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Category: In the High Courts: Part A-Reported Decisions

Settlement Commission — Settlement of case — Power of Settlement Commission — Immunity from penalty and prosecution — Factors to be considered — Assessee co-operated in process of settlement and made full and true disclosure — Settlement Commission exercising discretion to proceed with application and granting immunity from penalty and prosecution considering Bonafide conduct of assessee — Order of Settlement commission need not be interfered with in writ jurisdiction:

17 . Dy. CIT vs. ASM Traxim Pvt. Ltd.:

[2025] 474 ITR 25 (Del):

A.Ys. 2004-05 to 2011-12:

Date of order 28th October, 2024:

Ss. 245C, 245D(4) and 245H of ITA 1961:

Settlement Commission — Settlement of case — Power of Settlement Commission — Immunity from penalty and prosecution — Factors to be considered — Assessee co-operated in process of settlement and made full and true disclosure — Settlement Commission exercising discretion to proceed with application and granting immunity from penalty and prosecution considering Bonafide conduct of assessee — Order of Settlement commission need not be interfered with in writ jurisdiction:

During the search u/s. 132 and survey u/s. 133A of the Income-tax Act, 1961, the Department seized documents and material and also recorded the statements of various individuals of the assessee-company which belonged to the same group. During the pendency of assessment proceedings u/s. 153A and 153C Settlement applications were filed based on a combined or consolidated account which was prepared by chartered accountants. The Settlement Commission held such accounts to be unreliable on grounds of discrepancies found and the auditors themselves having expressed reservations with respect to the finding in their report and which was also qualified by various disclaimers. The Settlement Commission thereafter, directed a joint verification of all available primary records. Pursuant to the joint verification the Settlement Commission rejected the audited book results and based upon the joint verification determined the income for the purpose of disposal of the settlement applications.

On a writ petition filed by the Revenue challenging the order of the Settlement Commission u/s. 245D(4) in so far as it granted immunity to the assessee from prosecution and penalty proceedings the Delhi High Court held as under:

“i) Once the conditions of full and true disclosure is held to be satisfied, the same would not partake of a separate or different hue for the purpose of section 245H of the Income-tax Act, 1961. Any view to the contrary if taken, would result in an incongruous situation arising since it would constrain the court to hold that the test of full and true disclosure applies differently for the purpose of computation and grant of immunity from prosecution and penalty proceedings. While the power to grant immunity stands enshrined in a separate provision in Chapter XIX-A, such power is exercised Contemporaneously by the Settlement Commission while disposing of an application u/s. 245D for settlement . The Statute does not prescribe the power of computation and grant of immunity being exercised on the basis of tests and precepts which could be said to be separate or distinguishable. Section 245H postulates the power of immunity being liable to be invoked identically on a full and true disclosure of income and co-operation rendered before the Settlement Commission. The Act confers a finality and conclusiveness upon orders made by the Settlement Commission. This becomes evident from the reading of section 245-I which proscribes any matter or issue which stands concluded by an order of the Settlement Commission being reopened in any proceedings under the Act. The Legislature intended to imbue finality upon an order of the Settlement Commission is further underscored by section 245-I using the expression “save as otherwise provided ….”. Thus, an order under Chapter XIX-A could be reviewed or reopened only on grounds set out therein and no other.

ii) The Settlement of the case was primordially based on the applicant making a full and true disclosure before the Settlement Commission which was enjoined thereafter to conduct proceeding in terms of the provisions contained in Chapter XIX-A. It was such disclosure which was thereafter tested and evaluated by the Settlement Commission in terms as contemplated under subsection (2) and (2C) of section 245D. The applications as made by the assessee had crossed that threshold. The Computation of income itself was concluded by the Settlement Commission based upon a joint verification that was undertaken. The assesses themselves had taken a stand that their audited accounts were not liable to be taken in to consideration and that they could not form the basis for the proceedings as were laid before the Settlement Commission and had admitted that those accounts were unreliable. It was in such backdrop they had participated in the proceedings before the Settlement Commission and had agreed to collaborate in the ascertainment of a true and correct computation of income for the A. Ys. 2004-05 to 2011-12 being undertaken. It was this position as struck by parties which appear to have informed the decision of the Settlement Commission to order a joint verification.

iii) The Settlement Commission had at no stage concluded that the application as made were liable to be rejected either on the ground that the assessee had failed to make a full and true disclosure or that they had failed to co-operate in the proceedings. If these twin conditions were found to be satisfied for the purpose of section 245D(4), such issue could not be questioned or reagitated while examining the validity of the discretionary power exercised by the Settlement Commission u/s. 245H. Both section 245D(4) and section 245H are premised on identical considerations. It would be incorrect to uphold the contention of a perceived dichotomy between the opinion with respect to full and true disclosure u/s.245D and that which would guide section 245H.

iv) The essential ingredients liable to be borne in consideration by the Settlement Commission for the purpose of grant of immunity are co-operation by the applicant in the computation of total income in the settlement proceedings and a full and true disclosure of income being made. The joint survey which was undertaken was itself based on all original documents and material having been duly placed by the assessee. It was therefore, not alleged that the assessee either failed to co-operate in those proceedings or withheld information. Chapter XIX-A also does not envisage the Settlement Commission to be bound by the voluntary disclosure that an applicant may choose to make. It is empowered to enquire and investigate as well as call for report and material before completing the computation of income. The order of the Settlement Commission u/s. 245D(4) did not warrant interference under article 226 of the Constitution of India.

v) The power to sever and disgorge a part which is offending and unsustainable could be wielded, provided it does not impact the very foundation of an order. The consideration for the framing of an order u/s. 245D(4) and 245H did not proceed on a consideration of factors which could be said to be distinct or independent. Both were informed by and founded upon co-operation and full and true disclosure and which were the essential prerequisites for computation of the settlement amount as well as consideration of grant of immunity. These two factors thus constituted the very substratum of an application for settlement. Interfering with the grant of immunity on grounds as suggested by the Department would essentially amount to the court questioning the validity of the acceptance of the application itself by the Settlement Commission and that was not even their suggestion in these proceedings. If the twin statutory conditions are found to be satisfied and thus meriting an order of settlement u/s. 245D(4) being rendered, the position would not very or undergo a change when it came to the question of grant of immunity.”

Salary — Perquisites :— 1) Meaning of perquisite — Condition precedent for considering payment as perquisite — Amount must have been paid to the Assessee as employee — Stock options provided to ex-employees — Stock option was not perquisite — No exercise of stock option — No income chargeable to tax; 2) Assessability — Stock options given to ex-employee — No exercise of stock option — No income chargeable to tax:

16. Sanjay Baweja vs. DCIT(TDS):

[2025] 474 ITR 376 (Del.):

Date of order 30th May, 2024:

Ss. 5 and 17(2) of ITA 1961

Salary — Perquisites :— 1) Meaning of perquisite — Condition precedent for considering payment as perquisite — Amount must have been paid to the Assessee as employee — Stock options provided to ex-employees — Stock option was not perquisite — No exercise of stock option — No income chargeable to tax; 2) Assessability — Stock options given to ex-employee — No exercise of stock option — No income chargeable to tax:

The Assessee is an ex-employee of a company FIPL, which is a wholly owned subsidiary of FMPL, and FMPL in turn is a wholly owned subsidiary of FPL, Singapore. In 2012, FPL introduced an Employee Stock Option Plan (ESOP) wherein FPL granted certain stock options to eligible persons, including employees of its subsidiaries. As per the plan, the Assessee was granted 1,27,552 stock options on and from 01-11-2014 to 31-11-2016 with a vesting schedule of four years. Due to the restructuring at FPL, the Assessee received a communication in April 2023 from FPL that based on the number of options held by the Assessee as on 23-12-2022, FPL had, as a one-time measure, decided to grant compensation of USD 43.67 per option towards loss in the value of options. Further, it was also stated that FPL would be withholding tax on the said compensation.

Thereafter, the Assessee filed an application u/s. 197 for no deduction of tax by FPL. However, the application was rejected on the ground that the amount received would be in the nature of perquisite u/s. 17(2)(vi) of the Act. Against the said rejection, the Assessee filed a writ petition before the High Court. The Delhi High Court allowed the petition of the Assessee and held as follows:

“i) An amount received by an employee as a perquisite would be taxable. Perquisites, as defined in section 17(2) of the Act, constitute a list of benefits or advantages, which are made taxable and are incidental to employment and received in excess of salary. As per section 17(2)(vi) of the Act, perquisites include the value of any specified security allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at a concessional rate to the employee-assessee. The most crucial ingredient of this inclusive definition is “determinable value of any specified security received by the employee by way of transfer or allotment, directly or indirectly, by the employer”. As per Explanation (c) to section 17(2)(vi) of the Act, the value of specified security could only be calculated once the option is exercised. A literal understanding of the provision would provide that the value of specified securities or sweat equity shares is dependent upon the exercise of option by the assessee. Therefore, for an income to be included in the inclusive definition of “perquisite”, it is essential that it is generated from the exercise of options, by the employee. Hence the condition precedent for considering a payment as a perquisite, is that the payment must be made by an employer to his employee.

ii) The manner or nature of payment, as comprehensible by the deductor, would not determine the taxability of such transaction. It is the quality of payment that determines its character and not the mode of payment. Unless the charging section of the Income-tax Act, 1961 elucidates any monetary receipt as chargeable to tax, the Department cannot proceed to charge such receipt as a revenue receipt and that too on the basis of the manner or nature of payment, as comprehensible by the deductor of tax at source.

iii) The stock options were merely held by the assessee and had not been exercised till date and thus, they did not constitute income chargeable to tax in the hands of the assessee as none of the contingencies specified in section 17(2)(vi) of the Act had occurred. Moreover, the compensation was a voluntary payment and not transfer by way of any obligation. The present was not a case where the option holder had exercised his right. Rather, the facts suggested that the assessee had not exercised his options under the plan till date. Due to the disinvestment of the business from the Singapore company, the board of directors of that company had decided to provide a one-time voluntary payment to all the option holders pursuant to employees stock option plan. The management proceeded by noting that there was no legal or contractual right under the plan to provide compensation for loss in current value or any potential losses on account of future accretion to the stock option holders. The payment in question was not linked to the employment or business of the assessee, rather it was a one-time voluntary payment to all the option holders of stock options, pursuant to the disinvestment of the business from the Singapore company. Even though the right to exercise an option was available to the assessee, the amount received by him did not arise out of any transfer of stock options by the employer. Rather, it was a one-time voluntary payment not arising out of any statutory or contractual obligation. The rejection of application was not valid. [Since the transaction already took place on July 31, 2023, liberty was accorded to the assessee to file an application for refund of the tax deducted at source before the Department. The Department was further directed to consider the application of the assessee.]”

Offences and prosecution — Deduction of tax at source — Delay in payment of tax deducted at source — Delayed payment of tax deducted at source to Department with interest without objection by Department — Delay explained by assessee as due to crisis in company — No malafide intention of evasion on part of assessee — Prosecution after a lapse of more than three years quashed:

15. SVSVS Projects Pvt. Ltd. vs. State of Telangana:

[2025] 474 ITR 306 (Telangana):

A.Ys. 2011-12: Date of order 30th January, 2024:

S. 276B of ITA 1961:

Offences and prosecution — Deduction of tax at source — Delay in payment of tax deducted at source — Delayed payment of tax deducted at source to Department with interest without objection by Department — Delay explained by assessee as due to crisis in company — No malafide intention of evasion on part of assessee — Prosecution after a lapse of more than three years quashed:

There was an allegation against the Assessee that for the AY 2011-12, TDS was deducted by the Assessee but not deposited with the Central Government in time. As per the data available online, there was a delay on 39 occasions and on the basis of several such delays, it was alleged that the Assessee deliberately did not deposit tax to the credit of Central Government which was a punishable offence u/s. 276B. The Assessing Officer issued a letter dated 16/01/2013 stating that the tax deducted at source payable was ₹77,37,097 which was delayed and the interest for such delay was ₹13,36,278. However, the Assessee had paid interest of ₹12,37,164 and therefore balance interest of ₹99,114 was payable u/s. 201(1A) of the Act. The said balance interest was paid on 19th March, 2013.

Subsequently, on 14th March, 2014, a letter was issued by the Commissioner proposing to launch prosecution for not depositing the TDS with the Central Government within the stipulated time and an opportunity of hearing was given to the Assessee on 7th April, 2014. On 25/07/2014, the Assessee responded by stating that the entire amount of TDS along with interest was paid and that the delay was not wilful or negligent but due to financial crisis in the company. On 2nd December, 2016, the Commissioner granted sanction for prosecution and complaint was filed by the Assessing Officer on 3rd February, 2017.

The Telangana High Court allowed the writ petition filed by the Assessee and held as follows:

“i) The payment of the entire tax deducted at source for the A. Y. 2011-12 with interest was paid by the assessee even prior to the letter addressed by the Income-tax Officer. Having received the notice, the balance of tax deducted at source interest was also paid. The Department had accepted both the tax deducted at source amounts and the interest component without any objection. Having accepted the entire amount nearly one year thereafter, the proposal for launching prosecution was made and two years and nine months thereafter sanction was accorded by the Commissioner for prosecution. No doubt, the tax deducted at source was credited to the Central Government account, though with a delay. However, the penal interest that was attracted was totally paid without raising any objection. The delay had occurred on 39 occasions and since the payments were delayed, the interest component was collected.

ii) The assessee had clarified that the delay in crediting the tax deducted at source to the Central Government account was on account of crisis in the company. In such circumstances, it could not be said that the company entertained any fraudulent intention to avoid payment of the tax deducted at source. No useful purpose would be served at this length of time by prosecuting the assessee. When the entire amount of tax deducted at source with interest had been paid even prior to the first communication from the Department and the balance interest amount had been paid after notice, it would be appropriate to quash the proceedings against the assessee. Accordingly, the criminal proceedings against the assessee before the Special Judge for Economic Offences were quashed.”

A. Offences and Prosecution — Sanction for prosecution — Deduction of tax at source — Delay in depositing with revenue — Assessee depositing tax deducted with Revenue for A.Ys. 2012-13 to 2018-19 with interest though belatedly — Effect of circulars issued by CBDT — Interpretation of provisions of s. 276B to include delay in deposit of tax deducted at source manifestly arbitrary — Prosecution quashed: B. Offences and prosecution — Sanction for prosecution — Principal Officer — Directors of Assessee company prosecuted for delay in payment of tax deducted at source with Revenue — Non-issue of notice and order to treat any of them as principal officer of the assessee — No order imposing penalty as “deemed to be an assessee in default” on assessee or its directors — Criminal complaints against directors of assessee not stating consent, connivance or negligence on their part as required u/s. 278B(2) — Directors of assessee cannot be prosecuted: C. Offences and prosecution — Deduction of tax at source — Scope of s. 278B(2) — Conduct of business of company must have nexus with the offence committed — Amendment in law from year 1997 — Use of the phrase “as required by or under the provisions of Chapter VII-B” — Linked only with and explains manner of deduction of tax and payment thereof — Assessee deposited entire tax deducted at source with Revenue for A.Ys. 2012-13 to 2018-19 with interest belatedly — Prosecution quashed:

14. Hemant Mahipatray Shah vs. Anand Upadhyay:

[2025] 482 ITR 1 (Bom.):

A.Ys. 2012-13 to 2018-19: Date of order 12th August, 2024:

Ss. 2(35)(b), 201, 221, 276B, 278B and 279(1) of ITA 1961

A. Offences and Prosecution — Sanction for prosecution — Deduction of tax at source — Delay in depositing with revenue — Assessee depositing tax deducted with Revenue for A.Ys. 2012-13 to 2018-19 with interest though belatedly — Effect of circulars issued by CBDT — Interpretation of provisions of s. 276B to include delay in deposit of tax deducted at source manifestly arbitrary — Prosecution quashed:

B. Offences and prosecution — Sanction for prosecution — Principal Officer — Directors of Assessee company prosecuted for delay in payment of tax deducted at source with Revenue — Non-issue of notice and order to treat any of them as principal officer of the assessee — No order imposing penalty as “deemed to be an assessee in default” on assessee or its directors — Criminal complaints against directors of assessee not stating consent, connivance or negligence on their part as required u/s. 278B(2) — Directors of assessee cannot be prosecuted:

C. Offences and prosecution — Deduction of tax at source — Scope of s. 278B(2) — Conduct of business of company must have nexus with the offence committed — Amendment in law from year 1997 — Use of the phrase “as required by or under the provisions of Chapter VII-B” — Linked only with and explains manner of deduction of tax and payment thereof — Assessee deposited entire tax deducted at source with Revenue for A.Ys. 2012-13 to 2018-19 with interest belatedly — Prosecution quashed:

The petitioner is a Director of a company M/s. Hubtown Ltd (‘the Assessee Company’). During the previous years relevant to A.Ys. 2012-13 to 2018-19. The Assessee Company deducted tax at source but delayed paying the same to the Government.

Show cause notices were issued to the Assessee Company and its Directors which were replied and the explanations provided. However, the Assessing Officer arrived at a conclusion that the Assessee and its Directors were responsible for paying tax as per section 204 and had, therefore, committed default u/s. 200 read with rule 30 of the Income-tax Rules without reasonable cause to pay the tax so deducted under the various sections of the Act from payments made to various parties, which amounted to an offence punishable u/s. 276B read with section 278B.

The Commissioner of Income-tax (TDS) gave sanction u/s. 279(1) to prosecute the Assessee Company and its Directors u/s. 276B r.w.s. 278B as prima facie they were liable to be prosecuted under these sections. Accordingly, complaints were filed before the Magistrate Court. The Magistrate arrived at a conclusion and issued process against the Assessee Company and the Petitioner.

The order of the Magistrate was challenged before the Sessions Court by filing criminal revision application. However, the Sessions Court also rejected the revision application and confirmed the issuance of process directed by the Magistrate.

The Petitioner Director filed writ petition against the said order of the Sessions Court. The Bombay High Court allowed the petition and held as follows:

“i) The scope of section 276B of the Income-tax Act, 1961, as amended by the Finance Act, 1997 ([1997] 225 ITR (St.) 113), will have to be understood in its correct perspective. It covers cases of failure to pay and not mere delay in deposit of tax deducted at source. In the unamended provisions prior to the year 1997, the words “as required by or under the provisions of Chapter XVII-B” could be read along with the words “both”. Under the amended provisions from the year 1997, the criminal liability is attracted on failure to pay. The phrase “as required by or under the provisions of Chapter XVII-B” is separately mentioned in clause (a) of section 276B and hence, is linked only with and explains the manner in which tax is required to be deducted and not the manner of payment thereof. Therefore, under the amended provisions, if the tax deducted at source has been paid in full, even with some delay, section 276B would not be attracted.

ii) Prosecution u/s. 276B should not normally be proposed when the amount involved and/or the period of default is not substantial and the amount in default has also been deposited in the meantime to the credit of the Government. No such situation will apply to levy of interest u/s. 201(1A). In this context CBDT bearing F. No. 255/339/79-IT(Inv.), dated May 28, 1980 may be referred to.

iii) The provisions of 278B(1) is for prosecuting an offender, the term “conduct of business of the company” must have a nexus with “the offence committed” and hence, in the context of such offence u/s. 276B ought to be interpreted (which is in relation to “failure to pay” the tax deducted at source) to be the “principal officer” who has been made responsible, u/s. 204(iii) , for paying the tax deducted at source to the Government. The proviso to section 278B(1) prescribes “absence of knowledge” as a valid defence for invoking the section. Where a person is declared a “principal officer” of a company by an “order” under section 201(1), it would, prima facie, fulfil the requirement of presumption of knowledge. The term “director” which has been separately defined u/s. 2(20) has not been used in section 278B(1). As such director is not covered thereunder. Sub-section (2) of section 278B which commences with a non obstante clause provides an action to prosecute a person which expressly applies to a director. Emphasis is on the words “with the consent”, “connivance” or “attributable to the neglect” of such director, manager, secretary or other officer of the company.

iv) Admittedly, tax deducted at source by the assessee had already been deposited with interest as provided u/s. 201(1A). No notice had been issued by the Assessing Officer to any of the petitioners u/s. 2(35)(b) to treat any of them as principal officer of the assessee. The complaints had been filed against the assessee and the petitioners who were its directors, for delay in depositing the tax deducted at source. The taxes deducted at source by the assessee had already been deposited with interest as provided for u/s. 201(1A). No order as contemplated u/s. 201(1) read with section 201(3) had been passed treating any of the petitioners as principal officer of the assessee and by which such principal officer was “deemed to be assessee-in-default”. No order imposing penalty, either initially or further penalty, as “deemed to be an assessee-in-default” u/s. 221 has been passed against the assessee or any of the petitioners for the A. Y. 2017-18. Though the petitioners were “directors” of the assessee, no contention had been made in the complaints regarding “consent”, “connivance” or “negligence” as required u/s. 278B(2)

v) A combined reading of circulars dated May 28, 1980 and April 24, 2008 contemplate that prosecution ought not to be launched where the tax has been deposited. The words “where the amount of default has been deposited in the meantime” in the circular dated May 28, 1980 signify such intent and the words “in addition to the recovery steps as may be necessary in such cases” in circular dated April 24, 2008 also signifies that there are pending arrears which need to be recovered. The ratio laid down in Madhumilan Syntex Ltd. vs. Union of India [2007] 290 ITR 199 (SC), would not be applicable in view of the circular dated April 24, 2008 and, therefore, it cannot be treated as a precedent for the period after April 24, 2008. The circular dated April 24, 2008 prescribes that the prosecution is to be launched within sixty days of detection of the default. Though the circular also prefixes the requirement with the words “preferably”, it also signifies that if not in sixty days the period cannot extend indefinitely for an unreasonable period. If section 276B is interpreted to include the delay in deposit of tax deducted at source it would make the provision manifestly arbitrary.

vi) The definition of “principal officer” as contemplated in section 2(35) , required the Assessing Officer to issue notice to any person connected with the management or administration of the assessee for his intention of treating him as the ”principal officer” thereof. The obligation did not end with mere issue of a notice. Section 201(1) , proviso to section 201(1) and 201(3) made it mandatory for the Assessing Officer to pass an order. The order was also appealable under section 246(1)(i). The order would determine which officer of the assessee was proposed to be dealt as “principal officer” and in view of the exclusion under the proviso to section 201(1), whether the assessee and its principal officer should be “deemed to be assessee-in-default”.

vii) Section 2(35)(b) postulates the Assessing Officer to issue notice of his “intention to treat” a person connected with the management and administration of an assessee as its “principal officer” that mere issuance of notice would not ipso facto become a final “determination” of classification and identification of a person as “principal officer”. Since treating a person as such would not only have civil but also penal consequences. As such, an order making such determination was necessary. Such “adjudication” was contemplated u/s. 201 when such person other than the assessee was held to be a principal officer and was also thereafter deemed to be an assessee-in-default. Any person aggrieved by such order would have remedies available under section 246(1)(i). The term “principal officer” has been used singular and not in plural and the word “officer” is further premised by the word “principal” which signifies “main” officer and not all the officers who may in some way be connected with the management or administration of the company.“Determination” could therefore, be done only while passing an order u/s. 201(1). Section 204(iii) also defines and fixes the responsibility for paying the tax deducted at source in relation to the company on its “principal officer”.

viii) The offences being offences u/s. 276B would imply that the failure to pay the tax deducted at source must have direct relation, namely, consent, connivance or neglect of such person.

ix) The Revenue had not invoked the provisions of section 221 read with section 201(1) to impose penalty against the assessee or the principal officer of the assessee for “failure to pay the whole or any part of tax, as required by or under this Act” and hence could not be permitted to prosecute the petitioners for the same substantive act which was also categorized as an “offence” u/s. 276B . As such, further trial of the petitioners by the criminal court was not permissible which would tantamount to abuse of process of the court. The orders of issuance of process by the Additional Chief Metropolitan Magistrates and the orders rejecting the criminal revision applications by the Additional Sessions Court were quashed and set aside.”

Search and seizure — Assessment of third person — Mandatory condition u/s. 158BD — Initiation of proceedings by assessee’s AO without satisfaction note from searched person’s AO — Failure to follow mandatory procedure — High Court held that initiation of proceedings without jurisdiction:

13. Principal CIT vs. MiliaTracon Pvt. Ltd.:

[2025] 473 ITR 155 (Cal.):

Block period 01/04/1996 to 07/05/2002:

Date of order 3rd July, 2024:

Ss.132 and 158BD of ITA 1961

Search and seizure — Assessment of third person — Mandatory condition u/s. 158BD — Initiation of proceedings by assessee’s AO without satisfaction note from searched person’s AO — Failure to follow mandatory procedure — High Court held that initiation of proceedings without jurisdiction:

A search conducted at the premises of UIC group led to the discovery of certain share certificates issued in the name of the assessee. The Assessing Officer of the assessee initiated proceedings u/s. 158BD of the Income-tax Act, 1961, without recording a satisfaction note as mandated and the assessee denied any undisclosed income. Subsequently, summons were issued to four individuals u/s. 131 but could not be served. The Assessing Officer of the assessee communicated the reasons for initiation of proceedings through a letter. The assessee submitted block returns of income and contested the proceedings, asserting that they were improperly initiated.

The Assessing Officer passed an assessment order. The satisfaction note reproduced in the assessment order was prepared by the Assessing Officer of the assessee and not by the Assessing Officer of the searched person, as required u/s. 158BD.

The Commissioner (Appeals) upheld the validity of the initiation of proceedings but granted relief on certain additions. The Tribunal reversed the findings of the Commissioner (Appeals), concluding that the initiation of proceedings was without jurisdiction since the mandatory requirements of recording satisfaction and transferring documents by the Assessing Officer of the searched person to the assessee’s Assessing Officer were not followed.

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

“i) U/s. 158BD of the Income-tax Act, 1961, satisfaction note has to be recorded by the Assessing Officer of the searched person and send it to the Assessing Officer of such other person, the third party.

ii) The initiation of proceedings u/s. 158BD was unauthorised and lacked jurisdiction. The satisfaction note required u/s. 158BD must be recorded by the Assessing Officer of the searched person and sent to the Assessing Officer of the third person assessee. This requirement was not met in this case, as the note was prepared by the Assessing Officer of the assessee, contrary to statutory provisions. Additionally, the mandatory procedure for transferring seized documents to the assessee’s Assessing Officer was not followed. There was no illegality in the order of the Tribunal.”

Refund — Effect of section 240 — Refund consequent on appellate order — Refund should be granted without application for it. Interest on refund — Effect of section 244 — Deduction of tax at source — Tax deducted at source and deposited has to be treated as tax duly paid — Such amount be taken into consideration in computing interest on refund — Interest payable from first day of April of relevant Assessment Year to the date on which refund is ultimately granted:

12. ESS Singapore Branch vs. DCIT:

[2025] 473 ITR 541 (Del.):

A. Y. 2014-15: Date of order 22nd August, 2024:

Ss.199, 240 and 244 of  ITA 1961

Refund — Effect of section 240 — Refund consequent on appellate order — Refund should be granted without application for it. Interest on refund — Effect of section 244 — Deduction of tax at source — Tax deducted at source and deposited has to be treated as tax duly paid — Such amount be taken into consideration in computing interest on refund — Interest payable from first day of April of relevant Assessment Year to the date on which refund is ultimately granted:

The Assessee filed return of income for AY 2014-15 and claimed a refund of ₹3,65,970. The case was selected for scrutiny wherein the Assessing Officer raised an issue as to whether the revenue earned by the assessee including the consideration for live feed, would constitute royalty and thus be taxable. The Assessing Officer framed the draft assessment order holding that the consideration received towards live feed was taxable as royalty under the Income-tax Act, 1961. The Dispute Resolution Panel (DRP), affirmed the view taken by the AO pursuant to which the final order was passed.

On appeal before the Tribunal, the Tribunal held that there was a clear distinction between a copyright and a broadcasting right, broadcast or live coverage which does not have a copyright, and therefore, payment for live telecast was neither payment for transfer of any copyright nor any scientific work so as to fall under the ambit of royalty under Explanation 2 to Section 9(1)(vi) and decided the appeal in favour of the assessee. Further, the Tribunal gave directions to the Assessing Officer to verify and grant credit for tax deducted at source as claimed by the assessee. Pursuant to the direction of the Tribunal, the assessee filed application before the Assessing Officer. The Assessing Officer restricted the benefit of TDS to the amount which was claimed in the return of income on the ground that amount reflected in Form 26AS was not claimed by the assessee in the return of income. It was also held that for the purposes of refund, the assessee had to follow the procedure as laid out in section 239 of the Act.

The Delhi High Court allowed the petition filed by assessee and held as follows:

“i) The unquestionable mandate of section 240 of the Income-tax Act, 1961 , as would be manifest from a reading of that provision, is that in cases where a refund becomes due and payable consequent to an order passed in an appeal or other proceedings, the Assessing Officer is obliged to refund the amount to the assessee without it having to make any claim in that behalf.

ii) Tax deducted at source duly deposited becomes liable to be treated as tax duly paid in terms of section 199 and interest thereon would consequently flow from the first day of April of the relevant assessment year to the date on which the refund is ultimately granted by virtue of section 244A(1)(a) of the Act.

iii) The undisputed position was that the Assessing Officer was called upon to give effect to a direction framed by the Tribunal. Viewed in that light, the stand taken by the Assessing Officer was unsustainable in so far as it restricted the claim of the assessee to the disclosures made in the return of income. It was wholly illegal and inequitable for the Department to give short credit to the tax duly deducted and deposited based on the claim that may be made in a return of income.

iv) Direction issued to respondents to acknowledge the credit of tax deducted at source as reflected in form 26AS of the assessee amounting to ₹2,27,83,28,430 and to recompute the total refund at ₹2,03,40,32,090.”

Reassessment — Condition precedent — Reason to believe that income has escaped assessment — Delay in submitting Form 10 for accumulation of income — Not a ground for re-assessment. Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Board Circular acknowledging difficulties of assessee’s in uploading form — Failure to file in time — No dispute as to genuineness of claim — Re-assessment not justified. Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Matter of procedure Failure to file in time — No dispute as to genuineness of claim —Re-assessment not justified

11. Associated Chambers of Commerce and Industry of India vs. DCIT:

[2025] 473 ITR 696 (Del.):

A. Y. 2016-17: Date of order 5th August, 2024:

Ss.11(2), 147, and 148A of ITA 1961

Reassessment — Condition precedent — Reason to believe that income has escaped assessment — Delay in submitting Form 10 for accumulation of income — Not a ground for re-assessment.

Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Board Circular acknowledging difficulties of assessee’s in uploading form — Failure to file in time — No dispute as to genuineness of claim — Re-assessment not justified.

Charitable purpose — Requirement of digital submission of Form 10 for accumulation of income — Matter of procedure Failure to file in time — No dispute as to genuineness of claim —Re-assessment not justified:

The Assessee is a company registered u/s. 8 of the Companies Act and holds registration u/s. 12AA of the Act. Re-assessment proceedings were initiated against the assessee for the A. Y. 2016-17 on account of failure to digitally file and upload Form 10 on or before the due date of filing return of income u/s. 139(1) of the Act. While the assessee filed Forms 10A and 10B after the due date of return of income, however, the same were submitted before the Assessing Officer prior to the completion of the assessment proceedings. Assessment order was framed on 1st December, 2018 and the accumulation u/s. 11(2) was accepted.

The re-opening of assessment was challenged in a writ petition filed before the High Court. The Delhi High Court allowed the Petition of the assessee and held as follows:

“i) Section 11(2) of the Income-tax Act, 1961, speaks of a statement in the prescribed form (form 10) being “furnished” to the Assessing Officer. The change in the “prescribed manner” u/s. 11(2)(a) for the submission of form 10 and which moved to a digital filing was introduced for the first time by virtue of the Finance Act, 2015 ([2015] 373 ITR (St.) 25) and the Income-tax (First Amendment) Rules, 2016 ([2016] 380 ITR (St.) 66). Prior to those amendments, all that section 11(2)(a) required was for the assessee to apprise the Assessing Officer, by a notice in writing, of the purposes for which the income was sought to be accumulated and the mode of its investment or deposit in accordance with section 11(5). The requirement of form 10 being furnished electronically was undisputedly introduced for the first time by way of the 2016 Amendment Rules. The electronic submission of form 10 is essentially a matter of procedure as opposed to being a mandatory condition which may be recognised to form part of substantive law. An action for reassessment would have to be based on the formation of an opinion that income chargeable to tax has escaped assessment. That primordial condition would clearly not be satisfied on the mere allegation of a delayed digital filing of form 10.

ii) The action for reassessment was not founded on income liable to tax having escaped assessment. The Department also did not question the acceptance of the accumulations in terms of section 11(2) in the assessment order dated 1st December, 2018. The entire action for reassessment was founded solely on form 10 having been submitted after 17th October, 2016 which was the due date in terms of section 139(1). The order u/s. 148A(d) dated 31st March, 2023 and the consequent initiation of reassessment proceedings through notice u/s. 148 of the Act of even date were not valid and were liable to be quashed.”

Reassessment—Scope of jurisdiction of AO— Notice — Reasons recorded — Grounds must be recorded before issue of notice — AO is not entitled to record additional reasons thereafter —Re-assessment based on other grounds recorded after issue of notice not valid — Order and notice quashed: Re-assessment — Applicability of Explanation 3 to section 147 — Explanation applied only where power to re-assess validly invoked:

10. ATS Infrastructure Ltd. vs. ACIT:

[2025] 473 ITR 595 (Del.):

A. Ys. 2014-15 to 2016-17: Date of order 18th July, 2024:

Ss.147, 148, 148A(b) and 148A(d) of ITA 1961:

Reassessment—Scope of jurisdiction of AO— Notice — Reasons recorded — Grounds must be recorded before issue of notice — AO is not entitled to record additional reasons thereafter —Re-assessment based on other grounds recorded after issue of notice not valid — Order and notice quashed:

Re-assessment — Applicability of Explanation 3 to section 147 — Explanation applied only where power to re-assess validly invoked:

Notice u/s. 148A(b) was issued on the ground that the assessee had received loan from its 100% subsidiary. In response to the notice, the assessee submitted that the assessee had not received any loan from its subsidiary but on the contrary it had repaid the loan. The Assessing Officer, vide order dated 23rd July, 2022 passed u/s. 148A(d) of the Act accepted the explanation of the assessee. However, he alleged that the assessee had not been able to completely explain the source of the money which was used to repay a part of the loan and therefore the amount towards loan of ₹25,53,42,435 was treated as income chargeable to tax which had escaped assessment.

The Assessee challenged the aforesaid order in a writ petition before the High Court mainly contending that the Department had changed their stand and sought to re-open the assessment on a ground which did not form part of the original notice.

The Delhi High Court allowed the petition, quashed the proceedings and held as follows:

“i) The validity of the reassessment proceedings initiated u/s. 147 of the Income-tax Act, 1961, upon issue of a notice u/s. 148, would have to be adjudged from the stand point of the reasons which formed the basis for the formation of opinion with respect to escapement of income. That opinion cannot be one of changing or fresh reasoning or a felt need to make further enquiries or undertake an exercise of verification. The court would be primarily concerned with whether the reasons which formed the basis for formation of the requisite opinion are tenable and sufficient to warrant invocation of section 147.

ii) The enunciation with respect to the indelible connection between section 148A(b) and section 148A(d) are clearly not impacted by Explanation 3. U/ss. 147 and 148 the subject of validity of initiation of reassessment would have to be independently evaluated and cannot be confused with the power that could ultimately be available in the hands of the Assessing Officer and which could be invoked once an assessment has been validly reopened. Explanation 3 which forms part of section 147, would apply only when it is found that the power to reassess had been validly invoked and the formation of opinion entitled to be upheld in the light of the principles which are well settled. The Explanations would be applicable to issues which may come to the notice of the Assessing Officer in the course of proceedings of reassessment subject to the supervening requirement of the reassessment action itself having been validly initiated and the assessment has been validly reopened. Explanation 3, cannot consequently be read as enabling the Assessing Officer to attempt to either deviate from the reasons originally recorded for initiating action u/s. 147 or section 148 nor can the Explanations be read as empowering the Assessing Officer to improve upon, supplement or supplant the reasons which formed the basis for initiation of action under these provisions.

iii) The proviso to section 147 linked the initiation of reassessment to the existence of information which already existed or was in the possession of the Assessing Officer which was the basis for formation of the opinion that income liable to tax had escaped assessment. The provision fortified the view that the foundational material alone would be relevant for the purposes of evaluating whether reassessment powers u/s. 147 were justifiably invoked. Accordingly, the reassessment proceedings were unsustainable. Considering the import of Explanation 3 as well as the language in which section 147 stood couched, there was no justification to differ from the legal position which had been enunciated in Ranbaxy Laboratories Ltd. vs. CIT [2011] 336 ITR 136 (Delhi); which had been affirmed and approved subsequently in CIT (Exemption) vs. Monarch Educational Society [2016] 387 ITR 416 (Delhi); and CIT vs. Software Consultants [2012] 341 ITR 240 (Delhi). Consequently, the order u/s. 148A(d) and the subsequent notice u/s. 148 were quashed. The Department was granted liberty to take such action as may otherwise be permissible in law.”

Reassessment — Faceless assessment — Notice — New procedure — Effect of provisions of s. 151A and notification dated 29th March, 2022 issued by Central Government — Notice issued by jurisdictional AO invalid:

9. Everest Kanto Cylinder Ltd. vs. Dy./ Asst. CIT:

[2025] 473 ITR 148 (Bom.):

A. Y. 2017-18: Date of order 4th July, 2024:

Ss. 147, 148, 148A(b), 148A(d) and 151A of ITA 1961:

Reassessment — Faceless assessment — Notice — New procedure — Effect of provisions of s. 151A and notification dated 29th March, 2022 issued by Central Government — Notice issued by jurisdictional AO invalid:

On a writ petition challenging the initial notice issued by the jurisdictional Assessing Officer u/s. 148A(b) of the Income-tax Act, 1961, the order passed on such notice u/s. 148A(d) and the consequent notice issued u/s. 148 for the A. Y. 2017-18 for reopening the assessment u/s. 147 the Bombay High Court allowed the petition and held as under:

“The jurisdictional Assessing Officer did not have jurisdiction to issue the notice u/s. 148 to reopen the assessment u/s. 147 in view of the provisions of section 151A read with the notification dated 29th March, 2022 ([2022] 442 ITR (St.) 198) issued by the Central Government. The initial notice issued u/s. 148A(b) and the order u/s. 148A(d) were set aside. The consequent notice issued u/s. 148 was illegal and invalid.”

Assessment — Faceless assessment — Limitation — Date of commencement of limitation period — Reference to DRP — Directions of DRP uploaded on 31st January, 2022 in income-tax business application portal visible and accessible by AO — Intimation of order of DRP received by AO on 3rd February, 2022 and assessment completed on 22nd March, 2022 — Held, assessment order barred by limitation:

8. CIT vs. Ramco Cements Ltd.:

[2025] 474 ITR 9 (Mad):

A. Y. 2017-18: Date of order 19th December, 2024:

Ss.143(3), 144B and 144C(13) of ITA 1961

Assessment — Faceless assessment — Limitation — Date of commencement of limitation period — Reference to DRP — Directions of DRP uploaded on 31st January, 2022 in income-tax business application portal visible and accessible by AO — Intimation of order of DRP received by AO on 3rd February, 2022 and assessment completed on 22nd March, 2022 — Held, assessment order barred by limitation:

The order of the Dispute Resolution Panel (DRP) was uploaded on 31st January, 2022 in the Department’s portal of Income-tax Business Application for National e-Faceless Assessment Centre, Delhi. The order was received by the Assessing Officer on 3rd February, 2022 as per the case history data and the proceedings were completed by the Assessing Officer on 22nd March, 2022. On the questions of whether the date of receipt of direction of the DRP was 31st January 2022 or 3rd February, 2022 and whether the completion of proceedings by 22nd March, 2022 was within the time limit stipulated u/s. 144C(13), the Madras High Court, dismissing the appeal filed by the Revenue, held as under:

“i) The commencement of limitation for the passing of the final assessment order is 30 days from the end of the month when the directions of the Dispute Resolution Panel are received by the Assessing Officer. Section 144C of the Income-tax Act, 1961 is a code by itself that provides for very strict timelines for completion of an assessment. Hence the stipulation in regard to limitation cannot be reckoned in a manner so as to give rise to more than one interpretation, where either party can take benefit of a later date.

ii) The communication from the Dispute Resolution Panel to the Tribunal confirmed that the directions of the Dispute Resolution Panel had been uploaded in the Income-tax Business Application on 31st January, 2022 itself. Since the Income-tax Business Application portal could be accessed by both the assessee as well as the Assessing Officer on their furnishing necessary credentials, the point that remained to be determined was how there could be two dates, i. e., 31st January, 2022 and 3rd February, 2022, when the same order was served upon the Faceless Assessment Officer and which date was to be reckoned as the point of commencement of limitation.

iii) The internal processes followed by the Income-tax Department make it possible for the user to initiate proceedings in the Income-tax Business Application portal using two methodologies. According to the unmasking report, if the Dispute Resolution Panel user selects the option of “draft order u/s. 144C” in the screen, then a link is created with the assessment module such that the direction passed by the Dispute Resolution Panel would automatically be reflected in the case history or notings of the Assessing Officer, both the Faceless Assessment Officer and jurisdictional Assessing Officer. The second method is where the Dispute Resolution Panel user has initiated proceedings, by using the option of manually entering the details of the order u/s. 144C in the screen. In such circumstances, the Dispute Resolution Panel order does not reflect automatically in the case history or notings of the assessment proceedings. According to the report, the second option had been availed by the Dispute Resolution Panel user and hence though the order was uploaded by the Dispute Resolution Panel user in the Income-tax Business Application on 31st January, 2022 itself, such uploading was not noticed by the Assessing Officer. However, as far as the Assessing Officer was concerned, an advisory issued by the Income-tax Business Application team on visibility of orders passed by Dispute Resolution Panels to other Income-tax Business Application users, was relevant. Paragraphs 1 and 2 of the advisory stipulated the two methods or options for uploading of the order. However, whatever be the method chosen, the directions of the Dispute Resolution Panel would be visible in the 360-degree screen to the Faceless Assessment Officer, if any assessment work-item were pending with him, in relation to a permanent account number. In other words, in the event of pending assessment proceedings, he would have to key in the concerned permanent account number of the assessee, such that, panoramic, 360-degree visibility was available to him to view the Dispute Resolution Panel directions as and when uploaded, which in the assessee’s case was on 31st January, 2022. The order of assessment dated 22nd March, 2022 had been passed u/s. 143(3) read with section 144C(13) read with section 144B. This provision required an assessment to be framed only in faceless mode by a Faceless Assessment Officer and it was he who had framed the assessment. The advisory had made it clear that the Faceless Assessment Officer would be able to view the Dispute Resolution Panel order in the 360-degree screen, since the assessment was pending with him. This feature had evidently been provided to ensure that an officer could access or receive the directions of the Dispute Resolution Panel as soon as it was uploaded by the Secretariat of the Dispute Resolution Panel and the pending proceedings would be completed within the statutory limitation provided. Hence, there was no protection available to the Department by the Dispute Resolution Panel user having selected the second manual option, since an Assessing Officer, in order to ensure that the assessment proceedings were strictly in accordance with statutory limitation, had been given full and complete access to all inputs required for completion of the assessment including the directions of the Dispute Resolution Panel immediately on their uploading into the Income-tax Business Application portal by the Dispute Resolution Panel. Clearly, limitation could not be dependent on varying user functionalities which were nothing but internal processes. If such contention was accepted, the commencement of limitation would vary depending on the option exercised by the user which would defeat the purpose of statutory limitation. The starting point of limitation was thus to be reckoned from the earliest instance when the directions of the Dispute Resolution Panel would be visible to the officer and could not be taken to fluctuate from one methodology to another depending on the option exercised by the user. The concluding portion of the advisory stated that the Dispute Resolution Panel order would be visible in the 360-degree screen to the Faceless Assessment Officer for his ready access. Therefore, all that was required to gain complete and up-to-date access to all relevant data in regard to an assessment would be available on the 360-degree screen.

iv) The fact that the Faceless Assessment Officer had merely chosen to await intimation when the order u/s. 144C had admittedly been uploaded on the Income-tax Business Application by the Dispute Resolution Panel user, and his consequent belated response, could not lead to a situation of disadvantage to the assessee, particularly when the advisory provides a methodology by which the Faceless Assessment Officer could access the document uploaded by the Dispute Resolution Panel simultaneously. The Tribunal was right in holding that the date of receipt of the direction of the Dispute Resolution Panel by the Assessing Officer was 31st January, 2022 being the date of uploading of the order of the Dispute Resolution Panel in the Department’s portal or website though the intimation of the Dispute Resolution Panel’s order was received by the Assessing Officer only on 3rd February, 2022 as per the case history data and the completion of the proceedings by the Assessing Officer on 22nd March, 2022.”

Appeal to Appellate Tribunal — Powers of Appellate Tribunal — Power to rectify mistakes in its order — Failure to follow law laid down by jurisdictional High Court — Mistake to be rectified — Matter remanded to Tribunal: Precedent — Decision of High Court — Binding on all income-tax authorities under its jurisdiction:

7. Uttar Gujarat Vij Co. Ltd. vs. ITO:

[2025] 473 ITR 729 (Guj):

A. Y. 2010-11, 2012-13 to 2014-15:

Date of order 1st April, 2024:

S. 254 of ITA 1961

Appeal to Appellate Tribunal — Powers of Appellate Tribunal — Power to rectify mistakes in its order — Failure to follow law laid down by jurisdictional High Court — Mistake to be rectified — Matter remanded to Tribunal:

Precedent — Decision of High Court — Binding on all income-tax authorities under its jurisdiction:

The petitioner-company is owned by the Government of Gujarat and carrying on business of distribution of electricity. For the A. Y. 2013-14, the petitioner filed return of income on 30th September, 2013 declaring the total income at ₹nil after claiming set-off of brought forward business loss and unabsorbed depreciation. The case of the petitioner was selected for scrutiny assessment by issuing notice dated 4th September, 2014 u/s. 143(2) of the Income-tax Act, 1961 and final assessment order was passed u/s. 143(3) of the Act on 29th December, 2016. The Assessing Officer, while framing the assessment, treated the interest income received on staff loan and other advances along with the miscellaneous receipt as income from other sources as against the income from business or profession as declared by the petitioner. Other additions were also made by the Assessing Officer.

The CIT(Appeals) partly allowed the appeal filed by the assessee. In the appeal before the Tribunal the assessee had relied on the judgment of the jurisdictional Gujarat High Court which was not considered by the Tribunal. The Tribunal dismissed the Miscellaneous Application filed by the assessee seeking review of the order of the Tribunal.

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

“i) The decision of a High Court, is binding on all subordinate courts and Appellate Tribunals within the territory of the State and subject to the supervisory jurisdiction of the court. Not following the binding decision of the co-ordinate Bench and jurisdictional High Court rendered on identical facts would be a mistake apparent on record which could be rectified by the Appellate Tribunal u/s. 254 of the Income-tax Act, 1961.

ii) The Tribunal could not have taken a different view from what was already taken by the co-ordinate Bench under similar facts which was confirmed by this court in Gujarat Urja Vikas Nigam Ltd. vs. Dy. CIT in Tax Appeal No. 63 of 2020 dated 16th March, 2020 (Guj). The Tribunal in Gujarat UrjaVikas Nigam Ltd. vs. Dy. CIT in Tax Appeal No. 63 of 2020 dated 16th March, 2020 (Guj) had held that interest income on staff loans was required to be treated as “business income” instead of “income from other sources” which was confirmed on appeal by this court. The decisions of the co-ordinate Bench of the Tribunal and this court were binding upon the Tribunal. When the Tribunal had not followed the decision on the identical facts by the co-ordinate Bench which was confirmed by this court, there was a mistake apparent on the face of the record in the order passed by the Tribunal which ought to have been considered by the Tribunal and the miscellaneous application filed by the assessee could not have been dismissed.

iii) The order of the Tribunal was set aside. The matter was remanded to the Tribunal to pass orders afresh. [Matter remanded.]”

Revision — Non-resident — Application by assessee for revision — Provisions of section 155(14) — Claim for tax deducted at source on amount not taxable in India — Credit not reflected in Form 26AS at time when return originally filed for relevant assessment year but reflected in subsequent assessment year — Commissioner cannot reject application on ground revised return not filed — Department to refund tax deducted at source with statutory interest: A.Y. 2015-16

6. Munchener Ruckversicherungs Gesellshaft Aktiengesellschaft In Munchen vs. CIT (International Taxation)

[2025] 473 ITR 53 (Del.):

A. Y. 2015-16

Date of order: 3rd September, 2024

S. 155(14) and 264 of ITA 1961

Revision — Non-resident — Application by assessee for revision — Provisions of section 155(14) — Claim for tax deducted at source on amount not taxable in India — Credit not reflected in Form 26AS at time when return originally filed for relevant assessment year but reflected in subsequent assessment year — Commissioner cannot reject application on ground revised return not filed — Department to refund tax deducted at source with statutory interest:

The assessee was a non-resident. For the A.Y. 2015-16, the assessee declared nil income asserting that its receipt of an amount would not be subject to tax in India in terms of the provisions u/s. 90 of the Income-tax Act, 1961 and claimed refund of tax deducted at source on the basis the tax credit statement being form 26AS, which included the tax deducted by an entity BALIC. The assessee submitted that the tax deducted at source pertaining to the last quarter of F. Y. 2014-15 was credited by BALIC on 21st January, 2016, that consequently, the original tax deducted at source stood increased. In the return for the A. Y. 2016-17 wherein the claim for tax deducted at source credit stood embedded on account of such amount having by then being captured in form 26AS and which amount had remained unclaimed in A. Y. 2015-16.

The Commissioner (International Taxation) was of the view that since the income received from BALIC was offered to tax, the assessee would not be entitled to the grant of tax deducted at source credit. He held that the assessee had failed to file revised return of income and rejected the assessee’s application u/s. 264.

The Delhi High Court allowed the writ petition filed by the assessee and held as under:

“i) Section 155 of the Income-tax Act, 1961 prescribes that where credit for tax has not been given on the ground of either a certificate having not been furnished or filed, but which is subsequently presented before the Assessing Officer, it would be sufficient for the assessment order being amended. Section 155(14) places the Assessing Officer under a statutory obligation to amend the order of assessment once it is established that the contingencies stated in that provision are duly established. Sub-section (14) neither contemplates nor mandates the original return being amended or revised and takes care of contingencies where tax deducted at source is either subsequently credited or is reflected in form 26AS after a time lag. An assessee may face such a spectre on account of a variety of unforeseeable reasons.

ii) Since the tax which was deducted at source by BALIC stood duly embedded in form 26AS which was produced by the assessee and the income earned from that entity had never been held to be subject to tax under the Act, the refusal on the part of the Department to refund that amount was illegal and arbitrary. The factum of tax having been deducted at source by BALIC and pertaining to income transmitted in the A. Y. 2015-16 was not disputed and stood duly fortified from the disclosures which appeared in form 26AS pertaining to that assessment year. It was also not disputed that BALIC had credited the tax deducted at source on 21st January, 2016 and as a consequence of which, the credit was not reflected at the time when the return had been originally filed for the assessment year 2015-16.

iii) The order passed u/s. 264 rejecting the assessee’s application was quashed. The Department was directed to refund the amount of tax deducted at source along with statutory interest.”

Revision — Revision order — Validity — Non-resident — Claim for benefits under DTAA — Opinion of Commissioner that assessee conduit company used for treaty shopping not stated in notice — Assessee not given an opportunity to satisfy Commissioner regarding his view — Order of Tribunal setting side revision order not erroneous: A.Y. 2017-18

5. CIT (International Taxation) vs. Zebra Technologies Asia Pacific Pte. Ltd.

[2025] 472 ITR 745 (Del.):

A. Ys. 2017-18

Date of order: 23rd October, 2024

S. 263 of ITA 1961

Revision — Revision order — Validity — Non-resident — Claim for benefits under DTAA — Opinion of Commissioner that assessee conduit company used for treaty shopping not stated in notice — Assessee not given an opportunity to satisfy Commissioner regarding his view — Order of Tribunal setting side revision order not erroneous:

The assessee was a non-resident and distributed electronic products and services related to after sales, repairs, and technical support services to the customers across the globe. It held tax residency certificate of Singapore and sought to avail of the benefit of India-Singapore Double Taxation Avoidance Agreement ([1982] 134 ITR (St.) 6). In the A. Y. 2017-18, the assessee received a sum for rendition of technical support, repairs and maintenance services under an agreement with an Indian entity and also an amount in USD from offshore sale of products. According to the assessee, since it did not have a permanent establishment in India and also did not make available technical know-how, knowledge, and skill to the Indian entity under the agreement, the receipts were not chargeable to tax in India under the Act by virtue of the Double Taxation Avoidance Agreement. The Assessing Officer accepted the assessee’s explanation in response to the notices u/ss. 142(1) and 143(2) of the Income-tax Act, 1961 during the assessment proceedings which culminated in an assessment order.

The Commissioner was of the view that the Assessing Officer did not conduct the necessary inquiries and verified the facts for accepting the assessee’s claim that its income was not chargeable to tax under the Act by virtue of India-Singapore Double Taxation Avoidance Agreement, that he did not call for the relevant details or verified whether the assessee had a permanent establishment in India during the relevant period, that he did not carry out any inquiry to ascertain whether any commercial substance existed in Singapore and whether the assessee was merely a conduit company and used with an object to obtain the tax benefit under the Double Taxation Avoidance Agreement. Accordingly, he invoked his power u/s. 263.

The Tribunal faulted the Commissioner for not affording the assessee an opportunity to rebut the allegations that it was merely a conduit without any substance and had entered into an agreement for the purposes of taking an advantage of the Double Taxation Avoidance Agreement and allowed the appeal filed by the assessee.

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

“i) There was no fault with the order of the Tribunal in setting aside the revision order passed by the Commissioner u/s. 263 on the ground that the assessee was not afforded an opportunity to counter the allegation that it was a conduit company without any substance.

ii) In the show-cause notice the Commissioner had faulted the Assessing Officer for not undertaking certain enquiries including verifying whether, (i) the assessee had a permanent establishment in India, (ii) in terms of section 9(1)(vii) of the Act, the income was chargeable as fees for technical services, (iii) tax at source at the rate of 10 per cent. on all the remittances made to the assessee were deducted, (iv) the condition as set out in article 12 of the India-Singapore Double Taxation Avoidance Agreement in regard to taxation of fees for technical services were satisfied, (v) regarding the commercial substance of the assessee in Singapore and (vi) it was a conduit company formed for obtaining the tax benefits under the Double Taxation Avoidance Agreement.

iii) These observations were made only for the purposes of calling upon the assessee to show cause why the proceedings not be initiated u/s. 263 of the Act but, thereafter, the Commissioner had not put the issue regarding treaty shopping to the assessee. The tentative opinion formed by the Commissioner that the assessee was a conduit company for the reasons as articulated in the revision order was not put to the assessee. Hence, the assessee had not been given an opportunity to satisfy the Commissioner regarding such view for the A. Y. 2017-18.”

Recovery of tax — Grant of stay of demand — Stay of recovery pending appeals before Commissioner (Appeals) — Effect of office memorandum issued by CBDT — Rejection of stay of demand for non-deposit of 20% of disputed demand — Application to the Principal Commissioner — Direction to deposit 40% — Authorities failed to consider prima facie merits of the case — Financial hardship and likelihood of success — Orders rejecting stay of demand unsustainable — Matter remanded to the AO with directions to consider in light of earlier decision: A.Ys. 2010-11 to 2020-21

4. Sushen Mohan Gupta vs. Principle CIT

[2025] 473 ITR 173 (Del.)

A. Y. 2010-11 to 2020-21

Date of order: 22nd March, 2024

Ss. 156, 220(1), 220(6) and 246A of ITA 1961

Recovery of tax — Grant of stay of demand — Stay of recovery pending appeals before Commissioner (Appeals) — Effect of office memorandum issued by CBDT — Rejection of stay of demand for non-deposit of 20% of disputed demand — Application to the Principal Commissioner — Direction to deposit 40% — Authorities failed to consider prima facie merits of the case — Financial hardship and likelihood of success — Orders rejecting stay of demand unsustainable — Matter remanded to the AO with directions to consider in light of earlier decision:

A search and seizure action was conducted and subsequently notices u/s. 153A of the Act for the A.Ys. 2010-11 to 2019-20 were issued and on culmination of proceedings so drawn, the assessment orders came to be framed on 30th September, 2021 raising a cumulative demand of ₹ 1,85,62,19,390 for the A.Ys. 2010-11 to 2020-21.

The Assessee filed appeals before the CIT(A) which are pending. Against the enforcement of demand, the Assessee filed application for stay of demand before the Assessing Officer which came to be rejected on the ground that the Assessee had not deposited 20% of the outstanding demand and therefore the application could not be entertained. In rejecting the assessee’s application for stay of demand, the Assessing Officer relied upon the Office Memorandums of the CBDT dated 29-02-2016 and 31-07-2017.

Thereafter, the Assessee filed application for rectification of mistakes which was disposed and the revised demand recoverable from the Assessee was computed at ₹1,81,37,14,107. The Assessee thereafter filed another stay application before the Assessing Officer for the A.Ys. 2010-11 to 2020-21. During the pendency of the said stay application, the Assessee was served with a letter seeking payment of the outstanding demand followed by a demand notice issued u/s. 220(1) of the Act. In response to the aforesaid, the Assessee filed a detailed response stating that the original assessment was wholly arbitrary and rendered unsustainable in the light of the judgment of the Supreme Court in the case of Pr.CIT vs. Abhisar Buildwell Pvt. Ltd. The Assessee also offered to pledge properties owned by an entity in which the Assessee’s family members were directors / shareholders to secure the outstanding demand to the extent of 20%. The Assessee’s prayer was rejected.

Aggrieved, the Assessee approached the Principal Commissioner for grant of interim protection against the outstanding demands. The Principal Commissioner disposed the application by observing that during search operations, various incriminating documents were found and seized and credible evidence were collected. He, thus, disposed of the applications of stay of demand and directed the assessee to deposit demand which was 40 per cent of total outstanding demand within 15 days of receipt of his order.

The Assessee filed a writ petition before the High Court. The Delhi High Court allowed the writ petition and held as follows:

“i) The Central Board of Direct Taxes’ Office Memorandum [F. No. 404/72/93-ITCC], dated 29th February, 2016 could not be read as mandating a pre-deposit of 20 per cent. of the outstanding demand, without reference to the prima facie merits of a challenge that may be raised by an assessee in respect of an assessment order.

ii) The assessee had approached the Principal Commissioner in terms of the provisions made in the Office Memorandum dated 29th February, 2016. The view taken by the second respondent, that applications for stay could neither be countenanced nor entertained till the assessee deposited 20 per cent. of the pending demand was untenable and erroneous. The Principal Commissioner had proceeded to cause even greater prejudice to the assessee by requiring him to deposit 40 per cent. of the outstanding demand.

iii) According to para 4(C) of the Office Memorandum [F. No. 404/72/93-ITCC], dated February 29, 2016 stated to the effect that where stay of demand was granted by the Assessing Officer on payment of 15 per cent. of the disputed demand and the assessee was still aggrieved, he could approach the jurisdictional administrative Principal Commissioner or the Commissioner for a review of the decision of the Assessing Officer. The Principal Commissioner could not be recognised to stand empowered to subject the assessee to more onerous conditions. Rather than examining the challenge raised by the assessee to the assessment orders and evaluating the prima facie merits of the challenge had in one sense placed him under a harsher burden of depositing 40 per cent. of the outstanding demand as opposed to the direction of 20 per cent. deposit by the second respondent as a pre-condition for the consideration of application for stay under section 220(6) .

iv) Both the authorities had failed to consider the aspect of prima facie merits, likelihood of success and undue hardship. Therefore, their orders were unsustainable and hence quashed and set aside. The matter was remitted to the Assessing Officer to examine the applications for stay afresh considering the legal position.”

Reassessment — Exemption u/s. 10B — Newly established hundred per cent. export oriented establishments — Reassessment — Notice — Survey — Denial of claim for deduction u/s. 10B in original assessment — Grant of deduction by Tribunal — Fresh survey during pendency of revenue’s appeal before court — Reassessment on ground of availability of new material would tantamount to getting over anomalous situation — Reassessment proceedings to disallow claim for deduction once again impermissible — Notice and order rejecting assessee’s objections quashed and set aside: A.Y. 2009-10

3. Sesa Sterlite Ltd. vs. ACIT

[2025] 472 ITR 591 (Bom.)

A. Y. 2009-10

Date of order: 4th September, 2024

Ss.10B, 133A, 147 and 148 of ITA 1961

Reassessment — Exemption u/s. 10B — Newly established hundred per cent. export oriented establishments — Reassessment — Notice — Survey — Denial of claim for deduction u/s. 10B in original assessment — Grant of deduction by Tribunal — Fresh survey during pendency of revenue’s appeal before court — Reassessment on ground of availability of new material would tantamount to getting over anomalous situation — Reassessment proceedings to disallow claim for deduction once again impermissible — Notice and order rejecting assessee’s objections quashed and set aside:

The assessee was in the business of manufacturing and production of iron ore and had three units situated at Amona, Chitradurga and at Codli. These units are export-oriented undertakings and for the assessment year 2009-10, the assessee claimed deduction u/s. 10B. A survey u/s. 133A was carried out at the assessee’s premises wherein the authorities sought to ascertain the relevant facts in connection with the claim for deduction u/s. 10B. The Assessing Officer issued a notice dated July 16, 2014 u/s. 148 to reopen the assessment u/s. 147. The Assessees objections were rejected.

The Assessee filed a writ petition and challenged the notice and the order rejecting the objection. The Bombay High Court allowed the writ petition and held as under:

“i) Section 10B(2) provided that section 10B applied to any undertaking which fulfilled all the conditions therein. The assessee had claimed deduction u/s. 10B in respect of the three export-oriented units for the A. Y. 2009-10 and a survey u/a. 133A had been carried out at its premises in connection with the claim for deduction u/s. 10B. The assessment order u/s. 143(3) was passed by the Assessing Officer whereunder the claim for deduction u/s. 10B was disallowed in its entirety for the reasons given by the Assessing Officer. He had held that the assessee’s units were not engaged in the business of manufacture and production of any article or thing, that the assessee had not produced satisfactory evidence with regard to the date of commencement of production, that the approval granted by the Development Commissioner for one unit was not ratified by the Board and that the profits of the units was determined without taking into consideration the cost of the wastage from other units which was utilised in the alleged production that was carried out in the unit under reference, and the units were not new units and the setting up of the units in the old mines which were operated by the assessee could not be regarded as new units and that the assessee had not maintained separate books of account for the export oriented units. The Commissioner (Appeals) had upheld the denial of the claim of deduction under section 10B by the Assessing Officer. The Tribunal had dealt with all the reasons given by the Assessing Officer and had upheld the claim for deduction u/s. 10B. Therefore, entitlement to deduction u/s. 10B had been the subject matter of appeal before the appellate authorities. During the pendency of the tax appeal before this court, a fresh survey was conducted u/s. 133A and on the basis of the materials which were found during the survey in 2014, reassessment u/s. 147 was sought to be justified for the purpose of denying the claim for deduction u/s. 10B. Thus, the reasons of the Assessing Officer in support of his finding could be several but what was relevant was the subject matter of the tax appeal. The third proviso to section 147, which provided that the Assessing Officer could assess or reassess such income, other than the income involving matters which were the subject matters of any appeal, reference or revision, which was chargeable to tax and had escaped assessment, would come into effect.

ii) When the fresh survey u/s. 133A was conducted in the year 2014 during the pendency of the tax appeal before this court, the new materials found by the Assessing Officer were sought to be placed before the Tribunal and this court and the issue under consideration was whether the assessee was entitled to claim deduction u/s. 10B. Assuming that the reassessment proceedings u/s. 147 was allowed to continue on the basis of the new materials a situation could arise to be held that the assessee was entitled to claim deduction u/s. 10B, whereas in the reassessment proceedings, the Assessing Officer on the basis of the new materials could conclude that the assessee was not entitled to claim deduction u/s. 10B.

iii) Reassessment proceedings were obviously to get over such an anomalous situation that the third proviso to section 147 was meant to cover. If the reassessment proceedings were allowed to continue, it would virtually amount to having an effect of sitting in appeal over the orders passed by this court and the Tribunal which could not be countenanced. Though it was the allegation that fresh evidence was unearthed during the course of fresh survey in March 2014, which indicated that the units considered as new units were not new units but an amalgamation of the existing units. The exercise really was to rely on these materials in support of the findings earlier recorded by the Assessing Officer which was already subject matter of challenge before the competent forum. Assumption of jurisdiction to reopen the assessment was without jurisdiction to once again disallow a claim for deduction u/s. 10B. The notice dated 16th July, 2014 issued u/s. 148 to reopen the assessment u/s. 147 for the A. Y. 2009-10 and the order rejecting the assessee’s objections were quashed and set aside.”

Public Interest Litigation — Return of Income — Filing of return in electronic form — Modification of online filing system —Jurisdiction of revenue authorities — Utility not providing for making claim for rebate under section 87A read with proviso to section after 5-7-2024 — Attempt to restrict or prohibit assessee from making particular claim at threshold itself in return of income unconstitutional — No provision under Act which debars assessee to make claim under section 87A qua tax computed at rates specified in provisions of chapter XII other than section 115BAC — Statutory safeguards and remedies in provisions of Act for consequences if claim made in self assessment found to be incorrect or not bona fide — Allowance or disallowance of claim to be deduced by interpretative and adjudicating process — Assessee cannot be debarred from making claim in return of income whether online or manual — Directions issued to modify utility to enable assessees file returns or revised returns of income — NFAC cannot continue assessment proceedings in concluded assessment — Assessment order passed by NFAC set-aside: A.Y. 2024-25

2. Chamber of Tax Consultants & Ors vs. DGIT (Systems)

[2025] 473 ITR 85 (Bom.)

A. Y. . 2024-25

Date of order: 24th January, 2025

Ss. 87A, 115BAC, 139, 139(5) and 139D of  ITA 1961

Public Interest Litigation — Return of Income — Filing of return in electronic form — Modification of online filing system —Jurisdiction of revenue authorities — Utility not providing for making claim for rebate under section 87A read with proviso to section after 5-7-2024 — Attempt to restrict or prohibit assessee from making particular claim at threshold itself in return of income unconstitutional — No provision under Act which debars assessee to make claim under section 87A qua tax computed at rates specified in provisions of chapter XII other than section 115BAC — Statutory safeguards and remedies in provisions of Act for consequences if claim made in self assessment found to be incorrect or not bona fide — Allowance or disallowance of claim to be deduced by interpretative and adjudicating process — Assessee cannot be debarred from making claim in return of income whether online or manual — Directions issued to modify utility to enable assessees file returns or revised returns of income — NFAC cannot continue assessment proceedings in concluded assessment — Assessment order passed by NFAC set-aside:

The Department releases utility for filing income tax returns online every year. The Department published a change in utility with effect from 05-07-2024. The said change unilaterally disabled the assessees from claiming rebate u/s. 87A. As a result, taxpayers, despite being statutorily eligible, were effectively deprived of their entitlements solely due to technical modifications introduced by the revenue.

The Chamber of Tax Consultants filed a petition seeking direction to modify the system and put in place by the Department for filing income tax returns for AY 2024-25 so as to allow the assessees at large to take benefit of rebate available u/s. 87A. It was contended that this unilateral modification is arbitrary, lacks justification, and deprives eligible taxpayers of statutory benefits. The Respondents’ actions violate the principles of fairness and transparency expected from public authorities and seek judicial intervention to ensure compliance with statutory provisions.

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

“i) The Department could not restrain or prohibit an assessee from claiming section 87A rebate by modifying their utility by which an assessee was forbidden at the threshold itself from making such a claim in the return of income. The provisions of the Act were not so clear as to arrive at a definite conclusion that a rebate under section 87A could not be granted from the tax computed under the other provisions of Chapter XII. Certainly, such a claim whether eligible or not could be examined in the proceedings under section 143(1) or section 143(3). Merely because few selected cases were picked up for scrutiny would not mean and would not authorise any authority under the Act to prevent an assessee from making the claim on which more than one view was possible. Merely because many returns of income were required to be processed and only a few of them were selected for scrutiny assessment under section 143(3) could not be a ground to tweak the utility to prevent at the very threshold, an opportunity to raise a claim on a debatable issue based upon the interpretation of the provisions in sections 87A and 115BAC. Considering the mandates of articles 265 and 300A, ends, howsoever laudable, cannot justify means.

ii) Assuming that the legal provisions were ambiguous, the Department cannot resolve such ambiguity by adopting an interpretation favouring itself through the device of simply tweaking the utility and preventing the assessee from even raising a claim. Therefore, the main question is not whether the interpretation proposed by the learned counsel for the petitioners or that proposed by the learned Additional Solicitor General is correct, but the main question is whether the Department can insist that its interpretation prevails or triumphs because it has the capacity to and has exercised this capacity to tweak the utility and prevent an assessee to even raise a debatable claim. The provisions of the Income-tax Act do not permit the Department to do this without transgressing the constitutional boundaries

iii) The issue raised on the claim u/s. 87A was, at best, highly debatable and contentious. Therefore, the Department would not be justified in assuming that its interpretation was open and shut, and based upon such a conclusion, shut out bona fide claims for rebate under section 87A and could not be done by exercising administrative powers instead of quasi-judicial powers. Disputed claims, except to the limited extent explicitly permitted by the law, could not ordinarily be disposed of by the executive acting in its executive capacity. This is more so when the executive is itself a party to the lis. One of the foundations of our Constitution is the rule of law. This posits that all three organs of governance, the Legislature, the Executive, and the Judiciary function under and in accordance with the law as enshrined in our Constitution.

iv) The Department did not show any provision under the Act which expressly debarred an assessee to raise or make the claim u/s. 87A qua the tax computed at the rates specified in the provisions of Chapter XII other than section 115BAC. There was no rebuttal to the petitioner’s contention that a provision like section 112A(6) had been expressly enacted wherever the Legislature intended to deny such a benefit. Therefore, in so far as the prayers of the petitioners were concerned that the utility should permit an assessee to at least make a claim under section 87A, it could not be rejected at the threshold.

v) Whether rebate u/s. 87A was to be allowed only on the tax calculated in accordance with the provisions of section 115BAC or also on taxes calculated under other provisions of Chapter XII would require interpretation of the interplay of section 87A and section 115BAC To what extent the overriding provisions contained in section 115BAC(1A) would result in allowability or denial of rebate under section 87A would have to be examined by interpretative process. The impact of the phrase “subject to the provisions of this Chapter” would also have to be examined along with other provisions for adjudicating the claim under section 87A. What was the purport of the proviso to section 87A on the claim proposed to be made would have to be interpreted in conjunction with the provisions of section 115BAC(1A) and other connected sections. How the phrase “total income” should be construed for section 87A and section 115BAC along with the definition sections, charging sections and scope of total income and the scheme of the Act, would have to be examined. Whether the provisions of section 115BAC restricted itself only to tax rates or computation of total income would also have to be examined. If such exercise was required to be undertaken before coming to a definite conclusion as to whether the rebate under section 87A was to be granted or denied on the tax computed under the provisions of Chapter XII other than section 115BAC, had to be deduced by interpretative and adjudicating process. Therefore, the Department was not justified in modifying the utility from 5th July, 2024, by which an assessee was debarred at the threshold from making the claim, which claim was contentious or debatable.

vi) A combined reading of section 87 and section 87A would mean an assessee has to make a claim, the entitlement of which is to be examined by processing the return under section 143(1) or section 143(3) and the same should be allowed as a deduction. Section 87 which provides for rebate under section 87A uses the phrase “there shall be allowed from the amount of income tax . . .”. The proviso to section 87A uses the phrase “. assessee shall be entitled to a deduction . . .”. If a claim was not made, the Department could contend that the claim could not be allowed.

vii) In the absence of any concrete case, the petitioner’s prayer to direct the Department to make the utilities for filing the return of income online flexible so as to allow an assessee to self compute the income and there should not be any restriction on making of any claim whatsoever and to not release any utilities or make any changes in the utilities for filing of the return of income under section 139 which would not allow any assessee to raise any claim, could not be granted unless there was a demand for justice which had been rejected or a failure on the part of the Department to exercise its duty under the Act. The court should grant no relief in such broad and general terms because the ramifications would be unclear.

viii) The Department was directed to modify the utilities for filing of the return of income u/s. 139 of the Act immediately, thereby allowing the assessees to make a claim of rebate under section 87A of the Act read with the proviso to section 87A , in their return of income for the assessment year 2024-25 and subsequent years including revised returns to be filed u/s. 139(5).”

Exemption u/s. 10(38) — Long-term capital gains — Book profits — Minimum alternate tax — Amendments in provisions of sections 10 and 115JB — Commissioner (Appeals) and Tribunal not erroneous in allowing exemption u/s. 10(38) on long-term capital gains from sale of shares of amalgamating companies with assessee: A.Y. 2015-16

1. Principle CIT vs. Hespera Reality Pvt. Ltd

[2025] 472 ITR 630 (Del.)

A. Y. 2015-16

Date of order: 24th December

Ss.10(38) and 115JB of ITA 1961

Exemption u/s. 10(38) — Long-term capital gains — Book profits — Minimum alternate tax — Amendments in provisions of sections 10 and 115JB — Commissioner (Appeals) and Tribunal not erroneous in allowing exemption u/s. 10(38) on long-term capital gains from sale of shares of amalgamating companies with assessee:

During the F.Y. 2014-15 relevant to the A.Y. 2015-16, five companies which held shares of the entity IBHFL merged with the assessee and three of these companies sold their shares. Since the said amalgamating companies were merged with the assessee with effect from August 1, 2014, the income earned from the transaction of sale of IBHFL shares were assessed in the hands of the assessee. The Assessing Officer was of the view that the amount of long-term capital gains was required to be added to the book profits u/s. 115JB and that the amount was not entitled to exemption u/s. 10(38).

The Commissioner (Appeals) held that the entire amount of long-term capital gains was not liable to be included as income chargeable to tax u/s. 10(38) and accordingly, deleted the disallowance but upheld the Assessing Officer’s decision regarding the computation of book profits for the purpose of determination of minimum alternate tax u/s. 115JB. On the question, whether the long-term capital gains that arose from the sale of investments were exempted u/s. 10(38), the Tribunal concurred with the decision of the Commissioner (Appeals) and rejected the appeal of the Department.

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

“i) The proviso to section 10(38) of the Income-tax Act, 1961 was introduced by virtue of the Finance Act, 2006 ([2006] 282 ITR (St.) 14). The inclusion of the proviso was corresponding to the amendments to Explanation 1 of section 115JB. By virtue of the Finance Act, 2006, the Explanation to section 115JB was amended and expenditure incurred in respect of the income exempt u/s. 10, with the exceptions of section 10(38) was excluded for the purposes of calculation of book profits and minimum alternate tax under section 115JB. In other words, the expenditure incurred for earning such income as was exempt from taxation by virtue of section 10(38) was required to be accounted for as expenditure for determining the book profits. Correspondingly, income u/s. 10(38) was also included as a part of the book profits but other incomes covered u/s. 10 were excluded.

ii) The proviso to section 10(38) was added by virtue of the Finance Act, 2006 to abundantly clarify that the income from capital gains on certain assets, which are excluded from the income u/s. 10(38) would be included in computing book profits u/s. 115JB. The proviso to section 10(38) cannot be read in the reverse to mean that if the gains are not included as book profits u/s. 115JB they are liable to be included as income for the purposes of assessment to tax under the normal provisions, notwithstanding that the gains are required to be excluded from income chargeable to tax u/s. 10(38).

iii) There was no fault with the decision of the Commissioner (Appeals) and the Tribunal, in rejecting the Department’s contention and holding that the assessee was entitled to exemption u/s. 10(38) of the long-term capital gains on account of sale of shares by the amalgamating companies, which was denied by the Assessing Officer.”

Search and seizure — Assessment in search cases — Precedents — Additions to income cannot be made on data appearing in pen-drive not unearthed during search which does not constitute incriminating material.

89. Principal CIT vs. Vikram Dhirani

[2025] 472 ITR 342 (Del)

A. Y. 2007-08

Date of order: 20th August, 2024

Ss.132 and 153A of ITA 1961

Search and seizure — Assessment in search cases — Precedents — Additions to income cannot be made on data appearing in pen-drive not unearthed during search which does not constitute incriminating material.

In an appeal by the Revenue, on the question whether the Tribunal erred in deleting the addition made to the income of the assessee in the assessment made pursuant to a search u/s. 132 of the Income-tax Act, 1961 for the A. Y. 2007-08, dismissing the appeal, the Delhi High Court held as under:

“i) Since the assessment initiated in respect of the A. Y. 2007-08 was one which had already stood concluded, the Tribunal had held that since the pen-drive and the data appearing thereon having not been unearthed in the course of the search u/s. 132 of the Act, it would not constitute incriminating material. It had consequently followed the view consistently taken by this court.

ii) The assessment was confined to section 153A and consequently the significance of the incriminating material found in the course of the search alone would be the basis for any additions to the income. Since the pen-drive was an article which was not recovered in the course of the search but constituted material which had been obtained by the Department through the exchange of information route, there was no ground to interfere with the view expressed by the Tribunal.”

Offences and Prosecution — Wilful attempt to evade tax — Delay in payment of tax does not amount to evasion of tax — Prosecution not valid:

88. HansaMetallics Ltd. vs. Dy. CIT

[2025] 472 ITR 737 (P&H)

A. Y. 2012-13

Date of order: 22nd January, 2024

S. 276C of ITA 1961

Offences and Prosecution — Wilful attempt to evade tax — Delay in payment of tax does not amount to evasion of tax — Prosecution not valid:

The Assessee filed its return of income for A. Y. 2012-13 on 29th December, 2012 declaring total income at ₹8,20,53,544. As per the return of income, the self-assessment tax was pending. The self-assessment tax was paid belatedly on 10th July, 2013 along with interest.

The Assessing Officer issued a notice dated 11th February, 2014 requiring the Assessee and its directors to show cause as to why the prosecution proceedings u/s. 276C(2) should not be initiated. On the basis of legal opinion sought from the standing counsel of the Income-tax Department, a complaint was filed u/s. 276C read with section 278B of the Act.

Thereafter, the Criminal Court came to the conclusion that a case was made out and charges were framed.

The Assesseecompany and its directors filed a petition for quashing the complaint and all the consequential proceedings arising therefrom. The Assessee’s contention was that there was no evasion of tax at all. Though there was a delay in payment of tax, but the said tax was admitted / acknowledged in the return of income. On the other hand, the Department contended that the Assessee was well within his financial limits to pay the tax at the time of filing return of income, yet it did not choose to pay the tax and thereby caused loss to the revenue.

The Punjab and Haryana High Court allowed the petition and held as follows:

“i) Prosecution u/s. 276C(2) of the Income-tax Act, 1961 read with the other provisions of the Act can only be launched if there was a wilful evasion or attempt at evasion of either tax, penalty or interest. Delay in payment of Income-tax would not amount to evasion of tax.

ii) It was not in dispute that the Income-tax was self assessed and payment thereof was also made, though belatedly. The tax along with interest was paid on July 10, 2013. The show-cause notice for delayed payment was sent only on February 11, 2014 and February 24, 2014 pursuant to which the complaint was instituted. Therefore, by no stretch of imagination could it be held that there was any evasion of tax on the part of the assessees, though there was a delay in the payment of the tax for which interest was paid. The prosection was not valid.”

Investment business — Scope of definition of transfer — Capital loss — Reduction in number of shares and face value of shares remaining same — Change in redeemable value of shares — Extinguishment of rights in shares — No transfer within meaning of s. 2(47).

87. Principal CIT vs. Jupiter Capital Pvt. Ltd.

[2025] 472 ITR 561 (Kar)

A. Y. 2014-15

Date of order: 20th February, 2023

S. 2(47) of ITA 1961

Investment business — Scope of definition of transfer — Capital loss — Reduction in number of shares and face value of shares remaining same — Change in redeemable value of shares — Extinguishment of rights in shares — No transfer within meaning of s. 2(47).

In an appeal by the Revenue,on the question whether the Tribunal was right in setting aside the disallowance of capital loss claimed by the assessee by holding that there was extinguishment of rights of shares when no such extinguishment of rights was made out by the assessee as required under section 2(47) of the Income-tax Act, 1961 and there was no reduction in face value of shares, dismissing the appeal, the Karnataka High Court held as under:

“i) The undisputed facts were that pursuant to the order passed by the High Court of Bombay, number of shares had been reduced to 9,988. The face value of the shares had remained same at ₹10 even after the reduction. The Assessing Officer’s view that the voting power had not changed as the percentage of the assessee’s share of 99.88 per cent. had remained unchanged was untenable because if the shares were transferred at face value, the redeemable value would be ₹99,880 whereas the value of 14,95,44,130 number of shares would have been ₹1,49,54,41,300.

ii) The Tribunal had rightly followed the authority in Karthikeya vs. Sarabhai v. CIT [1997] 228 ITR 163 (SC); (1997) 7 SCC 524; 1997 SCC OnLine SC 152, with regard to meaning of transfer by holding that there was no transfer within the meaning of the expression “transfer” as contained in section 2(47). There was no error in the order of the Tribunal setting aside the disallowance of capital loss claimed by the assessee by holding that there was extinguishment of rights of shares.”

Capital or revenue receipt — Interest on short-term fixed deposit — Capital work-in-progress — Assessee joint venture formed by public sector undertakings to acquire coal mines overseas — Interest earned on fixed deposit of share capital prior to acquisition of coal mines and amounts returned on abandonment of proposal — Interest earned prior to commencement of business on funds brought in form of share capital for specific purpose — Interest received on fixed deposit part of capital cost and to be treated as capital work-in-progress.

86. Principal CIT vs. International Coal Ventures Pvt. Ltd.

[2025] 472 ITR 307 (Del)

A. Ys. 2012-13

Date of order: 20th December, 2024

S.4 of ITA 1961

Capital or revenue receipt — Interest on short-term fixed deposit — Capital work-in-progress — Assessee joint venture formed by public sector undertakings to acquire coal mines overseas — Interest earned on fixed deposit of share capital prior to acquisition of coal mines and amounts returned on abandonment of proposal — Interest earned prior to commencement of business on funds brought in form of share capital for specific purpose — Interest received on fixed deposit part of capital cost and to be treated as capital work-in-progress.

The assessee was a joint-venture company formed by five public sector undertakings, SAIL, CIL, RINL, NMDC and NTPC, for the purpose of ensuring adequate and dependable coal supply for its promoter companies. During the financial year relating to the A. Y. 2012-13, the assessee pursued a proposal to acquire and develop a coal mine overseas and received equity contributions from some of these undertakings. The amounts received from RINL were kept in a fixed deposit with a bank. Subsequently since the proposal for acquisition of the coal mine which was being pursued was abandoned, the assessee refunded the amount received from RINL. Since the assessee had earned interest on the amount received from RINL, it paid interest to RINL which confirmed that the amount received by it was accounted for as income in its hand and tax was paid.

In the appeal by the Revenue, on the question whether interest on funds that were called for and earmarked for a specific purpose of acquiring a coal mine and deposited in the short-term fixed deposit could be construed as incidental to setting up the business of acquisition of a coal mine, dismissing the appeal, the Delhi High Court held as under:

“i) The accounting treatment of capitalising expenses during the preoperative stage of setting up a business, rests on the rationale that the cost incurred for setting up the profit-making apparatus is required to be accounted for as the value of that asset. Such expenditure is incurred for bringing the undertaking into existence. Thus, it would not be apposite to treat such preoperative expenses as revenue expenses since it cannot be matched with the revenue receipts. The amount incurred for construction or acquisition of the asset would necessarily have to be accounted as the cost of that capital asset. This principle applies only in cases where substantial time is required to construct the asset or bring the asset to use. The financial costs for such assets are thus
considered as a part of the intrinsic value of the asset. There is a distinction between the price of an asset and its cost. On the same principles, the amounts received which are directly linked to the
acquisition or construction of the asset, are required to be reduced from the capital cost of the said asset. In one sense, such receipts mitigate the cost of the capital asset and it is essential to reflect the correct cost of the asset.

ii) The Accounting Standard 16 applies to a “qualifying asset”, which is defined as an asset that takes substantial period to get ready for its intended use or sale and also explains that the substantial period of time as contemplated under the standard, primarily depends upon the circumstances of each case. Ordinarily, the same should be considered as twelve months unless a shorter or longer period is justified in the facts and circumstances of the case. It also explains that for estimating this period, “the time which an asset takes technologically or commercially, to get ready for its intended use or sale”, is required to be considered.

iii) Accounting treatment of various items are guided by an overarching principle that final accounts should reflect the true and fair view of the reported entity. In order for a capital value of an asset (which takes a considerable time to bring it to intended use) to be fairly disclosed on historical cost basis, it would be essential to subsume within the cost of the said asset all elements of expenditure, which directly contribute to the cost of that asset. It is for this reason that general administrative cost of an entity which cannot be attributed to a particular asset is not construed as the cost of that asset. But the expenditure that is directly linked to the construction or acquisition of a qualifying asset, is required to be treated as a part of its cost.

iv) If the interest was earned on the amounts which were temporarily kept in fixed deposits in the course of acquisition of the coal mine to set up the assessee’s business, the interest earned would require to be accounted for as the part of the capital value of the business or asset. A caveat was added that such accounting treatment was or would be applicable only if the nature of the asset was such that required time for construction or for putting it in use. Illustratively, the same would be applicable where the asset is to be constructed, developed or is of a nature that required considerable time to bring it to use. In case where a plant is being set up in a factory and the requisite funds for setting up the same are deployed for a period of time, the interest paid on the amount borrowed for the said purpose and interest earned on temporary deposits during the course of deployment are required to be accounted for as a part of the capital costs. This is not true for an off-the-shelf product. Illustratively, if a motor vehicle is purchased from borrowed capital, neither the interest paid nor the interest earned on the funds borrowed for payment of consideration of the same can be accounted for as a part of the cost of the said asset.

v) The assessee was set up to acquire resources to ensure supply of coal and at the material time it was in the process of negotiation for acquiring a coal mine, to set up its business, and thus called for capital from its shareholders for the purpose of payment of the acquisition costs. It was the part of the said funds that were kept in the short-term fixed deposit in the bank for pending payment of the construction. The attempt to acquire the coal mine was aborted and thus the amounts borrowed were repaid to RINL. It was not disputed that the funds in question were not surplus funds of the assessee, the same were called for and were earmarked for acquisition of a coal mine overseas which was to be the assessee’s undertaking as the assessee was formed for the purpose of acquiring and operating a coal mine overseas.

vi) The interest received on borrowed funds, which were temporarily held in interest-bearing deposit, was a part of the capital cost and was required to be capitalised as capital work-in-progress.”

Best judgment assessment — Estimation of gross receipt — Special Audit Report — Relates only to a particular A. Y. — Special Audit Report for earlier year cannot be the basis to conclude following of similar pattern by Assessee in later A. Y. — Disallowance of administrative and entire salary expenditure —Matter remanded to the AO for re-computation of income.

85. World Vision India vs. NFAC

[2025] 472 ITR 564(Mad.)

A. Y. 2018-19

Date of order: 19th December, 2024

Ss. 37, 142(2A) and 144of ITA 1961:

Best judgment assessment — Estimation of gross receipt — Special Audit Report — Relates only to a particular A. Y. — Special Audit Report for earlier year cannot be the basis to conclude following of similar pattern by Assessee in later A. Y. — Disallowance of administrative and entire salary expenditure —Matter remanded to the AO for re-computation of income.

The assessee filed its return of income for AY 2018-19. The said return was selected for scrutiny assessment. The assessment was completed and order dated 14th September, 2021 was passed. In the said order, the Assessing Officer relied upon special audit report dated 2nd June, 2017 as also the assessment orders passed for A. Ys. 2014-15, 2015-16 and 2017-18. The report dated 2nd June, 2017 was prepared u/s. 142(2A) of the Act for AY 2014-15, pursuant to which the assessment orders for AYs 2014-15, 2015-16 and 2017-18 were passed. The orders for AY 2014-15, 2015-16 and 2017-18 were challenged in appeal before the CIT(A).

In the A. Y 2018-19, the Assessing Officer concluded that the Assessee had applied 67 per cent of the gross receipts for charitable purposes and for the balance the Assessee had failed to establish any documents to substantiate that the amount was utilised for charitable purposes and therefore the demand has been confirmed.

The Assessee filed a writ petition challenging the assessment order mainly on the ground that the basis for coming to the conclusion that the Assessee has failed to utilize the amount for charitable purposes is based on the special audit report dated 2nd June, 2017 which was generated for AY 2014-15. The Hon’ble Madras High Court allowed the petition and remanded the matter back to the AO for the re-computation of income and held as follows:

“i) Prima facie reliance on the special audit report u/s. 142(2A) generated for the earlier assessment years could not be a basis to conclude that the similar pattern would have been followed by the assessee during the subsequent assessment years and to do so would amount to assessment by sampling. The special audit report was for the A. Y. 2014-15. In terms of section 142(2A) the special audit report could relate only for a particular assessment year since the expression used is, “if at any stage of the proceedings before him”, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nature of business activity of the assessee, and the interests of the Revenue, was of the opinion that it was necessary so to do, he may, with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, direct the assessee to get either or both of, (i) getting the accounts audited by an accountant, as defined in sub-section (2) of section 288 , nominated by the competent authority or (b) getting the inventory valued by a cost accountant nominated by the competent authority.

ii) The assessment order indicated that no allowance had been made for the expenses incurred by the assessee towards administrative and salary expenses of the assessee and had only been allowed to accumulate 15 per cent. of the gross receipt. It was the contention of the Department that if no other amount was to be allowed, the Department had to make best judgment assessment u/s. 144. Therefore, the assessment order was set-aside and the matter was remitted back to the Assessing Officer to pass a fresh order on the merits and in accordance with law independently without getting influenced by the special audit report u/s. 142(2A) generated for the A. Y. 2014-15. Since the re-computation of income required a proper consideration, the assessee was directed to give a proper reply with proper evidence explaining the expenses which it sought to exclude.”

Assessment — Faceless assessment — Ex parte assessment order — Notices of demand and penalty — Validity — Notices u/s. 142(1) and 143(2) — Mandatory condition — Failure to serve notices on assessee — Notices sent to unregistered e-mail address though assessment orders for earlier and subsequent A. Ys. sent to correct e-mail address — Reliance on assessee’s permanent account number database or alternate e-mail address cannot substitute for statutory compliance — Procedural irregularities in issuing and serving notices undermine jurisdiction and legality of entire assessment process — Ex parte assessment order and consequent demand, penalty notices quashed — Department given liberty to issue fresh notices if necessary in accordance with law:

84. Neha Bhawsingka vs. UOI

[2025] 472 ITR 335 (Cal)

A. Y. 2022-23

Date of order: 22nd November, 2024

Ss.142(1), 143(2), 144, 144B, 156, 271(1)(d) and 271AAC(1) of ITA 1961

Assessment — Faceless assessment — Ex parte assessment order — Notices of demand and penalty — Validity — Notices u/s. 142(1) and 143(2) — Mandatory condition — Failure to serve notices on assessee — Notices sent to unregistered e-mail address though assessment orders for earlier and subsequent A. Ys. sent to correct e-mail address — Reliance on assessee’s permanent account number database or alternate e-mail address cannot substitute for statutory compliance — Procedural irregularities in issuing and serving notices undermine jurisdiction and legality of entire assessment process — Ex parte assessment order and consequent demand, penalty notices quashed — Department given liberty to issue fresh notices if necessary in accordance with law:

The assessee was in trading business. For the A. Y. 2022-23, an intimation u/s. 143(1) of the Income-tax Act, 1961 was sent to the assessee’s registered e-mail address, confirming that the return was processed without any discrepancies. Similar communications for the earlier A. Ys. 2019-20 to 2021-22 and the subsequent year 2023-24 were also sent to the same registered e-mail address. While accessing the Income-tax portal, the assessee’s tax consultant discovered that several notices, including u/ss. 143(2) and 142(1) and show-cause notices were issued against the assessee for the A. Y. 2022-23 and sent to an unregistered e-mail address. The ex parte assessment order was passed u/s. 144 read with section 144B making disallowances on account of purchases as non-genuine and unsecured loan as unexplained credit u/s. 68. Penalty notices u/ss. 271(1)(d) and 271AAC(1) were also issued.

The assessee filed a writ petition contending that the assessment order and demand notices were vitiated since they were not served at the assessee’s registered e-mail address as required u/s. 282 but were sent to an unregistered e-mail address which was not associated with her. The Calcutta High Court allowed the petition and held as under:

i) The assessment order passed u/s. 144 read with section 144B, the consequent demand notice u/s. 156 and the penalty notices u/s. 271(1)(d) and 271AAC(1) were vitiated due to procedural lapses and non-compliance with statutory provisions. The notices u/s. 143(2) and 142(1) were not served to the assessee at her registered e-mail address as mandated u/s. 282 but were sent to an unregistered e-mail address, thereby depriving the assessee of a fair opportunity to respond, violating the principles of natural justice.

ii) The assessee had a legitimate expectation, arising from consistent past practices, that all communications would be sent to her registered e-mail address. The failure to adhere to this established protocol and the absence of proper service of notices invalidated the subsequent assessment proceedings and the ex parte assessment order passed u/s. 144 and 144B. The Revenue’s reliance on the assessee’s permanent account number database or an alternate e-mail address could not substitute for statutory compliance. Procedural irregularities in issuing and serving notices undermine the jurisdiction and legality of the entire assessment process. The assessment order could not be completed without issuance of a notice u/s. 143(2). Hence, the assessment proceedings and the assessment order without issuing the notice u/s. 143(2) were bad in law.

iii) Accordingly, the assessment order, demand notice and penalty notices were quashed and set aside. The authorities were directed to issue fresh notices, if deemed necessary, strictly adhering to the statutory provisions and ensuring proper service to the assessee.”

Assessment — Faceless assessment — Jurisdiction of NFAC — Exempt income — Jurisdictional AO passing assessment order giving effect to order of Tribunal on issue of disallowance u/s. 14A — Order attaining finality — NFAC cannot continue assessment proceedings in concluded assessment — Assessment Order passed by NFAC set-aside.

83. Religare Enterprises Ltd. vs. NFAC

[2025] 472 ITR 329 (Del)

A. Y. 2013-14

Date of order: 28th November, 2024

Ss. 143(3), 144B and 254 of ITA 1961

Assessment — Faceless assessment — Jurisdiction of NFAC — Exempt income — Jurisdictional AO passing assessment order giving effect to order of Tribunal on issue of disallowance u/s. 14A — Order attaining finality — NFAC cannot continue assessment proceedings in concluded assessment — Assessment Order passed by NFAC set-aside.

The Assessee filed revised return of income for AY 2013-14 declaring total income at ₹2,70,87,75,810. This included income from dividend amounting to ₹4,14,800 which was exempt. The Assessee had not claimed any deduction in respect of expenses amounting to ₹1,83,55,525 u/s. 14A of the Income-tax Act, 1961. The Assessee’s case was selected for scrutiny and an addition of ₹1,93,79,583 was made u/s. 14A of the Act in addition to the amount of ₹1,83,55,525 already disallowed u/s. 14A of the Act. The AO also made disallowances in respect of fines and penalties.

The CIT(A) partly allowed wherein the CIT(A) deleted the additional disallowance made by the AO. In the appeal before the CIT(A), the Assessee had raised an additional ground and claimed allowance of ₹1,83,55,525 which it had not done under the revised return.

The Tribunal remanded the matter regarding disallowance u/s. 14A and disallowance of fines and penalties to the AO for consideration afresh with the direction that the disallowance u/s. 14A was required to be worked out in respect of only those investments which were yielding exempt income. Thereafter, the Assessee filed a Miscellaneous Application requesting that the AO be directed to restrict the disallowance to the extent of exempt income. The Miscellaneous Application was allowed and the Tribunal modified its order and directed that the disallowance u/s. 14A of the Act be restricted to the exempt income.

Pursuant to the aforesaid directions, the Jurisdictional AO passed an order dated 4th February, 2023 to give effect to the directions issued by the Tribunal and restricted the disallowance u/s. 14A to the extent of dividend income. However, the AO did not give any specific findings in respect of fines and penalties. The Assessee also did not file any appeal against the said order.

Thereafter, the National Faceless Assessment Centre (NFAC) issued an intimation informing the Assessee that the assessment would be completed in accordance with the procedure u/s. 144B of the Act. Against this, the Assessee filed its objections for continuing any proceedings pursuant to the order passed by the Tribunal as the Jurisdictional AO had already passed an order to give effect to the order passed by the Tribunal. However, the NFAC passed an order, once again making the same disallowance u/s. 14A and disregarded the directions of the Tribunal. The NFAC also expressly stated that its order would supersede the order of the Jurisdictional AO.

The Assesseefiledwrit petition against the said order of NFAC. The Delhi High Court allowed the writ petition and held as follows:

“i) There is no provision under the Income-tax Act, 1961 for continuing assessment proceedings after an assessment order is passed. Concluded assessments cannot be opened except by recourse to specific provisions including section 147 of the Act.

ii) The issue of disallowance u/s. 14A had stood concluded by the order dated February 4, 2023. The Assessing Officer did not issue any specific findings regarding the fines and penalties amounting to Rs. 35,18,803 and the assessee had not filed any appeal against such decision. Notwithstanding that an order dated February 4, 2023 passed by the jurisdictional Assessing Officer, the National Faceless Assessment Centre had proceeded to pass another order. Although, the jurisdictional Assessing Officer had passed an order giving effect to the order dated February 25, 2021 and the order dated February 25, 2021 as modified by the order dated April 1, 2022 by the Tribunal, the National Faceless Assessment Centre had issued an intimation dated February 15, 2023 informing the assessee that the assessment would be completed in accordance with the procedure u/s. 144B . The assessee had filed its objections for continuing any proceedings pursuant to the order passed by the Tribunal since the jurisdictional Assessing Officer had already passed an order dated February 4, 2023 giving effect to the orders passed by the Tribunal.

iii) The National Faceless Assessment Centre had passed an order dated March 29, 2023 once again reiterating the disallowance of ₹3,60,51,977 made u/s. 14A, which included an additional disallowance of ₹1,93,79,583 which was made by the Assessing Officer in the assessment order dated March 28, 2016. Although, the National Faceless Assessment Centre had found that the order dated April 1, 2022 passed by the Tribunal had confined the disallowance u/s. 14A to ₹4,14,800, such directions were disregarded and had also expressly stated that its order would supersede the order dated February 4, 2023 passed by the jurisdictional Assessing Officer. The order dated February 4, 2023 passed by the jurisdictional Assessing Officer had set out that it was an order to give effect to the order passed by the Tribunal wherein it was held to the effect that after appeal effect income of the assessee (since merged with REL) for the assessment year 2013-14 was recomputed at ₹2,69,43,53,890 under the normal provisions of the Act. Credit for tax deducted at source, advance tax and regular taxes paid were given after verification and interests u/s. 234A, 234B, 234C and 234D were being charged, as applicable.

iv) Therefore, there was no doubt that the proceedings pursuant to the directions issued by the Tribunal stood concluded by the order dated February 4, 2023. The initiation of further proceedings by the National Faceless Assessment Centre pursuant to the orders passed by the Tribunal was without jurisdiction. The assessment order passed u/s. 143(3) read with sections 254 and 144B was set aside.”

Assessment — Order of assessment to give effect to order of Tribunal — Limitation — Commencement of limitation — Receipt of order of Tribunal — Meaning of “received” — Actual receipt of certified copy of the order not necessary — Knowledge of order of Tribunal sufficient.

82. Sunshine Capital Ltd. vs. DCIT

[2025] 472 ITR 293 (Del.)

A. Y. 2008-09

Date of order: 16th April, 2024

Ss.153 and 254 of ITA 1961

Assessment — Order of assessment to give effect to order of Tribunal — Limitation — Commencement of limitation — Receipt of order of Tribunal — Meaning of “received” — Actual receipt of certified copy of the order not necessary — Knowledge of order of Tribunal sufficient.

The case of the Assessee was selected for scrutiny and assessment order u/s. 143(3) of the Income-tax Act, 1961 was passed after making various additions. CIT(A) partly allowed the Assessee’s appeal. The Tribunal, vide its order dated 08-10-2018 remanded the matter to the AO for the purpose of fresh assessment. The Tribunal also deleted the demand reflected on the Income Tax Portal.

Thereafter, the Assessee made several representations from July 2020 to August 2021 to the Department praying for rectification of the error with respect to the demand being reflected on the portal as well as the issue of refund. But there was no action by the Department. Since no reply was received by the Assessee upon representations, the Assessee filed an application in August 2021 in accordance with the Right to Information Act (RTI) to give effect to the order passed by the Tribunal. Pursuant to the RTI application, the AO passed an order in November 2021 wherein it expressed its inability to give appeal effect on the ground that it had not received the order passed by the Tribunal through proper channel. Against this order, the Assessee filed an appeal in December 2021 which came to be disposed vide order passed in January 2022 whereby it was decided that the information provided to the Assessee was adequate.

Thereafter, in February 2022, the Assessee filed an application to the registry of the Tribunal seeking information on service of order passed by the Tribunal. The Assessee was informed by the registry in March 2022 that the order passed by the Tribunal was duly sent to the CIT(Judicial) on 24th August, 2018 for further action. In March 2022, the Assessee also made subsequent representations to rectify the error with respect to the demand reflected on the portal, but to no avail.

The Assessee therefore filed writ petition challenging the inaction on the part of the Department and contended that despite the order passed by the Tribunal being communicated to the concerned authority of the Income tax Department within stipulated time, the Department failed to pass a fresh assessment order. The Delhi High Court allowed the petition and held as follows:

“i) Section 153 of the Income-tax Act, 1961, stipulates that an order for fresh assessment pursuant to an order u/s. 254 or section 263 or section 264 of the Act may be made at any time before the expiry of a period of nine months. The provision further encapsulates that the period has to be calculated from the end of the financial year in which the order u/s. 254 of the Act is received by the authorities mentioned in the section. Regarding the word “received” the language couched in section 260A of the Act is similar to that of section 153(3). The contextual interpretation of the phrase “received” postulates the time when the parties are notified about the pronouncement and are represented at that instant in the open court. The legislative intent behind the enactment of section 254(3) of the Act does not prescribe shifting of the onus of proving the receipt of the order under the provision on the assessee, the expression “is received” used in section 153(3) of the Act cannot mean to extend the limitation till perpetuity. The expression “received” employed in section 153(3) of the Act would not strictly mean that a certified copy of the order of the Tribunal, in the given facts and circumstances, ought to have been necessarily supplied to the concerned authority through an appropriate mechanism devised by the respondents. Further, section 254(3) of the Act casts a duty upon the Tribunal to send the copy of the orders passed under section 254 of the Act to the assessee as well as to the Principal Commissioner or Commissioner. A conspectus of section 254 read with section 153(3) of the Act would reveal that the provisions cannot be made applicable to the detriment of the assessee.

ii) The material on record showed that the Tribunal sent the order of the remand to the Department on October 24, 2018, but the Department denied having received it. It was sufficient to take note of the Tribunal’s stand of sending a copy of the order to the Department. Moreover, the assessee, as early as on July 30, 2020 itself, made the first communication to the Department to give effect to the order in appeal. The record would show that the subsequent representation sent by the assessee on July 9, 2021 to the Department contained all the requisite information of the orders passed by the concerned authorities in the case of the assessee. No concrete steps had been taken by the Department. Except harping upon the word “received”, the Department had not taken any measure to give effect to the order in appeal. Taking into consideration the Tribunal’s response that the concerned order was sent on October 24, 2018, the Department ought to have passed the order to give effect to the order in appeal within twelve months from then. However, that had not been done by the Department till date.

iii) Since the Department had failed to comply with the order of the Tribunal in passing a fresh assessment order within the stipulated time, the writ petition was to be allowed with the directions to the Department to ensure that the demands of quantum amounting to ₹34.70 crores and penalty amounting to ₹33.98 crores being reflected in the Income-tax Business Application portal were removed within two weeks, that the amount of ₹25,44,671 lying with the Department were refunded to the assessee with applicable interest as per law, that the properties of the assessee were released within two weeks of the passing of this judgment, and that the three bank accounts were defreezed by the Department within two weeks.”

Refund — Adjustment of demand — Recovery of tax — Grant of stay of demand — Powers of the AO — Instructions issued by the CBDT misconstrued — Application for rectification of order pending before Commissioner (Appeals), National Faceless Appeal Centre — Adjustment of refund without considering application for stay of demand arbitrary and illegal — Matter remanded with directions.

81. National Association of Software and Services Companies (NASSCOM) Vs. DCIT(Exemption)

[2024] 470 ITR 493 (Del.)

A. Ys. 2018-19:

Date of order: 1st March, 2024:

Ss. 154, 220(6) and 237 of ITA 1961:

Refund — Adjustment of demand — Recovery of tax — Grant of stay of demand — Powers of the AO — Instructions issued by the CBDT misconstrued — Application for rectification of order pending before Commissioner (Appeals), National Faceless Appeal Centre — Adjustment of refund without considering application for stay of demand arbitrary and illegal — Matter remanded with directions.

The Assessee filed its return of income for A. Y. 2018-19 and claimed a refund of ₹6,45,65,160 on  account of excess tax deducted at source during the year. The Assessee’s case was selected for scrutiny and assessment order u/s. 143(3) of the Income-tax Act, 1961 was passed after making several additions which resulted into creation of demand of ₹10,26,85,633.

Against the said order, the Assessee filed an appeal before the CIT(A). The Assessee also filed application for rectification u/s. 154 of the Act for rectifying certain mistakes apparent from the face of the order. The Assessee also filed application for stay of demand. The rectification application filed by the Assessee was rejected by the Assessing Officer. Pending appeal before the CIT(A) and pending disposal of the stay application filed by the Assessee, the Department adjusted the refunds on account of excess tax deducted at source for the A. Ys. 2010-11, 2011-12 and 2020-21 towards the demand raised for the assessment year 2018-19.

The Assessee filed a writ petition challenging the action of the Department. The Delhi High Court allowed the petition and held as follows:

“i) The Office Memorandum [F. No. 404/72/93-ITCC], dated 29th February, 2016 and the Office Memorandum [F. No. 404/72/93-ITCC], dated July 31, 2017 ([2017] 396 ITR (St.) 55) and neither prescribe nor mandate 15 per cent. or 20 per cent. of the outstanding demand under section 156 of the Income-tax Act, 1961 being deposited as a precondition for grant of stay. The earlier Office Memorandum dated 29th February, 2016, specifically mentions of the discretion vesting in the Assessing Officer to grant stay subject to a deposit at a rate higher or lower than 15 per cent. depending upon the facts of a particular case. The subsequent Office Memorandum dates 31st July, 2017 merely amended the rate to be 20 per cent. and describes the 20 per cent. deposit to be the “standard rate”. The administrative circular would not operate as a fetter upon the power otherwise conferred on a quasi-judicial authority and that it would be wholly incorrect to view the Office Memorandum as mandating the deposit of 20 per cent. of the disputed demand irrespective of the facts of an individual case. The clear and express language employed in sub-section (6) of section 220 states of the Assessing Officer being empowered “in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case”. Therefore, the 20 per cent. pre-deposit stated in the Office Memorandum cannot be viewed as being an inviolate or inflexible condition. The extent of the deposit which an assessee may be called upon to make would have to be examined and answered considering the factors such as prima facie case, undue hardship and likelihood of success.

ii) The Department had proceeded on incorrect and untenable premise that the assessee was obliged to furnish evidence of having deposited 20 per cent. of the disputed demand before filing its application for stay of demand under section 220(6) could have been considered. The interpretation which was sought to be accorded to the Office Memorandum [F. No. 404/72/93-ITCC], dated 29th February, 2016 (amendment of instruction No. 1914, dated 21st March, 1996 which contained the guidelines issued by the Central Board of Direct Taxes regarding procedure to be followed for recovery of outstanding demand, including procedure for grant of stay of demand) was misconceived and untenable. The Department had erred in proceeding on the assumption that the application for consideration of outstanding demands being placed in abeyance could not have even been considered without a 20 per cent. pre-deposit of the disputed demand. On the date when the adjustments of the refund towards the demand of the assessment year 2018-19 was made, the application filed by the assessee under section 220(6) had neither been considered nor disposed of. Therefore, the adjustment of the outstanding demand for the assessment year 2018-19 against the available refunds without attending to that application was arbitrary and unfair. The intimation of adjustments being proposed would hardly be of any relevance or consequence once it was found that the application for stay of demand remained pending.

iii)The matter was remitted to the Department for considering the application of the assessee u/s. 220(6) in accordance with the observations made. The issue of the amount of refund liable to be released would abide by the decision which the Department would take pursuant to the directions”.

Recovery of tax — Company — Liability of director of private company — Order u/s. 179 — Condition precedent — Inability to recover tax dues from company.

80. Manjula D. Rita and Bhavya D. Rita vs. Pr. CIT:

[2025] 472 ITR 116 (Bom):

A. Y. 2012-13: Date of order: 19th June, 2023

Ss. 179 and 264 of ITA 1961:

Recovery of tax — Company — Liability of director of private company — Order u/s. 179 — Condition precedent — Inability to recover tax dues from company.

The petitioners are two out of the four legal heirs of one late Dinesh Shamji Rita (the deceased), who was a director of Bhavya Infrastructure India Private Limited (the company) during the A. Y. 2012-13. The other two legal heirs are married daughters of the deceased and petitioner No. 1. The petitioners are impugning an order dated 9th March, 2020 passed by respondent No. 1 u/s. 264 of the Income-tax Act, 1961 (the Act) rejecting the petitioner’s application. The order impugned came to be passed while rejecting an application filed by the petitioners impugning an order dated 7th May, 2018 passed under section 179(1) of the Act.

The company had filed its return of income for the A. Y. 2012-13 on 29th September, 2012 declaring an income of ₹62,47,290. An assessment order u/s. 143(3) of the Income-tax Act, 1961 came to be passed on March 30, 2015 by which several additions were made, i. e., a sum of ₹ 18,37,21,188 u/s. 68 of the Act for unexplained cash credit, interest on loan of ₹1,21,11,106 and disallowance u/s. 14A of the Act of ₹2,06,642. A demand of ₹8,66,76,960 was also made u/s. 156 of the Act.

The deceased applied for stay before the Assessing Officer and filed an appeal before the CIT (A). The Assessing Officer rejected the application for stay by an order dated 16th July, 2015. An application was moved by the deceased before the Additional Commissioner of Income-tax for grant of stay of the demand, which application also came to be rejected. The company, though had not accepted the additions/disallowance, voluntarily paid various amounts in October / November, 2017. Certain properties were attached but the attachment order was later vacated. The petitioner’s revision application u/s. 264 of the Act also came to be rejected.

Thereafter, the petitioners received an order dated 7th May, 2018 passed u/s. 179 of the Act against which the petitioners filed another revision application u/s. 264 of the Act. This revision application came to be rejected by the impugned order dated March 9, 2020.

The petitioners filed writ petition and challenged the order dated 9th March, 2020, passed by respondent No. 1 u/s. 264 of the Act rejecting the petitioner’s application. The Bombay High Court allowed the writ petition and held as under:

“i) It is averred in the petition that the deceased took seriously ill and was ailing for almost six months before succumbing to multiple organ failures on 6th May, 2018, a day before the order dated May 7, 2018, came to be passed u/s. 179 of the Act. The order impugned passed by respondent No. 1 u/s. 264 of the Act also is a very brief order in the sense that the only ground on which the application u/s. 264 of the Act came to be rejected is contained in paragraph 4.2 of the impugned order. Respondent No. 1, without considering any of the submissions made by the petitioners, has simply rejected the application u/s. 264 of the Act noting that the notice of the death of the deceased was not brought to the Assessing Officer by anybody and before the order u/s. 179 of the Act was signed by the Assessing Officer and, therefore, as on the date of the passing of the order, there was nothing invalid.

ii) Before passing an order u/s. 179 of the Income-tax Act, 1961, the Assessing Officer should have made out a case as required u/s. 179(1) of the Act that the tax dues from the company cannot be recovered. Only after the first requirement is satisfied would the onus shift on any director to prove that non-recovery cannot be attributed to any gross neglect, misfeasance, or breach of duty on his part in relation to the affairs of the company.

iii) There was nothing to indicate the steps were taken to trace the assets of the company. Moreover, the order passed u/s. 179 of the Act did not satisfy any of the ingredients required to be met. In view of non-issuance of notice, the assessee had not been given an opportunity to establish that the non-recovery was not attributable to any of the three factors on his part, i.e., gross neglect or misfeasance or breach of duty.

iv) Without going into the merits on the correctness of the assessment order passed or whether the time was ripe to issue notice under section 179 of the Act, we hereby quash and set aside the order dated 9th March, 2020 passed under section 264 of the Act, so also the order dated 7th May, 2018 passed under section 179 of the Act.”

Reassessment — Notice — Validity — Seizure of cash by police — Cash produced in Magistrate Court and case registered — Proceedings u/s. 132A — Department requisitioning for release of cash — Release or custody of cash only in accordance with provisions of section 451 of Cr.PC 1973 — First proviso to section 148A applicable — Notices valid though issued non-complying with procedures u/s. 148A.

79. Muhammed C. K. vs. ACIT:

[2025] 472 ITR 161 (Ker):

A. Ys. 2020-21 to 2023-24: Date of order: 11th March, 2024:

Ss. 132A, 147, 148 and 148A of ITA 1961: and S. 451 of Code Of Criminal Procedure, 1973:

Reassessment — Notice — Validity — Seizure of cash by police — Cash produced in Magistrate Court and case registered — Proceedings u/s. 132A — Department requisitioning for release of cash — Release or custody of cash only in accordance with provisions of section 451 of Cr.PC 1973 — First proviso to section 148A applicable — Notices valid though issued non-complying with procedures u/s. 148A.

Certain amount of cash was seized from the assessee by the police and was produced before the magistrate court and a case was registered. It was stated that an application u/s. 451 of the Criminal Procedure Code, 1973 was filed before the Magistrate Court to release the money to the Department.

On a writ petition contending that the money ought to be released to him and that since the money in question was never requisitioned as contemplated by the provisions of section 132A of the Income-tax Act, 1961, the notices u/s. 148A, issued for the A. Ys. 2020-21 to 2023-24 without following the procedure prescribed u/s. 148A were illegal and unsustainable the Kerala High Court held as under:

“i) The notices had been issued without following the procedure contemplated u/s. 148A, the notices issued u/s. 148 were not illegal, since on the facts, the situation fell within the first proviso to section 148A, which provided that the procedure u/s. 148A was not applicable in a case covered by the provisions of section 132A, though the Department had filed an application u/s. 451 of the 1973 Code. Though when an item or cash, was produced before a criminal court the Department could not issue a notice u/s. 132A to the court in question, once the item was produced before the court in connection with any criminal case registered by the police or any other law enforcement agency, an application for release or for giving custody of it to the Department could only be in accordance with the provisions of the Code of Criminal Procedure and specifically section 451 of the 1973 Code thereof. That did not take away the fact that the Department had initiated proceedings u/s. 132A to requisition the amount from the police station.

ii) Therefore, the case was covered by the first proviso to section 148A and the procedure prescribed under the provisions of section 148A need not be complied with before issuing the notices u/s. 148 for the A. Ys. 2020-21 to 2023-24.”

Re-assessment — Notice after four years — Advance Ruling — Effect of — Binding only on Assessee and AO in relation to transactions in question — Notice for reassessment for subsequent years issued on the basis of rulings in another case — Transactions similar to those in respect of which ruling rendered in Assessee’s case — No change in law or new tangible material and independent formation of belief by the AO — Notices for re-opening invalid.

78. Mrs. Usha Eswar vs. ITO and Ors.

[2024] 470 ITR 200 (Bom.)

A. Ys. 1997-98 – 2000-01

Date of order: 7th July, 2023

Ss. 147, 148, 245R and 245S of ITA 1961

Re-assessment — Notice after four years — Advance Ruling — Effect of — Binding only on Assessee and AO in relation to transactions in question — Notice for reassessment for subsequent years issued on the basis of rulings in another case — Transactions similar to those in respect of which ruling rendered in Assessee’s case — No change in law or new tangible material and independent formation of belief by the AO — Notices for re-opening invalid.

The assessee was a Non-resident Indian and was regularly assessed to tax in India in respect of income which accrued or arose in India or which was received in India. The Assessee was a resident of Dubai for several years and was a resident of the United Arab Emirates (UAE) as per the definition provided in the Double Taxation Avoidance Agreement (DTAA) between India and UAE. The Assessee had made an application to the Authority for Advance Ruling (AAR) seeking tax treatment as well as the rate of tax applicable in respect of income earned by way of dividends, interest and capital gains from sources in India. The said application was not made in respect of a specific assessment year. The AAR found that the Assessee was a resident as per Article 4 of the India — UAE DTAA and that the Assessee was not liable to pay tax in UAE as there was no levy of income tax on an Individual in UAE. The AAR applied the provisions of the Act and Articles 10, 11 and 13 of the DTAA and passed a ruling to the effect that the capital gains from transfer of moveable assets in India will be governed by Article 13(3) and the same will not be taxable in India on or before 1st April, 1994. The dividend income from shares held in India would be taxed at the rate of 15 per cent and income by way of interest on debentures and bonds as well as balance in partnership firm will be taxable at 12.5 per cent. In holding so, the AAR had relied upon its earlier ruling the case of MohsinallyAlimohammedRafik (“Mohsinally”).

Subsequently, after a period of four years, the Assessing Officer issued notice u/s. 148 of the Act for the AYs 1997-98, 1998-99, 1999-2000 and 2000-01 for re-opening the assessment on the ground that the ruling of the AAR was applicable only in respect of AY 1995-96 and that the AAR, in a subsequent ruling in the case of Cyril Eugene Pereria (“Cyril”), after considering the ruling in the earlier case of Mohsinally’s case, concluded that the benefit of DTAA would not be applicable as the applicant therein was not chargeable to tax in UAE. Therefore, the Assessing Officer concluded that the ratio of the ruling in Cyril’s case would be applicable and the benefits of DTAA were wrongly given to the Assessee for the AYs 1997-98 to 2000-01.

The Assessee filed writ petition challenging the re-opening of the assessment. The Bombay High Court allowed the petitions and held as follows:

“i) Section 245S of the Income-tax Act, 1961 states that the ruling pronounced by the Authority for Advance Rulings binds the Authority under section 245R . It is binding on the applicant who has sought the ruling in respect of the transactions in relation to which the ruling has been sought for and on the Commissioner and the Income-tax authorities subordinate to him in respect of the applicant and the transaction. Sub-section (2) of section 245S provides that the ruling shall be binding unless there is a change in the law or the facts on the basis of which the advance ruling has been pronounced.

ii) The Assessing Officer had manifestly exceeded his jurisdiction in reopening the assessment relying on the subsequent ruling of the Authority for Advance Rulings in the case of Cyril Eugene Pereira, In Re [1999] 239 ITR 650 (AAR). The ruling in that case could not bind the assessee nor could it displace the binding effect of the ruling in the assessee’s case. The transaction in respect of which the assessee had sought a ruling and in respect of which the Authority for Advance Rulings had issued the ruling to the assessee was of the same nature as that for the assessment years 1997-98, 1998-99, 1999-2000 and 2000-01. There was no change in law or facts. The Assessing Officer had not personally formed the belief that income liable to tax had escaped assessment and there was no tangible material to conclude that there was any escapement of income. Therefore, the notices under section 148 were set aside. The Director (International Transactions) had ignored the relevant provisions of law. The power to reopen the assessments under section 147 could not have been invoked.”

Deduction of tax at source — Self Assessment Tax — Not required where tax deducted at source on payment — Tax deducted at source from amount received by the Assessee — Assessee entitled to benefit u/s. 205 — Assessee need not produce Form 16A.

77. Incredible Unique Buildcon Pvt. Ltd. vs. ITO:

[2024] 470 ITR 106 (Del)

A. Y. 2011-12

Date of order: 3rd October, 2023

S. 205 of ITA 1961

Deduction of tax at source — Self Assessment Tax — Not required where tax deducted at source on payment — Tax deducted at source from amount received by the Assessee — Assessee entitled to benefit u/s. 205 — Assessee need not produce Form 16A.

The Assessee provided services to an entity by the name of CAL. The value of the service provided amounted to ₹8,50,26,199. The said entity CAL deducted tax at source amounting to ₹24,96,199. Out of ₹24,96,199 deducted by CAL, only an amount of ₹69,897 was deposited towards TDS and the balance ₹24,26,302 remained to be deposited. As a result, the Department did not give full credit of TDS deducted by CAL and raised a demand.

Therefore, the Assessee filed a writ petition and challenged the non-grant of full credit TDS. The Delhi High Court allowed the writ petition and held as under:

“i) In our view, the petitioner is right inasmuch as neither can the demand qua the tax withheld by the deductor-employer be recovered from him, nor can the same amount be adjusted against the future refund, if any, payable to him.

ii) Thus, for the foregoing reasons, we are inclined to quash the notice dated 28th February, 2018, and also hold that the respondents- Revenue are not entitled in law to adjust the demand raised for the A. Y. 2012-13 against any other assessment year. It is ordered accordingly.”

The High Court dismissed the review petition filed by the Department and held follows:

“i) Under section 205 of the Income-tax Act, 1961 where the tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from his income. The bar operates as soon as it is established that the tax had been deducted at source and it is wholly irrelevant as to whether the tax deducted at source is deposited or not and whether form 16A has been issued or not. Form 16A is amongst others, a piece of evidence which can establish deduction of tax at source. That said, form 16A is not the only piece of evidence in that regard. In a case where the assessee can show reliable material other than form 16A and prima facie establish the deduction of tax at source. The assessee cannot be left at the mercy of the tax deductor, who for multiple reasons may not issue form 16A or may not deposit the deducted tax.

ii) The assessee admittedly declared in his return of income the tax deducted at source by CAL. and supported this with his ledger account. Not only this, the assessee even filed a complaint dated 25th January, 2017 with the Department alleging that CAL. had deducted but not deposited the tax deducted at source. But no action was taken on its complaint. The assessee could not be burdened with the responsibility to somehow procure form 16A to secure benefit of the provision of section 205.”

Assessment — Faceless assessment — Intimation u/s. 143 — Procedure — Corrections to returns must be intimated to assessee — Reply by assessee must be considered.

76. Northern Arc Investment Managers Pvt. Ltd. vs. Dy. DIT

[2025] 472 ITR 154 (Mad)

Date of order: 10th November, 2023

S. 143 of ITA 1961

Assessment — Faceless assessment — Intimation u/s. 143 — Procedure — Corrections to returns must be intimated to assessee — Reply by assessee must be considered.

A writ petition was filed to direct either the first respondent or the second respondent to permit the petitioner to file their rectification petition to rectify the mistake of double disallowance in the intimation dated July 29, 2023 and also to process the refunds.

The Madras High Court Held as under:

“i) A reading of section 143 of the Income-tax Act, 1961 makes it clear that if there are any corrections, errors, addition or reduction in the return of the assessee, the Department has to intimate it to the assessee. Thereafter, as per the provisions of the Act, the Department is supposed to consider the reply and make suitable modifications in the Income-tax return as requested by the assessee.

ii) The Assessing Officer had not considered the reply filed by the assessee and issued the intimation. The Faceless Assessment Officer has to consider the reply and proceed with the assessee’s case based both on the original returns filed by the assessee and the modified returns after considering the reply of the assessee.”

Trust — Educational institution — Registration — Validity — Application for registration erroneously made while charitable institution continued to be registered — Assessee permitted to withdraw application filed inadvertently:

75 Purandhar Technical Education Society vs. CIT(Exemption)
[2024] 468 ITR 711 (Bom)
A.Ys. 2022-23 to 2026-27
Date of order: 8th July, 2024
Ss. 12A, 12AA and 12AB of ITA 1961

Trust — Educational institution — Registration — Validity — Application for registration erroneously made while charitable institution continued to be registered — Assessee permitted to withdraw application filed inadvertently:

The assessee was a trust engaged in educational activities and was granted registration u/s. 12A of the Income-tax Act, 1961. The assessee stated that it could not trace the certificate and although it availed of the benefits for certain number of years without any objection from the Department, the authorities called upon the assessee to produce the registration certificate. Hence, the assessee made an application on 14th October, 2019 to obtain a duplicate certificate of registration u/s. 12A but was not responded. The assessee made a fresh application on 19th April, 2022. The assessee contended that both the applications were not decided and the duplicate certificate was also not issued. On 25th March, 2022, the assessee applied for a fresh provisional certificate u/s. 12A(1)(ac)(i) in the prescribed form 10A as per rule 17A of the Income-tax Rules, 1962, that although the application for provisional registration was made on 4th April, 2022, an order on form 10AC u/s. 12A(1)(ac)(i) for the A. Y. 2022-23 to 2026-27 was passed by the competent authority thereby granting registration to the assessee. Thereafter, the assessee inadvertently applied for registration under the same provision in form 10AB on 30th September, 2022. The Commissioner (Exemption) issued notices requiring the assessee to submit copy of the provisional registration granted u/s. 12AB and the assessee furnished the necessary details. Another notice was received by the assessee on 9th March, 2023 to which the assessee failed to submit a reply. On 31st March, 2023, the Commissioner (Exemption) passed an order rejecting the assessee’s mistaken application on the ground that the assessee did not possess a copy of the provisional registration granted u/s. 12AB.

The assessee filed a writ petition contended that the Commissioner (Exemption) might take further actions to cancel the registration dated 4th April, 2022, of the assessee and seeking to be fully protected under the decision of the Supreme Court in CIT vs. Society for the Promotion of Education [2016] 382 ITR 6 (SC) and to permit withdrawal of the application inadvertently filed u/s. 12A(1)(ac)(i) :

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

“i) The assessee having already been granted registration u/s. 12A(1)(ac)(ii) read with section 12AB(1)(a) of the 1961 Act on April 1, 2022, for a period of five years, i.e., from the A. Y. 2022-23 to 2026-27, there was no need to make a fresh application on September 30, 2022 under which the order rejecting the application for registration had been passed.

ii)Hence the assessee could withdraw its application filed u/s. 12A(1)(ac)(i) , dated September 30, 2022 rendering the order dated March 31, 2023 of no consequence.”

Return — Delay in filing return — Application for condonation of delay — Limitation — Period to be computed with reference to date on which return had been filed

74 Vivek Krishnamoorthy vs. Pr. CIT
[2024] 469 ITR 605 (Kar)
A. Y. 2013-14
Date of order: 2nd November, 2023
S. 119 of ITA 1961

Return — Delay in filing return — Application for condonation of delay — Limitation — Period to be computed with reference to date on which return had been filed

The assessee had to file his Income-tax return before 31st March, 2015 but the Income-tax return was filed on 22nd August, 2015, and because Income-tax return was belated by about five months, an application was filed on 15th November, 2021 under section 119(2)(b) of the Income-tax Act, 1961, for condonation of delay in filing the Income-tax return. The application was rejected on the ground of limitation.

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

“i) In the case of a delay in filing an application to condone delay in filing returns according to the terms of Circular No. 9 of 2015 dated June 9, 2015 ([2015] 374 ITR (St.) 25) the period of six years will have to be computed with reference to the date when the belated Income-tax return is filed.

ii) The assessee’s application for condonation of delay in filing the Income-tax return on August 22, 2015 was to be restored for consideration in the light of the reasons offered to explain the delay between March 31, 2015 and August 22, 2015 and with the directions to consider the application within a reasonable period from the date of receipt of a certified copy of this order.”

Recovery of tax — Stay of recovery during first appeal — Requirement of deposit — Discretion to forgo requirement and grant stay — Debatable issue — Direction for stay of recovery proceedings without deposit

73 Chaitanya Memorial Educational Society vs. CIT(Exemption)
[2024] 469 ITR 571 (Telangana)
A. Y. 2018-19
Date of order:9th October, 2023
S. 220(6) of ITA 1961

Recovery of tax — Stay of recovery during first appeal — Requirement of deposit — Discretion to forgo requirement and grant stay — Debatable issue — Direction for stay of recovery proceedings without deposit

The Commissioner (Exemption) while deciding a stay application u/s. 220(6) of the Income-tax Act, 1961, pending an appeal challenging the assessment order for the A. Y. 2018-19, allowed the application subject to the assessee depositing an amount of ₹35 lakhs out of the total outstanding demand of ₹2,50,33,530.

The Telangana High Court allowed the writ petition filed by the assessee and held as under:

“i) In considering whether a stay of demand should be granted, the court is duty bound to consider not merely the issue of financial hardship, if any, but also whether a strong prima facie case raising a serious triable issue has been raised which would warrant dispensation of deposit.

ii) The contention of the assessee was that the assessee had been availing of the exemption from payment of Income-tax on account of the fact that the assessee was a charitable institution and the works executed by it again were with a charitable purpose. Since the assessee availed of the benefits all along prior to the issuance of the demand notice and even in the subsequent years as well, no prejudice was going to be caused if the stay application u/s. 220(6) of the Act, was decided in favour of the assessee. Moreover, though the appeal was filed as early as on April 17, 2021 and the rectification application also was filed on March 20, 2021, both the rectification application and the appeal were still pending consideration or were undecided for more than 2½ years. The Assessing Officer should have allowed the application u/s. 220(6).

iii) In view of the same, we are inclined to allow the writ petition. The impugned order dated September 4, 2023 for the reasons stated above stands set aside/quashed. It is ordered that there shall be stay of the recovery of the entire demand raised by respondent No. 4 dated March 19, 2021 till the disposal of the appeal filed by the petitioner on April 17, 2021.”

Offences and prosecution — Wilful evasion of tax — Deletion of penalty with regard to same issues on ground that there was no concealment of income — Prosecution not valid.

72 RohitkumarNemchandPiparia vs. Dy. DIT(Investigation)
[2024] 469 ITR 593 (Mad)
A. Y. 2008-09
Date of order: 16th November, 2023
S. 276C(1) of ITA 1961

Offences and prosecution — Wilful evasion of tax — Deletion of penalty with regard to same issues on ground that there was no concealment of income — Prosecution not valid.

The assessee was a non-resident for more than 40 years. The respondent lodged a complaint for the offence u/s. 276C(1) of the Income-tax Act, 1961 alleging that during the course of the enquiry by the Investigation Wing, it was noticed that in the bank account maintained by the petitioner, there was unusual credit of large amount through real time gross settlement and funds were debited for investment in the stock market. The petitioner had entered into 165 share transactions during the financial year 2007-08 and filed his return of income for the A. Y. 2008-09 on February 5, 2009 declaring a taxable income of ₹3,10,226. However, the petitioner has not disclosed any capital gains in the return of income filed for the financial year 2007-08 relevant to the A. Y. 2008-09. Further, the petitioner entered into 165 share transactions to the tune of ₹155.20 crores and short-term capital gains arose from the said transactions is ₹52.13 crores. Though tax has been deducted, it was not fully deducted and the petitioner did not disclose in his return of income under the head “Capital gain” and paid the tax. Thus, the petitioner failed to show the same in his return of income and attempted to evade payment of tax. Only after deduction by the Income- tax Department, the petitioner had share transactions during the relevant financial year and accepted the same. Therefore, the petitioner committed the offence punishable u/s. 276C(1) of the Income-tax Act, 1961.

The assessee filed a Criminal writ petition for quashing the proceedings. The Madras High Court allowed the petition and held as under:

“i) The Commissioner (Appeals) held in the appeal that the assessee was under the bona fide belief that there was no tax liability to be discharged by him on account of his residential status as non-resident external accounts and the deduction of tax at source made by the bank. Thus, the intention to conceal income by furnishing inaccurate particulars was not established. Therefore, the Assessing Officer was directed to delete the penalty imposed on the assessee.

ii) Therefore, once the penalty on the assessee was deleted, the prosecution initiated by the respondent could not be sustained.”

Income from House Property and Business Income — Difference — Finding by Tribunal that the Assessee Company had been formed with the object of developing Commercial Properties — Rental income from such properties is assessable as business income

71 Pr. CIT vs. M. P. Entertainment and Developers Pvt. Ltd.
[2024] 469 ITR 421 (MP)
A. Ys. 2011-12 to 2014-15
Date of order: 16th April, 2024
Ss. 22 and 28 of ITA 1961

Income from House Property and Business Income — Difference — Finding by Tribunal that the Assessee Company had been formed with the object of developing Commercial Properties — Rental income from such properties is assessable as business income

The Assessee had constructed a shopping cum entertainment mall in the name of Malhar Megha Mall and declared the nature of business as carrying on the business of purchase for development of the land, estates, structure and rented income from immovable properties. In the scrutiny assessment for the A. Ys. 2011-12 to 2014-15, the Assessing Officer observed that only part of the construction of the mall was complete and the assessee had started deriving rent from shops and other space in the mall and showed such income under the head Business & Profession. However, as per the Assessing Officer, the Assessee should have bifurcated under the head Income from House Property and Income from Business. Accordingly, the Assessing Officer restricted the claim of depreciation at the rate of 51.6 per cent of the occupied area of the Mall.

The CIT(A) deleted both the additions made by the Assessing Officer. The CIT(A) held that income from letting out properties were essentially required to be computed as Income from Business u/s. 28 and cannot be treated as Income from House Property. The Tribunal dismissed the appeal of the Department and held that where the letting of the property is the main object of the Assessee, its income has to be computed under the head Income from Business and it cannot be treated as Income from House Property.
The Madhya Pradesh High Court dismissed the appeal of the Department held as follows:

“i) In determining whether a particular income is income from house property or business income, in the case of Sultan Brothers Pvt. Ltd. vs. CIT [1964] 51 ITR 353 (SC) the Supreme Court held that each case has to be looked at from the businessman’s point of view to find out whether the letting was the doing of business or exploitation of the property by the owner.

ii) The Tribunal had found that the main object of the assessee was the business of constructing, owning, acquiring, developing, managing, running, hiring, letting out, selling out or leasing multiplexes, cineplexes, cinema halls, theatres, shops, shopping malls, etc., according to its memorandum and articles of association. The income was liable to be categorised as income derived from the shopping mall under the head of “Income from business” u/s. 28 of the Income-tax Act, 1961. The Assessing Officer did not find any material against the assessee to come to the conclusion that sub-leasing of the premises was only a part of its predominant object. The assessee right from the construction of the mall till the matter was taken into scrutiny had been offering income from the business of constructing, owning, acquiring, developing, managing, running, hiring, letting out, selling out or leasing multiplexes, cineplexes, cinema halls, theatres, shops, shopping malls, etc., sub-licensed by it under the head “Profits and gains of business or profession”.

iii) Therefore, the Commissioner (Appeals) as well as the Tribunal had rightly set aside the order of the Assessing Officer treating the income as one from house property.”

Company — Computation of Book Profits — Scope of section 115JB — Disallowance u/s. 14A — Amount disallowed cannot be taken into consideration when computing book profits

70 Pr. CIT vs. Moon Star Securities Trading and Finance Co. Pvt. Ltd.
[2024] 469 ITR 15 (Del.)
A. Y. 2011-12
Date of order: 11th March, 2024
Ss. 14A and 115JB of ITA 1961

Company — Computation of Book Profits — Scope of section 115JB — Disallowance u/s. 14A — Amount disallowed cannot be taken into consideration when computing book profits

The assessee earned dividend income of ₹58,09,619. In respect of the dividend income, the Assessee made disallowance u/s. 14A of the Income-tax Act, 1961. However, in the scrutiny assessment, the AO enhanced the disallowance u/s. 14A to ₹12,65,71,862 computed as per section 14A r.w.r. 8D and made addition under the normal provisions as well as to the book profits computed under the provisions of section 115JB of the Act.

The CIT(A) partly allowed the appeal of the Assessee and restricted the disallowance to ₹2,08,72,836 as against the disallowance of ₹12,65,71,862 determined by the Assessing Officer. The Tribunal deleted the disallowance on the ground that there was no satisfaction recorded by the Assessing Officer. Further, the Tribunal held that the disallowance u/s. 14A of the Act could not be made while computing book profits u/s. 115JB of the Act.

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

“i) Section 115JB of the Income-tax Act, 1961, by virtue of a deeming fiction, considers book profits as the total income of the assessee which is calculated post authorised adjustments to the profits shown in audited Profit and loss account of the assessee. A bare perusal of the provisions would signify that sub-section (1) prescribes the mode and manner of computing the total income of the assessee u/s. 115JB of the Act.

ii) Clause (f) of Explanation 1 only alludes to the amounts of expenditure relatable to any income to which section 10 (excluding provisions contained in clause (38) thereof) or section 11 or section 12 apply. The Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115JB. The scheme of section 115JB, particularly in relation to clause (f) of Explanation 1 therein, does not envisage any addition of disallowance computed u/s. 14A of the Act to calculate the minimum alternate tax as per section 115JB of the Act. Rather, the two provisions stand separately as no correlation exists between them for the purpose of determining the taxable income.”

Charitable institution — Exemption — Scope of sub-sections (1), (2) and (3) of section 11 — Explanation to section 11 cannot be applied — Accumulated income — Donations to extent of 15 per cent. of surplus income accumulated to other charitable institutions for short period — Not permanent endowments made or donations imbued with some degree of permanency — Donations reversed — Exemption could not be denied

69 CIT(Exemption) vs. Jamnalal Bajaj Foundation
[2024] 468 ITR 723 (Del)
A. Y. 2009-10
Date of order: 31st May, 2024
S. 11 of ITA 1961

Charitable institution — Exemption — Scope of sub-sections (1), (2) and (3) of section 11 — Explanation to section 11 cannot be applied — Accumulated income — Donations to extent of 15 per cent. of surplus income accumulated to other charitable institutions for short period — Not permanent endowments made or donations imbued with some degree of permanency — Donations reversed — Exemption could not be denied

The assessee was a charitable institution registered u/s. 12AA of the Income-tax Act, 1961. The assesseeutilised the accumulated fund to extend corpus donations to other charitable institutions in the A. Y. 2009-10. The Assessing Officer was of the view that extending donations to other charitable trusts would amount to utilisation of the funds for a purpose other than those for which the surplus was accumulated u/s. 11(2) which was violative of section 11(3)(c) and section 11(3)(d).

Before the Commissioner (Appeals) the assessee contended that the surplus accumulated income to the extent of 15 per cent. was handed out as donations to other charitable institutions for a temporary period of less than two months and that since the contravention was for a very short period, the exemption u/s. 11(2) should not be withdrawn. The Commissioner (Appeals) held in favour of the assessee on the issue of accumulation of 15 per cent. u/s. 11(2) and his order was affirmed by the Tribunal.

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

“i) Donations extended to other charitable institutions would meet the test of application of income for charitable purposes. Section 11(3)(c) and (d) of the Income-tax Act, 1961 deals with situations where the income so accumulated is either not utilised or applied for a charitable purpose. It is only in such a situation that the deemed income would lose the sheen of protection of exemption which would otherwise be applicable by virtue of section 11.

ii) In terms of the Finance Act, 2002 ([2002] 255 ITR (St.) 9), an Explanation was appended to section 11(2) which gets attracted in a situation where income referable to clauses (a) or (b) of section 11(1) and so accumulated or set apart is credited or paid to institutions specified therein, not being liable to be treated as application of income for charitable or religious purposes. Explanation 1 to section 11(1) applies to situations where the income applied to charitable causes falls short of 85 per cent. of the income derived. Section 11(2) on the other hand constitutes a gateway which enables the charity to stave off the spectre of the income which is not applied for a charitable purpose coming to be included in the total income of the assessee.

iii) The donations, to the extent of 15 per cent. of the accumulated surplus income, made by the assessee in the A. Y. 2009-10 would not be hit by Explanation 2, inserted by the Finance Act, 2017 ([2017] 393 ITR (St.) 1) with effect from 1st April, 2018 since Explanation 2 applied only to amounts credited or paid to certain categories of institutions and those being in the nature of a contribution accompanied by a direction that the amounts extended would form part of the corpus of those entities. Although the donations were made out of the accumulated income, the money was retrieved within two months.

iv) Section 11(3) and the adverse consequences would have been attracted provided the accumulated income was diverted for a purpose other than charitable or religious, or where it was not utilised for the purpose for which it was so accumulated or set apart during the period of five years contemplated u/s. 11(2)(a). The assessee did not make a permanent endowment or one where the donation stood imbued with some degree of permanency. It also was not that the money was lost or became unavailable to be applied. Since the donations were reversed and had been advanced only for an extremely short duration, the Tribunal had not erred in allowing deduction u/s. 11(1) to the extent of 15 per cent on the deemed income u/s. 11(3)(c) or section 11(3)(d) and for justifiable reasons, had answered the issue in favour of the assessee.”

Capital gains — Transfer — Possession taken in part performance of contract — Agreement must be registered — Joint Development Agreement — Not registered — Ownership of capital asset retained by Assessee throughout — Possession clauses suggesting possession to be parted with for limited purpose of development — Unregistered agreement not effecting transfer of property u/s. 2(47)

68 Prithvi Consultants Pvt. Ltd. vs. Dy. CIT
[2024] 470 ITR 37 (Bom.)
A.Ys. 2005-06 to 2011-12
Date of order: 5th September, 2023
S. 2(47)(v) of ITA 1961, Ss. 17(1A) of Registration Act, 53A of Transfer of Property Act 1882

Capital gains — Transfer — Possession taken in part performance of contract — Agreement must be registered — Joint Development Agreement — Not registered — Ownership of capital asset retained by Assessee throughout — Possession clauses suggesting possession to be parted with for limited purpose of development — Unregistered agreement not effecting transfer of property u/s. 2(47)

In December 2008, the Assessee entered into two Joint Development Agreements (JDA) in respect of two plots of land. These agreements were not registered as required u/s. 17(1A) of the Registration Act. A search and seizure action was carried on in the case of one Mr. PK and others, where the said two JDAs were found. The Department issued notice u/s. 153C of the Act requiring the Assessee to file return of income for the AY 2009-10. Subsequently, notices were issued u/s. 153A and 142(1) for the AYs 2005-06 to 2010-11 as well as notice u/s. 143(2) for AY 2011-12 to conduct inquiry and the assessment of the Assessee’s income. In response to the notices, the Assessee filed response submitting that the Assessee had not received any consideration under the two JDAs. Further the transaction did not constitute transfer u/s. 2(47) of the Act. In March 2013, the Assessee cancelled the two JDAs because of non-performance by the Developer. However, in the assessment, the Assessing Officer concluded that the two JDAs constituted transfer u/s. 2(47) of the Act. He referred to the minimum guaranteed amounts reflected in the JDAs and concluded that additional income had accrued to the Assessee even though the Assessee may not have received any amount.

The CIT(A) allowed the appeal of the Assessee. On Department’s appeal before the Tribunal, the order of the CIT(A) was set aside and the assessment order was restored.

On appeal by the Assessee the High Court framed the following questions for consideration:

“i) Whether in the light of section 17(1A) read with section 49 of the Registration Act, 1908, the unregistered agreement dated December 31, 2008, can be construed as a document effecting transfer of the subject properties in terms of section 2(47) of the Income-tax Act, 1961?

ii) Whether in the absence of income having accrued to the appellant in terms of the agreement dated December 31, 2008, the appellant can be made liable to pay tax on capital gains in terms of section 45 read with section 48 of the Income-tax Act, 1961?”

The Bombay High Court decided the above questions of law in favour of the Assessee and held as follows:

“i) The Registration and Other Related Laws (Amendment) Act, 2001 made simultaneous amendments in section 53A of the Transfer of Property Act, 1882, and sections 17 and 49 of the Registration Act, 1908. By these amendments, the words “the contract, though required to be registered, has not been registered, or” in section 53A of the Transfer of Property Act, 1882, have been omitted. Simultaneously, sections 17 and 49 of the Registration Act, 1908 , were also amended, clarifying that unless the document containing the contract to transfer for consideration any immovable property (for the purpose of section 53A of the Transfer of Property Act, 1882, is registered, it shall not have any effect in law, other than being received as evidence of a contract in a suit for specific performance or as evidence of any collateral transaction not required to be effected by a registered instrument.

ii) The joint development agreements dated December 31, 2008, were not registered, though they were required to be compulsorily registered under section 17(1A) of the Registration Act, 1908, post the introduction of this provision by the Registration and Other Related Laws (Amendment) Act, 2001. In the JDAs the ownership of the capital asset was retained by the assessee throughout. The clauses relating to parting of possession, besides being unclear, suggested that at the highest, possession was to be parted with for the limited purpose of development. The unregistered agreement dated December 31, 2008, could not be construed as a document effecting transfer of the subject properties in terms of section 2(47) of the Act.”

Settlement of cases — Application for settlement — Validity — Conditions precedent for application — Additional conditions imposed by CBDT through circular not valid — Circulars cannot override provisions of Act.

67 Vishwakarma Developers vs. CBDT

[2024] 468 ITR 686 (Bom)

A.Ys. 2015–16 to 2020–21

Date of order: 24th July, 2024

Ss. 119(2)(b), 245C and 245D of ITA 1961

Settlement of cases — Application for settlement — Validity — Conditions precedent for application — Additional conditions imposed by CBDT through circular not valid — Circulars cannot override provisions of Act.

The assessee filed an application for settlement of case u/s. 245C of the Income-tax Act, 1961 for the A.Y. 2015–16 to 2020–21. During the period from August 2022 to September 2023, settlement proceedings were conducted by the Interim Board for Settlement constituted by the Central Government pursuant to the notification dated 10th August, 2021 ([2021] 436 ITR (St.) 48). The assessee from time to time pursued the proceedings before the Interim Board for Settlement. On 22nd September, 2021, the assessee refiled the settlement application pursuant to the press release on 7th September, 2021, and paid additional interest for the period of March 2021 to September 2021. The application was rejected.

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

“i) On March 28, 2021, Finance Act, 2021 ([2021] 432 ITR (St.) 52) was enacted, as a consequence of which the Settlement Commission came to be abolished, consequent to which the jurisdiction of such Commission to deal with pending applications was transferred to the Interim Board for Settlement which was constituted by the Central Government on August 10, 2021 by Notification No. 91 of 2021 ([2021] 436 ITR (St.) 48). The Central Board of Direct Taxes (CBDT) issued a Press Release dated September 7, 2021, in view of the orders passed by the High Courts informing the public at large that a settlement application could be filed even after February 1, 2021, being the date when the Finance Bill was introduced. It was also informed that the settlement application could be filed by taxpayers till September 30, 2021. On September 28, 2021 ([2021] 438 ITR (St.) 5), the Central Board of Direct Taxes however issued another order u/s. 119(2)(b) of the Act, which was also subject matter of the press release, in which two additional conditions were incorporated in para 4, in the context of section 245C(5), to the effect that applications could be filed by the assessees, who were eligible, to make an application as on January 31, 2021 and who had assessment proceedings pending on the date of filing of the settlement application. In the decision in Sar Senapati Santaji Ghorpade Sugar Factory Ltd. v. Asst. CIT [2024] 470 ITR 723 (Bom), the court struck down paragraph 4 of the circular dated September 28, 2021 ([2021] 438 ITR (St.) 5) of the CBDT, declaring it to be ultra vires of the parent Act, as it incorporated additional eligibility conditions for filing settlement applications.

ii) The order passed by the Interim Board for Settlement rejecting the assessee’s application u/s. 245C for settlement of case on the ground that the conditions as incorporated in paragraph 4 of the CBDT notification dated September 28, 2021 ([2021] 438 ITR (St.) 5) issued u/s. 119(2)(b) were applicable since it was contrary to the decision of this court which had struck down paragraph 4 as being ultra vires of the parent Act, was illegal and unsustainable. The assessee was eligible to file its settlement application to be considered by the Interim Board for Settlement for appropriate orders to be passed in accordance with law.”

Reassessment — New procedure — Initial notice and order for issue of notice — Issue of notice after three years — Monetary limit — Assessee’s receipt of sale consideration as co-owner less than threshold limit of ₹50 lakhs — Initial notice and order quashed.

66 PramilaMahadevTadkase vs. ITO

[2024] 468 ITR 275 (Kar)

A.Y.: 2016–17

Date of order: 7th December, 2023

Ss. 147, 148A(b), 148A(d) and 149 of ITA 1961

Reassessment — New procedure — Initial notice and order for issue of notice — Issue of notice after three years — Monetary limit — Assessee’s receipt of sale consideration as co-owner less than threshold limit of ₹50 lakhs — Initial notice and order quashed.

The assessee was issued an initial notice u/s. 148A(b) of the Income-tax Act, 1961 for reopening the assessment of the A.Y. 2016–17 u/s. 147 on the grounds that the assessee sold a property. The assessee stated that she was a non-resident, that she and her husband purchased an immovable property in the year 1996 and sold it in the year 2015 for a total consideration of ₹69,30,000, that the tax at source was deducted by the purchaser and that because her husband did not have a Permanent Account Number, the corresponding tax deducted at source was uploaded to her Permanent Account Number.

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

“i) According to the terms of section 149 of the Income-tax Act, 1961, notice u/s. 148 of the Act cannot be issued, after three years have elapsed from the end of the relevant assessment year, unless income chargeable to tax which has escaped assessment is likely to amount to rupees fifty lakhs or more.

ii) The assessee and her husband had jointly purchased the immovable property. They, as equal co-owners of the property, had transferred it for a total sale consideration of Rs. 69,30,000. Even if it could be opined that the assessee had received any part of the consideration, it could not be more than 50 per cent. thereof and, therefore, the income that could be alleged to have escaped the assessment would be below the threshold limit of Rs. 50 lakhs and, therefore, the notice u/s. 148A was not valid.”

Reassessment — Notice — Statutory condition — Failure to furnish approval of designated authority to assessee along with reasons recorded — Notice and order disposing of assessee’s objections set aside.

65 Tia Enterprises Pvt. Ltd. vs. ITO

[2024] 468 ITR 5 (Del)

A.Y. 2011–12

Date of order: 26th September, 2023

Ss. 147, 148 and 151 of ITA 1961

Reassessment — Notice — Statutory condition — Failure to furnish approval of designated authority to assessee along with reasons recorded — Notice and order disposing of assessee’s objections set aside.

On a writ petition challenging the notice issued u/s. 148 of the Income-tax Act, 1961 for reopening the assessment u/s. 147 for the A.Y. 2011–12 and the order disposing of the objections, on the grounds that the approval for the reassessment proceedings was accorded by the Principal Commissioner without application of mind and not furnished along with the reasons recorded the Delhi High Court, allowing the petition, and held as under:

“i) The approval granted by the statutory authorities for reassessment proceedings u/s. 147 of the Income-tax Act, 1961, as required under the provisions of the Act, has to be furnished to an assessee along with the reasons to believe that income has escaped assessment. The statutory scheme encapsulated in the Act provides that reassessment proceedings cannot be initiated till the Assessing Officer has reasons to believe that income, which is otherwise chargeable to tax, has escaped assessment and, reasons recorded by him are placed before the specified authority for grant of approval to commence the process of reassessment.

ii) There was nothing contained in the order disposing of the objections raised by the assessee which would answer the poser raised by the assessee that there was no application of mind by the Principal Commissioner for initiation of reassessment proceedings u/s. 147 for the A.Y. 2011–12. The only assertion made by the Revenue was that the Principal Commissioner had conveyed her approval u/s. 151 to the Assessing Officer by way of a letter but had not produced the letter despite the assessee’s raising a specific objection that the Principal Commissioner had not applied his mind while granting approval for the commencement of reassessment proceedings. The condition requiring the Assessing Officer to obtain prior approval of the specified authority was not fulfilled, as otherwise, there was no good reason not to furnish it to the assessee along with the document which contained the Assessing Officer’s reasons recorded for the belief that income otherwise chargeable to tax had escaped assessment. The notice issued u/s. 148 and the order disposing of the objections raised by the assessee were unsustainable and hence set aside.”

[Note: The Supreme Court dismissed the special leave petition filed by the Revenue and held that in view of the categorical finding recorded in the judgment and in the facts of the case, no case for interference was made out under article 136 of the Constitution [(ITO vs. Tia Enterprises Pvt. Ltd. [2024] 468 ITR 10 (SC)].

Reassessment — Initial notice and order — Notice — Validity — Non-resident — Receipt of licence fee from Indian payer on grant of live transmitting right of match under agreement — Agreement bifurcating licence fee between live feed and recorded content — Receipt not liable to tax in India — Notices and order quashed.

64 Trans World International LLC TWI vs. Dy. CIT (International Tax)

[2024] 467 ITR 583 (Del)

A.Ys.: 2016–17, 2017–18, 2018–19

Date of order: 14th August, 2024

Ss. 147, 148, 148A(b) and 148A(d) of ITA 1961

Reassessment — Initial notice and order — Notice — Validity — Non-resident — Receipt of licence fee from Indian payer on grant of live transmitting right of match under agreement — Agreement bifurcating licence fee between live feed and recorded content — Receipt not liable to tax in India — Notices and order quashed.

The assessee, non-resident, received payments, under a single agreement, for the A.Ys. 2016–17, 2017–18 and 2018–19 with an Indian entity for the grant of exclusive rights for telecast of league matches. The Assessing Officer issued an initial notice u/s. 148A(b) of the Income-tax Act, 1961 on the grounds that tax was not deducted at source from such receipt received from an Indian payer even though it was income chargeable to tax in India, passed an order u/s. 148A(d) and issued a consequential notice u/s. 148. The Assessing Officer recorded reasons that only a nominal fraction of such income amounting to five per cent was offered to tax as royalty by the assessee on the grounds that only broadcasting rights for non-live content were taxable in India, that for the remaining amount, claimed to have been received for live content and not covered under royalty, the assessee did not provide any document to substantiate such bifurcation, and that the assessee did not submit any document to substantiate its tax residency and its eligibility for the Double Taxation Avoidance Agreement. He rejected the objections raised by the assessee.

The Delhi High Court allowed the writ petitions filed by the assessee and held as under:

“i) Clause D of the agreement between the assessee and the Indian entity, for the grant of telecast of matches, bifurcated the licence fee between live feed and recorded content. The view of the Assessing Officer that there was no basis for the bifurcation of the receipt in the ratio of 95 per cent and five per cent was perverse in view of the stipulations contained in the agreement. No contestation existed on the issue of taxability of live feed.

ii) There was no justification to recognize a right inhering in the Revenue to continue the reassessment proceedings u/s. 147. The initial notice issued u/s. 148A(b), the order passed u/s. 148A(d) and the notice issued u/s. 148
were quashed.”

Reassessment — Notice — New procedure — Mandatory condition u/s. 148A(c) — Disposal of assessee’s objections to initial notice u/s. 148A(b) — Non-consideration of assessee’s objections before passing order u/s. 148A(d) for issue of notice — Inquiry proceedings and order and notice quashed and set aside.

63 RatanBej vs. Pr. CIT

[2024] 467 ITR 288 (Jhar)

A.Y. 2016–17

Date of order: 24th January, 2024

Ss. 147, 148, 148A(a), 148A(b), 148A(c), 148A(d) and 149(1)(b) of ITA 1961

Reassessment — Notice — New procedure — Mandatory condition u/s. 148A(c) — Disposal of assessee’s objections to initial notice u/s. 148A(b) — Non-consideration of assessee’s objections before passing order u/s. 148A(d) for issue of notice — Inquiry proceedings and order and notice quashed and set aside.

Though the assessee had a permanent account number, he did not file returns of income. In the A.Y. 2016–17, the assessee sold an inherited property, in which he and his brother had equal shares. The Assessing Officer (AO) sent a letter u/s. 148A(a) of Income-tax Act, 1961 for inquiry and issued a notice u/s. 148A(b). The assessee raised objection on the grounds that his share of the sale consideration was below the limit of ₹50 lakhs prescribed u/s. 149(1)(b). The AO passed an order u/s. 148A(d) without disposing of the objections raised by the assessee and issued a notice u/s. 148 for reopening of the assessment u/s. 147 for the A.Y. 2016–17.

The assessee filed a writ petition for quashing the order and the notice contending that (a) non-consideration of the reply-cum-objection filed by the assessee in response to the initial notice u/s. 148A(b) was in violation of principles of natural justice and rule of fairness, (b) initiating and concluding the enquiry proceedings u/s. 148A was beyond jurisdiction and barred by limitation u/s. 149. The Jharkhand High Court allowed the writ petition and held as under:

“i) U/s. 148A(c) of the Income-tax Act, 1961, the Assessing Officer is mandatorily required to consider the reply or objections furnished by the assessee to the initial notice issued u/s. 148A(b). Non-consideration of reply or objection furnished by the assessee not only amounts to violation of principles of natural justice but is also in contravention of mandatory modalities which are to be followed during the course of enquiry proceedings u/s. 148A.

ii) Sections 148 and 148A introduced by way of the Finance Act, 2021 ([2021] 432 ITR (St.) 52), have been codified following the judgment in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC). The provisions mandate that, before seeking to reopen the assessment u/s. 147, the Assessing Officer must serve a notice to the assessee requiring him to file his return of income within specified time and before such notice, the Assessing Officer shall record his reasons for the reopening of the assessment. While the pre-amended provision required the Assessing Officer to have reason to believe that there is escapement of income, the new provision required any information as specified under Explanation 1 to section 148 to be in existence to reopen the assessment.

iii) Section 148A, inserted by the Finance Act, 2021 ([2021] 432 ITR (St.) 52), reiterates the procedure to be followed by the Assessing Officer upon receiving information, including conducting any inquiry regarding the information received, providing an opportunity of being heard to the assessee through serving of notice to show cause within the prescribed time in the notice (which must not be less than seven days and not more than 30 days on the date of serving the notice or the time period till which time extension has been received by the assessee), considering the reply given by the assessee and deciding on the basis of the material that is present, including the reply, about whether the case is fit for issuing a notice u/s. 148 through passing an order u/s. 148A(d) within one month from the reply.

iv) Under the modified section 149, by the Finance Act, 2021, to the effect that an assessment can be reopened within three years from the time of end of relevant assessment year as under clause (a) of section 149(1), if there is information with the Assessing Officer that suggests that there is escapement of income as provided under Explanation 1 to section 148, and up to ten years as provided in clause (b) of section 149(1) in certain exceptional cases, defined as circumstances where income chargeable to tax, within the meaning of “asset” that has escaped assessment amounts to or is likely to amount to Rs.50 lakhs or more in that year.

v) Section 26 provides that where a property is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not be assessed as an association of persons, but the share of each person in income of the property shall be included in his total income.

vi) The Assessing Officer ought to have considered the objections raised by the assessee in response to the notice u/s. 148A(b) and should have disposed of it as mandated u/s. 148A(c).

vii) Since the income escaping assessment was less than Rs. 50 lakhs, section 149(1)(b) could not have been invoked. The assessee and his brother were joint owners of the inherited property with respective share of 50 per cent each and both being joint vendors were entitled to equal share of the consideration amount of Rs. 32,68,000 each and this had been accepted by the Revenue. The reassessment proceeding initiated by the Department was barred by limitation and was beyond jurisdiction. Hence, the entire enquiry proceeding u/s. 148A, the order u/s. 148A(d) and the notice u/s. 148 were quashed.”

Penalty — Notice — Validity — Condition precedent — Effect of s. 270A — Difference between under-reporting and misreporting of income — Failure to specify whether notice for levy of penalty for under-reporting or misreporting of income — Notices and levy of penalty invalid and unsustainable.

62 GE Capital US Holdings INC. vs. Dy. CIT (International Taxation)

[2024] 468 ITR 746 (Del)

A.Ys.: 2018–19 and 2019–20

Date of order: 31st May, 2024

Ss. 270A and 270AA of ITA 1961

Penalty — Notice — Validity — Condition precedent — Effect of s. 270A — Difference between under-reporting and misreporting of income — Failure to specify whether notice for levy of penalty for under-reporting or misreporting of income — Notices and levy of penalty invalid and unsustainable.

On writ petitions challenging the orders rejecting the applications of the assessee u/s. 270AA(4) of the Income-tax Act, 1961 for immunity from imposition of penalty and levy of penalty u/s. 270A for the A.Y. 2018–19 and 2019–20, the Delhi High Court, allowing the petition, and held as under:

“i) Section 271(1)(c) of the Income-tax Act, 1961 speaks of various eventualities and which may expose an assessee to face imposition of penalties. These range from failure to comply with notice u/s. 115WD or concealment or furnishing of inaccurate particulars of income or fringe benefits. Section 270A provides for imposition of penalty for under-reporting and misreporting of income. U/s. 270A(1), a person would be liable to be considered to have under-reported his income if the contingencies spoken of in clauses (a) to (g) of section 270A(2) are attracted. In terms of section 270A(3), the under-reported income is thereafter liable to be computed in accordance with the stipulations prescribed therein. The subject of misreporting of income is dealt with separately in accordance with the provisions comprised in sub-sections (9) and (10) of section 270A. Therefore, under-reporting and misreporting are separate and distinct misdemeanors. A notice for penalty under Section 270A must clearly specify whether the assessee is being charged with under-reporting or misreporting of income in order to be considered valid and sustainable.

ii) Section 270AA lays down conditions for immunity from penalty. Sub-section (3) of section 270AA required the Assessing Officer to consider the following three aspects, (a) whether the conditions precedent specified in sub-section (1) of section 270AA have been complied with, (b) The time limit for filing an appeal under section 249(2)(b) has expired. and (c) the subject matter of penalty not falling within the ambit of section 270A(9). While examining an application for immunity, it is incumbent upon the Assessing Officer to ascertain whether the provisions of section 270A stood attracted either on the anvil of under-reporting or misreporting because the Assessing Officer becomes enabled to reject such an application only if it is found that the imposition of penalty is founded on a charge referable to section 270A(9).

iii) In the absence of the Assessing Officer having specified the transgression of the assessee which could be shown to fall within the ambit of sub-section (9) of section 270A, proceedings for imposition of penalty could not have been mechanically commenced. The notices issued for commencement of action u/s. 270A were themselves vague and unclear. Since the notices failed to specify whether the assessee was being charged with under-reporting or misreporting of income and such aspect assumed added significance considering the indisputable position that a prayer for immunity could have been denied in terms of section 270AA(3) only if it were a case of misreporting.

iv) Since an application for grant of immunity could not be pursued unless the assessee complies with clauses (a) and (b) of section 270AA(1), the contention of the Revenue that mere payment of demand would not lead to a prayer for immunity being pursued was unsustainable.

v) Even the assessment orders failed to base the direction for initiation of proceedings u/s. 270A on any considered finding of the conduct of the assessee being liable to be placed within the sweep of sub-section (9) of that provision. The order of assessment and the penalty notices failed to meet the test of ‘specific limb’ as propounded in Pr. CIT v. Ms. MinuBakshi [2024] 462 ITR 301 (Delhi) and Schneider Electric South East Asia (Hq) Pte Ltd. v. Asst. CIT (International Taxation) [2022] 443 ITR 186 (Delhi). A case of misreporting could not have been made out considering the fact that the assessee had questioned the taxability of income asserting that the amount in question would not constitute royalty. The issue as raised was based on an understanding of the legal regime which prevailed. The contentions addressed on that score could neither be said to be baseless nor specious but was based on a judgment rendered by the High Court which was binding upon the Assessing Officer. The position which the assessee sought to assert stood redeemed in view of the decision rendered by the Supreme Court.

vi) The assessee had duly complied with the statutory pre-conditions prescribed in section 270AA(1). Hence it was incumbent upon the Revenue to have concluded firmly whether the assessee’s case fell in the category of misreporting since that alone would have warranted a rejection of its application for immunity. A finding of misrepresentation, failure to record investments, expenditure not substantiated by evidence, recording of false entry in the books of account and the other circumstances stipulated in sub-section (9) of section 270A had neither been returned nor recorded in the assessment order. The show cause notices in terms of which the proceedings u/s. 270A were initiated also failed to specify whether the assessee was being tried on an allegation of under-reporting or misreporting. Since there was a clear and apparent failure on the part of the Revenue to base the penalty proceedings on a contravention relatable to section 270A(9), the application for immunity could not have been rejected.

vii) The orders u/s. 270AA rejecting the assessee’s application u/s. 270AA(4) were not valid. On an overall conspectus orders rejecting the assessee’s applications u/s. 270AA(4) for immunity from imposition of penalty were unsustainable and hence quashed.”

Depreciation — Actual cost — Tangible and intangible assets in case of succession — Depreciation claim on revalued assets or WDV — Depreciation claimed by the erstwhile firm on WDV and by the successor Assessee on price revalued by the Government Approved Valuer — Payment made by the Assessee to predecessor at actual cost of assets — Successor Assessee entitled to claim depreciation for subsequent year on the basis of actual cost paid — Order of the Tribunal holding the Assessee eligible to claim depreciation on revalued price of assets is not erroneous.

61 Pr. CIT vs. Dharmanandan Diamonds Pvt. Ltd

[2024] 467 ITR 26 (Bom)

A.Y. 2009–10

Date of order: 14th June, 2023

Ss. 32 and 43(1) of ITA 1961: R. 5 of IT Rules 1962

Depreciation — Actual cost — Tangible and intangible assets in case of succession — Depreciation claim on revalued assets or WDV — Depreciation claimed by the erstwhile firm on WDV and by the successor Assessee on price revalued by the Government Approved Valuer — Payment made by the Assessee to predecessor at actual cost of assets — Successor Assessee entitled to claim depreciation for subsequent year on the basis of actual cost paid — Order of the Tribunal holding the Assessee eligible to claim depreciation on revalued price of assets is not erroneous.

The Assessee was incorporated on 31st August, 2007 and A.Y. 2008–09 was the first year of the Company. The Assessee was incorporated to take over all the assets and liabilities of a Partnership Firm (‘the Firm’) as on 1st September, 2007. Depreciation on assets was claimed by the erstwhile Firm on WDV basis up to 31st August, 2007 and by the successor Assessee at revalued price from 1st September, 2007 to 31st March, 2008. The revaluation was done by a Government-approved valuer. In the subsequent year, that is, A.Y. 2009–10, the assessment year under consideration, the Assessee claimed depreciation on the WDV as on 31st March, 2008 which was arrived at by the Assessee after claiming depreciation for the period 1st September, 2007 to 31st March, 2008 on the revalued figure. According to the Assessing Officer, the Assessee had claimed excess depreciation and, therefore, he disallowed the depreciation as claimed by the Assessee on the revalued cost.

The Tribunal held that the assessee was eligible for claiming depreciation on revalued assets instead of written down value.

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

“i) According to the proviso to section 32, aggregate deduction in respect of depreciation on tangible assets or intangible assets allowable to the predecessor firm and the successor assessee, respectively, shall not exceed in any previous year, the deduction calculated at the prescribed rates as if the succession or the amalgamation or the demerger, as the case may be, had not taken place, and such deduction shall be apportioned between the predecessor and the successor. This was applicable only to the A. Y. 2008-09 when the succession took place as for later years, it would not be the case as the assets would no longer belong to the predecessor firm but only the successor assessee, who could claim depreciation.

ii) For the earlier A. Y. 2008-09, the predecessor firm had claimed depreciation for five months from April 1, 2007 to August 31, 2007 and the successor assessee had claimed depreciation for the assessment year 2008-09 for the period from September 1, 2007 to March 31, 2008. By way of illustration, if succession had not taken place during the A. Y. 2008-09 and the predecessor firm would have claimed Rs. 1 crore as depreciation, both predecessor firm and the successor assessee for that year could claim together only Rs. 1 crore as depreciation and nothing more. This is what had happened in the case at hand also.

iii) The appeal pertained to the A. Y. 2009-10 in which year the asset was owned by the successor assessee. According to section 32 read with rule 5 of the Income-tax Rules, 1962, the assessee would be entitled to claim depreciation in respect of any assets on the actual cost of these assets which would be the actual cost paid to the predecessor firm by the assessee after revaluing the assets. Therefore, the assessee would be entitled to claim depreciation for the subsequent years on the basis of the actual cost paid. For the actual cost no money was paid but shares were issued in lieu of cash and that would be the cost which the assessee had paid to procure the assets. The Tribunal did not err in holding that the assessee was eligible for claiming depreciation u/s. 32 on revalued assets instead of written down value for the A. Y. 2009-10.”

Assessment — Amalgamation of Companies — Law applicable — Effect of insertion of section 170A with effect from 1st April, 2022 — Assessment to be on the basis of modified return filed by successor to business.

60 Pallava Textiles Pvt. Ltd. vs. Assessment Unit

[2024] 467 ITR 539 (Mad.)

A.Y. 2021–22

Date of order: 30th January, 2024

S. 170A of ITA 1961

Assessment — Amalgamation of Companies — Law applicable — Effect of insertion of section 170A with effect from 1st April, 2022 — Assessment to be on the basis of modified return filed by successor to business.

The assessee was a private limited company engaged in the business of manufacturing and trading of yarn and fabric. During the financial year 2020–21, it filed an application before the National Company Law Tribunal, seeking approval for a scheme of amalgamation with a company C. Under the scheme of amalgamation, C merged with the assessee and dissolved without being wound up. The appointed date under the scheme was 1st April, 2020. The National Company Law Tribunal sanctioned the scheme on 18th April, 2022, and the scheme became effective from 1st April, 2020 upon such sanction. Since the last date for filing the return of income was in March 2022, the assessee was constrained to file the standalone return of income on 14th March, 2022. Meanwhile, the Assessing Officer issued a notice u/s. 143(2) of the Income-tax Act, 1961 and further notices u/s. 142(1) thereof. The assessee replied thereto. After issuing a show-cause notice on 27th December, 2022, the assessment order was issued within two days after the assessee replied to the show-cause notice.

Assessee filed a writ petition to quash the order. The Madras High Court allowed the writ petition and held as under:

“i) Section 170A of the Income-tax Act, 1961, was inserted by the Finance Act, 2022 ([2022] 442 ITR (St.) 91) with effect from April 1, 2022. Under the provisions of section 170A a successor of a business reorganisation is required to furnish the modified return within six months from the end of the month in which the order of the court or Tribunal sanctioning such business reorganisation is issued. The provision clearly indicates that any assessment after a business reorganisation is sanctioned should be on the basis of the modified return. Under the Companies Act, 2013, a scheme of reorganisation becomes effective upon sanction from the appointed date. All the assets, contracts, rights and liabilities of the transferor shall stand vested with the transferee with effect from that date. Therefore, section 170A of the Act enables the transferee or successor to file the modified return within a specified time limit.

ii) The amended section 170A clearly indicates that any assessment after the business reorganization is sanctioned should be on the basis of the modified return. Since the order of the National Company Law Tribunal was issued on April 18, 2022, the assessee had six months from April 30, 2022 to file the modified return. The option to file the modified return under section 170A of the Act had not been enabled in the portal. In those circumstances, the assessee submitted a physical copy of the modified return on August 24, 2022. Since the last date for filing the return was expiring earlier, the assessee previously submitted the return of the company on standalone basis on March 14, 2022. The first notice to the assessee u/s. 143(2) of the Act was issued on June 28, 2022, which was subsequent to the effective date of merger. All other notices culminating in the assessment order were issued later. In view of the scheme of amalgamation having become effective and thereby operational from April 1, 2020, the assessee’s consolidated return of income, after its amalgamation, should have been the basis for assessment based on the scrutiny. The Assessing Officer had taken into account the standalone returns of the assessee, the standalone returns of C and the consolidated returns of the merged entity for different purposes. Such an approach was not sustainable.

iii) The show-cause notice dated December 27, 2022 was followed by the assessment order in a matter of about five or six days. The issuance of an assessment order within about two days from the receipt of the reply to the show cause, in a matter relating to about 59 additions to income, constituted a further reason to interfere with
the order.

iv) The assessment order dated December 31, 2022 was quashed and the matter was remanded. Upon consideration of the consolidated return of the assessee, which had since been uploaded electronically, it is open to the Department to issue fresh notices and make a reassessment on the basis of such consolidated return of income.”

TDS — Rent — Transit rent — Payment made by developer or landlord to a tenant who suffered hardship due to dispossession — Transit rent not taxable as revenue receipt — No liability to deduct tax at source.

59. Sarfaraz S. Furniturewalla vs. AfshanSharfali Ashok Kumar

[2024] 467 ITR 293(Bom):

Date of order 15th April, 2024:

S.194-Iof the ITA 1961

TDS — Rent — Transit rent — Payment made by developer or landlord to a tenant who suffered hardship due to dispossession — Transit rent not taxable as revenue receipt — No liability to deduct tax at source.

On the question of whether there should be a deduction of tax at source u/s. 194-I of the Income-tax Act, 1961 on the amount paid by the assessee as “transit rent”, by the developer or builder, the Bombay High Court held as under:

“The ordinary meaning of rent would be an amount which the tenant or licensee pays to the landlord or licensor. The “transit rent”, which was commonly referred to as hardship allowance rehabilitation allowance, or displacement allowance, which was paid by the developer or landlord to the tenant who suffered hardship due to dispossession was not revenue receipt and therefore, not liable to tax. Hence there was no liability to deduct tax at source u/s. 194-I from the amount payable by the developer to the tenant.”

Search and seizure — Survey — Assessment in search cases — Grant of approval by the competent authority — Approval to be granted for each assessment year — Single approval u/s. 153D granted by competent authority for multiple assessment years — Grant of approval cannot be merely ritualistic formality or rubber stamping by authority — Tribunal not erroneous in setting aside assessment order.

58. Principal CIT vs. Shiv Kumar Nayyar

[2024] 467 ITR 186 (Del)

A. Y. 2015–16: Date of order 15th May, 2024

Ss. 132, 133A, 143(3), 153A and 153D of ITA 1961

Search and seizure — Survey — Assessment in search cases — Grant of approval by the competent authority — Approval to be granted for each assessment year — Single approval u/s. 153D granted by competent authority for multiple assessment years — Grant of approval cannot be merely ritualistic formality or rubber stamping by authority — Tribunal not erroneous in setting aside assessment order.

The Tribunal set aside the assessment order passed u/s. 153A of the Income-tax Act, 1961 read with section 143(3) as invalid and bad in law on the ground that the approval granted by the Range’s head under section 153D was void since it was granted in a mechanical manner without application of mind.

On appeal by the Revenue the Delhi High Court upheld the decision of the Tribunal and held as under:

“i) The approval, for assessment in cases of search or requisition u/s. 153D of the Income-tax Act, 1961 has to be granted for “each assessment year” referred to in clause (b) of sub-section (1) of section 153A. Grant of approval u/s. 153D cannot be merely a ritualistic formality or rubber stamping by the authority. It must reflect an appropriate application of mind.

ii) The order of approval u/s. 153D for assessment u/s. 153A clearly signified that a single approval had been granted for the A. Ys. 2011–12 to 2017–18. The order also failed to make any mention of the fact that the draft assessment orders were perused, much less perusal with an independent application of mind. The concerned authority had granted approval for 43 cases in a single day which was evident from the findings of the Tribunal, succinctly encapsulated in the order. We are unable to find any substantial question of law which would merit our consideration.”

Revision — Application for revision u/s. 264 — Power of Commissioner to condone delay — Power should be exercised in a liberal manner — Delay should be condoned where there is sufficient cause for it.

57. Jindal Worldwide Ltd. vs. Principal CIT

[2024] 466 ITR 472 (Guj)

A. Y. 2015–16: Date of order 29th April, 2024

S. 264of ITA 1961

Revision — Application for revision u/s. 264 — Power of Commissioner to condone delay — Power should be exercised in a liberal manner — Delay should be condoned where there is sufficient cause for it.

The petitioner is a limited company incorporated under the provisions of the Companies Act, 1956, and is engaged in the business of weaving, manufacturing, and finishing textiles. The petitioner is also engaged in the business of manufacturing and dealing in denim and other textile activities. For the A. Y. 2015–16, the petitioner filed a return of income on 31st October, 2015 declaring a total loss of ₹8,54,09,913 including the interest subsidy of ₹10,83,16,142 received by the petitioner under the Technology Upgradation Fund Scheme (TUFS) for textile and jute industries, a State interest subsidy of ₹2,27,09,183 and electricity subsidy of ₹1,71,06,082. According to the petitioner the aforesaid subsidies were erroneously treated as revenue receipts instead of capital receipts and the return of income was processed u/s. 143(1) of the Act on 17th January, 2017 without framing any assessment u/s. 143(3) and intimation to that effect issued.

It is the case of the petitioner that for the A. Y. 2012–13, the petitioner had received similar subsidies, and the same was treated as revenue receipts instead of capital receipts during the appeal before the Income-tax Appellate Tribunal, the additional ground was taken by the petitioner and the same was allowed by the Tribunal while disposing of the appeal being I. T. A. No. 1843/Ahd/2016 by order dated 20th February, 2019 (CIT vs. Jindal Worldwide Ltd.). Therefore, according to the petitioner, the issue of the nature of the subsidy was judicially decided that it would be capital receipts and not revenue receipts.

The petitioner therefore, on the basis of the aforesaid order passed by the Tribunal filed a revision application u/s. 264 of the Act on 1st July, 2019, to revise the loss return for the A. Y. 2015–16 and treat the various subsidies as capital receipts instead of revenue receipts as erroneously offered in the return of income. The petitioner also requested the respondents to condone the delay in filing the revision application as per the provisions of section 264(3) of the Act. However, the respondent-Principal Commissioner of Income-tax by the impugned order dated 20th March, 2020 rejected the revision application of the petitioner on the ground of limitation by not entertaining the application to condone the delay in preferring the revision application.

The Gujarat High Court allowed the writ petition filed by the assessee petitioner and held as under:

“i) Section 264 of the Income-tax Act, 1961, confers wide jurisdiction on the Commissioner. Proceedings u/s. 264 are intended to meet the situation faced by an aggrieved assessee who is unable to approach the appellate authority for relief and has no other alternate remedy available under the Act. The Commissioner has the power to condone the delay in filing an application for revision in case of sufficient cause while considering the question of condonation of delay u/s. 264 of the Act, the Commissioner should not take a pedantic approach but should be liberal. The words “sufficient cause” should be given a liberal construction so as to advance substantial justice when no negligence nor inaction nor want of bona fide is imputable to the assessee.

ii) The application for revision had been filed on the ground that certain subsidies received by the assessee were erroneously treated as revenue receipts instead of capital receipts. The judgment of the Supreme Court in the case of CIT vs. Chaphalkar Brothers [2018] 400 ITR 279 (SC); was pronounced on 7th December, 2017 wherein the character of subsidies was decided. The Supreme Court in the case of CIT vs. Chaphalkar Brothers [2018] 400 ITR 279 (SC); held that the subsidies received by the assessee would be capital receipts and not revenue receipts. This aspect had been considered by the Tribunal in the case of the assessee while allowing the additional ground raised by the assessee for the A. Y. 2012–13. The order of the Tribunal was pronounced on 20th February, 2019 and the assessee had filed the revision application on 1st July, 2019, i. e., within five months from the date of receipt of the order of the Tribunal.

iii) Hence the order dated 20th March, 2020 passed by the Commissioner u/s. 264 of the Act was liable to be quashed and set aside and the delay in preferring the revision application had to be condoned and the matter was remanded back to the respondent to decide the same on the merits after giving an opportunity of hearing to the petitioner.”

Return of income — Charitable purpose — Revised return of income — Delay — Condonation of delay — Genuine hardship — Power to condone delay to be exercised judiciously — Plea that deficit inadvertently not claimed in original return — Excess expenditure incurred in earlier assessment year can be set off against income of subsequent years — Assessee would be entitled to refund if allowed to file revised return — Establishment of genuine hardship — Bona fide reasons to be understood in context of circumstances — Application for condonation of delay to be allowed — Directions accordingly.

56. Oneness Educational and Charitable Trust vs. CIT(Exemption)

[2024] 466 ITR 654 (Ori)

A. Y. 2021–22: Date of order 9th March, 2024

Ss. 11(1), 119(2)(b) and 139(5)of ITA 1961

Return of income — Charitable purpose — Revised return of income — Delay — Condonation of delay — Genuine hardship — Power to condone delay to be exercised judiciously — Plea that deficit inadvertently not claimed in original return — Excess expenditure incurred in earlier assessment year can be set off against income of subsequent years — Assessee would be entitled to refund if allowed to file revised return — Establishment of genuine hardship — Bona fide reasons to be understood in context of circumstances — Application for condonation of delay to be allowed — Directions accordingly.

The assessee was an educational and charitable trust constituted for educational and charitable purposes registered u/s. 12A(1)(aa) of the Income-tax Act, 1961and was entitled to exemptions u/s. 10(23C), 11 and 12. For the A. Y. 2021–22, the assessee’s claim for exemption u/s. 11 was disallowed on the grounds of delay in filing the audit report in form 10B. The Assessing Officer in his order u/s. 143(1) raised a demand. At the beginning of the F. Y. 2020–21, the assessee had an accumulated deficit and there was a one-time settlement of the loan availed of from its bank. The assessee showed the amount sacrificed by the bank as income although it never claimed the loan principal amount as income or the repayment as application. The accumulated interest also remained unabsorbed and was duly reflected as a deficit in the balance sheet and the past accumulated deficit was not adjusted which resulted in excess of income over expenditure. According to the assessee, it inadvertently failed to claim the deficit in the return of income filed for the A. Y. 2021–22 and filed an appeal before the Commissioner (Appeals) challenging the intimation order u/s. 143(1). It also filed an application u/s. 154 for rectification of the order. Though the Assessing Officer rejected the rectification application, he did not dispute the claim of the assessee regarding the non-adjustment of accumulated deficit.

In the meantime, the Commissioner (Exemption) condoned the delay in filing form 10B and consequently, the Assessing Officer reduced the demand raised in the intimation under section 143(1). The assessee took additional grounds before the Commissioner (Appeals) regarding the rejection of the rectification application, disallowance of the set off of past deficit as the application of income, and its inadvertent mistake in claiming the past deficit in the A. Y. 2021–22 u/s. 11(1). The Commissioner (Appeals) observed that the claim of the assessee that in its return it had not set off the past year’s deficit on account of interest waiver under the one-time settlement by the bank, could only be considered in a revised return claiming such set-off and that if the time limit for filing the revised return had lapsed, the only remedy was to make an application u/s. 119(2)(b) for condonation of delay. The application filed by the assessee for condonation of delay in filing the revised return was rejected stating that the assessee having filed the original return of income after due consideration with an undertaking that the information therein was correct and in spite of enough time, no revised return of income having been filed, the genuine hardship for not filing the revised return of income was not justified.

The Orissa High Court allowed the writ petition filed by the assessee and held as under:

“i) The assessee has made out a case of genuine hardship in its favor, rejection of the application filed for condonation of the delay u/s. 119(2)(b) in filing the revised return of income u/s. 139(5) had no justification. The authority had neither in the rejection order u/s. 119(2)(b) nor in the counter affidavit, denied the entitlement of the assessee to claim set off of past years’ deficit u/s. 11. Rather, the Commissioner (Appeals) in his order had acknowledged the entitlement of the assessee to such a claim. The assessee had established the requirement of “genuine hardship”, as enumerated u/s. 119(2)(b). Therefore, the finding of the Commissioner (Exemption) that the assessee had failed to demonstrate “genuine hardship”, was misconceived, and unsustainable. The assessee had filed its return for the A. Y. 2021–22 on the due date of 15th March, 2022. The time limit for filing the revised return of income u/s. 139(5) was 31st December, 2022. On the observation of the Commissioner (Appeals) and finding no other alternative, the assessee filed an application u/s. 119(2)(b). The assessee had clearly stated in its application filed u/s. 119(2)(b) that it had inadvertently erred in claiming the past years’ deficit. Its claim was genuine and unless the time limit for filing a revised return making such a claim was extended, the assessee would be in genuine hardship. The authority without taking into consideration the genuine hardship of the assessee had mechanically rejected the application which was unsustainable.

ii) In view of the provisions of section 119(2)(b) read with the circular dated 9th June, 2015 ([2015] 374 ITR (St.) 25) issued by the Central Board of Direct Taxes, which stipulated that an application for claim of refund or loss was to be made within six years from the end of the relevant assessment year for which such application or claim was made, the last date for filing of revised return for the A. Y. 2021–22 was 31st December, 2022 and the assessee had made the application u/s. 119(2)(b) on 16th October, 2023 which was within six-year time limit, as stipulated in the circular for condonation of delay in filing the revised return u/s. 139(5). When the assessee had filed the application indicating its genuine hardship, it should have been considered in the proper perspective and not rejected. Accordingly, the order rejected the application for condonation of delay in filing the revised return u/s. 139(5) was quashed and set aside. The authority concerned was to take follow-up action in accordance with the law.

iii) That in view of the law laid down by the Supreme Court, the reasons which had been assigned by the concerned authority in the counter affidavit for rejection of the application for condonation of delay under section 119(2)(b) were contrary to the order in question and therefore, unsustainable.”

Reassessment — Notice — New procedure — Limitation — Bar of limitation — Prescription of new procedure governing initiation of reassessment proceedings from 01-04-2021 — Notice issued beyond the period of limitation of six years in pre-amended provision unsustainable — Order and consequential notice set aside.

55. Manju Somani vs. ITO

[2024] 466 ITR 758 (Del.)

A. Y. 2016–17: Date of order 23rd July, 2024

Ss. 147, 148 and 148A(d) of ITA 1961

Reassessment — Notice — New procedure — Limitation — Bar of limitation — Prescription of new procedure governing initiation of reassessment proceedings from 01-04-2021 — Notice issued beyond the period of limitation of six years in pre-amended provision unsustainable — Order and consequential notice set aside.

On a writ petition challenging the validity of the reassessment proceedings u/s. 147 of the A. Y. 2016–17, on the statutory prescription of limitation u/s. 149 (as amended by the Finance Act, 2021) by issuance of notice dated 29th April, 2024 u/s. 148, pursuant to the Supreme Court decision in UOI vs. Ashish Agarwal [2022] 444 ITR 1 (SC); the Delhi High Court held as under:

“i) The proviso to section 149 of the Income-tax Act, 1961 embodies a negative command restraining the Revenue from issuing a notice u/s. 148 for reopening the assessment u/s. 147 in respect of an assessment year prior to 1st April, 2021, if the period within which such a notice could have been issued in accordance with the provisions as they existed prior thereto had elapsed. This is manifest from the provision using the expression “no notice u/s. 148 shall be issued” if the time limit specified in the relevant provisions “. . . as they stood immediately prior to the commencement of the Finance Act, 2021” had expired. A reassessment which is sought to be commenced after 1st April, 2021 would therefore, have to abide by the time limits prescribed by section 149(1)(b), 153A or 153B as may be applicable.

ii) Section 149(1)(b) as it stood prior to the introduction of the amendments by way of the Finance Act, 2021 prescribed that no notice u/s. 148 shall be issued if four years “but not more than six years” have elapsed from the end of the relevant assessment year. Thus the period of six years stood erected as the terminal point which when crossed would have rendered the initiation of reassessment u/s. 147 impermissible in law.

iii) The decision in Twylight Infrastructure Pvt. Ltd. vs. CIT [2024] 463 ITR 702 (Delhi); does not empower the Revenue to reopen assessments u/s. 147 contrary to the negative covenant which forms part of section 149.

iv) The notice issued u/s. 148 in order to be sustained when tested on the anvil of the pre-amendment to section 149(1)(b), would have to meet the prescription of six years period of limitation and that period in respect of the A. Y. 2016–17 had ended on 31st March, 2023. Therefore, the reassessment proceedings which was commenced pursuant to the notice u/s. 148, dated 29th April, 2024, was unsustainable. The Assessing Officer did not attempt to sustain the initiation of action on any other statutory provision which could be read as extending the time limit that applied. The order u/s. 148A(d) dated 29th April, 2024 and the consequential notice issued u/s. 148 dated 29th April, 2024 were quashed and set aside.”

Reassessment — Notice — Jurisdiction — Faceless assessment scheme — Issue of notices by jurisdictional AO — Procedure adopted by the department in contravention of statutorily prescribed procedure u/s. 151A — Office memorandum cannot override mandatory specifications in Scheme — Notices set aside — Department given liberty to proceed in accordance with amended provisions.

54. Jatinder Singh Bhangu and JyotiSareen vs. UOI

[2024] 466 ITR 474 (P&H)

A. Y. 2020–21: Date of order 19th July, 2024

Ss. 147, 148 and 151A of ITA 1961

Reassessment — Notice — Jurisdiction — Faceless assessment scheme — Issue of notices by jurisdictional AO — Procedure adopted by the department in contravention of statutorily prescribed procedure u/s. 151A — Office memorandum cannot override mandatory specifications in Scheme — Notices set aside — Department given liberty to proceed in accordance with amended provisions.

For the A. Y. 2020–21, the jurisdictional Assessing Officer issued a notice u/s. 148 of the Income-tax Act, 1961 to reopen the assessment u/s. 147 on the ground that there was escapement of income on account of the compensation received by the assessees on the acquisition of their agricultural land.

The assesee filed a writ petition and challenged the notice contending that the procedure of faceless assessment prescribed u/s. 144B was not followed and section 151A required for issuance of notices by the Faceless Assessing Officer. The Punjab & Haryana High Court allowed the writ petition and held as under:

“i) The Central Government in the exercise of powers conferred by section 151A of the Income-tax Act, 1961 by Notification No. S. O. 1466(E), dated 29th March, 2022 ([2022] 442 ITR (St.) 198) has introduced the e-Assessment of Income Escaping Assessment Scheme, 2022. Under section 151A, the scheme of faceless assessment is applicable from the stage of show-cause notice u/s. 148 as well as section 148A. A detailed procedure of faceless assessment has been prescribed u/s. 144B and section 151A require for issuance of notice and assessment by the Faceless Assessing Officer. Clause 3(b) of the notification clearly provides that the scheme would be applicable to notices u/s. 148. Even otherwise, it is a settled proposition of law that assessment proceedings commence from the stage of issuance of show-cause notice. It is axiomatic in tax jurisprudence that circulars, instructions and letters issued by the Central Board of Direct Taxes or any other authority cannot override statutory provisions. The circulars are binding upon authorities but courts are not bound by circulars. The mandate of sections 144B and 151A read with the notification dated 29th March, 2022 ([2022] 442 ITR (St.) 198) issued thereunder is lucid. There is no ambiguity in the language of statutory provisions and therefore, the office memorandum or any other instruction issued by the Board or any other authority cannot be relied upon. Instructions or circulars can supplement but cannot supplant statutory provisions.

ii) In the wake of the above discussion and findings, we find it appropriate to subscribe to the view expressed by the Bombay, Telangana and Gauhati High Courts. The instant petitions deserve to be allowed and accordingly allowed.

iii) The notices issued by the jurisdictional Assessing Officer u/s. 148 are hereby quashed with liberty to the respondent to proceed in accordance with procedure prescribed by law.”

Educational trust — Exemption — Corpus fund — Corpus donations whether for material gains or charitable purpose — Absence of material to establish that corpus donations given for securing admission – Cannot be treated as donations towards charitable purposes — Tribunal not justified in holding assessee ineligible for exemption on corpus fund.

53. N. H. Kapadia Education Trust vs. ACIT (Exemption)

[2024] 467 ITR 278 (Guj)

A. Y. 2013–14: Date of order 4th March, 2024

S. 11(1)(d)of ITA 1961

Educational trust — Exemption — Corpus fund — Corpus donations whether for material gains or charitable purpose — Absence of material to establish that corpus donations given for securing admission – Cannot be treated as donations towards charitable purposes — Tribunal not justified in holding assessee ineligible for exemption on corpus fund.

The assessee was an educational trust. For the A. Y. 2013–14, the Assessing Officer found in the scrutiny assessment u/s. 143(3) of the Income-tax Act, 1961, the copies of the receipts issued to students for the payment of the one-time admission fees mentioned that the amount paid was for the one-time admission fees. The Assessing Officer held that such a fee was not a voluntary contribution given with a specific direction to treat it as corpus donation, which could be claimed as exempt u/s. 11(1)(d). Therefore, he disallowed the exemption claimed on the corpus donation and treated it as income of the assessee.

The Commissioner (Appeals) relied on the decision of the Tribunal in the assessee’s case for the A. Ys. 2004–05, 2005–06 and 2009–10 and deleted the addition made by the Assessing Officer. On appeal by the Revenue, the Tribunal held that the admission fee could not be treated as “corpus donation” and, that on the facts on record, neither the admission fee charged from the students qualified as a “voluntary” donation, nor there was a specific direction that the amount would be used only for the purpose of the corpus of the trust. The fees charged by the students were neither voluntary nor were directed to be used solely for the purpose of the corpus and therefore, the development fund amount could not be treated as corpus donation. Accordingly, the assessee was not eligible for the benefit of exemption u/s. 11(1)(d) on the corpus donation. However, if the amount was treated as the income of the assessee-trust, then the assessee was eligible for deduction or allowance of expenses incurred against those receipts towards objects of the trust.

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

“i) The amounts paid by the parents of the students admitted to the educational institution of the assessee-trust were payments towards corpus donation and were not collected by way of capitation fees. The Assessing Officer had not conducted any inquiry with regard to the examination of parents who had admitted the students in school as to whether the payment was made towards the corpus fund or capitation fee. Though it was true that the donation was bound to have been given for material gain in securing admission, it could not be characterized as a donation towards charitable purpose and the assessee would not be entitled to have the benefit, but in the absence of any material on record, such view could not be taken.

ii) Therefore, the Tribunal had committed an error by treating the admission fees charged from the students as not forming part of the corpus fund of the trust. Therefore, the Tribunal was not justified in confirming the addition of the corpus fund to the income of the assessee by holding that the receipts could not be treated as corpus donation and not eligible for exemption u/s. 11(1)(d).”

Appeal to Commissioner (Appeals) — Discretion to admit additional evidence — Sufficient cause to accept additional evidence in appellate proceedings — Additional evidence admitted by Commissioner (Appeals) considering assessee’s illiteracy and unawareness of notices due to language problem — Appellate proceedings continuation of assessment proceedings — Commissioner (Appeals) rightly permitted assessee to produce additional evidence in consonance with Rule 46A.

52. Principal CIT vs. DineshbhaiJashabhai Patel

[2024] 467 ITR 238 (Guj)

A. Y. 2014–15: Date of order 16th January, 2024

Ss. 246A and 251(1)(a) of the ITA 1961; 46A of ITR 1962

Appeal to Commissioner (Appeals) — Discretion to admit additional evidence — Sufficient cause to accept additional evidence in appellate  proceedings — Additional evidence admitted by Commissioner (Appeals) considering assessee’s illiteracy and unawareness of notices due to language problem — Appellate proceedings continuation of assessment proceedings — Commissioner (Appeals) rightly permitted assessee to produce additional evidence in consonance with Rule 46A.

The assessee was the proprietor of an enterprise in the waste craft paper business. Though the assessee was given various opportunities, he did not respond to the notices and the Assessing Officer could not verify the genuineness of the sundry creditors. The Assessing Officer treated the sundry creditors as bogus and accordingly made additions in his ex-parte order u/s. 143(3) read with section 144 of the Income-tax Act, 1961.

The assessee submitted before the Commissioner (Appeals) that he was an illiterate person and was not aware of the notices issued by the Assessing Officer and explained the increase in sales, debtors, closing stock, and creditors as per the balance sheet. The assessee contended that the Assessing Officer did not consider the increase in sales, and closing stock but only picked up the creditor’s amounts and made additions as bogus creditors without any justification. The assessee also furnished the copies of accounts of each creditor from his books of account and contra accounts with their addresses and permanent account numbers, which were duly reconciled by the Commissioner (Appeals) who admitted these documents to go to the root of the controversy involved and called for a remand report from the Assessing Officer. In the remand report the Assessing Officer objected to the acceptance of the additional evidence and also stated that the assessee failed to produce supporting bills or vouchers for the purchases made from the various parties and did not file bank details and proof of payments. In the rejoinder, the assessee furnished copies of audited accounts, sample purchase bills, and contra accounts with bank statements, and the Commissioner (Appeals) after considering this evidences deleted the addition. The Tribunal upheld the order of the Commissioner (Appeals).

On appeal, the Department contended that the Commissioner (Appeals) could not have admitted the additional evidence in terms of the provisions of rule 46A(2) of the Income-tax Rules, 1962 since the assessee did not furnish any sufficient cause for not submitting the evidence and had remained absent in the assessment proceedings though the sufficient opportunity was given.
The Gujarat High Court dismissed the appeal filed by the Revenue and held as under:

“i) The Commissioner (Appeals) had considered the aspect of additional evidence as objected to by the Assessing Officer after considering the explanation of the assessee that the assessee was an illiterate person and had studied up to fourth standard and he was not able to read in English, and therefore, the provisions of rule 46A(1) more particularly clause (b) thereof was complied with as the assessee was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer.

ii) The Commissioner (Appeals) had stated in his order to the effect that the assessee had in his possession the report u/s. 44AB, a copy of the return of income filed by the creditors, the permanent account number and full addresses of the creditors, copies of accounts of creditors in his books of account, and the proof that the assessee had a continuous trading relationship with the creditors. All such evidence was corroborative and could not have been manipulated at that stage. The Assessing Officer had the opportunity to cross-verify any information during remand proceedings but he had sent the remand report in a very routine manner. The independent corroborative evidence placed on record during the remand proceedings could not be ignored. There was no discrepancy in the sundry creditor’s accounts that could be added to the income of the assessee and hence the addition was deleted.

iii) The assessee being an illiterate person could not appear before the Assessing Officer and the appellate proceedings being the continuation of the assessment proceedings, the Commissioner (Appeals) had rightly permitted the assessee to produce the additional evidence in consonance with rule 46A.”

Revision — Powers of Commissioner — Assessee inadvertently filing data of next assessment year instead of relevant assessment year — Intimation u/s. 143(1) — Application for revision rejected only on the ground that intimation is not an order — Inadvertance of the Assessee not with a malafide intention to evade tax — Orders, intimation and communication set aside — Matter remanded to Principal Commissioner for de novo enquiry and fresh consideration.

51 DiwakerTripathi vs. PCIT

[2024] 466 ITR 371 (Bom)

A. Y. 2013-14

Date of order: 29th August, 2023

S. 143(1), 154 and 264 of ITA 1961

Revision — Powers of Commissioner — Assessee inadvertently filing data of next assessment year instead of relevant assessment year — Intimation u/s. 143(1) — Application for revision rejected only on the ground that intimation is not an order — Inadvertance of the Assessee not with a malafide intention to evade tax — Orders, intimation and communication set aside — Matter remanded to Principal Commissioner for de novo enquiry and fresh consideration.

The Assessee, an individual, filed his return of income for A.Y. 2013-14 on 28th March, 2015 declaring total income at ₹12,48,160. While filing the return of income, the Assessee mistook the assessment year to be the financial year and filled in all the details of income for the A. Y. 2014-15 in the return of income for the A. Y. 2013-14. In the intimation u/s. 143(1), the AO did not grant credit for tax deducted at source by one of his two employers but granted credit of the
tax deducted at source by the employer for the A. Y. 2013-14 though not claimed by the Assessee in his return. Thereafter, the Assessee filed his return of income for the A. Y. 2014-15 showing the correct income.

The Assessee filed a revised return of income u/s. 139(4) instead of u/s. 139(5) and filed an application u/s. 264 for the A. Y. 2013-14. The application u/s. 264 was rejected only on the ground that the intimation u/s. 143(1) was not an order. According to the Principal Commissioner, the income of an assessee was dependent on the sources he had, the head under which it was assessed, special rate and applicable if any and that determination of income of any assessee was an exercise which involved deep scrutiny and could not be merely substituted by acceptance of the income claimed by the assessee and determination of total income of the assessee could not be the mandate of section 264. The Assessee filed an application u/s. 154 for rectification of the order passed u/s. 264 which was also rejected.

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

“i) The power conferred u/s. 264 of the Income-tax Act, 1961 is wide and the Commissioner is duty bound to apply his mind to the application filed by the assessee and pass such order thereon. Section 264 also empowers the Principal Commissioner or Commissioner to call for the record of any proceedings under the Act in which any order has been passed and make such inquiry or cause such inquiry to be made and pass such order as he thinks fit. Therefore, if he is of the opinion that a detailed inquiry is necessary and he will be hard pressed for time, he may cause such inquiry made by the Assessing Officer and direct the Assessing Officer to file a report.

ii) The assessee’s inadvertence in filling the details of the A. Y. 2014-15 in his return of income for the A. Y. 2013-14 was not a deliberate mistake or an attempt to gain some unfair advantage or to evade tax. Therefore, the orders passed u/s. 264 and section 154 and the intimation issued u/s. 143(1) were quashed and set aside and the matter was remanded for de novo consideration to the Principal Commissioner to dispose of the assessee’s application u/s. 264 on the merits. He could make any inquiry as he deemed fit or cause any inquiry to be made by the Assessing Officer after giving personal hearing to the assessee for clarification or explanation and thereafter pass a speaking order considering every submission of the assessee.”

Refund — Interest on refund — Refund of TDS — Scope of Article 265 — Tax deducted at source and deposited by assessee in anticipation of contract with non-resident — Cancellation of contract — No authority of law in department to retain remittance to non-resident — Assessee entitled to refund with interest.

50 Tupperware India Pvt. Ltd. vs. CIT(IT)

[2024] 465 ITR 777(Del.)

A. Y. 2012-13

Date of order: 1st February, 2024

Ss. 195 and 237of the ITA 1961; Articles 226, 227 and 265 of the Constitution of India

Refund — Interest on refund — Refund of TDS — Scope of Article 265 — Tax deducted at source and deposited by assessee in anticipation of contract with non-resident — Cancellation of contract — No authority of law in department to retain remittance to non-resident — Assessee entitled to refund with interest.

The assesse company imported molds during the assessment year under consideration from a company in USA and the payment was made according to the rental agreement between the assessee and the USA Company. As per the agreement, the Assessee had to pay lease rent for mold on the basis of actual production days.

Due to a change in the method of charging mold lease rent, deliberations were made between the Assessee and the USA Company to increase the rent. However, before the negotiations were finalised, the Assessee made a provision for higher rent in the books of account as the estimated lease rent came out to be ₹7,19,96,529. Pursuant to the revised estimate, the Assessee deducted TDS of ₹71,99,653 on the higher side and deposited the same. However, subsequently, the increase in mold lease rent did not happen and the rent was recognised to be only ₹45,80,337 which resulted in excess deposit of TDS of ₹67,41,620 as the actual TDS amounted to only ₹4,58,035.

Accordingly, the Assessee made an application to the AO for refund of higher TDS in accordance with the procedure prescribed under the CBDT Circular dated 23rd October, 2007. However, no action was taken by the AO on the said application. Thereafter, the Assessee filed second application dated 16th January, 2017 which was rejected without providing any opportunity of hearing to the Assessee. Thereafter, on 21st March, 2017, the Assessee filed an application before the senior authority, i.e. Respondent No. 2, but to no avail.

The Assessee, therefore filed writ petition before the High Court challenging the orders rejecting the Assessee’s claim for refund of TDS. The Assessee, inter alia, contended that since the negotiations between the petitioner and Dart USA never culminated into a transaction or any agreement, the Assessee is rightfully entitled for claiming the benefit envisaged in the said circular. Further, if any amount credited to the Government does not fall in the category of tax, the said amount cannot be unjustifiably retained by the Government.

On the other hand, the contention of the Department was that under the provisions of the Act, the deductor is not entitled to the refund of excess tax deducted at source deposited by it and only the payee will get the refund.

The Delhi High Court allowed the petition of the Assessee and held as follows:

“i) The cardinal duty of imposition or collection of taxes which flows from article 265 of the Constitution of India is that it can only be exercised by the authority of law and not otherwise

ii) The Department was not entitled to withhold the excess tax deducted at source deposited by the Assessee in lieu of the anticipated liability for the assessment year 2012-13 since it would amount to collection of tax without any authority of law. Regarding the enhanced mold lease rent, the Assessee while anticipating tax liability had made a bona fide payment and had deposited the tax deducted at source at the rate of 10 per cent. Those deliberations did not materialise into a transaction or a contract and thus no income had accrued qua the excess tax deducted at source paid by the Assessee. Consequently, the Department had no right to retain the deducted tax deposited. The orders denying the refund of the excess tax deducted at source deposited by the Assessee on the ground that it did not fall within the gamut of cases mentioned in the Central Board of Direct Taxes circular dated 23rd October, 2007 ([2007] 294 ITR (St.) 32) was set aside. The assessee was entitled to refund of excess tax deducted at source with interest at the applicable rate.”

Reassessment — Notice —Limitation — Amendment in law — Effect of amendment with effect from 1st April, 2021 — Notices dated 31st March, 2021 but dispatched on 1st April, 2021 or thereafter from Income-tax Business Application Portal — Notices barred by limitation.

49 KalyanChillara vs. DCIT

[2024] 465 ITR 729(Telangana)

Date of order: 14th June, 2024

Ss.147, 148, 149 and 151 of the ITA 1961

Reassessment — Notice —Limitation — Amendment in law — Effect of amendment with effect from 1st April, 2021 — Notices dated 31st March, 2021 but dispatched on 1st April, 2021 or thereafter from Income-tax Business Application Portal — Notices barred by limitation.

This judgment deals with a batch of petitions which were before the Hon’ble Telangana High Court challenging the notices issued u/s. 148 of the Act.

In all these writ petitions, the last date of service of notice and initiating proceedings for re-opening of assessment was coming to an end on 31st March, 2021. In majority of the cases, the notice issued u/s. 148 was dated 31st March, 2021. However, the notices have been issued from the office of the Department either on 1st April, 2021 or on subsequent dates. The Assessee’s main contention for challenge was that since in all the cases the notices were issued on or after 1st April, 2021, the notices were hit on the ground of limitation.

It was contended on behalf of the Assessees that under the unamended provisions, a notice u/s. 148 had to be issued and served on or before 31-03-2021 and in case the notices have been served on or after 1st April, 2021 then in view of the decision of the Hon’ble Supreme Court in the case of UOI vs. Ashish Agarwal, the amended provisions would be applicable and the notices in the writ petitions before it would not be sustainable. It was contended that the documents maintained by the Department would indicate the date of actual dispatch and the actual date of service of the notice. Further, since the notices are mostly sent by email, the date of dispatch and the date of delivery are reflected. Even the page on the income tax portal would reflect the date and time at the originator’s place and the date and time at the recipient’s end.

On the other hand, it was the contention of the Department that there are large number of notices in the pipeline with the Income-tax Business Application Department by which the email is sent and since there is too much pressure upon the said Department, the notices are normally delayed more because of the network problem and not for any lapse or lacking on the part of officer. Therefore, probably technically, it has to be presumed that the dispatch has been made but for technicalities that arise because of the system and not because of the fault or lacking on the part of the authorities.

The Hon’ble High Court allowed the batch of petitions filed by the Assessees and held as follows:

“i) All the notices u/s. 148 had been issued (not served) on 1st April, 2021 or on a later date. The question of service of these notices and the date of service of notices upon the assessees was of no relevance or consequence since the notices had been dispatched from the Department on or after 1st April, 2021 which itself was beyond the period of limitation. All the notices issued u/s. 148, dated 31st March, 2021, were barred by limitation u/s. 148 and 149, since these notices had left the Income-tax Business Application portal on or after 1st April, 2021 and therefore, were unsustainable.

ii) The objection raised by the learned counsel for the petitioners that the impugned notices under challenge are barred by limitation is sustained. Therefore, the impugned notices in all these writ petitions are as a con sequence set aside / quashed on the ground of it being barred by limitation.”

Reassessment —Search and seizure —Assessment in search cases — Jurisdiction — Assessment of third person — Reassessment based on incriminating material and information collected prior to and post search — Permissible only u/s. 153C — Failure to assess within time limit for assessment u/s. 153C — Reassessment cannot be made u/s. 147 — Notices and orders set aside.

48 Tirupati Construction Co. vs. ITO

[2024] 465 ITR 611 (Raj)

A. Ys. 2016-17, 2017-18

Date of order: 21st March, 2024

Ss. 132, 147, 148, 148A, 148A(b), 153A, 153B and 153C of ITA 1961

Reassessment —Search and seizure —Assessment in search cases — Jurisdiction — Assessment of third person — Reassessment based on incriminating material and information collected prior to and post search — Permissible only u/s. 153C — Failure to assess within time limit for assessment u/s. 153C — Reassessment cannot be made u/s. 147 — Notices and orders set aside.

The assessee was a firm. The Delhi High Court allowed the writ petitions filed by the assesse against the notices for reassessment u/s. 148A and section 148 of the Income-tax Act, 1961 and held as under:

“i) Where the basis for reassessment u/s. 147 of the Income-tax Act, 1961 is incriminating material and information collected during the search and seizure operation u/s. 132, the only legally permissible course of action is the one provided u/s. 153C and not u/s. 147.

ii) The information as contained in the annexure to the notice and the order passed in exercise of powers u/s. 148A(d) of the Act made it clear that the entire basis for reopening the assessment was nothing but the material and information collected during search conducted in the premises of another assessee. Collection of details relating to search would not mean collection of new incriminating material and information, independent of the incriminating material and information collected during search proceedings. The earlier notice, dated 31st March, 2021, issued u/s. 148 merely stated that the Assessing Officer had reasons to believe that the income chargeable to tax for the A. Y. 2016-17 had escaped assessment u/s. 147. The later notice, dated June 2, 2022, issued u/s. 148A(b) pursuant to the decision in UOI v. Ashish Agarwal [2022] 444 ITR 1 (SC), it was stated that there was information pertaining to the assessee which suggested that income chargeable to tax for the A. Y. 2016-17 had escaped assessment u/s. 147. The notice clearly showed that incriminating material and information was found during the search proceedings and not beyond that and to assume jurisdiction u/s. 148A such information was made a basis to draw inferences which were described as pre search and post search investigations. It had been assumed that the incriminating material and information collected during search followed by collection of details which were intrinsically related to such material and information would confer jurisdiction u/s. 147.

iii) The Department had the authority to reopen the assessment by invoking the powers u/s. 153C and draw reassessment proceedings u/s. 153A. That was not done within the period of limitation prescribed u/s. 153B. The Department was fully aware of the fact that proceedings u/s. 153C would be barred by limitation, and therefore, recourse was taken to the provisions u/s. 148 and section 148A which had no application in the assessee’s case. The orders passed for the A. Ys. 2016-17 and 2017-18 were unsustainable and accordingly, quashed and set aside.”

Reassessment — Notice — Sanction of prescribed authority — Sanction accorded by competent authority by merely stating “yes” — Non-application of mind — Notice and reassessment proceedings invalid.

47 Principal CIT vs. Pioneer Town Planners Pvt. Ltd.

[2024] 465 ITR 356(Del.)

A. Y. 2009-10

Date of order: 20th February, 2024

Ss. 147, 148 and 151 of ITA 1961

Reassessment — Notice — Sanction of prescribed authority — Sanction accorded by competent authority by merely stating “yes” — Non-application of mind — Notice and reassessment proceedings invalid.

Subsequent to search operations u/s. 132 of the Income-tax Act,1961 in the premises of certain group entities, of which the assessee was one, reassessment proceedings u/s. 147 were initiated against the assessee. The assessee requested the Assessing Officer to treat the original return as filed in response to the notice u/s. 148. The Assessing Officer, in his order u/s. 143(3) read with section 147, made additions on account of unexplained share premium and expenditure of commission for accommodation entries.

The Tribunal allowed the Assessees appeal and held that the Assessing Officer had initiated the reassessment proceedings on the basis of borrowed satisfaction and without any application of mind and that the prescribed authority had granted approval u/s. 151 in a mechanical manner.

On appeal by the Department the Delhi High Court upheld the decision and held as under:

“i) Section 151 of the Income-tax Act, 1961 stipulates that the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner must be “satisfied”, on the reasons recorded by the Assessing Officer, that it is a fit case for the issuance of notice u/s. 148 to reopen the assessment u/s. 147. Thus, the satisfaction of the prescribed authority is a “sine qua non” for a valid approval. The satisfaction arrived at by the prescribed authority u/s. 151 must be clearly discernible from the expression used at the time of affixing the signature while according approval for reassessment u/s. 147. Such approval cannot be granted in a mechanical manner as it acts as a link between the facts considered and conclusion reached. Merely appending the phrase “Yes” does not appropriately align with the mandate of section 151 as it fails to set out any degree of satisfaction, much less an unassailable satisfaction, for the purpose.

ii) The Principal Commissioner had failed to satisfactorily record his concurrence. Mere penning down the expression “yes” could not be considered to be valid approval. Though the Assistant Commissioner had appended his signature by writing in his hand “Yes, I am satisfied”, the Principal Commissioner had merely written “Yes” without specifically noting his approval, while recording the satisfaction for issuance of notice u/s. 148 for reopening the assessment u/s. 147.

iii) Therefore, the order of the Tribunal holding that the Assessing Officer had initiated the reassessment proceedings on the basis of borrowed satisfaction and that the prescribed authority had granted approval u/s. 151 in a mechanical manner need not be interfered with.”

Assessment — Faceless assessment — Validity — Effect of section 144B, circulars and instructions of CBDT — Notice must be given for proposed additions to income or disallowance along with necessary evidence.

46 Inox Wind Energy Ltd. vs. ACIT

[2024] 466 ITR 463 (Guj)

A. Y. 2021-22

Date of order: 19th March, 2024

S. 144Bof ITA 1961

Assessment — Faceless assessment — Validity — Effect of section 144B, circulars and instructions of CBDT — Notice must be given for proposed additions to income or disallowance along with necessary evidence.

By this petition under articles 226 and 227 of the Constitution of India, the petitioner has prayed for quashing and setting the assessment order under section 143(3) dated 29th December, 2022 passed by the respondent-Assessing Officer for the A. Y. 2021-22. It is the case of the petitioner that after the aforesaid notices and replies exchanged between the petitioner and the respondent-Assessing Officer, no further show-cause notice was issued to the petitioner on the proposed addition indicating the reasons along with necessary evidence / reasons forming the basis for such additions by the respondent-Assessing Officer and accordingly the petitioner is deprived of opportunity of personal hearing as the impugned assessment order was passed on 29th December, 2022 by assessing the income at ₹71,06,57,281 raising a demand of ₹24,30,03,540 along with a notice for penalty under section 274 read with section 271A of the Act.

The Gujarat High Court allowed the Petition and held as under:

“i) U/s. 144B of the Income-tax Act, 1961, which provides for faceless assessment, the Assessing Officer is required to frame the assessment notwithstanding anything contained in sub-section (1) or sub-section (2) of section 144B with prior approval of the Board. On a harmonious reading of the circulars, instructions and letters of the Board, it appears that since 2015 as per the desire of the Board, the Assessing Officer is mandatorily required to issue an appropriate show-cause notice duly indicating the reasons for the proposed additions and disallowances along with necessary evidence and reasons forming basis thereof before passing the final order. As a matter of fact, such position will continue even when the case is transferred to the Assessing Officer u/s. 144B(8) of the Act as per Circular No. 27 of 2019 ([2019] 417 ITR (St.) 68).

ii) The Assessing Officer had committed flagrant breach of the principles of natural justice by not issuing a show-cause notice indicating the reasons for the proposed addition or disallowance along with the necessary evidence forming the basis thereof and, therefore, the assessment order had to be quashed and set aside.

iii) The matter is remanded back to the stage of issuance of show-cause notice by the Assessing Officer to the petitioner duly indicating the reasons for the proposed addition/disallowance along with necessary evidence / reasons forming the basis of the same so as to enable the petitioner-assessee to request for personal hearing if any required in compliance of Circular No. 27 of 2019 ([2019] 417 ITR (St.) 68) read with circular dated September 6, 2021 applicable in the facts of the case. Such exercise shall be completed within a period of 12 weeks from the date of receipt of a copy of this order.”

Assessment — Eligible assessee — Procedure to be followed — Objections filed by assessee against draft assessment order before DRP but factum not intimated to AO — Final assessment order passed by AO without directions of DRP — Assessment set aside and to be framed afresh in accordance with directions of DRP.

45 DiwakerTripathi vs. PCIT

[2024] 465 ITR 622 (Del)

A. Y. 2020-21

Date of order: 1st December, 2023

S. 144Cof ITA 1961

Assessment — Eligible assessee — Procedure to be followed — Objections filed by assessee against draft assessment order before DRP but factum not intimated to AO — Final assessment order passed by AO without directions of DRP — Assessment set aside and to be framed afresh in accordance with directions of DRP.

Though the assessee had preferred its objections against the draft assessment order before the Dispute Resolution Panel(DRP) within limitation as provided u/s. 144C(2)(b)(i) read with section 144B(1)(xxiv)(b)(I) of the Income-tax Act, 1961, it inadvertently failed to intimate the Assessing Officer regarding the objections in terms of section 144C(2)(b)(ii) of the Act. The Assessing Officer passed the final assessment order in the absence of the directions of the DRP.

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

“Once the objections have been filed by the assessee against a draft assessment order within the time limit prescribed u/s. 144C(2)(b) of the Income-tax Act, 1961, the rest of the procedure should be followed as prescribed and the final assessment order ought to be passed by the Assessing Officer in accordance with the directions issued by the DRP. No prejudice would be caused to the Department if the assessment order was set aside as the Department would be well within its rights to pass a fresh assessment order post the receipt of directions from the DRP.”

Sulzer Pumps India Pvt. Ltd. vs. DY. CIT [2024] 465 ITR 619 (Bom) followed.

Assessment — Eligible assessee — Draft assessment order — Assessee filing its objections thereto before DRP but failing to communicate this to AO — AO unaware of pending application before DRP — Final assessment order passed during pendency of assessee’s objections to draft assessment order — Order set aside and AO directed to pass fresh order in accordance with directions of DRP.

44 Sulzer Pumps India Pvt. Ltd. vs. Dy. CIT

[2024] 465 ITR 619 (Bom)

A.Y.: 2017-18

Date of order: 27th October, 2021

Ss. 143(3), 144B, 144C(2), 144C(3), 144C(4), 156 and 270A of ITA 1961

Assessment — Eligible assessee — Draft assessment order — Assessee filing its objections thereto before DRP but failing to communicate this to AO — AO unaware of pending application before DRP — Final assessment order passed during pendency of assessee’s objections to draft assessment order — Order set aside and AO directed to pass fresh order in accordance with directions of DRP.

The assessee, under the belief that with the assessments being faceless and completely electronic, the application filed by it u/s. 144C(2) of the Income-tax Act, 1961 against the draft assessment order for the A. Y. 2017-18 before the Dispute Resolution Panel(DRP) would automatically be communicated to the Assessing Officer by the DRP, failed to directly communicate to the Assessing Officer. While the application was pending the Assessing Officer passed an order u/s. 143(3) read with sections 144C(3) and 144B of the Income-tax Act, 1961, issued a demand notice u/s. 156 and a penalty notice u/s. 270A.

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

“The Assessing Officer could not be faulted for passing the order in question. However, since the assessee had already filed application raising its objections before the Dispute Resolution Panel and section 144C(4) required the Assessing Officer to pass the final order according to the directions that would be issued by the Dispute Resolution Panel, the order passed u/s. 143(3) read with sections 144C(3) and 144B, the notice of demand u/s. 156 and the notice of penalty u/s. 270A were set aside. The Assessing Officer could pass a fresh order in accordance with the directions of the Dispute Resolution Panel in the pending application.”

Reassessment — Notice after three years — Limitation — Extension of limitation period under 2020 Act — Notice for A.Y. 2016–17 issued after April 2021 — Alleged escapement of income less than R50 lakhs — Notice barred by limitation

SevenseaVincom Pvt. Ltd. vs. Principal CIT

[2024] 465 ITR 331(Jhar)

A.Y.: 2016–17

Date of order: 11th December, 2023

Ss. 147, 148, 149, 156 of the ITA 1961

43. Reassessment — Notice after three years — Limitation — Extension of limitation period under 2020 Act — Notice for A.Y. 2016–17 issued after April 2021 — Alleged escapement of income less than R50 lakhs — Notice barred by limitation.

The petitioner is a private limited company registered under the Companies Act, 2013. A notice dated 30th June, 2021 u/s. 148 of the Income-tax Act, 1961 for the A.Y. 2016–17 was issued to the petitioner. Thereafter, the Revenue issued a letter on 30th May, 2022 deemed to be a notice u/s. 148A(b) of the Act. However, no information and material relied upon by the respondent-Department were provided to the petitioner. Department passed the order on 21st July, 2022 u/s. 148A(d) of the Act and on the same date, i.e., 21st July, 2022 notice u/s. 148 of the Act was also issued for reassessment for the A.Y. 2016–17 and finally a reassessment order was passed on 31st May, 2023 against this petitioner and consequential notice of demand was also issued. The income claimed to have escaped assessment was less than ₹50 lakhs.

The petitioner wrote a writ petition and challenged the notices and the orders. The Jharkhand High Court allowed the writ petition and held as under:

“i) According to section 149 of the Income-tax Act, 1961 the limitation for issuance of notice u/s. 148 is three years from the end of the relevant assessment year and extendable beyond three years till ten years, provided the income which has escaped assessment is ₹50,00,000 or more and the permission of the prescribed sanction authority is taken u/s. 151.

ii) The notice dated July 21, 2022, issued u/s. 148, for the A. Y. 2016-17 was barred by the limitation period prescribed u/s. 149 since the three-year time period had ended on March 31, 2020. Further, the notice was for alleged escaped income which was less than ₹50 lakhs and therefore, the benefit of the extended period of limitation beyond three years till ten years was not available.

iii) The initiation of reassessment proceedings u/s. 147 was without jurisdiction. If the foundation of any proceeding was illegal and unsustainable, all consequential proceedings or orders were also bad in law. Accordingly, since the notice dated July 21, 2022, issued u/s. 148, was barred by limitation and was illegal, unsustainable and void ab initio and set aside, the subsequent reassessment order u/s. 147 and notice of demand u/s. 156 were also quashed and set aside.”

Reassessment — New procedure — Notice — Reason to believe — Necessity of live link between belief and material available — Information from “insight” portal that assessee had transacted with mutual fund found to be involved in scam — No nexus between belief and material — AO not clear whether assessee had claimed loss or dividend in mutual fund — Non-application of mind — Notices and order set aside.

Karan Maheshwari vs. ACIT

[2024] 465 ITR 232 (Bom)

A.Y.: 2016–17

Date of order: 8th March, 2024

Ss. 147, 148, 148A(b) and 148A(d) of the ITA 1961

42. Reassessment — New procedure — Notice — Reason to believe — Necessity of live link between belief and material available — Information from “insight” portal that assessee had transacted with mutual fund found to be involved in scam — No nexus between belief and material — AO not clear whether assessee had claimed loss or dividend in mutual fund — Non-application of mind — Notices and order set aside.

For the A.Y. 2016–17, the Assessing Officer issued an initial notice u/s. 148A(b), an order u/s. 148A(d) and notices u/s. 148 of the Income-tax Act, 1961, based on the information from the “insight” portal, that the assessee was a beneficiary of dividend income from a mutual fund alleged to have been involved in a scam.

On a writ petition contending that without providing any information as requested, the Department had proceeded to pass the order u/s. 148A(d) and the notices u/s. 148 for reopening the assessment u/s. 147, the Bombay High Court held as under:

“i) The reasons for the formation of the belief that there has been escapement of income u/s. 147 of the Income-tax Act, 1961 must have a rational connection with or relevant bearing on the information. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and his view that there has been escapement of income in the particular year. It is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched which would suggest escapement of the income. The powers of the Assessing Officer to reopen an assessment, though wide, are not plenary. The Act contemplates the reopening of the assessment if grounds exist for believing that income has escaped assessment. The live link or close nexus should be there between the information before the Assessing Officer and the belief which he has to prima facie form an opinion regarding the escapement of the income u/s. 147.

ii) The assessee was himself a victim of the alleged fraud of the mutual fund and was again being victimised by the Assessing Officer. Even in the order u/s. 148A(d) wherein it was mentioned that statement of the key management personnel of the mutual fund was recorded, there was nothing to indicate that the assessee was part of the alleged sham mutual fund. The assessee was not a distributor and was only a client. The allegation in the initial notice issued u/s. 148A(b) that the assessee was one of the persons who had claimed fictitious short-term capital loss was without any basis. The assessee had, based on public announcement, invested in the mutual fund. The receipt of tax free dividend fund and the fact that the assessee had suffered a loss could not be held against the assessee. Even assuming that the transaction was preplanned, there was nothing to impeach the genuineness of the transaction. The assessee was free to carry on his business which he did within the four corners of the law. Mere tax planning without any motive to evade taxes through colourable devices was not frowned upon even in Mcdowelland Co. Ltd. v. CTO [1985] 154 ITR 148;

iii) That the Assessing Officer’s allegations in the notice issued u/s. 148A(b), that the mutual fund had manipulated accounting methodology so as to artificially inflate the distributable surplus and the investors, in order to reduce their tax liability, had entered into sham transactions and received dividend and short-term capital loss, did not implicate the assessee in any manner. There was nothing to indicate that the assessee had participated knowingly in a sham transaction to reduce his tax liability or to earn dividend or book short-term capital loss.

iv) The Assessing Officer was also not clear whether the assessee had booked loss or claimed dividend in the mutual fund which indicated non-application of mind by the Assessing Officer. The initial notice u/s. 148A(b), the order passed u/s. 148A(d) and the notices u/s. 148 were therefore, quashed and set aside.”

Reassessment — Notice — Limitation — New procedure — Extension of period of limitation by 2020 Act — Supreme Court ruling in UOI vs. Ashish Agarwal [2022] 444 ITR1 (SC) — Effect — Notice for reassessment u/s. 148 after 31st March, 2021 for A.Y. 2015–16 — Extension of period not applicable where limitation had already expired — Notice does not relate back to original date — 2020 Act would not extend limitation

Hexaware Technologies Ltd. vs. ACIT

[2024] 464 ITR 430 (Bom)

A.Y.: 2015–16

Date of order: 3rd May, 2024

Ss. 119, 147, 148, 148A(b), 148A(d) and 149 of ITA 1961

41. (A) Reassessment — Notice — Limitation — New procedure — Extension of period of limitation by 2020 Act — Supreme Court ruling in UOI vs. Ashish Agarwal [2022] 444 ITR1 (SC) — Effect — Notice for reassessment u/s. 148 after 31st March, 2021 for A.Y. 2015–16 — Extension of period not applicable where limitation had already expired — Notice does not relate back to original date — 2020 Act would not extend limitation.

(B) Reassessment — Notice — Document identification number — CBDT Circular stipulating mention of document identification number — Binding nature of — Failure to mention document identification number in notice — Violation of mandatory requirement — Notice invalid.

(C) Reassessment — Notice — Jurisdiction — Faceless assessment scheme — Specific jurisdiction assigned to jurisdictional Assessing Officer or faceless Assessment Officer under scheme is to exclusion of other — No concurrent jurisdiction — Office memorandum cannot override mandatory specifications in scheme.

In its return for the A.Y. 2015–16, the assessee claimed deduction u/s. 10AA of the Income-tax Act, 1961, and special deduction u/s. 80JJAA, filing audit reports in forms 56F, 10DA, 3CB and 3CD. Notices were issued calling upon the assessee to file details of the deductions with all supporting documents with which the assessee complied. The Assessing Officer passed an assessment order u/s. 143(3) of the Act, accepting the return of income filed by the assessee. On 8th April, 2021, the Assessing Officer issued notice u/s. 148 of the Act.

The assessee filed a writ petition challenging the notice as having been issued on the basis of provisions which had ceased to exist. The petition was allowed and the court held that the notice dated 8th April, 2021 was invalid.

Pursuant to the decision of the Supreme Court in UOI vs. Ashish Agarwal [2022] 444 ITR 1 (SC); directing that notices issued u/s. 148 of the Act after 1st April, 2021 be treated as notice issued u/s. 148A(b) of the Act, the Assessing Officer issued notice dated 25th May, 2022 to the assessee u/s. 148A(b) proposing, inter alia, to deny the deduction u/s. 80JJAA of the Act. Notwithstanding the detailed reply filed by the assessee, the Assessing Officer issued a notice called for further information due to change in incumbency as per the provisions of section 129 of the Act. The assessee informed the Assessing Officer that the submissions earlier made should be considered as a response to the notice. The Assessing Officer thereafter passed an order u/s. 148A(d) dated 26th August, 2022, inter alia, dismissing the assessee’s objections. Separately, a communication dated 27th August, 2022 was issued where the Assessing Officer stated that document identification number had been generated for the issuance of notice dated 26th August, 2022 u/s. 148 of the Act.

On the grounds that the notice dated 25th May, 2022 purporting to treat notice dated 8th April, 2021 as notice issued u/s. 148A(b) of the Act for the A.Y. 2015–16, the order dated 26th August, 2022 u/s. 148A(d) of the Act for the A.Y. 2015–16, and the notice dated 27th August, 2022 issued u/s. 148 of the Act for the A.Y. 2015–16, were unlawful, the assessee filed a writ petition. The Bombay High Court allowed the writ petition and held as under:

“i) F or the A. Y. 2015-16 the provisions of the 2020 Act were not applicable. The reliance by the Department on Instruction No. 1 of 2022 ([2022] 444 ITR (St.) 43) issued by the CBDT was misplaced and neither the provisions of the 2020 Act nor the judgment in UOI v. Ashish Agarwal [2022] 444 ITR 1 (SC); provided that any notice issued u/s. 148 of the 1961 Act after March 31, 2021 would travel back to the original date.

ii) The notice, dated August 27, 2022, u/s. 148 of the 1961 Act was barred by limitation since it was issued beyond the period of limitation prescribed in section 149 read with the first proviso. Section 149(1)(b) of the unamended provisions provided a time limit of six years from the end of the relevant assessment year for issuing notice u/s. 148. The relevant assessment year, being 2015-16, the sixth year had expired on March 31, 2022. The first proviso to section 149 provided that up to the A. Y. 2021-22 (period before the amendment), the period of limitation as prescribed in the unamended provisions of section 149(1)(b) would be applicable and only from the A. Y. 2022-23, the period of ten years as provided in section 149(1)(b), would be applicable. To interpret the first proviso to section 149 to be applicable only for the A. Ys. 2013-14 and 2014-15, i. e., for the assessment years where the period of limitation had already expired on April 1, 2021, was contrary to the plain language of the proviso and would render the first proviso to section 149 redundant and otiose and one phrase would have to be substituted with another in section which was impermissible. When the limitation period had already expired on April 1, 2021 when section 149 was amended for the A. Ys. 2013-14 and 2014-15, it could not be revived by way of a subsequent amendment and, hence, for these assessment years the proviso to section 149 was not required. Reopening for the A. Ys. 2013-14 and 2014-15 had already been barred by limitation on April 1, 2021. Accordingly, the extended period of ten years as provided in section 149(1)(b) would not have been applicable to the A. Ys. 2013-14 and 2014-15, de hors the proviso. Hence, to give meaning to the proviso it has to be interpreted to be applicable for the A.Y. up to 2021-22.

iii) The period of limitation and the restriction under the proviso to section 149 were provided in respect of a notice u/s. 148 and not for a notice u/s. 148A. The notice dated April 8, 2021, which though originally issued as a notice u/s. 148, (under the old provisions prior to the amendments made by the Finance Act, 2021), had now been treated as a notice issued u/s. 148A(b) in accordance with the decision of the Supreme Court in UOI v. Ashish Agarwal [2022] 444 ITR 1 (SC). Once the notice dated April 8, 2021 had been treated as having been issued u/s. 148A(b), it was no longer relevant for the purpose of determining the period of limitation prescribed u/s. 149 or the restriction in the first proviso to section 149. Therefore, for considering the restriction on issue of a notice u/s. 148 prescribed in the first proviso to section 149, the fresh notice dated August 27, 2022 issued u/s. 148 was required to be considered. Such notice was beyond the period of limitation of six years prescribed by the 1961 Act prior to its amendment by the Finance Act, 2021. For the A. Y. 2015-16, the unamended time limit of six years had expired on March 31, 2022 and the notice u/s. 148 had been issued on August 27, 2022 and, therefore, was barred by the restriction of the first proviso to section 149.

iv) Even if the fifth and sixth provisos were to be applicable, the notice u/s. 148 dated August 27, 2022 for the A. Y. 2015-16 would still be beyond the period of limitation. The fifth proviso extends limitation with respect to the time or extended time allowed to an assessee in the show-cause notice issued u/s. 148A(b) or the period, during which the proceeding u/s. 148A were stayed by an order of injunction by any court. Hence, in view of the fifth proviso, the period to be excluded would be counted from May 25, 2022, i.e., the date on which the show-cause notice was issued u/s. 148A(b) by the Assessing Officer subsequent to the decision in UOI v. Ashish Agarwal [2022] 444 ITR 1 (SC) and up to June 10, 2022, which is a period of 16 days. The period from June 29, 2022 up to July 4, 2022 could not be excluded since it was not based on any extension sought by the assessee, but at the behest of the Assessing Officer. Even if it was it would only be an exclusion of five days. Even after considering the excluded periods, the notice dated August 27, 2022 was still beyond limitation. The fact that the original notice dated April 8, 2021 issued u/s. 148 was stayed by this court on August 3, 2021, and its stay came to an end on March 29, 2022 on account of the decision of this court, would not be relevant for providing extension under the fifth proviso. The fifth proviso provides for extension only for the period during which the proceeding u/s. 148A is stayed. The original stay granted by the court was not with respect to the proceeding u/s. 148A but with respect to the proceeding initiated under the unamended provisions of section 148 and, hence, such stay would not extend the period of limitation under the fifth proviso to section 149. On the facts, the sixth proviso was not applicable.

v) The notice issued u/s. 148 for the A. Y. 2015-16 had been issued without mentioning a document identification number. Issuance of a separate intimation letter on even date would not validate the notice issued u/s. 148 since the intimation letter referred to a document identification number with respect to some notice u/s. 148 dated August 26, 2022. The notice in question issued to the assessee was dated August 27, 2022 and not August 26, 2022 for which the document identification number was generated. The procedure prescribed in Circular No. 19 of 2019 dated August 14, 2019 ([2019] 416 ITR (St.) 140) for non-mention of document identification number in case letter or notice or order had not been complied with by the Assessing Officer. If the document identification number was not mentioned the reason for not mentioning it, and the approval from the specified authority for issuing such letter or notice or order without the document identification number had to be obtained and mentioned in such letter or notice or order. No such reference was stated in the notice.

vi) The notice dated August 27, 2022 u/s. 148 had been issued by the jurisdictional Assessing Officer and not the National Faceless Assessment Centre and hence was not in accordance with the Scheme announced by notification dated March 29, 2022 ([2022] 442 ITR (St.) 198).

vii) The Scheme dated March 29, 2022 ([2022] 442 ITR (St.) 198) in paragraph 3 clearly provides that the issuance of notice ‘shall be through automated allocation’. It was not the contention of the Assessing Officer that he was the random officer who had been allocated jurisdiction.

viii) No reliance could be placed by the Department on the Office Memorandum, dated February 20, 2023, to justify that the jurisdictional Assessing Officer had jurisdiction to issue notice u/s. 148. The Office Memorandum, merely contained the comments of the Department issued with the approval of Member (L&S) of the CBDT and was not in the nature of a guideline or instruction issued u/s. 119 to have any binding effect on the Department.

ix) The guidelines dated August 1, 2022 did not deal with or even refer to the Scheme dated March 29, 2022 ([2022] 442 ITR (St.) 198) framed by the Government u/s. 151A. The Scheme dated March 29, 2022 u/s. 151A, would be binding on the Department and the guidelines dated August 1, 2022 could not supersede the Scheme and if it provided anything to the contrary to the Scheme, it was invalid.

x) There was no allegation regarding income escaping assessment u/s. 147 on account of any undisclosed asset. In his order, the Assessing Officer had restricted the escapement of income only with regard to the claim of deduction u/s. 80JJAA and had made disallowance of claim of foreign exchange loss. The Assessing Officer had accepted the contentions of the assessee in respect of the foreign exchange loss and therefore, it could not be justified as an escapement of income. He had also accepted that the transactions in issue had been duly incorporated in the assessee’s accounts and that no deduction was claimed in respect of the deduction allowed u/s. 10AA. None of the issues raised in the order showed an alleged escapement of income represented in the form of asset as required u/s. 149(1)(b). The alleged claim of disallowance of deduction did not fall either under clause (b) or clause (c) as it was neither a case of expenditure in relation to an event nor of an entry in the books of account as no entries were passed in the books of account for claiming a deduction under the provisions of the Act.

xi) The assessment could not be reopened u/s. 147 based on a change of opinion. The Assessing Officer had no power to review his own assessment when the information was provided and considered by him during the original assessment proceedings. The claim of deduction u/s. 80JJAA was made by the assessee in the return of income and form 10DA being the report of the chartered accountant had been filed. In the note filed along with form 10DA, the assessee had specifically submitted that software development activity constituted “manufacture or production of article or thing”. During the assessment proceedings, in response to the notice the assessee had furnished the details of deduction claimed under Chapter VI of the Act along with supporting documents. The Assessing Officer had passed the assessment order allowing the claim of deduction u/s. 80JJAA. Such claim had been allowed in the earlier assessment as well from the A. Y. 2010-11. The concept of change of opinion being an in-built test to check abuse of power by the Assessing Officer and the Assessing Officer having allowed the claim of deduction u/s. 80JJAA, reopening of assessment on change of opinion or review of the original assessment order was not permissible even nder the new provisions.

xii) The initial notice issued u/s. 148A(b), the order u/s. 148A(d) to issue the notice and the notice issued u/s. 148 for the A. Y. 2015-16 were quashed and set aside.”

Reassessment — Change of law — Jurisdiction — Notice issued under existing law and reassessment order passed and becoming final — Issue of notice u/s. 148A pursuant to subsequent direction of Supreme Court in UOI vs. Ashish Agarwal — Without jurisdiction and therefore quashed

Arvind Kumar Shivhare vs. UOI
[2024] 464 ITR 396(All)
A.Y.: 2017–18
Date of order: 4th April, 2024
Ss. 147, 148 and 148A of the ITA 1961

40. Reassessment — Change of law — Jurisdiction — Notice issued under existing law and reassessment order passed and becoming final — Issue of notice u/s. 148A pursuant to subsequent direction of Supreme Court in UOI vs. Ashish Agarwal — Without jurisdiction and therefore quashed.

The assessee was originally assessed to tax u/s. 143(3) of the Income-tax Act, 1961 for the A.Y. 2017–18, by an assessment order dated 29th May, 2019. Thereafter, the assessee received a reassessment notice dated 31st March, 2021 issued u/s. 148 of the Act. The assessee participated in the reassessment proceeding and a reassessment order dated 28th March, 2022 was passed by the Assessing Officer. The assessee did not challenge it, and it attained finality. A second reassessment notice for the A.Y. 2017–18 dated 30th July, 2022 was issued, invoking section 148A of the Act.

The assessee filed a writ petition and challenged the validity of notice u/s. 148A.

The counsel for the Revenue contended that since the reassessment notice dated 31st March, 2021 was digitally signed on 1st April, 2021, by virtue of the law declared by the Supreme Court in Civil Appeal No. 3005 of 2022 (UOI vs. Ashish Agarwal 1), decided on 4th May, 2022, the Revenue authorities have taken a view that the notice dated 31st March, 2021 was wrongly acted upon. That notice having been digitally signed on 1st April, 2021, the day when the amended law that introduced section 148A of the Act after making amendment to sections 147 and 148 of the Act came into force, the entire proceedings culminating in the reassessment order dated 28th March, 2022 were vitiated.

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

“i) There could exist only one assessment order for an assessee for one assessment year. Since the reassessment order had already been passed on March 28, 2022 for the A. Y. 2017-18, there was no proceeding pending to have been influenced or affected or governed by the order of the Supreme Court dated May 4, 2022 in UOI v. Ashish Agarwal 1.

ii) In the absence of any declaration of law to annul or set aside the pre-existing reassessment u/s. 147 and assessment order dated March 28, 2022, after issuing notice u/s. 148, the assessing authority had no jurisdiction to reissue the notice dated July 30, 2022 u/s. 148A. The proceedings were without jurisdiction and a nullity, and therefore, quashed.”

Non-resident — Double taxation avoidance — Income deemed to accrue or arise in India — Royalty — Meaning of — Difference between transfer of copyright and right to copyrighted article — Provision of customer relationship management services by resident of Singapore — Fees received not royalty within meaning of Act — Not also taxable in India under DTAA between Singapore and India.

CIT (International Taxation) vs. Salesforce.Com

Singapore Pte. Ltd.

[2024] 464 ITR 257 (Del)

A,Ys.: 2011–12 to 2017–18

Date of order: 14th February, 2024

Ss. 9(1)(vi), Expl. 2of the ITA 1961: and DTAA

between Singapore and India Art. 12(4)(b)(1)

39. Non-resident — Double taxation avoidance — Income deemed to accrue or arise in India — Royalty — Meaning of — Difference between transfer of copyright and right to copyrighted article — Provision of customer relationship management services by resident of Singapore — Fees received not royalty within meaning of Act — Not also taxable in India under DTAA between Singapore and India.

The assessee was a tax resident of Singapore and was stated to provide a customer relationship management services application which was stated to be an ‘enterprise business application’. The application enabled customers and subscribers to record, store and act upon business data, formulate business strategies and enable businesses to manage customer accounts, track sales positions, evaluate marketing campaigns as well as bettering postsales services. The income derived from the subscription fee, which the assessee received from customers in India for providing customer relationship management-related services, was assessed to income-tax.

The Tribunal held that the amount was not assessable in India.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“i) Section 9 of the Income-tax Act, 1961, defines royalty as the amount received for the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. The right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the definition of royalty.

ii) In order qualify as fees for technical services, the services rendered ought to satisfy the ‘make available’ test. Therefore, in order to bring services within the ambit of technical services under the Double Taxation Avoidance Agreement between India and Singapore, the services would have to satisfy the ‘make available’ test and such services should enable the person acquiring the services to apply the technology contained therein.

iii) S ince the copyright in the application was never transferred nor vested in a subscriber, the fees were not assessable u/s. 9 of the Act.

vi) Article 12(4)(b) of the DTAA between Singapore and India would have been applicable provided the Department had been able to establish that the assessee had provided technical knowledge, experience, skill, know-how or processes enabling the subscriber acquiring the services to apply the technology contained therein. The explanation of the assessee, which had not been refuted even before the High Court was that the customer was merely accorded access to the application and it was the subscriber which thereafter inputs the requisite data and took advantage of the analytical attributes of the software. This would clearly not fall within the ambit of article 12(4)(b) of the Agreement.

v) That the amount was not assessable in India.”

Charitable purpose — Exemption — Denial of exemption by AO on grounds that assessee did not furnish proper information to Charity Commissioner, that there was shortfall in provision for indigent patients fund, that assessee had generated huge profits, that hospital did not serve poor and underprivileged class, and assessee paid remuneration to two trustees — Grant of exemption by appellate authorities on finding that orders for earlier assessment years not set aside in any manner or over-ruled by court — No infirmity in order of Tribunal granting exemption

CIT(Exemption) vs. Lata Mangeshkar Medical Foundation

[2024] 464 ITR 702 (Bom.)

A.Y.: 2010–11

Date of order: 30th August, 2023

S. 11 of ITA 1961

38. Charitable purpose — Exemption — Denial of exemption by AO on grounds that assessee did not furnish proper information to Charity Commissioner, that there was shortfall in provision for indigent patients fund, that assessee had generated huge profits, that hospital did not serve poor and underprivileged class, and assessee paid remuneration to two trustees — Grant of exemption by appellate authorities on finding that orders for earlier assessment years not set aside in any manner or over-ruled by court — No infirmity in order of Tribunal granting exemption.

The assessee-trust was running a medical institution. For the A.Y. 2010–11, the Assessing Officer (AO) denied the assessee-trust exemption u/s. 11 of the Income-tax Act, 1961 on the grounds that (a) the assessee did not furnish proper information to the Charity Commissioner, (b) there was shortfall in making provision for indigent patients fund, (c) the assessee had generated huge surplus and therefore, its intention was profit making, (d) the hospital of the assessee did not provide services to the poor and under-privileged class of the society, and (e) there was violation of provisions of section 13(1)(c) since the assessee paid remuneration to two individual trustees who did not possess significant qualification and one of them was beyond 65 years of age.

The Commissioner (Appeals) restored the exemption u/s. 11 following the orders of the Tribunal for the A.Y. 2008–09 and 2009–10. The Tribunal affirmed his order of the Commissioner (Appeals).

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) There was no reason to interfere with the order of the Tribunal. The Tribunal had followed its own decision in which it had granted exemption u/s. 11 to the assessee for the A. Ys. 2008-09 and 2009-10. Since there was nothing on record that such orders had been set aside or overruled in any manner by the court, the Tribunal had found no reason to interfere with the order of the Commissioner (Appeals).

ii) There was no infirmity in the order of the Tribunal granting exemption u/s. 11 to the assessee for the A. Y. 2010-11.”

Business expenditure — Capital or revenue expenditure — Software development expenses — Product abandoned on becoming obsolete due to development in technology — No enduring benefit accrued to the Assessee — Expenditure incurred revenue in nature and allowable

Principal CIT vs. Adadyn Technologies Pvt. Ltd.

[2024] 465 ITR 353 (Kar.)

A.Ys.: 2015–16 and 2016–17

Date of order: 10th April, 2023

S. 37 of the ITA 1961

37. Business expenditure — Capital or revenue expenditure — Software development expenses — Product abandoned on becoming obsolete due to development in technology — No enduring benefit accrued to the Assessee — Expenditure incurred revenue in nature and allowable.

The Assessee was engaged in the business of rendering customised internet advertising services for advertisers which could be used on the desktop. The Assessee had incurred software development expenditure of R6,06,30,146 during A.Y. 2015–16 and R20,80,24,899 during A.Y. 2016–17. In the scrutiny assessment, the Assessing Officer (AO) held that if the software platform was developed, it would give enduring benefit to the Assessee, and therefore, held the expenditure to be capital in nature.

The CIT(A) confirmed the action of the AO. The Tribunal reversed the finding of the AO and allowed the appeals of the Assessee.

The Karnataka High Court upheld the decision of the Tribunal and held as under:

“i) The Assessee’s investment to develop a software platform for desktops had become obsolete due to rapid change in the technology and the Assessee had abandoned further development as a result of which it had abandoned the product and incurred a loss. The project having been abandoned, the assessee would not get any enduring benefit.

ii) The Tribunal, on correct analysis of the facts, had held that the expenditure was revenue and not capital in nature. There was no ground for interference with the findings recorded by the Tribunal.”

Writ — Competency to file writ petition — Chartered Accountant authorised to represent assessee in income-tax matters — Chartered Accountant could file writ against order of assessment.

36 TiongWoon Project and Contracting Pte. Ltd. vs. CBDT

[2024] 463 ITR 641 (Mad)

A.Ys. 2012–13 and 2013–14

Date of order: 22nd January, 2024

ART. 226 of Constitution of India

Writ — Competency to file writ petition — Chartered Accountant authorised to represent assessee in income-tax matters — Chartered Accountant could file writ against order of assessment.

The petitioner is a company incorporated in Singapore and engaged in undertaking turnkey construction projects involving erection, installation and commissioning activities. In these two writ petitions, the petitioner assails a common order dated 3rd November, 2023 refusing to condone delay in filing the return of income of the petitioner for the A.Y. 2012–13 and 2013–14. The writ was signed by the chartered accountants. The assessee-company had authorised the chartered accountants to represent it in relation to its Income-tax assessments and all other proceedings arising therefrom.

The standing counsel for the respondents raised the preliminary objection that the writ petition should not have been filed by the chartered accountants of the petitioner. By referring to the authorisation issued by the petitioner to the chartered accountants, it was submitted that the authorisation does not extend to the conduct of proceedings before this court. A reference was also made to the ethics code of the Institute of Chartered Accountants of India and the annual report of TiongWoon Corporation Holding Ltd. to contend that the chartered accountants through whom the writ petitions were filed were the statutory auditors of one of the subsidiaries of the above-mentioned holding company, and that the chartered accountants should not act as authorised representatives in such situation.

Rejecting the preliminary objection of the Respondents, the Madras High Court held as under:

“The authorisation in favour of the chartered accountants was on record and the assessee-company had authorised the chartered accountants to represent it in relation to its Income-tax assessments and all other proceedings arising therefrom. Although proceedings before the court were not expressly referred to the language of the authorisation was wide enough to embrace these proceedings. As regards the alleged breach of the ethics code, even if established, that could not be the basis to reject this petition.”

Revision — Powers of Commissioner — Commissioner (Appeals) holding amounts included in fringe benefits tax return not chargeable to fringe benefits tax — Revision application for refund of fringe benefits tax — Revision application rejected on grounds of delay — Commissioner conferred with power to condone delay to do substantial justice — Commissioner (appeals) taking long time to dispose of appeal — Commissioner ought to have condoned delay — Order rejecting revision application quashed — Direction to condone delay and consider revision application on merits and pass reasoned order.

35 Hindalco Industries Ltd. vs. UOI

[2024] 464 ITR 236 (Bom.)

A.Y. 2007–08

Date of order: 17th January, 2024

Ss. 115WD(1) and 264 of the ITA 1961

Revision — Powers of Commissioner — Commissioner (Appeals) holding amounts included in fringe benefits tax return not chargeable to fringe benefits tax — Revision application for refund of fringe benefits tax — Revision application rejected on grounds of delay — Commissioner conferred with power to condone delay to do substantial justice — Commissioner (appeals) taking long time to dispose of appeal — Commissioner ought to have condoned delay — Order rejecting revision application quashed — Direction to condone delay and consider revision application on merits and pass reasoned order.

For the A.Y. 2007–08, the Commissioner (Appeals) by order dated 31st August, 2016, held the amounts included in the fringe benefits tax return as not chargeable to fringe benefits tax. Since the Commissioner (Appeals) allowed the claim of the assessee, the assessee filed an application u/s. 264 of the Income-tax Act, 1961 for refund of the fringe benefits tax return. The Commissioner rejected the revision application on the grounds of substantial delay in filing the application and that the intimation u/s. 143(1) of the Act was not an assessment order.

The assessee preferred a writ petition contending that the Commissioner (Appeals) took almost five to six years to decide that the amounts included in the fringe benefits tax returns were not chargeable to fringe benefits tax and hence there was no delay in filing the revision application. The Bombay High Court allowed the writ petition and held:

“i) On the issue of condonation of delay in an application filed u/s. 264 of the Income-tax Act, 1961, courts have held that the authorities should not take a pedantic approach but should be liberal. The courts have held that the words ‘sufficient cause’ should be given a liberal construction so as to advance substantial justice when no negligence or inaction or want of bona fides is imputable to the assessee. The courts have held that the principle of advancing substantial justice is of prime importance and while considering the question of condonation, the revisional authority is not all together excluded from considering the merits of the revision petition.

ii) U/s. 264 of the Act, the Commissioner is empowered either on his own motion or on an application made by the assessee to call for the record of any proceedings under the Act and pass such order thereon not being an order prejudicial to the assessee and this power has been conferred upon the Commissioner in order to enable him to give relief to the assessee in cases of over-assessment.

iii) The Commissioner having been conferred power to condone the delay to do substantial justice to parties by disposing of the matter on the merits should, considering the facts and circumstances of the case, in particular that it took a long time for the Commissioner (Appeals) to dispose of the assessee’s appeal, have condoned the delay. The order rejecting the application u/s. 264 of the Act was quashed and set aside. The Commissioner was directed to condone the delay and consider the application u/s. 264 of the Act on the merits and pass a reasoned order in accordance with the law.”

Revision — Rectification of mistake — Time limit — Computation of long-term capital gains — Sale of flat inherited by the assessee and three others — Omission of claim of deduction of indexed renovation expenses in return of income — Rejection of application for rectification and revision on grounds that new claim not raised earlier — Revision Application within one year from the date of rectification order — AO accepting indexed renovation expenses in case of co-owner — Amount accepted in co-owner’s case to be accepted as correct and allowance to be made while computing long-term capital gain.

34 Pramod R. Agrawal vs. Principal CIT

[2024] 464 ITR 367 (Bom.)

A.Y.: 2007–08

Date of order: 13th October, 2023

S. 48, 143(3), 154 and 264 of ITA 1961

Revision — Rectification of mistake — Time limit — Computation of long-term capital gains — Sale of flat inherited by the assessee and three others — Omission of claim of deduction of indexed renovation expenses in return of income — Rejection of application for rectification and revision on grounds that new claim not raised earlier — Revision Application within one year from the date of rectification order — AO accepting indexed renovation expenses in case of co-owner — Amount accepted in co-owner’s case to be accepted as correct and allowance to be made while computing long-term capital gain.

The assessee was a co-owner of a flat which was inherited by the assessee along with three others. The assessee’s share was to the extent of 25%. In the return of income, the assessee offered capital gains from the sale of the said flat. The assessee offered the capital gains without claiming the indexed cost of improvement in respect of the renovation expenses incurred. On the advice of the chartered accountant that a co-owner had sought rectification and had been allowed deduction of the entire renovation expenses of the flat from full value of consideration, while computing the share of capital gains, the assessee also filed an application u/s. 154 of the Act seeking rectification by allowing deduction of indexed cost of improvement being renovation expenses not claimed in the original return of income. The assessee’s application for rectification was rejected on the grounds that the claim was made for the first time in the application u/s. 154 and it was never brought to the attention of the lower authorities earlier. Against this order rejecting the assessee’s application for rectification of mistake, the assessee filed a revision application u/s. 264 of the Act which application was also rejected.

Against this order rejecting the assessee’s application u/s. 264, the assessee filed a writ petition before the High Court. The Bombay High Court allowed the petition and held that:

“i) Section 264 confers wide jurisdiction on the Commissioner. The proceedings u/s. 264 of the Act are intended to meet a situation faced by an aggrieved assessee who is unable to approach the appellate authorities for relief and has no alternate remedy available under the Act. The Commissioner is bound to apply his mind to the question whether the assessee was taxable on that income and his powers are not limited to correcting the error committed by the sub-ordinate authorities but could even be exercised where errors are committed by the assessee. It would even cover situation where the assessee because of an error has not put forth legitimate claim at the time of filing the return and the error is subsequently discovered and is raised for the first time in an application u/s. 264 of the Act.

ii) There was no delay in filing the application u/s. 264 of the Income-tax Act, 1961 because the application u/s. 264 of the Act was against the order passed u/s. 154 of the Act and not that passed u/s. 143(3) of the Act. The order u/s. 154 of the Act was passed within one year from the date of application filed u/s. 264 of the Act.

iii) In the assessment order passed in the case of another co-owner of the flat, the Assessing Officer had accepted certain amount as the cost of indexed renovation. Therefore, the amount had to be accepted as correct and suitable allowance should be made while arriving at the long-term capital gains. The order is quashed and set-aside. The matter was remanded for de novo consideration and to pass a reasoned order after providing the assessee with an opportunity of hearing.”

Return of income — Delay in filing revised return — Condonation of delay — Power to condone — Meaning of “genuine hardship” — Power vested in authority to be judiciously exercised — Compensation received on compulsory land acquisition inadvertently declared as income — Payment of tax more than liability is “genuine hardship” — Department to enable assessee to file revised return of income.

33 K. S. Bilawala and Others vs. Principal CIT

[2024] 463 ITR 766 (Bom.)

A.Y. 2022–23

Date of order: 16th January, 2024

S. 119(2)(b) of the ITA 1961

Return of income — Delay in filing revised return — Condonation of delay — Power to condone — Meaning of “genuine hardship” — Power vested in authority to be judiciously exercised — Compensation received on compulsory land acquisition inadvertently declared as income — Payment of tax more than liability is “genuine hardship” — Department to enable assessee to file revised return of income.

For the A.Y. 2022–23, the assessee inadvertently declared as income the compensation received by him on acquisition of its land under the provisions of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. The return of income was processed u/s. 143(1) of the Income-tax Act, 1961 and the assessee received an intimation. Thereafter, the assessee filed an application u/s. 119(2)(b) for condonation of delay and leave to file a revised return. The application was rejected on the grounds that he did not show any genuine hardship which was caused due to delay in the application.

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

“i) The phrase ‘genuine hardship’ used in section 119(2)(b) of the Income-tax Act, 1961 should be considered liberally. There cannot be a straitjacket formula to determine what is genuine hardship. The power to condone delay has been conferred to enable the authorities to do substantial justice to the parties by disposing of matters on the merits. While considering these aspects, the authorities are expected to bear in mind that no applicant stands to benefit by filing delayed returns. Refusing to condone the delay can result in a meritorious matter being thrown out at the very threshold and the cause of justice being defeated, but, when the delay is condoned, a cause would be decided on the merits after hearing the parties.

ii) When the assessee felt that the amount of compensation that it received under the 2013 Act need not have been offered to tax, under the 1961 Act, the authority should have condoned the delay and considered the matter on the merits. The fact that an assessee had paid more tax than what he was liable to pay would cause hardship and that would be a ‘genuine hardship’. The delay in filing the revised return was to be condoned and accordingly the Department was to enable the assessee to file the revised return for the A. Y. 2022-23. Thereafter, the authority could decide whether or not the compensation received by the assessee under the 2013 Act was liable to tax.”

Reassessment — Notice — Sanction of Authority — Application of mind to material on basis of which reopening of assessment sought for by AO — Discrepancy in quantum of escapement of income in order in initial notice and order for issue of notice — Not noticed by concerned Sanctioning Authorities — Non-application of mind in passing sanction order — Orders and consequent notice set aside.

32 Vodafone India Ltd. vs. Dy. CIT

[2024] 464 ITR 385 (Bom.)

Date of order: 19th March, 2024

Ss. 147, 148, 148A(b), 148A(d) and 151 of the ITA 1961

Reassessment — Notice — Sanction of Authority — Application of mind to material on basis of which reopening of assessment sought for by AO — Discrepancy in quantum of escapement of income in order in initial notice and order for issue of notice — Not noticed by concerned Sanctioning Authorities — Non-application of mind in passing sanction order — Orders and consequent notice set aside.

In this case, the petitioner is impugning a notice dated 30th March, 2023, u/s. 148A(b) of the Income-tax Act, 1961, an order dated 19th April, 2023 passed u/s. 148A(d) of the Act and a notice dated 19th April, 2023 issued u/s. 148 of the Act on various grounds. One of the grounds raised across the Bar is that the sanction for issuance of the order u/s. 148A(d) of the Act has been granted without application of mind by all the five officers involved.

The Bombay High Court allowed the petition and held:

“i) The power vested in the sanctioning authorities u/s. 151 of the Income-tax Act, 1961 to grant or not to grant approval to the Assessing Officer to reopen the assessment u/s. 147 is coupled with a duty. The sanctioning authorities are duty bound to apply their mind to the proposal put up for approval considering the material relied upon by the Assessing Officer and cannot exercise their power casually on a routine perfunctory manner. While recommending and granting approval it is obligatory on the part of the officers to verify whether there is any genuine material to suggest escapement of income on all the authorities and the Principal Chief Commissioner in particular to consider whether or not power to reopen is being invoked properly.

ii) The contention that the record had been carefully considered before granting approval u/s. 151 was an incorrect statement made by the Principal Chief Commissioner. The information annexed to the notice issued u/s. 148A(b) had stated the quantum of income that had escaped assessment more than the amount mentioned in the order passed u/s. 148A(d) without any explanation as to how the amount had changed or had been reduced. In the affidavit it was stated that in the notice the value of the transaction in question was taken gross and subsequently it was seen that there were duplicate entries which were corrected while passing the order u/s. 148A(d). The notice did not contain any duplicate entries. If there were duplicate entries, the Assessing Officer was duty bound to clarify in the order and also give details of what were those duplicate entries and should have come clean on the error made. If the Principal Chief Commissioner or the other officers had seen the records and had applied their mind those errors would not have crept in. This displayed non-application of mind by all those persons who had endorsed their approval for issuance of notice u/s. 148.

iii) Had the authorities read the record carefully, they would have never come to the conclusion that this was a fit case for issuance of notice u/s. 148 and would have either told the Assessing Officer to correct the amounts or would have sent the papers back for reconsideration. They had substituted the form for substance, important safeguards provided in sections 147 and 151 were treated lightly by the concerned officers. The order of approvals u/s. 151, having been granted mechanically and without application of mind in a most casual manner, were quashed and set aside. The order passed u/s. 148A(d) and the consequent notice issued u/s. 148 were also quashed and set aside.”

Offences and prosecution — Compounding of offences — Application for — Limitation — Application can be filed either before or subsequent to launching of prosecution — Circular issued by CBDT stipulating limitation period of 12 months — Contrary to legislative intent of provision — Application for compounding rejected as barred by limitation period prescribed in circular issued by CBDT — Not sustainable — Relevant clause of Circular struck down — Matter remitted to decide application on the merits.

31 Jayshree vs. CBDT

[2024] 464 ITR 81 (Mad)

A.Y.: 2013–14

Date of order: 3rd November, 2023

S. 119(1) and Explanation to S. 279(2) of the ITA 1961

Offences and prosecution — Compounding of offences — Application for — Limitation — Application can be filed either before or subsequent to launching of prosecution — Circular issued by CBDT stipulating limitation period of 12 months — Contrary to legislative intent of provision — Application for compounding rejected as barred by limitation period prescribed in circular issued by CBDT — Not sustainable — Relevant clause of Circular struck down — Matter remitted to decide application on the merits.

During the previous year relevant to the A.Y. 2013–14, the assessee sold an immovable property and reinvested the capital gains in the purchase of another immovable property. The Assessee was under the impression that since there was no liability to pay income tax, she was not required to file return of income and, therefore, did not file her return of income. The return of income was filed belatedly on 13th June, 2016. Subsequently, she was prosecuted for delay in filing of the return. In view of provisions of section 279(2) of the Act, the assessee filed an application for compounding of offence in the year 2021. The application was rejected on the grounds that it was filed beyond the time limit of 12 months from the date of launching prosecution which was prescribed under the Circular F. No. 285/08/2014-IT(Inv.) 147 dated 14th June, 2019.

The assessee filed the writ petition and challenged the order of rejection. The Madras High Court allowed the writ petition as under:

“i) The power of the CBDT u/s. 119(1) of the Income-tax Act, 1961 to issue circulars, directions and instructions should not be exercised beyond the scope of the Act. The CBDT is not empowered to fix the time limit for filing the application for compounding of offences u/s. 279, which is contrary to the provisions of section 279(2) in terms of which the assessee can file the application for compounding of offences either before or subsequent to the launching of the prosecution. The Explanation to section 279 which empowers the CBDT to issue circulars is only for the purpose of implementation of the provisions of the Act with regard to the compounding of offences and not for the purpose of fixing the time limit for filing the application for compounding of offences.

ii) Nowhere in section 279(2), had a time limit been mentioned for filing an application for compounding of offences u/s. 279 though the Explanation thereunder, stated that the CBDT was empowered to issue orders, circulars, instructions and directions for the purpose of implementation of the Act. The intention of the legislation for bringing section 279(2) was to permit the assessee to file an application for compounding of offences either before institution of proceedings or after institution of proceedings. The fixing of a time limit by the CBDT by way of a Circular was contrary to the intention of the legislation and amounted to amendment of section 279(2). Since the idea of the legislation was that the compounding of offences was permissible either before or after the institution of the proceedings, the CBDT could not issue a circular contrary to the object of the provisions of section 279. Clause 7(ii) of Circular F.No. 285/08/2014-IT(Inv.V)/147, dated June 14, 2019 was beyond the scope of the Act and hence, that portion of the circular was to be struck down.

iii) The matter was remitted to the authority to decide the application on the merits in accordance with law.”

Offences and prosecution — Failure to file returns in time — Relief from prosecution — Effect of proviso to s. 276CC — Prepaid taxes resulting in NIL liability — Prosecution u/s. 276CC not valid.

30 Manav Menon vs. DCIT

[2024] 463 ITR 752 (Mad)

A.Y. 2013–14

Date of order: 17th November, 2023

S. 276CC of ITA 1961

Offences and prosecution — Failure to file returns in time — Relief from prosecution — Effect of proviso to s. 276CC — Prepaid taxes resulting in NIL liability — Prosecution u/s. 276CC not valid.

For the A.Y. 2013–14, the Assessing Officer filed complaint for the offence punishable u/s. 276CC of the Income-tax Act, 1961 for non-filing of income-tax return. The crux of the complaint is that the accused is an assessee within the jurisdiction of the respondent. During the course of proceedings for assessment, the respondent detected that the petitioner failed to file his return of income for A.Y. 2013–14. As per section 139(1) of the Income-tax Act, the petitioner ought to have filed the return of income on or before 30th September, 2013.

The assessee filed a criminal writ petition for quashing the prosecution proceedings. The Madras High Court allowed the writ petition and held as under:

“i) Filing of the Income-tax return is mandatory in nature u/s. 139(1) of the Income-tax Act, 1961 and failure to file the Income-tax return is punishable u/s. 276CC of the Act, 1961. The proviso to section 276CC gives some relief to genuine assessees. The proviso in clause (ii)(b) to section 276CC provides that if the tax payable determined by regular assessment as reduced by advance tax paid and tax deducted at source does not exceed ₹3,000, such an assessee shall not be prosecuted for not furnishing the return u/s. 139(1) of the Act. Therefore, this proviso takes care of genuine assessees who either file their returns belatedly but within the end of the assessment year or those who have paid substantial amounts of their tax dues by prepaid taxes from the rigour of the prosecution u/s. 276CC.

ii) A perusal of the records revealed that admittedly the assessee had failed to file his return of income for the A. Y. 2013-14. However, the assessee had paid taxes under the heads of advance tax, tax deducted at source, tax collected at source, and self assessment tax to the tune of ₹23,75,066. According to his returns, the total tax and interest payable by him was ₹23,74,610. Therefore, he had claimed a refund of ₹460 and the proviso (ii)(b) to section 276CC would come to the rescue of the assessee from the rigour of the prosecution u/s. 276CC of the Act. Therefore, the initiation of prosecution for the offence punishable u/s. 276CC of the Act could not be sustained.”

Accrual of income — Meaning of accrual — Time of accrual — Assessee terminating lease following dispute — Assessee not accepting lease rent — Matter before Small Causes Court — Small Causes Court allowing lessor to deposit lease rent in Court specifying that deposit was allowed without prejudice to rights of contestants — Matter still pending in Small Causes Court — Lease rent did not accrue to the Assessee.

29 T. V. Patel Pvt. Ltd. vs. DCIT

[2024] 464 ITR 409 (Bom.):

A.Ys. 1986–87 to 1991–92, 1993–94

Date of order: 4th December 2023

Ss. 4 and 5 of the ITA 1961

Accrual of income — Meaning of accrual — Time of accrual — Assessee terminating lease following dispute — Assessee not accepting lease rent — Matter before Small Causes Court — Small Causes Court allowing lessor to deposit lease rent in Court specifying that deposit was allowed without prejudice to rights of contestants — Matter still pending in Small Causes Court — Lease rent did not accrue to the Assessee.

The assessee entered into a sub-lease agreement with IDBI on an annual lease rent of ₹3,42,720. The said income was offered for tax under the head “Income from Other Sources”. During the previous year 1980–81, dispute arose between the assessee and IDBI for breaches committed by IDBI, which lead to termination of the sub-lease agreement by the assessee, and subsequently, the assessee refused to accept rent from IDBI post termination of the agreement. In October 1981, IDBI filed a Declaratory Suit in the Small Causes Court and obtained injunction against the assessee from terminating the sub-lease agreement.

In March 1984, the Department issued a garnishee notice u/s. 226(3) in respect of the outstanding tax arrears of the assessee and directed IDBI to pay rent to the Department. In response to the notice, the assessee informed the Department that the sub-lease agreement had been terminated and there was no rent due and payable to the assessee and, therefore, the notice issued by the Department was illegal. The Assessee also addressed a letter to IDBI about the termination and recorded that IDBI should not make payment to the Income-tax Department. However, IDBI made the payment to the Department despite the fact that the agreement was terminated.

Thereafter, in the year 1984, the Assessee filed a suit for eviction and claimed reliefs. On an application made by IDBI to the Small Causes Court, the Small Causes Court allowed IDBI to deposit the lease rent in Court. The assessee, however, did not withdraw any amount.

In the return of income for A.Ys. 1982–83 to 1986–87 filed by the assessee, the lease rent was not offered for tax. The assessments were completed and no addition was made. Subsequently, the assessment for A.Y. 1986–87 was re-opened for assessing the lease rent which the assessee had not offered for tax in the return of income for A.Y. 1986–87. In the re-assessment order, the AO added the amount of annual lease rent agreed between the assessee and IDBI.

On appeal before the CIT(A) and the Tribunal, both dismissed the appeal of the assessee. The reason for dismissing the appeal was that the claim for arrears of rent and compensation was pending before the Court. The consideration under the agreement had been paid by IDBI. The assessee was demanding compensation over and above the amount of rent. It was held by the Tribunal that the consideration did accrue to the assessee and it was being utilised for payment of tax arrears.

Against the order of the Tribunal, the Assessee filed an appeal before the High Court. The Bombay High Court allowed the appeal and held as follows:

“i) Section 5(1)(b) of the Income-tax Act, 1961 provides for scope of total income to include all income which ‘accrues’ or ‘arises’ or ‘is deemed to accrue or arise’ in India during such year. The words ‘accrue’ or ‘arise’ have different meanings attributed to them while the former connotes the idea of a growth or accumulation, the latter connotes the idea of crystallisation of the former into a definite sum that can be demanded as a matter of right. For determining the point of time of accrual, two factors are relevant. The first is a qualitative factor and the second is a quantitative factor. The qualitative factor is relatable to the terms of the agreement or the conduct of the parties for determining when the legal right to receive income emerges. The quantitative factor is relatable to the exact sum in respect of which the qualitative factor of legal right to receive is applied. These two factors have no order of priority between them. When both converge, there is a legal right to receive a certain sum of money as income. Such convergence determines a point of time of accrual. In order that the income may be said to have accrued at a particular point of time, it must have ripened into a debt at that time, that is to say, the assessee should have acquired a right to receive payment at that moment, though the receipt itself may take place later. There must be a debt owed to the assessee by somebody at that moment or, as is otherwise expressed, ‘debitum in praesentisolvendum in futuro’. Until it is created in favour of the assessee, the debt due by somebody, it cannot be said that he has acquired a right to receive any income accrued to him.

ii) There is also a difference between ‘accrue or arise’ or ‘earned’. Earning income is not the same as accrual of income but is a stage anterior to accrual of income. A person does not have a legal right to receive the income by merely earning income. Although, earning of income is a necessary prerequisite for accrual of income, mere earning of income without right to receive it does not suffice. A person may be said to have ‘earned’ his income in the sense that he has contributed to its production by rendering service and the parenthood of the income can be traced to him but in order that the income may be said to have ‘accrued’ to him an additional element is necessary that he must have created a debt in his favour.

iii) There is a distinction between cases where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received and cases where the right to receive payment is admitted and the quantification of the amount received is left to be payable in amount. The principle of law as laid down in various decisions is to the effect that if the matter is pending before the judicial forum or the amount is allowed to be withdrawn by the party, till the case is decided finally by the judicial forum, it cannot be said that the assessee has acquired a right to receive the income for the purposes of section 5 of the Act. The time of accrual for taxing income gets postponed till the dispute is adjudicated by the civil court.

iv) In the present case, it was not disputed that the cross suits filed by the assessee and the tenant against each other were pending before the Small Causes Court. It was also not disputed that the assessee had not accepted the rent from the tenant post termination of the sub-lease agreement in the year 1981. The Small Causes Court had permitted the tenant to deposit the lease rent in the court till the rights of the parties were decided and the order of deposit of the rent was without prejudice to the rights and contentions of the parties. In the light of these facts, whether the sub-lease agreement between the tenant and the assessee subsisted post 1981 termination by the assessee, was itself a subject matter of dispute between the assessee and the tenant which was pending adjudication. In the light of these facts, it could not be said that the assessee was entitled to receive a sum of ₹3,42,720 under the sub-lease agreement with the tenant or a right was vested in the assessee to that sum. The determination of the amount payable by the tenant to the assessee as prayed for by the assessee in its suit was to be determined by the Small Causes Court and when the Court passed a final decree one could not say that the right to receive the sum decreed by the Small Causes Court had accrued to the assessee. Till then, the right to receive any sum by the assessee was in jeopardy and sub judice before the Small Causes Court. Therefore, the Revenue was not justified in bringing to tax the sum of ₹3,42,720 as accrued income for the A. Y. 1986-87 and for the other years being A. Y. 1988-89 to 1991-92 and 1993-94.”

Search and seizure — Assessment in search cases — Special deduction — Return processed and no notice issued for enquiry — No incriminating material found during search — Special deduction cannot be disallowed on basis of statement recorded subsequent to search.

28 Principal CIT vs. Oxygen Business Park Pvt. Ltd.

[2024] 463 ITR 125 (Del)

A.Y. 2011–12

Date of order: 8th December, 2023

Ss. 80IAB, 132, 143(1), 143(2) and 153A of ITA 1961

Search and seizure — Assessment in search cases — Special deduction — Return processed and no notice issued for enquiry — No incriminating material found during search — Special deduction cannot be disallowed on basis of statement recorded subsequent to search.

For the A.Y. 2011–12, the assessee’s return of income wherein it claimed deduction of net profit u/s. 80-IAB of the Income-tax Act, 1961 was processed u/s. 143(1). Thereafter, on 29th October, 2013, search and seizure operation was conducted u/s. 132 at the premises of the assessee. In response to notice u/s. 153A, the assessee requested the Department to treat the original return of income as the return filed in response to notice u/s. 153A of the Act. The Assessing Officer disallowed the deduction claimed u/s. 80-IAB and also initiated penalty proceedings u/s. 271(1)(c).

The Commissioner (Appeals) accepted the contention of the assessee that since no incriminating material belonging to the assessee was found during the course of the search, initiation of proceedings u/s. 153A was bad in law, especially because the assessment proceedings stood closed u/s. 143(1) and partly allowed the assessee’s appeal. The Tribunal dismissed the Department’s appeal.

The following question was raised in the appeal by the Department:

“Whether the decision in the case of CIT vs.. Kabul Chawla applies to a case where a fresh material/information received after the date of search is sufficient to reopen the assessment under section 153A (see Dr. A. V. Sreekumar vs. CIT)?”

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

“i) The assessment for the A. Y. 2011-12 was finalized on 20th January, 2012 and no notice u/s. 143(2) having been issued, no assessment was pending on the date of search, i. e., 29th October, 2013. Also, during the search of the assessee no incriminating material was found and the material in the form of statement sought to be relied upon by the Department was recorded subsequent to the search action.

ii) In view of the aforesaid, we are unable to find any substantial question of law in this appeal for our consideration u/s. 260A of the Act. Therefore, the appeal is dismissed.”

Reassessment — Initial notice — Order for issue of notice — Notice — Investments by foreign companies in shares of their own Indian subsidiaries — Transactions are capital account transactions — No proof of transactions being consequence of round tripping — AO treating investments as escapement of income chargeable to tax — In contravention of CBDT circular — Investment in shares capital account transaction not income — Notices and orders set aside.

27 Angelantoni Test Technologies Srl vs. Asst. CIT

[2024] 463 ITR 139 (Del)

A.Y.: 2019–20

Date of order: 19th December, 2023

Ss. 147, 148, 148A(b) and 148A(d) of the ITA, 1961

Reassessment — Initial notice — Order for issue of notice — Notice — Investments by foreign companies in shares of their own Indian subsidiaries — Transactions are capital account transactions — No proof of transactions being consequence of round tripping — AO treating investments as escapement of income chargeable to tax — In contravention of CBDT circular — Investment in shares capital account transaction not income — Notices and orders set aside.

Where the assessees, foreign companies, invested in shares of their own Indian subsidiaries, the Assessing Officer (AO) treated the investment as giving rise to income chargeable to tax which had escaped assessment. On writ petitions challenging the notices issued u/s. 148A(b) of the Income-tax Act, 1961, the orders passed by the AO u/s. 148A(d) of the Act, the consequential notices issued to the assessees u/s. 148 of the Act, the Delhi High Court allowed the writ petition and has held as under:

“i) It is settled law that investment in shares in an Indian subsidiary cannot be treated as ‘income’ as it is in the nature of a ‘capital account transaction’ not giving rise to any income.

ii) It was an admitted position that the transactions were capital account transactions. Though there was a doubt expressed that the transactions might be a consequence of round tripping, no evidence or proof of these said allegations had been stated or annexed with the orders and notices. Further, the action of the respondents was in contravention of the Central Board of Direct Taxes Instruction No. 2 of 2015, dated 29th January, 2015 [2015] 371 ITR (St.) 6, reiterating the view expressed by the Bombay High Court in Vodafone India Services Pvt. Ltd. vs. Union of India. In fact, the judgment of the Bombay High Court was accepted by the Union Cabinet and a press note dated January 28, 2015, was issued by the Press Information Bureau, Government of India. Consequently, the notices issued under section 148A(b) of the Act, orders passed under section 148A(d) of the Act and the notices issued under section 148 of the Act and all consequential actions taken thereto were set aside.

iii) It was clarified that if any material became subsequently available with the Revenue, it shall be open to it to take proceedings in accordance with law.”

Penalty — Concealment of income — Immunity from penalty — Effect of ss. 270A and 270AA — Application for immunity — Assessee must be given opportunity to be heard — Amount surrendered voluntarily by assessee — Assessee entitled to immunity from penalty.

26 Chambal Fertilizers and Chemicals Ltd. vs. Principal CIT

[2024] 462 ITR 4 (Raj)

A.Y. 2018–19

Date of order: 4th January, 2024

Ss. 270A and 270AA of ITA 1961

Penalty — Concealment of income — Immunity from penalty — Effect of ss. 270A and 270AA — Application for immunity — Assessee must be given opportunity to be heard — Amount surrendered voluntarily by assessee — Assessee entitled to immunity from penalty.

The petitioner had filed its original return of income u/s. 139(1) of the Income-tax Act 1961 on 30th November, 2018 for the A.Y. 2018–19 and revised return of income on 29th March, 2019 u/s. 139(5) of the Act. The case of the petitioner was selected for complete scrutiny and an exhaustive list of issues was communicated by a notice u/s. 164(2) of the Act on 22nd September, 2019. During the course of scrutiny, various notices u/s. 142(1) of the Act were issued and replies to the same were submitted by the petitioner. It is claimed that during the course of scrutiny proceedings, the petitioner realised that “provision for doubtful goods and services tax input tax credit” amounting to ₹16,30,91,496 had been inadvertently merged with another expense account and mistakenly claimed as expenses under the income-tax provisions. Accordingly, the said amount was suo motu surrendered by the petitioner by revising its return of income and adding back the amount “provision for doubtful goods and services tax input tax credit”, to the total income. The said aspect was communicated vide letter dated 24th February, 2021 along with submission of revised computation.

The assessment order u/s. 143(3) of the Act was passed by the National E-Assessment Centre (“NeAC”), making only addition of suo motu surrendered amount of ₹16,30,91,496; however, it was observed in the order that the penalty u/s. 270A of the Act is imposed for misreporting of the income. The petitioner filed an application u/s. 270AA of the Act against the penalty order before the Deputy Commissioner, which came to be rejected by an order dated 27th July, 2021.

The petitioner challenged the order of rejection by filing revision petition u/s. 264 of the Act, inter alia, on the grounds that no opportunity of hearing was provided to the petitioner, which was in non-compliance of section 270AA of the Act and that the order rejecting the application did not specify how there was misreporting of the income when the amount was disclosed by the petitioner on its own volition and that the case of the petitioner did not fall in any of the exceptions u/s. 270AA of the Act. However, the revision petition came to be rejected by an order dated 13th March, 2023.

The assessee filed a writ petition challenging the order u/s. 264. The Rajasthan High Court allowed the writ petition and held as under:

“i) A perusal of sections 270A and 270AA of the Income-tax Act, 1961, would reveal that under sub-section (3) of section 270AA of the Act, the assessing authority can grant immunity from imposition of penalty u/s. 270A, where the proceedings for penalty u/s. 270A have not been initiated under the circumstances referred to in sub-section (9) of section 270A of the Act, and under the provisions of sub-section (4), it has been provided that no order rejecting an application shall be passed unless the assessee has been given an opportunity of being heard.

ii) Although several notices were issued u/s. 142 of the Act, during the course of scrutiny proceedings, and as many as ten issues were raised, on which the authority could not make any additions, the aspect of merging goods and services tax input tax credit with expenses was not pointed out/detected and this was only pointed out voluntarily by the assessee. Admittedly, the assessee in its application u/s. 270AA of the Act had sought personal hearing and the authority was bound to provide such personal hearing, but, admittedly no opportunity of hearing was provided to the assessee. The Deputy Commissioner had violated the provisions of the proviso to section 270AA(4) of the Act by not providing any opportunity of hearing, and the order passed was wholly laconic.

iii) The order passed by the assessing authority rejecting the application u/s. 270AA and the order passed by the revisional authority rejecting the revision petition, could not be sustained.”

Notice — Service of notice — Method and manner of service of notice under statutory provisions — Charitable purpose — Registration — Notice by Commissioner (Exemptions) — Notice and reminders not sent to assessee’s e-mail address or otherwise but only reflected on e-portal of Department — Assessee not able to file reply — Violation of principles of natural justice — Notice set aside.

25 Munjal Bcu Centre of Innovation and Entrepreneurship vs. DY. CIT(Exemptions)

[2024] 463 ITR 560 (P&H)

Date of order: 4th March, 2024

Ss. 12A(1)(ac)(iii) and 282(1) of the ITA 1961;

R. 127(1) of the Income-tax Rules, 1962.

Notice — Service of notice — Method and manner of service of notice under statutory provisions — Charitable purpose — Registration — Notice by Commissioner (Exemptions) — Notice and reminders not sent to assessee’s e-mail address or otherwise but only reflected on e-portal of Department — Assessee not able to file reply — Violation of principles of natural justice — Notice set aside.

A notice was issued to the assessee by the Commissioner (Exemptions) for initiating proceedings u/s. 12A(1)(ac)(iii), but the notice was not sent to the assessee’s e-mail address or otherwise and was only reflected on the e-portal of the Department. Thereafter, two reminders in respect of the notice were published on the e-portal of the Department. The notice and reminders were not served upon the assessee, no e-mail was sent by the Department to the assessee, and an order was passed.

The assessee filed a writ petition and challenged the orde.: The Punjab and Haryana High Court allowed the writ Petition and held as under:

“i) The provisions of section 282(1) of the Income-tax Act, 1961 and rule 127(1) of the Income-tax Rules, 1962 provide for a method and manner of service of notice and orders. It is essential that before any action is taken, communication of the notice must be done in terms of these provisions. The provisions do not mention communication to be ‘presumed’ upon the placing of the notice on the e-portal. A pragmatic view has to be adopted in these circumstances. An individual or a company is not expected to keep the e-portal of the Department open all the time so as to have knowledge of what the Department is supposed to be doing with regard to the submissions of forms. The principles of natural justice are inherent in the Income-tax provisions which are required to be necessarily followed.

ii) The assessee had not been given sufficient opportunity to make its submissions with regard to the proceedings under section 12A(1)(ac)(iii) since it was not served with any notice. The assessee would be entitled to file its reply and the Department would be entitled to examine it and pass a fresh order thereafter. The order was quashed and set aside.

iii) The assessee was to reply to the notice and the Department would provide an opportunity of hearing to the assessee, consider the submissions of the assessee and thereafter pass an order.”

Deduction of tax at source — Failure by payer to deposit tax deducted — No recovery towards tax deducted at source can be made from assessee — Recovery proceedings can only be initiated against deductor — Assessee entitled to refund.

24 BDR Finvest Pvt. Ltd. vs. Dy. CIT

[2024] 462 ITR 141 (Del)

A.Y.: 2019–20

Date of order: 31st October, 2023

Ss. 154, 194, 205 and 237 of ITA, 1961

Deduction of tax at source — Failure by payer to deposit tax deducted — No recovery towards tax deducted at source can be made from assessee — Recovery proceedings can only be initiated against deductor — Assessee entitled to refund.

The order was passed pursuant to a rectification application filed by the petitioner concerning the return of income (ROI) dated 10th August, 2019. Via the rectification application, the petitioner sought to stake a claim with respect to the tax which had been deducted at source on the interest paid by its borrower, namely, Ninex Developers Ltd. This application was dismissed by an order dated 21st September, 2023.

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

“i) Tax deducted at source is part of the assessee’s income and therefore, the gross amount is included in the total income and offered to tax. It is on this premise that the tax deducted at source would have to be treated as tax paid on behalf of the assessee. The amount retained against remittance made by the payer is the tax which the assessee or deductee has offered to tax by grossing up the remittance. The ‘payment of tax deducted at source to the Government’ can only be construed as payment in accordance with law.

ii) No recovery towards tax deducted at source could be made from the assessee in terms of the provisions of section 205 of the Income-tax Act, 1961.

iii) The assessee should be given credit for the tax deducted at source though it was not reflected in form 26AS. The assessee had followed the regime put in place in the Act for collecting tax albeit, through an agent of the Government. The agent for collecting the tax under the Act who was the deductor had failed to deposit the tax with the Government and the recovery proceedings could only be initiated against the deductor. The order passed u/s.154 was accordingly set aside. Since the assessee had lodged a claim with the resolution professional, if it were to receive any amount, it would deposit with the Department the amount not exceeding the tax deducted at source by the deductor undergoing the corporate insolvency resolution process.”

Collection of tax at source — Scope of S. 206C — Sale of liquor and scrap — Meaning of scrap — Company owned by State Government having monopoly over sale of liquor in state — Licence granted to bar owners for sale of liquor and collection of empty liquor bottles — Empty liquor bottles not scrap within meaning of S. 206C — Assessee not taxable on income from sale of empty liquor bottles.

23 Tamil Nadu State Marketing Corporation Ltd. vs. DY. CIT(TDS)

[2024] 463 ITR 487 (Mad)

A.Ys.: 2016–17 to 2023–24

Date of order: 22nd December, 2023

S. 206C of the ITA 1961

Collection of tax at source — Scope of S. 206C — Sale of liquor and scrap — Meaning of scrap — Company owned by State Government having monopoly over sale of liquor in state — Licence granted to bar owners for sale of liquor and collection of empty liquor bottles — Empty liquor bottles not scrap within meaning of S. 206C — Assessee not taxable on income from sale of empty liquor bottles.

The assessee-company was wholly owned by the Government of Tamil Nadu. It was a statutory body which had been vested with the special and exclusive privilege of effecting wholesale supply of Indian-made foreign spirits in the entire State of Tamil Nadu under section 17C(1A)(a) of the Tamil Nadu Prohibition Act, 1937. The assessee ran a number of retail vending liquor shops across the State and, as a policy decision, it did not want to get into the business of running bars. The assessee had taken the responsibility of ensuring bars were located adjacent to its shop so that liquor sold in its shops were consumed in the licensed bars. From 2005, the assessee floated tenders to select third-party bar contractors (licensees) to sell eatables and collect empty bottles from bars situated adjacent to or within the assessee’s retail shops. The assessee awarded contracts to various bar owners to run the bar adjacent to the retail shops run by the assessee. The licensees who had been issued licences to run the bar adjacent to the retail outlets of the assessee were required to offer their bid to run the bar under a tender process under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. In the bar, the bar contractors (successful licensees) were entitled to sell food items (short eats) and collect the bottles left by the consumers after consuming liquor from the retail outlet in the premises licensed under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 to the bar licensees. For the A.Y. between 2016–17 and 2023–24, the Assessing Officer held that the assessee ought to have collected tax at source u/s. 206C(1) of the Income-tax Act, 1961 on the amounts tendered by the successful bar licensee, inter alia, towards tax from sale of empty bottles by treating the sale of bottles as scrap.

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

“i) Section 206C of the Income-tax Act, 1961, seeks to prevent evasion of taxes and therefore shifts the burden to pay tax on the seller. Section 206C was enacted in the year 1988 to ensure collection of taxes from persons carrying on particular trades in view of peculiar difficulties experienced by the Revenue in the past in collecting taxes from the buyer. It therefore needs to be construed strictly to achieve the purpose for which it was inserted in the year 1988 in the Income-tax Act, 1961. Section 206C of the Act deals with profits and gains from the trading in alcoholic liquor, scrap, etc. Section 206C contemplates a seller of specified goods to collect as tax from a buyer, a sum equal to the percentage specified entry in column 3. There is no definition for the expression ‘buyer’ in section 206C of the Act. ‘Buyer’ is defined in section 2(1) of the Sale of Goods Act, 1930 as a person who buys or agrees to buy goods. Under sub-section (7) to section 206C of the Act, where a person responsible for collecting tax fails to collect it in accordance with section 206C(1) of the Income-tax Act, 1961, shall be liable to pay tax to the credit of the Central Government in accordance with the provisions of sub-section (3). The expression ‘scrap’ has been defined to mean waste and scrap from the ‘manufacture’ or ‘mechanical working of materials’ which is definitely not usable as such because of breakage, cutting up, wear and other reasons. The expression ‘mechanical working of materials’ in the definition of ‘scrap’ in Explanation (b) to section 206C has not been defined separately. Both manufacture and ‘mechanical working of material’ can generate ‘scrap’. Although, an activity may not amount to ‘manufacture’ yet waste and scrap can be generated from ‘mechanical working of material’. Though the expression ‘manufacture’ has been defined in the Income-tax Act, 1961, the expression ‘mechanical working of material’ has not been defined in the Act.

ii) The principle of nocitur a sociis, provides that words and expression must take colour from words with which they are associated. In the absence of definition for the expression ‘mechanical working of materials’ in section 206C of the Act, the doctrine of nocitur a sociis can be usefully applied. Only those activities which resemble ‘manufacturing activity’, but are not ‘manufacturing activity’ can come within the purview of the expression ‘mechanical working of material’. Only such ‘scrap’ arising of such ‘mechanical working of material’ is in contemplation of section 206C.

iii) Mere opening, breaking or uncorking of a liquor bottle by twisting the seal in a liquor bottle would not amount to generation of ‘scrap’ from ‘mechanical working of material’ for the purpose of the Explanation to section 206C of the Act. That apart, the activity of opening or uncorking the bottle was also not done by the assessee. These were independent and autonomous acts of individual consumers who decided to consume liquor purchased from the shops of the assessee which had a licensed premises (bar) adjacent to them under the provisions of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. Scrap, if any, was generated at the licensed premises which were leased by the licensees from the owners of the premises. Rule 9(a) of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 merely grants privilege to the respective bar owners only to run the bars to sell the eatables and to clear left over empty bottles. Bottles are neither ‘scrap’ nor the property of either the assessee or bar licensee.

iv) There was neither ‘manufacture’ nor generation of ‘scrap’ from ‘mechanical working of materials’, and the liability u/s. 206C of the Income-tax Act, 1961 was not attracted. Therefore, invocation of sections 206C, 206CC and 206CCA of the Act was wholly misplaced and unwarranted. The order were not valid.”

Assessment — Limited scrutiny — Jurisdiction of AO — CBDT instruction — Conditions mandatory — AO cannot traverse beyond issues in limited scrutiny — Inquiries on new issue without complying with mandatory conditions not permissible.

22 Principal CIT vs. Weilburger Coatings (India) Pvt. Ltd.

[2024] 463 ITR 89 (Cal):

A.Y. 2015–16

Date of order: 11th October, 2023

Ss. 143(2) and 143(3) of ITA 1961

Assessment — Limited scrutiny — Jurisdiction of AO — CBDT instruction — Conditions mandatory — AO cannot traverse beyond issues in limited scrutiny — Inquiries on new issue without complying with mandatory conditions not permissible.

The return of the assessee for the A.Y. 2015–16 was selected for limited scrutiny. The assessee was issued notice u/s. 143(2) of the Income-tax Act, 1961 in respect of the disallowance of carry forward of losses of earlier years. The assessee participated in the proceedings and thereafter, the assessment was completed u/s. 143(3) of the Act.

The Commissioner (Appeals) affirmed the disallowance. The assessee preferred an appeal before the Tribunal, raising an additional ground that the action of the Assessing Officer (AO) in making additions in respect of issues not mentioned in limited scrutiny were beyond the jurisdiction of the AO. The Tribunal, holding that the issue was jurisdictional and could be raised by the assessee at any point of time, admitted it and, holding that the AO had exceeded his jurisdiction in completing the assessment u/s. 143(3) of the Income-tax Act, 1961 on grounds which were not subject matter of limited scrutiny u/s. 143(2) for the A.Y. 2015–16, deleted the disallowance of carry forward of losses of earlier years.

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

“i) The finding of the Tribunal, that the additional ground raised by the assessee against the order of the Commissioner (Appeals) confirming the addition made by the Assessing Officer in respect of issues not mentioned in the limited scrutiny were beyond jurisdiction of the Assessing Officer since it was selected for limited scrutiny assessment and not complete scrutiny, was a jurisdictional issue and could be raised by the assessee at any point of time was justified and in accordance with the settled legal principle. The Tribunal had also considered the Central Board of Direct Taxes Instruction No. 5 of 2016 to hold that the Assessing Officer had exceeded his jurisdiction.

ii) The Tribunal did not err in deleting the disallowance of carry forward of losses of earlier years and in holding that the Assessing Officer had exceeded his jurisdiction in enquiring into other issues which were beyond the scope of limited scrutiny u/s. 143(2) for the A. Y. 2015-16.”

Non-resident — Income deemed to accrue or arise in India — Situs of share or interest transferred outside India deemed to be located in India by corelating it with underlying assets in India — Insertion of Explanations 6 and 7 to section 9(1)(i) — Prospective or retrospective — Explanations 6 and 7 have to be read along with Explanation 5 which operates from 1st April, 1962 — Explanations 6 and 7 clarificatory and curative — To be given retrospective effect — Deeming provision attracted only where share or interest does not exceed percentage specified or transferor did not exercise right of management and control in company whose share and interest transferred:

21 CIT(IT) vs. Augustus Capital PTE Ltd.

[2024] 463 ITR 199 (Del.)

A.Y.: 2015-16

Date of order 30th November, 2023

S. Explanations 5, 6 and 7 of section 9(1)(i) of the ITA 1961

Non-resident — Income deemed to accrue or arise in India — Situs of share or interest transferred outside India deemed to be located in India by corelating it with underlying assets in India — Insertion of Explanations 6 and 7 to section 9(1)(i) — Prospective or retrospective — Explanations 6 and 7 have to be read along with Explanation 5 which operates from 1st April, 1962 — Explanations 6 and 7 clarificatory and curative — To be given retrospective effect — Deeming provision attracted only where share or interest does not exceed percentage specified or transferor did not exercise right of management and control in company whose share and interest transferred:

The Assessee Company was incorporated under the laws of Singapore on 22nd November, 2011. Between January 2013 and March 2014, the assessee invested in equity and preference shares of APL, a company incorporated in and resident of Singapore. On 27th March, 2015, the assessee sold its investment in APL to an Indian Company, JIPL for ₹41,24,35,969. The return of income for AY 2015-16 was filed declaring NIL income and refund of ₹17,84,19,800 was claimed.

The assessee’s case was selected for scrutiny and queries were raised in the course of assessment proceedings. The main contention of the assessee in its replies was that the assessee had only acquired 0.05 per cent of the ordinary share capital and 2.93 per cent of the preference share capital of APL and the assessee did not have right of management and control concerning the affairs of APL and hence the capital gains arising on account of transfer of shares was not taxable in India. The AO did not accept the contention of the assessee and proposed an addition of ₹36,33,15,969 under the head Capital Gains. In the objections before the DRP, the main contention of the assessee was that Explanation 7 of section 9(1)(i) ought to have been given retrospective effect, and in not doing so, the AO had committed an error. The respondent / assessee asserted that Explanations 6 and 7 clarified Explanation 5, which was introduced via Finance Act 2012. The DRP rejected the objections and the final assessment order was passed confirming the proposed addition. On appeal before the Tribunal, the Tribunal decided the issue in favour of the assessee and deleted the addition.

On appeal before the High Court, the main contention of the Appellant Department before the High Court was that the insertion of Explanations 6 and 7 via Finance Act 2015 was to take effect from 1st April, 2016 and could only be treated as a prospective amendment. The argument advanced in support of this plea was that Explanations 6 and 7 brought about a substantive amendment in section 9(1)(i) of the Act.

The assessee, on the contrary, contended that the provisions of s. 9(1)(i) r.w. Explanations 4, 5, 6 and 7 form a complete code, whereby situs of share or interest transferred outside India is deemed to be located in India, provided a substantial value of the underlying assets, as defined in Explanation 6, is located in India and where the transfer of share and interest exceeds the percentage provided in Explanation 7 and the transferor exercises a right of management and control in the company whose share and interest is being transferred. Explanations 6 and 7 have not brought about a substantive amendment. This is evident upon perusal of the opening words of Explanation 6 and 7, which begin with the expression “For the purpose of this clause….”. Quite clearly, Explanations 6 and 7 are not standalone provisions. The provision made by the legislature via Explanations 6 and 7 will have no meaning if it is not tied in with Explanation 5.

The High Court dismissed the appeal of the Department and the issue was decided in favour of the assessee as follows:

“Explanations 6 and 7 to section 9(1)(i) alone would have no meaning if they were not read along with Explanation 5. If Explanations 6 and 7 are not read along with Explanation 5, no legislative guidance would be available to the Assessing Officer regarding the meaning to be given to the expression “share or interest” or “substantially” found in Explanation 5. Therefore, if Explanations 6 and 7 were to be read along with Explanation 5, which operated from 1st April, 1962, they would have to be construed as clarificatory and curative. The Legislature had taken a curative step regarding the vague expressions “share or interest” or “substantially” used in Explanation 5. Therefore, though the Explanations 6 and 7 were indicated in the Finance Act, 2015 to take effect from 1st April, 2016, they could be treated as retrospective, having regard to the legislative history which had led to the insertion of Explanations 6 and 7.”

Assessment — Company — Dissolution — No corporate existence continues — Company not in existence at the time of passing assessment order — No provision to assess dissolved company — Order against non- existent entity null and void:

20 Rainawari Finance & Investment Company Pvt. Ltd. vs. ITO

[2024] 463 ITR 65 (J&K&L.)

A.Y.: 2004-05

Date of order: 3rd November, 2023

S. 143 of the ITA 1961 and S. 560 of the Companies Act, 1956

Assessment — Company — Dissolution — No corporate existence continues — Company not in existence at the time of passing assessment order — No provision to assess dissolved company — Order against non- existent entity null and void:

The assessee filed a NIL return of income for AY 2004-05. The return of income filed by the assessee contained a note stating that the assessee had filed an application before the ROC u/s. 560 of the Companies Act for striking off the name of the assessee from the Register of Companies. The assessment was completed u/s. 143(3) of the Act and addition of ₹1,00,75,000 was made on account of unsecured loan received during the earlier years and credited to the capital reserve during the previous year. On appeal before the first appellate authority, the appeal was dismissed. On second appeal, the Tribunal remanded the case back to the CIT(A) to adjudicate the case afresh after complying with necessary requirements of deposit of fees under the provisions of the Act. On remand, the CIT(A) confirmed the addition. The Tribunal confirmed the order of the CIT(A). The assessee’s contention that no assessment order could have been passed was rejected by the CIT(A) as well as the Tribunal.

The assessee filed appeal before the High Court on the only ground that the assessing authority could not have passed an assessment order as the assessee company was dissolved as per the provisions of section 560(5) of the Companies Act at the time of making the assessment order.

On the other hand, the Department argued that the Department was not intimated about the assessee company being dissolved and therefore, the assessee could not contend that the aforesaid aspect was not considered by the authorities.

The Hon’ble High Court decided the appeal in favour of the assessee and held as follows:

“i) Once a company is dissolved under section 560(5) of the Companies Act, 1956 it ceases to exist and, therefore, no order of assessment could be validly passed against it under the Income-tax Act, 1961 and if it is passed, it would be a nullity. Section 560(7) of the 1956 Act read along with section 2(31) of the Income-tax Act, 1961 makes it clear that the assessee to be assessed under section 143 of the 1961 Act must be a person in existence. A company is a juridical person but the moment it is struck off from the register of companies and is dissolved, it ceases to exist. An assessment order against a non-existent company would be a nullity and would not give rise to any right or liability under such an order.

ii) For the purpose of challenging the action of the Registrar striking off the registration of the company and effecting its dissolution by publication in the Official Gazette, the company is conferred a juridical personality and may in its own name file an application before the court for setting aside the order passed by the Registrar under sub-section (5) of section 560 of the 1956 Act. Similarly, under section 226(3) of the 1961 Act, it is provided that if there is any tax due from the struck off company it can be recovered from any person who holds or may subsequently hold money for or on account of the assessee-company.

iii) After promulgation of the Companies Act, 2013 and in view of the specific provision made in section 250 thereof, the dissolved company is by fiction of law conferred juridical personality and may, therefore, be competent to challenge the assessment order, if any, passed against it when it stood dissolved by the Registrar under section 248 of the Companies Act, 2013. Similar provision is absent under the Companies Act, 1956.

iv) On the date of passing of the assessment order, the company stood dissolved under section 560(5) of the 1956 Act on the publication of the notice in the Official Gazette and was struck off from the register of companies. In terms of section 143 of the 1961 Act, assessment can be made by the assessing authority only against the assessee, who has filed a return under section 139 or in response to a notice issued under sub-section (1) of section 142. Although the assessee had never brought the aforesaid facts to the notice of the assessing authority, the Commissioner (Appeals) and the Tribunal, all the three authorities committed no illegality in holding that merely because the company was defunct, the assessing authority could not be restrained from passing the assessment order against it. The authorities had concurrently held that there was distinction between the company which was rendered defunct because of stoppage of operations and was formally struck off and dissolved in terms of sub-section (5) of section 560 of the 1956 Act. The order of assessment and the orders of the Commissioner (Appeals) and the Tribunal were set aside.

v) Section 250 of the Companies Act, 2013 was not in existence in the year 2006 nor there was any provision parallel to or in pari materia with this section in the 1956 Act, as was applicable at the relevant point of time. The assessee was given fictional juridical personality only for the purpose of laying challenge before the court to the order of the Registrar striking it off from the register and effecting its dissolution upon publication of the notice in the Official Gazette and no more. The directors of the company who under some circumstances could be held liable to pay the dues owed by the assessee-company to the Department were competent in law to take proceedings against the assessment order passed against a dissolved company, if they were aggrieved. Therefore, all the proceedings by the assessee before the Commissioner (Appeals) and the Tribunal were not maintainable. Similarly, the appeal by the company was also not maintainable. The assessee having ceased to exist was not competent to challenge the assessment order, though, the director might have. Since the company all along been represented by the director, all proceedings taken in the name of the assessee should be treated to be the proceedings by the director of the company.

vi) Notwithstanding dissolution of a struck off company in terms of sub-section (5) of section 560 of the Companies Act, the liability of any person who holds or may subsequently hold money for and on account of the assessee-company or a director of the private company in respect whereof any tax is due in respect of any income of the previous year, as is provided under section 226(3) and section 179 of the 1961 Act, still remains and such person or director shall have the locus standi to challenge the assessment order, if any, passed by the Assessing Officer against such struck off and dissolved company in respect of any income of the previous year.

vii) If the company is not in existence at the time of making the assessment, no order of assessment can be validly passed upon it under the 1961 Act and if one is passed, it must be a nullity.”

Re-assessment — Faceless assessment — Validity — Condition precedent for faceless assessment — Adequate opportunity should be provided to assessee to be heard:

19 Packirisamy Senthilkumar vs. GOI

[2024] 461 ITR 473 (Mad.)

A.Y. 2016-17

Date of order: 2nd June, 2023

Ss. 144B and 147 of ITA 1961

Re-assessment — Faceless assessment — Validity — Condition precedent for faceless assessment — Adequate opportunity should be provided to assessee to be heard:

The assessee, a non-resident Indian, has been resident of Singapore since 1996 and a regular taxpayer there. During the previous year relevant to the AY 2016-17, the assessee purchased immovable properties amounting to ₹90,00,000 for which TDS was deducted. The assessee had not filed his return of income.

The assessee received a clarification letter dated 10th February, 2023 calling upon the assessee to reply along with documentary evidence stating that a sum of ₹1,80,00,000 had escaped assessment for the AY 2016-17. The assessee submitted a detailed reply on 23rd February, 2023 despite which notice u/s. 148A(b) dated 4th March,2023 was issued proposing to re-open the assessment. In response, the assessee once again submitted a detailed response vide letter dated 13th March, 2023 repeating its earlier reply and the reason why no return of income was filed for AY 2016-17. The AO passed order u/s. 148A(d) without considering the submission of the assessee against which the assessee filed a petition before the High Court.

The assessee contended that in the clarification letter as well as the show cause notice u/s. 148A(b), the only reason stated for re-opening of assessment was the purchase of immovable property of ₹90,00,000 and therefore a sum of ₹1,80,00,000 had escaped assessment. However, in the order passed u/s. 148A(d), the AO had dealt with the loan account, employment details, salary certificate, etc. of the assessee and he was never called upon to explain or given time to produce the documents. Therefore, the assessee submitted that the order be set-aside.

On the other hand, the Department contended that the assessee had not given any details as to how a sum of ₹22,50,000 had been sourced by him. The assessee had also not submitted any details about his employment and earnings from such employment. Lastly, it was submitted that no prejudice would be caused to the assessee since the AO had only proceeded to ask clarifications.

The Hon’ble High Court allowing the petition in favour of the assessee held as follows:

“the notice to the assessee had been based only on certain reasons, whereas the order added new reasons for the order. The assessee had not been given an opportunity to answer and explain them. Therefore, taking into account the fact that the very basis of the demand was erroneous and the order proceeded to give new reasons, which the assessee had not been given an opportunity to defend, the order had to be set aside.”

Charitable purpose — Registration of trust — Appeal to appellate tribunal — Power of Tribunal to grant registration: Charitable purpose — Registration of trust — Factors to be considered by Commissioner — Objects of trust and genuineness of activities of trust — Whether trust entitled to exemption on facts to be considered by Assessing Officer:

18 CIT(Exemptions) vs. Nanak Chand Jain Charitable Trust

[2024] 462 ITR 283 (P&H.)

A. Y. 2016-17

Date of order: 8th February, 2023

Ss. 11, 12AA and 254(1) of ITA 1961

Charitable purpose — Registration of trust — Appeal to appellate tribunal — Power of Tribunal to grant registration:

Charitable purpose — Registration of trust — Factors to be considered by Commissioner — Objects of trust and genuineness of activities of trust — Whether trust entitled to exemption on facts to be considered by Assessing Officer:

The assessee trust was set up by one VOL, a limited company as the settlor, to carry out its duties under the CSR as provided under the provisions of section 135 of the Companies Act, 2013. The objects of the trust were in the nature of eradicating hunger and poverty, promotion of education, promoting gender equality etc. An application for grant of registration u/s. 12AA was filed before the Commissioner (Exemptions) on 28th March, 2016 which was rejected by the Commissioner on the ground that the assessee trust had been formed by the settlor for the purpose of carrying out its CSR activities and also rejected the application u/s. 80G(v) holding that the application was void ab initio in terms of Rule 11AA.

On appeal before the Tribunal, the appeal of the assessee was allowed and the order passed by the Commissioner was set aside. The Tribunal, inter alia, held that merely because the trust was formed to comply with the CSR requirements, registration could not be denied to the assessee trust u/s. 12AA of the Act. The Tribunal held that while granting registration under section 12AA of the Act, the Commissioner is required to see only two factors, that is, the objects of the trust, whether they are charitable in nature and the genuineness of the activities of the trust. There is no requirement to see whether the activities are in sync with the Companies Act or not. The CIT is empowered to satisfy himself about the charitable object and the genuineness of the activities and once they are not in doubt, the powers u/s. 12AA end. Such powers do not extend to the eligibility of the trust/ institution for exemption u/s 11 r.w.s 13 of the Act which falls in the domain of the AO. Thus, the Tribunal directed the CIT to grant registration u/s. 12AA of the Act as well as the approval u/s. 80G(5)(vi) of the Act.

On Department’s appeal before the High Cout, the High Court dismissed the appeal of the Department and upheld the view of the Tribunal. The observations of the High Court are as follows:

i) The Tribunal had rightly examined the case of the assessee for grant of registration under section 12AA of the Act. The Tribunal had recorded its satisfaction as the trust fulfilled the following two basic conditions for grant of registration under section 12AA of the Act and the object of the trust, and the genuineness of the activities of the trust / institution. The Tribunal had rightly directed the Commissioner to grant registration under section 12AA and also the approval under section 80G(5)(vi) of the Act to the assessee.

ii) The Commissioner was not to examine with the genuineness of the activities of the trust and whether, if the trust transfers funds to another charitable society, it can be given exemption under section 11 of the Act. This power was restricted to the Assessing Officer. Hence, no useful purpose would be served by remanding the matter to the Commissioner to pass appropriate orders.”

Decision of High Court binding on Income-tax Authorities — Order of assessment ignoring direction of High Court — Not valid

17 Vaani Estates Pvt. Ltd. vs. Addl./Jt./Deputy/Asst. CIT

[2024] 462 ITR 232 (Mad.)

A.Ys.: 2014-15

Date of order: 19th January, 2024

Articles 215, 226 and 227 of the Constitution of India

Decision of High Court binding on Income-tax Authorities — Order of assessment ignoring direction of High Court — Not valid

The assessee company was initially formed by one BGR and his wife SR each holding 5,000 shares. Upon death of BGR, his shares devolved upon his daughter VR. In order to purchase property, SR introduced ₹23.32 crores through banking channels against which she was allotted 10,100 shares at a premium of ₹23,086 per share. The AO treated the share premium as income from other sources u/s. 56(2)(viib) of the Act. When the matter reached in appeal before the Tribunal, the Tribunal decided the issue in favour of the assessee. However, on department’s appeal before the High Court, the High Court remanded the matter back to the AO with the direction to undertake the exercise of fact finding by determining the FMV of the shares in question as required in the Explanation to section 56 of the Act. Further, liberty was given to the assessee to seek necessary clarification from the CBDT on the administrative side.

Pursuant to the orders of the High Court, the assessee approached the CBDT for a clarification vide letter dated 1st November, 2019. Pending such clarification, the AO issued notice u/s. 142(1) calling for details. In response to the notice, the assessee furnished the details and its submissions. The assessee also stated that it had approached the CBDT for seeking clarification on the applicability of section 56(2)(viib) which was pending before the CBDT. Overlooking the fact that clarification from the CBDT was pending, the AO issued a show cause notice proposing to make variation to the total income. In response, the assessee sought 15 days to file its reply and also enclosed the acknowledgment of the reminder letters to the CBDT. However, the AO passed the assessment order.

On writ petition filed by the assessee, the Hon’ble High Court allowed the petition of the assessee and held as follows:

“i) Under article 215 of the Constitution, every High Court shall be a court of record and shall have all the powers of such a court including the power to punish for contempt of itself. Under article 226, it has a plenary power to issue orders or writs for the enforcement of the fundamental rights and for any other purpose to any person or authority, including in appropriate cases any Government, within its territorial jurisdiction. Under article 227 it has jurisdiction over all courts and Tribunals throughout the territories in relation to which it exercises jurisdiction. The law declared by the highest court in the State is binding on authorities or tribunals under its superintendence, and they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceeding. Any order contrary to or disregarding the direction of the High Court cannot be sustained as it renders the order bad for want of jurisdiction.

ii) The High Court had directed the Assessing Officer to undertake the exercise of finding a fair market value of share as contemplated in the Explanation to section56 of the Act. However, the exercise had not been completed. Hence, the assessment order was not valid.”

Search and Seizure — Inordinate delay in return of seized cash — Assessee is entitled to interest on amount returned — Inordinate delay in returning amounts due to the assessee not justified.

16 Vindoa B. Jain vs. JCIT &Ors

[2024] 462 ITR 58 (Bom.)

A.Y. 1991-92

Date of order: 13th September, 2023

Ss. 119, 143(2) and 144 of ITA 1961

Search and Seizure — Inordinate delay in return of seized cash — Assessee is entitled to interest on amount returned — Inordinate delay in returning amounts due to the assessee not justified.

During the previous year 1990-91, the Central Excise Department seized gold items weighing 1545.2 grams and cash of ₹2,60,000/-. The gold and cash were taken over by the Income-tax Department u/s. 132A of the Income-tax Act, 1961 (‘the Act’) and order u/s. 132(5) of the Act was passed retaining the said gold and cash. Scrutiny assessment was completed and order u/s. 143(3) was passed. The matter reached before the Tribunal and the issue was decided in favour of the assessee. No appeal against the said order was preferred by the Department before the High Court and the order of the Tribunal attained finality. There was no outstanding demand against the assessee. Since the Department was not following the order of the Tribunal, the assessee filed an application before the Principal Commissioner who, vide order dated 31st December, 2019 passed u/s. 132B of the Act directed the AO to release the gold and cash. While the seized gold was handed over, the cash was not returned to the assessee. Therefore, the assessee filed the petition before the Hon’ble Bombay High Court. The Hon’ble High Court allowed the petition of the assessee and held as follows:

“i) The Income-tax Act, 1961 recognises the principle that a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without authority of law the Revenue must compensate the assessee.

ii) Notwithstanding the order of the Tribunal which attained finality on 25th September, 2014, the Revenue did not consider it fit to return the cash of ₹2,60,000 that was seized on or about 9th July, 1996. Moreover, even after the Principal Commissioner passed the order on 31st December, 2019 under section 132B of the Act, the Revenue did not consider it fit to process and refund the amount. Even after the petition was filed and served and the lawyer appeared for the Revenue, the Revenue still did not consider it fit to return the money. Therefore, there had been an inordinate delay and this was nothing but a clear case of high handedness on the part of the officers of the Revenue. The assessee would be entitled to interest at 12 per cent. per annum for the post-assessment period, i. e., from 25th September, 2014 until payment / realisation.”

Search and seizure — Assessment of undisclosed income of person searched and third person — Difference between sections 153A and 153C — Conditions more stringent u/s 153C:

15 Agni Vishnu Ventures Pvt. Ltd. vs. Dy. CIT

[2024] 460 ITR 438 (Mad)

A.Ys.: 2009–10, 2011–12, 2012–13, 2013–14 to 2019–20

Date of order: 28th January, 2023

Ss. 153A and 153C of ITA 1961

Search and seizure — Assessment of undisclosed income of person searched and third person — Difference between sections 153A and 153C — Conditions more stringent u/s 153C:

Orders u/s. 153C of the Income-tax Act, 1961 were challenged by filing writ petitions. The Madras High Court held as under:

“i) The ingredients of section 153A of the Income-tax Act, 1961, are: (i) initiation of search or requisition under the applicable statutory provisions, (ii) such search or requisition being after May 31, 2003 but before May 31, 2021, (iii) a mandate upon the Assessing Officer who ‘shall’ issue notice to the person searched, (iv) the notice shall require him to furnish within such period as specified, return of income, (v) such returns are to be filed in respect of each assessment year falling within six assessment years referred to in that provision duly verified and containing the required particulars, (vi) upon receipt of the returns, reassess total income of six assessment years immediately preceding the assessment year relating to the previous year that search was conducted or requisition made. The ingredients of section 153C are: (i) satisfaction of the Assessing Officer who is the Assessing Officer of the section 153A notice that money, bullion, jewellery or other valuable article or thing or books of account or documents (incriminating materials) seized or requisitioned belong to or pertain to or any information contained, relate to, a third party, (ii) recording of satisfaction as above, (iii) handing over of the incriminating material to the Assessing Officer having jurisdiction over the third party, (iv) recording of satisfaction by the Assessing Officer of the third party that the incriminating material has a bearing on the determination of total income of the third party, (v) upon condition of recording of the satisfaction of both officers as above, notices be issued to assess or reassess the income of the third party in accordance with the procedure stipulated u/s. 153A.

ii) There is a vital distinction between the object, intention as well as the express language of sections 153A and 153C. Section 153A addresses the searched entity and the procedure set out is evidently a notch higher for this reason. There is no discretion or condition precedent u/s. 153A to the issuance of notice save the conduct of a search u/s. 132 or making of a requisition u/s. 132A. Upon the occurrence of one of these events, it is incumbent upon the officer to issue notice u/s. 153A to the searched entity in line with the procedure stipulated. Section 153C however requires the satisfaction of two conditions prior to issuance of notice: (i) recording of satisfaction by the Assessing Officer of the searched entities that some of the incriminating materials relate to a third party, and (ii) recording of satisfaction by the Assessing Officer of the third party that the incriminating materials have a bearing on the determination of the total income of that third party. Notice u/s. 153C would have to be issued only upon the concurrent satisfaction of both these conditions. To this extent, there is a clear and marked distinction between the provisions of sections 153A and 153C. To clarify, it is only where the satisfaction note recorded by the receiving Assessing Officer, i. e., the Assessing Officer of the third party, reflects a clear finding that the incriminating material received has a bearing on determination of total income of the third party for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made, that such notice would have to be issued for all the years. It thus flows from the provision that the receiving Assessing Officer must apply his mind to the materials received and ascertain precisely the specific year to which the incriminating material relates. It is only when this determination or ascertainment is complete that the flood gates of an assessment would open qua those particular years. The issuance of a notice cannot be an automated function unconnected to this exercise of analysis and ascertainment by an Assessing Officer. The construction of sections 153A and 153C is consciously different and is seen to apply different yardsticks to an entity searched and a third party, such yardstick being more exacting in the case of the former. The process of assessment is demanding and an assessee, once in receipt of a notice, is bound by the stringent procedure under the Act, till finalisation of the process. There are some situations when the spread of information and the nature of the issue itself might need more, and in-depth probing before such year-wise determination is possible. In such cases, the officer would be well within his right to state the nature of the issue and detail the difficulties that present themselves in precise bifurcation at that stage. This would reflect application of mind and, would serve as sufficient compliance with the statutory condition.

iii) The legal issue was in favour of the assessees, and would have to be applied to determine the validity or otherwise of each of the orders of assessment passed in the case of each of the assessees. The court was not in possession of all satisfaction notes. In some cases, the assessing authority had recorded satisfaction by way of a consolidated note, whereas in some others, the satisfaction notes were individual relating to a specific year.

iv) Rather than go through the factual exercise of verification of the satisfaction notes to arrive at a conclusion as to whether the precondition relating to the satisfaction being year-specific, had been complied, by the assessing authority the court left it to the concerned jurisdictional Assessing Officer to collate the satisfaction notes relating to each year and apply the conclusion of the court on the legal issue decided.”

[The court made it clear that the appellate authority should make good the error committed by the assessing authority by ensuring that an effective opportunity of cross-examination was granted to the assessee prior to finalising the appeal proceedings. The powers of the appellate authority u/s. 246 and 246A are co-terminus with those of the Assessing Officer and the direction would suffice to protect the interests of the assessees and to remedy the procedural error committed by the officer while framing the assessment.]

Search and seizure — Unexplained money — Burden of proof — Share capital — Investments in share capital through banking channels — Addition made based on unproven and untested statements recorded during searches — Onus to prove investments bogus not discharged — Deletion of addition.

14 Principal CIT vs. PNC Infratech Ltd.

[2024] 461 ITR 92 (All)

A.Y.: 2010–11

Date of order: 11th December, 2023

Ss. 69 and 132 of the ITA 1961

Search and seizure — Unexplained money — Burden of proof — Share capital — Investments in share capital through banking channels — Addition made based on unproven and untested statements recorded during searches — Onus to prove investments bogus not discharged — Deletion of addition.

The assessee received share capital from three entities in the A.Y. 2010–11 through banking channels. During the search u/s. 132 of the Income-tax Act, 1961, statements were recorded of directors and responsible functionaries of the investor entities and the assessee involved inthe transactions. Relying on the statements made by BK, LJ, RK, SK and SM recorded during the search proceedings, investments made in the form of share capital were added as unexplained cash u/s. 69 to the assessee’s income.

The Commissioner (Appeals) deleted the addition, and this was confirmed by the Tribunal.

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

“i) The investors had duly disclosed the investments in the assessee in their books of account. In the statement recorded during the assessment proceedings BK had claimed ignorance as to the actual business transaction of that company and also as to the investment made by the entity J in the assessee. Therefore, BK did not prove or disprove the fact of investment made by J in the assessee. He had only claimed ignorance. The assessing authority failed to call or examine LJ during the assessment proceedings, but had relied on the unproven or untested statement of LJ allegedly recorded during the search proceedings conducted against the entity J. No material witness was examined during the assessment proceedings.

ii) The assessing authority without affording the assessee any opportunity to cross-examine any such witness had relied on ex parte statements. Other than those statements, there was no evidence to establish that investment made in the assessee by way of share capital by the three entities was bogus and not genuine. The Commissioner (Appeals) has reasoned that the doubts and suspicions howsoever strong could never lead to adverse findings against the assessee. He had categorised the findings recorded by the assessing authority as conjectural being not based on any cogent material or evidence on record. The Department could not produce any evidence to conclude that any part of the investment made in the assessee by the three investor entities was false or bogus. The burden to prove otherwise rested on the Department. Unless the initial onus had been discharged by leading some evidence that led to the conclusion that the investment was never made, the burden that was cast on the Department remained undischarged. Accordingly, the findings of fact recorded by the Tribunal, confirming the order of the Commissioner (Appeals), were based on material and were neither illegal nor perverse.”

Revision — Powers of Commissioner — Power to consider assessment record — Meaning of record — Record includes all material including results of search proceedings — Order of revision without considering results of search proceedings — Not valid.

13 Principal CIT vs. Techno Tracom Pvt. Ltd.

[2024] 461 ITR 47 (Cal.)

A.Y.: 2009–10

Date of order: 27th March, 2023

S. 263 of the ITA 1961

Revision — Powers of Commissioner — Power to consider assessment record — Meaning of record — Record includes all material including results of search proceedings — Order of revision without considering results of search proceedings — Not valid.

The original assessment in the case of the assessee for the A.Y. 2009–10 was completed u/s. 143(3) of the Income-tax Act, 1961 on 28th March, 2011. The Principal Commissioner exercised his jurisdiction u/s. 263 of the Act and passed the order dated 28th March, 2013. Prior to the order being passed u/s. 263 of the Act, a search and seizure operation was conducted on the assessee on 18th February, 2013. The assessee challenged the order passed u/s. 263 of the Act before the Tribunal. The Tribunal remanded the case to the Principal Commissioner to consider the effect of the order passed u/s. 153A. However, this was ignored by the Principal Commissioner stating that it was irrelevant and the Principal Commissioner proceeded to pass the order u/s. 263 of the Act dated 30th March, 2021. The Tribunal quashed the revision order u/s. 263 passed by the Principal Commissioner.

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

“i) U/s. 263 of the Income-tax Act, 1961, the Principal Commissioner has to examine all the records pertaining to the assessment year at the time of examination by him. The expression “record” as used in section 263 of the Act is comprehensive enough to include the whole record of evidence on which the original assessment order was based. Where any proceeding is initiated in the course of assessment proceedings, having relevant and material bearing on the assessment to be made and the result of such proceedings was not available with the Income-tax Officer before the completion of the assessment but the result came subsequently, the revising authority (Principal Commissioner) is entitled to look into the search material as it forms part of the assessment records of that assessment year.

ii) The Principal Commissioner could not have ignored the order passed u/s. 153A of the Act dated March 23, 2015 as being immaterial and irrelevant. The Tribunal had also examined the exercise undertaken by the Assessing Officer while completing the assessment u/s. 153A of the Act and found that the entire records were examined and no adverse inference was drawn against the assessee. Thus, the Tribunal rightly granted relief to the assessee and the order did not call for any interference.”

Offences and prosecution — Wilful attempt to evade tax — Effect of order in penalty proceedings — Tribunal considering facts and holding that there was no concealment of income — Prosecution could not continue.

12 TVH Energy Resources Pvt. Ltd. vs. ACIT

[2024] 460 ITR 433 (Mad.)

A.Y.: 2013–14

Date of order: 13th July, 2023

Ss. 276C and 277 of ITA 1961

Offences and prosecution — Wilful attempt to evade tax — Effect of order in penalty proceedings — Tribunal considering facts and holding that there was no concealment of income — Prosecution could not continue.

The petitioners were prosecuted for the offences u/s. 276C(1) and u/s. 277 of the Income-tax Act, 1961, alleging that the petitioners have not explained the source of income for incurring cash expenses of ₹1,19,72,476 for the A.Y. 2013–14. The respondent also levied a penalty of ₹38,84,470 u/s. 271(1)(c) of the Income-tax Act, 1961. The Income-tax Appellate Tribunal, by its order dated 2nd April, 2018, found that there is no evidence that the petitioner has made any cash payment which is unaccounted and the additions made by the Department are merely based on estimate and not based on any material records, and therefore, allowed the appeal filed by the petitioners and set aside the order of penalty passed u/s. 271(1)(c) of the Act.

Based on the order of the Tribunal cancelling the penalty, the petitioners filed criminal writ petitions for quashing the prosecution proceedings. The Madras High Court allowed the writ petition and held as under:

“i) The ratio which can be culled out from judicial decisions can broadly be stated as follows: (i) Adjudication proceedings and criminal prosecution can be launched simultaneously; (ii) decision in adjudication proceedings is not necessary before initiating criminal prosecution; (iii) adjudication proceedings and criminal proceedings are independent in nature to each other; (iv) the finding against a person facing prosecution in the adjudication proceedings is not binding on the proceeding for criminal prosecution; (v) adjudication proceedings by the Enforcement Directorate are not prosecution by a competent court of law to attract the provisions of article 20(2) of the Constitution or section 300 of the Code of Criminal Procedure, 1973; (vi) the finding in the adjudication proceedings in favour of the person facing trial for identical violation will depend upon the nature of finding. If the exoneration in adjudication proceedings is on technical ground and not on the merits, prosecution may continue; and (vii) in the case of exoneration, however, on the merits where the allegation is found to be not sustainable at all and the person is held innocent,
criminal prosecution on the same set of facts and circumstances cannot be allowed to continue, the underlying principle being the higher standard of proof in criminal cases.

ii) The respondent prosecuted the petitioners for the offences u/s. 276C(1) and 277 of the Income-tax Act, 1961, for the A.Y. 2013-14, alleging that the assessee had not explained the source of income for incurring cash expenses of ₹1,19,72,476. In penalty proceedings the Tribunal by its order found that there was no evidence that the assessee had made any cash payment which was unaccounted and the additions made by the Department were merely based on estimate and not based on any material records, and therefore deleted the penalty. A criminal prosecution on the same set of facts was not maintainable and was unsustainable and the same was liable to be quashed.”

Income from other sources — Consideration received for shares in excess of fair market value — Condition precedent — Transfer of shares — Allotment of new rights shares on proportionate basis — Provision not applicable — Renunciation of rights shares by wife and father in favour of assessee — Exemption for transactions from relatives — Provision not attracted — Renunciation of rights shares by third party in favour of assessee — Third party not related to assessee — Disproportionate allocation of shares — Section 56(2)(vii)(c) applicable — Determination of fair market value of additional shares — Computation on basis of previous year’s balance sheet approved in annual general meeting — Right computation.

11 Principal CIT vs. Jigar Jashwantlal Shah

[2024] 460 ITR 628 (Guj)

A.Y.: 2013–14

Date of order: 28th August, 2023

S. 56(2)(vii)(c) of ITA 1961

Income from other sources — Consideration received for shares in excess of fair market value — Condition precedent — Transfer of shares — Allotment of new rights shares on proportionate basis — Provision not applicable — Renunciation of rights shares by wife and father in favour of assessee — Exemption for transactions from relatives — Provision not attracted — Renunciation of rights shares by third party in favour of assessee — Third party not related to assessee — Disproportionate allocation of shares — Section 56(2)(vii)(c) applicable — Determination of fair market value of additional shares — Computation on basis of previous year’s balance sheet approved in annual general meeting — Right computation.

For the A.Y. 2013–14, the assessee filed the return of income. On noticing that the assessee was receiving salary in the capacity of the director of a company K and two lakhs rights shares of face value ₹10 each in K, the Assessing Officer issued notice u/s. 148 of the Income-tax Act, 1961 to the assessee on the grounds that the correct fair market value of shares allotted to the assessee exceeded the consideration paid for receipt of shares which was taxable u/s. 56(2) of the Act. Thereafter, the AO made additions to the income of the assessee with regard to additional 82,200 shares allotted to the assessee due to renouncement of rights by the assessee’s wife and father, additional shares allotted to the assessee due to renouncement of rights by a third party and adopted the valuation of additional shares allotted to the assessee at ₹255 per share under rule 11UA(1)(c)(b) of the Income-tax Rules, 1962.

The Commissioner (Appeals) held that section 56(2)(vii)(c) of the Act was not applicable to the rights shares allotted proportionate to the existing holding and held the fair market value for the remaining shares to be ₹205.55 per share. The Tribunal held that the renunciation of rights shares by wife and father of the assessee by not exercising the right to subscribe would not attract the provisions of section 56(2)(vii)(c) of the Act and deleted the addition under section 56(2)(vii)(c) of the Act. However, it held that renunciation of rights shares by the third party by not exercising the right to subscribe would attract the provisions of section 56(2)(vii)(c) of the Act. The Tribunal adopted the valuation of shares at ₹205 per share in respect of additional shares allotted to the assessee.

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

“i) The provisions of section 56(2) of the Income-tax Act, 1961 would not be applicable to the issue of new shares. The Explanatory Notes to the Finance Bill, 2010 clarified that section 56(2)(vii)(c) of the Act is to be applied only in the case of transfer of shares. It is trite law that allotment of new shares cannot be regarded as transfer of shares. From a conjoint reading of section 56(2)(vii)(c) as well as the Explanatory Notes to the section, it is clear that only when an individual or a Hindu undivided family receives any property for consideration which is less than the fair market value, the provisions of section 56(2)(vii)(c) would be attracted. Therefore, in order to apply the provisions of section 56(2)(vii)(c), there must be existence of property before receiving it. The term ‘receive’ has been defined as ‘to get by a transfer, as to receive a gift, to receive a letter or to receive money and involves an actual receipt’. Issue of new shares by a company such as rights shares is creation of property and merely receiving such shares cannot be considered as a transfer under section 56(2)(vii)(c) and accordingly, such provision would not be applicable on the issuance of shares by the company in the hands of the allottee.

ii) The shares had come into existence only when the allotment was made by the company as rights shares cannot be said to be ‘received from any person’. The shares which had been allotted to the assessee were not ‘received from any person’ which was the fundamental requirement for invoking section 56(2)(vii)(c) of the Act. In other words, the property must pre-exist for application of section 56(2)(vii)(c), which is clear from the intention of the Legislature. Regarding the issue of 82,200 shares, the names of the wife and father of the assessee would also not be hit by the provisions of section 56(2)(vii)(c) of the Act as both of them would be covered by the definition of ‘relative’ covered in the exemption of relative, and therefore, the provisions of section 56(2)(vii)(c) would not be applicable at all. With regard to the application of section 56(2)(vii)(c) of the Act for the balance 14,800 shares allotted to the assessee as a result of third party shareholder declining to apply for rights shares in favour of the assessee, the Tribunal held against the assessee because renunciation of rights in favour of the assessee by the third party who was not related would lead to disproportionate allocation of shares in favour of the assessee. The findings recorded about valuation of shares to ₹205.55 were concurrent findings of fact which did not require any interference. The Commissioner (Appeals) had rightly computed the fair market value on the basis of the balance-sheet which was available on record for the previous year and which was approved in the annual general meeting.”

Assessment — Limitation — Special audit — Appointment of special auditor extending end date for framing assessment order — Special auditor seeking extension of time for submission of report — AO forwarding request letter with recommendation to Commissioner — Commissioner granting extension of time — Discretion to extend time frame solely with AO — Discretionary power vested in AO not delegable, cannot be exercised by Commissioner.

10 Principal CIT vs. Soul Space Projects Ltd.

[2024] 460 ITR 642 (Del.)

A.Ys.: 2007–08 and 2008–09

Date of order: 11th December, 2023

Ss. 142(2A), 142(2C) and 153B of the ITA 1961

Assessment — Limitation — Special audit — Appointment of special auditor extending end date for framing assessment order — Special auditor seeking extension of time for submission of report — AO forwarding request letter with recommendation to Commissioner — Commissioner granting extension of time — Discretion to extend time frame solely with AO — Discretionary power vested in AO not delegable, cannot be exercised by Commissioner.

Pursuant to search operations at the premises of the assessee, the Assessing Officer issued a notice u/s. 153A of the Income-tax Act, 1961. Thereafter, the AO issued a show-cause notice to the assessee seeking its response to have a special audit conducted concerning its affairs in the exercise of powers u/s. 142(2A) of the Act. The assessee filed its objections but the AO rejected them. The Commissioner issued a show-cause notice before approving the conduct of a special audit, as proposed by the AO. Once again, the assessee filed its objections which were rejected by a letter indicating the grant of approval for special audit based on the reasoning outlined in the order sheet and the appointment of a chartered accountants firm for completion of audit with a time frame of 120 days. Thereafter, the chartered accountants firm sought extension of time to submit the special audit report. The AO forwarded the letter seeking extension of time with a recommendation to the Commissioner and the Commissioner granted extension of 60 days’ time to submit the report.

On appeal, the Tribunal concluded that the further extension of 60 days granted by the Commissioner for completion of the audit was illegal and invalid and thus impaired the viability of the assessment order framed u/s. 153A / 143(3) of the Act, on a day beyond the prescribed period of limitation, which ended on 13th June, 2020.

On appeal by the Revenue, the following substantial question of law was framed:

“Whether the extension given to the chartered accountant appointed under the provisions of section 142(2A) of the Income-tax Act, 1961 (in short, ‘Act’) for submission of the audit report was in consonance with the proviso appended to section 142(2C) of the Act?”

The Delhi High Court upheld the decision of the Tribunal and held as under:

“i) It is the Assessing Officer who, in his proposal, sets up a case for issuance of a direction to the assessee to get its accounts audited, having regard to the circumstances referred to in sub-section (2A) of section 142 of the Income-tax Act, 1961, keeping in mind the interests of the Revenue. Once the specified authority grants its approval, it is obliged to nominate the accountant who would then proceed to audit the assessee’s accounts and generate a report which would advert to the particulars indicated in the prescribed form and,more importantly, other particulars which the Assessing Officer may require the accountant to elicit from the assessee’s accounts. Significantly, this exercise is to be completed within the time frame that the Assessing Officer prescribes.

ii) Under the proviso appended to sub-section (2C) of section 142 of the Income-tax Act, 1961, the Legislature has invested the power in the Assessing Officer to grant an extension of time as well, which can be forone or more periods with a maximum time frame (which includes the original period specified by the Assessing Officer for completion of the audit) not exceeding 180 days.

iii) As long as the authority retains the power to exercise the discretion vested in it by the statute, no fault can be found if it employs ministerial means in effectuating the exercise of discretionary power by the authority in which such power is reposed. In sum, the discretionary power invested in the specified authority should be exercised by that authority alone and none else, even if it causes administrative inconvenience, except in those cases where it is reasonably inferred to be a delegable power.

iv) Since a special auditor was appointed the end date for framing the assessment order was extended to April 14, 2010, by virtue of the provisions of section 153B, Explanation (ii), read with the first proviso appended to the provision. The record showed that the assessment order was framed on August 10, 2010. In the interregnum, the initial time frame granted for completion of the audit, which was 120 days, was extended by 60 days at the request of the special auditor. The Commissioner, in fact, granted the extension of time. The Assessing Officer simply transmitted the request received from the auditors to his superior, who then processed the matter and directed a grant of extension of time for completion of the audit. The Assessing Officer made a recommendation broadly on two grounds. Having noted the diametrically opposite assertions made on the aspect of delay, the legal tenability of the decision taken in the matter depended on which specified authority was invested with the power to extend the time frame. Since the Legislature vested the discretion to extend the time frame solely in the Assessing Officer, he could not have abdicated that function and confined his role to making a recommendation to the Commissioner. The Commissioner had no role in extending the time frame as the Assessing Officer was in seisin of the assessment proceedings. The discretionary power was vested in the Assessing Officer (which was non-delegable), and could not have been exercised by the Commissioner, irrespective of the nature of the power.

v) Thus, for the preceding reasons, the question of law, as framed, is answered against the Revenue and in favour of the assessee. The appeals are disposed of in the aforesaid terms.”

Assessment — Jurisdiction — CBDT Instructions — Binding on authorities — Time prescribed by CBDT — Burden of proof — Burden on authority assuming jurisdiction to establish that instructions satisfied in letter and spirit — Notice issued u/s. 143(2) not in terms of instructions of CBDT — Notice and assessment without jurisdiction.

9 CIT vs. Crystal Phosphates Ltd.

[2024] 461 ITR 289 (P&H.)

A.Y.: 2006–07

Date of order: 28th March, 2023

Ss. 119, 143(2) and 144 of ITA 1961

Assessment — Jurisdiction — CBDT Instructions — Binding on authorities — Time prescribed by CBDT — Burden of proof — Burden on authority assuming jurisdiction to establish that instructions satisfied in letter and spirit — Notice issued u/s. 143(2) not in terms of instructions of CBDT — Notice and assessment without jurisdiction.

The assessee’s case for A.Y. 2006–07 was selected for scrutiny and assessment was completed u/s. 144 of the Income-tax Act, 1961 by making various additions / disallowances.

The appeal was partly allowed by the CIT(A). The assessee as well as the department filed appeals before the Tribunal. The Tribunal disposed the appeal by quashing the notice issued u/s. 143(2) as well as the assessment framed by the AO on the grounds that the department had not shown that the instructions issued by CBDT for selection of cases for scrutiny were followed / satisfied for assumption of jurisdiction.

The Department filed appeal before the High Court to decide the following question:

“Whether as per CBDT instructions/guidelines, the case of the assessee was covered to be picked up for scrutiny, especially keeping in view that for the A.Y. 2007-08, the income was 30% more than the total income declared for the past year i.e. 2006-07?”

The Hon’ble Punjab & Haryana High Court dismissed the appeal of the Department and held as follows:

“i) The question of jurisdiction which was to be decided first by the Assessing Officer had not been done. The assessment order was quashed as being against the instructions of the CBDT. The instructions issued by the CBDT had not been complied with in letter and spirit. The Tribunal had rightly allowed the appeals of the assessee appreciating the facts in the right perspective. The Department had not led any cogent and convincing evidence to prove its case.

ii) As per CBDT instructions, the burden was on the authority assuming jurisdiction to show and establish that such instructions had been duly complied with and satisfied in letter and spirit. Since the notice u/s. 143(2) was not in terms of the instructions of the CBDT, both the notice u/s. 143(2) and the assessment were without jurisdiction and were accordingly quashed. No question of law arose.”

Transfer of case — Transfer from one AO to another subordinate to different higher authority — Condition precedent — Agreement between two higher authorities — Assessee should be given adequate opportunity to be heard — Mere speculation that assessee was connected to group of companies against whom search proceedings undertaken and that cases had to be centralized — Order of transfer not valid.

96 Kamal VarandmalGalani vs. PCIT

[2024] 460 ITR 380 (Bom)

A.Y.: 2021–22

Date of Order: 20th April, 2023

S 127 of ITA 1961

Transfer of case — Transfer from one AO to another subordinate to different higher authority — Condition precedent — Agreement between two higher authorities — Assessee should be given adequate opportunity to be heard — Mere speculation that assessee was connected to group of companies against whom search proceedings undertaken and that cases had to be centralized — Order of transfer not valid.

The assessee had been filing return of income for the past 22 years in Mumbai. The assessee was in receipt of show cause notice dated 24th June, 2022 issued by the Principal Commissioner of Income-tax — 19 proposing to transfer the assessment jurisdiction to Deputy Commissioner of Income-tax — Central Circle, Jaipur to enable coordinated assessment with that of Veto Group on whom search proceedings were conducted u/s 132 of the Act. As per the show cause notice, the Principal Commissioner of Income-tax (Central) — Rajasthan had proposed for centralization of the case of the assessee with Veto Group at Jaipur, and therefore, the assessee was asked to file submissions. The assessee filed objections against the aforesaid transfer of jurisdiction on the grounds that there was no search conducted at the premises of the assessee. Only a survey was conducted u/s 133A that too in the case of one company LHPL in which the assessee was a director. There was no material found during the search conducted at Veto group which could be related to the assessee. Similarly, there was no incriminating material found in the course of survey at LHPL which could relate the assessee or even LHPL to Veto Group. Lastly, the show cause notice did not refer to any material collected by the Department against the assessee on the basis of which transfer of jurisdiction was proposed.

The objections of the assessee were rejected on the ground that the assessee was the director of LHPL which was proposed to be centralized with Jaipur jurisdiction and further that the assessee was a key person of the Veto Group. During the course of search / survey at various entities of the group, incriminating documents and data were found / seized / impounded which may relate to the assessee as well as other ssesses of the group. However, what is incriminating material was nowhere specified neither in the show cause notice nor in the order.

The Bombay High Court allowed the writ petition filed by the assessee and held as follows:

“i) The Instructions of the CBDT dated 17th September, 2008 make it clear that where an order of transfer is proposed for centralisation of cases, while sending a proposal for centralisation, reasons have to be reflected including the relationship of the assessee with the main persons of the group.

ii) The order passed u/s 127(2) of the Act did not reflect why it was necessary to transfer the jurisdiction from the Deputy Commissioner, Mumbai to Deputy Commissioner, Jaipur. None of the issues raised by the assessee had been dealt with either in the order disposing of the objections raised by the assessee much less had they been reflected in the order u/s 127(2) of the Act. The transfer of assessment jurisdiction from Mumbai to Jaipur would certainly cause inconvenience and hardship to the assessee both in terms of money, time and resources, and therefore, in the absence of the requisite material or reasons as the basis the order would be nothing but an arbitrary exercise of power and therefore liable to be set aside.”

Revision — Powers of Commissioner — Special deduction — Claim to deduction u/s 80-IA not made in return of income and assessment order passed — Principal Commissioner or Commissioner competent to consider claim for deduction — Matter remanded.

95 TATA-ALDESA JVvs. UOI

[2024] 460 ITR 302 (Telangana)

A.Y.: 2014–15

Date of Order: 12th June, 2023

Ss. 80IA, 263 and 264 of ITA 1961

Revision — Powers of Commissioner — Special deduction — Claim to deduction u/s 80-IA not made in return of income and assessment order passed — Principal Commissioner or Commissioner competent to consider claim for deduction — Matter remanded.

For the A.Y. 2014–15, the Assessing Officer passed an order u/s 143(3) of the Income-tax Act, 1961. Thereafter, the assessee filed an application before the Principal Commissioner u/s 264 in which it submitted that it had commenced its business operations during the previous year 2013–14, and accordingly, the A.Y. 2014–15 was the first year under assessment and that though it was entitled to claim deduction u/s 80-IA because of a bona fide error, it did not claim it either at the time of filing the return of income or during the assessment proceeding. The assessee also sought condonation of delay of 52 days. The Principal Commissioner condoned the delay and observed that the assessee did not opt to make the claim to deduction u/s 80-IA and that in the subsequent A.Y. 2015–16 also, the assessee did not make such claim before the Assessing Officer. He opined that the assessee chose not to claim deduction u/s 80-IA and declined to interfere u/s 264 in the order of the Assessing Officer.

The Telangana High Court allowed the writ petition filed by the assessee and held as under:

“i) There is a fundamental difference between sections 263 and 264 of the Income-tax Act, 1961. For invoking the power u/s 263, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner should be of the opinion that an order passed by the Assessing Officer or Transfer Pricing Officer is erroneous inasmuch as the order is prejudicial to the interests of the Revenue. In that event, he may call for the record of the proceedings before the Assessing Officer or the Transfer Pricing Officer and after making inquiry, may pass such an order as section 263 contemplates. But there is no such limitation in section 264 under which the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may either of his own motion or on an application by the assessee for revision, call for the records of any proceeding relatable to an order other than an order to which section 263 applies and after making due inquiry, he may pass such order thereon as he thinks fit; the only caveat being that such order should not be prejudicial to the assessee. It is not confined to legality or validity of an order passed by the Assessing Officer or a claim made and disallowed or a claim not put forth by the assessee.

ii) There was no limitation on the exercise of power u/s 264 by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. The order rejecting the assessee’s application was set aside. The matter was remanded to the Principal Commissioner for reconsideration of the revision application filed by the assessee u/s 264 on the merits after giving due opportunity of hearing to both the sides.”