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Category: Direct Taxes

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.”

Revision — Erroneous and prejudicial order — Lack of proper enquiry — Initiation of 263 at the instance of the AO cannot be done — Finding of the Tribunal well founded — Reliance upon notes submitted by the assessee before the AO — Cannot be stated that the AO did not consider all the factors and accepted the plea of the assessee and completed assessment — CIT is required to consider the explanation offered and take a decision — Failure to render any finding by CIT — Revision u/s. 263 not sustainable.

64. Principal CIT vs. Britannia Industries Ltd.

(2025) 346 CTR 242 (Cal.)

A. Y. 2018-19: Date of order 09/07/2025

S. 263 of ITA 1961

Revision — Erroneous and prejudicial order — Lack of proper enquiry — Initiation of 263 at the instance of the AO cannot be done — Finding of the Tribunal well founded — Reliance upon notes submitted by the assessee before the AO — Cannot be stated that the AO did not consider all the factors and accepted the plea of the assessee and completed assessment — CIT is required to consider the explanation offered and take a decision — Failure to render any finding by CIT — Revision u/s. 263 not sustainable.

The scrutiny assessment for A.Y. 2018-19 was completed u/s. 143 of the Income-tax Act, 1961 by an order dated 22/03/2021. Subsequently, notice u/s. 263 of the Act was issued, requiring the assessee to show cause why the assessment order should not be treated as erroneous or prejudicial to the interest of the Revenue. The assessment order was sought to be revised on, inter alia, applicability of section 56(2)(x) to the acquisition of leasehold land and building and the disallowance of claim u/s. 43B in relation to reversal or write back of provision for liabilities. Though the assessee filed a response objecting to the revision of the assessment order, the Principal Commissioner passed an order u/s. 263 setting-aside the assessment order and directing the Assessing Officer to pass the order afresh after considering the issues on which revision was sought to be made.

Against the said order of revision, the assessee filed an appeal before the Tribunal, which was allowed.

The Calcutta High Court dismissed the appeal of the Department and held as follows:

“i) A reading of s. 263 of the Act would clearly show that unless and until the twin conditions are satisfied that the assessment order should be erroneous and it should be prejudicial to the interest of Revenue, the power under s. 263 of the Act cannot be invoked. Apart from that, the statute mandates that the Principal CIT should inquire and be satisfied that the case warrants exercise of its jurisdiction under s. 263 of the Act and such satisfaction should be manifest in the show-cause notice which is issued under the said provision.

ii) The Tribunal considered the factual position and found that out of the five issues which were raised in the show-cause notice issued u/s. 263 of the Act, except for three issues the explanation offered by the assessee in respect of the other issues were accepted by the Principal CIT. Furthermore, on facts, it is clear that the Principal CIT invoked its jurisdiction u/s. 263 of the Act at the instance of the Assessing Officer, which was incorrect. Therefore, the finding of the learned Tribunal that the Principal CIT could not have invoked its power u/s. 263 of the Act solely based upon the reference made by the Assessing Officer is well founded.

iii) As regards the merits of the case, i.e. regarding the applicability of section 56(2)(x) to the transaction of purchase of land by the assessee from Bombay Dyeing & Manufacturing Company Ltd., it is undisputed that all the facts were placed before the AO and they were also disclosed in the notes of the tax audit report and the notes to the computation of income filed along with the return of income and those were scrutinised by the Assessing Officer. In fact, the learned Tribunal has extracted the relevant portion of the notes filed by the assessee before the Assessing Officer. Therefore, it cannot be stated that the Assessing Officer did not take into account all the factors and had accepted the plea of the assessee and completed the assessment. Therefore, the Principal CIT to invoke its power under s. 263 of the Act has to apply its mind to the audit report and record its satisfaction that the twin conditions required to be complied with under s. 263 of the Act have not been satisfied. Therefore, the Tribunal was fully justified in holding that the Principal CIT could not have invoked its power under s. 263 of the Act. Though in the show-cause notice it is alleged that these aspects were not taken into consideration by the Assessing Officer, curiously enough in the order passed u/s. 263 of the Act dated 29/03/2023 the Principal CIT states that the Assessing Officer has not considered these aspects during the course of assessment; he has not made any inquiry on the issue nor did he issue any questionnaire in this regard and also held that the assessee in its reply dated 13/03/2023 did not contradict these facts. This finding rendered by the Principal CIT in its order is factually incorrect and the outcome of total non-application of mind. Therefore, the finding rendered by the learned Tribunal is fully justified.

iv) As regards the disallowance of claim u/s. 43B in relation to reversal or write back of provision for liability, the Principal CIT, while passing the order u/s. 263 of the Act miserably failed to render any finding despite the fact that the assessee placed reliance on the decision in the case of Principal CIT vs. Eveready Industries India Ltd. and, accordingly, set aside the order passed by the Assessing Officer with a direction to the Assessing Officer to examine whether the decision in the case of Eveready Industries India Ltd. would be applicable to the case of the assessee or not after giving due opportunity of being heard to the assessee. The manner in which the Principal CIT has dealt with this issue is wholly untenable and, therefore, the learned Tribunal was justified in setting aside the order passed by the Principal CIT on that score. Tribunal was right in allowing the assessee’s appeal and setting aside the order passed by the Principal CIT.”

Power of Tribunal — Admission of additional evidence — Rule 29 of ITAT Rules, 1963 — Admission only at the instance of the Tribunal — Parties to the appeal are not entitled as a matter of right to produce additional evidence — Order of the Tribunal allowing the admission of additional evidence held to be in gross violation of the procedure contemplated under Rule 29 — Order of the Tribunal liable to be set-aside.

63. Nuziveedu Seeds Ltd. vs. CCIT

TS-150-HC-2026(Tel.)

A.Ys.: 2012-13 and 2013-14: Date of order 30/01/2026

Rule 29 of the Income Tax Appellate Tribunal Rules, 1963

Power of Tribunal — Admission of additional evidence — Rule 29 of ITAT Rules, 1963 — Admission only at the instance of the Tribunal — Parties to the appeal are not entitled as a matter of right to produce additional evidence — Order of the Tribunal allowing the admission of additional evidence held to be in gross violation of the procedure contemplated under Rule 29 — Order of the Tribunal liable to be set-aside.

The assessee, a public limited company, engaged in the research, production and sale of hybrid seeds and crops. In the scrutiny assessment for A. Y. 2012-13 and 2013-14, addition and disallowance was made u/s. 10(1) and section 14A of the Act.

On appeal before the CIT(A), the appeal of the assessee was partly allowed, wherein the addition made u/s. 10(1) of the Act was deleted and the disallowance made u/s. 14A of the Act was confirmed. Against the order of the CIT(A), cross appeals were filed by the assessee and the department. The Tribunal remanded the matter to the Assessing Officer with a direction to examine the nature of business of the assessee and to determine whether the nature of the business was agricultural or not, and also to recompute the disallowance depending upon the determination of the nature of the business of the assessee.

During the pendency of the appeal before the Tribunal, a search was conducted at the business premises of the assessee, wherein certain incriminating material was found. Thereafter, notice u/s. 153A of the Act was issued. Pending the appeal before the Tribunal, the Department filed an application before the Tribunal for admission of additional evidence to bring on record before the Tribunal, the alleged incriminating material / documents found during the course of search. Despite the assessee’s opposition to the admission of the incriminating material as additional evidence, the Tribunal allowed the application. On the basis of the said documents, the Tribunal concluded that the addition u/s. 10(1) was not sustainable and remanded the matter to the AO as regards the disallowance u/s. 14A of the Act.

On appeal before the High Court, the assessee challenged the order of the Tribunal on the ground that the Tribunal was not justified in invoking Rule 29 of the ITAT Rules, 1963 and in accepting the additional evidence since Rule 29 expressly prohibits the department from bringing on record such additional evidence. Further, the assessee also challenged the order of the Tribunal on the ground that the Tribunal was not justified in taking into account the evidence of proceedings u/s. 153A of the Act as the proceedings u/s. 153A are separate and the same could not be relied upon in an appeal before the Tribunal.

The Telangana High Court decided the appeal, in favour of the assessee and held as follows:

“i) A perusal of Rule 29 of the Rules, makes it clear that the very foremost words of the Rule explicitly provide that the parties to an appeal are not entitled, as a matter of right, to produce additional evidence, either oral or documentary, before the Tribunal. The Rule further makes it clear that it is the Tribunal alone, which is competent to direct either party to produce any witness to be examined or affidavit to be filed or may allow such evidence to be adduced.

ii) Rule 29 of the ITAT Rules, abundantly makes it clear that neither of the parties to the appeal can independently file additional evidence, either oral or documentary and it is only the Tribunal on its own can direct either of the parties to produce any documents or witness or any affidavit to be filed for determination of the dispute and if the income tax authorities decide the case without giving sufficient opportunity to the assessee either on the points specified or not specified, the Tribunal may, for reasons to be recorded, permit the production of such evidence by the assessee. The words envisaged in Rule 29, therefore leaves no scope for either the Revenue or the assessee to file applications to adduce evidence as a matter of right. Only the learned ITAT alone is empowered to direct either of the parties to produce additional evidence and only in the cases where there is total denial of giving sufficient opportunity to the assessee, the assessee has got a right to file such application seeking permission to adduce additional evidence.

iii) The learned ITAT exceeded in its jurisdiction and acted in gross violation of Rule 29 by allowing the application filed by the Revenue in a routine manner and remanding the matter to the Assessing Authority for fresh determination.

iv) The judgements relied upon by the department were distinguishable on the ground that in those cases, the discretion of the Tribunal was exercised to admit additional evidence for substantial causes or where the evidence could not be produced before the lower authorities due to genuine difficulties, such as non-retrievability of emails or documents. The Tribunal, in those cases, acted after determining that the evidence was necessary for proper adjudication. Further, many of those judgments arose under different statutory provisions, such as Order XLI Rule 27 and or other laws, and did not specifically consider Rule 29 of the Rules as that fall for consideration in the instant case. None of the judgments expressly held that either party could file an application for additional evidence as a matter of right under Rule 29

v) In the instant case, the application filed by the Revenue as a matter of right, was allowed by the learned ITAT, without proper appreciation of Rule 29, which is impermissible in law. We are of the considered view, that the impugned orders of the learned ITAT are in gross violation of procedures contemplated under Rule 29 of the Rules and the learned ITAT exceeded its jurisdiction and thus, the impugned order are liable to be set aside.”

Intimation u/s. 143(1) — Adjustment to the return of income — First proviso — Mandatory in nature — No adjustment to be made unless an opportunity is given to the assessee — No prior opportunity to the assessee before making adjustment — Intimation u/s. 143(1) is liable to be quashed and set-aside.

62. Bax India Ventures Pvt. Ltd. vs. CPC

2026 (2) TMI 319 Bom.

Date of order: 02/02/2026

Ss. 143(1) of ITA 1961

Intimation u/s. 143(1) — Adjustment to the return of income — First proviso — Mandatory in nature — No adjustment to be made unless an opportunity is given to the assessee — No prior opportunity to the assessee before making adjustment — Intimation u/s. 143(1) is liable to be quashed and set-aside.

The Assessee company filed its return of income u/s. 139(8A) and claimed the benefit of lower rate of tax as per section 115BAA of the Income-tax Act, 1961. Along with the return filed u/s. 139(8A), the assessee also filed Form 10-IC which was mandatory as per section 115BAA of the Act. However, the Assessee’s claim was denied, and an adjustment was made in the Intimation order u/s. 143(1)(a) of the Act.

The Assessee challenged the said Intimation order by way of writ petition before the High Court on the ground that the assessee was not given prior intimation about the proposed adjustment and therefore the Intimation order passed u/s. 143(1)(a) of the Act was not sustainable and ought to be set-aside.

The contention of the Department was that the present case was that of denying the beneficial rate of tax to the assessee and not that of adjustment to the total income or loss and therefore there was no need to provide an opportunity to the assessee. Further, since the assessee had failed to file the return of income along with Form 10-IC by the due date mentioned u/s. 139(1), the tax was correctly levied at the normal rate of tax.

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

“i) Admittedly, no intimation was given to the assessee as contemplated in the first proviso to Section 143 (1) (a). The first proviso, in our opinion, is clearly mandatory in nature, as it clearly stipulates that no adjustment ‘shall be made’ unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. Once this is a mandatory provision, no Intimation order u/s. 143(1)(a) can be passed, making any adjustment in the Return of Income filed by the assessee, unless such proposed adjustment is first intimated to the assessee and he has been given a chance to respond thereto.

ii) In the facts of the present case, no intimation as contemplated under the first proviso to Section 143(1)(a) was ever issued to the Petitioner. This is an undisputed fact. On this ground alone, the Intimation order dated 1st December, 2025, issued u/s. 143(1)(a), is liable to be quashed and set aside.

iii) We are unable to agree with the submission of the learned Advocate appearing on behalf of the Revenue that this exercise would be an exercise in futility because in the facts of the present case, admittedly, Form 10-IC was not filed by the due date. There could very well be a case where, after belatedly filing a return and belatedly filing Form 10-IC, and before the Intimation order is passed u/s. 143 (1)(a), the Petitioner could have obtained an order seeking condonation of delay in filing form 10-IC u/s. 119(2)(b) of the Act. This could possibly be the response that the assessee may give to the CPC in respect of the notice issued under the first proviso to Section 143(1) (a) and contend that the proposed adjustment ought not to be made. It is therefore incorrect to suggest that the intimation proposing an adjustment, as contemplated under the first proviso to Section 143(1)(a), would be an exercise in futility. Once we find that the said provision is mandatory in nature, the same has to be complied with by the Revenue. The Revenue cannot decide in which case it would be futile and in which case it would not.

iv) The Department is free to issue a notice to the assessee as contemplated under the first proviso to Section 143(1)(a) as well as take the response of the Petitioner, if any, into the consideration, and only thereafter pass a fresh Intimation order as contemplated u/s. 143(1)(a)”

Equalisation levy — Refund — Interest on refund — Refund granted as excess Equalisation levy paid by assessee after three years — Obligation on Department to pay interest as compensation for use and retention of money collected in excess — Department’s contention that statute does not provide for payment of interest on refund of equalisation levy not tenable — High Court directed the Department to pay interest at the rate of six per cent from April 1 of the year following the financial year in which excess payments made by assessee till date of actual refund.

61. Group M Media India (P) Ltd. vs. Dy. CIT (International Tax): (2025) 483 ITR 593 (Bom): 2023 SCC OnLine 2740: (2024) 336 CTR 270 (Bom)

A. Y. 2018-19: Date of order 18/12/2023

S. 244A of ITA 1961 and Ss. 164(i), 165, 166 and 168(1) of the Finance Act, 2016

Equalisation levy — Refund — Interest on refund — Refund granted as excess Equalisation levy paid by assessee after three years — Obligation on Department to pay interest as compensation for use and retention of money collected in excess — Department’s contention that statute does not provide for payment of interest on refund of equalisation levy not tenable — High Court directed the Department to pay interest at the rate of six per cent from April 1 of the year following the financial year in which excess payments made by assessee till date of actual refund.

The petitioner assessee availed “specified services” as defined in clause (i) of section 164 of the Finance Act, 2016, effective from April 1, 2016. Section 164 of the Finance Act, 2016 ((2016) 384 ITR (Stat) 1) provides in clause (i), unless the context otherwise requires, “specified service” means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government.

For the A. Y. 2018-19, the petitioner filed its statement of specified income originally on June 26, 2018 disclosing the total consideration for specified services at ₹3,99,41,76,889 and equalisation levy of ₹23,96,50,668. After declaring the total levy paid of ₹23,96,50,670, the assessee claimed a refund of ₹4,23,60,940.

By an intimation/order u/s. 168(1) of the Finance Act, 2016 the Department determined the refund at ₹4,23,60,940. However, despite repeated requests, the refund was not given. The assessee therefore filed a writ petition alleging that there is failure on the part of the respondents to release the undisputed refund due and determined by the respondents themselves in the intimation/order issued u/s. 168(1) of the Finance Act, 2016 ((2016) 384 ITR (Stat) 1) for the F. Y. 2017-2018 corresponding to the A. Y. 2018-2019 despite reminders sent and for a direction to the respondents to refund an admitted amount of ₹4,23,60,940 plus interest thereon. After filing the writ petition the Department gave the refund of the amount but refused to give interest on refund.

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

“i) The issue that remains to be decided in this petition is whether the petitioner was entitled to interest on the amount refunded.

ii) The stand of the Revenue is interest is not provided for refund of amounts deposited under the equalisation levy and, therefore, the question of payment of any interest does not arise.

iii) When the collection is illegal, there is corresponding obligation on the Revenue to refund such amount with interest in-as-much as they have retained and enjoyed the money deposited.

iv) In Union of India vs. Tata Chemicals Ltd. [(2014) 363 ITR 658 (SC); (2014) 6 SCC 335; (2014) 3 SCC (Civ) 553; 2014 SCC OnLine SC 176; (2014) 43 taxmann.com 240 (SC).] the apex court also held that refund due and payable to the assessee is debt owed and payable by the Revenue.

v) In the present case, it is not in doubt that the petitioner was entitled to refund of ₹4,23,60,940 because the amount has been paid after the petition was filed. Since the excess amount has been paid over by the petitioner on various dates during the F. Y. 2017-2018, in our view, the refund ought to have been processed and paid latest by July 31, 2018. The interest, therefore, of course, will become payable from April 1, 2018 if we apply the principles prescribed in section 244A of the Act. The amount, as noted earlier, has been paid only on August 21, 2023. Consequently, we are of the view that the petitioner is entitled to interest on this amount of ₹4,23,60,940 from April 1, 2018 up to August 21, 2023 at the rate of six per cent. per annum which is the rate prescribed u/s. 244A of the Act.

vi) This order shall be given effect to and the interest shall be paid over on or before February 15, 2024. If not paid, with effect from February 16, 2024, the rate of interest payable will be at nine per cent. per annum until the date of payment.

vii) This will be in addition to other proceedings to hold the Department and concerned officers to be in wilful disobedience of the orders passed by this court. The difference of three per cent. (nine per cent. – six per cent.) will be recovered from the Officer who will be responsible to have the interest paid.”

Article 8 of India-Ireland DTAA – in absence of specific notification under Section 90 of the Act, DTAA cannot be said to have been modified through Multilateral Instrument ; on facts, consideration received by Irish company from dry lease of aircraft was taxable only in Ireland under Article 8 of India-Ireland DTAA

19. [2025] 177 taxmann.com 579 (Mumbai – Trib.)

Sky High Appeal XLIII Leasing Company Ltd. vs. ACIT (International Taxation)

IT APPEAL NOS. 1122, 1106, 1198, 1157, 1108, 1156 AND 1155 (MUM) OF 2025

A.Y.: 2022-23 Dated: 13 August 2025

Article 8 of India-Ireland DTAA – in absence of specific notification under Section 90 of the Act, DTAA cannot be said to have been modified through Multilateral Instrument ; on facts, consideration received by Irish company from dry lease of aircraft was taxable only in Ireland under Article 8 of India-Ireland DTAA

FACTS

The Assessee, a tax resident of Ireland, was incorporated in 2018. A licensed corporate service provider in Ireland managed the day-to-day operations of the Assessee. Ireland’s tax authorities had granted a tax residency certificate (“TRC”) to the Assessee. The Assessee was engaged in business of aircraft leasing globally. The Assessee had entered into dry operating lease agreements with an Indian airline company (“Ind Co”). In respect of the relevant year, the Assessee filed its return of income (“ROI”) declaring nil taxable income on the footing that, in terms of Article 8 of India-Ireland DTAA, consideration received by it from Ind Co was taxable only in Ireland.

The AO invoked Articles 6 and 7 of the Multilateral Instrument (“MLI”) that modified the provisions of India-Ireland DTAA and observed that: (a) the ultimate beneficiary was located in Cayman Islands; (b) Assessee did not have any employee; (c) daily affairs of Assessee were managed by third-party service providers; and (d) Assessee’s directors held positions in multiple other Irish companies. The AO further observed that the leases were in the nature of finance leases. Accordingly, he taxed the consideration as royalty under Article 12 of India-Ireland DTAA. The DRP further held that in absence of employees and infrastructure, Ireland operations could not be considered genuine. It further observed that the Assessee retained ultimate control over leased aircraft. Accordingly, the DRP upheld the order of the AO.

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

HELD

(a) Application of MLI

The Hon’ble Supreme Court (“SC”) in Nestle SA [458 ITR 756], while interpreting the Most Favoured Nation (“MFN”) provisions in the protocol, has held that a separate notification under Section 90(1) of the Act was required to import the benefit from a subsequent DTAA into an existing DTAA.

India and Ireland had ratified their final MLI positions in 2019. India issued a notification regarding the adoption of the MLI. However, a separate notification highlighting the consequences/impact of the MLI on India-Ireland DTAA was not issued. As per the principles upheld in Nestle SA (supra), a separate notification was a prerequisite for applying the modifications to DTAA caused by MLI provisions, and MLI cannot be regarded as a self-operating instrument. Accordingly, Articles 6 and 7 of MLI could not be applied to deny DTAA benefits.

A TRC issued by foreign tax authorities could not be questioned unless it was a case of fraud.

A Principal Purpose Test (“PPT”) could not be applied merely because taxpayer derived a benefit provided by a DTAA or if its parent entity was located in a third country. In a global context, a Special Purpose Vehicle (“SPV”) usually does not have a dedicated workforce and is generally managed by service providers. Based on the evidence submitted, the SPV had assumed real economic risk.

A benefit cannot be denied under PPT if the object and purpose of relevant DTAA provision is to grant such benefits. On a holistic reading of Articles 8 and 12, the object of DTAA was to exclude aircraft leasing from the scope of source-country taxing rights.

(b) Nature of Lease

The terms of the lease clearly indicated that it was a dry lease. In the event of default, the lessor may take possession of the aircraft, and at the end of the lease period, the aircraft must be returned to the lessor. One need not travel beyond contract terms, unless the transaction was a sham.

Having regard to the terms of the agreement, Guidelines of DGCA, classification by RBI, statutory definition, and ruling of coordinate bench of ITAT in Celestial Aviation Trading [2025] 176 taxmann.com 902 (Delhi – Trib.), lease of aircraft was an operating lease.

(c) Permanent Establishment

As per agreement, the aircraft was under the control and disposal of the lessee. DGCA Guidelines required lessee to have operational control over the aircraft. Lessor rights towards periodic inspection, compliance with maintenance standards, and repossession in case of default cannot confer any right of disposal over the asset/place. Hence, presence of aircraft of assessee on a lease basis cannot constitute a permanent establishment.

Based on the above, the ITAT held that in terms of Article 13 of India-Ireland DTAA, the consideration received by the Assessee for lease of aircraft was taxable only in Ireland.

Author’s Note:

One may need to take into account the impact of the SC Decision in AAR vs. Tiger Global International II Holdings [2026] 182 taxmann.com 375 (SC), to the extent the decision may be regarded as laying down guiding, binding principles. Although the SC was concerned with, and decided whether AAR was right in rejecting the petition as involving a prima facie case of tax avoidance, the tribunal’s ruling, to the extent it is contrary to the SC’s binding ratio will require reconsideration.

Where the assessee had utilised its limited funds mainly for construction of a Satsang Bhawan in accordance with its charitable objects, its mere inability to carry out other charitable activities on account of paucity of funds could not be a ground for denial of registration under section 12AB / section 80G.

90. (2026) 182 taxmann.com 202 (Lucknow Trib)

Kirti Mahal Satsang Bhawan Trust vs. CIT

A.Y.: 2023-24 Date of Order: 05.01.2026

Section : 12AB, 80G

Where the assessee had utilised its limited funds mainly for construction of a Satsang Bhawan in accordance with its charitable objects, its mere inability to carry out other charitable activities on account of paucity of funds could not be a ground for denial of registration under section 12AB / section 80G.

FACTS

The assessee submitted applications in Form No. 10AB on 27.06.2024 seeking registration under section 12AB as well as approval under section 80G. Both the applications were rejected by CIT (E) on the ground that the assessee was not carrying out any substantial charitable activity as per objects of the trust and the genuineness of charitable activities being carried out by the trust had not been satisfactorily established.

Aggrieved, the assessee filed appeal before ITAT.

HELD

The Tribunal set aside the orders of the CIT(E) and directed him to grant registration under sections 12AB and approval under section 80G, holding that the assessee’s limited funds were mainly utilised for construction of the Satsang Bhawan, which was in in accordance with its charitable objective. It further observed that the inability to undertake other charitable activities was solely due to paucity of funds which was used mainly for construction of Satsang Bhavan. It noted that the construction of the Satsang Bhawan had now been completed and the assessee was presently carrying out charitable activities, including Satsang.

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

A securitisation trust formed in accordance with the SARFAESI Act and RBI Guidelines is a revocable trust within the meaning of section 61 / 63 and consequently its income is not chargeable to tax in the hands of trust but in the hands of the Security Receipt Holders; accordingly, such trust cannot be assessed as an AOP under section 164.

89. (2026) 182 taxmann.com 849 (Mum Trib)

ITO vs. Arcil Retail Loan Portfolio -001- A- Trust

A.Y.: 2016-17

Date of Order: 22.01.2026 Section: 61, 63, 164

A securitisation trust formed in accordance with the SARFAESI Act and RBI Guidelines is a revocable trust within the meaning of section 61 / 63 and consequently its income is not chargeable to tax in the hands of trust but in the hands of the Security Receipt Holders; accordingly, such trust cannot be assessed as an AOP under section 164.

FACTS

The assessee was constituted as a trust by Asset Reconstruction Company (India) Ltd. (ARCIL) pursuant to the provisions of the SARFAESI Act, 2002 and RBI Guidelines for the purpose of acquisition and resolution of Non-Performing Assets. Funds were raised by issuance of Security Receipts (SRs) to Qualified Institutional Buyers. ARCIL functioned as settlor, trustee and asset manager of the assessee-trust. The trust filed its return of income for A.Y. 2016-17 declaring total income at Rs. NIL, after claiming exemption on income of ₹27,63,75,223 under section 61 read with section 63. The return was processed under section 143(1) of the Act and the case was selected for complete scrutiny under CASS.

The AO held that the assessee could not be regarded as a trust for the purposes of sections 61 to 63 and that, on the facts, the contributors and beneficiaries had joined in a common purpose of earning income and therefore, constituted an Association of Persons within the meaning of section 2(31). The AO further held that the trust was neither revocable nor determinate, that the provisions of section 164 were attracted, and that even otherwise the assessee was liable to be assessed as an AOP. Accordingly, the claim of exemption under sections 61 to 63 was denied and the AO assessed the total income of the assessee at ₹30,33,45,950 and initiated penalty proceedings under sections 271(1)(b) and 271(1)(c).

On appeal, CIT(A) allowed the appeal of the assessee in full.

Aggrieved, the revenue filed an appeal before ITAT.

HELD

On the questions of whether the assessee trust is revocable or irrevocable for the purposes of sections 61 to 63 and whether it is liable to be assessed as an Association of Persons and consequently whether the income can be brought to tax in the hands of the trust by invoking section 164, the Tribunal observed as follows:

(a) Sections 61 to 63 form a self-contained code dealing with taxation of income arising from revocable transfers. The legislative scheme is explicit that where the transferor retains, directly or indirectly, the right to re-assume control over income or assets, such income cannot be assessed in the hands of an intermediary entity but must be taxed in the hands of the transferor. Section 63 deliberately adopts a wide and inclusive definition of both “transfer” and “revocable transfer”. The statute does not prescribe that revocation must be unilateral, unconditional, or exercisable by an individual contributor. What is required is the existence of a contractual or legal mechanism for re-transfer of assets or re-assumption of power. This statutory scheme must be read harmoniously with the regulatory framework governing securitisation trusts, which are mandated under the SARFAESI Act and RBI Guidelines to operate as passthrough vehicles with beneficial ownership resting with Security Receipt Holders.

(b) On a plain reading of Clause 5.2 of the Trust Deed, it can be seen that the Security Receipt Holders were expressly conferred a right to revoke their contributions during the subsistence of the trust. Upon such revocation, the entire Trust Fund stood retransferred to the Security Receipt Holders or their designees in proportion to their holdings, the scheme itself stood dissolved, the trustee ceased to act as trustee, and the Security Receipts stood extinguished. These provisions clearly satisfied both limbs of section 63(a).

(c) It is evident that section 63 does not mandate unilateral or unconditional revocation, and that a revocation mechanism embedded in the governing instrument is sufficient. Collective revocation does not dilute the revocable character of the transfer.

(d) The formation of the assessee trust was statutorily mandated under the SARFAESI Act and RBI Guidelines. The trust was not a voluntary association of persons coming together for a common purpose, but a regulatory vehicle created for securitisation. The trustee functioned independently and exclusively in accordance with the Trust Deed. There was no joint management, no sharing of responsibilities, and no common volition among Security Receipt Holders so as to constitute an AOP.

(e) The beneficiaries were clearly identifiable with reference to the Trust Deed, offer documents and contribution records, and their respective shares were determinable in proportion to Security Receipts held. Merely because the names of beneficiaries were not set out in the Trust Deed itself did not render the trust indeterminate. This position is well settled by judicial precedents.

(f) Once it is held that the trust is revocable, section 164 has no independent application. Sections 61 to 63 override section 164 in cases of revocable transfers. The AO’s attempt to apply section 164, therefore, proceeded on an incorrect legal premise.

(g) The legislative intent to treat securitisation trusts as passthrough entities is further reinforced by later amendments and CBDT clarifications. The Finance Bill, 2016 expressly recognised securitisation trusts, including those set up by ARCs, as vehicles through which income is to be taxed in the hands of investors and not the trust. These amendments are clarificatory in nature, explaining the manner of taxation rather than altering the character of such trusts. They fortify the conclusion that, even prior to the amendments, the law recognised the trust as a conduit and not as a separate taxable entity in respect of such income.

Observing that its decision is supported by a series of decisions of the coordinate benches of the Tribunal, the Tribunal dismissed the appeal of the revenue and affirmed the order of CIT(A).

Where the assessee-company operating a solar power plant supplied electricity exclusively to its holding company, the activity could not be regarded as being carried out for “preservation of environment” / “charitable purpose” under section 2(15), as the dominant object was to benefit a single related entity rather than the public at large or a defined section of the public; accordingly, the assessee was not entitled to registration under section 12AB.

88. (2026) 182 taxmann.com 242 (Bang Trib)

Infosys Green Forum vs. ITO

A.Y.: N.A.

Date of Order : 12.01.2026

Section: 2(15), 12AB

Where the assessee-company operating a solar power plant supplied electricity exclusively to its holding company, the activity could not be regarded as being carried out for “preservation of environment” / “charitable purpose” under section 2(15), as the dominant object was to benefit a single related entity rather than the public at large or a defined section of the public; accordingly, the assessee was not entitled to registration under section 12AB.

FACTS

“I” Ltd. set up a 40 MW solar power plant on leasehold land as part of its Corporate Social Responsibility (CSR) activities. As the amount spent resulted in capital assets, as per rule 7(4) of the CSR Rules, 2014, such assets were required to be transferred to a new section 8 company. Therefore, the assessee-company was incorporated as a non-profit company under section 8 of the Companies Act, 2013 on 31.8.2021 by “I” Ltd. (as its 100% shareholder) with the object, inter alia, of promoting clean energy and environmental sustainability. Thereafter, “I” Ltd. and the assessee-company entered into an agreement to transfer the solar power project to the assessee. They also entered into a power supply agreement whereby the assessee was required to sell the power generated from the solar plant at Tumkur district, Karnataka exclusively to “I” Ltd at agreed rates.

The assessee-section 8 company obtained provisional registration under section 12AB on 2.10.2021 for AY 2022-23 to 2024-25 on the ground that its activities of running a solar power plant fell within the category of “preservation of environment” under section 2(15). Thereafter, the assessee filed an application for permanent registration under section 12AB and section 80G.

CIT(E) rejected the application for registration under section 12AB (and also cancelled the provisional registration) on the ground that activity of generation of power and operating as a captive solar power plant was a commercial venture which was not a charitable activity under ‘preservation of environment’ and thus did not fall within the definition of section 2(15).

Aggrieved, the assessee filed appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) While setting up of a solar power plant is an activity which preserves the environment, the predominant or primary object test for “charitable purpose” is that benefit must enure to the public or a section/ class of the public. It is also not necessary that all persons universally benefit from the activities mentioned in section 2(15). Benefit to
sufficiently wide or defined section of public will suffice so long as private gain to a particular person is not the dominant object. Naturally, incidental benefit to individuals does not disentitle the assessee claiming it to be for “charitable purpose”.

(b) Upon detailed analysis of the power supply agreement, assets transfer agreement and other evidence, it could be seen that there was no benefit to the public at large or a section of a public at all. The dominant object of the whole exercise was to get the power for “I” Ltd. through captive solar power plant shown as CSR activity and then make an attempt to claim the benefit of registration under section 12AB and section 80G.

(c) In common parlance, the facts of the assessee were not different from a case where a donor sets up school for his own children and claims it as “educational activity”, or a company setting up a hospital exclusively for its own promoters / employees and claiming it as “medical relief”, or setting up own yoga centre for himself and claiming it as “Yoga” etc. Putting a solar panel over one’s house was also preservation of environment, but these are not charitable purposes as these do not have dominant object of benefit to others, that is, public at large. These are benefit to self. In all these cases there is no public benefit at large.

On the argument of the assessee that two wings of the Government cannot take a different view, the Tribunal observed that the view under the Companies Act (as stated in MCA Circular No. 21 / 2021 dated 25.8.2021) and provisions of section 2(15) of the Act are in consonance with each other and has taken a similar view that activity for the benefit of one person cannot be a CSR activity and the same is also not charitable. Both the Acts say that dominant object must be for the benefit of public or a defined section of public.

Accordingly, the Tribunal dismissed the appeals of the assessee and upheld the order of CIT(E) in not granting registration under section 12AB and approval under section 80G.

An order passed without considering a binding precedent, though not cited at the time of hearing, constitutes a mistake apparent on record.

87. TS-207-ITAT-2026 (Delhi)

Tigre SAS Liquors India Pvt. Ltd. vs. DCIT

A.Y.s: 2013-14 & 2014-15

Date of Order : 18.2.2026 Section: 254

FACTS:

The assessee filed an application u/s 254(2) of the Act, on the basis that the grounds no. 2 & 3 raised by the Appellant in ITA No. 7969/Del/2018 (AY 2014-15) was against confirming the ad-hoc disallowance on account of legal and professional expenses amounting to ₹35,52,173/- on account of legal expenditure incurred towards registration of trademark and ₹4,77,794/- towards label registration charges, considering the same as intangible asset being capital in nature.

In the application u/s 254(2) of the Act, it was pointed out that these findings are contrary to the decision of the Supreme Court in CIT vs. Finlay Mills Ltd [(1951) 20 ITR 475 (SC)].

HELD

The Tribunal held that the order as passed is established to be passed without taking into consideration the relevant and binding precedent, which though not cited at the time of hearing, were there in favour of assesse. In ACIT vs. Saurashtra Kutch Stock Exchange Ltd. [(2008) 305 ITR 227 (SC)], the Supreme Court ruled that non-consideration of a binding decision of the Jurisdictional High Court or the Supreme Court by the ITAT constitutes a “mistake apparent from the record”. Such an error is rectifiable under section 254(2) of the Act. The Tribunal held that non consideration of binding judicial precedents is an error apparent on record, accordingly, it recalled the order dated 28.08.2025, to the limited extent of fresh adjudication of aforesaid grounds in both the appeals.

Protective addition under Section 69 cannot survive where substantive addition on identical facts has been deleted on merits and no independent corroborative evidence establishes payment of on-money. Mere reliance on third-party statements, without independent corroboration, is insufficient when the assessee categorically denies payment.

86. TS-191-ITAT-2026 (Mum.)

Dhiraj Solanki vs. DCIT

A.Y.: 2019-20

Date of Order : 10.2.2026 Section: 69

Protective addition under Section 69 cannot survive where substantive addition on identical facts has been deleted on merits and no independent corroborative evidence establishes payment of on-money.

Mere reliance on third-party statements, without independent corroboration, is insufficient when the assessee categorically denies payment.

FACTS

The assessee, a resident individual, for the assessment year under dispute, filed his return of income on 17.08.2011, declaring total income of ₹3,49,640/-. On 17.03.2021, a search and seizure operation u/s. 132 of the Act was carried out in case of Rubberwala Group and others. In course of search and seizure operation, certain incriminating material/information pertaining to the assessee were found. Based on such information/material, proceedings u/s. 153C of the Act were initiated in case of the assessee.

In course of assessment proceeding, the Assessing Officer (AO) observed that during the search and seizure operation conducted in the premises of Rubberwala Housing & Infrastructure Ltd. and its promoter Director- Shri Tabrez Shaikh and a key employee of Rubberwala Group, Shri Imran Ansari, a pen drive containing excel sheet was found which contained the details of on-money paid by various buyers in respect of shops purchased in the ‘Platinum Mall’ project.

Statements were recorded u/s. 132(4) of the Act from Shri Imran Ansari and Shri Tabrez Shaikh based on a seized materials. In the statement recorded, Shri Imran Ansari explaining the details of the transactions noted in the excel sheet, stated that it contained the agreement value of the shops floor and level wise by as also the actual price at which shops were sold. He stated, the agreement value is lower than the actual sale price and the differential amount (on-money) was received in cash from the buyers and handed over to Shri Tabrez Shaikh.

Based on such statements, the AO called upon the assessee to explain why the alleged on-money paid of ₹52,40,950/- should not be added to the income of the assessee. Though, the assessee vehemently objected to the proposed addition, categorically stating that he had not paid on-money over and above the actual sale consideration paid as per the agreement, however the AO was not convinced. He concluded that the assessee indeed had paid on-money in cash towards purchase of the shop. Since the alleged on-money was added on substantive basis at the hands of another assessee, namely, Shri Praveen Jagdeesh Solanki, the AO made the addition on protective basis at the hands of the assessee.

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

Aggrieved, assessee preferred an appeal to the Tribunal where it contended that the substantive addition made by the AO in case of Shri Praveen Jagdish Solanki has been deleted by the learned First Appellate Authority on merits. Hence, the protective addition made in case of the assessee cannot survive.

HELD

The Tribunal noted that it is evident that the assessee jointly with his brother Shri Praveen Jagadish Solanki had purchased a shop in the ‘Platinum Mall’. The Tribunal narrated the modus operandi as explained in the statement of Mr. Imran Ansari recorded in the course of search. The Tribunal noted that the modus operandi explained inter alia stated that Mr. Imran Ansari after receiving confirmation from Mr. Abrar Ahmad, cashier, regarding the cash received, makes necessary entries in the diary given to the buyer at the time of booking of shop mentioning the cash amount along with date of payment and also puts his signature against each entry. It observed that surprisingly, though, shops have been sold to number of buyers however not a single diary has been recovered from any of the buyers to demonstrate the fact that against the cash payment entries have been made in the diary and initialled by Shri Imran Ansari as explained in his statement. In fact, except the pen drive containing the excel sheet, the AO has not referred to any other incriminating material. The seized material does not explicitly reveal payment of on-money by buyers individually.

The Tribunal held that when the assessee has categorically denied of having paid any cash, merely relying upon a third party statement and limited evidence seized from a third party, assessee cannot be accused of paying on-money in absence of any other corroborative evidence to demonstrate that the facts stated in the statement recorded from the key persons of Rubberwala Group and the excel sheets are authentic. It remarked that in any case of the matter, in case of the present assessee, the AO has made the addition on protective basis and that the substantive addition made in case of assessee’s brother Shri Praveen Jagdish Solanki has been deleted by the very same First Appellate Authority in order dated 18.11.2025 on merits after taking note of all relevant facts. The Tribunal held that when the substantive addition has been deleted on merit, the protective addition made at the hands of the assessee cannot survive. The Tribunal deleted the addition made by the AO and confirmed by CIT(A).

Section 44AB as well 271B clearly show that the requirement of audit and penal consequence are dehors the finding of the assessment proceedings relating to the computation of income and audit u/s 44AB is required on the basis of the turnover exceeding the threshold limit.

85. TS-184-ITAT-2026 (Kol.)

Jalpaigura Zilla Regulated Market Committee vs. ITO

A.Y.: 2017-18 Date of Order : 10.2.2026

Section: 44AB

Section 44AB as well 271B clearly show that the requirement of audit and penal consequence are dehors the finding of the assessment proceedings relating to the computation of income and audit u/s 44AB is required on the basis of the turnover exceeding the threshold limit.

FACTS

The assessee, M/s. Jalpaiguri Zilla Regulated Market Committee (AOP) did not file its return of income for AY 2017-18. As per the information available with the Department, the assessee deposited cash in the bank account during the FY 2016-17. Notice u/s 142(1) of the Income-tax Act, 1961 (“Act”) was issued asking the assessee to furnish its return of income for the AY 2017-18, but the assessee did not respond. Therefore, a showcause notice was issued to the assessee which also resulted in non-compliance.

The Assessing Officer (AO) therefore, treated 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.

The assessment was completed u/s 144 of the Act, bringing ₹19,25,400/- to tax. 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, therefore, penalty proceeding u/s 271B of the Act were initiated for non-filing of the Audit report. The AO levied penalty of ₹1,20,330/- u/s 271B of the Act.

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

Aggrieved, assessee preferred an appeal to the Tribunal where it contended that being Agricultural Produce Market Committee constituted under the state law which is entitled to full tax exemption under section 10(26AAB) of the Act its income was exempt and such Agricultural Produce Market Committee or Regulated Market Committee is generally not required to undergo tax audit under section 44AB or to file income tax returns for this exempt income, provided the income is used for statutory purposes. The statutory audit as specified under the Act was claimed to have been carried out.

HELD

Perusal of section 44AB as well as 271B of the Act shows that the requirement of audit and the penal consequence are dehors the finding of the assessment proceedings relating to computation of income and the audit under section 44AB of the Act is required on the basis of the turnover exceeding the threshold limit. The Tribunal held that 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.

Since it was further submitted that the assessee had a reasonable cause for not getting the audit carried out and no such reasonable cause was mentioned before the Tribunal, except for mentioning the fact that the income was exempt, the Tribunal, in the interest of justice and fair play, remanded the matter to the CIT(A) for giving another opportunity to the assessee and present its case that it had a reasonable cause for not getting the audit done, who shall decide the issue as per law.

Article 12 of India-Canada DTAA – Provision of repairs and maintenance services for aircraft engines to Indian customers did not constitute ‘making available’ technical knowledge which enabled customer to undertake such services in future on its own; hence the payments received were not taxable in India

18. [2025] 179 taxmann.com 278 (Delhi – Trib.)

Pratt & Whitney Canada Corp. vs. DCIT (IT)

IT APPEAL NOS. 620, 626, 665 & 666 (DELHI) OF 2025

A.Y.: 2018-19 & 2022-23

Dated: 06 October 2025

Article 12 of India-Canada DTAA – Provision of repairs and maintenance services for aircraft engines to Indian customers did not constitute ‘making available’ technical knowledge which enabled customer to undertake such services in future on its own; hence the payments received were not taxable in India

FACTS

The Assessee was a tax resident of Canada and was engaged in business of manufacturing and servicing of aircraft gas turbine engines and auxiliary power units. During the relevant year, it provided repair and maintenance of aircraft services to Indian customers under (i) a pay-per-hour maintenance programme, or (ii) repairs on a need basis. The Assessee received consideration amounting to ₹242.65 crores towards such services. It did not file a return of income (“ROI”) in India for the relevant year.

Based on the information available, the AO issued notice under section 148A(b) of the Act. In response, the Assessee filed its ROI declaring ‘nil’ income, contending that the services provided did not constitute making available technical knowledge within the meaning of Article 12 of India-Canada DTAA.

The AO held that the consideration received for such services constituted fees for technical services (“FTS”) under the Act as well as the DTAA and accordingly brought the receipts to tax. The DRP upheld the action of the AO.

Aggrieved by the final order, the Assessee appealed before the ITAT.

HELD

In Goodrich Corporation [2025] 175 taxmann.com 177/305 Taxman 518 (Delhi), relying on the decision in De Beers India (2012) 346 ITR 467, the Delhi High Court had explained the meaning of the term ‘make available’ , holding that it requires transmission of technical knowledge enabling the recipient to use such know-how independently in future without assistance from the service provider.

The Coordinate Bench in Goodrich Corporation [ITA no 988/Del/2024] held that repairs and maintenance of aircraft equipment did not make technical knowledge available, as it did not enable customers to undertake such repairs independently in future.

In Global Vectra Helicorp Ltd vs. Dy. CIT [2024] 159 taxmann.com 282 (Delhi – Trib.), the Coordinate Bench of the Tribunal held thatin the absence of satisfaction of the ‘make available’ condition under the DTAA, payments towards repair services could not be characterised as FTS Global Vectra Helicorp Ltd was one of the customers of the Assessee.

The AO had not established that the Assessee ‘made available’ technical knowledge to its customers while rendering the services.

Accordingly, the ITAT held that the payments received by the Assessee did not constitute FTS under Article 12 of the India-Canada DTAA and were taxable only in Canada.

Article 13 of India-Singapore DTAA – In absence of indirect transfer provisions in India-Singapore DTAA, gains from alienation of shares of a Singapore Company were taxable only in the state of Residence under Article 13(5)

17. [2025] 179 taxmann.com 346 (Mumbai – Trib.)

eBay Singapore Services (P.) Ltd. vs. DCIT

ITA No: 2378 (Mum.) of 2022

A.Y.: 2019-20 Dated: 30 September 2025

Article 13 of India-Singapore DTAA – In absence of indirect transfer provisions in India-Singapore DTAA, gains from alienation of shares of a Singapore Company were taxable only in the state of Residence under Article 13(5)

FACTS

The Assessee, a tax resident of Singapore, was incorporated in 2003 and was engaged in e-commerce activities. The Singapore tax authorities had granted a Tax residency certificate (“TRC”) to the Assessee. The Assessee also acted as an investment vehicle for the eBay Group and held several investments in India, including in eBay India. In April 2017, the Assessee sold its entire shareholding in eBay India to Flipkart Singapore, in consideration of shares of Flipkart Singapore were issued to it. July 2017, the Assessee subscribed to the additional capital of Flipkart Singapore. The majority shares of Flipkart Singapore were held by Walmart Singapore.

In 2019, the Assessee sold its stake in Flipkart Singapore to Walmart Singapore and claimed that the gains arising from the sale of shares were taxable only in Singapore under Article 13(5) of India-Singapore DTAA.

Acccording to the AO, the control and management of the Assessee were vested in eBay Inc., USA, and therefore treaty benefits under the India-Singapore DTAA were denied. Accordingly, the AO computed short-term capital gains of ₹2,257.91 Crores from the sale of shares and charged them to tax. The DRP upheld the order of the AO.

Aggrieved by the final order, the Assessee appealed before the ITAT.

Before ITAT, it was argued that under the DTAA, India had right to tax income from transfer of shares of an Indian company and the transfer under reference was not covered. Even under Article 13(4B), the taxation rights shared with India were limited to the transfer of shares of an Indian Company acquired on or after 01 April 2017.

HELD

All the directors of the Assessee were residents of Singapore and Hong Kong. None of the directors held any postion in eBay Inc., USA, nor, were any directors appointed to the Board of Singapore as a representative of eBay Inc., USA.

The Board resolutions of the Assessee supported the fact that decisions relating to the Assessee were taken by the Board of Directors in Singapore. The DRP or AO neither countered these facts nor placed any concrete evidence to the contrary. Accordingly, the benefit of the DTAA could not be denied to the Assessee..

Article 13(4B) applies only in cases of alienation of shares wherethe company whose shares are alienated is a resident of otherr contracting state and not the same state as transferor. Since the shares alienated were of Flipkart Singapore, Article 13(4B) did not apply.

The Article in the India-Singapore DTAA dealing with Capital Gains does not contain any look-through provision, unlike certain other DTAAs. Having regard to Section 90(2) of the Act, the provisions of the DTAA prevail over domestic law.

Based on the above, the ITAT held that the alienation of shares of a Singapore Company was covered underthe residuary clause of Article 13. Accordingly, the right to tax gains from alienation vested only with Singapore.

Sec. 69A – Unexplained money – Cash deposits in bank account standing in assessee’s trade name but operated by third parties – Protective addition made though substantive additions already made in hands of actual beneficiaries – Addition held not legally justified and deleted

84. [2025] 126ITR(T) 240 (Amritsar- Trib.)

Mandeep Singh vs. ITO

ITA NO.:645 (ASR.) OF 2024

A.Y.: 2012-13 DATE: 30.06.2025

Sec. 69A – Unexplained money – Cash deposits in bank account standing in assessee’s trade name but operated by third parties – Protective addition made though substantive additions already made in hands of actual beneficiaries – Addition held not legally justified and deleted.

FACTS

The assessee was a retailer of alcoholic liquor and on the basis of departmental information, it was noticed that cash deposits aggregating to about ₹15 crores had been made during a short period in March 2012 in a current account maintained with Oriental Bank of Commerce in the trade name of assessee. In the absence of any regular return on record and due to non-compliance with notices issued under section 133(6) of the Income-tax Act, 1961, proceedings under section 147 were initiated. Pursuant thereto, the assessee filed a return of income declaring total income of about ₹1.66 lakhs on a disclosed turnover of about ₹83.36 lakhs.

The bank statement revealed that the entire cash deposited in the said bank account during the short period was immediately transferred by cheques to two concerns. During the course of investigation, the statement of the assessee was recorded under section 131 of the Act, wherein the assessee categorically denied having opened or operated the bank account with Oriental Bank of Commerce.

The material on record showed that the bank account was operated by the said concerns through the authorised signatory, that the assessee neither made any deposits nor withdrawals from the account and had no control over its operation. It was further noted that the assessee had not claimed any credit of tax collected at source under section 206C in respect of purchases reflected in Form 26AS which were linked to transactions routed through the disputed bank account.

The Assessing Officer treated the cash deposits of ₹15 crores as unexplained money under section 69A of the Act on a protective basis in the hands of the assessee, while accepting the returned income as such. It was also noted that the Assessing Officer had already made substantive additions of ₹15 crores under section 69A in the hands of beneficiaries, treating them as the actual beneficiaries of the transactions.

On appeal, the Commissioner (Appeals) rejected the submissions of the assessee and upheld the assessment by sustaining the protective addition made under section 69A. Aggrieved, the assessee carried the matter in appeal before the Tribunal.

HELD

The Tribunal observed that the assessee was a licensed retail trader of alcoholic liquor and that the gross turnover of ₹83.36 lakhs declared by the assessee in the return of income duly matched with the purchases reflected in Form 26AS. It was also noted that the assessee had restricted his claim of tax collected at source under section 206C only to the extent of actual purchases made by him from authorized distributors of alcoholic liquor.

The Tribunal found merit in the assessee’s contention that it would not have been humanly possible for a retail trader, operating under a licence permitting sale only to actual consumers over the counter, to execute a turnover of ₹15 crores within a short span of fourteen days. The Tribunal further noted that upon coming to know of the fraudulent activities carried out in his name, the assessee had lodged an FIR and appropriate legal proceedings were already underway.

The Tribunal further observed that the Assessing Officer had conducted proper enquiries and had reached a logical conclusion that the transactions in question were carried out by beneficiaries, against whom substantive additions under section 69A had already been made.

Considering the totality of facts and circumstances, the Tribunal held that the protective addition of ₹15 crores made under section 69A in the hands of the assessee was not legally justified. Accordingly, the Tribunal directed deletion of the protective addition and allowed the appeal of the assessee.

Sec. 153D r.w.s. 153A – Search assessment – Prior approval of Additional Commissioner – Single common approval for multiple assessment years and without examination of assessment records or seized material – Approval held to be mechanical and without application of mind – Assessments framed under section 153A r.w.s. 143(3) quashed

83. [2025] 127ITR(T) 482 (Delhi – Trib.)

Dheeraj Chaudhary vs. ACIT

ITA NO.: 6158 (DEL) OF 2018

A.Y.: 2009-10 DATE: 10.09.2025

Sec. 153D r.w.s. 153A – Search assessment – Prior approval of Additional Commissioner – Single common approval for multiple assessment years and without examination of assessment records or seized material – Approval held to be mechanical and without application of mind – Assessments framed under section 153A r.w.s. 143(3) quashed.

FACTS

A search and seizure operation under section 132 of the Income-tax Act, 1961 was conducted in the case of the K Group, during the course of which certain incriminating documents and information relating to the assessee were claimed to have been found and seized.

Subsequently, a notice under section 153A of the Act was issued to the assessee. During the course of assessment proceedings, the Assessing Officer prepared draft assessment orders and sought prior approval under section 153D of the Act from the Additional Commissioner of Income Tax. After obtaining such approval, the Assessing Officer completed the assessments under section 153A read with section 143(3) and made additions for the respective assessment years.

On appeal, the Commissioner (Appeals) upheld the assessment orders. When the matter came up before the Tribunal, the assessee raised an additional legal ground challenging the validity of the approval granted under section 153D on the ground that the same was mechanical and without application of mind.

The Judicial Member held that the approval granted by the Additional Commissioner was invalid, as it neither reflected movement of any assessment records nor granted separate approval for each assessment year. It was held that the approval was a result of total non-application of mind and, therefore, being mechanical in nature, was invalid, rendering the assessments liable to be quashed. However, the Accountant Member held that while granting approval under section 153D, the Additional Commissioner does not enter into the realm of adjudicating the legal sustainability of the additions proposed by the Assessing Officer. It was further held that supervision over search assessments is a continuous process involving internal correspondence, order-sheet noting, meetings and discussions and, therefore, the approval granted could not be regarded as invalid. Owing to this difference of opinion, the matter was referred to a Third Member.

HELD

The Third Member noted that it was an admitted position on record that for all the relevant assessment years, only a single approval had been granted by the Additional Commissioner. A careful reading of section 153D, in the context of the scheme of assessments under section 153A, shows that the provision specifically employs the expression “each assessment year”, which clearly mandates that separate approval of the draft assessment order is required for each assessment year.

The Third Member observed that the approval granted by the Additional Commissioner covered all six assessment years through a single approval and, therefore, even on this count alone, the approval was bad in law, rendering the consequential assessment orders for all the six assessment years invalid.

It was further observed that while seeking approval under section 153D, the Assessing Officer had not forwarded the assessment folders, seized material, or other relevant records, including replies filed by the assessee, to the approving authority. The Third Member emphasized that assessment proceedings under the Act are quasi-judicial in nature and that once a draft assessment order is prepared, the process of approval under section 153D commences, wherein the approving authority is required to apply its independent mind after examining the assessment records, seized material and other relevant documents.

Relying upon the decisions of the Orissa High Court in ACIT vs. Serajuddin& Co., the Delhi High Court in Pr. CIT (Central) vs. Anuj Bansal and the Allahabad High Court in Pr. CIT vs. Sapna Gupta, the Third Member observed that the requirement of prior approval under section 153D is an in-built statutory protection against arbitrary exercise of power and cannot be reduced to an empty formality. The approval must reflect due application of mind and must be granted after examining the relevant material.

In view of the above, the Third Member held that the approval granted under section 153D in the present case was mechanical and without application of mind. Concurring with the view of the Judicial Member, it was held that the assessments framed under section 153A read with section 143(3) were invalid in law and liable to be quashed.

Once the assessee had invested the entire capital gain in a new residential house within the period stipulated under section 54(1), the benefit of deduction cannot be denied merely for non-compliance with the requirement of depositing unutilised amount in Capital Gain Account Scheme (CGAS) before the due date of filing of return of income under section 54(2).

82. (2025) 181 taxmann.com 971 (Hyd Trib)

Nitin Bhatia vs. ITO

A.Y.: 2018-19 Date of Order: 24.12.2025

Section : 54

Once the assessee had invested the entire capital gain in a new residential house within the period stipulated under section 54(1), the benefit of deduction cannot be denied merely for non-compliance with the requirement of depositing unutilised amount in Capital Gain Account Scheme (CGAS) before the due date of filing of return of income under section 54(2).

FACTS

The assessee was an individual. During the relevant previous year, the assessee along with his spouse sold a jointly owned residential house property. The long-term capital gain (assessee’s share) on the said transfer was computed to ₹66,91,617. Thereafter, he purchased a new residential house for a total consideration of ₹4,44,00,000 by a registered sale deed dated 24.10.2019, which was within two years from the date of transfer of the original residential house. Out of the total consideration of ₹4,44,00,000, the assessee had made payments aggregating to ₹44,40,000 up to the due date of filing of the return of income under section 139(1). The balance amount was not deposited in Capital Gain Account Scheme (CGAS) before the due date of filing of return of income as required under section 54(2). The assessee claimed deduction under section 54 on the entire long term capital gain in his return of income filed on 20.9.2018.

During scrutiny proceedings, the AO allowed the deduction under section 54 for the amount which was actually paid by the assessee till the due date of filing the return under section 139, i.e.,, ₹44,40,000. However, he disallowed the balance amount of deduction under Section 54 of ₹22,51,617 contending that the assessee had not deposited the said amount in Capital Gain Account Scheme (“CGAS”) in accordance with section 54(2).

Aggrieved, the assessee went in appeal before CIT(A) who upheld the addition made by the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

Following the decision of Madras High Court in Venkata Dilip Kumar vs. CIT, (2019) 419 ITR 298 (Madras) which elaborately examined the interplay between section 54(1) and section 54(2), the Tribunal observed that once the assessee had invested the capital gain in a new residential house within the period stipulated under section 54(1), the benefit of deduction cannot be denied merely for non-compliance with section 54(2). Accordingly, the Tribunal held that the assessee was entitled to deduction under section 54 for the entire capital gain of ₹66,91,617.

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

Where the object of the not-for-profit company was to build an overall environment securing the interests and wellbeing for/of European Union business community so that they have ease of doing business in India, its activities could be regarded as promoting an object of general public utility under section 2(15), and therefore, such company was eligible for registration under section 12A.

81. (2025) 181 taxmann.com 303 (Del Trib)

Federation of European Business in India vs. CIT

A.Y.: N.A. Date of Order: 03.12.2025

Section: 2(15), 12A

Where the object of the not-for-profit company was to build an overall environment securing the interests and wellbeing for/of European Union business community so that they have ease of doing business in India, its activities could be regarded as promoting an object of general public utility under section 2(15), and therefore, such company was eligible for registration under section 12A.

FACTS

The assessee was a non-profit company registered under section 8 of the Companies Act, 2013, formed with the objects of promoting commerce in India with the European Union business community and to protect and facilitate the interest of European Union business community in India by advocacy of policy between the European Union business community and the Indian public authorities regarding trade policy, ease of doing business, intellectual property right protection and European union investment protection in India. After obtaining provisional registration under section 12A for AYs 2024-25 to 2026-27, it filed Form No. 10AB for regular registration under section 12A(1)(ac).

The CIT(E) rejected the application for regular registration (and also cancelled the provisional registration) on the ground that the applicant was incorporated for policy advocacy to promote, protect and facilitate the interests of its members in India and working for the benefit of its members could not be regarded as a “charitable purpose” under section 2(15).

Aggrieved, the assessee filed an appeal before ITAT.

HELD

Considering the fact that object of the applicant-assessee was to build an overall environment securing the interests and wellbeing for/of European Union business community so that they have ease of doing business in India, the Tribunal held that such activities qualify as objects of general public utility under section 2(15) and therefore, the CIT(E) was not justified in rejecting the registration application under section 12A.

In the result, the Tribunal allowed the appeal of the assessee and directed the CIT(E) to grant registration to the assessee under section 12A forthwith.

Activity of nurturing entrepreneurship through educational, networking and mentoring assistance / events cannot be regarded as “education” but falls within the limb of “advancement of object of general public utility” under section 2(15). Fees from events organised for entrepreneurs could be regarded as business receipt which was subject to the threshold of 20% under proviso to section 2(15); however, membership fees received from members could not be regarded as business receipt.

80. (2025) 181 taxmann.com 318 (Hyd Trib)

Indus Entrepreneurs vs. DCIT

A.Y.: 2018-19 Date of Order : 02.12.2025

Section: 2(15)

Activity of nurturing entrepreneurship through educational, networking and mentoring assistance / events cannot be regarded as “education” but falls within the limb of “advancement of object of general public utility” under section 2(15).

Fees from events organised for entrepreneurs could be regarded as business receipt which was subject to the threshold of 20% under proviso to section 2(15); however, membership fees received from members could not be regarded as business receipt.

FACTS

The assessee was a registered society under the A.P. Societies Registration Act, 2001 with the main objects of encouraging entrepreneurship by providing educational, networking and mentoring assistance to existing and potential entrepreneurs and professionals in all areas, supporting entrepreneurs for exploring new areas of business, building network bridges between enterprises and individuals, corporate and other entities in India and abroad, and organising events and informal mentoring activities constantly for exploring professional ideas and achieving higher business goals etc. It was one of the chapters of TIE Global, a global non-profit organisation devoted to the entrepreneurs in all industries, at all stages, from incubation, throughout the entrepreneurial life cycle. It was registered under section 12A of the IT Act. It filed its return of income admitting total income of ₹Nil after claiming exemption under section 11.

The case was selected for scrutiny under CASS. The AO contended that the assessee-society was not a charitable organisation going by its aims and objects, but, was a commercial entity engaged in business, trade, etc. He also noted that the assessee received 48% of its total income from the business activities; further, it derived around 22% of the profit from its activities and, therefore, he denied exemption under section 11 and assessed the excess of income over expenditure of ₹33,80,537 as ‘Income from Business and Profession’.

Aggrieved, the assessee filed an appeal before CIT(A) who concurred with the AO on different grounds, namely, non-filing of Form 10 as required under Rule 17 of I.T. Rules, 1962.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) Considering the main aims and objects of the society and its activities, the objects / activities do not fall within the definition of “education” in light of the decision of Supreme Court in ACIT vs. Ahmedabad Urban Development Authority, (2022) 449 ITR 389 (SC) but fall under the last limb of “charitable purpose”, i.e., “advancement of any other objects of general public utility” and, therefore, claim of exemption under section 11 should be examined in light of definition of “charitable purpose” under section 2(15) and proviso provided therein.

(b) The assessee reported gross income of ₹1,53,69,214 which included fees from associated members / student members / short term members and event fees. So far as the event fees of ₹20,60,655 were concerned, they were in the nature of rendering services to trade, commerce or business. However, since such receipts were within the prescribed limit of 20% of gross receipts under proviso to section 2(15), the assessee was entitled to exemption under section 11.

(c) The AO had wrongly considered membership fees received from members, student members and charter members as business receipts since such receipts were not in relation to carrying out trade, commerce or business.

(d) On the AO’s finding that the assessee had earned 22% profit from its gross receipts, the Tribunal observed that if a trust earned profit in the course of carrying out general public utility, the same cannot be a ground for rejecting exemption under section 11 as held by the Supreme Court in New Noble Educational Society vs. CCIT, (2022) 448 ITR 594 (SC).

(e) On the issue of CIT(A) denying exemption on the ground of non-filing of Form 10, the Tribunal observed that the society had filed relevant Form 10 along with the return of income on 05.10.2018 on or before the due date provided under section 139 and therefore, on this ground also, denying the exemption by CIT(A) cannot be upheld.

Accordingly, the Tribunal allowed the appeal of the assessee, set aside the order of CIT(A) and directed the AO to allow exemption under section 11.

If proceedings were initiated invoking S. 270A(8), which is an aggravated form of fiscal violation, and the notice is for a lighter form, then penalty could not have been levied for the aggravated violation. CIT(A) cannot substitute the charge and modify the penalty order.

79. TS-1728-ITAT-2025 (Delhi)

Umri Pooph Pratappur Tollway Pvt. Ltd. vs. ACIT

A.Y.: 2018-19 Date of Order : 31.12.2025

Section: 270A

If proceedings were initiated invoking S. 270A(8), which is an aggravated form of fiscal violation, and the notice is for a lighter form, then penalty could not have been levied for the aggravated violation. CIT(A) cannot substitute the charge and modify the penalty order.

FACTS

The assessee, engaged in development of roads, on build-operate-and transfer basis in Madhya Pradesh, claimed depreciation @ 25% on `Right under service agreement’ as an intangible asset. However, AO considered it not to be an asset and allowed the project to be amortised. In Para 2 of the assessment order, the AO mentioned that since the assessee `under-reported’ his income in consequence of misreporting within the meaning of section 270A of the Act, penalty proceedings u/s 270A of the Act were initiated for under-reporting of income in consequence of misreporting.

The notice of penalty issued under section 274 r.w.s. 270A alleged that the assessee `under-reported’ the income.

The Order levying penalty was passed by invoking section 270A(8) and penalty was imposed for `under reporting income in consequence of misreporting thereof’ and penalty equal to 200% of the amount of tax payable on under-reporting income was imposed.

Aggrieved, the assessee preferred an appeal to CIT(A) who sustained the penalty but directed the AO to impose penalty equal to 50% of the amount of tax payable on under rejected income and rejected the contention regardinginconsistency in the notice and the order.

Aggrieved, the assessee preferred an appeal before the Tribunal, where the primary contention was that there is a grave variance in the reason for initiating the penalty as mentioned in assessment order, show cause notice for levy of penalty and the impugned penalty order.

HELD

The Tribunal held that if proceedings were initiated invoking sub-section (8) of section 270A of the Act, which is an aggravated form of fiscal violation, and notice is for lighter form, then the penalty could not have been levied for aggravated violation. It further observed that “though vice versa may be legal”. It further held that the first appellate authority, CIT(A), while dealing with the allegation and ground of challenge of levy of penalty under wrong charge, cannot substitute the charge and modify the penalty order as has been done in the present case.

Interest component of payment made under One Time Settlement Scheme with a bank is allowable under section 43B.

78. TS-1658-ITAT-2025 (Delhi)

Bharatiya Samruddhi Finance Ltd. vs. DCIT

A.Y.: 2017-18 Date of Order : 10.12.2025

Section: 43B

Interest component of payment made under One Time Settlement Scheme with a bank is allowable under section 43B.

FACTS

The assessee, a non-banking financial Company duly registered with the RBI, and categorized as a micro finance institution, was engaged in the business of borrowing loans from banks and financial institutions and advancing the same to microfinance customers. The assessee had availed term loans from banks, and interest on such term loans, which was not paid actually by the assessee, was voluntarily disallowed by the assesseein the return of income in earlier years. The amount of disallowances made in earlier years was ₹25,49,22,936/-.

During the year under consideration, the assessee entered into One Time Settlement (OTS) with banks and financial institutions and obtained a waiver of substantial sums.. The assessee had 17 lenders consisting of one financial institution (SIDBI) and 16 banks. Since, the assessee company became a sick company and its net worth eroded, the financial institution and 14 banks formed a consortium and entered into a Corporate Debt Restructuring (CDR) arrangement with the assessee, followed by OTS.

The total dues to the bank at that point of time was ₹2,14,52,26,858/-. Four banks did not join the consortium and entered into OTS arrangement with the assessee separately. Out of the total amount settled under OTS of ₹67,05,45,091/-, a sum of ₹23,75,55,144/- was apportioned towards interest outstanding and the remaining sum of ₹43,29,89,947/- was apportioned towards prinicpal outstanding. The assessee submitted that the differential sums between the loan outstanding as per books and the amount settled under OTS were credited to the profit and loss account by the assessee in the sum of ₹147,46,81,767.

The issue, in assessee’s appeal before the Tribunal was allowability under section 43B, of the Act of the interest component contained in the payment made pursuant to OTS.

The contention of the assessee was that, as and when the assessee made provision for interest payable to banks and financial institutions it had duly disallowed the provision under section 43B of the Act in earlier years. Pursuant to the OTS and waiver obtained thereunder, the waiver amounts were written back and credited to profit and loss account, comprising of both principal and interest portion. The interest portion was not liable to be taxed again as it had already been disallowed in the year in which provisions were made by the assessee. Accordingly, , the assessee claimed deduction under section 43B of the Act, on a payment basis, to the extent of the interest component of ₹23,75,55,144 during the year under consideration.This fact was disclosed in tax audit report vide reply to clause 26(i)(A)(a) & (b) of from 3CD.

HELD

The Tribunal found that assessee in the earlier years had voluntarily disallowed the unpaid interest on term loans payable to banks and financial institutions under section 43B of the Act in the return of income. During the year under consideration, it reached a OTS with Bank and financial institutions to the tune of ₹67,05,45,091/- out of this, a sum of ₹23,75,55,144/- was apportioned towards the interest component. Since this interest component has been duly paid by the assessee during the year under consideration, the assessee had merely claimed the sum as deduction on payment basis.

The Tribunal held that the assessee is entitled for deduction of the same u/s 43B of the Act. It observed that denial of such deduction would result in double taxation, as the interest had already been disallowed in earlier years and was being subject to tax on payment under OTS. Accordingly, to avoid such double addition, the assessee was entitled to deduction u/s 43B of the Act for ₹23,75,55,144/-.

Accordingly, the ground raised by the assessee was allowed.

Order giving effect is nothing but finalisation of assessment proceedings. Claim for TDS credit, on the basis of Form 26AS, in proceedings to give effect to an appellate order is a claim made during the assessment proceedings which the AO is duty bound to consider and allow the credit for TDS claimed.

77. TS-1657-ITAT-2025(Mum.)

Daiwa Capital Markets India Pvt. Ltd. vs. ACIT

A.Y.: 2013-14 Date of Order : 20.11.2025

Section: 199, Rule 37BA

Order giving effect is nothing but finalisation of assessment proceedings. Claim for TDS credit, on the basis of Form 26AS, in proceedings to give effect to an appellate order is a claim made during the assessment proceedings which the AO is duty bound to consider and allow the credit for TDS claimed.

FACTS

The assessee, in the original return of income filed by it on 22.11.2013, claimed TDS credit of ₹1,78,80,099 being the amount reflected in its Form No. 26AS at that point of time. Subsequently, assessee filed a revised return of income on 2.3.2015. In the interim period between the date of filing of original return of income and the revised return of income, a party M/s Prime Focus Ltd. deducted and deposited with the Government a sum of ₹73,24,074, being the amount of TDS. However, it did not inform the assessee about the same.

Thus, in the revised return of income the assessee missed claiming credit for TDS of ₹73,24,074, though the corresponding income was offered for tax in the original return of income itself. During the course of assessment proceedings as well, the assessee did not claim the credit for TDS of ₹73,24,074 since it was not aware of the same. However, while making an application to the Assessing Officer (AO) to pass an order giving effect to the order of CIT(A), the assessee requested the AO to grant further credit of ₹73,24,074 on the ground that the same was not claimed in the return of income. The AO did not grant credit for this sum of ₹73,24,074 while passing the order to give effect to the order of CIT(A).

Aggrieved, the assessee preferred an appeal to CIT(A) who rejected the plea of the assessee and upheld the order of the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that, based on the observations of the AO and CIT(A), it is evident that the claim of TDS credit was denied primarily because the procedure prescribed by Rule 37BA of the Income-tax Rules, 1962 (“Rules”) was not followed by the assessee and further that the claim has not been made within a period of five years pursuant to Circular No. 11/2024 dated 1.4.2024 and no steps have been taken by the assessee to seek condonation for the delay.

The Tribunal further observed that the question which arose before it were (i) whether there was any dispute with regard to the TDS claim of ₹73,24,074, if the same was duly deposited or not; and (ii) whether an admitted claim of deposit of TDS on behalf of the assessee and corresponding income having been offered in the same assessment year, could be denied due to procedural lapse, as credit for TDS had not been claimed in the ITR.

The Tribunal noticed that both the lower authorities had proceeded on the premise that the procedural requirement under Rule 37BA of the Rules for claiming TDS credit had not been followed, that the claim was not made in the ITR, and also not within a reasonable period, as the same has been made after a period of nine years and therefore, as per settled legal precedents the claim of the assessee was required to be denied. It held that it is a settled law that rules and procedures are handmaids of justice. When substantial justice is required to be done,rules and procedures should not come in the way of upholding the principle of natural justice for imparting substantial justice.

It further held that deduction and deposit of TDS is a form of deposit of advance tax for which the assessee is lawfully entitled to credit, failing which retention of such amount would amount to unjust enrichment and would be in violation of Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by authority of law. If tax has been paid in excess of tax specified, the same has to be refunded. It was held that it is a statutory and constitutional obligation of the revenue to grant TDS credit duly reflected in Form 26AS, and the claim of the assessee cannot be denied merely due to a procedural lapse. The Assessee is entitled to be granted credit for TDS deducted and deposited before finalisation of the assessment. Passing of an order giving effect to an appellate order is nothing but the finalisation of original assessment proceedings.

The Tribunal held that the assessee had made the claim during the assessment proceedings, which the AO was duty bound to consider and allow the credit therefor.

Accordingly, this ground of appeal of the assessee was allowed.

Re-opening of assessment — Re-assessment in respect of transactions which were not mentioned in the show cause notice u/s. 148A — Explanation to section 147 — Re-assessment on a different transaction which was not intimated to the assessee in the show cause notice — Reassessment on issues which come to notice of the AO subsequently — AO can make assessment of such issues only after the re-assessment proceedings have commenced — Since the AO proceeded to issue notice u/s. 148 on an issue other than the issue mentioned in the show cause notice, re-opening held to be bad in law and the order u/s. 148A(3) and notice issued u/s. 148A quashed and set-aside.

60. Balmer Lawrie and Company Limited vs. UOI

2026 (1) TMI-628-(Cal.)

A. Y. 2019-20: Date of order 09/01/2026

Ss. 148 and 148A of ITA 1961

Re-opening of assessment — Re-assessment in respect of transactions which were not mentioned in the show cause notice u/s. 148A — Explanation to section 147 — Re-assessment on a different transaction which was not intimated to the assessee in the show cause notice — Reassessment on issues which come to notice of the AO subsequently — AO can make assessment of such issues only after the re-assessment proceedings have commenced — Since the AO proceeded to issue notice u/s. 148 on an issue other than the issue mentioned in the show cause notice, re-opening held to be bad in law and the order u/s. 148A(3) and notice issued u/s. 148A quashed and set-aside.

The assessee, a Government Company, was engaged in several businesses which the company conducts, one such business being to provide travel facilities, including air travel services, to its customers. In the course of its air travel services, the petitioner’s customers often seek air travel insurance, which is facilitated by the assessee through empanelled insurers, one such insurer being Reliance General Insurance (Reliance). Apart from this, the assessee also has hoardings and other spaces at its premises for putting up marketing banners or advertisement material, and the assessee uses the same for generating revenue.

During the F. Y. 2018-19, relevant to A. Y. 2019-20, the assessee received a sum of ₹1,10,33,116/- towards commission for insurance from Reliance and offered the same to tax, while filing its return of income for the said A. Y. on 31/10/2019. The return was processed u/s. 143(1) of the Income-tax Act,1961 and the return of income was accepted.

On 30/03/2025, a show cause u/s. 148A(1) of the Act was issued stating that there was information suggesting that income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. Along with the said notice, information was supplied which, inter alia, contained Case Related Information Detail, Dissemination Note and certain other documents, including Excel sheets, relevant chapters of appraisal report pertaining to the search operation conducted in respect of Shri Ajay Mehta and Others and relevant statements recorded during such search operation. By the said notice, the petitioner was asked to show cause as to why a notice u/s. 148 of the Act should not be issued.

In response to the said notice, the assessee furnished its reply and submitted various details, such as details of payments received from Reliance, including UTR numbers and sample policy issued to customers and requested for dropping the reassessment proceedings.

Upon receipt of the said reply, the revenue authorities issued another notice dated 14/06/2025 u/s. 148A(1) of the Act. The annexure to the said notice referred to the earlier notice dated 30/03/2025 issued u/s. 148A(1) of the Act and indicated that the issuer of the fresh notice had taken over charge of Circle 5(1), Kolkata, on 16/05/2025 and had considered the submissions made by the assessee on 09/04/2025. Further, the assessee was requested to furnish further submission/document, if any, on or before 20/06/2025. The said notice was followed by another notice dated 16/06/2025 again u/s. 148A(1) of the Act, along with an annexure, whereby the assessee was informed that the reply dated 09/04/2025 did not correlate with the notice and information shared with the assessee and that the information was therefore once again being shared with the petitioner.

The assessee furnished its fresh reply to the said show cause notice on 20/06/2025, thereby objecting to the impugned proceedings for reassessment on similar lines as done in its earlier reply and prayed to drop the reassessment proceedings.

Thereafter, an order u/s. 148A(3) of the Act was passed by the AO on 28/06/2025, holding the case to be fit for issuance of notice u/s. 148 of the Act. In the said order, the Assessing Officer referred to the transactions of the assessee with one Prudent Insurance Brokers (Prudent) and held that income had escaped assessment insofar as transactions with Prudent were concerned, as there was an unaccounted receipt. Immediately after the said order, notice u/s 148 of the Act was issued on 30/06/2025.

Against the said order and notice, the assessee filed a writ petition before the High Court. The Calcutta High Court allowed the petition and held as follows:

“i) The impugned order passed u/s. 148A(3) of the said Act of 1961, reveals that the relevant Assessing Officer has proceeded to reopen the petitioner’s case on a ground that did not find mention in the notice to show cause issued u/s. 148A(1) of the said Act of 1961. In the notice to show cause issued u/s. 148A(1) of the said Act of 1961, the Assessing Officer has flagged the transactions between the petitioner and Reliance, in the order u/s. 148A(3) of the said Act of 1961, the Assessing Officer has changed the basis of reopening from the transaction between the petitioner and Reliance to transaction between the petitioner and Prudent. If the explanation sought from the petitioner by the notice issued u/s. 148A(1) of the said Act of 1961 was in respect of its transactions with Reliance, then the order u/s. 148A(3) of the said Act of 1961 could not have rolled on a different turf. It is very well settled now that an order cannot travel beyond the confines of the notice to show cause.

ii) By proceeding on a ground different than the one urged in the notice u/s. 148A(1) of the said Act of 1961, the Assessing Officer has indirectly accepted the petitioner’s contentions in response to the said notice. That being the position, the defence of the petitioner against reopening of proceedings for assessment of its income could not have been trumped by the Assessing Officer by relying on a ground that was never put to the petitioner.

iii) Information provided to the petitioner and relied on by the Assessing Officer does not suggest that the petitioner’s income has in any manner escaped assessment at least on the basis of the material presently on record. The legal principles established by the Hon’ble Supreme Court in the case of Lakhmani Mewal Das (supra) still remain foundational to the income tax jurisprudence. The requirement of “rational connection” which in terms of the said judgment “postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer” cannot be given a go-by. Thus direct nexus or live link between the information and the Income Tax Officer’s opinion that income has escaped assessment will have to be established. Indeed at the stage of issuance of notice u/s. 148 the Assessing Officer is not required to conclusively prove that income has escaped assessment but then the information must suggest that there is income has escaped assessment. In the case at hand there is no such suggestion at all.

iv) It must be kept in mind that reopening of assessment is a serious action and it must be done strictly in accordance with law. In the case at hand at least two conditions justifying invocation of writ powers stand satisfied – arbitrariness in changing the ground of reopening indicated in the show cause notice and consequential violation of principles of natural justice in passing an order against the petitioner based on a ground which the petitioner had no opportunity to deal with.

v) A meaningful reading of the provisions of Section 147 of the Act would make it clear that the same would get activated only after completing the drill in Section 148 and 148A (where applicable) and not before that. The power of the Assessing Officer to assess or reassess income in respect of issues which come to his notice subsequently can be exercised only after the assessment or reassessment proceedings have commenced. The emboldened and underscored portion of the Explanation to Section 147 of the said Act of 1961 makes the said aspect very clear.

vi) For all the reasons aforesaid, the order impugned dated June 28, 2025 passed u/s. 148A(3) of the said Act of 1961 and the consequential reopening notice dated June 30, 2025 issued u/s. 148 of the said Act of 1961 in respect of A. Y. 2019-20 fail to withstand judicial scrutiny. The same are set aside.”

Re-opening of assessment — Findings given in Suspicious Transaction Report (STR) — No material or evidence to suggest escapement of income — No infirmity in documentary evidence furnished by the assessee — Re-opening of assessment merely on the basis of STR report is bad-in-law.

59. Vivaansh Eductech (P.) Ltd. vs. ACIT

(2025) 181 taxmann.com 873 (Guj.)

A. Y. 2021-22: Date of order 16/12/2025

Ss. 147, 148 and 148A of ITA 1961

Re-opening of assessment — Findings given in Suspicious Transaction Report (STR) — No material or evidence to suggest escapement of income — No infirmity in documentary evidence furnished by the assessee — Re-opening of assessment merely on the basis of STR report is bad-in-law.

A notice u/s. 148A(1) of the Income-tax Act, 1961, dated 31/03/2025, was issued upon the assessee for AY 2021-22, requiring the assessee to show cause why the case of the assessee should not be re-opened u/s. 148 of the Act. In response to the notice, the assessee furnished a detailed reply objecting to the reopening of the assessment. Thereafter, vide order dated 19/06/2025, it was concluded that the income of ₹12,16,51,000 had escaped assessment and that the case of the assessee was fit for re-opening of assessment.

The assessee filed a writ petition and challenged the said order. The Gujarat High Court allowed the petition of the assessee and held as follows:

“i) A perusal of the impugned notice as well as the impugned order reveals that the respondent has formed such an opinion primarily on the allegation that the petitioner had entered into “circuitous” transactions with related parties. However, we do not find any material or evidence worth the name on record to suggest that there was any escapement of income on account of such transactions, which would invite the rigours of Section 148 of the Act. No finding has been recorded by the respondent-authorities with regard to any exchange of cash or any return of money after the execution of the transactions in question.

ii) The assessment has been re-opened merely on the basis of the findings emerging from the STR (Suspicious Transaction Report), without duly considering the submissions and explanations tendered by the petitioner. We also find that the petitioner had fully disclosed the income and had justified the same in the reply filed before the authorities

iii) The respondent has neither doubted the documentary evidence produced by the petitioner nor pointed out any infirmity in the material furnished in relation to the transactions reflected in the petitioner’s bank account. The said documentary evidence has neither been dealt with nor even considered by the respondent while passing the impugned order.

iv) In such circumstances, the impugned Notice dated 31/03/2025 as well as the impugned Order dated 19/06/2025 cannot be sustained and deserve to be quashed and set aside.”

Offences and prosecution — Criminal prosecution — Income surrendered during the assessment — Tax paid to buy peace and avoid further litigation — Penalty u/s. 271(1)(c) levied — Concealment of income — Appeal of the assessee allowed by the CIT(A) and ITAT — Department’s appeal before the High Court dismissed — Order of penalty does not exist — Criminal proceedings cannot be allowed to continue in such case.

58. Shiv Kumar Jaiswal vs. The State of UP

2026 (1) TMI 371 (All.)

Date of order 05/01/2026

S. 276C(1) and 277 of ITA 1961

Offences and prosecution — Criminal prosecution — Income surrendered during the assessment — Tax paid to buy peace and avoid further litigation — Penalty u/s. 271(1)(c) levied — Concealment of income — Appeal of the assessee allowed by the CIT(A) and ITAT — Department’s appeal before the High Court dismissed — Order of penalty does not exist — Criminal proceedings cannot be allowed to continue in such case.

The assessee and his wife jointly owned a hotel and gifted the said hotel, out of love and affection, to one Mr. Raj Kumar, who was one of their family friend, vide a registered gift deed. Subsequently, the said Mr. Raj Kumar gifted ₹75 lakhs to the minor son of the assessee through a registered gift deed. In the assessment, the assessee voluntarily surrendered the capital gains and paid tax thereon so as to avoid further litigation and buy peace on the condition that no penalty proceedings be initiated u/s. 271(1)(c) of the Income-tax Act, 1961, in respect of the aforesaid surrender of income.

However, the Assessing Officer subsequently confirmed the levy of penalty u/s. 271(1)(c) of the Act by treating the capital gains as the concealed income. On appeal before the CIT(A), the appeal of the assessee was allowed, and the penalty was deleted. On the Department’s appeal before the Tribunal, the appeal was dismissed, and the issue was decided in favour of the assessee. On further appeal before the High Court, the High Court dismissed the appeal of the Department.

Despite the pendency of the appeal before the CIT(A), the Assessing Officer applied for sanction for criminal prosecution u/s. 276C(1) and 277 of the Act before the competent authority. The competent authority granted sanction to file a complaint against the assessee, and the complaint was filed.

Against this, the assessee filed a Criminal Writ Petition before the High Court seeking quashing of proceedings pending before the court of Special Chief Judicial Magistrate (Economic Offence), Lucknow and the summoning order passed by the Special Chief Judicial Magistrate (Custom), Lucknow. The Allahabad High Court allowed the petition and held as follows:

“i) The subject matter of penalty is the same by which, criminal proceedings have been launched. Once the Tribunal has set aside the penalty order, at this juncture, it would not be appropriate to allow criminal proceedings against the applicant. The first appellate Tribunal, the second appellate Tribunal and the High Court have not interfered in the order of penalty and the department could not succeed. Thus, the fact has come on record that the order of penalty does not exist.

ii) The Supreme Court in the case of G.L Didwania AIROnline 1993 SC 421 has considered the aspect of penalty and launching of criminal proceedings. In the said case, the Supreme Court has observed that in the order of the Appellate Tribunal, those conclusions reached by the assessing authority have been set aside and consequently, the very basis of the complaint is knocked out and, therefore, in the interest of justice, proceedings ought to have been quashed by the High Court.

iii) In the case of K.C. Builders AIROnline 2004 SC 638 wherein the Supreme Court has observed that the Assistant Commissioner of Income Tax cannot proceed with the prosecution even after the order of concealment has been set aside by the Tribunal. When the Tribunal has set aside the levy of penalty, the criminal proceedings against the appellants cannot survive for further consideration. In the opinion of the Supreme Court, if the trial is allowed to proceed further after the order of the Tribunal and consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable.

iv) In view of the aforesaid factual and legal position, the application is allowed and the entire as well as all consequential proceedings of complaint pending before the court of Special Chief Judicial Magistrate (Economic Offence), Lucknow, are quashed.”

Non-resident — Income deemed to accrue or arise in India — Amounts paid by Indian affiliates on account of marketing, distribution marketing and frequency marketing programme treated by AO as royalty — American company receiving payments from Indian affiliate for marketing and reservation services in hotel — AO held receipts taxable as royalty under I T Act and under DTAA and alternatively as fees for included services u/s. 9(1)(vii) and article 12(4)(a) and (b) of DTAA between India and US — DRP rejecting assessee’s objections holding that mere changing of business model did not change nature of receipts chargeable to tax — High Court held that the receipts neither taxable as royalty nor fees for technical services — Not taxable under DTAA as fees for included services

57. CIT(International Taxation) vs. Six Continents Hotels Inc.: (2025) 480 ITR 14 (Del): 2025 SCC OnLine Del 2744

A. Y. 2020-21: Date of order 17/04/2025

Ss. 9(1)(vii), 143(3) and 144C of ITA 1961: Art. 12(4)(a) and (b) of DTAA between India and the USA

Non-resident — Income deemed to accrue or arise in India — Amounts paid by Indian affiliates on account of marketing, distribution marketing and frequency marketing programme treated by AO as royalty — American company receiving payments from Indian affiliate for marketing and reservation services in hotel — AO held receipts taxable as royalty under I T Act and under DTAA and alternatively as fees for included services u/s. 9(1)(vii) and article 12(4)(a) and (b) of DTAA between India and US — DRP rejecting assessee’s objections holding that mere changing of business model did not change nature of receipts chargeable to tax — High Court held that the receipts neither taxable as royalty nor fees for technical services — Not taxable under DTAA as fees for included services.

The assessee was a non-resident, entitled to the beneficial provisions of the DTAA between India and the USA. During the financial year 2019-2020, the assessee had received a sum of ₹28,11,42,298 which comprised of marketing contribution, priority club receipts and reservation contribution aggregating to ₹21,22,52,199; and the Holidex fees amounting to ₹6,88,90,099 from Indian affiliate being InterContinental Hotels Group (India) Private Limited (IHG India) towards the centralised marketing and reservation related services. The assessee filed its revised return of income for the A. Y. 2020-2021 on March 31, 2021, declaring a total income of ₹1,05,20,740, which was picked up for scrutiny.

The Assessing Officer passed a draft assessment order dated September 15, 2022. The Assessing Officer held that the amounts paid by the Indian hotels for marketing contribution and reservation fees were taxable as royalty under the Act as well as under the India-USA Double Taxation Avoidance Agreement (DTAA) ((1991) 187 ITR (Stat) 102). In the alternative, the Assessing Officer held that the same would be taxable as fees for included services under section 9(1)(vii) of the Act as well as under article 12(4)(a) and article 12(4)(b) of the DTAA, the Assessing Officer determined the total taxable income at ₹39,19,56,083 after making an addition of ₹28,11,42,298 on account of marketing, distribution marketing and frequency marketing programme along with an addition of ₹10,02,93,045 on account of fees for included services/fees for technical services held as chargeable to tax under the Act as well as under the provisions of the DTAA.

The assessee filed objections to the said decision before the Dispute Resolution Panel (DRP). The DRP did not accept the assessee’s contentions that the receipts were not in the nature of royalty and concluded that the said fees were in connection with the grant of a licence for the brand for which separate fees was also charged. Thereafter, the Assessing Officer passed the final assessment order dated June 27, 2023.

The assessee carried the matter in appeal before the Tribunal. The Tribunal allowed the said appeal following the decision in the assessee’s case in the earlier assessment years. To be noted that the assessee’s contention that the receipts, as mentioned above, are not taxable by virtue of the DTAA has been sustained for the past fifteen assessment years.

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

“i) The principal question that is required to be addressed is whether the payments received by the assessee on account of providing certain centralised services including marketing services and reservation services can be construed as fees for technical services as defined under section 9(1)(vii) of the Act or fees for included services as covered under article 12(4)(a) of the DTAA. Admittedly, the said issue is covered in favour of the assessee and against the Revenue by several decisions of this court including DIT vs. Sheraton International Inc. [(2009) 313 ITR 267 (Delhi); 2009 SCC OnLine Del 4231.], CIT (International Taxation) vs. Sheraton International LLC [2023:DHC:4261-DB.], CIT (International Taxation) vs. Westin Hotel Management LP [ I.T.A. No. 213 of 2024 decided on April 10, 2024 (Delhi).] and CIT (International Taxation) vs. Shangri-La International Hotel Management Pte. Ltd. [ I.T.A. No. 532 of 2023 decided on September 18, 2023 (Delhi).]

ii) In the case of the CIT (International Taxation) vs. Radisson Hotel Interaction Incorporated [(2023) 454 ITR 816 (Delhi); 2022 SCC OnLine Del 3713; 2022: DHC: 004791.], this court had referred to the earlier decisions and dismissed the case, holding that no substantial questions of law arise for consideration by this court. The present appeal must bear the same fate.

iii) In view of the above, no substantial questions of law arise for consideration before this court. Thus, the appeal is dismissed.”

Section 144B – faceless assessment – breach of principles of natural justice – opportunity of personal hearing through video conference – order was passed without providing details on the basis of which the SCN was issued, pointing out the difference between the purchase value and the import invoice value.

22. JSW MINERALS TRADING PRIVATE LIMITED vs. ASSESSMENT UNIT, INCOME TAX DEPARTMENT, NATIONAL FACELESS ASSESSMENT CENTRE & ORS.

[WRIT PETITION NO. 3683 OF 2023 (BOMBAY) DATED: JANUARY 13, 2026]. Assessment Year 2020-21

Section 144B – faceless assessment – breach of principles of natural justice – opportunity of personal hearing through video conference – order was passed without providing details on the basis of which the SCN was issued, pointing out the difference between the purchase value and the import invoice value.

The Petitioner filed its return of income for Assessment Year 2020-21 on 16th January 2021, declaring its total income as ₹Nil (having incurred a loss of ₹37,08,74,848/). The case of the Petitioner was picked up for scrutiny under the faceless assessment provisions set out in Section 144B of the Act.

During the year under consideration, the Petitioner had entered into various international transactions, including the ‘purchase of finished goods’ amounting to ₹1041,48,67,611/- with its associated enterprises, namely JSW International Trade Corp Private Limited. The case of the Petitioner was referred to the Transfer Pricing officer, to determine the arm’s length price with reference to the said international transactions. The TPO vide its order dated 12th May 2023, passed under Section 92CA(3) of the Act, accepted that the international transactions as reported by the Petitioner in Form 3CEB are at an arm’s length price.

Notice under Section 142(1) was issued by Respondent No. 1 on various issues, including the following:

“7. As per the ITR, purchases shown by you is ₹1,218,03,15,231/-. However, as per the data with us, the imports made by you is ₹1,520,29,89,300/-during the year. Reconcile the difference along with necessary documentary evidences”.

The said notice was duly dealt with by the Petitioner, who requested details/data on the basis of which the aforesaid difference in import purchases had been alleged/computed by Respondent No.1. The Petitioner also stated that it could not find any discrepancies as per the audited books of accounts and the return filed. The Petitioner filed another reply, resubmitting the details filed earlier, including a request for the details/data on the basis of which the aforesaid difference in purchases had been computed by Respondent No. 1. It once again reiterated that it could not find any discrepancies as per the audited books of accounts and the return filed.

Respondent No. 1 thereafter issued a show cause notice proposing interalia an addition of ₹302,26,74,069/- under Section 69A of the Act (Unexplained Money) based on the difference between the invoice value of imports as per the data received from CBEC (₹1520,29,89,300/-) and the purchase value shown in the ROI (₹1218,03,15,231/-).

The Petitioner objected to the proposed variations and again requested inter alia that the breakup of the alleged difference in purchase value of ₹302,26,74,069/- be provided The Petitioner also submitted reconciliation (to the best of its ability, with the limited data available) for purchases worth ₹270,94,21,668/- out of the alleged difference of ₹302,26,74,069/- as stated by Respondent No. 1.

Instead of providing the breakup of the purchase value as repeatedly requested by the Petitioner , without providing an opportunity of personal hearing through video conference, and without considering the Petitioner’s request for additional time, Respondent No. 1 passed the impugned assessment order dated 29th September 2023 under Section 143(3) read with Section 144B, and, interalia made an addition of ₹302,26,74,069/- under Section 69 (Unexplained Investment) – notably different from the show cause notice, which proposed an addition under Section 69A (Unexplained Money) on account of difference between purchase values as shown by the Petitioner and the invoice value of imports as per import-export data received from the CBEC.
The Petitioner challenged the said assessment order primarily on the ground that it had requested full details of the import-export data allegedly received by / available to Respondent No.1 from the CBEC, which was in the exclusive knowledge and possession of Respondent No. 1, and which formed the sole basis for the addition of ₹302,26,74,069/-, but the same was never provided. The Petitioner pointed out that it would be impossible for it to explain/reconcile the alleged variation in the value of imports without full details of the invoice value of imports as per the CBEC data. Respondent No. 1 also failed to consider that partial reconciliation was provided by the Petitioner.

The Petitioner argued that though The TPO accepted the purchase value in the transfer pricing assessment, however, Respondent No. 1 denied the purchase values in the assessment.

The Court held that there was a violation of the principles of natural justice, as in the notice dated 18th November 2021, Respondent No. 1 required the Petitioner to reconcile the stated difference between purchases shown by the Petitioner in its return of ₹1218,03,15,231/- and the “data with us” ₹1520,29,89,300/-. Other than this aggregate figure, no details were set out in the notice.

The Hon. Court observed that it was impossible for the Petitioner to reconcile and/or explain the alleged difference between the figures of imports as per the ITR/accounts of the Petitioner and the data of the CBEC, in the absence of complete details of the break-up of the CBEC data being furnished to the Petitioner. Further, the impugned order clearly indicates that Respondent No. 1 proceeded to make an addition without providing or even referring to the breakup or details of the difference in the alleged purchase value of imports of the assessee/Petitioner. In the transfer pricing proceedings, these very purchases were scrutinised and held to be at arm’s length price.

The Hon. Court held that there has been a breach of principles of natural justice and that, on this count alone, the entire addition made and the assessment proceedings are vitiated. Respondent No. 1 simply relied upon the information provided by the CBEC on the assumption that the figure mentioned by the CBEC was the actual figure of imports required to shown by the Petitioner in its ITR, notwithstanding that it had not disclosed the details of any import bills and that no break-up value of the import purchases was given, and further by not even providing the information as received from the CBEC to the Petitioner, before passing the assessment order under Section 143(3) read with Section 144B of the Act.

In view of the above , the Impugned Order and the Impugned Demand Notice were unsustainable and has been passed in violation of the principles of natural justice. The Court further observed that Respondent No. 1 must disclose complete details of any material it is relying upon to hold that additional purchases have been made over and above the disclosed purchases, and the legal basis to make such an addition. In the present case, the only basis for the addition is the aggregate purchase figures communicated by the CBEC, which did not disclose any particulars of import bills or details of additional purchases made. Such general information, without details, without a proper opportunity to set out a reconciliation, and without any supporting evidence, could not constitute valid material for the purpose of making an addition under the Act.

The Hon. Court remanded the matter back to the file of Respondent No.1 to issue a fresh Show Cause Notice to the Petitioner with respect to the addition of ₹302,26,74,069/-, clearly bringing out the provision(s) under which the addition was proposed, providing a the detailed break-up of the import value of purchases including a copy of the information as received from CBEC, and grant sufficient time of at least 15 working days to file a reply to the notice.

Direct Tax Vivad se Vishwas Act 2020 – grant credit for taxes paid and refund/release of cash seized, in the computation of the Petitioner’s liability / refund.

21. SUNITA SAMIR SAO vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX -20 & ORS.

[WRIT PETITION NO. 1479 OF 2025 (BOMBAY) DATED: JANUARY 14, 2026]

Direct Tax Vivad se Vishwas Act 2020 – grant credit for taxes paid and refund/release of cash seized, in the computation of the Petitioner’s liability / refund.

The Petitioner is an individual and the ‘Legal Representative’ of her father, one Late Shri Bhalchandra Bhaskar Thakoor. The Petitioner’s deceased father was subjected to a ‘search & seizure’ action under section 158BC read with Section 132 of the Act’ in the year 1997, along with some of his family members. In the course of the search action, some cash was seized, along with certain
jewellery, from the persons put to search. In the case of the Petitioner (her deceased father), cash of ₹11,50,000/- was seized and an assessment was made by passing an Assessment Order under Section 158BC of the Act.

The said block assessment was carried out in appeal before the Appellate Tribunal. Against the Order of the ITAT, the Petitioner (the deceased father) filed an Appeal before the High Court, and the said Appeal, being ITXA/31/2006, was admitted. Similarly, penalty under Section 158BFA(2) of the Act was also levied and confirmed by the ITAT, against which an Appeal was filed before the Court, being ITXA/456/2015. The said Appeal against the levy of penalty was also admitted.

In the meantime, the then Assessing officer issued Notice dated 20th October 1999 to the Petitioner, stating that the cash seized of ₹11,50,000/- was contemplated to be adjusted against the demand arising out of the said assessment and called upon the Petitioner (the Petitioner’s deceased father) to give his consent for the same. The Petitioner (the deceased father), vide letter dated 1st November 1999, accorded consent for adjusting the said cash against the demand, during the pendency of the appeal against the assessment.

During the pendency of the appeals, the Petitioner paid some amount of taxes ₹7,35,049/-, arising out of the assessment, by way of challans, which were independent of the cash seized during the search action. Thereafter, the Petitioner availed of the scheme under the DTVSV Act, and also withdrew her appeals filed before the Court, in pursuance of her application under the DTVSV scheme. The Petitioner filed the necessary forms under the DTVSV Scheme (Form 1 & 2) and claimed credit for taxes paid by way of challans as well as credit for the cash that was seized and adjusted against the demand. In Form No.3 dated 27th February 2021, issued by Respondent No.1 under the said DTVSV scheme, credit was neither given for taxes paid by way of challans nor for the cash seized during the search.

The Petitioner followed/pursued the issues with the Respondents and pointed out the errors in Form-3, including non-granting of credit for cash seized of ₹11,50,000/- and raised her grievances. Having received no response from the Respondents, the Petitioner approached the Hon. Court, (being WP/836/2022), raising grievances and contending that she was entitled to the credit of the cash seized during the search action. The Court, vide its order dated 3rd March 2022, was pleased to set aside Form No.3 and directed the Respondents to grant a personal hearing to the Petitioners and also consider the Petitioner’s claim for credit of the cash seized.

The Court noted that since other family members of the Petitioner were also subjected to the search action, cash was also seized in their respective cases. The said family members had also availed of the DTVSV scheme, and the issue of non-granting of credit for cash seized had also cropped up in their cases (being WP/3850/2021 and WP/3849/2021).

The said family members had filed similar Petitions before the Hon Court, and the Court had directed the Respondent-Department to consider the claim of credit for the cash seized. The Department has released the cash seized along with interest in case of the said family members, by the Respondents.

The Respondents contended that the records pertaining to the seized cash were unavailable and, consequently, the requisite credit could not be extended. The Petitioner, in the alternative, sought release of the seized cash in accordance with Section 132B of the Act. The Hon Court noted that the Respondent-Department had adopted an identical stand in the case of a particular family member (Vasant Thakoor WP(L)/33180/2023) of the Petitioner, who was also subjected to the search action, and cash was seized in his case. The said family member had also availed of the DTVSV scheme, and the issue of non-granting of credit for cash seized had also cropped up in his case. The said family member (Shri Vasant Thakoor- WP(L)/33180/2023) had filed a similar petition before the Court wherein the Respondent-Department had conceded that cash had to be released with accumulated interest and credit had to be allowed for payments made through challans.

The Court noted that the, parties agree that the present case is identical to the facts in petition WP(L)/33180/2023.

The Hon Court observed that the Respondents have filed their reply dated 15th December 2025, wherein the fact of seizure of cash by the Department has been accepted. The Respondents state that the record of cash that was seized, was supposed to be with some other ward/circle, and there was no confirmation forthcoming from the said ward/circle despite making efforts towards the same, and hence the record/accounting treatment of the cash seized could not be ascertained.

The Hon Court, allowing the petition, directed the Respondents/Department release the cash seized and refund the cash along with accumulated interest, within 30 days from the date of order, on similar lines as in Writ Petition No. 33180/2023. The Hon. Court noted that the Respondents had called for an Indemnity Bond from the Petitioner, which the Petitioner has filed with the Respondents’ office.

Accordingly, the Respondents were directed to issue a refund of cash seized of ₹11,50,000/-, along with accumulated interest, and the CPC was further directed to issue a refund arising out of Form No.5 dated 11th December 2025, which was towards taxes paid by way of challans by the Petitioner, within 30 days.

Glimpses of Supreme Court Rulings

12. Director of Income Tax (IT)-I, Mumbai vs. American Express Bank Ltd.

(2025) 181 Taxmann.com 433(SC)

Deduction of head office expenditure in case of non-residents – Section 44C applies to ‘head office expenditure’ regardless of whether it is common expenditure or expenditure incurred exclusively for the Indian branches – Section 44C is a special provision that exclusively governs the quantum of allowable deduction for any expenditure incurred by a non-resident Assessee that qualifies as ‘head office expenditure’ – For an expenditure to be brought within the ambit of Section 44C, two broad conditions must be satisfied: (i) The Assessee claiming the deduction must be a non-resident; and (ii) The expenditure in question must strictly fall within the definition of ‘head office expenditure’ as provided in the Explanation to the Section – The Explanation prescribes a tripartite test to determine if an expense qualifies as ‘head office expenditure’ – (i) The expenditure was incurred outside India; (ii) The expenditure is in the nature of ‘executive and general administration’ expenses; and (iii) The said executive and general administration expenditure is of the specific kind enumerated in Clauses (a), (b), or (c) respectively of the Explanation, or is of the kind prescribed under Clause (d) – Once the conditions in (b) referred to above are met, the operative part of Section 44C gets triggered. Consequently, the allowable deduction is restricted to the least of the following two amounts: (i) an amount equal to 5% of the adjusted total income; or (ii) the amount of head office expenditure specifically attributable to the business or profession of the Assessee in India.

(i) Civil Appeal No. 8291 of 2015

M/s. American Express Bank, the Assessee, a non-resident banking company, is engaged in the business of providing banking-related services. The Assessee filed its income tax return on 01.12.1997 for AY 1997-1998, declaring an income of ₹79,45,07,110. In the said return, the Assessee claimed deductions for the following expenses under Section 37(1) of the Act, 1961: (i) ₹6,39,13,217 incurred for solicitation of deposits from Non-Resident Indians; and (ii) ₹13,50,87,275 incurred at the head office directly in relation to the Indian branches.

The Assessee, vide notice dated 21.10.1999, was asked to explain why the expenses in question should not be subjected to the ceiling specified in Section 44C of the Act, 1961, and thus be disallowed.

The Assessee, in its reply to the notice referred to above, clarified that the expenses in question could not have been classified as head office expenditure for the reason that Section 44C of the Act, 1961 presupposes that at least a part of the expenditure is attributable to the business outside India. If this presumption does not hold true, and the entire expenditure is incurred solely for the business in India, then Clause (c) does not apply. Consequently, Section 44C would not be applicable to such expenses.

The Assessing Officer, vide its Assessment Order dated 08.02.2000, limited the deduction to 5% of the gross total income by applying Section 44C of the Act, 1961, having regard to the view taken by the Income Tax Appellate Tribunal in the Assessee’s own case for AY 1987-88. The decision of the Assessing Officer was also based on the following reasons:

a) Section 44C is a non-obstante provision that begins with the words ‘notwithstanding anything to the contrary contained in Section 28 to 43A,’ and therefore, the head office expenses allowable to the Assessee are subject to the limits set out under Section 44C.

b) The purpose of inserting Section 44C was to address the difficulties encountered in scrutinising the books of account maintained outside India. Therefore, the Assessee could not have claimed that the expenses incurred outside India should have been allowed beyond the ceiling prescribed under Section 44C. If such a plea were permitted, Section 44C would become redundant and otiose.

c) The definition of head office expenditure is clear, and the same includes all kinds of expenses of any office outside India.

Aggrieved by the aforesaid order of the Assessing Officer, the Assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner vide Order dated 26.09.2000 affirmed the decision of the Assessing Officer.

Thereafter, the Assessee filed an appeal before the Income Tax Appellate Tribunal, Mumbai. The Income Tax Appellate Tribunal, Mumbai, vide Order dated 08.08.2012, allowed the appeal of the Assessee by relying upon the Bombay High Court’s decision in Commissioner of Income Tax vs. Emirates Commercial Bank Ltd., reported in (2003) 262 ITR 55 (Bom).

The Revenue challenged the order passed by the Tribunal referred to above before the Bombay High Court by way of Income Tax Appeal No. 1294 of 2013. However, before the High Court, the Revenue’s counsel conceded that the question regarding the application of Section 44C for the exclusive expenditure incurred by the head office for the Indian branches had been decided against the Revenue by a division bench of the High Court in Emirates Commercial Bank (supra). As a result, the High Court, by way of its impugned order dated 01.04.2015, dismissed the Revenue’s appeal on the said issue.

(ii) Civil Appeal No. 4451 of 2016

M/s. Oman International Bank, the Assessee, filed its return of income for AY 2003-04 on 28.11.2003, declaring a loss of ₹71,79,69,260. In the return, the Assessee claimed a deduction of ₹21,63,436 towards expenses specifically incurred by the head office for the Indian branches. The Assessee was asked to justify such a claim for deduction.

The Assessee vide letter dated 16.03.2006 provided the following details with regard to the expenditure incurred by the head office specifically for the Indian branches.

The Assessee claimed that the travelling expenses included travel fares, hotel charges, and other costs incurred by the head office for staff travelling to India for various purposes, such as local advisory board meetings, training, internal audits, staff meetings, etc. Additionally, the certification fees were for the charges paid to auditors for issuing certificates of expenses incurred by the head office chargeable to the Indian branches of the bank, for the year ending March 31, 2003.

The stance of the Assessee was that since the expenses referred to above were incurred specifically for the Indian branches, they would fall outside the scope of Section 44C of the Act, and were allowable as deductions under Section 37 of the Act, 1961. It claimed that the deduction under Section 44C applies to common head office expenses attributable to Indian branches.

The Assessing Officer, vide its Order dated 20.03.2006, disagreed with the explanation offered by the Assessee and held that both the above-mentioned expenses fell within the purview of Section 44C and thus are bound by the ceiling limit set thereunder.

Aggrieved by the Order of the Assessing Officer referred to above, the Assessee appealed to the Commissioner of Income Tax (Appeals). The Commissioner allowed the Assessee’s appeal by relying on its previous years’ decisions for AY 2001-2002 and 2002-2003, respectively, where an identical question was decided in favour of the Assessee, consistent with the Bombay High Court’s decision in Emirates Commercial Bank (supra). Subsequently, the Revenue’s appeal to the Income Tax Appellate Tribunal on the said issue also came to be dismissed based on the decision in Emirates Commercial Bank (supra).

Finally, by the impugned order dated 28.07.2015, the Bombay High Court also ruled against the Revenue on the aforementioned issue.

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

“Whether expenditure incurred by the head office of a non-resident Assessee exclusively for its Indian branches falls within the ambit of Section 44C of the Act, 1961, thereby limiting the permissible deduction to the statutory ceiling specified therein?”

Having regard to the rival contentions canvassed on either side, the Supreme Court observed that the core of the disagreement concerns the scope of Section 44C of the Act, 1961. The Appellant-Revenue seeks to interpret it more broadly, encompassing not only the expenditure incurred by the head office attributable to various foreign branches, i.e., ‘common’ expenditure, but also the ‘exclusive’ expenditure incurred specifically for the Indian branches. The Respondent-Assessee, however, aim to restrict the scope of Section 44C to include only ‘common’ expenditure. According to the Supreme Court, this was best illustrated by the example provided by the Respondents. If a general counsel is appointed by the head office solely to handle Indian matters, it constitutes exclusive expenditure. However, if a general counsel is appointed by the head office to handle matters in branches across the globe (including India), it constitutes common expenditure. The Appellant contends that Section 44C applies in both cases, whereas the Respondents argue that it is only applicable in the latter scenario. In other words, the Respondents argue that for exclusive expenditure, Section 44C is wholly inapplicable, and therefore, the deduction of the expenditure is not subject to the ceiling limit set out therein.

According to the Supreme Court, Section 44C of the Act, 1961 could be divided into two separate but interconnected parts. The first is the operative or substantive provision, which outlines the conditions for applying the Section and details the computation mechanism. The second is the definitional provision in the Explanation, which clarifies the scope of the term ‘head office expenditure’. The meaning given under the Explanation serves as the statutory trigger, as only when an expense falls within the ambit of this meaning does the operative framework of Section 44C come into effect.

The Supreme Court observed that the operative part of Section 44C could be divided into the following distinct components:

a) Section 44C applies specifically to non-resident Assessees.

b) Section 44C governs the computation of income chargeable under the specific head ‘Profits and gains of business or profession”.

c) Section 44C mandates that no allowance under the aforementioned head shall be made in respect of ‘head office expenditure’ to the extent that such expenditure is in excess of the lesser of the following two amounts: (a) an amount equal to five per cent of the adjusted total income; or (b) the amount of head office expenditure attributable to the business or profession of the Assessee in India.

d) Section 44C is a non-obstante provision as it starts with a phrase: notwithstanding anything to the contrary contained in Sections 28 to 43A. Consequently, it has an overriding effect on Sections 28 to 43A for the specific purpose of computing head office expenditure of a non-resident Assessee.

According to the Supreme Court, for an expense to be governed by the tenets of Section 44C of the Act, 1961, two conditions must be fulfilled: (i) the Assessee should be a non-resident, and (ii) the expenditure should be a ‘head office expenditure’. If both conditions are met, then Section 44C, being a non-obstante provision, will apply regardless of whether its principles contravene Sections 28 to 43A respectively.

According to the Supreme Court, the Respondents may therefore be correct in stating that for an expenditure to be deductible under Section 37(1), it does not necessarily have to have been incurred in India. Furthermore, they are also correct in stating that Section 44C only seeks to put a ceiling on the ‘head office expenditure’ that can be allowed as a deduction. However, according to the Supreme Court, their argument that Section 44C cannot restrict deductions that are otherwise allowable under Section 37(1) was misplaced. If the expenditures meet the above two conditions, Section 44C governs the quantum of allowable deduction. This means that even if such head office expenditure can be allowed as a deduction under Section 37(1), it would not be permitted if it exceeds the ceiling limit set under Section 44C. To decide otherwise would be to overlook the non-obstante nature of Section 44C.

However, according to the Supreme Court, it was necessary to closely examine and understand the meaning attributed to the term ‘head office expenditure’ under Section 44C. This was because, in the context of the question under consideration, if the meaning assigned to ‘head office expenditure’ under Section 44C is taken to suggest that it only includes common expenditure incurred by the head office, then the issue would stand resolved in favour of the Respondents. Consequently, as contended by the Respondents, for exclusive expenditure incurred by the head office for the Indian branches, Section 44C would not apply, and a deduction could be claimed under other sections, including Section 37, without adhering to the ceiling limits set under Section 44C.

Upon close analysis of the meaning assigned to the words ‘head office expenditure’ under Section 44C of the Act, 1961, the Supreme Court was of the view that the legislature had not limited the scope to cover only common expenditure incurred by the head office for the benefit of various branches, including those in India. In fact, the Explanation, according to the Supreme Court, was unambiguous in stating that for an expenditure to be considered as head office expenditure, it must meet two conditions only: (i) it has to be incurred outside India by the Assessee, (ii) it must be expenditure of a nature related to executive and general administrative expenses, including those specified in Clauses (a) to (d), respectively, of the Explanation.

Thus, the Explanation focused solely on two aspects: where the expense was incurred and the nature of that expense. It did not matter whether the expense was a common expense or an expense exclusively for the Indian branch, so long as the expense incurred was for the business or profession. According to the Supreme Court, the text provided no indication that the expenditure must be of a common or shared nature. Therefore, the meaning of the Explanation was clear, straightforward, and unambiguous. According to the Supreme Court if it were to accept the Respondents’ contention, it would be forced to add words to the statute that simply did not exist. It is well settled that adding words is generally not permissible, especially when the plain meaning of the statute is unambiguous.

According to the Supreme Court, the necessary corollary of the aforesaid discussion was that, irrespective of whether the expenditure was ‘common’ or ‘exclusive’, the moment it is incurred by a non-resident Assessee outside India and falls within the specific nature described in the Explanation, then Section 44C would come into play and become applicable.

At this juncture, the Supreme Court felt that it was essential to consider and evaluate the Respondents’ contention that an additional condition must be fulfilled for Section 44C to apply.

The Supreme Court noted that, according to the Respondents, by virtue of Clause (c) of Section 44C of the Act, 1961, only when the expenditure is of a common nature, and not exclusive expenditure incurred for the Indian branches, would the Section become applicable.

Respondents placed reliance on the following decisions to support their argument –

1. Rupenjuli Tea Co Ltd vs. CIT (1990) 186 ITR 301 (Cal).

2. Commissioner of Income Tax vs. Deutsche Bank A.G. (2006) 284 ITR 463 (Bom)

3. Director of Income-tax (International) vs. Ravva Oil (Singapore) Pte Ltd

4. Commissioner of Income Tax vs. Emirates Commercial Bank Ltd., reported in (2003) 262 ITR 55 (Bom)

According to the Supreme Court, a close examination of the rulings in Rupenjuli Tea (supra) and Emirates Commercial Bank (supra), respectively, revealed that, while both held that Section 44C was not applicable to their facts, their reasoning differed significantly. For the Calcutta High Court in Rupenjuli Tea (supra), the decisive factor was the absence of any business operations outside India by the non-resident Assessee, including at its head office in London. On the other hand, the Bombay High Court in Emirates Commercial Bank (supra) proceeded on the premise that Section 44C covers only common expenditure and not expenditure incurred exclusively for the Indian branches.

But the Bombay High Court in Emirates Commercial Bank (supra) provides no basis whatsoever as to how it concluded that the expenditure which is covered by Section 44C is of a common nature, incurred for the various branches or for the head office and the branch.

The Supreme Court observed that clause (c) of Section 44C allows for the computation of head office expenditure on an actual basis, wherein all the head office expenditure that is attributable to the business in India is taken into account. A plain reading of the Clause in no way indicates that the legislature envisaged taking into account only ‘common’ head office expenditure while excluding ‘exclusive’ head office expenditure under the clause. The text of the provision is broad and unqualified. It employs the phrase ‘head office expenditure incurred by the Assessee as is attributable to the business or profession of the Assessee in India,’ without carving out any exception for expenses incurred exclusively for Indian branches.

The Supreme Court thus concluded that Section 44C does not create a distinction between common and exclusive head office expenditure. The Supreme Court found no merit in the contention of the Respondents that exclusive expenditure falls outside the purview of this section. Consequently, it held that the view expressed by the Bombay High Court in Emirates Commercial Bank (supra) regarding the applicability of Section 44C was incorrect and did not declare the position of law correctly.

The Supreme Court further addressed the ancillary issue. The Appellant claimed that the definition of ‘head office expenditure’ in the Explanation to Section 44C is inclusive and has a wide scope and illustratively includes rent, taxes, repairs or insurance of premises abroad; salaries and other emoluments of staff employed abroad; travel by such staff; and other matters connected with executive and general administration.

According to the Supreme Court, such an interpretation was impermissible as the Appellant had failed to consider Clause (d) of the Explanation in its entirety. Clause (d) to the Explanation reads as follows: ‘such other matters connected with executive and general administration as may be prescribed’. Thus, Clause (d) stands as a clear statutory indicator that the Explanation would cover ‘executive and general administration’ expenditure only of the kind mentioned in Clause (a), (b) and (c) or of the kind prescribed under (d). If the Explanation were to be interpreted as broadly inclusive, covering all kinds of executive and general administration expenses without restriction, it would render the words ‘as may be prescribed’ in Clause (d) otiose and redundant. Such a restrictive interpretation of the term ‘head office expenditure’ was also supported on the basis of legislative intent.

Lastly, it was argued on behalf of the Respondents that the Bombay High Court’s decision in Emirates Commercial Bank (supra) was challenged by way of appeal to the Supreme Court in CIT vs. Emirates Commercial Bank Ltd. (Civil Appeal No. 1527 of 2006) and the Supreme Court by its judgement dated 26.08.2008 had dismissed the appeal following the view taken by it in the case of CIT vs. Deutsche Bank A.G. (Civil Appeal No. 1544 of 2006). Consequently, the principle of law that stood approved by the Supreme Court was that if expenditure is incurred by the head office outside India, which is incurred exclusively for the Indian operations of a non-resident entity, then such expenditure cannot be brought within the ambit of the term ‘head office expenditure’ provided in Section 44C of the Act.

The Supreme Court, after noting all the orders passed in the matters, observed that orders of the Supreme Court could in no manner be said to lay down and operate as a binding precedent on the principle of law that exclusive expenditure cannot be brought within the ambit of Section 44C of the Act, 1961. The said orders, however, were indicative of one aspect only: the decision in Rupenjuli Tea (supra) stood finalised and accepted by the Revenue.

According to the Supreme Court, the pivotal question involved in these appeals had been answered in favour of the Revenue. However, it remained to be seen whether, on merits, the entire expenditure that the Respondents claimed as deductible under Section 37 would fall within the ambit of Section 44C. There was no dispute that the Respondents were non-residents and the expenditure was incurred outside India. However, there seemed to be disagreement with regard to the fact whether or not certain expenditures could be of an ‘executive and general’ nature as specifically enumerated in the Explanation. In fact, the Respondents had contended that a part of the expenditure incurred by them would not be in the nature of head office expenditure as described under Section 44C.

The Supreme Court, therefore, remanded these matters to the Income Tax Appellate Tribunal, Mumbai, on this limited issue. The Tribunal was directed to examine the expenses afresh in light of the legal principles enunciated hereinabove, more particularly to verify whether the disputed expenditures satisfy the tripartite test necessary to qualify as ‘head office expenditure’ under the Explanation to Section 44C. With respect to the expenditure which the Respondents do not wish to dispute, the same would fall under the ambit of Section 44C, and thereby their deduction will be governed by the limits set out therein

Number of Days Stay For Residence under Section 6

Determining an individual’s residential status under Section 6 of the Income Tax Act depends on the specific duration of their stay in India, yet the method for calculating this period remains highly contentious,. A significant dispute exists regarding whether to include the days of arrival and departure in the total count.

While the Authority for Advance Rulings (AAR) and the tax department argue that both days must be included—reasoning that presence for any part of a day constitutes a stay—various Tribunals and the Karnataka High Court have held otherwise. These rulings often rely on the General Clauses Act and the legal principle that the “law disregards fractions of a day,” thereby justifying the exclusion of the arrival date. Given these conflicting interpretations, appellate authorities typically adopt the view most beneficial to the taxpayer, though the ambiguity continues to trigger litigation.

ISSUE FOR CONSIDERATION

An individual is said to be a resident in India where he is in India in a year for 182 days or more, or, in the alternative, where he was in India for 365 days or more during the 4 years preceding the previous year and is in India for 60 days or more in the previous year. This period of 60 days for compliance of alternate condition is extended to 120 days or 182 days in certain cases, like seafarers, persons visiting India or leaving India for the purposes of employment. A similar condition relating to the number of days is found in respect of a person claiming the status of resident but not ordinarily resident. These provisions found in s.6 of the Act of 1961 are materially retained in the corresponding s.6 of the Act of 2025.

Determination of the number of days of stay for ascertaining the residential status is crucial on various counts and has become highly contentious. Over a period, conflicting decisions on the inclusion of the dates of arrival and/or departure and the time of arrival have been delivered on the subject. While the Authority for Advance Ruling has held that the prescribed number of days would include the days of arrival and departure, the different benches of the ITAT, in particular Jaipur, Delhi, Mumbai, Kolkata, Ahmedabad and Bangalore have held otherwise. Appeal against the decision of the Bangalore Bench has been dismissed by the Karnataka High Court.

AAR IN PETITION NO. 7 OF 1995, IN RE

In this case reported in 223 ITR 462 (AAR), the petitioner applicant claimed to be a non-resident and the sole shareholder of an unregistered company in the UAE. He opted for an advance ruling u/s. 245Q (1) of the Income Tax Act and claimed the benefit under Article 10(2)(a) of the Indo-UAE, DTAA. One of the issues relevant to our discussion, in the petition, related to the determination of the number of days of stay for ascertaining the residential status of the petitioner applicant.

The question before the Authority was whether for calculating period of stay in India, for the purposes of determining residential status of an individual under section 6(1), number of days during which he was present in India in a previous year, included the days of arrival and departure, and which therefore have to be taken into account for determination of his stay in India and not the number of days that the individual was out of India.

The Applicant submitted that he had been in and out of India on 22 occasions during the relevant financial year. According to the statement furnished by the applicant, he had been present in India for 198 days, including the days of his arrival and departure. However, by excluding the days of arrival and departure in and from India, the number of days of stay in India was 178 days only, and such stay being for less than 182 days in the financial year 1994-95, he was a non-resident and, therefore, was entitled to maintain the application under section 245Q(1).

In contrast, the case of the Income-tax Department was that the days of arrival and departure should not be excluded in counting the number of days of stay in India, but should be included in the number of days of stay in India, and as such, the applicant was a resident of India, and his application for the Advance ruling was not maintainable.

Counting the Days Navigating India's Tax Residency Rules

The additional contention of the applicant was that he was out of India for more than 187 days and, if so, he could be said to be in India for 178 days only, and as such, his stay in India could not have exceeded 181 days.

The Authority dismissed the application of the petitioner on the ground that he was a resident and not a non-resident, and his petition was not maintainable, and held as under: “Further, in order to be able to maintain the application, the applicant should have been non-resident in financial year 1994-95 as the application was preferred in 1995. Under section 6(1)(a), the applicant would have been non-resident in India for that financial year if his stay in India during that period was less than 182 days. But, according to the statement furnished by the applicant, he had been in India for 198 days. It was, however, contended that the applicant was present in India for 178 days. He arrived at this figure by computing the period during which he had been out of India in the said financial year and deducting it from 365 days. However, the calculation relevant for the purposes of section 6(1)(a) is that of the number of days during the previous year on which the applicant was present in India. For this purpose, the days on which the applicant entered India as well as the days on which he left India have to be taken into account. It is no doubt true that for some hours on these dates the applicant could be said to have been out of India also but, equally, it could not be doubted that the applicant was in India on these dates for howsoever short a period it may be. There was, therefore, really no absurdity in the computation worked out as 198 days. It was suggested that the actual number of hours during which the applicant was present in India should be found out and the number of days calculated accordingly. That idea seemed impractical but, assuming that this was a correct argument, no data had been furnished on the basis of which the stay of the applicant in India in terms of hours could be worked out. Therefore, the applicant was not a non-resident assessee entitled to maintain the application under section 245Q(1). The application was, therefore, to be rejected as non-maintainable.”

PRADEEP KUMAR JOSHI’S CASE,

The issue under consideration was also examined by the Ahmedabad Bench of the tribunal reported in 192 ITD at Page 577. In this case, the tribunal was asked to examine whether, while counting the number of days of stay in India for considering whether an individual was a resident or not, the day of arrival on a visit was to be excluded or not.

The question before the tribunal was, whether in determining the residential status of an individual assessee u/s 6 of the Income-tax Act for assessment year 2016-17, while counting the number of days of stay in India for determining the status of ‘resident’, the day of arrival had to be excluded and whether the assessee, having stayed in India during the year under consideration for less than 182 days, could not be considered as resident of India in the year under consideration.

The assessee, an individual, filed his return of income in the status of a non-resident, disclosing the income from other sources, being interest from REC Bonds, FDR, NRE Account, savings bank and dividend income. He also had income from salary earned from overseas employment with Oil Support Services, Dammam (outside India) and long-term capital gains, which were claimed as exempt from income tax. In the assessment, on the basis of verification of the passport, the AO held that the assessee was a resident, considering the calculation of days of stay in India. It was claimed by the assessee that he stayed in India during the year under consideration for 175 days, whereas the case of the AO was that the assessee had stayed in India for 184 days.

According to the assessee, the inclusion of both the days of arrival and of departure from India by the AO in counting the number of days of stay in India was not correct. The assessee relied upon the ruling of the Authority for Advance Rulings, vide an order dated 8-2-1996 in Petition No. 7 of 1995, In re (supra). In support of the case for excluding the date of arrival in India, the assessee further relied upon the order passed by the Mumbai bench of the Tribunal in the case of Fausta C. Cordeiro, 53 SOT 522.

The AO, however, held that the assessee was a resident u/s 6 of the Act and his income was taxable under the Act. The appeal of the assessee to the CIT(Appeals) was dismissed by him by a detailed order holding as follows:

‘5.4 However, it is seen that the appellant himself has computed a stay in India of 175 days as given in the return of income, 179 days as per the paper book and finally 176 days following the judgment of the ITAT Mumbai in ITA Nos.4933 & 4934/Mum/2011in the case Fausta C. Cordeiro. The said judgment has been perused, where the facts were as under:

“Briefly stated assessee has claimed status of Non Resident in India having worked as employee of M/s Transocean Discoverer and worked on rig Discoverer outside India. Assessee’s passport was examined to verify the number of day’s assessee was in India and AO noticed that assessee arrived seven times to India for varying periods and listed out them in a table and found that assessee had stayed in India for 187 days and accordingly he considered assessee as Resident and brought the salary to tax. The learned CIT (A) after considering the submissions of assessee accepted assessee’s contentions that assessee generally arrived late in the night after completing his work from abroad and attended to the work next day and generally left early in the morning so as to attend the work again after arriving at the destination. Then he analysed the General Clauses Act and the decision of the ITAT Bangalore in the case of Manoj Kumar Reddy vs. Income-tax Officer (IT), [2009] 34 SOT 180 and allowed assessee’s contention that his stay was less than 180 days in India during the relevant period.

The Hon’ble ITAT, Mumbai held that “We have considered the rival contentions and examined the facts. As rightly pointed out by the CIT (A), there was a mistake of taking number of days at Item No. 3. Therefore, according to AO’s own method it should be 186 days. If we exclude the date of arrival as it is not a complete day, the stay of assessee is less than 182 days. Accordingly there is no merit in Revenue appeal. The case law relied is in support of the contention that day of arrival, particularly late in the day should be excluded. If that day was excluded the stay in India by assessee was less than 180 days. Therefore, the grounds raised by the Revenue are dismissed and accordingly the appeal is dismissed.”

5.5 In this regard it is noted that the date of arrival and date of departure are stamped by the immigration Authorities at the Airports on the passport of the person travelling but the time of arrival and time of departure are not mentioned otherwise also the stamping by the Immigration Authority will be few hours after the arrivals (due to deplaning, arrival at lounge & queuing) and few hours before the departure (as passengers arrive about 3 hours before the scheduled departure of plane) and therefore for the purpose the expected time of arrival (ETA) and the standard time of departure (STD) in the tickets have to be taken. As per the relied upon judgement of the ITAT, Mumbai the days of arrival in India has to be ignored for counting of the period of stay in India if the arrival is in the late night. It is seen in the table as 5-2-3 that as the appellant is arriving early in the morning, typically around 8 AM to 9 AM and thus the day of arrival cannot be ignored and thus the number of clays of stay in India comes to 182 days as under: Table not printed.

5.6 It is worth noting that in general the appellant has taken flights from Bahrain for India (Bangalore or Ahmedabad or Mumbai) but the departure on 5-3-2016 from Mumbai is to Bangkok and the arrival on 18-3-2016 is from Bangkok i.e. the absence in India for the period from 5-3-2016 to 18-3-2016 was not for the purpose of work (the place of work being Dammam in Saudi Arabia) but has been undertaken for other purposes and managed for the purpose of reducing the stay of India below 182 days to avoid becoming the resident of India in the said financial year. In this regard it is noted that as per the existing provisions of Section 6 as applicable in the case no adverse view as to the visit to Bangkok for the purpose other than for the purpose of employment can be drawn because the conditions of maintenance of a dwelling place in India has been done away with.”

The Ahmedabad bench of the tribunal noted the observations of the CIT(A), who had found that the Mumbai bench, in the case of Fausta C. Cordeiro(supra), excluded the date of arrival, since it was not a complete day, and that while doing that, the Mumbai bench had relied upon the decisions of the co-ordinate benches of the tribunal in the cases of R. K. Sharma, (1987) SOT 1.127 (Jp.)Manoj Kumar Reddy(supra) and Gautam Banerjee (ITAT L. Bench Mumbai) in ITA No. 2374/Mum/2004 dated 18-6-2008). The bench also took note of the decision placed on record of the Karnataka High Court in the case of DIT International Taxation vs. Manoj Kumar Reddy Nare 12 taxmann.com 326, wherein the order of the tribunal on facts and findings was accepted.

The Ahmedabad bench took note of the contentions of the Departmental Representative, who, besides relying on the orders of the A.O. and the CIT(A) and the findings hereinabove, contended that ‘there is no provision under the Act that fraction of a day is to be excluded. Section 6(l)(c) provides that he should be in India for a period or period amounting in all to 60 days or more in that year. In case the fraction of a day is to be ignored when a person who is coming to India on different occasions during the previous year, then such fraction of day. i.e., day of arrival and day of departure will have to be excluded. This is not the case and the intention of the Legislature when it has provided the period or periods amounting in all to 60 days or more”

The Ahmedabad bench took note of the fact that the co-ordinate bench in the case of Manoj Kumar Reddy (supra) has relied on the decision of the Hon’ble Delhi High Court in the case of Praveen Kumar vs. Sunder Singh Makkar AIR 2008(NOC) 1099(Del.) delivered in the context of the performance of a suit by relying on the General Clauses Act.

The Ahmedabad bench held that the CIT(A), while counting the number of days of stay in India, purportedly counted the date of arrival of the assessee in India, without giving any cogent reason thereon, which, in the considered opinion of the bench, had no basis, more so when it had already been held by different benches that while counting the number of days of stay in India for considering the status of “Resident”, the days of arrival have to be excluded. The bench did not find any reason to deviate from the ratio laid down by the Bangalore bench with the identical facts in the case in hand. The bench ordered the exclusion of the date of arrival in counting the days of stay in India in the case of the assessee.

The bench thus held that the assessee stayed in India during the year under consideration for less than 182 days and could not be considered as a resident of India in the year under consideration. In that view of the matter, the impugned assessment made against the assessee, considering him as a resident of India, was held to be not sustainable in the eyes of law, and the overseas income assessed was deleted. As a result, the appeal preferred by the assessee was allowed, holding that in calculating the number of days of stay in India, the days of arrival were to be excluded.

OBSERVATIONS

s.6(1) of the Act reads as

For the purposes of this Act,-

(1) An individual is said to be resident in India in any previous year, if he-

(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or

(b) ***

(c) having, within the four years preceding that year, been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

The main provision is followed by Explanations 1 and 2, which are not reproduced here for the sake of brevity. Both the Explanations are inserted at a later date to relax the rigours of clause (c) prescribing the period of stay in India of 60 days. Clause (c), which is an alternative to clause (a), provides that a person would be said to be a resident in India where his stay in a year is of 60 days or more, provided also that his stay during the preceding 4 years is of 365 days or more. On cumulative satisfaction of the twin conditions of clause (c), an individual is said to be resident in India, even where his stay in India does not exceed 181 days. The condition of stay of 60 days in clause (c) is relaxed in three situations narrated in clauses (a) and (b) of Explanation 1 to s.6(1) of the Act, which cases are the cases of seafarers, a person leaving India for employment outside India and a person who comes on a visit to India.

The issue for consideration here revolves in a narrow compass about how to determine whether an individual is said to be in India in any previous year for the prescribed period or periods. A person can be in India and also out of India on a given day, especially on the day of his departure and of the day of his arrival, unless the event happens exactly at midnight, when the day and the date change. The issue is about whether to include such days or to exclude them, while determining the number of days of stay in India. The Act does not prescribe any methodology for calculating the number of days in a year, nor do the rules prescribe the manner for calculating the number of days. No guidance is available in the context of s.6 of the Act. The Directorate of Income Tax (Public Relations, Publications and Publicity), in its brochure on “Determination of Residential Status under Income-tax Act, 1961” has stated that “For the purpose of counting the number of days stayed in India, both the date of departure as well as the date of arrival are ordinarily considered to be in India”.

In a general sense, a ‘day’ is the time when there is light and, in that sense, the day starts with sunrise and ends with sunset. At times, a day is taken to be a period of 24 hours. A solar day begins with midnight and ends with the following midnight; a period of 24 hours, from 12:00 midnight to 12:00 midnight of the next night. A day is usually a 24-hour period, connoting the length of time it takes the earth to rotate fully on its axis.

S.2(35) of the General Clauses Act, 1897 defines a ‘month’ to mean the period to be reckoned according to the British Calendar and s. 2(66) of the said Act defines a “Year” to mean a year according to the British Calendar. Even the General Clauses Act does not define a “day”.

The expression ‘day’ has been understood in different ways by different nations at different times. In case of Frank Anthony Public School vs. Smt. Amar Kaur, 1984 (6) DRJ 47, the Delhi High Court quoted with approval the words of Lord Coke; The Jews, the Chaldeans and Babylonians begin the day at the rising of sun; The Athenians at the fall; the Umbri in Italy begin at midday; The Egyptians and Romans from midnight; and so doth the law of Englans in many cases. The English day begins as soon as the clock begins to strike twelve p.m. of the preceding day. Williams vs. Nash, 28 L.J.Ch. 886.

In Halsbury’s Laws of England, third edition, Vol.37, pg. 84, it is said, the term ‘day’ is like the terms ‘year’ and ‘month’ used in more senses than one. A day is strictly the period of time which begins with one midnight and ends with the next. It may also denote any period of twenty-four hours, and again it may denote the period of time between sunrise and sunset.

The meaning assigned by the courts, in the context, to the word ‘day’ has been explained in the Law Lexicon by Venkatramaiah’s 1983 Edition to mean: “Day, generally speaking, is the period from midnight to midnight: the law admits not of fractions in time but, in case of necessity. [Louis Dreyfus & Co. vs. Mehrchand Fattechand ’61.C. 886]. ….The day on which a legal instrument is dated begins and ends at midnight. It is not necessary to consult the calendar to ascertain when it commences and ends. [Anderson: Law Dictionary]….”

It is settled that the law disregards fractions. In the space of a day, all the twenty-four hours are usually reckoned; the law rejects all fractions of a day to avoid disputes. Counting the date of service, which takes place in any part of the day as a day, would result in a fraction being included, and since a fraction of a day is not to be included, the limitation would begin from the next date. A day, it emerges, should be taken as a period of 24 hours and that too continuous twenty-four hours; In counting the number of days, the fraction of the day should be excluded in computing the number of days.

Section 12(1) of the Limitation Act reads as follows;

12. Exclusion of time in legal proceedings (1) In computing the period of limitation for any suit or application, the day from which period is to be reckoned shall be excluded (2) ……. Section 12(1) itself specified that for the computation of the period of limitation, the day from which the said period is to be reckoned should be excluded.

Possibilities that emerge are to exclude the days when a person arrives in India, and also the days when he departs from India. Alternatively, to include both such days on the ground that the person was in India even for a part of the day. Then there is a possibility to exclude one of these days, and yet one more is to divide the day into the number of hours and take a mean thereof and apply the test of 12 hours stay in India. There is also a possibility of excluding the day when a person has come to India after sunset and the day when he has left India before sunrise, or where he was in India for less than 12 hours.

Section 9 of the General Clauses Act, 1897 is as under —

“(1) In any (Central Act) or Regulation made after the commencement of this Act, it shall be sufficient, for the purpose of excluding the first in a series of days or any other period of time to use the word “from”, and, for including the last in a series of days or any other period of time, to use the word “to”.

(2) This section also applies to all (Central Acts) made after the third day of January 1868. and to all Regulations made on or after the fourteenth day of January, 1887.”

The Delhi High Court in the case of Praveen Kumar (supra) had an occasion to consider whether the suit before the court was filed in time. In that case, the deed of performance of the agreement dated 10.03.2002 was stipulated to take place on 30.7.2002, failing which the suit was filed on 30.07.2005 for specific performance. The suit was challenged on the ground that it was barred by time and was not maintainable. It was contended that the last date for filing the suit was 29.07.2005, and the suit was filed late by one day. In defense, the plaintiff argued that the suit was filed in time and the same was in accordance with the Order 7 Rule 11 of the Civil Procedure Code, and the Limitation Act and the General Clauses Act. In case the date set for performance, i.e., 30.7.2002, was excluded, then the limitation will commence from the next date, i.e., 31-7-2005.

The Delhi High Court referred to section 9 of the General Clauses Act to hold that, if the word ‘from’ is used, then the first day in a series of days will stand excluded, and if the word ‘to’ is used, then it will include the last day in a series of days or any other period of time. The Delhi High Court at para 28 observed that: “It is well-known maxim that the law disregards fractions. By the Calendar, the day commenced at midnight, and most nations reckon in the same manner. The English do it in this manner. We too have adopted the same. In the space of a day all the twenty four hours are usually reckoned, the law generally rejecting all fractions of a day, in order to avoid disputes. If anything is to be done within a certain time of, from, or after the doing or occurrence of something else, the day on which the first act or occurrence takes place is to be excluded from computation. (Williams vs. Burzess [1840] 113 E.R. 955) unless the contrary appears from the context. (Hare vs. Gocher F1962I2 Q.B. 641). The ordinary rule is that where a certain number of days are specified they are to be reckoned exclusive of one of the davs and inclusive of the other (R.V. Turner,(supra) p. 359).”

As per the General Clauses Act, the first day in a series of a day is to be excluded if the word from is used. Since for computation of the period, one has to necessarily import the word ‘from’ and, therefore, accordingly, the First day is to be excluded.

It is relevant to note that the ruling of the AAR is assessee-specific and is not binding on other assesseees and does not have a value of precedent. Secondly, the Authority did not have an occasion to examine the implication of s.9 of the General Clauses Act and the decision of the Delhi High Court in Praveen Kumar’s case (supra). It also did not consider the possibility of inclusion or exclusion about the number of hours and the fraction of a day, simply for the reason that such data was not made available by the petitioner applicant.

The Karnataka High Court, while dismissing the appeal of the revenue against the order of the tribunal in Manoj Reddy’s case (supra), did note the facts of the case and the findings of the tribunal and this decision of the High Court is referred to by the subsequent decisions of the tribunal.

For records, it is noted that s.32(1) granting depreciation, vide second proviso, restricts the benefit of depreciation to 50% in cases where the asset in question is put to use for a period of less than 180 days in the previous year. Likewise, the Act has many provisions that provide for limitations with reference to the number of days.

It appears that the exclusion of one of the days is not difficult and does not need extra persuasion, though the view that both days are to be included is held by the AAR and the Income Tax Department. The challenge, therefore, for an assessee is to examine whether both the days can be excluded or not. There is a good possibility of exclusion in cases where the hours of stay in India on any of these days are less than twelve hours. In such a case, applying the theory of excluding the ”fraction of the day”, such a day may be excluded.

One may also be careful to ensure that the customs authorities, in stamping the passport puts the date of actual arrival and departure to eliminate the confusion arising on account of the stamping prior to the actual time of the event.

Applying the General Clauses Act, 1897, the first date in line should be excluded in computing the number of days. Most of the cases considered by the tribunal are the cases of ”visit” to India, and therefore, in these cases, the tribunal has held that the date of arrival, being the first in line, should be excluded. Applying the principle supplied by the tribunal, basis the General Clauses Act, in computing the number of days in cases where the person leaves India for the purposes of employment, or otherwise, the date of departure should stand excluded.

One may note that the words ‘from’ and ‘to’ are not found in s. 6 of the Act and are read into the section by the courts by relying on the General Clauses Act, which inter alia does provide so in s. 9 of the said Act, relied upon by the tribunal.

While it may be true that s.6 requires one to examine the number of days stay in India and not out of India, it is also not appropriate to altogether rule out the calculation of days in India by excluding the number of days of stay outside India. In case of a person who is admittedly out of India for more than the prescribed number of days, it would not be inappropriate to derive his number of days of stay in India by excluding the number of days outside India from 365 days.

It seems that the case of the revenue for inclusion of both the days is misplaced, and even for inclusion of one of the days is debatable and is capable of two views. Under such circumstances, the view beneficial to the taxpayer should be adopted.

The issue under consideration has a very wide application and can seriously damage the cases of many taxpayers who are not vigilant about the implications of the number of days of stay in a year or years. The taxpayers, in general, are advised not to take chances and to avoid unwarranted litigation, at least in cases where it is possible for them to monitor the number of days of their stay in India. Better is for the Parliament, if not the Government, to lay down clear-cut rules to avoid any harm to unsuspecting taxpayers.

Section 143(2) read with section 120 – Assessment framed by non-jurisdictional Assessing Officer

76. [2025] 126 ITR(T) 664 (Delhi – Trib.)

Arjun Rishi vs. ITO

ITA NO: 3020 (DEL.) OF 2023

A.Y.: 2017-18

DATE: 09.07.2025

Section 143(2) read with section 120 – Assessment framed by non-jurisdictional Assessing Officer

FACTS

The assessee filed his return of income for the AY 2017–18 on 31.03.2018 declaring total income of ₹91,05,020. The case was selected for limited scrutiny under CASS on issues relating to cash deposits, capital gains/loss on sale of property, and investment in immovable property.

Notice under section 143(2) was issued and served upon the assessee by the Income-tax Officer (ITO), followed by notice under section 142(1). The assessee complied and furnished the requisite details electronically. Thereafter, the assessment was completed by the ITO vide order dated 30.12.2019.

Before the Commissioner (Appeals), the assessee raised a jurisdictional objection contending that, in view of CBDT Instruction No. 1/2011 dated 31.01.2011, the pecuniary jurisdiction to assess cases where returned income exceeds ₹30 lakhs in metro cities lies with the Assistant/Deputy Commissioner of Income-tax and not with an ITO. Since the assessee had declared income exceeding ₹90 lakhs, the ITO lacked jurisdiction. It was further contended that no order under section 127 transferring jurisdiction had been passed.

The Commissioner (Appeals) rejected the jurisdictional objection and upheld the assessment as well as the additions made therein.

Aggrieved, the assessee preferred an appeal before the Tribunal.

HELD

The Tribunal observed that the assessee had declared income of ₹91.05 lakhs and, as per CBDT Instruction No. 1/2011 issued under section 119, cases where declared income exceeds ₹30 lakhs in metro cities fall within the jurisdiction of ACs/DCs and not ITOs. The Instruction is binding on the Department and must be strictly followed.

The Tribunal further noted that the Revenue failed to place on record any order passed under section 127 transferring jurisdiction from the competent AC/DC to the ITO. In the absence of such an order, the ITO could not have assumed jurisdiction merely on the basis of PAN allocation.

The Tribunal held that since the assessment was framed by an Assessing Officer who lacked pecuniary jurisdiction, the notice issued under section 143(2) was invalid, and consequently, the entire assessment proceedings were vitiated. An assessment framed by a non-jurisdictional Assessing Officer is bad in law and liable to be set aside.

Accordingly, the assessment order was quashed, and the appeal of the assessee was allowed.

Section 271(1)(c) read with section 54F – Penalty – Wrong claim of exemption – Bona fide explanation due to builder’s default

75. [2025] 126 ITR(T) 172 (Delhi – Trib.)

DCIT vs. Sahil Vachani

ITA NO.: 2604 (DEL) OF 2023

A.Y.: 2016-17

DATE: 23.06.2025

Section 271(1)(c) read with section 54F – Penalty – Wrong claim of exemption – Bona fide explanation due to builder’s default

FACTS

The assessee sold shares during the relevant previous year and earned long-term capital gains of ₹9.01 crore. In the return of income, the assessee claimed exemption of ₹6.31 crore under section 54F, contending that he had invested the sale consideration in a residential property.

During assessment proceedings, the Assessing Officer noted that although the assessee had entered into an agreement and made substantial payments towards the proposed residential property, the new residential house did not come into existence within the time prescribed under section 54F. The assessee accepted the disallowance of exemption and offered the amount to tax.

The Assessing Officer, thereafter, levied penalty under section 271(1)(c) on the ground that the assessee had furnished inaccurate particulars of income.

On appeal, the Commissioner (Appeals) deleted the penalty holding that the assessee had disclosed all material facts, furnished supporting documents, and the failure to complete construction was attributable to the builder and beyond the assessee’s control.

Aggrieved, the Revenue preferred an appeal before the Tribunal. Due to a difference of opinion between the Judicial Member and the Accountant Member, the matter was referred to a Third Member for resolution.

HELD

The Tribunal observed that the assessee had placed on record complete documentary evidence in support of the claim under section 54F, including agreements with the builder, bank statements evidencing payments, and TDS certificates. The assessee had also explained during assessment proceedings that the construction could not be completed within the statutory period due to reasons attributable to the builder.

It was further observed that the assessee did not suppress the long-term capital gains, nor did he furnish any false particulars. The claim under section 54F was made on the basis of disclosed facts and supporting documents. Merely because the claim was ultimately found to be unsustainable in law does not automatically attract penalty under section 271(1)(c).

The Third Member placed reliance on the decision of the Supreme Court in CIT vs. Reliance Petroproducts (P.) Ltd., holding that making an incorrect claim in law, by itself, does not amount to furnishing inaccurate particulars, when all material facts are disclosed.

The Tribunal held that the explanation offered by the assessee was bona fide, supported by evidence, and the assessee had voluntarily offered the amount to tax once the exemption was disallowed. There was no finding that the explanation was false or lacking in good faith.

Accordingly, it was held that the penalty under section 271(1)(c) was not leviable, and the order of the Commissioner (Appeals) deleting the penalty was affirmed. The Revenue’s appeal was dismissed.

Merely because the assessee jointly owned another property as on the date of transfer of the asset, his claim for deduction under section 54F could not be rejected.

74. (2025) 180 taxmann.com 720 (Del Trib)

Kusum Sahgal vs. ACIT

A.Y.: 2016-17

Date of Order: 21.11.2025

Section : 54F

Merely because the assessee jointly owned another property as on the date of transfer of the asset, his claim for deduction under section 54F could not be rejected.

FACTS

During the relevant previous year, the assessee received full value of consideration with respect to transfer of shares aggregating to ₹118 crores and, inter alia, claimed deduction under Section 54F for ₹21.28 crores on account of investment in residential property in Gurgaon. The case was selected for scrutiny assessment under CASS for limited scrutiny. The AO contended that since the assessee jointly owned more than one residential property on the date of transfer of shares, he was not entitled to claim deduction under section 54F and therefore, made an addition of ₹21.28 crores.

Aggrieved, the assessee went in appeal before CIT(A) who upheld the action of the AO in disallowing deduction under section 54F.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal noted that the assessee claimed deduction under section 54F for investment made in purchase of residential property at the Camellias, Golf Drive DLF-5, Gurgaon which was an ongoing project of Camellias under construction by DLF. Additionally, as on the date of sale of the shares / original asset, the assessee had a commercial flat at Rajendra Place, an agricultural property (under which there was no ownership of the assessee in possession of the land) at Mehrauli and one residential flat at Greater Noida which was owned to the extent of 50% by the assessee.

Following the order of Mumbai ITAT in ITO vs. Sheriar Phirojsha Irani [IT Appeal No. 2835/Mum/2024, dated 27-09-2024] and other judicial precedents, the Tribunal held that joint ownership at the time of sale of original asset does not disentitle the assessee to claim deduction under section 54F.

In the result, the orders of the AO and CIT(A) were set aside and the appeal of the assessee was allowed.

Where the amount received by the assessee from milk supplying societies was not a voluntary contribution but a compulsory levy linked to the quantity of milk fat supplied, it could not be regarded as a corpus donation exempt under section 11(1)(d).

73. (2025) 180 taxmann.com 641 (Ahd Trib)

Dudhsagar Research and Dement Association vs. DCIT

A.Y.: 2016-17 and 2017-18

Date of Order: 17.11.2025

Section: 11(1)(d)

Where the amount received by the assessee from milk supplying societies was not a voluntary contribution but a compulsory levy linked to the quantity of milk fat supplied, it could not be regarded as a corpus donation exempt under section 11(1)(d).

FACTS

The assessee-trust was registered under section 12A since 1975 and was engaged in activities of medical relief to animals, progeny testing, vaccination, artificial insemination, bull rearing, and education in dairy technology. It received ₹7.23 crores from milk supplying societies as corpus donations which were exempt under section 11(1)(d).

The case was selected for scrutiny. The AO held that the corpus donation of ₹7.23 crores received from milk supplying societies was not a voluntary contribution but a compulsory levy linked to the quantity of milk fat supplied and hence did not qualify as a corpus donation under section 11(1)(d). Accordingly, he treated the said amount as income under section 2(24)(iia). He also invoked proviso to section 2(15) on the ground that the assessee was engaged in activities which fell within “advancement of any other object of general public utility” and its main source of income was sale of frozen semen doses which were in the nature of business, etc. and thereby, denied exemption under section 11.

The assessee filed an appeal before CIT(A) who confirmed the action of the AO; but following the order of ITAT in assessee’s own case for AY 2014-15, he allowed statutory deduction of 15% on the receipts treated as revenue income.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

On the issue of nature of amount received by the assessee from milk supplying societies, following the order of ITAT in assessee’s own case for AY 2014-15 in Dudhsagar Research & Development Association v. ACIT, (2024) 159 taxmann.com 1465 (Ahd Trib), the Tribunal upheld the finding of the AO and CIT(A) that the donations received from milk supplying societies, being compulsorily collected and linked to the quantity of milk fat supplied, did not satisfy the condition of being “voluntary contributions” with “specific direction” as required under section 11(1)(d) and therefore could not be treated as corpus donations.

However, on the alternative claim raised by the assessee of allowing statutory deduction of 15% on such amount, the Tribunal held that this issue was covered in favour of the assessee by the decision of the coordinate Bench in assessee’s own case for AY 2014-15 (supra) wherein it was held that once the corpus donation was treated as revenue receipt, the said receipts were liable to be governed by sections 11 and 12 and the assessee was eligible for deduction in accordance with law including the statutory deduction of 15%.

In the result, the Tribunal partly allowed the appeal of the assessee.

Where milk procurement from farmers was not a standalone profit-oriented business, but an incidental and inseparable activity directly connected to the charitable object of the assessee-society of providing fair and remunerative prices to small and marginal farmers and thereby protecting them from exploitation by middlemen, the activities of the assessee fell within “relief of poor” under section 2(15) and exemption under section 11 could not be denied to it on the ground that it was carrying on commercial activity.

72. (2025) 180 taxmann.com 722 (Cochin Trib)

Malanadu Farmers Society vs. DCIT

A.Ys.: 2016-17 and 2022-23

Date of Order : 19.11.2025

Section: 2(15)

Where milk procurement from farmers was not a standalone profit-oriented business, but an incidental and inseparable activity directly connected to the charitable object of the assessee-society of providing fair and remunerative prices to small and marginal farmers and thereby protecting them from exploitation by middlemen, the activities of the assessee fell within “relief of poor” under section 2(15) and exemption under section 11 could not be denied to it on the ground that it was carrying on commercial activity.

FACTS

The assessee was a charitable society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955 and also registered under section 12A of the Income-tax Act, 1961. The primary object of the assessee was to conduct social activities aimed to for improving the living conditions and welfare of the poor and marginal section of the society. It was engaged in procurement, chilling, processing and sale of milk sourced from small and marginal farmers. It filed its return of income declaring Nil income after claiming exemption under section 11.

The AO issued notice under section 148A on the ground that the assessee was not a charitable organisation but a business community where the major activities of the assessee were trading and processing of milk. He further held that the assessee’s activities cannot be regarded as “relief of poor”. Accordingly, the AO denied exemption under section 11 and an addition of ₹13.93 crores was made relating to the profit earned by trading milk.

Being aggrieved, the assessee filed an appeal before CIT(A) who confirmed the addition made by the AO.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) The assessee had consistently carried out activities such as farmer-training programmes, cattle-rearing demonstrations, financial assistance, welfare schemes, subsidies, and other public-oriented initiatives aimed at improving the livelihood of economically weaker farming communities.

(b) CBDT Circular No. 11/2008 dated 19.12.2008 categorically clarifies that proviso to Section 2(15) does not apply to the first three limbs of the definition of “charitable purpose”—namely (i) relief of the poor, (ii) education, and (iii) medical relief. This circular further clarifies that “relief of the poor” includes a wide range of welfare activities benefiting small and marginal farmers, and that entities engaged in such objects are not disentitled merely because they incidentally carry-on commercial activities, provided the conditions of Section 11(4A) are satisfied.

(c) In view of the consistent judicial position, binding ITAT order in assessee’s own case for AY 2017-18 [Malanadu Farmers Society v. DCIT, IT Appeal Nos. 632 and 633 (Coch) of 2022, date of pronouncement 08.03.2023], CBDT Circular 11/2008 dated 19.12.2008, and holistic appreciation of facts, the assessee’s activities fell squarely within the definition of “relief of the poor” under section 2(15).

(d) The assessee had demonstrated with supporting documents that milk procurement was not a standalone profit-oriented business, but an incidental and inseparable activity directly connected to its charitable object of providing fair and remunerative prices to small and marginal farmers, thereby protecting them from exploitation by middlemen.

(e) The dominant purpose of the assessee was relief of poor, small and marginal farmers; milk procurement and processing activities were merely incidental and inseparable from its charitable objectives. Farmers received higher prices compared to cooperative benchmarks, which directly contributed to their upliftment.

The Tribunal also noted that the assessee had also complied with the conditions under section 11(4A).

Accordingly, the Tribunal held that the denial of exemption under section 11 to the assessee was unjustified and deserved to be deleted.

Assessment order passed u/s 143(3) by ACIT is valid despite notice u/s 143(2) having been issued by ITO and ACIT since the territorial jurisdiction of the ITO and the ACIT/DCIT working in the same Range is common and within the common jurisdiction, the cases are assigned to the ITO and to the ACIT/DCIT on the basis of the monetary limit.

71. TS-802-ITAT-2025 (Ahd. Trib.)

Rupen Marketing Pvt. Ltd. vs. DCIT

A.Y.: 2015-16

Date of Order: 18.6.2025

Sections: 143(2)

Assessment order passed u/s 143(3) by ACIT is valid despite notice u/s 143(2) having been issued by ITO and ACIT since the territorial jurisdiction of the ITO and the ACIT/DCIT working in the same Range is common and within the common jurisdiction, the cases are assigned to the ITO and to the ACIT/DCIT on the basis of the monetary limit.

In an assessment, selected for limited scrutiny, merely because the AO had exceeded his jurisdiction in making certain additions, the entire assessment cannot be held as void ab initio. The additions made in excess of the issues under consideration can only be held as illegal.

FACTS

For AY 2015-16, the assessee filed its return of income declaring total income of ₹30,11,970. The case was selected for limited scrutiny to examine 4 issues viz. (i) import turnover mismatch; (ii) customs duty payment mismatch; (iii) payment to related persons mismatch; and (iv) duty drawback received / receivable.

In the course of assessment proceedings, there was no compliance to notices issued under section 143(2) as well as section 142(1) of the Act by DCIT-Circle 3(1)(2), Ahmedabad. The details requisitioned were not furnished. The AO having noticed various discrepancies between data reported in return and information as per ITS recorded a finding that correctness and completeness of accounts was not verifiable and that the assessee had not followed the method of accounting in accordance with the accounting standard stipulated under section 145(2) of the Act. The AO completed the assessment under section 144 of the Act by making an ad hoc addition of ₹2,50,00,000 to the returned income.

Aggrieved, the assessee preferred an appeal to the CIT(A) who set aside the assessment to the file of the AO with a direction to make a fresh assessment after providing opportunity of being heard to the assessee and after verification of the facts of the case.
Aggrieved by the order of CIT(A), the assessee preferred an appeal to the Tribunal contending that the CIT(A) erred in not appreciating that the assessment order was bad in law and was required to be quashed as void ab-initio and bad in law since DCIT-Circle 3(1)(2), Ahmedabad did not have jurisdiction over the case of the assessee, the AO exceeded his jurisdiction and assessed income as if the case was selected for complete scrutiny.

HELD

The Tribunal observed that the ground of jurisdiction of DCIT, Circle 3(1)(2) over the case of the assessee pertaining to jurisdiction needs to be adjudicated first since it goes to the root of the matter. It noted that the assessee contended that the DCIT did not have correct and proper jurisdiction to pass the impugned assessment order since the notice dated 04.07.2017 was issued by the ITO, Ward 3(1)(3), Ahmedabad under Section 142(1) r.w.s 129 of the Act. The Tribunal noticed that identical computer generated notice under Section 143(2) of the Act was issued by the ITO, Ward – 3(1)(3), Ahmedabad as well as by the ACIT, Circle – 3(1)(2), Ahmedabad on 26.07.2016.

The Tribunal held that merely because the notices were issued both by the ITO as well as by the ACIT, it can’t be concluded that the ACIT was having no jurisdiction over the case. The territorial jurisdiction of the ITO and the ACIT/DCIT working in the same Range is common. Within the common jurisdiction, the cases are assigned to the ITO and to the ACIT/DCIT on the basis of the monetary limit. The CBDT vide INSTRUCTION NO. 1/2011 [F. NO. 187/12/2010-IT(A-I)], DATED 31 1-2011 had fixed pecuniary limit for purpose of distribution of work between officers.

It held that since the income declared by the assessee in the current year was above ₹30 lacs and the jurisdiction over the case was with the ACIT/DCIT in accordance with the CBDT Instruction. Merely because the assessment of past year was made by the ITO, it cannot be presumed that the jurisdiction for the current year will remain with the ITO. The jurisdiction was dynamic considering the CBDT Instruction and the income declared by the assessee in different years. Even if the initial notice u/s 143(2) was issued by the ITO, the jurisdiction was required to be transferred to the ACIT/DCIT because the returned income of the assessee in the current year was in excess of ₹30,00,000/-. Therefore, the contention of the assessee that the AO had no jurisdiction over the case was not accepted. It held that the jurisdiction over the case for the current year was with the ACIT/DCIT and not with the ITO. The jurisdiction was also rightly assumed by the ACIT/DCIT by issue of notice under section 143(2) of the Act dated 26.07.2016. Therefore, the assessment order as passed by the DCIT, Circle – 3(1)(2), Ahmedabad cannot be held as without jurisdiction. Accordingly, the ground no.-2 raised by the assessee in respect of jurisdiction over the case is dismissed.

As regards conversion of limited scrutiny into complete scrutiny by the AO and making ad hoc addition of ₹2,50,00,000/- without identifying the nature of addition, the Tribunal noticed that the case was selected for limited scrutiny on specific issues as already mentioned earlier. The AO had also discussed those issues in the assessment order and pointed out specific discrepancy in respect of import turnover mismatch and duty draw back mismatch. However, since no compliance was made by the assessee before the AO, he had rejected the books of account and made ad hoc addition of ₹2,50,00,000/- in respect of the mismatch on the issues of limited scrutiny as well as the other discrepancies as noticed in the course of assessment. It held that the objection of the assessee that AO was not empowered to exceed the limited issues on which the case was selected for scrutiny, is justified. However, merely because the AO had exceeded his jurisdiction in
making certain additions, the entire assessment cannot be held as void ab initio. The additions made in excess of the issues under consideration can only be held as illegal.

The Tribunal observed that the AO had specifically pointed out discrepancies to the extent of ₹2,11,04,500/- and ₹51,538/-, in the assessment order, in respect of import duty vis-à vis purchase mismatch and export duty drawback mismatch, which were two of the issues for which the case was selected for limited scrutiny. Therefore, the AO was entitled to make addition to the extent of the total difference of ₹2,11,56,038/- as identified in the assessment order. Only the addition made in excess of the identified difference of ₹2,11,56,038/- can be held as beyond jurisdiction. It held that the objection taken by the assessee on the addition beyond the limited scrutiny issues is no longer res integra as the same stood rectified by the AO. Further, the entire addition can’t be held as beyond jurisdiction and the assessment order can’t be quashed for this reason.

Minimum Guarantee Fee paid to various hotels / guest houses for not meeting contractual obligations for unsold rooms and loss from sold rooms is not rent as per section 194-I of the Act.

70. TS-1561-ITAT-2025 (Delhi Trib.)

Oravel Stays Ltd. vs. DCIT

A.Y.: 2020-21

Date of Order : 21.11.2025

Section: 194-I

Minimum Guarantee Fee paid to various hotels / guest houses for not meeting contractual obligations for unsold rooms and loss from sold rooms is not rent as per section 194-I of the Act.

FACTS

The assessee engaged in operating online platform for providing OYO rooms at various hotels, guest houses, etc for facilitating reservation / booking of hotel rooms through the appellant-assessee’s OYO platform, had entered into agreements with various hotels, etc. for facilitating booking of hotel rooms, etc. through its e-platform; OYO.

As per the said agreement, the hotel conducts its operations in terms of providing lodging and accommodation services, whereas the appellant assessee provides technology, sales and marketing services to various hotels relating to the provision of lodging and accommodation services through its e-platform. The agreement was based on ‘Minimum Guarantee Revenue Model’ (“MGRM’). As per the agreement, the assessee appellant assured minimum revenue benchmark, which hotels/guest houses may/will receive or likely/expect to receive from the appellant assessee e-platform. In case, the benchmark is exceeded, then the hotel/guest house was required to pay service fee to the appellant assessee otherwise the appellant assessee was required to pay the service fee in case of shortfall in achieving the benchmark. The agreement further provided that in case the rooms are sold at price lesser than the agreed amount between the appellant assessee and hotels, the difference/loss was to be borne by the appellant assessee.

Survey operation under section 133A of the Act was carried out at the business premises of the assessee and based on information gathered, proceedings under section 201 were initiated which culminated into a liability of ₹3,33,19,101 vide order dated 7.2.2020 passed under section 201(1) / 201(1A) of the Act.

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

Aggrieved, the assessee preferred an appeal to the Tribunal where the main plank of the argument was that the assessee did not have any exclusive and absolute right to use the hotel / guest house rooms as per the agreement. The said rooms were available to all for booking through the e-platform of the assessee.

HELD

The Tribunal, in view of the decision of the Apex Court in the case of Japan Airlines Co. Ltd. [(2015) 377 ITR 372 (SC)] held that following parameters are required to be looked into before invoking section 194-I of the Act viz. – (i) character of services as per agreement and business model; and (ii) right of exclusive use of room. It observed that in the present case, as per the agreement, the appellant-assessee did not have exclusive right to use the room of any hotel / guest house for itself. The booking of the room was available to general public at large through e-platform of the appellant-assessee. A perusal of the agreement revealed that there was no lessor-lessee relationship between hotel / guest house owners and the assessee which gave exclusive right to the appellant assessee to use the said rooms for itself only. The Tribunal, on a bare reading of the agreement, did not find any substance in the observations / conclusions of the CIT(A).

The Tribunal held that the guarantee fee paid to various hotels/guest houses for not meeting the contractual obligations for unsold rooms (booking of minimum number of rooms not met through e-platform of the appellant assessee) and loss from sold rooms (booking of rooms at a lesser price than the minimum agreed room tariff through e-platform of the appellant assessee) in accordance with the terms and conditions of the agreement is not rent as per section 194-I of the Act as the same has been paid for not using any room for itself but for the default on the part of appellant assessee to secure the number of bookings of rooms at a minimal tariff (for unsold rooms and loss from sold rooms).

The Tribunal held that the AO is not justified to treat payments aggregating to ₹31,25,07,038 as rent liable for TDS under section under section 194-I of the Act. It deleted the TDS liability upheld by the CIT(A) vide impugned order.