Background of the Case

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) recently adjudicated an important issue concerning the grant of additional interest under Section 244A(1A) of the Income Tax Act, 1961 in the case of ITC Infotech India Limited. The assessment for AY 2014-15 was originally completed under Section 143(3) on 23 January 2018, resulting in a refund becoming due to the appellant along with interest under Section 244A(1). Subsequently, the appellant succeeded in appeal before the Commissioner of Income Tax (Appeals), who passed an order dated 08 June 2018 granting relief. However, despite the appellate order, the Assessing Officer passed the consequential appeal effect order only on 02 February 2023. The appellant contended that this substantial delay exceeded the time limit prescribed under Section 153(5) and therefore entitled it to additional interest at the rate of 3% per annum under Section 244A(1A).

Since the CIT(A) merely directed verification of the claim without specifically directing grant of such interest, the matter reached the Tribunal.

Arguments by the Appellant (Assessee)

The appellant argued that Section 153(5) imposes a statutory obligation upon the Assessing Officer to pass an order giving effect to an appellate order within the prescribed time frame. According to the appellant, the appellate order was passed in June 2018, whereas the appeal effect order was issued only in February 2023, resulting in a delay of more than four years beyond the permissible period. The appellant submitted that Section 244A(1A) was introduced specifically to compensate taxpayers where the Revenue fails to implement appellate relief within the stipulated time. It was further contended that the appellant became entitled to additional interest commencing from the date immediately following the expiry of the period prescribed under Section 153(5) until the date on which the refund was actually granted. Therefore, the appellant requested the Tribunal to direct the Assessing Officer to grant the additional interest after verifying the computation.

Respondent’s Response (Revenue)

The Revenue primarily relied upon the order passed by the CIT(A) and submitted that the issue required verification of the appellant’s computation before any additional interest could be granted. While defending the appellate order, the Department maintained that the Assessing Officer should first examine the factual correctness of the claim and determine the amount, if any, payable under Section 244A(1A). The Revenue did not place any specific material on record to dispute the fact that the appeal effect order had been passed after the expiry of the statutory period. Accordingly, the Department supported the direction of the CIT(A) restricting the matter to verification of the claim rather than issuing a categorical direction for grant of additional interest.

Court Findings and Decision

After considering the submissions and examining the material on record, the Tribunal observed that the appeal effect order dated 02 February 2023 had admittedly been passed well beyond the period prescribed under Section 153(5) of the Act. The Tribunal held that once there is a delay in giving effect to an appellate order beyond the statutory timeline, the appellant becomes entitled to additional interest under Section 244A(1A). The Bench noted that these provisions were introduced as a deterrent against administrative delays and to compensate taxpayers who are deprived of timely refunds despite succeeding in appellate proceedings.

Relying upon the decisions of the Karnataka High Court in Wipro Ltd. v. JCIT and the Gujarat High Court in Nima Specific Family Trust v. ACIT, the Tribunal concluded that the appellant was entitled to additional interest at the rate of 3% per annum from 01 November 2018 until the date of actual grant of refund.

Accordingly, the Tribunal directed the Assessing Officer to verify the computation and grant the additional interest in accordance with law, thereby allowing the appeal of the appellant.

To download official order, Click Here

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post ITAT Kolkata Directs Grant of Additional Interest under Section 244A(1A) for Delay in Giving Appeal Effect appeared first on Tax Unplug.

Background of the Case

The assessee had received a settlement amount of Rs.6.58 crore pursuant to a Settlement Agreement entered into with another party in connection with long pending disputes relating to property and business rights. The disputes had arisen due to conflicting claims and litigations concerning development and ownership rights under earlier agreements and memorandums of understanding. The Assessing Officer treated the compensation received by the assessee as taxable income and made additions on the ground that the amount represented consideration for relinquishment of rights and therefore was taxable either as business income or capital gains. The CIT(A) further made protective additions in respect of certain amounts allegedly relatable to other parties involved in the settlement arrangement. Aggrieved by the additions, the assessee preferred appeal before the ITAT Kolkata.

Arguments by the Appellant (Assessee)

The assessee argued that the compensation amount was received only towards settlement of disputes and relinquishment of its “right to sue”, which is not regarded as a capital asset under Section 2(14) of the Income Tax Act read with Section 6 of the Transfer of Property Act. It was submitted that the assessee never acquired any enforceable ownership rights in the disputed property and the settlement merely compensated the assessee for withdrawing claims and pending litigations. Reliance was placed upon several judicial precedents including the decisions of the Hon’ble Supreme Court in Oberoi Hotels Pvt. Ltd., and various Tribunal decisions including Bhojison Infrastructure Pvt. Ltd., Chheda Housing Development Corporation and Ganeshsagar Infrastructure Pvt. Ltd. to contend that compensation received for surrendering a mere right to sue constitutes a capital receipt not chargeable to tax.

It was further argued that the protective addition made by the CIT(A) was wholly without jurisdiction since the amounts in question belonged to other corporate entities and had already been accounted for in their respective books.

Respondent’s Response (Revenue)

The Revenue contended that the compensation received by the assessee was directly connected with relinquishment and extinguishment of rights arising from agreements relating to the property and therefore constituted taxable receipts. According to the Department, the amount received by the assessee was liable to be taxed either as business income or as capital gains since the assessee had effectively surrendered valuable commercial rights under the settlement arrangement. The Revenue further defended the additions made during assessment proceedings and supported the view that the compensation had nexus with transfer or extinguishment of rights capable of taxation under the Income Tax Act.

The Department also attempted to justify the protective addition made by the CIT(A) in relation to the amounts attributable to other entities connected with the settlement.

Court Findings and Decision

The ITAT Kolkata held that the settlement amount received by the assessee was a capital receipt not liable to tax. The Tribunal observed that the compensation was received only for relinquishment of the assessee’s “right to sue” arising out of prolonged disputes and litigations and such right does not qualify as a “capital asset” within the meaning of Section 2(14) of the Income Tax Act. Relying extensively upon the judgments, the Tribunal reiterated that compensation received for surrendering a mere right to sue is outside the ambit of capital gains taxation. The Tribunal further noted that the assessee had not transferred any enforceable ownership rights in the property and the receipt was purely compensatory in nature arising from settlement of disputes.

In respect of the protective addition of Rs.11.42 crore, the Tribunal held that the amount admittedly belonged to other corporate entities and had neither been received nor accrued to the assessee. It was also observed that the CIT(A) exceeded jurisdiction in making protective additions without any substantive assessment in the hands of those entities.

Accordingly, the Tribunal deleted the additions and allowed the appeal of the assessee.

To download official order, Click Here

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post ITAT Kolkata: Compensation Received for Relinquishment of Right to Sue is Capital Receipt Not Taxable Under Income Tax Act appeared first on Tax Unplug.

Background of the Case

The assessee challenged the validity of reassessment proceedings initiated under Section 148 of the Income Tax Act for AY 2015-16 on the ground that the notice issued on 01.04.2022 was barred by limitation under the amended provisions of Section 149. The reassessment proceedings were initiated after introduction of the new reassessment regime by the Finance Act, 2021. The Revenue contended that while computing limitation, the period allowed to the assessee for responding to notice issued under Section 148A(b) should be excluded in terms of the proviso to Section 149(1), thereby extending the limitation period. The core issue before the ITAT Chennai was whether the reassessment notice dated 01.04.2022 for AY 2015-16 survived the limitation prescribed under the old and new reassessment regime.

Arguments by the Appellant (Assessee)

The assessee argued that under the old reassessment regime, the maximum period available for issuance of notice under Section 148 for AY 2015-16 expired on 31.03.2022, being six years from the end of the relevant assessment year. It was submitted that the first proviso to Section 149(1), inserted by the Finance Act, 2021, specifically protects completed and time-barred assessments from being reopened under the extended ten-year limitation introduced under the new regime. Reliance was placed on the judgment of the Hon’ble Supreme Court in Rajiv Bansal and various High Court decisions to contend that reassessment notices issued after expiry of the old limitation period are invalid. The assessee further argued that exclusion provisions relating to proceedings under Section 148A cannot revive a notice which itself fails the primary limitation test under the first proviso to Section 149(1).

Respondent’s Response (Revenue)

The Revenue argued that while computing limitation under Section 149, the period granted to the assessee for responding to notice under Section 148A(b), i.e., from 21.03.2022 to 28.03.2022, should be excluded in view of the proviso to Section 149(1). It was further contended that where the remaining limitation period after such exclusion is less than seven days, the Assessing Officer becomes entitled to an extended period of seven days for issuance of notice. Accordingly, the Department submitted that the Assessing Officer had time till 06.04.2022 to issue notice under Section 148 and therefore the notice dated 01.04.2022 was within the prescribed limitation period. The Revenue accordingly defended the validity of the reassessment proceedings initiated against the assessee.

Court Findings and Decision

The ITAT Chennai held that the reassessment notice issued under Section 148 on 01.04.2022 for AY 2015-16 was barred by limitation and therefore invalid in law. The Tribunal observed that as per the first proviso to Section 149(1), reassessment notices for years prior to AY 2021-22 cannot be issued if such notices had already become time barred under the old six-year limitation regime. Relying upon the judgment of the Hon’ble Supreme Court in Rajiv Bansal, the Tribunal held that the legislative intent behind the proviso was to prevent retrospective extension of limitation under the amended reassessment provisions. The Tribunal further rejected the Department’s contention regarding exclusion of time under Section 148A proceedings, holding that such exclusion provisions apply only when the notice first survives the limitation test under Section 149(1).

Since the limitation for AY 2015-16 expired on 31.03.2022, the notice dated 01.04.2022 was held to be invalid. Accordingly, the reassessment proceedings were quashed and the additions made therein were deleted.

To download official order, Click Here

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post ITAT Chennai: The New Limits Under Section 149 Cannot Override the Limitation Prescribed Under the Erstwhile Section 149 appeared first on Tax Unplug.

Background of the Case:

The appellant, engaged in retail trade and operating multiple showrooms in Delhi, had filed its return for AY 2020-21 declaring substantial income, which was subsequently taken up for complete scrutiny under CASS. The assessment was completed under section 143(3) read with section 144B, wherein certain additions were made relating to unexplained cash deposits and disallowance of interest expenses. However, while examining the assessment records, the Principal Commissioner of Income Tax noticed that the Tax Audit Report in Form 3CD disclosed repayment of an amount of Rs.11 lakh otherwise than through prescribed banking channels, allegedly in violation of section 269T.

On the premise that such violation attracted penalty under section 271E and that the Assessing Officer had failed to initiate penalty proceedings, the PCIT invoked section 263 and directed initiation of penalty proceedings, holding the assessment order to be erroneous and prejudicial to the interest of revenue.

Arguments by the Appellant (Assessee)

Aggrieved by the revisionary order, the appellant challenged the assumption of jurisdiction under section 263 before the ITAT. It was contended that the amount of Rs.11 lakh was not a loan or deposit repayment but merely an adjustment entry against a security deposit of Rs.1 crore received in an earlier year, which was wrongly reported by the auditor in Form 3CD. The appellant argued that a mere book adjustment without movement of money does not attract the rigour of section 269T and, consequently, penalty under section 271E could not be levied.

More importantly, the appellant asserted that penalty proceedings are independent of assessment proceedings and, in the absence of any satisfaction recorded by the Assessing Officer in the assessment order, the PCIT had no authority under section 263 to direct initiation of penalty proceedings.
Reliance was placed on binding judicial precedents, including the Delhi High Court decision in CIT v. Nihal Chand Rekyan and the Supreme Court ruling in CIT v. Jai Laxmi Rice Mills Ambala City, to emphasize that satisfaction of the Assessing Officer is a sine qua non for initiation of penalty proceedings.

Respondent’s Response (Revenue)

The Revenue, on the other hand, supported the order passed by the PCIT and contended that the Tax Audit Report clearly reflected a violation of section 269T, which could not be ignored lightly. It was argued that the auditor’s reporting in Form 3CD carries statutory significance and, unless corrected through a revised audit report, the same must be relied upon. The PCIT justified the invocation of section 263 on the ground that failure of the Assessing Officer to initiate penalty proceedings resulted in loss of revenue. The Revenue further sought to distinguish the decision of the Delhi High Court in Nihal Chand Rekyan by submitting that the said judgment pertained to section 271(1)(c), whereas penalty under section 271E could be initiated independently.

Reliance was also placed on the decision of the ITAT Chennai Bench to contend that initiation of penalty proceedings for violation of sections 269SS/269T is mandatory during assessment proceedings.

Court Findings and Decision

After considering the rival submissions and examining the record, the ITAT Delhi Bench held that the PCIT had exceeded the jurisdiction conferred under section 263. The Tribunal observed that initiation of penalty proceedings is not a part of assessment proceedings and cannot be directed by the Commissioner in revisionary jurisdiction, particularly in the absence of satisfaction recorded by the Assessing Officer.

The Bench categorically relied on the Supreme Court judgment in Jai Laxmi Rice Mills Ambala City, which held that penalty under section 271E cannot survive unless satisfaction for such penalty is recorded in the assessment order itself. The Tribunal further noted that the PCIT’s attempt to distinguish the Delhi High Court decision in Nihal Chand Rekyan was misplaced and contrary to settled law.

Since no satisfaction for initiation of penalty under section 271E was recorded by the Assessing Officer, the direction issued under section 263 was held to be unsustainable. Accordingly, the revisionary order was quashed and the appeal of the appellant was allowed.

To download official order, Click Here

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post ITAT Quashes Order u/s 263: Holds PCIT Cannot Mandate Penalty Proceedings u/s 271E Without AO’s Satisfaction appeared first on Tax Unplug.

The petitioner challenged an order passed under Section 142(2A) of the Income-tax Act, 1961, whereby the Assessing Officer directed a special audit of the petitioner’s accounts for Assessment Year 2023–24, along with the consequential special audit report. 

While multiple grounds were raised, the principal contention was jurisdictional in nature, namely that the mandatory prior approval of the Principal Commissioner of Income Tax, which formed the very foundation of the special audit order, did not bear a DIN as required under CBDT Circular No. 19/2019 dated 14 August 2019.

It was argued on behalf of the petitioner that the Circular expressly mandates that no communication, including approvals, shall be issued without a computer-generated DIN on or after 1 October 2019. 

It was further contended that paragraph 4 of the Circular unequivocally provides that any communication issued in violation of this requirement shall be treated as invalid and deemed never to have been issued. Since the approval dated 6 February 2025 lacked a DIN and did not fall within any of the exceptional circumstances carved out under the Circular, the entire special audit proceedings were asserted to be void ab initio.

Reliance was placed on a consistent line of judicial precedents, including Ashok Commercial Enterprises v. ACIT, Hardik Deepak Salot v. ACIT, Siemens Limited v. DCIT, and CIT v. Sutherland Global Services Inc.

On the other hand, the Income Tax Department contended that the approval was merely an internal document and did not amount to a “communication” requiring a DIN. It was further submitted that the special audit order itself carried a valid DIN, which constituted sufficient compliance with the Circular. 

The Revenue also relied on the decision of the Gujarat HC in Rameshkumar Tulsidas Kaneriya v. ACIT, wherein it was held that internal satisfaction notes do not require DIN.

The Bombay High Court decisively rejected the contentions of the Revenue. The Court held that an approval under Section 142(2A) is not a mere internal note but a formal jurisdictional prerequisite, and CBDT Circular No. 19/2019 specifically includes “approval” within its scope. 

The absence of a DIN on such approval was held not to be a procedural irregularity curable under Section 292B of the Act, but a fatal defect rendering the approval invalid.

The Court further held that since the very basis for directing the special audit was invalid, the special audit order and the consequential audit report could not survive.

 The Gujarat High Court ruling relied upon by the Revenue was distinguished on the ground that the Bombay High Court was bound by its own earlier decisions, which clearly hold that even internal communications fall within the ambit of the Circular. The Court also reiterated that a stay granted by the Supreme Court does not obliterate the precedential value of a High Court judgment.

In conclusion, the Bombay High Court quashed and set aside the order directing a special audit under Section 142(2A) of the Act, as well as the consequential special audit report.

This ruling reaffirms that strict compliance with CBDT Circular No. 19/2019 is non-negotiable, and that the DIN requirement is not a mere technicality but goes to the root of jurisdiction. The judgment strengthens procedural safeguards for taxpayers and underscores that transparency and accountability mechanisms introduced by the CBDT cannot be diluted under the guise of internal administrative processes.

To download official order, click here.

To download CBDT Circular No. 19/2019, click here.

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post Special Audit Without DIN Approval Held Void – even in case of internal communication appeared first on Tax Unplug.

Background of the Case

The present case concerns the validity of penalty orders issued by the Income Tax Department under Section 275(1)(a) of the Income-tax Act, 1961. The central question before the Delhi High Court was whether the penalty orders were passed within the statutory limitation period prescribed for the completion of penalty proceedings following an ITAT order. The limitation under Section 275(1)(a) requires the Department to issue penalty orders within six months from the end of the month in which the appellate order is received. The dispute arose because the Department attempted to calculate limitation based on the date when the ITAT order was forwarded to the jurisdictional Commissioner, while the respondent contended that the relevant date was when the Commissioner of Income-tax (Judicial), who represents the Department before the Tribunal, received the order.

Since ITAT orders are uploaded publicly soon after pronouncement, the respondent argued that the Department cannot delay dispatch internally to extend the limitation period. The ITAT accepted the respondent’s view and quashed the penalty, which led the Department to file an appeal before the Delhi High Court.

Arguments by the Appellant

The Department argued that the limitation period had been wrongly computed by the ITAT. According to the Department, the correct date for initiating the calculation of the limitation period was the date on which the ITAT order was communicated to the jurisdictional Commissioner of Income-tax, as that authority is responsible for giving effect to the appellate order and for passing any consequential orders, including penalty. The Department maintained that internal transmission and dispatch of the order to the jurisdictional Commissioner were essential procedural steps, and therefore the statutory period should begin only after such communication took place. Based on this interpretation, it was contended that the penalty orders were well within time and could not be treated as time-barred.

Respondent’s Response

The Respondent strongly opposed the Department’s stand by emphasizing that the statutory limitation period cannot be made flexible based on internal administrative delays. It was argued that allowing the Department to decide the date of dispatch and communication would defeat the very purpose of fixed time limits prescribed under the Act. The respondent relied upon the judgment of the Delhi High Court in CIT v. Odeon Builders Pvt. Ltd., which held that the relevant date for limitation is the date when the Commissioner of Income-tax (Judicial)—the officer who represents the Department before the ITAT—receives the order.

The respondent highlighted that ITAT orders are placed in the public domain shortly after pronouncement, and the Department cannot postpone limitation by delaying communication to its internal wings. Therefore, the respondent submitted that the penalty orders passed were clearly issued far beyond the permissible six-month period under Section 275(1)(a), making them illegal and without jurisdiction.

Court Findings and Decision

The Delhi High Court upheld the view taken by the ITAT and agreed with the respondent’s submissions. The Court held that permitting the Department to choose a convenient date for dispatching the ITAT order to the concerned officer would undermine the statutory mandate of time-bound actions under the Income-tax Act. It reiterated that the limitation period under Section 275(1)(a) must be computed from the date the ITAT order is received by the Commissioner of Income-tax (Judicial), who represents the Department before the Tribunal, and not from the date the order reaches the jurisdictional Commissioner.

The Court observed that since ITAT orders are generally available in the public domain immediately after pronouncement, the Department cannot circumvent the limitation by delaying internal communication. The Court concluded that the penalty orders were issued far beyond the statutory six-month limitation and were therefore invalid and without jurisdiction. Consequently, the High Court dismissed the Department’s appeal, holding that no substantial question of law arose in the matter.

The Department later approached the Supreme Court, but the Supreme Court dismissed the appeal, thereby affirming the Delhi High Court’s ruling and finalizing the position of law on this issue.

To download the official order of the Supreme Court, Click Here.

To download the official order of the Delhi High Court, Click Here.

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post Delay by CIT(DR) in forwarding ITAT order to CIT(Jurisdiction) held departmental lapse; penalty proceedings time-barred – Supreme Court appeared first on Tax Unplug.

Background of the Case

The appellant owned a commercial property at Raheja Woods, Pune, which had been leased since AY 2005–06. For over a decade, the appellant consistently reported the rental income from this property under the head “Income from House Property,” and the Revenue had accepted this classification in all prior and subsequent years, including as recent as AY 2023–24. However, for AY 2017–18, the Assessing Officer departed from this consistent position and reclassified the rental income of Rs.10.62 crore as “Profits and Gains of Business or Profession,” relying on the Supreme Court judgment in Chennai Properties and Investments Pvt. Ltd. The AO further allowed depreciation instead of the statutory deduction under section 24(a). This treatment was upheld by the CIT(A), prompting the appellant to file an appeal before the Tribunal.

Arguments by the Appellant

The appellant counsel argued that the activity was one of pure leasing, as the lease agreement clearly indicated that lessee bear all utility charges and maintenance costs, leaving no scope for ancillary services. They highlighted that since AY 2005–06, rental income from this very property had been accepted by the Revenue under the head “House Property,” supported by an affidavit filed before the Tribunal. The appellant relied heavily on the Supreme Court ruling in East India Housing and Land Development Trust Ltd. (42 ITR 49), which held that income derived from shops and stalls is to be taxed as income from house property. Further reliance was placed on Raj Dadarkar & Associates v. ACIT (394 ITR 592) and the recent Bombay High Court judgment in PCIT v. Banzai Estates Pvt. Ltd, both of which clarified that an entry in the object clause of a company’s Memorandum of Association cannot override the scheme of classification under the Income Tax Act.

The appellant distinguished its case from Chennai Properties, noting that in that case the company was formed solely to hold two properties and its only source of income was lease rent, whereas H&M Housing Finance and Leasing earned diverse income streams—interest on loans, debentures, capital gains on investments, and share of profits from a partnership firm. In addition, the assets reflected in the balance sheet showed significant investments beyond the leased property. On these facts, the appellant contended that the principle of consistency, coupled with statutory provisions under sections 22–24, required the rental income to be taxed under the head “Income from House Property.”

Respondent’s Response

The Revenue, represented by the Departmental Representative, supported the orders of the Assessing Officer and the CIT(A). It was argued that the Memorandum of Association of the appellant specifically listed leasing of properties as its main object. Therefore, the rental income represented business income, consistent with the principle laid down in Chennai Properties. The Revenue maintained that systematic and organized activity of leasing, as reflected in the MOA, constituted a business activity. It was also argued that merely because earlier assessments had accepted the rental income under “House Property” head, the Department was not estopped from applying the correct legal position in the year under consideration. On the issue of depreciation, the CIT(A) had held that depreciation was to be computed from AY 2005–06, being the first year the property was put to use, and not from AY 2014–15 as claimed by the appellant. The DR urged the Tribunal to affirm these findings.

Court Findings and Decision

The Tribunal observed that the core issue was whether the lease rent should be assessed as “Income from House Property” or “Business Income.” It noted that for over 18 years, the Revenue had consistently accepted the appellant treatment of rental income under the head “House Property,” both before and after AY 2017–18. The Tribunal distinguished Chennai Properties on facts, reiterating that in that case the entire business of the appellant revolved solely around two properties, whereas H&M Housing Finance and Leasing was engaged in multiple investment and financing activities, with only a portion of its assets devoted to the leased building.

The Tribunal emphasized that section 22 mandates that annual value of a property owned by the appellant must be taxed under “House Property,” unless it falls within the specific exception of being used for the appellant own business. That exception did not apply here, as the property was fully leased out.

Accordingly, the Tribunal held that the rental income was taxable under the head “Income from House Property,” thereby allowing the appellant claim for deduction under section 24(a). Having decided this principal issue in favour of the appellant, the Tribunal treated the alternative ground regarding depreciation as infructuous. However, it clarified that municipal taxes and insurance paid, amounting to Rs. 17,01,686 and Rs. 1,90,477 respectively, were allowable subject to verification of evidence by the AO.

To download official order, Click Here

ITAT Mumbai Lease Rental Income

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post ITAT Mumbai Rules That Lease Rental Income Consistently Assessed as House Property Cannot Be Arbitrarily Reclassified as Business Income by Revenue Authorities appeared first on Tax Unplug.

M/S R.T. Infotech vs. Revenue [Writ Tax No. 1330 of 2022]

Background of the Case

The appellant, a registered dealer engaged in the business of mobile recharge, had availed ITC worth Rs. 28,52,370 on the basis of seven tax invoices issued by M/s Bharti Airtel Ltd. The appellant asserted that the applicable CGST and SGST components, each amounting to Rs. 14,26,185, were paid through banking channels (RTGS) to the supplier. However, during scrutiny, the tax department noticed discrepancies in the appellant’s return, primarily the non-reflection of these invoices in the GSTR-2A. A notice was issued in Form ASMT-10, and despite the appellant’s reply in ASMT-11 explaining the genuineness of transactions, the department proceeded to issue a show cause notice under Section 73 of the CGST Act. The proceedings culminated in an order directing recovery of the ITC, imposition of 10% penalty, and interest liability. The appellant’s appeal against this order was dismissed, prompting the writ petition before the Allahabad High Court.

Arguments by the Appellant

The appellant submitted they had fully complied with all legal requirements for availing ITC. The goods (recharge coupons) were purchased from a legitimate and recognized supplier, M/s Bharti Airtel Ltd., and the payment of tax on these invoices was made through official banking channels. It was submitted that the mismatch in GSTR-2A was not due to any failure or fraud on the part of the appellant but was attributable to the selling dealer’s non-compliance, over which the appellant had no control. The appellant contended that the department, instead of taking coercive action against the buyer, should have proceeded against the defaulting seller who had failed to deposit the tax with the government. The appellant maintained that it was not within its powers to compel the supplier to file returns or deposit the tax collected, and any recovery should be directed toward the erring seller.

Respondent’s Response

The Revenue defended the impugned orders by asserting that under Section 16(2)(c) of the CGST Act, ITC can be availed only if the tax charged in respect of the supply has actually been paid to the government. Since the tax claimed by the appellant did not reflect in GSTR-2A and was not deposited by the supplier, the reversal of ITC was justified. The respondent argued that the scheme of GST law places a statutory condition on the availability of ITC, which requires actual deposit of the tax amount. As such, in the absence of evidence that the supplier had remitted the tax, the authorities were well within their rights to deny the credit and recover the same along with penalty and interest. According to the department, the appellant’s failure to ensure that the tax reached the government treasury disentitled it from claiming credit, notwithstanding the fact that payment was made to the supplier.

Court Findings and Decision

The Allahabad High Court ruled in favor of the appellant and held that the purchasing dealer cannot be made to suffer due to the non-compliance of the supplier, particularly when the former has no statutory mechanism to enforce filing of returns or deposit of tax by the supplier. Citing the decisions in Suncraft Energy and D.Y. Beathel Enterprises, the Court reiterated that the burden of enforcement lies with the department, and action should be directed toward the defaulting seller rather than the compliant buyer. Accordingly, the Court quashed both the assessment and appellate orders and remanded the matter to the concerned authority for fresh adjudication after hearing all stakeholders. The authority has been directed to pass a reasoned and speaking order within two months of receiving a certified copy of the judgment.

Buyer GST Liability Judgment

To download official order, Click Here

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post Buyer Cannot Be Penalized for Seller’s Non-Filing of GST Returns or Non-Payment of Tax appeared first on Tax Unplug.

Dinendra Biswas vs. Revenue [W.P.(C) No. 2260 of 2023]

Background of the Case

The appellant, Justice Dinendra Biswas, a former judge of the Gauhati High Court and later the Upa-Lokayukta of Assam, filed a writ petition challenging the demand notices issued by the Income Tax Department under Section 143(1) of the Income Tax Act. These demands, amounting to Rs. 8,40,370 for financial years 2008-09, 2010-11, 2011-12, 2012-13, and 2013-14, arose due to the non-allowance of credit for taxes deducted at source (TDS) from his salary. The appellant contended that the respective employers—Gauhati High Court and the Office of the Lokayukta had deducted and deposited the TDS, but the same was not reflected in Form 26AS, leading to the erroneous tax demands.

Arguments by the Appellant

The appellant submitted that all relevant taxes had indeed been deducted by his employers and duly deposited with the Central Government, and he supported his claim with Form 16s and deduction certificates. He invoked Section 205 of the Income Tax Act, which clearly states that if tax has been deducted at source, the appellant cannot be asked to pay it again. Justice Biswas highlighted that the error lay not with him, but with the employers’ failure to ensure proper reflection of the deducted tax in the 26AS statements, and therefore, any demand raised against him was unjustified.

Respondent’s Response

The Revenue in its response, stated that the credit can only be given for taxes that are reflected in the appellant’s Form 26AS. It was asserted that since no TDS appeared in the appellant’s 26AS for the relevant years, the department was within its rights to raise a demand. They argued that it is the employer’s responsibility to deposit the TDS correctly under the taxpayer’s PAN and ensure proper reporting, and that in the absence of such evidence, the appellant’s claim for TDS credit could not be accepted.

Court Findings and Decision

The High Court of Gauhati ruled in favor of the appellant and held that the Income Tax Department’s action of raising demands and refusing credit was unsustainable. The Court relied on precedents and the principle under Section 205, emphasizing that once tax is deducted and deposited by the employer, the appellant cannot be burdened with repayment. Since affidavits and treasury records from both the Gauhati High Court and the Lokayukta, Assam, proved that the taxes had indeed been deducted and paid, the Court ruled that non-reflection in Form 26AS was a technical lapse, not a substantive one. Consequently, the High Court quashed the demand notices and directed the Income Tax Department to give credit for the said amounts forthwith.

To download official order, Click Here

TDS not reflected in Form 26AS:

“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post Gauhati High Court Quashes IT Demands for Non-Reflection of TDS in Form 26AS; Assessee Cannot Be Held Liable If TDS Is Not Reflected in Form 26AS appeared first on Tax Unplug.

Mark Foods vs. Revenue [Income Tax Appeal No.4102 & 4103 of 2024]

Background of the Case

The appellant filed appeal before ITAT Mumbai against reassessment orders for Assessment Years (AYs) 2015-16 and 2016-17. The Income Tax Department had initiated proceedings under Section 147 of the Income Tax Act, 1961, alleging that the company had engaged in bogus purchases and unexplained financial transactions. The Assessing Officer (AO) issued notices under Section 148, seeking to reopen previously concluded assessments. The appellant contested these notices on multiple grounds, including procedural irregularities, lack of proper approval, and violation of natural justice. The case gained significance due to its reliance on key judicial precedents, including the Supreme Court’s rulings in Union of India vs. Ashish Agarwal and Union of India vs. Rajeev Bansal, which dealt with the legality of reassessment proceedings under the amended tax regime.

Arguments by the Appellant

The appellant, raised several critical objections against the reassessment proceedings. For AY 2015-16, the appellant argued that the notice under Section 148, issued 15.07.2022, was time-barred, as the six-year limitation period had already expired on 31.03.2022. They relied on the Supreme Court’s decision in Rajeev Bansal, where the Revenue itself admitted that notices issued after 01.04.2021 for this assessment year were invalid. For AY 2016-17, the appellant contended that the sanction for reopening was granted by an unauthorized authority the Principal Commissioner of Income Tax instead of the higher-ranking Principal Chief Commissioner, as mandated under Section 151(ii) of the amended law.

Additionally, the appellant challenged the reassessment on grounds of violation of natural justice, arguing that they were denied the opportunity to cross-examine witnesses whose statements were relied upon by the AO. They also disputed the double taxation of the same amount, first as unexplained income under Section 68 and then as bogus purchases.

Respondent’s Response

The Revenue defended the reassessment proceedings, asserting that the notices were validly issued under the amended provisions of the Income Tax Act, read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). The department argued that TOLA extended the timelines for initiating reassessment due to the COVID-19 pandemic, making the notices legally permissible. For AY 2016-17, the Revenue maintained that the approval granted by the Principal Commissioner was sufficient, as the new reassessment regime did not require a higher authority’s sanction in all cases. They further contended that the reassessment was based on credible evidence of bogus transactions and that the appellant’s objections were merely technical, lacking substantive merit.

The Revenue also emphasized that the denial of cross-examination did not vitiate the proceedings, as the AO had relied on independent material to form his belief about escaped income.

Court Findings and Decision

The ITAT bench of Mumbai ruled in favor of the appellant, quashing the reassessment proceedings for both AYs. For AY 2015-16, the Tribunal held that the notice under Section 148 was barred by limitation, following the Supreme Court’s decision in Rajeev Bansal, where the Revenue had conceded that notices issued after 01.04.2021 for this assessment year were invalid. The Tribunal emphasized that the six-year limitation period had expired before the notice was issued, rendering the reassessment void.

For AY 2016-17, the ITAT found that the sanction for reopening was invalid because it was granted by the Principal Commissioner instead of the Principal Chief Commissioner, as required under Section 151(ii) of the amended law. The Tribunal stressed that strict compliance with statutory procedures was mandatory, and the failure to obtain proper approval made the reassessment legally unsustainable.

Additionally, the ITAT noted that the AO had failed to provide the appellant with a fair opportunity to cross-examine witnesses, violating principles of natural justice. Consequently, the Tribunal allowed both appeals, setting aside the reassessment orders in their entirety.

To download official order, Click Here“

The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”

The post ITAT Sets Aside Reassessment Orders; Holds Section 148 Notices Time-Barred and Sanctions under section 151(ii) Invalid for AY 2015-16 & 2016-17 appeared first on Tax Unplug.