Income Tax Act, 1961 – Section 264 - A writ petition was filed challenging an order passed by the Principal Commissioner dismissing a revision application under Section 264 of the Income Tax Act, 1961. The dispute arose over a sum of INR 4.75 crores, which the assessee had suo moto disallowed in its computation of income for AY 2014-15, assuming it was liable for disallowance under Section 40(a)(i) due to non-deduction of tax at source. Upon realizing that the remittance was a reimbursement of expenses and not taxable under Article 12 of the India-Australia DTAA, the assessee sought relief under Section 264. The Principal Commissioner rejected the claim on the grounds that the assessee neither revised its Return of Income nor obtained a tax exemption certificate under Section 195. Further, the Principal Commissioner held that the amount was chargeable to tax under Section 9(1)(vii) as income accruing in India - Whether the Principal Commissioner was justified in rejecting the revision application on the ground that the assessee had not amended its Return of Income and whether the remittance was taxable under domestic law despite the DTAA provisions – HELD - The powers conferred under Section 264 are wide and not limited to correcting errors made by authorities but also extend to errors committed by the assessee. It reaffirmed that tax can be levied only on income chargeable under law, and mere inclusion of an amount in a return does not automatically make it taxable. The Court held that the requirement to revise the Return of Income before seeking revision under Section 264 was not a mandatory condition. It also found that the Principal Commissioner had failed to consider the assessee’s argument that the remittance did not satisfy the "make available" condition under Article 12 of the DTAA. Since the DTAA takes precedence over domestic law under Section 90 of the Income Tax Act, any conclusion on taxability under Section 9(1)(vii) without addressing the DTAA provisions was legally unsustainable - The matter was remanded to the Principal Commissioner for fresh consideration, explicitly directing an examination of the DTAA’s applicability to the remittance. All rights and contentions of the parties on merits were kept open - the writ petition was allowed, and the order dated 25th March 2019 was quashed
Income Tax Act, 1961 – Sections 148, 148A and 149 - The assessee challenged the issuance of a notice dated 01.06.2021 under Section 148 of the Income Tax Act, 1961, and subsequent reassessment proceedings for AY 2013-14. The challenge was based on the ground that the notice and reassessment order were issued beyond the period of limitation prescribed under Section 149(1). The Revenue contended that the time limit was extended by virtue of the Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 (TOLA) and the Supreme Court’s decision in Union of India v. Ashish Agarwal, which deemed such notices issued under the old regime as notices under Section 148A(b). The Assessing Officer (AO) passed an order under Section 148A(d) on 30.07.2022 and issued a fresh notice under Section 148 on the same date, which the assessee claimed was beyond the permissible period - Whether the reassessment notice dated 01.06.2021, issued under the old regime, was valid in light of the Supreme Court ruling in Union of India v. Ashish Agarwal - Whether the limitation period for reassessment under Section 149(1) was extended by the provisions of TOLA and the Supreme Court’s decision in Union of India v. Rajeev Bansal - Whether the order under Section 148A(d) and the subsequent notice under Section 148, both issued on 30.07.2022, were within the prescribed time limit – HELD - Under Ashish Agarwal, notices issued under the old regime (prior to 01.04.2021) were deemed to be issued under Section 148A(b) of the new regime. However, the limitation period prescribed under Section 149(1) remained applicable, and all procedural requirements had to be completed within the permissible timeframe. Rajeev Bansal clarified that the limitation period had to be computed by excluding the period from the date of the original notice (01.06.2021) until the Supreme Court’s decision (04.05.2022), along with the time allowed for the assessee’s response - The Tribunal observed that the AO had a remaining period of 29 days (post-TOLA extension) as of 01.06.2021. This period was suspended due to the Supreme Court’s ruling in Ashish Agarwal, resuming from the date the required material was furnished (30.05.2022). The statutory limit expired on 12.07.2022. Since the AO issued the order under Section 148A(d) and the fresh notice under Section 148 on 30.07.2022, both were deemed to be beyond the permissible period - The Tribunal held that the AO failed to issue the final reassessment notice within the valid period, thereby rendering the entire reassessment process time-barred. The Revenue’s argument that the AO had one full month from the assessee’s reply to pass the order was rejected, as all reassessment steps had to be completed within the overarching limitation period prescribed under Section 149(1) - The Tribunal quashed the reassessment proceedings, setting aside the order under Section 148A(d) and the subsequent notice under Section 148 as barred by limitation. The appeal was allowed in favor of the assessee, and the assessment order framed under Section 147 was also declared invalid
Income Tax Act, 1961 – Sections 144C(13), 143(3) and 260A - The Assessee, filed its return for A.Y. 2010-11. The Transfer Pricing Officer (TPO) made an adjustment of Rs. 108.36 crore, which was reduced to Rs. 49.39 crore by the Dispute Resolution Panel (DRP). The final assessment order under Section 144C(13) was passed on 27 February 2015, exceeding the statutory one-month time limit from the end of the month in which the DRP’s directions were received (23 December 2014). The ITAT held that the order was time-barred, prompting the Revenue to appeal to the Bombay High Court - Whether the time limit prescribed under Section 144C(13) is mandatory or directory - Whether the assessment order dated 27 February 2015 was barred by limitation and thus invalid – HELD - The Court held that the Assessing Officer (AO) must complete the assessment within one month from the end of the month in which the DRP’s directions are received. The statutory language uses "shall", indicating a mandatory requirement. The Court ruled that any order passed beyond this period is void, as fiscal statutes must be interpreted strictly - The AO received the DRP’s directions on 23 December 2014, making 31 January 2015 the deadline for passing the final assessment order. Since the order was passed on 27 February 2015, it was held to be invalid. The Court rejected the Revenue's argument that procedural delays should be condoned, emphasizing that timely completion of assessments is crucial for certainty in tax proceedings - The Court relied on Vodafone Idea Ltd., Louis Dreyfus Co. India, and K.M. Sharma, which held that failure to adhere to statutory deadlines results in the order being void. The absence of a provision for condonation of delay further supported this conclusion - Revenue’s appeal dismissed. Assessment order held invalid as time-barred. The Revenue is at liberty to take fresh proceedings if permissible under law
Income Tax Act, 1961 – Sections 260A, 263, 143(3), 143(1), 143(2), 142(1), 47(xiii), 127 - A company took over a partnership firm through a Business Takeover-cum-Succession Agreement. The firm, after dissolution, filed a return for AY 2014-15, and an assessment order was passed in its name. The Principal Commissioner of Income Tax (PCIT) invoked Section 263, holding the assessment order erroneous and prejudicial to the Revenue, and directed a fresh assessment. The Income Tax Appellate Tribunal (ITAT) set aside the PCIT’s order, holding that an order passed in the name of a non-existent entity could not be revised. The Revenue appealed before the Delhi High Court - Whether an assessment order passed in the name of a dissolved firm is valid and subject to revision under Section 263 - Whether the ITAT erred in quashing the revision order under Section 263 based on Maruti Suzuki India Ltd. - Whether the Delhi High Court had jurisdiction under Section 260A when the original assessment was made by an AO in Amritsar - HELD - The Court held that it lacked jurisdiction to entertain the appeal, as the original assessment order was passed by an AO in Amritsar. Relying on Seth Banarsi Dass Gupta v. CIT and Pr. CIT v. ABC Papers Ltd., the Court reiterated that jurisdiction under Section 260A is determined by the location of the AO. Since the AO in Amritsar framed the assessment order, the appropriate forum for appeal was the Punjab & Haryana High Court. The Court declined to examine the merits, including ITAT’s reliance on Maruti Suzuki India Ltd., and left it open for the Revenue to file an appeal before the appropriate High Court - Appeal dismissed for lack of jurisdiction, with liberty to the Revenue to approach the Punjab & Haryana High Court. Pending applications were also disposed of
Income Tax Act, 1961 – Sections 119(2)(b), 10A, 147 and 281B - The petitioner, an IT services company, was embroiled in India’s largest corporate fraud when its former Chairman admitted to falsifying corporate accounts, inflating income, and fabricating fictitious sales amounting to Rs.5,040 crores. Following government intervention and forensic audits, it was established that the company paid excess taxes on non-existent income. The petitioner sought reassessment of its actual income for AYs 2003-04 to 2008-09 and permission to file revised returns, invoking Section 119(2)(b) for condonation of delay. The CBDT rejected the request, arguing that reassessment powers under Section 119 were unavailable and that no genuine hardship was proven. The petitioner challenged this decision through multiple writ petitions, including objections to reassessment under Section 147, the appointment of a special auditor, and asset attachment under Section 281B - Whether the CBDT was justified in rejecting the petitioner’s request for reassessment under Section 119(2)(b) despite clear evidence of fictitious income - Whether the petitioner’s request to file revised returns for AYs 2007-08 and 2008-09, based on forensic audit findings, was legally sustainable - Whether the Income Tax Department could assess tax on non-existent income and deny deductions under Section 10A on actual export earnings - Whether writ jurisdiction under Article 226 could be invoked to compel the Income Tax Department to reassess the petitioner’s income based on actual financials – HELD - Taxation must be based on real income rather than book entries. It relied on CIT v. Shoorji Vallabhdas & Co. and Godhra Electricity Co. Ltd. v. CIT, emphasizing that no tax can be levied on hypothetical or fictitious income. Since multiple government agencies, including SFIO and CBI, confirmed that the company’s books contained fraudulent entries, the refusal to reassess was unjustified - The court ruled that the petitioner’s request under Section 119(2)(b) met the genuine hardship criteria, as the company suffered financial distress due to excessive tax paid on fabricated income. The Supreme Court’s decision in B.M. Malani v. CIT was cited, affirming that hardship includes financial distress caused by factors beyond an assessee’s control - The Court noted that for AYs 2009-10 and 2010-11, the Income Tax Department allowed the petitioner to file revised returns, recognizing the fraud’s impact. Denying similar relief for earlier years was held to be arbitrary and discriminatory, violating Article 14 of the Constitution - The court ruled that writ jurisdiction under Article 226 could be exercised when the CBDT’s refusal to act contradicted judicial findings affirming the existence of fictitious income. It directed the Income Tax Department to reconsider reassessment based on the petitioner’s actual financials, rather than fraudulent statements fabricated by its former management - The Court quashed the CBDT’s rejection order and directed the Income Tax Department to reassess the petitioner’s income for AYs 2003-04 to 2008-09, excluding fictitious income, and to permit the filing of revised returns for AYs 2007-08 and 2008-09. The writ petitions were allowed
Income Tax Act, 1961 – Sections 147 and 148 - The Assessing Officer (AO) reopened the assessment of the assessee a South Korean entity, under Section 147, alleging that the Indian subsidiary, Samsung India Electronics Pvt. Ltd. (SIEL), constituted a Fixed Place Permanent Establishment (PE), Dependent Agent PE (DAPE), and Service PE under Article 5 of the India-Korea DTAA. The AO held that SIEL was involved in critical business functions such as product pricing, decision-making on new product launches, and overall market strategy for Samsung Korea, thereby constituting a PE in India. The Dispute Resolution Panel (DRP) set aside the AO’s findings on DAPE and Service PE but upheld the existence of a Fixed Place PE based on the presence of expatriate employees seconded by Samsung Korea, who allegedly carried out strategic business activities in India. The Income Tax Appellate Tribunal (ITAT) reversed the DRP’s conclusion, holding that Samsung Korea did not have a PE in India as per Article 5 of the DTAA. The Revenue challenged this decision before the Delhi High Court - Whether the Indian subsidiary (SIEL) constituted a Fixed Place PE, Dependent Agent PE, or Service PE for Samsung Korea under Article 5 of the India-Korea DTAA, thereby making its business profits taxable in India – HELD - The Delhi High Court upheld the ITAT’s order, holding that the mere presence of expatriate employees seconded by Samsung Korea to SIEL did not establish a Fixed Place PE. The Court noted that the seconded employees were on the payroll of SIEL, and their activities were primarily for the benefit of the Indian subsidiary, not for Samsung Korea. The Tribunal had examined extensive statements of employees and company records and found that the AO had failed to establish that Samsung Korea exercised control over SIEL’s decision-making. The Court emphasized that for a Fixed Place PE to exist, the parent company must have a degree of control over the place of business in the host country, which was absent in this case. Similarly, the Court rejected the DAPE and Service PE contentions, noting that SIEL operated independently, and no conclusive evidence was brought to show that it was habitually concluding contracts on behalf of Samsung Korea. The Court relied on the principles laid down in Morgan Stanley & Co. Inc. v. DIT and Formula One World Championship Ltd. v. CIT to reaffirm that a subsidiary does not automatically become a PE of its foreign parent company - Appeal dismissed. The Delhi High Court held that Samsung Korea did not have a Permanent Establishment in India under Article 5 of the India-Korea DTAA, and the reassessment proceedings under Sections 147 and 148 were invalid
Income Tax Act, 1961 - Sections 44C, 36(1)(iv) and 40A(9) - The case concerns a multinational bank engaged in soliciting foreign currency deposits from Non-Resident Indians (NRIs) and claiming deductions for related expenses. The first issue relates to the disallowance of expenses for NRI deposit mobilization, which the tax authorities treated as Head Office expenses under Section 44C and thereby restricted the deduction. The taxpayer argued that these expenses were India-centric and incurred for the bank’s Indian business, thereby making them fully deductible. The second issue pertains to the disallowance of a Rs. 9.81 crore contribution to an approved pension fund, with the tax authorities arguing that the contribution exceeded limits prescribed under Section 36(1)(iv) and Rule 87, making it disallowable under Section 40A(9). The taxpayer claimed that the contribution was necessary due to a shortfall in the pension fund for employees opting for Voluntary Retirement Scheme (VRS) and thus allowable as a legitimate business expense - Whether expenses incurred for mobilizing NRI deposits can be disallowed under Section 44C as Head Office expenses, or whether they qualify as business expenses of the Indian branch - Whether a pension fund contribution exceeding prescribed limits under Rule 87 is fully deductible when necessitated by business exigencies - Whether the Tribunal erred in allowing the entire pension contribution despite the statutory ceiling – HELD - The High Court upheld the Tribunal’s ruling that soliciting NRI deposits was an India-centric activity and the expenses were directly incurred for the Indian business of the bank. Since these expenses were not general Head Office administration expenses, they could not be disallowed under Section 44C. The Court relied on Director of Income Tax v. ANZ Grindlays Bank and held that since the income from these deposits was taxed in India, the corresponding expenses must be fully deductible - Pension Fund Contribution (Sections 36(1)(iv) & 40A(9)): The Court held that the limits under Rule 87 apply only to ordinary annual contributions, whereas the taxpayer’s contribution was a one-time payment necessitated by actuarial shortfall in the pension fund due to VRS retirements. Citing CIT v. Sirpur Paper Mills, the Court ruled that such business-driven contributions cannot be disallowed merely because they exceed the prescribed limits, as the Board’s conditions cannot override statutory deductions - Applicability of Rule 87 & 40A(9): The Court observed that Rule 87 only prescribes limits for ordinary annual contributions and does not cover exceptional or lump-sum contributions made to ensure the fund’s viability. Since the Tribunal correctly applied the Sirpur Paper Mills ruling, the entire contribution was allowable as a business expense - NRI deposit expenses were held to be fully deductible, as they were not part of general Head Office expenses under Section 44C - The pension fund contribution was allowed in full, as the limits under Rule 87 did not apply to one-time contributions necessitated by business exigencies - The appeal by the Revenue was dismissed, and the questions were answered in favor of the taxpayer
Income Tax Act, 1961 - Section 37(1), Explanation 1 - The Revenue challenged the deduction of license fees paid by the assessee, a law firm, to a related private company for using the goodwill of the name "Remfry & Sagar." The Assessing Officer (AO) disallowed the expense, contending that it violated the Bar Council of India Rules, which prohibit profit-sharing with non-lawyers, and held it to be a colorable device for diverting profits. The Commissioner of Income Tax (Appeals) [CIT(A)] reversed the disallowance, holding that goodwill is a validly transferable asset and that the payment was a legitimate business expenditure. The Income Tax Appellate Tribunal (ITAT) upheld this view, rejecting the Revenue’s argument that the transaction aimed to avoid taxes. The Revenue appealed before the High Court, arguing that the payment violated Explanation 1 to Section 37(1), which disallows expenditures incurred for illegal purposes or purposes prohibited by law - Whether the payment of a license fee for the use of goodwill constitutes a genuine business expenditure under Section 37(1) - Whether the Bar Council of India Rules prohibiting profit-sharing with non-lawyers render the license fee payment unlawful, attracting Explanation 1 to Section 37(1) - Whether the transaction was a tax avoidance mechanism disguised as a business expense – HELD - Goodwill is a validly transferable asset, and payment for its use is a legitimate business expense. The firm lawfully acquired goodwill through a gift and agreed to pay a fee to use the name. The transaction was not a colorable device, as it facilitated business continuity and brand retention - The Court ruled that Explanation 1 applies only when an expenditure is incurred for committing an offense or for a purpose prohibited by law. The Bar Council Rules prohibit direct sharing of legal fees with non-lawyers but do not prevent the licensing of goodwill. Since the fee was for goodwill and not a direct share of legal revenue, it did not violate the Rules - The Revenue failed to establish that the arrangement led to tax evasion. The entity receiving the license fee was subject to taxation at the same rate, negating claims of profit diversion. The Court emphasized that tax planning, when done legally, does not warrant disallowance under Section 37(1) - The High Court dismissed the Revenue’s appeal, holding that the license fee was a legitimate business expenditure and did not violate tax laws or Bar Council rules. The disallowance was set aside
Income Tax Act, 1961 - Sections 195, 237 and 239 - The petitioner, a pharmaceutical company, sought a refund of excess tax deducted and deposited under Section 195 for the Financial Years 2010-11 to 2012-13. The petitioner had remitted interest and premium on Foreign Currency Convertible Bonds (FCCBs) and External Commercial Borrowings (ECBs), without deduction of tax at source, but later, out of caution, deposited TDS on the entire amount. The refund applications were filed in March 2014, following revised TDS returns, but were rejected by the Income Tax Officer (ITO) on two grounds: (i) bar of limitation under CBDT Circular 07/2007, which prescribed a two-year period for claiming refunds, and (ii) the remittances not qualifying for refund as they did not fall within the exception of Section 9(1)(v)(b), which exempts interest paid for a business carried outside India. The rejection order was challenged before the Delhi High Court - Whether CBDT Circular No. 07/2007, which imposed a two-year limitation for refund claims, was ultra vires the Income Tax Act and whether it could override the statutory provisions under Sections 237 and 239 - Whether the interest and premium on FCCBs and ECBs, remitted by the petitioner, fell within the exception under Section 9(1)(v)(b), making the TDS deposit excess and refundable - Whether the principle of commercial expediency applied to loans taken for overseas business operations, making the interest expense eligible for exemption – HELD - Sections 237 and 239 of the Income Tax Act do not prescribe a time limit for refund applications, and the CBDT, through an administrative circular, cannot introduce a condition absent in the statute. The Court relied on Multibase India Ltd. v. ITO and Vijay Gupta v. CIT, where it was held that refund claims for excess tax cannot be barred based on an arbitrary limitation period set by executive instruction. The Court ruled that Circular 07/2007 was invalid to the extent it imposed a limitation period, and the refund claim should have been considered on merits - The Court analyzed whether the interest on FCCBs and ECBs was paid for the purpose of a business carried on outside India. The Court noted that the funds raised through FCCBs and ECBs were exclusively utilized for the business operations of the petitioner’s overseas subsidiaries and were not repatriated to India. Relying on S.A. Builders Ltd. v. CIT, the Court held that commercial expediency is the key test to determine whether an expense is incurred for business. Since the loans were used to finance global business expansions, the interest payments qualified for exemption under Section 9(1)(v)(b), and TDS should not have been deducted in the first place - The Court reiterated the principle laid down in CIT v. Shelly Products, which held that tax collected without authority of law must be refunded, as retention violates Article 265 of the Constitution. Since the TDS was erroneously deposited out of abundant caution, and the payments were not taxable in India, the petitioner was entitled to a full refund - The Court quashed the rejection order and directed the Income Tax Department to process the refund of excess TDS along with applicable interest. The ruling established that CBDT circulars cannot impose unauthorized restrictions, and excess TDS paid on non-taxable foreign remittances must be refunded
Income Tax Act, 1961 - Sections 263, 115J and 32AB - The assessee, challenged the order of the Commissioner of Income Tax (CIT) under Section 263, which set aside the Section 143(3) assessment order for AY 1988-89. The CIT held that the Assessing Officer (AO) had erroneously allowed a deduction for decapitalized interest (Rs.3.17 crore) while computing book profits under Section 115J, and had incorrectly computed deduction under Section 32AB. The CIT remanded the matter for fresh computation, which was upheld by the Income Tax Appellate Tribunal (ITAT). The assessee appealed before the High Court, contending that the CIT had exceeded his jurisdiction by making a conclusive finding on merits and that the original AO's view was a permissible interpretation of law - Whether the CIT had validly invoked Section 263 by proving that the AO's order was erroneous and prejudicial to revenue - Whether the AO’s failure to examine the computation of book profit under Section 115J justified revision - Whether the assessee could contest the merits of the CIT’s decision, despite not challenging the final reassessment order – HELD - AO had not examined the issue of book profit computation under Section 115J or deduction under Section 32AB. Since no query was raised, nor was the issue analyzed in assessment, the CIT was justified in revising the order under Section 263, following Malabar Industrial Co. Ltd. v. CIT - The AO had blindly accepted the assessee’s computation under Section 115J, without verifying whether the decapitalized interest should have been excluded. The CIT’s direction to re-compute book profits was not a conclusive finding, but an instruction to apply the correct law - Since the assessee did not challenge the final order giving effect to Section 263, it could not now contest the merits of the recomputation before the High Court. Allowing such an appeal would permit the assessee to bypass the procedural framework and indirectly challenge the reassessment - The court distinguished CIT v. Max India Ltd., holding that the AO had not formed any view on Section 115J computation in this case, so the question of two possible views did not arise - The Court dismissed the appeal, holding that revisional jurisdiction under Section 263 was validly exercised, the AO’s order was erroneous and prejudicial to revenue, and the assessee’s challenge to merits was not maintainable. The question of law was answered against the assessee
Income Tax Act, 1961 – Section 148 and 292B - A corporate entity merged with its wholly owned subsidiary pursuant to an order of the National Company Law Tribunal (NCLT), effective from a specified date. The tax authorities were formally notified of the merger, and the acknowledgment of receipt was on record. Despite this, the tax authorities issued a notice under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment of the merged entity, which had ceased to exist as a separate legal entity post-merger - Whether a reassessment notice under Section 148 can be issued in the name of a non-existent entity post-merger - Whether such an error constitutes a mere procedural irregularity that can be cured under Section 292B or a substantive illegality rendering the notice void - Whether the justification that the notice was generated due to a "technical glitch" in the system of the tax authorities is legally sustainable - Whether the ruling of the Supreme Court in Maruti Suzuki India Ltd. applies, thereby invalidating the impugned notice – HELD - The Court ruled that a notice issued in the name of a non-existent entity post-merger is a substantive illegality and not a mere procedural defect. The contention that the notice was generated due to a "technical glitch" was rejected, as the tax authorities had full knowledge of the merger well in advance - The Court relied on Maruti Suzuki India Ltd., Uber India Systems Pvt. Ltd., and Alok Knit Exports Ltd., all of which held that issuing a notice to a non-existent entity is void ab initio - The Court ruled that the defect could not be cured under Section 292B, citing Maruti Suzuki, which clarified that issuing a jurisdictional notice to a non-existent entity is not a "curable mistake" but a fundamental legal error - The Court distinguished this case from Skylight Hospitality LLP, where the notice was upheld due to unique factual circumstances. It emphasized that Skylight was based on peculiar facts and had no general applicability to cases where the tax authorities had prior knowledge of the merger - The Court held that the failure to issue the notice in the correct name despite prior knowledge of the merger rendered the notice void and without legal effect. However, the authorities were not precluded from issuing a fresh notice to the merged entity if legally permissible - The Writ Petitions were allowed, and the impugned reassessment notices were quashed. The rule was made absolute, with the clarification that the tax authorities could issue a fresh notice to the merged entity if justified under law
Income Tax Act, 1961 – Sections 92, 92C, 92F, 9(1)(i); Double Taxation Avoidance Agreement (DTAA) between India and Ireland – A foreign entity engaged in software distribution and licensing operated in India through an associated enterprise, which was compensated under a transfer pricing arrangement. The tax authorities contended that the Indian entity constituted both a Fixed Place Permanent Establishment (PE) and a Dependent Agent Permanent Establishment (DAPE) under Article 7 of the India-Ireland DTAA, requiring additional profit attribution. The first appellate authority upheld this conclusion, asserting that the Indian entity performed functions beyond those defined in the inter-company agreement, leading to an artificial reduction of taxable income in India. The matter was taken to the Tribunal, which ruled that once the Indian entity had been remunerated at arm’s length price (ALP) under the transfer pricing regulations, no further profit attribution was warranted. The tax authorities appealed to the High Court, challenging this interpretation - Whether the Indian entity constituted a Fixed Place PE and DAPE under Article 7 of the DTAA - Whether arm’s length compensation to the Indian entity sufficed to meet taxation requirements, thereby negating further profit attribution - Whether the Tribunal erred in rejecting the contention that the Indian entity performed functions beyond the scope of the transfer pricing analysis - Whether the corporate structure was part of a tax avoidance strategy under the "Double Irish" model, justifying additional tax liability - HELD - The Court upheld the Tribunal’s decision, ruling that once an Indian entity is compensated at arm’s length, no additional profit attribution is warranted. Relying on DIT v. Morgan Stanley & Co. Inc., the court reaffirmed that when a PE is remunerated at ALP covering all its functions and risks, there is no need for further taxation. The court found that the tax authorities failed to substantiate claims that the Indian entity’s activities exceeded the transfer pricing analysis, noting that the Tribunal had extensively examined and rejected such arguments. Additionally, the court dismissed allegations of tax avoidance under the "Double Irish" model, stating that the structuring of entities under Irish law had no bearing on taxable income accruing in India - The High Court dismissed the tax authorities' appeals, affirming that arm’s length remuneration precluded further taxation in India. The appeals were dismissed
Income Tax Act, 1961 - Sections 260A, 143(3), 250 and 68 - The case pertains to the addition of Rs.7,87,000 in the assessment of the taxpayer under Section 68 for alleged accommodation entry operations. The taxpayer, engaged in investment transactions, was found to have received share application money with huge premiums, which was immediately rotated within group companies on the same day. The Assessing Officer (AO) concluded that the taxpayer was engaged in providing accommodation entries and assessed a commission income at 0.5% of the total transactions, resulting in an addition of Rs.7,87,000. The CIT(A) upheld the addition, and the ITAT dismissed the taxpayer’s appeal, affirming the AO’s conclusion. The taxpayer approached the High Court under Section 260A, arguing that the addition was based on mere assumptions and conjecture and that no independent evidence was brought by the Revenue to substantiate the charge - Whether the addition under Section 68 based on circular transactions of share application money is justified when no direct evidence of accommodation entry business was found - Whether the Revenue can presume a commission income on share transactions without proving actual receipt - Whether the concurrent findings of lower authorities warranted interference under Section 260A by the High Court - HELD - The Court dismissed the appeal, holding that the taxpayer failed to rebut the presumption that it was engaged in accommodation entries. The concurrent findings of the AO, CIT(A), and ITAT established that the taxpayer received and reinvested share application money at a premium within the same day, a pattern typically associated with entry operators. The High Court held that under the principles laid down in Sumati Dayal v. CIT and CIT v. Durga Prasad More, the burden of proving genuineness lies on the taxpayer. The High Court further ruled that commission income at 0.5% was a reasonable estimate based on past precedents and the nature of such transactions. Additionally, the High Court found no question of law arose, as the lower authorities had applied settled legal principles to factual findings - The appeal was dismissed, and the addition of Rs.7,87,000 under Section 68 was upheld. The Court ruled that the pattern of transactions justified the inference of an accommodation entry business and reaffirmed that in tax matters, the onus to prove genuine transactions remains on the taxpayer
Income Tax Act, 1961 – Sections 92CA, 154, 292B, 147 and 170 - A corporate entity underwent amalgamation effective April 1, 2017, and ceased to exist. Despite being notified of the merger, the Transfer Pricing Officer (TPO) issued an order under Section 92CA(3) in the name of the amalgamating company. The Assessing Officer (AO) subsequently issued a draft assessment order using the phrase "Formerly known as", without acknowledging the legal dissolution and reconstitution under the merger. The TPO later sought to rectify the order under Section 154, citing a typographical error - Whether an order passed in the name of an entity that has ceased to exist can be rectified under Section 154 or saved under Section 292B - Whether the use of the phrase "Formerly known as" sufficiently acknowledges the merger and validates the order - Applicability of legal precedents distinguishing procedural errors from jurisdictional flaws in cases involving non-existent entities - HELD - an order passed in the name of a non-existent entity is a fundamental jurisdictional flaw, not a procedural irregularity. Such an order is void ab initio and cannot be validated under Section 292B. The Supreme Court's decision in Maruti Suzuki (India) Ltd. was applied, which categorically ruled that assessments in the name of dissolved entities are nullities - Section 154 permits rectification of minor or inadvertent errors but does not extend to curing substantive defects such as addressing an order to a dissolved entity. Rectifying the order in this case would amount to rewriting it, which is impermissible - The use of the phrase "Formerly known as" in the draft assessment order demonstrated the authorities' failure to acknowledge the merger as a legal dissolution and reconstitution. This mischaracterization rendered the orders legally unsustainable - The Court distinguished the case from Sky Light Hospitality, where the Supreme Court upheld an order under Section 292B due to the presence of substantial and affirmative evidence pointing to the successor entity. Here, no such material existed to indicate that the authorities intended to assess the successor - The Court dismissed the Revenue's appeal, holding that the orders passed in the name of a non-existent entity were invalid and could not be rectified under Section 154 or saved by Section 292B. Appeal dismissed
Income Tax Act, 1961 – Sections 143(3), 147 and 148; Article 5 of the India-Finland DTAA - the assessee, a Finnish company and tax resident of Finland, challenged reassessment notices under Section 148 for AYs 2013-14 to 2017-18. The reassessment was based on surveys conducted in 2007 and 2019, where the revenue inferred the existence of a Permanent Establishment (PE) in India. The revenue contended that employees of Indian associated enterprises (AEs) facilitated business for the petitioner, constituting a Fixed Place PE and Dependent Agent PE. The petitioner argued that the reassessment lacked new material specific to the relevant AYs and relied on previously disclosed information during the original assessments under Section 143(3) - Whether reassessment under Section 148 was valid when based on surveys from unrelated periods without specific new material for the relevant AYs - Whether the inferences of PE drawn from the surveys in 2007 and 2019 were applicable to AYs 2013-14 to 2017-18 - Whether the reassessment violated the principles of full and true disclosure, as required under the Proviso to Section 147 - HELD - The reassessment notices under Section 148 were invalid as they lacked specific material indicating income escapement in the relevant AYs. The reasons relied on extrapolations from surveys conducted in 2007 and 2019, unrelated to the assessment years in question - The Court emphasized that PE determinations are fact-specific for each year and cannot be presumed to persist without substantiated evidence. The absence of any new or incriminating material specific to AYs 2013-14 to 2017-18 rendered the reassessment arbitrary - Relying on principles established in National Petroleum Construction Co. v. DCIT and GE Energy Parts Inc. v. CIT, the Court reiterated that surveys from prior periods cannot justify reassessments unless facts are proven to be identical across the years - The Court dismissed the revenue’s reliance on the judgments concerning other GE Group entities, as the facts in those cases were materially different and did not address the petitioner’s unique circumstances - The Court quashed the reassessment notices issued under Section 148 for AYs 2013-14 to 2017-18. It emphasized that reassessments must be founded on specific, contemporaneous material and cannot be justified by generic inferences or assumptions. The writ petitions were allowed, and the impugned notices were set aside
Income Tax Act, 1961 - Section 115JB - The case involved a challenge by the Revenue against the deletion of additions made under Section 115JB by the ITAT for AY 2006-07. The taxpayer, an electricity distribution company, prepared its accounts under the Electricity Act, 2003 and not as per Schedule VI of the Companies Act, 1956, as required under Section 115JB. The AO added Rs.29.17 lakh as estimated expenditure against exempt dividend income and enhanced book profit by Rs.27.52 crores for doubtful debt provisions. The ITAT, relying on judicial precedents, held that Section 115JB was inapplicable to electricity companies prior to the 2012 amendment - Whether the MAT provisions under Section 115JB applied to electricity companies for AY 2006-07, given the requirement to prepare accounts under Schedule VI of the Companies Act, 1956 - Whether the amendments made by the Finance Act, 2012, to Section 115JB had retrospective applicability – HELD - The High Court upheld the ITAT's decision, holding that electricity companies were not subject to MAT under Section 115JB prior to the 2012 amendment. The requirement under Subsection (2) to prepare accounts as per Schedule VI of the Companies Act, 1956, was incompatible with the statutory obligation of electricity companies to prepare accounts under the Electricity Act, 2003. This rendered the machinery provisions of Section 115JB inoperative, and consequently, the charging section became unenforceable - The Court noted that the 2012 amendment, which allowed companies governed by special statutes to compute book profits under their regulatory framework, was prospective and applicable from AY 2013-14 onwards. Thus, it did not retrospectively cover AY 2006-07 - The Court cited and relied on decisions of the Kerala, Bombay, and Rajasthan High Courts, all of which were upheld by the Supreme Court. It noted that these precedents established the inapplicability of Section 115JB to electricity companies prior to 2012 - The appeal by the Revenue was dismissed. The High Court affirmed the ITAT's decision, holding that the provisions of Section 115JB did not apply to electricity companies for AY 2006-07
Income Tax Act, 1961 – Sections 80IB(10) - The petitioners challenged a corrigendum notification dated 5 January 2011, issued by the CBDT, modifying an earlier notification from 3 August 2010. The corrigendum limited the applicability of the benefits under Section 80IB(10) to housing projects approved by local authorities between 1 April 2004 and 31 March 2008, aligning with the legislative amendments effective from 1 April 2005. The petitioners argued that the corrigendum was ultra vires as it imposed restrictions not found in the parent legislation and sought retrospective application of the original notification to claim deductions for slum redevelopment projects approved before 1 April 2004 - Whether the corrigendum notification issued by the CBDT is ultra vires for limiting the scope of Section 80IB(10) - Whether the benefit of the proviso to Section 80IB(10) can be extended to housing projects approved before 1 April 2004 - Whether the legislature intended retrospective application of the proviso to Section 80IB(10) – HELD - The proviso to Section 80IB(10), effective from 1 April 2005, explicitly excluded housing projects approved before that date from its benefits. The legislature did not intend retrospective application, as evidenced by the clear wording and prospective enforcement of the amendments. The CBDT’s corrigendum merely corrected the earlier notification to align it with legislative intent and did not exceed its delegated authority. The court further ruled that the petitioners’ contention of ultra vires was untenable, as the corrigendum only ensured compliance with the statutory framework - The court also emphasized that tax laws generally operate prospectively unless expressly stated otherwise. The benefit of the proviso was introduced prospectively for slum redevelopment projects, and the petitioners failed to demonstrate how the corrigendum violated any substantive rights - The writ petitions were dismissed. The court upheld the corrigendum notification as intra vires, stating it was consistent with the legislative amendments to Section 80IB(10). The petitioners' claims for retrospective benefits were rejected, affirming the prospective nature of the proviso to Section 80IB(10). No costs were awarded
Income Tax Act, 1961 - Sections 80IA, 92BA, 92F and 92C - The appellant, a company engaged in diverse manufacturing and trading operations, claimed deductions under Section 80IA for profits from its power generating units. During scrutiny, the Transfer Pricing Officer (TPO) disputed the rates at which electricity generated by the appellant’s eligible units was transferred to its non-eligible units. The TPO used the average rates of electricity traded on the Indian Energy Exchange (IEX) to compute adjustments, arguing they represented the market value of power. The Dispute Resolution Panel (DRP) partially upheld the TPO's adjustments, accepting IEX rates as external comparable uncontrolled prices (CUP) in some cases while applying State Electricity Board (SEB) rates in others - Whether IEX rates could be considered an appropriate external CUP for determining the arm’s length price (ALP) of electricity transferred between eligible and non-eligible units - Whether the rates at which power was supplied by SEBs could be treated as internal or external CUP for benchmarking under Section 80IA - Whether differences between the nature of transactions at IEX and SEB supply invalidated the TPO's benchmarking adjustments - HELD - IEX rates were inappropriate for benchmarking due to material differences in the nature of transactions. IEX primarily facilitates short-term, unpredictable, and volatile power trades, unlike the continuous and predictable supply provided by SEBs or captive units. This lack of comparability rendered IEX rates unsuitable under the CUP method - The Court upheld the rates at which electricity was supplied to SEBs as valid internal CUP for power transfers within the Uttar Pradesh region. For other regions, SEB tariffs applicable to industrial consumers were deemed reasonable external CUP benchmarks, considering their similarity to captive power supplies - The Court emphasized the need for a high degree of comparability under the CUP method, reiterating that adjustments for significant differences must be possible to ensure reliable ALP determination. As IEX transactions lacked sufficient similarity to captive unit power supplies, they could not be relied upon without extensive adjustments, which were infeasible - The High Court dismissed the Revenue’s appeal, affirming the ITAT's decision to delete the adjustments based on IEX rates. The SEB rates were accepted as appropriate CUP benchmarks for determining ALP under Section 80IA. The appellant’s methodology for computing market value was upheld, and the deduction claimed under Section 80IA was reinstated in full
Income Tax Act, 1961 – Section - 144C(13) and 282(1)(c) - The petitioner, a foreign company with operations in India, challenged the final assessment orders for AY 2018-19 and AY 2019-20, issued by the Income Tax Department. The primary contention was that the orders were passed beyond the statutory limitation period. The DRP's directions dated 30.06.2022 were uploaded on the ITBA portal on the same day but were allegedly received by the assessing officer on 05.07.2022, leading to a dispute about the date of receipt - Whether the date of uploading the DRP’s directions on the ITBA portal (30.06.2022) constitutes receipt by the assessing officer, making the final assessment orders dated 30.08.2022 and 01.09.2022 time-barred under Section 144C(13) of the Income Tax Act - HELD - Under Section 13 of the Information Technology Act, 2000, and Section 144C(13) of the Income Tax Act, the receipt of electronic records occurs when the record enters the designated computer resource of the addressee. In this case, the ITBA portal serves as the designated resource - The DRP’s directions uploaded on the portal on 30.06.2022 constituted receipt by the assessing officer, as the DRP lost control over the directions upon upload - The statutory period for passing the assessment order ended on 31.07.2022, rendering the final assessment orders dated 30.08.2022 and 01.09.2022 invalid - Reliance was placed on judgments of the Delhi, Bombay, and Madras High Courts, which uniformly interpreted Section 144C(13) to mandate strict adherence to the limitation period - The Court allowed the writ petitions, setting aside the final assessment orders as barred by limitation. It emphasized that adherence to statutory timelines is crucial to preserve the legislative intent and procedural fairness. No costs were imposed
Income Tax Act, 1961 - Sections 132A, 131, 153A and 153B - The petitioner sought the return of Rs.98,00,000 seized during a CBI search conducted in connection with an alleged bribery case. The Income Tax Department issued a requisition under Section 132A of the Income Tax Act to take custody of the cash, asserting it represented undisclosed income. Notices under Sections 153A and 142(1) were subsequently issued for the assessment years 2011-12 to 2016-17. The petitioner contended that the requisition was delayed, unjustified, and lacked valid "reason to believe" as required under Section 132A(1)(c). Additionally, the petitioner argued that the period for completing assessments under Section 153A had expired, invalidating the retention of cash - Whether the requisition under Section 132A was issued with valid "reason to believe" that the seized cash was undisclosed income - Whether the delay in issuing the requisition rendered it invalid - Whether the retention of cash is justified after the statutory time limit for completing assessments under Section 153A has expired – HELD - The court upheld the requisition, finding that the Income Tax Department had sufficient "reason to believe" that the cash represented undisclosed income. The petitioner failed to substantiate the sources of cash with credible evidence, including explanations for the use of cash transactions and the absence of deposit into bank accounts - Although there was a delay in issuing the requisition, the court found it justified due to ongoing investigations and the time required for collecting necessary information. The requisition was therefore not invalidated by the delay - The court noted that under Section 153B(1)(a), assessments under Section 153A must be completed within the stipulated time from the date of execution of the requisition. If no demand had been crystallized or assessments completed within the statutory timeframe, the Income Tax Department cannot justify retaining the cash - The court directed the Income Tax Department to return the seized cash to the petitioner within four weeks if no demand had been crystallized against the petitioner. The writ petition was disposed of with these directions