The Supreme Court: Holds CBDT Circular on Export Quota Premium Not Binding on Courts; Deduction under Section 80HHC Denied

ISSUE: Whether premium received by the Assessee on sale of export quota could be treated as income covered under Sections 28(iiia) to 28(iiic) of the Income Tax Act, 1961, on the basis of the CBDT Office Memorandum dated 23.02.1998, and consequently qualify for deduction under Section 80HHC; and whether the CBDT Office Memorandum was binding on the Courts.

FACTS: The Assessee claimed deduction under Section 80HHC in respect of Rs. 90,43,061/- received from sale of export quota and also claimed deduction in respect of interest earned on margin money deposits. The Assessing Officer disallowed the claims. The CIT(A) and ITAT allowed the claims, relying, inter alia, upon the CBDT Office Memorandum dated 23.02.1998, which treated premium on transfer of export quotas as equivalent to export incentives covered by Sections 28(iiia) to 28(iiic). The Delhi High Court reversed the Tribunal's decision, relying upon CIT v. Nagesh Knitwears P. Ltd. The Assessee approached the Supreme Court contending that the CBDT Office Memorandum was binding upon the Revenue and entitled the Assessee to deduction under Section 80HHC.

HELD: Appeal dismissed in favour of the Revenue. The Supreme Court held that CBDT circulars and administrative instructions are binding upon Revenue Officers but are not binding upon the High Courts or the Supreme Court. Relying upon the Constitution Bench decision in CCE, Bolpur v. Ratan Melting & Wire Industries, the Court held that an administrative circular cannot override the statutory provisions or a judicial interpretation of the law. The CBDT Office Memorandum could not create a legal fiction equating premium from sale of export quota with income covered under Sections 28(iiia) to 28(iiic). The sale of export quota did not possess the essential characteristics of the transactions contemplated by those provisions and could not, merely by virtue of the CBDT Office Memorandum, qualify for deduction under Section 80HHC. Accordingly, the Supreme Court upheld the Delhi High Court's judgment and dismissed both Civil Appeals.

The Supreme Court Stays High Court Judgment Declaring Section 147A of Income-tax Act Unconstitutional; Reassessment Proceedings Stayed Pending Final Disposal

ISSUE: Whether the High Court was justified in declaring Section 147A of the Income-tax Act, 1961 unconstitutional, particularly on the questions whether notices under Sections 148 and 148A must mandatorily be issued by a Faceless Assessing Officer, whether absence of a Section 120 notification conferring such jurisdiction affected the authority of the Jurisdictional Assessing Officer, and whether Section 147A validly operated as a validation enactment by prescribing the Assessing Officer for Sections 148 and 148A.

FACTS: The Revenue challenged the judgment of the High Court declaring Section 147A of the Income-tax Act, 1961 unconstitutional. The Supreme Court, after hearing the learned ASG for the Revenue, identified three principal questions concerning the applicability of the faceless assessment regime to proceedings under Sections 148 and 148A, the absence of any notification under Section 120 empowering the Faceless Assessing Officer to exercise such functions, and the validity of Section 147A as a validation enactment notwithstanding Section 151A, the Scheme dated 29.03.2022 and judicial decisions.

HELD: The Supreme Court granted leave and stayed the operation of the impugned High Court judgment. As a condition of the stay, the assessment and reassessment proceedings were directed not to proceed further until final disposal of the main matter. The appeal was directed to be listed for final hearing on 03.12.2026. Thus, the constitutional validity and effect of Section 147A, as well as the jurisdictional questions concerning Faceless Assessing Officers and Jurisdictional Assessing Officers, remain pending consideration before the Supreme Court.

ITAT, Mumbai: Penalty under Section 271AAC(1) deleted where assessment order specifically initiated penalty under Section 270A, 18-09-2026

ISSUE: Whether penalty of Rs. 2,76,825/- levied under section 271AAC(1) of the Income-tax Act, 1961 could be sustained when the assessment order repeatedly and specifically initiated penalty proceedings under section 270A, without recording any initiation under section 271AAC(1), and whether the assessee was afforded a reasonable opportunity of being heard.

FACTS: The assessee, a non-resident Indian, had not filed a return of income for AY 2018-19. Reassessment proceedings were initiated on the basis of information regarding an immovable property having stamp duty value of Rs. 35,83,500/-. The assessment was completed ex parte under sections 144 read with 147, treating Rs. 35,83,500/- as unexplained investment under section 69. In the assessment order, the Assessing Officer repeatedly recorded satisfaction regarding “misreporting” of income and expressly initiated penalty proceedings under section 270A, with no reference to section 271AAC(1). Subsequently, however, penalty under section 271AAC(1) was levied at Rs. 2,76,825/- on the ground that the reference to section 270A was merely a typographical error. The CIT(A) upheld the penalty. The assessee also contended that she was not registered on the e-filing portal during the relevant period and had not received an effective opportunity to respond to the proceedings.

HELD: The Tribunal held in favour of the assessee and deleted the penalty under section 271AAC(1). It observed that the repeated and specific references to section 270A in the assessment order, coupled with the recording of “misreported” income and the direction to issue penalty notices under section 270A, could not be treated as a mere typographical error. Since section 271AAC(2) itself provides that no penalty under section 270A shall be imposed in respect of income covered by section 271AAC(1), the two provisions could not be treated as interchangeable, and the subsequent proceedings could not retrospectively rewrite the satisfaction recorded in the assessment order. The Tribunal further found that, considering the assessee’s non-registration on the e-filing portal, residence outside India and unsuccessful postal service followed by affixture, she had not been afforded a meaningful opportunity of being heard as contemplated by section 274. Accordingly, the levy of penalty under section 271AAC(1) was held unsustainable and the assessee’s appeal was allowed.

The Supreme Court Upholds Section 263 Revision for Incorrect Deduction under Section 80HHC on Export Quota Premium — In Favour of Revenue

ISSUE: Whether the Commissioner of Income Tax was justified in exercising revisional jurisdiction under Section 263 of the Income Tax Act, 1961, on the ground that the Assessing Officer had wrongly allowed deduction under Section 80HHC in respect of premium received on sale of export quota.

FACTS: The Assessee, Orient Crafts Limited, claimed deduction under Section 80HHC for AYs 2000-01 and 2001-02, including premium received on sale of export quota. The Assessing Officer completed assessment under Section 143(3) after considering the claim. Subsequently, the CIT invoked Section 263, holding that 90% of the quota premium was required to be excluded under Explanation (baa) to Section 80HHC and that the assessment was erroneous and prejudicial to the interests of the Revenue. The ITAT held in favour of the Assessee, but the Delhi High Court reversed the ITAT and upheld the exercise of revisional jurisdiction by the CIT. The Assessee challenged the High Court's decision before the Supreme Court.

HELD: The Supreme Court dismissed the Appeals and upheld the High Court's Judgment in favour of the Revenue. The Court reiterated that exercise of jurisdiction under Section 263 requires the assessment order to be both erroneous and prejudicial to the interests of the Revenue. It held that the High Court had duly considered the ITAT's view and correctly found that the CIT had exercised revisional jurisdiction under Section 263. The CBDT Office Memorandum could not justify an interpretation contrary to the statutory provisions, and the High Court's interpretation of the relevant provisions was found to be tenable. Accordingly, the Appeals were dismissed with no order as to costs.

ITAT, Indore: Section 69A/147 – Unexplained Cash: Addition of Rs. 37,01,999/- Based Merely on Increase in Closing Cash Balance Deleted, as Increase in Cash Balance Alone Cannot Establish Unexplained Income, 17-09-2026

ISSUE: Whether the reassessment proceedings under section 147 of the Income-tax Act, 1961 and the addition of Rs. 37,01,999/- on account of the difference between opening and closing cash balances were justified, where the assessee’s books were audited, the opening cash balance of Rs. 15,43,216/- was a brought-forward balance from the preceding year, and no specific unexplained cash receipt was identified by the Assessing Officer.

FACTS: The assessee filed its return for AY 2016-17 declaring total income of Rs. 23,41,800/-. The original assessment under section 143(3) was completed on 27.12.2018 after limited scrutiny concerning cash-in-hand and share capital. Subsequently, notice under section 148 was issued and reassessment proceedings were initiated. The Assessing Officer noted that the opening cash balance was Rs. 15,43,216/- and the closing cash balance was Rs. 52,45,215/- and treated the difference of Rs. 37,01,999/- as unexplained. The assessee contended that the cash balance arose from regular business transactions and withdrawals from bank accounts. Before the Tribunal, the assessee produced the audited financial statements, the balance sheet for the preceding year and the partners’ capital accounts, demonstrating that the opening cash balance of Rs. 15,43,216/- was a brought-forward balance from the immediately preceding financial year.

HELD: The Tribunal held that the addition of Rs. 37,01,999/- was not justified. The opening cash balance of Rs. 15,43,216/- was a brought-forward balance and was not a fresh credit or receipt during the relevant previous year. The Assessing Officer had not brought any material to establish that the opening cash balance was generated during AY 2016-17 or represented unexplained income. Further, the books of account were duly audited and had not been rejected under section 145, nor was any specific cash entry found to be false or unverifiable. Mere increase in the closing cash balance, without examining individual cash receipts and payments or identifying a specific unexplained receipt, could not justify the addition. Accordingly, the Tribunal deleted the entire addition of Rs. 37,01,999/- and allowed Ground No. 2, while Ground No. 1 was dismissed as not pressed. The appeal of the assessee was thus partly allowed.

The High Court of Delhi: ESOP Expenditure Allowable; CA Valuation Report Valid for AY 2018-19, Revenue’s Appeal Rejected

ISSUE: Whether the Income Tax Appellate Tribunal (ITAT) was justified in deleting the disallowance of Rs. 51,48,28,498/- claimed towards Employee Stock Option Scheme (ESOP) expenditure, and whether addition of Rs. 62,72,719/- was warranted as undisclosed income under Section 56(2)(viib) of the Income Tax Act, 1961.

FACTS: The Revenue challenged the ITAT's deletion of the ESOP expenditure disallowance and the addition under Section 56(2)(viib). On the ESOP issue, the assessee relied upon the Delhi High Court judgment in CIT v. Lemon Tree Hotels Ltd., which followed the principle that the cost of ESOP could be debited to the profit and loss account. On the valuation issue, the Assessing Officer rejected the assessee's Chartered Accountant valuation report on the ground that, pursuant to CBDT Notification No. 23/2018 dated 24.05.2018, valuation was required to be undertaken by a Merchant Banker. However, the relevant assessment year was 2018-19, corresponding to Financial Year 2017-18, whereas the requirement dispensing with CA certification operated from the subsequent financial year.

HELD: ESOP expenditure allowable; CA valuation valid for AY 2018-19 — Appeal of Revenue rejected in toto. Following CIT v. Lemon Tree Hotels Ltd., the Court answered the first question in the affirmative and in favour of the assessee, holding that the ITAT was justified in deleting the ESOP disallowance of Rs. 51,48,28,498/-. As regards Section 56(2)(viib), the Court held that the Assessing Officer was not justified in rejecting the Chartered Accountant's valuation report because the change requiring valuation by a Merchant Banker was introduced only from the Financial Year subsequent to 2017-18. The appellate authorities therefore rightly deleted the addition of Rs. 62,72,719/-. Consequently, both questions were decided in favour of the assessee, and the Revenue's appeal was rejected in toto.

Delhi High Court Sets Aside Section 148A(3) Order, Restores Reassessment Proceedings to Notice Stage in Favour of Assessee

ISSUE: Whether reassessment proceedings under Section 148 of the Income Tax Act, 1961 could proceed where the petitioner contended that the transactions relied upon by the Assessing Officer had already been examined in earlier assessment proceedings and that the fresh proceedings amounted to a change of opinion, while the Revenue disputed the figures and pointed to a discrepancy between the earlier assessment and the Risk Management Strategy portal.

FACT: The petitioner had been assessed under Section 147 read with Section 144C(13) by order dated 26.12.2025, wherein a transaction of Rs. 29,66,29,69,168 was considered. Thereafter, the Assessing Officer issued notice under Section 148A(1) on 31.03.2026 referring to three transactions, including foreign remittances of Rs. 54,40,572, Rs. 26,66,29,69,168 and Rs. 19,17,77,24,603. The petitioner contended that the transactions had already been subjected to assessment or scrutiny, whereas the Revenue stated that the Risk Management Strategy portal reflected total remittances of Rs. 45,84,61,34,343 and that the petitioner had failed to reconcile the figures. The Court found that the dispute arose substantially from the lack of reconciliation and non-furnishing of relevant information along with the notice, coupled with the limited inquiry undertaken at the Section 148A stage.

HELD: The petition was disposed of in favour of the assessee for the limited purpose of procedural reconsideration. The Court set aside the order dated 25.06.2026 passed under Section 148A(3) and the consequential notice dated 27.06.2026 under Section 148, restoring the matter to the stage of notice under Section 148A(1). The Assessing Officer was directed to provide the information and details relied upon within seven days, after which the petitioner could file an additional reply with documents within two weeks. The Assessing Officer was further directed to provide an opportunity of personal hearing and pass a fresh order objectively and in accordance with law. The Court clarified that it had expressed no opinion on the correctness or legality of the initiation of reassessment proceedings, leaving both sides free to raise their respective contentions.

Tribunal Upholds CIT(A)’s Power to Admit Fresh Section 54F Claim at Appellate Stage

ISSUE: Whether the CIT(A) was justified in entertaining and allowing the assessee’s fresh claim for deduction under Section 54F of the Income Tax Act, although the claim was not made in the original return or before the Assessing Officer, particularly in reassessment proceedings.

FACT: The assessee had entered into a JDA-cum-GPA and the Assessing Officer brought capital gain of Rs. 12,61,15,000 to tax, later rectified to Rs. 4,07,95,963. In the appellate proceedings, the assessee raised a fresh claim under Section 54F. The CIT(A), after considering the remand report, admitted the claim and deleted the capital-gain addition. The Revenue contended that the fresh claim was not permissible, relying on Goetze (India) Ltd. and Sun Engineering Works. The assessee submitted that it had consistently disputed the taxability of the capital gain itself and therefore had a bona fide reason for raising Section 54F as an alternative claim at the appellate stage.

HELD: The Tribunal held in favour of the assessee and dismissed the Revenue’s appeal. It held that the CIT(A) had plenary powers to entertain a fresh claim where there were bona fide and reasonable reasons for not raising it earlier. Since the Section 54F claim was directly and intrinsically connected with the very capital gain brought to tax in reassessment proceedings, it was not an unrelated claim barred by Sun Engineering Works. The CIT(A) was therefore within his appellate jurisdiction in admitting and allowing the Section 54F deduction.

Tribunal Holds SBI Not in Default for Non-Deduction of TDS on LTC During Period Covered by Madras High Court’s Interim Order

ISSUE: Whether State Bank of India could be treated as an assessee in default under sections 201(1) and 201(1A) of the Income-tax Act, 1961, for not deducting TDS under section 192 on Leave Travel Concession (LTC) payments made to employees for journeys involving a foreign leg during Assessment Year 2017-18.

FACT: SBI had not deducted TDS on LTC payments in view of the Madras High Court’s interim order dated 16-02-2015, which clarified that LTC or reimbursement of LTC pursuant to the disputed Bank circular would not constitute income for enabling deduction of tax at source, while stating that employees would be liable to pay tax if the writ petition was dismissed. Although the writ petition was ultimately dismissed and the Supreme Court subsequently decided the substantive issue concerning exemption under section 10(5), the interim directions were operative during the relevant period. The Tribunal also noted the Kerala High Court decision in State Bank of India v. CIT, ITA No. 45 of 2025, and the coordinate Tribunal decision holding that SBI could not be treated as an assessee in default when it was legally bound to comply with the Madras High Court’s directions.

HELD: The Tribunal held the issue in favour of the assessee, observing that SBI was under a legal obligation to comply with the binding interim directions of the Madras High Court and, therefore, could not simultaneously be required to deduct TDS on the LTC payments. Consequently, non-deduction of TDS during the period covered by the judicial directions did not attract section 201(1), and interest under section 201(1A) also could not be charged. The Tribunal accordingly set aside the demand raised under sections 201(1) and 201(1A) and allowed the appeal of SBI.

ITAT, Hyderabad: Delay condoned and quantum as well as consequential penalty proceedings restored to the Assessing Officer for fresh adjudication

ISSUE: Whether the delay of 169 days in filing the quantum appeal and 264 days in filing the penalty appeal before the CIT(A) was liable to be condoned on account of the assessee’s serious medical condition, and whether the quantum and consequential penalty matters were required to be restored to the Assessing Officer for fresh adjudication on merits.

FACTS: The assessee’s appeals for AY 2018-19 were dismissed by the CIT(A), NFAC, solely on account of delay in filing the appeals, without adjudicating the issues on merits. The assessee explained the delay by stating that he had undergone major heart surgery in August 2023, followed by another medical procedure in June 2024, and remained under continuous medical supervision. The Tribunal found the explanation supported by medical documents and held that the delay was neither intentional nor deliberate. The assessee also submitted that he could not effectively represent his case during the assessment proceedings, which had been completed under sections 147, 144 and 144B of the Income-tax Act.

HELD: The Tribunal held that the assessee’s medical condition constituted reasonable cause and condoned the delay of 169 days in the quantum appeal and 264 days in the penalty appeal, subject to payment of costs of Rs. 2,500/- in each appeal to the Income Tax Appellate Tribunal Bar Association, Hyderabad, within 30 days. The Tribunal set aside the orders of the CIT(A) and the assessment order on the issues under challenge and restored the quantum matter to the Assessing Officer for fresh adjudication on merits after providing reasonable opportunity of hearing. Since the penalty proceedings were consequential to the quantum proceedings, the penalty matter was also restored to the Assessing Officer for fresh adjudication in accordance with the outcome of the quantum proceedings. Both appeals were allowed for statistical purposes.

The Supreme Court: Settlement Commission Order Attains Finality; AO Cannot Reopen Settled Issues Under Section 148, 16-09-2026

ISSUE: Whether, after the Income Tax Settlement Commission (“ITSC”) passes a final Settlement Order under Section 245D(4) of the Income Tax Act, 1961, the Assessing Officer can invoke Section 148 to reopen an issue relating to the assessment year, particularly the deduction claimed under Section 80IB(10), or whether such reopening is barred by the finality attached to the Settlement Order under Section 245-I.

FACTS: The Assessee, OMAXE Limited, had filed its return for AY 2006-07 claiming deduction under Section 80IB(10). During the pendency of assessment proceedings, the Assessee approached the ITSC under Section 245C and the ITSC passed a final Settlement Order under Section 245D(4) on 17.03.2008, determining the total income after allowing the deduction. Subsequently, following a survey, the Revenue issued a notice under Section 148 proposing to disallow the deduction and reassessed the income by making an addition of Rs. 65,65,17,999/-. The Assessee challenged the reopening, contending that the Settlement Order had attained finality under Section 245-I. The Revenue also approached the ITSC under Section 245D(6), alleging misrepresentation of facts, but the ITSC rejected the application by Order dated 16.12.2011. The High Court quashed the reassessment proceedings, leading to the present appeal by the Revenue.

HELD: Appeal dismissed in favour of the Assessee. The Supreme Court held that once the ITSC admits the Settlement Application and passes a final Order under Section 245D(4), its determination is conclusive on the matters stated therein and the Assessing Officer has no jurisdiction to reopen the settled matter under Section 148. The Settlement Commission's jurisdiction and the finality contemplated under Chapter XIX-A cannot be defeated by permitting parallel reassessment proceedings. If the Revenue alleges fraud or misrepresentation, its statutory remedy is to approach the ITSC under Section 245D(6), as was done in the present case; it cannot independently invoke reassessment provisions to reopen the Settlement Order. Since the ITSC had already rejected the Revenue's Section 245D(6) application, the Settlement Order had attained finality. The Civil Appeal was accordingly dismissed.

The Court condones 34-day delay of cooperative society, directs Revenue to reconsider Section 80P deduction claim

ISSUE: Whether the Chief Commissioner of Income Tax was justified in rejecting the cooperative society's application for condonation of 34 days' delay in filing its ITR for AY 2020-21, particularly when the assessee sought relief under CBDT Circular No. 13/2023 dated 26.07.2023, which specifically covers delayed returns of cooperative societies claiming deduction under Section 80P.

FACT: The petitioner, a cooperative society, was required to file its ITR by 15.02.2021 but filed it on 20.03.2021, resulting in a delay of 34 days. The delay was attributed to COVID-19 restrictions and late receipt of the statutory audit report, which was received on 22.02.2021 and was required to be routed through the State Audit Department. The petitioner had approached the Department on 09.03.2021 for condonation and was advised on 17.03.2021 to file a belated return under Section 139(4), which it did within three days. Its claim for deduction under Section 80P was subsequently disallowed under Section 80AC(ii). The CCIT rejected the later condonation application by relying on CBDT Circular No. 09/2015, concerning refund and carry-forward loss claims, without considering Circular No. 13/2023, which specifically deals with condonation of delay in returns claiming deduction under Section 80P for AYs 2018-19 to 2022-23.

HELD: In favour of the assessee. The Court held that Circular No. 13/2023 specifically governed the petitioner's case and therefore prevailed over Circular No. 09/2015. The CCIT's failure to consider the applicable circular and its reliance on the CIT(A)'s earlier decision amounted to non-application of mind, particularly when the ITAT had granted liberty to pursue the condonation application. The Court found that the 34-day delay was attributable to circumstances beyond the assessee's control, including COVID-19 restrictions and delay in obtaining the statutory audit report, and fell within clauses 6(i) and 6(ii) of Circular No. 13/2023 and the concept of genuine hardship. The impugned order was set aside, the 34-day delay was condoned, and the Revenue was directed to consider the assessee's claim for deduction under Section 80P in accordance with law.

ITAT, Delhi: Section 148 Notice Ambiguous as to Searched/Non-Searched Person and Section 151 Approval Shows Income Discrepancy — Reassessment Quashed in Favour of Assessee.

ISSUE: Whether the reassessment proceedings for AY 2019-20 were valid where the notice issued under Section 148 was ambiguous as to whether the assessee was a searched or non-searched person, and the sanction under Section 151 mentioned income escaping assessment of Rs. 50,00,000/- whereas the reasons recorded referred to Rs. 34,48,344/-.

FACTS: The assessee challenged the reassessment proceedings on the grounds that the notice under Section 148 dated 31.03.2023 was issued mechanically and without application of mind, as it simultaneously referred to the assessee as a searched and non-searched person. The assessee further contended that the sanction under Section 151 was defective because it mentioned income escaping assessment of Rs. 50,00,000/-, while the reasons recorded referred to Rs. 34,48,344/-. The Tribunal found both issues covered by the decisions in Vintage Distillers Ltd. vs. DCIT, Optus Developers Pvt. Ltd. vs. ACIT and ACIT & Ors. vs. Teleperformance Global Services Pvt. Ltd., the latter having been upheld by the Supreme Court.

HELD: Reassessment quashed for invalid Section 148 notice and non-application of mind in Section 151 approval. The Tribunal held that the Section 148 notice was ambiguous, casual and issued without application of mind since it failed to clarify whether the assessee was the person searched or another person whose documents were found during search. The notice was therefore held invalid. Further, the discrepancy between the amount of escaped income stated in the Section 151 sanction and that recorded in the reasons demonstrated non-application of mind by the sanctioning authority. Following Teleperformance Global Services Pvt. Ltd., the Tribunal held the approval under Section 151 invalid and consequently quashed the assessment. The appeal was allowed in favour of the assessee.

ITAT Hyderabad Condones 219-Day Delay, Remands Rs. 52.89 Lakh Security Deposit Refund Claim for Verification

ISSUE: Whether the delay of 219 days in filing the appeal could be condoned where the assessee claimed that it had bona fide believed that the CIT(A) had granted the entire relief sought, and whether the addition of Rs. 52,89,146 made towards an extraordinary item representing refund of security deposits forfeited and taxed in earlier years was sustainable.

FACT: The assessee, The Andhra Pradesh Mineral Development Corporation Ltd., filed an appeal against the CIT(A)'s order for AY 2016-17 with a delay of 219 days. The assessee explained that since the CIT(A) had substantially allowed its appeal, it bona fide believed that the entire relief had been granted and realised the remaining grievance only upon receiving the Assessing Officer's order giving effect dated 15.12.2025. The Tribunal found the explanation sufficient, distinguished the Telangana High Court decision relied upon by the Revenue, and condoned the delay subject to payment of Rs. 5,000 as cost. On merits, the assessee submitted that Rs. 52,89,146 represented security deposits refunded during the year which had already been forfeited and offered to tax as income in earlier years.

HELD: The ITAT held in favour of the assessee for statistical purposes, condoning the 219-day delay subject to payment of Rs. 5,000 to the Income Tax Appellate Tribunal Bar Association, Hyderabad. On the addition of Rs. 52,89,146, the Tribunal restored the matter to the Assessing Officer for verification of whether the corresponding security deposits had actually been offered to tax in earlier years and whether the amount had been refunded during the relevant year. If both conditions were satisfied, the Assessing Officer was directed to allow the claim and delete the addition, as disallowance would otherwise result in double taxation. Accordingly, the appeal was allowed for statistical purposes.

Amended Section 147 Permits Enlargement of Pending Reassessment Proceedings on Basis of Subsequent Information, Including Search Material; Writ Petition Dismissed in Favour of Revenue

ISSUE: Whether the Assessing Officer could enlarge pending reassessment proceedings under the amended Section 147 on the basis of subsequently received information, including material found during search proceedings, even where no addition was ultimately made on the escaped income forming the basis of the original reassessment; and whether the Explanation to Section 147 was ultra vires or required to be read down.

FACTS: The petitioner, proprietor of M/s Dara Construction Company, was subjected to reassessment for AY 2018-19 pursuant to information from NEAC regarding an amount of Rs. 16,64,37,659/- received from M/s GVPREL Dara Joint Ventures. Notice under Section 148A was issued on 17.03.2022, followed by an order under Section 148A(d) and notice under Section 148. During the reassessment proceedings, the Department issued a further show-cause notice based on information/material obtained during search proceedings. The final reassessment order dated 31.03.2023 made an addition based on such subsequent material, while no addition was made in respect of the escaped income which had constituted the basis of the original reassessment. The petitioner challenged the reassessment and the validity of the Explanation to Section 147.

HELD: The writ petition was dismissed and the reassessment was upheld in favour of the Revenue. The Court held that the Explanation to the amended Section 147 validly enlarges the scope of reassessment by permitting the Assessing Officer to assess income relating to any issue of escaped income which subsequently comes to his notice during the reassessment proceedings, without requiring a fresh proceeding under Section 148A. The earlier judicial principle requiring an addition on the income forming the basis of the original reassessment was held inapplicable because the words “and also any other income” in the unamended Section 147 were omitted by the amendment. The Court further held that the expression “any issue” is wide enough to include material or information originating outside the original reassessment proceedings, including material discovered during search proceedings. Where reassessment proceedings are already pending, the authorities may either enlarge the pending reassessment on the basis of search material or independently initiate proceedings under the search-related mechanism. The Explanation could not, therefore, be struck down or read down, as the legislative intention to widen the reassessment provision was clear.

ITAT, Mumbai: Stamp Duty Value to Be Taken as on Allotment/Agreement Date Where Advance Consideration Was Paid Through Banking Channels - Deletes Rs. 1.42 Crore Addition, Holds Stamp Duty Value on Property Allotment Date Relevant Under Section 56(2)(x), 15-09-2026

ISSUE: Whether the addition of Rs. 1,42,89,204 under section 56(2)(x) of the Income-tax Act, 1961, was sustainable by adopting the stamp duty value prevailing on the date of registration of the property in 2018, when the property had been allotted and part consideration had been paid through banking channels in 2001; and whether the assessee-trust was in existence when such advance payment was made.

FACTS: The assessee, a charitable and religious trust registered under section 12A, acquired a flat for Rs. 38,94,296 pursuant to an allotment letter dated 27 April 2001 and paid an advance of Rs. 11,00,000 through cheque, followed by further payments during 2001-05. The sale deed was registered on 31 March 2018. The Assessing Officer, relying upon the stamp duty value prevailing in 2018 and the date of incorporation reflected in the PAN, rejected the earlier acquisition and made an addition of Rs. 1,42,89,204 under section 56(2)(x). The Tribunal found that the trust had been constituted by resolution dated 25 June 2000 and that its bank account had been opened on 28 September 2000, establishing its existence before the date reflected on the PAN. Relying upon the first and second provisos to section 56(2)(x) and the coordinate Bench decision in M/s. Pinstripe Properties Private Limited v. DCIT, the Tribunal held that the stamp duty value applicable on the date of allotment/agreement was relevant where consideration or part thereof had been paid through banking channels.

HELD: Stamp Duty Value on Allotment Date Applicable; Rs. 1.42 Crore Addition Deleted in Favour of Assessee. The Tribunal held that the relevant stamp duty value for section 56(2)(x) was the value prevailing in financial year 2001-02, when the property was allotted and advance consideration was paid, and not the value prevailing on registration in 2018. Since the stamp duty value of Rs. 32,94,198 as on the relevant earlier date was lower than the actual purchase consideration of Rs. 38,94,296, no taxable difference arose under section 56(2)(x). Accordingly, the addition of Rs. 1,42,89,204 was deleted and the appeal was allowed in favour of the assessee.

Addition under Section 69 deleted as source of investment in immovable property was duly explained

ISSUE: Whether the addition of Rs. 7,77,342/- under Section 69 of the Income Tax Act, 1961, comprising Rs. 7,15,216/- towards unexplained investment and Rs. 62,126/- towards alleged on-money payment for purchase of Unit No. C-FF 12A in Capital Galleria, Alwar, was justified.

FACTS: The assessee explained that the unit was initially allotted to Rahul Lakhera and was subsequently assigned to the assessee. The investment was stated to have been funded through an HDFC Bank loan of Rs. 11,00,000/-, Rs. 3,89,000/- transferred from the IndusInd Bank account, and Rs. 3,11,000/- paid in cash from disclosed bank withdrawals. Documentary evidence included the endorsement assigning the unit, sale agreement, bank statements, mutual fund redemption evidence and HDFC loan documents. During remand proceedings, the AO verified these documents and confirmed that Rs. 9,08,715/- was paid towards Rahul Lakhera's HDFC loan liability, Rs. 1,76,824/- was paid to R-Tech, Rs. 3,89,000/- was transferred to Rahul Lakhera through IndusInd Bank and Rs. 3,11,000/- was supported by cash withdrawals.

HELD: The Tribunal held that the assessee had duly explained and substantiated the source of investment in the immovable property. In view of the AO's remand report confirming the explanation and supporting documentary evidence, there was no justification for any addition on account of the investment. Accordingly, the addition of Rs. 7,77,342/- was deleted and the appeal of the assessee was allowed.

The High Court of Delhi: Holds US Settlement Payments Not Taxable in India; Reassessment and Protective TDS Recovery Quashed

Issues:

• Whether payments made by Ranbaxy Laboratories Ltd. (India) pursuant to a settlement agreement relating to US generic drug market exclusivity rights (ANDA for Atorvastatin) accrue, arise, or can be deemed to accrue or arise in India under Sections 5(2) or 9 of the Income Tax Act, 1961.

• Whether the Authority for Advance Rulings (AAR) was justified in declining to pronounce a ruling on the taxability of the payments by characterizing the transaction as a sham/tax avoidance arrangement and holding that the income belonged to Teva USA rather than Teva Israel.

• Whether the Revenue was justified in issuing reassessment notices under Section 148 against Teva USA and making a protective assessment while withholding tax deducted at source (TDS) from Teva Israel.

Facts:

• Drug Exclusivity & Disputes: Ranbaxy India (via its US subsidiary) and Teva Israel (via Teva USA) challenged Pfizer’s patent for Atorvastatin (Lipitor) in the US. Under US law, generic manufacturers challenging a patent can gain a 180-day Sole First-to-File Exclusivity (SFFE).

• Commercial Agreements: Ranbaxy, facing an import ban on its Indian facilities by the US FDA, entered into an agreement on December 7, 2010, with Teva USA. Under this agreement, if Ranbaxy failed to secure timely regulatory approvals, it would waive its exclusivity in favor of Teva USA in exchange for a profit share.

• Settlement & Payment: After subsequent disputes and litigation filed in a US court, the parties settled on December 7, 2011 (effective November 30, 2011). Under the reinstated/amended agreement, Ranbaxy manufactured and sold the product in the US market and agreed to remit 50% of the contract margin to Teva.

• Assignment & TDS: Teva USA assigned the contractual rights/proceeds to its parent manufacturing entity, Teva Israel. Ranbaxy India remitted the funds directly to Teva Israel from India after deducting tax at source (TDS) at approximately 42%.

• AAR & Revenue Action: Teva Israel approached the AAR seeking a ruling that the payment was non-taxable business income in India. The AAR refused to answer the reference, ruling that the arrangement was prima facie designed for tax avoidance and that the income belonged to Teva USA. Consequently, the Revenue initiated reassessment proceedings under Section 148 against Teva USA, framed protective assessments against Teva Israel, and withheld the refund of TDS claimed by Teva Israel.

Held:

• No Taxable Income in India: The High Court held that the underlying transaction concerned commercial rights and exclusivity under US drug regulatory laws for performance entirely within the United States. The mere location of the payer in India or the remittance originating from India does not give rise to income accruing, arising, or deemed to accrue/arise in India under Sections 5(2) or 9 of the Income Tax Act, 1961.

• Invalidity of AAR Decision: The Court observed that the AAR exceeded its scope by second-guessing the commercial wisdom of foreign entities settling US litigation and erred in declaring the settlement a sham without statutory or factual basis.

• Reassessment & Protective Recovery Unjustified: The Court held that protective recovery/withholding of TDS is impermissible in law when there is no underlying taxable territorial nexus. The reassessment proceedings against Teva USA were held to be without jurisdiction.

ITAT Jaipur: Addition under Section 69A deleted as assessee satisfactorily explained cash deposits through banking trail, 15-09-2026

ISSUE: Whether the addition of Rs. 31,40,000/- under Section 69A read with Section 115BBE of the Income Tax Act, 1961, towards unexplained cash deposits was sustainable when the assessee furnished evidence explaining the source of the deposits.

FACTS: The assessee deposited cash aggregating to Rs. 31,40,000/- in his joint post office savings bank account. He explained that the cash was sourced from gifts received from his father and mother, amounts withdrawn from his own bank account, proceeds of term deposits, and past cash savings. The assessee furnished the bank accounts of his parents evidencing the gifts through banking channels, his own bank account showing receipt and subsequent cash withdrawals, and the post office account showing immediate deposits of the withdrawn cash. The AO and CIT(A) rejected the explanation mainly on the ground that withdrawing cash from one account and depositing it in another was unreasonable when the funds could have been transferred through cheque.

HELD: The Tribunal held in favour of the assessee that the source of the Rs. 31,40,000/- cash deposit was duly explained and supported by documentary evidence establishing the complete trail of funds from the parents to the assessee, followed by cash withdrawal and immediate deposit in the post office account. Since the Revenue did not dispute the factual trail or establish that the withdrawn cash had been utilised elsewhere, the explanation could not be rejected merely on the ground of alleged unreasonableness. Accordingly, the order of the CIT(A) was set aside and the addition of Rs. 31,40,000/- under Section 69A was deleted; the assessee's appeal was allowed.

ITAT Grants Fresh Opportunity to Charitable Trust After Wrong Section 80G Code Leads to Rejection

ISSUE: Whether the CIT (Exemption) was justified in rejecting the assessee’s application for permanent approval under Section 80G of the Income Tax Act, 1961, merely because the assessee had inadvertently mentioned an incorrect code in Form No. 10AB, without examining the genuineness and charitable nature of its activities.

FACT: The assessee, a registered trust, had been granted provisional registration under Section 80G(5)(vi) and subsequently filed Form No. 10AB on 26.09.2025 seeking permanent approval. Although the assessee complied with the notices issued by the CIT (Exemption) and furnished the required details and information, the application was rejected by order dated 28.03.2026 on the ground that the assessee had mentioned the incorrect code under Section 80G(5)(vi)(iv), instead of the applicable provision under Section 80G(5)(vi)(i) or (ii). Before the Tribunal, the assessee submitted that the wrong code was mentioned inadvertently and that its activities were charitable in nature, but the CIT (Exemption) had rejected the application without examining the substantive merits and genuineness of the activities.

HELD: The ITAT, considering the submissions, material on record and principles of natural justice, held that the assessee should be granted one more opportunity to substantiate its claim with the necessary evidence and information. Accordingly, the order of the CIT (Exemption) was set aside and the matter was remanded for de novo consideration of the application in accordance with law. The appeal was allowed for statistical purposes, in favour of the assessee.

ITAT Restores Issues to AO for Fresh Adjudication After Ex Parte Orders, Grants Assessee Adequate Hearing Opportunity

ISSUE: Whether the assessee was entitled to another opportunity of being heard where the assessment and CIT(A) orders were passed ex parte and the assessee claimed that the relevant notices had not been received.

FACT: The assessee filed an appeal against the order of the CIT(A), NFAC, Delhi dated 07.11.2024 for AY 2017-18, with a delay of 461 days. The Tribunal, after considering the assessee’s condonation petition and supporting affidavit, condoned the delay. On merits, it noted that both the Assessing Officer and CIT(A) had passed ex parte orders and that the assessee had failed to produce the necessary details and documents before the lower authorities. The assessee submitted that the notices had not been received and sought another opportunity before the Assessing Officer.

HELD: The appeal was decided in favour of the assessee for statistical purposes. The Tribunal, in the interest of justice, restored the issues to the file of the Assessing Officer for fresh adjudication on merits, directing that adequate opportunity of being heard be granted to the assessee. Accordingly, the appeal was partly allowed for statistical purposes.

ITAT Restores Delayed Appeal to CIT(A) After Finding Assessment Order Was Served Only in 2026

ISSUE: Whether the assessee’s appeal against the assessment order for AY 2012-13 was liable to be dismissed as time-barred, where the CIT(A), NFAC had dismissed the appeal in limine on the ground of delay.

FACT: was that the assessment order had been passed on 01.12.2019, but the assessee claimed that it had not received the assessment order and had approached the CPC regarding the issue. The assessment order was ultimately served on 09.04.2026, after which the assessee filed the appeal on 07.05.2026. The assessee also submitted that it had remained silent regarding exemption under Section 10(26AAA) as it believed the issue was sub-judice before the Supreme Court and was clarified subsequently in 2023. The Revenue had no objection to restoration of the matter to the CIT(A).

HELD: was that the appeal was filed within the prescribed time from the date of service of the assessment order and, therefore, there was no delay before the CIT(A). The ITAT set aside the CIT(A)’s order dismissing the appeal in limine and restored the issues to the CIT(A) for adjudication on merits after providing adequate opportunity of hearing to the assessee. The appeal was partly allowed for statistical purposes, in favour of the assessee.

ITAT Allows Assessee’s Appeal for Statistical Purposes, Remands Section 68 Additions for Fresh Adjudication

ISSUE: Whether the additions of Rs. 1,82,30,823 under Section 68 towards unsecured loans and Rs. 6,05,205 towards interest were sustainable, particularly when the assessee’s additional evidence under Rule 46A was not considered by the CIT(A), and whether the assessment was invalid for non-issuance of notice under Section 143(2).

FACT: The assessee had filed its return for AY 2011-12 declaring Nil income. Pursuant to reassessment proceedings under Section 147, the Assessing Officer made an addition of Rs. 1,82,30,823 under Section 68 in respect of unsecured loans, including Rs. 10,17,265 treated as an undisclosed difference relating to Dhawal Gems, and disallowed Rs. 6,05,205 towards interest on such loans. Before the CIT(A), the assessee furnished additional evidence under Rule 46A, and the CIT(A) called for a remand report from the Assessing Officer but ultimately declined to consider the additional evidence. The Tribunal noted that the assessee had furnished basic details and sought time to obtain old confirmations, while the Assessing Officer issued a show-cause notice on 27/11/2018 and completed the assessment on 11/12/2018 without granting further sufficient opportunity.

HELD: In favour of the assessee, the Tribunal held that sufficient time had not been granted during assessment proceedings and, therefore, admitted the additional evidence under Rule 46A. The issue relating to the Rs. 1,82,30,823 addition under Section 68 was restored to the Assessing Officer for fresh adjudication after considering the evidence and granting reasonable opportunity of hearing. The Assessing Officer was also directed to verify the record and adjudicate the assessee’s challenge regarding issuance/service of notice under Section 143(2). Since the interest disallowance of Rs. 6,05,205 was consequential to the Section 68 addition, it too was restored for fresh adjudication. The appeal was accordingly allowed for statistical purposes.

ITAT, Ahmedabad: Upholds Rs.14.85 Lakh Addition under Section 69A for Bogus Penny-Stock Gains; Capital Loss Restriction Issue Remanded to CIT(A)

ISSUE: Whether the addition of Rs.14,85,833/- under Section 69A towards alleged bogus sale consideration of shares of Kushal Tradelink Limited was justified, and whether the restriction of the Long-Term Capital Loss from Rs.40,73,969/- to Rs.18,30,074/- was sustainable.

FACTS: The assessee had declared Long-Term Capital Gain on sale of shares of Kushal Tradelink Limited and claimed Long-Term Capital Loss on sale of immovable property. The Assessing Officer treated the share sale consideration of Rs.14,85,833/- as unexplained money under Section 69A, relying upon investigation concerning alleged accommodation entries through penny stocks. He also recomputed the cost of acquisition of the immovable property by excluding interest paid to the builder, other charges and maintenance charges, thereby restricting the Long-Term Capital Loss to Rs.18,30,074/-. The CIT(A) upheld the addition relating to the share transactions but failed to separately adjudicate the assessee's specific ground challenging restriction of the capital loss.

HELD: Addition towards alleged bogus capital gain upheld; issue of restriction of capital loss restored to CIT(A). The Tribunal, following the Coordinate Bench decision in Ramilaben Vinodbhai Patel v. ITO, held that the assessee's share transactions could not be accepted as genuine merely because they were routed through the recognised stock exchange and supported by banking and demat records, in view of the surrounding investigation material concerning the Kushal Group. Accordingly, the addition of Rs.14,85,833/- under Section 69A was sustained and Ground No. 1 was dismissed. However, since the CIT(A) had failed to adjudicate the actual grievance regarding restriction of the Long-Term Capital Loss from Rs.40,73,969/- to Rs.18,30,074/-, Ground No. 2 was restored to the CIT(A) for fresh adjudication in accordance with law after providing reasonable opportunity of hearing. The appeal was therefore partly allowed for statistical purposes.

In favour of Revenue — bogus capital-gain addition - In favour of Assessee for statistical purposes — capital loss restriction issue.

ITAT Deletes Rs. 1.80 Lakh Addition, Holds Section 69C Inapplicable to Purchases in 44AD Presumptive Tax Case

ISSUE: Whether the Assessing Officer was justified in making an addition of Rs. 1,80,000 under Section 69C read with Section 115BBE of the Income-tax Act as unexplained expenditure on account of purchases, where the assessee had declared business income under the presumptive taxation scheme of Section 44AD. The assessee also challenged the validity of the reassessment proceedings under Section 147 and the ex-parte dismissal by the CIT(A).

FACT: The assessee had filed his return for AY 2020-21 under Section 44AD, declaring turnover of Rs. 17,56,800 and total income of Rs. 3,51,360, representing a net profit of 20%. Following information received after search and survey proceedings concerning Ambica Ashish Tradelink LLP, the AO reopened the assessment and alleged that the assessee had made purchases of Rs. 1,80,000 resulting in escapement of income. The assessee submitted that the purchase was recorded in the cash book, formed part of the business turnover, and that, being a presumptive taxpayer under Section 44AD, he was not required to maintain detailed books of account. The AO nevertheless treated the entire purchase amount as unexplained expenditure under Section 69C. The CIT(A) dismissed the appeal ex-parte for non-compliance.

HELD: The ITAT held the issue in favour of the assessee and deleted the entire addition of Rs. 1,80,000. The Tribunal observed that under Section 44AD, deductions allowable under Sections 30 to 38 are deemed to have been given full effect to and an assessee declaring income under the presumptive scheme at the prescribed rate is not required to maintain books under Section 44AA. Since the assessee had disclosed turnover of Rs. 17,56,800, the disputed purchase was recorded in the cash book, its source had not been doubted, and sufficient cash was available, the entire purchase could not be treated as unexplained expenditure under Section 69C. As the substantive addition was deleted on merits, the remaining grounds concerning reassessment, CIT(A)'s order, interest and penalty were treated as academic or consequential.