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Category: Direct Taxes

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.

Penalty under section 270A is not leviable merely because assessee has declared income under a head different from which the Assessing Officer assessed it.

69. TS-1558-ITAT-2025 (Hyd. Trib.)

Penninti Vivekananda Rao vs. ADIT

A.Y.: 2020-21

Date of Order: 19.11.2025

Section: 270A

Penalty under section 270A is not leviable merely because assessee has declared income under a head different from which the Assessing Officer assessed it.

FACTS

The assessee filed return of income for assessment year 2020-21 declaring income under the heads `Capital gains’ and `Income from Other Sources’. The amount of income declared under the head `Capital gains’ interalia included ₹3,22,68,272 arising from surrender of three Equity Plus Funds issued by Bajaj Allianz Life Insurance Co. Ltd. (“Bajaj Equity Plus Fund”).

While assessing the total income of the assessee, the Assessing Officer (AO) assessed the gain on surrender of Bajaj Equity Plus Fund under the head “income from other sources” and not under the head “capital gains” as was returned by the assessee. The AO also initiated proceedings for levy of penalty under section 270A of the Act for misreporting of income. The assessee applied for grant of immunity which application was rejected. The AO, vide order dated 10.3.2023, levied a penalty of ₹2,48,02,158 under section 270A of the Act.

Aggrieved, assessee preferred an appeal to CIT(A) who upheld the penalty levied by the AO.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

At the outset, the Tribunal noticed that the assessee has offered income of ₹3,22,68,272 with regard to surrender of Bajaj Equity Plus Fund and therefore the objection of the DR that the assessee had not offered income from surrender of Bajaj Equity Plus Fund is factually incorrect. The Tribunal held that the assessee had offered income of ₹3,22,68,272 with regard to surrender of Bajaj Equity Plus Fund in the return of income filed by him. Therefore, the assessee has disclosed all facts fully and truly in the return of income.

The Tribunal observed that the only issue is whether where the assessee has offered an income under the head capital gains instead of the head income from other sources, whether penalty for misreporting of income can be levied on the assessee under section 270A(9) of the Act or not. Since the assessee disclosed the income in the return of income, the Tribunal held that there is no misrepresentation or suppression of facts on part of the assessee. Consequently, it held that the case of the assessee does not fall under any of the clauses (a) to (f) of section 270A(9) of the Act. The situation, according to the Tribunal, was merely of reporting of income under an incorrect head and nothing more.

The Tribunal noticed that the Mumbai Bench of the Tribunal in the case of D C Polyester Ltd. vs. DCIT [ITA No. 188/Mum./2023; A.Y.: 2017-18; Order dated 17.10.2023] has held that penalty under section 270A of the Act cannot be levied merely because of a change of head of income. Following the ratio of this decision, the Tribunal held that in the present case also, no penalty can be levied under section 270A(9) of the Act. The Tribunal directed the AO to delete the penalty.

Assessee is liable to deduct tax at source under section 194-IC even though the agreement has been entered into with a person who is not owner of land but has leasehold rights therein.

68. ITA Nos. 2313, 2314,2315 & 2316/Mum/2025 (Mum.)

Sugee Seven Developers LLP vs. ITO

A.Y.s: 2020-21 to 2023-24

Date of Order : 10.10.2025

Section: 194-IC

Assessee is liable to deduct tax at source under section 194-IC even though the agreement has been entered into with a person who is not owner of land but has leasehold rights therein.

FACTS

During the course of survey, the Assessing Officer (AO) noticed that the assessee has deducted TDS @ 1% on payments made to Shri Premal Dayalal Doshi and called upon the assessee to show cause why the TDS under section 194-IC as per which tax should have been deducted at 10% is not applicable in the present case.

The assessee contended that Shri Premal Dayalal Doshi has only a leasehold right in the land which does not fall in the definition of specified agreement under section 45(5A) and therefore TDS was deducted under section 194-IA @ 1%. The assessee’s contention was that provisions of section 194-IC is not applicable since the term specified agreement includes only those agreements entered into with the owner and the assessee’s agreement is with the person holding only leasehold rights.

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

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

The Tribunal having perused the definition of the expression `specified agreement’ under section 45(5A) and also the Explanatory Memorandum to the Finance Bill, 2017 vide which the provisions of section 45(5A) have been introduced held that the legislative intention to introduce sub-section (5A) was to define the year of taxability for transfers under a JDA to minimise the genuine hardship of the assessee who may face capital gains in the year of transfer i.e. year of entering into JDA. If the narrower interpretation, as contended by the assessee, is to be accepted then it would lead to anomaly that transfer by the leasehold right owner under JDA would go out of the tax net as the transferor is not the owner as mentioned in the definition of `specified agreement’.

The Tribunal held that in its view the interpretation as argued on behalf of the assessee cannot be accepted since the legislative intent behind introduction of sub-section (5A) is to ease the tax burden on the assessee and such beneficial provision if interpreted as not applicable to transferor holding leasehold rights who has transferred under the JDA would go against the legislative intent.

On a perusal of the JDA, the Tribunal observed that land has been given on perpetual lease in the year 1938 and since then the land has been held by various persons and Shri Premal Dayalal Doshi has acquired the land along with the conditions as prescribed for the perpetual lease. It also noticed that Shri Premal Dayalal Doshi is holding the right to give the land for development and is entitled to receive consideration in monetary and non-monetary form. Given these facts and the legislative intent, as discussed, the Tribunal held that it is unable to agree with the submission that in the present case, the provisions of section 194-IC are not applicable.

Article 5 of India-Japan DTAA – Seconded employee who worked under the supervision and control of the Indian entity could not constitute fixed place permanent establishment of the Foreign Company

16. [2025] 177 taxmann.com 434 (Delhi – Trib.)

Mitsui Mining and Smelting Company Ltd. vs. ACIT (IT)

IT APPEAL NO.1407 (DELHI) OF 2025

A.Y.: 2022-23 Dated: 31 July 2025

Article 5 of India-Japan DTAA – Seconded employee who worked under the supervision and control of the Indian entity could not constitute fixed place permanent establishment of the Foreign Company

FACTS

The Assessee, a tax resident of Japan, was engaged in manufacturing of engineered and electronic materials. It had a subsidiary in India (“I Co”). I Co was engaged in manufacturing of converters used in automobiles. During the relevant AY, the Assessee filed its return and offered certain receipts as royalty and fees for technical services and claimed reimbursements were not taxable. The AO noted that I Co had reimbursed the Assessee towards salary of an employee who was seconded by the Assessee to I Co.

Based on the secondment agreement, the AO observed that employees exercised control over I Co’s premises and they carried out operations of the Assessee, which constituted Permanent Establishment (“PE”) for the Assessee. The DRP upheld the action of the AO.

Aggrieved by the order, the Assessee appealed to ITAT.

HELD

The following facts were clear from the secondment agreement:

  • The seconded employee was required to integrate herself into business of I Co to facilitate its operation.
  • The employee should work in her personal capacity, and I Co was to have exclusive control over her.
  • Scope of work of seconded employee was to be determined by I Co, and Assessee was not liable for any loss arising from performance of the employee.
  • The agreement categorically provided that the Assessee shall not have any right or control over any asset, structure, or seconded employee of I Co.

Based on the above, the ITAT held that no employer-employee relationship subsisted between the Assessee and the seconded employee.

The ITAT further held that the activity of secondment cannot constitute PE, as the Assessee did not have any control over the premises of I Co and did not carry out its business there.

Articles 8 and 11 of India-Ireland DTAA – Consideration received towards lease of aircraft is taxable as operating lease in terms of Article 8 of India-Ireland DTAA and not as interest in terms of Article 11; therefore, right to tax such income is vested only with Resident State.

15. [2025] 176 taxmann.com 902 (Delhi – Trib.)

Celestial Aviation Trading 15 Ltd. vs. ACIT (IT)

IT APPEAL NOS.1476 TO 1478, 1493 & 1616 (DELHI) OF 2025

A.Y.: 2022-23

Dated: 25 July 2025

Articles 8 and 11 of India-Ireland DTAA – Consideration received towards lease of aircraft is taxable as operating lease in terms of Article 8 of India-Ireland DTAA and not as interest in terms of Article 11; therefore, right to tax such income is vested only with Resident State.

FACTS

The Assessee, a tax resident of Ireland, was engaged in the business of leasing aircraft. It had entered into Aircraft Specific Lease Agreement (“ASLA”) with an Indian company (“I Co”) to lease aircrafts. I CO has also entered into a Common Terms Agreement (“CTA”) for aircraft leasing. The Assessee was of the view that ASLA was in the nature of an operating lease, and in terms of Article 8 of India-Ireland DTAA, the consideration was taxable only in Ireland. Therefore, the Assessee filed a nil return of income.

The AO was of the view that the agreement was a finance lease. Hence, the receipts under ASLA were in the nature of interest in terms of Article 11 of DTAA and taxable @10%. The DRP observed that the aircraft lease had a substantial economic life (8 years) and upheld the draft assessment order.

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

HELD

CTA was a standard agreement entered into for all aircraft leases and should be read alongside ASLA to understand the nature of the transaction. The following facts emerged from the agreement:

  • The aircraft lease was for 120 months and could be further extended by the lessee through written notice to lessor.
  • ASLA provides that the lessor is the owner of the aircraft, and CTA requires the lessee to display the owner’s name in an identified location.
  • Clause 10 of ASLA provides that deposits paid by the lessee in cash or by letter of credit shall be refunded after the lease period.
  • CTA provides that aircraft shall be returned to the lessor at the end of lease period and lessee cannot sub-lease it without lessor’s consent.
  • CTA requires the lessee to indemnify the lessor for any loss and breach of condition. On breach, the lessor can either sell or re-lease the aircraft.

Under a finance lease, the asset is transferred to the lessee after the lease term at a pre-agreed price. As per RBI Circular No. 24 dated 01.03.2002, finance lease requires prior approval of RBI for transfer of ownership.

As per DGCA regulations, the economic life of an aircraft is 20 years. Hence, observation of DRP that the lease period constitutes the aircraft’s substantial economic life is erroneous.

Based on the above, the ITAT held that the arrangement constituted an operating lease and consequently, consideration received for leasing was taxable only in Ireland in terms of Article 8 of India-Ireland DTAA.

Search and seizure — Assessment of any other person — Satisfaction note — Time of recording satisfaction note — Permissible stages — If not recorded immediately after completion of searched person’s assessment —Proceedings are invalid — Delay of 22 months in recording satisfaction note — Contrary to Circular No. 24/2015 — Notice issued u/s. 153C quashed and set-aside.

56. Parag Rameshbhai Gathani vs. ITO (International Taxation)

(2025) 180 taxmann.com 662 (Guj.)

A. Y. 2017-18: Date of order 18/11/2025

Ss. 153C r.w.s 132 and 153A of ITA 1961

Search and seizure — Assessment of any other person — Satisfaction note — Time of recording satisfaction note — Permissible stages — If not recorded immediately after completion of searched person’s assessment —Proceedings are invalid — Delay of 22 months in recording satisfaction note — Contrary to Circular No. 24/2015 — Notice issued u/s. 153C quashed and set-aside.

A search action was carried out on 15/10/2019 upon one Mr. SRT who was a land broker and financer group of assessees. In the course of search, certain incriminating material was found and seized. Upon examination of the material, it was found that financial transactions were carried out with some individuals which included the name of the assessee. Assessment in the case of Mr. SRT was completed in August 2021.

Subsequently, the Assessing Officer of Mr. SRT (searched person) recorded a satisfaction note on 06/06/2023 and transferred the seized material to the Assessing Officer of the assessee. The Assessing Officer of the assessee recorded satisfaction note on 14/07/2023 alleging that the assessee had made payment of on money for purchase of property. Accordingly, the Assessing Officer issued notice u/s. 153C of the Income-tax Act, 1961 in the name of the assessee on 09/02/2024.

Against the said notice, the assessee filed petition before the High Court challenging the notice. The Gujarat Hon’ble High Court allowed the petition and held as follows:

i) As per the Circular No. 24/2015 dated 31/12/2015 and the judgement of the Hon’ble Supreme Court in the case of Calcutta Knitwears (2014) 43 taxmann.com 446 (SC), recording of the satisfaction note apply in three stages to the proceedings u/s. 153C of the Act. Though, the Assessing Officer had an opportunity to record the satisfaction note at two stages i.e. stage (a) and (b) as specified in the Circular, the same is not done. The next stage which was available was stage (c) on immediate completion of proceedings of the searched person in August, 2021, however, the satisfaction note was recorded on 06/06/2023, after a period of 22 months. The satisfaction note was drawn by the Assessing Officer of the petitioner on 17/10/2023.

ii) In the case of Jitendra H. Modi (2018) 403 ITR 110 (Guj.), this Court, by placing reliance on the decision of the Supreme Court in the case of Calcutta Knitwears (supra), has held that satisfaction recorded after 09 months could not be said to be immediate action and hence, the Coordinate Bench of this Court set aside the notices issued under Section 158BD of the Act. In the instant case, there has been a delay of 22 months in recording the satisfaction, which runs contrary to the decision in Calcutta Knitwears (supra) as well as provision ‘(c)’ of Circular No.24/2015 dated 31/12/2015, which uses the expression “immediately after the assessment procedure is completed.

iii) Twin reasons are assigned by the respondents in the affidavit in reply for delay in recording the satisfaction note, (a) COVID-19 pandemic; and, (b) adoption of Faceless Scheme. So far the reason of COVID-19 is concerned, the same runs contrary to the action of the respondents, since the assessment of the searched person was itself done during the pandemic, and in the affidavit-in-reply, the respondent has mentioned that the Omicron variant commenced in December 2021 and continued until February 2022. Thus, even after February, 2022, the satisfaction note has been recorded on 17/10/2023. The second reason of workload due to Faceless Scheme is also a lame excuse, since indubitably the exercise u/s. 153A and 153C of the Act falls outside the purview of the said scheme. Hence, both the reasons assigned appear to be an afterthought, hence the same are rejected

iv) There was no restricting factor on the Assessing Officer to record the satisfaction earlier. The expression “immediate” though is impossible to quantify in period, however, the same cannot be extended to such an extent which defeats the purpose of cost effective, efficient and expeditious completion of search assessments. The intention of using such term is to reduce and avoid long drawn proceedings and to bring certainty to the assessment. Thus, both the writ petitions succeed. The impugned notices issued u/s. 153C of the Act for the respective assessment years are hereby quashed and set aside.”

Revision u/s. 264 — Revision of intimation issued u/s. 143(1) accepting the returned income — Revision application filed pursuant to decision of Jurisdictional Tribunal in S. K. Ventures — — Rejection of application by CIT — Decision of Jurisdictional Tribunal not acceptable to the Department — High Court held — CIT bound to follow Jurisdictional Tribunal — Merely because order is challenged in appeal before the High Court cannot be the ground to not follow.

55. Dipti Enterprises vs. ADIT

2025 (11) TMI 1856 (Bom.)

A. Y. 2020-21: Date of order 17/11/2025

Ss. 264 of ITA 1961

Revision u/s. 264 — Revision of intimation issued u/s. 143(1) accepting the returned income — Revision application filed pursuant to decision of Jurisdictional Tribunal in S. K. Ventures — — Rejection of application by CIT — Decision of Jurisdictional Tribunal not acceptable to the Department — High Court held — CIT bound to follow Jurisdictional Tribunal — Merely because order is challenged in appeal before the High Court cannot be the ground to not follow.

The assessee firm was engaged in the business of real estate development. The assessee filed its return of income for the A. Y. 2020-21 after claiming deduction u/s. 80-IB(10) of the Income-tax Act, 1961 which, the assessee was claiming since A. Y. 2010-11. At the time of filing its return of income, the utility automatically calculated the tax liability u/s. 115JC of the Act and deemed total income of the assessee at ₹2,17,85,501. Since the tax payable as per the normal provisions was lower than the tax payable on the deemed total income determined in accordance with the AMT provisions, the total liability was determined at ₹49,97,467 based on the AMT provisions. The return of income filed was accepted u/s. 143(1) of the Act.

According to the assessee, the provisions of 115JC could not be applied to the projects which were already approved prior to the date of introduction of section 115JC. Since the assessee’s projects were approved prior to the date of enforcement of section 115JC the provisions of section 115JC were inapplicable. Therefore, the assessee filed an application u/s. 264 of the Act seeking revision of the of the intimation issued u/s. 143(1) of the Act on the ground that extra tax paid as per the return of income by applying the provisions of section 115JC of the Act be refunded. To support its view, the assessee relied upon the decision of the jurisdictional Tribunal in the case of S.K. Ventures vs. ITO (order dated 05.03.2019 bearing ITA No. 1248/Mum./2018).

The assessee’s application for revision was rejected on the ground that the decision rendered by the Tribunal was not acceptable to the Department and the decision of the Jurisdictional Tribunal was challenged in appeal before the High Court and was pending disposal. Therefore, no relief could be granted u/s. 264.

Against the said order, the assessee filed a writ petition before the Hon’ble Bombay High Court. The High Court allowed the petition and held as follows:

“i) Merely because the order of the appellate authority is “not acceptable” to the department, and is the subject matter of an appeal, can furnish no ground for not following a judicial precedent, unless its operation has been suspended by a competent Court. If this healthy rule is not followed, it would lead to undue harassment to assessees and result in chaos in the administration of tax laws.

ii) Secondly, we hold that the doctrine of binding precedents plays a vital role in tax jurisprudence. It is first required to be ascertained whether, in the facts and circumstances of the case and in law, a particular judicial precedent is factually and legally in consonance with the case in hand or not. If it is found that the precedent relied upon is distinguishable, then such parameters based on which it is distinguishable need to be described in the order. The Respondent has not assigned any cogent reasons for distinguishing the decision of the jurisdictional Tribunal in the case of S.K. Ventures vs. ITO (supra) from that of the Petitioner.

iii) If the assessee is pleading that its interpretation of the applicability of Section 115JC has already been decided by the jurisdictional Tribunal, then in such a case, the Respondent ought to have considered the facts and law of the said case. If the facts are identical, then it ought to have been followed. We are of the view that if in the facts and circumstances of the case and in law, the case of the Petitioner is in consonance with the facts in the decision rendered by the jurisdictional Tribunal, then it ought to be followed as a matter of judicial discipline.

iv) Even though in the return of income the taxes were determined and paid pursuant to Section 115JC, the same can be challenged by the Petitioner if being levied without the authority of law. Just because an assessee is under a bona fide mistake of law paid tax which was not exigible as such, cannot by itself, with nothing more, be a ground for the Respondent for not granting legitimate relief under the law we are of the view that provisions of Section 264 would also cover within its ambit a claim which is not made in the Return of Income Thus, we are of the view that provisions of Section 264 would also cover within its ambit a scenario where intimation is issued u/s. 143(1) accepting the returned income of the Petitioner.

v) The matter is remanded to the Respondent to pass a fresh order on the application of Petitioner to consider the applicability of the decision of the jurisdictional Tribunal in the case of S.K. Ventures vs. ITO (supra) and direct the Respondent to ascertain whether the relevant facts in the case of S.K. Ventures vs. ITO (supra) viz-a-viz facts of the present case are identical or not (w.r.t. ascertaining the applicability of the provisions of Section 115JC) within a period of four weeks from the date of uploading of the present order. If it is found that the facts in the case of S.K. Ventures vs. ITO (supra) are identical to the present case, then the ratio laid down in the said order should be followed.”

Offences and prosecution — Compounding of offences — Delay — Compounding application was rejected solely on the ground of delay of 36 months from date of filing complaint — Held, limitation period stipulated in CBDT guidelines — Guidelines treated as binding statutes without exercising discretion — Where Act provided no limitation period, rigid time-line through guidelines is impermissible — Held, mechanical rejection of application without considering facts and circumstances is improper — Order set aside and matter remanded for reconsideration exercising proper discretion.

54. L.T. Stock Brokers (P) Ltd. vs. CIT: (2025) 480 ITR 26 (Bom): 2025 SCC OnLine Bom 517

Date of order 04/03/2025

S. 279(2) of ITA 1961

Offences and prosecution — Compounding of offences — Delay — Compounding application was rejected solely on the ground of delay of 36 months from date of filing complaint — Held, limitation period stipulated in CBDT guidelines — Guidelines treated as binding statutes without exercising discretion — Where Act provided no limitation period, rigid time-line through guidelines is impermissible — Held, mechanical rejection of application without considering facts and circumstances is improper — Order set aside and matter remanded for reconsideration exercising proper discretion.

A complaint was filed by the Income Tax Department against the assessee company for offences under the Income-tax Act, 1961. The assessee filed an application u/s. 279(2) of the Act for compounding the offences. The Chief Commissioner’s the application by an order dated January 17, 2024, solely on the ground that it was filed beyond 36 months from the date of filing of the complaint against the petitioners. The Chief Commissioner has relied upon paragraph 9.1 of the CBDT guidelines dated September 16, 2022 ((2022) 447 ITR (Stat) 25) for compounding offences under the Income-tax Act, 1961.

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

“i) The CBDT guidelines of 2014 ((2015) 371 ITR (Stat) 7) which in para 8 referred to the period of limitation, does not exclude the possibility that in the peculiar case where the facts and circumstances so required, the competent authority should consider the explanation and allow the compounding application. This means that notwithstanding the so-called limitation period, in a given case, the competent authority can exercise discretion and allow compounding application.

ii) The competent authority has treated the guidelines as a binding statute in the present case. On the sole ground that the application was made beyond 36 months, the same has been rejected. The competent authority has exercised no discretion as such. The rejection is entirely premised on the notion that the competent authority had no jurisdiction to entertain a compounding application because it was made beyond 36 months. Such an approach is inconsistent with the rulings of this court, the Madras High Court and the hon’ble Supreme Court ruling in the case of Vinubhai Mohanlal Dobaria vs. Chief CIT [(2025) 473 ITR 394 (SC); 2025 SCC OnLine SC 270.] relied upon by the learned counsel for the Revenue.

iii) We set aside the impugned order dated January 17, 2024 and direct the Chief Commissioner to reconsider the petitioner’s application for compounding in the light of the observations made by the hon’ble Supreme Court in Vinubhai Mohanlal Dobaria vs. Chief CIT [(2025) 473 ITR 394 (SC); 2025 SCC OnLine SC 270.]. This means that the Chief Commissioner will have to consider all facts and circumstances and decide whether such facts make out the case for exercising discretion in favour of compounding the offence.”

Charitable trust — Exemption u/s. 11 — Exception u/s. 13 — Salary paid to chairperson treated as payment to person prohibited u/s. 13(3) — AO held the payment is excessive and disallowed 30 per cent of the salary u/s. 40A(2)(a) — CIT(A) deleted addition finding salary reasonable — Tribunal dismissed the appeal filed by Department after examining qualification and experience of chairperson — Held, reasonable remuneration for services rendered did not constitute benefit u/s. 13(1)(c) — Assessee entitled to exemption u/s. 11.

53. CIT(Exemption) vs. IILM Foundation: (2025) 480 ITR 1 (Del): 2025 SCC OnLine Del 2540

A. Ys. 2009-10 to 2011-12: Date of order 21/04/2025

Ss. 11, 12 and 13 of ITA 1961

Charitable trust — Exemption u/s. 11 — Exception u/s. 13 — Salary paid to chairperson treated as payment to person prohibited u/s. 13(3) — AO held the payment is excessive and disallowed 30 per cent of the salary u/s. 40A(2)(a) — CIT(A) deleted addition finding salary reasonable — Tribunal dismissed the appeal filed by Department after examining qualification and experience of chairperson — Held, reasonable remuneration for services rendered did not constitute benefit u/s. 13(1)(c) — Assessee entitled to exemption u/s. 11.

The assessee was a charitable trust registered u/s. 12A of the Income-tax Act, 1961. The assessee was predominantly engaged in activities of imparting education through various educational institutions. The relevant assessment years are 2009-10 to 2011-12. The Assessing Officer held the salary paid to the assessee’s chairperson was excessive and not commensurate with her educational qualifications, experience and duties, and since she was a related party being chairperson, disallowed 30 per cent of the payments u/s. 40A(2)(a) of the Act.

The Commissioner (Appeal) deleted the addition finding that the salary is reasonable and following consistence with the A. Y. 2008-09. The Tribunal dismissed the appeal filed by the Revenue. The Tribunal examined the additional evidence regarding the chairperson’s qualifications and contributions and held that the salary was justified and not unreasonable. The Tribunal held that section 13(1)(c) r.w.s. 13(2)(c) did not bar payment of reasonable salary to persons mentioned in section 13(3) for services rendered.

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

“i) A plain reading of sub-section (1) of section 13 of the Act indicates that exemptions under section 11/12 of the Act would not operate so as to exclude from the total income of the previous year any income, which is directly or indirectly, for the benefit of the person referred to in sub-section (3) of section 13 of the Act. It is, thus, clear that if any part of the income of a trust for charitable or religious purposes is diverted for the direct or indirect benefit of a person referred to in sub-section (3) of that Act, that part of the income would not be excluded from the total income of the assessee by virtue of section 11/12 of the Act. In other words, the exemption under those sections would not be available to the extent that the said income of a charitable or religious purposes is applied for the benefit of a person specified in sub-section (3) of section 13.

ii) By virtue of clause (c) of sub-section 2 of the Act if any amount is paid by way of a salary or allowance to a person, which is specified under sub-section (3) of section 13 of the Act, it would be deemed that the income of the property or trust has been applied for the benefit of that person for the purposes of clauses (c) and (d) of sub-section (1) of section 13. However, if a person specified under sub-section (3) has rendered any service and the amount or allowance paid to such person is such, that is, reasonably paid for such services, the same cannot be deemed to have been applied for the benefit of the said person for the purposes of clause (c) or (d) of section 13(1) of the Act. This is apparent from the plain language of clause (c) of sub-section (2) of section 13 of the Act. The opening words of the said clause must be read in conjunction with the last words of the said clause—”if any amount is paid by way of salary, allowance or otherwise… in excess of what may be reasonably paid for such services”. Thus, if the amount paid for services is such as is reasonably payable for such service, the same cannot be construed as applied for the benefit of a prohibited person notwithstanding that it is paid to such a person. Consequently, such payment would not fall within the exception of clause (c) of sub-section (1) of section 13 of the Act.

iii) The order of the Tribunal holding that the assessee had not violated the provisions of section 13(1)(c) in remunerating its chairperson for the services rendered was not perverse.

iv) In view of the above the questions of law as noted above is answered in favour of the assessee and against the Revenue.”

Appeal to High Court u/s. 260A — Additional question of law raised for first time in High Court — Jurisdiction of High Court — General principles — Assessee-company merged with another and ceased to exist — Assessment in name of non-existing entity(Merged company) — Question whether assessment order passed on non-existing entity is void — Question involving jurisdictional issue not raised before Tribunal — Whether merits consideration — Held by High Court that the additionally proposed question of law involved in these appeals is involving jurisdictional issue and hence included.

52. Reliance Industries Ltd. vs. P.L. Roongta: (2025) 479 ITR 763 (Bom): 2025 SCC OnLine Bom 3676

A. Ys. 1993-94 to 1995-96: Date of order 20/01/2025

Ss. 143(3) and 260A of ITA 1961

Appeal to High Court u/s. 260A — Additional question of law raised for first time in High Court — Jurisdiction of High Court — General principles — Assessee-company merged with another and ceased to exist — Assessment in name of non-existing entity(Merged company) — Question whether assessment order passed on non-existing entity is void — Question involving jurisdictional issue not raised before Tribunal — Whether merits consideration — Held by High Court that the additionally proposed question of law involved in these appeals is involving jurisdictional issue and hence included.

In this case the assessee-company had amalgamated with the another company. The Assessing Officer had knowledge of amalgamation. However, the assessment order was passed in the name of the non-existing amalgamating entity. As such the assessment was void. However, the ground that the assessment was void was not taken in appeal before the CIT(A) and also the Tribunal.

The question before the Bombay High Court was that whether the ground that the assessment order was void can be raised first time in the High Court in an appeal u/s. 260A of the Income-tax Act, 1961. The High Court allowed the writ petition and held as under:

“i) Mr. Mistri proposes the following question:

‘Whether on the facts and in the circumstances of the case and in law, the assessment order under section 143(3) of the Act passed on a non-existent entity is bad in law, void ab initio?’

ii) Section 260A(4) of the Income-tax Act, 1961 provides that the appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question. However, the proviso to this sub-section states that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.

iii) Usually, for a case to “involve” such a question, the same should have been raised before the original authority or at least the appellate authorities. When a question was never raised before the original authority or the appellate authorities, then, typically, it would not be easy to hold that such a question was involved and, therefore, should be framed by exercising the powers under the proviso to sub-section (4) of section 260A of the Income-tax Act. However, to the above general proposition, there are exceptions. Suppose a question of law goes to the root of the jurisdiction, and there is no necessity to investigate new facts or if there is no serious dispute on the facts. In that case, such a question can be framed even though the same may not have been raised in the earlier proceedings before the original or appellate authority. Consent, per se, cannot confer jurisdiction upon an authority where such jurisdiction is inherently lacking.

iv) In Ashish Estates and Properties Pvt. Ltd. vs. CIT [(2018) 96 taxmann.com 305 (Bom).] , the co-ordinate Bench of this court held that a question which was not raised before the Tribunal should not ordinarily be allowed to be raised in an appeal u/s. 260A unless it was a question on the issue of jurisdiction or question, which went to the root of the jurisdiction.

v) In Santosh Hazari vs. Purushottam Tiwari [(2001) 251 ITR 84 (SC); (2001) 3 SCC 179; 2001 SCC OnLine SC 375; AIR 2001 SC 965.] , the hon’ble Supreme Court held that an entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstances of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis.

vi) In CIT vs. Jhabua Power Ltd. [(2015) 13 SCC 443; 2013 SCC OnLine SC 1228; (2013) 37 taxmann.com 162 (SC).], the two questions set out in paragraph 3 of the order were sought to be raised for the first time before the hon’ble Supreme Court. Both the questions related to the issue of limitation and, in that sense, did go to the root of the jurisdiction. The court held that these two questions were required to be answered first by the Income-tax Appellate Tribunal. Therefore, the appeal was allowed, the decisions of the High Court and the Tribunal were set aside, and the matter was remanded to the Tribunal to decide the questions of law relating to limitation after affording an opportunity of hearing to both parties.

vii) For all the above reasons, we are satisfied that the question proposed by Mr. Mistri is involved in these appeals, and, therefore, we frame the above question in all these appeals. If answered in favour of the assessees, the question would go to the root of jurisdiction.”

Document Identification Number – mandate of Circular 19/2019 dated 14.08.2019 sets out the requirement of all communications from the department to bear a DIN. Section 154(7) – Rectification – Not permissible after the expiry of four years from the end of the Financial Year in which the order sought to be amended/rectified was passed.

20. Siemens Limited vs. Deputy Commissioner of Income Tax, Circle, 8(2)(1), Mumbai & Ors

[WRIT PETITION NO. 2747 OF 2025 (BOM)(HC) dated 02/12/2025]

A.Y. 2005-06

Document Identification Number – mandate of Circular 19/2019 dated 14.08.2019 sets out the requirement of all communications from the department to bear a DIN.

Section 154(7) – Rectification – Not permissible after the expiry of four years from the end of the Financial Year in which the order sought to be amended/rectified was passed.

The Petitioner challenged the validity of an order passed by Respondent under Section 154 of the Act, dated 29.03.2024. The impugned order did not bear a Document Identification Number (for short “DIN”). The Petitioner also challenged the intimation letter dated 10.07.2024 issued by Respondent, providing a DIN to the impugned order, when the impugned order was passed contrary to the Central Board of Direct Taxes Circular No. 19/2019 dated 14.08.2019.

The Petitioner filed its original Return of Income on 28.10.2005, declaring a total income of ₹253.76 Crores and filed a revised Return of Income on 30.03.2007 declaring a total income of ₹246.59 Crores. Since there were international transactions involved, Respondent No. 1 (AO) made a reference to Respondent No. 2 [the Transfer Pricing Officer (TPO)] under Section 92CA(1) of the Act for computing the Arm’s Length Price in relation to those international transactions entered into by the Petitioner. The TPO passed an order dated 20.02.2008 under Section 92CA(3) of the Act, recommending an addition of ₹47.53 Crores to the Arm’s Length Price in the transactions entered into by the Petitioner in 4 out of its 9 divisions, as there were mistakes in the recommendations / order of the TPO, the Petitioner filed Rectification Applications dated 25.02.2008 and 28.02.2008 to rectify various errors that had crept into the TPO’s order.

While this rectification was pending, Respondent No. 1 passed an Assessment Order dated 31.12.2008 under Section 143(3) of the Act, making the transfer pricing adjustment of ₹47.53 Crores recommended by the TPO, and in addition thereto, made other corporate tax additions aggregating ₹69.89 Crores, thereby assessing the total income of the Petitioner at ₹364.01 Crores.

Thereafter, the TPO passed an order dated 20.01.2009 under Section 154 of the Act, correcting the mistakes apparent on the record in his order dated 20.02.2008, and consequently, deleted the additions in (i) the AD & PTD Division, and (ii) the Medical Division – Manufacturing. However, the TPO did not rectify the mistake in the Medical Division – Distribution, and the Video Division.

On 29th January 2009, the Petitioner filed an Appeal before the Commissioner of Income Tax (Appeals) against the Assessment Order dated 31.12.2008, passed by Respondent No.1. In the meanwhile, to implement the TPO’s order dated 20.01.2009, Respondent No. 1 passed a rectification order dated 09.03.2011 under Section 154 of the Act revising the total income of the Petitioner to ₹337.52 Crores.

Subsequently, the CIT(A) passed an order dated 29.03.2019 under Section 250 of the Act, partly allowing the Appeal of the Petitioner, by which order he directed the TPO to recompute the adjustment made to the Arm’s Length Price of the international transactions in terms of his directions.

Being aggrieved by the order of the CIT(A), the Petitioner filed an Appeal to the Income Tax Appellate Tribunal on 06.06.2019 challenging both, the corporate tax issues, as well as the issues relating to the transfer pricing addition made to transactions in respect of two of its divisions.

The TPO passed an order dated 05.03.2020 giving effect to the order of the CIT(A) and deleted the transfer pricing adjustment of ₹34.92 Crores (i.e. in respect of transactions in the Medical Division – Distribution of ₹32.21 Crores, and in the Video Division of ₹2.71 Crores).
Consequently, Respondent No. 1 passed an order dated 16.03.2020 giving effect and deleted the transfer pricing adjustment of ₹34.92 Crores along with other reliefs granted by the CIT(A) of ₹24.01 Crores, and determined the revised total income of the Petitioner at ₹278.60 Crores.

Subsequently, when the appeal before the Tribunal initially came up for hearing, and the fact that the grounds relating to the transfer pricing addition had become infructuous in view of the order passed by the TPO was pointed out, the Members requested the Petitioner to file revised grounds of Appeal in Form No. 36 after excluding the grounds relating to the transfer pricing adjustment. Accordingly, the Petitioner filed a revised Form No. 36 on 20.06.2022 by excluding the transfer pricing grounds.

After all this, suddenly the TPO issued a notice dated 21.03.2024 whereby he proposed to rectify his order dated 05.03.2020 and withdraw the relief of ₹32.21 Crores granted in respect of the transactions in the Medical Division – Distribution. The Petitioner addressed a letter dated 26.03.2024 pointing out that there was no mistake apparent on record which could be rectified under Section 154 of the Act. However, the TPO passed a rectification order dated 27.03.2024 rectifying the order passed by him on 05.03.2020, while giving effect to the CIT(A) order, and thereby, made a revised transfer pricing adjustment of ₹32.21 Crores to the transactions of the Medical Division – Distribution.

Since the appeal before the Tribunal was still pending, the Petitioner filed another revised Form No. 36 on 12.04.2024, reinstating the transfer pricing grounds filed originally on 06.06.2019, in view of the order dated 27.03.2024 passed by the TPO.

Thereafter, Respondent No. 1 issued a notice dated 20.06.2024 seeking to initiate rectification proceedings under Section 154 of the Act and fixed the hearing on 01.07.2024. The Petitioner replied thereto by a letter dated 01.07.2024, pointing out that the proposed rectification proceedings are time-barred, as no rectification is permissible after the expiry of four years from the end of the Financial Year in which the order sought to be amended was passed, having regard to the provisions of Section 154(7). The Petitioner pointed out that Respondent No. 1 proposed to rectify his earlier order dated 16.03.2020, which could only be rectified till 31.03.2024 and that initiation of rectification proceedings under Section 154 was not permissible. Without prejudice to the above, the Petitioner also pointed out that the matter was outside the scope of Section 154 of the Act as the issue is highly debatable and cannot be termed as a mistake apparent on record and only a glaring, obvious or self-evident mistakes can be subjected to rectification proceedings under Section 154 of the IT Act.

An employee of the Petitioner, to his utter shock and surprise, saw the impugned order purportedly dated 29.03.2024 for the first time on the income tax portal on 17.07.2024. The impugned order was not received by the Petitioner, either by email, or by physical delivery.

Respondent No. 1, thereafter, uploaded the impugned letter dated 10.07.2024 (which too was never received either by email or by physical delivery by the Petitioner) and an employee of the Petitioner noticed the impugned letter for the first time on 17.07.2024 while accessing the income tax portal. The intimation letter mentioned that the order under Section 154 read with Section 250 of the Act dated 29.03.2024 has DIN ‘ITBA/REC/M/154/2024-25/1066567478(1).’

The Petitioner challenged the impugned order and the impugned letter issued by Respondent No. 1 by filing a writ petition. The primary challenge was that:- (i) the impugned order is illegal inasmuch as it does not, on the face of it, have a DIN and is, thus, contrary to the mandate of the CBDT Circular 19/2019; and (ii) is not passed on the day it is purported to be dated, i.e., 29.03.2024 as the same officer who allegedly passed the order on 29.03.2024 issued a notice dated 20.06.2024 asking the Petitioner to Show Cause on or before 1.07.2024 as to why the rectification proceedings under Section 154 of the Act should not be initiated to rectify the order passed by him on 16.03.2020.

The Petitioner relied on the mandate of Circular 19/2019 dated 14.08.2019 which sets out the requirement of all communications from the department to bear a DIN. The CBDT has elaborately set out the manner in which a DIN is required to be generated, allotted and duly quoted in the body of any notice, order, summons, letter or any correspondence issued by any income tax authority on or after 1.10.2019. The only exceptions to this requirement are set out in paragraph 3 of the Circular and the said paragraph also details out as to how care is to be taken to bring the case within the exceptional circumstances. Paragraph 4 makes it amply clear that any “communication” which is not in conformity with the provisions of paragraphs 2 and 3 will be invalid and deemed to have never been issued. Accordingly, it was submitted that the order purported to be dated 29.03.2024 is to be set aside on this narrow ground. It was further submitted that the order, on the face of it, does not refer to any of the exceptional circumstances as mentioned in paragraph 3 of the said Circular being applicable and, in any event, even if such circumstances existed, the same would have to be regularised within a period of 15 working days of its issuance by compulsorily generating the DIN and communicating the DIN to the Petitioner which has not been done by Respondent No. 1. The impugned letter dated 10.07.2024 was not communicated to the Petitioner by either email or physical delivery and from the Affidavit-in-reply it was noted that the impugned letter was sent only on 16.07.2024 by Respondent No. 1, and that too, to a wrong email ID. Further, no approval of the Chief Commissioner / Director General of Income Tax has been obtained before passing the impugned order manually which was also in contravention to paragraph 3 of the said Circular. In this regard, reliance was placed on the judgments of this Court in Ashok Commercial Enterprises vs. ACIT (2023) 459 ITR 100 (Bom) and Hexaware Technologies Ltd. vs. ACIT (2024) 464 ITR 430 (Bom) where this Court has emphasised the mandatory requirement of a document to have a DIN and the effect if it does not. Reliance was also placed on the judgement of the Madras High Court in CIT vs. Sutherland Global Services Inc (2025) 175 taxmann.com 897 (Mad) and CIT vs. Laserwoods US Inc (2025) 175 taxmann.com 920 (Mad) where the directions passed by the Dispute Resolution Panel without a DIN were held to be invalid. Further reliance was also placed on the judgments of the Delhi High Court in CIT vs. Brandix Mauritius Holdings Ltd. (2023) 456 ITR 34 (Del) as well as the Calcutta High Court in PCIT vs. Tata Medical Centre Trust (2023) 459 ITR 155 (Cal) wherein also a similar view of the mandatory nature of an order to have a valid DIN was taken. It was further submitted that the mere fact that aforesaid judgments of the Delhi High Court, Calcutta High Court and the Madras High Court in Sutherland Global Services Inc (supra) were stayed by the Supreme Court, did not mean that the judgments had lost their precedential value.

Without prejudice to the aforesaid the Petitioner next pointed out that Respondent No. 1 proposed to rectify his earlier order dated 16.03.2020, which could only be rectified till 31.03.2024, because Section 154(7) of the Act mandated that no rectification is permissible after the expiry of four years from the end of the Financial Year in which the order sought to be amended/rectified was passed. It was further pointed out that the impugned order is back dated and could not have been passed on 29.03.2024 especially because the same individual who is purported to have passed the order dated 29.03.2024 issued a Show Cause Notice dated 20.06.2024 as to why a rectification order should not be passed, and fixed a time to respond by 1.07.2024. The Petitioner filed a detailed reply dated 01.07.2024 wherein it was, inter alia, pointed out that the proposed action is time barred having regard to the mandate of Section 154(7). It was urged that it was at this stage only that Respondent No. 1 realised his error and, thereafter, hastily took steps to back date the order before 31.03.2024. The back dating of the impugned order is also established by the impugned letter which provides the DIN of the impugned order as being “ITBA/REC/M/154/2024-25/1066567478(1)”. The use of the Financial Year 2024-25 in the DIN itself demonstrates that the DIN has been generated only in the Financial Year 2024-25 and hence, the impugned order was passed after 1.04.2024. In fact, orders / notices which indisputably are generated in the Financial Year 2023-24 have a DIN which makes a reference to the Financial Year 2023-24 . For all these reasons, it was submitted that the impugned order dated 29.03.2024 and the impugned letter dated 10.07.2024 be quashed.

The Respondent relied on the fact that the Petitioner has an alternate remedy available in the form of pursuing its Appeal before the Tribunal which is pending. Further, the Respondent sought to justify the impugned order and the impugned letter by submitting that the manual order was uploaded in the ITBA system and the same is reflected as generated on 29.03.2024 and the DIN was not generated due to a technical glitch. Further, it was pointed out that the delay in DIN generation does not invalidate the Assessment Order by relying on the Judgment of the Jharkhand High Court in Prakash Lal Khandelwal vs. CIT (2023) 151 taxmann.com 72 (Jha.). Additionally, it was pointed out that as per Circular No. 19/2019, the DIN is required only when the order is communicated to the Assessee and does not govern the passing of an order. The passing of an order, and communicating the said order, are two separate events. Time barring provisions apply to passing of the order, while DIN provisions apply to communication of the order. Reliance was also placed on Section 92CA of the Act.

In the rejoinder, the Petitioner has also objected to the tendering of the two Affidavits-in-Reply, one affirmed on 29.05.2025 (but not served on the Petitioner till 20.11.2025) and the other affirmed on 20.11.2025. It was contended that only the first Affidavit-in-Reply affirmed on 29.05.2025 should be considered as the second Affidavit-in-Reply is an afterthought and seeks to improve upon the lacuna in the Respondents’ case and should be ignored because both the Affidavits-in-Reply are affirmed by the same person, i.e., Assistant Commissioner of Income Tax, Circle 5(3)(1), Mumbai. It was only when the utter worthlessness of the first Affidavit was realised, an effort was made to improve upon the same by preparing the second one.

Further, the Petitioner pointed out that the delay in the DIN generation invalidates the order, and what is stated by the Respondents in the Affidavit-in-Reply was contrary to the Circular as it nowhere provides that the DIN is required only when the order is to be communicated to the Assessee and such an interpretation would frustrate the whole object of the Circular itself which was issued to maintain a proper audit trail. Hence, he pointed out that before passing an order a DIN has to be generated and quoted on the face of the order. Further, while dealing with the judgment of the Jharkhand High Court in Prakash Lal Khandelwal (supra), it was pointed out that the same is distinguishable on facts as it was a case where the order was passed on 31.03.2022, uploaded on 1.04.2022 and communicated to the Assessee on 3.04.2022 which is factually very different from the present case at hand and in any event the Judgment wrongly interpreted the Circular by holding that the ‘making of an order’, ‘issue of order’, ‘uploading of order on web portal’ or ‘Communicating of Order’ are all different acts or things and thereby, upheld the Assessment Order dated 31.03.2022 which was uploaded on 1.04.2022. The High Court, with respect, has also failed to appreciate the use of the word “communication” in the Circular covering within its ambit all notices, orders, letters, summons and correspondence.

Further, the Petitioner invited our attention to the provisions of Section 154(3) of the Act which specifically requires a notice to be issued by the concerned Authority to allow the assessee an opportunity of being heard, where an amendment has the effect of enhancing an assessment or reducing a refund or otherwise, and since Respondent No. 1 proposed to rectify his order dated 16.03.2020 to increase the assessed total income, albeit consequent to an order passed by the TPO, an opportunity of being heard is mandated by Section 154(3) and the impugned order cannot be passed before such a notice is issued and which, in fact, was issued only on 20.06.2024. Further it was pointed out that the impugned order is manually passed and back dated so as to save it from limitation.

The Honourable Court observed that on facts it was apparent that this was a case where Respondent No.1 has, in order to protect himself, back dated and manually passed the impugned order only to get over the period of limitation which expired on 31.03.2024.

The Honourable Court further referred to the CBDT Circular No. 19/2019 [F.No. 225/95/2019-ITA.II] dated 14.08.2019 . The Court observed that the object with which the Circular was issued by the CBDT was to ensure that a proper audit trail is maintained in respect of each and every notice / order / summons / letter / correspondence issued after 1.10.2019. The Supreme Court in Pradeep Goyal vs. UOI (2023) 1 SCC 566 also noted that the laudable object with which this requirement was introduced, albeit in the context of GST. Thus, a court ought to arrive at a conclusion which is in consonance with the object sought to be achieved, and it cannot be said that the failure to generate and quote a DIN on a document is a mere irregularity which can be ignored. The Court noted that the present case was one that exemplifies a situation whose occurrence was sought to be prevented by the CBDT, and cannot be brushed under the carpet by invoking Section 292B of the Act, or treating it as a mere procedural defect which is capable of being cured. There was no doubt that the impugned order being a rectification order under Section 154 of the Act would fall within paragraph 1 of the CBDT Circular which covers a notice, order, summons, letter and any correspondence (which has been defined as ‘communication’ in the CBDT Circular). The fact that paragraph 2 stipulates “that no communication shall be issued by any Income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc., to the assessee” on or after 1.10.2019 would squarely cover the impugned order, and unless a DIN was quoted on the face of the impugned order, the impugned order was to be treated as invalid and deemed to never have been issued.

The Court further noted that in the present case, the impugned order does not bear a DIN on the face of the order and no exceptional circumstance is mentioned in the impugned order while passing it manually without a DIN. Further, in spite of two Affidavits being filed, there is no approval of either the Chief Commissioner or the Director General of Income Tax which has been brought on record. Thus, it can be safely presumed that none exists. Even assuming that the present case was covered by one of the exceptional circumstances, there has been an abject failure to regularise the defect within the prescribed time frame of 15 working days by Respondent No. 1. Respondent No. 1 has issued the impugned letter dated 10.07.2024 providing a DIN for the impugned order, but the impugned letter is not communicated to the Petitioner, and in any event is beyond the time period of 15 working days provided in the Circular to regularize the impugned order. The fact that the impugned order is manually passed without a DIN on the face of the order and without referring to any exceptional circumstances on the face of the order, the impugned letter separately furnishing the DIN for passing the impugned order, cannot validate the impugned order passed without a DIN, when no reasons are mentioned in the impugned order.

The Court further observed that the judgment of the Jharkhand High Court in Prakash Lal Khandelwal (supra) was wholly misplaced. The said facts, on the basis of which that judgment was rendered, are distinguishable from the facts of this case, where there was a delay of a single day in uploading the order and generating the DIN. Even otherwise, the Jharkhand High Court has not appreciated the true scope of the meaning given to the word “communication” in the Circular correctly, as it has misread the word “communication” which is defined in paragraph 1 of the Circular and held that it was mandatory to quote a DIN at the time of communication of a notice/order and not at the time of issuance thereof, overlooking that what the circular mandates is that every notice, order, summon, letter and any correspondence issued by an Income Tax Authority should have a DIN allotted and duly quoted on the body of such communication. The only exception to this, was set out in paragraph 3 of the said circular.

The Honourable Court observed that the judgments in Ashok Commercial Enterprises (supra) and Hexaware Technologies Ltd (supra) and the Madras High Court in Laserwoods US Inc (supra) have not been stayed and the mere fact that the orders of the Delhi High Court in Brandix Mauritius Holdings Ltd (supra), Calcutta High Court in Tata Medical Centre Trust (supra) and the Madras High Court in Sutherland Global Services Inc (supra) are stayed by the Supreme Court, does not mean that these judgments have lost their precedential value.

Thus, having regard to the facts, the court held that the impugned order is back dated. It was apparent that the time limit provided for in Section 154(7), viz., a period of 4 years from the end of the relevant Financial Year expired on 31.03.2024, as the order sought to be amended was dated 16.03.2020. The impugned order was not passed till 20.06.2024 as the same Assessing Officer, who has passed the impugned order allegedly on 29.03.2024, has issued a Show Cause Notice seeking to commence rectification proceedings under Section 154 of the Act.

Further, no separate Notice under Section 154(3) of the Act was issued by Respondent No. 1 granting an opportunity of being heard to the Petitioner even though the rectification order that was proposed to be passed was to give effect to an order passed by the TPO. As the effect of the order would have been to increase the total income, the mandate of Section 154(3) would have to be complied with by Respondent No. 1. The fact that the Notice was issued on 20.06.2024 itself shows that the impugned order could not have been passed before this date and by the time this Notice dated 20.06.2024 was issued, the time limit under Section 154(7) had already expired.

The Court held that due to the noncompliance with the requirements of the CBDT Circular as it is passed without a DIN or; from the fact that the same Officer has issued the Notice under Section 154(3) on 20.06.2024 and he could not have issued the impugned order before 20.06.2024 and he had back dated the order, shows that the impugned order is not valid and should be quashed.

As far as the argument of alternate remedy was concerned, the court observed that present case squarely falls within the realm of exceptions carved out by the Supreme Court in Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai (1998) 8 SCC 1, in other words, an alternate remedy would not operate as a bar where the impugned order was passed without jurisdiction.

In View Of The Above, It Was Held That Respondent No. 1 Had Acted Beyond Jurisdiction, And Accordingly The Impugned Order Dated 29.03.2024 Passed By Respondent No. 1 And The Impugned Letter Dated 10.07.2024 Issued By Respondent Was Quashed And Set Aside.

Glimpses of Supreme Court Rulings

11. National Cooperative Development Corporation vs. Assistant Commissioner of Income Tax – SC

(2025)181 Taxmann.com 333-SC

Deductions – Section 36(1)(viii) provides a deduction of “profits derived from the business of providing long-term finance” in respect of any financial corporation engaged in providing long-term finance for industrial or agricultural development – The phrase “derived from” must be interpreted much more narrowly than the phrase “attributable to” – It requires a direct or immediate nexus with the specific business activity, for if the income is even a “step removed” from the business in question, that nexus is snapped – The deduction is limited to income from “first degree” sources and explicitly keeps out “ancillary profits” of the undertaking

The current litigation concerns several assessment years in which the Assessee, a statutory corporation mandated to advance initiatives for the production, processing, and marketing of agricultural produce and notified commodities in accordance with cooperative principles, sought deductions under Section 36(1)(viii) of the Income-tax Act, 1961 (‘the Act’).

In the Assessment Order, the AO proceeded to consider each of the receipts independently. As regards the dividend income, the AO held that this was a return on investment in shares, which is legally distinct from interest earned on long-term loans. Similarly, with respect to the interest on short-term bank deposits, the AO reasoned that these accrued from the investment of idle surplus funds in the interim period, rather than from the core activity of providing agricultural credit. As regards service charges received for the Sugar Development Fund (SDF), the AO noted that the Assessee was acting merely as a nodal agency for the Central Government. The funds disbursed belonged to the government, and the Assessee received a service fee for its administrative role in monitoring these loans. Consequently, the AO concluded that none of these three streams of income could be characterised as “profits derived from the business of providing long-term finance” as envisaged by the Act. Accordingly, the AO disallowed the deductions claimed on these counts and added them back to the total income of the Assessee.

Aggrieved by the Assessment Order, the Assessee preferred an appeal before the CIT(A). The CIT(A) upheld the disallowances relying heavily on the legislative intent and the definition of “long-term finance” in the Explanation to Section 36(1)(viii). This view was subsequently affirmed by the Income Tax Appellate Tribunal (ITAT) and finally by the High Court.

The High Court affirmed the findings of the lower authorities. Addressing the Assessee’s argument regarding dividend income, the High Court held that under Section 85 of the Companies Act, 1956 preference shares are part of share capital and cannot be treated as loans. The Court reasoned that a shareholder is not a creditor and cannot sue for debt; therefore, investments in redeemable preference shares do not satisfy the definition of “long-term finance” which requires a “loan or advance” with repayment of “interest.” Thus, dividends derived from such shares were not deductible under Section 36(1)(viii).

Regarding the interest on short-term deposits, the High Court upheld the Tribunal’s finding that this income was derived from the investment of idle funds during the interregnum period. The Court concluded that such interest is a step removed from the business of providing long-term finance. Since the immediate source of this income is the bank deposit and not a long-term loan extended by the Assessee, the strict requirements of the “derived from” test were not met.

On the issue of service charges for Sugar Development Fund (SDF) loans, the High Court noted the admitted factual position that the loans were funded by the Government of India, not by the Assessee. The Assessee merely acted as a nodal agency for monitoring and disbursement. Since the Assessee’s own funds were not involved, and it received service charges rather than interest, the Court held that the Assessee could not be considered to be carrying on the business of providing long-term finance in this specific context. Consequently, this income stream was also excluded from the deduction.

According to the Supreme Court, the question for adjudication before it in this batch of appeals was whether the National Co-operative Development Corporation (NCDC), Appellant-Assessee, was entitled to deductions under Section 36(1)(viii) of the Act in respect of three specific heads of income, being, (i) Dividend income on investments in shares, (ii) Interest earned on short-term deposits with banks, and (iii) Service charges received for monitoring Sugar Development Fund loans.

The Supreme Court noted that the relevant statutory provision, Section 36(1)(viii) allows for a specific deduction in computing the income referred to in Section 28. The Section provides a deduction in respect of any financial corporation engaged in providing long-term finance for industrial or agricultural development. The deduction is capped at an amount not exceeding forty percent of the “profits derived from such business of providing long-term finance.” The Explanation to the Section defines “long-term finance” to mean any loan or advance where the terms provide for repayment along with interest during a period of not less than five years.

The Supreme Court further noted that this strict framework was introduced intentionally by the Finance Act, 1995. Before this amendment, the provision allowed deductions based on the “total income” of the corporation. Parliament noticed that financial corporations were diversifying into activities unrelated to agricultural financing but were still claiming tax benefits on their entire profit. The amendment was introduced to fix this “mischief” by ensuring that the deduction is restricted only to profits that come directly from the core activity of providing long-term credit.
According to the Supreme Court, this intent was explicitly stated in the Memorandum explaining the Finance Bill, 1995, which explained why the amendment was necessary.

The Assessee contended before the Supreme Court that the phrase “derived from” should be interpreted broadly. Relying on CIT vs. Meghalaya Steels Ltd. 2016:INSC:253 : (2016) 6 SCC 747, it was argued that if a receipt flows directly from the business and is chargeable under Section 28, the Assessee qualifies for the said deductions. Also, that the distinction between “attributable to” and “derived from” is artificial when the business is indivisible. Conversely, the Respondent had submitted that judicial authority has consistently held that “derived from” signifies a strict, first-degree nexus. For this proposition reliance was placed on CIT vs. Sterling Foods 1999:INSC:190 : (1999) 4 SCC 98, Pandian Chemicals Ltd. vs. CIT (2003) 5 SCC 590 and Liberty India vs. CIT 2009:INSC:1094 : (2009) 9 SCC 328.

According to the Supreme Court, resolution of the competing perspectives would depend on the interpretation of the expression “derived from.” The Supreme Court agreed with the Respondent’s submission that this phrase connotes a requirement of a direct, first-degree nexus between the income and the specified business activity. The Supreme Court observed that it is judicially settled that “derived from” is narrower than “attributable to”, this distinction was lucidly clarified by it in Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978:INSC:83 : (1978) 2 SCC 644, where it was held that the legislature uses “derived from” when it intends to give a restricted meaning.

According to the Supreme Court, the phrase “derived from” whether used alone or as “derived from the business of” appears across multiple provisions of the Act, such as Section 80HHC and Section 80JJA and it has consistently held that this phrase requires a direct and proximate connection, or a “first-degree nexus,” between the income and the specific activity. The addition of the words “the business of” simply clarifies which activity is the source; it does not dilute the requirement for a direct link. Any interpretation suggesting otherwise would upset settled law.

According to the Supreme Court, the Assessee’s reliance on the decision in Meghalaya Steels (supra) was misplaced because the facts in that case were fundamentally different. In Meghalaya Steels (supra), the Court interpreted Section 80-IB, which allowed deductions for profits derived from “any business” of an industrial undertaking. The income in dispute there consisted of specific government subsidies given to reimburse the company for actual operational costs like transport, power, and insurance. The Court held that since these subsidies were essentially paying back the costs incurred to run the factory, they had a direct link to the profits of the business. Importantly, that judgment did not change the strict Rule regarding the phrase “derived from” established in earlier cases; it merely applied the Rule to a specific situation involving cost reimbursement,

The Supreme Court held that the present case, however, stood on a completely different footing. Unlike Section 80-IB which applies to “any business,” Section 36(1)(viii) is extremely narrow and restricts the deduction strictly to profits derived from “such business of providing long-term finance”. The disputed income here is not a reimbursement of business costs, nor does it come from the core activity of long-term lending. Therefore, the reasoning in Meghalaya Steels cannot be applied here to expand the scope of the deduction, as the specific statutory requirements and the nature of the income are entirely distinct.

Furthermore, the Supreme Court also rejected the Assessee’s attempt to portray its operations as a “single, indivisible integrated activity” to claim the deduction on all receipts. This specific argument was conclusively dealt with by it in Orissa State Warehousing Corpn. vs. CIT 1999:INSC:153 : (1999) 4 SCC 197, where the Assessee sought to claim an exemption under Section 10(29) for interest income on the ground that it was part of its integrated warehousing business.

In Orissa State Warehousing Corpn. (supra), the Court held that fiscal statutes must be construed strictly based on the plain language used. The Court explicitly rejected the “integrated activity” theory.

The Supreme Court held that the legal principles established by the decisions cited above set a strict threshold for eligibility. First, the phrase “derived from” must be interpreted much more narrowly than the phrase “attributable to”. Second, it requires a direct or immediate nexus with the specific business activity, for if the income is even a “step removed” from the business in question, that nexus is snapped. Third, the deduction is limited to income from “first degree” sources and explicitly keeps out “ancillary profits” of the undertaking. Finally, this Court refuses to accept the argument that Appellants business should be treated as a “single, indivisible and integrated activity” in order to expand the scope of a specific deduction.

The Supreme Court thereafter dealt with arguments made with respect of each of the three receipts.

Re: Dividend received on redeemable preference shares

The Assessee had argued that the substance of redeemable preference shares are effective loans, as fixed redemption Schedule and dividend rate assimilate them to the nature of debt. Resisting this, the Respondent draws our attention to the admitted factual position that these receipts are “investments in agricultural based societies by way of contribution to share capital”. The Respondent submitted that under Section 85 of the Companies Act, 1956, preference shares unequivocally remain share capital and cannot be treated as loans. Reliance is placed on the Constitution Bench decision in Bacha F. Guzdar vs. CIT (1954) 2 SCC 563 to demonstrate that dividends arise from the contractual relationship of shareholding, and the immediate source of the income is the investment in shares, not the activity of lending.

The Supreme Court observed that dividends are a return on investment dependent on the profitability of the investee company, and this distinction is fundamental to the genealogy of the income. The Constitution Bench decision in Bacha F. Guzdar (supra), established that dividend income is derived from the contractual relationship of the shareholder, not the underlying activity or the nature of the funds.

The Supreme Court further observed that a fundamental distinction exists between a shareholder and a creditor. The basic characteristic of a loan is that the person advancing the money has a right to sue for the debt. In stark contrast, a redeemable preference shareholder cannot sue for the money due on the shares or claim a return of the share money as a matter of right, except in the specific eventuality of winding up. This is also the reason for the Court, in Bacha F. Guzdar (supra), to hold that the immediate source of dividend income is the investment in share capital and not the business of providing loans. Since the statute specifically mandates ‘interest on loans’, extending this fiscal benefit to ‘dividends on shares’ would defy the legislative intent. Therefore, the Supreme Court concluded that dividend income does not qualify as profits derived from business of providing long-term finance.

Re: Interest on short-term deposits in banks

The Assessee had placed heavy reliance on the decision of the Supreme Court in National Co-operative Development Corporation vs. CIT 2020:INSC:544 : (2021) 11 SCC 357. They argued that the Supreme Court has already recognized that earning interest on idle funds is “interlinked” with their business and constitutes “business income” rather than “Income from Other Sources”. Based on this, the Assessee contended that their operations were a “single, indivisible integrated activity.” The Appellant contended that since the funds were parked temporarily only to be eventually used for lending, the interest earned on them should be treated as effectively “derived from” the business of providing finance.

The Supreme Court rejected this submission because it confuses two different concepts i.e. the classification of income and the eligibility for a specific deduction. There is a vital distinction between the general genus of “Business Income” and the specific species of “profits derived from the business of providing long-term finance”. Just because an income falls into the broad bucket of “Business Income” does not automatically mean it qualifies for the 40% deduction under Section 36(1)(viii) for the later specific species.

The Supreme Court observed that in NCDC (supra), the dispute was whether the corporation could deduct its expenses under Section 37. The revenue argued that the interest income was “Income from Other Sources,” which would have prevented the corporation from deducting business expenses against it. According to the Supreme Court, it was rightly held that since the funds were waiting to be lent out, the interest was “business income,” and therefore, normal business expenses could be deducted. However, the present case was not about deducting expenses; it was about claiming a special incentive deduction under Section 36(1)(viii). This Section is much stricter and requires more than just being “business income”; it requires the profit to be directly “derived from” long-term financing.

Furthermore, the NCDC judgment dealt with tax years 1976-1984. The law being interpreted in this case was amended significantly by the Finance Act, 1995. Parliament specifically changed the law to narrow the scope of this deduction because financial corporations were claiming benefits on all sorts of diversified income. Therefore, a judgment based on the old, broader law to interpret the new, stricter provision cannot be used. According to the Supreme Court, the amendment was designed precisely to stop the kind of broad “integrated business” claim the Assessee was making now. In NCDC (supra) the Court merely held that interest from short-term deposits was “business income” and not income from other sources. In the present case, the Revenue does not dispute that this is business income, but would contend that Section 36(1)(viii), as a special deduction provision operates on a much narrower plane.

The Supreme Court observed that even if a receipt is classified as “Business Income” under Section 28, it does not automatically qualify for the special deduction unless it satisfies the strict rigor of being “derived from” the specific activity of long-term finance defined in the Explanation. The legislative intent was to incentivize the specific act of providing long-term credit, not the passive investment of surplus capital. If it were to accept the Assessee’s argument, it would create a perverse incentive for financial corporations to park funds in safe, short-term investments and claim the 40% deduction, rather than fulfilling their statutory mandate of providing high-risk long-term credit to the agricultural sector. Consequently, interest earned from bank deposits failed this test as it is, at best, attributable to the business, but certainly not derived from the activity of providing long-term finance.

Re: Service Charge on Sugar Development Fund loans

The Assessee asserted that acting as a nodal agency for the Sugar Development Fund was part of its statutory mandate, and the service charges received were consideration for the core activity of facilitating long-term finance, irrespective of the fund’s origin. Per contra, the Respondent argued that these charges are merely “service fees” or agency commissions paid by the Government of India. The Respondent emphasized that since the
corpus belongs to the Government, the Assessee acted as an intermediary, not as the financier providing the loan.

The Supreme Court observed that deduction under Section 36(1)(viii) is predicated on the financial corporation “providing” the finance. In the case of SDF loans, the admitted factual position is that the funds belong to the Government of India. The Assessee bears no risk and utilizes no capital of its own.

The receipts in question were service charges paid by the Government for the administrative tasks of monitoring and disbursement. The proximate source of this income is the agency agreement with the Government, not the lending activity itself. A fee received for agency services cannot be equated with “profits derived from the business of providing long-term finance,” which implies the deployment of the corporation’s own funds and the earning of interest thereon. Consequently, this income stream was rightly excluded from the deduction.

The Supreme Court, upon a cumulative assessment of the statutory scheme and the judicial precedents cited, held that the claim of the Assessee was not correct in law.

For the above reasons, there was no merit in the appeals and consequently, the same were dismissed.

Registration under Section 12A in Cases of an Object for Application outside India

Charitable trusts obtaining registration under Section 12ABfrom the Commissioner of Income Tax (CIT) often face rejection when a trust’s objects permit spending on charitable activities outside India.

The majority of judicial decisions have held that the mere existence of an object permitting spending outside India is not a valid ground for rejection of registration. The definition of “charitable purpose” (Section 2(15)) has no geographical limits, and Section 11(1)(c), which restricts exemption for income applied outside India (unless CBDT approved), is a computation provision relevant only after registration is granted.

However, the Mumbai Tribunal has taken a contrary view in Sila for Change Foundation’s case, upholding the denial of registration on the ground that the 2022 amendments in Section 12AB(4) and (5) permitting cancellation of registration in the event of specified violations effectively require compliance at the registration stage with all other laws material for the purpose of attainment of objects. This decision does not appear to be correct, as the none of the specified violations are attracted merely by having an object permitting spending outside India. Moreover, such an object is necessary if the trust ever intends to seek CBDT approval to spend outside India under section 11(1)(c).

ISSUE FOR CONSIDERATION

Every charitable or religious trust, society or section 8 company (for convenience referred to as “trust”) desiring to claim exemption of its income under sections 11 to 13 of the Income-tax Act, 1961 is required to be registered under section 12A with the Commissioner of Income Tax (“CIT”). The procedure for grant of registration is laid down in section 12AB.

While granting registration, the CIT is required to examine the following:
(i) the charitable or religious nature of the objects of the trust;
(ii) the genuineness of activities of the trust; and
(iii) the compliance by the trust of such requirements of any other law as are material for the achievement of its objects.

If satisfied, on examination, the CIT is required to grant registration under section 12AB. Sub-section (4) of section 12AB lists out the ‘specified violations’ for which the registration already granted can be cancelled by the CIT.

At times, a trust may have some objects in its trust deed or Memorandum of Association permitting it to spend on charitable activities outside India. Very often, at the time of application for registration, in such cases, the CIT may reject the application for registration on the ground that registration is not permissible for a trust which has an object permitting it to spend on charitable activities outside India.

While most of the benches of the Tribunal (including the Mumbai Bench) have taken the view that the existence of such an object in the Trust Deed or Memorandum of Association cannot be a ground for rejection of an application for registration under section 12A, recently, a contrary view has been taken by a couple of benches of the Mumbai Tribunal holding that such refusal to register at the initial stage itself is justified.

SARBAT THE BHALA GURMAT MISSION CHARITABLE TRUST’S CASE

The issue had come up before the Chandigarh bench of the Tribunal in the case of Sarbat the Bhala Gurmat Mission Charitable Trust vs. CIT 189 ITD 353.

In this case, the assessee, a charitable society, was in operation since December 2014. It had applied for grant of registration under section 12A. One of its objects included the opening of branches of the trust in India and abroad.

Charity without Borders The Indian Tax Registration Dilemma

After calling for information and making due enquiries, the CIT denied registration for the reason that the objects of the trust provided for operations being carried out/extended outside India also. The CIT observed that the Act ruled out grant of exemption of income applied for charitable purposes outside India. He noted that operations outside India was allowed only for limited purposes, and that too was subject to approval by the Central Board of Direct Taxes (“CBDT”). He therefore held that the activities of a trust can be treated as charitable only when its income is mandated for application within India, and not if the activities can be carried out outside India, and therefore denied the grant of registration under section 12A to the assessee trust.

Before the tribunal, on behalf of the assessee, it was contended that while denying grant of registration, the CIT had wrongly referred to the provisions of section 11 which denied exemption to incomes which were applied outside India for charitable purposes. The said provision of section 11 was applicable only while computing or determining the exempt income of entities which qualified for the exemption under the said section and that while examining the application for registration u/s 12A, the provisions of section 11 had no role to play. It was explained that for the limited purpose of grant of registration, the CIT was only required to consider the genuineness of the objects and activities of the trust and decide whether the objects listed were for “charitable purpose” as defined in section 2(15). It was pointed out that the definition of “charitable purpose” nowhere restricted the carrying out of charitable activities within the geographical boundaries of India alone. Therefore, while granting registration, the possibility of the trust carrying out activities outside India in future, could not lead to the conclusion that it was not formed for charitable purposes, and that therefore registration was not to be denied for this reason. It was argued that it was only in assessment of income, when the quantum of income exempt was to be determined, that the fact of income applied for charitable activities outside India would be relevant for the purpose of excluding such amount from exemption.

On behalf of the assessee, reliance was placed on the following judicial decisions favouring the view taken by the assessee:

MK Nambyar SAARF Law Charitable Trust vs. Union of India 269 ITR 556 (Del)

Foundation for Indo-German Studies vs. DIT 161 ITD 226 (Hyd Trib)

National Informatics Centre Inc vs. DIT 88 taxmann.com 878 (Del ITAT)

It was further submitted that in any case carrying out activities outside India was not its main object, but only incidental, and that the assessee would primarily carry out its activities in India only.

On behalf of the revenue, reliance was placed on the order of the CIT.

The tribunal noted the primary argument of the assessee against the order of the CIT contending that for the limited purpose of granting registration, the conditions mentioned in section 12AA only needed to be fulfilled; that the provisions of section 11(1)(c) were not relevant for the purpose of registration; section 11(1)(c) could be applied only while determining the income entitled to exemption under section 11 in assessment of income. According to the tribunal, what was therefore to be decided while entertaining the application for registration u/s 12A was whether the law provided for any such geographical limitation in carrying out charitable activities and whether an object clause permitting such activity outside India could lead to rejection of application for registration at the preliminary stage.

The tribunal analysed the provisions of section 2(15), 11, 12, 12A, and 12AA of the Act and observed that the definition of the term “charitable purpose” in section 2(15) listed various activities which qualified as charitable purpose and there was no restriction that required that such activities, when actually carried out, were within the geographical boundary of India. In other words, there was nothing in section 2(15) that mandated against the carrying out of activities outside India. It was only section 11 which placed a geographical restriction by limiting the exemption only to incomes applied to charitable purposes in India. But even section 11 did not completely rule out exemption to incomes applied outside India for charitable purposes, when carried out with the approval of the CBDT.

The Tribunal therefore held that the CIT’s order, denying registration to the assessee merely because its objects included application of income outside India, was not in accordance with law. It was even more so because that was not the sole and main object of the assessee, but only its ancillary and incidental object. Besides, it was not the case that there was to be no application of income within India at all as per the objects, the main object of the assessee involved carrying out charitable activities in India. Under those facts, the tribunal was of the view that, denying registration under section 12A because an incidental object entailed application of income outside India, would result in the assessee being altogether denied exemption to income applied in India, which it was otherwise entitled to in law.

Further, the tribunal observed that the provisions of section 11(1)(c), which the CIT had relied upon for holding that only activities carried out in India would qualify as charitable for grant of registration, was only for the purposes of determining the income which qualified for exemption under section 11. As per the tribunal, this section came into operation only once registration was granted under section 12A, and therefore could not be relevant for the purposes of granting registration under section 12A. As per the tribunal, the scheme of the Act was that all entities carrying out charitable activities as defined in section 2(15) qualified to be registered as charitable entities, but the exemption was provided and restricted only to the extent of income applied for charitable purposes in India.

The tribunal also noted that the issue was squarely covered by the decisions cited (supra) on behalf of the assessee. It noted that in the case of M K Nambyar SAARF Law Charitable Trust (supra), the High Court had held that the application of income outside India was not a relevant criteria for rejecting the application for grant of registration under section 12A, and the officer had to only restrict itself to the satisfaction about the objects and genuineness of the activity of the trust while granting registration, with no restriction at that stage on the activities being carried out inside or outside India.

The Tribunal therefore set aside the order of the CIT, and directed the CIT to grant registration as applied for by the assessee.

A similar view has been taken by other benches of the Tribunal in the cases of Dedhia Music Foundation vs. CIT 173 taxmann.com 394 (Mum), Odhavji Chanabhai Peraj Charity Trust vs. DCIT 177 taxmann.com 178 (Mum), International Bhaktivedanta Institute Trust vs. DIT 42 taxmann.com 330 (Hyd), Dr. T.M.A. Pai Foundation vs. CIT 175 taxmann.com 719 (Bang), TIH Foundation for IOT and IOE vs. CIT 176 taxmann.com 561 (Mum) and Shamkris Charity Foundation vs. CIT 180 taxmann.com 58(Mum).

SILA FOR CHANGE FOUNDATION’S CASE

The issue came up again before the Mumbai bench of the Tribunal in the case of Sila for Change Foundation vs. CIT 173 taxmann.com 694.

In this case, the assessee, a section 8 company, had been granted provisional registration under section 12A(1)(ac)(ii) by the CIT. When it applied for final registration, the CIT noted that one of its 18 objects was – “to provide support and other such developmental services to other organisations in India and outside India in the social sector”. He was of the opinion that this objects clause violated section 11, and therefore registration under section 12A could not be granted, since the assessee had not established the genuineness of the activities. The CIT also noted that the assessee had not established whether this object was compliant with any other law as was material for the purpose of achieving its objects. The CIT therefore rejected the application for registration under section 12AB.

On behalf of the assessee, before the Tribunal, it was submitted that subsequent to the provisional approval, the activities of the institution had commenced and were found to be genuine. It was argued that once the CIT was satisfied that activities undertaken by the institution were genuine, and in consonance with its aims and objectives, registration could not be denied. It was further submitted that the activities of the institution were bona fide, and that the assessee had not applied any income for activities outside India. It was therefore argued that the genuineness of the activities could not be doubted.

On behalf of the assessee, it was further submitted that clause 12 of the Memorandum of Association was not meant to enable the assessee to carry out charitable activities outside India. All that the clause stated was that the assessee could render support and coordinate with trusts/Institutions outside India. An example was given that if a student was granted education loan for seeking education outside India, and the assessee paid tuition fees to a university outside India of such student, it would not mean that the amount was utilised or applied for charitable activities outside India.

On behalf of the revenue, it was argued that clause 12 of the objects stated that it would provide support and carry out such development activities to other organisations in India and outside India in the social sector. Section 11 required that the activities must be carried out in India. Clause 12 of the objects was clearly in contravention of the primary requirement under section 11. It was therefore submitted that the claim of exemption was rightly denied.

The tribunal analysed the provisions of section 12A, and the changes in the registration procedure effective from 1st April 2021. It noted that at the time of application for regular registration, the CIT was required to call for such documents or information or make such inquiries as he thought necessary to satisfy himself about the genuineness of the activities of the trust and the compliances of other laws. Once he was satisfied on the above aspects, then registration would be granted.

The tribunal further noted that, as per section 12AB(4) and (5), with effect from 1st April 2022, the registration can be cancelled in the case of specified violations. The list of specified violations includes, inter alia, cases where it is found out that the activities are not genuine, or are not carried out in accordance with the objects of the institution, or the institution has not complied with the requirements of any other law as are material to the attainment of its objects. It noted that the Explanatory Memorandum explaining the provisions of the Finance Bill 2022, stated that provisional registrations were granted in an automatic manner, and that the provisions for cancellation of registration were being introduced to ensure that non-genuine trusts do not get the exemption. Therefore, the tribunal observed that merely because provisional registration had been granted, did not mean that final registration could not be denied.

The tribunal then analysed the provisions of sections 11(1)(a) and 11 (1)(c). It noted the decision of the Delhi High Court in the case of DIT vs. National Association of Software and Services Companies 345 ITR 362, where the Delhi High Court held that there was no need for a trust to apply for CBDT approval for application of income outside India under section 11(1)(c) if section 11(1)(a) granted exemption even if income of the trust was applied outside India so long as the charitable purposes were in India. It noted the Delhi High Court’s observations that it was illogical to allow expenditure paid to a student to study abroad but the same was not permissible if the payment was made directly to the foreign university. It also noted the decision of the Mumbai Tribunal in the case of Jamsetji Tata Trust vs. Jt DIT 148 ITD 388, where the tribunal held that education grant given to Indian students for studying abroad amounted to application of money for charitable purposes in India and though the final execution of the purpose may be outside India, that would not affect the satisfaction of the conditions.

According to the tribunal, the courts had always proceeded on the footing that section 11(1)(a) does not attract forfeiture of exemption of the entire income, unlike the provisions of section 13(1). In other words, if a trust was willing to pay taxes to the extent of its activities outside India, then, to that extent, it can have such activities. This supported the assessee’s contention that the provisions of section 11(1)(a) were attracted only if actual expenditure was incurred outside India, and could not be invoked only on the ground that the trust deed provided for activities outside India.

Having noted in favour of registration, the Tribunal finally rejected the application for registration by mainly relying on insertion of sub-sections (4) and (5) in section 12AB by the Finance Act 2022 which had widened the scope of violations, as specified in the explanation therein. According to the tribunal, the condition that the objects of the trust were not in violation of compliance under any other law for the time being in force towards achieving the material purposes of the objects, had now become necessary to be satisfied and established by the assessee at the time when its application was scrutinised for converting provisional to final registration. In the view of the tribunal, with such compliance required at the stage of registration, the relevant clause 12 in the Memorandum of Association of the assessee was a hurdle to grant final registration.

The Tribunal therefore rejected the appeal of the assessee, upholding the denial of registration under section 12A.

This decision was followed by another bench of the Tribunal (with one member common to both cases) in the case of Hemlata Charities vs. CIT 172 taxmann.com 649.

OBSERVATIONS

The power to refuse or reject the application for registration is strictly governed by s. 12AA of the Act. As noted earlier, the conditions that are to be examined by the CIT and in respect of which he needs to satisfy himself do not require him to reject the application on the ground that one of the objects of the trust contains a clause that permits the trust to apply its income out of India; as long as the objects behind the application are charitable and satisfy the test of section 2(15), there is no hurdle in granting registration to the trust.

At the stage of application, there may not be even any application of income. While section 11(1)(c) limits such application only where it is approved by the CBDT, that by itself is not a hurdle in registration of the trust. As long as the objects are found to be charitable within the meaning of section 2(15), the only thing that is required to be examined is whether the activities of the trust are genuine or not; they do not become non-genuine where some income is applied outside India, as long as the application is for charitable purpose.

The next condition, the non-satisfaction of which permits the refusal, is whether there was any non-compliance of requirements of ‘other law’ that is material for achieving the objects of the trust. It is beyond one’s imagination to conceive as to how a charitable object of the trust that permits application in a foreign country can be in non-compliance of some other law, and how can it be so even before the application of income is made for an overseas object. In any case it is for the CIT to demonstrate, with proof, that having such an object can and will lead to any non-compliance, that too one which can be considered to be material.

Applying or invoking the provisions of s. 11(1)( c) at the time of registration or even at the time of renewal of registration is absolutely avoidable. This provision is a computation provision and has application only while assessing the income. Even when this provision is successfully applied by the AO, that by itself cannot lead to any refusal of registration.

Applying s.12AB (4) and (5) at the time of registration is once again debatable. The provision applies to the cases of cancellation of registration and is applicable to the trust which is already registered. These provisions are not applicable to the case of a trust which is seeking registration. In any case, all of the seven situations of the Explanation to s. 12AB(4) require an act by the trust that has already taken place and has been committed, to enable the CIT to cancel registration. None of them could apply to a trust simply because it has an objects clause that permits it to apply income outside India. In our opinion, even where the income is so applied for charitable purpose outside India, there is no specific violation unless it is established by the CIT that such an application was in violation of the requirements of the other law or non-compliance thereof, which was material to the attainment of the objects.

The tribunal, in Sila for Change Foundation’s (supra) case, was perhaps justified in noting that by the amendment of law in 2022, if there was a specified violation, the CIT could reject the application for registration. However, in that case, the Tribunal really did not demonstrate as to how, by having an object permitting application outside India, there was a violation of compliance with any other law as was material for the attainment of objects of the trust. In fact, there was no such violation of compliance with any other law material for the attainment of objects of the trust. As noted by the Mumbai Bench of the Tribunal in Dedhia Music Foundation’s case (supra), the provisions of section 11(1) would not fall under the category of “any other law”, since it was only a computation provision, and that application of income for objects outside India cannot be construed to be violation of “any other law” under section 12AB(4). If there was indeed such a specified violation, then perhaps the decision of the tribunal would have been justified.

As rightly observed by the tribunal in that case, the correct position in law was that if there was actual application outside India, it was only then that the exemption was lost to the extent of such application. The 2022 amendment did not really affect this position, since none of the specified violations applied to a situation of having an object permitting application outside India. Therefore, the ratio of the decision of the Delhi High Court in the case of M K Nambyar Saarf Law Charitable Trust (supra), that application of income outside India is not a relevant factor for rejecting an application for registration under section 12A, would continue to be valid and hold good.

In fact, in Sila’s case, the tribunal failed to appreciate that unless the trust had an object permitting it to apply its income outside India, it could not even approach the CBDT for permission for application outside India, as the trust can spend only to the extent permitted by its objects. In fact, when a trust makes an application to the CBDT, one of the points on which enquiry is made is the specific object under which the trust intends to apply the money outside India. If there is no such object in the trust deed authorising the trustees to apply income or assets outside India, in law, the trust would not be able to apply any part of its income or assets outside India, and therefore there is no question of even applying to the CBDT for such permission. Therefore, existence of such a clause in the trust deed is essential, if a trust is ever to apply to the CBDT for application outside India. If a view is taken that a trust cannot be granted registration under section 12A if it has such a clause permitting spending outside India, then the provisions of section 11(1)(c), to the extent applicable to trusts set up after 01.04.1952, of taking prior CBDT approval, become redundant. That can never be the case, and therefore such an interpretation would be incorrect.

Therefore, clearly the better view of the matter is that the mere existence in the trust deed or Memorandum of Association of an object of spending outside India, cannot be a ground for rejection of registration under section 12AB (or under section 80G, for that matter).

Mechanical Approval by the Sanctioning Authority under Section 151

ISSUE FOR CONSIDERATION

The Assessing Officer is permitted to issue a notice under Section 148 only after obtaining an approval of the higher authorities in accordance with the provisions of Section 151. In a recent decision in the case of Union of India vs. Rajeev Bansal [2024] 167 taxmann.com 70, the Supreme Court in dealing with the new scheme of reassessment, held that Section 151 imposes a check upon the power of the Revenue authorities to reopen assessments. The provision imposes a responsibility on the authorities to ensure that it obtains the sanction of the specified authority before issuing a notice under Section 148. The purpose behind this safeguard is to save the assessees from harassment resulting from the mechanical reopening of assessments and to provide for the dual check by the higher authority.

Even the higher authority, entrusted with the duty to check whether the reasons of the AO are tenable in law, itself is found lacking in discharge of its statutory obligation by routinely sanctioning the reopening by the AO. Time and again the Courts have held that, while granting the approval under Section 151, the sanctioning authority should have applied his mind and have verified as to whether the concerned case is a fit case for issuing notice under Section 148 and that it satisfies all other applicable conditions. The notices issued, wherein it was found that the sanctioning authority had granted the approval mechanically lacking application of mind, have been quashed by the High Courts as bad in law. Quite often, the validity of the notice issued under Section 148 is being challenged on the basis of the manner in which the sanctioning authority has granted the approval under Section 151. Depending upon what has been mentioned/noted by the sanctioning authority while granting the approval, the Courts have tested as to whether there was an application of mind on the part of the authorities or whether they had granted the approval mechanically.

Recently, the Delhi High Court however took conflicting views in two different cases with respect to the validity of the approval granted under Section 151. In one case, where the sanctioning authority mentioned “Yes, I am satisfied”, the High Court considered it to be an invalid approval. In other case, where the sanctioning authority mentioned “Yes, I am convinced it is a fit case for re-opening the assessment u/s 147 by issuing notice u/s 148”, the High Court considered it to be a valid approval.

CAPITAL BROADWAYS (P.) LTD.’S CASE

The issue had first come up for consideration of the Delhi High Court in the case of Capital Broadways (P.) Ltd. vs. ITO 301 Taxman 506 (Delhi).

In this case, the return of income was filed by the assessee for AY 2010-11, which was processed under Section 143(1). Subsequently, information was received from the Investigation Wing of the Department about money laundering operation conducted by the Jain Brothers. The information contained the report as to how the Jain Brothers, through their paper companies, had provided accommodation entries to various beneficiaries in the guise of share capital/share premium etc. with the help of various mediators. Upon examination of the report, it was found that in the list of beneficiaries, the name of the assessee was also appearing, as having taken accommodation entries aggregating to ₹55 lakh during the AY 2010-11, through three paper companies managed and operated by the Jain Brothers. Accordingly, on 28-3-2017, the Assessing Officer issued the notice under Section 148 on the allegation that there has been an escapement of income.

In response to the impugned notice, the assessee made a request to the Assessing Officer to treat the original ITR filed as the ITR filed in response to the notice under Section 148. It also requested him to provide the reasons on the basis of which the assessment proceedings were initiated. Pursuant to the request of the assessee, the reasons for reopening the assessment, along with the proforma for seeking necessary approval of the Principal Commissioner Income Tax [“PCIT”], were provided.

Feeling aggrieved, the assessee filed a writ petition, challenging the impugned notice issued under Section 148 of the Act. The principal challenge was that the approval under Section 151 was granted without application of mind. The assessee submitted that the PCIT had approved issuance of the impugned notice by merely endorsing his signatures on the file in a routine and mechanical manner by simply writing “I am satisfied”. It was further submitted that if the PCIT had delved into the issue, he would have discovered that there was no specific allegation qua the assessee in the reasons recorded as per the information given by the Investigation Wing. Therefore, there was no independent conclusion of the Assessing Officer to believe that income had escaped assessment. It was also submitted that the sanction was vitiated as the PCIT was influenced by the sanction of the Additional CIT. For all these reasons, it was submitted that the impugned notice under Section 148, issued consequent to the grant of approval, was liable to be quashed.

On behalf of the revenue, it was submitted that the statutory requirement was only to the extent of grant of approval by the PCIT on the reasons recorded by the AO. It was submitted that the PCIT had examined the elaborate reasons recorded by the AO to form the belief that income had escaped assessment. It was further submitted that the order granting approval need not contain the reasons, as the same was based on prima facie finding arrived at from the record. It was thus submitted that the approval had been granted based upon the material, and therefore the conditions envisaged in Section 151 stood satisfied.

The High Court noted that the request for approval under Section 151 of the Act in a printed format was placed before the Addl CIT, who after according his satisfaction, placed the same before the PCIT. The PCIT had granted the approval on the very same day. It was observed by the High Court that both these authorities merely mentioned ‘Yes, I am satisfied’ against the relevant questions posed before them as to whether they were satisfied on the reasons recorded by AO that it was a fit case for the issue of notice u/s. 148. On this basis, the High Court held that the approval order was bereft of any reason. There was no whisper of any material that might have weighed for the grant of approval.

The High Court further held that even the bare minimum requirement of the approving authority having to indicate what the thought process was, was missing in the aforementioned approval order. While elaborate reasons might not have been given, at least there had to be some indication that the approving authority has examined the material prior to granting approval. Mere appending the expression “Yes I am satisfied” said nothing. The entire exercise appeared to have been ritualistic and formal rather than meaningful, which should be the rationale for the safeguard of an approval by a high ranking official. Reasons were the link between material placed on record and the conclusion reached by the authority in respect of an issue, since they helped in discerning the manner in which the conclusion was reached by the concerned authority.

The High Court relied upon the decision of the Madhya Pradesh High Court in the case of CIT vs. S. Goyanka Lime & Chemicals Ltd. 231 Taxman 73, wherein the identical issue was involved where the competent authority just recorded “Yes I am satisfied”. In that case, in turn, reliance was placed upon the case of Arjun Singh vs. Asstt. DIT 246 ITR 363 (MP), where it was held that the mechanical way of recording satisfaction by the competent authority which accorded its sanction for issuing notice under section 148 was clearly unsustainable. The High Court also noted that the SLP challenging the decision rendered by the Madhya Pradesh High Court was dismissed by the Supreme Court [reported in CIT vs. S. Goyanka Lime & Chemical Ltd. 237 Taxman 378 (SC)].

By following this decision of the Madhya Pradesh High Court, the Delhi High Court held that mere repeating of the words of the statute, mere rubber stamping of the letter seeking sanction or using similar words like “Yes, I am satisfied” would not satisfy the requirement of law. The mere use of expression “Yes, I am satisfied” could not be considered to be a valid approval, as the same did not reflect an independent application of mind. The grant of approval in such a manner was thus flawed in law.

The High Court also referred to its earlier decision in the case of Principal CIT vs. Meenakshi Overseas (P.) Ltd. [IT Appeal No. 651 of 2015,dated 26-5-2017] wherein it was held that by writing the words “Yes, I am satisfied” the mandate of Section 151(1) of the Act as far as approval of Additional CIT was concerned, stood satisfied. However, the High Court noted that such finding was arrived at by the Court in light of the fact that the Additional CIT addressed a letter to the ITO stating as under:

“In view of the reasons recorded under Section 148(2) of the IT Act, approval for issue of notice under Section 148 is hereby given in the above-mentioned case, you are, accordingly directed to issue notice under Section 148 and submit a compliance report in this regard at the earliest.”

Accordingly, it was held that such letter sent by the Additional CIT to the ITO clearly revealed that the sanction was accorded after due application of mind, and on considering the reasons narrated by the Assessing Officer. However, in the present case which the High Court was dealing with, there was no such material to come to the conclusion that the PCIT granted approval after considering the reasons assigned by the Assessing Officer. On this basis, the decision rendered in Meenakshi Overseas (P.) Ltd. (supra), was therefore considered to be distinguishable and not applicable to the facts and circumstances of the present case.

Further, the High Court also relied upon the decision in the case of Principal CIT vs. Pioneer Town Planners Pvt. Ltd. 465 ITR 356 (Delhi).

For all of the reasons as discussed above, the High Court held that the approval granted by the PCIT for issuance of notice under Section 148 of the Act was not valid, and that therefore the impugned notice under Section 148 dated 24.03.2017 could not be sustained.

AGROHA FINCAP LTD.’S CASE

The issue had again recently come up for consideration before the Delhi High Court in the case of Principal CIT vs. Agroha Fincap Ltd. [2025] 179 taxmann.com 185 (Delhi).

In this case, for AY 2009-10, the assessee had filed its return of income on 22-9-2009 declaring income of ₹40,720 which was then processed under Section 143(1). After the return of income was processed, on 30.10.2010, the Assessing Officer received information from the office of the DIT (Investigation-II) vide letter dated 12.03.2013 that a search operation was carried out in the case of S. K. Jain Group, wherein seized documents revealed that the assessee was involved as a beneficiary of accommodation entries in the form of share capital / share premium amounting to ₹25,00,000. Accordingly, the Assessing Officer issued a notice dated 28.3.2016 under Section 148.

The assessee, vide its letter dated 11.08.2016, filed objections against reopening of assessment, which was disposed of by the Assessing Officer on 11.08.2016.

During the course of the assessment proceeding, it was observed that the share capital / share premium of the assessee was increased by ₹25,00,000 during the year under consideration. It was the case of the Assessing Officer that the said amount of ₹25,00,000 represented unexplained credit under Section 68 of the Act in the books of account of the assessee. The assessee had failed to pass the test of identity, creditworthiness and genuineness of transactions. Accordingly, a show cause notice was issued to the assessee dated 19.10.2016 requiring it to explain as to why this amount should not be added as unexplained cash credit. In its response, the assessee filed a detailed reply vide letter dated 26.10.2016 objecting to the proposed addition.

Finally, the assessment order dated 28.11.2016 was passed making the addition of the said amount of share capital / share premium of ₹25,00,000 under Section 68, as well as of an unexplained investment in the form of an expenditure at the rate of 1.8% of the accommodation entry, which amounted to ₹45,000. Against this assessment order, the assessee filed an appeal which was dismissed by the National Faceless Appeal Centre vide its order dated 10.10.2022.

Upon further appeal, the tribunal duly followed its earlier order in the assessee’s own case for AY 2010-11, wherein it was held that merely giving approval by mentioning “Yes, I am convinced it is fit case for re-opening of assessment u/s 147 by issuing notice u/s 148.” was considered to be not complying with the mandatory requirement of granting approval u/s 151 of the Act. Since for the year under appeal also, the approving authority had merely given a ritual approval in a mechanical manner, the tribunal declared the entire assessment proceeding as bad in law. The tribunal also followed the decision of the High Court in the case of Pr. CIT vs. N.C. Cables Ltd. 391 ITR 11 (Delhi).

Against this order of the tribunal, the revenue filed an appeal before the High Court. On behalf of the revenue, it was contended that the case of N.C. Cables Ltd. (supra) was distinguishable on the ground that the approving authority therein had ritualistically granted the approval merely by stating “approved”, and the Court had held that the CIT has to record elaborate reasons for agreeing with the noting, while the satisfaction has to be recorded of the given case and was to be reflected in the briefest possible manner. It was argued that in this case, the above conditions were satisfied, because the approving authority briefly recorded that the case was fit for reopening.

On the other hand, the assessee stated that the approval granted in its case did not satisfy the requirements of a considered approval by the authority. On that basis, it was submitted that the tribunal rightly relied upon the decision in the case of N.C. Cables Ltd. (supra).

The High Court observed that the tribunal had relied upon the decision in the assessee’s own case for AY 2010-11, in respect of which the revenue had submitted a certificate stating that no appeal was filed against the order of the ITAT, because of the low tax effect. Further, reliance was also placed upon the decision in the case of N.C. Cables Ltd. (supra) wherein the Court was concerned with only the expression ‘approved’ as used by the approving authority. It was in that context, that it was held that merely appending the expression “approved” said nothing. It was held that the satisfaction has to be recorded, which can be reflected in the briefest possible manner.

On this basis, the High Court observed that its earlier decision in the case of N.C. Cables Ltd (supra) was clearly distinguishable. Further, the reliance was placed upon the other decision of the same Court in the case of Meenakshi Overseas (P.) Ltd. (supra) wherein this Court had considered “Yes, I am satisfied” to mean that it satisfied the mandate of Section 151(1) of the Act.

Accordingly, the High Court held that the language “Yes, I am convinced, it is a fit case for re-opening the assessment u/s 147 by issuing notice u/s 148” satisfied the mandate of Section 151 of the Act in this case.

OBSERVATIONS

The Supreme Court in the case of Chhugamal Rajpal vs. S.P. Chaliha 79 ITR 603 (SC) was concerned with a case where the sanctioning authority had, in the proforma which was being used for the purpose of obtaining approval u/s. 151, merely mentioned “Yes” against the AO’s question “Whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148.”. In this context and based on the facts of that case, the Supreme Court quashed the notice issued under Section 148 on the ground that the important safeguards provided in sections 147 and 151 were treated lightly by the Income-tax Officer as well as by the Commissioner. This decision of the Supreme Court was thereafter being followed in numerous cases by the different High Courts and the notices issued under Section 148 were being struck down where the sanctioning authority had merely written “Yes” and affixed his signature while granting the approval. Pr. CIT vs. N.C. Cables Ltd. (supra) is one of such cases wherein the sanctioning authority had merely mentioned ‘Approved’ while granting the requisite approval under Section 151. This particular decision has been taken into consideration in both the later decisions of the Delhi High Court which are discussed above to arrive at the conflicting conclusions.

If the sanctioning authority has mentioned “Yes, I am satisfied” instead of merely mentioning “Yes”, then also it cannot be said that the additional words have altered the position substantially and that such words reflect the application of mind on the part of the sanctioning authority. Approving this requirement of the law, the Delhi High Court has rightly taken a view in the case of Capital Broadways (P.) Ltd. (supra) that such an approval granted by the sanctioning authority was without application of mind that rendered the proceedings invalid.

Now, the issue which is required to be considered is whether the mentioning of “Yes, I am convinced, it is a fit case for re-opening the assessment u/s 147 by issuing notice u/s 148” by the sanctioning authority results into a material change in the position and whether such additional words show the application of mind on the part of the sanctioning authority. In substance, by putting these words, what has been done by the sanctioning authority is that in answering the question posed to it by the AO it has reproduced the same words that was used in the question posed before him and nothing more. As per the proforma of the approval, the question posed before the sanctioning authority generally is “Whether he is satisfied that it is a fit case for the issue of notice under section 148”. Irrespective of whether this question is being answered by merely mentioning “Yes” or by mentioning “Yes, I am satisfied” or by mentioning “Yes, I am satisfied, it is a fit case for the issue of notice under Section 148”, it should carry the same meaning in any of the cases. There is no qualitative difference between the three answers that indicate application of mind needed by the law. Therefore, in our respectful view, the Delhi High Court should not have taken a different view in the case of Agroha Fincap Ltd. (supra), merely because the approving authority had mentioned “Yes, I am convinced, it is a fit case for re-opening the assessment u/s 147 by issuing notice u/s 148.

Further, the decision of the court in the case of Meenakshi Overseas (P.) Ltd. (supra) was rightly distinguished by the same court in the subsequent case of Capital Broadways (P.) Ltd. (supra) on the ground that a separate letter was being issued by the sanctioning authority, wherein a reference to the reasons was being made on the basis of which the approval was granted. No such evidences were placed on record and to the notice of the High Court in the case of Agroha Fincap Ltd. (supra), to establish the fact of application of mind by the sanctioning authority with some additional proofs.

Interestingly, in the case of Venky Steels (P.) Ltd. vs. Commissioner of Income-tax 475 ITR 111 (Patna), the Patna High Court recently has taken a view that there was no requirement for the Commissioner to have recorded his own reasons while sanctioning the reasons and it would suffice that he had recorded the satisfaction regarding the reasons recorded by the Assessing Officer. In that case, the sanctioning authority had granted the approval by mentioning “Based on the reasons recorded, I am satisfied that this is a fit case for issuing notice under Section 148”. The SLP filed by the assessee in this case before the Supreme Court has been dismissed [Venky Steels (P.) Ltd. vs. Commissioner of Income-tax-II 475 ITR 148 (SC)]. The development in law confirms that the issue continues to be debatable, in spite of the various rulings of the apex court on the subject.

It seems that the use of the words “Yes”, “Yes I am satisfied based on the reasons recorded” or otherwise by themselves may be inadequate but such words together with the proofs of the verification of the facts with records and inquiry by the sanctioning authority may help in ascertaining whether the mind was applied in the manner desired by the law. The onus however for establishing the facts with proof will be that of the authorities. In the absence thereof, the better view is that the sanctions issued or obtained in the facts of the cases discussed are not in accordance with law till such time the issue is decided by the apex court conclusively.

Glimpses of Supreme Court Rulings

9. Cutler Hammer Provident Fund Trust vs. Income Tax Officer

(2025) 478 ITR 235 (SC)

Penalty for filing the return of income in wrong form – High Court dismissed the petition against penalty with a liberty to seek rectification of the same under section 154 to file the return in correct form – Supreme Court clarified that the application may be decided expeditiously

The assessee filed its return of income for the assessment year 2013-14 on 30.03.2014. The case was processed u/s 143(1) of the Income Tax Act, 1961, on 17.03.2015, creating a demand of ₹68,36,280/-. It was noticed that the Petitioner has filed ITR Form 7 u/s. 139(4A) due to which it was treated as defective as the same was filed in wrong ITR form and section which was not applicable in the case of the assessee. The intimation regarding the defective ITR was sent by CPC to the assessee as could be seen from the CPC 2.0 portal Tax Department. Since the assessee did not respond, the said return had been transferred to the Jurisdictional Assessing Officer. The ITR was then processed by the Assessing officer but as the same was filed under wrong ITR form and section, the exemption was denied and a demand was created.

A penalty notice dated 18.7.2022 was issued u/s. 221(1) of the Income-tax Act, 1961 seeking to impose penalty on account of filing wrong return for the assessment year 2013-14. The said notice was challenged in a writ petition before the Punjab and Haryana High Court.

The High Court noted that the assessee was having full knowledge of having filed return in the wrong format. It had also filed return for the AY 2014-15 in the ITR Form 7, which was later on revised by it and ITR was filed under Form No.5, subsequently. Though the assessee had himself corrected its ITR for the subsequent AY 2014-15, there was no reason to not to correct the ITR for AY 2013-14.

According to the High Court, the assessee had remedy in terms of Section 154 of the Act for seeking necessary rectifications. The High Court directed that if such an application is moved by the assessee, the Department shall decide the same on the basis, and allow the assessee, if required, to file return.

The Supreme Court disposed appeal of the assessee noting that the High Court having reserved the liberty for the assessee to move an application for rectification under section 154, there was no reason to interfere with the order.

The Supreme Court directed that if any application is preferred by the assessee in terms of section 154 of the Act, the same shall be decided at the earliest in accordance with law.

10. Pride Foramer S.A. vs. Commissioner of Income Tax and Ors.

(Civil Appeal Nos. 4395-4397/2010 decided on: 17.10.2025)

Deductions – Business Expenditure -Expenditure which is undertaken wholly and exclusively for the purpose of business and profession – The Assessee therefore has to demonstrate that it was carrying on business in India – A business going through a lean period of transition which could be revived if proper circumstances arose, must be termed as lull in business and not a complete cessation of the business – Expenditure incurred during such period cannot be disallowed even though an assessee may not have an office in India

Appellant, a non-resident company, incorporated in France and was engaged in oil drilling activities. In 1983, the Appellant was awarded a 10-year contract for drilling operations in offshore Mumbai from 1983 till 1993.

Thereafter, the Appellant was awarded another drilling contract in October, 1998, which came to be formalised in January, 1999.

In the interregnum i.e., during the relevant assessment years 1996-1997, 1997-1998 and 1999-2000, though no drilling contract was awarded, the Appellant carried on business correspondences with ONGC from its office at Dubai and headquarters at France and had also submitted a bid for oil exploration in 1996.

During this period, Appellant undertook various expenditures including administrative charges, audit fees etc. with the intention of carrying out its business activities as well as realising tax refunds from the Income Tax Department.

For the relevant assessment years, the Appellant filed its return showing ‘NIL’ income. The only income credited was under the head ‘Income from Business’ on account of interest received on income tax refunds amounting to ₹1,69,57,395/- for Assessment Year 1996-1997, ₹5,49,628/- for Assessment Year 1997-1998 and ₹11,29,957/- for Assessment Year 1999-2000.

Against this, business expenditures aggregating to ₹2,50,000/-, ₹5,55,152/- and ₹11,29,957/-, respectively, were claimed as deductions and Appellant also claimed set-off against unabsorbed depreciation on furniture and fixtures brought forward from earlier years.

The Assessing Officer disallowed deduction of business expenditure as well as carry forward of unabsorbed depreciation on the ground that the Appellant was not carrying on any business during the relevant assessment years. The findings of the AO were upheld by CIT (A). ITAT, however, reversed the findings of the CIT (Appeals), holding a temporary lull in business for whatever reason cannot be termed as cessation of business. It proceeded to hold as follows:

“6…….. In the present case, undoubtedly, after 1992-93, the Assessee did not have any business activity. However, there is enough evidence on record to suggest that the Assessee had not completely gone out of business. Copies of correspondence dated 1996 with ONGC show that the Assessee was in constant touch with ONGC for supply of manpower in respect of expert key personnel for deep water drilling and a tender in this regard was in fact submitted in September 1996. This proves that even after the completion of the earlier contract in 1993, the Assessee was contemplating to bid for another contract. The efforts of the Assessee finally culminated in a firm contract being awarded to it in 1998 which was formalized in 1999. A copy of the said contract is on record. As held by the Bombay High Court in the case of Hindustan Chemical Works Ltd. vs. CIT in 124 ITR 561, there is a marked distinction between “lull in business” and “going out of business”. A temporary discontinuance of business may, in certain circumstances, give rise to an inference that a business is going through a lean period of transition and it could be revived if proper circumstances arise. In the present case, the period between 1993 and 1998 was of such temporary discontinuance only which can be termed as a “lull in business”. Thus, when the intention of the Assessee was never to go completely out of business, it cannot be concluded that the Assessee had discontinued its business. To our mind, it makes no difference if the correspondence was by the Dubai Office of the Assessee or by its office in France as was one of the contentions of the ld. DR. In fact, in the accounting year 1995-96, the Assessee had also paid consultancy Charges to follow up the aforesaid ONGC bid. Further, the receipts from this contract were offered for taxation in assessment year 2000-03 as reflected by the copy of the statement of total income placed on record. Another factor which weighed with the revenue authorities to conclude that the Assessee had discontinued business in India, was the so called admission by the Assessee that it had no permanent establishment in India. No doubt, the authorized representative had averred in the affidavit dated 22.1.01 that the Assessee did not establish nor had any existing permanent establishment in India. However, the revenue authorities have considered this affidavit out of context. The affidavit had to be sworn in context of the Assessee’s claim for concessional rate of tax with regard to interest income. Since the Assessee had claimed concessional rate of tax, the Assessing Officer inferred that there was a permanent establishment in India. On account of this wrong inference, the Assessee had to swear an affidavit denying the existence of a permanent establishment in India. However, taking this as the base, the Assessing Officer and the CIT(A) concluded that since there was no permanent establishment in India, the Assessee was out of business. It is not well appreciated by the authorities below that whether there is a permanent establishment in India or not, has to be determined as per the provisions of the relevant DTAA. As per the DTAA, the Assessee may not have a permanent establishment in India, but that does not necessarily lead to the conclusion that the Assessee is not in business. The Assessee can be in business, depending upon the facts and circumstances of the case de hors’ the permanent establishment which we do find in the present case. Thus, considering all the facts and circumstances of the case, we hold that the Assessee was in business during the period relevant to the assessment year in question.”

In light of such finding that the Appellant had not ceased to carry on business, the Tribunal though holding income on account of interest on tax refunds was chargeable under the head ‘Income from Other Sources’ and not ‘Income from Business’, allowed set off of the expenses on account of administrative charges, legal professional fees undertaken by the Appellant as business expenses from ‘income from other sources’ under Section 71 of the Act. For similar reason unabsorbed depreciation from previous years was allowed under Section 32(2) of the Act.

The Department challenged the ITAT orders in appeals arising out of Assessment Years 1996-1997 and 1999-2000 before the High Court. The High Court reversed the ITAT orders.

The High Court while agreeing with the proposition that mere lull in business does not mean the Assessee had ceased to do business in India, reversed the finding of ITAT, holding as follows:

“..when the Assessee has neither permanent office, nor any other office in India, nor any contract was in execution during the relevant period, it cannot be said that they were in business in India, as such, it cannot be said that Assessee was entitled to set off claimed by it under Section 71 of the Act.”

According to the Supreme Court, the issue which fell for its consideration was as follows:

‘Whether, in the facts of the case, the Appellant can be said to have been carrying on business during the relevant period, so as to avail deduction of business expenditure under Section 37(1) read with Section 71 of the Act, and carry forward unabsorbed depreciation of previous years under Section 32(2) of the Act?’

The Supreme Court noted that Section 37(1), inter alia, provides that any expenditure (not being an expenditure in the nature described in Section 30 to 36 or in the nature of capital expenditure or personal expenses of the Assessee) which is undertaken wholly and exclusively for the purpose of business and profession shall be allowed to be deducted in computing income chargeable under the head ‘Profits and Gains from Business and Profession’ and consequently, may be set off as loss against income under any other head subject to the conditions provided in Section 71 of the Act.

The Supreme Court further noted that Section 32(2) provides unabsorbed depreciation allowance of a previous year may be carried forward and set off against income of the following assessment years in the manner and subject to the conditions provided therein. The first proviso to the said sub-section further provided such depreciation allowance can be carried forward if the business or profession for which the depreciation allowance was originally computed, continued in the previous year relevant to the assessment year in question. However, the said proviso has since been omitted by the Finance Act, 2001 w.e.f. 1st April, 2002. The Supreme Court observed that it was therefore evident that to avail the benefit of the aforesaid provisions, the Appellant had to demonstrate that it was carrying on business in India during the relevant period. While the Tribunal was of the view mere failure to procure a business contract or maintain a permanent establishment in India was not a sine qua non to demonstrate the Assessee’s intention to carry on business, the High Court held to the contrary and disallowed the claim of the Appellant.

The Supreme Court noted that in the present case, the Appellant, a non-resident company had been awarded 10 years’ drilling contract by ONGC in 1983. The contract continued till 1993. Thereafter, the Appellant failed to procure another contract till October, 1998. But ample materials have been placed on record to show during the interregnum, the Appellant had continuous business correspondences with ONGC with regard to hiring of manpower services in respect of expert key personnel for drilling in deep waters and had even unsuccessfully submitted a bid in 1996.

The Supreme Court was of the view that whether failure to procure the drilling contract with ONGC was owing to the Appellant’s disinterest to carry on business during relevant period and amounted to cessation of business or not must be construed from the Appellant’s conduct. If such conduct, from the standpoint of a prudent businessman, evinces intention to carry on business, mere failure to obtain a business contract by itself would not be a determining factor to hold the Appellant had ceased its business activities in India.
According to the Supreme Court, the Tribunal rightly noted a business going through a lean period of transition which could be revived if proper circumstances arose, must be termed as lull in business and not a complete cessation of the business.

The Supreme Court observed that the word ‘business’ has a wide import and connotes some real, substantial and systemic or organised course of activity or activity with a set purpose.

The Supreme Court noted that in CIT vs. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC) it had further underlined that the expression ‘for the purpose of business’ is wider in scope than the expression ‘for the purpose of earning profits’ and would encompass in its fold “many other acts incidental to the carrying on of a business”.

According to the Supreme Court, continuous correspondences between the Appellant and ONGC with regard to supply of manpower for oil drilling purposes and its unsuccessful bid in 1996 demonstrated various acts aimed at carrying on business in India which unfortunately did not fructify in procuring a contract.

The Supreme Court, in this factual backdrop, was of the opinion that the High Court erred in holding that the Appellant was not carrying on business as it had no subsisting contract with ONGC during the relevant period.

The other issue on which the High Court misdirected itself was to infer as the Appellant did not have a permanent establishment and corresponded with ONGC from its foreign office, it cannot be said to carry on business in India. This view, according to the Supreme Court, was wholly fallacious and contrary to the very scheme of the Act which does not require a non-resident company to have a permanent office within the country to be chargeable to tax on any income accruing in India.

The Supreme Court observed that a combined reading of the charging provisions under Section 4 and Section 5(2) of the Act read with Section 9(1)(i) makes it amply clear that a non-resident person shall be liable to pay tax on income which is deemed to accrue or arise in India. Under Section 9(1)(i), income accruing or arising, directly or indirectly, through or from any business connection in India is deemed to accrue or arise in India and is accordingly chargeable to tax as business income under Section 28 of the Act. According to the Supreme Court, none of these provisions make it mandatory for a non-resident Assessee to have a permanent establishment in India to carry on business or have any business connection in India. The issue of ‘permanent establishment’ may be relevant for the purposes of availing the beneficial provisions of the Double Tax Avoidance Agreement (DTAA) between India and France which was not a relevant consideration for the purposes of this case.

The Supreme Court observed that in an era of globalisation whose life blood is trans-national trade and commerce, the High Court’s restrictive interpretation that a non-resident company making business communications with an Indian entity from its foreign office cannot be construed to be carrying on business in India is wholly anachronistic with India’s commitment to Sustainable Development Goal relating to ‘ease of doing business’ across national borders.

For the aforesaid reasons, the Supreme Court allowed the appeals and set aside the judgment and order of the High Court. Orders passed by the ITAT were revived and Assessing Officer was directed to pass fresh Assessment Orders for the relevant Assessment Years in terms of the ITAT orders.

Refund of excess amount deposited in the Government Treasury in the form of tax deducted at source :

19. BJ Services Company Middle East Limited vs. The Deputy Commissioner of Income Tax International Taxation, Circle 1(2)(2),

Mumbai & Ors

[WP (L) NO. 26966 OF 2025, Dated: 08/07/2025, (Bom)(HC)]

Refund of excess amount deposited in the Government Treasury in the form of tax deducted at source :

The Petition challenges the alleged inaction on the part of the Respondents in not disposing of the applications made by the Petitioner to refund excess amount deposited in the Government Treasury in the form of tax deducted at source. It is the claim of the Petitioner that it is entitled to a refund of ₹1,90,97,348/- in respect of Assessment Year 2012- 13 for the excess tax deposited by it.

The Petitioner is a company engaged in providing services of maintaining and testing oil and gas equipments and other related activities. To execute its project in India, the Petitioner employs overseas employees. As per the mutual understanding between the Petitioner and the expatriate employees, the Petitioner bears the tax liabilities of these expatriate employees. As the tenure of stay of the overseas employees in India is dependent upon the completion of a particular project, the Petitioner beforehand estimates and deposits the tax liabilities of such employees on estimation. However, the actual number of days the employee has worked in India and the proportionate salary paid to them is determined at the end of the Financial Year. It is at that time that the precise tax liability of the expatriate employee is calculated.

For Assessment Year 2012-13, the initial estimated tax deposited was found to exceed the actual liability. The result of this over estimation was that the Petitioner had deposited excess tax to the tune of ₹1,90,97,148/-. It is the claim of the Petitioner that it had duly applied for obtaining the refund of the said amount by filing Form 26B on the TRACES portal (TDS Reconciliation Analysis and Correction Enabling System) on 27th February 2018. Further, it also made representations time and again before Respondent Nos. 1 and 2 for seeking the said refund. The Petitioner also refiled its applications for refund in Form-26B on several dates. It was later discovered by the Petitioner that few of the refund requests were rejected alleging invalid Bank details on account of incorrect PAN-Bank account linkage. It is the case of the Petitioner that it had thereafter updated its bank details on the TRACES portal. However, the refund requests were again rejected for various reasons namely, incorrect PAN-Bank account linkage, for not approaching the Assessing Officer, time lapsed for updating details asked for. Consequent to the above, the present Writ Petition is filed.

The Hon. Court directed the Petitioner to file fresh applications for seeking refund in Form-26B and produce the required details/documents. Once this is done, the said applications shall be processed by the Respondents in accordance with the law, in a time bound manner and after affording the Petitioner an opportunity of being heard inter-alia by providing a personal hearing.

Reassessment – period of limitation – “surviving period” – Effect of UOI vs. Ashish Agarwal [444 ITR 1 (SC)] & UOI vs. Rajeev Bansal [ 469 ITR 46 (SC):

18. Hitesh Ramniklal Shah vs. Assistant Commissioner of Income Tax-23(1),Mumbai & Ors.

[WP No. 4164 OF 2025, Dated: 11/11/2025. (Bom) (HC)]

Section: 148

Reassessment – period of limitation – “surviving period” – Effect of UOI vs. Ashish Agarwal [444 ITR 1 (SC)] & UOI vs. Rajeev Bansal [ 469 ITR 46 (SC):

The Petitioner challenges a notice dated 27 July 2022 issued under Section 148 of the Income-tax Act, 1961, the subsequent notices issued by Respondent No.1, inter alia on the ground that the notice under Section 148 of the Act is issued beyond the period of limitation, and therefore, all subsequent notices will also be bad in law.

For the year under consideration, i.e. the A.Y. 2014-15, the Petitioner filed his return of income on 29 September 2014 declaring a total income of r64,86,660/- in respect of which no scrutiny assessment was made. Respondent No.1 issued a notice dated 29 June 2021 under the unamended provisions of Section 148 of the Act, after obtaining the approval of the Principal Commissioner of Income Tax, Mumbai-19. The Petitioner filed his return of income on 18 November 2021 in response to the notice issued under Section 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 UOI vs. Ashish Agarwal [444 ITR 1 (SC)] delivered on May 4, 2022, Respondent No.1 issued a notice dated May 25, 2022 under Section 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 under Section 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 17 June 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 25 June 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 under Section 148A(d) dated 26 July 2022 rejecting the submissions of the Petitioner and issued the impugned notice dated 27 July 2022 under Section 148 of the Act.

Being aggrieved, the Petitioner filed Writ Petition No.130 of 2024 challenging the validity of the notice dated 27 July 2022 issued under Section 148 of the Act. The impugned notice dated 27th July 2022 was quashed by the High Court vide its order dated 1 March 2024 solely on the ground that the notice was barred by limitation. This was done by relying on its earlier judgment in Godrej Industries vs. ACIT [160 taxmann.com 13(Bom)]. All other grounds canvassed by the Petitioner were kept open by this Court.

Being aggrieved, Respondent No.1 filed a Special Leave Petition before the Hon’ble Supreme Court on 24 January 2025 being SLP No.5515 of 2025. This SLP was disposed-off vide order dated 24 February 2025 in terms of the findings given in UOI vs. Rajeev Bansal [(469) ITR 46 (SC)].

The Petitioner submitted that the present Petition challenges the validity of the reassessment proceedings on the grounds which were not disposed-off and expressly kept open in Writ Petition No.130 of 2024, as well as on the ground of limitation having regard to the interpretation placed by the Supreme Court in its judgment in Rajeev Bansal (Supra) on Section 149 read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 [TOLA].

In view of the order passed by the Hon’ble Supreme Court on 24th January 2025, Respondent No. 1 issued a notice dated 9 October 2025 under Section 142(1) of the Act to the Petitioner to provide details in connection with the assessment for the A.Y.2014-15 and referred to the assessment being revived consequent to the judgment of the Supreme Court in Rajeev Bansal (supra). In response thereto, the Petitioner filed letters dated 13 October 2025 and 14 October 2025 pointing out the effect of the judgment of the Supreme Court in Ashish Agarwal (supra) and the effect of the “surviving period” as per the judgment of the Supreme Court in Rajeev Bansal (supra) specifying that the notice dated 27 July 2022 issued under Section 148 of the Act fell beyond the “surviving period” as per the judgment of Rajeev Bansal (supra), and hence, the reopening proceedings should be dropped and Respondent No.1 is precluded from issuing the notice under Section 142(1) of the Act.

The Respondent No.1 noted the Petitioner’s objections as to limitation but held that prima facie the notice and the ensuing proceedings appear to be within the relaxation/extension framework under TOLA. Respondent No.1 thereafter issued a show cause notice for the proposed additions before finalizing the assessment. In this notice, Respondent No.1 dealt with the Petitioner’s objections on limitation and found the same to be untenable.

The Hon. Court confined to the challenge to the notice under Section 148 of the Act on the ground that the same is barred by limitation in view of the first proviso to the substituted Section 149(1) as interpreted by the Hon’ble Supreme Court.

The Hon. Court referred to the judgment of the Hon’ble Supreme Court in Rajeev Bansal (supra) more particularly para 149 :
“…149. The first proviso to Section 149(1)(b) requires the determination of whether the time limit prescribed under section 149(1)(b) of the old regime continues to exist for the assessment year 2021-2022 and before. Resultantly, a notice under Section 148 of the new regime cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed under section 149(1) (b) of the new regime applies prospectively. For example, for the assessment year 2012-2013, the ten year period would have expired on 31 March 2023, while the six year period expired on 31 March 2019. Without the proviso to Section 149(1)(b) of the new regime, the Revenue could have had the power to reopen assessments for the year 2012-2013 if the escaped assessment amounted to Rupees fifty lakhs or more. The proviso limits the retrospective operation of Section 149(1)(b) to protect the interests of the assessees.
******
The Hon. Court further relied on other High Court decisions which have considered the judgment in Rajeev Bansal while dealing with the issue of the surviving period namely Ram Balram Buildhome (P.) Ltd vs. ITO [477 ITR 133 (Del)] the Gujarat High Court in Dhanraj Govindram Kella vs. ITO [177 taxmann.com 194 (Guj)], and the Madras High Court in Mrs. Thulasidass Prabavathi vs. ITO [174 taxmann.com 508 (Mad)]

Based on the above, the Court held that a notice under Section 148 of the Act cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice relying on the first proviso to Section 149 of the Act. Hence, the submission of the Respondent that a period of ten years is available to issue the notice under Section 148 of the Act was misconceived.

The Court further noted that in the case of Gurpreet Singh vs. DCIT [176 taxmann.com 673 (Bom)], where the Court records the argument of the Respondent [in paragraph 7(vii)] that the order under Section 148A(d) is to be passed within one month from the end of the month in which the reply has been received, specifically rejected the same in paragraph 18 as Section 148A(d) does not govern the computation of time as contemplated in terms of Section 149 of the Act (paragraph 18 ) hereunder:

“…18. The said contention is fundamentally misconceived. A notice under Section 148 of the IT Act accompanied by an order under Section 148A(d) is required to be issued within the time stipulated under Section 149 of the IT Act. Section 148A(d) does not govern the computation of time as contemplated in terms of Section 149 of the IT Act. The entire process under Section 148A(a) to (d) and the issuance of notice under Section 148 has to be completed within the total time available in terms of Section 149(1) of the IT Act for issuance of notice under Section 148. A notice issued under Section 148 of the IT Act which is beyond the time line stipulated under Section 149(1) is non-complaint and invalid. The timeline under Section 148A(d) is for the Assessing Officer to comply with the stipulations and the streamlining contemplated under Section 148A. This is primarily to bring in transparency and accountability into the system and is intended for the benefit of the assessees. However, to suggest that Section 148A(d) extends the time limit under Section 149(1) and/or has a bearing on the time under Section 149(1) is a submission which is misconceived and lacks legal sanctity.”

(emphasis supplied)

The Court observed that after in the present case, the period of two days would expire on 10 June 2022 or 27 June 2022 respectively and, therefore, the notice under Section 148 of the Act issued on 27 July 2022 is time barred, inasmuch as it is issued much after the surviving period. Therefore, the notices issued under Section 148 of the Act passed was beyond the surviving period.

Refund — Rejection of application on the ground that request can be made only through TRACES portal and further there is no provision to adjust outstanding demand against refund on TRACES portal — Unjustified — Income-tax authorities bound to refund the amount without any formalities to be completed by the assessee — Non-functionality of portal cannot be the ground for denying the refund statutorily allowed to the assessee — AO directed to either grant refund or set-off the demand payable against the refund.

51. (2025) 345 CTR 99 (MP)

Birla Corporation vs. Principal CIT

F. Ys. 2009-10 and 2011-12: Date of order 18/09/2024

Ss. 220, 240 and 243 of ITA 1961

Refund — Rejection of application on the ground that request can be made only through TRACES portal and further there is no provision to adjust outstanding demand against refund on TRACES portal — Unjustified — Income-tax authorities bound to refund the amount without any formalities to be completed by the assessee — Non-functionality of portal cannot be the ground for denying the refund statutorily allowed to the assessee — AO directed to either grant refund or set-off the demand payable against the refund.

Proceedings u/s. 201/201(1A) were initiated for the A.Ys. 2009-10 to 2011-12 and aggregate tax liability (including interest) of more than r12 crores was determined to be payable by the assessee.

The assessee’s appeal before the CIT(A) was dismissed and the order of the Assessing Officer was confirmed. The assessee filed further appeal before the Tribunal. The Tribunal set-aside the order and remanded the matter back to the Assessing Officer.

Pursuant to the remand proceedings, the Assessing Officer once again passed the order and determined an aggregate amount about r3 crores. Once again, the assessee challenged the order of the Assessing Officer in appeal before the CIT(A). However, the CIT(A) dismissed the appeal. Thereafter, the assessee filed appeals before the Tribunal which were allowed.

During the pendency of the appeal, the assessee deposited the outstanding tax demand in instalments aggregating to r1.45 crores for FY 2009-10 and ₹3.65 crores for FY 2010-11 under protest. In addition to the above, the assessee also deposited TDS amount of ₹15,03,299.

Pursuant to the order of the Tribunal, the Assessing Officer passed the order for refund of r3.65 crores. However, this amount was not paid to the assessee. The assessee filed a representation for refund of ₹5.25 crores. The Assessing Officer rejected the application on the grounds that (i) request for refund can be made only if the assessee files and application on the TRACES portal in the prescribed form and (ii) that there is no provision available on the TRACES portal to adjust the outstanding demand of PAN or TAN against the pending refunds of the TAN and therefore requested the assessee to deposit the aforesaid demand.

As a result, the assessee filed a writ petition before the Madhya Pradesh High Court. The High Court allowed the petition of the assessee and directed the Assessing Officer to either refund the tax amount or adjust the same against the tax payable by the assessee. In doing so, the Hon’ble High Court held as follows:

“i) The non-functionality of the TRACES Portal shall not be grounds for denying the benefit arising out of the statutory provision under the IT Act. The TRACES is nothing but a online Portal of the IT Department to connect all the stockholders involved in the administration and implementation of TDS and TCS. The TDS is a Centralized Processing Cell created for TDS reconciliation analysis and correction enabling system which cannot run contrary to the provision of the IT Act. The rights which have been given to the assessee under the IT Act cannot be withheld due to the non functionality of the TRACES.

ii) The Online Portal is created to facilitate the stakeholders and not to create hurdles in discharging the statutory duties and the statutory rights. If the Portal does not function in accordance with the Act and Rules then it requires to be suitably modified to achieve the aims and objects of the Act and Rules, therefore, there is a provision in the IT Act about the refund of the amount with interest as well as set off of refund against the tax payable.

iii) The petitioner is ready for a refund as well as for set off. It is for the competent ITO to make a decision either to refund or to adjust the same.”

Refund — First appellate order in favour of the assessee —However, directions given in the order to make enquiry and verify in respect of other years by resorting to S. 148 — Refund cannot be held merely because enquiry and verification is pending — Once the assessee succeeds in appeal consequence of order giving effect and grant of refund should follow — Directions issued to the AO to pass order giving effect to the order of the CIT(A) and grant refund along with interest u/s. 244A of the Act.

50. 2025 (11) TMI 50 (Bom.)

U.S. Instruments Pvt. Ltd. vs. ACIT and Ors

A. Y. 2009-10: Date of order 15/10/2025

Ss. 153 and 244A of ITA 1961

Refund — First appellate order in favour of the assessee —However, directions given in the order to make enquiry and verify in respect of other years by resorting to S. 148 — Refund cannot be held merely because enquiry and verification is pending — Once the assessee succeeds in appeal consequence of order giving effect and grant of refund should follow — Directions issued to the AO to pass order giving effect to the order of the CIT(A) and grant refund along with interest u/s. 244A of the Act.

The assessee is a private limited company. The assessment for A.Y. 2009-10 was completed vide order dated 28/12/2011 passed u/s. 143(3) of the Act after making addition on account of securities premium u/s. 68 of the Act and a demand of ₹15,53,73,190 was raised. Against the said order, the assessee filed an appeal before the CIT(A) which was disposed by the CIT(A) vide order dated 19/02/2024 and the appeal of the assessee was allowed. However, the CIT(A), in his order issued directions for examining the nature and source of amounts received by the assessee in other years by resorting to sections 148 and 150 of the Act.

During the pendency of the appeal before the CIT(A), the assessee had paid ₹1,00,12,856 towards the outstanding tax demand. Pursuant to the order of the CIT(A), the assessee filed a letter to the Assessing Officer requesting him to give effect to the order of the CIT(A) and to issue refund of the taxes paid by the assessee. However, there was no response from the Assessing Officer. The assessee wrote reminder letters, but no refund was granted.

Therefore, the assessee filed a writ petition before the Bombay High Court praying that directions be issued to the Assessing Officer to grant refund along with interest. The High Court allowed the petition and held as follows:

“i) It is undisputed that the Petitioner had paid taxes of ₹1,00,12,856/- against the demand arising out of the assessment order dated 28th December 2011 for A.Y. 2009-10. Such demand no longer survives, as the Commissioner (Appeals) has deleted the additions made. Naturally, the Petitioner would be entitled to refund of such amount with interest as per law.

ii) It is not correct on the part of the Respondents to sit on such refund merely because there are some directions issued by Commissioner (Appeals) to carry out certain inquiries/ verifications in respect of the amounts received in other years. Once, the Petitioner has succeeded in appeal, the natural consequences of passing an order giving effect to such order and grant of refund have to follow. Otherwise, it will lead to an incongruous situation that despite succeeding before the Appellate Authority, the Petitioner is still deprived of his due refund. Such a situation should always be avoided.

iii) The contention of the Department that the Commissioner (Appeals) has issued directions to verify the amounts received in other years and therefore, refund cannot be given to the Petitioner until such directions are complied with, cannot be accepted. Such directions may or may not be complied with, however, refund arising as a result, of the order of the Commissioner (Appeals) cannot be withheld for such reasons. In any event, today there is no outstanding demand against the Petitioner.

iv) As per section 153(5), an order giving effect has to be passed within three months from the end of the month in which the order of the Commissioner (Appeals) has been received. In the present case, it appears that the order of the Commissioner (Appeals) was sent on email and uploaded on the portal on 19 February 2024 and in any event, the Petitioner has informed and provided a copy of the order to Respondent No. 1 vide letter dated 23rd February 2024 filed on 27th February 2024. There are no reasons forthcoming for not passing an order giving effect to the order of Commissioner (Appeals). At least, passing of such order is not contingent upon the directions issued by the Commissioner (Appeals).

v) This Court has already quashed and set aside the reassessment notices for the A.Y. 2008-09 and A.Y. 2009-10 vide separate orders dated 15th September 2025 in Writ Petition (L) No. 27782 of 2025 and Writ Petition (L) No. 27786 of 2025, therefore, now there should not be any difficulty for Respondent No. 1 to issue refund as prayed for. Since, the notice u/s. 148 have been quashed, there is no question of the Petitioner co-operating in the proceeding, as no such proceedings exist as on today, in the eyes of law.

vi) We direct that Respondent No. 1 should pass the order giving effect to the order of Commissioner (Appeals) dated 19th February 2024 and grant the refund along with interest u/s. 244A of the I. T. Act. The above action of passing the order and granting of refund should be completed as expeditiously as possible and in any event not later than four weeks from today. We are passing this order as the time period to pass order giving effect has expired long back and that the matter is an old matter and pertains to A.Y. 2009-10 and even the taxes have been paid more than twelve years back”

Re-assessment — Information available on Insight Portal — Incorrect information — Mechanism u/s. 148A — Requirement to verify information u/s. 148A(a) prior to 01/09/2024 — After the amendment, 148(1) is similar to 148A(b) — Despite the amendment, it is the responsibility of the AO to verify information available on insight portal — AO must conduct enquiry, if necessary 148A(1) to be invoked only after verification of the information made available to the AO.

49. 2025 (10) TMI 1242 (Guj.)

Vasuki Global Industrial Limited vs. Principal CIT

Date of order 15/10/2025

S. 148A of ITA 1961

Re-assessment — Information available on Insight Portal — Incorrect information — Mechanism u/s. 148A — Requirement to verify information u/s. 148A(a) prior to 01/09/2024 — After the amendment, 148(1) is similar to 148A(b) — Despite the amendment, it is the responsibility of the AO to verify information available on insight portal — AO must conduct enquiry, if necessary 148A(1) to be invoked only after verification of the information made available to the AO.

The assessee is engaged in the business of trading of coal. In the year 2021, summons were issued to the assessee by the Director General of GST (Intelligence) under the GST provisions and the statement of the Director of the assessee company was recorded. Thereafter, the inquiry against the assessee was concluded on payment of tax, interest and penalty under the provisions of the GST Act. Subsequently, in the year 2022, summons were issued to the assessee by the Income-tax Department which were replied to by the assessee and the details called for were also furnished by the assessee.

Thereafter, various buyers and sellers of the assessee who had transacted with the assessee were in receipt of notices for re-opening of their assessment. The notices for re-opening of assessment were issued on the basis of report received from the GST Department wherein the assessee was alleged to be engaged in availing or passing on fake ITC credit to various parties. The GST Department had absolved the assessee from any lapses under the provisions of the GST Act. Though the assessee was absolved by the GST Department, the Income-tax Department continued the re-assessment proceedings in respect of various suppliers of the assessee on the basis of the information available on the insight portal. As a result, the assessee was subjected to queries by its various buyers and suppliers for issue of re-opening notices because of the assessee company.

The assessee thus wrote a letter to the Chairman, CBDT, Director General of GST Intelligence, Principal Chief Commissioner of Income-tax and Principal Commissioner of Income-tax clarifying that it was one Varuni International and not the assessee Vasuki Global Industries Limited who was subjected to alleged bogus fake invoices and passing of the Input Tax Credit. Further, it was also pointed out that the GST registration of the said Varuni International was cancelled by GST authorities and the registration of the assessee was active and the assessee was undertaking business and was subject to audit by the GST Department. It was submitted that re-opening notice issued by the buyers and sellers of the assessee were based on incorrect information available on the insight portal of the Income-tax Department.

The assessee addressed letters to the authorities under the GST Act as well as the Income-tax Act, stating inter alia that the assessee was not involved in GST invoice fraud and that its name was wrongly mentioned in the notices issued upon the buyers and sellers of the assessee company. A request was also made to stop the assessments initiated on incorrect grounds in the case of the assessee and on the basis of incorrect information made available on the Insight Portal.

In view of the foregoing facts, the assessee filed a writ petition before the Gujarat High Court with the prayer to direct the authorities to remove incorrect information from the portal relating to the assessee and correct the same on the basis of latest information received from GST authorities and further to intimate them that no action be taken on the basis of the original incorrect information. The High Court allowed the petition and held as follows:

“i) The Scheme of the Act is well designed to take care of the information which is available on the Insight Portal by providing a mechanism in Section 148A of the Act by issuing notice to the assessed by the Jurisdictional Assessing Officer to verify the information as per clause (a) to Section 148A of the Act as was existent prior to 1st September, 2024 and thereafter, as per Sub-section (1) of Section 148A of the Act

ii) It appears that the conducting of inquiry, if required, with prior approval of the specified authority with respect to the information which suggest that the income chargeable to tax has escaped the assessment, has been done away after the amendment of Section 148A of the Act with effect from 1st September, 2024. Section 148A(1) therefore is now similar to Section 148A(b) of the Act which was applicable up to 1st September, 2024 and which provided that an opportunity of being heard be provided to the assessee by serving a show cause notice as to why a notice u/s. 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a).

iii) Before issuance of the notice u/s. 148A(1) of the Act, it is the responsibility and liability of the Jurisdictional Assessing Officer to verify the information made available on the Insight Portal which suggests that the income chargeable to tax has escaped assessment in case of the assessee for the relevant Assessment Year and if necessary, the Assessing Officer must conduct inquiry with prior approval of the specified authority with respect to such information and only after verification of the information made available to the Assessing Officer, the provisions of Section 148A(1) of the Act shall be invoked.”

Income — Capital or revenue receipt — One-time compensation received for surrendering of stock received under stock option scheme of employer :— (a) TDS — Rejection of application u/s. 197 for NIL deduction of tax — Stock option not perquisite amenable to tax — Order rejection application quashed and set aside; (b) Applicability of section 45 — Cost of acquisition of stock option cannot be determined — Capital receipt not chargeable u/s. 45 not chargeable under any other head — Charging section and computation section constituted an integrated code.

48. (2025) 479 ITR 1 (Karn): 2025 SCC OnLine Kar 18963

Manjeet Singh Chawla vs. Dy. CIT(TDS)

A. Ys. 2024-25: Date of order 02/06/2025

Ss. 5, 17(2), 45, 48 and 197 of ITA 1961

Income — Capital or revenue receipt — One-time compensation received for surrendering of stock received under stock option scheme of employer :— (a) TDS — Rejection of application u/s. 197 for NIL deduction of tax — Stock option not perquisite amenable to tax — Order rejection application quashed and set aside; (b) Applicability of section 45 — Cost of acquisition of stock option cannot be determined — Capital receipt not chargeable u/s. 45 not chargeable under any other head — Charging section and computation section constituted an integrated code.

The petitioner is an Indian citizen and a salaried employee of Flipkart Internet Private Limited (FIPL). FIPL is an Indian subsidiary of Flipkart Marketplace Private Limited (FMPL), a company incorporated in Singapore; which is further a wholly owned subsidiary of Flipkart Private Limited, Singapore (FPS). In addition to FMPL, FPS, Singapore has many other subsidiaries including PhonePe which had a wholly owned subsidiary in India known as?

In the year 2012, FPS, Singapore introduced the Flipkart Stock Option Plan, 2012 (FSOP), pursuant to which the petitioner was granted 2,232 stock options with a vesting schedule of four years from January 1, 2016 to March 31, 2023 amongst which 955 stock options were vested, 249 were cancelled and the unvested stock options were 1,028, resulting in the total number of stock options held by the petitioner being 1,983 as on March 31, 2023. Meanwhile, on December 23, 2022, FPS, Singapore announced separation/divestment of PhonePe resulting in reduction and diminishing of the value of the stock options issued in favour of the petitioner. Under these circumstances, FPS, Singapore announced a one-time compensatory payment of USD 43.67 per option as compensation towards loss in value of Flipkart Stock Option plans due to divestment/separation of PhonePe from FPS, Singapore. In pursuance of the same, a sum of ₹71,01,004, i.e., 1,983 x 43.67 x 82 (USD conversion rate) was paid to the petitioner towards the aforesaid one-time compensatory payment due to reduction/diminishing of the value of the stock options issued in favour of the petitioner as stated supra.

The petitioner filed an application dated May 20, 2023 u/s. 197 of the Income-tax Act, 1961 seeking “nil tax deduction certificate” in relation to the aforesaid one-time compensatory payment made to him. The respondents raised certain queries which were clarified by the petitioner vide reply/response dated July 24, 2023. However, the first respondent rejected the application. Being aggrieved, the petitioner filed a writ petition and challenged the order of rejection.

The Karnataka High Court allowed the writ petition and held as under:

“i) It is well settled that tax at source cannot be deducted if payment does not constitute income and the power of the respondents-Revenue to direct deduction of tax under section 197 of the Income-tax Act can be exercised only if there is an income chargeable to tax.

ii) The one-time compensation payment received by the assessee due to reduction on the value of the stock options did not constitute income chargeable to tax but was a capital receipt.

iii) In view of the aforesaid facts and circumstances, I am of the considered opinion that the first respondent clearly fell in error in rejecting the application filed by the petitioner seeking issuance of “nil tax deduction certificate” in relation to the subject compensation amount of ₹71,01,004 by passing the impugned order which is illegal, arbitrary and contrary to facts and law as well as the aforesaid principles and statutory provisions and consequently, the impugned order deserves to be set aside and the application filed by the petitioner deserves to be allowed by directing the respondents to issue “nil tax deduction certificate” in favour of the petitioner within a stipulated timeframe.

iv) In the result, the petition is hereby allowed. The impugned order at annexure A dated August 2, 2023 passed by the first respondent is hereby quashed.

v) The respondents are directed to issue “nil tax deduction certificate” in favour of the petitioner as sought for by him together with all consequential benefits flowing therefrom as expeditiously as possible and at any rate, within a period of six weeks from the date of receipt of a copy of this order.”

Application for condonation of delay — S. 119(2)(b) — Delay due to the time taken in obtaining legal advice by the Chartered Accountant — Not due to negligence on the part of assessee but due to the CA in obtaining legal advice — Non-condonation would result in lapsing of brought forward loss to be set-off — Genuine hardship to the assessee — Delay in filing return was to be condoned.

47. (2025) 179 taxmann.com 637 (Del)

Balaji Landmarks LLP vs. CBDT

A. Y. 2018-19: Date of order 14/10/2025

Ss. 80 r.w.s. 119, 139 and 153 of ITA 1961

Application for condonation of delay — S. 119(2)(b) — Delay due to the time taken in obtaining legal advice by the Chartered Accountant — Not due to negligence on the part of assessee but due to the CA in obtaining legal advice — Non-condonation would result in lapsing of brought forward loss to be set-off — Genuine hardship to the assessee — Delay in filing return was to be condoned.

The assessee firm filed its return of income for the A. Y. 2018-19 on 30/03/2019, that is, after a delay of 5 months. The due date for filing return of income for the A. Y. 2018-19 was 31/10/2018. The assessee filed its return of income on 30/03/2019 belatedly within the time prescribed u/s. 139(4) of the Act.

Subsequently, on 15/06/2023, the assessee filed an application u/s. 119(2)(b) of the Act to condone the delay of 5 months in filing the return of income. In the said application, condonation was sought on the ground that the Chartered Accountant of the assessee was not acquainted with the legal and accounting treatment to be given to the compensation received in the form of TDR in lieu of compulsory acquisition of immovable property and therefore the assessee sought appropriate legal advice and the time taken for obtaining such legal advice had caused the delay in filing the return of income. However, the assessee’s application was rejected on the ground that the assessee failed to exercise due diligence to ensure timely filing of return of income and that the assessee had ample time to file return of income within time and lastly that the delay was caused due to lack of supervision and therefore did not constitute genuine hardship.

The assessee filed writ petition against the said rejection before the Delhi High Court. It was also submitted that since during the year, the assessee had incurred loss, the same would not be allowed to be carried forward if such delay was not condoned and thereby cause genuine hardship to the assessee. The petition was allowed and it was held as follows:

“i) The delay in the present case is not due to any negligence on the part of the Petitioner but due to inadequate advice by the Chartered Accountant, which fact stands admitted by him in his affidavit.

ii) It is settled law that where an Assessee takes a course of action based on an opinion of a professional, then, in that case, there is a reasonable cause for the Assessee to act based on such advice and that such acts are to be regarded as bona fide. In the present case, the Petitioner ought not to be put to a considerable disadvantage as a result of belated advice given to it by the Chartered Accountant, especially when the issue that was being grappled with is fairly complex and for which there were no well settled judicial precedents at the relevant time.

iii) The delay in filing the return of income for the A.Y.2018-19 is hereby condoned. The return of income filed on 30th March 2019 shall be treated to be a return filed in accordance with Section 153(1B) and the time frame to complete the assessment mentioned therein shall apply.”

Article 12 of India-Ireland DTAA – Consideration received for distribution of software on a standalone basis, or embedded with hardware, could not be characterised as Royalty, and replacement of hardware could not be regarded as Fees for Technical Services (“FTS”) but as business profits; and in the absence of PE, income was not taxable in India.

14. TS-845-ITAT-2025 (Bang-Trib)

Arista Network Limited vs. DCIT (IT)

IT(IT) A No. 1159 (Bang) of 2023

A.Y.: 2021-22 Dated: 23 June 2025

Article 12 of India-Ireland DTAA – Consideration received for distribution of software on a standalone basis, or embedded with hardware, could not be characterised as Royalty, and replacement of hardware could not be regarded as Fees for Technical Services (“FTS”) but as business profits; and in the absence of PE, income was not taxable in India.

FACTS

The Assessee, a tax resident of Ireland, provided software-based cloud services through direct and channel distribution. It earned income from (i) software distribution, (ii) software embedded with hardware, and (iii) replacement of hardware and services. The Assessee claimed that the income received by it was not in the nature of royalty and, in the absence of PE, the income was taxable only in Ireland.

The AO referred to the confidentiality clause in the distribution agreement and observed that it conferred some proprietary information, including access to source code, on distributors, and this was sufficient to trigger royalty characterisation. Further, the AO held that Assesse’s income stream did not fall under the ambit of any of the four categories of income mentioned by Supreme Court in Engineering Analysis Centre of Excellence Private Limited (2021) 125 taxmann.com 42 (SC). The DRP upheld the order of the AO.

Aggrieved by the order, the Assessee appealed to ITAT.

HELD

The Assessee had granted limited rights to distributors for resale of products. The sale of object code of software was subject to the terms of end-user license agreement (‘EULA’). The agreement was categorical that the distributor did not have any right to modify, reverse engineer or attempt to discover source code, etc. Neither the distributor nor customers obtained any right to copy or modify the software. Hence, observation of the AO that the agreement provided access to the source code was not correct.

The confidentiality clause did not confer any right on source code. On the contrary, it was protecting the rights of the Assessee in case any proprietary information was accidentally obtained by distributors or others.

In the decision mentioned earlier, the Supreme Court had held that when software was embedded with hardware, such a transaction constituted sale of goods.

The income streams of the Assessee were explicitly covered by the Supreme Court in Engineering analysis (supra) and further rulings, such as Microsoft Regional Sales Pte Limited [2024] 167 taxmann.com 45 (SC) and MOL Corporation [2024] 162 taxmann.com 198 (SC), which pertained to AYs post-2012 amendment to section 9(1)(vi) of the Act.

In light of the foregoing, the Tribunal held that income received by the Assessee could not be characterised as royalty or FTS. Hence, it was taxable only in Ireland.

Article 22 of India-Korea DTAA – As taxing rights were allocated only to resident country, fee received for providing guarantee in respect of loan obtained by Indian subsidiary of Korean company was taxable only in Korea.

13. [2025] 176 taxmann.com 246 (Bangalore – Trib.)

KIA Corporation vs. ACIT

IT(IT)APPEAL NO.644 (BANG.) OF 2025

A.Y.: 2022-23 Dated: 30 June 2025

Article 22 of India-Korea DTAA – As taxing rights were allocated only to resident country, fee received for providing guarantee in respect of loan obtained by Indian subsidiary of Korean company was taxable only in Korea.

FACTS

The Assessee, a tax resident of Korea, extended guarantee in respect of a loan obtained by its subsidiary in India (“SubCo”). In consideration for such guarantee, it received fee from SubCo. In terms of Article 22 of India-Korea DTAA, Assessee claimed that fee was taxable only in Korea. The AO observed that the loan was utilised by SubCo in India. Accordingly, in terms of Section 5(2), read with section 9(1)(i), of the Act, fee accrued/arose in India. Therefore, rejecting the application of Article 22 of India-Korea DTAA, the AO assessed fee as taxable in India. The DRP upheld the action of the AO.

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

HELD

The fee did not fall within the ambit of the ‘business profits’ or the ‘interest’ Articles. Therefore, it was squarely covered by the ‘other income’ article.

Relying on decisions of coordinate bench rulings in Daechang Seat Co. Ltd. [2023] 152 taxmann.com 163 (Chennai – Trib.) and in Capgemini SA [2016] 72 taxmann.com 58 (Mum.), the Tribunal held that in terms of Article 22 of India-Korea DTAA, guarantee fee could be taxable only in country of residence, i.e., Korea.

The Delhi High Court in Johnson Matthey Public Ltd. [2024] 162 taxmann.com 865 held that guarantee fee accrued in India. Hence, it was taxable in India under India-UK DTAA. The Tribunal distinguished the said ruling by holding that ‘other income’ under India-UK DTAA provided taxing rights to the source country, whereas India-Korea DTAA provided exclusive taxation to the resident country.

Based on the above, the ITAT held that the guarantee fee received by the Assessee was taxable only in Korea.

Non-issuance of notice under section 143(2) after filing of return in response to notice under section 148 – Reassessment proceedings held invalid

67. [2025] 126 ITR(T) 290 (Mumbai – Trib.)

Vinod Kumar Kasturchand Golechha vs. ITO

ITA NO:. 1966 & 1967 (MUM.) OF 2024

A.Y.: 2009-10 & 2010-11 DATE: 17.12.2024

Sec. 143(2) r.w.s. 147

Non-issuance of notice under section 143(2) after filing of return in response to notice under section 148 – Reassessment proceedings held invalid

FACTS:

The assessee was engaged in the business of import, export, and trading of cut and polished as well as rough diamonds.

Pursuant to a search and seizure action carried out on 03.10.2013 in the case of Shri Bhanwarlal Jain and his group concerns, information was received by the Department that various entities managed by the said group were engaged in providing accommodation entries through benami concerns. Based on this information, the assessee’s case was reopened for A.Ys. 2009–10 and 2010–11 on the allegation that he had obtained accommodation purchase entries from the said group concerns aggregating to ₹8.72 crore.

Notices under section 148 were issued on 18.03.2016 for both assessment years. In response, the assessee, vide letter dated 06.06.2016, informed the Assessing Officer that the original return of income already filed for the relevant years may be treated as the return filed in response to notice under section 148.

The Assessing Officer, however, had issued a notice under section 143(2) on 03.06.2016, i.e., before the assessee’s response dated 06.06.2016. Subsequent notices under section 142(1) were issued, and assessment orders were completed by making additions of Rs. 46,31,030 (A.Y. 2009–10) and Rs. 4,36,821 (A.Y. 2010–11).

On appeal, the CIT(A) upheld the validity of the reopening and confirmed the additions. The assessee raised an additional legal ground that no valid notice under section 143(2) was issued after the assessee had filed its response to the section 148 notice, thereby rendering the reassessment proceedings invalid.

Aggrieved, the assessee preferred an appeal before the Tribunal.

HELD:

The Tribunal observed that the statutory requirement under section 143(2) mandates that a notice must be issued after examination of the return of income filed by the assessee, including a return treated as filed in response to a notice under section 148.

The notice issued on 03.06.2016 preceded the assessee’s letter dated 06.06.2016 treating his original return as a return in response to notice under section 148. Hence, no notice under section 143(2) was ever issued on the valid return filed in response to section 148 notice.

The requirement of a notice under section 143(2) is mandatory, and its non-issuance vitiates the entire reassessment proceedings. The defect is not a mere procedural irregularity and cannot be cured under section 292BB.

The Tribunal referred to the decisions in case of Asstt. CIT vs. Hotel Blue Moon [2010] 321 ITR 362 (SC), Pr. CIT vs. Jai Shiv Shankar Traders (P.) Ltd. [2015] 383 ITR 448 (Delhi), and Pr. CIT vs. Marck Biosciences Ltd. [2019] 106 taxmann.com 399 (Guj.).

The Tribunal held that since no notice under section 143(2) was issued after the assessee’s response to the section 148 notice, the reassessment orders were invalid and liable to be quashed.

Accordingly, the reassessment orders for both A.Ys. 2009–10 and 2010–11 were quashed, and the appeals of the assessee were allowed in full.

Charitable Trust – Disallowance of exemption under section 11 on ground of non-filing of Form 10B – Held, defect is procedural and curable; exemption allowable

66. [2025] 126 ITR(T) 523 (Nagpur – Trib.)

Shri Panchmurti Education Society vs. ITO

ITA NO.: 488 (NAG) OF 2024

A.Y.: 2017-18 DATE: 21.01.2025

Sec. 11

Charitable Trust – Disallowance of exemption under section 11 on ground of non-filing of Form 10B – Held, defect is procedural and curable; exemption allowable

FACTS

The assessee was a registered charitable trust engaged in educational activities and also registered under the Societies Registration Act. Historically, the assessee’s income had been exempt under the erstwhile section 10(22) of the Act. For subsequent years, it applied for registration under section 12AA by filing an application on 30.03.2017, which was rejected on 29.09.2017 on the ground that the bye-laws did not contain a dissolution clause, though the Commissioner (Exemption) admitted that the trust’s objects were charitable.

The assessee preferred an appeal before the Nagpur Bench of the Tribunal, which, by order dated 09.06.2022, directed the CIT(Exemptions) to grant registration under section 12A with retrospective effect from A.Y. 2017–18. Consequent to this order, the assessee received its registration certificate under section 12A from the CIT(Exemptions).

Meanwhile, the assessee had filed its return of income for A.Y. 2017–18 on 30.03.2018, which was processed under section 143(1). The CPC, Bengaluru, raised a demand of ₹5,02,23,100, denying exemption under section 11.

The assessee filed an appeal before the CIT(A), who dismissed the appeal on 15.07.2024, holding that the assessee had filed a belated return and therefore was not eligible for exemption u/s 11 & 12. The assessee had, however, obtained the audit report later in Form 10B dated 10.01.2023 and furnished it before the appellate authority.

The assessee carried the matter before the Tribunal. The assessee argued that it was legally impossible to comply with audit requirement as in the absence of registration u/s 12A, the same did not apply when the return was filed. The assessee had, however, obtained the audit report later in Form 10B dated 10.01.2023 and furnished it before the appellate authority.

HELD

The Tribunal observed that assessee’s charitable nature and objects were never disputed. The assessee’s failure to furnish Form 10B at the time of filing its return was because, at that time, it was not registered u/s 12A; hence, the obligation to comply with Rule 17B did not exist.

Once registration is granted with retrospective effect, the exemption u/s 11 and 12 must also be given corresponding retrospective benefit. The lower authorities erred in denying exemption merely because the return was filed belatedly or Form 10B was submitted later.

The Tribunal observed that the concept of supervening impossibility applied as the assessee could not have complied with a requirement that was not in existence at the relevant time.

The Tribunal held that the registration having been granted retrospectively from A.Y. 2017–18, the assessee’s entitlement to exemption u/s 11 and 12 for that year stands established. The delay in furnishing Form 10B was merely a procedural lapse and could not defeat the substantive exemption when the audit report had subsequently been obtained and filed.

Accordingly, the Tribunal set aside the order of the JCIT(A) and directed the Assessing Officer to allow exemption under sections 11 and 12 in accordance with law.

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

Claim of deduction under section 54 cannot be denied merely on the ground that the new residential property was purchased in the name of the assessee’s wife, although the entire investment was made from assessee’s own funds.

65. (2025) 179 taxmann.com 262 (Ahd Trib)

Rajesh Narendrabhai Patel vs. ITO

A.Y.: 2012-13 Date of Order: 09.10.2025

Section : 54

Claim of deduction under section 54 cannot be denied merely on the ground that the new residential property was purchased in the name of the assessee’s wife, although the entire investment was made from assessee’s own funds.

FACTS

The assessee was an individual. During the relevant year, he sold immovable property situated at Vadodara for a sale consideration of ₹90,00,000. The case was reopened under section 147. In response, the assessee filed return of income declaring capital gains at NIL. During the reassessment proceedings, on the basis of the report of DVO, the capital gain was recomputed to ₹62,60,142 against which the assessee claimed exemption under section 54 of ₹53,78,500 for investment in purchase of a residential property. However, the AO disallowed the claim of exemption under section 54 on the ground that the property was not purchased in his own name but in the name of his wife.

Aggrieved, the assessee went in appeal before CIT(A). While the assessee accepted the reworking of capital gain, he claimed that he was entitled to exemption under section 54 since the investment in residential property, though made in the name of his wife, was wholly funded by him and cited CIT vs. Kamal Wahal [2013] 30 taxmann.com 34 (Delhi), CIT vs. V. Natarajan [2006] 154 Taxman 399 (Madras), and several other decisions of coordinate Benches to support his claim. However, CIT(A) rejected the appeal.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) CIT(A) had not specifically discussed or dealt with the judicial authorities cited by the assessee and extensively relied upon the principle of strict interpretation of exemption provision as propounded in Commissioner of Customs (Import), Mumbai vs. Dilip Kumar & Company, (2018) 95 taxmann.com 327 (SC).

(b) Several High Courts have indeed taken a consistent view that for the purpose of section 54/54F, where the investment in the new residential property is made by the assessee from his own funds, the mere fact that the property is purchased in the name of the spouse does not disentitle the assessee from exemption.

(c) While the principle of strict construction of exemption provisions is well established, CIT(A) should have considered / reconciled / distinguished various decisions of High Courts in favour of the assessee on the interpretation of section 54 in the context of purchase in the name of spouse.

Accordingly, the Tribunal set aside the order of CIT(A) and restored the matter back to his file for denovo adjudication after examining the claim of the assessee in light of the judicial precedents relied upon by the assessee.

In the result, the appeal of the assessee was allowed for statistical purposes.

Mere existence of an object permitting application of income outside India cannot be a ground to deny registration under section 12AB.

64. (2025) 180 taxmann.com 58 (Mum Trib)

Shamkris Charity Foundation vs. CIT

A.Y.: 2025-26 Date of Order: 27.10.2025

Section: 12AB

Mere existence of an object permitting application of income outside India cannot be a ground to deny registration under section 12AB.

FACTS

The assessee was a company incorporated on 06.08.2021 under section 8 of the Companies Act, 2013 with the objects of education, medical relief, relief to the poor and any other objects of general public utility. It was granted provisional registration under section 12AB from AYs 2022-23 to 2024-25 on 02.10.2021. It made an application for the final registration on 24.08.2024 before CIT(E), with a request for condonation of delay of 54 days on the ground that the delay was due to the inadvertent error on the part of the employee who was in charge of the income tax related matters of the assessee. However, the CIT rejected the application on the ground that the assessee had made the application belatedly and that the objects of the trust contained clauses which enables potential application of funds outside India.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

With regard to the delay in filing the application for final registration, the Tribunal held that considering the facts of the assessee and the legislative intent behind proviso to section 12A(1)(ac), the delay should be condoned and the application made by the assessee should be considered on merits by CIT.

On the issue of trust deed containing provision for application of funds outside India, the Tribunal noted the decision of co-ordinate bench in TIH Foundation for IOT and IOE v. CIT(E), (2025) 176 taxmann.com 561 (Mumbai – Trib) wherein it was held that the fact that the trust may apply income outside India does not constitute a valid ground for denial of registration under section 12AB.

Accordingly, the Tribunal held that the CIT should keep in mind the ratio of the aforesaid decision while considering the application of the assessee for final registration under section 12AB.

In the result, the Tribunal allowed the appeal of the assessee for statistical purposes.

Mere existence of religiously worded objects in the trust deed cannot be a ground to deny approval under section 80G unless there is a finding that the actual expenses on religious activities exceed the permissible limit of 5% of total income as per section 80G(5B).

63. (2025) 179 taxmann.com 679 (Ahd Trib)

Jayshree Gopallalji Haveli Charitable Trust-Ujalvav vs. CIT

A.Y.: N.A. Date of Order : 28.10.2025

Section: 80G

Mere existence of religiously worded objects in the trust deed cannot be a ground to deny approval under section 80G unless there is a finding that the actual expenses on religious activities exceed the permissible limit of 5% of total income as per section 80G(5B).

FACTS

The assessee-trust filed an application in Form No. 10AB seeking approval under clause (iii) of the first proviso to section 80G(5). During the course of proceedings, CIT found certain objects which were religious in nature. He rejected the said application on the ground since the trust deed contained religious objects, the trust was not established wholly for charitable purposes as required under section 80G(5) read with Explanation 3.

Aggrieved, the assessee-trust went in appeal to the Tribunal.

HELD

The Tribunal observed as follows:

(a) Mere presence of an object having spiritual or cultural undertones does not, by itself, render a trust religious in nature, especially when the predominant purpose and actual activities are charitable.

(b) Section 80G(5B) permits an institution established for charitable purposes to incur expenditure up to 5% of its total income on religious purposes. Thus, the statutory framework itself recognizes that minor or incidental religious expenditure does not vitiate the charitable character of the institution.

(c) The determining factor is not the mere existence of religiously worded objects in the trust deed but whether the assessee has actually expended more than the permissible five percent of its total income on religious purposes.

In the absence of finding on actual expenses on religious expenses, the Tribunal restored the matter to the file of CIT with a direction to verify and record a categorical finding on the permissible threshold under section 80G(5B) and decide the matter afresh on merits.

In view of proviso to section 251(1)(a), w.e.f. 1.10.2024, in a case where the order appealed against in first appeal is passed otherwise than under section 144 of the Act, any action / direction of remand for fresh verification by the first appellate authority is barred by jurisdiction.

62.  TS-1285-ITAT-2025 (Raipur)

DCIT vs. South Eastern Coalfields Ltd.

A.Y.: 2013-14 Date of Order : 19.9.2025

Section: 201/201(1A)

In view of proviso to section 251(1)(a), w.e.f. 1.10.2024, in a case where the order appealed against in first appeal is passed otherwise than under section 144 of the Act, any action / direction of remand for fresh verification by the first appellate authority is barred by jurisdiction.

FACTS

The Tribunal, in this case, was dealing a bunch of 27 appeals filed by the revenue and equal number of cross objections filed by the assessee challenging the orders passed by Additional / JCIT (A) which orders emanated out of appeals filed by the assessee against separate orders passed under section 201 / 201(1A) of the Act by ACIT / DCIT – TDS, Raipur (AO), all for AY 2017-18.

The common issue in all these appeals, which were disposed-off by a common order, was as to whether first appellate authority has a power to remand any issue for fresh adjudication to assessing officer where the order challenged in first appeal is passed otherwise than u/s 144 of the Act?

From the regular assessment order passed u/s 143(3) of the Act for AY 2017-18 it was observed that, for the year under consideration the assessee company debited to its profit & loss a/c a sum of ₹259.67Cr under the head ‘Power & Township Expenses’ in respect of employees benefit expense and also debited an expense of ₹48.25 Cr. under the head ‘Grant to Schools and Institutes’, and claimed such expenses as deduction 37(1) of the Act without making TDS deduction therefrom.

In order to verify applicability of TDS provisions and consequential liabilities against such identified expenses claimed as deduction, proceedings were initiated under section 133(6), after seeking requisite approval. Details furnished in these proceedings revealed that; while debiting these expenses or payment made there against and while claiming deduction there against the assessee company failed to deduct TDS therefrom. For these reasons the assessee was held as an assessee in default in respect of such non-deduction deduction u/s 201(1) r.w.s. 192 r.w.s. 17 of the Act. In consequence thereof the AO determined the liability u/s 201(1) and 201(1A) of the Act separately in relation to 27 Tax Deduction Account Numbers held by the assessee for various locations.

Aggrieved, the assessee filed separate appeals against each of such 27 orders passed u/s 201 of the Act, which were partly allowed by the CIT(A) vide order dt. 28/02/2025. Against such separate orders of the CIT(A), both the rival parties came in the present bunch of cross appeals.

The Tribunal observed that against the order passed under section 201 of the Act, the assessee filed an appeal to CIT(A) on as many as four grounds. While adjudicating ground number 2 relating to non-deduction of TDS in respect of Power and Township Expenses, the CIT(A) dealt with the submissions of the assessee and dismissed sub ground number 2(a), 2(b), 2(f) & 2(h) whereas remaining connected sub grounds viz; 2(c), (d) & 2(e) were sparingly returned to the file of AO with a direction to verify issues on merits and allow the relief after due verification. As jointly solidified by the rival parties, these sub grounds (a) to (h) of ground 2 assailed in first appeal before the CIT(A) were indisputably not only intrinsically but also intricately linked with each other.

The Tribunal clearly stated in its order that without touching merits, it heard the rival party’s common submission and argument on the limited issue of jurisdiction of first appellate authority in sparingly remanding common issues assailed by the assessee in ground 2c, 2d & 2e in Form No 35 and subject to rule 18 of ITAT-Rules, 1963 perused the material placed on record and considered the facts in view of settled position of law which was forewarned to respective parties.

HELD

At the outset, the Tribunal observed that the order for adjudication of CIT(A) was passed u/s 201 of the Act and not u/s 144 of the Act. Therefore, it has to vouch as to whether the CIT(A) had jurisdiction or power u/s 251 of the Act to remand any issue, ground or sub-ground to the file of AO for verification & granting relief where the order was not the one passed ex-parte u/s 144 of the Act. The Tribunal held –

(i) w.e.f. 1.10.2024 in a case where the order appealed against in first appeal is passed otherwise than 144 of the Act, any action/direction of remand for fresh verification by the first appellate authority is therefore barred by jurisdiction;

(ii) in view of the ratio of the decision of the Apex Court in Chandra Kishore Jha vs. Mahavir Prasad [(1999) 8 SCC 266 (SC)], where the order appealed against was passed u/s 201 of the Act the direction of CIT(A) for fresh verification of facts on merits is devoid of provisions of section 251(1)(a) of the Act, since the statute did not provide for power to remand, and deserves to be vacated;

(iii) sub-grounds variably where all other sub-grounds of main ground number 2 are intrinsically interconnected, interwoven and linked, the co-ordinate bench in ‘Computer Science Corp. India (P) Ltd. vs. DCIT’ [(2024) 163 taxmann.com 693] held that order dismissing all ground commonly based on single issue by disobeying the mandates of s/s (6) of section 250 of the Act ceases to be lawful adjudication, therefore renders itself irregular. Thus, such adjudication is a fit case for remand;

(iv) the impugned action of remand of few subgrounds which where interconnected with remaining subgrounds adjudicated conclusively by the CIT(A) are not only inconsonance with provisions of law but such action has also out done the restriction placed by proviso to clause (a) of sub-section (1) of section 251 of the Act. The first appellate authority, being creature of statute, therefore while exercising the powers conferred under the provisions of law in discharging prescribed function was bound to act within the jurisdiction. In remanding few sub-grounds in relation to order assailed the CIT(A) inadvertently assumed the powers not granted by the provisions of section 251(1)(a) of the Act.

v) following the decision of the Gujarat High Court in Gujarat Mineral Development Corporation Ltd. vs. ITAT [2009, 314 ITR 14 (Guj.), any action, direction or adjudication laid by the appellate authority by travelling beyond the provisions of law or authority by law renders the order otiose for the purpose of the Act. Thus, such action is barred by jurisdiction and therefore stands vacated;

(vi) the order challenged before the CIT(A) was an order passed u/s 201 of the Act and as such other than the order passed ex-parte u/s 144 of the Act. Therefore, the CIT(A) had no jurisdiction to remand any issue/ground or sub-ground of the first appeal to the file of AO for verification or reverification of merits a fresh. Per contra, the sub-ground (c), (d) & (e) of ground number 2 raised in Form No 35 before Ld. CIT(A) not only remained unadjudicated conclusively in terms of section 251(1)(a) of the Act but remanded to Ld. AO for de-novo verification on merits in contravention of provision of section 251 of the Act.

(vii) In view of the judicial precedents, the impugned action relating to adjudication of sub-ground (c), (d) & (e) of ground number 2 suffered from jurisdiction as well as the compliance of s/s 251(1) r.w.s. 250(6) of the Act, for that reason without disturbing balance adjudication we set aside the remand to the file of CIT(A) with a point-blank direction to deal with sub-ground (c), (d) & (e) of ground number 2 of Form No. 35 and adjudicate them de novo in accordance with law and to pass a speaking order. The Ground No 1 & 2 of the present appeal of the Revenue thus stand partly allowed for statistical purposes.

(viii) The question framed hereinbefore stands adjudicated negatively.

Expansion of the municipal limits after date of issuance of notification is irrelevant. Unless there is a subsequent notification, it is the distance of the land sold from the municipal limits which is relevant.

61. TS-1394-ITAT-2025 (Delhi)

Mahabir vs. ITO

A.Y.: 2013-14 Date of Order : 15.10.2025

Section: 2(14)

Expansion of the municipal limits after date of issuance of notification is irrelevant. Unless there is a subsequent notification, it is the distance of the land sold from the municipal limits which is relevant.

FACTS

The Tribunal, in this case, was dealing with appeals filed by the assessee against orders of CIT(A) which appellate orders were passed against order under section 144 r.w.s. 147 and against order under section 271(1)(c) of the Act.

The Assessing Officer (AO) received information about assessee selling certain land along with co-sharers. The land sold was situated in Village Dhunela, Sohana, Gurgaon. The AO reopened the case of the assessee after examining the sale deeds. The AO noted that as per the verification of Tehsildar, Gurgaon, the distance to the village Dhunela, from Municipal Council, Gurgaon was 1.5 km.

The case of the assessee was that the land under consideration is not an agricultural land and it is by way of Notification dated 6.1.1994 of the Central Government, the land should have been examined. In Sohana, District Gurgaon, area up to 5 kms from the municipal limits in all directions has to be considered as not agricultural. Therefore, the case of the assessee was incorrectly reopened. The assessee relied on copy of certificate dated 25.6.2018 of the Tehsildar, Sohana, certifying the distance of land as on 6.1.1994 to be 6 kms from Nagar Palika, Sohana.

HELD

The Tribunal observed that primarily, the dispute in the appeal filed by the assessee was whether land sold by the assessee falls in the definition of capital asset and is not an agricultural land. The Tribunal found that the law is well settled that the relevant date would be the date of Notification unless there is a subsequent notification, the notification issued holds the ground. Reliance for this was placed on –

i)Satya Dev Sharma vs. ITO [(2014) 149 ITD 0725 (Jaipur Trib.)];

ii)Smt. (Dr.) Subha Tripathi vs. DCIT [(2013) 58 SOT 0139 (Jaipur Trib.)];

iii)Lavleen Singhal vs. DCIT [(2007) 111 TTJ 0326 (Del)];

iv)Prahlad Singh vs. ITO, SA No.436/Del/2017 & ITA No.3375/Del/2017, order dated 11.05.2018 (ITAT, Delhi);

v)Ashish Gupta vs. ITO [(2024) 163 taxmann.com 739 (Delhi – Trib.)].

The Tribunal held that the co-ordinate bench at Delhi has ruled that since no notification was issued after 6th January, 1994, the expansion of Municipal limits thereafter is irrelevant and should be disregarded.

Upon examination of the reasons recorded the Tribunal observed that the AO has not made any reference of the fact that if the issue was examined from the point of view of applicability of the Notification of the CBDT No.9447/F.No.164/3/87- ITA-I dated 06.01.1994, instead the AO has merely relied the certificate from Tehsildar, Gurgaon. Also, the copy of sale deed on record from pages 3 to 9 showed that at the time of registration, it was mentioned that the sale deed is being executed of agricultural land and from the endorsement of Sub-Registrar, Sohna, it is mentioned that the land is situated in the Village Dhunela and is outside the Municipal Corporation area.

In the light of the aforesaid discussion, the Tribunal was of the considered view that the ld. tax authorities have fallen in error in considering the land to be agricultural by considering the distance at the time of execution of sale deed instead of notified distance on 06.01.1994 and the report of the Tehsildar that on the relevant date of 1994 the land was beyond 5 kms. from the Municipal Corporation, Sohna.

The Tribunal allowed the appeal filed by the assessee. Since the addition of the assessee in quantum proceedings, (on the very basis of which the penalty was imposed by the AO and sustained by the CIT(A)), stood deleted, the penalty did not survive and the same was, therefore, cancelled. The appeal of the assessee against levy of penalty was also allowed.

Assessee is entitled to credit for entire tax deducted at source by the buyer and which is reflected in his Form No. 26AS, though assessee was only a joint owner of property and received only 50% of the consideration.

60. ITA No. 722/Pun/2025 (Pune)

Nanasaheb Bhagawan Sasar vs. ITO

A.Y.: 2022-23 Date of Order : 22.9.2025

Section: 199 r.w. Rule 37BA

Assessee is entitled to credit for entire tax deducted at source by the buyer and which is reflected in his Form No. 26AS, though assessee was only a joint owner of property and received only 50% of the consideration.

FACTS

The assessee, jointly with his son, owned ancestral land which was sold for a consideration of ₹13 crore. The share of assessee in the sale consideration was ₹6.50 crore. The buyer deducted entire TDS, under section 194-IA, of ₹13 lakh in the name of the assessee alone. The assessee, in his return claimed credit for entire TDS of `13 lakh deducted by the buyer. Son of the assessee declared capital gains on his share of consideration of ₹6.50 crore and did not claim credit for any TDS.

CPC while processing the return of income filed by the assessee denied credit for half of the TDS claimed in the return of income. The rectification application filed by the assessee was also rejected by CPC.

Aggrieved, assessee preferred an appeal to CIT(A) which was decided by JCIT(A)/Addl. CIT upholding action of CPC that only proportionate credit of TDS is allowable since only half share of the sale consideration was disclosed in the assessee’s return.

Aggrieved, assessee preferred an appeal to the Tribunal. On behalf of the assessee, it was contended that once TDS is deducted and deposited in the deductee’s name (i.e. assessee in the present case) it must be credited to him. Relying on the decision(s) in the case of Anil Ratanlal Bohora vs. ACIT in ITA No. 675/PUN/2022 for AY 2021-22, dated 19.01.2023 and in the case of iGate Infrastructure Management Services Ltd. vs. DCIT in ITA No. 1703/Bang/2016 for AY 2010-11, dated 28.04.2017, it was submitted that the assessee should get the credit of the entire TDS deducted in his name by the buyer of the land. Since, it was a mistake on the part of the buyer/deductor, the seller/deductee should not suffer and should be entitled to claim it. The procedural lapses cannot defeat substantive rights, and the assessee must get full credit of ₹13,00,000/-.

HELD

The Tribunal held that the Revenue cannot enrich itself at the cost of the assessee. It observed that the Bangalore Tribunal in iGate Infrastructure Management Services Ltd.’s case (supra) under the similar set of facts as that of the assessee in the present case, has set aside the matter to the file of the Assessing Officer to adjudicate the issue afresh after making necessary verification as to whether the deductor has deducted the TDS and deposited the same in the Government Account and if yes, allow the credit of the TDS to the assessee.

In light of the factual matrix of the case and the legal position and in the absence of any contrary material brought on record by the Revenue to take a different view, the Tribunal held that the assessee should be given the credit of the entire TDS of ₹13,00,000/- as claimed by him. It set aside the order of the Addl./JCIT(A) and restored the matter back to the file of the CPC/AO to adjudicate the issue afresh and allow full credit of TDS to the assessee.

Book profit must be computed strictly in accordance with the audited accounts prepared under the Companies Act, and no adjustment beyond those expressly specified in Explanation [1] of section 115JB is permissible; accordingly, the addition of CSR expenditure to book profit was unjustified and directed to be deleted.

59. [2025] 125 ITR(T) 556 (Amritsar – Tribunal)

DCIT vs. Jammu and Kashmir Power Development Corporation Ltd.

I.T.A. NOS. 364, 385 & 386/ASR/2023

A.Y.: 2016-17 to 2018-19

Section 115JB DATE: 15.05.25

Book profit must be computed strictly in accordance with the audited accounts prepared under the Companies Act, and no adjustment beyond those expressly specified in Explanation [1] of section 115JB is permissible; accordingly, the addition of CSR expenditure to book profit was unjustified and directed to be deleted.

FACTS

The assessee-company was engaged in the generation and sale of power mainly to Government, in the State of Jammu and Kashmir. It filed its return of income and also filed two sets of computations of total income, one under normal provisions and another under MAT provisions.

The amount of CSR under section 37(2) (i.e. 2 per cent of average net profit of preceding three years) was computed at ₹5.99 crores and had remained as a provision in the balance sheet.

The Assessing Officer held that since the CSR expenditure related to expenditures to be incurred by the assessee on the activities relating to CSR as per section 135 of the Companies Act, 2013, the same was not an expenditure incurred wholly and exclusively for the purpose of business and it was just an application of income. Accordingly, the said provision was set aside for meeting liabilities other than ascertained liabilities, the book profits as per explanation [1] of the said section needed to be increased (or added back) to arrive at the correct profits for the purpose of computation of MAT under section 115JB.

On appeal, the Commissioner (Appeals) deleted the addition. Aggrieved by the CIT(A)’s order, the Revenue preferred a further appeal before the Tribunal.

HELD

1. CBDT Circular No. 1/2015, in relation to non-allowability of deduction of CSR expenditure, only applies to income computation under normal provisions and not to MAT/book profit under Section 115JB.

2. Book profits under MAT must be determined based on audited accounts prepared as per Companies Act and generally accepted accounting principles.

3. CSR expenditure is not listed among the specific adjustments permitted under Section 115JB for altering book profits.

4. AO has no power to recompute the book profits and has to rely on the statement of accounts of the company compiled under the Companies Act 2013.

5. Accordingly, the Revenue’s appeals for AYs 2016–17 to 2018–19 were dismissed as being without merit.

Even if assessee did not pay STT at the time of acquisition of shares which were unlisted then, it would still be eligible for tax exemption under section 10(38).

58. [2025] 123 ITR(T) 252 (Mumbai Trib.)

Deputy Commissioner of Income-tax vs. Business Excellence Trust

ITA -2879 (Mum.) of 2023 and

CO. No. 15 (Mum.) of 2024 AY 2018-19

Section 10(38) Date: 26.07.2024

Even if assessee did not pay STT at the time of acquisition of shares which were unlisted then, it would still be eligible for tax exemption under section 10(38).

HELD

The assessee, a trust registered as a Venture Capital Fund, earned Long-Term Capital Gain (LTCG) of ₹247,67,03,531/- from the sale of shares of M/s Dixon Technologies Limited. The said shares were purchased while the company was unlisted and sale of the shares took place after listing of the said company. Initially, the assessee claimed exemption for this LTCG under section 10(23FB) of the Act. The Ld. AO rejected the claim for exemption under section 10(23FB) of the Act.

The assessee made an alternative plea that the LTCG should be exempted under section 10(38) of the Act. The AO rejected the alternative claim for exemption under section 10(38), reasoning that firstly the assessee being Venture Capital Fund, was not eligible to claim exemption under section 10(38) since as per section 115U the investors alone were entitled to claim said exemptions, and crucially, because the assessee had not paid Securities Transaction Tax (STT) at the time of acquisition of shares.

Accordingly, the AO completed the assessment by assessing the LTCG and also rejecting the assessee’s claim for exemption of dividend income of ₹3,97,300/- under section 10(35) of the Act.

On assessee appeal, the CIT(A) upheld the AO’s finding that the assessee was not eligible for exemption under section 10(23FB). However, the CIT(A) accepted the alternative plea of the assessee and held that the assessee was eligible to claim exemption of LTCG under section 10(38) of the Act. The CIT(A) referred to Notification No. SO 1789(E) dated 5-6-2017.

On Revenue’s appeal before the ITAT, the ITAT rejected the Revenue’s contention that the claim under section 10(38) was an unjustified fresh claim, stating it was merely a change of the exemption section.

The ITAT held that the shares acquired by the assessee were unlisted. Since STT was only payable on transactions entered into through a recognised stock exchange at the relevant time, the
acquisition of unlisted shares could not have been chargeable to STT.

The ITAT found that clauses (a), (b), and (c) of the relevant Notification [i.e., No. SO 1789(E)] dealt with ‘existing listed equity shares’ or delisted shares, and thus were not applicable to the present facts of the case. The shares acquired by the assessee were covered by the main part of the Notification, which exempts transactions of acquisition not chargeable to STT (provided they are not covered by the exceptions). Consequently, even if the assessee did not pay STT at the time of acquisition of shares, it was still eligible for exemption under section 10(38) of the Act.

An alumni association formed for the benefit of students of two educational institutions can be regarded as for benefit of public at large for the purpose of registration under section 12A. For the purpose of examining genuineness of activities, it is irrelevant that the mobile number of the beneficiaries is not provided to the CIT or that the association had not incurred any expenses.

57. (2025) 178 taxmann.com 377 (Jaipur Trib)

ICG-IISU Alumnae Association-bandhan vs. CIT(E)

A.Y.: N.A. Date of Order: 11.09.2025

Section : 12AA

An alumni association formed for the benefit of students of two educational institutions can be regarded as for benefit of public at large for the purpose of registration under section 12A.

For the purpose of examining genuineness of activities, it is irrelevant that the mobile number of the beneficiaries is not provided to the CIT or that the association had not incurred any expenses.

FACTS

The assessee was a company incorporated under section 8 of the Companies Act, 2013. It was an alumni association which was for the students passing out from International College for Girls (ICG) as well as from IIS (Deemed to be University) (IISU), Jaipur.

It filed an application for registration under section 12AA in 2020 which was rejected by CIT(E). Upon appeal to ITAT, in 2021, the Tribunal remanded the matter back to CIT(E) to examine whether certain objects of the company had an element of commercial / business and whether the benefit of alumnae of ICG-IISU could be regarded as benefitting the public.

CIT(E) once again rejected the application under section 12AA in 2024 on broadly the same grounds as in first round of appeal, that is, the assessee was meant for the benefit of its members and not for public at large, it conducted business / commercial activities, and the activities were not genuine.

Aggrieved, the assessee once again filed an appeal before ITAT. It also filed an application for admission of additional evidences, being approval of ISS (deemed to be University) and copy of audited financial statements for the year ended 31.3.2024.

HELD

Rejecting the contention of the CIT that the assessee was not meant for public at large, citing Girijan Co-operative Corpn. Ltd. vs. CIT, (1989) 44 Taxman 60 (Andhra Pradesh) and Parul University Alumni Association vs. CIT (Exemption), (2024) 162 taxmann.com 98 (Ahd Trib), the Tribunal observed that the expression ‘public’ includes cross section of public and it is well settled that for satisfying the requirements of section 2(15), it is not necessary that the benefit should reach each and every poor person in the state or country.

On the question of commercial / business activities of the assessee, the Tribunal noted that no fees were charged from the members by the assessee and the activities were carried out in the premises of the two educational institutions using their infrastructure. It also noted that the volume of activities was also very minimal and out of the four preceding years there had been deficit in two years. Therefore, the Tribunal held that there was no element of business/commercial nature in the activities of the assessee.

On the issue of the non-genuineness of the activities of the assessee, the Tribunal noted that the assessee had placed sufficient evidences before CIT(E) to explain its activities and that requiring the mobile number of the beneficiaries was not an appropriate way to ascertain the genuineness of the activities especially when other evidences were produced. It further noted that since the activities were in the nature of connecting old students with the present students as well old students of different batches, such meetings were meant for exchange of experiences so that theoretical knowledge can be combined with practical experiences to make the education wholesome and such activities did not require incurring of expenses because infrastructure of the parent educational institutions was used. Therefore, it observed that merely because no expenses were incurred could not be fatal to the case of the assessee.

Accordingly, the Tribunal restored the matter back to the file of the CIT(E) with a direction to consider all the additional evidences filed by the assessee and the judicial precedents cited in the order and thereby decide the issue of whether the object of the assessee was charitable in nature or not after giving proper opportunity of being heard to the assessee.

In the result, the appeal of the assessee was allowed for statistical purposes.

Where the assessee-charity accumulated income under section 11(2) by filing Form No. 10 mentioning the purpose as “for objects of the trust”, the vagueness of purpose would not be fatal to the claim of benefit under section 11(2) if the assessee supported the claim with a Board resolution listing the specific purpose as “scholarship (educational purpose)” and the funds were actually utilised for the said purpose in subsequent years.

56. (2025) 178 taxmann.com 411 (Mum Trib)

Imperial College India Foundation vs. ITO

A.Y.: 2016-17 Date of Order: 10.09.2025

Section: 11(2)

Where the assessee-charity accumulated income under section 11(2) by filing Form No. 10 mentioning the purpose as “for objects of the trust”, the vagueness of purpose would not be fatal to the claim of benefit under section 11(2) if the assessee supported the claim with a Board resolution listing the specific purpose as “scholarship (educational purpose)” and the funds were actually utilised for the said purpose in subsequent years.

FACTS

The assessee was a company registered under section 8 of the Companies Act, 2013 and was engaged in the educational activities which included granting of scholarships to the students. During assessment proceedings for AY 2016-17, the AO disallowed the income amounting to ₹62,28,989 which was accumulated under section 11(2) on the ground that that the purpose mentioned in Form 10 i.e. “towards the object of the trust”, was generic and it was mandatory requirement of the law that the purpose should be specific.

Aggrieved, the assessee filed an appeal before CIT(A) who confirmed the disallowance. Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal noted that Form No. 10 filed by the assessee stated the purpose of accumulation as “for the objects of the trust”. However, the said Form 10 was supported by the Board Resolution dated 20.09.2016 which showed that the accumulated amount was to be utilized for providing “scholarship (educational purpose)”. It was contended by the assessee before the ITAT that in the subsequent years the funds have been utilised for the purpose stated in the aforesaid Board Resolution. The same submission was also put forth before CIT(A).

Holding that the vagueness of the purpose of accumulation as stated in Form 10 would not be fatal, the Tribunal remanded the issue back to the AO with the following directions-

(a) to verify Board Resolution dated 20.09.2016 (for this purpose, a certified copy of the resolution should be filed by the assessee before AO);

(b) to verify the utilization of accumulation amounting to ₹62,28,989 in subsequent years by the assessee as per the Board Resolution;

(c) If the accumulated amount has been utilised for the aforesaid purpose, the disallowance to the extent the accumulated amount shall be deleted by the AO.

In the result, the Tribunal allowed the appeal of the assessee for statistical purposes.

A private trust set up for identified persons is entitled to claim exemption under section 54F upon investment of proceeds into a residential house.

55. (2025) 178 taxmann.com 355 (Delhi Trib)

ACIT vs. Merilina Foundation

A.Y.: 2011-12

Date of Order : 9.9.2025

Section: 54F

A private trust set up for identified persons is entitled to claim exemption under section 54F upon investment of proceeds into a residential house.

FACTS

The assessee was a private trust. It sold a flat and claimed exemption under section 54F in respect of capital gains arising from sale of flat. During reassessment proceedings under section 147. The Assessing Officer disallowed the claim of exemption on ground that section 54F was applicable only to individual and HUF and not to a trust.

On appeal, the Commissioner (Appeals) allowed the claim of the assessee.

Aggrieved, the tax department went in appeal to the Tribunal.

HELD

The Tribunal observed as follows:

(a) It is the fact that the assessee was a private trust and it was set up for some identified persons and it was not a case of a charitable trust where beneficiaries are public at large.

(b) A charitable trust is treated as AOP because of the reason that the beneficiary of the charitable trust are public at large. In fact, if the beneficiary of charitable trust is identified, the trust loses its character of being charitable.

(c) If the assessee trust was not in existence at the time of sale and investment, the same transaction would have been carried out in the name of beneficiaries therein and the benefit would certainly be given to those beneficiaries under section 54 as claimed.

Therefore, the Tribunal held that the order passed by CIT(A) in granting relief under section 54F was just and proper and accordingly, the appeal filed by the tax department was dismissed.

Article 5 of India-Ireland DTAA – If the core activity of assuming risk related to reinsurance was undertaken outside India, the non-core activities undertaken by an affiliate in India cannot constitute DAPE.

12. [2025] 176 taxmann.com 409 (Mumbai – Trib.)

RGA International Reinsurance Company Designated Activity Company vs. DCIT (IT)

IT APPEAL NO. 1092 (MUM.) OF 2025

A.Y.: 2022-23 Dated: 25 June 2025

Article 5 of India-Ireland DTAA – If the core activity of assuming risk related to reinsurance was undertaken outside India, the non-core activities undertaken by an affiliate in India cannot constitute DAPE.

FACTS

The Assessee was a tax resident of Ireland. It was engaged in the business of reinsurance services. RGA Services India Pvt Ltd (“RGA India”) was an Indian affiliate entity of the Assessee. The Assessee had entered into business support services with RGA India. During the relevant year, the Assessee earned reinsurance premium. The Assessee claimed that since it did not have any Permanent Establishment (“PE”) in India, reinsurance premium earned by it was not taxable in India.
The AO alleged that the services rendered by RGA India to the Assessee were in the nature of complementary activities, as envisaged under Article 13 of the Multilateral Instruments (“MLI”) and therefore, RGA India constituted Dependent Agent PE (“DAPE”) of the Assessee in India. Relying on OECD Report on Attribution of profits to PE, 2008, the AO held that further profits can be attributed to DAPE over and above the FAR Analysis. Accordingly, the AO attributed 50% of the revenue to operations in India and estimated a profit of 10% under Rule 10 of the Income-tax Rules. The DRP upheld the order of the AO.

Aggrieved by the order, the Assessee appealed to ITAT.

HELD

The ITAT relied on its earlier rulings in Assessee’s own case and held as follows:

1. To constitute a fixed place PE, the foreign entity must have a place at its disposal in India. It was found that RGA India had its own premises and operations, and the Assessee had no effective control or presence over such place.

2. The core activity of a reinsurer was assumption of risk. This activity was effected and managed entirely outside India. RGA India was not registered with the regulator to conduct reinsurance or brokerage activities. Hence, there was no question of it assuming any risk related to reinsurance activities.

3. The activities of RGA India were in nature of preparatory or auxiliary functions. Further, RGA India did not conclude contracts or negotiate terms on Assessee’s behalf. It also did not bear underwriting risks.
4. Even if a DAPE existed, if the Indian affiliate was remunerated at arm’s length, no further attribution of profit was warranted.

5. To trigger MLI, the Assessee and RGA India must carry out activities in India, and these activities must form part of a cohesive business. Since the Assessee has not carried out any activity in India, anti-fragmentation rules cannot be invoked.

Based on the above, the ITAT held that Assessee does not have a PE in India and the premium receipts were taxable only in Ireland.

Article 12 of India-USA DTAA – Broadcasting Right is a separate right from copyright, and consideration received towards live feeds cannot constitute royalty.

11. [2025] 175 taxmann.com 703 (Delhi – Trib.)

Trans World International LLC vs. DCIT

ITA NO. 1960, 1961 AND 2146 (DELHI) OF 2024

A.Y.: 2013-14 to 2015-16 Dated: 18 June 2025

Article 12 of India-USA DTAA – Broadcasting Right is a separate right from copyright, and consideration received towards live feeds cannot constitute royalty.

FACTS

The Assessee was a tax resident of USA. The Company entered into licensing agreements for broadcasting rights in respect of live and recorded events with various broadcasters. The Assessee offered income in respect of recorded feeds as royalty and claimed that income in respect of live feeds was not in nature of royalty. The Assessee claimed that recorded feed amounts to 5% of the overall consideration and offered such amount to tax as royalty.

Based on perusal of the agreement, the AO noted that the Assessee was granted rights for exploitation of feeds, including trademarks, logos, etc., and observed that granting of live feeds was for the creation of new copyrights and their exploitation. The AO rejected the bifurcation of receipts between live vs recorded feeds, since it was based on a standard ratio. Relying on decision of Mumbai ITAT in Viacom 18 Media (P.) Ltd. vs. ADIT [2014] 44 taxmann.com (Mumbai), the AO held that broadcasting rights fall under the ambit of Explanation 6 to Section 9(1)(vi) and, accordingly, assessed the entire receipts as royalty. The DRP upheld the order of the AO.

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

HELD

Relying on decision of Delhi High Court in Delhi Race Club [2014] 51 taxmann.com 550, the ITAT held that a live broadcast or telecast does not constitute copyright under the Copyright Act, 1957. Therefore, payments made merely for live broadcast were distinct from copyright.

The ITAT held that in absence of any amendment to DTAA, amendments to domestic law i.e., Explanation 6 to Section 9(1)(vi) of the Act, broadening “process” to include satellite transmissions, cannot be unilaterally read into India-USA DTAA. The ITAT followed the principles laid down in the High Court ruling in New Skies Satellite BV (382 ITR 114) and the Supreme Court ruling in Engineering Analysis Centre of Excellence Private Limited (432 ITR 471).

The ITAT accepted that bundled contracts include distinct elements of other rights as observed by the AO, and these are attributable only to the recorded events. The ITAT observed that in such contracts, the element of live coverage is greater than that of recorded feeds. Considering various ITAT orders on the attribution rate, the ITAT agreed that attributing 5% of receipts to recorded feed may not be appropriate.

Basis the above, the ITAT held that receipts towards live broadcasting rights cannot be regarded as royalty. The ITAT attributed 10% of total receipts towards recorded feed and taxed it as royalty.

Refund — Denial on the ground that TDS not reflected in 26AS — Responsibility of the AO to verify from Form 16A — Taxpayer should not be at the mercy of an officer who delays the payment of genuine refund — Assessee is entitled to refund after verification of Form 16A certificates.

46 . U.P. Rajya Nirman Sahakari Sangh Limited vs. UOI

2025 (10) TMI 537 (All.)

A.Ys. 2009-10 to 2012-13 & 2015-16: Date of order 08/10/2025

Refund — Denial on the ground that TDS not reflected in 26AS — Responsibility of the AO to verify from Form 16A — Taxpayer should not be at the mercy of an officer who delays the payment of genuine refund — Assessee is entitled to refund after verification of Form 16A certificates.

The assessee is a co-operative society claiming exemption u/s. 80P of the Act. Since the assessee’s income is exempt, refund on account of tax deducted at source along with interest was due to the assessee. Despite several applications and reminders, the Department was not issuing the refund to the assessee on the ground that the amount of TDS was not reflected in Form 26AS.

The Assessee filed a writ petition before the High Court seeking refund of the amount due to the assessee from the Department and allowing the to the assessee, the credit of TDS for the AYs 2009-10 to 2012-13 and AY 2015-16. The Allahabad High Court allowed the petition and held as follows:

“i) The Delhi High Court in Its Motion v. Commissioner of Income Tax (Writ Petition (CIVIL) No. 2659 of 2012, decided on 14/03/2013) and in Rakesh Kumar Gupta vs. Union of India and Another (Civil Misc. Writ Petition (Tax) No. 657 of 2013, decided on 06/05/2014) held that in the event the TDS amount is not reflected in Form 26AS, refund must still be provided if the petitioner is able to furnish the Form 16A certificates.

ii) A taxpayer should not be left at the mercy of an Assessing Officer who chooses to delay the payment of genuine refunds. Furthermore, as long as the assessee is able to provide documents proving that tax has been deducted at source, the same has to be accepted by the Assessing Officer, who cannot insist that the amount match the figures in Form 26AS. It is the responsibility of the Assessing Officer to verify the amounts provided by the assessee through the proof of Form 16A.

iii) The assessee in the present case is entitled to receive a refund of the amounts once the 16A forms are accepted by the Income Tax Authority.”

Penalty u/s. 271(1)(c) — Addition made on the basis of ad hoc estimate — No clear finding that there was concealment of income or furnishing of inaccurate particulars of income — Penalty u/s. 271(1)(c) cannot be imposed.

45. Pr.CIT vs. Colo Colour Pvt. Ltd.

2025 (9) TMI 1041 (Bom.)

A. Y. 2011-12: Date of order 16/09/2025

S. 271(1)(c) of ITA 1961

Penalty u/s. 271(1)(c) — Addition made on the basis of ad hoc estimate — No clear finding that there was concealment of income or furnishing of inaccurate particulars of income — Penalty u/s. 271(1)(c) cannot be imposed.

The assessee was engaged in the business of operating a photo studio and trading in photographic material. The assessee filed its return of income declaring total income at ₹4,32,530. Subsequently, the case was re-opened and the assessment was completed u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 assessing the total income at ₹12,32,570 after making an addition of ₹7,40,776 on account of bogus purchases on an estimate basis and addition of ₹59,262 was made towards unexplained commission expenditure on bogus purchases. The assessee did not file an appeal against the said order and agreed to the addition to buy peace and to avoid litigation.

Thereafter, penalty proceedings were initiated u/s. 271(1)(c) of the Act on the ground that the assessee had furnished inaccurate particulars of income and/or had indulged in concealment of income. The Assessing Officer thus levied penalty at 100% of the tax sought to be evaded in respect of the addition made towards bogus purchase and commission on such bogus purchase.

The CIT(A), allowed the appeal of the assessee and it was held that the penalty was not warranted when the addition was made on the basis of ad hoc estimate and further since the assessee had provided details and furnished necessary documents, there was no case of concealment of income or furnishing inaccurate particulars of income. The Department’s appeal before the Tribunal was dismissed as the penalty was levied on the basis of an addition which was made on ad hoc estimate basis.

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

“i) The condition precedent for levy of penalty u/s. 271(1)(c) is only when the Assessing Officer, in the course of proceedings, is satisfied that an assessee has concealed the particulars of his income or has furnished inaccurate particulars of income. Thus, in applying the penalty provisions u/s. 271(1)(c), it was necessary for the assessing officer to reach to a conclusion, that the assessee had consciously concealed the particulars of his income and/or had deliberately furnished inaccurate particulars of income to gain an undue advantage of not offering the real income to tax. A clear subjective satisfaction of these essentials is a sine qua non for the assessing officer to levy a penalty. Penalty proceedings are penal in nature, as the intention of such provisions is to create an effective deterrent, which will restrain the assessee from adopting any practices detrimental to the fair and realistic assessment as the law would mandate.

ii) The approach of the assessee was certainly, not of the nature which can be recognized to involve any concealment of particulars of income and/or furnishing inaccurate particulars of income. The reason being that the penalty could not have been levied when an ad-hoc estimation of the assessee’s income was made by the assessing officer who restricted the profit element in the purchases at 12.5%.

iii) There was no allowance or a basis for the Assessing Officer to reach to a conclusion that this was a case where the provisions of section 271(1)(c) were required to be invoked, to levy a penalty on the ground that the assessee had furnished inaccurate particulars or had concealed its income.

iv) In the assessment proceedings leading to the assessment order passed u/s. 143(3) read with Section 147 of the Act, in so far as the bogus purchases were concerned, the assessee had taken a clear position that the assessee had agreed for the addition to buy peace of mind and to avoid a protracted litigation. Hence, the assessee agreeing with such addition, did not mean that the assessee had accepted, that the assessee had concealed income or furnished inaccurate particulars of income, so as to take a position contrary to the invoices/bills submitted by the assessee supporting its returns. This position not only on the part of the assessee but also on the part of the assessing officer formed the basis of the assessment, leading to the additions as made by the Assessing Officer. Thus, in our clear opinion, there was no warrant for invoking the penalty provision u/s. 271(1)(c) of the Act, as rightly observed in the concurrent findings of the CIT(A) and the Tribunal. It is also a settled position of law that penalty proceedings and assessment proceedings are independent of each other, hence the parameters which are applicable for passing assessment orders are completely distinct from those applicable not only to initiate penalty proceedings but also in passing a penalty order under the provisions of section 271(1)(c) of the Act.

v) In the light of the above discussion, no interference is called for in the orders passed by the Tribunal.”

Miscellaneous Application — Mistake apparent on record — S. 254(2) — Appeal of the assessee was allowed by the Hon’ble Tribunal on the basis of the judgment of the High Courts prevailing at that time — Subsequently, the Hon’ble Supreme Court reversed the view taken by the High Courts — Subsequent decision of the Hon’ble Supreme Court cannot be the basis to invoke section 254(2).

44. Vaibhav Maruti Dombale vs. Asst. Registrar, ITAT

(2025) 178 taxmann.com 447 (Bom)

A. Y. 2019-20: Date of order 12/09/2025

Ss. 36(1)(va), 43B and 254 of ITA 1961

Miscellaneous Application — Mistake apparent on record — S. 254(2) — Appeal of the assessee was allowed by the Hon’ble Tribunal on the basis of the judgment of the High Courts prevailing at that time — Subsequently, the Hon’ble Supreme Court reversed the view taken by the High Courts — Subsequent decision of the Hon’ble Supreme Court cannot be the basis to invoke section 254(2).

The return of income filed by the assessee was processed u/s. 143(1) of the Act wherein an adjustment was made towards the amount received from the employees as contribution to any provident fund, superannuation fund etc. and not paid within the due dates prescribed u/s 36(1)(va) of the Act.

The CIT(A) dismissed the appeal of the assessee on the ground that Explanation 5 inserted u/s. 43B vide Finance Act 2021 was applicable retrospectively and therefore the addition deserved to be sustained. The Tribunal allowed the appeal filed by the assessee. It was held by the Tribunal that the amendment by way of inserting Explanation 5 to section 43B was prospective in nature. Further, the Tribunal held that the controversy was settled by the decision of the Hon’ble Supreme Court in Alom Extrusions 319 ITR 306 and the Hon’ble Bombay High Court in the case of Ghatge Patil Transport Ltd. 368 ITR 749.

Subsequently, the Department filed a Miscellaneous Application by relying on the decision of the Hon’ble Supreme Court in the case of Checkmate Services P. Ltd. and contended that the issue was settled in favour of the Department. It was the case of the Department that the order passed by the Tribunal was rectifiable u/s. 254(2) on the basis the decision of the Hon’ble Supreme Court in the case of Saurashtra Kutch Stock Exchange wherein it was held that non-consideration of subsequent decision of Supreme Court was a rectifiable mistake and the provisions of section 254(2) could be invoked on the basis of subsequent decision of the Supreme Court. The Tribunal allowed the Miscellaneous Application filed by the Department and recalled its order.

Against this order, the assessee filed a writ petition before the High Court. The assessee also filed appeal against the order of the Tribunal where under the appeal filed by the assessee was dismissed.

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

“i) The judgement of the Hon’ble Supreme Court in Saurashtra Kutch Stock Exchange Ltd.( [2008] 173 Taxman 322/305 ITR 227 (SC)) is not an authority for the proposition that the power under Section 254(2) of the IT Act can be invoked on the ground of “mistake apparent from the record” on the basis of a subsequent decision of the Superior Court.

ii) The Hon’ble Supreme Court in the case of Reliance Telecom Ltd. (2021) 133 taxmann.com 41 (SC) holds that the powers u/s. 254(2) of the IT Act are akin to Order 47 Rule 1 of the CPC. The Explanation to Order 47 Rule 1 of the CPC clearly provides that the fact that a decision on a question of law on which the judgement of the Court is based has been reversed or modified by a subsequent decision of a superior court in any other case was not a ground for review of such judgement. Hence, the said Explanation under Order 47 Rule 1 of the CPC expressly bars a review on the ground that there is a mistake apparent on the face of the record on the basis of a subsequent decision of a Court.

iii) A subsequent ruling of a Court cannot be a ground for invoking the provisions of Section 254(2) of the IT Act. Section 254(2) of the IT Act can be invoked with a view to rectify any mistake apparent from the record. Admittedly, on the date when the original order was passed by the ITAT on 5th September 2022, it followed the law as it stood then. This was overruled subsequently by the Hon’ble Supreme Court in Checkmate Services ([2022] 143 taxmann.com 178 (SC)). Hence, we are of the view, that, on the date when the ITAT passed its original order dated 5th September 2022, it could not be said that there was any error or mistake apparent on the record, giving jurisdiction to the ITAT to invoke Section 254(2) of the IT Act.”

Charitable Institution — Exemption u/s. 10(23C)(iv) — Assessee a Institution for promoting trade, commerce and industry — Rejection of application for exemption invoking s. 2(15) for A. Y. 2014-15 — Appeal pending against rejection order — On similar facts and circumstances Tribunal granted exemption u/s. 10(23C)(iv) to assessee for A. Y. 2016-17 and 2017-18 — Matter remanded to the Tribunal for reconsideration — Not challenging order of rejection for A. Y. 2013-14 is assessee’s discretion.

43. Indian Merchants Chamber vs. CIT

(2025) 478 ITR 599 (Bom): 2024 SCC OnLine Bom 4281

A. Y. 2014-15: Date of order 08/03/2024

Ss. 2(15), 10(23C)(iv), 253 and 254 of ITA 1961

Charitable Institution — Exemption u/s. 10(23C)(iv) — Assessee a Institution for promoting trade, commerce and industry — Rejection of application for exemption invoking s. 2(15) for A. Y. 2014-15 — Appeal pending against rejection order — On similar facts and circumstances Tribunal granted exemption u/s. 10(23C)(iv) to assessee for A. Y. 2016-17 and 2017-18 — Matter remanded to the Tribunal for reconsideration — Not challenging order of rejection for A. Y. 2013-14 is assessee’s discretion.

The petitioner is an institution formed and established with the primary object of promoting, advancing and protecting trade, commerce and industry in India. It has been regularly filing return of income since its inception. The Central Government had notified the petitioner as an institution qualifying for this exemption for the A. Ys. 1977-1978 to 2000-2001. Thereafter, up to the A. Y. 2008-2009, the Revenue has granted it exemption u/s. 11 of the Income-tax Act, 1961 as a charitable institution.

According to the assessee, it qualifies for claiming exemption u/s. 10(23C)(iv) of the Act. The Chief Commissioner rejected the assessee’s application for grant of approval u/s. 10(23C)(iv) of the Act for the A. Y. 2014-2015 primarily by invoking the provisions of the proviso to section 2(15) of the Act. According to Chief Commissioner, the assessee is not a charitable institution because it carries on the activities mentioned in the impugned order.

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

“i) For the A. Y. 2016-2017 and the A. Y. 2017-2018, by an order dated September 27, 2022, the Tribunal has set aside the order of rejection passed by CIT (Exemptions) and has held that the petitioner was entitled to exemptions u/s. 10(23C)(iv) of the Act. The petitioner’s application for the A. Y. 2015-2016 is yet to be disposed of by the CIT (Exemptions).

ii) Since the order of the Income-tax Appellate Tribunal for the A. Ys. 2016-2017 and 2017-2018 has been passed after the impugned order was passed, in our view, CIT (Exemptions) should be given an opportunity to apply the law as laid down by the Income-tax Appellate Tribunal.

iii) Mr. Gulabani submitted that the order of the Income-tax Appellate Tribunal for the A. Ys. 2016-2017 and 2017-2018 has been challenged in this court by way of an appeal which is still pending. Mr. Gulabani submitted that, therefore, the Revenue has not accepted the findings of the Income-tax Appellate Tribunal. The apex court in Union of India vs. Kamlakshi Finance Corporation Ltd. [1992 Supp (1) SCC 443.] held that the mere fact that the order of the appellate authority is not “acceptable” to the Department—in itself an objectionable phrase—and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. The court further observed that if this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.

iv) Mr. Gulabani states that a similar order, as impugned in this petition, was passed for the A. Y. 2013-2014 which has not been challenged by the petitioner. In our view, that would make no difference and it is for every assessee to decide whether to accept the order or not to accept. Mr. Mistri submitted that the petitioner is an institution that has been formed and established for promoting, advancing and protecting trade, commerce and industry in India and has been in existence for over 100 years and was established in the year 1907 and the petitioner might have chosen not to contest the order for the A. Y. 2013-2014. But that cannot alter the fact that the law, as laid down by the Income-tax Appellate Tribunal, is the law on the subject.

v) In the circumstances, we hereby quash and set aside the impugned order dated September 23, 2015 and remand the matter to CIT (Exemptions) for de novo consideration. CIT (Exemptions) shall consider and apply the law as laid down by the Income-tax Appellate Tribunal unless CIT (Exemptions) is able to distinguish on the basis of facts. All rights and contentions are kept open.”

Charitable purpose — Exemption u/s. 11 and 12 — Disqualification for exemption where activities in the nature of trade or business carried out — Income from ticket sales by organizing dance events and food stalls — Decision of court in favour of assessee in appeal for earlier assessment years on identical facts and circumstances —Held that organizing cultural events did not constitute business activity to deny exemption and dismissed the appeal filed by the Department.

42. CIT (Exemption) vs. United Way of Baroda

(2025) 478 ITR 530 (Guj): 2024 SCC

OnLine Guj 4431

A. Y. 2015-16: Date of order 22/01/2024

Ss. 2(15), 11, 12 and 13(8) of ITA 1961

Charitable purpose — Exemption u/s. 11 and 12 — Disqualification for exemption where activities in the nature of trade or business carried out — Income from ticket sales by organizing dance events and food stalls — Decision of court in favour of assessee in appeal for earlier assessment years on identical facts and circumstances —Held that organizing cultural events did not constitute business activity to deny exemption and dismissed the appeal filed by the Department.

For the A. Y. 2015-16, the assessee, a trust, which organized dance events during festivals, earning income from ticket sales and food stalls filed a nil return claiming exemption u/s. 11 and 12 of the Income-tax Act, 1961. The Assessing Officer denied exemption treating these activities as business under the proviso to section 2(15) and accordingly made disallowances.

The CIT(Appeals) partly allowed the assessee’s appeal. The Tribunal confirmed the order of the CIT(Appeals).

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

“The assessee’s own case for the A. Y. 2014-15, on identical facts and circumstances concurrently found by the appellate authorities, had already been dismissed by the court in the appeal of the Department u/s. 260A holding, inter alia, that organizing dance events could not be termed as a business there were no distinguishing facts to take a different view for the subsequent A. Y. 2015-16.”