Section 260A

Section 260A — the law in short

What the courts have decided on section 260A, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Jindal Equipment Leasing Consultancy Services Ltd v CIT Supreme CourtCuts both ways
  My client held shares of the amalgamating company as stock-in-trade and received shares of the amalgamated company under the court-sanctioned scheme. Is there business income at that point, or only when those shares are sold?
  It depends. Section 28 does not require a sale, an exchange or a transfer - business profit can be realised in kind - so the substitution of shares on an amalgamation can be charged as business income where shares held as stock-in-trade are replaced by shares that are freely realisable and capable of definite valuation. It is not automatic: the Court laid down a fact-sensitive test of commercial realisability, put the burden of establishing it on the Revenue, and held that the charge is attracted only on allotment of the new shares and not on the appointed date or the date the scheme is sanctioned. The Delhi High Court's judgment was affirmed and the matter remitted to the Tribunal to decide, on the facts, whether the shares were stock-in-trade at all and whether what was received was freely realisable.
• PCIT v Ramesh Chandra Rai Supreme CourtHelps taxpayer
  The AO has added my share of the syndicate's profit straight to my own return. Can he do that without assessing the syndicate?
  No. An association of persons is a separate person under s.2(31) and its income has to be assessed in its own hands. The Assessing Officer cannot bypass that and club the member's share, and the disallowances he thinks the syndicate should have suffered, into the member's individual assessment. Section 86 then decides what, if anything, the member includes.
• PCIT v M P Entertainment and Developers P Ltd Supreme CourtHelps taxpayerValidity unconfirmed
  We run a shopping mall. Is the income business income or income from house property?
  Business income, on these facts. Applying Sultan Brothers, the Supreme Court dismissed the revenue's SLP: the company's objects covered constructing, owning, developing, managing, running, hiring, letting out and leasing malls and multiplexes, and its actual activity matched them, so the letting was the doing of business under s.28.
• CIT v Jasjit Singh Supreme CourtHelps taxpayer
  A search was made on someone else and my papers were found. From which date are my six years counted - the search, or when my Assessing Officer got the papers?
  From the date your Assessing Officer received the material. The Supreme Court held that the proviso to section 153C(1) does not deal only with abatement: it also fixes the date from which the six year period is reckoned for the person who was not searched. The Revenue's argument that the proviso is confined to abatement, so that the period relates back to the date of the search on the other person, was held insubstantial and without merit. The Court approved the Delhi High Court's reasoning in SSP Aviation and dismissed the Revenue's appeals.
• SAP Labs India P Ltd v ITO Supreme CourtHelps department
  The Tribunal fixed my arm's length price and the department has gone to the High Court — can the High Court reopen the comparables, or is the Tribunal's finding final?
  No, the Tribunal's determination is not final. The Supreme Court held on 19 April 2023 that there is no absolute rule that an arm's length price fixed by the Tribunal cannot be examined under section 260A. Chapter X and Rules 10A to 10E lay down guidelines; a determination made in disregard of them is perverse, and perversity is itself a substantial question of law. The High Court may therefore examine comparability of companies, the selection of filters and whether non-comparable transactions were treated as comparable. The Karnataka High Court's contrary view in Softbrands India was rejected and the whole batch was remitted.
• Mansarovar Commercial P Ltd v CIT Supreme CourtHelps department
  My company is registered outside the taxable territory but run from Delhi. Where is it resident?
  Where it is actually run. The Supreme Court held that the residence of a company turns on de facto control and management, not on the place of registration: five companies incorporated under the Registration of Companies (Sikkim) Act, 1961 were resident in India because the management and control of all five was wholly situated in Delhi, at the office of a chartered accountant. The appeals were dismissed and the Delhi High Court's decision affirmed.
• PCIT v ABC Papers Ltd Supreme CourtCuts both ways
  My case was transferred under section 127 to an Assessing Officer in another state — which High Court now hears the appeal against the Tribunal's order?
  The High Court where the Assessing Officer who passed the assessment order sits. The Supreme Court held on 18 August 2022 that an appeal under section 260A lies only to that High Court, and that a transfer of the case under section 127 does not shift appellate jurisdiction — even a transfer for the same assessment year. The Delhi High Court's contrary decisions in CIT v. Sahara India Financial Corporation Ltd. and CIT v. Aar Bee Industries Ltd. were overruled. Nor does the location of the Tribunal decide the forum, since a Bench of the Tribunal often covers several states.
• CIT v Reliance Telecom Ltd Supreme CourtHelps department
  The Tribunal recalled its whole order on my miscellaneous application. Will that recall survive?
  No, where the recall amounts to rehearing the appeal on merits. Section 254(2) is a rectification power limited to a mistake apparent from the record; a Tribunal that reconsiders its own conclusions is sitting in appeal over itself. The remedy against an order said to be wrong on merits is an appeal to the High Court.
• CIT (Exemption) v Batanagar Education and Research Trust Supreme CourtHelps department
  The Commissioner has cancelled my trust's registration because some corpus donations are said to be bogus — can he do that when the money was actually spent on the trust's objects?
  Yes. The Supreme Court held on 2 August 2021 that a trust which takes donations by cheque and returns the money in cash is misusing its section 12AA status and cannot keep it. The Managing Trustee had admitted in a survey that a major part of the corpus donations were accommodation entries, that part of each donation went back to the donors through named intermediaries by RTGS, and that those payments were booked as building capital expenditure. On that material the Commissioner and the Tribunal were right to cancel registration under section 12AA(3) and the consequent 80G approval, and the Calcutta High Court should not have interfered under section 260A.
• Shiv Raj Gupta v CIT Supreme CourtHelps taxpayer
  I sold my controlling stake and separately took a large non-compete fee. Can the department call the covenant a sham and tax the fee?
  Not on these facts, and not for the year in question. The Supreme Court allowed the assessee's appeal and set aside the Delhi High Court's judgment. It held the High Court had gone outside the substantial question of law it framed, contrary to section 260A(4), by taxing the Rs 6.6 crore as capital gain when the only question framed was taxability under section 28(ii)(a). On the merits, the revenue has no business to second guess the commercial expediency of what parties at arm's length decide, and following Guffic Chem, a receipt under a negative covenant was a capital receipt not taxable before section 28(va) took effect on 1 April 2003.
• Snowtex Investment Ltd v PCIT Supreme CourtHelps department
  Can I set my share trading loss off against my F&O profits?
  No, for years up to AY 2014-15. Where a company's principal business is dealing in shares, the Explanation to s.73 deems that loss to be speculative, while derivatives profits on a recognised exchange are non-speculative under s.43(5)(d) — so the two cannot be set off. The 2014 amendment to the Explanation is prospective and does not help earlier years.
• Sanjeev Lal v CIT Supreme CourtHelps taxpayer
  A court order delayed my sale deed. Does my s.54 exemption run from the agreement to sell?
  Yes. Executing the agreement to sell itself extinguished rights in the property and created rights in the vendee, which answers the definition of transfer in s.2(47), so that date governs. Section 54 relief could not be denied where a court restraint the assessee could not violate delayed the registered deed, and the new house had been bought within a year of the agreement.
• Vijay Kumar Talwar v CIT Supreme CourtHelps departmentValidity unconfirmed
  The Tribunal decided the cash credit addition against me on the facts — can I take it to the High Court under section 260A by saying its findings are perverse?
  Only on a demonstrated perversity, and not here. The Supreme Court held on 6 December 2010 that the Tribunal is the final fact-finding authority and its findings cannot be reopened under section 260A unless they are shown to be perverse. A finding of fact can raise a substantial question of law where it rests on no evidence, or relevant admissible evidence was ignored, or inadmissible evidence was taken into account, or legal principles were not applied, or the evidence was misread. None of that was shown. The assessee had produced none of the fifteen creditors, so the section 68 addition of Rs.3,49,991 stood, and the appeals were dismissed with costs of Rs.20,000.
• Sree Ayyanar Spinning & Weaving Mills Ltd v Commissioner of Income Tax Supreme CourtHelps taxpayer
  I filed my rectification application to the Tribunal within four years but it took years to decide it. Can the order be set aside because it was passed after the four years were up?
  No. The Supreme Court held that section 254(2) has two parts. The first is the Tribunal's own power to rectify at any time within four years of its order. The second deals with rectification on an application by the assessee or the Assessing Officer pointing out a mistake apparent from the record. Where the application is made within four years, the Tribunal is bound to decide it on the merits, and the fact that it took its own time to dispose of it does not make the order bad. The High Court had erred in holding the application could not be entertained beyond four years. The Court agreed with the Rajasthan High Court in Harshvardhan Chemicals and Minerals Ltd.
• CIT v P. Mohanakala Supreme CourtHelps department
  You gave particulars, paid by cheque and got a confirmation. Has the burden shifted?
  Not by itself. Furnishing particulars, payment by account payee cheque, or a confirmatory letter from the creditor is not enough on its own to shift the onus onto the Revenue under s.68.
• Sir Chunilal V. Mehta and Sons Ltd v Century Spinning and Manufacturing Co Ltd Supreme CourtCuts both ways
  The High Court says my appeal raises no substantial question of law because the principles are settled and only their application is in dispute. What actually makes a question of law substantial?
  The test the Supreme Court laid down is whether the question is of general public importance, or directly and substantially affects the rights of the parties, and if so whether it is an open question in the sense that it has not been finally settled by the Supreme Court, the Privy Council or the Federal Court, or is not free from difficulty, or calls for discussion of alternative views. A question settled by the highest court, or one where settled general principles have merely to be applied, or a plea that is palpably absurd, is not substantial. This is a contract case, not a tax case.
• CIT v Scindia Steam Navigation Co Ltd Supreme CourtHelps taxpayer
  Can I argue a point in the High Court that was never taken before the Tribunal, if it arises on the facts the Tribunal found?
  Not as a new question, but you may take a new contention within the question referred. The Supreme Court held that only a question raised before or decided by the Tribunal arises out of its order. A question neither raised before nor considered by the Tribunal is not one arising out of its order, even though it arises on the findings. But where the question referred is itself wide enough, a fresh contention within its framework may be advanced. Here the referred question - whether Rs 9,26,532 was properly included in the 1946-47 assessment - covered the argument that the charging proviso was not yet in force.
• CIT v Eastman Exports Global Clothing Pvt Ltd High CourtHelps taxpayerValidity unconfirmed
  The Commissioner has issued a s.263 notice saying the transferor companies had not been in business for three years, so the losses we took over cannot be carried forward. Our arrangement was a demerger, not an amalgamation. Does the three-year condition apply?
  No. The three-year condition is in s.72A(2), which governs amalgamation. A demerger is governed by s.72A(4), which contains no such condition. The Madras High Court held that a revision order built on the wrong sub-section, and which merely remitted the matter to the assessing officer for enquiry, did not satisfy the requirement that the order sought to be revised be erroneous.
• PCIT v Rajesh Suresh Chopra High CourtHelps taxpayerValidity unconfirmed
  If an estimate on the disputed purchases cannot be avoided, is there a High Court figure I can point to?
  Yes, on these facts. The Gujarat High Court dismissed the department's appeal against a Tribunal order that had confined the addition on roughly Rs 116.50 crore of alleged accommodation-entry purchases to 6 per cent, holding that no substantial question of law arose because the questions proposed were already answered by a coordinate bench, which had held 6 per cent of bogus purchases to be fair and reasonable. It is a percentage a High Court has let stand, not a rule — the figure follows the facts, and the department's contrary line on whole-invoice additions is unaffected.
• Raj Kumar Bothra v DCIT High CourtHelps taxpayerValidity unconfirmed
  CPC disallowed my late-deposited PF and ESI under 143(1)(a). Was a summary adjustment even open to them?
  No, not for an intimation issued in December 2021. The Chhattisgarh High Court held the issue was genuinely debatable on that date, with conflicting High Court authority and the matter pending in the Supreme Court, so the officer had to take scrutiny under s.143(3) rather than adjust summarily.
• Coromondel Cabeles P Ltd v ACIT High CourtCuts both ways
  The Department has taxed my housing project income as business profit. Can I claim the section 80-IB(10) deduction now, in appeal, when I never claimed it in my return?
  Not for years governed by section 80AC. The Madras High Court held that where section 80AC applies, the deduction cannot be allowed unless the return was filed by the due date and the claim was made in it. The assessee had made no claim under section 80-IB in its return, so for assessment years 2007-08 to 2011-12 the benefit was refused, section 80AC having been inserted by the Finance Act 2006 with effect from 1 April 2006. For assessment year 2006-07 the question was answered in the assessee's favour. The Court recorded a prima facie view that the requirement may be directory, but held it could say so only under Article 226 and not in a section 260A appeal.
• Tamal Kundu v Additional/Joint/Deputy/Assistant Commissioner of Income Tax High CourtHelps taxpayer
  I paid the whole price and took possession of a factory under an agreement for sale in December 2016, but the sale deed was only registered in March 2018. Can the department tax the stamp-value difference under section 56(2)(x) in the later year?
  No. The Calcutta High Court held that where the entire consideration is paid on the date of the agreement for sale, possession of the property is handed over, and the buyer starts running the business on it, the transfer takes place then and not on the later registration of the sale deed. Section 2(47)(ii) covers extinguishment of the vendor's rights, and section 2(47)(vi) covers any transaction that has the effect of enabling the enjoyment of immovable property. So the purchase of the rice mill fell in the previous year relevant to assessment year 2017-18, and the section 56(2)(x) addition made in assessment year 2018-19 could not stand. The Tribunal's order was set aside.
• PCIT v Drisha Impex (P) Ltd High CourtHelps department
  The Tribunal gave me a small percentage addition on disputed purchases. Can the department get the whole disallowance back on appeal?
  Yes, where the file is empty. The Bombay High Court set aside the Tribunal's 3% estimate and restored the Assessing Officer's disallowance of the whole of the disputed purchases under s.69C, and the assessee's SLP was dismissed. What decided it was a list of documents that were not produced: no evidence of actual delivery of material, no supplier confirmations, no audited accounts, no quantitative details and no correlation between the purchases and the sales.
• PCIT v Kanak Impex (India) Ltd High CourtHelps department
  The officer says my purchases are accommodation entries. Can he add the whole purchase, or only a percentage?
  The whole of it, if you cannot show the purchases were real. The Bombay High Court set aside the Tribunal's order restricting the addition to a 12.5% profit estimate and restored the Assessing Officer's disallowance of the entire Rs 20.06 crore under s.69C, and the Supreme Court dismissed the assessee's SLP. The profit-element line only runs where the purchases themselves are accepted as having happened.
• Shivani Madan v PCIT High CourtHelps taxpayerValidity unconfirmed
  My husband and I are both on the sale deed. Must half the annual value be taxed on me?
  No. The Delhi High Court held that merely signing the instrument of conveyance raises no presumption that the income is to be assessed in that person's hands; taxability must reflect who actually obtained the benefit of the property, so an equal share cannot be assumed where the deed is silent.
• Williamson Financial Services Ltd v CIT High CourtHelps taxpayer
  The officer says the 2022 Explanation to s.14A is clarificatory and applies to my old years. Is there High Court authority against that?
  Yes, and from a Court joining a settled line. The Gauhati High Court held that the Explanation inserted in s.14A by the Finance Act 2022 is prospective, set aside the Guwahati Tribunal's view that it was clarificatory and therefore retrospective, and affirmed the Commissioner (Appeals), whose orders had capped the disallowance under s.14A read with Rule 8D at the income claimed as exempt. It reached that result by following six earlier decisions of the Delhi, Calcutta and Madhya Pradesh High Courts, and the revenue's counsel conceded the point before it.
• Pr. Commissioner of Income Tax v Mahabir Jute Mills Ltd High CourtHelps taxpayer
  The Assessing Officer rejected my books because of a section 40A(3) cash disallowance and an ad hoc disallowance, then raised my gross profit rate. If those two go, can the gross profit addition survive?
  No. The Allahabad High Court held that where the only findings casting doubt on the books were a section 40A(3) disallowance and an ad hoc consignment-sale disallowance, and both fell away, there was nothing left on which to reject the books. Once the books stand accepted there is no intrinsic evidence to enhance the gross profit rate, and the officer must leave it alone, because gross profit is the result of book entries and not an original entry. The officer's jurisdiction is to examine the correctness and completeness of the accounts, not to step into the assessee's shoes and infer more profit. The Revenue's appeal was dismissed.
• PCIT v Ojjus Medicare P Ltd High CourtCuts both ways
  How do I count the six and the ten assessment years for a s.153C notice, and does the Rs 50 lakh figure have to be met year by year?
  Count them from different points, and no. For a person who was not searched, the first proviso to section 153C moves the starting point: the date on which the seized books, documents or assets are handed to his own Assessing Officer stands in place of the date of the search. From that point the six assessment years are the six that immediately precede the assessment year relevant to that previous year - the year of the handing over is excluded and treated as the zero year. The further block of 'relevant assessment years' under Explanation 1 to section 153A is not counted the same way: it runs backwards from the END of that assessment year, that is from the 31st of March, and the tenth year is the terminal point. On the money threshold, the Rs 50 lakh in clause (a) of the fourth proviso is satisfied if the escaped income meets the benchmark cumulatively or in the aggregate; it does not have to be reached in each year separately.
• Godaddy.Com LLC v ACIT High CourtHelps taxpayer
  We pay a foreign registrar to register our domain names. Is that royalty, and must we withhold?
  No, it is not royalty. A registrar has no proprietorship rights in the domain name it registers for a customer, so it cannot confer or transfer a right to use that name — and without a right to use there is nothing to characterise as royalty under s.9(1)(vi) or Article 12(3)(a) of the India-US treaty. The Delhi High Court allowed the assessee's appeal, reversing the Tribunal, which had held the receipts were royalty because a domain name is an intangible similar to a trademark.
• PCIT v Burda Druck India Pvt Ltd High CourtHelps taxpayerValidity unconfirmed
  The assessment order for the loss year ends with a line saying the brought forward losses will not be allowed to be carried forward because our shareholding changed. Am I stuck with that when I claim the set-off later?
  No. The assessing officer of the loss year has only to notify the amount of the loss he has computed; whether that loss can be carried forward and set off is for the officer who deals with the year in which the set-off is claimed. The Delhi High Court upheld the Tribunal's direction to expunge the remark, and added that unabsorbed depreciation and capital losses do not fall within s.79 at all.
• PCIT v DSG Papers (P) Ltd High CourtHelps taxpayer
  The addition rests on statements of ex-employees and third parties I was never allowed to question. Is the assessment good?
  The additions were deleted, but read the High Court decision for what it is. The Chandigarh Tribunal directed deletion of the additions in all five years, holding that the assessee had not been allowed to cross-examine the persons on whose statements the Assessing Officer relied and that the evidence was internally contradictory — invoices said to have been destroyed were recovered from the residence of an ex-president against whom the company had filed an FIR before the search. The Punjab and Haryana High Court dismissed the revenue's appeal, but its order is two paragraphs long and gives no reasons of its own: it adopts a detailed judgment of even date in a companion appeal, IT Appeal No. 38 of 2023, which is not available in a subscription case-law database.
• PCIT v Maahi Milk Producer Co Ltd High CourtHelps taxpayerValidity unconfirmed
  I pay a dairy to process my milk. Do I deduct 2% under 194C or 10% under 194J?
  2% under s.194C. Processing of milk by a dairy is job work, not technical services — the Gujarat High Court approved the Tribunal's reliance on CBDT Circular No. 13/2006 dated 13 December 2006 to that effect, and the s.40(a)(ia) disallowance fell with the characterisation.
• PCIT v Jai Maa Jagdamba Flour Private Limited High CourtHelps taxpayerValidity unconfirmed
  After a search on or after 1 July 2012, can the officer levy penalty under s.271(1)(c) instead of s.271AAB?
  No, not for the specified previous year. The Jharkhand High Court held that s.271AAB opens with a non obstante clause and excludes s.271(1)(c) where the undisclosed income relates to the specified previous year. Where the search was on 3 September 2014 the penalty, if any, had to be levied under s.271AAB, and because the assessee had admitted nothing in a s.132(4) statement and paid no tax on admitted income, the case fell under clause (c) of s.271AAB(1). The penalty actually levied under s.271(1)(c) could not stand. The Court also held it immaterial that no incriminating document had been found, because the statute keys the choice of section to the date of the search.
• PCIT v Sri Venkatesh Granites Pvt Ltd High CourtHelps taxpayerValidity unconfirmed
  The s.271AAB penalty order never says which limb of the definition of undisclosed income is satisfied. Can the penalty survive?
  No. The Tribunal held that the Assessing Officer's penalty order had nowhere specified whether the alleged undisclosed income satisfied the statutory parameters in the Explanation to s.271AAB, and cancelled the penalty for that reason alone. The Telangana High Court agreed and concurred that the penalty, whether at 30 per cent or at the 10 per cent the CIT (Appeals) had substituted, could not be sustained, and held that no question of law arose.
• Pr. Commissioner of Income Tax v Shree Madhi Surali Vibhag Nagarik Sahakari Dhiran Mandli Ltd High CourtHelps taxpayer
  Our credit society takes and repays members' money in cash across the counter like a bank. The officer has levied penalty under sections 271D and 271E on the whole turnover. Can it stand?
  No, on these facts. The Gujarat High Court upheld the deletion of penalties of Rs 28,66,93,898 under section 271D and Rs 27,12,01,825 under section 271E. Section 273B says no penalty is imposable if the person proves reasonable cause, and that gives the authority a discretion to be exercised justly on the record. The Commissioner (Appeals) and the Tribunal found on the facts that the society, whose members' accounts work like savings accounts repayable on demand, acted on a bona fide belief that sections 269SS and 269T did not apply, that the deposits were accepted as genuine with no addition made, and that its auditor had never reported a contravention. The Court found no legal infirmity and dismissed the Revenue's appeal, holding that no substantial question of law arose.
• PCIT v Swati Bajaj High CourtCuts both waysValidity unconfirmed
  My long-term capital gain on a listed share has been treated as bogus because the scrip appears in the investigation wing's penny-stock report — can the department do that when all my paperwork is in order?
  It depends, and this record cannot tell you which way this batch went. The Calcutta High Court heard the Revenue's appeals under section 260A against a common Tribunal order of 26 June 2019 that had allowed some 90 assessees' appeals on penny-stock long-term capital gains. The questions framed were whether the Tribunal ignored the direct and circumstantial evidence of price manipulation, whether its order was perverse, and whether the exemption and the related commission disallowance were rightly deleted. The harvested text carries the facts and the parties' arguments but stops before the Court's reasoning and order, so the holding is not stated here.
• State Bank of India v ACIT (TDS) High CourtHelps departmentValidity unconfirmed
  Staff booked a consolidated package tour with a foreign leg. Can we exempt the Indian part as LTC?
  No. Where the tour operator charges a consolidated amount for the whole journey including the domestic portion, there is no severable Indian leg on which s.10(5) can operate, and the employer was rightly treated as an assessee in default under s.201(1) and s.201(1A).
• PCIT v Smt Krishna Devi High CourtHelps taxpayerHigh Courts differ
  The Assessing Officer has added my long-term capital gain on a share whose price rose 4,849%, relying on the Investigation Wing's penny-stock report. Is the price rise by itself enough?
  No. The Delhi High Court accepted that the price movement and the company's financials were odd, and still refused to sustain the addition. The assessee had bought online, paid through a bank, held the shares in demat form and sold through the demat account with sale proceeds received by banking channel. The officer issued notices under ss.133(6)/131 to the company and to the entity that had paid for the shares; they produced nothing and came back unserved, and he then went no further. On that record the Court held the finding that there was an arrangement to convert unaccounted money was an assumption based on conjecture, and that suspicion is not proof. Read it with the contrary Calcutta line in PCIT v Swati Bajaj, which the library also carries.
• Mr. Anandkumar v ACIT High CourtHelps department
  I am a partner. Can I take the salary and interest my firm pays me, call it my turnover, and offer 8 per cent of it under s.44AD?
  No. The High Court held that a partner receiving remuneration and interest from his firm is not himself carrying on a business, so those receipts cannot be termed a turnover, and they do not qualify as gross receipts either. Section 44AD applies only to an eligible assessee engaged in an eligible business having a total turnover or gross receipts, and the assessee here had neither effected sales nor rendered services; the sums had already been debited in the firms' own profit and loss accounts. The appeal was dismissed and both questions of law were answered against the assessee and in favour of the Revenue. This is the answer to a scheme that is still marketed to partners, and it is a High Court answer, not a Tribunal one.
• CIT v Biocon Ltd High CourtHelps taxpayerValidity unconfirmed
  My company issued shares to employees under an ESOP at below market price. Can we deduct the discount, even though no cash went out?
  Yes, on this decision. The Karnataka High Court held that the discount on issue of shares under an employees stock option plan - the difference between the market price on the date of grant and the offer price - is allowable under section 37(1). Section 37(1) permits deduction of expenditure laid out or expended and does not require a payout, nor does it envisage expenditure in cash; expenditure includes a loss. Because the options vest at 25 per cent a year, the liability arises in the accounting year and only its quantification is deferred, so it is an ascertained and not a contingent liability. The Revenue's appeal was dismissed.
• CIT v Saint Gobain Glass India Ltd High CourtHelps taxpayerValidity unconfirmed
  CPC has computed my MAT credit on income-tax alone and left out the surcharge and the education cess in both the MAT and the normal computation. That has cut the credit down. Is the Department right?
  No. The Madras High Court held that MAT credit under s.115JAA includes surcharge and education cess and is not confined to income-tax stripped of them, following its own earlier judgment in PCIT v. Scope International Pvt. Ltd. and the Supreme Court's construction of 'income tax' in CIT v. K. Srinivasan. The Revenue's appeal was dismissed and the substantial question answered against it.
• Vaduganathan Talkies v ITO High CourtHelps departmentValidity unconfirmed
  The purchases are genuine and I can name every payee. Does that answer a s.40A(3) disallowance?
  No, not by itself. The Madras High Court upheld the disallowance where the assessees admitted paying cash for film exhibition rights and rested their case on the genuineness of the transactions and the identity of the payees. Where banking facilities were available and no clause of Rule 6DD was made out, the section applies.
• Commissioner of Income Tax v SPL Infrastructure Pvt Ltd High CourtHelps taxpayer
  The officer disallowed all my sub-contract payments because the sub-contractors did not turn up to summons. Can the whole payment be added back when the work was plainly done?
  No. The Madras High Court held that where the contractor's books are not accepted, profit is to be estimated on the history of the gross and net profit rates of the assessee or of comparable contractors, and once that comparison is made, additions for non-production of sub-contractors are totally irrelevant and cannot be made. Here the sub-contractors had confirmed the transactions, payments were by cheque and subject to tax deducted at source, and measurement books signed by them recorded the work. The Commissioner (Appeals) had restricted the disallowance to 10 per cent, on the assessee's own offer, which produced a better result than earlier years. The Revenue's appeal was dismissed with a strong deprecation of routine appeals against findings of fact.
• PCIT v Lotte India Corporation Ltd High CourtHelps taxpayerValidity unconfirmed
  We took over a loss-making company by amalgamation and did not file Form 62 for the third year after the merger. Does that by itself destroy the s.72A carry forward?
  Not on this view. The Madras High Court held that filing the Form 62 certificate for the third assessment year is not a condition precedent or a mandatory condition, but at best directory, and that non-compliance does not disentitle the amalgamated company. What matters is that the level of production prescribed by Rule 9C is in fact achieved, and that can be reached at any point within four years of the merger.
• CIT (TDS) v Oil and Natural Gas Corporation Ltd High CourtHelps taxpayerValidity unconfirmed
  I am the employer. I treated the uniform allowance as exempt on my employees' self-certification and did not call for bills. The TDS officer has made me an assessee in default under s.201. Was I obliged to verify that each employee actually spent the money?
  No. The High Court held that the employer's liability under s.192 is to deduct tax to the extent of the employee's taxable income, and that where part of that income is exempt there is no liability to deduct from it. A certificate from the employee that he has incurred the expenditure is adequate for the disbursing officer when computing the tax deductible; whether the employee can in fact substantiate the claim is a matter for the employee's own assessment and has no bearing on the employer's estimate. The demand under s.201(1) and the consequential interest were rightly deleted.
• PCIT v Texport Overseas P Ltd High CourtHelps taxpayer
  Clause (i) of s.92BA was omitted in 2017. Is the TPO adjustment for an earlier year still good?
  No. Omission of clause (i) of s.92BA by the Finance Act 2017 without a saving clause obliterates it as if it had never been enacted, so the reference to the Transfer Pricing Officer and the adjustment made under it are invalid even for the earlier year under assessment.
• Shankar Sales Promotion Pvt Ltd v CIT High CourtHelps taxpayerValidity unconfirmed
  My company lends money and also deals in shares. How is it decided which is the 'principal business' for the exclusion in the Explanation to s.73?
  There is no single test. The Calcutta High Court held that the memorandum of association, turnover, capital expenditure and the relation of profit to expenses are all relevant, that all of them must be judiciously analysed and assessed, and that what emerges is a tricky question of fact which the Tribunal must determine threadbare on the record. Because the Tribunal had not done that, the Court set its order aside and remitted the appeal with a direction to decide within six months.
• Smt Tharakumari v ITO High CourtHelps department
  The officer refused me cross-examination of the person whose statement he used. Does that alone get the addition deleted?
  Not by itself, and this case shows why. The assessee's counsel argued in the Madras High Court that she had been denied the opportunity to cross-examine Shri Deepak Patwari, on whose sworn statement before the Investigation Wing the addition rested. The Court did not reject the principle. It dismissed the appeal because she had not co-operated in the assessment, had not appeared before the CIT(A) on any of five hearing dates, and had put no evidence on record to show that the statement was wrong or to explain how she came to identify and sell the scrip. The concurrent findings that the transaction was sham and taxable under s.68 were therefore not perverse.
• PCIT v NDR Promoters (P) Ltd High CourtHelps departmentValidity unconfirmed
  I have PAN cards, bank statements, ROC filings and confirmations for every share subscriber. Can the Assessing Officer still add the share capital under section 68?
  Yes, where there is material showing the subscribers are paper companies. The Delhi High Court set aside the Tribunal and restored an addition of Rs.1,51,50,000 under section 68 for assessment year 2008-09. Five subscriber companies shared one address, were run by an entry operator whose search had produced statements from his employee-directors and auditors, and the assessee had no business and no assets yet issued Rs.10 shares at Rs.40 premium. The Court held the transactions were sham and make-believe with excellent paper work to camouflage their bogus nature, and that the Tribunal's approach was superficial and contrary to human probabilities.
• CIT (Exemptions) v Audyogik Shikshan Mandal High CourtHelps taxpayer
  Trust funds went to a trustee. Does the trust lose exemption on all its income or only that amount?
  Only that amount. Denial of exemption under s.11 is confined to the sum actually diverted in breach of s.13; s.13 withdraws the benefit in respect of the offending income or property, not for the trust as a whole.
• PCIT v Softbrands India Pvt Ltd High CourtCuts both waysValidity unconfirmed
  The Tribunal excluded some comparables in my transfer pricing case. Can the department take that to the High Court as a question of law?
  Not without showing perversity. The Karnataka High Court dismissed the Revenue's appeal, holding that no substantial question of law arises where the dispute is about whether comparables were rightly picked or filters rightly applied. Following its own judgment of 25 June 2018 in the same assessee's case, it held that unless ex facie perversity in the Tribunal's findings is established, an appeal under section 260A does not lie, at the instance of either side. Mere dissatisfaction with the Tribunal's findings of fact is not a sufficient reason to invoke section 260A. The appeal was dismissed with no order as to costs.
• PCIT v Ritu Singal High CourtHelps departmentValidity unconfirmed
  I told the search party the money was my unaccounted income. Is that enough to escape s.271AAA penalty?
  No, not by itself. The Delhi High Court held that all three conditions in s.271AAA(2) must be fulfilled before the escape route opens. The assessee had said the amounts advanced were her unaccounted income for the year, but did not specify how she had derived that income or what head it fell under - rent, capital gain, professional income, business income out of money lending, or the source of the money. Unless such facts are given with some specificity the requirement of substantiating the manner is not met. The appellate authorities had misdirected themselves and the penalty was restored.
• PCIT v Best Infrastructure (India) P Ltd High CourtHelps taxpayerUnder appeal
  The share capital addition rests on a statement I was never allowed to cross-examine. Does it stand?
  No. Statements under s.132(4) do not by themselves constitute incriminating material; a copy of the statement and an opportunity to cross-examine the deponent must be given, and where the statement is retracted or cross-examination is refused it has to be discarded. The s.68 additions fell.
• PCIT v Mukeshbhai Ramanlal Prajapati High CourtHelps taxpayerValidity unconfirmed
  The officer never asked me how I earned the surrendered income. Can he still levy s.271AAA penalty because I did not substantiate the manner?
  No. The Gujarat High Court held that the requirement in s.271AAA(2)(ii) to substantiate the manner in which the undisclosed income was derived is consequential to, or a corollary of, the base requirement in clause (i) to specify that manner in the s.132(4) statement. The duty to substantiate begins only when the officer recording the statement elicits a response on the point. Where the Revenue failed to question the assessee at all about how the income was derived, it cannot jump to the later requirement, and when the base requirement itself fails the question of denying the immunity does not arise. The Tax Appeal was dismissed and the deletion of the penalty stood.
• PCIT v Meeta Gutgutia High CourtHelps taxpayerValidity unconfirmed
  A search was carried out on us and the department has reopened six years under section 153A. Can it add to a year where nothing incriminating was found?
  No. The Delhi High Court held that the Revenue was not justified in invoking section 153A against the assessee for assessment years 2000-01 to 2003-04, there being no incriminating material for each of those years. It declined the Revenue's invitation to reconsider Kabul Chawla in the light of Dayawanti Gupta, holding that Dayawanti Gupta turned on distinguishing features - an admission under section 132(4) that transactions were not recorded, a year-wise chart of unrecorded transactions, and habitual concealment - none of which was present here. There was no justification for the Assessing Officer to proceed on surmises and estimates. The appeals were dismissed.
• DIT v New Skies Satellite BV High CourtHelps taxpayer
  I pay a foreign satellite operator for transponder capacity — has the 2012 amendment to section 9(1)(vi) turned that into royalty under the treaty as well?
  No. The Delhi High Court held on 8 February 2016 that the Explanations inserted in section 9(1)(vi) by the Finance Act 2012 cannot change the meaning of "royalty" in a double taxation avoidance agreement. A treaty is concluded between two sovereign states and can be altered only by them; a unilateral amendment of domestic law, however clearly it expresses the government's discomfort, does not rewrite Article 12. So the interpretation in Asia Satellite Communications — that payments for data transmission through transponder capacity are not royalty, the process referred to being a secret process — continues to govern years before the 2012 amendment and every case involving a treaty. The Revenue's appeals were dismissed.
• Rampgreen Solutions P Ltd v CIT High CourtHelps taxpayer
  My company runs voice-based call centres, but the Transfer Pricing Officer has benchmarked me against high-margin analytics companies because we are all called ITeS — can he do that?
  No. The Delhi High Court held on 10 August 2015 that where the tested party is not a knowledge process outsourcing provider, a KPO cannot be used as a comparable. The broad label of information technology enabled services covers services of completely different content and value, and Rule 10B(2)(a) requires comparability to be judged by reference to service characteristics. eClerx and Vishal Information Technologies were both excluded — eClerx as a KPO doing data analytics and financial services work, Vishal because it outsourced most of its work and so had a wholly different cost structure. The Tribunal's order and the final assessment order were set aside.
• CIT v Cotton Naturals (I) P Ltd High CourtHelps taxpayer
  I lent dollars to my overseas subsidiary — must the arm's length interest be benchmarked against Indian lending rates because I am the Indian lender?
  No. The Delhi High Court held on 27 March 2015 that the arm's length interest on a loan to an associated enterprise is the market determined rate for the currency in which the loan is to be repaid, not the rate prevailing in the country of residence of either party. The loan here was advanced and repayable in US dollars, so Indian prime lending rates were irrelevant; interest rates on rupee loans reflect the Reserve Bank's policy and say nothing about a dollar debt. The 4 per cent charged by the assessee was upheld, the adjustment to 12.20 per cent set aside, and the same parameters were held to apply to inbound and outbound loans alike.
• CIT v S.R. Batliboi & Associates High CourtHelps taxpayerHigh Courts differ
  The revised partnership deed was not filed with the return but was produced during the assessment. Does s.185 still disallow the partners' remuneration?
  No, on this judgment. The Calcutta High Court held that s.185 read with s.184, although worded in emphatic terms, is not intended to be mandatory. The Assessing Officer had refused to treat the return as defective under s.139(9); having refused that, he could not simultaneously hold the return to be in derogation of s.184(4) and disallow the deduction. The disallowance of Rs. 4,49,60,000 of partners' remuneration was deleted.
• Commissioner of Income Tax-12 v Tip Top Typography High CourtHelps taxpayer
  The officer says my rent is too low, has collected instances of higher rents in the locality and has also added notional interest on my interest-free deposit. When can he displace the rent I actually receive?
  Only on cogent material, and never by adding notional interest. The Bombay High Court held that the municipal rateable value is a safe guide and cannot be discarded in every case; to depart from it the officer needs cogent and reliable material. Market rate in the locality is an approved method for fixing fair rental value, but he may resort to it only where he is satisfied the case is suspicious and the parties' determination doubtful, and that satisfaction, that the bargain is inflated or deflated by fraud, emergency, relationship or the like, must come first. He must disclose the material to the assessee before using it. Notional interest on a refundable interest-free deposit cannot be treated as part of rent under section 23(1)(a).
• Commissioner of Income Tax v Deepak Mittal High CourtHelps taxpayer
  I said I incurred no expenditure to earn my dividend income, and the officer simply applied rule 8D and disallowed a large sum. Can he go straight to the formula?
  No. The Punjab and Haryana High Court held that where the assessee's consistent case, given in answer to the officer's notice, is that no expenditure was incurred, the officer must proceed under section 14A(2) to collect material or evidence to determine what expenditure, if any, was in fact incurred. Instead he applied rule 8D as a formula, which is meant for an assessee who has incurred interest expenditure not directly attributable to a particular receipt, and that was not this assessee's case. Using the rule as a substitute for the enquiry required by section 14A(2) was a wrong application and not permissible in law. The six appeals were dismissed, no substantial question of law arising.
• Chalasani Venkateswara Rao v ITO High CourtHelps taxpayerValidity unconfirmed
  A partner took money in full settlement of his share when the firm was dissolved. Is he personally liable to capital gains?
  No. The Andhra Pradesh High Court held that a partner who receives the money value of his share on dissolution is not making a transfer; he is having his account made up. The Court also held that when Parliament inserted s.45(4) with effect from 1 April 1988 it deliberately placed the charge on the firm and not on the partner. On that second point the position is unchanged after the Finance Act 2021: both s.9B and the substituted s.45(4) charge the specified entity, not the partner.
• CIT v Pruthvi Brokers & Shareholders High CourtHelps taxpayer
  Goetze says I cannot make a claim except by revised return. Does that stop me raising it before the CIT(A) or the Tribunal?
  No. An assessee is entitled to raise before the appellate authorities not merely additional legal submissions but additional claims not made in the return. Goetze (India) was confined to the power of the assessing authority and the Supreme Court expressly said it does not touch the power of the Tribunal under s.254. The appellate authorities have jurisdiction to entertain a new ground; whether they exercise the discretion to admit it is a separate question.
• DIT v Guy Carpenter & Co Ltd High CourtHelps taxpayerValidity unconfirmed
  We pay reinsurance brokerage to an overseas broker who places our risk in the Lloyd's market — is that fees for technical services under the India-UK treaty?
  No, on these facts. The Delhi High Court dismissed the Revenue's appeal on 23 April 2012, holding that no substantial question of law arose. The Tribunal had found on the evidence that the overseas reinsurance broker was doing no more than acting as an intermediary — obtaining competitive proposals from Lloyd's syndicates, passing communications, submitting the slip to the market for signing and administering claims — and that nothing was made available to the Indian insurer within Article 13(4)(c) of the India-UK DTAA. The High Court held those to be findings of fact, and counsel for the Revenue could point to no perversity in them, so section 260A gave no scope to interfere.
• Sood Brij & Associates v CIT High CourtHelps departmentValidity unconfirmed
  Our deed says the partners will be paid such remuneration as they mutually agree, up to the statutory ceiling. Is that enough for s.40(b)(v)?
  No. The Delhi High Court held that the words 'in accordance with the terms of the partnership deed' require the deed either to quantify the remuneration or to lay down the manner of computing it. A clause that leaves the amount to be settled by mutual agreement in future does not do that, and a clause that merely reproduces the statutory maximum fixes a ceiling rather than a quantum. The deduction of Rs. 21,40,000 was disallowed.
• Ashok Chaddha v Income Tax Officer High CourtHelps department
  My post-search assessment under section 153A was completed without any notice under section 143(2). Does Hotel Blue Moon make that fatal?
  No. The Delhi High Court held that there is no specific provision in the Act requiring an assessment under section 153A to be preceded by a notice under section 143(2). Hotel Blue Moon turned on clause (b) of section 158BC, which expressly applies sub-sections (2) and (3) of section 143 to a block assessment; section 153A contains no such provision. The words 'so far as may be' in clause (a) of section 153A(1) cannot be stretched to make a section 143(2) notice mandatory, because a specific notice is already required under that clause calling for the return. In any event the two detailed questionnaires issued here served the purpose. The appeal was dismissed.
• Ranbaxy Laboratories Ltd v CIT High CourtHelps taxpayerValidity unconfirmed
  Same point, in Delhi: if the recorded grounds fail, can the officer still tax an unrelated item?
  No. Once the officer accepts that the recorded items did not escape assessment, it means he had no reason to believe, and the notice becomes invalid. Every new issue needs a fresh s.148 notice.
• Commissioner of Income Tax v Girish Chaudhary High CourtHelps taxpayer
  A loose sheet seized in the search has bare figures on it and the officer has read '48' as Rs 48 lakhs of undisclosed income. Can that stand without anything more?
  No. The Delhi High Court upheld the deletion of the Rs 48 lakh addition. There was no material on record to show on what basis the officer concluded that the figure 48 was to be read as Rs 48 lakhs. Following the Supreme Court in CBI v V.C. Shukla, a file of loose sheets is not a book of account, so entries in it are not admissible under section 34 of the Evidence Act, 1872, and the seized annexure was a dumb document leading nowhere. The Court endorsed the Tribunal's view that it was for the Revenue to put life into the document by collecting other relevant and connected material, which it had not done. The appeal was dismissed.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.