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Category: Direct Taxes

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.”

Capital Gains — Immovable Property — S. 50C — Sale of immovable property at or above Stamp Duty Value (SDV) — Subsequent increase in SDV — SDV at the time of agreement to sell has to be considered — Subsequent increase in SDV at the time of execution of Sale Deed not to be considered — Proviso to section 50C applicable retrospectively.

41. Pr.CIT vs. Thompson Press (India) Ltd.

(2025) 176 taxmann.com 237 (Del)

A. Y. 2014-15: Date of order 02/07/2025

S. 50C of ITA 1961

Capital Gains — Immovable Property — S. 50C — Sale of immovable property at or above Stamp Duty Value (SDV) — Subsequent increase in SDV — SDV at the time of agreement to sell has to be considered — Subsequent increase in SDV at the time of execution of Sale Deed not to be considered — Proviso to section 50C applicable retrospectively.

One LMIL, sold land to one MIPL which belonged to the Maccons Group. The agreement to sell was entered amongst the parties on 30/05/2013 and on the same day stamp duty of ₹72 lakhs was paid by the purchaser, that is, MIPL. The said land admeasuring about 20,000 square meters was sold by LMIL at the rate of ₹18,000 per square meter viz. for total consideration of ₹36 crores. Thereafter, LMIL merged into the assessee company.

Subsequently, a search was conducted at the residential and business premises of the Maccons Group on 27/11/2014. During search, sale deed dated 11/10/2013 executed by LMIL was found. The Stamp Duty Value of the property on the date of execution of sale deed was traced to ₹28,000 per square feet and therefore, it was the view of the Department that the consideration should have been ₹56 crores as against ₹36 crores offered by the assessee. This information was received by the Assessing Officer and notice was issued to re-open the assessment. The proceedings were completed vide order dated 05/12/2018 wherein addition u/s. 50C of the Act was made on account of the difference in the sale consideration taken into account by the assessee and the SDV on the date of execution of the agreement.

On appeal, both, the CIT(A) as well as the Tribunal decided the issue in favour of the assessee, and held that the addition made by the Assessing Officer was not warranted since the assessee had entered into transaction prior to the increase in the circle rates and that the assessee had paid the stamp duty on the date of entering into agreement to sell.

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

“i) It is at once clear that no substantial questions of law arise in the facts of the present case. The issue sought to be raised on behalf of the revenue is whether the proviso to section 50C is applicable retrospectively. However, in view of the express finding that the transaction was at the value which is commensurate with the circle rate at the material time, the fact that the circle rate had been increased subsequently would have little effect for the purposes of section 50C.

ii) The issue involved in the present case is also covered by an earlier decision of this Court in Pr. CIT vs. Modipon Ltd. [IT Appeal No.543 of 2015, dated 30/01/2017]. In the said case, the parties had entered into an agreement to sell, which was duly registered prior to 16/09/2004. The said agreement stipulated a schedule for payment of consideration of the subject immovable property. The parties had adhered to the said schedule and had thereafter entered into a sale deed on 16/09/2004. However, on 16/09/2004, the circle rate was revised upwards. In the aforesaid context, the revenue had contended that the circle rate, as on the date of the sale deed, was required to be considered for the purposes of section 50C. This Court had rejected the said contention holding that where there is adequate external evidence supporting the assessee’s case that the transaction has been recorded and been reflected objectively in the form of a registered instrument (agreement to sell dated 27/05/2004), and all subsequent payments made have adhered to the time schedule agreed upon in respect of the amounts, the application of section 50C would be unwarranted.

iii) The Tribunal’s conclusion that the transaction was covered by two deeds, both of which characterised as sale deeds though not strictly correct in one sense, describes the nature of the agreements between the parties. Quite possibly there can be a situation like the present one where transaction recorded in the agreement to sell are acted upon over a period of time and in the interregnum the circle rates are increased. Application of section 50C in such cases would result in extreme hardship.

iv) Parliament has recognized this mischief and has added proviso to section 50C(i) with effect from 01/04/2017. Having regard to the forgoing reasons, no question of law arises; the appeal is accordingly dismissed.

Section 254(2) – Rectification – Miscellaneous Applications before ITAT – ITAT the last fact finding authority under the Act – Non consideration of the judgments, which, at least prima facie were relevant, would certainly amount to a mistake apparent from the record.

Gulermak TPL Joint Venture vs. Income Tax Appellate Tribunal & Ors. WITH Gulermak TPL Joint Venture vs. Income Tax Appellate Tribunal & Ors.

[WRIT PETITION (L) NO.27895 OF 2025 dated 30th September 2025 (Bombay) (HC)] Assessment year 2017-18 and 2018-19

Section 254(2) – Rectification – Miscellaneous Applications before ITAT – ITAT the last fact finding authority under the Act – Non consideration of the judgments, which, at least prima facie were relevant, would certainly amount to a mistake apparent from the record.

The Petitioner is an un-incorporated joint venture between Gulermak Agir Sanayi Insaat Ve Taahhut Sirketi, a company incorporated under the laws of Turkey, and registered in India under Section 380 of the Companies Act, 2013, and Tata Projects Limited, a company incorporated under the Companies Act, 1956. The joint venture was formed by the parties to obtain and execute a contract with Lucknow Metro Rail Corporation Limited (“LMRCL“), a nodal agency established for the purpose of administering and regulating the Lucknow Metro Rail to be constructed in the city of Lucknow.

On 27th May 2016, the Petitioner had entered into a contract with LMRCL under which the Petitioner was to design and construct an underground tunnel and 3 underground metro stations for fixed consideration. The agreement entered into by the Petitioner, inter alia, imposed various obligations upon it regarding designing, procurement of labour and material, testing of the work, obtaining necessary permissions, employing its materials, plant and labour to complete execution of the construction of the tunnel/metro stations, taking financial risk and guaranteeing the quality of its work, providing/obtaining insurance, warranties etc.

For the Assessment Year 2017-18, the Petitioner had filed its return of income claiming a deduction under Section 80-IA of the Act for developing an infrastructure facility on the profits earned from the aforesaid contract with LMRCL. The Assessing Officer denied the deduction under Section 80-IA of the Act on various grounds, two of which are relevant, viz. that (a) the Petitioner was only a contractor and not a developer of the infrastructure facility; and (b) the condition set out in Section 80-IA(4) (i)(b) of the Act was not satisfied as the agreement was not entered into with Central Government, State Government, Statutory Authority or a Local Authority.

The Petitioner had challenged the denial of deduction under Section 80-IA by filing an Appeal before the Commissioner (Appeals). The first Appellate Authority, confirmed the disallowance made by the Assessing Officer under Section 80-IA of the Act. The Petitioner therefore approached the Tribunal challenging the order of the Commissioner (Appeals) approving the disallowance under Section 80-IA of the Act.

During the course of the hearing of the Appeal before the Tribunal, the Petitioner pointed out the various clauses in the agreement entered into with LMRCL, analysed the facts of the case, and urged, inter alia, that various binding decisions of the High Courts and Co-ordinate benches of the Tribunal had settled the tests to be considered when deciding the issue of whether a person was a developer entitled to deduction under Section 80-IA, or a mere contractor. The Petitioner had filed a detailed and comprehensive note setting out the various clauses of the agreements and facts, as well as the binding decisions on the issue, which, accordingly to the Petitioner, would irrefutably lead to the conclusion that the Petitioner was a developer entitled to the deduction under Section 80-IA of the Act. The Petitioner also pointed out (and cited authority on the subject) that the statute had been amended w.e.f. 1st April 2002 and it had been made clear that an assessee was entitled to a deduction under Section 80-IA, even if its business was merely developing an infrastructure facility, as opposed to developing operating and maintaining the said facility.

The Petitioner contented that the Tribunal was satisfied with these contentions and required the Petitioner’s counsel to move on to other grounds in the cross appeals before it. The said note also set out the various decisions including the decision of the Gujarat High Court in CIT vs. Ranjit Projects Pvt Ltd [(2018) 94 taxmann.com 320 (Guj)], SLP dismissed in CIT vs. Ranjit Projects Pvt Ltd [(2019) 105 taxmann.com 126 (SC)], which had held that a contract executed with a Special Purpose Vehicle (SPV) / Nodal Agency, whose entire share capital was held by a State Government [like LMRCL] would be entitled to a deduction under the said section, and was not in contravention of the condition specified in Section 80-IA(4)(i)(b) of the Act. As required by the Tribunal, during the hearing of the appeal the Petitioner also set out in the form of another note a detailed reply to the arguments of the Revenue’s counsel which once again set out the nature of contracts, which were the subject matter of the binding precedent, and the fact that they had also been entered into with SPV’s / Nodal Agencies and replied to all other arguments of the Revenue.

The Tribunal in a cursory manner, by order dated 29th January 2025 dismissed the Appeal of the Petitioner and confirmed the disallowance of deduction under Section 80-IA of the Act, purportedly on the grounds that (a) the Petitioner was not developing the infrastructure facility and was only a contractor; and (b) the agreement with LMRCL does not satisfy the requirement of having an agreement with the Central Government, State Government, Statutory Authority or a local Authority under Section 80-IA(4)(i)(b) of the Act. While setting out the aforesaid conclusions, the Tribunal did not refer to the 2 detailed notes filed by the Petitioner during the course of the hearing which captured various contentions, did not refer to the material on record, or even the terms of the contract, and simply did not deal with the binding judgments of the co-ordinate benches of the Tribunal and the High Courts. Merely bare conclusions were recorded, based on, inter alia, erroneous factual assumptions and presumptions. On the other issues raised in the Appeal the Tribunal has not recorded any finding against the contentions urged by the Petitioner.

Since the order dated 29th January 2025 [passed under Section 254(1) of the Act] did not deal with the various contentions of the Petitioner, did not refer to or consider the evidence on record including the binding judgments on the subject, and suffered from various other mistakes apparent from the record, the Petitioner filed a Miscellaneous Application under Section 254(2) of the Act for rectification of the order dated 29th January 2025. The said Miscellaneous Application exhaustively set out the mistakes apparent from record. However, the Tribunal, vide order dated 30th July 2025, dismissed the Miscellaneous Application on, inter alia, the ground that it was not necessary to deal with each and every clause of the contract entered into with LMRCL or the judicial decisions relied upon by the Petitioner, which were all ignored stating that the same were “fact specific” without in any manner setting out how this conclusion was arrived at. The Tribunal further held that merely because it has not specifically discussed various clauses of the agreement or the judicial precedents cited in the body of the order, there was no mistake apparent from the record. In this regard, the Tribunal relied on the judgement of this Court in CIT vs. Ramesh Electric and Trading Co. [(1994) 203 ITR 497 (Bom.)] and the judgment of the Supreme Court in case of CIT vs. Reliance Telecom Limited [(2022) 440 ITR 1 (SC)].

The Hon’ble Court re-iterated that the Tribunal is the last fact-finding authority under the Act. Therefore, it is necessary that the Tribunal while deciding an Appeal, considers the entire material on record and thereafter decides the factual and legal issues that arise in an Appeal. It is the duty of the Tribunal to examine the evidence which is brought on record by the parties and render findings of facts and law, as an Appeal before the High Court is entertained only on a substantial question of law. The Court referred to the Supreme Court decision in the case of Omar Salay Mohammed Sait vs. CIT [(1959) 37 ITR 151 (SC)] ; Esthuri Aswathiah vs. CIT [(1967) 66 ITR 478 (SC)] ; Killick Nixon & Co. vs. [CIT (1967) 66 ITR 714 (SC)]

Applying the principles laid down by the Hon’ble Supreme Court in the aforesaid judgments, the Court held that the order dated 29th January 2025 passed by the Tribunal falls short of the requirements set out by the Supreme Court in the abovementioned judgments. The Tribunal had not considered the evidence on record and had merely recorded bare conclusions without setting out any reasons in support thereof. The Tribunal, while coming to the conclusion that the Petitioner was a mere contractor and not a developer, had failed to consider various clauses of the agreement with LMRCL. It was incumbent upon the Tribunal to consider various clauses in the agreement with LMRCL .

The Hon’ble High Court observed that the aforesaid clauses in the agreement with LMRCL were material to determine whether the Petitioner was acting as a mere contractor or, it was a developer of the infrastructure facility undertaking operational, financial and entrepreneurial risk in execution of the aforesaid contract. The conclusion of the Tribunal that the Petitioner was a mere contractor without considering the various clauses of the agreement and other material placed on record clearly rendered the order of the Tribunal as one which suffered from a mistake apparent from the record.

The Court further observed that the Petitioner during the course of the hearing had filed a note which referred to the aforesaid clauses in the agreement and had also relied upon the judgments of the co-ordinate benches of the Tribunal and the High Courts to support its contention that it was a developer of the infrastructure facility. However, (apart from a single decision noted by the Tribunal in an erroneous context), none of the judgments relied upon by the Petitioner were referred to, much less considered, by the Tribunal in the order dated 29th January 2025. In fact, when the Petitioner in the Miscellaneous Application [filed under section 254(2) of the Act] pointed out that the Tribunal has failed to consider the various clauses in the agreement and the judicial pronouncements on the subject, the Tribunal dismissed the Application of the Petitioner holding that it was not necessary to refer to each and every clause of the agreement and that judgments filed by the Petitioner were fact specific without pointing out as to what are the distinguishing facts. Therefore, the order of the Tribunal dated 29th January 2025 passed under section 254(1) of the Act clearly suffered from a mistake apparent from the record.

The Court observed that the Tribunal in the order dated 29th January 2025 had not considered the ratio laid down by the aforesaid judgments relied upon by the Petitioner during the course of the hearing. The Court noted that the Tribunal has instead incorrectly referred to the judgment of Gujarat High Court in case of Ranjit Projects (supra) to decide the issue of “contractor or developer”. The aforesaid judgment was not cited by the Petitioner for that purpose as was evident from the note submitted before the Tribunal. The Tribunal therefore, had failed to properly consider the judgment of the Gujarat High Court in case of Ranjit projects (supra). Non consideration of the judgments, and which, at least prima facie were relevant, would certainly amount to a mistake apparent from the record.

The failure of the Tribunal to consider the contentions urged before it, the material on record, and failure to consider the judgments cited before it, amounted to a mistake apparent from record, is supported by the judgment of the Court in the case of Amore Jewels Pvt. Ltd. vs. DCIT (WP No. 1833 of 2018 decided on 3rd August 2018) wherein a similar issue arose for consideration.

Similarly, in the case of Sony Pictures Networks India (P.) Ltd. vs. ITAT [(2023) 156 taxmann.com 443 (Bom.)], the Court had held that the failure of the Tribunal to decide a fundamental submission of an assessee in an appeal is a mistake apparent from record.

Further, the Hon’ble Supreme Court, in the case of CCE vs. Bharat Bijlee Limited [(2006) 198 ELT 489 (SC)], had also held that the failure of the Tribunal to consider material evidence on record is a mistake apparent rectifiable under section 35C(2) of the Central Excise Act, 1944, which provisions are in pari materia with the provisions of section 254(2) of the Income-tax Act, 1961.

The Court further held that the reliance placed by the counsel for the Revenue on the judgments in the case of Ramesh Electric (supra) and Reliance Telecom (supra) was wholly misconceived.

The Impugned Order dated 30th July 2025 and also the order dated 29th January 2025 passed under section 254(1) of the Act suffered from mistakes apparent from the record and the Tribunal was directed to decide the appeals of the Petitioner afresh in accordance with law.

Section 119(2)(b) – Application for condonation of delay in filing Form No. 10B – the delay was neither deliberate nor mala fide but was on account of inadvertence of the accountant of the auditor – technical lapse.

16. Vesava Koli Samaj Shikshan Sanstha, Mumbai vs. Commissioner of Income (Exemption), Mumbai & Ors [WRIT PETITION NO. 2906 OF 2025 dated 17th September 2025 (BOM) (HC)] (Assessment Year 2019-20.)

Section 119(2)(b) – Application for condonation of delay in filing Form No. 10B – the delay was neither deliberate nor mala fide but was on account of inadvertence of the accountant of the auditor – technical lapse.

The Petitioner is a registered Public charitable trust running an educational institution, consisting of Pre-primary, Primary and secondary classes upto 10th Standard. For A.Y. 2019-20, the Petitioner filed its return of income on 30th September, 2020 declaring NIL income. The audit report in Form No. 10B had been obtained on 30th September, 2019, but the same was uploaded on the portal only on 30th March, 2021. The delay occurred as the auditor’s accountant, while filing the return of income, inadvertently failed to upload the audit report, though reference thereto was made in the return itself.

The CPC, Bengaluru thereafter, on 23rd November 2021, passed an intimation under section 143(1) of the Act determining the total income of the Petitioner as ₹2,52,88,547 and raised a demand of ₹1,30,48,480. The Petitioner then moved an application before Respondent No. 1 on 30th December, 2022 seeking condonation of delay of 181 days in filing Form No. 10B, supported by explanations, affidavit of the Trustee, and other documents.

Respondent No. 1, by the impugned order dated 26th March, 2025, rejected the condonation application on the ground that no “reasonable cause” was shown for the delay, holding that the audit report was not furnished within the extended due date of 30th September, 2020.

The Hon’ble High Court held that the delay was neither deliberate nor mala fide but was on account of inadvertence of the accountant of the auditor. The Petitioner, a charitable educational trust, had otherwise complied with the statutory requirements, obtained the audit report in time, and filed it immediately upon noticing the lapse. The explanation offered has not been found to be false, and the Petitioner has annexed documentary proof including the affidavit of the Trustee confirming the circumstances.

Further, the Hon’ble High Court held that, refusal to condone the delay results in grave financial hardship to the Petitioner, which runs only an educational institution, especially when the demand has arisen solely on account of a technical lapse. Considering the beneficial object of section 119(2)(b) and the CBDT circulars empowering condonation in genuine cases, the Court was satisfied that the Petitioner is entitled to relief. Therefore, the Hon’ble High Court quashed and set aside the impugned order dated 26th March, 2025 passed by Respondent No. 1 under section 119(2)(b) of the Act. Also, the Court condoned the delay of 181 days in filing Form No. 10B for A.Y. 2019-20.

Disallowance of Chapter via – Part C Deductions U/S 143(1) In Case Of Belated Return

ISSUE FOR DISCUSSION

Section 80AC of the Income Tax Act, 1961 (“the Act”) provides that, from assessment year 2018-19 onwards, where any deduction is admissible under Part C of Chapter VI-A (including section 80P), the deduction shall not be allowed unless the assessee furnishes a return of income on or before the due date specified under section 139(1) of the Act.

Section 143(1)(a) provides for certain adjustments when processing the return of income. Clause (v) of that section, as it stood from AY 2018-19 to AY 2020-21, provided for disallowance of deduction claimed under sections 10AA, 80-IA, 80-IB, 80-IC, 80-ID or 80-IE, if the return was furnished beyond the due date prescribed under section 139(1). With effect from AY 2021-22, the scope of the disallowance is widened. It now provides for disallowance of deduction claimed under section 10AA or Part C of Chapter VI-A under specified circumstances.

The issue has arisen before the Tribunal for the periods from AY 2018-19 to AY 2020-21, whether belated filing of return of income could attract disallowance of deduction claimed under any of the sections of Part C of Chapter VI-A, such as under section 80P, while processing the return of income under section 143(1)(a). In other words, whether an adjustment can be made by disallowing a deduction claimed, under one of the sections of chapter VI-A, which is otherwise not specified explicitly in section 143(1)(a). While the Mumbai bench of the Tribunal has taken the view that such adjustment could be made by the AO, the Rajkot, Chandigarh and Nagpur benches have taken a contrary view, holding that such adjustment could not be made under section 143(1)(a) while processing the return of income.

JANKI VAISHALI CO-OP HOUSING SOCIETY’S CASE

The issue first came up before the Mumbai bench of the Tribunal in the case of Janki Vaishali Co-op Housing Society Ltd, in ITA No 944/MUM/2024, order dated 31.10.2022.

The assessee filed its return of income for AY 2018-19, which was due on 31st October 2018, on 24th December 2018, claiming deduction under section 80P(2)(d) of ₹ 2,96,681, in respect of interest earned from co-operative banks. The assessee’s return was processed under section 143(1), disallowing the assessee’s claim of deduction under section 80P(2)(d) by invoking the provisions of sub-clause (v) of clause(a) of s. 143(1) of the Act .

The CIT(A) dismissed the assessee’s appeal, on the ground that since the income tax return was filed beyond the due date under section 139(1), the benefit of deduction under section 80P could not be allowed to the assessee.

Before the Tribunal, on behalf of the assessee, it was argued that section 80AC as applicable for assessment year 2018-19 had no application in respect of deduction claimed under section 80P. It was also claimed that the provisions of section 80AC were only applicable in respect of deductions claimed under sections 80IA, 80IB, 80IC, 80ID and 80IE. The provisions of section 80AC were amended by the Finance Act 2018 with effect from 1 April 2018 to include all deduction claims under part C of Chapter VI-A. It was therefore claimed (though incorrectly) that deduction under section 80P was not covered by section 80AC.

On behalf of the Department, it was argued that the assessee had filed its return of income beyond the due date, and hence was not eligible for deduction under section 80P, in light of the provisions of section 80AC.

The Tribunal observed that it was undisputed that the assessee had filed its return of income beyond the due date of filing the return of income under section 139(1) for the assessment year 2018-19. The solitary reason for denying benefit of deduction under section 80P was that the return filed by the assessee for the relevant assessment year was beyond the due date.

The Tribunal examined the provisions of section 80AC prior to the amendment made by the Finance Act 2018, and post such amendment. It observed that perusal of the unamended provision would show that there was no restriction for claiming deduction under section 80P. The restriction was then limited only to the specified sections mentioned in section 80AC. It further observed that the scope of the section was enlarged by the Finance Act of 2018 to include all deductions admissible under part C of Chapter VI-A – Deduction in Respect of Certain Incomes.

The Tribunal noted that the substituted section with effect from 1 April 2018 would be applicable to assessment year 2018-19, and in respect of deductions claimed under section 80P as well. Since the substituted provisions of section 80AC would be applicable for the relevant assessment year, the Tribunal held that the CIT(A) had rightly rejected the appeal of the assessee.

The Tribunal accordingly rejected the appeal of the assessee, holding that the disallowance of deduction under section 80 P was justified.

AMBARADI SEVA SAHKARI MANDAL’S CASE

The issue came up again before the Rajkot bench of the Tribunal in the case of Ambaradi Seva Sahkari Mandali Ltd vs. Dy CIT, ITA No 186/RJT/2022 decided on 10 February 2023, along with Dhareshwar Seva Sahakari Mandali Ltd vs. Dy CIT, ITA No 197/RJT/2022, Shree Sanaliya Seva Sahakari Mandli Ltd vs. Addl DIT, ITA N0 204/RJT/2022, and Amrutpur Seva Sahakari Mandali Ltd vs. Addl DIT, ITA N0 203/RJT/2022 all cases pertaining to assessment year 2019-20.

The assessee was a co-operative society registered under the Mumbai Co-operative Societies Act, 1925, with the object and activities of providing credit facilities to its members, as well as providing facilities to members for purchase of agricultural implements, seeds, livestock or other articles for agricultural activities.

The original return of income for the year was filed on 30 November 2020, declaring total income of ₹ NIL, after claiming deduction of ₹ 18,20,276 under section 80P. The assessee received a communication under section 143(1)(a) from CPC dated 8th December 2020, proposing adjustment under section 143(1)(a) to the returned income, for denial of deduction of ₹ 18,20,276 claimed under section 80P. It was stated in the notice by the CPC that the assessee had made an incorrect claim by way of deduction under section 80P, which was capable of adjustment under section 143(1)(a)(ii), as the return of income was not filed within the due date.

The assessee filed a response in reply to the communication under section 143(1)(a), stating that the return of income was filed under section 139(4), and that the provisions of section 143(1)(a)(b) did not provide for denial of deduction under section 80P, even when the return of income was not filed within the time limit as per section 139(1). Therefore, the assessee claimed that the denial of deduction under section 80P vide intimation under section 143 (1) was not valid in law. The assessee also submitted that the said adjustment could not be called a prima facie adjustment. The assessee thereafter received an intimation under section 143(1) dated 22nd December 2020, denying deduction under section 80P, and determining total income at ₹18,20,276.

The CIT(A) upheld the prima facie adjustments applying the provisions of section 80AC(ii). He held that since the above amended provisions were effective from 1st April 2018, and as the return was filed beyond the due date mentioned in section 139(1), the disallowance of deduction under section 80P was correctly made. He therefore dismissed the appeal of the assessee.

Before the Tribunal, on behalf of the assessee, it was submitted that the return was not filed as per section 139(1), but was within the time limit of due date under section 139(4). Therefore, the rejection of return could not be the criteria. It was further argued that a debatable issue in respect of prima facie adjustment could not be considered by disallowing the claim under section 80 P, which was available to the assessee.

It was submitted on behalf of the assessee that the decision of the Madras High Court in the case of Veerappampalayam Primary Agricultural Co-operative Credit Society Ltd vs. DyCIT 321 CTR (Mad) 163, which was relied upon by the CIT(A), was not applicable in the present case as the Kerala High Court, in the case of Chirakkal Service Co-operative Bank Ltd vs. CIT 384 ITR 490, specifically stated that in cases where returns had been filed, the question of exemption or deductions referable to section 80P would definitely have to be considered and granted if eligible. In that case, the Kerala High Court specifically observed that the Tribunal was not justified in denying deduction under section 80P. Reliance also placed on behalf of the assessee on the decisions of the Tribunal in the cases of Lanjani Co-operative Agri Service Society Ltd vs. DyCIT 146 taxmann.com 468 (Chd) and Medi Seva Sahakari Mandali Ltd vs. Addl DIT, ITA No 38/RJT/2022, order dated 31st October 2022.

On behalf of the revenue, it was argued that the Madras High Court had given a categorical finding that it was an administrative order, and the adjustment was properly done by the AO, as the return was filed beyond the due date under section 139(1). It was submitted that the returns in all the four cases had been filed beyond the due date of their filing as per the date specified in section 139(1). It was further submitted that the CPC was justified in processing the returns of income under section 143(1)(a)(ii), disallowing the claim of deduction under section 80P, as the returns were not filed within the due date.

It was further contended on behalf of the revenue that the only remedy to the solution lay in the machinery provisions of the Act, rather than seeking regular remedy, through resort to section 119(2)(b), which enabled an assessee to approach the CBDT for seeking relief in such matters. Section 119 did not give powers to appellate authorities in such cases.

Reliance was further placed on behalf of the revenue on the decision of the Madras High Court in Veerappampalayam Primary Agricultural Co-Operative Society Ltd (supra), where the court had decided the matter in favour of the revenue holding that prima facie adjustment under section 143(1)(a) was possible. The High Court had observed that the provisions of section 80AC(ii) were very clear in the sense that any deduction claimed under Part C of Chapter VIA would be admissible only if the return of income was filed within the prescribed due date, that the date of filing of the return of income would be apparent from the return itself, that the AO could draw an inference whether the return was filed within the statutory limit prescribed under section 139(1), which was basically a mechanical exercise and within the scope of section 143(1)(a)(ii). Reliance was also placed on the decision of the Mumbai Tribunal in the case of Janki Vaishali Co-operative Housing Society Ltd (supra).

Reliance was also placed by the revenue on the decision of the Supreme Court in the case of Prakash Nath Khanna vs. CIT 135 Taxman 327 (SC), wherein the Supreme Court had held that the time within which the return was to be furnished was indicated only in sub-section (1) of section 139 and not in sub-section (4), and therefore a return filed under section 139(4) would not dilute the fact that the return was filed after the due date. It was argued that the Kerala High Court had not considered this Supreme Court decision, nor had it considered the machinery provisions of section 119(2)(b).

The Tribunal noted the fact that though the return was not filed before the due date specified under section 139(1), it was filed prior to the due date under section 139(4). It noted the decision of the Kerala High Court in the case of Chirakkal Service Co-operative Bank Ltd (supra), where the Kerala High Court had observed that denial of exemption under section 80P merely on the ground of belated filing of return by the assessee was not justified.

The Tribunal observed that the decision of the Madras High Court in the case of Veerappampalayam Primary Agricultural Co-Operative Society Ltd (supra) would not be applicable in the case before it, as whether the assessee therein had filed the return of income beyond the due date under section 139(4) or not had not been taken into account by the Court. According to the Tribunal, the issue was squarely covered by the decision of the Kerala High Court.

The Tribunal therefore allowed the appeals of the assessees.

This decision of the Rajkot bench of the Tribunal has been followed by the same bench in Lunidhar Seva Sahkari Mandali Ltd vs. AO (CPC) 200 ITD 14, by the Chandigarh bench of the Tribunal in the case of Chaplah Co-operative Agricultural Service Society Ltd vs. ITO, 38 NYPTTJ 1292 (Chd) and by the Nagpur bench of the Tribunal in the case of Somalwar Academy Education Societies Employees Co-op. Credit Society, ITA No 17/Nag/2023 dated 18.9.2025.

OBSERVATIONS

The issue moves in a narrow compass. While s. 80AC provides for disallowance of a deduction claimed under any of the sections of chapter VIA of the Act w.e.f A.Y. 2018-19, the provisions of s. 143(1)(a) permit adjustment to the returned income for the relevant period only in respect of those deductions specified in s. 143(1)(a) namely, s. 10AA, 80-IA, 80-IB, 80-IC, 80-ID or 80-IE, and not all those which are specified in chapter VI–A. There is no dispute that a claim made under a belated return of income would be disallowed in an assessment if made under s. 143(3) or any other applicable provisions; the dispute is limited to the issue whether such a deduction claimed in a belated return of income during the relevant period, can be disallowed in processing the return of income under the powers of the AO vested at the relevant time under s. 143(1)(a) permitting him to make the authorised adjustments. The larger issue about the possibility of disallowance at all even in cases of regular assessment where the return of income is belatedly filed under s.139(4) is not tested or examined here.

An important aspect of the decision of the Mumbai bench requires to be noted that the Mumbai bench, in deciding the issue before it, examined the provisions of s. 80AC without examining he applicability of the provisions of s. 143(1(a)(v) at all. Had it done so, or had the distinction between the two been brought to its notice, we are sure that the decision could not have been what has been delivered. Even where it is granted that the provisions of s. 80AC did permit the disallowance by an AO, the issue that was before the bench was whether the said provisions of s.80AC could be applied in determining the total income under s.143(1) by making adjustments that were limited to those specified in sub-clause(v) of clause(a).

Before the Rajkot bench, the revenue had placed significant reliance on the Madras High Court decision in Veerappampalayam’s case(supra). This was a writ petition, where the Madras High Court, while dismissing the writ petition, observed:

“The conduct of the petitioners is also relevant. Not only have the returns been filed belatedly but the petitioners have also chosen not to co-operate in the conduct of assessment. They are admittedly in receipt of the defect notices from the CPC, but have not bothered to respond to the same. The writ petitions have themselves been filed belatedly and after the elapse of more than six to eight months from the dates of impugned orders, in all cases. It is only when the Revenue has initiated proceedings for recovery by attachment of bank accounts have the petitioners approached this Court. This factor also strengthens my resolve that these are not matters warranting interference in terms of Article under section 226 of the Constitution of India, quite apart from the decision that I have arrived at on the legal issue.”

Therefore, that decision of the Madras High court was found by the Rajkot bench to be significantly influenced by the inaction of the petitioners in Veerappaamalayam’ case, and the petitioner in that case belatedly approaching the Court. Besides, as observed by the Rajkot bench of the Tribunal, from the facts before the Madras High Court, it was not clear whether the returns were filed within the time specified under section 139(4). The Rajkot bench chose to hold that the ratio of the Madras High court decision was applicable to the peculiar facts of the case before the court.

On the other hand, the Rajkot bench derived support from the decision of the Kerala High Court in the case of Chirakkal Service Co-operative Bank Ltd (supra) that dealt with the period prior to amendment of section 80AC itself. The Kerala High Court observed as under:

“18. Questions B and C relate to denial of exemption on ground referable to belated filing of return, that is to say, returns filed beyond the period stipulated under section 139(1) or section 139(4), as the case may be, as well as section 142(1) or section 148, as the case may be. There are no cases among these appeals where returns were not filed. There are cases where claims have been made along with the returns and the returns were filed within time. Still further, there are cases where returns were filed belatedly, that is to say, beyond the period stipulated under sub-section 1 or 4 of section 139; and, there are also returns filed after the period with reference to sections 142(1) and 148 of the IT Act.

19. Section 80A(5) provides that where the assessee fails to make a claim in his return of income for any deduction, inter alia, under any provision of Chapter VIA under the heading “C.-Deductions in respect of certain incomes”, no deduction shall be allowed to him thereunder. Therefore, in cases where no returns have been filed for a particular assessment year, no deductions shall be allowed. This embargo in section 80A(5) would apply, though section 80P is not included in section 80AC. This is so because, the inhibition against allowing deduction is worded in quite similar terms in sections 80A(5) and 80AC, of which section 80A(5) is a provision inserted through the Finance Act 33/2009 with effect from 1.4.2013 after the insertion of section 80AC as per the Finance Act of 2006 with effect from 1.4.2006. This clearly evidences the legislative intendment that the inhibition contained in sub-section 5 of section 80A would operate by itself. In cases where returns have been filed, the question of exemptions or deductions referable to section 80P would definitely have to be considered and granted if eligible.

20. Here, questions would arise as to whether belated returns filed beyond the period stipulated under section 139(1) or section 139(4) as well as following sections 142(1) and 148 proceedings could be considered for exemption. If those returns are eligible to be accepted in terms of law, going by the provisions of the statute and the governing binding precedents, it goes without saying that the claim for exemption will also stand effectuated as a claim duly made as part of the returns so filed, for due consideration.

21. When a notice under section 142(1) is issued, the person may furnish the return and while doing so, could also make claim for deduction referable to section 80P. Not much different is the situation when pre-assessment enquiry is carried forward by issuance of notice under section 142 (1) or when notice is issued on the premise of escaped assessment referable to section 148 of the IT Act. This position notwithstanding, when an assessment is subjected to first appeal or further appeals under the IT Act or all questions germane for concluding the assessment would be relevant and claims which may result in modification of the returns already filed could also be entertained, particularly when it relates to claims for exemptions. This is so because the finality of assessment would not be achieved in all such cases, until the termination of all such appellate remedies. Under such circumstances, the Tribunal was not justified in denying exemption under section 80P of the IT Act on the mere ground of belated filing of return by the assessee concerned. A return filed by the assessee beyond the period stipulated under section 139(1) or 139(4) or under section 142(1) or section 148 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the IT Act. In all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non est in law and invalid for the purpose of deciding exemption under section 80P of the IT Act.”

The Mumbai bench of the Tribunal, while dealing with the provisions of section 80AC, did not consider the aspect of whether the disallowance of the deduction under section 80P was permissible under section 143(1)(a), particularly the fact that sub-clause (v) of clause(a) of sub-section(1) of section 143, as it then stood, permitted the adjustments only in respect of those specifically referred sections 10AA, 80IA, 80IB, 80IC, 80ID and 80IE, for disallowance of deduction if the return was filed beyond the due date specified under section 139(1). The provisions of section 143(1)(a) were specifically modified only with effect from AY 2021-22, to amend clause (v) to include all deductions under part C of Chapter VIA – disallowance of deduction claimed under section 10AA or under any of the provisions of Chapter VIA under the heading C- Deductions in respect of Certain Incomes, if the return is furnished beyond the due date specified under sub-section (1) of section 139. This amendment in s. 143(1)(a)(v), to match the language of section 80AC, was made by the Finance Act 2021 with effect from AY 2021-22. The amendment is not made retrospectively applicable. Therefore, it appears that the intention before the amendment was only to cover the then specified sections for adjustment under section 143(1)(a) till AY 2020-21, and not to include deduction under section 80P for such adjustment.

It may be noted that subsequently the CBDT issued circular No. 13 of 2023 dated 26 July 2023, directing the Chief Commissioners of Income Tax/Directors-General of Income Tax to admit and deal on merits with applications for condonation of delay from co-operative societies claiming deduction under section 80P, for assessment years from AY 2018-19 to AY 2022-23. The circular laid down criteria for dealing with such applications, which required verification of whether the delay was caused due to circumstances beyond the control of the assessee, whether there was a delay in getting the accounts audited by statutory auditors appointed under the respective state law, and whether there was any other issue indicating tax avoidance or tax evasion.

In our opinion had the Mumbai bench examined the apparent contrast between the provisions of s. 80AC and the provisions of s. 143(1)(a)(v), as then applicable for assessment year 2018-19, it would have surely appreciated the glaring difference between the language and the scope of the two provisions and would have held that the power of the AO under s. 143(1)(a) to make adjustment was limited to the sections specified in clause(v) thereof and not to all the claims made under part C of the Chapter VI-A of the Act. Therefore, the better view of the matter seems to be the one taken by the Rajkot, Chandigarh and Nagpur benches of the Tribunal, that the deduction under section 80P could not have been disallowed while processing the return under section 143(1)(a) for the assessment years up to 2021-22, in spite of the amendment in s. 80AC made w.e.f assessment year 2018-19. Even for the subsequent assessment years, the better and beneficial view would be to not deny and disallow the deduction claimed under any of the provisions of chapter VI-A where the return of income is filed belatedly but before the due date specified under section 139(4).

DDT cannot be charged on dividend paid to a shareholder who is granted immunity from taxation

10. [2025] 175 taxmann.com 707 (Mumbai – Trib.)

Polycab India Ltd. vs. ACIT

IT APPEAL NOS. 4671 AND 4672 (MUM.) OF 2023 A.Y.: 2018-19 to 2021-22

Dated: 16.06.2025

Section 115O

DDT cannot be charged on dividend paid to a shareholder who is granted immunity from taxation

FACTS

The assessee, a listed Indian company, had paid dividends to its shareholders, which included International Finance Corporation (“IFC”), a World Bank Group entity. In terms of International Finance Corporation (“IFC”) Act, 1958, IFC was exempted from all taxation on its assets, income, property, and operations. The assessee had discharged Dividend Distribution Tax (“DDT”) under Section 115-O of the Act on entire dividend paid by it. The Assessee applied for refund of DDT under Section 237 in respect of DDT relatable to IFC.

The AO rejected the application on the footing that if the argument of the Assessee were accepted, then dividend payable to every entity which was exempt was liable to be excluded from DDT. However, no such provision is envisaged under the Act.

The CIT(A) observed that in terms of decision of Special Bench in Total Oil India P. Ltd [2023] 149 taxmann.com 332 (Mumbai -Trib.) (SB), under section 115-O, it is not a tax paid by the company on behalf of the shareholder but a charge on profits distributed by the company. Accordingly, it upheld the action of the AO.

Aggrieved by the order, the Assessee appealed to ITAT.

HELD

Pursuant to sovereign commitment under IFC agreement, India enacted IFC Act, 1958. Section 9 of IFC Act provided immunity from taxation in respect of its assets, income, property operations, etc.

Section 115-O(1A) of the Act provided for reduction of certain amount from computation of DDT. Finance Act (No.2), 2009, amended section 115-O and provided reduction of dividends paid to National Pension System Trust (NPS Trust) referred to in Section 10(44) for discharging DDT.

Several institutions such as RBI, SEBI, IMF, etc. are exempt from levy of income tax due to overarching provisions of specific legislation enacted by the Parliament.

In the past, Courts have held that income tax immunity provided to salaries received by employees of certain foreign institutions (UN, IMF, etc.) equally applies to pensions received by them, even in absence of express provision under the Act. Therefore, there is no need for specific provision in income tax, if the Parliament had enacted an overarching provision.

The ITAT observed that the charge under 115-O was on dividend distributed by a company. However, it could not override the overarching immunity granted in respect of assets, incomes, operations and transactions of IFC. Any such interpretation was contrary to the intent of the legislature.

Accordingly, the ITAT held that DDT could not be charged in respect of dividend paid to IFC.

Article 5 of India – USA DTAA – Indian subsidiary of foreign parent company cannot constitute dependent agent permanent establishment merely because it provided marketing support activity, and in absence of PE, receipts of foreign company were taxable only in USA.

9. [2025] 175 taxmann.com 992 (Delhi – Trib.)

Zscaler Inc. vs. DCIT ITA NO. 3376 (DEL) OF 2023, 928 (DEL) OF 2025

A.Y.: 2021-22 to 2022-23 Dated: 18.06.2025

Article 5 of India – USA DTAA – Indian subsidiary of foreign parent company cannot constitute dependent agent permanent establishment merely because it provided marketing support activity, and in absence of PE, receipts of foreign company were taxable only in USA.

FACTS

The Assessee was a tax resident of USA. It was engaged in the business of providing security-based software solutions globally, and the software was provided to customers through its resellers/distributors. The Assessee had an Indian subsidiary (“I Co”), which rendered back-office services, sales support, and marketing services. The Assessee compensated I Co for its services at arm’s length.

Relying on the Supreme Court decision in Engineering Analysis Centre of Excellence (P.) Ltd 432 ITR 471 (SC), the Assessee filed a Nil return of income for the relevant AYs on the footing that receipts from software did not constitute royalty. Further, the Company discharged equalization levy @ 2% of gross receipts and claimed exemption under Section 10(50) of the Act.

The AO contended that I Co secured orders for the Assessee by providing sales and market support services for software distribution in India; therefore, the activity constituted a dependent agent permanent establishment (“DAPE”) in India. The AO held that the provision of equalization levy was not applicable in view of alleged DAPE in India. The DRP upheld the draft order of the AO.

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

HELD

In terms of reseller agreement, the Assessee and resellers had principal-to-principal relationship and only they were authorized to enter into contracts with customers. Entire sales of the Assessee were through the resellers or channel partners.

The Service agreement between the Assessee and I Co was confined to IT support and marketing support services. It did not confer rights to negotiate or conclude contracts on behalf of the Assessee to I Co.

The role of the subsidiary was confined to providing updates to the client about products and inquiring about their intent to renew the subscription. These services can only be classified as marketing support, and the agreement did not confer the authority to conclude contracts or secure orders on behalf of the assessee.

The burden of proof to substantiate that the Assessee had DAPE in India was on the revenue. The AO failed to establish involvement of I Co in procuring orders or maintaining stock on behalf of the Assessee.

Accordingly, the ITAT held that the activities of the subsidiary did not constitute DAPE in India.

Estimation of Income – Rejection of Books – Section 145(3) – Failure to conduct audit under Section 44AB – Income declared at 0.187% of turnover – Assessing Officer estimated income @ 10% of turnover – Tribunal held that in absence of audit and proper explanation for drastic fall in profits, estimation justified but rate excessive – Past effective NP rate of 1.52% accepted – Addition restricted accordingly – Partly in favour of assessee.

54. [2025] 125 ITR(T) 160 (Jaipur – Trib.)

Adworld Communications (P.) LTD. VS. DCIT

ITA NO:. 1049 (JPR.) OF 2024

A.Y.: 2011-12 Date: 29.04.2025

Estimation of Income – Rejection of Books – Section 145(3) – Failure to conduct audit under Section 44AB – Income declared at 0.187% of turnover – Assessing Officer estimated income @ 10% of turnover – Tribunal held that in absence of audit and proper explanation for drastic fall in profits, estimation justified but rate excessive – Past effective NP rate of 1.52% accepted – Addition restricted accordingly – Partly in favour of assessee.

FACTS I

A survey action under section 133A was carried out at the business premises of the assessee. As per the AST data available with the department, the assessee failed to comply with section 139 for the year under consideration, despite the fact that the assessee’s total business receipt was 7.96 crores. In view of this figure under the head ‘business’ and non-filing of return, a notice under section 148 was issued.

In response thereto, the assessee filed a return declaring total income of ₹1.49 lakhs, i.e. 0.187% of the gross receipts. It was observed by the Assessing Officer that despite the fact that the accounts of the assessee were liable to tax audit under section 44AB, no tax audit was got conducted.

In view of all the facts the case of the assessee was assessed while applying the provisions of section 145(3) and income was estimated after rejection of expenses claimed in the profit and loss account, at the rate of 10 per cent.

On appeal, the Commissioner (Appeals) partly allowed the appeal by sustaining the addition to the extent of 2.16 per cent of expenses claimed in the profit and loss account. Aggrieved, the assessee preferred an appeal before the Tribunal.

HELD I

The Tribunal observed that out of the total revenue of ₹7,96,67,680/-, the assessee had received ₹7,70,69,109/- from a single party, M/s Resonance Eduventures Ltd. In the preceding assessment year, the assessee had declared a net profit (NP) rate of 1.18% on a turnover of ₹10,60,05,001/-, amounting to ₹12,51,668/-. However, for the year under consideration, the NP declared was only 0.187% (the assessee having incorrectly calculated NP at 0.36% on an inflated turnover of ₹9,38,23,920/).

The Tribunal noted a significant fall in the assessee’s profitability and emphasised that the accounts for the relevant year were not duly audited, despite the statutory obligation under Section 44AB. This raised serious concerns about the credibility of the financial statements. Further, the assessee had also failed to file its return of income within the prescribed time, even though it was mandatorily required to do so regardless of the quantum of turnover.

It was also observed that in the preceding assessment year, the Assessing Officer had made a disallowance of ₹3,63,826/-, which had been accepted by the assessee. This resulted in an effective NP rate of 1.52%.

Considering these facts, the Tribunal held that the flat 10% addition made by the Assessing Officer was excessive and unjustified. However, since the assessee failed to justify the sharp decline in profitability and the absence of a statutory audit, an estimation was warranted.

Accordingly, the Tribunal partly allowed the appeal, restricting the addition to 1.52% of the turnover, in line with the previous year’s effective NP rate. The addition was thereby computed at ₹12,10,949/-, from which the self-declared income of ₹1,49,165/- was to be reduced.

Presumption set out in Section 292C of the Act does not apply since the documents in question was not found or impounded from the appellant’s premises but in the course of survey (not search) conducted against a third party.

53. [2025] 125 ITR(T) 1 (Jaipur – Trib.) 

Pushpa Vidya Niketan Samiti vs. ACIT

ITA NO.: 313 TO 315(JPR) OF 2024

A.Y.: 2015-16 TO 2017-18 Date: 24.03.2025 

Sec. 292C

Presumption set out in Section 292C of the Act does not apply since the documents in question was not found or impounded from the appellant’s premises but in the course of survey (not search) conducted against a third party.

FACTS

The assessee is involved in imparting school education in the name of Bhagat Public School and the administration of the same is being managed by Shri Naresh Jain. The assessee filed its return of income on 31.03.2016 under section  139(4) of the Act declaring total income at ₹1,03,060/-.Notice under section  148 of the Act was issued on 15.03.2019.

A survey under section  133A of the Act was carried out at the premises of the assessee and also at M/s. Quick Advertisement Co., Prop. Smt.Nisha Jain. During the survey at M/s. Quick Advertisement Co. certain documents were seized as containing list of students of Bhagat Public School respectively. These documents were confronted to Shri Naresh Jain who confirmed and admitted that these documents related to class wise actual fee collection of the student of Bhagat Public School and that the lower fee collection has been disclosed as compared to the actual fee collected by the Bhagat Public School. Shri Naresh Jain, Accountant on behalf the assessee surrendered a sum of ₹50 Lacs to cover all the error and omissions, but retracted from his statement.

The case of the assessee was assessed after making addition of ₹56,16,513/- without giving benefit of section 11 & 12 of the Act.

On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. Aggrieved, the assessee preferred an appeal before the Tribunal.

The assessee had raised the following relevant grounds –

1. Statement recorded of Shri Naresh Jain u/s 131 of the Act was unauthorised and illegal. Consequently, there was no evidentiary value of such illegally recorded statement being without authority of Law.

2. The addition made by the Ld. AO on account of alleged suppressed school fees, was completely ignoring the consistently followed method of accounting, and other material available on record – Presumption set out in Section 292C of the Act does not apply to the appellant.

HELD

The Tribunal relied on the decision in the case of CIT s. S. Khader Khan Son [2008] 300 ITR 157 (Mad) [duly affirmed by the Hon’ble Apex Court], and confirmed that section 133A of the Act does not empower the authorities to record the statements; and statements obtained during the survey proceedings would not automatically bind the assessee.

The Tribunal referred to provisions of section 292C of the Act for the documents being seized. The Tribunal observed that there was a simultaneous survey at the premises of the assessee and M/s. Quick Advertisement Co., Prop. Smt. Nisha Jain and that the documents under consideration were found from M/s. Quick Advertisement Co., Prop. Smt. Nisha Jain and not from the control or possession of the assessee school.

The Tribunal observed that section 133A r.w.s. 292C of the Act, raises a presumption that the contents of books of account and other documents seized during the course of search is true. But it should be kept in mind that this presumption is only qua the person who is searched and/or from whose possession the books of account and documents are found and none else. Moreover, this presumption is rebuttable. In the given facts of the case, since the documents in question was not found or impounded from the appellant’s premises but in the course of survey (not search) conducted against a third party, the presumption set out in Section 292C of the Act does not apply to the appellant.

The Tribunal held that other than the calculation sheets found at the premises of M/s. Quick Advertisement Co., no further working was carried out by the AO to substantiate the same that it pertains to the assessee and that the calculations embedded were true to be considered for the purposes of taxation.

The Tribunal held that the statement recorded during the survey operations under section  133A of the Act has no evidentiary value and presumptions drawn under section  292C of the Act are also not in the favour of the Revenue.

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

Where draft assessment order is passed in the name of a non-existent entity despite the Assessing Officer having been duly informed of the amalgamation, such an assessment is void and not a procedural irregularity that can be cured by invoking section 292B.

52. (2025) 177 taxmann.com 546 (Ahd Trib)

Man Energy Solutions India (P.) Ltd. vs. ITO

A.Y.: 2012-13 Date of Order: 11.08.2025

Sections : 144C, 292B

Where draft assessment order is passed in the name of a non-existent entity despite the Assessing Officer having been duly informed of the amalgamation, such an assessment is void and not a procedural irregularity that can be cured by invoking section 292B.

FACTS

Man Turbo India Pvt. Ltd. (MTIPL) stood amalgamated into Man Diesel & Turbo India Pvt. Ltd. (MDTIPL), w.e.f. 01.01.2013, pursuant to the Scheme of Amalgamation sanctioned by the Bombay High Court vide order dated 28.03.2014. The amalgamation scheme was made effective upon filing with the Registrar of Companies on 21.05.2015. The intimation of amalgamation was given to the AO as well as the Transfer Pricing Officer (TPO). However, despite these prior intimations, the Transfer Pricing order dated 21.01.2016, draft assessment order dated 01.03.2016, Dispute Resolution Panel (DRP) direction under section 144C(5) dated 13.12.2016 and the final assessment order dated 30.01.2017 were all passed in the name of MTIPL, which was a non-existent entity which had since amalgamated into MDTIPL.

Aggrieved, the assessee filed an appeal against the order passed by DRP before ITAT.

HELD

Following the decision of Supreme Court in PCIT v. Maruti Suzuki India Ltd., (2019) 416 ITR 613, other decisions High Courts and Tribunals as well as assessee’s own case in Man Diesel and Turbo India (P.) Ltd. vs. ACIT [IT Appeal No. 1319 (Ahd.) of 2018, dated 12-2-2025], the Tribunal observed that where an assessment order is passed in the name of a non-existent entity despite the Assessing Officer having been duly informed of the amalgamation, such an assessment is void and not a procedural irregularity that can be cured by invoking section 292B.

The Tribunal further observed that the draft assessment order forms the very foundation of the final assessment process under section 144C and once the draft order is found to be vitiated for being passed in the name of a non-existent entity, the entire downstream proceedings-including the directions of the DRP and the final order-also stand vitiated. The mere reference to the correct name in the DRP order or final assessment order does not cure the foundational illegality.

The Tribunal also observed that issuance of an assessment order against a non-existent entity is a substantive illegality going to the root of the jurisdiction of the Assessing Officer and cannot be cured by Section 292B, which only addresses procedural errors.

Accordingly, the Tribunal allowed the appeal of the assessee.

Where the employer paid a sum to LIC under a Voluntary Retirement Scheme (VRS) for allotment of annuity policy in favour of an employee payable in instalments in future, such sum cannot be taxed as perquisite in the hands of the employee in the year of purchase of annuity since the employee did not acquire any vested or enforceable right over the said amount in the relevant assessment year.

51. (2025) 177 taxmann.com 369 (Ahd Trib)

Biswas Manik vs. ITO

A.Y.: 2018-19 Date of Order: 08.08.2025 Section : 17

Where the employer paid a sum to LIC under a Voluntary Retirement Scheme (VRS) for allotment of annuity policy in favour of an employee payable in instalments in future, such sum cannot be taxed as perquisite in the hands of the employee in the year of purchase of annuity since the employee did not acquire any vested or enforceable right over the said amount in the relevant assessment year.

FACTS

The employer-company had taken annuity policy from LIC under a Voluntary Retirement Scheme (VRS) in favour of the retiring employees, including the assessee. The employer had paid a sum of ₹20 lakhs directly to LIC (not to the assessee) for allotment of annuity policy in the name of the assessee. The annuity was structured to be paid to the assessee only after four years, in the form of monthly instalments from LIC. The assessee claimed that since he had no access to, or right over, the amount in AY 2018-19, it cannot be considered part of his salary or perquisite income for that year under section 15 or 17 and that he had offered the annuity instalments received from LIC as income in his return in the year of receipt.

The AO issued a notice under section 133(6) to the employer. Based on the response and disclosure in Form 16, the AO held that the amount paid to LIC formed part of salary under Section 17(2)(v), being a perquisite in the nature of a contract for an annuity. Accordingly, he recomputed the salary of the assessee.

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

The Tribunal observed as follows:

(a) Section 17(2)(v) includes within the definition of perquisite any sum paid by the employer to effect a contract for an annuity, subject to certain exclusions. However, in order for such a payment to be taxed in the hands of the employee, it is essential, as per section 15, that the amount is either due, paid, or allowed to the employee. The law is well settled that a contingent benefit or a non-vested future entitlement cannot be brought to tax in the year of payment by the employer unless the employee acquires a vested right in the amount.

(b) In the present case, the assessee acquired no such vested right in AY 2018- 19, and the annuity payments commenced only four years thereafter. Moreover, from the records it was observed that the assessee had in fact offered to tax, on accrual/receipt basis, the annuity income received from LIC in the relevant year under the head “Income from Salary.” Therefore, taxing the employer’s payment of ₹20,00,000/- in AY 2018-19 would amount to taxing the same amount twice – once at the stage of employer’s contribution and again at the time of annuity receipts-resulting in double taxation, which was impermissible in law.

(c) The Department’s reliance on Form 16 and Form 26AS was erroneous, as these do not override the substantive legal provisions under the Act.

(d) The employer’s payment to LIC was not made on behalf of the employee nor credited to his account; hence, it cannot be treated as income due, paid or allowed to him in that year.

Accordingly, the Tribunal held that addition of ₹20 lakhs in AY 2018-19 should be deleted.
In the result, the appeal of the assessee was allowed.

Application for final approval under section 80G(5)(iv)(B) cannot be denied on the ground that the applicant had claimed exemption under section 11 / 10(23C) in the past. Amendment in section 80G(5)(iv) made by Finance Act 2024 is clarificatory in nature and applies retrospectively.

50. (2025) 177 taxmann.com 590 (Ahd Trib)

Akshat Education and Charitable Trust vs. CIT

A.Y.: N.A. Date of Order: 19.08.2025

Section: 80G

Application for final approval under section 80G(5)(iv)(B) cannot be denied on the ground that the applicant had claimed exemption under section 11 / 10(23C) in the past.

Amendment in section 80G(5)(iv) made by Finance Act 2024 is clarificatory in nature and applies retrospectively.

FACTS

The assessee was a registered public charitable trust under the Bombay Public Trusts Act, 1950, engaged in imparting education. The Trust had commenced its activities in 2014 upon receiving school opening permission and had been claiming exemption under section 11 and section 10(23C) in earlier years. However, it had never obtained approval under section 80G(5). For the first time, the Trust was granted provisional approval under section 80G(5) for the period from 22.06.2022 to A.Y. 2025-26. Pursuant to this, the appellant moved an application in Form 10AB on 06.02.2024 seeking final approval under section 80G(5).

CIT(E) rejected the application relying strictly on the wording of section 80G(5)(iv)(B), holding that since the assessee had already claimed exemption under section 11/10(23C), the application was outside the scope of maintainability.
Aggrieved, the assessee filed an appeal before ITAT.

HELD

On the issue of delay of 137 days in filing the appeal, the Tribunal observed that since the assessee was prevented by sufficient cause from filing the appeal within the prescribed time, the delay should be condoned.

On the issue of non-maintainability of the assessee’s application under section 80G(5)(iv)(B), the Tribunal observed that:

(a) The Finance Act, 2023 substituted clause (iv) of the first proviso to section 80G(5) with effect from 01.10.2023, and CBDT Circular No. 1/2024 dated 23.01.2024 has clarified that institutions which have already commenced activities shall make an application for regular approval under sub-clause (B) of clause (iv).

(b) This amendment is remedial and clarificatory in nature, intended to remove an anomaly, and therefore must be read as having retrospective effect.

(c) The amendment brought by Finance Act, 2024 only clarifies what was implicit even earlier, namely, that claiming exemption in prior years does not debar a trust from seeking approval under section 80G(5). The legislative intent is to encourage donations to genuine charitable institutions, and hyper-technical construction must give way to purposive interpretation.

(d) The assessee having already been granted provisional approval, and having fulfilled the procedural compliances, its application for final approval could not have been brushed aside on the sole ground of earlier claims of exemption under section 11/10(23C).

Following decision of coordinate bench in West Bengal Welfare Society vs. CIT(E) [IT Appeal Nos. 730 & 731/Kol/2023, dated 13-9-2023], the Tribunal held that the order of CIT(E) cannot be sustained.

Accordingly, the Tribunal allowed the appeal of the assessee, quashed the order of the CIT(E) and restored the matter to the file of CIT(E) for examining the application afresh on merits.

Enhancement made by CIT(A), by exercising a power not conferred by section 251(2) being without jurisdiction needs to be deleted.

49. TS-596-ITAT-2025 (Delhi)

Toshiba Water Solutions Pvt. Ltd. vs. ACIT

A.Y.: 2014-15

Date of Order : 7.5.2025

Section: 251

Enhancement made by CIT(A), by exercising a power not conferred by section 251(2) being without jurisdiction needs to be deleted.

FACTS

The assessee, for assessment year 2014-15, filed its return of income declaring a loss of ₹10,46,67,132. The Assessing Officer (AO) completed the assessment under section 143(3) of the Act, made various disallowances and consequently determined the total loss to be ₹4,70,23,278. Aggrieved, the assessee preferred an appeal to the CIT(A) who deleted most of the additions made by the AO except a sum of ₹81,10,231 in respect of balances written off.

However, CIT(A) enhanced the income by ₹1,54,68,280 on account of provision for contract loss. The assessee challenged this addition in the appeal filed by him to the Tribunal and also raised an additional ground contending that this is absolutely new source of income and that CIT(A) could not have invoked his powers of enhancement in terms of section 251(2) to make an addition on account of a new source of income.

HELD

The Tribunal observed that the issue of disallowance of contract loss is an absolutely new source of income and that the CIT(A) cannot invoke his power of enhancement, in terms of section 251(2) of the Act, and make addition on account of new source of income. The Tribunal relied on the decision of the jurisdictional High Court in the case of Gurinder Mohan Singh Nindrajog vs. CIT [348 ITR 170 (Delhi)].

The Tribunal allowed the ground of appeal challenging the disallowance of contract loss while deciding the technical ground of the assessee viz. that the addition has been made by CIT(A) by exercising jurisdiction which was not conferred upon him pursuant to section 251(2) of the Act.

Claim for deduction, made in belated return filed under section 139(4), of capital gains under sections 54F and 54EC, not liable to penalty under section 271(1)(c).

48. TS-720-ITAT-2025 (Ahd.)

Tejas Ghanshyambhai Patel vs. ITO

A.Y.: 2016-17 Date of Order : 4.6.2025

Section: 271(1)(c)

Claim for deduction, made in belated return filed under section 139(4), of capital gains under sections 54F and 54EC, not liable to penalty under section 271(1)(c).

FACTS

The assessee, an individual, co-owner of immovable property, sold his interest in the property for a consideration of ₹1.80 crore and claimed deduction under section 54EC of ₹50,00,000 and deduction under section 54F of ₹36,27,254. The Assessing Officer (AO) denied the claim of deductions under section 54F and 54EC on the ground that the return of income was filed belatedly and also the return was revised belatedly. The AO completed the assessment by making an addition of ₹86,27,254 and demanded tax thereon.

Aggrieved, the assessee preferred an appeal against the assessment which appeal was partly allowed. The AO thereafter proceeded with penalty proceedings and levied a penalty of
₹1,70,414.

Aggrieved by the levy of penalty, the assessee preferred an appeal to the CIT(A) who confirmed the action of the AO in levying penalty.

Aggrieved, the assessee preferred an appeal to the Tribunal where relying upon a decision of co-ordinate bench of the Tribunal in Jaysukhlal Ghiya vs. DCIT [ITA No. 324/Ahd./2020; Order dated 7.8.2024] it contended that the claim for deduction made in a belated return cannot be denied. Consequently, penalty levied by AO and confirmed by CIT(A) needs to be deleted.

HELD

At the outset, the Tribunal noted that the CIT(A) in quantum appeal set aside the assessment with a direction to AO to allow the claim of investment / deposit done on or before 31.7.2016 and proportionately allow the claim of deduction under section 54EC / 54F. While deciding the said appeal, the CIT(A) dismissed the ground challenging the initiation of penalty for the reason that it is consequential in nature and that no prejudice is caused to the assessee at this juncture. In the penalty proceedings, the assessee failed to participate, despite notice being sent even by speed post, resulting in levy of penalty for concealing income.

The Tribunal observed that CIT(A), in quantum proceedings, allowed the deduction under sections 54EC and 54F proportionately and therefore there is no concealment of income by the assessee. This part was not brought out in ex-parte penalty proceedings before the AO and in an appeal against penalty order before the CIT(A).

Having noted that the co-ordinate bench of the Tribunal in the case of Jaysukhlal Ghiya (supra) has held that when assessee furnishes return of income subsequent to the date filing under section 139(1) of the Act but within the extended time available under section 139(4) of the Act, the benefit of investment made up to the date of filing of return of income cannot be denied. Therefore, the Tribunal held, that in its opinion, there is no concealment of income in making a claim of deduction in a return of income filed belatedly. The Tribunal directed deletion of penalty levied under section 271(1)(c) of the Act.

As per the provisions of section 70(2) of the Act, the short-term capital loss can be set off against gain from any other capital asset. Section 70(2) of the Act does not make any further classification between the transactions where STT was paid and the transactions where STT was not paid.

47. ITA 2134/Mum./2025

Schwab Emerging Markets Equity ETF

A.Y.: 2022-23 Date of Order : 11.6.2025 Section: 70

As per the provisions of section 70(2) of the Act, the short-term capital loss can be set off against gain from any other capital asset. Section 70(2) of the Act does not make any further classification between the transactions where STT was paid and the transactions where STT was not paid. Accordingly, the short-term capital loss arising from sale of shares subjected to Securities Transaction Tax (‘STT) can first be set-off against the short-term capital gains arising from sale of securities not subjected to STT instead of short-term capital gains arising from sale of shares subjected to STT.

FACTS

For the year under consideration, the assessee, a company incorporated in Mauritius, registered with the Securities and Exchange Board of India as a Foreign Portfolio Investor, filed its return of income on 07/11/2022, declaring a total income of ₹270,76,67,910. In the course of assessment proceedings, it was observed that the assessee computed the net short-term capital gains by setting off the short term capital loss (on which STT was paid), which is taxable at 15% under section 111A of the Act, against the short-term capital gains (on which STT was not paid), which is taxable at 30% under section 115AD of the Act, and thereafter, set off the balance loss against the short-term capital gains earned on the transaction of sale of share subjected to STT.

The assessee was asked to show cause as to why the set-off of lower taxable loss should not be denied with higher taxable gains, as the IT Rules have provided separate columns for set-off and carry-forward of losses. In response, the assessee submitted that section 70 of the Act allows the assessee to set off the losses of lower taxable gains with the gains of higher taxable gains. In support of its submission, the assessee placed reliance upon several judicial pronouncements, wherein a similar issue was decided in favour of the taxpayer.

The Assessing Officer (“AO”), vide draft assessment order dated 24/03/2024 passed under section 144C(1) of the Act, disagreed with the submissions of the assessee and held that computation of the net short-term capital gains by the assessee is not in order. The AO further held that the IT Rules have clearly defined separate columns for set-off and carry forward of gains of having differential tax rates. Accordingly, the short-term capital gain was computed by first setting off 15% loss against 15% gains.

The assessee filed detailed objections, inter-alia, against the addition made by the AO as a result of his not accepting the manner of set off adopted by the assessee. Vide directions dated 05/12/2024, issued under section 144C(5) of the Act, the DRP rejected the objections filed by the assessee and upheld the computation of capital gains made by the AO vide draft assessment order. The DRP further noted that this issue is pending consideration before the Hon’ble Bombay High Court in the case of DIT vs. M/s. DWS India Equity Fund, in ITA No.1414 of 2012, and there is no judicial finality on this issue.

In conformity with the directions issued by the DRP, the AO passed the impugned final assessment order under section 143(3) read with section 144C(13) of the Act computing the net short-term capital gains amounting to ₹2,95,96,810 taxable at 15% under section 111A of the Act and the net short-term capital gains amounting to ₹4,60,58,240 taxable at 30% under section 115AD of the Act.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the sole issue which arises for its consideration in the present appeal is whether the short-term capital loss (on which STT was paid) can be set off against short-term capital gains (on which STT was not paid). The Tribunal noted the provisions of section 70(2) of the Act, which deals with the set off of short-term capital loss and observed that as per the provisions of section 70(2) of the Act, the short-term capital loss can be set off against gain from any other capital asset. Section 70(2) of the Act does not make any further classification between the transactions where STT was paid and the transactions where STT was not paid. It held that the emphasis of the AO on the term “similar computation” also only refers to the computation as provided under sections 48 to 55 of the Act, and therefore, does not support the case of the Revenue.

The Tribunal noted the findings of the Co-ordinate Bench of the Tribunal, while deciding a similar issue, in iShares MSCI EM UCITS ETF USD ACC vs. DCIT, reported in [2024] 164 taxmann.com 56 (Mum. -Trib.). The Tribunal in this case following the decision of the Hon’ble Calcutta High Court in CIT vs. Rungamatee Trexim (P.) Ltd. [IT Appeal number 812 of 2008, dated 19.12.2008], allowed the set off of short-term capital loss (on which STT was paid) against the short-term capital gains (on which STT was not paid).

It also found that similar findings have been rendered by the Co-ordinate Benches of the Tribunal in favour of the taxpayer in the following decisions: –

i) Emerging Markets Index Non-Lendable Fund vs. DCIT, Mumbai, in ITA No. 4589/Mum/2023, order dated 05.08.2024.

ii) Vanguard Total International Stock Index Fund vs. ACIT (IT) – 4(3)(1), in ITA No.4656/Mum/2023, order dated 13.12.2024.

iii) JS Capital LLC vs. ACIT (International Taxation), reported in (2024) 160 taxmann.com 286 4. Dy.DIT vs. M/s. DWS India Equity Fund, in ITA No.5055/Mum/2010, order dated 11.04.2012.

It observed that the DR could not show any cogent reason to deviate from the aforesaid judicial precedents.

The Tribunal, following the aforesaid decisions, directed the AO to accept the methodology adopted by the assessee for the computation of the capital gains. The ground of appeal filed by the assessee was allowed.

Imposition of penalty for violation of provisions of section 269SS of the Act towards consideration received in cash for sale of agricultural land by bringing the said consideration within the ambit of “specified sum” as defined under section 269SS of the Act is totally incorrect and defeats the very purpose of law.

46. TS-1252-ITAT-2025 (Hyd.)

Late Nimmatoori Raja Babu vs. ACIT 

A.Ys.:  2016-17 and 2017-18 

Date of Order : 12.9.2025

Section:  271D

Imposition of penalty for violation of provisions of section 269SS of the Act towards consideration received in cash for sale of agricultural land by bringing the said consideration within the ambit of “specified sum” as defined under section 269SS of the Act is totally incorrect and defeats the very purpose of law.

Receipt in cash, of genuine sale consideration of immovable property including agricultural land, before witnesses at the time of registration cannot be brought within the ambit of “specified sum” merely because it has been received in cash. 

FACTS

The Tribunal, in this case, was dealing with 3 appeals wherein levy of penalty under section 271D of the Act for AYs 2016-17 and 2017-18 amounting to ₹33,75,000;  ₹2,59,35,760 and ₹2,14,35,760 was under challenge.  The Tribunal took up appeal in the case of Late Nimmatoori Raja Babu for AY 2016-17 as the lead case.

The assessee, an individual, was one of the trustee of M/s Aurora Educational Society & Other Group Trusts.  In the course of assessment proceedings, consequent to search, the Assessing Officer (AO) noticed that assessee received consideration for sale of land in Raigir village to Incredible India Projects Private Limited.  The land was sold vide registered deed dated 24.6.2016 and assessee had admitted sale consideration of ₹33,75,000 per acre.  Since assessee failed to prove receipt of consideration by banking channels, the AO noted that the assessee violated the provisions of section 269SS of the Act and initiated penalty proceedings under section 271D and subsequently Joint / Additional Commissioner levied penalty, under section 271D, equivalent to 100% of the amount received in cash.

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

Aggrieved, the assessee preferred an appeal to the Tribunal where it was submitted that –

i) right from the very beginning the assessee explained the source to be sale of agricultural land and the AO has accepted the source and not made addition to income but has initiated penalty for contravention of section 269SS;

ii) the expression “specified sum” cannot be stretched to consideration for transfer of property at the time of registration in presence of witnesses;

iii) the property sold by the assessee is agricultural land situated beyond the limit specified under section 2(14) of the Act and is therefore not a capital asset. The assessee was under a bonafide belief that accepting cash for sale of agricultural land does not attract provisions of section 269SS of the Act and consequently provisions of section 271D are not attracted.  The Tribunal, in a separate order, accepted the very same land to be an agricultural land.

HELD

At the outset the Tribunal noted that there is no dispute that the transaction is genuine and is recorded in Registered Sale Deed.  The land sold is an agricultural land and not a capital asset.  It noted that the assessee has explained that cash was received at the time of sale of agricultural land on the bonafide belief that agricultural land is exempt from tax and consequently receiving cash on sale of agricultural land will not attract provisions of section 269SS and 271D of the Act.  The Tribunal held that the provisions of section 271D are not automatic and exceptions of reasonable cause exonerates an assessee from levy of penalty.  In the present case, the assessee has satisfactorily demonstrated a `reasonable cause’ for acceptance of cash consideration for sale of agricultural land. There is no material brought on record by revenue to establish any malafide intention or tax evasion.

The Tribunal having noted that the provisions of section 269SS were amended by the Finance Act, 2015 and “specified sum” has been inserted in section 269SS examined the Explanatory Memorandum and observed that the purpose of the amendment is to curb the black money in immovable property transactions.  It held that, in its view, stretching the genuine consideration received for sale of an immovable property including agricultural land before the witnesses at the time of registration cannot be brought within the ambit of the term “specified sum” merely because the same has been received in cash.  The purpose of insertion of “specified sum” is only to check abuse of law by tax payers by entering into various kinds of agreements for transfer of immovable property showing consideration paid or received in cash and finally registration has not taken place.  It held that in a situation where consideration paid for transfer of any immovable property at the time of registration before witnesses and further, the said transaction is a genuine transaction and also part of regular books of accounts of the assessee or disclosed in the return of income filed for the relevant assessment year, then, the said transaction cannot be brought within the ambit of “specified sum” merely because the consideration has been received in cash. The Tribunal held that imposition of penalty for violation of provisions of section 269SS of the Act towards consideration received in cash for sale of agricultural land by bringing the said consideration within the ambit of “specified sum” as defined under section 269SS of the Act is totally incorrect and defeats the very purpose of law.

The Tribunal held that since, the assessee accepted the cash consideration for sale of agriculture land, which is outside the scope of capital asset as defined under section 2(14) of the Act and further, it is exempt from tax, the said transaction cannot be brought within the ambit of provisions of section 269SS of the Act, for the purpose of sec.271D of the Act.

The Tribunal, upon consideration of the decision of Bangalore Bench of the Tribunal in Rakesh Ganapathy vs. JCIT [(2025) 170 taxmann.com 239] on which reliance was placed on behalf of the assessee, found it to be on identical set of facts in light of penalty under section 271D.

Considering the facts and circumstances of the case, the Tribunal held that the Addl. CIT, Central Range-2, Hyderabad erred in levying penalty under section 271D of the Act for contravention of section 269SS of the Act towards consideration received in cash for sale of agricultural land.   The CIT(A) without considering the relevant facts, has simply sustained the penalty levied by the AO. The Tribunal set aside the order of the CIT(A) and directed the AO to delete the penalty levied under section 271D of the Act.

It is a well-established principle of law that treatment given by the Assessee in its books of account is not decisive/conclusive for determining the taxable income under the Act.

15. Kedaara Captial Fund II LLP vs. Assessment Unit, National Faceless Assessment Centre (NFAC), Delhi and Ors.

[Writ Petition no. 2684 of 2025 dated: 09/09/2025 (Bom) (HC)]

It is a well-established principle of law that treatment given by the Assessee in its books of account is not decisive/conclusive for determining the taxable income under the Act.

The Petitioner is registered with SEBI as a Category II AIF – closed ended fund under the SEBI (AIF) Regulations, 2012. For the purposes of the Act, the Petitioner is regarded as an ‘investment fund’ as defined under Section 115UB. Resultantly, any income from investment activities earned is exempt under Section 10(23FBA). Such income is, however, taxable in the hands of the unit holders of the Petitioner. In other words, assessees like the Petitioner are granted a pass-through status under the Act.

During the year, the Petitioner implemented investments aggregating to ₹1,300.27 Crores using the capital raised from its unit holders. The total portfolio investments of the Petitioner as on 31st March 2022 was ₹8,665.75 Crores. It was an undisputed fact that the Petitioner neither sold any of the investments during the year nor did it earn any income from such investment activities. The only income earned by the Petitioner during the year was short term capital gains of ₹0.99 Crores on cancellation of certain forward contracts. The total expenses incurred by the Petitioner during the year was ₹118.99 Crores. In the books of accounts maintained, these expenses were debited to the statement of profit and loss for the year.

The Petitioner filed its Return of Income for the subject A.Y. 2022–23, declaring NIL income. Further, in such return, the income of short-term capital gains of ₹0.99 Crores was claimed as exempt under Section 10(23FBA) read with 115UB and taxable in the hands of the unit holders. Insofar as the expenses of ₹118.99 Crores incurred during the year, the Petitioner stated that no deduction whatsoever was claimed of such an amount. It was also stated that no carry forward of any loss under any head of income was claimed by the Petitioner. Moreover, it was also stated that a deduction of such an amount has also not been claimed by any of the unit holders as well.

The impugned assessment order was passed on 21st March 2025 disallowing the expenses of ₹103.15 Crores (expenses incurred towards management fees and other related costs of ₹15.84 Crores paid to its investment advisor, Kedaara Capital Advisors LLP, were allowed by the AO) and added the said amount under the head “profits and gains from business and profession” to the total income of the Petitioner. This amount was added by the AO on the ground that the expenses were “neither found genuine nor any income has offered against these expenses”. A notice of demand under Section 156 of the Act raising a tax demand of ₹49.02 Crores, as well as a penalty show cause notice, were also issued pursuant to the above assessment order.

The Petitioner filed the Writ Petition challenging the above order and the consequential notices issued by the AO. Amongst other grounds, the primary challenge was on the ground that the AO has added expenses to the Petitioner’s total income despite the fact that no deduction in respect of such expenses has been claimed either by the Petitioner or the unit holders. Therefore, the question of adding such an amount could never have arisen. The addition made therefore, was wholly without jurisdiction, perverse and arbitrary.

It was further contended that the AO miserably overlooked the fact that the Petitioner has been granted a pass through status under the Act. Therefore, assuming for the sake of argument that the Petitioner incurred non-genuine expenses, nevertheless, such an addition could not have been made in the hands of the Petitioner.

It was further contended that the unrealised gains reported in the financial statements of the Petitioner as ‘surplus’ does not constitute ‘income’ of the unit holders and is not taxable in their hands under Section 115UB. Secondly, in any case, it is a well-settled principle of income tax law that to determine the taxability of a particular item is not governed by how that item is treated by the counterpart assessee. Therefore, the treatment given in the hands of the unit holders cannot govern how the income of the Petitioner is to be determined. Accordingly, it was submitted that the addition made by the AO was completely unlawful, without jurisdiction and illegal.

On the first objection of the Revenue that the Writ Petition ought not to be entertained because there was an alternate remedy available to the Petitioner, the Hon. Court observed that in the peculiar facts and circumstances of this case, the Court can exercise its discretion under Article 226 of the Constitution of India and interfere in the above matter when an assessment order is completely illegal, contrary to the clear mandate of law prima facie, without jurisdiction.

Further, it was well settled that the jurisdiction of the High Court in entertaining the Writ Petition, despite alternate statutory remedies, was not affected in a case where the authority against whom the Writ was filed has usurped its jurisdiction without any legal foundation.

The Hon. Court further observed that it was undisputed that the addition of expenses (of ₹103.15 Crores) made by the Assessing Officer in the impugned order was never ever claimed as a deduction by the Petitioner in its Return of Income. In other words, these expenses were never claimed as a deduction to give rise to the Assessing Officer to add back those deductions in the Income Returned by the Petitioner.

The Hon. Court further observed that the AO failed to recall the well-established principle of law that treatment given by the assessee in its books of account was not decisive/conclusive for determining the taxable income under the Act. Whether an assessee is entitled to a deduction or not entirely depends upon the provisions of the Act de hors the disclosure in its books of account. The Hon. Court referred to decisions of the Hon’ble Supreme Court in the case of Kedarnath Jute Manufacturing Company Ltd. vs. CIT [(1971) 82 ITR 363 (SC)], Taparia Tools Ltd. vs. JCIT [[2015] 55 taxmann.com 361 (SC)] and United Commercial Bank vs. CIT [(1999) 240 ITR 355 (SC)].

In view of the above, the Hon. Court held that the addition of ₹103.15 crores made by the Assessing Officer in the income returned by the Petitioner was wholly unsustainable. The Hon. Court further refused to remand the matter back to file of AO.

Penalty 270 A – Writ – Alternate remedy- No virtual hearing was given to the Petitioner as mandated by the Faceless Penalty (Amendment) Scheme, 2022: AY 2017-18

14. Man Truck & Bus India Pvt Ltd vs. The Assessment Unit, Income-Tax Department & Ors.

[WRIT PETITION NO. 5437 OF 2025 Dated: 09/09/2025. (Bom) (HC)]

Penalty 270 A – Writ – Alternate remedy- No virtual hearing was given to the Petitioner as mandated by the Faceless Penalty (Amendment) Scheme, 2022: AY 2017-18

On 30th November 2017, the Petitioner had filed its return of income declaring its income as “NIL” after a set-off of the brought forward loss of ₹17.14 Crores. Thereafter, assessment proceedings were completed; and an order was passed on 24th June 2021 under section 143(3) r.w.s 144C (3) of the Act making an addition of ₹31.15 crores, on account of a Transfer Pricing Adjustment.

Being aggrieved by this order, the Petitioner preferred an Appeal before the CIT (Appeals). The Petitioner had filed its Advanced Pricing Agreement Application with the CBDT as far back as on 26th March 2014, which finally culminated in the APA on

21st December 2021 during the pendency of the Appeal. The APA applied to A.Y. 2011-12 to A.Y. 2018-19. Since the APA was entered into between the Petitioner and the CBDT, under the provisions of section 92CD(1), the Petitioner filed its modified Return of Income on 30th March 2022. No assessment order was passed under Section 92CD(3). Therefore, according to the Petitioner, the modified Return filed by the Petitioner under Section 92CD(1) had become final and deemed to be accepted by the Department.

The AO passed penalty order dated 24th March 2025 imposing penalty on the Petitioner under Section 270A of the Act.

The Petitioner contended that since no addition has been made by the AO under Section 92CD(3), penalty proceedings could not lie against the Petitioner under Section 270A of the Act.
It was further contented by the Petitioner that it was mandatory for the officer levying the penalty to grant a virtual hearing to the Petitioner before passing the impugned penalty order. This submission was made based on the Faceless Penalty (Amendment) Scheme, 2022 formulated by the CBDT.

The Hon. Court observed that it was admitted by the Department that no order under Section 92CD(3) was passed by Respondent No. 2 and the mistake crept in the penalty order because the secondary adjustment of ₹14,16,49,404/- was not visible in the modified return of income filed by the Petitioner and no order under Section 92CD(3) was available with Respondent No.1 at the time of passing the penalty order.

The Hon. Court observed that it was not in dispute that the Petitioner had entered into an APA with the CBDT on 21st December 2021. It was also not in dispute that as per the provisions of Section 92CD(1), the Petitioner filed its return of income on 30th March 2022 and offered to tax a sum of approximately ₹14.16 Crores towards Transfer Pricing Adjustment as per the APA entered into between the Petitioner and the CBDT. The tax on this amount has also been paid by the Petitioner as admitted by the Revenue in its affidavit-in-reply. It was also an admitted fact that no order has been passed under Section 92CD(3) on the modified return of income filed by the Petitioner. All these facts have not been taken into consideration by Respondent No.1 before passing the impugned penalty order. Further, no virtual hearing was given to the Petitioner as mandated by the Faceless Penalty (Amendment) Scheme, 2022.

Therefore, the impugned penalty order was quashed and the matter remanded to the 1st Respondent to give a virtual hearing to the Petitioner and thereafter pass any fresh order after taking into consideration all relevant facts.

TDS — Payment without TDS — Disallowance u/s. 40a(ia) — Applicability of proviso to 40a(ia) — Inserted by Finance Act 2013 with effect from 01/04/2013 — Curative and beneficial in nature —Retrospective effect from 01/04/2005 — No dispute as that the recipients had paid taxes on such payments — No disallowance can be made u/s. 40a(ia)

40. [2025] TS – 1087 – HC (Bom.)

Principal CIT vs. Morgan Stanley India Capital Pvt. Ltd. A. Y. 2009-10 Date of order 14/08/2025

S. 43B of ITA 1961

TDS — Payment without TDS — Disallowance u/s. 40a(ia) — Applicability of proviso to 40a(ia) — Inserted by Finance Act 2013 with effect from 01/04/2013 — Curative and beneficial in nature —Retrospective effect from 01/04/2005 — No dispute as that the recipients had paid taxes on such payments — No disallowance can be made u/s. 40a(ia)

In the course of scrutiny assessment for the A. Y. 2009-10, the Assessing Officer disallowed certain expenses of approximately ₹17.64 crores u/s. 40a(ia) of the Income-tax Act, 1961, on the ground that the assessee had not deducted tax at source.

The CIT(A) deleted the disallowance and held that it was merely a case of short deduction and in doing so relied upon the decision of the Calcutta High Court in the case of CIT vs. S. K. Tekriwal (2012 SCC Online Cal13210). The Tribunal dismissed the appeal of the Department.

The Bombay High Court concurred with the decision of the Calcutta High Court’s regarding the retrospective application of the second proviso to Section 40(a)(ia) of the Act, introduced effective April 1, 2013 and dismissed the appeal of the Department and held as under:

“i) This proviso deems that an assessee, who fails to deduct tax under Chapter XVII-B but is not considered in default under the first proviso to Section 201(1), is treated as having deducted and paid the tax on the date the payee files their return of income.

ii) Despite the proviso’s introduction in 2013, the court, referring to the co-ordinate bench judgment in the case of Pr.CIT vs. Perfect Circle India Pvt Ltd (Income Tax Appeal No. 707 of 2016, decided January 7, 2019), held that its curative and beneficial nature warrants retrospective application from April 1, 2005, when the main proviso to Section 40(a)(ia) was enacted. Given that the payees (the assessee’s group companies) had paid taxes on the payments received, the Assessing Officer was incorrect in invoking Section 40(a)(ia) to disallow the expenses for the A. Y. 2009-10.

iii) Consequently, there is no substantial question of law requiring further adjudication.”

General Anti-Avoidance Rules — Scope of —Impermissible Avoidance Agreement — Purchase and sale of shares — Cumulative effect of purchase and sale of shares results in loss — No strong material established by the Department to show applicability of s. 96(1) except the timing of transaction — GAAR provisions not applicable — Order passed u/s. 144BA(6) set-aside.

39. (2025) 177 taxmann.com 726 (Telangana)

Smt. Anvida Bundi vs. DCIT

A. Y. 2020-21 Date of order 22/08/2025

Ss. 96 r.w.s 144BA of ITA 1961

General Anti-Avoidance Rules — Scope of —Impermissible Avoidance Agreement — Purchase and sale of shares — Cumulative effect of purchase and sale of shares results in loss — No strong material established by the Department to show applicability of s. 96(1) except the timing of transaction — GAAR provisions not applicable — Order passed u/s. 144BA(6) set-aside.

The Assessee, an individual, held investments in shares and securities. During the year, the assessee sold certain shares (already held by her) and earned long term capital gains of about ₹44.14 crores from sale of shares. In order to deploy the funds available from sale of shares, and keeping in mind the market trend, the assessee purchased shares of HCL Technologies Pvt. Ltd. to earn short-term capital gains and thereafter to make long-term capital gains from subsequent disposal of investment. The assessee also invested in the units of mutual fund worth ₹32.92 crores during the year. Subsequently, the assessee sold shares of HCL Technologies Pvt. Ltd. in the same year. The cumulative effect of purchase of shares of M/s. HCL Technologies Pvt. Ltd. in the open market and sale of shares thereafter resulted in loss of ₹17.65 crores to the petitioner for the same Financial Year 2019-20.

The Department was of the view that the transaction of purchase and sale of shares of HCL Technologies Pvt. Ltd. during the year amounted to Impermissible Avoidance Agreement (IAA) and the provisions of Chapter X-A, dealing with General Anti-Avoidance Rules were applicable to the said transactions. The assessee filed objections. However, the approving panel passed the order dated 21/03/2023 holding that the transactions undertaken by the petitioner so far as purchase and sale of shares of M/s.HCL Technologies Pvt. Ltd., particularly taking into consideration the period of time during which the sale and purchase was made, amounts to “IAA”.

Against the said order, the assessee filed writ petition before the High Court on the contention that the Department had not met any of the criteria envisaged u/s. 96(1) of the Act to treat the transactions as IAA.

The Telangana High Court took note of certain admitted facts such as that the Department had not been able to show or has collected any material to prove that the purchase and sale of shares made by the petitioner was with any of their known persons or entity. There was no nexus between purchase and sale of shares of HCL Technologies Pvt. Ltd. All the shares were sold through the stock exchange through the DMAT account of the assessee. The assessee was an investor in shares and the purchase and sale of shares by the assessee was not one of the isolated transactions specifically made to save tax. The transactions formed part of the return of the assessee and there was no new material to hold that the so-called arrangement was hit by the GAAR provision. Lastly, except for the timing of transactions, there was also no material to hold the transactions to be an IAA. In view of these facts, the High Court taking note of the report prepared by the expert committee under the Act regarding general anti-avoidance rules held that the report itself has categorically held that sale and purchase through stock market transactions would not come under the GAAR provisions. It was held that timing of a transaction or a taxpayer would not be questioned under the GAAR provisions on sale and purchase of shares made by the assessee. The Telangana High Court allowed the petition and held as under:

“i) So far as the timing part is concerned, which perhaps was the strong point on which the authority concerned has passed the impugned order, it is necessary to take note of the report prepared by the expert committee under the Income Tax Act with regard to general anti-avoidance rules are concerned. The said report itself has categorically held that sale and purchase through stock market transactions would not come under the GAAR provisions. It was held that timing of a transaction or a taxpayer would not be questioned under the GAAR provisions on sale and purchase of shares made by the assessee.

ii) In view of the aforesaid factual matrix of the case, we are of the considered opinion that the Department has not been able to show any arrangement to have been made by the petitioner in the course of selling its shares of M/s.HCL Technologies Pvt. Ltd., and it was a pure trading done by the petitioner with no knowledge of purchase and sale carried out by the petitioner. In the absence of any strong material made available by the Department meeting the requirements and ingredients that are reflected under Section 96(1) of the Act, we are of the considered opinion that the writ petition deserves to be and is accordingly allowed. The impugned order dated 23/01/2023 passed by respondent No.3 u/s. 144BA(6) of the Act for the A. Y. 2020-21 is set aside.”

Deduction u/s. 80-IA :— (A) Interest on FD — Funds kept aside periodically by way of FD — Obligation under the license agreement to replace cranes after a certain period — Funds parked in FD to meet contractual obligation — Funds were also parked in FD under a compliance order of the High Court due to a tariff dispute between the assessee and TAMP — Placement of FD imperative for the business — FD was not created for parking of surplus funds — Interest is eligible for deduction u/s. 80-IA: (B) Interest on TDS refund — TDS wrongly deducted by customers — TDS was directly part of sales receipt of the assessee — Interest on TDS refund arose due to excess TDS deducted by the customers against the payment to be made to the assessee — TDS was part of business receipt of the assessee — Assessee entitled to deduction u/s. 80-IA on interest received by it on TDS refunded to it.

38. [2025] 177 taxmann.com 707 (Bom.)

Gateway Terminals India (P.) Ltd. vs. DCIT

A. Y. 2012-13 Date of order 26/08/2025

S. 80-IA of ITA 1961

Deduction u/s. 80-IA :— (A) Interest on FD — Funds kept aside periodically by way of FD — Obligation under the license agreement to replace cranes after a certain period — Funds parked in FD to meet contractual obligation — Funds were also parked in FD under a compliance order of the High Court due to a tariff dispute between the assessee and TAMP — Placement of FD imperative for the business — FD was not created for parking of surplus funds — Interest is eligible for deduction u/s. 80-IA:

(B) Interest on TDS refund — TDS wrongly deducted by customers — TDS was directly part of sales receipt of the assessee — Interest on TDS refund arose due to excess TDS deducted by the customers against the payment to be made to the assessee — TDS was part of business receipt of the assessee — Assessee entitled to deduction u/s. 80-IA on interest received by it on TDS refunded to it.

The assessee, a joint venture company, was engaged in the business of operating and maintaining a container terminal at Jawaharlal Nehru Port Trust (JNPT) which was eligible for deduction u/s. 80-IA of the Income-tax Act, 1961.

During the previous year, the assessee earned interest income from FDs maintained with the banks. These funds were kept in FD with banks because under the license agreement with JNPT, the assessee was under an obligation to replace cranes after a certain period. These cranes were a significant portion of the machinery and equipment of the assessee. The failure to replace cranes as per the license agreement would result in revocation of the license. Therefore, a portion of funds were regularly deposited by way of FDs to meet contractual obligations required to be fulfilled in order to continue the business of maintaining the container terminal. Further, interest was also received on FD due to a tariff dispute between assessee and TAMP and, thus, funds were parked in compliance of order of High Court. In addition to the above, the assessee also earned interest on refund of taxes due to wrongful deduction of TDS by the customers of the Appellant.

In the return of income filed by the assessee, for the A. Y. 2012-13, deduction u/s. 80-IA was claimed which included the above interest income. The assessment was completed by allowing the assessee’s claim for deduction u/s. 80-IA which included interest income on FD. The interest income on income-tax refund was taxed by the Assessing Officer under the head Income from Other Sources.

On appeal before the CIT(A), the CIT(A) enhanced the income of the assessee by denying deduction u/s. 80-IA of the Act in respect of interest on FD on the ground that it was not derived from an industrial undertaking. The Tribunal rejected the appeal filed by the assessee.

The assessee filed an appeal before the High Court against the said order. The assessee also filed miscellaneous application, which was rejected by the Tribunal. Against the order rejecting the miscellaneous application, the assessee filed a writ petition before the High Court.

The Bombay High Court disposed of both the appeal and the writ filed by the assessee and decided the issue in favour of the assessee and held as under:

“i) The assessee was entitled to deduction u/s. 80-IA of the Act on the interest from FDs which was placed by the assessee for planning of replacement of equipments as per the provisions of the agreement with JNPT. The facts that the placement of fixed deposits was imperative for the purpose of carrying on the eligible business of the assessee. The placement of FDs was not for parking surplus funds which were lying idle. The assessee had used these FDs for purchasing cranes for the eligible business and there was a direct nexus between the FDs and the eligible business of the assessee. Thus, in view of the foregoing, the deduction in respect of interest on FD was allowed.

ii) TDS was wrongly deducted by the vendors/customers of the assessee from the payment made to the assessee for using the port facility and, therefore, the TDS wrongly deducted was directly a part of the sales receipt of the assessee from the eligible business. The TDS refund arose to the assessee due to the excess TDS cut by the customers against payment to be made to the assessee and therefore the TDS was a part of the business receipt of the assessee. Had the customers not deducted excess amount of TDS, the assessee would have received the surplus funds which would be used for the business purpose/ repayment of loans etc. The refund received by the assessee was an integral part connected with the receipt of business income by the assessee and the same could not be separated from the business of the assessee. In these circumstances, the assessee was entitled to deduction u/s. 80-IA, on the interest received by it on TDS refunded to it.”

Charitable institution — Exemption u/s. 11 — Charitable purpose — Applicability of proviso to s. 2(15) — Donations received from donors after deducting an amount shown as deduction of tax at source u/s. 194C and 194J — AO treating receipts as consultancy fees and contractual income based on deduction of tax at source rejected exemption u/s. 11 — Assessee’s revision petition u/s. 264 was rejected — Held, proviso to s. 2(15) cannot be invoked alleging that services rendered in relation to trade, commerce or business — Provison under which donor deducted tax alone could not determine nature of receipt — No element of trade, commerce or business activity established — Assessee is entitled to exemption — Assessment order and order rejecting revision petition set aside.

37. (2025) 476 ITR 489 (Delhi)

Aroh Foundation vs. CIT

A. Y. 2017-18 Date of order 05/02/2024

Ss. 2(15) proviso, 11, 12, 13(8), 194C, 194J and 264 of ITA 1961

Charitable institution — Exemption u/s. 11 — Charitable purpose — Applicability of proviso to s. 2(15) — Donations received from donors after deducting an amount shown as deduction of tax at source u/s. 194C and 194J — AO treating receipts as consultancy fees and contractual income based on deduction of tax at source rejected exemption u/s. 11 — Assessee’s revision petition u/s. 264 was rejected — Held, proviso to s. 2(15) cannot be invoked alleging that services rendered in relation to trade, commerce or business — Provison under which donor deducted tax alone could not determine nature of receipt — No element of trade, commerce or business activity established — Assessee is entitled to exemption — Assessment order and order rejecting revision petition set aside.

The assessee is a non-Governmental organisation registered as a charitable institution u/s. 12A, 12AA and 80G of the Income-tax Act, 1961. The assessee claims to have been working for the upliftment of the poor, underprivileged children and women, health, preservation of the environment and other social causes. In order to fulfil its charitable objectives, the assessee receives various grants from the Government as well as the private sector which is exempted from tax u/s. 11 and 12 of the Act. During the previous year relevant to the A. Y. 2017-18, the assessee received the donations, which included receipts from donors who had deducted tax at source u/s.194C and 194J. The Assessing Officer denied exemption u/s. 11 and 12, treating these receipts as consulting fees and contractual income, invoking the proviso to section 2(15). The assessee’s revision petition u/s. 264 was rejected.

The assessee filed writ petition challenging the rejection order u/s. 264. The assessee contended that at no point of time, except for the A. Y. 2017-2018 was the charitable status of the assessee doubted by the respondent-Revenue and for all previous assessment years, specifically for the A. Ys. 2011-2012, 2012-2013, 2013-2014, and 2015-2016, under similar circumstances, exemption u/s. 11 and 12 of the Act was granted to the assessee and even for the subsequent assessment year, i.e., the A. Y. 2018-2019 as well, similar benefit was extended. However, the benefits for the relevant assessment year in question have been denied merely on the ground that the donor has deducted tax at source u/s. 194C and 194J of the Act, while allocating requisite grants to the assessee.

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

“i) In the instant case, the sole reason to construe the receipt amounting to ₹5,90,42,892 received by the donors under the tax regime is founded on the assumption that the same is towards professional/technical services or contractual income as tax at source was deducted under sections 194C and 194J of the Act.

ii) We, prima facie, find no merit in the above mentioned rationale as firstly, that alone cannot be the basis to conclude the aforesaid receipt to be considered under the category of consultancy fees and contractual income. Secondly, there is no element of activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business. Thirdly, in the absence of any cogent reason, receipts in question cannot be “advancement of any other object of general public utility”.

iii) If the deductor in its Income-tax return, under misconception, deducts tax at source u/ss. 194C and 194J of the Act, the same would not disentitle the assessee to claim benefit u/s. 11 and 12 of the Act unless the case of the assessee is specifically hit by the proviso of section 2(15) of the Act, which is not the case here. The proviso to section 2(15) of the Act would not get attracted merely on the basis of deduction of tax at source by the donor under a particular head.

iv) It is thus seen that deduction of tax at source by donor would not be the determinative factor for denial of benefits u/ss. 11 and 12 of the Act. The respondent-Revenue, in the instant case, in the preceding years as well as in the succeeding years, under almost similar circumstances, has accepted the exemption claimed by the assessee u/s. 11 and 12 of the Act and, therefore, should not have deviated from its consistent approach in denying benefits to the assessee.

v) Accordingly, we find that the assessment order dated December 22, 2019 and the order passed by the revisional authority dated March 27, 2021 suffer from material perversity. The writ petition is accordingly allowed and the impugned orders are hereby, set aside. The receipt of ₹5,90,42,892 shall not be treated as income and the assessee is entitled for exemptions enshrined u/s. 11 and 12 of the Act.”

Business expenditure — Disallowance u/s. 40A(3) — Cash payment in excess of prescribed limit — Effect of s. 40A and rule 6DD — Payments to agents cannot be disallowed — Meaning of agent — Assessee’s supervisor acting as agent of assessee, and accounting to him for amounts received and disbursed to individual labourers — Supervisors not sub-contractors and payments made by them to labourers on assessee’s behalf not to be disallowed u/s. 40A(3).

36. (2025) 477 ITR 95 (Calcutta)

Sk. Jaynal Abddin vs. CIT

A. Y. 2006-07 Date of order 02/04/2024

S. 40A(3) of ITA 1961 and Rule 6DD of ITR 1962 and S 182 of Indian Contract Act, 1872

Business expenditure — Disallowance u/s. 40A(3) — Cash payment in excess of prescribed limit — Effect of s. 40A and rule 6DD — Payments to agents cannot be disallowed — Meaning of agent — Assessee’s supervisor acting as agent of assessee, and accounting to him for amounts received and disbursed to individual labourers — Supervisors not sub-contractors and payments made by them to labourers on assessee’s behalf not to be disallowed u/s. 40A(3).

The appellant-assessee is engaged in the business of embroidery and stitching. The assessee paid a sum of ₹1,21,49,190 for payment to labourers. According to the assessee, the aforesaid amount was paid to the labourers through supervisors who were employees of the assessee. The assessee used to draw a lump-sum amount from bank by cheque through his employees, i.e., supervisors for payment to be made to labourers. The supervisors used to make payment to labourers and give an account to the assessee in the form of a list containing payments made to each individual labourer. In none of the cases, the payment so made by the supervisors to individual labourer exceeded ₹20,000. The Assessing Officer, while passing the assessment order dated December 31, 2008 for the assessment year in question, i.e., A. Y. 2006-07, invoked section 40A(3) of the Income-tax Act, 1961 by recording the following facts:

“The ground level labourers were not subject to professional tax, Employees’ State Insurance, provident fund, etc. There were no employer-employee relationship with the assessee and the labourers. The assessee simply got the work done by skilled labourers and the payment is ascertained on the basis of quality and quantity of the work done by them. The assessee in his submission dated December 30, 2008 further clarified that the job allotted to the worker are purely temporary. Workers are paid some times for few months even for a few days. Thus, labour welfare measures are neither taken up nor it is practicable. These workers are quite illiterate, partly homeless and fast changing the employer and work on piece rate on the condition of no work no pay.”

The Assessing Officer therefore inferred that the assessee could not produce satisfactory explanation for violation of the provisions of section 40A(3). Therefore, the Assessing Officer disallowed 20 per cent. of ₹1,21,49,191 that is ₹24,29,838 u/s. 40A(3) of the Act.

The Commissioner of Income-tax (Appeals) allowed the assessee’s appeal and recorded the following finding of fact:

“I have carefully gone through the assessment order and explanation given by the appellant. The Assessing Officer has stated that the payments to the supervisor workers are in excess of ₹20,000 in cash for which he has disallowed the expenses in terms of section 40A(3) of the Income-tax Act. It has already been held in the preceding paragraphs that the so-called sub-contractors are actually supervisor worker and employees of the appellant-firm. The payments made to them are meant for disbursement amongst the workers. It would be seen from the labour sheets that no single payment to the worker exceeds ₹20,000 in cash. The practice followed by the appellant is to withdraw the aggregate amount of labour charges from bank and to disburse the same amongst the individual workers through the supervisor. In not a single case, the individual payments to each worker ever exceeded ₹20,000 as would be seen from the monthly pay sheet and wage summary sheet. Considering the totality of the facts and circumstances and having regard to the case laws cited above, it is held that the disallowance under section 40A(3) made by the Assessing Officer is not called for. Accordingly, the addition of ₹24,29,838 is deleted.”

The Tribunal allowed the appeal filed by the Revenue and has recorded the following finding to hold that the supervisors are nothing but sub-contractors of the assessee:

“We observe that the assessee with each of the above so-called supervisors ledger account has enclosed the copies of weekly work sheet showing the name of worker, inter alia, amount paid to each of them. However, on the top of the said work sheet, name of the said supervisor is stated. It is observed that the assessee was making lump-sum payment on an ad hoc basis for the purpose of further disbursement to the workers and not as per the amount payable by them to the individual workers. We also observe from each page of the ledger account placed in paper book (supra) that there is a closing balance. Had these supervisors been merely an employee of the assessee along with the other workers, we are of the considered view that there was no question of any closing balance as on March 31, 2006. If the assessee had made the payments to them for the purpose of further disbursement, the assessee would have paid the amount to the so-called supervisors the amounts which were actually payable to them. However, this is not the case. Considering the entries in the ledger account, it fortifies the views of the Assessing Officer that the so-called group leaders or supervisors are nothing but sub-contractors of the assessee and the workers whose names are mentioned in the work sheet to whom the payments were made through respective so-called group leaders, who were working not under the assessee but under the said so-called group leader.”

On appeal by the assessee the Calcutta High Court framed the following substantial question of law for consideration:

“Whether the Tribunal was justified in law in judging the applicability of section 40A(3) of the Act with reference to the lump-sum amount paid to the leader of each group of workers for the purpose of disbursement to the individual workers on the appellant’s behalf and not with reference to the payment made to each individual worker and in holding that the group leader was the appellant’s sub-contractor or that the individual workers worked not under the appellant but under such group leader and its purported findings in that behalf are arbitrary, unreasonable and perverse?”

The Calcutta High Court allowed the appeal filed by the assessee, answered the question in favour of the assessee and held as under:

“i) On perusal of the assessment order, we find that the Assessing Officer has not disputed the specific case of the appellant-assessee that the supervisors are his employees. The specific stand of the appellant-assessee that the supervisors are his employees, was supported by books of account which were before the Assessing Officer. The Assessing Officer recorded the finding that since the provisions of Employees’ State Insurance, Provident Fund, etc., were not followed by the assessee, therefore, the individual labourers are not employees of the assessee. The Assessing Officer nowhere disputed the stand of the assessee supported by books of account that the supervisors are employees of the assessee. In paragraph 11 of the impugned order the Income-tax Appellate Tribunal recorded a finding based on surmise and presumption that the supervisors are nothing but sub-contractors of the assessee. This finding is perverse inasmuch as firstly it is not supported by any evidence and secondly it is contrary to evidence on record in the form of books of account that the supervisors are the employees who have been paid salary. Therefore, the finding recorded by the Income-tax Appellate Tribunal in the impugned order that the supervisors are sub-contractors, is perverse and is hereby set aside.

ii) Section 40A(3) of the Act afore-quoted, as it stood at the relevant time, clearly provides by the second proviso that no disallowance under this sub-section shall be made, where any payment in a sum exceeding ₹20,000 is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft; in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. Circumstances as referred in the aforesaid second proviso to section 40A(3) of the Act, 1961 have been prescribed in rule 6DD of the Income-tax Rules, 1962. Rule 6DD(1) clearly provides that no disallowance under sub-section (3) of section 40A shall be made where any payment in a sum exceeding twenty thousand rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person.

iii) Supervisors of the assessee acted as “agent” of the assessee. The word “agent” and “principal” has been defined in section 182 of the Indian Contract Act. An agent is a person employed to do any act for another, or to represent another in dealings with the third persons. The person for whom such act is done, or who is so represented, is called “principal”. Undisputed facts of the present case are that the appellant had withdrawn the amount from his bank account through his employees, i.e., supervisors for disbursement to individual labourers and the supervisors gave an account of the money so received for payment to labourers. Thus, the appellant-assessee is the principal and the supervisors acted as agent of the assessee. It is settled law that an authority of an agent may be express or implied. Submission of account by a supervisor acting as agent of the assessee, for the amount received and disbursed to individual labourers, leaves no manner of doubt that the supervisors who were employees of the assessee, acted as agents of the assessee for the purposes of disbursement of amount to the labourers. The payment so made by the supervisors had not exceeded ₹20,000 to any individual labourer. As per the provisions of section 211 of the Indian Contract Act, agent is bound to conduct the business of his principal according to the directions given by the principal or in the absence of such direction according to the customs which prevail in doing business of the same kind at the place where the agent conducts such business. In the present set of facts the supervisors acted as agent of the assessee in conducting the assessee’s business. There is no material or evidence on record to indicate or establish that the supervisors were sub-contractors. Under the circumstances, the finding recorded by the Income-tax Appellate Tribunal that the supervisors were sub-contractors is perverse and contrary to law. Consequently, the said finding is hereby set aside.

iv) We have found that the supervisors acted as agent of the assessee to disburse the amount to individual labourers which in no case exceeded ₹20,000 to any individual labour. Therefore, in view of the circumstances prescribed in the second proviso to section 40A(3) of the Act, 1961 read with rule 6DD(1) of the Income-tax Rules, 1962 and the above-referred provisions of the Indian Contract Act, the aforesaid payment of ₹1,21,49,190 cannot fall within the scope of section 40A(3) of the Act, 1961. Consequently, the disallowance to the extent of 20 per cent made by the Income-tax Appellate Tribunal and to add it in the income of the assessee cannot be sustained and is hereby set aside.

v) For all the reasons afore-stated, the impugned order of the Income-tax Appellate Tribunal to the extent it upholds the disallowance u/s. 40A(3) of the Act, 1961 for ₹24,29,838 cannot be sustained and is hereby set aside. Consequently, the substantial question of law is answered in favour of the assessee and against the Revenue.”

Applicability of section 132A — Stolen property — Theft at the premises of the assessee — Criminal Case — Stolen property found by the police — Application to the Trial Court for possession of the stolen property — Objection by the Income-tax Department — Ownership documents submitted by the assessee — Objection of the Tax Department not maintainable.

35. (2025) 345 CTR 433 (MP)

Shravan Kumar Pathak vs. State of MP

A. Y. 2022-23 Date of order 09/05/2024

Ss. 132A of ITA 1961 and 397, 401 & 457 of Cr.PC

Applicability of section 132A — Stolen property — Theft at the premises of the assessee — Criminal Case — Stolen property found by the police — Application to the Trial Court for possession of the stolen property — Objection by the Income-tax Department — Ownership documents submitted by the assessee — Objection of the Tax Department not maintainable.

Assessee is an individual. In the facts of this case, a theft took place at the house of the assessee wherein cash amounting to ₹3 crores and 4 kgs of gold was stolen. A police complaint was filed by the assessee and an FIR was registered by the police. After making investigation, the police arrested the accused and recovered the stolen articles. The Assessee filed an application u/s. 457 of the Criminal Procedure Code before the trial court for handing over the possession of articles seized by the police in his favour.

Against the application moved by the assessee applicant u/s. 457 of the CrPC, the Department filed an objection that the applicant kept such a huge cash amount and gold in his house with an intent to avoid tax liability, which otherwise is a loss to the Government and as such, custody of the seized articles should not be handed over to the assessee. In addition, the Assistant Director, Income Tax, had also asked for the custody of the articles recovered from the thieves.

The application filed by the assessee was rejected by the Trial Court on the ground that the inquiry by the Department had not been concluded and the amount may be subject matter of confiscation and therefore it would not be proper to hand over the possession to the assessee applicant.

Against this order by the Trial Court, the assessee applicant filed a revision application before the High Court. The Madhya Pradesh High Court decided the issue in favour of the assessee and held as follows:

“i) From the aforesaid enunciation of law, it is clear that in a criminal case, if any stolen property is seized by the police from the accused, then the Income Tax Department cannot claim possession over the said seized property by issuing notice u/s. 132A of the Income-tax Act, 1961 for the reason that the same is a separate proceeding and can be initiated only after decision of the Court.

ii) The trial Court on a mere objection raised by the Income Tax Department cannot reject the application preferred by the applicant for the reason that it is the duty of the Court to see whether the person claiming possession over the seized articles, satisfies the Court by producing cogent evidence of his/her ownership or not. From the record of the trial Court, it reveals that while claiming title over the seized articles, the applicant has not only filed a certificate issued by the Tahsildar but also filed other relevant documents of his title over the same and as such, after considering the same, an order in this regard ought to have been passed, but the Court has failed to do so.

iii) Under such circumstances, the impugned order dated 08/04/2022 (Annexure-P/6) passed by the trial Court is not sustainable in the eyes of law and as such, it is hereby set aside.”

Glimpses of Supreme Court Rulings

8. Vijay Krishnaswami vs. The Deputy Director of Income Tax (Investigation)

(2025) 177 taxmann.com 807(SC)

Prosecution – The complaint was filed by DDIT after sanction of PDIT before the Additional Chief Metropolitan Magistrate (E.O.II), Egmore, Chennai, on 11.08.2018 – Application under Section 245(C) was filed by the Appellant before the Settlement Commission later – On the date of lodging the prosecution, the finding of concealment of income or imposition of the penalty of more than ₹50,000/- was not recorded by the ITAT – Nothing was brought on record to show that any wilful attempt to evade the payment of tax was made by Assessee – No explanation had been put forth by Revenue to demonstrate as to why PDIT or DDIT did not comply the procedure while lodging prosecution in this case – The act of the authority in continuing prosecution was in blatant disregard to their own binding circular dated 24.04.2008 and in defiance to the guidelines of the Department – Further, in the settlement proceedings, Assessee had disclosed all material facts related to the computation of his additional income and fully satisfied the provisions of Section 245H – The Commission recorded a finding that overall additional income is not on account of suppression of any material facts and it did not disclose any variance from the manner in which the said income had been earned – As such the immunity from penalty under IT Act was granted in exercise of powers under Section 245H – Conduct of the authorities lacked fairness and reasonableness, and the High Court’s approach appeared to be entirely misdirected, having failed to appreciate the factual and legal position in right earnest

The Supreme Court held that the prosecution lodged with the help of proviso to Sub-section (1) to Section 245H was in defiance to the circular dated 24.04.2008, which was in vogue – the Revenue acted in blatant disregard to binding statutory instructions. Such wilful non-compliance of their own directives reflected a serious lapse, and undermined the principles of fairness, consistency, and accountability, which in any manner cannot be treated to be justified or lawful.

On 24.04.2016, search under Section 132 of the IT Act was conducted at the residence of the Appellant, and unaccounted cash of ₹4,93,84,300/- was seized. After taking statement of the Appellant under Section 132(4) of the IT Act, a show-cause notice was issued on 31.10.2017 as to why prosecution should not be initiated against him.

On assailing the same in the writ petition filed by the Appellant, it was dismissed on 17.11.2017 being premature, observing that issuance of show-cause notice is an administrative act and in absence of reply, it cannot be questioned in the writ petition.

The said order was put to challenge in Writ Appeal No. 1617 of 2017 which was dismissed as infructuous vide order dated 06.09.2020 taking into consideration the subsequent developments and the order of the Settlement Commission passed on 26.11.2019. The Division Bench observed that the complaint filed in furtherance to show-cause notice was not challenged before the learned Single Judge in a writ petition, therefore, the said issue cannot be looked into in this appeal, leaving it open to be decided in the appropriate proceedings.

During pendency, the Principal Director Income Tax (Investigation), Chennai, (in short “PDIT”) exercised power under Section 279(1) of the IT Act, and vide order dated 21.06.2018, accorded sanction to Deputy Director of Income Tax (Investigation), Chennai, (in short “DDIT”) to initiate prosecution against the Appellant. Thereafter, Respondent-DDIT filed complaint on 11.08.2018 against the Appellant for an offence under Section 276C(1) alleging wilful attempt to evade tax with respect to assessment year 2017-2018 and for not filing the correct return of income.

Being aggrieved, the Appellant filed quashing petition under Section 482 of Code of Criminal Procedure (in short “CrPC”) being Crl. O.P. No. 28763 of 2018 along with Crl. M.P. Nos. 16786 and 16787 of 2018, praying for quashing of the complaint and pending proceedings.

Pertinently, the Appellant also filed an application under Section 245C of the IT Act on 07.12.2018 before the Settlement Commissioner, Additional Bench, Chennai, (in short “Settlement Commission”) disclosing the entire additional income and sought immunity from levy of penalty as well as prosecution in the matter of alleged evasion of proposed tax.

The Settlement Commission in exercise of powers under Section 245D(4) of IT Act, partly allowed the said application vide order dated 26.11.2019 and granted immunity from levy of penalty, refraining itself to grant immunity from prosecution due to pendency of quashing petition before the High Court of Madras.

By the order impugned, the High Court dismissed the quashing petition and referring the averments of the complaint, observed that for the assessment year 2017-2018, the amount seized has not been shown in earnings, which may amount to evasion of proposed tax. The defence put forth by the Appellant was that the seized amount was an earning of the assessment year 2016-2017 and not of assessment year 2017-2018 for which settlement has been arrived at as per the order of the Settlement Commission. The said defence did not find favour on the pretext that it can be taken by the Appellant during trial. It was also observed that the complaint was filed prior and the application before the Settlement Commission was subsequent. Therefore, the stand of the Appellant indicating that the seized amount was income of the assessment year 2016-2017 may also be looked into during trial. The question of competence of DDIT to initiate the prosecution against the Appellant under Section 279(1) of the IT Act also did not turn in favour of the Appellant in the order impugned.

On the basis of the submissions as advanced by the parties, the Supreme Court was of the view that on the facts, the following questions fell for consideration:

i) Whether continuation of the prosecution initiated by the revenue Under Section 276C(1) against the Appellant after passing an order by the Settlement Commission, would amount to abuse of process of Court?

ii) Whether in the facts of the present case, the High Court was justified to dismiss the quashing petition filed by the Appellant, and if not, what relief can be granted?

The Supreme Court noted that Section 276C deals with two situations. Sub-section (1) pertains to a wilful attempt to evade tax, penalty, or interest that is ‘chargeable’, ‘imposable’, or related to ‘under-reporting of income’. In contrast, sub-section (2) addresses the wilful attempt to evade the ‘payment’ of any tax, penalty, or interest under the Act. Therefore, both sub-sections operate in separate spheres and different stages. The fundamental distinction between the applicability of sub-section (1) and sub-section (2) lies to the stage at which the offence allegedly occurs. Section 276C(1) is primarily intended to deter and penalize wilful and deliberate attempts by an Assessee for evasion of taxes, penalties and interest prior to their imposition or charging. The provision applies where there is a conscious and intentional effort to evade tax liability, distinguishing such conduct from bona-fide errors or differences in interpretation. The gist of the offence under Sub-section (1) of Section 276C lies in the wilful attempt to evade the very imposition of liability, and what is made punishable under this Sub-section is not the ‘actual evasion’ but the ‘wilful attempt’ to evade as described in the proviso to Section 276C.

The Supreme Court observed that for the allegations as alleged against Appellant, prosecution under section 279(1) was initiated by Respondent-DDIT in accordance with sanction given by PDIT. The Appellant also challenged the jurisdiction of the DDIT before the High Court, contending that she was not competent to initiate prosecution under section 279(1) of the IT Act.

On consideration of the provisions of section 279, the Supreme Court observed that, in addition to the other offences, looking to the allegations of the present case, the prosecution under section 276C may be lodged with permission of the PDIT. Sub-section (1)(a) creates a bar that the person shall not be proceeded under section 276C in relation to the assessment for the assessment year, of which penalty imposed or imposable on him, has been reduced or waived.

The Supreme Court further observed that the IT Act envisages a robust settlement mechanism under Chapter XIXA, which is titled ‘Settlement of Cases’. It was inserted by means of the Taxation Laws (Amendment) Act, 1975 (41 of 1975) w.e.f. 01.04.1976. The said amendment was brought pursuant to the recommendations of the ‘Direct Taxes Enquiry Committee’, popularly known as the ‘Wanchoo Committee’, report of December, 1971. ‘Chapter 2’ of the said report, titled ‘Black Money and Tax Evasion’.

In furtherance to recommendations of the Wanchoo Committee, an amendment was brought adding Section 245H, specifying the power of the Settlement Commission to grant immunity from prosecution and penalty.

According to the Supreme Court, on bare reading of the recommendations of the Wanchoo Committee, it was clear that the Assessee from whom the recovery of the unaccounted money has been allegedly reported, may apply before the Settlement Commission disclosing full and true income and the manner in which such income was derived. On such application, the Commission as it thinks fit, may grant immunity from penalty and prosecution of any offence under the IT Act or under the Indian Penal Code or under any other Central Act on such terms and conditions with respect to the subject matter covered under the settlement. The proviso to section 245H(1) is, however, an exception from granting immunity in case where the complaint has been lodged before the date of receipt of application for settlement. At the same time, the prosecution in either situation of section 276C(1) ought to be for wilful attempt to evade or pay tax. On literal construction of the first proviso, the prosecution initiated before the date of receipt of the application under section 245C is saved, and the second proviso restrict the Settlement Commission to grant immunity from the prosecution as specified therein.

According to the Supreme Court, the aforesaid provisions do not, in any manner, affect the basic principles of criminal law that the prosecution has to prove the case on its own. In the facts, for an offence under section 276C(1), for which a prosecution was lodged, wilful attempt to evade tax or penalty, which may be imposable or chargeable, mens rea of the Assessee is required to be proved. In absence, lodging such prosecution would result into futility.

Therefore, the ancillary question which arises is about the efficacy of the continuation of the complaint lodged, even though saved under the first proviso to Section 245H, hampering the power of the Settlement Commission to grant immunity from prosecution.

The Supreme Court, perusing the backdrop, from the recommendations of Wanchoo Committee till the date amendment was brought introducing Section 245H in the IT Act granting power of immunity to Settlement Commission, noted that the Revenue was facing the challenge of minimal prosecution and also for effectively proving the prosecution, what recourse ought to be taken was an issue before them. Simultaneously, the Assessee who in bona-fide manner had disclosed the excess earning specifying the source without any suppression, were facing unnecessary prosecution. Therefore, to streamline the said situation the revenue has issued guidelines time and again. In the guidelines, it was specified that when an Assessee is making an attempt to evade tax or its payment or penalty, if established, it is incumbent on the officers of the revenue to lodge the prosecution. In this regard, circular dated 24.04.2008 was published. Clause 3.3.1 (iii) of the said circular deals with the offences under section 276C(1) of IT Act. The relevant Clause of the said circular is reproduced as under:

“(iii) Offences Under Section 276C(1): Wilful attempt to evade taxes

All cases where penalty under Section 271(1)(C) exceeding ₹50,000/- is imposed and confirmed by the ITAT (if any second appeal has been filed) shall be processed for filing prosecution complaint.

The case for prosecution under this Section shall be processed by the A.O. preferably within 60 days of receipt of the ITAT’s order, if any.

The intent of the above scheme is indicative of the fact that the Department shall proceed to file prosecution/complaint only in those cases wherein penalty exceeding ₹50,000/- has been imposed by ITAT, within 60 days from the date of order of ITAT.”

The Supreme Court noted that the said guideline was based on a judgment of ‘M/s. K.C. Builders Ltd. vs. CIT (2004) 2 SCC 731, wherein the Supreme Court laid down that if penalty for concealment fails, the initiation of the prosecution on the basis of the same material also fails. Therefore, it was advised that after confirmation of concealment of penalty by ITAT, the prosecution may be lodged in terms as specified in the above circular dated 24.04.2008.

Similarly, on 09.09.2019, the Central Board of Direct Taxes (in short “CBDT”) in exercise of power under Section 119 of IT Act issued clarification qua the criteria to be followed for launching prosecution in respect of certain categories of offence under the IT Act, including Section 276C(1). The relevant portion is referred as under-

“iii. Offences Under Section 276C(1): Wilful attempt to evade tax, etc.

Cases where the amount sought to be evaded or tax on under-reported income is ₹25 Lakhs or below, shall not be processed for prosecution except with the previous administrative approval of the Collegium of two CCIT / DGIT rank officers as mentioned in Para 3.

Further, prosecution under this Section shall be launched only after the confirmation of the order imposing penalty by the Income Tax Appellate Tribunal.”

The Supreme Court noted that the departmental circular dated 24.04.2008, Prosecution Manual, 2009, and CBDT’s circular dated 09.09.2019, provide when the prosecution ought to be lodged by Revenue. The said Circulars have been issued to regulate the lodging of prosecution in genuine cases and to weed out the problems of the tax payers, and also to understand when can the prosecution for Section 276 ought to be lodged and continued. The said circular and clarification have been brought after the statutory scheme of Section 245H(1) and the appended proviso.

The Supreme Court noting the precedents, observed that the Supreme Court has unambiguously held that that the circulars issued by the Revenue are binding on the authorities, and can tone down the rigour of the statutory provision. Therefore, it could be concluded that the circulars as discussed above are binding on the authorities who are administering the provisions of the IT Act.

The Supreme Court, after perusal of the provisions of the IT Act, various circulars issued by the department and also the judgments referred hereinabove, held that if an Assessee has made suppression of income without disclosing the manner in which the excess amount was earned and concealed the account making wilful attempt to evade the tax which may be imposable and chargeable or payable, he/she is required to be prosecuted. Therefore, the recourse to lodge prosecution was made permissible subject to the department’s circular dated 24.04.2008 which provided for confirmation by ITAT in case the penalty imposed under Section 276C(1) is exceeding ₹50,000/-. The Supreme Court noted that the said circular was in vogue on the date of the grant of sanction by PDIT to DDIT for lodging the prosecution against the Appellant. The said circular has been reaffirmed by the Prosecution Manual, 2009 and the clarification issued by the CBDT in 2019. As such, the circulars discussed above, were binding on the authorities and required to be adhered to while lodging the prosecution by the Revenue.

Admittedly, in the present case, the complaint was filed by DDIT after sanction of PDIT before the Additional Chief Metropolitan Magistrate (E.O.II), Egmore, Chennai, on 11.08.2018. Application under section 245(C) was filed by the Appellant before the Settlement Commission later. On the date of lodging the prosecution, the finding of concealment of income or imposition of the penalty of more than ₹50,000/- has not been recorded by the ITAT. Nothing had been brought on record to show that any wilful attempt to evade the payment of tax by Assessee was made. No explanation had been put forth by Revenue to demonstrate as to why PDIT or DDIT did not comply the procedure while lodging prosecution in this case. Therefore, according to the Supreme Court, the act of the authority in continuing prosecution was in blatant disregard to their own binding circular dated 24.04.2008 and in defiance to the guidelines of the Department.

In contradistinction, the Settlement Commission passed an order under section 245D(4) on 26.11.2019. The said order is relevant, therefore, reproduced as thus:

“XX XX XX XX

PRAYER:

Immunity from penalty and prosecution

6.1 The applicant has prayed for grant of immunity from levy of penalty and prosecution. It could be seen that proceedings Under Section 276C(1) of the Income Tax Act, 1961 are pending before the Hon’ble High Court of Madras. In the circumstances, the applicant cannot be granted immunity waiver from prosecution, for the assessment years which are settled in this order.

6.2 However, the applicant has co-operated during the settlement proceedings. The applicant has disclosed all the facts, material to the computation of his additional income. Thus, the applicant has fully satisfied the provisions of Section 245H. The overall additional income is not on account of any suppression of any material facts in the application. The additional income offered does not disclose any variance from the manner in which the additional income had been earned. Hence, the applicant is entitled to immunity from penalties under the Income-tax Act for the assessment years which are settled in this order.

6.3 Immunity granted to the applicant by this order may be withdrawn, if he fails to pay including interest within the time and the manner as specified in this order or fails to comply with other conditions, if any, subject to which the immunity is granted and, thereupon, the provisions of the Income-tax Act shall apply as if such immunity had not been granted.

6.4 Immunity granted to the applicant, may at any time be withdrawn, if the Commission is satisfied that the applicant had, in the course of settlement proceedings, concealed any particulars, material to the settlement or had given false evidence and, thereupon, the applicant may be tried for the offence with respect to which the immunity was granted or for any other offence of which the applicant appear to have been guilty in connection with the settlement, and the applicant shall become liable to the imposition of any penalty and/or prosecution under the Act, to which the applicant would have been liable had not such immunity been granted.

7. The order shall be void Under Section 245D(6) if it is subsequently found that it has been obtained by fraud or misrepresentation of facts.

XX XX XX XX”

According to the Supreme Court, perusal of the said order made it clear that in the settlement proceedings, Assessee had disclosed all the facts material to the computation of his additional income and fully satisfied the provisions of Section 245H. The Commission recorded a finding that overall additional income is not on account of any suppression of any material facts and it does not disclose any variance from the manner in which the said income had been earned. As such the immunity from penalty under IT Act was granted in exercise of powers under Section 245H. From perusal of Section 245-I, it was clear that every order of settlement shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided, be reopened in any proceeding under the Act or under any other law for the time being in force.

In view of the foregoing discussions, in conclusion, the Supreme Court held that the prosecution lodged with the help of proviso to Sub-section (1) to Section 245H was in defiance to the circular dated 24.04.2008, which was in vogue. It was the duty of the PDIT and DDIT to look into the facts that in absence of any findings of imposition of penalty due to concealment of fact, the said prosecution could not be proved against the Assessee. It seems, even after passing the order by the Settlement Commission on 26.11.2019 which was brought to the notice of the High Court, the authorities were persistent to pursue the prosecution without looking into the procedural lapses on their part. Such an act could not be construed in right perspective and the Revenue have acted in blatant disregard to binding statutory instructions. Such willful non-compliance of their own directives reflected a serious lapse, and undermined the principles of fairness, consistency, and accountability, which in any manner cannot be treated to be justified or lawful.

The Supreme Court reiterated that, in terms of Section 245-I, the findings of the Settlement Commission were conclusive with respect to the matters stated therein. Once such an order was passed, it was incumbent upon the authorities to inform the High Court that continuation of the prosecution would amount to an abuse of the process of law, in particular when the Settlement Commission did not record any finding of wilful evasion of tax by the Appellant. Even otherwise, it was the duty of the High Court to examine the facts of the case in their right context and assess whether, in light of the above circumstances, the continuation of the prosecution would serve any meaningful purpose in establishing the alleged guilt. Upon a holistic consideration of the matter, the Supreme Court was of the view that the conduct of the authorities lacked fairness and reasonableness, and the High Court’s approach appeared to be entirely misdirected, having failed to appreciate the factual and legal position in right earnest.

In view of the foregoing discussions, the Supreme Court was constrained to allow these appeals setting aside the order impugned passed by the High Court. It was directed that prosecution lodged by the Revenue against the Appellant shall stand quashed. In the facts and circumstances of the case as discussed hereinabove, the Supreme Court imposed costs against the Revenue which was quantified at ₹2,00,000/- payable to the Appellant.

Article 13 and Article 24 of India – Singapore DTAA – in terms of the erstwhile Article 13(4), capital gains on shares acquired prior to 01 April 2017 are taxable only in Singapore and Article 24(1) i.e. Limitation of Relief, cannot be invoked if India does not have taxing right over such capital gains.

8. [2025] 174 taxmann.com 1244 (Mumbai – Trib.)

Prashant Kothari vs. Intl Tax Ward

IT Appeal Nos. 5391/Mum/2024

A.Y.: 2016-17 Dated: 29.05.2025

Article 13 and Article 24 of India – Singapore DTAA – in terms of the erstwhile Article 13(4), capital gains on shares acquired prior to 01 April 2017 are taxable only in Singapore and Article 24(1) i.e. Limitation of Relief, cannot be invoked if India does not have taxing right over such capital gains.

FACTS

The Assessee, a tax resident of Singapore, had earned capital gains from transfer of listed and unlisted shares which he had acquired before 01.04.2017. As per the computation, the Assessee had both losses and gains from such transfer. In respect of gains, the Assessee contented that in terms of Article 13(4) of the DTAA, such gains were taxable only in Singapore and in respect of loss, he had carried forward such losses under the Act.

The AO invoked the provisions of Article 24(1) of the DTAA dealing with limitation of relief, to contend that Assessee is entitled to treaty benefit, only if such gains are subject to tax in Singapore. The AO asserted that the Assessee failed to establish that his global income is taxable in Singapore. The AO distinguished the rulings on Article 24 by noting that the rulings were not rendered in the context of shares, and status of those Assessees was not that of individuals. The CIT(A) upheld the action of the AO and dismissed the appeal.

Aggrieved by the order, the Assessee appealed to ITAT.

HELD

Under the erstwhile Article 13(4) (as applicable to the relevant year), the gains from transfer of shares were taxable only in Singapore. Even under the amended DTAA (vide notification dated 23.03.2017), gains from the transfer of shares that were acquired on or before 01.04.2017 continued to be taxable exclusively in Singapore.

Article 24(1) provides for two cumulative conditions: if (i) income derived from a contracting state is either exempt or taxed at lower rate under the treaty; and (ii) such income is subject to tax in other contracting state only to the extent of remittance or receipt and not on the basis of accrual, then such exemption or reduced taxation must be limited to the remittance or receipt.

Article 13(4) did not provide for any exemption from taxation on capital gains. Rather, it provided the right of taxation to residence state. Article 24(1) could be invoked only with respect to exemption provision.

With respect to the second condition, the coordinate bench in Citicorp Investment Bank (Singapore) [(2017) 81 taxmann.com 368 (Mumbai – Trib.)] and APL Co. Pte Ltd v. ADIT [(2017) 185 TTJ 305 (Mumbai)], later affirmed by the Bombay High Court [457 ITR 203 (Bombay)], held that Article 24(1) is not applicable if the income was taxable in Singapore on accrual basis.

The ITAT noted that the above rulings did not deal with the aspect of income taxable in Singapore on a remittance basis. In the absence of information regarding the manner of taxation of such capital gains in Singapore, the ITAT was constrained from commenting on the satisfaction of the second condition of Article 24(1).

The ITAT affirmed that to invoke Article 24(1), twin conditions must be satisfied cumulatively. Since the first condition was not satisfied, the ITAT held that Article 24(1) is not taxable and the capital gains are taxable only in Singapore.

As regards set off of losses computed by the AO, the ITAT followed the decision of the coordinate bench ruling in Matrix Partners India Investment Holdings, LLC vs. DCIT (ITA No. 3097/Mum/2023) (Mumbai -Tribunal) to hold that gains need to be computed for each source of income separately and assessee is entitled to carry forward the loss without setting off against the gains exempt under Article 13(4) DTAA.

Article 12 of India-Germany DTAA – Where supply of drawings and designs is inextricably linked to sale of equipment, consideration received towards drawings and designs cannot constitute FTS

7. [2025] 173 taxmann.com 403 (Delhi – Trib.)

SMS Siemag AG vs. ADIT

IT Appeal Nos. 5580/Del/2011 and 2144/Del/2012

A.Y.: 2007-08 to 2016-17 Dated: 09.04.2025

Article 12 of India-Germany DTAA – Where supply of drawings and designs is inextricably linked to sale of equipment, consideration received towards drawings and designs cannot constitute FTS

FACTS

The Assessee is a tax resident of Germany, engaged in the business of supplying equipment, design, and drawings, and providing services to the metallurgical sector. During AY 2008-09, the Assessee had receipts of ₹ 41 lakhs from Indian companies towards supervisory activities and drawings, which were unconnected with supply of equipment. The Assessee offered these receipts as FTS. Apart from these, the Assessee had also received certain amounts towards offshore supply of drawings and designs.

The AO considered the receipts towards offshore supply of drawings and designs as FTS and assessed the aggregate income at ₹176 crores. The DRP upheld the assessment order.

Aggrieved by the final order, the Assessee appealed to ITAT. The Group companies also filed similar appeals. Appeal of the Assessee was taken as the lead matter.

HELD

The Tribunal relied on the coordinate bench ruling in Assesses’ own case for AY 2005-06 and SMS Concast AG vs. DDIT [2023] 153 taxmann.com 718 (Delhi – Trib.) and held as follows.

  • The Assessee had supplied drawing and designs from outside India and had also received the consideration outside India. Supply of drawings and designs were inextricably linked to sale of plant and equipment and both drawings and designs and equipment formed part of a single project undertaken for the customer.
  • The schedule of drawings and documentation also indicated that the drawings were specifically related to supply of equipment.
  • Even if the contracts for drawings and the supply of equipment were entered into separately, they cannot be read in isolation.
  • In case of delay in supply of equipment beyond the stipulated time, the purchaser had the right to terminate not only the equipment contract but also the contract for drawings. This demonstrated that the supply of drawings was an integral part of supply of equipment.
  • When the link between supply and services is strong, the payment for services cannot be regarded as FTS under Section 9(1)(vii) of the Act.

Accordingly, ITAT held that receipt of drawings that are interlinked with supply of equipment cannot be regarded as separately chargeable as FTS, either under the Act or under DTAA.

Unsecured Loans – Genuineness and Creditworthiness – AO issued notices u/s 133(6) to only part of the lenders – No summons issued u/s 131 – No incriminating material brought on record – Addition deleted to extent of loans repaid, balance remanded for verification

45. [2025] 123 ITR(T) 660 (Nagpur – Trib.)

Ravindra Madanlal Khandelwal vs. Deputy Commissioner of Income-tax

ITA NO.: 375/NAG/2024

A.Y.: 2018-19 DATE: 18.11.2024

Section 68, 36(1)(iii)

Unsecured Loans – Genuineness and Creditworthiness – AO issued notices u/s 133(6) to only part of the lenders – No summons issued u/s 131 – No incriminating material brought on record – Addition deleted to extent of loans repaid, balance remanded for verification

FACTS I

During the scrutiny assessment, the Assessing Officer noted that the assessee was in receipt of new unsecured loans from various individuals and entities and sought to verify the genuineness, creditworthiness, and identity of the creditors from whom these loans were reportedly received.

In response to notices under section 142(1), the assessee submitted list of lenders, their PAN, address, ledger confirmation of most of the debtors, interest payment details, details of TDS deducted on interest and the TDS returns of the assessee but they were unable to submit the return of income and bank statements of the lenders. The Assessing Officer had also issued notices u/s 133(6) to various parties.

However, as the Assessing Officer could not verify the creditworthiness of the lenders in the absence of the income tax return and bank statements, the Assessing Officer made addition under section 68.

On appeal, the Commissioner (Appeals) upheld the addition made by the Assessing Officer holding that the assessee had failed to provide complete and satisfactory documentation that could establish the transactions concerning all creditors and assessee also failed to comply with the notices issued by the Assessing Officer.

Being aggrieved, the assessee filed an appeal before the ITAT.

HELD I

The Tribunal observed that the Assessing Officer, out of total 43 lenders, issued notices under section 133(6) only to 10 lenders out of which 4 lenders confirmed the transaction, while 6 lenders did not respond. The Assessing Officer erred in drawing negative inference based on non-response from few parties. The Assessing Officer had the powers to issue summons under section 131 and enforce attendance of the lenders. However, the said exercise was also not conducted by the Assessing Officer.

Further, Tribunal observed that no enquiry was made by the Assessing Officer by issuing summons and no incriminating evidences were brought on record to dislodge the materials relied upon by the assessee to prove the ingredients of section 68.

The Tribunal deleted the addition made by the Assessing Officer on account of cash credit to the extent of repayment of loans made by the assessee either in the same year or succeeding years. And further directed the Assessing Officer to verify Identity, Genuineness and creditworthiness of the lenders for the balance loans.

Interest on Borrowed Funds – Advances to Related Concern – Commercial Expediency Established – No evidence of diversion for non-business purposes – Entire disallowance deleted

FACTS II

The assessee had borrowed funds in his individual capacity and advanced them to a related concern, in which he was both a director and shareholder. The assessee had claimed deduction on account of interest of ₹ 74,32,292 on borrowed funds in his individual capacity. The Assessing Officer noticed that the assessee failed to provide adequate documentation to prove that the interest expenses were incurred solely for the purpose of business and the linkage between the borrowed funds and their utilization in business activities was not substantiated satisfactorily and held that the interest expenses might not have been wholly for the purpose of business and for the reasons, the addition was made to the total income of the assessee.

Further, the Assessing Officer observed that the assessee claimed another interest expenses of ₹ 97,66,208 which were asserted to be incurred for earning income from other sources, but were not recorded in the Profit & Loss Account of the business. The Assessing Officer disallowed this expenditure on the grounds that the expenditure claimed was not reflected in the Profit & Loss Account.

The Commissioner (Appeals) observed that the borrowed funds were used for non-business purposes, and the Assessing Officer’s decision to disallow the interest expenses was upheld, as the assessee did not meet the burden of proof required to establish that these expenses were incurred wholly and exclusively for business purposes.

Being aggrieved, the assessee filed an appeal before the ITAT.

HELD II

The Tribunal observed that the explanation provided by the assessee was that the company, being a private limited entity, could not borrow directly from outsiders except from banks/financial institutions as per the Companies Act. Therefore, for business exigencies, the assessee arranged funds personally and transferred them to the company.
The Assessing Officer’s sole objection was non-charging of interest on the advances, and he treated the interest paid on the borrowings as personal expenditure.

The Tribunal held that the borrowed funds were advanced to a related concern, and there is a clear nexus with potential income. The transaction was driven by commercial expediency and the assessee acted to support a business concern in which he had a substantial interest. Further, held that the Assessing Officer brought no evidence of diversion of funds for non-business or personal purposes.

Therefore, the interest expenditure of ₹ 74,32,292 was allowable in full and disallowance was deleted by the Tribunal.

The Tribunal observed that with respect to interest expense of ₹ 97,66,208, the Assessing Officer failed to demonstrate any nexus between borrowed funds and non-business use and the disallowance was based on general statements without specifics. Further, the CIT(A) upheld the order without addressing the assessee’s detailed explanations or analysing fund flow.

The Tribunal held that interest on borrowed capital is allowable if the funds are used for the purposes of the business; the burden is on the Assessing Officer to prove diversion for non-business purposes if he seeks to disallow. In the present case, the AO’s approach of straightaway disallowing the entire claim without pinpointing specific instances of diversion was contrary to settled principles.

Therefore, the entire disallowance of ₹ 97,66,208 was deleted by Tribunal.

Reassessment – Jurisdiction to make additions – No addition made on the issue for which case was reopened – Other additions not sustainable – Reassessment invalid

44. [2025] 124 ITR(T) 410 (Jaipur – Trib.)
Kailash Chand vs. ITO
ITA NO.: 565/JP/2024
A.Y.: 2012-13 DATE: 10.03.2025
Sections: 147 r.w.s. 144

Reassessment – Jurisdiction to make additions – No addition made on the issue for which case was reopened – Other additions not sustainable – Reassessment invalid

FACTS

The assessee was engaged in the business of plying of trucks on hire. He had not filed his return of income for the year under consideration.

The revenue was in possession of the information that the assessee had deposited a sum of ₹ 42.46 lakhs during the financial year 2011-12 in his saving bank account. In the absence of return of income, the above transaction was considered as not verifiable and accordingly, notice under section 148 was issued upon the assessee.

The assessee made part compliance and submitted the copy of balance sheet and profit and loss account. Thereafter despite various opportunities provided, the assessee remained non-compliant and the Assessing Officer went on making the addition on account of depreciation, interest on loan etc. which were based on the profit and loss account and balance sheet filed by the assessee and the Assessing Officer had abstained from making any addition on account of cash deposited to the saving bank account as alleged in the reasons recorded for re-opening of the case.

On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. Aggrieved, the assessee preferred an appeal before the Tribunal.

HELD

The Tribunal observed that the reason recorded for reopening was the alleged unexplained cash deposits of ₹ 42.46 lakhs and no addition was made on this issue in the reassessment order.

In such circumstances, the AO loses jurisdiction to assess other income which comes to his notice during reassessment proceedings. Once the Assessing Officer is satisfied with the reasons recorded for reopening the case, they no longer have the jurisdiction to tax any other income.

Placing reliance on CIT vs. Shri Ram Singh [2008] 306 ITR 343 (Rajasthan High Court), CIT vs. Jet Airways (I) Ltd. [2010] 195 Taxman 117 (Bombay High Court), Ranbaxy Laboratories Ltd. vs. CIT [2011] 12 taxmann.com 74 (Delhi High Court), the Tribunal held that the settled legal position is “If no addition is made in respect of the issue for which the assessment is reopened, the AO has no jurisdiction to assess any other income in reassessment proceedings.”

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

Mere existence of any object allowing the charity to carry out activity outside India will not enable CIT(E) to deny registration under section 12AB.

43. (2025) 176 taxmann.com 561 (Mum Trib)

TIH Foundation for IOT and IOE vs. CIT

ITA No.: 2904/Mum/2025

A.Y.: 2025-26 Dated: 10.07.2025

Section: 12AB

Mere existence of any object allowing the charity to carry out activity outside India will not enable CIT(E) to deny registration under section 12AB.

FACTS

The assessee was a not-for-profit company incorporated under section 8 of the Companies Act, 2013, established pursuant to the directions of the Ministry of Science and Technology, Government of India, and hosted by IIT Bombay. It was granted registration under section 12AB for A.Y. 2021-22 to A.Y. 2025-26. It applied for renewal of registration under section 12AB.

CIT(E) rejected the application for registration for the reason that there was a possibility of future endeavour by the assessee which would require expenditure outside India which would be in violation of section 11.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) The only basis for rejection of registration by CIT(E) was the possibility of the assessee incurring expenditure outside India in furtherance of its objects, which, according to him, contravened section 11. However, such reasoning did not find support either in the statutory scheme of section 12AB or in judicial precedents.

(b) In the present case, the assessee had neither undertaken any impermissible application of income nor had CIT(E) brought on record any specific violation of conditions prescribed under Section 12AB(1)(b) or Explanation to Section 12AB(4). The objects of the assessee were in line with the mission of the Central Government under the NM-ICPS initiative, and the activities were genuine and aimed at technological development in public interest.

Accordingly, the Tribunal allowed the appeal of the assessee and directed the CIT(E) to grant registration to the assessee under section 12AB.

Amendment in section 11(3)(c) vide Finance Act 2022 omitting extra period of one year following the expiry of the period of accumulation of five years applies prospectively in respect of fresh accumulations under section 11(2) made from assessment year 2023-24 onwards and not to earlier years.

42. (2025) 176 taxmann.com 661 (Mum Trib)

Dadar Digamber Jain Mumukshu Mandal vs. CIT

ITA No.: 2446/Mum/2025

A.Y.: 2023-24 Dated: 15.07.2025

Section: 11

Amendment in section 11(3)(c) vide Finance Act 2022 omitting extra period of one year following the expiry of the period of accumulation of five years applies prospectively in respect of fresh accumulations under section 11(2) made from assessment year 2023-24 onwards and not to earlier years.

FACTS

The assessee trust filed its original return of income, declaring total income of ₹14,37,197. The return was processed under section 143(1) making an adjustment of ₹ 75,66,540 being additions under section 11(3) on account of unutilised set aside / accumulated funds under section 11(2) relating to FY 2016-17 (₹ 35,66,540) and FY 2017-18 (₹ 40,00,000).

Aggrieved, the assessee went in appeal before CIT(A), who upheld the additions.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) Under the un-amended section 11(3) (as it stood before Finance Act, 2022), the assessee gets an extended period of one more year, in total, six years for utilisation of accumulated income and on expiry of the said period, by virtue of the deeming fiction, the unutilised accumulated income shall be brought to tax in the previous year following the expiry of period of six years.

(b) The Finance Act, 2022 has amended and omitted the extra period of one year following the expiry of the initial period of accumulation of five years. Therefore, unlike under the un-amended provisions wherein the income which is not utilised for the purposes it was accumulated can be brought to tax on the expiry of the sixth year, under the amended law, that income can be brought to tax on the expiry of five years itself.

(c) Considering both language as well as the intent, the amendment which has been brought in by the Finance Act, 2022 relates to accumulation of income pertaining to previous year starting from 1st April, 2022 onwards relevant to AY. 2023-24 and subsequent assessment years and in that sense, has to be applied prospectively in respect of fresh accumulations and not in respect of existing accumulations which continue to remain guided by the erstwhile provisions at the relevant point in time when the accumulations were made in the respective financial years.

(d) As far as the accumulation relating to the period of FYs. 2016-17 and 2017-18 are concerned, the assessee had the time window till 31-03-2023 and 31-03-2024 respectively by which it has to utilize accumulated income and in that view of the matter, the amendment brought in by the Finance Act, 2022 does not debar the assessee from availing the said time window in respect of existing accumulations and the amendment has to be read prospectively in respect of fresh accumulations for the period pertaining to previous year starting from 1st April, 2022 onwards.

The Tribunal also noted that a similar view has been taken by a number of benches of the Tribunal.

Accordingly, the Tribunal held that –

(i) for accumulation relating to FY 2016-17, since the assessee had utilised the r 35,66,450 during FY 2022-23, that is, within stipulated period of 6 years, the addition deserves to be deleted.

(ii) for accumulation relating to FY 2017-18, the assessee had time window to utilise the accumulated income till 31.3.2024 under the un-amended law and thus, the question of bringing the same to tax during AY 2023-24 did not arise.

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

Best judgment assessment made by the AO under section 144 cannot be substituted by the judgment of CIT exercising revisionary powers under section 263.

41. (2025) 176 taxmann.com 819 (Mum Trib)

Bhagwan Vardhman Shwetamber Murtipujak Tapagacch Jain Sangh vs. CIT

ITA No.: 2378/Mum/2024

A.Y.: 2012-13 Dated: 23.07.2025

Sections: 144,263

Best judgment assessment made by the AO under section 144 cannot be substituted by the judgment of CIT exercising revisionary powers under section 263.

FACTS

The assessee was not registered under section 12A. It filed its return of income. The return was selected for scrutiny assessment and accordingly, notices were issued and served upon the assessee. None attended the proceedings and the AO framed the order ex-parte to the best of his judgment under section 144. In the order, the AO allowed corpus expenditure of ₹ 10,97,699 against the corpus donation of ₹ 38,42,558 received during the year and treated the balance of ₹ 27,44,859/- as income of the assessee.

Invoking revisionary powers under section 263, CIT held that AO did not make any enquiry and because of which the expenditure claimed by the assessee was allowed and only the balance corpus was assessed to tax, and therefore, the assessment order was erroneous and prejudicial to the interest of the revenue.

Aggrieved, the assessee filed an appeal before ITAT against the order under section 263.

HELD

Following the decision of the coordinate bench in Sanjay Umarshi Dand vs. Pr. CIT [IT Appeal No. 321(Nag.) of 2024, dated 10-2-2025), the Tribunal held that since the assessment order was an ex-parte order under section 144 by which the AO assessed income of the assessee to the best of his judgement, the judgement of the AO cannot be substituted with the judgement of the CIT(E) by invoking revisionary powers under section 263.

Accordingly, the Tribunal allowed the appeal of the assessee, set aside the order of the CIT and restored the order of the AO.

Claim of capitalized interest, supported by evidence, which interest has been disallowed while computing capital gains, cannot be subject matter of levy of penalty under section 270A, in view of the ratio of decision of the Apex Court in Reliance Petroproducts Pvt. Ltd. [189 Taxmann 322 (SC)]

40. Urmila Rajendra Mundra vs. ITO

ITA No. 577/Jp./2025

A.Y.: 2022-23 Date of Order: 1.8.2025

Section: 270A

Claim of capitalized interest, supported by evidence, which interest has been disallowed while computing capital gains, cannot be subject matter of levy of penalty under section 270A, in view of the ratio of decision of the Apex Court in Reliance Petroproducts Pvt. Ltd. [189 Taxmann 322 (SC)]

FACTS

The assessee claimed deduction of interest, which was capitalised, while computing capital gains arising on sale of immovable property. While assessing total income, the Assessing Officer (AO) disallowed the interest which was capitalised by the assessee, though the same was backed by documentary evidence. The assessee did not prefer an appeal against this disallowance.

Subsequently, the AO initiated proceedings for levy of penalty under section 270A for under-reporting of income in consequence of misreporting thereof. In response, the assessee submitted that the claim of interest was supported by copies of bank statements and since there was not much tax outflow due to brought forward losses, the assessee chose not to file an appeal. Also, the notice did not specify how the assessee has misreported the income.

The AO held that the assessee has misreported income of ₹ 4,89,159 and levied a penalty of ₹ 2,03,488 thereon being 200% of the tax on misreported income.

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

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the assessee, in the course of assessment proceedings, had substantiated the amount of interest by submitting bank statements in respect of borrowings made. The Tribunal held the contention of the AO and the CIT(A) that the claim was not backed by evidence to be devoid of merit. The Tribunal held that mere non-acceptance of the claim made by the assessee cannot be a reason to automatically levy penalty for misreporting or even under-reporting of income. It stated that this view is supported by the decision of the Apex Court in the case of CIT vs. Reliance Petroproducts Ltd. [189 Taxman 322 (SC)]. In view of this decision of the Apex Court, the Tribunal held that it did not see any reason to sustain the penalty imposed.

Also, the bench noticed that the notice issued did not specify whether the assessee has misreported income or has under-reported the same. Due to this lapse on the part of the AO, it held, the penalty cannot be sustained without specifying the charge against the assessee. This view was supported by the ratio of the decision of the jurisdictional High Court in the case of G R Infraprojects Ltd. vs. ACIT [159 taxmann.com 80].

In view of the decisions relied upon and also in view of the facts of the case being similar to those before the courts in the said decisions, the Tribunal directed the AO to delete the penalty levied.

Where the Assessing Officer in the assessment proceedings did not make any enquiry as to whether the equipment received by the assessee free of cost from its holding / subsidiary companies was received on returnable basis or otherwise, the assessment order was erroneous and prejudicial to the interest of the revenue. If, in the set aside proceedings, the assessee satisfies the AO by substantiating based on the documents that the equipments were received on returnable basis then the AO will decide the issue on hand in the light of the order of the Tribunal in the case of Sony India Software Center Private Limited [170 taxmann.com 309 (Bang.-Trib.)]

39. LSI India Research & Development Pvt Ltd. vs. PCIT

ITA No. 1061/Bang./2024

A.Y.: 2017-18 Date of Order: 23.7.2025

Sections: 28(iv), 263

Where the Assessing Officer in the assessment proceedings did not make any enquiry as to whether the equipment received by the assessee free of cost from its holding / subsidiary companies was received on returnable basis or otherwise, the assessment order was erroneous and prejudicial to the interest of the revenue.

If, in the set aside proceedings, the assessee satisfies the AO by substantiating based on the documents that the equipments were received on returnable basis then the AO will decide the issue on hand in the light of the order of the Tribunal in the case of Sony India Software Center Private Limited [170 taxmann.com 309 (Bang.-Trib.)]

FACTS

The assessee preferred an appeal against the order passed by PCIT under section 263 of the Act holding the assessment framed under section 143(3) r.w.s 144(3) and 144B of the Act to be erroneous and prejudicial to the interest of the revenue and further directing the Assessing Officer (AO) to make a fresh assessment in accordance with law.

The assessee, during the year under consideration, received capital assets amounting to ₹ 42,89,70,248 on free of cost / loan basis from holding / subsidiary companies. According to the PCIT, these fixed assets represented income of the assessee chargeable to tax under section 28(iv) of the Act. However, the assessee, in its return of income filed under section 139(1), had not offered the same for taxation. Similarly, the assessment had been framed without any enquiry so as to offer such equipment received free of cost as income under section 28(iv) of the Act. PCIT, in his show cause notice, proposed to hold the assessment order to be erroneous and prejudicial to the interest of the revenue.

In response to the show cause notice, the assessee submitted that the equipments were acquired for limited purpose of testing the software development. Further, these equipments were received on returnable basis and were for the benefit of recipient / customer and not for the assessee. Accordingly, it was submitted that these equipments cannot be treated as benefit / perquisite under section 28(iv) of the Act.

The PCIT, in his order under section 263 of the Act, observed that the assessee company has been provided with customized / specific assets (primarily in the nature of testing equipment) by the relevant group companies. From the submission the usable period of these assets is not clear. These assets, if used for more than one year, should be treated as capital assets. He also observed that it is not clear as to when these assets were returned to the group companies / disposed. Hence, these should be considered as benefit / perquisite arising out of business / profession. He held the assessment order to be erroneous and prejudicial to the interest of the revenue and directed the AO to make a fresh assessment in accordance with law after examining the aforementioned facts. He directed the AO to conduct necessary enquiries and verification and give the assessee an opportunity to substantiate his claim with necessary supportive evidence and explain why the proposed addition / disallowance should not be made. He shall make a fresh assessment in accordance with law and CBDT instructions on the subject.

Aggrieved, the assessee preferred an appeal to the Tribunal where relying on the decision of the Bangalore Bench of the Tribunal in the case of ACIT v. Sony India Software Center Private Limited [170 taxmann.com 309 (Bang.-Trib.)], it was contended that since these equipments were received on returnable basis the provisions of section 28(iv) of the Act are not applicable. Without prejudice it was submitted that the direction given by PCIT be modified to the extent that if the assessee substantiates that these equipments were received on returnable basis on production of documentary evidence then the same cannot be treated as a benefit / perquisite taxable under section 28(iv) of the Act.

The Revenue contended that since the assessee has not produced any evidence suggesting that the equipments were received on returnable basis the principles laid down by the Tribunal in Sony India Software Center Private Limited (supra) are not attracted.

HELD

The Tribunal noted that the issue on hand is limited to the extent whether the equipments were received by the assessee on returnable basis and, therefore the same cannot be made subject to the addition under section 28(iv) of the Act. The Tribunal also noted that the assessment order has been held to be erroneous and prejudicial to the interest of the revenue since no enquiry was made by the AO during the assessment proceedings qua receipt of equipment free of cost. Even before the PCIT the assessee could not demonstrate that the equipments have been received on returnable basis. The Tribunal further noted that the PCIT has not given any direction to the AO for making addition of r 42,89,70,248 representing the equipment received on free of cost basis meaning thereby the assessee has been granted a fresh opportunity to substantiate that the equipments were received on returnable basis. The Tribunal held that there is no infirmity in the direction given by the PCIT.

The Tribunal also held that if the assessee satisfies the AO by substantiating based on the documents that the equipments were received on returnable basis then the AO will decide the issue on hand in the light of the order of the Tribunal in the case of Sony India Software Center Private Limited (supra).

Subject to assessee bringing on record the relevant evidence of the amount of tax deducted at source and deposited with the Government, the assessee cannot be denied her lawful right by restricting the TDS credit to the amount reflected in Form 26AS.

38. Sonali Dhawan vs. ITO, International Tax

ITA No. 3748/Mum./2025

A.Y.: 2023-24

Date of Order: 5.8.2025

Section: 143(1), Rule 37BA

Subject to assessee bringing on record the relevant evidence of the amount of tax deducted at source and deposited with the Government, the assessee cannot be denied her lawful right by restricting the TDS credit to the amount reflected in Form 26AS.

FACTS

During the previous year relevant to the assessment year under consideration, the assessee sold a house property for a consideration of ₹ 2,76,20,500 from which the buyer deducted ₹ 48,00,000 as TDS. The fact of deduction of TDS as well as its deposit with the Government were recorded in the Sale Deed itself.

The assessee filed her return of income wherein she reflected the amount of capital gain arising on sale of house property and also credit claim of TDS. However, while processing the return of income, CPC accepted the return of income but did not grant TDS credit of ₹ 47,99,525 out of ₹ 48,00,000 claimed by the assessee in her return of income. The reason for denial of credit was stated by CPC to be mismatch between the amount claimed and that reflected in Form 26AS. Form 26AS contained only partial amount of TDS and therefore assessee was denied credit of TDS claimed in the return of income.

Aggrieved, the assessee preferred an appeal to the CIT(A) who directed the AO to grant TDS credit as per relevant Form 26AS.

Aggrieved, the assessee preferred an appeal to the Tribunal where, on behalf of the assessee it was submitted that not only has tax been deducted at source but the same has also been deposited and these facts are evident from the sale deed itself. Further, as per provisions of section 143(1)(c) of the Act, so long as TDS is deducted even if it is not paid by the deductor, co-ordinate benches of the Tribunal have gone ahead and held that credit for TDS cannot be denied to the assessee and in support of this proposition reliance was placed on the decision in the case of Mukesh Padamchand Sogani vs. ACIT [ITA No. 29/PUN/2022; A.Y.: 2009-10; order dated 31.1.2023] and that mere fact that TDS is not reflected in Form 26AS for reasons unknown to the assessee and beyond the control of the assessee cannot be a basis for denial of TDS credit which has been duly deducted and deposited by the buyer.

HELD

The Tribunal observed that there could be varied technological or other reasons where the relevant data pertaining to the assessee doesn’t get reflected in Form 26AS at the relevant point in time. The CPC may have the limitation to look beyond what has been claimed by the assessee and reflected in IT system more particularly in Form 26AS. At the same time where an aggrieved assessee brings the relevant evidence on record as in the instant case, the assessee cannot be denied her lawful right in terms of credit of TDS where the same has been duly deducted and deposited subject to necessary verification. The Tribunal remarked that it has been informed that for the TDS on sale of property, the prescribed form is the tax payer receipt which contains the requisite particulars of tax deposited unlike Form 16/16A issued in other cases. In light of the same, the Tribunal directed the AO to verify the taxpayer receipt issued by Canara Bank dated 17.6.2022 for an amount of ₹ 48,00,000 as available in the assessee’s paper book and if the same is found in order allow the necessary credit of TDS amounting to ₹ 48,00,000 so claimed by the assessee in her return of income.

If books of accounts are not maintained, foundation of audit collapses and therefore penalty cannot be levied for not getting the accounts audited.

37. Bhaveshbhai Haribhai Kanani vs. ITO 
ITA No. 254/RJT/2025
A.Y.:  2018-19
Date of Order: 5.8.2025
Sections:  44AB, 271B

If books of accounts are not maintained, foundation of audit collapses and therefore penalty cannot be levied for not getting the accounts audited. 

FACTS

The assessee, an individual, engaged in the business of trading of brass scrap, filed his return of income declaring therein a turnover of ₹ 1,03,43,628 and offered net profit of ₹ 7,91,012 as his income. The income declared in the return on an admitted turnover worked out to 7.65%.  In the course of assessment proceedings, the Assessing Officer (AO) noticed a further turnover of ₹ 11,93,30,453 and that assessee had declared income under section 44AD as “no account case”, he issued a show cause notice as to why the provisions of section 44AB have not been complied with.

The AO estimated the income to be 4% of total turnover of ₹ 11,93,30,453 which worked out to ₹ 44,73,218.  After reducing from this amount, the profit of ₹ 7,91,012 offered in the return of income, the balance of ₹ 39,82,206 was added to the returned income.

Since the assessee had not furnished an audit report as required by the provisions of section 44AB of the Act, proceedings were initiated for levy of penalty under section 271B of the Act.  In response, the assessee submitted that default u/s 44AB of the Act was on account of mistake of accountant of assessee under wrong belief and mistake of accountant cannot put assessee to jeopardy.  The AO imposed penalty of ₹ 1,50,000 u/s 271B of the Act.

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

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the assessee declared income under section 44AD of the Act.  As per scheme of section 44AD of the Act, the assessee was not required to maintain books of account.  The Tribunal held that since the assessee did not maintain books of accounts, no penalty should be imposed under section 271B.  The Tribunal noted that the Allahabad High Court in the case of CIT vs. Bisauli Tractors [(2008) 299 ITR 219 (All.)] has held that when the assessee has not maintained books of accounts, the question of getting the books audited under section 44AB would not arise.  Therefore, penalty under section 271B would not be leviable.  The Tribunal noted that if no books are maintained, foundation of audit collapses and, hence penalty cannot be imposed.  It also noted that apart from this, during the assessment proceeding itself, the AO has estimated the income of the assessee, therefore, the penalty on estimation should not be levied.  It remarked that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty would not ordinarily be imposed, unless the party obliged either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard to obligation.  The penalty will not be imposed merely because it is lawful to do so.  Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all relevant circumstances.  Even if a minimum penalty is prescribed, the authority competent to impose a penalty will be justified in refusing to impose a penalty when there is technical or venial breach of the provision of the Act.  The Tribunal held that the assessee was not supposed to maintain books of accounts u/s 44AD of the Act, therefore, penalty under section 271B of the Act should not be imposed.  The Tribunal deleted the penalty of ₹ 1,50,000 imposed by the AO.

Appeal – Corporate Insolvency Resolution Process – Appeals cannot proceed while the moratorium under Section 14 of the IBC, 2016, was in operation: Insolvency and Bankruptcy Code, 2016.

Pr. Commissioner of Income Tax-13 Mumbai vs. Shirpur Gold Refinery Ltd,

ITA Nos. 729/2018, 798/2018 & 773/2018

Dated 23.07.2025

Appeal – Corporate Insolvency Resolution Process – Appeals cannot proceed while the moratorium under Section 14 of the IBC, 2016, was in operation: Insolvency and Bankruptcy Code, 2016.

The Resolution Professional on behalf of the Respondent submitted that the Respondent Company was undergoing a Corporate Insolvency Resolution Process (“CIRP”) under the provisions of the Insolvency and Bankruptcy Code, 2016 (for short “IBC, 2016”). Since the company was undergoing a CIRP, and there was a moratorium in effect/in force under Section 14 of the IBC, 2016, the above Appeals cannot proceed. In this regard, he relied upon a decision of the Hon’ble Delhi High Court in the case of Principal Commissioner of Income Tax-6, New Delhi vs. Monnet Ispat and Energy Ltd [(2017) SCC Online DEL 12759]. He submitted that, the Delhi High Court had clearly held that during the period of moratorium, the Appeals filed by the Revenue before the High Court [against the orders of the ITAT], cannot proceed. He submitted that the aforesaid decision of the Delhi High Court was subjected to an Appeal before the Hon’ble Supreme Court. The Hon’ble Supreme Court also, relying upon section 238 of the IBC, 2016, came to the conclusion that the Delhi High Court correctly decided the law and proceeded to dismiss the Special Leave Petition. The decision of the Hon’ble Supreme Court is reported in (2018) 18 SCC 786. He, therefore, submitted that the above Appeals cannot proceed.

On the other hand, the learned counsel appearing on behalf of the Revenue submitted that though it is correct that recovery proceedings could not be proceeded with against the Assessee because of the moratorium, the same would not preclude the completion of the assessment proceedings. Since the above Appeals are in relation to assessment proceedings and penalty proceedings, the Appeals can continue. In this regard, the learned counsel for the Revenue relied upon the decision of the Hon’ble Supreme Court in the case of Sundaresh Bhatt (Liquidator) of ABG Shipyard vs. Central Board of Indirect Tax and Customs [(2023) 1 SCC 472].

The Hon. Court observed that the present case is squarely covered by the decision of the Hon’ble Delhi High Court in Monnet Ispat and Energy Limited (supra). This decision of the Delhi High Court was subjected to challenge by the Revenue before the Hon’ble Supreme Court. The Hon’ble Supreme Court proceeded to dismiss the SLP by making the following observations: –

“1. Heard. Delay, if any, is condoned.

2. Given Section 238 of the Insolvency and Bankruptcy Code,2016, it is obvious that the code will override anything inconsistent contained in any other enactment, including the Income Tax Act. We may also refer in this connection to Dena Bank vs. Bhikhabhai Prabhudas Parekh and Co. and its progeny, making it clear that income tax dues, being in the nature of crown debts, do not take precedence even over secured creditors, who are private persons.

3. We are of the view that the High Court of Delhi, is, therefore, correct in law. Accordingly, the special leave petitions are dismissed. Pending applications, if any, stand disposed of.” (emphasis supplied)

The Hon. Court observed that the above Appeals cannot proceed while the moratorium under Section 14 of the IBC, 2016, was in operation.

As regards the judgment relied upon by the learned advocate for the Revenue in the case of Sundaresh Bhatt (Liquidator) of ABG Shipyard (supra) the Hon. Court observed that the same is wholly inapplicable to the facts of the present case. That decision was rendered under the provisions of the Customs Act, 1962 and was in relation to completing assessment or reassessment of duties and other levies and not in relation to any Appeal being prosecuted before the High Court. Therefore, the reliance placed on the judgement of the Supreme Court in the case of Sundaresh Bhatt (Liquidator) of ABG Shipyard (supra) was wholly misplaced.

The Court adjourned the Appeals sine die with liberty to the parties to mention the matter after any further orders were passed by the NCLT, namely, either approving a resolution plan in relation to the Assessee, or ordering that it be wound up. At that time, the Court will consider whether the above Appeals can proceed or otherwise.

Capital Gains – Personal effect – Vintage car owned by the Appellant was not his personal effect – the gain arising on sale thereof was liable to be taxed under the head ‘Capital Gains’

12. Narendra I. Bhuva vs. Assistant Commissioner

ITA 681/Mum/2003 dated 14.08.2025

AY: 1992-1993. (BOM)(HC)

Capital Gains – Personal effect – Vintage car owned by the Appellant was not his personal effect – the gain arising on sale thereof was liable to be taxed under the head ‘Capital Gains’

The Assessee was a salaried employee. The Assessee had income from house property, share income, dividend, etc. In the course of assessment proceedings, the Assessing Officer noticed that the Assessee has purchased a vintage car namely “Ford Tourer” 1931 Model from one Mr. Jesraj Singh of Delhi sometime in the year 1983 for a consideration of ₹ 20,000/-. The said car was sold for a consideration of ₹ 21,00,000/- to one Mrs. Kamalaben Babubhai Patel. On a query made by the Assessing Officer, the Assessee by a communication dated 28 January 1994, apprised the Assessing Officer that the car was shown as a personal asset in Wealth-tax and same was an exempt asset. The Assessing Officer by an order dated 8 March 1994, added the sum of ₹ 20,80,000/- as income to the Assessee on account of sale of motor car as business income.

The Assessee filed an appeal. The Commissioner of Income Tax (Appeals) [CIT (A)] inter alia held that vintage cars are not generally used frequently as maintenance costs of these cars are very high. The car was shown as personal asset in wealth tax returns. The Assessee never claimed any depreciation in respect of the car. There was no need for purchase of foreign exchange for spare parts as the parts were locally fabricated. The CIT(A) set aside the addition of sum of ₹ 20,80,000/- under the head ‘profits from sale of car’.

Being aggrieved by the order, the Revenue preferred an Appeal before the Income Tax Appellate Tribunal (ITAT). The ITAT reversed the finding of CIT (A) and held that the vintage car was not used by the Assessee as personal effect. The order passed by the CIT (A) was set aside by the ITAT and the Appeal preferred by the Revenue was allowed.

On Appeal before Hon. High Court, the Assessee submitted that the ITAT was not justified in law in holding that the vintage car owned by the Assessee was not his personal asset and thus the gain arising on sale whereof was liable to be taxed under the head ‘capital gain’. It was further submitted that the ITAT has not disputed or controverted any of the basic facts or arguments of the Assessee that the car was being accepted as personal asset by the department itself and the maintenance expenses were debited to the capital account as part of personal withdrawals. It was also submitted that the finding recorded by the ITAT that no evidence has been adduced by the Assessee to show that the car was used as a personal asset is perverse. It was submitted that the finding that the car was not part of any car rally organized by the Government was irrelevant.

On the other hand, the Revenue supported the order passed by the ITAT and has submitted that the finding recorded by the ITAT does not suffer from any infirmity warranting interference of the Court in exercise of powers under Section 260-A of the Income-tax Act, 1961 (ITA). The Hon Court considered the provisions of Section 2(14) of the ITA, and observed that capital assets do not include personal effects, that is to say movable property including wearing apparel and furniture, but excluding jewellery held for personal use by the Assessee or any other member of his family dependent on him. Thus, the personal effects must be for personal use for being excluded from the definition of the term ‘capital assets.

The Hon. Court further considered a pari-materia provision namely Section 2(4A) of the Income Tax Act, 1922 which was interpreted by the Supreme Court in H.H. Maharaja Rana Hemant Singhji vs. CIT Rajasthan (1976) 103 ITR 61 (SC). The Supreme Court in the said decision dealt with the expression ‘personal effects and the relevant extract of the judgment reads as under:

7. The expression “personal use” occurring in clause (ii) of the above quoted provision is very significant. A close scrutiny of the context in which the expression occurs shows that only those effects can legitimately be said to be personal which pertain to the assessee’s person. In other words, an intimate connection between the effects and the person of the assessee must be shown to exist to render them “personal effects”.

Thus, the Hon Court observed that for treating a movable property as personal effects, an intimate connection between the effects and the person of the Assessee must be shown. In case before the Apex Court though the silver bars and silver coins were proved to be used for puja, the same was held to be not constituting personal use. It is also held that the expression ‘intended for personal or household use’ does not mean capable of being intended for personal or household use but it means normally or commonly intended for personal or household use. Thus, capability of a car for personal use would not ipso facto lead to automatic presumption that every car would be personal effects for being excluded from capital assets of the Assessee. Thus, before arriving at a finding with regard to personal effects, the evidence with regards to personal use is necessary.

The Hon. Court observed that the Assessee had failed to adduce any evidence with regard to the vintage car being put to personal use and therefore the ITAT had rightly reversed the order passed
by the CIT(A), which had applied irrelevant considerations of wealth tax returns and non-claiming of depreciation in respect of the car by the Assessee. The CIT(A) had failed to appreciate
that the said aspects were irreverent for deciding personal use of the car by the Assessee. The ITAT on the other hand concentrated only on the aspect of personal use of the car by the Assessee. The Hon. Court noted that it was not the case of the Assessee that the finding of fact recorded by the CIT(A) was perverse.

The Hon. Court further observed that none of the judgments relied upon by the Assessee are relevant for deciding the present Appeal which involves failure on the part of the Assessee to lead evidence to prove personal use of the vintage car. Therefore, what needed to be proved was that the car was used as a personal asset by the Assessee. It was therefore incumbent upon the Assessee to lead evidence to show that he actually used the car personally. It was an admitted position that the Assessee failed to adduce evidence to prove that the car was used personally by him. On the other hand, there were several indicators showing that the car was never used by the Assessee for personal use, such as (i) Assessee using company’s car for commute (ii) car not being used even occasionally by the Assessee (iii) vintage car not being parked at the Assessee’s residence (iv) Assessee’s inability to prove that he spent any amount on its maintenance for keeping the same in running condition and (v) a salaried employee purchasing a vintage car as pride of possession.

The Hon. Court noted that the failure to produce evidence to prove personal use appeared to be an admitted fact. The Appeal was accordingly dismissed.

Solicitor’s fees — Assessability as income — Amount received by solicitor from clients for certain specific task — Amount is received in fiduciary capacity — Amount is not assessable as income.

34. (2025) 475 ITR 473 (Cal):

CIT vs. Sanderson & Morgans:

A. Y. 2007-08: Date of order 7/2/2024:

S. 4 of ITA 1961

Solicitor’s fees — Assessability as income — Amount received by solicitor from clients for certain specific task — Amount is received in fiduciary capacity — Amount is not assessable as income.

The assessee was a solicitor. For the A. Y. 2007-08, in the return of income, the assessee had shown receipts from profession of ₹ 1,82,02,958. As per the certificate of tax deduction at source, the amount received was ₹ 5,56,88,817. The assessee was required to explain the difference of ₹ 3,74,85,859. The assessee explained that it had been receiving advances from its clients, a portion of which was spent on behalf of the client for counsel’s fees, stamp paper, court fees stamp, payment to rent controller, bank draft in lieu of stamp duty and registration fees, etc. The assessee also gave complete details of payment made head-wise. The Assessing Officer recognised that the money was spent by the assessee on behalf of its clients but added the differential amount of ₹ 3,74,85,859 to the income of the assessee.

The Commissioner (Appeals) held that the amount was not assessable as income of the assessee. The Tribunal upheld the decision of the Commissioner (Appeals).

The Calcutta High Court dismissed the appeal filed by the Revenue and held as under:

“i) When a solicitor receives money from his client, he does not do so as a trading receipt but he receives the money of the principal in his capacity as an agent and that also in a fiduciary capacity. The money so received does not have any profit-making quality about it when received. It remains money received by a solicitor as “client’s money” for being employed in the client’s cause. The solicitor remains liable to account for this money to his client. It is not assessable as his income.

ii) No adverse on the basis of section 145 of the Income-tax Act, 1961, could be drawn against the assessee. The money received by the assessee from clients were held by the assessee in a fiduciary capacity. That apart, the payment made by the assessee as agent on behalf of its clients (principal) under various heads, had not been doubted or disputed and instead a finding of fact regarding such payment had been arrived by Commissioner (Appeals) and the Tribunal. The amount was not assessable as income in the hands of the assessee.”

Revision u/s. 264 — Scope of Power of Commissioner — Mistake in the return of income — Detected when intimation u/s. 143(1) issued/received — Time limit to file revised return expired — Powers of the Commissioner wide enough to rectify a bonafide mistake committed by the assessee even after the expiry of the time limit to file revised return.

33. 2025 (7) TMI 1439 (Cal.):

Crown Electromechanical Pvt Ltd. vs. Pr.CIT:

A.Y.: 2022-23: Date of order 15/07/2025:

Ss. 264 of ITA 1961

Revision u/s. 264 — Scope of Power of Commissioner — Mistake in the return of income — Detected when intimation u/s. 143(1) issued/received — Time limit to file revised return expired — Powers of the Commissioner wide enough to rectify a bonafide mistake committed by the assessee even after the expiry of the time limit to file revised return.

The Assessee filed its return of income for A. Y. 2022-23 declaring total income at ₹ 9,54,872. However, due to oversight certain figures which were required to be provided in the profit and loss account under Part – A of the return were not included. Subsequently, the return was processed and intimation u/s. 143(1) of the Income-tax Act, 1961 was issued wherein the total income was determined at ₹3,58,76,000 and a demand of ₹1,02,60,400 was determined to be payable by the assessee. It is only when the intimation u/s. 143(1) was issued that the assessee detected the mistake in the return of income filed by the assessee.

By the time the assessee received intimation u/s. 143(1), the time limit to file revised return had expired. Therefore, the assessee resorted to section 264 and filed an application before the Principal Commissioner along with audited accounts and tax audit report and claimed that the profit of the assessee for the assessment year under consideration was only ₹ 9,54,872 as against ₹ 3,58,76,000 determined in the intimation issued u/s. 143(1) and thereby requested the Principal Commissioner to consider the income of the assessee correctly. The application was rejected vide order dated 4.3.2025 on the ground that apart from the assessee, none is competent to alter the return filed by the assessee.

Against this order of the Principal Commissioner, the assessee filed a writ petition before the High Court. The Calcutta High Court allowed the writ petition and held as under:

“i) The learned advocate representing the respondent has placed reliance on the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. vs.CIT; (2006) 284 ITR 323 (SC) on the question whether the assessee could make a claim for deduction other than by filling a revised return.

ii) I note that the Hon’ble Supreme Court in the said case Goetze (India) Ltd. (supra) was dealing with the claim of deduction of the assessee introduced by way of a letter to the Assessing Officer which was disallowed on the ground that there was no provision under the Income Tax Act to make amendment in the return of income by modifying the application at the assessment stage without revising the return. Although, the assessee on an appeal had succeeded before the Commissioner of Income Tax (Appeals), the department was able to secure a favorable order by way of reversal on the further appeal before the Income Tax Appellate Tribunal. The matter thus, travelled to the Supreme Court. The Hon’ble Supreme Court while considering the above and the power of the Tribunal u/s. 254 of the said Act observed that the tribunal can entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised was before the Tribunal. While observing as such, the Hon’ble Supreme Court had, however, made it clear that the exercise of powers by Assessing Authority does not impinge upon the power of the Income Tax Tribunal u/s. 254 of the
said Act.

iii) Although, much stress has been laid on the aforesaid judgment, however, I find that in the said cause as noted above, the question as to whether an error by an assessee could be corrected by a revisional authority u/s. 264 was not an issue. As rightly pointed out by the learned advocate representing the petitioner and as would appear from the scheme of Section 264, the consistent view of this Court and all the other High Courts that the power u/s. 264 can be exercised when a bona fide mistake has been committed even by the assessee, an appropriate rectification of the return can be effected thereunder, as has been noted in the judgment delivered in the case of in Ena Chaudhuri vs. ACIT; (2023) 148 taxmann.com 100 (Cal.) in paragraph-11 thereof. The relevant portion of the judgment is extracted hereinbelow:

“11. In my considered view, in the facts and circumstances of the case, Commissioner in refusal to consider the aforesaid claim of the petitioner has misinterpreted and misconstrued the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. (supra) as well as the scope of jurisdiction confer upon him u/s. 264 of the Income-tax Act, 1961 by equating the same with that of the jurisdiction of the Assessing Officer in considering the claim of any allowance/deduction by an assessee in return or without filling any revised return.”

iv) In view thereof, it is clear that respondent no. 1 had committed error in failing to exercise jurisdiction, thereby rejecting the above application. Having regard thereto, I remand the matter back to the appropriate authority to decide the cause on the basis of the observation made herein. Accordingly, the order passed by respondent no. 1 is set aside.”

Recovery of tax — Stay of demand pending appeal before CIT(A) — Condition requiring 20 per cent., deposit of outstanding demand is contrary to law — Instruction issued by CBDT misconceived — Non-consideration of prima facie merits and undue hardship — Mechanical approach rejecting stay application solely due to non-deposit of 20 per cent amount is contrary to law — Order of conditional stay set aside — Matter remanded.

32. (2025) 475 ITR 96 (Del):

Centre For Policy Research vs. CIT:

A. Y. 2022-23: Date of order 09/05/2024:

Ss. 156 and 220(6) of ITA 1961

Recovery of tax — Stay of demand pending appeal before CIT(A) — Condition requiring 20 per cent., deposit of outstanding demand is contrary to law — Instruction issued by CBDT misconceived — Non-consideration of prima facie merits and undue hardship — Mechanical approach rejecting stay application solely due to non-deposit of 20 per cent amount is contrary to law — Order of conditional stay set aside — Matter remanded.

The assessee was registered as a charitable trust u/s. 12A r.w.s. 12AA and 12AB(4) of the Income-tax Act, 1961. The assessee’s registration was cancelled with retrospective effect, which formed the subject matter of a separate writ petition wherein interim orders were passed. Following this cancellation, an assessment order was passed for the A. Y. 2022-23. The assessee filed appeal before the Commissioner (Appeals) u/s. 246A of the Act. The assessee also applied for stay of the demand u/s. 220(6) of the Act, during the pendency of the Appeal. The Assessing Officer passed an order requiring the assessee to deposit 20 per cent of the outstanding demand as a precondition for granting protection, failing which recovery proceedings would be initiated.

The assessee filed writ petition against this order. The Delhi High Court allowed the writ petition and held as under:

“i) The order rejecting the stay of demand u/s. 220(6) did not consider either the prima facie merits of the case or the issue of undue hardship to the assessee. The Assessing Officer had erred in proceeding in the assumption that the application for stay of demand could not be entertained without 20 per cent pre-deposit which was a requirement mentioned in the CBDT office memorandum. Such requirement could not be treated as inflexible or inviolable. The quantum of deposit would depend on the facts and circumstances of each case after considering factors such as prima facie case, undue hardship, and likelihood of success.

ii) We, accordingly, allow the instant writ petition and set aside the impugned order dated May 3, 2024. The matter shall in consequence stand remitted to the Assessing Officer who shall examine the application for stay of demand afresh and bearing in mind the legal principles as enunciated in National Association of Software and Services Companies (NASSCOM) vs. Dy. CIT (Exemption) [(2024) 470 ITR 493 (Delhi)].”

Penalty u/s. 270A — Debatable issue — Receipts chargeable to tax as ‘Fees for Technical Service’ u/s. 9(1)(vii) or ‘Fees for included services’ under Article 12 of the DTAA between India and USA — Divergent views taken by the High Courts — Two views possible — Penalty u/s. 270A not leviable.

31. 2025 (8) TMI 768 (Kar):

Pr.CIT(IT) vs. IBM Australia Limited.:

A. Y. 2018-19: Date of order 31/07/2025:

Ss. 9(1)(vii) and 270A of ITA 1961

Penalty u/s. 270A — Debatable issue — Receipts chargeable to tax as ‘Fees for Technical Service’ u/s. 9(1)(vii) or ‘Fees for included services’ under Article 12 of the DTAA between India and USA — Divergent views taken by the High Courts — Two views possible — Penalty u/s. 270A not leviable.

The Assessee Company is a tax resident of Australia filed its return of income and claimed a refund. During the year under consideration, the Assessee had received a sum of about ₹ 65.38 crores from IBM India Limited, a company incorporated in India towards IT Support, including recovery of salary expenses of the employees that were seconded to IBM India. The Assessee’s return was selected for scrutiny and the subject matter of dispute was as to whether the said receipts were chargeable to tax as ‘Fees for Technical Service’ (FTS) u/s. 9(1)(vii) of the Income-tax Act, 1961 or Fees for Included Service under Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and USA. The Assessing Officer penalty u/s. 270A of the Act.

The Tribunal set aside the penalty. The Tribunal had examined the nature of the disputes and had further noted that the decision of this Court in Flipkart Internet (P). Limited vs. DCIT (International Taxation): [2022] 139 taxmann.com 595], had favoured the Assessee. The Tribunal held that given the nature of the disputes, clearly, two views are possible. Thus, the penalty u/s. 270A of the Act could not be levied, as the question involved was a vexed one.

The Karnataka High Court dismissed the appeal of the Department and upheld the view of the Tribunal and held as under:

“i) The question whether such receipts would fall within the scope of FTS/FIS has been subject matter before various Courts. The Hon’ble High Court noted that while most High Courts took a favourable view that such proceeds would not fall within FTS, the Delhi High Court in the case of M/s. Centrica India Offshore Private Limited v. CIT [(2014) 44 taxmann.com 300 (Del.)] had taken the view that secondment of employees would result in absorption of knowledge by the entity to whom such employees had been seconded. Given the possible views, the assessee had opted for Vivad se Vishwas Scheme and settled the issue regarding the levy of tax.

ii) The Assessee operated under the reasonable and bona fide belief that the payments received were not subject to taxation under the Act. We find no infirmity in the said order and no substantial question of law exists for consideration by this court.”

Offence and prosecution — Wilful attempt to evade tax — Assessee filed a return, accepted with a refund — French Government information under DTAA alleged assessee held Swiss bank accounts — A search conducted u/s. 132 — No incriminating evidence found — Addition made on account of alleged foreign accounts — Tribunal set it aside — Criminal complaints u/s. 276C, 276D, and 277 for tax evasion and non-compliance with a notice to sign a consent form filed — Information from French, not Swiss, authorities was unauthenticated, and no evidence supported tax evasion — Without credible evidence, sections 276C, 276D, and 277 were inapplicable, and complaints were quashed — Non-signing of consent form was penalized under section 271, not warranting criminal proceedings.

30. [2025] 176 taxmann.com 771 (Del.):

Anurag Dalmia vs. ITO:

A. Ys. 2006-07 and 2007-08:

Date of order 21/07/2025:

Ss. 276C r.w.s. 5, 271, 276D and 277 of ITA 1961

Offence and prosecution — Wilful attempt to evade tax — Assessee filed a return, accepted with a refund — French Government information under DTAA alleged assessee held Swiss bank accounts — A search conducted u/s. 132 — No incriminating evidence found — Addition made on account of alleged foreign accounts — Tribunal set it aside — Criminal complaints u/s. 276C, 276D, and 277 for tax evasion and non-compliance with a notice to sign a consent form filed — Information from French, not Swiss, authorities was unauthenticated, and no evidence supported tax evasion — Without credible evidence, sections 276C, 276D, and 277 were inapplicable, and complaints were quashed — Non-signing of consent form was penalized under section 271, not warranting criminal proceedings.

The assessee filed Income Tax Returns for 2006-07 and 2007-08, declaring total income, which were finalized with refunds issued u/s. 143(1) of the Income-tax Act, 1961. In 2011, French authorities, under the DTAA, informed that the assessee held bank accounts in HSBC Private Bank, Switzerland, linked to four accounts as a beneficial holder.

Based on the information received, a search u/s. 132 of the Act was carried out on 20.01.2012 at the premises of the assessee but no incriminating material was found against the assessee. Assessee’s statements were recorded u/s. 132(4) wherein the assessee denied having any account in HSBC Bank.

In response to the notice issued u/s. 153A, the assessee filed return of income declaring the same income as was previously disclosed in his earlier returns. In the course of assessment, the assessee was required to sign the consent waiver form to procure details of his Bank account from the Swiss Bank. The assessee attended the proceedings through his Chartered Accountant and submitted response and filed the details from time to time. Thereafter, the assessment was completed vide order dated 23.03.2015 wherein certain additions on account of undisclosed alleged Foreign Bank Accounts, particularly the HSBC Bank in Switzerland and the interest presumed to have been received from the alleged Foreign Bank Accounts for the years 2006-07 and 2007-08 were made u/s. 69 of the Act. Additionally, a penalty along with interest, was imposed vide order dated 30.06.2015.

On appeal, the CIT(A) confirmed the order of the AO. On further appeal before the Tribunal, the additions made by the AO were set aside.

Subsequently, in January 2016, criminal complaint u/s. 276C(1)(i), 277(1) and 276(D) of the Act were filed against the assessee for wilful attempt to evade tax in relation the alleged Foreign Bank Accounts in HSBC Bank, Switzerland, alleged false verification given while filing original Return of Income; non-compliance of notice wherein the assessee was required to sign “the Consent Form”.

The assessee filed Criminal Petition before the Hon’ble High Court seeking quashing of the complaints on the ground that the appeal was decided in favour of the assessee by the Tribunal and since the order of the AO was set aside, the criminal proceedings initiated against the assessee became infructuous.

The High Court resolved the petitions in favour of the assessee, on broadly 3 questions as follows:

i. Whether the information received from France under DTAA can be relied upon to initiate criminal case against the accused?

The Hon’ble High Court held that unauthenticated documents received from the French Government under the DTAA without verification by Swiss Authorities and unaccompanied by supporting incriminating material found during a search do not provide sufficient grounds to initiate criminal proceedings. The presence of the assessee’s name in such documents alone does not shift the burden of proof onto the assessee.

ii. Whether the assessee could be compelled to sign the consent waiver form?

The Hon’ble Court stated that failing to sign the Consent Waiver Form, without authenticated incriminating evidence, cannot be considered an offence under Section 276D or as evidence of undisclosed income; however, this non-compliance may result in a penalty under Section 271(1)(b) but does not warrant criminal prosecution.

iii. Whether criminal complaints can be sustained when the assessment order has been set aside by the Tribunal for want of incriminating material?

The Court also concluded that criminal complaints u/s. 276C(1)(i), 276D, and 277(1) are not sustainable when the ITAT has set aside the Assessment Order due to lack of incriminating material, as there is no prima facie case for concealment or false statement that would justify prosecution.

The court emphasised that prosecution requires sufficient evidence to establish a prima facie case, which was absent here, and thus quashed the criminal complaints.

Assessment — Rejection of books of account — Estimation of net profit at 8% — Disallowance u/s. 43B while computing income and tax liability — Since profit was estimated after rejecting books of account Tribunal could not restore the matter to the Assessing Officer to consider whether addition was required to be made.

29. [2025] 177 taxmann.com 181 (Cal.):

Skyscraper Projects (P.) Ltd. vs. Addl.CIT:

A. Ys. 2012-13: Date of order 28/07/2025:

S. 43B of ITA 1961

Assessment — Rejection of books of account — Estimation of net profit at 8% — Disallowance u/s. 43B while computing income and tax liability — Since profit was estimated after rejecting books of account Tribunal could not restore the matter to the Assessing Officer to consider whether addition was required to be made.

The Assessee is engaged in the business of civil construction. The assessee filed its return of income for AY 2012-13. The Assessee’s return was selected for scrutiny. In the course of assessment, the Assessing Officer rejected the books of account of the Assessee and estimated the net profit at 8%, as was done in the earlier assessment years. However, while computing the tax liability, the Assessing Officer made a disallowance u/s. 43B of the Income-tax Act, 1961 and added the said amount while computing tax liability.

CIT(A) held that once the Assessing Officer has estimated the income after rejecting books of account, it is presumed that all the provisions of sections 29 to 43D have been considered and no further addition on account of section 43B was required. On appeal by the Department the Tribunal restored the issue to the file of the Assessing Officer to verify the claim of the assessee in respect of the VAT / Service tax liability paid during the year which had already suffered tax on account of addition made under section 43B of the Act in the preceding year.

The Calcutta High Court allowed the appeal filed by the assessee, took note of the various decisions by the other High Courts which laid down the position that when the profits are estimated, it implies that the Assessing Officer has not relied on the books of accounts and if this fact is accepted then the estimation made by the Assessing Officer of net profit will take care of every addition related to business income or business receipts and no further disallowance can be made and held as under:

“i) In the light of the above legal position and also the undisputed fact being that the gross profit was estimated after rejecting the books of accounts, the order passed by the learned Tribunal restoring the matter to the Assessing Officer is unnecessary and not called for. For the above reasons, the appeal filed by the assessee is allowed.

ii) The substantial questions of law are answered in favour of the assessee and the order passed by the CIT(A) dated 19th August, 2019 stands restored.”

Glimpses of Supreme Court Rulings

7. PCIT vs. Nya International

(2025) 482 ITR 281 (SC)

Revision – Erroneous and prejudicial – To exercise jurisdiction under Section 263 of the 1961 Act, the Commissioner of Income Tax should examine the merits and only on reaching a finding that the re-assessment order is erroneous and prejudicial to the interest of the Revenue make an addition – The jurisdiction could not be exercised on the basis of ‘no inquiry and verification’, where a case is of wrong conclusion

The assessee firm M/s. Nya International had filed its return of income for the assessment year 2012-13 on 16.08.2012 declaring total income as NIL.

The case thereafter was selected for scrutiny and assessment and an order was passed under Section 143(3) of the Act on 25.03.2015.

Information was received from DDIT (Ivn) Unit-7(2) Mumbai that the assessee was maintaining a bank account no. 5500111032480 with ING Vysya Bank having credit entry of ₹70,13,43,319/- and the bank account was not disclosed by the assessee in its return of income for the year under consideration. During the year, the assessee firm had claimed exemption under Section 10AA of the Act of ₹87,21,44,414/- but the exemption under Section 10AA was disallowed by the Assessing Officer while passing an assessment order for the assessment year 2013-14 and 2014-15.

Accordingly, the case was reopened under section 147 of the Act by issuing a notice under Section 148 and an order was passed on 31.12.2019 making a disallowance of ₹87,21,44,414/-.

By exercising powers under Section 263 of the Act, the Principal CIT (Surat) took up the order in revision noticing that the assessee firm was maintaining total three bank accounts – two with the Allahabad Bank and one with ING Vysya Bank. This was not disclosed in the ITR filed for the assessment year 2012-13. In the assessment proceedings, the Assessing Officer had not made any inquiry and therefore the order was erroneous insofar as it was prejudicial to the interest of revenue.

A show cause notice was issued and thereafter the order dated 31.12.2019 was set aside with a direction to the Assessing Officer to reframe the assessment.

The assessee challenged the correctness of the order of the revisional authority dated 18.02.2022.

The Tribunal by the order impugned held that there was no reason for the Principal CIT to exercise powers under section 263 of the Act as it was a case where it could not be said that the Assessing Officer had passed an order which could be termed as erroneous and prejudicial to the interest of revenue. The Tribunal held that it was not the case of the learned Principal CIT that the Assessing Officer failed to make any additions/disallowance; the Assessing Officer conducted enough inquiries to examine the debit and credit in the bank statement and he also examined the eligibility to claim deductions under Section 10AA of the Act and that is why he disallowed the deduction under section 10AA of the Act. It was not shown by the Principal CIT that the Assessing Officer had failed to examine the issue during the assessment proceedings based on the submissions and verification of the assessment records.

The High Court dismissed the appeal filed by the Revenue against the order of the Tribunal in light of the findings that the Assessing Officer had conducted sufficient inquiry and examined the eligibility to claim deduction under section 10AA of the Act. It was not a case of ‘no inquiry’ or ‘lack of inquiry’. According to the High Court, when an opinion is formed as a result of the inquiries, which was in the exclusive domain of the Assessing Officer, it is not open for the revisional authority to arrive at conclusions merely on the basis of a subjective exercise.

This special leave petition filed by the Revenue was also dismissed as misconceived and completely contrary to the law pertaining to Section 263 of the Income Tax Act, 1961.

The Supreme Court noted that the notice under Section 148 of the 1961 Act referred to two reasons. The first reason was with regard to non-declaration of the account in ING Vysya Bank with a credit of ₹ 70,13,43,319/-. The second reason was with regard to the claim of deduction under Section 10AA of the 1961 Act.

It was an accepted position that a reassessment order under Section 148 read with Section 143(3) of the 1961 Act was passed. Addition was not made for the first reason.

In the given facts, according to the Supreme Court, the assertion by the Revenue that inquiry and verification of the bank account was not made was ex-facie incorrect. This being the position, this was not a case of failure to investigate, but as no addition was made, the Revenue could argue that it was a case of wrong conclusion and decision in the reassessment proceedings. Therefore, to exercise jurisdiction under Section 263 of the 1961 Act, the Commissioner of Income Tax should have examined the merits and only on reaching a finding that the re-assessment order was erroneous and prejudicial to the interest of the Revenue, made an addition. This was not a case of ‘no inquiry and verification’, but as made out by the Revenue, a case of wrong conclusion. The difference between the two situations is clear and has different consequences. This being the position, according to the Supreme Court, the High Court was right in dismissing the appeal preferred by the Revenue.

Format for Scrutiny Notice under S. 143(2)

ISSUE FOR CONSIDERATION

A notice under s. 143(2) is required to be served by the Assessing Officer(‘AO’) or the prescribed Income Tax Authority, to the assessee, in a case where the AO considers it necessary to ensure that the assessee has not understated the income or has not claimed excessive loss or has not under-paid the taxes. Such a notice shall call upon the assessee to attend the office of the AO or to produce evidence in support of the return of income on a date specified in the notice. This notice shall be served before the expiry of 3 months from the end of the financial year in which the return is furnished. No form or the format for issue of the notice has been prescribed in s.143(2) of the Act.

Under the powers vested u/s. 119 of the Act, the Central Board of Direct Taxes (”CBDT”), vide Notification No. 225 / 157 / 2017 / ITA. II dt. 23rd June, 2017 has prescribed the modified formats for issue of the notice under s.143(2) by the AO where a case of an assessee is selected for scrutiny. The formats require the AO to inform the assessee that his case is selected for scrutiny and also inform that the scrutiny would be limited or complete, besides informing him that the proceedings will be conducted manually or electronically. Three separate formats have been prescribed to be used based on the nature of scrutiny or return. The Notification informs that any notices thereafter should be issued in the revised formats only.

Cases have arisen wherein the notices issued by the AO are found to be not in the prescribed format, leading some of the assessees to challenge the validity of the notices and the consequent assessment orders. Conflicting decisions of different benches of the Income Tax Appellate Tribunal are available on the subject. The Delhi and the Kolkata Benches have held that the Assessment Order passed in pursuance of a notice issued not in the prescribed format are bad-in-law and not sustainable. In contrast, the Bangalore Bench has held that such a notice does not vitiate the assessment order and the defect in the notice, if any, is cured by the other provisions of the Act.

ANITA GARG’S CASE

The issue recently was examined by the Delhi bench of the Tribunal in the case of Anita Garg, ITA No. 4053 / Del / 2024 dt. 30th July, 2025 for A.Y. 2017-18. In the said case, the assessee appellant had inter alia raised the following additional ground; “On the facts and circumstances of the case, the Assessing Officer erred in issuing notice under s. 143(2) of the Income Tax Act, 1961 dated 9.8.2018 in violation of CBDT Instruction F.No.225/157/2017/ITA-II dated 23.06.2017. Therefore, the said notice is invalid, and assessment framed pursuant thereto is vitiated in law.”

The appellant assessee submitted before the Tribunal that:

  •  the notice under s. 143(2) of the Act issued to the assessee did not specify whether it was a limited scrutiny or a complete scrutiny or a compulsory manual scrutiny,
  •  the CBDT had specifically provided vide instruction no. F. No. 225/157/2017/ITA-II Dated 23-06-2017, that the notice under s. 143(2) could be issued in one of the three formats, which have been prescribed, but the notice issued was not in accordance with the said instruction, and therefore, the assessment framed consequently was invalid and void ab initio.
  •  the notice issued under s. 143(2) by the AO on 24.09.2018 was void ab initio,
  •  the notice was issued in violation of the binding CBDT Instruction No. F.No.225/157/2017/ITA-II dated 23.06.2017,
  •  the CBDT under s. 119 of the Act had issued the above instruction prescribing mandatory revised formats for all scrutiny notices to be issued under s. 143(2) of the Act,
  •  the instructions were binding on all the Income tax authorities,
  •  reliance was placed on the decision of the Hon’ble Supreme Court in the case of UCO Bank vs. CIT (237 ITR 889) and Back Office IT Solution Pvt. Ltd. vs. Union of India (2021) SCC Online (Del) 2742,
  •  referring to para 3 of the above instructions of CBDT it was submitted that the Board had directed that all scrutiny notices under s. 143(2) of the Act should be thereafter issued in the revised formats only,
  •  in the present case, the AO did not issue the notice in the prescribed revised format and that was a direct violation of the CBDT’s binding instructions. Reliance was placed on the following direct decisions:
  1.  “Hind Ceramics Pvt. Ltd. vs. DCIT, Circle – 10(1) [ITA Nos. 608 &; 610/KOL/2024] dated 6.5.2025;
  2.  Tapas Kumar Das vs. ITO, Ward-50(5), Kolkata [ITA No. 1660/KOL/2024] dated 11.03.2025;
  3.  Sajal Biswas vs. I.T.O, WD 24(1), HOOGHLY [I.T.O, WD24(1), HOOGHLY] [ITA No.1244/KOL/2023] dated 26.03.2025; and
  4.  Srimanta Kumar Shit vs. Assistant Commissioner of Income Tax [I.T.A. No.1911/KOL/2024].”
  •  the issuance of notice under s. 143(2) in proper format was a jurisdictional requirement and any defect therein went to the root of the assessment proceedings, and
  •  a notice issued in violation of law could not have conferred on the AO the power to proceed with scrutiny assessment, and the notice dated 22.09.2018 issued under s. 143(2) was invalid and unenforceable in law.

The Revenue on the other hand submitted that the notice was a computer-generated notice and the non-mentioning of the fact of either limited or complete scrutiny or compulsory manual scrutiny would not render the issuance of notice under s. 143(2) of the Act as invalid.

On hearing the rival contentions, the bench noted that an identical situation had arisen before the Kolkata bench of the Tribunal in the case of Hind Ceramics Pvt. Ltd. vs. DCIT in ITA Nos. 608 and 610/Kol/2024 dated 06.05.2025 wherein the Kolkata bench, on examination of the facts and in consideration of the law, quashed the assessment framed pursuant to the notice issued under s. 143(2), which was not in the prescribed format as per the CBDT instructions.

The Delhi bench quoted extensively from the said order of the Kolkata bench in the case of Hind Ceramics Pvt Ltd.(Supra), which bench had in turn relied upon the decision of the coordinate Bench in the case of Tapas Kumar Das (Supra) which in turn had relied upon the decision of the coordinate bench in the case of Shib Nath Ghosh, ITA No. 1812 / Kol / 2024, besides resting its case on the decision of the Supreme Court in the case of UCO Bank (Supra) to hold that the instructions of the CBDT were binding on the AO.

The Delhi Bench also took notice of the decisions of the Kolkata Bench in the case of Sajal Biswas (Supra) and Srimanta Kumar Shit (Supra) to finally hold that the assessment framed by the AO u/s. 143(3) dt. 27.12.2019 pursuant to the notice issued u/s. 143(2) dt. 22.09.2018 was bad in law and void ab initio, in as much as the said notice was not in the prescribed format.

VEERANNA MURTHY RAGHAVENDRA’S CASE

The issue had arisen, a year before, in the case of Shri. Veeranna Muruthy Raghavendra Dikshit in ITA No. 1072 / Bang / 2024 for A.Y. 2017-18. One of the additional grounds raised by the assessee before the Bangalore bench of the Tribunal was; “The notice issued u/s.143(2) of the Act dated 24.09.2018 is bad at law as it is not (in) accordance in the format prescribed by the Central Board of Direct Taxes as per Instructions (F.No.225/157/2017/ITA.II) dated 23.06.2017; therefore all consequential assessment proceedings including the assessment order are rendered bad at law in the facts and circumstances of the case.”

On behalf of the assessee appellant, it was vehemently submitted that the notice under s. 143(2) of the Act dated 24.9.2018 was bad in law as it was not in accordance with the format prescribed by the CBDT Instruction in F.No.225/157/2017/ITA.II dated 23.6.2017. The Revenue on the other hand, supported the orders of authorities below.

The Bangalore bench heard the rival contentions and perused the materials available on record in respect of the additional ground of appeal, contesting the validity of the issue of notice in a format not prescribed by the CBDT.

The Bangalore bench took notice of the CBDT Instruction F.No.225/157/2017/ITA.II dated 23/06/2017. In addition, the bench took special notice of sections 282A, 292B and 292BB of the Act.

On reading of section 282A, the bench observed that a notice issued by an Income Tax Authority should be signed and issued in the paper format or be communicated in the electronic format; the notice should be deemed to be authenticated if the name and office of the designated income tax authority was printed, stamped or written thereon. The bench further observed that there was no dispute about signing of the notice, nor about the fact that it was communicated in electronic format, and there was also no dispute in the present case about the name, office and the designation of the authority printed on the notice. The notice therefore was found to be genuine by the bench.

The purpose behind the introduction of section 292B of the Act, as noted by the bench, was to ensure that technical pleas on the grounds of mistake, defect, and omission should not invalidate the assessment proceedings, when no confusion or prejudice was caused due to non-observance of technical formalities.

On reading of section 292BB, the bench found that an assessee was precluded from taking any objection with regard to service of notice in an improper manner if he had appeared in any proceedings or co-operated in any enquiry relating to an assessment. In the present case, the bench noted that during the course of assessment proceedings, the assessee had filed his reply and co-operated with the proceedings by way of filing submissions on different dates, and therefore, the assessee was not entitled to take the ground before the Tribunal for the first time as he had not raised any objection before the AO before the completion of assessment proceedings. In the considered opinion of the Tribunal, as the assessee had co-operated with the proceedings by way of filing various submissions on different dates as well as he had not raised any objection before the AO on or before the completion of the assessment proceedings, the provisions contained in section 292BB of the Act should (not) apply to the case of the assessee.

In the facts of the case and the provisions of s. 282A, 292B and 292BB the bench observed that;

  •  the primary requirement was to go into and examine the question of whether any prejudice or confusion was caused to the assessee. If no prejudice/confusion was caused, then the assessment proceedings and the consequent orders could not and should not be vitiated and were saved on the said grounds of mistake, defect or omission in the notice.
  •  it was an undisputed fact that the notice under s. 143(2) of the Act dated 24.9.2018, was served on the assessee, as was noted in the assessment order,
  • the assessee had filed submissions / replies / explanations in response to notices issued by the AO and accordingly, the assessee had cooperated with the proceedings before the AO.
  •  the assessee had also not raised any objection before the AO with regard to the issue of notice, that it was not in the prescribed format as per the CBDT Instruction, on or before the completion of the assessment proceedings.
  •  there was also no dispute about signing and issue of notice in electronic format or about the name, office and designation of the authority and about the printing thereof.

Upon careful consideration of the arguments presented, it was evident to the bench that while the format of the notice was important, the primary concern was whether the notice effectively communicated the necessary information to the respondent or not. The bench was of the strong opinion that the notice, even though not in the prescribed format, served the intent and purpose of the Act, which was to inform the assessee and ensure that there was no confusion in the mind of the assessee about initiation of the proceedings under the Act, and hence the defective notice was protected under section 292B of the Act.

The bench did not find that any prejudice/confusion was caused to the assessee and the assessee had filed explanations/submissions and had co-operated during the course of assessment proceedings. Therefore, merely because of the procedural irregularities, the plea of the assessee that, the notice was invalid just because it was not issued as per the format prescribed by the CBDT, could not be accepted.

OBSERVATIONS

The conflict under consideration involves two issues;

  •  whether the instructions of the CBDT of 2017 prescribing the revised format for issue of notices u/s. 143(2) is binding on the AO, and
  •  whether provisions of s.282A, 292B and 292BB cure the defect if any, in the notice arising out of the AO not issuing the notice in the revised format.

The first issue is settled by the decision of the Supreme Court in the case of UCO Bank, 237 ITR 889 whereunder the Supreme Court held that the instructions of the CBDT issued under the power vested u/s. 119 of the Act are binding on the AO. The Court in that case held as under;

(a) ” the authorities responsible for administration of the Act shall observe and follow any such orders, instructions and directions of the Board;

(b) such instructions can be by way of relaxation of any of the provisions of the section specified therein or otherwise;

(c) the Board has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions by issuing circulars in exercise of its statutory powers under section 119 of the IT Act;

(d) the circulars can be adverse to the IT Department but still are binding on the authorities of the IT Department, but cannot be binding on the assessee, if they are adverse to the assessee.

(e) the authority which wields the power for its own advantage under the Act, has a right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law by issuing instructions in terms of Section 119 of the Act.”

There does not seem to be any disagreement on the binding nature of the Circular by the Bangalore bench of the Tribunal in the case of Veeranna Muruthy Raghavendra Dikshit (Supra). The ratio of the decision of the Supreme Court has been applied by the Courts in the cases of Crystal Phosphates Ltd., 152 taxmann.com 232 (P&H), AVI Oil India (P.) Ltd., 323 ITR 242 (P&H), Smt. Nayana P. Dedhia, 270 ITR 572 (AP) and Amal Kumar Ghosh 45 taxmann.com 482 (Calcutta), in the context of instructions issued by the CBDT in respect of notices u/s. 143(2).

The applicability of Instruction No. 225/157/2017/ITA-II dated 23.06.2017 has been specifically examined by different benches of the Tribunal, in the following cases to hold that a notice not in compliance of the instructions of 2017 was without jurisdiction and the subsequent order passed was bad in law.

1. “Hind Ceramics Pvt. Ltd. vs. DCIT, Circle – 10(1), Kolkata, [ITA Nos. 608 &; 610/KOL/2024] for A.Y. 2017-18 dated 06.05.2025;

2. Tapas Kumar Das vs. ITO, Ward-50(5), Kolkata, [ITA No. 1660/KOL/2024] for A.Y. 2017-18 dated 11.03.2025;

3. Sajal Biswas vs. I.T.O, Wd 24(1), Hooghly, [ITA No.1244/KOL/2023] for A.Y. 2017-18 dated 26.03.2025;

4. Srimanta Kumar Shit vs. ACIT, Kolkata, [I.T.A. No.1911/KOL/2024] for A.Y. 2017-18 dated 19.11.2024;

5. Shib Nath Ghosh vs. ITO, Kolkata, [ITA No. 1812/KOL/2024 for A.Y. 2018-19 dated 29.11.2024.”

The remaining issue relates to the curative nature of the provisions of s. 282A, 292B and 292BB. In this regard, it is appropriate at the outset, to take notice of the settled position in law that holds that any of the aforesaid provisions do not cure a defect which goes to the root of assessment. A lapse or a defect which has roots in the jurisdiction of the AO to assess the income itself and pass the assessment order cannot be cured by the aforesaid provisions. Issuing the notice in the prescribed format is an essential condition for assuming the jurisdiction by the AO to assess an income of the assessee, and any defect therein cannot be cured by resorting to s. 292B of the Act, as is noted by the Punjab and Haryana High Court in the case of AVI – Oil India (P.) Ltd., 323 ITR 242 (P&H).

S.282A deals with authentication of notice in certain circumstances. The provision of s.282A has a very limited application, where it helps in deciding whether a notice is genuine or not. In the case under consideration, there is no dispute that the notice issued was genuine and authentic. The dispute is about whether such a notice is valid in law or not. It is respectfully submitted that S.282A has no relevance for deciding the issue of validity of the notice which is not in the prescribed format.

S.292B deals with return of income, etc. in certain circumstances specified in the said section. It is provided that the return of income, assessment, notice and summons could not be considered as invalid merely by reason of any mistake or defect or omission if such return, notice, etc. is in substance and effect in conformity with or according to the intent and purpose of the Act. On two counts, this provision cannot help the AO to cure the jurisdictional defect in the notice; firstly, not issuing the notice in the prescribed revised format cannot be considered as a mistake, defect or omission; secondly such a notice can never be held to be in substance and effect in conformity with or according to the intent and purpose of the Act. A prejudice is caused when the notice does not intimate the objective and the purpose behind the selection of a case for scrutiny, and the confusion it causes where the notice fails to define the scope of the scrutiny assessment. Had it not been so, the CBDT would not have taken pains to define the objective and the scope by issuing the instructions specifically for directing the course of action in the desired and defined manner.

S.292BB deals directly with issue of a notice and provides for the circumstances wherein the notice is deemed to be valid, provided the assessee has appeared in any proceeding or cooperated in an inquiry relating to an assessment. On a bare reading, it is apparent that the provision deals with the service of notice upon an assessee and proceeds to deem that service of the notice was valid in the listed circumstances which are a) where notice is not served upon assessee or b) is not served in time or c) served in an improper manner. It is respectfully submitted that the application of s. 292BB is limited to curing the defect of the listed nature in service of the notice and not a defect in the notice itself, either in the contents of the notice or in the manner and the format of notice.

In any case, the law is settled in respect of the position that s. 292BB does not cure the jurisdictional defect in the notice, which goes to the root of the validity of the notice itself. As noted earlier, the issue under consideration, in the context of notices issued u/s. 143(2), before 2017, has been examined by the High Courts to hold that such notices not issued in the format prescribed, up to 2017, were invalid. The ratio of these decisions of the High Courts shall apply with equal force to the issue of notices in the year 2017 and onwards.

In cases where the jurisdiction itself is lacking, the fact that the assessee had not objected to the notice and that he had complied with the notice by co-operating in the assessment proceedings does not have any significant relevance; acceptance of notice and compliance with the requirement of the notice do not have the ability to cure a defect that goes to the root of the jurisdiction of the AO and the assessment order passed by him. Likewise, in the matters of jurisdiction, it is irrelevant whether any prejudice or confusion was caused to the assessee by not issuing the notice in the prescribed format. In our considered opinion, a notice without jurisdiction is invalid, even where it has not prejudiced or caused confusion to the assessee.

Articles 7 and 12 of India-Korea DTAA – the Assessee is entitled to set off business loss incurred by PE against Fees for technical services (FTS) earned by HO

6. [2025] 174 taxmann.com 500 (Delhi – Trib.)

Hyosung Corporation vs. ACIT

IT Appeal Nos. 2943/Mum/2023

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

Articles 7 and 12 of India-Korea DTAA – the Assessee is entitled to set off business loss incurred by PE against Fees for technical services (FTS) earned by HO

FACTS

The Assessee was a tax resident of Korea. It was engaged in power business in India. After setting off the business loss of PE against income of HO from FTS, the Assessee filed a return of its income in India, declaring Nil income, and claimed refund of taxes.

The AO denied set-off of losses of PE against FTS and taxed the FTS on the gross basis. The DRP upheld the order of the AO.

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

HELD

The determination of income under different heads must be made by giving effect to the set-off mechanism provided under Sections 70 and 71 of the Act.

The Assessee had two streams of income: (i) income earned through PE constituted under Article 7 of India-Korea DTAA; and (ii) FTS earned by HO under Article 12 of India-Korea DTAA. Both income streams fall under the head of business income under the Act. The treaty provisions shall apply only after the determination of total income.

Section 115A(1)(b) provides that if the total income includes income in the nature of FTS, the same shall be charged to tax as per the prescribed rates. Therefore, first the total income should be determined in accordance with the provisions of the Act, including set-off of losses.

While section 115A(3) bars the Assessee from claiming expenditure or allowances, it does not bar set off of loss. Wherever required, the legislature has specifically barred an assessee from setting off losses, e.g., 115BBDA(2), 115BBH(2). In the absence of a specific bar, the Assessee is permitted to set-off the loss as per Section 71.

The coordinate bench of ITAT in Foramer S.A vs. DCIT [1995] 52 ITD 115 (Delhi) had allowed depreciation allowance while computing profits, even though DTAA did not provide for the same. The Hon’ble Calcutta High Court in CIT vs. Davy Ashmore India Limited [1991] 190 ITR 626 (Calcutta) held that when there are no express provisions under the DTAA, the provisions of income tax should govern taxation of income.

Following the above ratio, the ITAT held that while the DTAA did not have any provision for set-off of loss, the Act had provisions pertaining to such set-off. Hence, the same should be followed to determine total income. Accordingly, the Assessee was entitled to set off loss in PE against FTS.

Article 13 of India-Cyprus DTAA – Investment Holding Company located in Cyprus is a tax resident of Cyprus – qualifies for benefit under Article 13 of DTAA in respect of gain arising from sale of shares of Indian company.

5. [2025] 174 taxmann.com 498 (Delhi – Trib.)

Gagil FDI Ltd. vs. ACIT

ITA NO.2661/Delhi/2024

A.Y.: 2021-22 Dated: 7 May 2025

Article 13 of India-Cyprus DTAA – Investment Holding Company located in Cyprus is a tax resident of Cyprus – qualifies for benefit under Article 13 of DTAA in respect of gain arising from sale of shares of Indian company.

FACTS

The Assessee was incorporated as an investment holding company and wholly owned subsidiary of GA Global. Both entities were residents of Cyprus. Cyprus tax authority had granted a tax residency certificate to the Assessee. The Assessee had pooled investments from various investors across the globe. During the relevant AY, the Assessee had earned long-term capital gain aggregating to ₹959 Crores from sale of shares of National Stock Exchange India Limited (NSEIL). The Assessee contended that in terms of Article 13(5) of India-Cyprus DTAA, gains were taxable only in Cyprus. The Assessee further contended that in terms of Article 10(2) of India-Cyprus DTAA, dividend earned by it from Indian companies qualified for benefit of lower rate of tax.

The AO noted that the service provider in Cyprus was mentioned in Panama Leaks. Further, the beneficiaries of income were located in the USA, and key decisions of the Assessee were also taken by the controlling entity in the US . Therefore, treating the Assessee as a shell company, the AO alleged that it was established with the purpose of claiming benefit under India-Cyprus DTAA to the Assessee.

Observing that approval or scrutiny by various Indian regulators at the time of investment in India is routine, the DRP rejected the contention of the Assessee that it was a regulated entity and confirmed the order of the AO.

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

HELD

Various Indian regulatory authorities had carried out detailed scrutiny and granted approvals for investments in NSEIL. SEBI had been seeking fitness test from the Assessee every year. Therefore, scrutiny carried out by such authorities could not be said to be routine in nature.

Perusal of board minutes showed that most of the board members were based in Cyprus. The investment / disinvestment-related decisions were made in Cyprus. Hence, it could not be said that the USA entity controlled and managed the Assessee.

The name of the entity mentioned in Panama Leaks is different from the service provider of the Assesse. The AO or DRP had not provided any evidence or findings to link the professional entity with the entity named in the Panama leaks.

The Assessee was organized as an investment holding company in Cyprus. It had raised funds from investors across the globe [Bermuda (91.15%), Germany (8.65%) and Delaware (0.21%)]. Hence, the observation that beneficiaries were located in the USA was inappropriate.

The ITAT noted that on similar facts, in Saif II-Se Investments Mauritius Ltd. vs. ACIT [2023] 154 taxmann.com 617 (Delhi – Trib.), the coordinate bench had allowed benefits under India-Mauritus DTAA considering the factors such as period of holding, nature of investment activity, TRC and approvals granted by various regulators.

Accordingly, the ITAT held that the Assessee could not be regarded as a pass-through entity, there was no treaty abuse and consequently the Assessee qualified for benefit under India-Cyprus DTAA.

No additions under section 68 when the identity and creditworthiness of the loan lender was established.

36. [2025] 122 ITR(T) 194 (Mum – Trib.)

Kaisha Lifesciences (P.) Ltd. vs. Deputy Commissioner of Income-tax

ITA NO.: 4311/MUM/2023

A.Y.: 2020-21 DATE: 24.10.2024

Sections 68 & 35(2AB)

No additions under section 68 when the identity and creditworthiness of the loan lender was established.

FACTS I

The assessee is engaged in the business of developing high-quality medication through in-house research of medicine. For the year under consideration, the assessee had filed its return of income on 30/01/2021 declaring a total income of Rs. NIL.

The assessee’s case was selected for complete scrutiny proceedings. During the assessment proceedings, the Ld. AO held that the assessee had failed to explain the nature and source of credit of unsecured loan of ₹2,30,00,000 from Mr. Karius Dadachanji and accordingly added the same to the total income of the assessee under section 68 of the Act.

Aggrieved by the order, the assessee filed an appeal before CIT(A). The CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue and upheld the addition made by the AO under section 68 of the Act.

Being aggrieved, the assessee filed an appeal before the ITAT.

HELD I

The ITAT observed that there was no dispute regarding the fact that the assessee had received an unsecured loan of ₹2,30,00,000 from Mr. Karius Dadachanji. It was further undisputed fact that as on 01.04.2019 opening balance of the loan account was ₹3,06,80,000 and during the year, had repaid a sum of ₹3,55,00,000. The ITAT observed that the loan account was a running account.

The assessee had submitted the following details – the ledger of the unsecured loans, bank statement reflecting receipt of ₹2,30,00,000/-, repayment of ₹3,55,00,000/-, Return of Income of Mr. Karius Dadachanji for the AY 2020-21 and loan confirmation from Mr. Karius Dadachanji.

Upon perusal of the abovementioned documents, the ITAT held that the assessee sufficiently proved the identity and creditworthiness of the loan lender, who is nothing but a 50% shareholder in the assessee company and the loan was taken not from any stranger but a 50% shareholder for the routine course of business to meet business-related expenditure under a running account.

Assessee is entitled to claim deduction under section 35(2AB) of the Act even in respect of the expenditure incurred prior to the approval date for the year under consideration in accordance with the guidelines issued by DSIR.

FACTS II

During the year, the assessee had incurred expenditure of ₹2,16,49,662 under section 35(2AB) of the Act, and as a qualifying expenditure, it had claimed the deduction of ₹3,24,74,493 under the said section which is 150% of the actual expenditure incurred.

The AO observed that the competent authority, i.e. Secretary, Department of Scientific and Industrial Research (“DSIR”), granted approval under section 35(2AB) of the Act on 23.10.2020 for the period 25.10.2019 to 31.03.2020. The assessee had claimed weighted deduction @150% of the capital and revenue expenditure incurred prior to the approval period i.e. 25.10.2019.

The AO disallowed claim of ₹28,03,707 being excess claim under section 35(2AB) i.e. the weighted deduction @150% in respect of revenue expenditure incurred prior to approval date and disallowed sum of ₹5,70,811 being capital expenditure incurred prior to approval date.

Aggrieved by the order, the assessee was in appeal before CIT(A). The CIT(A) dismissed the ground on the basis that the assessee has not been able to substantiate the correctness of the claim by any documentary evidence.

Being aggrieved, the assessee filed an appeal before the ITAT.

HELD II

The ITAT observed that it is provided in clause 5 of the Guidelines for Approval in Form 3CM that the approval to the in-house R&D centres having valid recognition by DSIR are considered from 1st April of the year in which the application is made in Form 3CK.

The ITAT held that the R&D facility of the assessee was already approved by the DSIR and so the assessee was entitled to claim deduction under section 35(2AB) of the Act even in respect of the expenditure incurred prior to 25.10.2019, i.e. from 01.04.2019, for the year under consideration in accordance with the guidelines issued by DSIR.

Case Laws followed-

 Maruti Suzuki India Ltd. vs. Union of India [2017] 84 taxmann.com 45/250 Taxman 113/397 ITR 728 (Delhi) – Delhi High Court

CIT vs. Claris Lifesciences Ltd. [2008] 174 Taxman 113/[2010] 326 ITR 251 – Gujarat High Court.

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

Corporate Social Responsibility (CSR) Expenditure – Deduction under Chapter VI-A – Allowability of CSR expenditure under Section 80G despite disallowance under Section 37(1) – Voluntariness of contribution not a precondition – No reciprocal benefit to donor – Deduction permissible subject to fulfillment of conditions of Section 80G.

35. [2025] 122 ITR(T) 194 (Delhi – Trib.)

Cheil India Pvt. Ltd. vs. Deputy Commissioner of Income-tax

ITA NO.: 29/DEL/2024

A.Y.: 2020-21 DATE: 28.10.2024

Sections 80G & 37(1)

Corporate Social Responsibility (CSR) Expenditure – Deduction under Chapter VI-A – Allowability of CSR expenditure under Section 80G despite disallowance under Section 37(1) – Voluntariness of contribution not a precondition – No reciprocal benefit to donor – Deduction permissible subject to fulfillment of conditions of Section 80G.

FACTS

The assessee, Cheil India Pvt. Ltd., a company governed by the provisions of the Companies Act, 2013, incurred Corporate Social Responsibility (CSR) expenditure during the financial year relevant to AY 2020-21 and claimed deduction of ₹2,57,66,663 under Section 80G of the Income-tax Act, 1961. The donations were made to institutions duly registered and notified under section 80G.

The Assessing Officer, while completing the assessment under section 143(3) read with section 144B, disallowed the entire claim under section 80G, holding that CSR expenditure, being statutorily mandated under section 135 of the Companies Act, lacked the element of voluntariness, which is a fundamental requirement under section 80G.

The expenditure was further excluded under Explanation 2 to section 37(1), as not being incurred wholly and exclusively for the purposes of business. The AO accordingly added the disallowed amount to the assessee’s total income and also charged interest and initiated penalty proceedings under section 270A.

On appeal, the CIT(A) confirmed the disallowance reiterating that the expenditure had been incurred to comply with legal obligations, not out of voluntary motive.
Aggrieved, the assessee preferred an appeal before the Tribunal.

HELD

The Tribunal relied on the decision of the Coordinate Bench in Ratna Sagar Pvt. Ltd. vs. ACIT [ITA No. 2556/Del/2023], wherein it was held that Section 80G and Section 37(1) operate in distinct statutory domains. Section 37(1) deals with deduction while computing business income, and Section 80G applies post computation of gross total income under Chapter VI-A, and therefore the disallowance under section 37(1) does not preclude the benefit under section 80G.

Explanation 2 to section 37(1) inserted by Finance (No. 2) Act, 2014, specifically bars CSR expenditure from being claimed as a business expense, but does not prohibit deduction under section 80G.

The Tribunal held that even if CSR spending is mandatory under section 135 of the Companies Act, the donations made to eligible institutions under section 80G are philanthropic in nature. Section 80G permits deduction even for mandatory donations, so long as the donee institutions are eligible and the payment is made without quid pro quo.

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

Where the assessee had opted for presumptive taxation under section 44AD, the AO could not make an addition on account of alleged bogus purchase since the assessee was under no obligation to explain individual entries of purchase.

34. (2025) 175 taxmann.com 996 (Ban Trib)

Lakshmanram Bheemaji Purohit vs. ITO

ITA No.: 196/Bang/2025

A.Y.: 2018-19 Dated: 25.06.2025

Sections 44AD, 69C

Where the assessee had opted for presumptive taxation under section 44AD, the AO could not make an addition on account of alleged bogus purchase since the assessee was under no obligation to explain individual entries of purchase.

FACTS

The assessee was an individual engaged in the business of trading of waste home products. He filed his return of income on 08.08.2018 declaring total income of ₹5,87,014 as per provisions of section 44AD.

Information was received by the AO that assessee had received bogus purchase bill of ₹16,09,692 from one M/s. ARS Enterprises. It was alleged that this was a bogus tax invoice wherein false input credit was claimed under GST. Assessee was asked to furnish the details. Assessee submitted that he had filed return of income under section 44AD and therefore the details of purchases were not maintained. He also submitted a chart showing the purchase of goods from ARS Enterprises. The AO rejected the explanation and made addition of ₹16,09,692 by passing assessment order under section 143(3) read with section 144B.

Against this, assessee went in appeal before CIT(A), which was dismissed by him.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed that-

(a) If the assessee had opted for presumptive taxation under section 44AD, the assessee was not required to maintain the books of account as well as the details of purchases made. This was relevant till the total turnover of the assessee did not exceed the prescribed limit under section 44AD. Thus, prima facie, the assessee could not have been asked the information of purchases.

(b) AO had merely relied upon the information furnished by the GST department and did not gather any evidence on his own for making the addition. As held by the Punjab and Haryana High Court in CIT vs. Surinder Pal Anand, (2010) 192 Taxman 264 (Punjab & Haryana), the assessee was not under an obligation to explain individual entry of purchases unless such entry has nexus with gross receipts. In the present case, the purchases did not have any nexus with the gross receipt as gross receipt shown by the assessee remained undisputed and was never tested by the Revenue to be beyond the specified limit.

Accordingly, the Tribunal deleted the addition and allowed the appeal of the assessee.

Where the assessee made donation to a foundation approved under section 80G in pursuance of its CSR obligations, it was entitled for deduction under section 80G.

33. (2025) 175 taxmann.com 982 (Mum Trib)

Axis Securities Ltd. vs. PCIT

ITA No.: 2736/Mum/2025

A.Y.: 2020-21 Dated: 17.06.2025

Section 80G

Where the assessee made donation to a foundation approved under section 80G in pursuance of its CSR obligations, it was entitled for deduction under section 80G.

FACTS

The assessee was a company engaged in the business of broking, distribution of financial products etc. During the year, the assessee made donation to Axis Foundation of ₹1,93,66,947. It had classified the amount of donation as “Corporate Social Responsibility” (CSR) expenses under section 135 of the Companies Act, 2013 in its books of account and suo moto disallowed the same in computation of income in accordance Explanation 2 of section 37. However, it claimed the donation as deduction under section 80G. The said claim was duly disclosed in the computation of income and tax audit report, which was examined and allowed by the AO while passing the order of assessment under section 143(3).

PCIT invoked revision jurisdiction under section 263 and passed an order holding that deduction under section 80G was erroneously allowed since donation was in nature of CSR expenditure which is not voluntary in nature and thus not eligible for deduction under section 80G.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

The Tribunal observed as follows:

(a) it is an undisputed fact that donation made by the assessee was to entities registered under section 80G and that the assessee was otherwise eligible to claim deduction under section 80G

(b) Section 135 of the Companies Act, 2013 mandates the quantum of CSR expenses; however, it does not mandate to whom and how the amount to be spent. The assessee at its discretion can choose the mode of spending towards CSR. The donations made by the assessee to Axis Foundation were made voluntarily as there was no reciprocal commitment from the donees. In any case, section 80G does not put any condition for the donation to be voluntary in nature for the purpose of claiming deduction.

(c) CBDT Circular No. 1/2015 dated 21.01.2015 clearly states that the restriction on claiming deduction of CSR expense is only with respect to Section 37(1) wherein it will not be deemed to be a business expenditure for the purpose computing income under the head ‘Profits and Gains from Business or Profession’. The Circular itself clarifies that CSR expenditure will be allowable under other sections under the same head of income. In view of CBDT Circular, it is clear that there is no express bar in claiming deduction in respect of CSR expenditure, other than under Section 37(1). This is also supported by Ministry of Corporate Affairs’ (“MCA”) General Circular No. 01/2016 dated 12.01.2016.

(d) In the case of ACIT vs. Sharda Cropchem Limited [IT Appeal No. 6163 (Mum) of 2024], the coordinate bench of ITAT held that donations which are classified as CSR expenditure are eligible for deduction under section 80G.

Accordingly, the Tribunal held that the assessee was entitled for deduction claimed under section 80G towards CSR expenditure incurred by it.

Following Inter Gold (India) Pvt. Ltd. vs. Pr. CIT (ITA No. 4400/Mum/2023), the Tribunal also held that section 263 cannot be invoked for denial of deduction claimed under section 80G in respect of donations classified as CSR.

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

Exemption under Section 11 should not be denied to the assessee merely on account of delay in filing audit report in Form 10B within the stipulated time if the same was furnished before passing of intimation under section 143(1).

32. (2025) 175 taxmann.com 1076 (Ahd Trib)

Bhakt Samaj Vikas Education Trust vs. ACIT

ITA No.: 775/Ahd/2025

A.Y.: 2021-22 Dated: 25.06.2025

Section 11

Exemption under Section 11 should not be denied to the assessee merely on account of delay in filing audit report in Form 10B within the stipulated time if the same was furnished before passing of intimation under section 143(1).

FACTS

The assessee was a trust registered under section 12A. It filed its return of income on 29.03.2024 for A.Y. 2021-22. The return of income was processed under section 143(1), disallowing the claim of exemption under section 11 on the ground that the assessee had not filed the audit report in Form 10B prior to the due date for furnishing return of income under Section 139(1). CIT(A) confirmed the disallowance.

Aggrieved, the assessee filed an appeal before ITAT.

HELD

Following the decisions of the Gujarat High Court and other judicial precedents, the Tribunal held that it is a well-settled law that delay in filing of Form 10B is a procedural default and if other conditions have been met, then mere delay in filing of Form 10B should not disentitle the assessee from claiming exemption under Section 11, if the said audit report was available with the Department before passing of order / intimation under Section 143(1).

Accordingly, the appeal of the assessee was allowed.

Only profit element embedded in unaccounted receipts can be taxed and not the entire amount of such receipts.

31. IT(SS) A No. 46/Ahd./2023 and 434/Ahd./2023; IT(SS) A. No. 119 & 120/Ahd./2023

Robin Ramavtar Goenka vs. ACIT

A.Y.s: 2018-19 & 2019-20 Date of Order : 30.05.2025

Sections: 28, 68, 69C

Only profit element embedded in unaccounted receipts can be taxed and not the entire amount of such receipts.

FACTS

The assessee, engaged in real estate business, was part of Sankalp Group. During the course of search action conducted on 30.10.2018 at the premises of Sankalp group, incriminating material such as handwritten diaries, loose papers, unrecorded bills and other documents were seized. These materials revealed evidence of on-money transactions, unaccounted cash sales and cash payments related to land purchases, brokerage, salaries, personal expenses and purchase of jewellery.

The Assessing Officer (AO) made substantial additions in the hands of the assessee and protective addition in the hands of his accountant.

The AO treated unaccounted receipts as undisclosed income and unaccounted payments as unexplained expenditure under section 69C of the Act. He rejected the contentions of the assessee that both receipts and payments were part of normal business activities and that only the profit element therein, estimated at 8% to 10% should be taxed.

Aggrieved, assessee preferred an appeal to the CIT(A) who restricted the addition to 14% of the unaccounted payments since the unaccounted payments were greater than unaccounted receipts.

Aggrieved by the order of CIT(A) both the assessee and the revenue preferred an appeal to the Tribunal. The assessee contended that the rate of 14% adopted by the CIT(A) was excessive and did not reflect real income. It was contended that seized material clearly indicated that both unaccounted receipts and payments were incurred in the course of business. It is only profit element embedded in the receipts which needs to be taxed. Reliance was placed on several decisions of the Tribunal and High Courts.

HELD

The Tribunal agreed with the methodology of CIT(A) of applying a 14% profit rate to unaccounted payments but agreed with the submissions made on behalf of the assessee that the rate was excessive considering the actual profit ratios in real estate business.

The Tribunal directed the AO to reassess the income by adopting a more reasonable profit rate closer to industry standard of 8 to 10% of unaccounted receipts ensuring that only real income is taxed. The Tribunal remanded the matter back to AO for adjudication. It upheld the decision of the CIT(A) to restrict the addition to profit element.

The Tribunal partly allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue.

Notice under section 143(2) of the Act which has not been issued in consonance with the CBDT Instruction F No. 225/157/2017/ITA-II dated 23.06.2017 is invalid and an assessment framed consequent to such invalid notice is also invalid and needs to be quashed.

30. Tapan Kumar Das vs. ITO

ITA No. 1660/Kol/2024

A.Y.: 2017-18 Date of Order : 11.03.2025

Sections: 143(2), CBDT Instruction dated 23.6.2017

Notice under section 143(2) of the Act which has not been issued in consonance with the CBDT Instruction F No. 225/157/2017/ITA-II dated 23.06.2017 is invalid and an assessment framed consequent to such invalid notice is also invalid and needs to be quashed.

FACTS

The assessee filed the return of income on 30.10.2017, declaring total income of ₹3,75,780/-, which was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS). Thereafter the notice u/s 143(2) and 142(1) of the Act were issued along with the questionnaire which were duly served upon the assessee. When there was no compliance in the assessment proceedings, the AO framed the ex-parte assessment u/s 144 of the Act vide order dated 27.12.2019, wherein an addition of ₹25,74,500/- was made on account of unexplained money u/s 69A of the Act deposited in the bank account of the assessee during demonetization period.

Aggrieved, assessee preferred an appeal to the CIT(A) who confirmed the addition on the ground that there was no compliance on the part of the assessee.

Aggrieved, assessee preferred an appeal to the Tribunal where it raised an additional ground which it claimed to be purely a legal issue viz. that the notice issued under section u/s 143(2) in violation of CBDT Circular No. F.NO.225/157/2017/ITA-11 dated 23.06.2017.

HELD

The Tribunal found that the additional ground raised by the assessee to be purely legal issue qua which all the facts were available in the appeal folder and no further verification of facts was required to be done at the end of the AO. Accordingly, the Tribunal admitted the same for adjudication by following the ratio laid down by the Apex Court in the case of Jute Corporation of India Ltd. vs. CIT [187 ITR 688 (SC)] and National Thermal Power Co. Ltd v. CIT [(1998) 229 ITR 383 (SC)].

After hearing the rival contentions and perusing the materials available on record, the Tribunal found that the notice under section 143(2) of the Act has not been issued in consonance with the CBDT Instruction F No. 225/157/2017/ITA-II dated 23.06.2017.

The Tribunal held that, the notice issued u/s 143(2) of the Act which is not in the prescribed format as provided under the Act is an invalid notice and accordingly, all the subsequent proceedings thereto would be invalid and void ab initio. It observed that the case of the assessee finds support from the decision of Shib Nath Ghosh vs. ITO in ITA No. 1812/KOL/2024 for A.Y. 2018-19 vide order dated 29.11.2024.

The Tribunal held the notice issued under section 143(2) of the Act to be invalid notice and quashed the assessment since it was framed consequent to an invalid notice and therefore was invalid.

 

S. 36(1)(iii) : Interest on unpaid conversion fees for the period after the mall has been put to use, constitutes revenue expenditure and is allowable under section 36(1)(iii) of the Act. S. 43CA : If as on the date of agreement to sell, the collectorate rates for levy of stamp duty are not available, then the value declared by assessee in sale deed on which stamp duty has been paid is to be construed as the correct value and no addition is required to be made. S. 43CA : For the purpose of section 43CA, interest on delayed payment of consideration needs to be aggregated with the sale consideration and such aggregate amount is to be compared with the valuation done by DVO.

29. TS-671-ITAT-2025 (Chandigarh)

CSJ Infrastructure Pvt. Ltd. vs. ACIT

A.Y.s: 2014-15 and 2015-16

Date of Order : 28.05.2025

Sections: 36(1)(iii), 43CA

S. 36(1)(iii) : Interest on unpaid conversion fees for the period after the mall has been put to use, constitutes revenue expenditure and is allowable under section 36(1)(iii) of the Act.

S. 43CA : If as on the date of agreement to sell, the collectorate rates for levy of stamp duty are not available, then the value declared by assessee in sale deed on which stamp duty has been paid is to be construed as the correct value and no addition is required to be made.

S. 43CA : For the purpose of section 43CA, interest on delayed payment of consideration needs to be aggregated with the sale consideration and such aggregate amount is to be compared with the valuation done by DVO.

FACTS I

The assessee company purchased 20.16 acres of industrial land from Pfizer Ltd. The assessee company obtained approval from Chandigarh Housing Board. It was required to pay conversion fee of ₹185.45 crore, 10% was to be paid as down payment and remaining over a period of 9 years on equated annual instalments with interest @ 8.25% per annum. The assessee company paid ₹18,54,54,744 as down payment on 17.3.2007 and balance was payable in nine equated annual instalments together with interest commencing from 26.03. 2008.

The assessee capitalised the conversion fee payable as cost of land creating a deferred conversion fee liability. The interest pertaining to the construction period was treated as pre-operative expenditure till completion of the mall, office and service building and occupancy certificate was granted. It had capitalised the alleged interest expenditure as per proviso to section 36(1)(iii) of the Act. Upon the shopping mall having been put to use, interest expenditure was claimed as revenue expenditure.

During the previous year relevant to AY 2014-15, interest on conversion fee was ₹5,69,00,665 – out of this ₹4,91,74,146 pertained to assets put to use (mall and office and service building) and was therefore claimed as revenue expenditure under section 36(1)(iii) of the Act and ₹77,26,519 pertained to hotel building and was capitalised under pre-operative expenditure as per proviso to section 36(1)(iii) of the act. The Assessing Officer (AO) did not allow the claim of the assessee on the ground that even interest expenditure towards payment of conversion fee paid by the assessee would give enduring benefit in all subsequent years and hence treated the same as capital expenditure.

Aggrieved, assessee preferred an appeal to CIT(A) who allowed the appeal filed by relying on the decision in the case of Sanjay Dahuja vs. ACIT [ITA Nos. 95 and 96/Chd./2017] where the Tribunal held that interest on conversion charges after land was first put to use for conducting commercial activities shall not form part of actual cost of land. He also observed that the Delhi bench of ITAT has, on identical facts, taken the same view in DDIT vs. Micron Instruments (P.) Ltd. 38 ITR (T) 242 (Delhi). He also noted that his predecessor in case of Vijay Passi ITA No. 255/2015-16 for AY 2013-14 has also taken the same view.

Aggrieved, revenue preferred an appeal to the Tribunal.

HELD I

The Tribunal noted that the asset in the case of the assessee was put to use on 14.3.2013. Till the shopping mall was under construction and asset was not put to use, the assessee has capitalised the interest but for the period from which the asset is put to use, the expenditure is allowable as a revenue expenditure under section 36(1)(iii) of the Act. It observed that the CIT(A) has made an elaborate discussion (which has been extracted in the order of the Tribunal) and has followed the order of the Tribunal in the case of Vijay Passi ITA No. 255/2015-16 and has also referred to other judgments. It held that the view taken by CIT(A) is in consonance with the proposition laid down by ITAT as well as in consonance with section 36(1)(iii) of the Act and therefore no interference is called for. The appeal filed by the revenue was dismissed.

FACTS II

The assessee company purchased 20.16 acres of industrial land from M/s Pfizer Ltd. in Chandigarh. The company obtained approval from Chandigarh Housing Board (CHB) for conversion of land from industrial use. It was required to pay conversion fee of ₹1,85,45,47,440. Of this, 10% was to be paid as down payment and balance in nine equated annual instalments with interest at 8.25%. The assessee developed shopping mall on this land.

It entered into agreements to sell in respect of shop numbers A 501 to 503 and B 408 and B 409. The agreement to sell for shop numbers A 501 to 503 were entered on 25.1.2011. The consideration was payable 25% on booking and balance on dates mentioned in the agreement. The buyer made a payment of ₹2,60,00,000 vide cheque on 25.1.2011. There was some dispute between assessee and buyer and ultimately sale deed was executed in the previous year relevant to AY 2014-15. The Assessing Officer (AO) confronted the assessee qua section 43CA.

The AO made an addition to the total income of the assessee. The assessee had declared a loss of ₹65,92,02,520 in the assessment year 2014-15 which was reduced to ₹30,98,19,874.

Aggrieved, the assessee preferred an appeal to the CIT(A) who referred the valuation of the property to DVO for determining the Fair Market Value of the property and upon receipt of the report from DVO he upheld the addition on the basis of the report of the DVO thereby partly confirming the addition made by the AO.

Aggrieved, assessee preferred an appeal to the Tribunal where it contended that (i) the agreement to sell was entered on 25.1.2011, at that point of time, section 43CA was not on the statute and therefore no addition be made by virtue of provisions of section 43CA; (ii) sub-sections (3) and (4) of section 43CA provide that stamp duty value on the date of agreement to sell be adopted instead of stamp duty value on the date of sale deed and since there was no collectorate rates available for collecting stamp duty on the date of agreement to sell, the fiction created by section 43CA fails. The assessee supported this contention by making a reference to the report of the DVO which rather than adopting the collectorate rate made an observation that adopting collectorate rate to work out FMV of the subject property may not be appropriate in this case; (iii) interest of ₹6.19 crore has been received from the buyer for the period during which dispute remained between the parties. This interest is part and parcel of sale consideration. If sale proceeds and interest are aggregated and then compared with the value worked out by DVO then the difference is 6.51% which is less than the tolerance limit of 10% provided in section 43CA.

HELD II

At the outset, Tribunal observed that section 43CA is pari materia to section 50C. Having noted the provisions of section 43CA, the Tribunal noted that agreement to sell was entered into on 25.01.2011, part payment was made on 25.01.2011 by account payee cheque, the balance payment was not paid as per schedule due to dispute but subsequently interest has been paid for the delayed period. The collectorate rate as on 25.01.2011 ought to have been adopted. Neither the AO nor the DVO could lay their hands on correct rate of stamp valuation authority as on that day. The Tribunal held that the value declared by assessee in sale deed on which stamp duty has been paid is to be construed as the correct value and no addition was required to be made.

The Tribunal proceeded to look at the issue from another angle as well. It held that the alleged interest charged from the buyer would partake character of sale proceeds because it is interest on delayed realisation of sale proceeds for registration of sale deed. For this, the tribunal took support from the decisions in the context of section 80I where it is held that interest would partake character of business income and deduction under section 80I would be applicable. It observed that upon comparison of the aggregate of sale consideration and interest with the valuation done by DVO the difference is less than 10% and on this count also no addition is called for. The Tribunal held that this view is fortified by the order of ITAT in the assessee’s own case for AY 2017-18 [ITA No. 73/Chd./2024; Order dated 06.08.2024].

The Tribunal allowed this ground of appeal of the assessee.

Assessment order framed by the ITO u/s 143(3) of the Act, without an order under section 127 conferring jurisdiction on him, is bad in law and needs to be quashed.

28. TS-559-ITAT-2025 (Delhi)

Navita Gupta vs. ITO

A.Y.: 2017-18

Date of Order : 30.04.2025

Sections: 127, 143(2), 143(3)

Assessment order framed by the ITO u/s 143(3) of the Act, without an order under section 127 conferring jurisdiction on him, is bad in law and needs to be quashed.

FACTS

The assessee preferred an appeal against the order of CIT(A) confirming the addition made under section 69 r.w.s. 115BBE of the Act.

In the course of appellate proceedings before the Tribunal, it was mentioned that the notice under section 143(2) of the Act, for assessment, was issued by ITO, Ward 38(2), New Delhi; whereas the assessment order was passed by ITO Ward 5(2)(3), Noida. The assessment order was passed by the ITO at Noida without there being a transfer order under section 127 of the Act for shifting of jurisdiction from the ITO at Delhi to the ITO at Noida. It was submitted that since the assessment is framed by ITO Ward 5(2)(3), Noida on the basis of notice issued u/s 143(2) of the Act by ITO Ward 38(2), New Delhi, the assessment order passed under section 143(3) of the Act is bad in law. For this proposition, reliance was placed on the decision of the co-ordinate bench in Saroj Sangwan vs. ITO [ITA No. 2428/Delhi/2023; Order dated 17.5.2024] and on the decision of the jurisdictional High Court in PCIT vs. Vimal Gupta in ITA No. 515/2016 dated 16.10.2017.

HELD

The Tribunal noted that an identical issue came up for consideration of the co-ordinate Bench in the case of Saroj Sangwan (supra). Having noted the observations and the decision in the case of Saroj Sangwan (supra) and also in the case of Vimal Gupta (supra), the Tribunal held that the assessment framed by the ITO, Ward 5(2)(3), Noida without a transfer order having been passed under section 127 of the Act, is bad in law and therefore needs to be quashed.

Charitable Trust – Condonation of the delay of 24 days in filing Form 10B.

11. Mirae Asset Foundation vs. PCIT – 6.

WP No. 713 of 2025 dated 07/07/2025 (Bom) (HC) AY 2021-22 Section 119(2)(b)

Charitable Trust – Condonation of the delay of 24 days in filing Form 10B.

The 1st Respondent refused to condone the delay of 24 days in filing Form 10B for AY 2021-22. Consequently, the exemption claimed by the Petitioner-Foundation, a Charitable Trust, was denied to the Petitioner.

The Hon. Court observed that it is not in dispute that the delay in filing Form 10B is only 24 days. The ground on which delay is not condoned is that even after the filing of Form 10B with a delay of 24 days, no application for condonation of delay was filed immediately and the same was submitted only about 9 months later. Therefore, the delay was not condoned.

The Court further observed that as far as the condonation of delay is concerned, admittedly there was only 24 days delay in filing Form 10B. Further, it was true that the application seeking condonation of delay was filed after about 9 months. However, this delay was not such that should deny the Petitioner from filing Form 10B with a delay of 24 days. Further, if this delay was not condoned, there will be genuine hardship to the Petitioner, inasmuch as, the Petitioner would be denied the exemption otherwise claimed under the provisions of Section 11 of the Act, which is a substantial amount. The Court relied on a decision of the Hon’ble Gujarat High Court in the case of Sarvodaya Charitable Trust vs. Income Tax Officer (exemption) [2021] 125 taxmann.com 75 (Gujarat) wherein a view was taken that in cases like delay in filing Form 10B, the approach of the Authorities ought to be equitious, balancing and judicious and availing of exemption should not be denied merely on the bar of limitation. This is more so, when the legislature has conferred wide discretionary powers to condone the delay on the authorities concerned.

As far as the argument of Revenue that the Petitioner has not digitally signed Form 10B, the said argument was found to be factually incorrect.

The impugned order dated 11th December 2024 under Section 119(2)(b) of the Act was accordingly quashed and set aside.