Background of the Case

The assessee, a religious trust engaged in managing a centuries-old Jain pilgrimage centre, filed its return for AY 2017-18 declaring a taxable surplus of ₹2.01 lakh. During scrutiny, the Assessing Officer noticed cash deposits of ₹90 lakh during the demonetisation period, which the trust explained as donations received for the proposed Panchkalyanak Pratishtha Mahotsava and Mahamastikabhishek of Lord Adinath scheduled in April 2017. The Assessing Officer treated the donations of ₹75.46 lakh as unexplained cash credits under Section 68 on the ground that they were received shortly before demonetization and that the trust was not registered under Section 12AA during the relevant assessment year.

Consequently, exemption under Sections 11 and 12 was denied and tax was levied under Section 115BBE. The CIT(A) upheld the assessment, leading the assessee to file an appeal before the ITAT Agra.

Arguments by the Appellant (Assessee)

The assessee contended that although registration under Section 12AA was granted on 26.11.2018 with effect from AY 2019-20, the benefit of Sections 11 and 12 was available for earlier assessment years in view of the proviso to Section 12A(2), as the assessment proceedings were pending on the date of registration and the objects and activities of the trust had remained unchanged. It was further submitted that complete documentary evidence, including audited books of account, donor-wise ledgers, donation receipts and details of the religious event, had been furnished before the Revenue authorities.

The trust argued that the donations had already been disclosed as income in its books and, therefore, the same amount could not again be treated as unexplained cash credit under Section 68. The assessee also challenged the applicability of the enhanced tax rate under Section 115BBE, relying upon judicial precedents holding that the amended rate was prospective in nature.

Respondent’s Response (Revenue)

The Revenue submitted that since the trust was not registered under Section 12AA during the relevant assessment year, it was not entitled to claim exemption under Sections 11 and 12. The department further argued that the trust had no history of receiving such substantial cash donations and that the deposits made immediately before demonetisation raised serious doubts regarding their genuineness. Accordingly, the Revenue supported the orders of the Assessing Officer and the CIT(A), contending that the donations had rightly been treated as unexplained cash credits liable to tax.

Court Findings and Decision

The ITAT Agra allowed the appeal and held that the proviso to Section 12A(2), read with CBDT Circular No. 1/2015, extends the benefit of registration under Section 12AA to earlier assessment years where assessment proceedings were pending on the date of registration and the trust’s objects and activities remained unchanged. Since the assessee had obtained registration before completion of the assessment proceedings, it was entitled to exemption under Sections 11 and 12. The Tribunal further observed that the donations had been duly recorded in the audited books of account, supported by donor details, receipts and other documentary evidence, and had already been offered as income.

In such circumstances, the same receipts could not be taxed again as unexplained cash credits under Section 68 without rejecting the books of account or disproving the genuineness of the religious activities. The Tribunal also held that the enhanced rate of tax under Section 115BBE was not applicable to AY 2017-18 and directed that the income be taxed under the normal provisions of the Act.

Accordingly, all the additions made by the Revenue were deleted and the appeal of the assessee was allowed.

To download official order, Click Here

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Background of the Case

The present appeal before the Telangana High Court arose from the denial of exemption under Section 54F of the Income-tax Act, 1961, to a Non-Resident Indian (NRI) who had entered into a Joint Development Agreement (JDA) along with 45 other landowners for development of their land. The assessee claimed exemption under Section 54F on the ground that his share of the capital gains had been invested in acquiring a residential villa to be constructed by the developer under the JDA. However, due to disputes between the partners of the developer, the construction was significantly delayed and the villa was neither completed nor registered within the prescribed period of three years.

The Assessing Officer, Dispute Resolution Panel (DRP) and the Income Tax Appellate Tribunal (ITAT) rejected the exemption holding that the assessee had neither acquired legal title nor received possession of the residential property within the statutory period prescribed under Section 54F.

Aggrieved by the Tribunal’s decision, the assessee preferred an appeal before the Telangana High Court.

Arguments by the Appellant (Assessee)

The assessee contended that he had fully complied with the conditions prescribed under Section 54F by investing the capital gains in the residential villa to be constructed under the Joint Development Agreement. It was argued that the delay in completion of construction and registration of the villa occurred solely because of disputes among the developer’s partners and was entirely beyond the control of the assessee. The assessee further submitted that once the investment in the new residential property had been made within the prescribed period, the exemption could not be denied merely because the builder failed to complete the construction or execute the registered conveyance within three years.

Respondent’s Response (Revenue)

The Revenue argued that the assessee was not entitled to exemption under Section 54F since the residential villa was neither completed nor registered within the period stipulated under the Act. It was submitted that although the Joint Development Agreement contemplated delivery of the villa within thirty-six months, construction was completed only in November 2023 and no registration had taken place in favour of the assessee. The department further contended that the disputes among the developers arose much after the expiry of the contractual period and that the assessee had failed to take effective steps to ensure timely completion of the project. Accordingly, the Revenue maintained that the statutory conditions under Section 54F had not been fulfilled.

Court Findings and Decision

The Telangana High Court allowed the appeal and held that exemption under Section 54F cannot be denied merely because the assessee did not receive legal title or possession of the residential property within the prescribed period due to circumstances beyond his control. The Court observed that Section 54F is a beneficial provision intended to encourage investment in residential properties and therefore deserves liberal interpretation. It held that where an assessee has invested the capital gains towards purchase or construction of a residential house, subsequent delay in completion of construction, execution of the sale deed or delivery of possession by the developer cannot defeat the statutory exemption.

Relying upon the earlier decisions in CIT v. C. Gopalaswamy and CIT v. Sambandam Udaykumar, the Court reiterated that the essence of Section 54F lies in the investment of capital gains and not in completion of every legal formality within the stipulated period.

Consequently, the orders passed by the Assessing Officer, DRP and ITAT were set aside and the assessee was held entitled to exemption under Section 54F.

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Earlier, Notification dated 17th September 2025 had prescribed 30th June 2026 as the last date for filing appeals before the GSTAT. However, based on representations received from various stakeholders, the Government has now issued a fresh notification superseding the earlier notification.

Revised Due Date for Filing before GSTAT

As per the notification dated 30th June 2026, the following timelines shall apply:

For Appeals under Section 112(1):

• Orders communicated before 1st May 2026: Appeal can now be filed up to 31st July 2026.
• Orders communicated on or after 1st May 2026: Appeal shall be filed within three months from the date of communication of the order.

For Applications under Section 112(3):

• Orders passed before 1st February 2026: Application can now be filed up to 31st July 2026.
• Orders passed on or after 1st February 2026: Application shall be filed within six months from the date of the order.

To download the official notification, Click Here

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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

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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

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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

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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.

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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.

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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.

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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.

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ITAT Mumbai Lease Rental Income

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