneficial provision intended to promote investment in residential housing and, therefore, deserves liberal interpretation. It emphasized that where the assessee has demonstrated a clear intention and has substantially complied with the requirement of investment, the exemption cannot be denied merely because construction was not completed within the stipulated period due to factors beyond the assessee’s control.

The Tribunal further noted that the assessee had ultimately surrendered the plot and reinvested the amount in another residential property, thereby reinforcing the bona fide intention to acquire a residential house.

Relying on judicial precedents, it was held that non-completion of construction or delay in possession, when not attributable to the assessee, does notdisentitle the assessee from claiming exemption under section 54F. Accordingly, the Tribunal held that the assessee was entitled to deduction under section 54F and allowed the appeal.

Sec. 68 r.w.s. 69C – Bogus exports – Additions based solely on DRI show-cause notice without independent inquiry – No corroborative evidence brought on record – Deletion by CIT(A) justified – Subsequent Customs adjudication having material bearing admitted as additional evidence – Matter remanded for de novo adjudication

4. [2025] 128 ITR(T) 572 (Chandigarh – Trib.)

ITO vs. A.K. Exports

A.Y.: 2002-03, 2005-06, 2006-07 AND 2007-08 DATE: 01.07.2025

Sec. 68 r.w.s. 69C – Bogus exports – Additions based solely on DRI show-cause notice without independent inquiry – No corroborative evidence brought on record – Deletion by CIT(A) justified – Subsequent Customs adjudication having material bearing admitted as additional evidence – Matter remanded for de novo adjudication

FACTS

A search action was conducted in the case of the assessee group by the Directorate of Revenue Intelligence (DRI), pursuant to which show-cause notices were issued alleging that the assessee
and its group concerns were not engaged in genuine manufacturing activities and had undertaken bogus export transactions to fraudulently claim export incentives such as DEPB and duty drawback.

Relying solely on such show-cause notices, the Assessing Officer concluded that the assessee had obtained bogus purchase bills, exported inferior quality goods at inflated prices to non-existent foreign entities, and routed unaccounted money back into India in the guise of export proceeds. Accordingly, foreign remittances were treated as unexplained cash credits under section 68, and further additions were made towards estimated expenditure under section 69C.

On appeal, the Commissioner (Appeals) observed that no further action had been taken by the DRI on the show-cause notices even after a considerable lapse of time, and that the Assessing Officer had failed to carry out any independent investigation or bring any corroborative material on record. It was further noted that the exports were supported by documentary evidence, including letters of credit and customs records. Accordingly, the additions made under sections 68 and 69C were deleted.

Aggrieved, the revenue preferred an appeal before the Tribunal. During the course of hearing, the revenue sought to place on record a subsequent order passed by the Principal Commissioner of Customs (Import) dated 06.02.2024 in the case of the assessee group, containing detailed findings, including disallowance of export incentives and imposition of penalties.

HELD

The Tribunal observed that the entire basis of the impugned assessments was the show-cause notices issued by the DRI, and that the Assessing Officer had made additions merely based on allegations contained therein without conducting any independent inquiry or bringing any corroborative evidence on record. It reiterated the settled legal position that additions cannot be sustained based on presumptions, conjectures, or unverified allegations.

The Tribunal noted that the Commissioner (Appeals) had rightly deleted the additions on the ground that no independent investigation was carried out by the Assessing Officer and that the allegations contained in the show-cause notices had not been substantiated through any judicial or quasi-judicial proceedings.

However, the Tribunal further observed that the subsequent adjudication order passed by the Principal Commissioner of Customs (Import), which had culminated from the very same show-cause notices, contained detailed findings and would have a material bearing on the assessment of the assessee.

Invoking Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, the Tribunal held that the said order constituted additional evidence which could not have been produced earlier despite due diligence, and that its admission was necessary for substantial cause.

Accordingly, the additional evidence was admitted, and the matter was restored to the file of the Commissioner (Appeals) for de novo adjudication in light of the said adjudication order. All issues were kept open for fresh consideration. In the result, the appeals were allowed for statistical purposes.

Where the assessee-trust purchased land out of trust funds originally contributed by the trustees, but the sale deeds were mistakenly registered in the names of the trustees, and the facts showed that the property was used exclusively for running the school without any benefit accruing to the trustees, section 13(1)(c) was not applicable.

3. (2026) 184 taxmann.com 22 (Chennai Trib)

ACIT vs. Everwin Educational & Charitable Trust

A.Y.: 2016-17 Date of Order: 24.02.2026

Section : 13(1)(c), 13(2)(g)

Where the assessee-trust purchased land out of trust funds originally contributed by the trustees, but the sale deeds were mistakenly registered in the names of the trustees, and the facts showed that the property was used exclusively for running the school without any benefit accruing to the trustees, section 13(1)(c) was not applicable.

FACTS

The assessee was a public charitable trust holding registration under section 12A/12AB. For AY 2016-17, it filed the return of income after claiming exemption under section 11. During the year, the trustees had settled two schools, which they were operating in their individual capacity since 1992, along with assets, liabilities and cash balances of about Rs. 19.49 crores, upon the assessee-trust with effect from 1.4.2015. Out of these funds, the trust purchased land parcels worth about Rs. 14.70 crores for establishing a school; however, due to a misunderstanding and bona fide omission, the sale deeds were executed in the names of the trustees without there being any specific mention that they were acting in their fiduciary capacity as trustees of the assessee trust. The trust recorded the land as its asset in its books, the trustees did not disclose the same in their personal balance sheets, and the trust constructed and operated the school thereon after obtaining all statutory approvals in its own name.

The case of the assessee was selected for regular scrutiny, which was completed under section 143(3), accepting the returned income. In exercise of the revisionary power under section 263, CIT(E) set aside the assessment order, holding that the acquisition of the properties in the names of the trustees using the trust funds violated provisions of Section 13(1)(c). Upon receipt of the order under section 263, the AO made an addition of Rs.14.70 crores under section 13(1)(c) read with section 13(2)(g), after concluding that trustees had benefited by registering the land in their own names without spending from their accounts.

Aggrieved, the assessee filed an appeal before CIT(A). During the pendency of the appeal, the assessee-trust executed a registered rectification deed whereby the original purchase deed was rectified and the name of the purchaser was shown as the assessee-trust instead of the trustees. The property was also mutated in the name of the trust, and encumbrance certificate and property tax were in the name of the trust. Noting this, the CIT(A) held that section 13(1)(c) was wrongly invoked by the AO and allowed the appeal of the assessee.

Aggrieved, the revenue filed an appeal before the ITAT.

HELD

The Tribunal observed as follows:

(a) In order to invoke the provisions of section 13(1)(c), it is required to be shown that there was use or application of income or property for the benefit of a specified person. There ought to be some accompanying enjoyment, diversion or personal advantage to the specified person.

(b) The contemporaneous evidence produced by the assessee, the conduct of the assessee trust and the trustees, more particularly having regard to the fact that the funds to acquire the property were provided by the trustees in the first place, lent credence to the assessee’s plea that the acquisition of the land was not meant to benefit the trustees in their individual capacity.

(c) It was incorrect for the AO to assume that registration in trustees’ names automatically resulted in benefit to them when the facts and circumstances placed on record showed the contrary, that the property beneficially belonged to the assessee-trust and was all along enjoyed and used by the assessee-trust, and that the individual trustees did not derive any benefit therefrom. There was no iota of evidence to show that the assessee- trust had used or applied any income or property of the trust for the personal benefit of the trustees.

Following the decision of the Tribunal in DDIT vs. A.R. Rahman Foundation [2015] 61 taxmann.com 130 (Chennai-Trib), the Tribunal upheld the order of CIT(A) that section 13(1)(c) was not applicable, and dismissed all the grounds raised by the revenue.

Where the assessee-society invested in shares of a private limited company and none of its office bearers individually held or controlled substantial interest in the said company, section 13(2)(e) was not applicable in respect of such investment.

2. (2026) 183 taxmann.com 409 (Del Trib)

Jan Kalyan Samiti vs. ITO

A.Y.: 2015-16

Date of Order: 06.02.2026

Section: 13(2)(e)

Where the assessee-society invested in shares of a private limited company and none of its office bearers individually held or controlled substantial interest in the said company, section 13(2)(e) was not applicable in respect of such investment.

FACTS

The assessee-society was granted registration under section 12AA in 2004. It filed its return of income for AY 2015-16, declaring Nil income. During the year under consideration, it had purchased 115,000 shares of M/s. RFCPL at Rs.60 per share for an aggregate consideration of Rs.69,00,000. Its case was selected for limited scrutiny under CASS on the grounds that it had undertaken transactions with specified persons. Upon perusal of the list of shareholders of RFCPL produced under section 133(6), the AO contended that Mr. SA (President of the society) held 25.84% voting power in RFCPL through SA(HUF) (11.66%) and the assessee-society (14.18%). He further observed that Mr. SA was a director in another private limited company, which held 17.10% shares in RFCPL. He also contended that another member of the society, Mr. RKM also held 17.10% in RFCPL through a private limited company. Accordingly, the AO held that Mr. SA and Mr. RKM through other entities, controlled 37.84% in RFCPL, from whom the assessee-society had purchased shares for more than the market value, and therefore, the whole of the investment of Rs.69,00,000 was hit by section 13(2)(e).

On appeal, CIT(A) sustained the addition made by the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) As per the list of shareholders in RFCPL, Mr. SA, as an individual, was not a shareholder. However, he held shares to the extent of 11.66% as a Karta of the HUF. Further, the assessee-society itself held shares of 14.18%. As per the provisions of the Income tax Act, 1961, the assessee-society and the HUF were separate persons.

(b) In order to apply section 13(2)(e), there should be a transaction between the trust or society and a person referred to under section 13(3). In the facts of the case, the persons referred under section 13(3) were the seven office bearers, from whom the assessee should have directly purchased the shares or through the entities wherein the said office bearers controlled or held more than 20% of the voting power or had a substantial interest in such concerns. The AO misunderstood the provision when he observed that the assessee-society held 14.18% and combined that with SA (HUF) who is a separate entity having no interest in the assessee-society, and another private limited company in which one of the office bearer was a director.

(c) In the facts of the case, none of the office bearers directly held more than 20% of shares or had a substantial interest in RFCPL.

Therefore, following the decision of Navajbhai Ratan Tata Trust vs. ADIT, (2022) 140 taxmann.com 157 (Mum Trib), the Tribunal held that section 13(2)(e) was not applicable to the facts of the case and directed the AO to allow the claim of the assessee.

Authors note: “The Tribunal has not considered / examined the applicability of section 13(1)(d) which essentially disallows investment in shares of any company (barring few exceptions) by a tax-exempt charity.”

Software expenses such as annual maintenance charges, database support fees and licence renewal costs, being in the nature of subscriptions for a fixed period and conferring benefits limited to that period, were held to be revenue in nature and allowable as a deduction under section 37(1).

1. (2026) 183 taxmann.com 396 (Mum Trib)

ACIT vs. BNP Paribas India Solutions (P.) Ltd.

A.Y.: 2017-18

Date of Order : 09.02.2026

Section: 37(1)

Software expenses such as annual maintenance charges, database support fees and licence renewal costs, being in the nature of subscriptions for a fixed period and conferring benefits limited to that period, were held to be revenue in nature and allowable as a deduction under section 37(1).

FACTS

The assessee was registered under the Software Technology Parks of India (STPI) Scheme and operated as a captive service provider for “B” Group. It filed its return of income, inter alia, debiting software expenditure amounting to Rs. 28,24,19,000 in its profit and loss account. During scrutiny proceedings, AO held that the expenses were capital in nature and therefore, allowed deduction of depreciation only to the extent of 60%.

Upon appeal, CIT(A) allowed the claim of the assessee, treating the software expenses as revenue in nature.

Aggrieved, the revenue filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) On the basis of details of expenditure incurred by the assessee, it was evident that all the expenses were on account of annual maintenance charge, fees for database support, licence renewal cost, etc. They were all “period costs” and “recurring” in nature.

(b) The assessee had incurred these expenses not for acquiring any right in the software, but were towards subscription for a fixed period, giving annual benefits only and no enduring benefits accrued to the assessee by incurring these period costs. Further, no asset or intellectual property right had come into existence, and there was no transfer of ownership to the assessee in these software by incurring such expenses.

Following a number of decisions of the ITAT and High Courts, the Tribunal held that the software expenses claimed by the assessee were revenue expenses and, therefore, deductible under the provisions of section 37(1).

Accordingly, the Tribunal dismissed the appeal of the revenue.

Glimpses Of Supreme Court Rulings

13. Jindal Equipment Leasing Consultancy Services Ltd. vs. Commissioner of Income Tax Delhi – II, New Delhi

(2026) 182 taxmann.com 219(SC)

Amalgamation – Shares issued by amalgamated company in lieu of share of amalgamating company – Taxability – If shares are held as capital assets, the profit arising to the Assessee from the receipt of shares of the amalgamated company in lieu of shares of the amalgamating company would be taxable as capital gains, though exempt under Section 47(vii) – If the shares are held as stock-in-trade, the profit arising to the Assessee from the receipt of shares of the amalgamated company in lieu of shares of amalgamating company would be taxable as “profits and gains of business or profession” under Section 28 if they are readily available for realisation.

The Assessee was an investment company of the Jindal Group. The shares of the operating companies, namely Jindal Ferro Alloys Limited (JFAL) and Jindal Strips Limited (JSL), were held as part of the promoter holding, representing controlling interest. The Assessee had also furnished non-disposal undertakings to the financial institutions / lenders who had advanced loans to the operating companies. These shares were reflected as investments in the balance sheets of the Assessee.

During the previous year relevant to the assessment year 1997-98, pursuant to a scheme of amalgamation approved by orders dated 19.09.1996 and 03.10.1996 of the High Courts of Andhra Pradesh and Punjab & Haryana respectively, under Sections 391 – 394 of the Companies Act, 2013, JFAL was amalgamated with JSL. As per the sanctioned scheme, the appointed date of amalgamation was 01.04.1995, and the orders sanctioning the amalgamation were filed with the Registrar of Companies on 22.11.1996 (the effective date). Under the scheme of amalgamation, the shareholders of JFAL were allotted 45 shares of JSL for every 100 shares of JFAL held by them. Accordingly, the Assessee was allotted shares of JSL in lieu of the shares of JFAL.

The Assessee, in its returns of income filed for the assessment year in question, claimed exemption under Section 47(vii) of the I.T. Act in respect of the receipt of JSL shares in lieu of JFAL shares, treating the same to be capital assets.

However, in the assessment completed under Section 143(3) vide order dated 29.02.2000, the Assessing Officer treated the shares of JFAL as stock-in-trade, denied the exemption under Section 47(vii), and brought to tax the value of JSL shares as business income, computed with reference to their market value.

The said order was upheld by the Commissioner of Income Tax (Appeals).

On further appeal, the Tribunal vide order dated 17.02.2005, allowed the Assessees’ appeals by observing that it was unnecessary to decide whether the shares were held as stock-in-trade or capital assets, since no profit accrues unless the shares held by the Appellants are either sold or transferred for consideration, irrespective of the nature of holding. It was further observed that there was admittedly no sale of shares and, therefore, the only question for consideration was whether the allotment of JSL shares in lieu of JFAL shares under the scheme of amalgamation amounted to a “transfer”. Following the decision of the Supreme Court in Commissioner of Income Tax, Bombay vs. Rasiklal Maneklal (HUF) and Ors. (1989) 177 ITR 198, the Tribunal concluded that there was no transfer of shares and, consequently, no taxable profit could be said to have accrued to the Appellants.

The Revenue challenged the Tribunal’s decision before the High Court.

After hearing both sides, the High Court, by the impugned judgment, disposed of the appeals in favour of the Revenue and against the Assessees. In doing so, it held that the Tribunal had erred in placing reliance on Rasiklal Maneklal while failing to consider the later and binding decision of the Supreme Court in Commissioner of Income-tax, Cochin vs. Grace Collis and Ors. (2001) 248 ITR 323 (SC). The High Court observed that where the shares of the amalgamating company were held as capital assets, the receipt of shares of the amalgamated company would constitute a “transfer” within the meaning of Section 2(47) of the I.T. Act, though such transfer would be exempt under Section 47(vii). However, in the alternative scenario where the shares were held as stock-in-trade, the High Court held that upon the Assessees receiving shares of the amalgamated company in lieu of those held in the amalgamating company, the assesses had, in effect, realised the value of their trading assets, and the difference in value would be taxable as business profit under Section 28. In reaching this conclusion, the High Court relied upon the decision of the Supreme Court in Orient Trading Co. Ltd. vs. Commissioner of Income Tax, Calcutta (1997) 224 ITR 371 (SC). Accordingly, the matter was remanded to the Tribunal for determination of the nature of the Assessee’s holding of JFAL shares, i.e., whether such holdings constituted capital assets or stock-in-trade.

Aggrieved thereby, the Assesse preferred an appeal before the Supreme Court.

The Supreme Court observed that the High Court had returned two findings: first, that if shares are held as capital assets, an amalgamation is indeed a transfer within the meaning of Section 2(47) of the I.T. Act, though exempt under Section 47(vii). The Assessee had not disputed this finding before it. Second, the High Court held that if the shares are held as stock-in-trade, the profit arising to the Assessee from the receipt of JSL shares in lieu of JFAL shares would be taxable as “profits and gains of business or profession” under Section 28. It was the second finding, which had necessitated the present appeal before it.

At the outset, the learned Senior Counsel appearing for the Appellants raised a preliminary objection that the High Court had transgressed its jurisdiction in remitting the matter to the Tribunal with an observation that, if the shares were stock-in-trade, the taxability would arise under Section 28 of the I.T. Act. It was urged that such an issue was neither expressly framed as a substantial question of law by the High Court nor raised by the Revenue in its appeals.

The Supreme Court rejected the preliminary objection of the Petitioner by holding that the said issue went to the very root of the matter, and the High Court was bound to consider it in view of the issue already framed by the Tribunal and the submissions advanced by both sides before the Tribunal as well as before the High Court. Such a question was incidental or collateral to the main issue, and the absence of a formal formulation would not vitiate the impugned judgment of the High Court.

The Supreme Court noted that Section 2(14) excludes stock-in-trade from the definition of a capital asset, while Section 2(47) defines “transfer” only in relation to capital assets. Section 28 casts a wide net, taxing the “profits and gains of business or profession”, including benefits or perquisites arising from business, whether convertible into money or not, or in cash or kind. Section 45 imposes capital gains tax only on the transfer of a capital asset, subject to exceptions under Section 47, including the transfer of shares in a scheme of amalgamation. Section 47(vii) specifically exempts from capital gains tax any transfer by a shareholder of a capital asset being shares of the amalgamating company, in consideration of the allotment of shares in the amalgamated company, provided the amalgamated company is an Indian company.

According to the Supreme Court, there is a difference between a charging provision and an exemption provision. A provision that enables the levy of tax on a particular transaction is a charging provision. Only a transaction that is covered by a charging provision is taxable. Only if the transaction is taxable can there be an exemption. Therefore, the transfer of shares arising out of an order of amalgamation, even if it is treated as a capital asset, is generally taxable but would be exempt from taxation only if both the requirements under Section 47 (vii) are satisfied.

The Supreme Court noted that section 28 contemplates the chargeability of the “profits and gains of any business or profession” carried on by the Assessees during the relevant previous year. What is material, therefore, is that there must be income arising from or in the course of business to be treated as profits or gains. Such profit must be ascertainable with reasonable definiteness at the relevant point of time, and the Assessees must have either received it, or acquired a vested right to receive and commercially realise it, even if the receipt is in kind. It is not necessary for the benefit to be capable of being converted into money. Significantly, Section 28 does not prescribe any precondition as to the precise mode through which the profit must arise. The moment any income arises out of business or profession, the provision becomes applicable.

The Supreme Court further noted that amalgamation, in corporate law, signifies the statutory blending of two or more undertakings into one. It is distinct from winding up: while the transferor company ceases to exist as a separate corporate entity, its business, assets, and liabilities are absorbed into and continue within the transferee.

The Supreme Court after noting plethora of judgements observed that in the context of amalgamation, what transpires is essentially a statutory substitution of one form of holding for another. The shareholder’s interest in the transferor company is replaced by a corresponding interest in the transferee company.

According to the Supreme Court, for the purposes of Section 28, the first test was whether such substitution constituted either a receipt or an accrual of income.

According to the Supreme Court, it is a settled law that income yielding business profits may be realised not only in money but also in kind. Thus, where an Assessee receives shares of the amalgamated company in place of its shares held as trading stock, there is, in form, a receipt of consideration in kind. Though such amalgamations receive the sanction of the Court/Tribunal to be effectuated, they are preceded by decisions taken in meetings of shareholders. In such meetings, valuation reports are placed before the shareholders, and for the amalgamation to be approved, 90% of the shareholders must vote in favour of the amalgamation. The report contains details of the share exchange ratio. Though the value of each share is determined at that stage, it is not tradable, as no right is vested at that point. Ordinarily, such receipt arises only upon the actual allotment of shares, since until that point no asset is placed in the hands of the Assessee. It cannot, however, be ruled out that in certain cases, the terms of the sanctioned scheme may themselves create, from an earlier date, a vested and imminent enforceable right to allotment; in such situations, one may speak of “accrual”. The general position, nevertheless, is that what the law recognises in amalgamation is the receipt of shares in substitution of trading assets.

The Supreme Court thereafter, coming to the next test, observed that mere receipt of shares does not suffice to attract Section 28; commercial realisability is also required when income is received in kind.

According to the Supreme Court, amalgamation, in strict legal terms, does not amount to an “exchange.”

The Supreme Court observed that, the jurisprudence discloses three related strands: first, cases such as Orient Trading Co. Ltd. vs. Commissioner of Income Tax, Calcutta (1997) 224 ITR 371 (SC), relying on English decision (Royal Insurance Co. Ltd. vs. Stephen 14 Tax Cases 22), emphasise that receipt of an asset of definite money’s worth in substitution for another may amount to commercial realisation attracting Section 28; second, the decision in Commissioner of Income Tax, Bombay vs. Rasiklal Maneklal (HUF) and Ors. (1989) 177 ITR 198, which clarifies that allotment on amalgamation is not an “exchange”, along with other decisions holding it to be a statutory substitution; and third, the ruling in Commissioner of Income-tax, Cochin vs. Grace Collis and Ors. (2001) 248 ITR 323 (SC), which makes it clear that, notwithstanding its statutory character, amalgamation does involve a “transfer” within the meaning of the Income-tax Act.

Reconciling these strands, the Supreme Court was of view that the true test under Section 28, was not the legal label of “exchange” or “transfer”, but whether the Assessee, in consequence of the amalgamation and thereby of its business, has obtained a profit that is real and presently realisable.

According to the Supreme Court, the well-known real-income principle, as emphasised in E.D. Sassoon & Co. Ltd. vs. Commissioner of Income-Tax (1954) 26 ITR 27 (SC) and Commissioner of Income Tax, Bombay City I vs. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC), must be applied. Therefore, the enquiry for the Court was whether, as a result of the amalgamation, the Assessee has in fact realised a profit in the commercial sense. This assessment may turn on whether:

(A) the old stock-in-trade has ceased to exist in the Assessee’s books;

(B) the shares received in the amalgamated company possess a definite and ascertainable value; and

(C) the Assessee, immediately upon allotment, is in a position to dispose of such shares and realise money.

If these conditions are satisfied, the substitution bears the character of a commercial realisation and the profit may be taxed under Section 28. Where, however, the allotment of shares is merely a statutory substitution mandated by the scheme of amalgamation, without yielding an immediately realisable benefit, no income can be said to accrue or be received at that stage, and taxability arises only upon the eventual sale of the shares.

For instance:

(A) If a shareholder of Company A receives shares of Company B pursuant to a court-sanctioned amalgamation, but such shares are subject to a statutory lock-in period during which they cannot be sold in the market, the allotment cannot be equated with a commercial realisation. It represents only a replacement of one form of holding by another, without any immediate gain capable of monetisation.

(B) Similarly, where the amalgamated company is closely held and its shares are not quoted on any recognized stock exchange, the mere allotment of such shares does not generate a realisable profit, since no open market exists to ascribe a fair disposal value.

According to the Supreme Court, these illustrations, which are not exhaustive, underline that unless the Assessee is, by virtue of the substitution, placed in possession of an asset which is freely tradable and of an ascertainable market value, the principle of real income bars taxation at the stage of amalgamation. Thus, the substitution of shares upon amalgamation does not, by itself, give rise to taxable income under Section 28. What must be established is that the transaction has the attributes of a commercial realisation resulting in a real and presently disposable advantage. Where this test is satisfied, taxability may arise at the stage of substitution. Otherwise, the accrual or receipt of income is deferred until actual sale.

The Supreme Court thus held that where, under a scheme of amalgamation, the shareholder merely receives, in substitution, shares of the amalgamated company in lieu of the shares held in the amalgamating company, there is no real or completed profit capable of being taxed under Section 28, unless it is shown that the shares are held as stock-in-trade and are readily available for realisation. In the absence thereof, what takes place is only a statutory vesting and substitution of one form of holding for another. Unless and until the substituted shares are commercially realisable – whether saleable, tradeable, or by whatever other mode of disposition so described – so as to yield real income, no taxable event can be said to arise.

The Supreme Court further held that for taxing the profit, the next test should also be satisfied, namely, that profit must be capable of definite valuation, so that the real gain or loss stands crystallized. “Profits”, in the commercial sense, are ascertainable only when the old position is closed and the new position is determined in terms of money’s worth – whether by sale, transfer, exchange, or statutory substitution. This principle is an application of the doctrine of real income and applies with equal force to stock-in-trade as it does to other forms of commercial receipts. Therefore, the test is not satisfied merely by the receipt of realisable shares in substitution of earlier holdings; such shares must also be capable of quantification.

Accordingly, in the context of amalgamation, the issue does not turn on the accrual of income in the abstract sense, but on whether the Assessee has received a commercially realisable consideration in kind. Upon sanction of the scheme, there is only a statutory substitution of rights; no asset then exists in the hands of the Assessee that is capable of commercial realisation. The charge under Section 28 crystallises only upon allotment of the new shares, when the Assessee actually receives realisable instruments capable of valuation in money’s worth. At that point, the old stock-in-trade ceases to exist and stands replaced by new shares having a definite market value. Since these shares are received in the course of business and in substitution of trading assets, their receipt represents a commercial profit or gain arising from business activity. What attracts Section 28 is, therefore, the receipt of shares coupled with their present realisability and their nexus with business. These three conditions-actual receipt, present realisability, and ascertainability of value-together determine the timing of taxability in cases of amalgamation.

Consequently, the profit arising on receipt of the amalgamated company’s shares may be taxed under Section 28 where the shares allotted are tradable and possess a definite market value, thereby conferring a presently realisable commercial advantage. This conclusion flows from the real income principle and not from any judicially created fiction. Equally, it must be emphasised that where such attributes are absent, the Court cannot, by analogy, extend Section 28 to tax hypothetical accretions in the absence of an express statutory mandate.

It was further clarified that the principles enunciated herein lay down a fact-sensitive test. The enquiry whether, consequent upon an amalgamation, the allotment of new shares has resulted in a real and presently realisable commercial benefit must be determined on the facts of each case. The burden lies on the Revenue to establish the same. It is thereafter for the Tribunal, as the final fact-finding authority, to apply these principles to the evidence on record.

The Supreme Court further held that having established that the charge under Section 28 may be attracted if the shares are saleable, tradable, etc., and of definite market value, thereby conferring a presently realisable commercial advantage, it becomes necessary to clarify the general principle. In the context of amalgamation, three points in time require to be distinguished. First, the appointed date specified in the scheme, which determines corporate succession and continuity between the transferor and transferee companies. Secondly, the sanction of the scheme by the Court, which gives statutory force to the amalgamation. At these stages, however, there is only a substitution of rights by legal fiction, without any asset in the hands of the shareholder capable of commercial exploitation. Thirdly, the allotment of new shares in the amalgamated company, which alone crystallises the benefit in the shareholder’s hands, for it is only then that the old stock-in-trade ceases to exist and is replaced by new shares of definite market value capable of immediate realisation. Even if the scheme contemplates the issue of shares in a certain ratio from the appointed date, until allotment there is no identifiable scrip or tradable asset in existence in the hands of the Assessee. Thus, the charge under Section 28 is not attracted on the mere sanction of the scheme or on the appointed date, but only upon the receipt of the new shares, when the statutory substitution translates into a concrete, realisable commercial advantage.

The Supreme Court thus concluded that where the shares of an amalgamating company, held as stock-in-trade, are substituted by shares of the amalgamated company pursuant to a scheme of amalgamation, and such shares are realisable in money and capable of definite valuation, the substitution gives rise to taxable business income within the meaning of Section 28 of the I.T. Act. The charge Under Section 28 is, however, attracted only upon the allotment of new shares. At earlier stages, namely, the appointed date or the date of court sanction, no such benefit accrues or is received.

Notes: –

Following points are worth noting from the above judgment:-

(1) In the above case, the Court has effectively dealt with the implications of cases when the shares are held as stock-in trade.

(2) In such cases, for the purpose of taxing Profits & Gains of Business under Sec. 28 (Business Income), it is essential that the shares of the amalgamated company received by the assessee must be readily available for realisation, and how to ascertain this has also been explained by the Court with illustrative examples. Based on facts, some issue may still arise on this.

(3) In such cases, the question of taxability of Business Income arises only upon allotment of shares of the amalgamated company and not at any earlier stage. The charge under section 28 crystallises upon allotment of the new shares, when the assessee actually receives realisable instruments capable of valuation in money’s worth.

(4) The shares of the amalgamated company received must possess a definite and ascertainable value & the Assessee must be in a position to dispose of such shares and realise money.

(5) The Court has reiterated principles of taxing real income, explained the same, and applied in this case to determine the taxable Business Income and the timing of taxability thereof. In such cases, three conditions must be satisfied for taxing Business Income, viz. actual receipt of shares, present realisability, and ascertainability of value, to determine the timing of taxability of Business Income.

(6) The Judgments of the Supreme Court in the cases of Orient Trading Co. Ltd. and Mrs. Grace Collis referred to in the above case have been analysed in our Column `Closements’ in the February, 1998 and December, 2001 issues of BCAJ. These judgments, as well as the judgment in the case of Rasiklal Maneklal (HUF) -177 ITR 198 – SC – have been considered in the above case. While reconciling the findings of these judgments to decide the issue before it, the Court took the view that the true test under section 28 was not the legal label of “exchange” or “transfer”, but whether the Assessee, in consequence of the amalgamation and thereby in its business, has obtained a profit that is real and presently realisable.

(7) In short, in such cases, the Assessee must, in fact, have realised a profit in the commercial sense, and substitution of shares upon amalgamation does not, by itself, give rise to taxable Business Income. It must be established that the transaction has the attributes of a commercial realisation resulting in a real and presently disposable advantage. The profit in such cases must be capable of valuation/quantification. The burden is on the Revenue to establish this. Otherwise, the accrual or receipt of income is deferred until actual sale. This principle is an application of the doctrine of real income, which applies with equal force to stock-in-trade as it does to other forms of commercial receipts.

Sec 264 – Revision – Communication treating a return as Invalid return u/s. 139(9) of the Act – is an order – revision maintainable.

24. Raj Rayon Industries Limited vs. Principal Commissioner of Income Tax PCIT, Mumbai – 3 and Ors.

[WRIT PETITION NO. 1904 OF 2025 order dated FEBRUARY 3, 2026 ]

Sec 264 – Revision – Communication treating a return as Invalid return u/s. 139(9) of the Act – is an order – revision maintainable.

The Petitioner filed its Return of Income for A.Y. 2022-2023 on 2nd November 2022, declaring a total loss of ₹45.47 Crores. After the Return of Income was filed, the Petitioner was served with the notice dated 14th December 2022 issued under section 139(9) of the Act. This notice was issued by Respondent No.2 stating that the Return filed by the Petitioner for the said Assessment Year was defective as the Petitioner had claimed gross receipts or income under the head “Profits and gains of Business of Profession” of more than ₹10 crores, and despite that, the books of accounts were not audited u/s. 44AB of the Act.

The Petitioner responded to the aforesaid notice and contended that since its turnover was less than ₹10 Crores, it was not required to have its books of accounts audited as required under Section 44AB of the Act. However, Respondent No.2, via an unreasoned order, merely held that the Return of Petitioner was invalid. Being aggrieved by this, the Petitioner filed an application before the 1st Respondent under Section 264 of the IT Act. The 1st Respondent, by the impugned order, held that the declaration of the Return of Income of the Petitioner as invalid, was not an order as contemplated under Section 264, therefore, dismissed the Revision Application as being not maintainable.

The Hon. Court held that the Respondent has completely misdirected himself when he held that declaring the Petitioner’s Return as invalid [by the CPC] was not an order as contemplated under Section 264. The Court observed that, the 1st Respondent referred to the definition of the word ‘order’ to be a mandate, precept, command or authoritative direction. Despite noting the aforesaid definition (in the dictionary), the 1st Respondent went on to hold that the so-called communication addressed by the CPC to the Petitioner was not an order as contemplated under Section 264. The Court held that a declaration given under Section 139(9) of the Act was clearly an order which was revisable under Section 264. It was certainly a mandate, or at the very least, an authoritative direction.

The Court referred the case of TPL-HGIEPL Joint Venture vs. Union of India [(2025) 173 taxmann.com 540 (Bombay)], wherein the case of the Revenue itself was that any declaration given under Section 139(9) of the Act was certainly revisable under Section 264. In fact, this submission of the Revenue was accepted by this Court and the Writ Petition filed by the Petitioner therein was not entertained, relegating the said Petitioner to invoke the remedy under Section 264 of the Act.

In view of the above, the order passed by the 1st Respondent was held to be unsustainable in law and was quashed and set aside. The Revision Application filed by the Petitioner was restored to the file of the 1st Respondent for a de novo consideration.

Sec 264 – Revision – Binding precedent – Authority refusing to follow Special Bench decision of the ITAT- judicial discipline ought to be maintained and cannot be deviated from on the ground that the order passed by the superior authority is “not acceptable” to the department.

23. Samir N. Bhojwani vs. Principal Commissioner of Income Tax, Mumbai & Ors.

[WRIT PETITION (L) NO. 37709 OF 2025 DATE: JANUARY 6, 2026]

Sec 264 – Revision – Binding precedent – Authority refusing to follow Special Bench decision of the ITAT- judicial discipline ought to be maintained and cannot be deviated from on the ground that the order passed by the superior authority is “not acceptable” to the department.

The Petitioner challenges the order passed by Respondent No.1 (Principal Commissioner of Income Tax) under Section 264 of the Income Tax Act, 1961. The main grievance of the Petitioner is that the impugned order refuses to follow the decision of the Special Bench of the ITAT in the case of SKF India Ltd. vs. Deputy Commissioner of Income Tax [2024] 168 taxmann.com 328 (Mumbai- Trib.) (SB).

The reasons given by the 1st Respondent for not following the decision of the Special Bench [in SKF (India)] is that the department has not accepted this decision of the ITAT Mumbai and the issue is being contested before the Hon’ble Bombay High Court. Thus, there was no finality on the issue of tax at the rate u/s 112 of the Act for capital gain u/s 50 of the Act and the decision of Special Bench cannot be equated in the nature of declaration of law by the Hon’ble Supreme Court under Article 141 of the Constitution of India or decision by the jurisdictional High Court.

The second ground, mentioned was that even prior to the Special Bench decision of the ITAT, there were conflicting views of various higher judicial authorities regarding the applicable tax rate on capital gains deemed to have arisen out of the transfer of short-term capital assets and even the Special Bench decision of the ITAT was not a Full Bench decision.

With regard to the above second ground, the Hon. Court observed that the decision of the Special Bench was rendered by three members of the ITAT. Therefore, the 1st Respondent came to the erroneous conclusion because one member of the bench dissented from the majority.

The Hon. Court further observed that the 1st Respondent has completely mis-directed himself by not following the binding decision of the ITAT in the case of SKF India (supra). It was not for the Commissioner to decide whether the ITAT was correct in its decision or otherwise. Even though in his personal opinion, he may be of the view that the decision has wrongly decided the law, he was bound to follow the same. If the lower authorities are permitted not to follow binding decisions because in their personal view, they feel that the decision was wrong, the same would lead to complete chaos in the administration of tax law. The Hon’ble Supreme Court in Union of India and Others vs. Kamlakshi Finance Corporation Ltd [1992 supp (1) SCC 443] has criticized this kind of conduct by the Revenue Authorities.

The decision of the Hon’ble Supreme Court was thereafter followed by the Court in the case of M/s. Om Siddhakala Associates vs. Deputy Commissioner of Income Tax, CPC [Writ Petition No. 14178 of 2023 decided on 28th March 2024]. Also, in the case of Dipti Enterprises vs. Assistant Director of Income Tax [Writ Petition No. 2621 of 2023 decided on 17th November 2025] has once again reiterated that the lower authorities are bound to follow the same.

The Court held that filing of an appeal by the revenue against the order of the Appellate Tribunal ipso-facto would not absolve the revenue authorities from adhering to the applicable binding judicial precedents. Secondly, the doctrine of binding precedents plays a vital role in tax jurisprudence. It was first required to be ascertained whether, in the facts and circumstances of the case and in law, a particular judicial precedent was factually and legally in consonance with the case in hand or not. If it was found that the precedent relied upon was distinguishable, then such parameters based on which it was distinguishable need to be described in the order.

The Hon. Court allowed the Writ Petition and quashed and set aside the impugned order passed under Section 264 of the Act. The matter was remanded to the 1st Respondent to pass a fresh order on the application filed by the Petitioner by following the decision of the Special Bench of the ITAT in the case of SKF India (supra). The Court clarified that the court have not endorsed the view taken by the Special Bench in SKF India (supra). It was held that judicial discipline ought to be maintained and cannot be deviated from on the ground that the order passed by the superior authority is “not acceptable” to the department.

Settlement Commission — Settlement of cases — Rectification of order of settlement u/s. 245D(6B) — Period of limitation — Application beyond six months of order — Barred by limitation —Petition of the Revenue was dismissed.

66. Principal CIT vs. Goldsukh Developers (P) Ltd.: (2025) 483 ITR 715 Bom): 2023 SCC OnLine Bom 3282: (2024) 2 Mah LJ 32

A. Y. 2014-15: Date of order 10/07/2023

S. 245D of ITA 1961

Settlement Commission — Settlement of cases — Rectification of order of settlement u/s. 245D(6B) — Period of limitation — Application beyond six months of order — Barred by limitation —Petition of the Revenue was dismissed.

The Respondent assessee had filed an application before the Settlement Commission for settlement, and the application of assessee came to be disposed of by an order dated September 20, 2016 wherein the assessee’s application was allowed u/s. 245D(4) of the Income-tax Act, 1961.

The said order was challenged by the Revenue by way of writ petition on February 10, 2017. The challenge in the petition was on the ground that there was failure on the part of assessee to make full and true disclosure of income. The assessee raised a preliminary objection on the ground that the said order was passed by consent of both the Revenue (petitioner) and the assessee (respondent No. 1.).

It was the petitioner’s case in the said writ petition that the settlement recorded by the Commission on the consent of the parties was to be ignored because it did not reflect the correct position. It was the case of the Revenue that it had consistently opposed the application of respondent No. 1 for settlement in view of the alleged failure to make full and true disclosure of income.

The High Court dismissed the petition on June 21, 2018, holding that it was not open to the Revenue to challenge the correctness of the fact recorded in the said order by the Commission, particularly when it was not even remotely the case of the Revenue that the consent was given/made on a wrong appreciation of law. The court, of course, held that the remedy for the Revenue would be to move the Commission to correct what, according to the Revenue was an incorrect recording of consent in the impugned order.

Following this, the Revenue (petitioner) filed an application u/s. 245D(6B) on November 22, 2018 before the Settlement Commission for rectification. By the impugned order dated January 15, 2019, the Commission dismissed the application of the petitioner. The Commission came to the conclusion that even if it excluded the time spent pursuing the writ petition from February 10, 2017 to June 21, 2018,the rectification application had still been filed beyond the six months period stipulated in section 245D(6B) and was thus barred by limitation.

The Revenue filed another writ petition challenging this order. The Bombay High Court dismissed the petition and held as under:

“i) We find no error in the finding of the Commission.

ii) Though it was not argued before us and we would keep it open to decide in a proper case, we have our own reservations as to whether the grievance raised by the petitioner before the Commission and in the said writ petition that the consent as recorded was not given would qualify to be a “mistake apparent from the record” which is the only thing the Commission may rectify.”

Revision of order u/s. 264 — Power of Commissioner — Assessee filed return in wrong Form and later corrected it, claiming exemption u/s. 54F — Assessee’s CA failed to respond to notice u/s. 142(1) resulting in passing of assessment order ex parte making additions — Revision application u/s. 264 filed before Principal CIT with all materials — Principal CIT accepted assessee’s case on merits in order but rejected revision application as not maintainable — Rejection based solely on earlier failure to respond to notice during assessment proceeding proceedings — Power of Commissioner u/s. 264 wide to remedy bona fide mistakes — Earlier non-compliance with notice cannot render subsequent revision application not maintainable — Order rejecting revision application quashed and matter remanded to Principal CIT.

65. Ramesh Madhukar Deole vs. Principal CIT: (2025) 483 ITR 802 (Bom): 2024 SCC OnLine Bom 5145

A. Y. 2018-19: Date of order 18/11/2024

Ss. 54F, 142(1) and 264 of ITA 1961

Revision of order u/s. 264 — Power of Commissioner — Assessee filed return in wrong Form and later corrected it, claiming exemption u/s. 54F — Assessee’s CA failed to respond to notice u/s. 142(1) resulting in passing of assessment order ex parte making additions — Revision application u/s. 264 filed before Principal CIT with all materials — Principal CIT accepted assessee’s case on merits in order but rejected revision application as not maintainable — Rejection based solely on earlier failure to respond to notice during assessment proceeding proceedings — Power of Commissioner u/s. 264 wide to remedy bona fide mistakes — Earlier non-compliance with notice cannot render subsequent revision application not maintainable — Order rejecting revision application quashed and matter remanded to Principal CIT.

For the A. Y. 2018-2019, the assessee filed the return of income in wrong Form and subsequently filed the corrected return of income under ITR-3, wherein he claimed deductions and exemptions from capital gains u/s. 54F of the Income-tax Act, 1961. The assessee’s Chartered Accountant failed to respond to the notice u/s. 142(1) of the Act. Consequently, the Assessing Officer passed an ex parte assessment order u/s. 143(3) making additions.

Therefore, the assessee filed revision application u/s. 264 of the Act, praying for deletion of additions. The petitioner submitted all materials in that support of the claim. The Principal Commissioner accepted the assessee’s case on merits but rejected the revision application as not maintainable solely on the ground that the assessee had failed to produce certain materials in response to the notice u/s. 142(1) during the assessment proceedings.

The assessee filed a writ petition challenging the order of rejection. The Bombay High Court allowed the writ petition and held as under:

“i) The Principal Commissioner of Income-tax should not have rejected the petitioner’s revision application as not maintainable. We are of the clear opinion that the cause in the present case warranted that the revision be decided on merits and more particularly considering the case of the petitioner, which although was noticed in paragraph 6 of the impugned order, was not taken to its logical conclusion, merely on an erroneous presumption in law that the revision is not maintainable for a reason that the petitioner had failed to produce certain materials in response to notice u/s.142(1) of the Act. In our opinion, there is a manifest error on the part of the Principal Commissioner of Income-tax in coming to such conclusion to hold the revision not maintainable in the facts of the present case.

ii) The impugned order dated March 24, 2023 is quashed and set aside. The petitioner’s revision application are remanded to the Principal Commissioner of Income-tax to be decided in accordance with law and an appropriate order be passed thereon within a period of three months from today.”