Assessment & Scrutiny

Assessment & Scrutiny — the law in short

Every authority in this library on assessment & scrutiny, with what each one decided.

• Sanand Properties P Ltd v Jt CIT Supreme CourtHelps department
  My company is a member of an AOP and takes 35% of the AOP's gross sale proceeds under the AOP deed. We showed it as an exempt share of the AOP's profit. After a survey the AO reopened two years and now says it is revenue. Can he reopen, and is the money taxable in my hands?
  No on the reopening challenge and no on the exemption. Where the assessment order shows the Assessing Officer never applied his mind to the character of the receipt at all, there is no opinion to change, and material coming out of a s.133A survey that reveals the true nature of the receipt is tangible material for s.147. On the merits the Court read Clause 7 of the AOP deed itself and held that a member's entitlement to 35% of gross sale proceeds, taken upfront and untouched by the AOP's expenses, is not a share of profit but a diversion of the AOP's receipts by overriding title, taxable in the member's hands as a business receipt. Two Revenue appeals were allowed and the assessee's appeal dismissed.
• Aspinwall and Co Ltd v Inspecting Assistant Commissioner Supreme CourtHelps department
  My company absorbed a loss-making company under a court-sanctioned scheme of amalgamation, and the scheme says the transferor's losses are to be treated as mine. Can I set those accumulated losses off against my own income under the Kerala Agricultural Income Tax Act, 1991?
  No. The Kerala Agricultural Income Tax Act, 1991 contains no provision answering to s.72A of the Income-tax Act, 1961, and counsel could point to none under which the losses of the amalgamating company may be set off against the income of the amalgamated company. A clause in the scheme of amalgamation saying the transferor's losses shall be deemed to be the transferee's does not supply the missing statutory right, and Dalmia Power does not help where the State of Kerala was never noticed in the amalgamation proceedings. The five appeals were dismissed.
• 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.
• Hyatt International Southwest Asia Ltd v Addl DIT Supreme CourtHelps department
  We run an Indian hotel under a long management agreement but own no office here. Can the department say we have a permanent establishment?
  Yes, on facts like these. A twenty-year agreement under which the foreign company appointed and supervised the general manager, set human resource and procurement policy, controlled pricing and marketing, and operated the hotel's bank accounts, performed through its own staff working from the hotel, made the hotel premises a fixed place of business under Article 5(1) of the India-UAE treaty. Exclusive or designated space is not required; what is required is that the premises be at the enterprise's disposal and that its business be carried on through them.
• PCIT v Jupiter Capital P Ltd Supreme CourtHelps taxpayer
  The company reduced its capital and my shareholding fell. I got a small payout and a large loss. Is that a transfer at all?
  Yes. A reduction of share capital extinguishes part of the shareholder's rights in the shares, and that is a transfer within s.2(47) even though the face value per share is unchanged and the shareholder still holds shares. The resulting long-term capital loss of Rs 164.48 crores was allowed and the Revenue's petition was dismissed.
• 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.
• PCIT v Abhisar Buildwell P Ltd Supreme CourtCuts both ways
  Search assessment for a year already completed, but nothing incriminating was found. Can the officer still add?
  No — not under s.153A. For completed or unabated assessments the addition must rest on incriminating material found in the search. But the Court preserved the department's power to reopen those years under ss.147 and 148 instead.
• 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.
• NFAC v Automotive Manufacturers P Ltd Supreme CourtCuts both waysValidity unconfirmed
  The faceless order came without any show-cause notice or draft order. Will it just be annulled?
  No — expect a remand. The Supreme Court accepted that making a variation without serving the show-cause notice and draft assessment order breached s.144B and the principles of natural justice, but held the High Court should have sent the matter back to the Assessing Officer for a fresh order rather than simply setting the assessment aside.
• Dy CIT v Mastech Technologies P Ltd Supreme CourtHelps department
  The AO who issued my 148 notice was transferred and his successor issued another. Is the reassessment time-barred?
  No. Section 129 lets the successor continue the proceeding from the stage at which the predecessor left it, so the later notice was a continuation and not an abandonment of the first. Limitation is tested against the first notice, and the Supreme Court reversed the High Court's contrary view.
• PCIT v Mahagun Realtors P Ltd Supreme CourtHelps department
  Is an assessment on an amalgamated company always void?
  No. Corporate death on amalgamation does not by itself invalidate an assessment — it depends on the terms of the amalgamation and the facts, including whether the department was told and how you conducted yourself. Maruti Suzuki was distinguished.
• DIT v Samsung Heavy Industries Co Ltd Supreme CourtHelps taxpayer
  My foreign company opened a project office in India to coordinate an EPC contract. Has the department made it a permanent establishment, and can it tax a slice of my offshore revenue?
  No, not on those facts. The Supreme Court held that a fixed place is a permanent establishment under Article 5(1) of the India-Korea treaty only if the core business of the foreign enterprise is carried on through it. Samsung's Mumbai project office had two non-technical employees, its accounts showed no expenditure on executing the contract, and it did liaison and coordination work only — preparatory or auxiliary activity excluded by Article 5(4)(e). The Court also held the burden of proving a permanent establishment is initially on the Revenue, and that an ad hoc attribution of 25 per cent of gross offshore revenue had no foundation.
• Dalmia Power Ltd v ACIT Supreme CourtHelps taxpayer
  Our amalgamation was sanctioned long after the deadline for a revised return. Must the department accept revised returns filed to give effect to the scheme?
  Yes. The Supreme Court held that the department must receive the revised returns for assessment year 2016-17 and complete the assessment taking the sanctioned schemes into account. Section 139(5) did not apply, because the returns were not revised on account of an omission or wrong statement but because of the time taken to obtain the NCLT's sanction, and it was an impossibility to file them by the due date. Section 119(2)(b) and the Board's circular on condonation do not apply where the assessee has restructured with the prior approval of the NCLT and the department raised no objection. Section 170(1) required the successor to be assessed accordingly.
• PCIT v I-Ven Interactive Ltd Supreme CourtHelps department
  I moved my registered office and put the new address on my return and in Form 18 with the Registrar of Companies. The scrutiny notice went to the old address. Is the assessment bad?
  No. The Supreme Court held that a notice under section 143(2) sent within the prescribed time to the address in the PAN database is sufficient compliance, and actual service afterwards is immaterial. Filing Form 18 with the Registrar of Companies is not intimation to the assessing officer, and merely showing the new address in the return is not enough. The assessee must apply to have the PAN database changed, because scrutiny notices are generated by an automated system that picks the address from PAN. The appeal was allowed and the matter remanded to the CIT (Appeals) to decide the other grounds on merits.
• Union of India v Gautam Khaitan Supreme CourtHelps departmentValidity unconfirmed
  The department says the Black Money Act applies to my foreign account from July 2015. Is that retrospective?
  No. Notifying 1 July 2015 as the commencement date of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 did not make the Act retrospective. The date was advanced only so the one-time compliance window in s.59 could operate, and tax under s.3 is still charged only from assessment year 2016-17 onwards.
• CIT v Laxman Das Khandelwal Supreme CourtHelps taxpayer
  No s.143(2) notice was issued at all. Does s.292BB save the assessment?
  No. The notice is a jurisdictional requirement and its complete absence makes the assessment void. Section 292BB is a fiction about service — for it to apply, the notice must have emanated from the department in the first place.
• PCIT v Maruti Suzuki India Ltd Supreme CourtHelps taxpayer
  The notice names a company that has already merged into another. Does taking part in the proceedings fix that?
  No. Once a company amalgamates it ceases to exist, so a notice in its name is a jurisdictional illegality, not a clerical slip. Section 292BB cures defects in service — it cannot supply jurisdiction, and participation is not an estoppel.
• CIT v Shree Rama Multi Tech Ltd Supreme CourtHelps taxpayerValidity unconfirmed
  We parked public issue share application money in the statutory bank account and it earned interest before allotment. Is that interest taxable as income from other sources?
  No. The Supreme Court dismissed the revenue's appeal and held that interest accrued on the deposit of share application money is not taxable income. The money was kept in a separate account because the law required it to be, not to earn a return, so the interest was incidental to the share issue and was rightly set off against share issue expenses rather than assessed under the residuary head.
• ITO v Dharam Narain Supreme CourtHelps department
  The scrutiny notice was posted in time but the postman could not find me; it was handed to my representative instead. Can I say it was never served and the assessment is invalid?
  Not on these facts. The Supreme Court set aside the Allahabad High Court's order quashing a section 143(2) notice. The notice was issued on 16 October 2006 and despatched by registered post on 18 October, the last date for service being 30 October. It could not be served twice because the assessee was not available, and was served on 19 October on his authorised representative, whom he later disowned. That was enough to draw an inference of deemed service and sufficient compliance with section 143(2). The Court expressly left open, for an appropriate case, the larger question whether the provision requires service or only issue.
• National Travel Services v CIT Supreme CourtHelps departmentValidity unconfirmed
  Our firm is not on the company's register of members — our partners are. Can s.2(22)(e) still reach a loan to the firm?
  A two-Judge Bench of the Supreme Court said it prima facie can, and doubted the High Court line that a 'shareholder' must be both registered and beneficial owner. It did not decide the point. It referred the correctness of the Delhi High Court's Ankitech judgment to a three-Judge Bench, and that reference is the state of play.
• CIT v Vasisth Chay Vyapar Ltd Supreme CourtHelps taxpayer
  We are an NBFC. The AO wants interest on a non-performing loan taxed on accrual even though we have not recognised it. Can he do that?
  No. The Supreme Court agreed with the Delhi High Court that where the assessee is a non-banking financial company governed by the Reserve Bank of India Act, interest on an advance classified as non-performing cannot be said to have accrued, having regard to s.45Q of that Act and the prudential norms issued under it. It is an application of the real-income principle: income that has not really arisen is not taxed because the books are kept on the mercantile basis.
• CIT v Spice Enfotainment Ltd Supreme CourtHelps taxpayer
  The company I represent amalgamated years ago, the department knew about it, and the assessment order still came in the old company's name. Is that order void, or can the department call it a curable slip?
  Void. The Delhi High Court held that once a company amalgamates and is dissolved it ceases to exist, and no assessment can be framed against it. Framing an assessment on a non-existent entity goes to the root of the matter: it is a jurisdictional defect, not a procedural irregularity, and section 292B cannot cure it, because that section reaches only technical defects or omissions. Participation by the successor makes no difference. The Supreme Court dismissed the department's appeals on 2 November 2017 without disturbing that reasoning.
• Sedco Forex International Inc v CIT Supreme CourtHelps department
  We are a non-resident drilling contractor taxed under section 44BB. Is the mobilisation fee for bringing the rig to India part of the taxable receipts?
  Yes, on these contracts. The Supreme Court held that a fixed mobilisation fee paid for moving a drilling unit to the Indian location falls within clause (a) of section 44BB(2), as an amount paid on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire used in, the extraction of mineral oils in India. Clause (a) applies whether the amount is paid in or outside India. By the fiction in section 44BB the amount becomes income under section 5 and is treated as arising in India for section 9. The assessees' appeals were dismissed.
• ADIT v E-Funds IT Solution Inc Supreme CourtHelps taxpayer
  We outsource back-office work to our Indian subsidiary. Does that give us a permanent establishment in India?
  No, not by itself. The Revenue must prove that a fixed place in India was at the disposal of the foreign company and that the foreign company carried on its own business through it. Close association between parent and subsidiary, and the fact that the Indian company depends on the group for its work, do not answer that question, and the functions-assets-risks analysis borrowed from transfer pricing is not the test for whether a fixed place permanent establishment exists.
• Binoy Viswam v Union of India Supreme CourtCuts both ways
  Is the Aadhaar-PAN requirement in s.139AA valid, and can my existing PAN be cancelled under it?
  Valid, with one limited relief. Section 139AA was upheld against Article 14, the classification being rationally connected to eliminating duplicate and fake PANs, and against Article 19(1)(g) as a reasonable restriction saved by Article 19(6); the Article 21 privacy challenge was expressly left to the Constitution Bench. The only relief was that the consequence in s.139AA(2) of treating a PAN as invalid could not operate retrospectively so as to unsettle completed transactions of existing PAN holders who had not enrolled.
• Godrej & Boyce Manufacturing Co Ltd v DCIT Supreme CourtCuts both ways
  The Assessing Officer has disallowed interest under section 14A against my dividend income, though I have more than enough of my own funds — can he do that without showing a link?
  No, not on this record. The Supreme Court held on 8 May 2017 that section 14A does apply to dividend on which the company has paid tax under section 115-O, because such dividend is not includible in the shareholder's total income. But section 14A(1) still requires proof that the expenditure sought to be disallowed was actually incurred in earning that dividend. Here the Assessing Officer recorded no reasons, showed no nexus, and departed from findings for earlier years without any new fact. With interest-free funds of about Rs.280 crore against investments of Rs.125 crore, no diversion of borrowings was proved. The assessee got the full exemption.
• Formula One World Championship Ltd v CIT Supreme CourtHelps department
  We had access to an Indian venue for only a few days in the year. Can that be a permanent establishment?
  Yes. A place is at the disposal of an enterprise when the enterprise has the right to use it and control over it, and a fixed place permanent establishment needs stability, productivity and dependence rather than ownership or a long lease. The Buddh International Circuit was a fixed place through which Formula One World Championship Ltd carried on its commercial activity, so it had a permanent establishment in India.
• DIT v A.P. Moller Maersk A/S Supreme CourtHelps taxpayerValidity unconfirmed
  Our Indian agents pay the foreign principal a pro-rata share of the cost of its global booking and communication system — is that fees for technical services taxable in India?
  No. The Supreme Court held that the payments the Indian agents made to a Danish shipping line for using its Maersk Net system were reimbursement of a proportionate share of cost, not fees for technical services. The system was an integral part of the shipping business and was a common facility available to all agents worldwide, not a service catering to any agent's special needs. Once the character of a payment is reimbursement of expenses, it cannot be income chargeable to tax; and since freight income was exempt under the India-Denmark treaty shipping article, the expenses of earning it could not be split off. The Revenue's appeals were dismissed.
• Gopal and Sons (HUF) v CIT Supreme CourtHelps department
  The shares are in the Karta's name, not the HUF's. Does s.2(22)(e) still catch a loan to the HUF?
  Yes. On the record the HUF was shown in the company's filings as registered and beneficial shareholder. In any event s.2(22)(e) also reaches a payment to a concern in which a shareholder is a member with a substantial interest — beneficial entitlement to not less than 20 per cent of the concern's income — and the Karta was a member of the HUF.
• Andaman Timber Industries v CCE Supreme CourtHelps taxpayer
  The addition rests on someone else's statement. Can you insist on cross-examining them?
  Yes. Where a statement is made the basis of the order, refusing cross-examination is a serious flaw that violates natural justice and makes the order a nullity. It is not for the authority to guess what the cross-examination would have achieved.
• Dy CIT v Zuari Estate Development & Investment Co Ltd Supreme CourtHelps department
  My return was only processed under section 143(1) and now the officer wants to reopen it. Can I say he is changing his opinion?
  No. The Supreme Court held that where a return is accepted under section 143(1), no assessment order is made and no opinion is formed, so the change of opinion objection simply does not arise. The point was held to be squarely covered by Rajesh Jhaveri Stock Brokers. The Bombay High Court had quashed the reopening notice without addressing this contention at all, and its judgment was set aside. The Tribunal's order, which had merely followed the High Court, went with it, and the appeal was remitted to the Tribunal to be decided on merits.
• CIT v Govindbhai Mamaiya Supreme CourtCuts both waysValidity unconfirmed
  The court enhanced the compensation for my acquired land and awarded interest running back many years — can I spread that interest over those years, and are my brothers and I an AoP because we inherited the land together?
  No to the spreading, yes to being taxed as individuals. The Supreme Court held on 4 September 2014 that interest awarded under section 28 of the Land Acquisition Act 1894 is an accretion to the value of the land, so it forms part of the enhanced compensation under section 45(5)(b) and is taxable in the year it is received, not spread over the years from dispossession. Interest under section 34, which compensates undue delay in making the award, stands differently. On status, three brothers who inherit land by operation of law and receive compensation on compulsory acquisition form no association of persons, because volition to produce income is absent.
• CIT v Excel Industries Ltd Supreme CourtHelps taxpayer
  The AO has taxed my advance licence and DEPB benefits in the year I exported. Is that the right year?
  No. The benefit accrues only when the imports are actually made, because until then the customs authorities are under no corresponding obligation to give anything up. Income tax is a levy on real income, and until the import happens the entitlement is at best a hypothetical income that may or may not materialise. The Court also declined to let the department reopen a position it had accepted for earlier years without any change in facts or law.
• ACIT v A.R. Enterprises Supreme CourtHelps department
  I paid advance tax for the year but had not filed my return when the search took place. Can the department still call that income undisclosed?
  Yes. The Supreme Court held that payment of advance tax is not disclosure of income. Advance tax is paid on an estimate of current income; disclosure of total income happens only in a return. Where the due date under section 139(1) had passed and no return had been filed by the date of search, section 158BB(1)(c) requires the returned income to be taken as nil, and the officer was right to conclude the assessee would not have disclosed the income. Tax deducted at source is no different, being computed on the same estimated basis. The Revenue's six appeals were allowed with costs.
• JCIT v Rolta India Ltd Supreme CourtHelps departmentValidity unconfirmed
  My company paid no advance tax because we only knew we would fall under MAT once the accounts were audited — is interest under sections 234B and 234C still chargeable on the tax on book profit?
  Yes. The Supreme Court held on 7 January 2011 that interest under sections 234B and 234C is payable on failure to pay advance tax in respect of tax payable under section 115JA or section 115JB. Neither interest section makes any exception for the minimum alternate tax, and assessed tax means the tax determined on regular assessment, which is the tax determined by applying those provisions. Both sections 115JA and 115JB expressly say that all other provisions of the Act apply to a MAT company, and the Finance Acts provided for advance tax on them. Circular No. 13/2001 therefore has no application.
• CIT v Tulsyan NEC Ltd Supreme CourtHelps taxpayer
  The Assessing Officer computed interest under s.234B and s.234C first and only then gave me credit for MAT under s.115JAA. My refund has turned into a demand. Is that the right order?
  No. MAT credit admissible under s.115JAA must be set off against the tax payable before interest under s.234B and s.234C is calculated, not after. The right to the set-off crystallises when the tax under s.115JA (now s.115JB) is paid and does not depend on any determination by the Assessing Officer, so an assessee may take the credit into account even when estimating advance tax on its current income.
• Brij Lal v CIT Supreme CourtCuts both waysValidity unconfirmed
  My settlement application was admitted years before the Commission passed its final order — can it charge me section 234B interest for that whole period, and reopen the settled order later to add interest it forgot?
  No to both. A Constitution Bench of the Supreme Court held on 21 October 2010 that sections 234A, 234B and 234C do apply to Settlement Commission proceedings, but only up to the order admitting the case under section 245D(1). Parliament did not extend the liability beyond the date of the settlement application, so no interest runs between admission and the final order under section 245D(4). Hindustan Bulk Carrier, which had taken the section 245D(4) date as the terminus, does not survive on that point. And the Commission cannot reopen its concluded proceedings under section 154 to levy interest it did not levy at the time, section 245I making its order final.
• Techno Shares & Stocks Ltd v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  I bought a Bombay Stock Exchange membership card — can I claim depreciation on it as an intangible asset under section 32(1)(ii)?
  Yes, on these facts. The Supreme Court held on 9 September 2010 that the right of membership of the Bombay Stock Exchange, which includes the right of nomination, is a business or commercial right that gives a non-defaulting continuing member access to the Exchange and the ability to trade on its floor. Under Rule 5 membership is a personal permission from the Exchange, which is a licence, and Explanation 3 to section 32(1)(ii) declares a commercial right similar to a licence or franchise to be an intangible asset. The right vests in the Exchange only on default or demise. The Bombay High Court's contrary judgment was set aside.
• Ajmera Housing Corporation v CIT Supreme CourtHelps department
  We filed a settlement application and then, when the Commissioner's report came in, filed a revised annexure with a much higher figure. Does that revision sink the application?
  Yes, it can. The Supreme Court held that a full and true disclosure of undisclosed income and of the manner in which it was derived is a pre-requisite of a valid application under section 245C(1), and that Chapter XIX-A contains no provision for revising an application once filed. Where the applicant raised the disclosure from about Rs. 1.94 crore to Rs. 11.41 crore and then went on adding piecemeal and ad hoc amounts, that was itself proof that the original application was not a full and true disclosure. The appeals were dismissed.
• CIT v Saurashtra Cement Ltd Supreme CourtHelps taxpayerValidity unconfirmed
  My supplier paid me liquidated damages for delivering the plant late. Is that taxable as a trading receipt?
  No. The Supreme Court held that liquidated damages received from the supplier of a cement plant for delay in delivery are a capital receipt. The damages were fixed by the contract at 0.5 per cent of the price of the machinery delivered late for each month of delay, payable without proof of actual loss and capped at 5 per cent of the total price. That measure was tied to the price of the asset, not to any calculation of lost profit. The payment was directly and intimately linked with the procurement of a capital asset and compensated the assessee for sterilisation of the profit earning source, not for anything arising in the course of earning profits.
• Vijaya Bank v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  I debited the bad debt to the profit and loss account and reduced debtors in the balance sheet, but did not close each debtor's ledger account — is that an actual write-off under section 36(1)(vii)?
  Yes. The Supreme Court held on 15 April 2010 that debiting the profit and loss account and simultaneously reducing loans and advances or debtors on the asset side, so that the year-end figure is shown net of the provision, is an actual write-off. What the Explanation inserted with effect from 1 April 1989 excludes is a debit to the profit and loss account matched by a credit to current liabilities and provisions — that is a provision, not a write-off. There is no further requirement to close the individual account of each debtor. The Assessing Officer can call for those accounts if he has reason to believe the deduction is being claimed twice.
• ACIT v Dhariya Construction Co Supreme CourtHelps taxpayer
  The only thing behind my reopening notice is the Valuation Officer's report. Is that enough?
  No. The Supreme Court held that the opinion of the Valuation Officer is not by itself information on which an assessment can be reopened. The officer has to apply his mind to whatever material he has collected and form his own belief; adopting the valuer's figure is not that.
• Dynamic Orthopedics P Ltd v CIT Supreme CourtHelps departmentValidity unconfirmed
  For book profit under section 115J, do I provide depreciation at Income Tax Rules rates or at Schedule XIV rates - and does it matter that I am a private limited company?
  It depends, and the Supreme Court did not settle it here. This is a reference order, not a decision. A two-judge bench held that its own earlier ruling in Malayala Manorama - that a private company outside sections 349, 350 and 355 of the Companies Act may provide depreciation at Income Tax Rules rates for book profit - needs reconsideration. Its view was that section 115J incorporates only Parts II and III of Schedule VI, not sections 205, 350 or 355, and draws no distinction between public and private companies. It directed the Registry to place the appeal before the Chief Justice for a larger bench.
• Sargam Cinema v CIT Supreme CourtHelps taxpayerSuperseded by amendment
  The AO has sent my cost of construction to the Departmental Valuation Officer without saying a word about my books. Can he do that?
  Not under the section as it then stood. The Supreme Court held the assessing authority could not have referred the matter to the Departmental Valuation Officer without the books of account being rejected, and where the Tribunal had recorded that the books were never rejected, reliance on the DVO's report was misconceived. The appeal was allowed and the Tribunal's order restored. Read this with the caution below: s.142A was substituted with effect from 1 October 2014 and the substituted section says a reference may be made whether or not the officer is satisfied about the correctness of the accounts.
• Rotork Controls India P Ltd v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  We give a warranty on every unit we sell and provide a percentage of turnover for it each year — can the Assessing Officer disallow that as a contingent liability?
  Not where the provision is properly built. The Supreme Court held on 12 May 2009 that a warranty provision is deductible under section 37 where three conditions are met: a present obligation arising from a past event, the probability of an outflow of resources to settle it, and a reliable estimate of the amount. Where an enterprise sells large numbers of sophisticated goods, past experience of defects in some of them creates a present obligation on the sales already made, and the warranty is part of the sale price. The estimate must rest on a historical trend captured by a proper accounting system, reassessed each year, with unused provisions reversed.
• CIT v Greenworld Corporation Supreme CourtCuts both waysValidity unconfirmed
  The Assessing Officer passed the assessment after being told what to do by the Commissioner. What happens to that assessment, and to a later section 263 order on it?
  An assessment passed on the dictates of a higher authority is without jurisdiction and a nullity. And a Commissioner exercising section 263 cannot use that order to direct reopening of other assessment years; his revisional jurisdiction is confined to the year before him.
• CIT v Woodward Governor India P Ltd Supreme CourtHelps taxpayerValidity unconfirmed
  I restated my foreign currency creditors at the closing rate and debited an unrealised loss. Can the AO throw it out as a contingent liability?
  No. Under the mercantile system, the loss on restating foreign currency monetary items at the balance sheet date is an item of expenditure under s.37(1), and the word 'expenditure' is wide enough to cover a loss that has not gone out of the assessee's pocket. Section 43A is a separate regime that applies only to an asset acquired from a country outside India, and after its substitution by the Finance Act 2002 it operates only at the time of actual payment.
• Mcorp Global (P) Ltd v CIT Supreme CourtCuts both ways
  In my own appeal the Tribunal has taken away a deduction the Assessing Officer had already allowed me — can it do that?
  No. The Supreme Court held that the Tribunal has no power to enhance an assessment or to take back a benefit the Assessing Officer had granted, applying Hukumchand Mills. Depreciation had been allowed on 42,000 bottles; the Tribunal and the High Court, by holding the whole transaction to be a financial arrangement rather than a lease, took that benefit away, and that was not permissible. The disallowance of Rs 18,04,572 was deleted. On the second transaction the Court upheld the concurrent finding that the lease was a sham and confirmed the disallowance of Rs 30,17,122. The appeal was partly allowed.
• CIT v HCL Comnet Systems & Services Ltd Supreme CourtHelps taxpayerValidity unconfirmed
  The officer added back my provision for doubtful debts in computing book profit, calling it a provision for an unascertained liability. Is that right?
  No, on the Explanation as it then stood. The Supreme Court dismissed the Revenue's appeal and held that clause (c) of the Explanation to section 115JA was not attracted to a provision for doubtful debts of Rs 92,15,187. Clause (c) covers amounts set aside as provision for meeting liabilities other than ascertained liabilities, and every ingredient must be satisfied. A debt receivable is an asset, not a liability: a provision against its irrecoverability covers a probable diminution in the value of an asset, and no liability is fastened on the assessee even if the debt is never recovered. The Assessing Officer was therefore not justified in adding it back.
• CIT v Ponni Sugars & Chemicals Ltd Supreme CourtCuts both ways
  I got a government incentive that came to me as a higher free sale quota and an excise rebate, and I had to use it to repay my term loans. Is that taxable income?
  No, on those terms it is a capital receipt. The Supreme Court applied the purpose test: what decides the character of a subsidy is the object for which it is given, not when it is paid, where it comes from, or the mechanism through which it reaches you. Because the incentive was available only to new or substantially expanded units and had to be used to repay term loans taken to set up or expand the plant, it was capital, not a trade receipt. On the separate section 80P(2)(a)(i) claim the matters went back to the Tribunal.
• ACIT v Saurashtra Kutch Stock Exchange Ltd Supreme CourtHelps taxpayer
  A binding decision that covers my point was never considered when my order was passed. Is that a mistake apparent from the record?
  Yes. The Supreme Court held that non-consideration of a decision of the jurisdictional High Court or of the Supreme Court can be a mistake apparent from the record, and upheld the Tribunal recalling its own order on that ground. The section actually applied was s.254(2); the same test - patent, manifest and self-evident - is the one used under s.154.
• CIT v Realest Builders & Services Ltd Supreme CourtHelps taxpayer
  The Assessing Officer says my income accrued in an earlier year than the one I offered it in. Can he simply shift the year without touching my method of accounting?
  No. The Supreme Court dismissed the Revenue's appeals. Where the Department wants to tax a receipt in a different year, it must first ascertain the method of accounting the assessee has followed over the years and show that a change is warranted because that method understates profits. Section 145 allows the Department to insist on a change, but the Assessing Officer must give facts and figures, demonstrate both methods - the assessee's and the Department's - and show the understatement. That was never done here. Absent such a demonstration the presumption is that the whole exercise is revenue neutral, and the year of taxability cannot be shifted.
• Sahara India (Firm) v CIT Supreme CourtCuts both ways
  The AO ordered a special audit of my books without hearing me first. Is that direction valid?
  No. A direction under s.142(2A) carries serious civil consequences, so the assessee must be given a reasonable opportunity of being heard before it is issued, even though the section as it then stood said nothing about a hearing. The post-audit hearing under s.142(3) is no substitute, because it reaches only the audit material and not the validity of the direction.
• Malayala Manorama Co Ltd v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  I have always charged depreciation in my books at Income Tax Rules rates. Can the Assessing Officer rework my book profit under section 115J using Schedule XIV rates instead?
  No. The Supreme Court allowed the company's appeals and set aside the Kerala High Court. Following the three-Judge Bench in Apollo Tyres, it held the controversy was no longer res integra: for section 115J the Assessing Officer may only check that the accounts are certified as properly maintained under the Companies Act, and then make the increases and reductions the Explanation allows. He has no jurisdiction to go behind the net profit shown in the profit and loss account. So where a company has consistently charged depreciation at Income Tax Rules rates in accounts audited, approved in general meeting and filed with the Registrar without objection, the book profit cannot be reworked at Schedule XIV rates.
• CIT v Bilahari Investment Pvt Ltd Supreme CourtHelps taxpayer
  The AO wants to substitute my method of accounting for one that suits him better. What does he have to establish first?
  That the method you follow distorts profits. The Supreme Court held that recognition of income is achievable by more than one method, that an assessee is entitled to arrange its affairs and follow the method the department has accepted in earlier years, and that only where the department records a finding of distortion can it insist on substitution. The case arose on chit discount and the completed contract method over assessment years 1991-92 to 1997-98.
• DIT v Morgan Stanley & Co Inc Supreme CourtCuts both ways
  Our Indian affiliate is paid at arm's length. Can more profit still be attributed to a PE?
  No, provided the transfer pricing analysis takes into account all the risk-taking functions of the entity that also constitutes the permanent establishment. Anything further would tax the same profits twice. On the facts, back-office work was preparatory or auxiliary and created no fixed place or agency PE, but deputing employees to work in India created a service PE.
• ACIT v Rajesh Jhaveri Stock Brokers P Ltd Supreme CourtHelps department
  My return was only processed under 143(1). Does that stop the department reopening it later?
  No. An intimation under s.143(1) is not an assessment, so it does not bar the officer from later starting reassessment proceedings.
• Ishikawajima-Harima Heavy Industries Ltd v DIT Supreme CourtHelps taxpayerSuperseded by amendment
  Our turnkey contract has offshore supply and offshore services alongside Indian work. Is the whole contract taxable in India?
  No — a composite turnkey contract can be split. Profits on equipment supplied and paid for outside India, where title passes outside India, are outside the Indian charge, because the contract being signed in India is immaterial and there must be a sufficient territorial nexus. On offshore services the Court read s.9(1)(vii) as requiring the services to be both utilised in India and rendered in India; that second requirement has since been removed retrospectively by statute, so only the offshore supply holding survives on the domestic law side.

The 60 strongest entries are summarised here. The other 322 entries are listed in full below, and each has its own page.

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.