“ITAT holds Section 14A disallowance confined to administrative expenses, deletes notional interest on advances funded from own funds, allows political donation deduction and car depreciation, quashes ad-hoc site expense disallowance, deletes/ remands trade payables and booking advances, upholds deduction of statutory interest — assessee’s appeals partly allowed; Revenue’s appeals dismissed.”

Issue – Section 14A Disallowance & Notional Interest: Whether disallowance of expenses under Section 14A read with Rule 8D, and addition of notional interest on interest-free advances, were justified. The AO disallowed interest and administrative costs against exempt income and added notional interest, alleging diversion of borrowed funds.
Facts: The assessee, a construction company, had large tax-exempt income from partnership firms and advanced interest-free loans to group concerns. Its financials showed substantial own funds far exceeding the investments and advances in dispute.
Held: The Tribunal held no interest disallowance was permissible as own funds were sufficient, but upheld a limited disallowance of administrative expenses under Rule 8D(2)(iii). Section 14A adjustment was also excluded from MAT computation under Section 115JB. Notional interest disallowance on advances to group concerns was deleted, as the presumption applied that they were from own funds.

Issue – Interest-Free Advances & Site Development Expenses: Whether interest disallowance on loans to third parties was proper and whether ad-hoc disallowance of site development and soil-filling expenses was justified.
Facts: Advances were given to Venugopal Infrastructure and others without interest. The AO presumed they were non-business in nature and disallowed proportionate interest. Separately, part of site development expenses was disallowed on an ad-hoc basis due to lack of detailed vouchers.
Held: The Tribunal partly upheld interest disallowance where the assessee failed to prove business expediency but restored the issue to AO for one last opportunity to provide evidence. Advances to group concerns were accepted as from own funds. The disallowance of site development costs was deleted, holding them to be revenue in nature and forming part of project WIP; ad-hoc disallowance without pointing out specific defects was unsustainable.

Issue – Deduction under Section 80GGB (Political Donations): Whether contribution to a political party without original receipts was allowable.
Facts: The assessee made donations via account-payee cheque, supported by bank statements, but lacked physical receipts.
Held: Deduction under Section 80GGB was allowed since payment was through banking channels and the donee was a registered political party; production of original receipts was not mandatory.

Issue – Depreciation on Cars Registered in Directors’ Names: Whether depreciation could be claimed where cars were registered in directors’ names but funded and used by the company.
Facts: Vehicles were shown in the company’s balance sheet, purchased with company funds and loans, and used for business. The AO disallowed depreciation, citing registration in directors’ names.
Held: Depreciation was allowed. The company was the beneficial owner, bore risks, and used vehicles for business. Judicial precedents confirmed that legal registration was not mandatory if beneficial ownership was established.

Issue – Addition of Trade Payables: Whether trade payables outstanding for long periods could be added under Section 68.
Facts: Liabilities towards Shivam Transport and Sujal Advertisers were outstanding without clear proof. The AO added them as bogus liabilities.
Held: Addition for Shivam Transport was deleted since it was written off and taxed in a later year, avoiding double taxation. For Sujal Advertisers, the matter was remanded to AO for verification of payments and balances.

Issue – Addition of Unsecured Loans: Whether an old loan repaid during the year could be treated as unexplained cash credit.
Facts: AO added ?10 lakh loan and interest as unexplained, doubting creditor’s capacity. The assessee proved the loan was old, reflected in opening balance, and repaid during the year via bank.
Held: Tribunal upheld CIT(A)’s deletion of addition since no fresh loan was taken; repayment was explained.

Issue – Advances Towards Cancelled Bookings: Whether customer advances for cancelled bookings, pending refund, were genuine liabilities or unexplained credits.
Facts: AO added huge sums treating them as bogus since no party confirmations were filed. CIT(A) partly deleted additions where repayments/opening balances were proved but sustained balance additions.
Held: Tribunal restored the matter to AO for verification of repayments and reconciliation of balances, holding that detailed verification was necessary.

Issue – Interest on Delayed Payment of Service Tax/VAT: Whether such interest was penal or compensatory.
Facts: AO disallowed, treating it as penal in nature. CIT(A) held it was compensatory and allowable.
Held: Tribunal upheld CIT(A), relying on SC ruling in Mahalakshmi Sugar Mills, holding that interest on delayed statutory dues is compensatory and deductible.

Final Result: All three appeals (two by assessee and one by Revenue) were partly allowed for statistical purposes—assessee got relief on most additions except specific advances and trade payables remanded, while Revenue’s appeals were dismissed where disallowances were rightly deleted.

CIT(E) not justified in rejecting 12A registration and cancelling provisional registration without considering assessee’s documents – Matter remanded to CIT(E) for fresh adjudication after granting one final opportunity; appeal allowed for statistical purposes.

Issue: Whether the Commissioner of Income Tax (Exemption) [CIT(E)] was justified in rejecting the assessee’s application for registration under Section 12A of the Income Tax Act, 1961 and simultaneously cancelling its provisional registration, without duly considering the documents and submissions filed by the assessee.

Facts: The assessee, a trust incorporated in 1992, was granted provisional registration u/s 12A for AYs 2023-24 to 2025-26. It applied for regular registration u/s 12A(1)(ac)(iii) by filing Form 10AB on 04.06.2024. During the course of proceedings, the CIT(E) issued notices, and the assessee furnished partial replies along with documents like audited financials, activity reports, and donor details. However, the CIT(E), vide order dated 31.12.2024, rejected the application and cancelled the provisional registration citing incomplete compliance. Aggrieved, the assessee appealed before the Tribunal.

Held: The Tribunal observed that the CIT(E) rejected the application without properly considering the documents and submissions furnished by the assessee. In the interest of justice, the Tribunal restored the matter to the file of the CIT(E) with directions to grant one final opportunity to the assessee to substantiate its charitable activities and decide the matter afresh in accordance with law. The assessee was also directed to cooperate with the proceedings. Accordingly, the appeal was allowed for statistical purposes.

Unexplained Investment – Flat Purchase – Cash Component of Rs. 44 Lakhs Disallowed – Tribunal upheld CIT(A)’s order confirming addition under section 69 as assessee failed to prove nexus between old withdrawals and property purchase; appeal dismissed.

Issue: Whether the addition of Rs. 44 lakhs as unexplained investment under section 69 of the Income Tax Act in respect of purchase of a flat in Bangalore was justified, when the assessee claimed that the payment was sourced from earlier withdrawals made from his father’s bank account.

Facts: The assessee, a non-resident individual, purchased a flat for Rs. 71 lakhs in July 2015. On reopening u/s 148, the AO added the entire Rs. 71 lakhs as unexplained investment since the assessee failed to furnish evidence. Before the CIT(A), the assessee produced bank statements and sale documents. The AO in remand accepted payment of Rs. 27 lakhs made through banking channels but rejected the balance Rs. 44 lakhs claimed as cash payment for want of proof. CIT(A) accordingly confirmed addition of Rs. 44 lakhs. Before the Tribunal, the assessee contended that sufficient withdrawals were made from his father’s joint bank account between 2008–2013 to fund the cash component, but the Revenue argued that the timing and nature of withdrawals were inconsistent with the agreement and sale deed.

Held: The Tribunal held that the assessee failed to establish a nexus between the earlier withdrawals and the alleged cash payment of Rs. 44 lakhs, as the payments were claimed to have been made before the supplementary development agreement (2012) and agreement of sale (2013). The explanation was found contradictory and unsupported by receipts or corroborative evidence. Accordingly, the CIT(A)’s order sustaining the addition of Rs. 44 lakhs was upheld, and the appeal was dismissed.

Rejection of 12A registration for mentioning wrong sub-clause held unjustified – Tribunal remands matter to CIT(E) to consider under correct provision; consequential denial of 80G(5) approval also restored for fresh adjudication – both appeals allowed for statistical purposes.

Issue: The assessee’s appeals were against the orders of the CIT(E), Ahmedabad, denying registration under section 12A of the Income Tax Act and consequent denial of approval under section 80G(5). The key issue was whether the rejection of the assessee’s 12A application only on the ground of filing under an incorrect sub-clause of section 12A(1)(ac) was justified, and whether denial of 80G(5) approval on that basis could stand.

Facts: The assessee trust had earlier been granted provisional registration under section 12AB and had claimed exemption under section 11 for A.Ys. 2022-23 to 2024-25. While applying for permanent registration, the assessee inadvertently filed its application under section 12A(1)(ac)(vi)(B) instead of the correct provision, i.e., section 12A(1)(ac)(iii). The CIT(E) rejected the application citing ineligibility under the chosen clause, and consequently denied 80G(5) approval as registration u/s 12A is a pre-condition.

Held: The Tribunal observed that all necessary facts were available with the CIT(E), and the wrong mention of the sub-clause in the application was a mere technical mistake that should not defeat the assessee’s rightful claim. The matter was remanded to the CIT(E) to consider the application under the correct sub-clause of section 12A(1)(ac) and decide afresh. Since the 80G(5) approval was dependent on 12A registration, that issue too was restored to the CIT(E). Both appeals were thus allowed for statistical purposes.

AO’s Power to Fix ALV Above Municipal Value Upheld: Assessee Let Out Office at Nominal Rent with Huge Interest-Free Deposit; Notional Interest Alone Not Decisive but ALV of Rs. 22 Lakhs Sustained in Favour of Revenue.

Issue: Whether the Assessing Officer (AO) could determine the annual letting value (ALV) of a property under Section 22/23 of the Income Tax Act, 1961, at an amount higher than the municipal rateable value, and whether notional interest on interest-free security deposits could be included for such determination.

Facts: The assessee purchased office premises in Mumbai for Rs. 21.85 lakhs and licensed it to Citi Bank for 10 years at a nominal monthly license fee of Rs. 9,825, while simultaneously receiving an interest-free security deposit of Rs. 1.54 crores. For A.Ys. 1990-91 and 1991-92, the assessee declared income based on the nominal license fee. The AO rejected this and determined ALV at Rs. 22 lakhs by considering comparable rents in the same building and a notional return on the huge security deposit. The assessee’s appeals before CIT(A) and ITAT were dismissed, leading to the present appeal.

Held: The Court held that though notional interest on security deposits cannot form the sole basis for ALV, the AO is not bound by municipal rateable value when it does not reflect fair rent. The municipal valuation is only a guiding factor, and the AO can adopt a higher ALV if backed by material such as comparable instances and market conditions. The concept of standard rent applies only if premises fall under rent control laws, which was not the case here. Since the assessee structured the transaction to show a meagre license fee while enjoying substantial benefit from a large interest-free deposit, the AO rightly determined ALV at Rs. 22 lakhs. Accordingly, the question of law was decided in favour of the Revenue and the assessee’s appeals were dismissed.

Assessment framed on non-existent amalgamated company held void ab initio; advances from completed projects not taxable again as already offered in subsequent years—assessee’s appeal allowed in full.

ITA No. 2875/PUN/2024 (Assessee’s Appeal)

Issue: Whether the assessment order passed in the name of Kumar Housing Corporation Pvt. Ltd. (which had amalgamated with Kumar Urban Development Pvt. Ltd. pursuant to Bombay High Court’s order dated 30.10.2015) was valid in law, and whether advances received against projects already 100% complete could be taxed in A.Y. 2013-14 or deferred to subsequent years.

Facts: The assessee, a real estate developer, received advances against four projects that were stated to be fully completed. The AO disallowed Rs. 26.90 crore treating it as unexplained liability and taxed it as income. The assessee contended that the projects’ revenues were already recognized in subsequent years and also informed the AO about the amalgamation. The CIT(A), however, upheld the validity of the assessment on the ground that the assessee failed to update the e-filing portal about amalgamation and partly sustained the addition, restricting it to Rs. 8.14 crore after adjusting for closing WIP.

Held: The Tribunal held that since the assessment order was passed in the name of a non-existent entity after amalgamation was duly intimated, the order was void ab initio. Relying on PCIT v. Maruti Suzuki Ltd. (SC) and City Corporation Ltd. v. ACIT (Bom HC), it was held that failure to update the e-filing portal does not validate an order against a dissolved company. On merits also, it was held that taxing the advances in A.Y. 2013-14 would amount to double taxation since the assessee had already offered them in subsequent years. The Tribunal further allowed deduction u/s 80IA for the “Cerebrum” project. Accordingly, the assessee’s appeal was allowed in full.

ITA No. 341/PUN/2025 (Revenue’s Appeal)

Issue: Whether the CIT(A) was justified in reducing the AO’s addition from Rs. 26.90 crore to Rs. 8.14 crore by allowing set-off for closing WIP, and whether advances received against completed projects should be taxed fully in A.Y. 2013-14.

Facts: The AO held that the assessee wrongly postponed income recognition despite projects being 100% complete and made an addition of Rs. 26.90 crore. The CIT(A) partly upheld the AO’s view that postponement was not permissible but reduced the addition to Rs. 8.14 crore. The Revenue appealed against such reduction, arguing that the entire advances must be taxed in the current year.

Held: The Tribunal dismissed the Revenue’s appeal. It held that since the assessment itself was invalid being framed in the name of a non-existent entity, no addition could survive. Even otherwise, on merits, the Tribunal observed that the income was already taxed in later years, and taxing it again would lead to double taxation. Hence, the Revenue’s grounds were rejected.

Final Outcome: Both appeals by the assessee (ITA 2875/PUN/2024 and connected matter) were allowed, while the Revenue’s appeal (ITA 341/PUN/2025) was dismissed. The assessment was quashed as void ab initio, and even on merits, no addition was sustainable.

ITAT Allows: Co-operative Credit Society Entitled to Deduction u/s 80P(2)(d) on Net Interest from Co-operative Bank after Allowing Proportionate Expenses.

Issue: Whether the assessee, a co-operative credit society, was entitled to deduction under section 80P(2)(d) of the Income-tax Act on net interest and dividend income earned from deposits with a co-operative bank after allowing proportionate expenditure, and whether the lower authorities erred in fully disallowing such claim.

Fact: The assessee filed its return for AY 2016-18 claiming deduction of Rs. 11,78,122/- u/s 80P. The AO disallowed the entire amount holding that interest/dividend from a co-operative bank is not eligible u/s 80P(2)(d). On appeal, the CIT(A) confirmed the disallowance relying on Gujarat HC decision in Katlary Kirana. Before the Tribunal, the assessee restricted its claim to Rs. 5,25,781/- being net interest after proportionate expenses, relying on Gujarat HC rulings allowing such net deduction.

Held: The Tribunal held that in light of binding Gujarat High Court decisions, proportionate expenses on interest from co-operative banks must be allowed, and the assessee is entitled to deduction u/s 80P(2)(d) on the net interest of Rs. 5,25,781/-. The appeal was allowed.

Reassessment under section 147 quashed—Notice under section 148 (old) dated 31.03.2021 served after 01.04.2021 held invalid; section 292BB not applicable to cure absence of valid notice

Issue: whether a reassessment framed under section 147 of the Income-tax Act, 1961, based on a notice under section 148 (old provision) dated 31.03.2021 but served on 20.04.2021—after the substitution of sections 148, 148A, and 149 by the Finance Act, 2021—was valid in law, and whether section 292BB could cure such defect.

Fact: The assessee filed its return for A.Y. 2017-18 declaring income of Rs. 5.52 crore, which was accepted in the original assessment under section 143(3). Based on subsequent information about high-value transactions with an LLP, the AO issued a notice under section 148 (old) dated 31.03.2021 but served it on 20.04.2021, leading to reassessment and an addition of Rs. 21.55 crore under section 68. The CIT(A) partly allowed the appeal, deleting Rs. 10 crore and sustaining Rs. 11.55 crore. Both the assessee and the Revenue filed cross-appeals.

Held: The Tribunal held that since the notice dated 31.03.2021 under section 148 (old) was served on 20.04.2021—when the new provisions of sections 148, 148A, and 149 were already in force—it was issued in violation of the mandatory procedure prescribed by the Finance Act, 2021. Relying on Suman Jeet Agarwal (Del HC) and Laxman Das Khandelwal (SC), it was held that section 292BB cannot cure the absence of a valid notice. Consequently, the reassessment order was quashed, rendering all other grounds in both appeals infructuous. The assessee’s appeal was partly allowed, and the Revenue’s appeal was dismissed.

Tribunal Sends Back Rs. 4.13 Crore Interest Hit for Recheck After Assessee Produces Evidence of Payee’s Taxation

Issue: Whether the disallowance of interest expenses of Rs. 4,13,60,549/- paid to ECL Financial Ltd. under section 40(a)(ia) of the Income Tax Act was justified, on the ground that TDS was not deducted and deposited by the assessee, despite the assessee’s claim that the recipient had already offered the said income to tax.

Facts: The assessee, a private limited company, filed a loss return for AY 2017-18. The AO, in scrutiny assessment, made disallowances including interest on delayed TDS, employee’s PF/ESI contribution, and interest paid to ECL Financial Ltd. under section 40(a)(ia) for non-deduction of TDS. In appeal, the CIT(A) partly allowed relief but upheld the disallowance on interest payment. The assessee contended before the Tribunal that it had filed evidence under Rule 46A showing that the recipient, ECL Financial Ltd., had offered the said interest income to tax, but this was not considered by the lower authorities.

Held: The Tribunal held that as per the second proviso to section 40(a)(ia), if the recipient has already paid tax on the relevant income, no disallowance can be made, provided the assessee is not deemed to be in default under section 201. Since the evidences filed by the assessee were not properly examined, the Tribunal remanded the matter back to the AO for verification of whether the recipient had paid taxes on such interest. The AO was directed to decide afresh after considering the assessee’s submissions, while the assessee was directed to cooperate. Accordingly, the appeal was partly allowed for statistical purposes.

“Interest on Enhanced Compensation Taxable as ‘Income from Other Sources’ with 50% Deduction u/s 57(iv); AO’s Non-Compliance of ITAT Directions Held as Mistake Apparent from Record – Assessee’s Appeal Allowed”

Issue: Whether the interest on enhanced compensation received by the assessee should be taxed as “Income from Other Sources” with 50% deduction under section 57(iv) of the Income Tax Act, 1961, in compliance with ITAT’s earlier directions, or whether the Assessing Officer (AO) was correct in taxing it under “Capital Gains.” The further issue is whether non-compliance of ITAT’s directions by AO constitutes a “mistake apparent from record” rectifiable under section 154.

Facts: The assessee’s original assessment u/s 143(3) included additions on account of enhanced compensation and related interest. The matter was remanded back by ITAT (order dated 29.06.2018) with specific directions that interest on enhanced compensation of Rs. 67,04,556/- be taxed u/s 56(2)(viii) as “Income from Other Sources,” with 50% deduction allowed u/s 57(iv). However, while giving effect to ITAT’s directions, the AO in the order u/s 143(3) r.w.s. 254 (dated 30.12.2019) incorrectly assessed the interest as part of “Capital Gains” and disallowed the deduction. The assessee’s rectification petition u/s 154 was rejected, and CIT(A) upheld the rejection on the ground that it was not a “mistake apparent from record.”

Held: The Tribunal held that ITAT’s earlier directions were clear and categorical—interest on enhanced compensation must be taxed under “Income from Other Sources” with 50% deduction under section 57(iv). The AO’s action of assessing the interest as “Capital Gains” amounted to non-compliance with binding directions of the Tribunal, which is a mistake apparent from record. Accordingly, the Tribunal set aside the orders of the lower authorities and directed the AO to assess the interest income under the correct head and allow deduction @50% u/s 57(iv). The assessee’s appeal was allowed.

ITAT: Rebate u/s 87A allowable on STCG u/s 111A under default new tax regime u/s 115BAC(1A) where total income Rs. 7,00,000; absence of statutory bar construed in assessee’s favour – CPC demand deleted., Dated - 12-08-2025

Issue: whether a resident individual, having opted for the default new tax regime under section 115BAC(1A) and whose total income did not exceed Rs. 7,00,000, is eligible to claim rebate under section 87A against tax payable on short-term capital gains (STCG) taxable under section 111A, in the absence of any express restriction in section 87A or section 111A.

Fact: The assessee, an individual resident of India, filed a revised return for A.Y. 2024–25 declaring total income of Rs. 6,76,402/-, comprising mainly STCG on listed equity shares taxable at 15% u/s 111A, and opted for taxation under section 115BAC(1A). The return claimed rebate of Rs. 13,320/- u/s 87A since total income was below Rs. 7,00,000. CPC, Bengaluru, in processing u/s 143(1), denied the rebate without prior notice, resulting in tax demand of Rs. 15,820/-. CIT(A) upheld the disallowance relying on the “subject to” clause in section 115BAC(1A), provisions of Chapter XII, and the Finance Bill 2025 memorandum stating rebate is not available on special rate incomes. The assessee contended that no statutory restriction existed for STCG under section 111A, unlike section 112A(6) which expressly bars rebate on LTCG over Rs. 1 lakh, and relied on favourable appellate orders and Bombay High Court directions.

Held: The Tribunal held that section 87A, as amended by Finance Act 2023 for A.Y. 2024–25, contains no exclusion for tax on STCG under section 111A, and the absence of an express bar must be construed in favour of the assessee. The “subject to” clause in section 115BAC(1A) governs computation under Chapter XII but does not restrict rebates under Chapter VIII unless specifically provided. Reliance on the Finance Bill 2025 was misplaced as the proposed restriction is prospective from A.Y. 2026–27. The denial of rebate was system-driven without statutory backing. Accordingly, the assessee was held eligible for rebate u/s 87A, the CPC demand was deleted, and the AO was directed to grant refund as per law. The appeal was allowed.

“ITAT Upholds Validity of Reopening u/s 148 but Confirms Deletion of Additions on Alleged Bogus LTCG, STCG and Commission – Revenue’s Appeal Partly Allowed”

Issue: Whether the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961 and the consequent additions made by the Assessing Officer (AO) on account of alleged bogus Long-Term Capital Gain (LTCG), Short-Term Capital Gain (STCG), and commission expenses were valid and sustainable in law.

Facts: The assessee filed return of income for A.Y. 2017-18 declaring Rs. 1,49,72,320/-. Based on information from the Investigation Wing about suspicious transactions in penny stock company Kushal Tradelink Ltd., the AO reopened assessment and made additions of Rs. 44,01,695/- (bogus LTCG), Rs. 1,46,50,449/- (bogus STCG), and Rs. 9,52,607/- (commission u/s 69C), completing assessment at Rs. 2,03,26,622/-. On appeal, the CIT(A) held that the reassessment notice was void ab initio and deleted all additions on the ground that the assessee’s transactions were duly routed through demat and disclosed in the return. Revenue challenged this before the Tribunal.

Held: The Tribunal held that the reopening u/s 148 was valid since Kushal Tradelink Ltd. and Kushal Ltd. were the same entity and the approving authority had duly applied its mind. Thus, the CIT(A)’s view on invalid reopening was set aside, and Ground 1 of Revenue was allowed. However, regarding additions on LTCG, STCG, and commission, the Tribunal observed that the assessee had disclosed all transactions in the return, routed them through demat, and the AO failed to bring evidence of accommodation entries. Hence, the deletions by the CIT(A) were upheld. Accordingly, the appeal of the Revenue was partly allowed.

The Punjab & Haryana High Court Reiterates Invalidity of Section 148 Notices Issued by Jurisdictional AO Instead of NFAC., Dated - 12-08-2025

Issue: Whether a notice under Section 148 of the Income-tax Act, 1961 for A.Y. 2019-20 issued by the Jurisdictional Assessing Officer is valid when, as per Notification dated 28/29.03.2022, only the National Faceless Assessment Centre (NFAC) has the exclusive powers to issue such notice.

Facts: The petitioner challenged the notice dated 29.03.2023 under Section 148, the consequential assessment order dated 24.06.2023, and notice dated 24.06.2023, contending that the jurisdiction lay with NFAC as per the said Notification. Reliance was placed on earlier High Court judgments in Jatinder Singh Bhangu v. Union of India (19.07.2024) and Jasjit Singh v. Union of India (29.07.2024), where similar notices were quashed.

Held: The petition was disposed of in terms of the earlier judgments, granting liberty to the respondents to proceed afresh in accordance with the procedure prescribed under the Act, 1961, if so advised.

Addition based solely on stamp duty valuation without DVO report unsustainable; CIT(A)’s invocation of Section 69 quashed.

ITA No. 526 & 527/Mum/2024
Issue: Whether the addition of the difference between the purchase price of properties and their stamp duty valuation could be sustained, and whether the CIT(A) was correct in invoking Section 69 instead of considering the DVO’s report.

Facts: The assessee, a real estate dealer, purchased properties at prices below stamp duty valuation. The AO referred the matter to the DVO, but completed assessment under Section 143(3) before the report arrived, adding Rs.6.92 crore under “Income from Other Sources.” After receiving the DVO report, the AO rectified the order under Section 154, reducing the addition to Rs.1.85 crore. CIT(A) upheld the full original addition under Section 69 as “unexplained investment.”

Held: The Tribunal found that CIT(A) erred by adopting new facts and invoking Section 69, contrary to the AO’s basis and without considering the DVO’s report. Relying on CIT v. Sadhna Gupta and CIT v. Rohtas Projects Ltd., it held that additions cannot rest solely on stamp duty valuation without proof of extra consideration. The CIT(A)’s order was quashed, the Section 154 rectification also set aside, and both appeals were allowed.

ITA No. 528/Mum/2024

Issue: Whether addition under Section 43CA on sale of property, without considering the DVO’s report, was valid.

Facts: The assessee sold plots where the declared consideration was less than stamp duty valuation. AO referred the matter to the DVO near the end of limitation period but completed assessment before receiving the report, adding Rs.5.40 crore under Section 43CA. CIT(A) upheld the addition without examining the DVO report.

Held: The Tribunal held that the DVO’s report was a vital document and must be considered before deciding. In the interest of natural justice, the matter was remanded to the AO to reconsider in light of the DVO’s report, giving the assessee full opportunity to present evidence. Appeal allowed for statistical purposes.

Section 234A – No Interest Levy Beyond Date of Full Tax Payment – ITAT Jaipur deletes interest where self-assessment tax was discharged before extended due date; reliance on CBDT Circular 2/2015 & Prannoy Roy (SC).

Issue: Whether interest under Section 234A of the Income-tax Act, 1961 can be levied for a period subsequent to the discharge of the entire self-assessment tax liability, when the return of income was filed within the extended statutory timeline granted by CBDT, despite the applicability of Explanation 1 to Section 234A in cases where tax payable exceeds Rs. 1 lakh.

Facts: The assessee, a private limited company, filed its return of income on 12/03/2022 declaring income of Rs. 7.82 crore. The CPC accepted the returned income under Section 143(1) but levied interest under Section 234A for November 2021 to March 2022, even though the assessee had paid the entire self-assessment tax on 30/12/2021. The CIT(A), relying on CBDT Circulars No. 17/2021 and 01/2022, upheld the levy of interest for the period January–March 2022, as the tax payable exceeded Rs. 1 lakh.

Held: The Tribunal observed that once the entire self-assessment tax liability was discharged by 30/12/2021, no interest could accrue thereafter, as clarified by CBDT Circular No. 2/2015 and the Supreme Court ruling in CIT v. Prannoy Roy (309 ITR 231). Since there was no outstanding tax post 30/12/2021, levy of further interest under Section 234A was without authority of law. Accordingly, interest charged from 01/01/2022 to 31/03/2022 was directed to be deleted, and the assessee’s appeal was allowed.

Revision under section 263 upheld – CIT(E) justified in revising assessment where AO wrongly excluded accrued interest income of Rs. 15.44 crore, since the issue was not the subject matter of assessee’s appeal pending before CIT(A).

Issue: Whether the Principal Commissioner of Income Tax (Exemption) was justified in invoking revisionary jurisdiction under section 263 of the Income Tax Act, 1961, on the ground that the Assessing Officer wrongly excluded accrued interest income of Rs. 15.44 crore while completing the assessment, despite the assessee’s appeal against the assessment order being pending before CIT(A).

Facts: The assessee, a university registered as a local authority, filed its return declaring Nil income after claiming exemption u/s 11. The AO, in scrutiny assessment u/s 143(3), excluded accrued interest income of Rs. 15.44 crore and determined taxable income at Rs. 52.63 crore by denying exemption u/s 11. The assessee filed appeal before CIT(A) challenging denial of exemption. Meanwhile, CIT(E) noticed that since assessee follows mercantile system, accrued interest income must be included. As AO erroneously excluded the same, CIT(E) held the order to be erroneous and prejudicial to the interests of revenue and passed order u/s 263 setting aside assessment for reframing.

Held: The Tribunal held that although assessee’s appeal is pending before CIT(A), the issue of accrued interest income was not the subject matter of that appeal, since AO had already given relief by excluding it. Hence, CIT(E) was within jurisdiction to revise the order u/s 263. It was clarified that the grievance of assessee that interest was already recorded in books is irrelevant, as the issue was non-inclusion of accrued income in computation under mercantile system. Accordingly, the Tribunal confirmed the order passed u/s 263 and dismissed the assessee’s appeal.

Bogus Purchases – Charitable Trust – Addition of Rs. 1.85 crore u/s 68 deleted where entry operator admitted bogus billing only from 2018 (not relevant to AY 2014-15) and no independent enquiry conducted by AO; application of income exceeded receipts, hence no tax avoidance motive – Revenue’s appeal dismissed, CO infructuous; consequential penalty u/s 271(1)(c) of Rs.1.23 crore also deleted – ITAT Pune.

ITA No. 2155/PUN/2024 (Revenue appeal) & CO No. 12/PUN/2025 (Assessee cross-objection)

Issue: Whether addition of Rs. 1.85 crore made by the Assessing Officer treating purchases from M/s. Dev Shreem Solutions as bogus accommodation entries was justified in the case of a charitable trust registered u/s 12A, and if so, whether exemption u/s 11 could still be denied.

Facts: The assessee, a registered trust, filed NIL return claiming exemption u/s 11. Based on Investigation Wing information regarding alleged bogus purchases from an entry operator, the AO reopened assessment u/s 147 and made addition of Rs. 1.85 crore u/s 68. The CIT(A) deleted the addition noting absence of cross-examination, no independent enquiry, categorical statement of entry operator that such transactions started only from 2018 (whereas the year in dispute was AY 2014-15), and also that assessee’s application of income exceeded its receipts leaving no taxable surplus even after disallowance.

Held: The Tribunal upheld CIT(A)’s deletion. It held that selective reliance on the statement of the entry operator could not justify addition when he himself admitted to starting bogus billing only in 2018. The AO failed to conduct independent enquiry or establish falsity of bills. Further, as assessee applied more than its income for charitable purposes, there was no tax avoidance motive. Accordingly, Revenue’s appeal was dismissed. The assessee’s cross-objection was also dismissed as infructuous.

ITA No. 2170/PUN/2024 (Revenue appeal – penalty u/s 271(1)(c))

Issue: Whether penalty u/s 271(1)(c) was leviable when the quantum addition of Rs. 1.85 crore had already been deleted.

Facts: The AO levied penalty of Rs. 1.23 crore u/s 271(1)(c) on addition of Rs. 1.85 crore treated as bogus purchases. CIT(A) deleted the penalty holding that once the quantum addition itself was deleted, penalty could not survive.

Held: Since the Tribunal confirmed deletion of the quantum addition in assessee’s favour, the consequential penalty was also rightly deleted by CIT(A). Revenue’s appeal was dismissed.

ITAT Mumbai dismisses Revenue appeals; upholds CIT(A) order deleting share premium addition u/s 56(2)(viib) and allowing depreciation on non-refundable deposit for hospital management rights as intangible asset (AYs 2016-17 to 2018-19).

Issue: The Revenue challenged the orders of the CIT(A), NFAC, Delhi, for AYs 2016-17 to 2018-19, raising two common issues—(i) deletion of addition on account of share premium u/s 56(2)(viib), where the AO had rejected the DCF valuation report and treated premium as income, and (ii) deletion of disallowance of depreciation on non-refundable deposit of Rs. 25 crores paid to the society running Nanavati Hospital, which the assessee claimed as intangible asset u/s 32(1)(ii).

Facts: The assessee, incorporated in 2014, issued shares at premium supported by a valuation report using the DCF method prescribed under Rule 11UA(2)(b). The AO rejected the report alleging unrealistic projections and absence of intrinsic worth, and added Rs. 10.73 crores as income u/s 56(2)(viib) in AY 2016-17. Further, the assessee had paid Rs. 25 crores as non-refundable deposit for rights to operate and manage Nanavati Hospital and claimed depreciation at 25% treating it as an intangible right. Though depreciation was allowed in earlier years, the AO disallowed it in the reassessment. The CIT(A) deleted both additions noting that DCF is a prescribed method which the AO cannot substitute with his own estimate, and that depreciation once allowed on WDV of intangible asset cannot be denied in subsequent years.

Held: The ITAT upheld the CIT(A)’s orders for all three years. It held that valuation under Section 56(2)(viib) read with Rule 11UA allows the assessee to adopt either DCF or NAV method, and once a prescribed method by a qualified valuer is followed, the AO cannot reject it merely because projections differ from actual results. Reliance was placed on Cinestaan Entertainment (P) Ltd. (Delhi ITAT, affirmed by Delhi HC). On depreciation, the Tribunal followed Bangalore International Airport Ltd. (Karnataka HC), holding that non-refundable deposits creating business/commercial rights constitute intangible assets eligible for depreciation u/s 32(1)(ii). Since depreciation was allowed in earlier years, disallowance in later years was unjustified. Accordingly, all Revenue appeals (ITA Nos. 3083, 3084 & 3085/Mum/2025) were dismissed.

Adjustment of refunds without prior intimation under Section 245 invalid for AYs 2021-22 to 2023-24; valid for AY 2024-25 where intimation was issued—Revenue directed to refund excess recovery beyond 20% of disputed demand during pendency of appeal.

Issue: Whether the Income Tax Officer (ITO) was legally justified in adjusting the petitioner’s tax refunds for Assessment Years (AYs) 2021-22, 2022-23, and 2023-24 against the outstanding demand for AY 2018-19 without issuing prior written intimation and giving a hearing as mandated under Section 245 of the Income Tax Act, 1961. A related issue was whether the ITO’s adjustment of refund for AY 2024-25 was valid when an intimation had been sent, but the petitioner failed to respond.

Facts: The petitioner faced a disputed tax demand of Rs. 1,35,38,224 for AY 2018-19, against which an appeal was filed along with a stay application under Section 220(6). The ITO granted conditional stay subject to payment of 20% of the demand, which the petitioner substantially complied with, though the last installment was deposited two days late. Despite this, while the appeal was pending, the ITO adjusted the petitioner’s refund amounts for AYs 2021-22, 2022-23, 2023-24, and 2024-25 against the outstanding demand. The petitioner contended that no notice of set-off was issued for the first three years and that in the case of AY 2024-25, though intimation was sent, no further opportunity was provided before adjustment.

Held: The Court held that the ITO’s adjustment of refunds for AYs 2021-22, 2022-23, and 2023-24 was invalid as it violated Section 245, which requires prior intimation and opportunity of hearing before setting off refunds. However, regarding AY 2024-25, the Court upheld the adjustment since the petitioner admitted receipt of intimation and failed to respond, holding that no “further intimation” was necessary. Referring to CBDT Office Memoranda and Delhi High Court precedents, the Court reiterated that only 20% of the disputed demand could be recovered during pendency of appeal. Accordingly, the Court directed the competent authority to verify whether excess refunds had been adjusted beyond the permissible 20% and, if so, to restore the same to the petitioner within a fixed time frame. The writ petition was thus partly allowed with directions.

ITAT partly allowed Times Group’s appeals for AYs 2015-16 & 2016-17, deleting disallowance u/s 14A and Sec 43CA addition, remanding forex fluctuation issue, but upholding denial of carry forward of LTCL on STT-paid shares u/s 10(38).

Issue: The assessee, flagship company of the Times Group, challenged the orders of the CIT(A) confirming additions/disallowances made by the AO for AYs 2015-16 and 2016-17. Key issues included: (i) disallowance under Section 14A r.w. Rule 8D, (ii) addition under Section 43CA on property sale, (iii) addition of foreign exchange fluctuation/write-back, and (iv) disallowance of carry forward of long-term capital loss on STT-paid shares under Section 10(38).

Facts: The assessee had investments yielding dividend, LTCG, and tax-free bond interest. It voluntarily disallowed Rs. 35.01 lakhs u/s 14A, but the AO, without recording dissatisfaction, applied Rule 8D and added Rs. 21.31 crores. Further, AO added Rs. 17.46 lakhs u/s 43CA due to difference in stamp duty value, disallowed deduction of Rs. 37.64 crores relating to foreign exchange fluctuation/write-back, and rejected carry forward of LTCL of Rs. 28.16 crores on STT-paid shares citing Section 10(38). CIT(A) upheld all AO’s additions, leading to the present appeals before ITAT.

Held: The Tribunal held:

• Sec 14A/Rule 8D (Grounds 1–4): AO failed to record dissatisfaction before rejecting assessee’s suo motu disallowance; hence, disallowance of Rs. 21.31 crores deleted.

• Sec 43CA Addition (Ground 5): Difference between stamp duty value and sale consideration (Rs. 17.46 lakhs) was within 10% tolerance; addition deleted.

• Forex Fluctuation (Ground 6): Write-back of Rs. 37.64 crores was only a book entry under AS-11; matter remanded to AO for fresh verification.

• LTCL Carry Forward (Grounds 7–9): Tribunal upheld CIT(A)’s denial of carry forward of Rs. 28.16 crores LTCL on STT-paid shares, holding Sec 10(38) covers such loss also.

• AY 2016-17: Decision applied mutatis mutandis.

Result: Appeals partly allowed – relief granted on Sec 14A and Sec 43CA issues, forex fluctuation remanded, but LTCL disallowance upheld.

Penalty u/s 272A(1)(d) unsustainable where non-resident assessee not effectively served with notices; absence of willful default – ITAT cancels levy of Rs. 20,000.

Issue: Whether penalty of Rs. 20,000 levied U/s. 272A(1)(d) of the Income-tax Act, 1961, for non-compliance with notices issued U/s. 142(1), could be sustained where the assessee, a non-resident Indian, claimed lack of proper service of notices and absence of any willful default.

Facts: The assessee, Ms. Jayshree Nilam Patel, a non-resident living abroad for the past 30 years, did not file her return for A.Y. 2017-18. Based on information from a search in the Navratna Group case, her case was reopened U/s. 147. Notices U/s. s 148A(b), 148, and 142(1) were issued, but the assessee did not respond, leading to an ex-parte assessment U/s. 147 r.w.s. 144, making an addition of Rs. 3.17 crores. The Assessing Officer thereafter levied penalty of Rs. 20,000 U/s. 272A(1)(d) for failure to comply with section 142(1) notices. The CIT(A) confirmed the penalty, holding that the assessee was non-cooperative and failed to respond to statutory notices.

Held: The Tribunal observed that no evidence was produced by the Department to show valid service of notices, particularly in light of the assessee’s non-resident status. The assessee became aware of the proceedings only upon receipt of a demand notice via email in November 2023. Since non-compliance arose due to lack of service and knowledge rather than deliberate defiance, the essential condition for levy of penalty U/s. 272A(1)(d) was not satisfied. Accordingly, the penalty of Rs. 20,000 was cancelled, and the appeal was allowed.

ITAT Restores Additions on Undisclosed Turnover, Unexplained Credits, and LTCG for Fresh AO Examination

Issue: Dispute regarding multiple additions made by AO—(i) NP on undisclosed turnover of Rs. 14,92,643/-, (ii) addition of Rs. 31,03,000/- under “Income from Other Sources”, (iii) LTCG of Rs. 6,94,853/- on flat cancellation, (iv) Rs. 52,361/- as additional interest income, and (v) interest u/s 234A & 234B.

Fact: The assessee, engaged in advertisement hoarding business, declared turnover of Rs. 70,05,452/- and NP of Rs. 23,02,958/- (32.87%). AO found cash deposits of Rs. 1,10,46,500/- in bank accounts, treated Rs. 45,41,050/- as unexplained turnover, and applied NP rate for addition. Further, Rs. 31,03,000/- was treated as unexplained credits, LTCG computed on Rs. 40 lakh flat cancellation receipt, and Rs. 52,361/- added as unreported interest. CIT(A) upheld AO’s additions. In appeal, assessee furnished fresh explanations and documents before ITAT.

Held: ITAT noted fresh evidence/explanations on NP addition, unexplained credits, and LTCG which were not examined by lower authorities. In the interest of justice, all three issues restored to AO for fresh adjudication after giving assessee opportunity of hearing. Addition of Rs. 52,361/- not pressed. Interest u/s 234A & 234B held consequential. Appeal allowed for statistical purposes.

Assessment u/s 144 Quashed for Failure to Issue Mandatory Notice u/s 143(2) on Belated Return Filed in Response to Notice u/s 142(1)

Issue: Whether an assessment order passed u/s 144 of the Income Tax Act without issuing a mandatory notice u/s 143(2) is valid, when the assessee had filed a belated return of income in response to a notice u/s 142(1).

Fact: The assessee, a partnership firm in construction business, did not file its return for AY 2017-18 on time. The AO issued notice u/s 142(1), and the assessee filed the return belatedly on 20/07/2019. Despite the return being on record and intimated to the AO, he ignored it and proceeded with best judgment assessment u/s 144 without issuing notice u/s 143(2), estimating profits at 8% of certain bank deposits. The CIT(A) remitted the matter back to AO for fresh adjudication, against which the assessee appealed, arguing that the absence of notice u/s 143(2) rendered the assessment void ab initio.

Held: The ITAT held that a return filed in response to notice u/s 142(1), even if belated, is a valid return and requires issuance of notice u/s 143(2) to confer jurisdiction for assessment. The AO’s failure to issue such notice is a fatal defect not curable u/s 292BB, as per settled judicial precedents. Consequently, the assessment order dated 18/12/2019 was quashed. Other grounds became academic, and the appeal was allowed in favour of the assessee.

The Supreme Court in landmark ruling on interplay between Section 144C and Section 153 of the Income Tax Act — Majority (per Satish Chandra Sharma, J.) holds that the non-obstante clauses in Section 144C(4) and (13) exclude the application of Section 153’s limitation to the post-draft Dispute Resolution Panel (DRP) procedure, thereby confining Section 153(3)’s twelve-month period to the stage of passing the draft assessment order alone, with the statutory timelines for DRP directions and final assessment under Section 144C operating in addition and extending the overall period available to the Assessing Officer; Dissent (per Nagarathna, J.) upholds Bombay High Court’s view that the Section 144C procedure, including the DRP stage, must be fully completed within the overall limitation prescribed under Section 153, with no exclusion for time spent before the DRP, rendering delayed assessments beyond that period as time-barred., Dated- 08-08-2025

ISSUE: Whether the time consumed in the procedure U/s. 144C of the Income Tax Act, 1961 — involving draft assessment orders and Dispute Resolution Panel (DRP) directions for “eligible assessees” — is to be subsumed within the limitation period prescribed U/s. 153(1) or 153(3), or whether it operates as an additional period extending the limitation.

FACT: The respondents, non-resident assessees engaged in oil and gas exploration, were subject to reassessment proceedings following Tribunal remand orders and original assessments. Draft assessment orders U/s. 144C were issued close to the expiry of the limitation period prescribed U/s. 153, as extended by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). The Bombay High Court held that the procedure U/s. 144C must conclude within the overall limitation U/s. 153, thereby rendering the reassessment orders time-barred. The Revenue contended that Section 144C is a self-contained code with timelines independent of Section 153, allowing the DRP process to operate beyond Section 153’s time limits.

HELD: The Supreme Court (per Satish Chandra Sharma, J., majority) allowed the Revenue’s appeals, holding that Section 144C’s timelines are independent and operate in addition to the limitation prescribed U/s. 153(3). The limitation U/s. 153(3) applies to the passing of the draft order, while the subsequent DRP procedure and final order timelines U/s. 144C(4) and (13) stand apart due to their non-obstante clauses. Accordingly, the Bombay High Court’s view that the Section 144C procedure must fit entirely within the Section 153(3) limitation was incorrect. Nagarathna, J., in a dissent, upheld the High Court’s reasoning and would have dismissed the Revenue’s appeals.

The Supreme Court Dismisses Special Leave Petition Citing 325-Day Delay and Low Tax Effect; Question of Law Kept Open