Section 10AA Deduction Cannot Be Denied for Filing Wrong Audit Form; Procedural Defect is Curable

Issue: Whether the assessee’s claim for deduction under Section 10AA of the Income Tax Act, 1961 could be denied solely because Form 56G was filed instead of the prescribed Form 56F, and whether such defect constituted a substantive non-compliance or merely a procedural lapse. The assessee also challenged the validity of reassessment proceedings initiated under Sections 147/148 of the Act.

Facts: The assessee, a private limited company engaged in providing information technology services from a Special Economic Zone (SEZ), claimed deduction of Rs.6,10,66,460 under Section 10AA for AY 2014-15. The return was originally scrutinized under Section 143(3) and accepted without any addition. Subsequently, reassessment proceedings were initiated, and the Assessing Officer disallowed the deduction on the ground that the assessee had furnished Form 56G instead of Form 56F. The assessee contended that the filing of the wrong form was an inadvertent mistake by its Chartered Accountant, that all substantive conditions for deduction under Section 10AA were fulfilled, that the unit had valid SEZ approval, and that its books were duly audited. The CIT(A) upheld the disallowance.

Held: The Tribunal held that the assessee’s eligibility for deduction under Section 10AA was never disputed by either the Assessing Officer or the CIT(A). Filing Form 56G instead of Form 56F was merely a procedural defect capable of rectification and could not by itself justify denial of the deduction. The Tribunal directed the Assessing Officer to accept the corrected Form 56F along with the audited books and, upon verification that all statutory conditions were satisfied, allow the deduction under Section 10AA. Accordingly, the appeal for AY 2014-15 was partly allowed. For AY 2015-16, relying upon the decision of the Supreme Court in Union of India v. Rajiv Bansal, the Tribunal granted relief and allowed the appeal.

Matter Remanded to CIT(E) for Reconsideration Upon Production of Pending FCRA Certificate

ISSUE: Whether rejection of the appellant’s application for registration under Section 12A(1)(AC)(iii) of the Income Tax Act, 1961, on the ground of non-production of an FCRA Certificate was justified, and whether the matter should be remanded to enable the appellant to furnish the certificate.

FACTS: The appellant applied for registration under Section 12A(1)(AC)(iii) of the Act. The Commissioner of Income Tax (Exemption), Kolkata, rejected the application by order dated 28.11.2023 because the appellant did not furnish FCRA registration details. The appellant submitted that it had already applied for the FCRA Certificate and was awaiting its issuance by the competent authority, and therefore requested that the matter be remanded. The Department contended that production of the FCRA Certificate was mandatory and that the rejection order was proper.

HELD: The Tribunal observed that the application was rejected mainly due to non-production of the FCRA Certificate and noted the appellant’s claim that the certificate application was pending before the concerned authority. Considering the facts and circumstances, the matter was remanded to the file of the CIT(E) with a direction to allow the appellant to produce the FCRA Certificate and any other supporting documents. The CIT(E) was directed to reconsider and decide the application in accordance with law. Accordingly, the appeal was partly allowed for statistical purposes.

ITAT Ahmedabad: Quashes Rs. 10.03 Crore Section 69A Addition; Holds Recorded Business Receipts Supported by Books, VAT Records and Documentary Evidence Cannot Be Treated as Unexplained Money, 23-06-2026

ISSUE: Whether the CIT(A) was justified in deleting the addition of Rs. 10,03,45,404/- made under Section 69A of the Income-tax Act, 1961, where the Assessing Officer treated NEFT/RTGS credits in the assessee’s bank account as unexplained money on the ground that certain supporting records such as stock registers, quantitative details, and supplier confirmations were not fully furnished.

FACTS: The assessee, a senior citizen engaged in the business of trading in gold through “Shree Ambika Jewellers,” filed his return for AY 2015-16 declaring income of Rs. 6,84,940/-. During reassessment proceedings, the Assessing Officer noticed credits of Rs. 10,03,45,404/- in the assessee’s Axis Bank account and treated the entire amount as unexplained under Section 69A. The assessee explained that the credits represented business receipts and furnished documents including bank statements, purchase and sales registers, ledger accounts, VAT returns, confirmations, and reconciliation statements. The CIT(A) found that these materials had been produced and that the Assessing Officer had not conducted any meaningful enquiry to disprove them before making the addition.

HELD: The Tribunal upheld the order of the CIT(A) and dismissed the Revenue’s appeal. It held that Section 69A applies only to money or valuable articles not recorded in the books of account. Since the impugned receipts were recorded in the books as business receipts and the Assessing Officer failed to bring any cogent evidence to show that they were unaccounted or non-genuine, the addition of Rs. 10,03,45,404/- under Section 69A was unsustainable. The deletion of the addition by the CIT(A) was therefore affirmed.

ITAT Delhi: Addition under section 69 deleted as land transactions were carried out on behalf of employer company and not as personal investment of assessee. 22-06-2026

ISSUE: Whether the addition of Rs. 2,71,27,420/- under section 69 of the Income Tax Act, 1961 on account of alleged unexplained investment in land could be sustained in the hands of the assessee when the land transactions were carried out by the assessee as an authorised representative of his employer company.

FACT: A search was conducted in the case of Alchemist Group, during which documents were found showing alleged cash payments for purchase of land in Jaipur and Tonk districts. Based on these documents, the Assessing Officer reopened the assessment of the assessee under section 147 and made an addition of Rs. 2,71,27,420/- under section 69, treating the amount as unexplained investment of the assessee. The assessee contended that he was merely an employee of M/s Alchemist Infra Realty Ltd. and the transactions were undertaken on behalf of the company. The CIT(A) deleted the addition on the ground that the AO failed to establish that the assessee had purchased any property or made any personal investment. The Revenue challenged the deletion before the Tribunal.

HELD: The Tribunal dismissed the appeal of the Revenue and upheld the order of the CIT(A). It was observed that the documents and sale deeds placed on record established that the purchase of land was undertaken by M/s Alchemist Infra Realty Ltd. and the assessee acted only as an authorised representative of the company. Since the transactions were related to the employer company and not the personal investment of the assessee, any addition, if warranted, could only be considered in the hands of the company. The AO failed to bring any evidence proving that the assessee made investment in his individual capacity. Therefore, the addition under section 69 was rightly deleted.

Assessee’s Appeal Allowed: CIT(A)’s Enhancement of Capital Gains Held Beyond Jurisdiction and Deletion of Addition Upheld on Merits

Issue: Whether the Ld. CIT(A) could enhance the income by bringing to tax long term capital gain on sale of the Manesar property when the reassessment was initiated only on the issue of unexplained investment in the Panchkula property, and whether such enhancement was sustainable on merits.

Facts: The assessee filed return of income declaring Rs.33,38,850/-. The Assessing Officer reopened the assessment on the basis of information that the assessee had purchased property at Panchkula for Rs.79,20,000/-. The Assessing Officer made addition under section 69 for unexplained investment. In appeal, the assessee explained that the Panchkula purchase was made from sale proceeds of residential property at Manesar for Rs.1.20 crores, and the Ld. CIT(A) accepted this explanation and deleted the addition under section 69. However, the Ld. CIT(A) enhanced the income by computing long term capital gain at Rs.98,94,000/- on the Manesar property, denying indexed cost and deduction under sections 54/54F.

Held: The enhancement was held to be without jurisdiction because the reassessment was confined only to the source of investment in the Panchkula property, and the issue of capital gains from sale of the Manesar property was never examined by the Assessing Officer or formed part of the recorded reasons. The Tribunal further held that once the original addition was deleted, the basis of reopening itself stood extinguished. On merits also, the Tribunal found that the sold property was a residential house property, not a vacant plot, and that the assessee had substantiated construction and investment in a new residential house. The denial of indexed cost and exemption under sections 54/54F was therefore unsustainable. The appeal of the assessee was allowed.

Addition u/s 68 on Share Capital Set Aside for De Novo Assessment with Direction to Assessee to Prove Identity, Genuineness and Creditworthiness of Transactions

Issue: The dispute concerns addition of Rs.1,79,50,000 made u/s 68 of the Income Tax Act, 1961 on account of share capital received by the assessee, and whether the dismissal of appeal by the NFAC/CIT(A) for non-production of directors and failure to prove identity, genuineness, and creditworthiness was justified.

Fact: The assessee filed return declaring a loss of Rs.2,293 and the case was selected under CASS to examine large share premium. The Assessing Officer completed assessment u/s 143(3) making addition of Rs.1,79,50,000 u/s 68 as the assessee failed to produce directors of the assessee company and share applicant companies and did not establish the required ingredients of the transaction. The CIT(A) upheld the assessment and dismissed the appeal, leading to the present appeal.

Held: The Tribunal restored the matter to the file of the Assessing Officer for de novo adjudication, noting the assessee’s undertaking to produce the concerned directors and substantiate the transaction. It was held that the burden remains on the assessee to prove identity, genuineness, and creditworthiness, and failure would permit the Assessing Officer to draw adverse inference in accordance with law, with proper opportunity of hearing to be granted.

ITAT Delhi: Deletes Penalty u/s 271DA: No Violation of Section 269ST Established Without Proof of Single-Day or Single-Transaction Cash Receipt, Dated - 22-06-2026

ISSUE: Whether penalty under section 271DA of the Income Tax Act, 1961 can be imposed for alleged violation of section 269ST merely because the assessee admitted receipt of cash sales exceeding Rs. 2 lakhs during the year, without establishing that the cash receipt was Rs. 2 lakhs or more in a single day, single transaction, or one event/occasion?

FACT: The assessee received cash of Rs. 10,00,000/- through hawala cash transactions from M/s Balar Marketing Private Ltd. during A.Y. 2018-19. Search proceedings under section 132 were conducted, and documents relating to cash transactions were found. The assessee admitted making cash sales which were not disclosed in the original return. The AO computed profit at 8% under section 44AD and initiated penalty proceedings under section 271DA for violation of section 269ST. A penalty of Rs. 10,00,000/- was imposed. Similar penalties were imposed for A.Ys. 2019-20 and 2020-21. The CIT(A) confirmed the penalties. The assessee challenged the orders before the Tribunal.

HELD: The Tribunal held that section 269ST prohibits receipt of cash of Rs. 2 lakhs or more only when such receipt is in aggregate from a person in a day, in respect of a single transaction, or in respect of transactions relating to one event or occasion. The AO had not recorded any finding establishing that the cash receipt violated these specific conditions and had imposed penalty only because the assessee admitted total cash sales of Rs. 10 lakhs during the year. Therefore, the penalty under section 271DA was held unjustified and was deleted. The Tribunal allowed all three appeals of the assessee.

ITAT Agra: Religious Trust entitled to exemption u/s 11 & 12 despite 12AA registration granted subsequently; donation receipts disclosed in books cannot be treated as unexplained cash credit u/s 68; section 115BBE not applicable for A.Y. 2017-18., 22-06-2026

Issue: Whether the assessee religious trust was eligible for exemption u/s 11 and 12 of the Income Tax Act for A.Y. 2017-18 despite registration u/s 12AA being granted subsequently, whether cash donations of Rs. 75,46,000/- received for religious activities could be treated as unexplained cash credits u/s 68, and whether special tax rate u/s 115BBE could be applied for A.Y. 2017-18.

Facts: The assessee was a religious trust registered under the MP Public Trust Act and subsequently granted registration u/s 12AA of the Income Tax Act on 26.11.2018. For A.Y. 2017-18, the trust received cash donations of Rs. 34,21,000/- towards Abhishek Donation Income and Rs. 41,25,000/- towards Indra Indrani Donation Income for religious events relating to Panchkalyanak Pratishtha Mahotsava and Mahamastakabhishek of Lord Aadinath Bhagwaan. During scrutiny assessment, the Assessing Officer treated the donations as bogus and unexplained cash credits u/s 68 on the ground that the deposits were made before demonetization and the trust was not registered u/s 12AA during the relevant year. The addition was confirmed by the CIT(A).

Held: The Tribunal held that the benefit of section 12A(2) proviso was available to the assessee since registration u/s 12AA had been granted before completion of assessment proceedings and the objects and activities of the trust remained the same. Therefore, exemption u/s 11 and 12 could not be denied for the earlier assessment year. The Tribunal further held that the donations were duly recorded in audited books, supported by donor details, receipts, ledger accounts and evidence of religious activities. Since the donations were disclosed as income and books were not rejected, section 68 could not be invoked. The addition of Rs. 75,46,000/- was deleted. The Tribunal also held that enhanced tax rate u/s 115BBE was not applicable for A.Y. 2017-18 as the amendment applied prospectively from A.Y. 2018-19.

Legal Ratio: Where a charitable or religious trust subsequently obtains registration u/s 12AA and assessment proceedings for earlier years are pending, the benefit of section 12A(2) proviso can apply retrospectively if the objects and activities remain unchanged. Donations disclosed in audited accounts with supporting evidence cannot be treated as unexplained cash credits u/s 68 merely on suspicion or timing of cash deposits. Section 115BBE enhanced rate of tax is prospective and cannot be applied to A.Y. 2017-18.

The Tribunal Condones Delay in Filing Appeal and Restores Matter to CIT(A) for Fresh Adjudication on Merits; Appeal Allowed for Statistical Purposes

Issue: Whether the delay in filing the appeal before the CIT(A) against levy of penalty under section 270A of the Income-tax Act, 1961 should be condoned and whether the matter should be restored for adjudication on merits.

Fact: The assessee, a Cooperative Society, filed return declaring NIL income after claiming deduction under section 80P, which was later disallowed in assessment under section 143(3), leading to initiation and levy of penalty of Rs. 36,78,818 under section 270A for alleged misreporting. The appeal before CIT(A) was dismissed solely on the ground of delay as the delay was not condoned. The assessee contended that the delay occurred due to reasonable cause and sought adjudication on merits.

Held: The Tribunal found the explanation for delay to be supported by reasonable cause and not intentional, and condoned the delay by adopting a justice-oriented approach relying on settled judicial principles. The order of the CIT(A) was set aside and the matter was restored to the CIT(A) for fresh adjudication on merits after granting proper opportunity of hearing. The appeal was allowed for statistical purposes.

ITAT Delhi: Deletes Rs. 2.12 Crore Addition under Section 69 and Allows Deduction on Dividend Income under Section 80P(2)(d)

ISSUE: Whether the CIT(A) was justified in deleting the addition of Rs. 2,12,74,240 made by the Assessing Officer under section 69 read with section 115BBE on account of alleged excess valuation of fixed assets due to depreciation being reflected in a different schedule of the return, and whether dividend income of Rs. 2,22,03,400 received from IFFCO and U.P. Cooperative Bank Ltd. was allowable as deduction under section 80P(2)(d).

FACTS: The assessee, a cooperative society engaged in banking activities, filed its return for AY 2016-17 declaring income of Rs. 6,59,93,730 and claiming exemption of dividend income of Rs. 2,22,03,400. The Assessing Officer completed assessment under section 143(3) and made two additions: (i) Rs. 2,22,03,400 by disallowing the dividend claim, and (ii) Rs. 2,12,74,240 under section 69 alleging unexplained investment arising from non-reduction of depreciation from fixed assets in the relevant ITR schedule. The CIT(A) deleted the addition of Rs. 2,12,74,240, holding that depreciation had in fact been claimed under “other expenses” and that similar additions had already been deleted by the Tribunal in the assessee’s own earlier years. However, the CIT(A) sustained the addition relating to dividend income, against which the assessee filed a cross objection.

HELD: The Tribunal upheld the CIT(A)’s deletion of Rs. 2,12,74,240, observing that the issue was fully covered by its earlier order in the assessee’s own case for AY 2015-16. The Tribunal held that mere incorrect disclosure of depreciation in a different column of the return could not justify treating part of the assets as unexplained investment under section 69. Regarding the cross objection, the Tribunal followed its earlier decisions and held that dividend received from IFFCO and U.P. Cooperative Bank Ltd., both being cooperative societies, was eligible for deduction under section 80P(2)(d). Accordingly, the addition of Rs. 2,22,03,400 was deleted, the assessee’s cross objection was allowed, and the Revenue’s appeal was dismissed.

Reassessment Proceedings Quashed as Approval Under Section 151(ii) Obtained from Incorrect Authority; Revenue's Appeals Dismissed

Issue: Whether the reassessment proceedings initiated under section 148 of the Income-tax Act for Assessment Years 2016-17 and 2018-19 were valid when the approval under section 151(ii) was granted by the Principal Commissioner of Income Tax instead of the Principal Chief Commissioner of Income Tax, despite the notices being issued beyond three years from the end of the relevant assessment years.

Fact: The Revenue filed appeals against the orders of the Commissioner of Income Tax (Appeals), who had held the reassessment proceedings to be invalid. The assessee argued that notices under section 148, issued on 27.07.2022 for A.Y. 2016-17 and 28.04.2022 for A.Y. 2018-19, were issued beyond three years from the end of the respective assessment years. Therefore, approval was required from the Principal Chief Commissioner of Income Tax under section 151(ii), but the Assessing Officer had obtained approval only from the Principal Commissioner of Income Tax. The assessee relied upon various Bombay High Court decisions and the dismissal of the Revenue’s SLP by the Supreme Court.

Held: The Tribunal upheld the order of the CIT(A) and held that the mandatory sanction under section 151(ii) had not been obtained from the competent specified authority. Consequently, the initiation of reassessment proceedings was without authority of law and void ab initio. Since the reassessment itself was invalid, the remaining grounds raised by the Revenue became academic and were left open. Accordingly, both appeals filed by the Revenue were dismissed.

Matter remanded to CIT(A) for fresh adjudication as assessee to be granted proper opportunity to substantiate cash deposit claim; appeal allowed for statistical purposes

Issue: Whether the addition of Rs.60,88,000 made u/s 69A r.w.s. 115BBE on account of unexplained cash deposits was justified where the assessee failed to comply before the lower authorities and the appeal was also dismissed by the CIT(A) for non-prosecution.

Fact: The assessee, an individual, filed return of income for A.Y. 2016-17 declaring income of Rs.2,79,940. During scrutiny assessment u/s 143(3), an addition of Rs.60,88,000 was made treating cash deposits as unexplained u/s 69A r.w.s. 115BBE. The assessee remained non-compliant before both the Assessing Officer and CIT(A). Before the Tribunal, the assessee submitted that the cash deposits represented a gold loan obtained from South Indian Bank Ltd and attributed non-compliance to personal distress due to divorce proceedings. The assessee also claimed to have supporting documents and relied on judicial precedents including CIT Vs. Premkumar Arjundas Luthra (HUF) (2016) 69 taxmann.com 407 (Bombay).

Held: The Tribunal, without examining the merits of the addition, observed that the assessee had not been provided adequate opportunity at the appellate stage and had now expressed willingness to substantiate the claim with supporting documents. In the interest of justice, the matter was remanded to the CIT(A) for fresh adjudication. The CIT(A) was directed to grant reasonable opportunity of hearing, consider all evidence, and pass a speaking order u/s 250(6). The appeal was allowed for statistical purposes.

Addition under Section 69A deleted as assessee substantiated agricultural income with land records, sale bills and bank evidence

ISSUE: Whether the addition of Rs.31,76,222 made under Section 69A as unexplained agricultural income and taxed under Section 115BBE was justified when the assessee claimed that the income arose from genuine agricultural activities and that there was a bona fide error resulting in double reporting of agricultural income.

FACTS: The assessee filed the return for AY 2020-21 declaring total income of Rs.5,72,650 and disclosed agricultural income. The case was selected for scrutiny on the issue of agricultural income. The AO treated agricultural receipts of Rs.35,76,222 as unexplained money under Section 69A and made an addition of Rs.31,76,222. The assessee produced land ownership records, agricultural land extracts, agricultural produce sale bills, government procurement records, and bank statements showing receipt of sale proceeds from agricultural produce. The assessee also contended that a software/technical glitch led to double reporting of agricultural income. The CIT(A) upheld the addition.

HELD: The Tribunal held that the assessee had furnished sufficient documentary evidence proving agricultural activities and receipt of agricultural income, including land records, sale bills, and bank credits. The AO had ignored these materials, and the Department had accepted agricultural income in earlier years. Mere revision of income or correction of a bona fide error could not justify rejection of the agricultural income claim. Accordingly, the addition of Rs.31,76,222 under Section 69A and consequential taxation under Section 115BBE were deleted, and the assessee’s appeal was allowed.

Rejection of Section 12AB Registration for Non-Compliance Set Aside; Matter Remanded to CIT(E) for Fresh Decision After Granting Adequate Opportunity of Hearing

Issue: Whether the rejection of the assessee's application for registration under Section 12A(1)(ac)(ii) of the Income Tax Act, 1961 by the Commissioner of Income Tax (Exemption) was justified when the application was dismissed solely due to non-compliance and without adequate opportunity of hearing.

Facts: The assessee filed Form No. 10AB seeking registration under Section 12A(1)(ac)(ii) of the Act. The CIT(E) provided only one opportunity of hearing, which was not complied with by the assessee. As the matter was approaching the limitation period, the CIT(E) rejected the application without examining the merits of the case. Before the Tribunal, the assessee sought adjournment, which was not entertained. The Departmental Representative agreed that the matter could be remanded to the CIT(E).

Held: The Tribunal held that the application had been rejected solely on account of non-compliance and without granting the assessee a reasonable opportunity of being heard. Since the CIT(E) had not examined the assessee’s objects or decided the application on merits, the principles of natural justice required that another opportunity be granted. Accordingly, the Tribunal set aside the impugned order and remanded the matter to the CIT(E) for fresh adjudication on merits after providing reasonable opportunities of hearing. The assessee was directed to ensure proper compliance during the remand proceedings. Consequently, the appeal was allowed for statistical purposes.

ITAT Deletes Section 68 Addition of Rs.17.80 Lakh; Rental Income Taxable as House Property Income; Other Issues Remanded to AO

ISSUE: Whether the addition of Rs.17,80,839 under Section 68 for share application money/unsecured loans was justified; whether rental income of Rs.11,00,000 was taxable as business income or income from house property; whether business loss of Rs.8,24,305 was allowable despite closure of business operations; and whether profit of Rs.4,55,938 on sale of assets was taxable as short-term capital gains.

FACTS: The assessee company, engaged in dyeing and printing of cloth, discontinued its manufacturing operations from the financial year ended 31.03.2015 due to pollution-related restrictions. During AY 2017-18, it received net funds of Rs.17,80,839 from directors, relatives, and a group company, shown as share application money but later explained as unsecured loans. Confirmations, bank statements, and income-tax records of the contributors were furnished. The assessee also earned rental income of Rs.11,00,000 by letting out its factory premises and related facilities. It claimed business loss of Rs.8,24,305 and reduced Rs.4,55,938 profit on sale of assets from taxable income on the ground that the block of assets continued to exist.

HELD: The Tribunal deleted the addition of Rs.17,80,839 under Section 68, holding that the assessee had established identity, creditworthiness, and genuineness of the transactions through confirmations, bank records, and other supporting documents, and that the authorities had proceeded only on suspicion. The rental income was held taxable under the head “Income from House Property,” with deduction under Sections 23 and 24 allowable after verification, including any eligible interest claim. The issue of business loss was restored to the AO for verification, with only expenses necessary for maintaining the company potentially allowable since business activities had ceased. The issue relating to Rs.4,55,938 profit on sale of assets was also restored to the AO to verify whether the block of assets continued to exist and grant relief in accordance with law if the assessee’s claim was found correct. The appeal was partly allowed.

Deduction under Section 80P Denied for Return Filed in Response to Section 148 Beyond Due Date under Section 139(1); Consequential Penalty under Section 270A Upheld.

Issue: Whether a primary agricultural credit co-operative society, which filed its return of income for AY 2018-19 only in response to a notice under section 148 and not within the due date prescribed under section 139(1), was entitled to deduction under section 80P of the Income-tax Act, and whether the consequential penalty under section 270A was sustainable.

Facts: The assessee, a primary agricultural credit co-operative society engaged in providing agricultural credit facilities, distribution of fertilisers, and public distribution of food grains, was subjected to reassessment proceedings under section 147. Pursuant to notice under section 148 dated 25.03.2022, it filed its return on 19.04.2022 claiming deduction of Rs. 11,50,523 under section 80P. The Assessing Officer denied the deduction on the ground that the return had not been filed within the due date under section 139(1), as mandated by section 80AC(ii) applicable from AY 2018-19. The CIT(A) upheld the disallowance. Before the Tribunal, the assessee contended that section 80P being a beneficial provision should not be denied merely because the claim was made in a return filed in response to section 148 and alternatively sought consideration of deduction under section 57(iii) in respect of interest income from CDCC Bank.

Held: The Tribunal held that after the amendment made by the Finance Act, 2018, section 80AC(ii) expressly requires that deductions under Chapter VI-A under the heading “C—Deductions in respect of certain incomes,” including section 80P, are available only if the return is furnished within the due date prescribed under section 139(1). Since the assessee failed to file the return within the statutory due date and instead filed it only in response to notice under section 148, the mandatory condition for claiming deduction under section 80P was not satisfied. No material was produced seeking condonation of delay. Accordingly, the disallowance of deduction under section 80P was upheld, the connected quantum appeals were dismissed, and the penalty levied under section 270A consequent to the sustained addition was also confirmed. All appeals of the assessee were dismissed.

Penalty under Section 270A Deleted as Addition Was Based on Estimation and No Specific Charge of Misreporting Was Framed

Issue: Whether penalty under Section 270A amounting to Rs. 32.89 lakh could be sustained where the quantum addition was made on estimated income after rejection of books of account, and where the Assessing Officer failed to specify the exact charge of under-reporting or misreporting of income in the penalty proceedings.

Facts: The assessee’s assessment for AY 2019-20 was completed under Sections 147 r.w.s. 144B, wherein the Assessing Officer alleged out-of-books transactions of Rs. 13.44 crore, rejected the books of account, and estimated income at 3.5%, resulting in an addition of Rs. 47.06 lakh. Penalty proceedings under Section 270A were initiated for under-reporting of income in consequence of misreporting of income, and penalty of Rs. 32.89 lakh was levied. The CIT(A) dismissed the appeal as non-maintainable due to a delay of 104 days. Before the Tribunal, the assessee challenged the penalty both on legal grounds and on merits, contending that the addition was purely estimated and that no specific charge under Section 270A had been framed.

Held: The Tribunal deleted the penalty and allowed the appeal. It held that the quantum addition was based purely on estimation after rejection of books of account, which by itself did not justify levy of penalty under Section 270A. The Tribunal further observed that the Assessing Officer failed to specify whether the penalty was for under-reporting or misreporting of income and did not identify any specific clause of Section 270A(9) dealing with misreporting. Following the decisions in Schneider Electric South East Asia (HQ) Pte. Ltd. and G.R. Infraprojects Ltd., the Tribunal held that absence of a specific charge rendered the penalty proceedings invalid in law. Accordingly, the penalty of Rs. 32.89 lakh was deleted on both legal and factual grounds.

CIT(A) Cannot Reject Additional Evidence Without Complying with Rule 46A(3); Matter Remanded for Fresh Adjudication

Issue: Whether the CIT(A)/NFAC was justified in sustaining the addition of Rs. 11,62,000 and dismissing the appeal after rejecting the additional evidence furnished by the assessee without following the procedure prescribed under Rule 46A(3) of the Income-tax Rules, 1962.

Facts: The Assessing Officer completed the assessment ex parte under Sections 144/147 of the Income-tax Act, 1961 and treated cash deposits of Rs. 11,62,000 as unexplained because the assessee neither filed the return of income nor complied with statutory notices. During appellate proceedings, the assessee furnished additional evidence, including explanations regarding gifts and a cash flow statement, to explain the source of the cash deposits. The CIT(A) rejected these explanations as unsubstantiated and unreliable, holding that the assessee failed to establish the genuineness of the transactions and the creditworthiness of the alleged donors, and consequently confirmed the addition.

Held: The Tribunal held that once the assessee had produced additional evidence before the CIT(A) explaining the source and nature of the cash deposits, the CIT(A) was required to comply with Rule 46A(3) by obtaining a remand report from the Assessing Officer and examining the evidence properly. The summary rejection of the additional evidence without following the statutory procedure amounted to arbitrariness and rendered the appellate order unsustainable. Accordingly, the Tribunal set aside the order of the CIT(A) and restored the matter to his file with directions to comply with Rule 46A(3) and pass a speaking order in accordance with Sections 250(4) and 250(6) of the Act after providing adequate opportunity to the assessee. The appeal was allowed for statistical purposes.

Rejection of Section 80G Approval Set Aside Where Section 12AB Registration Application Was Pending; Matter Remanded to CIT(E) for Fresh Con

Issue: Whether the Commissioner of Income Tax (Exemptions) [CIT(E)] was justified in rejecting the assessee’s application for regular approval under Section 80G of the Income-tax Act, 1961 on the ground that the assessee was not registered under Section 12AB and had only partially complied with notices, when the assessee’s application for registration under Section 12AB was already pending before the CIT(E).

Facts: The assessee, engaged in charitable activities, had been granted provisional registration under Section 80G through Form No. 10AC. Thereafter, for obtaining regular approval, it filed Form No. 10AB on 08.07.2025. During the proceedings, the CIT(E) issued notices seeking clarifications and additional information. Observing partial compliance and noting that the assessee did not possess registration under Section 12AB, the CIT(E) rejected the application for approval under Section 80G by order dated 17.01.2026. Before the Tribunal, the assessee contended that it had separately filed an application for registration under Section 12AB on 16.12.2025, which was pending consideration, and sought another opportunity to furnish evidence and substantiate its claim.

Held: The Tribunal held that, considering the facts of the case, the submissions made by the assessee, and the principles of natural justice, the assessee deserved one more opportunity to present its case. Since the application for registration under Section 12AB was pending before the CIT(E), the Tribunal set aside the impugned order and directed the CIT(E) to reconsider the application for approval under Section 80G afresh in accordance with law after providing adequate opportunity of hearing to the assessee. Accordingly, the appeal was allowed for statistical purposes.

ITAT Mumbai: TDS Credit Cannot Be Denied to Employee for Employer’s Failure to Deposit Tax; Delay Condoned Due to Bona Fide Pursuit of Rectification Remedy, 18-06-2026

Issue: Whether the assessee was entitled to full TDS credit where the employer had deducted tax from salary but failed to deposit the same with the Government, and whether the delay in filing the first appeal deserved condonation when the assessee had been pursuing rectification proceedings before CPC.

Facts: The assessee, an employee of M/s Trimax IT Infrastructure & Services Ltd., filed her return for AY 2019-20 declaring income of Rs. 18.41 lakh. While processing the return under Section 143(1), CPC allowed TDS credit of only Rs. 79,030 against the claimed TDS of Rs. 3,91,241, resulting in a demand of Rs. 3,36,373. The assessee continuously pursued rectification before CPC, but the matter remained unresolved. Thereafter, she filed an appeal before the CIT(A), which was dismissed as time-barred. Before the Tribunal, the assessee produced Form 16, salary slips, bank statements and other supporting documents demonstrating that TDS had been deducted from her salary by the employer, though the employer had failed to deposit the tax with the revenue authorities, resulting in non-reflection of the credit in Form 26AS.

Held: The Tribunal held that the delay in filing the appeal ought to have been condoned since the assessee had been diligently pursuing rectification before CPC. On merits, relying on the decision in Gayatri Snehal Rao v. AO as affirmed by the Supreme Court and the earlier decision in Shobhan Shantilal Doshi, it was held that once tax had been deducted from the assessee’s salary, no demand could be raised against the assessee merely because the employer failed to deposit the tax with the Government. In view of Section 205 and CBDT Instruction No. 275 dated 01.06.2015, the assessee was entitled to full TDS credit. The Assessing Officer was directed to verify the supporting documents and grant the full TDS credit. Accordingly, the appeal was allowed.

Penalty under Section 271AAC Cannot Survive After Deletion of Quantum Addition under Section 264

Issue: Whether penalty levied under Section 271AAC(1) of the Income Tax Act can be sustained when the underlying addition made under Section 69A has subsequently been deleted by a revision order passed under Section 264 and the assessed income has been reduced to nil.

Facts: The assessee, a Primary Agricultural Credit Society, was subjected to reassessment under Section 147 and an addition of Rs. 7,95,66,456 was made under Section 69A. Based on this addition, proceedings for penalty under Section 271AAC(1) were initiated. Subsequently, the Principal Commissioner of Income Tax, exercising revisional jurisdiction under Section 264, deleted the entire addition on 28.05.2024. Consequential effect was given on 19.06.2024, assessing the income of the assessee at nil. Despite the deletion of the addition, the Assessing Officer passed a penalty order under Section 271AAC(1) on 27.09.2024, which was affirmed by the CIT(A). The assessee challenged the penalty before the Tribunal.

Held: The Tribunal held that once the addition made under Section 69A had been deleted by the revisional order under Section 264 and the assessed income stood reduced to nil, there remained no basis for levy of penalty under Section 271AAC(1). The penalty order passed after deletion of the very addition on which it was founded was illegal and unsustainable in law. Accordingly, the orders of the Assessing Officer and the CIT(A) were set aside and the assessee’s appeal was allowed.

Interest Between Head Office and Indian PE Not Taxable on Principle of Mutuality; Section 44C Issue Remanded for Fresh Examination

Issue: Whether (i) interest received by the Indian PE from its Head Office/overseas branches is taxable and whether corresponding interest payments are deductible; (ii) direct Head Office expenses are subject to the limitation under Section 44C; (iii) disallowance under Section 14A was justified; (iv) broken period interest is deductible; (v) software expenditure is capital or revenue in nature; and (vi) expenditure relating to income taxable under Section 115A can be deducted against other taxable income.

Facts: The assessee, a non-resident banking company having a Permanent Establishment in India, received interest from and paid interest to its Head Office and overseas branches through Nostro accounts. It claimed that such transactions were between the same entity and therefore not taxable. The Assessing Officer taxed the interest receipts, applied Section 44C to Head Office expenses, made disallowance under Section 14A in respect of exempt income, disallowed broken period interest, treated software expenses as capital expenditure, and disallowed expenditure relatable to income taxable under Section 115A. The CIT(A) granted substantial relief to the assessee, leading both the Revenue and the assessee to file cross appeals.

Held: The Tribunal held that interest received from or paid to the Head Office and overseas branches is not taxable under domestic law since one cannot make profit from oneself, following the principle of mutuality and earlier Special Bench decisions; therefore, Revenue’s challenge on this issue failed. On Head Office expenses, in view of the Supreme Court decision in American Express Bank Ltd., the Tribunal held that no distinction exists between common and exclusive Head Office expenditure, but remanded the matter to the Assessing Officer to examine whether the expenses satisfy the statutory definition of “head office expenditure” under Section 44C. The deletion of Section 14A disallowance relating to exempt investments and the allowance of broken period interest were upheld. In the assessee’s appeal, the Tribunal held that Section 14A could not apply to receipts governed by mutuality because such receipts are not income at all. Software expenditure incurred for ATM and banking operations was held to be revenue expenditure and allowed. The issue relating to alleged royalty/global system charges was restored to the Assessing Officer for fresh examination. The disallowance of expenditure relating to income taxable under Section 115A was deleted, following earlier decisions affirmed by the Bombay High Court. Consequently, the Revenue’s appeal was partly allowed for statistical purposes, while the assessee’s appeal was partly allowed.

Delay of 2 Years and 10 Months Condoned Due to Illness, Death of President and COVID-19; Matter Remanded to CIT(A) for Decision on Merits

ISSUE: Whether the delay of 2 years and 10 months in filing the first appeal before the CIT(A) should be condoned when the assessee attributed the delay to the illness and subsequent death of its President, Mr. Nicholas Narjinary, along with difficulties caused by the COVID-19 pandemic.

FACTS: CPC Bengaluru passed an intimation under Section 143(1) on 26.09.2019 making certain additions. The assessee filed an appeal before the CIT(A), but the CIT(A), by order dated 13.08.2025, dismissed the appeal solely on the ground of delay. The assessee explained that timely action could not be taken due to the illness and death of the then President in 2022 and the impact of the COVID-19 pandemic. The appeal was later pursued by his son, Mr. Joshua Narjinary, after taking charge and becoming aware of the outstanding demand.

HELD: The Tribunal held that where the delay is bona fide and beyond the control of the assessee, it constitutes sufficient cause for condonation. Relying on the Supreme Court decision in Collector, Land Acquisition v. Mst. Katiji & Others (167 ITR 471), the Tribunal observed that delays supported by reasonable causes should be viewed liberally in the interest of substantial justice. Accordingly, the delay of 2 years and 10 months was condoned, the matter was remanded to the CIT(A) for fresh adjudication on merits after providing an opportunity of hearing to the assessee, and the appeal was partly allowed for statistical purposes.

Transfer Pricing Adjustment on Royalty and Technical Fees Restricted to 1.9% of Net Sales Based on CBDT-Approved UAPA; Excess Addition Deleted.

Issue: Whether the transfer pricing adjustment of Rs. 8,47,87,697 made in respect of royalty and technical fee payments to the associated enterprise was justified, particularly when the assessee had benchmarked the transaction under the CUP method and subsequently entered into a Unilateral Advance Pricing Agreement (UAPA) with CBDT accepting a royalty and technical services fee rate of 1.9% of net sales.

Facts: The assessee filed its return for AY 2014-15 declaring a loss of Rs. 1,68,40,482. During transfer pricing proceedings, the TPO determined an adjustment of Rs. 8,47,87,697 on royalty and technical fee payments made to its associated enterprise and treated the arm’s length value substantially at nil. The AO incorporated the adjustment in the assessment order, which was subsequently confirmed by the CIT(A). Before the Tribunal, the assessee contended that the TPO wrongly rejected its CUP analysis, improperly included reimbursement expenses of Rs. 18,24,825 in the royalty adjustment, ignored comparable group agreements, and failed to consider the UAPA executed with CBDT on 29.11.2022, under which a consolidated rate of 1.9% of net sales for royalty and technical services was accepted. Reliance was placed on the decision in Ranbaxy Laboratories Ltd. v. DCIT.

Held: The Tribunal held that the principles and methodology adopted in a concluded APA/UAPA possess significant persuasive value for determining the arm’s length price of similar transactions in earlier years. Following the ratio laid down in Ranbaxy Laboratories Ltd., the Tribunal observed that the agreement entered into between CBDT and the assessee, after considering all relevant transfer pricing aspects, should be accorded substantial weight where the nature of transactions and FAR profile remain similar. Accordingly, the Tribunal set aside the excessive transfer pricing adjustment and directed the AO to cap the royalty and fees for technical services at 1.9% of net sales, being the rate accepted under the UAPA. The assessee’s grounds relating to the transfer pricing adjustment were allowed, while the remaining grounds were left open or treated as consequential. The appeal was partly allowed.

Disallowance Under Section 36(1)(iii) Restricted to Actual Interest Paid; Deletion of Section 68 Addition Upheld as Assessee Proved Identity, Creditworthiness and Genuineness of Lenders

Issue: Whether (i) disallowance of interest expenditure under Section 36(1)(iii) was justified where borrowed funds were allegedly utilized for making interest-free advances/investments, and (ii) addition of Rs. 80 lakh under Section 68 towards unsecured loans was sustainable when the assessee had furnished evidence regarding identity, creditworthiness, and genuineness of the lenders.

Facts: The assessee filed its return declaring a loss of Rs. 1,07,95,144. During scrutiny assessment, the Assessing Officer (AO) observed that the assessee had received unsecured loans of Rs. 80 lakh and had utilized borrowed funds for making investments and interest-free advances to related parties. The AO treated the loans of Rs. 75 lakh from Gandhipati Infra Project Pvt. Ltd. and Rs. 5 lakh from Sungrace Products India Pvt. Ltd. as unexplained cash credits under Section 68 and disallowed interest expenditure of Rs. 1,12,02,629 under Section 36(1)(iii). The CIT(A) deleted the addition under Section 68 and restricted the interest disallowance to Rs. 22,87,300. Both the assessee and the Revenue preferred appeals before the Tribunal.

Held: The Tribunal held that interest-free funds available with the assessee, comprising preference share capital and interest-free loans from directors, amounted to Rs. 41.75 crore, whereas investments and interest-free advances totaled Rs. 46.14 crore. Therefore, part of the interest-bearing borrowings had been utilized for non-business purposes and some disallowance under Section 36(1)(iii) was warranted. However, the CIT(A) erred in applying a flat interest rate of 8% when the actual interest paid on relevant borrowings was lower. Accordingly, the Tribunal restricted the disallowance to Rs. 10,81,593. Regarding Section 68, the Tribunal found that the assessee had produced incorporation documents, PAN details, financial statements, and bank statements of the lenders, thereby establishing identity, creditworthiness, and genuineness of the transactions. Since the loans were received through banking channels and repaid in subsequent years without dispute, the addition of Rs. 80 lakh was rightly deleted by the CIT(A). Consequently, the assessee’s appeal was partly allowed and the Revenue’s appeal was dismissed.