Covers s.143(3), s.143(2), s.92CA, s.139(1), s.143(1), s.144C, s.145, s.144 and 98 more. 265 entries, strongest first, with what each one decided in a sentence. Read down the list, then open the entry that fits your facts. The Assessment & Scrutiny hub cross-lists everything that touches this area, including entries filed under another subject.
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.
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.
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.
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.
The Assessing Officer has found a permanent establishment and wants to tax my client's entire Indian booking revenue. My client already pays its Indian distributor a commission larger than anything that could be attributed to India. Is there anything left to tax? No, where the commission already paid to the Indian agent exceeds the profit attributable to the Indian operations, the assessment is extinguished. The Supreme Court upheld the Tribunal's attribution of 15 per cent of the revenue to India on a functions, assets and risks analysis and held that, because the distribution commission was more than twice that figure and had already been taxed, no further income was taxable in India — and it declined to decide whether there was a permanent establishment at all, because the attribution answer disposed of the appeals.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The company and I have a mutual, open and current account with money moving both ways. Is the deemed dividend the closing debit balance, the highest debit balance during the year, or something else? And can the Department tax money that reached me through a firm rather than directly? Neither the closing balance nor the peak. The Supreme Court, adopting the Bombay High Court's reasoning in P.K. Badiani, held that the position must be ascertained at the date of each payment: every debit is examined individually, it is a loan only to the extent it exceeds the company's existing debt to the shareholder, and it is taxable only to the extent of accumulated profits existing on that date. The Court also upheld the taxing of money routed to the shareholder through partnership firms used as conduits, as a payment for his individual benefit.
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.
I value my raw material net of the excise credit and value my closing stock the same way. Can the officer add the unutilised credit to my income? No. The Supreme Court dismissed the Revenue's appeals and held that an irreversible credit available on purchase of duty paid raw material does not for that reason amount to income liable to tax. The assessees had consistently used the net method, valuing raw material at purchase price less the credit and valuing unconsumed raw material and work in progress the same way. The Assessing Officer had used the gross method at purchase and the net method at the year end, which the Court called wholly erroneous, because it assumed income to the extent of the credit on unconsumed raw material that the accounts did not reflect. Whichever method is used consistently, the result is the same.
I went to the Settlement Commission. Up to what date can section 234B interest be charged on the income I disclosed there? Up to the date of the Commission's order under section 245D(4), the Supreme Court held. Interest under section 234B runs from 1 April following the relevant financial year to the date of that order, and is charged on the consolidated income, that is the income already returned plus the income disclosed before the Commission. The Special Bench of the Commission had fixed different end points depending on whether a regular assessment or a reassessment had been made; that view was rejected. After the Commission acts under section 245D, the separate interest under that section takes over. The Revenue's appeals were allowed.
Our firm dissolved when a partner died, but the remaining partners carried on the same business. Must the closing stock on the date of dissolution be revalued at market price? No. The Supreme Court held that where a firm is dissolved but the business is not discontinued, there is no warrant for revaluing the closing stock at market rate. The ordinary rule, cost or market price whichever is lower, continues to apply. Valuing stock at a market value higher than cost would tax notional profits the assessee has never realised. A.L.A. Firm and G.R. Ramachari, which required market valuation, were cases where the business itself came to an end. The Commissioner's order under section 263 was wrong and the question was answered for the assessee.
The AO never heard me but the CIT(A) did. Does the appeal cure the defect? No. Failure to follow the principles of natural justice at the assessment stage cannot be made good in an appeal. Once it is found that the officer did not give the assessee a proper opportunity of hearing, the assessment order is to be set aside and the matter remanded to the officer for a fresh assessment after a proper opportunity.
Before my plant started, I put money in the bank to open a letter of credit for the machinery and earned interest on it. Is that interest taxable income? No. The Supreme Court held that where the deposit is made to open a letter of credit for the purchase of plant and machinery under the agreement with the supplier, the deposit is directly linked with that purchase, and the interest earned on it is incidental to the acquisition of the assets. It is not a case of idle surplus share capital parked in a bank to earn interest. Tuticorin Alkali Chemicals therefore does not apply, and the case falls under Bokaro Steel. The Revenue's appeal was dismissed.
We were paid to give up our right of first refusal to buy and to keep operating a hotel we managed — is that a capital receipt? Yes. The Supreme Court held that Rs 29,47,500 received from the Receiver of the hotel owner was a capital receipt. The assessee gave up the right under Article XVIII of its operating agreement to have the hotel offered to it first if the owner wished to transfer or lease it, and gave up the operation of the hotel itself. That was the loss of a source of income and an injury to a capital asset, not the settlement of rights under a trading contract. The Calcutta High Court's order was set aside and the question answered in favour of the assessee.
Old creditor balances have been sitting in my books for twenty years and nobody has sued. If I move them to reserves, does section 41(1) tax them? No, on the law as it stood for assessment year 1965-66. The Supreme Court held that section 41(1) requires the assessee to have obtained an amount, in cash or otherwise, or a benefit by way of remission or cessation of the liability, and that obtaining is the condition on which the section works. A debtor cannot bring about remission or cessation by his own unilateral act; remission must come from the creditor. Expiry of limitation bars the creditor's remedy but does not extinguish the debt, and whether limitation has in fact run cannot be decided without the creditor before the authority.
While my plant is still being built I recover rent, hire charges and interest from my own contractors. Is that taxable income before the business starts? No, where the receipts are inextricably linked with setting up the plant. The Supreme Court held that rent charged to contractors for housing their workers, hire charges for plant and machinery lent to them, interest on advances made to keep their work moving, and royalty for stone excavated from the company's own land are all capital receipts that go to reduce the cost of construction. They arise from arrangements intrinsically connected with building the plant, not from any independent source. Tuticorin Alkali was distinguished: interest on surplus borrowed funds parked in short-term deposits is an independent source and remains taxable.
I am a registered income-tax practitioner under s.288(2). Can I sign a tax audit report? No. Being an authorised representative under s.288(2) carries no right to conduct the compulsory audit under s.44AB. Confining that work to chartered accountants rests on their training and special aptitude in audits, which is an intelligible differentia with a rational nexus to the object of the section, so it survives Article 14, and it is a reasonable restriction under Article 19(6) because the practitioner's own profession is left untouched.
I have a running account with my company. I overdrew during the year, but the account was squared up by a journal adjustment on the last day of the year against another shareholder's credit balance. Can the withdrawals still be deemed dividend? Yes. The Supreme Court held that the legal fiction comes into play as soon as the money is paid, so each withdrawal made when the shareholder has no credit balance is a deemed dividend on the date it is made. A subsequent adjustment or repayment, even one made on the last day of the accounting year, does not alter the position.
The State refunds my sales tax and subsidises my power for five years after I start production. Is that a capital receipt because the scheme was meant to encourage new industry? No. The Supreme Court held that these were operational subsidies and therefore revenue receipts. Nothing was paid towards setting up the industry: the incentives became available only once production had begun, ran for five years, and were tied to production - power subsidy only for power consumed for production, sales tax refunds only on taxes levied after production started. Their object was to give a newly set up unit a helping hand so it could run its business more profitably. The Court applied Viscount Simon's rule in Ostime that a subsidy from public funds paid to a trade is a trading receipt.
My client's father died and the heirs formed a firm to carry on his business. Can the firm use his brought-forward loss, or does s.78(2) stop it? It can, if the succession is by inheritance — s.78(2) denies the carry forward only where a business is succeeded to otherwise than by inheritance. The Supreme Court declined to interfere with the finding that heirs who executed a partnership deed within a month of the death and carried on the identical speculation business, in the same name, at the same premises, with the same constituents, had succeeded to the deceased's business by inheritance for the purposes of s.78(2).
I raised my rates and booked the higher billing in my accounts, but customers sued and I could never collect. Must I still pay tax on it? No. The Supreme Court held that although the company kept its books on the mercantile system and had passed entries for the enhanced charges, no real income accrued to it. Whether income has accrued must be judged by taking the probability or improbability of realisation in a realistic manner, not by the entries. Here representative suits by consumers, an injunction, a State Government letter advising the company to hold its rates, and the later takeover of the undertaking meant the enhanced charges could never be collected. The entries represented hypothetical income only, and the additions were rightly deleted.
Our amalgamation says it takes effect from an earlier appointed date, but the court sanctioned it two years later. Which date does the Department have to work from? The date in the scheme. The Supreme Court held that every scheme must specify a date from which the amalgamation or transfer takes effect, that the court sanctioning it may fix a different date and if it does that date governs, but that where the court merely sanctions the scheme as presented, the transfer date in the scheme is the date of amalgamation. It cannot be otherwise. Proceedings before the court necessarily take time, the transferor may go on trading meanwhile, and that trading is deemed to be for and on behalf of the transferee. Notices calling on the transferor to file returns for later years were therefore unwarranted.
Old unclaimed credit balances of my customers have gone time-barred and I have written them back to my profit and loss account. Is that taxable even though they were capital receipts when I got them? Yes. The Supreme Court held that money received in the course of trade, though a deposit and of capital character when received, changes character when it becomes the assessee's own money by limitation or by some other statutory or contractual right. The deposits here were taken in the course of trade, adjustments were made against them in the course of trade, the customers' claims had become time-barred, and the assessee itself carried the surplus to its profit and loss account with no explanation for doing so if the money was somebody else's. On a common sense view the trader had become richer by the amount, and it is his income.
A partner died mid-year, the deed said nothing about the firm continuing, and the survivors carried on the business under a fresh deed. The officer has clubbed the whole year into one assessment. Can he? No. The Supreme Court held that where the partnership deed contains no provision for the firm continuing on the death of a partner, the firm stands dissolved by force of s.42(c) of the Indian Partnership Act 1932; the case is then not one of a change in the constitution of the firm and falls outside s.187, and where the surviving partners continue the business in partnership there is a succession of one firm by another, which attracts s.188 and separate assessments on the predecessor and the successor firm. Two returns and two assessments, not one.
The department already taxed my share of a gain in my individual hands. Can it now assess the same gain again in the hands of the association of persons? Yes. The Supreme Court held that under the 1961 Act the Assessing Officer has no option of the kind section 3 of the 1922 Act gave him. He can, and must, tax the right person and the right person alone. If the income is in law the income of an association of persons, only the association can be taxed; and the fact that a wrong person has already been taxed on it does not stop the officer from assessing the right one. The person wrongly taxed has his own remedies, but that is a separate matter.
My assessment was rectified once already. I want a second rectification, and four years have gone since the original assessment but not since the rectified one. Am I out of time? No. The Supreme Court held that the word order in section 154(7) is not qualified and does not necessarily mean the original order; it can be any order, including the amended or rectified order. So where an assessment of 21 September 1979 had been rectified on 12 July 1982, an application made on 4 July 1986 was in time, being within four years of the rectified order. The Calcutta High Court, which had counted from the original assessment, was set aside and the Tribunal restored. The Court followed its own sales tax decisions in International Cotton Corporation and H.R. Sri Ramulu.
The department accepted your position for years and has now reversed it. Can it? Not without a material change. Res judicata does not strictly apply between years, but where a fundamental aspect running through several years has been found as a fact and allowed to stand, it should not be changed in a later year.
My assessment order does not compute the tax — the figures are only on the ITNS-150. Does that make the assessment bad? No, and the argument runs the other way from how it is often quoted. A three-Judge Bench rejected the submission that Form ITNS-150 is not part of the assessment order. The form is itself a form for determination of tax payable, and when signed or initialled by the officer it is an order in writing determining the tax within the meaning of s.143(3), to be treated as part of the assessment order in the wider sense. The assessee lost.
Our family partitioned by agreement and a civil court passed a partition decree. Can the department still assess us as a Hindu undivided family? Yes, unless the property was actually divided. The Supreme Court held that the Explanation to section 171 gives partition a special meaning: where property admits of physical division there must be a physical division, and where it does not there must be such division as it admits of, a mere severance of status not being enough. A partition by agreement or by a court's decree therefore does not disrupt the family's status for tax unless it was followed by actual division by metes and bounds. The appeals were allowed and the writ petition dismissed.
A company we absorbed by amalgamation had been allowed a trading liability as a deduction. When that liability ceased in our hands, can section 41(1) tax us on it? No, on the section as it then stood. The Supreme Court held that section 41(1) taxes the assessee to whom the allowance or deduction was made, so the identity of the assessee in the earlier year and in the later year must be the same. On amalgamation the transferor company loses its entity and ceases to exist in the eye of law from the date the amalgamation takes effect; the amalgamated company acquires a new status. The High Court's view that the two corporate personalities continue in a blended form was held unsustainable, and the allowance made to the transferor could not be taxed in the transferee's hands.
The court enhanced my land acquisition compensation years later and awarded interest from the date possession was taken. Is all that interest taxable in the year of the order? No, on the law as it then stood. The Supreme Court held that interest on enhanced compensation cannot be taken to have accrued on the date of the court's order granting the enhancement. It accrues year after year, from the date possession of the land was delivered until the date of that order, and must be assessed accordingly. The question had divided the High Courts and came up on references made directly to the Court under section 257. The Court held the point concluded by its own decision in T.N.K. Govindarajulu Chetty, supported by Khorshed Shapoor Chenai, and allowed the appeals.
I have brought forward business losses that will lapse in a few years. Can I set them off before this year's depreciation, so the losses do not run out? No. The Supreme Court held that current depreciation must be deducted first, before the unabsorbed carried forward business loss of earlier years is set off. The priority given to carried forward losses is over the unabsorbed depreciation that is being carried forward, not over the current year's depreciation. The deeming provision that treats carried forward depreciation as part of the following year's allowance is a legal fiction created for a definite purpose - so that it can be set against income under any head - and cannot be stretched further. The appeals were allowed and the reference answered against the assessee, with costs.
As karta and father I divided some family shares between myself and my minor sons. Can the officer refuse to record the partial partition because the shares are unequal? No. The Supreme Court held that a father may effect a partial partition of joint family property between himself and his minor sons, in exercise of his superior right as father or as patria potestas, and that such a partition is valid under Hindu law. It does not become invalid because the shares are unequal; an aggrieved son may challenge it, and until a competent court holds it invalid it stands. The officer may enquire whether the partition is genuine and refuse recognition if it is sham, but cannot refuse it for unequal division. The appeal was allowed.
Our family divided the income but not the properties. Is that a partition the department must accept? No. Where the property admits of physical division, dividing the income while leaving the property undivided is not a partition for tax purposes, and mere severance of status under Hindu law is not enough. Until a finding recognising the partition is recorded under s.171, the family is deemed to continue undivided and the income remains assessable in its hands.
When my loss arose, the law let me carry it forward indefinitely. The rule was later cut to eight years. Do I keep the old benefit as a vested right? No. The Supreme Court held that it is a cardinal principle of tax law that the law to be applied is that in force in the assessment year, unless otherwise provided expressly or by necessary implication. When the assessment for 1960-61 was made and the set-off provision invoked, it was the provision as it stood in that year - as amended in 1957 to allow only eight years - that governed. There was no question of a vested right under the earlier law. An assessment for one year is not, absent a contrary provision, affected by the law in force in another year, and a right claimed under the law of a particular year is ordinarily available only in a proceeding for that year.
I am an MES contractor and the department supplies me cement and steel at fixed rates. The Income-tax Officer added the value of that material to my cash receipts before applying a flat rate. Can he? No. The Supreme Court held that where the department supplies stores and materials to a works contractor at fixed rates solely for being used, fixed or incorporated in the works, and the surplus must be returned, there is not even a theoretical possibility of profit in the turnover those stores represent. So on a best judgment assessment the flat rate is to be applied only to the cash payments received from the department, exclusive of the cost of such stores. The Punjab and Haryana High Court's contrary view in Brij Bhushan Lal v CIT (Delhi) was held erroneous.
Our principal time-chartered a ship and loaded its own cargo at an Indian port. Is the hire paid to the shipowner taxable as an amount paid on account of carriage of goods? No. The Supreme Court held that under a time charter the payment is for the use and hire of the ship, and is due whether or not the charterer carries anything at all, so it cannot be an amount paid on account of the carriage of goods within section 172(2). Nor did the charterers receive anything on that account, because they loaded their own cargo rather than sub-letting the ship or carrying a third party's goods. The character of the payment does not change with the use the charterer makes of the vessel or because it happened to load in India. The appeal was dismissed.
My client stopped importing and now only exports. The officer says the old import loss dies because it is not the same business. Is he right? On the law as it stood, no — import and export were held to be the same business because there was one management, one organisation, one administration, one fund and one place of business, and unity of control rather than the nature of the two lines is the deciding factor. But before you argue this at all, check the year: the proviso to s.72(1)(i) that required the same business to continue was omitted by the Finance Act, 1999 with effect from 1 April 2000, so from assessment year 2000-01 a brought-forward business loss is set off against the profits of any business or profession carried on by the assessee.
We are a foreign company paid a technical service fee by an Indian company. Does that fee accrue in India if all our work was done abroad? No. The Supreme Court held that the technical service fee neither accrued nor was deemed to accrue in India. Know-how was supplied from outside India, and the foreign personnel were made available outside India, taken on by the Indian company as its employees, paid by it and working under its control, so the services were rendered wholly abroad. Even assuming a business connection existed, no part of the operations was carried out in India, so the deeming provision was not attracted at all. The Court also held that the High Court should not have entertained a business connection point raised for the first time on reference.
The officer has added a development rebate reserve to 'accumulated profits'. Is that reserve really available for a deemed dividend? Yes. 'Accumulated profits' in the deemed dividend definition means profits in the commercial sense, not the profits assessed to tax. A development rebate reserve is a bookkeeping appropriation of commercial profit, so it stays inside accumulated profits even though it was never taxed.
I have no son. If I throw my self-acquired property into the family hotchpot, will its income be taxed as the income of a Hindu undivided family of myself, my wife and my daughter? No. The Supreme Court held that where property that was never joint family property is thrown into the hotchpot by a man who has no son, the income remains his own for tax. His wife and unmarried daughter are not coparceners: they had a right of maintenance out of the income before, and they have the same right and no more afterwards - neither a right by birth, nor a right to demand partition, nor any power to restrain an alienation. Since his personal law still regards him as the owner and the income as his, it is chargeable as his individual income.
I bought and sold goods by endorsing delivery orders and never handled them. Is my loss a speculation loss even though the sale was perfectly valid? Yes. The Supreme Court held that actual delivery in the definition of a speculative transaction means real as opposed to notional delivery. The wider meaning of delivery in the Sale of Goods Act, which takes in constructive or symbolic delivery, has no bearing on it. A transaction that is speculative in the ordinary sense is not caught if the commodity is actually delivered, and a transaction that is not speculative in any ordinary sense is caught if it is not. The definition does not invalidate anything; it only brands such transactions as speculative for income-tax purposes and confines the loss accordingly.
My brothers and I were gifted shares jointly and the dividends were collected together. The officer is assessing us as an association of persons. Are we one? Not on those facts alone. The Supreme Court held that an association of persons is formed only when two or more persons voluntarily combine for a common purpose of producing income, so volition is an essential ingredient. Where the income is dividends, there is no act of management, and the mere facts that shares are jointly owned and dividends jointly received do not show that the holders acted as an association. But for the two years in which the assessees had themselves returned as an association, that admission was important evidence and the assessment stood. For the later four years, in which they said they had ceased, they succeeded.
I collected sales tax from buyers and kept it in a separate account because I dispute the liability. Is that collection my income? Yes. The Supreme Court held that sales tax received by an auctioneer in its character as auctioneer forms part of its trading or business receipts, with a deduction available as and when the money is paid over to the State Government. Crediting the money to a separate sales tax collection account makes no difference: it is the true nature and quality of the receipt, and not the head under which it is entered in the books, that is decisive. If a receipt is a trading receipt, the fact that it is not shown as such in the accounts does not prevent the assessing authority from treating it as one.
A company lent money to our HUF. The shares are held in the members' names but bought with family funds. Is the loan a deemed dividend of the HUF? No, on the law as it then stood. The Supreme Court held that a Hindu undivided family cannot be a shareholder of a company; the shareholder is the person registered as such in the company's books. Since the family was not and could not be registered, a loan to it was not a loan to a shareholder, and the deemed dividend provision did not apply. The provision creates an artificial dividend out of money that has to be repaid and never becomes the borrower's income, so it must be strictly construed and shareholder means the registered shareholder, not the beneficial owner.
My company gave up its managing agency commission by a board resolution because the managed company was in losses. The resolution came after the commission fell due but before it was payable. Is it still taxable in my hands? Yes. The Supreme Court held that income accrues when it becomes due, and that postponing the date of payment bears only on the time of payment, not on accrual. Under the agency agreement the commission fell due on 31 December each year and was payable only after the managed company's accounts were adopted in general meeting. The board resolutions giving up the commission and the office allowance came after the amounts had fallen due. Since the assessee kept its books on the mercantile system and gave the amounts up unilaterally after accrual, they remained part of its total income.
I filed a return showing a loss after the due date but before any assessment was made. Can the officer refuse to determine the loss and refuse to let me carry it forward? No, on the 1922 Act. By a majority the Supreme Court held that a voluntary loss return filed at any time before the assessment is a good return which the Income-tax Officer cannot ignore, and the loss must be determined and carried forward. Section 22(1) is to be read with section 22(3), which is in effect a proviso to it, so a return filed within the time in section 22(3) is filed within the time prescribed and the condition in section 22(2A) is satisfied. Shah, J dissented, holding that reading it that way makes section 22(2A) otiose.
A court receiver is running the dissolved firm's business and paying each of us a monthly sum. The department wants to tax the profits as an AOP. Can it, when we are fighting each other? Yes, on these facts. The receivers themselves are not an association of persons — they are representatives — but the persons they represent were held to be an AOP, because the control and management of the business was unified, the profits were earned on behalf of persons having a common interest created by the court's order, and all of them took the monthly payments. Liability to tax depends on the earning of profits by a unit, not on how the profits are ultimately divided.
I gifted money to my children, who put it into a firm and were admitted to the benefits of partnership. Is their share income clubbed with mine as arising from the gift? No, on the provision then in force. The Supreme Court held that a clubbing provision creates an artificial income and must be strictly construed. Before income can be brought within it, the income must be proved to have arisen directly or indirectly from the transfer of assets made by the assessee, and the connection between the transfer and the income must be proximate: the income must arise as a result of the transfer, not merely be connected with it in some manner. Here the minors' income arose from their admission to the benefits of the partnership, so the connection with the gift was remote.
The officer rejected my books without giving reasons and added half my interest receipts as concealed income for five years. Can he do that? No. The Supreme Court upheld the Calcutta High Court and held the additions bad. The officer gave no reason for rejecting the accounts. On appeal only two small errors were found, both in the first year, and nothing at all was found wrong with the accounts of the other four years. Adding half the gross interest receipts of each year as escaped income was, in the Court's words, arbitrary and the method highly capricious. Two insignificant mistakes in one year gave no basis for rejecting the books of the remaining years, and the Tribunal had simply adopted the first appellate authority's findings without examining the facts.
The officer rejected my books and then simply picked a figure, and the appellate authority enhanced it without saying why. Can an estimate be made like that? No. The Supreme Court dismissed the State's appeals and upheld the Orissa High Court, which had set aside an enhancement made in a best judgment assessment. The Assistant Collector had found the assessee's material unreliable and had then enhanced the income without giving any reason and without disclosing the basis of the enhancement. The Court held that unreliability of the assessee's material does not empower the authorities to make an arbitrary order. The power to assess to the best of judgment is not an arbitrary power; the assessment must be based on some relevant material. The Tribunal had erred in affirming it without reasons.
My father died and I am now the only male member of our family, with my mother and unmarried sisters. Must the family income be assessed on me as an individual? No. The Supreme Court held that the income continued to be assessable in the status of a Hindu undivided family. What section 3 of the 1922 Act makes an assessable entity is a Hindu undivided family, not a coparcenary, and a joint family may consist of a single male member together with widows and other female members of deceased coparceners. Property of a joint family does not cease to belong to the family merely because it is represented for the time being by a single coparcener. The property here had belonged to the family in the father's lifetime and continued to do so.
In the loss year the officer recorded that the loss could not be carried forward, and we did not appeal. The officer of the set-off year now says that finding is final against us. Is it? No. The Supreme Court held that whether a loss may be carried forward to the following year and set off is to be determined by the Income-tax Officer dealing with the assessment of that subsequent year, and that a decision recorded in the loss year — under s.24(3) of the 1922 Act, the provision now corresponding to s.157 — that the loss cannot be set off is not binding on the assessee. Failure to appeal the loss year order therefore does not forfeit the claim.
I have a brought-forward business loss and brought-forward unabsorbed depreciation in the same year. Which one does the officer have to use first, and does it matter? The brought-forward business loss goes first; the unabsorbed depreciation is taken after it. The Supreme Court held the Legislature deliberately gave a preference to the deduction of losses first, because a carried-forward loss can only be used within a limited number of years while unabsorbed depreciation carries forward without that limit — set the depreciation off first and the loss simply expires unused.
I gave up one of several agencies and was paid compensation. Is that a taxable trading receipt because agency work is my business? Not on these facts. The Supreme Court held the payment was compensation for the loss of a capital asset. The test it laid down is this: where compensation is paid for the cancellation of a contract which does not affect the trading structure of the business, does not deprive the recipient of what in substance is his source of income, and where termination is a normal incident of the business leaving him free to carry on his trade, the receipt is revenue. Where the cancellation impairs the trading structure or costs him the source of his income, the compensation is normally capital. It mattered little that other agencies continued.
My principal cancelled one of my many agencies and paid me compensation worked out on the commission I would have earned. Is that a capital receipt? No, on these facts. The Supreme Court held the compensation was income. The company held agencies in a great many lines - paints, petroleum, cement, timber, metals, tea, engineering goods and much else - so acquiring agencies was a normal incident of its business and losing one did not impair its trading structure or cost it an enduring asset. The agency was terminable at will, the company had two years' notice, and the compensation was computed as a proportion of the commission on sales in its former territory. It merely lost a trading avenue and was free to carry on the rest of its business.
I gave up one of my managing agencies and was paid compensation for it - is that a taxable revenue receipt? It depends on what was given up, and here the answer was no. The Supreme Court held that the Rs 3,50,000 received for relinquishing the managing agency of Fort William Jute Co was a capital receipt. The test: where compensation is paid for cancelling a contract that does not affect the trading structure, does not deprive the recipient of what is in substance his source of income, and where termination is a normal incident of the business, the receipt is revenue; where the cancellation impairs the trading structure or costs the assessee the source of his income, it is capital. That the assessee held five other agencies made no difference.
I transferred shares to my fiancee a week before we married. Will the dividends on those shares be clubbed with my income? No. The Supreme Court held that the clubbing provision applies only to assets transferred to the wife by the husband, and on the date of the transfer the parties were not husband and wife. The transfer deed contained no words of postponement and took effect at once. Whether it is treated as made in consideration of a promise to marry, or as a gift subject to the subsequent condition of marriage, it operated from the date it was made, when the transferee was still Mrs Knight. The words wife and husband must be given their natural meaning, which imports a marital relationship, and do not include a prospective spouse.
My father died and, years later, his firm's old fees kept coming in to us. Can the department tax those receipts as his income in our hands? No, on the law as it then stood. The Supreme Court held that the provision making a legal representative liable for a deceased person's tax extends the deceased's legal personality only for the previous year in which he died. Income received by his heirs after the end of that previous year is not income received by him and cannot be assessed in their hands under that provision. Amarchand died on 7 July 1949; realisations of the firm's old outstandings received in the five assessment years 1950-51 to 1954-55 were therefore not taxable as his income. A legal fiction is limited to the purpose for which it was created.
I credited commission in my books at the contracted rate but agreed during the year to take a lower rate. Am I taxed on the higher figure? No, on these facts. The Supreme Court held that where the agreement itself is altered during the previous year so that the income which accrued and was received is the smaller amount, the larger figure never resulted as income at all, and a book entry cannot make it taxable. Income-tax is a levy on income; the Act fixes two points of time, accrual and receipt, but the substance is the income. The Court distinguished income actually received and later given up, which may still be taxed, from income that never resulted.
I held shares as an investment for years and then started dealing in them. When I sell, is my profit measured from what I originally paid or from the market value on the day I began trading? From the market value on the day the trading began. A seven-judge bench of the Supreme Court held, by six to one, that where an investor converts shares into stock-in-trade and then sells them in the course of business, the profits must be computed on ordinary commercial principles: the difference between what the article cost the business and what it fetched on sale. What the shares cost this business was their market value on 1 April 1945, the day the trading activity started. There is no notional sale involved; the sale that produced the profit was a real one, and the only question was how to measure it.
My company acquired mining leases, developed the land and sub-let it for a premium. Is the premium a capital receipt or business profit? Business profit, on these facts. The Supreme Court held that the company, formed to acquire coal-mining rights and to turn them to account, was carrying on business when it took head leases at a salami of Rs 40 a bigha, developed the fields and granted sub-leases at Rs 400 a bigha. The excess was profit of that business, not appreciation of capital. The Court said ownership and letting may be done as part of a business or as a landowner, and which it is depends on the object with which the act is done. Assessable under the business head.
I assigned the dividends on my shares to my wife for her life but kept the shares. Is that dividend still my income? Yes. The Supreme Court held that the deed of 19 January 1953 was not a transfer of any existing property. The assessee kept the shares and so kept the right to participate in the company's profits; what he made was a contract to make over to his wife, during her life, every dividend that might in future be declared on those shares. The company could pay only the registered shareholder or on his orders, so the income continued to accrue to him and was afterwards paid over under the contract. That is an application of income after it accrues, not a diversion before it accrues.
A decree makes me pay maintenance out of my income every month. Can I deduct it before I am taxed? No, not on these facts. The test is where the obligation bites. If it fastens on the source, so that the amount never reaches the assessee as his income, that is diversion and the amount is not his to be taxed. If it fastens on income he has already earned, it is only an application of his own income, and paying it does not reduce what he is taxed on. A consent decree for maintenance that created no charge on any property fell on the second side of the line.
Several of us inherited property jointly and receive the dividends and interest together. Can the department assess us as an association of persons? No, not on mere joint receipt. The Supreme Court held that an association of persons under section 3 of the 1922 Act means two or more persons who join in a common purpose or common action, and because the words appear in a charging section, the object of the association must be to produce income, profits or gains. It must be a combination formed for the promotion of a joint enterprise. Three co-widows who inherited an estate as joint tenants, did not divide it, and simply received dividends and interest jointly were held not to be an association: they had done no act which helped to produce the income.
Our karta is managing director of a company floated with family money. Is his remuneration his own income or the family's? The family's, on these facts. The Supreme Court held that as against the company the managing director is the individual appointed, and the company has nothing to do with his family. But as between him and his family the question is whether the remuneration was earned with the help of joint family assets. Here the family funds acquired the business, floated the company and financed it at every stage, the karta put in nothing of his own, and the articles named him as first managing director. Acquisition, floatation and appointment were inseparably linked, so the whole of Rs 61,282 was assessable in the family's hands.
I collect a refundable deposit from customers on top of the price, and I keep whatever is not claimed back. Is that deposit taxable as a trading receipt when I collect it? Yes, on these facts. The Supreme Court held that sums the distiller collected from wholesalers as an 'empty bottles return security deposit', over and above the government-fixed price of the bottles, were trading receipts assessable under section 10 of the 1922 Act (now section 28). They were an integral part of each sale transaction and in substance an extra price for the bottles. They could not be security deposits because the wholesaler was under no obligation to return the bottles, so there was nothing to secure. The book entry in a separate ledger did not change their character.
I sold my managing agency part-way through the year. Is the year's commission split between me and the buyer, so that I am taxed on the months I actually worked? No. By a majority the Supreme Court answered the referred question — whether the managing agency commission was liable to be apportioned between the assignor and the assignee — in the negative. Under clause 2(d) of the agreements the commission was due yearly on 31 March and payable only after the shareholders passed the annual accounts, so the contract of service was entire and indivisible and nothing was payable for a broken period. Since no income had accrued to the Sassoons when they transferred the agencies, there was nothing to apportion. Jagannadhadas J dissented.
My closing stock is worth more than it cost me. Does the rise in value get taxed, and does it matter that the goods were lying outside the place where I trade? No to the first and no to the second. The Supreme Court held that valuing closing stock is only a step in working out the year's trading result, not a source of profit, so no 'notional profit' arises from the valuation and appreciation in unsold stock is not brought to charge — the rule is cost or market price, whichever is lower. But the Court also held that the source of business profits is the business and they accrue where the business is carried on. The silver lying at Bikaner was still the Calcutta firm's unsold stock, so the whole profit accrued at Calcutta and the exemption failed. The appeal was dismissed.
I took silver and shares out of my own business and settled them on trusts. Must I credit the business with their market value on the day I took them out? No, on these facts. By a majority of four to one the Supreme Court held that the withdrawal was not a business transaction: the business made no profit, sustained no loss and the assessee derived no income from it. He was entitled to enter the assets at cost, so that the opening and closing entries cancelled out. The Court refused to separate a business from its sole owner and to introduce, by a fictional sale, a profit that did not exist. It also rejected the argument that the State was deprived of a potential profit, because each year is a self-contained accounting period and only income of that year can be taxed. Bhagwati J dissented.
Partners have come and gone over the years and a fresh deed was drawn up. Is my firm still the same assessable unit, or has a new firm come into existence? The same unit. The Supreme Court held that under the Income-tax Act a firm is a distinct assessable entity, separate from the partners who are themselves separately assessable, and that a mere change in the personnel of the partners is not a succession and does not bring a new assessable unit into existence. The business of tea broking had gone on in the same name, at the same place, from before 1918 until the limited company took it over in 1947, with no cesser and no division of assets. The reconstitution in 1945 did not make it a different unit, so the relief for a business charged under the 1918 Act was rightly allowed.
Is a notice under s.143(2) a jurisdictional precondition, or merely a procedural step the Assessing Officer can skip? The Revenue argued that in a block assessment under Chapter XIV-B the words 'so far as may be' in s.158BC(b) made the s.143(2) notice optional. The Supreme Court rejected this and held that where the Assessing Officer repudiates the return and proceeds to enquire, the s.143(2) notice must be issued within the prescribed time. Omission to issue it is not a curable procedural irregularity.
Has the Supreme Court settled whether the s.144C nine-month DRP process runs over and above the s.153 limitation? A two-judge bench heard the Revenue's appeals against the Bombay High Court in Shelf Drilling and delivered a split verdict. One judge held the s.144C timelines operate independently of s.153(3); the other held the whole s.144C procedure must finish within the s.153(3) period. The matter was referred to the Chief Justice of India for an appropriate bench, so there is no binding ratio.
Can the Assessing Officer estimate income on departmental material the assessee has never been shown? The officer estimated gross profit by comparing the assessee with other mills, without disclosing the comparative data or letting the assessee lead rebuttal evidence. The Supreme Court set the assessment aside, holding that an estimate cannot rest on pure guess and that the material relied on must be disclosed to the assessee. It is the foundational Indian authority on natural justice at the assessment stage.
Once the books are rightly rejected, how much guesswork is the Assessing Officer allowed in a best judgment assessment? The assessee's books were rejected for defects including the absence of a stock register and the income was estimated. The Supreme Court upheld the rejection and confirmed that some guesswork is inevitable in a best judgment assessment, but the estimate must be honest and must bear a reasonable nexus to the available material and the circumstances of the case.
What are the outer limits on a 'best of judgment' estimate, and can suppression found in one place be projected onto another? A suppression detected in the head office accounts was mechanically applied to estimate turnover of the branch. The Supreme Court held that the words 'best of his judgment' import limits: the estimate must be a judicial exercise, and although guesswork is involved it must not be a wild one and must have a reasonable nexus to the available material. It is the source of the 'guess but not a wild guess' formulation used throughout income-tax practice.
The Commissioner rejected my Form 10-IC condonation application as time-barred under Circular 17/2024, counting from the date of my application and ignoring that I had actually filed the Form years earlier. Is that right? No. The Rajasthan High Court set aside the rejection, holding that it was legally unsustainable because it conflated the date of filing of Form 10-IC with the date of the formal condonation application. The Form having been filed on 30 January 2023, within three years of the end of AY 2020-21, and the s.115BAA option having been unambiguously exercised in the return itself, the delay was condoned and the matter remanded with a direction that the authority not consider delay or limitation again.
I never filed Form 10-IC for AY 2020-21 and only applied for condonation in January 2025. The Commissioner says I am out of time. Is he right? Yes. The Delhi High Court dismissed the writ petition because para 5 of CBDT Circular No. 17/2024 bars any application for condonation of delay in filing Form 10-IC or Form 10-ID made more than three years from the end of the assessment year, which for AY 2020-21 meant 31 March 2024. The application having been made on 20 January 2025, it was not maintainable however good the explanation for the original delay.
The DRP issued its directions years ago and the Assessing Officer has still not passed a final assessment order. Is the assessment now dead, or can he pass one whenever he likes? It is dead. Section 144C(13) requires the Assessing Officer, on receipt of the DRP's directions under s.144C(5), to complete the assessment in conformity with them within one month from the end of the month in which the directions are received, and he need not give any further hearing. Where that month passed — here even after the extension of the outer date under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020 — and no order was passed, the Bombay High Court held the assessment barred by limitation and quashed the pending proceedings on the assessee's writ petition.
My start-up's Inter-Ministerial Board certificate for s.80-IAC was refused, so I switched to s.115BAA and filed Form 10-IC 53 days late for AY 2022-23. There is no blanket circular for that year. Can the delay be condoned? Yes. The Gujarat High Court quashed the rejection under s.119(2)(b) and directed the competent authority to accept Form 10-IC for AY 2022-23. Where the assessee was otherwise eligible for s.115BAA, refusing to condone a 53-day delay produced a tax liability of Rs. 50,72,890 at the normal rate, and that financial consequence is itself the genuine hardship s.119(2)(b) is designed to relieve.
CPC made a section 143(1)(a) adjustment without first putting the proposed adjustment to me. The department says my reply could not have changed anything. Does that save the intimation? No. The Bombay High Court held that the first proviso to section 143(1)(a) is mandatory, so no intimation making an adjustment to the return can be passed unless the proposed adjustment is first intimated to the assessee and he is given a chance to respond. The Court rejected the department's argument that giving the intimation would have been an exercise in futility, pointing out that the assessee could, for example, have obtained an order condoning the delay in filing Form 10-IC. The intimation of 1 December 2025 was quashed and set aside, and the department was left free to issue the notice, consider the response and pass a fresh intimation.
The portal would not accept Form 10-IC for FY 2019-20 before the Circular 6/2022 cut-off of 30 June 2022, and I filed it physically eleven days late. Is the s.115BAA benefit lost? No. The Bombay High Court quashed the rejection under s.119(2)(b) and condoned the delay where the assessee had selected s.115BAA in the return, had saved a draft Form 10-IC on the portal before the cut-off but could not submit it because the Financial Year 2019-20 option was not available, and filed a physical Form with the Jurisdictional Assessing Officer eleven days after the extended date.
My client's return has been picked up for scrutiny and he now wants to put things right by filing an updated return. Can he still do it? No. The Telangana High Court held that clause (b) of the third proviso to s.139(8A) means what it says: no updated return may be furnished for an assessment year where any proceeding for assessment, reassessment, recomputation or revision is pending or has been completed for that year in the assessee's case. The petitioner's case had been selected for scrutiny under CASS by a notice under s.143(2), so the Assessing Officer was right to reject his request to file an updated return, and the writ petition against the assessment order was dismissed with liberty to pursue the appeal.
My client took over a company through an IBC resolution plan. The assessing officer has begun assessments for years before the takeover and says he will examine whether the brought forward losses survive the change in shareholding. Can he? On these facts, no. Where the resolution professional gave the jurisdictional Principal Commissioner the opportunity of being heard that s.79(2)(c) requires and the Principal Commissioner made no submissions before or at the approval of the resolution plan, the Bombay High Court held that the Revenue could not afterwards reopen the allowability of the carried forward losses, and quashed assessment proceedings relating to a period before the plan's implementation date.
The company advanced money to me against pending job-work orders and I repaid the whole of it within two months, in the same year. The Assessing Officer has still treated it as deemed dividend. I have a running account with the company and I am relying on Circular 19/2017 — is that enough? No. The Bombay High Court held that a trade advance escapes s.2(22)(e) only if the money is actually applied to the business transaction it was said to be for; the stated purpose is not the test, the actual utilisation is. Neither the existence of a running account nor repayment within the same financial year makes any difference.
I opted for the 22 per cent rate in my return but missed filing Form 10-IC by the due date. The Commissioner refused to condone the delay. Can the High Court help? Yes. The Allahabad High Court quashed the Principal Commissioner's order refusing condonation under section 119(2)(b) and directed him to condone the delay, accept Form 10-IC for assessment year 2020-21 and recompute the tax liability under section 115BAA. Filing Form 10-IC before the return is not mandatory; where genuine hardship is shown the delay may be condoned, and section 119(2)(b) is to be read as beneficial legislation. The Commissioner had taken an excessively strict view, ignored his own Assessing Officer's favourable report, and exercised his discretion arbitrarily.
I filed my return in time and ticked s.115BAA in the ITR-6, but Form 10-IC went in late and the CPC has already processed the return and raised a demand. Can the delay still be condoned? Yes, for AY 2021-22, if the three conditions in CBDT Circular No. 19/2023 dated 23 October 2023 are met. The Bombay High Court held that the Circular imposes no fourth condition — neither the fact that the return was already processed under s.143(1) and a demand raised, nor the fact that the shortfall was detected by the Assessing Officer rather than volunteered, takes the case outside it.
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.
We could not reach 50 per cent of the amalgamating company's installed capacity within four years. Will the Central Government relax Rule 9C if we show we genuinely tried? Not as a matter of course. The Delhi High Court held that the proviso to Rule 9C(a) is an exception, that the power to relax is not to be exercised liberally but only in exceptional cases and only to the extent necessary, and that the guiding purpose is the revival of the amalgamating company's industrial undertaking. Rejection was upheld where the threshold had still not been reached even within the extended period the applicant itself had asked for.
We supply telecom equipment with embedded software to Indian operators through our Indian subsidiary. Is the subsidiary our permanent establishment, and is the software royalty? No on both counts, on these facts. A wholly-owned Indian subsidiary is a separate legal entity that contracts in its own name, and without proof that a place was at the disposal of the foreign company it is not a fixed place permanent establishment; a liaison office doing advertising and similar work falls within the preparatory and auxiliary exclusion. Software supplied as an integral part of the equipment is part of the sale of goods and not a licence, so the consideration is not royalty, and offshore supply completed outside India produces no Indian income.
No s.143(2) notice was ever issued. Does s.292BB save the assessment because you took part? No. Failure to issue a s.143(2) notice is a fatal procedural defect. Section 292BB deals with an assessee who participated being precluded from objecting to service — it cannot cure the non-issuance of the notice itself.
The department is now citing Mahagun Realtors to say an assessment on the amalgamating company is curable. Has the Supreme Court moved away from Maruti Suzuki? On the Delhi High Court's considered view in this batch, no. Mahagun Realtors turned on the conduct of that assessee — who suppressed the amalgamation at search, filed a return in the amalgamating company's name recording 'not applicable' against business reorganisation, and litigated throughout in that name — and did not dilute or strike a discordant chord with Maruti Suzuki. Where the successor did tell the department of the merger and the notice or order still went out in the dead company's name, the defect remains fatal.
The AO invoked GAAR even though a specific anti-avoidance section covers my transaction. Can he do that? Yes, on this ruling. Chapter X-A is not shut out because a specific anti-avoidance rule occupies part of the field: s.95(1) opens with a non-obstante clause, which displaces the usual presumption that the special provision excludes the general one, so GAAR can supersede a SAAR. The Court also refused to interfere at the initiation stage because s.144BA gives the assessee a reference to the Principal Commissioner and the Approving Panel.
Our Indian branch earned interest on balances kept with the head office and overseas branches. Is that taxable in India? No, on the years before the 2015 amendment. A branch is not a separate legal personality, and one cannot make a profit out of oneself, so interest received by the Indian permanent establishment from its own head office or overseas branches is not chargeable to tax in India. The Explanation to s.9(1)(v), which deems a banking permanent establishment to be a separate and independent person, took effect only from 1 April 2016 and had no application.
ICDS II forced my client off LIFO in AY 2017-18 and the whole switching difference has been taxed in that one year. Is there any answer? Yes, and the Kerala High Court has given it. It quashed the notices and directed the department either to accept the LIFO valuation of both opening and closing stock for AY 2017-18, or to permit the assessees to value their stocks by applying FIFO or weighted average cost — in other words, the same method must be applied to both ends of the year. What the court did not do is strike down the substituted s.145A or ICDS II.
The Assessing Officer has disallowed forty per cent of my client's purchases on an estimate, but has not rejected the books. Is that open to him? No. The Delhi High Court held that it is the settled position of law that the books of account have to be necessarily rejected before the Assessing Officer proceeds to a best judgment assessment on fulfilment of the conditions in the Act, and that any pick and choose method of rejecting certain entries while accepting others, without appropriate justification, is arbitrary. Since the additions in question had been made on an estimate basis without rejecting the books, no substantial question of law arose and the Revenue's appeals were dismissed.
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.
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.
I filed a settlement application in March 2021. Can it be rejected using the 1 February 2021 cut-off? No. The cut-off of 1 February 2021 in s.245C(5) is read down and substituted by 31 March 2021, because the Settlement Commission continued to exist both legally and factually until that date. Assessees who were eligible and who filed, or could have filed, applications up to 31 March 2021 keep the right to have them dealt with by the Interim Board, and the CBDT order of 28 September 2021 has to be read the same corrected way.
Our amalgamation was sanctioned by the NCLT after we had already filed the return, and the AO is pressing on with the assessment on that pre-merger return. Does s.170A stop him? The Delhi High Court took the prima facie view that it does. Section 170A is a non-obstante provision obliging the successor in a business reorganisation to file a modified return in the prescribed form and manner, and if the time for filing that modified return has not yet run out, the Assessing Officer cannot proceed with the assessment on the basis of a pre-merger return. The Court stayed the assessment until the end date for the modified return, and on the modified return being filed, disposed of the petition directing that the assessment proceed having regard to it.
I have always understood that under Apollo Tyres the Assessing Officer cannot touch audited accounts. He says s.115JB is wider than s.115J and that our profit and loss account was not drawn in accordance with our own stated revenue recognition policy. Is there anything in that? There is, but note at once how the point comes down: the High Court dismissed the Revenue's appeal holding that no substantial question of law arose, so the proposition below is the reasoning of the CIT(A), confirmed by the Tribunal and left undisturbed, and not the High Court's own. The Apollo Tyres bar is not absolute under s.115JB: the net profit can be altered where the profit and loss account was not drawn up in accordance with Parts II and III of Schedule VI to the Companies Act, and where the accounting policies and accounting standards were not correctly adopted for the accounts laid before the annual general meeting. On these facts the amount actually recovered had to be recognised as revenue under the company's own stated policy, and Rs.16.01 crores was rightly added to book profit — but the balance of Rs.78.1 crores, not being recovered, was not.
Can a faceless order stand if the mandatory procedure was skipped? Reported as setting aside a faceless assessment where the statutory procedure and natural justice were not followed.
You asked for time to reply to the draft order and were refused. Is the final order safe? No. The scheme requires an opportunity to respond to the modifications proposed in the draft order. Refusing time and then finalising was held wrong, and the assessment and the penalty notice were set aside.
The faceless unit finalised your assessment without issuing a draft order. Is that order good? No. Under s.144B, a show cause notice issued along with the draft assessment order is a sine qua non. Without it the final order was passed without jurisdiction and was quashed.
You asked for a personal hearing and the faceless unit ignored it. Does 'may' mean they can? No. Section 144B(7) uses 'may', but that usage cannot absolve the Revenue of the obligation to consider a request for a personal hearing. The assessment order was set aside.
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.
The TPO's order was one day late. Does that kill the transfer pricing addition? Yes. The sixty days run backwards from the s.153 limitation date, excluding that date itself, so an order passed on the sixtieth day is out of time. The requirement is mandatory, not directory, limitation goes to jurisdiction, and an order a single day late is non est along with everything built on it. That was the law when the case was decided and it remains the reasoning of the judgment, but as at 8 September 2026 the arithmetic no longer holds where the limitation date is 31 March or 31 December: s.92CA(3AA), inserted retrospectively from 1 June 2007 by the Finance Act 2026, fixes the count for those two dates and gives the officer one day more. It says nothing about a 30 September expiry, where this decision still governs.
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.
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.
My return was defective and I cured the defect ten months later. Does the s.143(2) clock run from the original filing or from the day I removed the defect? From the original filing. Where the defect is removed within the time the Assessing Officer allowed, the return relates back to the date on which it was originally furnished, and the six-month limitation for a s.143(2) notice is counted from the end of the financial year in which that original return was filed. On the facts the scrutiny notice was issued nearly a year after that period had run out and was held barred. The Revenue's special leave petition was dismissed.
The TPO has adjusted a domestic transaction that the Assessing Officer never referred to him and that I never reported in Form 3CEB. Did he have jurisdiction? On the law as it stood, no. The Bombay High Court held that s.92CA(2A) and s.92CA(2B), which let the TPO take up a transaction not referred to him and a transaction not reported under s.92E, spoke only of international transactions; specified domestic transactions were conspicuously absent. For a specified domestic transaction the TPO could therefore study only what the Assessing Officer had referred, and the adjustment of Rs 57.54 crores on the demerger creditors was quashed. CAUTION: that gap has since been closed. Both sub-sections were amended by Act No. 15 of 2024 with effect from 1 April 2025 to cover specified domestic transactions as well.
Our Indian group company only markets and supports. Can the department call it our dependent agent PE? Yes, on these facts. Where the personnel working out of the Indian premises do more than liaise — where they take part in technical and financial negotiation and in price negotiation with the customer — the Tribunal's finding of both a fixed place permanent establishment and a dependent agent permanent establishment stands. The Delhi High Court affirmed the Tribunal and dismissed the appeals.
The Assessing Officer has added our provisions for warranty, gratuity and leave encashment to book profit under clause (c) of Explanation 1 on the footing that they are unascertained liabilities. Are they? No. Clause (c) adds back only amounts set aside to provisions made for meeting liabilities other than ascertained liabilities, and a provision for warranty made on the Rotork Controls basis is an ascertained liability. Provisions for gratuity, warranty and leave encashment are not contingent or unascertained and cannot be adjusted in computing book profit under s.115JB.
My client is a firm, not a company. It paid alternate minimum tax under s.115JC when it filed its return, along with the accountant's report. The Assessing Officer has charged interest under s.234B for not paying that tax as advance tax. Can advance tax provisions apply to AMT? Yes, on this Court's view. The Rajasthan High Court dismissed the assessee's appeals, holding that having retained the amount which was supposed to be paid under s.115JC, s.234B was rightly invoked, and that no substantial question of law arose from the Tribunal's treatment of s.115JC on the same footing as s.115JA and s.115JB for the purpose of the advance-tax obligation under s.208.
The special audit direction was passed inside the limitation period but served on me afterwards. Does the section 153 exclusion run from the date of the order or from the date I received it? From the date of the order. The Delhi High Court held that the starting point of the exclusion in clause (iii) of Explanation 1 to section 153 is the date on which the Assessing Officer directs the assessee to get the accounts audited, and not the date on which the assessee receives that direction. It also held that an order under section 142(2A) is communicated for this purpose when it is sent out, so a direction signed and despatched on the last day of limitation is in time even though it reaches the assessee later. The writ petition was dismissed and the assessment proceedings were held not to have abated.
Can the CBDT use ICDS notified under s.145(2) to override a Supreme Court or High Court decision on how income is computed? No. The Delhi High Court read s.145(2) down so that the power to notify income computation and disclosure standards cannot be used to override binding judicial precedent or a provision of the Act, and struck down several ICDS provisions that did exactly that — including part of ICDS III on construction contracts and part of ICDS VI on foreign exchange. Parliament's answer was the Finance Act 2018, which put much of the struck-down material into the Act itself.
The Tribunal remanded my transfer pricing issue. The Assessing Officer has now passed a final assessment order straight off the TPO's fresh order, without any draft order. Is that good? No. Section 144C(1) requires a draft assessment order after receipt of the TPO's report, and there is nothing in its language confining that requirement to the first round; it applies equally where the TPO has acted on a remand by the Tribunal. The Delhi High Court held the resulting final assessment orders were without jurisdiction, that the defect was an incurable illegality and not a mere irregularity which s.292B could cure, and that the correct course was not to send the parties back to the draft order stage but to quash.
The Assessing Officer has added our provision for bad and doubtful debts to book profit under clause (i) of Explanation 1, relying on the retrospective 2009 amendment. We reduced the provision from sundry debtors on the asset side. Does that make a difference? It does. After the retrospective insertion of clause (i) by the Finance (No.2) Act 2009 from 1 April 2001, a provision for diminution in the value of any asset — which is what a provision for doubtful debts is — must be added back, and the earlier line based on HCL Comnet under clause (c) no longer helps. But if the assessee simultaneously obliterates the provision by reducing the corresponding amount from loans and advances or debtors on the asset side, so that the balance sheet shows those figures net of the provision, that is an actual write-off and clause (i) is not attracted.
The TPO says I control the foreign party in substance, so we are associated enterprises. Is de facto control enough under s.92A? No. s.92A(1) and s.92A(2) have to be read together. Sub-section (2) is not a list of examples of the participation described in sub-section (1) — it controls what counts as participation, so unless one of its clauses is actually satisfied, de facto or even de jure participation in the capital, management or control of the other enterprise does not make the two enterprises associated enterprises, and the transfer pricing machinery never starts.
After the Tribunal remanded my transfer pricing case, the assessing officer went straight to a final assessment order without a draft order. Is that order valid? No. The Delhi High Court set aside the final assessment orders for assessment years 2007-08 and 2008-09, the demand notices and the penalty proceedings, because the assessing officer did not first pass a draft assessment order as section 144C(1) mandatorily requires. The Court held the point was no longer res integra, following Zuari Cement, whose affirmation by the Supreme Court through dismissal of the Revenue's special leave petition it noted, along with Vijay Television, ESPN Star Sports and International Air Transport Association. It rejected the Revenue's argument that the omission was a curable defect to be remedied by a remand.
The Addl. CIT gave the AO a s.144A direction. Does that let him skip a speaking order on my objections? No. The Assessing Officer must dispose of objections to the reopening by a reasoned, speaking order before framing the assessment, and a general s.144A direction to pass an appropriate order after giving adequate opportunity does not displace that obligation. The assessment was quashed.
The Assessing Officer referred my case to the TPO in a one-paragraph letter without dealing with my objection that there was no international transaction at all. Can I attack the reference itself? Yes. The Delhi High Court held that the Assessing Officer's satisfaction, even prima facie, that there IS an international transaction or specified domestic transaction is a sine qua non for a reference under s.92CA(1); where the assessee raises a threshold objection to jurisdiction, the officer must deal with it and must give a hearing before recording his satisfaction. The three references were set aside and the officer directed to decide afresh after hearing the assessee. The Court concurred with the Bombay High Court in Vodafone India Services and declined to follow the contrary Gujarat decision in Veer Gems, noting that CBDT Instruction No. 3 of 2016 has itself adopted the Bombay position.
The Assessing Officer says my Indian subsidiary is my alter ego, so the whole turnkey contract is taxable here. Does an alter-ego finding by itself make offshore supply income taxable in India? No. The Delhi High Court held that even if the assessee were treated as an alter ego of the group, no part of the consideration for equipment manufactured and delivered outside India was chargeable in India. Clause (a) of Explanation 1 to section 9(1)(i) embodies a principle of apportionment, so only income reasonably attributable to operations carried out in India is taxable, and the equipment passed to the buyer abroad on FCA terms. There was no material that the Indian entity habitually concluded contracts for the assessee or held stock for delivery on its behalf, so the dependent agent Explanations were not satisfied. The appeals were allowed.
The TPO says my advertising and marketing spend built my foreign parent's brand and has added a mark-up. There is no agreement with the parent about it. Can he do that? No. The Delhi High Court held that before Chapter X can be used at all, the Revenue must show an international transaction exists. For advertising, marketing and promotion spend that means showing an agreement, arrangement or understanding with the associated enterprise obliging the Indian company to spend excessively to promote the foreign brand. It cannot be inferred from shareholding, from the incidental benefit to the brand owner, or from the bright line test, which Sony Ericsson had already rejected. There is no machinery provision to identify or price such a transaction. The assessee's appeals were allowed and the Revenue's dismissed.
Our holding company moved most of its shares in us to its own wholly-owned subsidiary. Do we lose our carried-forward losses under s.79? The Karnataka High Court said no on these facts. s.79 speaks of voting power, not merely of registered shareholding. Where the parent transferred shares to a company it wholly owned, the parent and that subsidiary together still controlled 51 per cent of the voting power, so the section was not attracted.
The TPO benchmarked my small captive unit against Infosys and Wipro. Can turnover be ignored? No. Turnover is obviously a relevant factor in judging comparability, because scale drives bargaining power, risk profile and margins. Companies with turnover 23 to 65 times that of the tested party were rightly excluded, and functional similarity alone does not conclude the enquiry.
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.
The TPO kept a comparable with an abnormal profit margin. Can I get it excluded just for that? No, not on the margin alone. A company that otherwise satisfies Rule 10B(2) is not excluded merely because it presents a peculiar feature such as a huge profit or a huge turnover. What the high margin does is trigger an enquiry: the officer must ask whether it flows from a comparability defect that materially affects price or profit, and if it does, attempt to eliminate the difference under Rule 10B(3) — exclusion follows only if that cannot be done.
The Assessing Officer has added the current year's profit up to the date of the advance to the opening reserves in working out 'accumulated profits' for s.2(22)(e), which is what pushes the deemed dividend up. Is there any authority against him? Yes, but it is thin and you must use it with your eyes open. The Gujarat High Court, considering Explanation 2 to s.2(22)(e), confirmed a Tribunal direction to the Assessing Officer not to include the current profit as part of accumulated profits, on the footing accepted by the Tribunal that profit accrues only when the books of account are closed. The Revenue's own argument, recorded in the judgment, was the opposite — that Explanation 2 requires the current year's profit up to the date of distribution to be taken into account.
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.
The TPO says my advertising spend is higher than comparables and has added the excess as brand building for my foreign parent. Can he do that? Not by that route. The bright line test — treating advertising, marketing and promotion spend above a comparable's level as a separate transaction of brand building for the foreign associated enterprise — has no statutory mandate, and the parameters the Special Bench laid down in L.G. Electronics do not bind either side. The Delhi High Court set the Tribunal's approach aside as based on an erroneous legal standard and sent the matters back for fresh consideration.
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.
My client's winnings from horse race betting are taxed at the special rate. Can his business loss be set off first, so that only the net is taxed under s.115BB? No, on this Madras High Court authority. Section 115BB is a standalone special provision under Chapter XII and the special rate applies to the entire income of winnings from horse racing, not to a figure arrived at after setting off losses from other sources. The Court expressly carved out income from the activity of owning and maintaining race horses, which is dealt with separately and carries its own set-off and carry forward regime in s.74A(3).
The TPO says we issued shares to our parent too cheaply. Can he tax the shortfall? No. The issue of equity to a non-resident parent is on capital account and gives rise to no income, and Chapter X is machinery for computing income at arm's length, not a charge. With no income there is nothing for the transfer pricing machinery to work on, and re-characterising the alleged shortfall as an interest-bearing loan has no statutory foundation.
We issued shares to our foreign parent at a premium the Transfer Pricing Officer says is too low. Can he tax the shortfall as income under the transfer pricing provisions? No. The Bombay High Court held that the issue of equity shares at a premium by an Indian company to its non-resident holding company is a capital account transaction that gives rise to no income, so Chapter X cannot be applied at all. Chapter X is a machinery provision for arriving at the arm's length price; the charge must be found in sections 4 and 5 and in one of the heads of income. There being no charge, express or implied, on the premium not received, the reference to the Transfer Pricing Officer, his order, the draft assessment order and the Dispute Resolution Panel's order were quashed as without jurisdiction.
A group company put a refundable interest-free security deposit with my firm under an agreement for the use of our generators. The Assessing Officer says it is a loan and has taxed it as deemed dividend. Is a security deposit a loan or advance under s.2(22)(e)? No, not where it is genuinely a deposit under a commercial arrangement. The Allahabad High Court held that the legislature made a conscious distinction between a loan and a deposit, that the two are not identical in meaning, and that a refundable interest-free security deposit given by a company to a sister concern against the use of its generators was a business transaction in the normal course of business and outside s.2(22)(e).
My assessment order just says 'interest will be charged as per rules'. It never names s.234A, s.234B or s.234C. Is that enough to levy the interest? The Allahabad High Court held it is not. The direction must be specific and clear, so that the assessee knows the Assessing Officer applied his mind and ordered interest under a particular section; a general direction to charge interest as per rules or as per law is not a specific order and no interest can be levied on it. The Court expressly considered the Supreme Court's order in Karanvir Singh Gossal and held that it does not displace this requirement.
The AO skipped the draft order and passed a final one. Can a corrigendum cure that? No. The procedure in s.144C is mandatory and the draft order is the gateway to the eligible assessee's right to go to the DRP. Once a final order is passed, with a demand notice and penalty proceedings, the AO is functus officio and a corrigendum cannot convert it into a draft; the defect is an absence of power, not a curable mistake.
Two foreign companies bid jointly for a turnkey contract and signed one contract with the customer. The department says they are an AOP. Are they? Not merely because they presented a common face to the customer. An association of persons requires a common enterprise managed through some degree of joint participation; mere co-operation in serving one's own business objective is not enough, even where the business interests are common. Where the members' scopes of work are separate, each manages its own deliverables, and neither costs nor risks are shared, there is no AOP.
My client's books were rejected because the gross profit rate fell. Is a fall in gross profit by itself enough? By itself, no — and that is exactly what the assessee argued here. But the Punjab and Haryana High Court dismissed his appeal because the rejection did not rest on the fall in gross profit alone: the Assessing Officer had compared two years and found that the paddy milled was almost equal and sales had risen by 29 per cent while manufacturing expenses had risen by 45.93 per cent, which on the officer's finding showed that the assessee had either inflated the expenses or depressed the sales. The court held that the judgments the assessee relied on turned on their own facts, that no substantial question of law arose, and dismissed the appeal.
I run a captive sourcing arm paid cost plus 5 per cent. The TPO has ignored my cost base and applied a mark-up to the FOB value of the goods my group company sources through me. Can he do that? No. The Delhi High Court held that broad-basing the profit determining denominator to the entire free-on-board value of contracts entered into by the associated enterprise is contrary to the Act and the Rules. The exercise finds no mention in either. The Transfer Pricing Officer had not disturbed the comparables or the method, and had shown neither how the Indian company bore significant risk nor what locational advantage the associated enterprise enjoyed. Findings of "significant risk" and "functional risk" cannot rest on vague generalities. The addition of Rs.57.65 crore was deleted and the Tribunal's order set aside.
The Transfer Pricing Officer has put Infosys into my comparables. I am a small captive software unit working only for my parent - can I get it thrown out? Yes. The Delhi High Court upheld the Tribunal's exclusion of Infosys Technologies Ltd from the comparable set of a captive software developer. Infosys was a giant with Rs.9,028 crore of revenue against the assessee's Rs.16.09 crore, it bore full entrepreneurial risk, owned branded products, spent heavily on advertising and research, and delivered half its work onsite. The assessee was a risk-free captive doing only offshore contract development for its parent. With Infosys and Satyam out, the one surviving comparable gave 11.11%, below the assessee's own 17% margin. No substantial question of law arose and the Revenue's appeal was dismissed.
The Assessing Officer has directed a special audit under s.142(2A) reciting that my accounts are voluminous and need detailed verification. Is that enough? No — not on that reasoning. Section 142(2A) is not a provision by which the Assessing Officer delegates to a chartered accountant the scrutiny and verification he is himself required to do. The reasons recorded must be genuine and must have a nexus with the statutory requirements, and where the officer lifted the assessee's own notes of accounts verbatim as his reasons, that disclosed non-application of mind and the directions were quashed for every year. Note the amendment: for the years before this Court (AY 2003-04 to 2009-10) the section spoke only of the nature and complexity of the accounts and the interests of the revenue, and the holding that a large number of entries is not by itself complexity is a construction of that text. The section as it now stands, substituted by the Finance Act 2023 with effect from 1 April 2023, lists volume of the accounts as an independent trigger.
My client has unabsorbed depreciation from the late 1990s that the officer says died after eight years. Can it still be carried forward? Yes, if it was still unabsorbed on 1 April 2002. The Gujarat High Court held that unabsorbed depreciation available to an assessee on that date is governed by s.32(2) as substituted by the Finance Act, 2001, which carries no eight-year cap, and not by the eight-year regime introduced by the Finance (No. 2) Act, 1996 — so depreciation unabsorbed for assessment years 1997-98 to 2001-02 carries forward until it is set off.
We paid for technical services but learnt nothing from them. Is it still fees for technical services? No, where the treaty carries a make available condition. The service must be aimed at and result in transmitting the technical knowledge, skill or process, so that it stays with the recipient after the contract ends and can be used independently. Delivering the fruit of the expertise, here survey data and maps, is not enough.
My foreign company sells to Indian customers through its Indian subsidiary, which I pay on a cost-plus basis. If that subsidiary is treated as my permanent establishment, is the cost-plus fee the end of it? No. The Delhi High Court held that where the Indian subsidiary is the permanent establishment and carries on the core marketing, negotiating and selling functions, an arm's length cost-plus remuneration to it does not exhaust the tax. Profits of the foreign enterprise attributable to the Indian operations remain chargeable, and the Court upheld the Tribunal's functional apportionment of global profit - 50 per cent to manufacturing, 15 per cent to research and development, and the balance 35 per cent to marketing carried out in India. Both the assessee's appeals and the Revenue's appeals were dismissed.
The assessment order is in the name of a company that had already amalgamated and ceased to exist. The department says s.292B cures it because we participated. Is the order void? It is void. Framing an assessment against a non-existing entity goes to the root of the matter: it is a jurisdictional defect, not a procedural irregularity, and s.292B cannot cure it. Participation by the amalgamated company makes no difference, because there is no estoppel against law.
I applied under s.144A and the Additional Commissioner directed the Assessing Officer in my favour. Two years later the department has issued a s.148 notice on exactly the same point. Can it do that? No. A direction issued under s.144A binds the Assessing Officer, and once the assessment has been framed in accordance with it the department cannot reopen the same issue on the same facts under s.147/148 — that is a mere change of opinion. If the department thought the s.144A direction was prejudicial to the revenue its remedy was s.263; not having taken it, the direction became final.
The return was filed late, so the officer has refused to carry forward everything — including unabsorbed depreciation. Is depreciation really caught by the late return bar? No. The Delhi High Court held that s.80 and s.139(3) apply to business losses and not to unabsorbed depreciation, which is governed exclusively by s.32(2). There is accordingly no obligation to file the return within the prescribed time in order to carry forward depreciation.
The Assessing Officer has rectified my old s.143(1)(a) intimation under s.154 after already completing a s.143(3) assessment. Can he do that? No. Once a notice under section 143(2) has gone out and a regular assessment has been made under section 143(3), the earlier intimation under section 143(1)(a) merges into that assessment and no longer stands as an order of its own. There is then nothing left for section 154 to rectify. The Madras High Court set aside a rectification made in December 1998 on an intimation of 7 March 1994, which had charged additional tax of Rs 4,70,346 more than three years after the scrutiny assessment of 22 November 1995 was over, and set aside the revisional order that had confirmed it. The rectification was held to be wholly without jurisdiction.
Money came into our company's account from another company with a common shareholder. Can the deemed dividend be taxed on us? No. A deemed dividend under s.2(22)(e) is still a dividend, and a dividend is taxed in the hands of the shareholder. A company that is not a shareholder of the paying company cannot be assessed on it. The Court also upheld, as a finding of fact, that money misappropriated by an employee and never entered in the books was not a loan or advance at all.
The remittance to my foreign parent bore no tax. Can s.40(a)(i) still hit me for non-deduction? No. Section 195(1) fastens the duty to deduct on a sum chargeable under the Act, so chargeability is a jurisdictional condition and not a question of quantum. Where the authorities have found in the non-resident's own assessment that no tax is payable, there is nothing to deduct and no disallowance can follow.
Our firm was a registered firm before 1993. Must we still produce a certified copy of the deed to be assessed as a firm? Yes. The Kerala High Court held that even a firm which enjoyed registration up to assessment year 1992-93 must furnish a certified copy of the instrument of partnership to be assessed as a firm for any year from 1993-94 onwards, and that the consequence of non-production is disallowance under s.185 of interest, remuneration and bonus paid to partners. Once the status is granted on that footing, s.184(3) carries it forward without further production until there is a change in constitution, when s.184(4) requires the revised instrument with the return. On the facts the Court gave a limited concession, remitting the matter for verification and directing that status as a firm be granted as a special case if the certified copy had in fact been produced when the assessment was taken up.
The company advanced money to me against goods I was to supply. Is that a 'loan or advance' under s.2(22)(e)? No. The word 'advance' in s.2(22)(e) takes its colour from the word 'loan' next to it, so it means an advance carrying an obligation of repayment. Money moved to give effect to a genuine commercial transaction — a trade advance — is outside the clause.
The officer completed a best judgment assessment under s.144 because I did not attend in answer to the s.143(2) notice. Was he required to give me a separate show cause notice first? Yes. The proviso to s.144(1) requires that the opportunity of being heard be given by serving a notice calling on the assessee to show cause, on a date and time specified, why the assessment should not be completed to the best of the officer's judgment. Where the record showed no notice other than the s.143(2) notice had been issued, the Allahabad High Court held that no notice under the proviso had been issued, set aside the Commissioner's order refusing relief under s.264 and directed him to pass a fresh order in accordance with law.
The Assessing Officer has issued a section 154 notice to rectify my section 143(1)(a) intimation after a scrutiny notice under section 143(2) was already served. Can he do that? No. The Calcutta High Court quashed the section 154 notices. Once a notice under section 143(2) has been issued the department cannot fall back on the summary procedure of section 143(1)(a), and rectifying the intimation is only another way of activating that procedure, so it is equally impermissible. The Court added a second and independent reason: where a regular assessment under section 143(3) has been completed on the same item, the order under section 143(1)(a) ceases to be operative and merges in the final order, so there is nothing left to rectify. The notices for the four years before the Court were quashed.
I paid the whole tax before the due date but filed the return eleven months late. The Assessing Officer has still charged interest under s.234A. Can he? No, not on tax already in the Revenue's hands before the due date. The Delhi High Court held that s.234A creates a compensatory levy, not a penalty, so where the tax was deposited before the due date of filing the return the Revenue has suffered no loss and no interest under s.234A is payable; interest runs only on tax not deposited before that date.
I filed my return on time and paid the self-assessment tax; the officer then added a disputed item in a best-judgment assessment and charged s.234A interest because I did not comply with a s.142(1) notice. Is that right? The Patna High Court said no. Where the return was filed within time with proof of payment, the mere issue of a s.142(1) notice calling for accounts or information does not attract s.234A, because the s.142(1) notice that s.234A speaks of is the notice to FURNISH A RETURN issued to a person who has not filed one — not the notice under clauses (ii) and (iii) calling for accounts or particulars.
The officer rejected my books and made a best-judgment assessment because I kept no stock register. Is that enough on its own to reject? Not on its own — but it does not have to be. The absence of a stock register or cash memos may not by itself show that the accounts are false or incomplete; where it is coupled with unverifiable purchases and sales, missing vouchers for expenses and an implausibly low profit, the officer is justified in rejecting the books and assessing to the best of his judgment.
The department adjusted my return under section 143(1)(a) simply because I did not attach proof of my claims. Can it do that? No. The Delhi High Court held that an adjustment under the first proviso to section 143(1)(a) can be made only where the claim is prima facie inadmissible on the information available in the return, the accounts or the accompanying documents. The conclusion must flow from the return as filed. No power is given to disallow a claim merely because proof has not been furnished. If the officer wants proof he must ask for it, which means issuing a notice under section 143(2). The intimation was quashed.
A different Assessing Officer finished my assessment from where the last one left off, without offering me a rehearing. Does s.129 give me a right he was bound to offer? The right under the proviso to s.129 is a right to demand — the successor officer may continue the proceeding from the stage at which his predecessor left it, and where no demand for reopening or rehearing is made he is not obliged to wait. The practical consequence runs the other way too: because the extension of limitation is tied to that demand, an officer who was never asked for a rehearing cannot claim the time he spent waiting.
I pay my husband a salary in my business. Can the AO club it because he has no degree? Not on the degree point alone. A 'technical or professional qualification' in the proviso to s.64(1)(ii) does not have to be a degree, diploma or certificate from a recognised body; expertise in the profession or technique is enough, because the second limb of the proviso speaks of knowledge and experience rather than qualifications. But the proviso has two limbs and this assessee lost on the second: the Tribunal had found no evidence that the salary was solely attributable to the application of that knowledge and experience, and that finding of fact was not open to challenge. The reference was answered in favour of the revenue.
What must an approval under s.153D actually show on its face, and does last-minute bulk approval survive? Draft search assessments were sent to the Additional CIT two days before limitation expired and approval issued with nothing to show the drafts had been read. The Orissa High Court held that while elaborate reasons are not required, there must be some indication that the approving authority examined the draft orders and found they met the requirements of law. The assessments were held invalid, and the Supreme Court later dismissed the Revenue's SLP.
Are proceedings before the Dispute Resolution Panel outside the ordinary limitation for completing an assessment? A Division Bench of the Madras High Court affirmed the single judge and held that the DRP process is not unfettered by limitation: the proceedings remain circumscribed by the limits of time fixed by s.153. It is the decision the Bombay High Court followed in Shelf Drilling, and it is the High Court line the Revenue has carried to the Supreme Court.
If the assessee says its original return should be treated as the return in response to s.148, must the Assessing Officer still issue a fresh s.143(2) notice? The assessee told the Assessing Officer that its original return be treated as filed in response to the s.148 notice. The officer then completed the reassessment without issuing any notice under s.143(2). The Delhi High Court held the omission fatal and held that s.292BB cures defective service of a notice, not the failure to issue one at all.
Does a single, same-day approval covering many years and many cases satisfy s.153D, or does it vitiate the assessment? The approving authority granted one approval covering assessment years 2011-12 to 2017-18 and cleared 43 cases in a single day. The Delhi High Court held that approval under s.153D cannot be a ritualistic formality or rubber stamping and must reflect an appropriate application of mind, and upheld the Tribunal's annulment of the search assessments.
Does the DRP route under s.144C buy the Assessing Officer extra time, or must the whole assessment still finish within the s.153 limitation? Non-resident assessees argued that the overall limitation in s.153 continued to govern even where the DRP route was taken, so that a final order passed long after that date was time-barred. The Bombay High Court agreed, holding that s.153 is not excluded by s.144C and that the non obstante clause operates only to the limited extent of the one-month window for passing the final order after the Panel's directions.
If the Assessing Officer passes a final assessment order on an eligible assessee without first issuing a draft order, can s.292B save it? After a transfer pricing adjustment was proposed, the Assessing Officer passed a final order under s.143(3) without first forwarding a draft assessment order under s.144C(1). The Bombay High Court quashed the order, the demand notice and the penalty notice as void ab initio, and held that s.292B cannot confer jurisdiction that the officer never had.
My consultant filed Form 10-IEA opting me out of the new regime by mistake, but my return was computed under s.115BAC(1A). The CPC has processed me under the old regime. Can the return prevail over the form? Yes, on these facts. The Bangalore Tribunal directed the CPC to process the return for AY 2025-26 under the new regime under s.115BAC(1A) as opted in the return, holding that a bona fide procedural mistake in filing Form 10-IEA should not subject the assessee to a regime contrary to the choice clearly reflected in the return filed afterwards. It rejected the Commissioner (Appeals)' view that digital verification of the Form made it conclusive.
My company became an LLP and I told the officer, but he still issued the notice and passed the assessment in the old company's name. Is that just a clerical slip he can correct? No. The Bangalore Tribunal quashed the assessments as void ab initio. The company converted to an LLP on 27 April 2018 and the LLP wrote to the Assessing Officer on 31 May 2018 enclosing the Ministry of Corporate Affairs certificate and asking him to take the change of status on record. He nonetheless issued the section 143(2) notices and passed the orders under section 143(3) read with section 147 in the name of the company. Following Maruti Suzuki, the Tribunal held that an assessment in the name of a non-existent entity is a substantive illegality and not a defect curable under section 292B.
Was the officer who assessed you even authorised to, given the amount involved? Pecuniary jurisdiction is a real limit. Where the assessed income crossed the monetary threshold fixed for that officer, the assessment was held to be by a non-jurisdictional officer and was quashed.
On conversion to Ind AS our convertible debentures were parked under "other equity" and a note called them the equity component of a compound financial instrument. The Assessing Officer has treated the whole amount as transition amount and is adding one-fifth a year to book profit. Can he? Not if the instrument has no liability component. Ind AS 32 requires a compound financial instrument to have both a liability component and an equity component, and where the balance sheet shows the debentures as an instrument entirely equity in nature, they are not a compound financial instrument, are therefore no part of the transition amount defined in s.115JB(2C), and no one-fifth adjustment can be made.
Same point, at Tribunal level: can taking part in a reassessment cure a missing s.143(2) notice? No. Section 292BB cures defects in service of notice but does not cure the complete absence of the notice. The reassessment was quashed and a Rs 2.33 crore s.68 addition went with it.
CPC has processed our return under s.143(1), rejected the s.115BAA option because Form 10-IC was late, and raised a demand by computing book profit under s.115JB. Can it do both? No. Sub-section (5A) of s.115JB says in terms that the section shall not apply to a person who has exercised the option under s.115BAA or s.115BAB. Once the option is held good, the MAT provisions cease to apply and the tax liability must be computed under s.115BAA without invoking s.115JB — and here the option was held good because it had been accepted for three earlier years on a Form 10-IC filed in March 2021.
The officer took the TPO's adjustment straight into a final order without giving me a draft order. The department says s.292B cures it. Does it? It does not, on this line of authority. The Tribunal held that once the assessee answers the description of an 'eligible assessee' under s.144C(15)(b) and a variation prejudicial to it is proposed, s.144C(1) is mandatory, and passing the final order without first forwarding a draft is a failure of a jurisdictional condition precedent, not a procedural lapse. Section 292B cures only technical or clerical defects in proceedings otherwise validly initiated and cannot confer a jurisdiction that was never lawfully assumed. The Revenue's alternative plea for a remand to let the officer start again was also rejected: a nullity cannot be revived by remand.
I filed Form 10-ID and my first return under s.115BAB after the s.139(1) due date but within the s.139(4) time. The CPC has now denied me the 15 per cent rate in a later year. Is the option gone for good? Not on these facts. The Delhi Tribunal held that where the substantive conditions of s.115BAB are undisputedly satisfied, the failure to file Form 10-ID on or before the s.139(1) due date is a procedural lapse and is not a fatal flaw, and allowed the appeal for AY 2023-24. The Form there had been filed in the very first year, along with a first return that was belated but within the s.139(4) window.
The TPO is charging notional interest on my overdue receivables from my associated enterprise. Can I argue for a 90-day credit period by analogy to the secondary adjustment repatriation window in s.92CE and Rule 10CB? No, on this Tribunal's view. Section 92CE read with Rule 10CB operates only where a primary adjustment has been made in one of the specific situations the section lists, and the 90-day repatriation window attaches to that specific machinery; it cannot be borrowed as a general benchmark for the credit period allowable on outstanding receivables. The Tribunal instead directed the officer to adopt the credit period the TPO himself had adopted in the assessee's own case for the immediately preceding year that had reached the Tribunal.
I left my foreign ESOPs out of Schedule FA. Is the Rs 10 lakh penalty automatic? No. Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 says the officer 'may direct' a penalty, so the levy is discretionary. Where the ESOP perquisite had already suffered TDS and the capital gain on sale was offered to tax, the Tribunal treated the omission from Schedule FA as a technical breach and deleted the Rs 10 lakh penalty for each year.
The CIT(A) held my TPO order time barred because it was digitally signed a day after the date printed on it. The Revenue is now relying on a new sub-section. Where does that leave me? The Tribunal applied clause (c) of s.92CA(3AA) — then still the proposed clause 4 of the Finance Bill 2026, enacted three days after the order was pronounced — and held the TPO's order within time. The order was dated 31 October 2019 but digitally signed and issued on 1 November 2019, and the CIT(A) had annulled the transfer pricing adjustment on the footing that a 31 December 2019 assessment deadline required the TPO's order by 31 October. Because s.92CA(3AA)(c) deems that where limitation expires on 31 December the order may be made up to 1 November, the Tribunal allowed the Revenue's grounds on limitation and remanded the merits of the adjustment to the CIT(A), who had never decided them.
Can the Tribunal itself give me the s.115BAA rate where Form 10-IC was late, or must I go to the Commissioner under s.119(2)(b)? The Mumbai Tribunal held that where the option was clearly exercised in the return itself and the tax computed accordingly, the substantive requirement of s.115BAA(5) is satisfied and the later filing of Form 10-IC is procedural, so the time limit for the Form is directory. It condoned a delay of about 45 days and directed the Assessing Officer to accept the option and recompute the tax at the concessional rate, without sending the assessee to the Commissioner.
We converged to Ind AS in FY 2016-17 and claimed one-fifth of the transition reserve as a reduction from book profit. The Assessing Officer has knocked out three components. Which of them can he actually exclude? Only the six items expressly listed in sub-clauses (A) to (F) of clause (iii) of the Explanation to s.115JB(2C) come out of the transition amount. Everything else adjusted in other equity (other than capital reserve and securities premium reserve) on the convergence date stays in, and one-fifth of it goes into book profit — as a decrease as much as an increase — in the year of convergence and each of the following four previous years.
I already disallowed the whole of the interest paid to my associated enterprise under s.94B in my own computation. The TPO has still made a transfer pricing adjustment on the same interest. Can he? Not on these facts. Where the assessee had itself added back the entire interest paid to its associated enterprises on non-convertible debentures under s.94B in its computation of income and paid tax on it, the Tribunal held that a further disallowance out of the same interest by way of a transfer pricing adjustment would amount to double taxation of the same income and was not permissible, and it directed the adjustment to be deleted.
Our Indian company's shares moved from one group company to another and the ultimate parent abroad did not change. The officer says 97 per cent of the shareholding changed and denies the brought forward losses. Which way does the Tribunal go? On these facts the Tribunal decided with the taxpayer, but it supplied almost no reasoning of its own. The Delhi Bench dismissed the Revenue's appeal in a single paragraph, finding merit in the assessee's submissions and no material from the Revenue contradicting the Commissioner (Appeals). What it left standing is the Commissioner (Appeals)'s reasoning that s.79 stresses beneficial ownership, that the ultimate holding company remained the same throughout the restructuring, and that CIT v AMCO Power Systems Ltd applied. The Revenue's ground founded on Yum Restaurants failed with the appeal, but the Tribunal did not address that decision.
We filed the original return under MAT claiming MAT credit, then filed a revised return within the due date opting for s.115BAA. The Assessing Officer says that is a prohibited withdrawal of the option. Is it, and what happens to the MAT credit and our brought-forward losses? It is not a withdrawal. A revised return under s.139(5) substitutes the original return and assumes the character of a return under s.139(1), so an option exercised for the first time in a revised return filed within the due date is a valid first exercise — there was no earlier exercise capable of being withdrawn. But once the concessional regime is allowed, no MAT credit can be claimed for that year; and s.115BAA(2) bars set-off only of losses attributable to the deductions it specifies, not of ordinary brought-forward business and capital losses.
The processing centre cut down my exemption claim in the intimation without ever telling me it proposed to. Is the intimation valid? No. The Ahmedabad Tribunal held the intimation invalid and quashed it. The first proviso to section 143(1)(a) permits no adjustment unless intimation of the proposed adjustment is first given to the assessee and any response is considered. That requirement is not merely procedural: it goes to the root of the validity of the proceedings. Here the processing centre restricted the leave encashment exemption from Rs 17,71,010 to Rs 3,00,000 without any prior notice, which was admitted. Following coordinate bench decisions and in the absence of any contrary decision of the jurisdictional High Court, the Tribunal held the intimation bad and did not go into the merits of the exemption.
CPC added income because Form 26AS shows more receipts than my 44AD turnover. Can they do that? Not on the 26AS entry alone. Form 26AS is a third-party information source and is subject to error; here the deductor had reported the TDS against the wrong PAN, so the figure evidenced no receipt at all. An adjustment made without verifying the underlying transaction was deleted.
I bought unquoted shares from family members at Rs 540 when the officer's rule 11UA working says Rs 661. Can a discount for lack of marketability and the company's real position be brought into the valuation? On these facts, yes. The Pune Tribunal upheld the Commissioner (Appeals), who had accepted the assessee's second valuation report and deleted the addition of Rs 1,44,42,560 under section 56(2)(x). The first appellate order accepted the valuer's figures for two parcels of land, worked out on stamp duty and IGR rates, allowed the provision for gratuity as a liability because most employees had crossed five years of service, and allowed a discount of fifteen per cent for lack of marketability given the difficulty of realising an industrial site with a working plant on it. The Tribunal found the order detailed and speaking, noted that the Departmental Representative brought no contrary material, and followed its own earlier order in a companion case.
CPC issued the section 143(1)(a) notice and passed the intimation a week later, and the portal shows a response I never filed. Is that intimation valid? No. The Delhi Tribunal held that the intimation under section 143(1) dated 30 March 2019 was bad in law because the adjustment was made seven days after the notice of proposed adjustment issued on 23 March 2019, long before the thirty days allowed for a response had run. The proviso requires that any response be considered, and that adjustments be made only where no response is received within thirty days of the issue of the notice. The Tribunal did not accept the portal entry showing a response filed on the very day the notice issued, preferring the assessee's screenshots and affidavit. The disallowance of Rs. 74,08,038 was deleted.
The TPO has used the 30 per cent EBITDA cap in s.94B as his benchmarking method and has applied it to interest I capitalised to work in progress rather than claimed. Can he do either? Neither. Section 94B is a restriction on the deduction of interest, not a method of determining an arm's length price, and it cannot be imported into the 'other method' under Rule 10AB, which requires a price charged or paid in an uncontrolled transaction with or between non-associated enterprises. And s.94B bites only on interest which is deductible in computing business income, so interest capitalised to work in progress and not claimed as a deduction in the year cannot be brought into the disallowance at all.
My client hedged a loan given to its foreign subsidiary and made a gain on the forward contract. It says the gain is capital. Will that hold? It did not hold here. The Chennai Tribunal upheld the Commissioner (Appeals) and taxed a forward exchange contract gain of Rs.19,90,79,300 as revenue, reasoning that where the exchange fluctuation gain or loss cannot be adjusted on capital account — as it can be under s.43A where a capital asset is acquired from outside India — it must be treated as revenue and offered to tax, because there cannot be a situation in which the fluctuation gain or loss is adjusted neither on capital account nor on revenue account. The Tribunal reached that conclusion after considering, among other things, the ICDS notified on 29 September 2016 and operative from AY 2017-18.
The CPC adjusted your return under s.143(1)(a) without warning. Can it do that? No. An adjustment under s.143(1)(a) requires a prior show cause notice. Made without one, a Rs 4.20 crore disallowance was deleted — and on the facts the audit report had in any event been filed on time.
My contractor client did not offer performance retention withheld by the awarder. The Assessing Officer has added it for AY 2017-18. Can I rely on the accrual cases? Not for AY 2017-18 onwards. The Tribunal held that where the assessee follows the mercantile system it must account for all receipts on accrual basis, and that retention money could not be excluded when there is an express provision in the Act brought in by the Finance Act 2018 with retrospective effect from 1 April 2017. Section 43CB and ICDS III state that contract revenue shall include retention money, so the earlier case law is not relevant in determining the taxability of retention money in the case of a contractor.
My case was moved between charges during a restructuring and the department says that gives it extra time under Explanation 1 to s.153 because of s.129. Is that right? No. The extension in Explanation 1 to s.153 for time taken in reopening a proceeding or in giving an opportunity of being reheard is available only where the assessee has demanded a rehearing under the proviso to s.129 — and s.129 applies only to a change of the incumbent of an office, not to a change of jurisdiction, which is s.127. Where the case simply moved from one jurisdiction to another and no rehearing was asked for, no time is excluded and the assessment is time-barred.
My foreign group companies ship me handsets, network equipment and other test gear free of cost so that I can test the software I write for them, and I send it back or scrap it when the testing is done. The AO has added the value under s.28(iv) as a benefit arising from my business. Can he? No, on these facts. The Bangalore Bench deleted an addition of Rs 7,37,33,056 under s.28(iv) on equipment supplied free of cost by the assessee's associated enterprises for testing software the assessee had developed for them. Two things carried it: the equipment was either returned or destroyed after testing, so nothing irretrievable or of enduring nature was made available to the assessee, and the price for the software development services had already been settled under a Mutual Agreement Procedure resolution between the competent authorities of India and Korea, in which the cost of indirect benefits should have been embedded - so if there were a nexus at all it belongs in a transfer pricing adjustment and not in a second addition under s.28(iv). The same order also deleted a s.40(a)(i) disallowance of depreciation on capitalised software, following the coordinate bench in the assessee's own case. Note what the order does not do: it decides nothing under s.194R.
We forgot to claim the one-fifth transition amount and the s.115JB(2A)(b) other-comprehensive-income reduction in the return. We raised it by letter during the assessment. The CIT(A) has thrown it out because no revised return was filed. Is that the end of it? No. The bar on entertaining a fresh claim without a revised return operates against the Assessing Officer, not against an appellate authority. Where the material was before the CIT(A) he should have examined it and granted the reduction from book profit if it was allowable, and the Tribunal restored the two Ind-AS claims to the Assessing Officer to be reconsidered on the revised Form 29B.
The Assessing Officer has added together my client's installation contract and the annual maintenance contract that followed it, crossed the treaty's duration threshold, found an installation permanent establishment and attributed 10 per cent of the receipts. Can he aggregate the two contracts? No. The Kolkata Tribunal held that providing annual maintenance services after the project or site has been handed over to the customer is not carrying out installation activities for the purpose of constituting an installation permanent establishment, so that the Assessing Officer's cumulative consideration of the original installation contract and the subsequent maintenance contract was bad in law and the resulting attribution of 10 per cent of the receipts was erroneous. On the duration itself the Tribunal held that the count does not start from the date of signing the contract, and that on the completion certificate and site readiness report the entire transaction was less than six months, so there was no PE under Article 5(3) of the India-Netherlands DTAA.
My French client offered dividend from its Indian subsidiaries at 5 per cent under the most favoured nation clause and claimed a refund. After the Supreme Court's decision in Nestle SA, what happens to that claim? It fails. The Chennai Tribunal applied Nestle SA and dismissed the ground, holding that the 5 per cent rate claimed under Article 11(2) of the India-France DTAA read with the Protocol most favoured nation clause, imported from India's treaties with Slovenia, Lithuania and Colombia, could not be given effect without a separate notification under s.90(1). The dividend therefore remains taxable at the treaty rate as notified, and the refund claimed on the 5 per cent basis goes.
I opted into the safe harbour and billed my AE at the prescribed mark-up. The TPO has still made an adjustment for interest on receivables collected late. Can he do that? Yes. Safe harbour under s.92CB and the Rule 10T series covers only an 'eligible international transaction' as exhaustively defined in Rule 10TC, and interest on outstanding receivables is not among clauses (i) to (x) of that definition. So the adjustment on delayed receivables is not subsumed in the mark-up offered under the safe harbour rules. On quantum, the Tribunal substituted LIBOR plus 200 basis points for the LIBOR plus 400 basis points adopted by the TPO and DRP.
I withdrew my appeal against the section 143(1) intimation because the case went into scrutiny. Can the Assessing Officer now rectify under section 154 to bring back the intimation addition the scrutiny order left out? Yes, on these facts. The Delhi Bench of the Tribunal held that there was no merger of the section 143(1) intimation into the section 143(3) assessment, because the two orders proceeded on different issues, and that the intimation stood final once the assessee withdrew its appeal against it. The scrutiny order had started from the returned income instead of the income determined by the intimation, leaving the intimation's addition of Rs 12,82,64,760 out of the assessed figure. That, the Tribunal held, was a mistake apparent from the record, and the Assessing Officer was entitled to correct it under section 154.
Only a small adjustment survived my appeal. Does the tolerance band wipe it out completely? Yes, if the surviving variation is within the notified percentage of the transaction value. The proviso to s.92C(2) is a deeming provision: once the variation is inside the band, the price actually charged is taken to be the arm's length price and there is nothing left to adjust.
We repurchased shares through a court-approved scheme. Can the department still call it a dividend? On these facts, yes. The Chennai Tribunal held the repurchase was a colourable device — in substance a reduction of capital releasing the company's assets to shareholders — taxable as deemed dividend under s.2(22)(d), alternatively s.2(22)(a), with dividend distribution tax under s.115-O payable by the company. The High Court's sanction of the scheme conferred no tax immunity.
The Assessing Officer has taken the accumulated profits figure straight off the lender's balance sheet. Can I insist that depreciation at Income-tax Act rates be deducted first? Yes. The Tribunal held that accumulated profits for s.2(22)(e) have to be arrived at after allowing depreciation as computed under the Income-tax Act and not as per the Companies Act. On the facts, once Income-tax Act depreciation was taken into account the accumulated profits were negative, so there was nothing to support the deemed dividend and the entire addition was deleted.
Five regional rural banks were merged into our bank by a Central Government notification. The officer says s.72AA is only for banking companies and that s.72AB for cooperative societies only came in from assessment year 2008-09, so the merged banks' accumulated losses die. Is there any authority the other way? Yes, at Tribunal level. The Kolkata Bench held that the case fell under s.72AA because the assessee is a banking company doing the business of banking and the amalgamation of the five rural banks was brought into force under the directions of the Central Government by gazette notification, and allowed the set-off of the accumulated losses of the merged banks. The set-offs allowed were Rs. 352,68,36,000 for assessment year 2007-08 and Rs. 205,51,01,000 for assessment year 2008-09.
The CIT(A) has recomputed my clause (iii) reduction by taking the entire depreciation charge of an earlier year as unabsorbed depreciation, which wipes out my brought-forward loss and leaves me with nothing. Is that the right way to do the working? No. Clause (iii) of Explanation 1 to s.115JB(2) uses the words "unabsorbed depreciation", not "depreciation", and the difference is deliberate: where an earlier year threw up a standalone book profit before depreciation, that year's depreciation stands adjusted against the profit so available and only the balance is unabsorbed. Taking the gross depreciation charge instead of the unabsorbed component is contrary to the language of the clause.
The Assessing Officer has taxed my client, a UK limited liability partnership, under the Independent Personal Services Article of the treaty because its partners are professionals. Can that Article apply to a firm at all? No, on this Tribunal's view. The Mumbai Tribunal held that Article 15 of the India-United Kingdom DTAA deals only with the taxability of independent personal services or independent activity of a similar character and not with a partnership firm, and that the assessee, not being an individual, was outside it. On the same order the Tribunal also held, following its own decisions in the assessee's earlier years, that the remuneration received for providing legal services was not fees for technical services and that the treaty overrode the Act.
The TPO's order is dated one day inside the sixty-day window as I count it, but the department counts it differently. Is the order time barred, and if it is, does the assessment fall with it? On the counting the Tribunal applied Pfizer Healthcare and the Madras High Court Division Bench in DCIT v Saint Gobain India: the s.153 expiry date is EXCLUDED, sixty days are counted back from it, and the TPO must pass his order BEFORE the sixtieth day. On that arithmetic a 31 March 2014 assessment deadline meant a TPO order by 29 January 2014, and the order of 30 January 2014 was barred by one day. THAT ARITHMETIC HAS SINCE BEEN REVERSED RETROSPECTIVELY: s.92CA(3AA), inserted by the Finance Act 2026 (Act 4 of 2026) with effect from 1 June 2007 and expressly notwithstanding any judgment of any court, deems the sixty days to be counted so that a 31 March (non-leap year) deadline permits a TPO order up to 30 January, a 31 March (leap year) deadline up to 31 January, and a 31 December deadline up to 1 November. The second holding survives the amendment: where the TPO's order IS invalid, there is no order under s.92CA(3), so there is no 'eligible assessee' within s.144C(15)(b), no reference to the DRP could be made, and the subsequent proceedings are without jurisdiction.
I filed my return on time and then revised it. CPC has ignored the original, treated the revised return as my first return, and charged s.234F fee and s.234A interest. Can that be undone? Yes. The Mumbai Bench found that the original return had been filed within the s.139(1) due date and that CPC and the CIT(A) had simply ignored it, and deleted both the Rs 5,000 fee under s.234F and the interest under s.234A charged on the footing that the revised return's date was the date of filing. Revising a return does not make a timely return late.
The Assessing Officer accepted nil income under the normal computation after setting off brought-forward losses, but then charged AMT at 18.5 per cent on the net profit without allowing that set-off. Can he compute total income one way for the normal provisions and another way for AMT? No. Section 115JC charges the minimum tax on adjusted total income, and adjusted total income starts from the total income, which by s.2(45) is computed after giving effect to the provisions of the Act — including the set-off of brought-forward losses under s.72. The Assessing Officer's contrary interpretation, treating total income as net profit for AMT purposes only, was rejected.
I filed Form 67 late and my foreign tax credit was disallowed. Does missing the deadline kill the claim? No, on this decision. The Bangalore Tribunal held that Rule 128(9) does not provide for disallowance of foreign tax credit where Form 67 is filed late; filing Form 67 is directory, not mandatory; and the treaty overrides the Act, with the Rules unable to run contrary to the Act. The assessee had claimed credit of Rs 4,73,779 for Australian tax under section 90 read with Article 24 of the India-Australia treaty, filed Form 67 only on 18 April 2020, and had the credit refused. The Tribunal allowed the appeal, and also held the point could be taken in rectification proceedings under section 154.
My foreign bank account was closed years before 2015. Can it still be taxed under the Black Money Act? Yes. Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 the charge is fixed by the year in which the undisclosed asset comes to the notice of the Assessing Officer, so it does not matter that the accounts had been closed before the Act commenced. A bank account balance is an 'asset' for this purpose and nothing is deductible against it.
The TPO has taken a three-year weighted average margin for a comparable under Rule 10CA, but the company fails my turnover filter in the two earlier years. Must those years still go into the weighted average? No. The Tribunal held that the provisos to Rule 10CA(2) must be read harmoniously with Rule 10B(3) and the proviso to Rule 10B(4), and that where a filter makes an enterprise non-comparable in the earlier two years, the data for those years can have no influence on the determination of transfer prices for the current year and must be ignored. On the facts, if R.S. Software (India) Ltd. was to be a comparable at all, its margins for the two earlier years had to be dropped, because in those years its turnover exceeded Rs 200 crores and it was not comparable.
Our association's members are fixed and known, so s.167B(1) cannot apply. Does that mean we get the basic exemption and slab rates? No. Section 167B(2)(i) is a separate limb: where the total income of any member, excluding his share from the association, exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax is charged on the total income of the association at the maximum marginal rate. Determinate shares take you out of s.167B(1) but not out of s.167B(2), and the Tribunal held that the exclusion in s.167B(1) for a society registered under the Societies Registration Act 1860 does not carry into s.167B(2). That last point is not free from doubt: s.167B(2) opens 'Where, in the case of an association of persons or body of individuals as aforesaid', and 'as aforesaid' is capable of importing the sub-section (1) parenthesis. The assessee did not put the argument in that form and no authority was cited either way.
The officer sent my property to the Valuation Officer. Does that give him extra time to finish the assessment? No, not where the reference is under s.50C. The extension in clause (iv) of Explanation 1 to s.153 is given only where the Assessing Officer makes a reference to the Valuation Officer under s.142A(1); a reference under s.50C or s.55A does not stop the clock. The assessment, completed after the ordinary period had run out, was quashed as barred by limitation.
The Assessing Officer threw out my DCF valuation because the actual results fell far short of the projections and taxed the premium under section 56(2)(viib) — can he do that? It depends, and the Tribunal split the point. The Bangalore Bench held that where the assessee opts for the discounted cash flow method under rule 11UA(2), the Assessing Officer cannot switch to the net asset value method; following the Bombay High Court in Vodafone M-Pesa, he may scrutinise the report and make his own fresh valuation, but the basis must stay DCF. He must also judge the report on facts available at the valuation date, not on actual later results. But the onus of showing the projections were a reliable estimate rests on the assessee. The matter went back to the Assessing Officer.
The officer has added the s.14A disallowance to my book profit under s.115JB. Can he do that? Not by simply carrying the s.14A figure across. A Special Bench of the Tribunal held that the addition under clause (f) of Explanation 1 to s.115JB(2) has to be worked out on its own, without resorting to the computation under s.14A read with Rule 8D. Clause (f) requires the expenditure actually relatable to exempt income to be identified.
My client holds only 1.7 per cent in the lending company but its subsidiary holds another 11 per cent. The Assessing Officer has added them together to cross 10 per cent. Is that right? No. The Tribunal held that for the first limb of s.2(22)(e) what has to be considered is only the voting power held by the assessee itself as registered and beneficial shareholder, and the shareholding of the assessee's own subsidiary is irrelevant and cannot be added to it. With 1.7 per cent, the section was not attracted and the addition of Rs 10.20 crores went.
My assessment order under s.143(3) says nothing at all about interest, but Form ITNS 150 issued the same day charges s.234B and s.234C interest. Is the levy good? On these facts the Tribunal upheld it. Following the Supreme Court's own order in the assessee's case (Civil Appeal No. 1937 of 2007, judgment dated 6 September 2012), it held that where interest is leviable under s.234B or s.234C the levy is mandatory and compensatory in nature, and that the assessee's remedy is not to resist the charge but to apply to the Chief Commissioner for waiver or reduction under the Board's circular.
We charge Indian sellers a fee for listing on our overseas marketplace. Is that fees for technical services, and do our Indian support companies make us taxable here? No on both, and note how the second answer is reached. Providing a platform on which others transact is not the rendering of managerial, technical or consultancy services, so the user fees are not fees for technical services. On the treaty the Tribunal accepted that the Indian group companies, working exclusively for the Swiss company, were dependent agents - the assessee lost that limb - but held that a dependent agent becomes a permanent establishment only if it performs one of the functions listed in Article 5(5), and marketing and collection work is not among them. They were not a place of management either. Without a permanent establishment the business profits article keeps the income out of the Indian charge.
The Assessing Officer has included the company's share premium account in accumulated profits to support a s.2(22)(e) addition. Can he? No. The Tribunal held that share premium is not available for distribution as dividend and is required to be treated as part of the share capital, so it cannot be commercial profits and cannot be included in accumulated profits for s.2(22)(e). The same order confirms, against the assessee, that current year's profits up to the date of each payment must be included, because Explanation 2 defines accumulated profits to include all profits up to the date of payment.
The Assessing Officer issued me a notice under section 142(1) calling for a return after the assessment year had already ended. Is the assessment made on that notice valid? No. The Delhi Special Bench held that a notice under section 142(1)(i) calling for a return cannot be issued after the end of the relevant assessment year. Where no return has been filed and the year has closed, the case is one of escaped assessment and the Assessing Officer must proceed under section 148 after satisfying section 147 - recording reasons and forming a reason to believe. Allowing him to call for a return under section 142(1)(i) instead would let those requirements be sidestepped, and the two provisions cannot operate in the same field at the same time. The notices in Motorola's and Ericsson's cases were issued after the year ended, so those assessments were invalid.
You missed the notices and got a best judgment assessment. Is the officer's estimate final? Not if it is arbitrary. An 8% net profit estimate was set aside as lacking proper substantiation, and the matter was remanded so the audited books and supporting evidence could be produced.
The Department says my advance ruling application is barred because scrutiny of my return had already begun. Does a section 143(2) notice issued before I applied shut me out? No, on these facts - and this decision goes no further than that. The Authority allowed the application under section 245R(2) and posted it for hearing; it did not rule on whether the applicant's income from buying gold jewellery in India for export is taxable. The applicant, resident in Singapore, had filed returns for assessment years 2005-06 and 2006-07 claiming no exemption, applied to the Authority on 26 March 2007, and only then filed revised returns on 30 March 2007 claiming the exclusion in Explanation 1 to section 9(1)(i). The Authority held that no question was pending on the date of the application, and that claiming a statutory exemption is not a design for avoidance.
I applied to the Authority on 26 March and filed a revised return claiming an exemption on 30 March. The Department says my question was already pending. Was it? No. The Authority allowed the application under section 245R(2), rejecting the Department's objection under clause (i) of the proviso. The applicant, resident in Singapore, had filed returns for assessment years 2005-06 and 2006-07 on 30 October 2005 and 31 October 2006 which claimed no exemption; he applied to the Authority on 26 March 2007; and he filed revised returns claiming the exclusion in Explanation 1 to section 9(1)(i) only on 30 March 2007. The Authority held that pendency is judged as on the date of the application, so nothing was in issue on 26 March 2007. It also rejected the objection that the transaction was designed for avoidance.
Our Hong Kong company wants an Indian liaison office that only gathers information from garment makers and chases up shipments. Does that create Indian tax? No. The Authority ruled that on the activities described the applicant could not be held to have earned any income taxable in India. The proposed liaison office would collect information about garments and textiles from Indian manufacturers, communicate product information to the Hong Kong head office, act as a channel between the applicant and Indian exporters, and follow up the timely export of goods ordered. It would carry on no commercial activity, would have no authority to contract, and would be funded by remittances from the head office. Those operations were confined to the purchase of goods in India for the purpose of export, so clause (b) of Explanation 1 to section 9(1)(i) applied.
We are in a consortium supplying rolling stock to Delhi Metro. Our returns are filed and a writ about the TDS rate is pending. Can we still get an advance ruling? Yes. The Authority held the applications maintainable and allowed them so that rulings could be pronounced. On the bar in clause (i) of the proviso to section 245R(2) it held that the mere filing of returns by the applicants would not fall within the mischief of that clause, no notice under section 143(2) having been issued to them before the date of the applications. The proceedings that were on foot - applications under section 197 for determination of the rate of deduction, an appeal against the order on them and a writ petition - concerned the rate of tax for deduction at source, and did not involve the questions the Authority was being asked to decide.
Is s.115BAC still an option my client has to choose, and which form does he file now? No. From the assessment year beginning 1 April 2024, s.115BAC(1A) is the default: an individual, Hindu undivided family, association of persons other than a co-operative society, body of individuals or artificial juridical person is taxed under it unless he exercises the option in s.115BAC(6) to be taxed outside it. Opting out is what now requires a form, and that form is Form 10-IEA under Rule 21AGA; Form 10-IE governed the earlier position, for AY 2021-22 to AY 2023-24, when the regime was an option to be opted into.
My client never declared his crypto gains. Can he still put them right by an updated return, how long has he got, and what will it cost him? An updated return under s.139(8A) may now be furnished at any time within FORTY-EIGHT months from the end of the relevant assessment year — the Finance Act 2025 substituted 'forty-eight' for 'twenty-four' with effect from 1 April 2025 — but only if none of five provisos bars it. It cannot be used at all if the updated return would be a return of a loss, or would decrease the total tax liability determined on the earlier return, or would produce or increase a refund; it cannot be used where a search under s.132, a requisition under s.132A or a survey under s.133A other than s.133A(2A) has taken place, or where seized assets or books of another person have been notified as belonging or pertaining to the assessee; and it cannot be used where an updated return has already been furnished for that year, or where ANY proceeding for assessment, reassessment, recomputation or revision is pending or has been completed for that year, or where SAFEMA, Benami, PMLA or Black Money Act information or information under a s.90 or s.90A agreement has been communicated to the assessee, or where prosecution under Chapter XXII has been initiated, or where the person is notified by the Board. A fourth proviso, inserted by the same Finance Act 2025, bars an updated return altogether where a show-cause notice under s.148A has been issued after thirty-six months from the end of the relevant assessment year, and a fifth proviso disapplies that bar where an order under s.148A(3) has determined that it is not a fit case to issue a notice under s.148. The price is set by s.140B: additional income-tax of twenty-five per cent of the aggregate of tax and interest if filed within twelve months of the end of the assessment year, fifty per cent within twenty-four months, sixty per cent within thirty-six months and seventy per cent within forty-eight months, over and above the tax, interest and fee otherwise payable.
My client wants the 15 per cent rate for a new manufacturing company. What exactly must it satisfy, and what is the exposure once it is in? Section 115BAB requires that the company was set up and registered on or after 1 October 2019 and commenced manufacturing or production of an article or thing on or before 31 March 2024, that it is not formed by splitting up or reconstruction, that it uses no previously used machinery or plant and no building previously used as a hotel or convention centre in respect of which s.80-ID was claimed, that it carries on no business other than manufacture or production and research in relation to, or distribution of, what it makes, and that its total income is computed without the excluded deductions. The option is exercised under s.115BAB(7) in Form 10-ID on or before the s.139(1) due date for the first return, and once exercised it cannot be withdrawn for that or any other previous year.
The company advanced money to a sister concern against job work and the officer says it is a deemed dividend. Is there anything binding on him that says a trade advance is not? Yes. The Board's own position is that trade advances in the nature of commercial transactions fall outside the word 'advance' in s.2(22)(e), that the courts have settled it, and that its officers are not to file appeals on the ground and are to withdraw or not press those already filed. It binds the department, not the courts — and it is about trade advances in the nature of commercial transactions, not about related-party payments at large.
The Delhi High Court struck down parts of the ICDS in 2017. Can I still rely on that for an AY 2017-18 assessment? Only in part, and for most of what was struck down the answer is no. The Finance Act 2018 inserted s.36(1)(xviii), s.40A(13), s.43AA and s.43CB, and substituted new sections 145A and 145B, in every case with the words "shall be deemed to have been inserted" or "deemed to have been substituted" with effect from the 1st day of April 2017 — that is, retrospectively from AY 2017-18, the very first year in which the ICDS operated. What Parliament could not do by executive notification it did by statute, so the substance of the struck-down ICDS provisions now stands in the Act itself and the 2017 judgment no longer answers the point.
The Assessing Officer says my client's accounts must be redone under the ICDS. How far do the ICDS actually reach? Not as far as the notice usually assumes. The ten ICDS notified under s.145(2) apply only to a person following the mercantile system of accounting, and only for computing income under "Profits and gains of business or profession" and "Income from other sources" — the preamble to every ICDS says in terms that they are "not for the purpose of maintenance of books of accounts", and that where an ICDS conflicts with the Act, the Act prevails to that extent. They do not apply to an individual or Hindu undivided family whose accounts are not required to be audited under s.44AB, and they do not apply to a person on the cash system at all.
My rectification application has been sitting with the officer for more than six months. Has it lapsed? No. The Board issued this instruction precisely because officers were taking the view that an application not decided inside the six months in s.154(8) had lapsed and needed no action. The instruction records that view, rejects it, and directs that the six-month limit be strictly followed and monitored by supervisory officers.
The officer says my rectification has been 'done in the system' but I have received no order. Is that enough? No. The Board found that rectification orders under s.154 were being passed by officers on the AST system without a copy of the order being given to the taxpayer, who was then unaware of the decision and unable to pursue it in appeal or by a further rectification. Pointing to s.154(4), which requires the order to be passed in writing, it directed that all rectification applications be disposed of after passing an order in writing, to be duly served on the taxpayer concerned, and not by merely making the necessary rectification on the AST system.
The AO has invoked section 185 because of a defect in the partnership deed filed with our return. What exactly do we lose, and does the partner get any relief? The firm loses every rupee it paid its partners. Section 185 provides that where a firm does not comply with section 184 for any assessment year, it is so assessed that no deduction by way of interest, salary, bonus, commission or remuneration to any partner is allowed in computing its business income. Section 184(5) imposes the same consequence where there is a section 144 failure. The partner is not taxed on the same amounts, because both provisions end by saying those sums are not chargeable under clause (v) of section 28.
Partners left and joined during the year, and one of them died. Will the department make one assessment on the firm for the whole year or two separate assessments? One assessment if it is a change in constitution under section 187, two if it is a succession under section 188. Section 187 applies where partners cease or are admitted but at least one pre-change partner continues, or where all the partners continue with a change in their shares; the assessment is then made on the firm as constituted at the time of making the assessment. The dividing line is the proviso to section 187(2): where the firm is dissolved on the death of a partner, clause (a) does not apply, so the case falls to section 188 and separate assessments are made on the predecessor and successor firms in accordance with section 170.
Nothing here is written from memory. Every entry was found through a search, and the page for it links to where it was found, so you can check it rather than take our word for it. What has not happened yet is the part that matters most: nobody has read the certified copy of each judgment and signed off the summary against it. Until that is done, each page says Not yet CA-verified, and it means exactly what it says. Read the source before you rely on an entry in a reply to an Assessing Officer or in an appeal.