1. ISSUES PRESENTED and CONSIDERED

• Whether the Income Tax Appellate Tribunal (ITAT) was justified in sustaining an addition of Rs. 7,50,000 under Section 69A of the Income Tax Act, 1961, treating the amount as unexplained money despite the appellant/assessee's submission of bank statements and income tax returns for multiple years.
• Whether the Standard Operating Procedure (SOP) prescribed in the CBDT Circular No. 3/2017 dated 21/02/2017, specifically Clauses 1.1 and 1.3 relating to Source Specific General Verification Guidelines for cash deposits, was properly followed by the Assessing Officer and the ITAT.
• Whether the failure to conduct verification as per the CBDT Circular renders the addition under Section 69A unsustainable and liable to be set aside.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of addition under Section 69A of the Income Tax Act for unexplained cash deposits

Relevant legal framework and precedents: Section 69A of the Income Tax Act permits the Assessing Officer to treat any sum found credited in the books of an assessee for which no satisfactory explanation is offered as income of the assessee. The burden lies on the assessee to explain the source and nature of the cash deposits.

Court's interpretation and reasoning: The Assessing Officer observed cash deposits of Rs. 11,00,000 during the demonetization period and found the explanation offered by the assessee unsatisfactory. Consequently, the entire amount was added as unexplained money under Section 69A. This addition was affirmed by the Commissioner of Income Tax (Appeals) and partly sustained by the ITAT, which reduced the addition by Rs. 3,50,000 based on CBDT Instruction No. 3/2017.

Key evidence and findings: The appellant/assessee had deposited Rs. 11,00,000 in cash during the demonetization period. Bank account statements for three financial years and income tax returns for six financial years were submitted by the assessee to explain the source of the deposits.

Application of law to facts: While the Assessing Officer and CIT(A) did not accept the explanation and added the entire amount, the ITAT recognized the applicability of the CBDT Circular and allowed a partial deduction of Rs. 3,50,000, treating it as cash in hand at the relevant time.

Treatment of competing arguments: The appellant contended that the addition was unjustified as the source was explained by documentary evidence and the SOP under the CBDT Circular was not followed. The Revenue supported the addition on the ground of inadequate explanation.

Conclusions: The addition under Section 69A cannot be sustained without following the prescribed verification procedure as per the CBDT Circular. The partial allowance by the ITAT was a recognition of this principle but insufficient without full compliance with the SOP.

Issue 2: Compliance with CBDT Circular No. 3/2017 (Clauses 1.1 and 1.3) regarding verification of cash deposits

Relevant legal framework and precedents: The CBDT Circular No. 3/2017 dated 21/02/2017 provides Source Specific General Verification Guidelines for unexplained cash deposits during demonetization. Clause 1.1 exempts verification for cash deposits up to Rs. 2.5 lakh for individuals without business income (Rs. 5 lakh for senior citizens). Clause 1.3 mandates detailed verification if deposits exceed these thresholds, including consideration of bank statements, past income, returns filed, and cash withdrawals before quantifying undisclosed amounts.

Court's interpretation and reasoning: The Court noted that the appellant/assessee had submitted bank statements for three years and income tax returns for six years, which were not considered by the Assessing Officer or CIT(A). The ITAT partially allowed the appeal relying on the Circular but did not ensure full compliance with Clauses 1.1 and 1.3.

Key evidence and findings: The appellant's submission of detailed bank statements and income tax returns was a crucial factor under the Circular's guidelines. The authorities failed to conduct the requisite verification as mandated.

Application of law to facts: The failure to verify the source of cash deposits in accordance with the Circular's SOP meant that the addition of Rs. 7,50,000 as unexplained money was premature and legally unsustainable.

Treatment of competing arguments: The appellant argued for remand to allow proper verification as per the Circular. The Revenue opposed setting aside the addition. The Court emphasized adherence to the Circular's verification process as mandatory.

Conclusions: Non-compliance with the CBDT Circular's verification procedure invalidates the addition under Section 69A. The matter requires remand to the Assessing Officer for verification and fresh adjudication in line with Clauses 1.1 and 1.3 of the Circular.

Issue 3: Effect of non-compliance with SOP on the validity of additions under Section 69A

Relevant legal framework and precedents: The CBDT Circular is binding on income tax authorities and prescribes a mandatory procedure for verifying cash deposits during demonetization. Non-compliance may render the assessment order unsustainable.

Court's interpretation and reasoning: The Court held that since the SOP was not followed, the addition of Rs. 7,50,000 was bad in law. The impugned orders by the ITAT, CIT(A), and Assessing Officer were set aside to the extent of the addition, and the matter was remitted for fresh verification.

Key evidence and findings: The absence of verification under the Circular despite submission of relevant documents by the assessee was a critical defect.

Application of law to facts: The addition was quashed not on merits but due to procedural lapses in verification, requiring reassessment.

Treatment of competing arguments: The Revenue's insistence on sustaining the addition despite procedural non-compliance was rejected.

Conclusions: Additions under Section 69A must comply with the CBDT Circular's SOP. Non-compliance mandates setting aside the addition and remand for fresh verification.

1. ISSUES PRESENTED and CONSIDERED

• Whether Common Area Maintenance (CAM) charges paid by tenants to mall owners constitute "rent" under Section 194I of the Income Tax Act, 1961, thereby attracting TDS at the rate prescribed under that section.
• Whether CAM charges are payments for services/work and thus liable for TDS deduction under Section 194C of the Income Tax Act, 1961.
• Whether the Assessing Officer's treatment of CAM charges as rent leading to short deduction of TDS and consequent declaration of the assessee as an assessee-in-default under Section 201(1) of the Act is justified.
• Whether the Tribunal's and High Court's precedents on the classification of CAM charges for TDS purposes are applicable and binding on the present cases.
• Whether any substantial question of law arises from the classification of CAM charges for TDS deduction under the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Classification of CAM Charges for TDS Deduction under Sections 194I or 194C

Relevant legal framework and precedents:

• Section 194I of the Income Tax Act mandates TDS on rent payments for land, building, or machinery.
• Section 194C of the Income Tax Act mandates TDS on payments to contractors for carrying out any work, including supply of labor for carrying out work.
• Precedents from ITAT Delhi Bench and Delhi High Court have consistently held that CAM charges are payments for services related to maintenance and not rent for use of premises. Notably, decisions in Kapoor Watch Company Pvt. Ltd. vs. ACIT and Liberty Retail Revolutions Limited have clarified this distinction.

Court's interpretation and reasoning:

• The Court examined the factual nature of CAM charges, emphasizing that these are payments made by tenants for maintenance services of common areas such as cleanliness, utilities, and upkeep, which are shared expenses and not payments for occupying or using premises.
• The Court noted that CAM charges are fundamentally contractual payments for services rendered, distinct and separate from rent payments for the use of leased premises.
• The Court concurred with the reasoning of the ITAT and coordinate Bench decisions that only payments for use of premises or equipment fall under Section 194I, while payments like CAM charges for maintenance services fall under Section 194C.

Key evidence and findings:

• Factual record confirming that CAM charges are not part of rent but separate payments for maintenance services.
• Prior departmental proceedings and ITAT decisions confirming that mall owners collect CAM charges separately from rent and deduct TDS under Section 194C at 2%.
• Orders of CIT(A) and AO treating CAM charges as rent and declaring assessee as assessee-in-default were found contrary to the established legal position.

Application of law to facts:

• Applying the legal framework and precedents, the Court held that CAM charges do not constitute rent and thus do not attract TDS under Section 194I.
• Since CAM charges are payments for maintenance work, they are liable for TDS deduction under Section 194C at the prescribed rate of 2%.
• The AO's and CIT(A)'s orders treating CAM charges as rent and holding the assessee in default were set aside.

Treatment of competing arguments:

• The Revenue argued that CAM charges are composite payments including rent and should attract TDS under Section 194I, relying on certain earlier decisions.
• The Court rejected this view, relying on consistent ITAT and High Court decisions distinguishing CAM charges from rent.
• The Revenue's reliance on the composite agreement was found unpersuasive in light of factual and legal clarity on the nature of CAM charges.

Conclusions:

• CAM charges are not rent for use of premises and thus do not attract TDS under Section 194I.
• CAM charges are contractual payments for maintenance services and attract TDS under Section 194C at 2%.
• Orders treating CAM charges as rent and holding the assessee in default under Section 201(1) are erroneous and liable to be set aside.

Issue 3: Validity of Declaration of Assessee as Assessee-in-Default under Section 201(1)

Relevant legal framework and precedents:

• Section 201(1) of the Income Tax Act provides for deeming a person an assessee-in-default for failure to deduct or pay TDS as required under the Act.
• Precedents establish that incorrect classification of payments for TDS purposes can lead to such declarations but must be based on correct legal interpretation of the nature of payments.

Court's interpretation and reasoning:

• The Court found that the AO and CIT(A) erred in treating CAM charges as rent and thus short deducting TDS under Section 194I.
• Since CAM charges are liable to TDS under Section 194C and were deducted accordingly, the declaration of the assessee as an assessee-in-default was unjustified.

Application of law to facts:

• The Tribunal and High Court set aside the orders declaring the assessee in default, holding that proper TDS deduction was made under the correct provision.

Conclusions:

• The assessee cannot be held in default for short deduction of TDS where the deduction was made under the correct provision applicable to CAM charges.

Issue 4: Applicability and Binding Nature of Precedents on CAM Charges Classification

Relevant legal framework and precedents:

• Decisions of coordinate Benches of ITAT and the Delhi High Court on identical issues form binding precedents.
• Recent Delhi High Court decisions have consistently held CAM charges to be liable for TDS under Section 194C, not Section 194I.

Court's interpretation and reasoning:

• The Court expressly followed the decision of the coordinate Bench in Liberty Retail Revolutions Limited and other ITAT decisions such as Kapoor Watch Company Pvt. Ltd.
• The Court noted that these precedents have settled the issue conclusively and are directly applicable to the present appeals.

Application of law to facts:

• The Court applied these precedents to the facts of the present appeals, finding no reason to deviate from the established legal position.

Conclusions:

• The precedents are binding and support the conclusion that CAM charges attract TDS under Section 194C, not Section 194I.

Issue 5: Existence of Substantial Question of Law

Relevant legal framework and precedents:

• Substantial question of law arises where there is a significant legal issue requiring interpretation or where there is conflict in law.

Court's interpretation and reasoning:

• Given the clear and consistent precedents on the classification of CAM charges for TDS purposes, the Court found no substantial question of law arises in these appeals.

Conclusions:

• No substantial question of law arises from the issue of TDS deduction on CAM charges as the legal position is settled.

1. ISSUES PRESENTED and CONSIDERED

• Whether the Tribunal was justified in confirming the disallowance of deduction of interest income under Section 80P(2)(a)(i) of the Income Tax Act, 1961, relying on the assessee's own case for an earlier assessment year.
• Whether the Tribunal was justified in relying on the Supreme Court decision in Totgars' Cooperative Sale Society Ltd. v. ITO, despite factual distinctions rendering that precedent inapplicable.
• Whether the Tribunal was justified in rejecting the alternative submission that attributable cost of funds used for deposits should be deducted to increase eligible business profit qualifying for deduction under Section 80P(2)(a)(i).
• Whether the Tribunal was justified in holding that interest on personal loans and house building loans to staff do not qualify as income attributable to banking business and thus are not eligible for deduction under Section 80P.
• Whether income from commission, miscellaneous and sundry incomes relate to business activities and qualify for deduction under Section 80P(2)(d) or 80P(2)(a)(i) (not pressed and hence not considered).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1, 2 and 3: Deduction of Interest Income under Section 80P(2)(a)(i) and Applicability of Totgars' Cooperative Sale Society Ltd. Decision

Legal Framework and Precedents: Section 80P(2)(a)(i) provides deduction for profits and gains attributable to the business of banking or providing credit facilities by a cooperative society. The key interpretative question is the scope of the term "attributable to." The Supreme Court in Cambay Electric Supply Industrial Co. Ltd. v. CIT held that "attributable to" is wider than "derived from," allowing inclusion of receipts beyond direct business conduct. The Supreme Court decision in Totgars' Cooperative Sale Society Ltd. involved a cooperative engaged in both credit facilities and marketing of agricultural produce, with deposits arising from retained sale proceeds payable to members.

Court's Reasoning and Findings: The Court examined the facts distinguishing the present case from Totgars. Here, the interest income arose from short-term deposits of surplus funds, which were not amounts due or liabilities payable to members, but funds temporarily held pending repayment to NABARD as per fixed schedules. The Court relied on Karnataka High Court decisions (Guttigedarara Credit Cooperative Society Ltd. and Tumkur Merchants Souharda Credit Cooperative Ltd.) and Telangana & Andhra Pradesh High Court decision (Vavveru Co-operative Rural Bank Ltd.) which interpreted "attributable to" broadly to include interest earned on temporary deposits of surplus funds by cooperative societies engaged in credit facilities. It was held that such interest income is integral and incidental to the lending business and thus eligible for deduction under Section 80P(2)(a)(i).

Application of Law to Facts: The cooperative society's business model involves wholesale borrowing and retail lending, causing floating funds that must be prudently invested. Interest earned on such investments is not from a separate business but arises from the credit facility business itself. The Court found the Tribunal erred in applying Totgars, which concerned retained sale proceeds (a liability), unlike the present surplus funds scenario.

Treatment of Competing Arguments: The Revenue's reliance on Totgars was rejected as factually distinguishable. The argument that the attributable cost of funds should be deducted to increase eligible profits was accepted in principle, supporting a wider interpretation of "attributable to."

Conclusion: The disallowance of deduction of interest income under Section 80P(2)(a)(i) was not justified. The interest income on short-term deposits of surplus funds is attributable to the business of providing credit facilities and qualifies for deduction. The Tribunal's reliance on Totgars was misplaced. Issues 1, 2, and 3 are answered in favour of the assessee.

Issue 4: Deduction of Interest on Personal Loans and House Building Loans to Staff

Legal Framework: Section 80P provides deduction for income attributable to the cooperative society's banking or credit facility business. The question is whether interest on personal loans to members and house building loans to staff qualify.

Court's Interpretation and Reasoning: The Court distinguished between two components: (a) interest on personal loans to members, and (b) interest on house building loans to staff. The society's membership includes individuals (Class D members) eligible to receive loans. Interest on personal loans to these members is directly connected to the credit facility business and qualifies for deduction under Section 80P(2)(a)(i).

Conversely, interest on house building loans to staff, even if secured by mortgage and some staff being members, was held not to be income attributable to the banking business. The Assessing Officer, CIT(A), and Tribunal consistently held this income does not qualify for deduction under Section 80P.

Application of Law to Facts: The personal loans fall squarely within the cooperative's lending business to members, whereas house building loans to staff are outside the scope of the business activity qualifying for deduction.

Treatment of Competing Arguments: The assessee's contention that house building loan interest should be deductible was rejected due to lack of direct connection with the business of providing credit facilities to members.

Conclusion: Interest on personal loans to members qualifies for deduction under Section 80P(2)(a)(i), but interest on house building loans to staff does not. Issue 4 is partly answered in favour of the assessee (personal loans) and partly against (house building loans to staff).

Issue 5: Deduction of Income from Commission, Miscellaneous and Sundry Incomes

This issue was expressly not pressed by the appellant and therefore rejected as not pressed. No further analysis was undertaken.

1. ISSUES PRESENTED AND CONSIDERED

• Whether the payment of Rs. 80 Crores made by the assessee to another entity is covered under the provisions of Section 194H of the Income Tax Act, 1961, requiring deduction of tax at source (TDS) as "commission or brokerage."
• Whether the payment in question constitutes "commission or brokerage" within the meaning of Section 194H, particularly considering the proviso to Explanation (i) which includes payments received for services rendered (not being professional services) or for any services in the course of buying or selling goods or in relation to any transaction relating to any asset, valuable article or thing, excluding securities.
• Whether the transactions between the assessee and the payee were on a principal-to-principal basis or involved an agency relationship that would attract the provisions of Section 194H.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 194H to the payment of Rs. 80 Crores

Relevant legal framework and precedents: Section 194H mandates deduction of tax at source on payments by way of commission or brokerage at the prescribed rate. The Explanation (i) to Section 194H expands the definition of "commission or brokerage" to include payments for services rendered (other than professional services) or services in the course of buying or selling goods or relating to any transaction involving assets or valuable articles, excluding securities.

The Supreme Court's authoritative interpretation clarified that the element of agency is essential for a payment to qualify as commission or brokerage under Section 194H, emphasizing that payments made on a principal-to-principal basis do not attract this provision.

Court's interpretation and reasoning: The Court examined the nature of the transaction and the relationship between the parties. It noted that the payment was made pursuant to a joint venture agreement forming an Association of Persons (AOP), where both parties contributed assets and shared responsibilities. The payee had acquired tenancy rights in its own name and brought these as capital contribution. The development expenses were borne by the assessee, and the payment was made as consideration for the joint venture arrangement.

The Court relied on the factual finding that the transactions were on a principal-to-principal basis, not involving an agency relationship. It held that the payment could not be characterized as commission or brokerage under Section 194H since there was no element of agency or services rendered in the course of buying or selling goods by one party on behalf of the other.

Key evidence and findings: The joint venture agreement, the formation of the AOP, the assignment agreements between the payee and tenants, and the manner in which tenancy rights were acquired and contributed were examined. The Assessing Officer's survey report and the subsequent appellate orders were also considered. The CIT (Appeals) and ITAT both found that the payment was not commission or brokerage but part of a principal-to-principal transaction.

Application of law to facts: Given the absence of agency and the nature of the joint venture, the payment did not fall within the ambit of Section 194H. The Court emphasized that the wide definition in Explanation (i) does not extend to payments made in principal-to-principal dealings. The Supreme Court's precedent was applied to confirm that mere payments in the course of buying or selling goods do not automatically attract TDS under Section 194H unless there is an agency element.

Treatment of competing arguments: The Revenue contended that the payment was commission or brokerage and thus liable for TDS under Section 194H. The Court rejected this argument on the ground that the Revenue did not challenge the factual findings regarding the principal-to-principal nature of the transactions. The Court distinguished the present case from cases where agency or service element exists, relying on the Supreme Court's reasoning that the definition of commission or brokerage requires an agency relationship.

Conclusion: The payment of Rs. 80 Crores was not commission or brokerage within the meaning of Section 194H. Therefore, there was no requirement to deduct tax at source under this provision.

Issue 2: Interpretation of "commission or brokerage" under Explanation (i) to Section 194H

Relevant legal framework and precedents: Explanation (i) to Section 194H includes payments for services rendered (not professional) or services in the course of buying or selling goods or relating to transactions involving assets. The Supreme Court clarified that the definition requires the payment to be made to a person acting on behalf of another, i.e., an agent.

Court's interpretation and reasoning: The Court reiterated that the element of agency is crucial. It cited the Supreme Court's example distinguishing a car dealer purchasing cars on principal-to-principal basis from a dealer acting as agent for the manufacturer. The Court noted that without agency, the payment cannot be considered commission or brokerage.

Key evidence and findings: The Court relied on the joint venture agreement and the fact that the payee acquired tenancy rights in its own name, indicating independent ownership and no agency. The nature of the joint venture and the financial arrangements further supported the absence of agency.

Application of law to facts: The Court applied the Supreme Court's interpretation to the facts, concluding that the payment was not for services rendered as an agent but was a principal-to-principal transaction. Therefore, the payment did not fall within the Explanation (i) to Section 194H.

Treatment of competing arguments: The Revenue's argument that the wide definition in Explanation (i) covers the payment was rejected because it ignored the essential element of agency. The Court emphasized that the definition cannot be stretched to cover all payments made in the course of buying or selling goods.

Conclusion: The payment did not constitute "commission or brokerage" under Explanation (i) to Section 194H as there was no agency relationship involved.

Issue 3: Nature of transactions - Principal to Principal vs. Agency

Relevant legal framework and precedents: The distinction between principal-to-principal transactions and agency relationships is fundamental in determining the applicability of TDS provisions under Section 194H. The Supreme Court's ruling clarified that only payments made to agents for services rendered attract Section 194H.

Court's interpretation and reasoning: The Court accepted the factual findings of the ITAT and CIT (Appeals) that the transactions were on a principal-to-principal basis. The joint venture arrangement and the manner in which tenancy rights were acquired and contributed supported this conclusion.

Key evidence and findings: The joint venture agreement, formation of AOP, assignment agreements with tenants, and the financial arrangements between the parties were key evidence. The payee's independent acquisition of tenancy rights in its own name was significant.

Application of law to facts: Since the transactions were principal-to-principal, the payment was not commission or brokerage. The Court held that the absence of agency negates the applicability of Section 194H.

Treatment of competing arguments: The Revenue's contention that the payment was commission or brokerage was dismissed due to lack of challenge to the factual findings and the absence of agency.

Conclusion: The principal-to-principal nature of the transactions excludes the payment from the scope of Section 194H.

ISSUES:

Whether a writ petition challenging an assessment order framed under Section 147 read with Section 144 of the Income Tax Act, 1961 can be entertained when an alternative statutory remedy is available.Whether the Assessing Officer erred in rejecting the petitioner's adjournment request and proceeding with assessment despite claimed health and bereavement issues.Whether the Assessing Officer, Ward 3(2), Purulia (West Bengal) had jurisdiction to issue notice under Section 148 and proceed with assessment of a taxpayer filing returns in Odisha.Whether the assessment order suffers from violation of principles of natural justice or is illegal, arbitrary, or without jurisdiction.Whether disputed factual issues relating to genuineness of transactions and claim of input tax credit can be examined in writ jurisdiction.Whether the writ jurisdiction can be exercised in cases involving alleged bogus purchase transactions and fraudulent availment of input tax credit under the GST regime.

RULINGS / HOLDINGS:

The writ petition challenging the assessment order is not maintainable at this stage as an efficacious alternative remedy is available under the Income Tax Act, and the Court should not exercise its discretionary writ jurisdiction to circumvent the statutory appellate process.The Assessing Officer did not err in rejecting the adjournment request dated 19.03.2025, as sufficient opportunities were afforded to the petitioner throughout the assessment proceedings, and the assessment was required to be completed before the limitation period expired on 31.03.2025.The jurisdictional challenge against the Assessing Officer, Ward 3(2), Purulia, is not tenable as the petitioner had submitted to the jurisdiction by responding to notices and seeking time to adduce evidence; the issue of jurisdiction is a mixed question of fact and law better suited for appellate adjudication.The assessment order does not suffer from violation of principles of natural justice or jurisdictional infirmity warranting interference under Articles 226 and 227 of the Constitution of India.Disputed questions of fact regarding the genuineness of transactions and input tax credit claims cannot be resolved in writ jurisdiction and must be adjudicated by the competent statutory authorities.The Court should not exercise writ jurisdiction in cases involving alleged fraudulent availment of input tax credit, as such matters require detailed factual inquiry and are appropriately dealt with through the statutory appellate mechanism.

RATIONALE:

The Court applied the principle that writ jurisdiction under Articles 226 and 227 is discretionary and should not be exercised where an adequate and efficacious alternative remedy exists, unless exceptional circumstances such as breach of fundamental rights, violation of natural justice, or jurisdictional excess are established.The Court relied on settled precedents distinguishing between "null and void" orders for want of jurisdiction and "illegal or irregular" orders which are amenable to correction in statutory proceedings, emphasizing that irregular assumption of jurisdiction does not render an order a nullity.The Court noted that the petitioner was aware of the limitation period and had ample opportunity to participate in the assessment proceedings but chose to delay and seek adjournment at the last moment, which was rightly refused by the Assessing Officer to prevent time-barred assessment.Regarding jurisdiction, the Court referred to authoritative decisions clarifying that submission to jurisdiction by the assessee precludes collateral challenge, and that jurisdictional issues involving mixed questions of fact and law are better addressed through appeals rather than writ petitions.The Court acknowledged the serious nature of allegations relating to bogus transactions and fraudulent input tax credit claims, recognizing that such complex factual disputes require detailed examination by the tax authorities and appellate forums rather than resolution in writ jurisdiction.The Court reiterated the settled legal position that writ jurisdiction is not a substitute for statutory remedies and should not be exercised to support litigants who have not availed available remedies or who attempt to bypass the appellate process.

1. ISSUES PRESENTED and CONSIDERED

• Whether the Income Tax Department can initiate or continue proceedings and raise demand against a petitioner for an assessment year prior to the approval of a Resolution Plan under the Insolvency and Bankruptcy Code, 2016 (IBC).
• Whether the approval of a Resolution Plan by the National Company Law Tribunal (NCLT) extinguishes all past claims, including statutory dues such as income tax demands, against the corporate debtor.
• The interplay and reconciliation between the provisions of the IBC and the Income Tax Act, 1961, particularly whether the IBC can be interpreted in a manner that affects the rights of the Income Tax Department.
• The validity and applicability of precedents, including decisions of the Supreme Court and various High Courts, on the issue of claims post-approval of a Resolution Plan.
• Whether the Income Tax Department's claims can be included belatedly after the Resolution Plan approval, and the implications of such inclusion on the Resolution Applicant's ability to restart business operations with a clean slate.
• Assessment of the reasoning in conflicting judgments, particularly the decision of the Madras High Court, in light of Supreme Court rulings on the subject.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Authority of Income Tax Department to Proceed Post-Resolution Plan Approval

Relevant Legal Framework and Precedents: Sections 201(1), 201(1A), 148, and 148A of the Income Tax Act, 1961; Section 31 of the Insolvency and Bankruptcy Code, 2016; Supreme Court decisions including Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. and Vaibhav Goel & Another v. Deputy Commissioner of Income Tax & Another; Bombay High Court rulings in Alok Industries Ltd. and Uttam Galva Metallics Ltd.

Court's Interpretation and Reasoning: The Court held that once a Resolution Plan is approved by the NCLT under Section 31 of the IBC, all past claims, including income tax dues for periods prior to such approval, stand extinguished. This principle is supported by the Supreme Court's ruling that no belated claims can be included after approval, ensuring that the Resolution Applicant can restart the corporate debtor's business with a clean slate.

Key Evidence and Findings: The Resolution Plan approved by the NCLT explicitly extinguished past claims. The petitioner brought this fact to the Assessing Officer's notice. Despite this, the Assessing Officer proceeded to issue notices and orders under the Income Tax Act, relying on a Madras High Court decision.

Application of Law to Facts: The Court found that the Income Tax Department's attempt to raise demand post-approval conflicted with the settled legal position that the Resolution Plan's approval extinguishes prior claims. The petitioner's reliance on the NCLT order and Supreme Court precedents was upheld.

Treatment of Competing Arguments: The Assessing Officer's reliance on the Madras High Court decision was considered but found to be inconsistent with binding Supreme Court precedents and other High Court rulings. The Court emphasized that the IBC provisions must be given effect to as intended, and cannot be overridden by conflicting interpretations under the Income Tax Act.

Conclusions: The Income Tax Department cannot proceed against the petitioner or raise demands for periods prior to the Resolution Plan's approval. The impugned orders and notices issued under the Income Tax Act were quashed.

Issue 2: Extinguishment of Past Claims by Resolution Plan Approval

Relevant Legal Framework and Precedents: Section 31 of the IBC; Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd.; Vaibhav Goel & Another v. Deputy Commissioner of Income Tax & Another.

Court's Interpretation and Reasoning: The Court interpreted the NCLT order approving the Resolution Plan as a binding determination that past claims, including statutory dues, are extinguished. The Supreme Court's decision in Ghanshyam Mishra was cited to emphasize that the Resolution Plan provides a fresh start to the corporate debtor, free from prior liabilities.

Key Evidence and Findings: The NCLT order's paragraphs explicitly stated the extinguishment of past claims. The Supreme Court's endorsement of this principle was decisive.

Application of Law to Facts: The Court applied the principle of extinguishment to the petitioner's case, holding that the Income Tax Department's claims for the assessment year prior to the Resolution Plan could not survive the NCLT approval.

Treatment of Competing Arguments: Arguments that the Income Tax Department's claims were not considered or included in the Resolution Plan were rejected, as the Supreme Court has held that no belated claims can be admitted post-approval.

Conclusions: The approval of the Resolution Plan extinguished the Income Tax Department's past claims against the petitioner for the relevant assessment year.

Issue 3: Interplay Between IBC and Income Tax Act and Interpretation of Conflicting Provisions

Relevant Legal Framework and Precedents: IBC 2016; Income Tax Act, 1961; Dishnet Wireless Ltd. v. Assistant Commissioner of Income-tax (Madras High Court); Ghanshyam Mishra & Sons Pvt. Ltd.; Vaibhav Goel & Another.

Court's Interpretation and Reasoning: The Court acknowledged the principle that laws must be harmoniously construed. However, it emphasized that the IBC's provisions relating to insolvency resolution and the finality of Resolution Plan approval have overriding effect on claims, including those under the Income Tax Act. The Court found that the Madras High Court's reasoning, which suggested that the Income Tax Department's rights could not be curtailed, conflicts with Supreme Court rulings.

Key Evidence and Findings: The Madras High Court decision was distinguished on facts and legal grounds. The Supreme Court's recent rulings were given primacy.

Application of Law to Facts: The Court applied the principle of overriding effect of the IBC Resolution Plan approval to the Income Tax proceedings, rejecting the notion that the Income Tax Act could be used to undermine the finality of the Resolution Plan.

Treatment of Competing Arguments: The Court respectfully disagreed with the Madras High Court's view that the Income Tax Department's claims must be preserved irrespective of the Resolution Plan. The Court held that such a view is inconsistent with the statutory scheme and Supreme Court precedents.

Conclusions: The IBC's Resolution Plan approval overrides conflicting claims under the Income Tax Act, and the Income Tax Department cannot proceed in a manner inconsistent with the Resolution Plan.

Issue 4: Requirement of Notice to Income Tax Department and Inclusion of Claims in Resolution Plan

Relevant Legal Framework and Precedents: IBC provisions; Dishnet Wireless Ltd. decision; Ghanshyam Mishra & Sons Pvt. Ltd.; Vaibhav Goel & Another.

Court's Interpretation and Reasoning: The Court noted the Madras High Court's observation that the petitioners should have given notice to the Income Tax Department and secured its claims in the Resolution Plan. However, the Court found this reasoning inapplicable to the facts before it and inconsistent with the Supreme Court's rulings that no belated claims can be admitted after Resolution Plan approval.

Key Evidence and Findings: The petitioner had informed the Assessing Officer of the NCLT order and Resolution Plan approval. The NCLT had approved the Plan with extinguishment of past claims.

Application of Law to Facts: The Court held that the absence of explicit inclusion of Income Tax claims in the Resolution Plan does not revive or preserve such claims post-approval. The legal effect of the Plan's approval is to extinguish prior claims regardless of procedural steps taken or omitted.

Treatment of Competing Arguments: The Court rejected the argument that failure to notify the Income Tax Department or include its claims in the Plan invalidated the extinguishment of such claims.

Conclusions: Proper notice or inclusion of Income Tax claims in the Resolution Plan is not a precondition to the extinguishment of such claims upon Plan approval.

Issue 5: Consequences of Allowing Belated Claims Post-Resolution Plan Approval

Relevant Legal Framework and Precedents: Supreme Court rulings in Ghanshyam Mishra and Vaibhav Goel; IBC provisions.

Court's Interpretation and Reasoning: The Court emphasized that allowing belated claims after Resolution Plan approval would defeat the purpose of insolvency resolution, which is to enable the Resolution Applicant to restart the corporate debtor's business with a clean slate.

Key Evidence and Findings: The Supreme Court has explicitly held that no belated claims can be admitted post-approval, as it would prejudice the Resolution Applicant and undermine the efficacy of the insolvency resolution process.

Application of Law to Facts: The Court applied this principle to quash the Income Tax Department's proceedings and demands raised post-Resolution Plan approval.

Treatment of Competing Arguments: Arguments supporting the Income Tax Department's right to raise claims post-approval were rejected as contrary to the settled law and policy underlying the IBC.

Conclusions: Belated claims post-Resolution Plan approval are not permissible, and any such claims or proceedings must be quashed.

1. ISSUES:

1. Whether the respondents are obligated to pass a final speaking order for the closure of the Capital Gain Deposit Scheme (CGDS) Account in compliance with the Court's earlier direction.

2. Whether withholding of the balance amount in the CGDS Account is arbitrary and contrary to law, particularly where the transaction resulted in a capital loss and no tax liability arises.

3. Whether the filing of revised income tax returns under Section 148 of the Income Tax Act is a prerequisite for the final closure of the CGDS Account.

2. RULINGS / HOLDINGS:

1. The Court held that the respondents must pass final orders for closure of the CGDS Account in compliance with the Court's earlier order directing disposal within a stipulated time frame.

2. The Court found that withholding the balance amount was justified as the petitioner had not fulfilled the conditions laid down in the Capital Gain Account Scheme, including the filing of revised income tax returns, and thus the partial release accorded was lawful.

3. The Court ruled that filing revised income tax returns for the relevant assessment year under Section 148 is a necessary condition before the respondents can issue final closure orders for the CGDS Account.

3. RATIONALE:

The Court applied the legal framework of the Capital Gain Account Scheme and the Income Tax Act, specifically the requirement under Section 148 for filing revised income tax returns when reassessment is initiated. The Court emphasized that the closure of the CGDS Account is contingent upon compliance with all statutory conditions, including tax assessment formalities. The judgment reflects no doctrinal shift but reaffirms the procedural necessity of tax compliance before release of funds under the CGDS. The Court directed expeditious disposal given the protracted pendency since 2019.

ISSUES:

Whether the 20% deduction under Section 32AB of the Income Tax Act, 1961 is to be computed on profits as reflected in the Profit & Loss Account finalized under Parts II and III of Schedule VI of the Companies Act, 1956, or on profits determined with reference to actual profits under the Income Tax Act.Whether additional sugarcane price paid after finalization of accounts under the Companies Act can be deducted from profits for computing the Section 32AB deduction in the relevant assessment year.Whether the Assessing Officer has jurisdiction to adjust profits computed under the Companies Act by excluding expenditures not debited in the Profit & Loss Account for the purpose of Section 32AB deduction.

RULINGS / HOLDINGS:

The Court held that the profits for the purpose of Section 32AB deduction must be computed "in accordance with the requirements of Parts II and III of Schedule VI to the Companies Act" and not as per the Income Tax Act. The deduction is to be calculated on profits "as reflected in the audited annual accounts."The additional sugarcane price paid after the finalization of accounts under the Companies Act cannot be deducted from profits for computing the Section 32AB benefit in the relevant assessment year, since it was not debited to the Profit & Loss Account prepared under Schedule VI of the Companies Act.The Assessing Officer erred in deducting the additional sugarcane price from the profits computed under the Companies Act for the purpose of Section 32AB, as the provision does not empower the Assessing Officer to re-compute profits beyond the audited accounts maintained under the Companies Act.

RATIONALE:

The Court applied the statutory framework of Section 32AB of the Income Tax Act, 1961, particularly sub-sections (1), (3), and (5), which mandate that the profits for deduction calculation be derived from profits computed in accordance with Parts II and III of Schedule VI to the Companies Act, 1956, adjusted by specified additions and deductions.The Court relied heavily on precedent, including the Karnataka High Court decision in Jindal Aluminium Ltd., which interpreted Section 32AB profits as those reflected in the audited accounts under the Companies Act, and the Supreme Court decision in Apollo Tyres Ltd., which held that the Assessing Officer cannot go behind the profits shown in the Profit and Loss Account maintained under the Companies Act for similar provisions.The Court noted consistent judicial interpretation from various High Courts that Section 32AB does not require profit computation in accordance with the Income Tax Act but strictly as per the Companies Act accounts, rejecting the Revenue's attempt to adjust profits by excluding expenses not debited in those accounts.The Court distinguished judgments cited by the Revenue (e.g., Tasgaon Taluka S.S.K. Ltd. and Parry Agro Industries Ltd.) as dealing with different legal issues not relevant to the interpretation of Section 32AB.The Court recognized the peculiar accounting situation where additional sugarcane price is determined after account finalization and accepted the Assessee's consistent practice of adjusting such expenses in subsequent years, resulting in no revenue loss and maintaining the integrity of the statutory scheme.

1. Whether the issuance of a Notice under Section 148 of the Income Tax Act, 1961 (IT Act) is valid where the Petitioner, a housewife with declared income, was made a joint owner of an immovable property purchased entirely by her husband from his own funds.

2. Whether the Assessing Officer had sufficient reason to believe that income chargeable to tax had escaped assessment in the hands of the Petitioner for the relevant assessment year.

3. Whether the Petitioner was required to prove the negative, i.e., that she had not contributed any funds towards the purchase of the immovable property.

4. The legal effect of the Petitioner furnishing the Purchase Agreement and the husband's bank statements evidencing the source of funds for the property purchase in response to Notices under Section 133(6) of the IT Act.

5. The applicability and impact of precedents where similarly situated assessees, particularly housewives with no income who were joint owners for convenience, were subject to Notices under Section 148 or Section 148A(d) of the IT Act.

6. Whether the issuance of the impugned Notice under Section 148 is sustainable when the husband's income is separately assessed and the Petitioner has not made any payment towards the property.

Issue 1 & 2: Validity of Section 148 Notice and Reason to Believe Escapement of Income

- Legal Framework and Precedents: Section 148 of the IT Act permits reopening of assessment if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The reason to believe must be based on tangible material or information. The Court referred to a recent decision wherein a similar issue arose involving a housewife joint owner with no income.

- Court's Interpretation and Reasoning: The Court examined the facts that the Petitioner declared income of Rs. 4,36,850/-, and that the property was purchased entirely by her husband from his own funds. The Petitioner's name was added as joint owner purely for convenience. The Petitioner responded to Notices under Section 133(6) by furnishing the Purchase Agreement and the husband's bank statements showing payments made to the vendor.

- Key Evidence and Findings: The bank statement entries dated 7th December 2020 (Rs. 2 crores), 12th January 2021 (Rs. 1,69,93,750/-), 15th January 2021 (Rs. 25 lacs), and 27th January 2021 (Rs. 3 crores) were paid to the vendor as per the registered Sale Agreement. The Petitioner's explanation that she did not contribute to the purchase was corroborated by these documents.

- Application of Law to Facts: Given that the Petitioner did not contribute any consideration and that the husband's income and payment details were furnished, the Court found no basis for the Assessing Officer to have reason to believe that income had escaped assessment in the Petitioner's hands. The issuance of the Section 148 Notice was therefore held to be unsustainable.

- Treatment of Competing Arguments: The Department's contention that the source of the husband's income was insufficient was considered but rejected because the Petitioner was not the owner of the funds. The Court noted that the husband was separately issued Notices under Section 148 for the same transaction.

- Conclusion: The Section 148 Notice issued to the Petitioner was quashed as there was no valid reason to believe that income had escaped assessment in her hands.

Issue 3 & 4: Burden of Proof and Sufficiency of Response to Section 133(6) Notices

- Legal Framework and Precedents: The burden of proof does not lie on the Petitioner to prove a negative, i.e., that she did not contribute to the purchase. Notices under Section 133(6) require furnishing of information and documents relevant to the inquiry.

- Court's Interpretation and Reasoning: The Petitioner furnished the Purchase Agreement and the husband's bank statements in response to the Section 133(6) Notices. The Court found that these documents were sufficient to establish that the funds were provided by the husband.

- Key Evidence and Findings: The Petitioner's response dated 3rd July 2024 and subsequent submissions included detailed bank statements and the registered agreement. The preliminary verification report incorrectly stated that no documents were attached and questioned the sufficiency of the husband's income source without considering the husband's separate assessment.

- Application of Law to Facts: Since the Petitioner had no income and did not pay any consideration, the Court held that she could not be required to provide bank statements or source details. The husband's income and source verification was a separate matter.

- Treatment of Competing Arguments: The Department's reliance on the preliminary verification report was rejected as it failed to consider the documents furnished and the separate assessment of the husband.

- Conclusion: The Petitioner's response to Section 133(6) Notices was adequate and the burden to prove source of funds did not extend to her.

Issue 5 & 6: Precedential Support and Separate Assessment of Husband

- Legal Framework and Precedents: The Court relied on a recent decision involving a housewife with no income who was joint owner for convenience. The decision held that reopening assessment under Section 148 or Section 148A(d) was not justified where the husband's income was separately assessed and the wife had not contributed any funds.

- Court's Interpretation and Reasoning: The Court noted that the Department conceded that the husband's income details should be sought from him and not from the Petitioner. The Principal Chief Commissioner's sanction for reopening the Petitioner's case was questioned.

- Key Evidence and Findings: The precedent decision quashed the reopening order where the only basis was non-submission of source details by the wife, who had no income and had not made any payment.

- Application of Law to Facts: The Court applied the precedent to the present facts and found the issuance of the Section 148 Notice to the Petitioner was not sustainable.

- Treatment of Competing Arguments: The Department's argument that the Petitioner's name as joint owner justified reopening was rejected given the husband's separate assessment and the Petitioner's lack of contribution.

- Conclusion: The issuance of the Section 148 Notice was quashed in line with the precedent, and the Petitioner's case was held not fit for reopening.

ISSUES:

Whether a Notice under Section 153C of the Income Tax Act, 1961 can be issued for an Assessment Year not covered by the incriminating material found during search proceedings.Whether consequential Notices under Sections 142(1) and 143(2) can be validly issued for the same Assessment Year if the Section 153C Notice is invalid.

RULINGS / HOLDINGS:

The Notice under Section 153C issued for an Assessment Year (2012-13) not reflected in the satisfaction note or supported by incriminating material seized during search proceedings is impermissible and liable to be quashed.Consequential Notices under Sections 142(1) and 143(2) issued for the same Assessment Year must also be quashed as they flow from the invalid Section 153C Notice.

RATIONALE:

The Court relied on the statutory requirement under Section 153C that incriminating material seized must pertain specifically to the Assessment Year for which the Notice is issued, making this a "jurisdictional fact".The decision follows the Supreme Court precedent which held that issuance of a Section 153C Notice for Assessment Years not supported by seized documents is invalid, as "the documents which were seized did not establish any co-relation, document-wise, with these... Assessment Years."The Court also considered the Division Bench ruling of the Delhi High Court which emphasized that the issuance of Section 153C Notices must be strictly limited to Assessment Years for which incriminating material has been gathered, rejecting the assumption that Notices can be issued for all preceding years without material basis.The Supreme Court's dismissal of the Special Leave Petition against the Delhi High Court ruling affirms the binding nature of this interpretation.No merits of the underlying incriminating material or substantive findings on profiteering or other allegations were adjudicated, as the Court's decision was confined to the validity of the Notice issuance procedure.

ISSUES:

Whether delay in filing the Return of Income can be condoned under Section 119(2)(b) of the Income Tax Act, 1961.Whether guidance by professional Chartered Accountants precludes acceptance of explanations for delay in filing Return of Income.Whether documentary evidence substantiating claim of deduction under Section 80IBA is required at the stage of condonation of delay.How the phrase "genuine hardship" is to be interpreted in the context of condonation of delay in filing Return of Income.

RULINGS / HOLDINGS:

The delay in filing the Return of Income was condoned under Section 119(2)(b) of the Act, as the explanation for delay due to ill-health was found acceptable and refusal would cause "genuine hardship".The fact that the assessee was guided by professional Chartered Accountants does not mean that errors or delays cannot occur; hence, this ground alone cannot justify rejection of condonation application.There is "no requirement in law to prove the claim of deduction at the stage of condonation of delay"; such claims are to be examined during assessment after acceptance of the Return of Income.The phrase "genuine hardship" is to be construed liberally in cases of delay in filing Return of Income, to avoid "a meritorious matter being thrown out at the very threshold and the cause of justice being defeated."

RATIONALE:

The Court applied Section 119(2)(b) of the Income Tax Act, 1961, which empowers the authority to condone delay in filing returns for sufficient cause.The Court relied on the principle that professional guidance does not eliminate the possibility of delay or error, thus explanations for delay must be considered on their merits.The Court emphasized that substantive claims such as deductions under Section 80IBA are to be adjudicated during assessment proceedings and not at the condonation stage.The Court referred to precedent interpreting "genuine hardship" liberally to ensure that justice is not defeated by procedural delays, citing a coordinate bench decision that supports this approach.

ISSUES:

Whether the deletion of disallowance of loss on share trading was justified despite failure to prove the genuineness of the transactions under Section 68 of the Income Tax Act, 1961'Whether the Income Tax Appellate Tribunal erred in not applying the principles laid down by the Supreme Court and Calcutta High Court regarding bogus capital loss claims and penny stock transactions'Whether the assessee discharged the initial onus under Section 68 of the Act to prove the source and genuineness of the share trading transactions'Whether the appeal by the revenue is maintainable despite the tax effect being below the prescribed monetary limit, considering the exception for organized tax evasion cases under CBDT Circular No. 5/2024'Whether the principles of natural justice were violated by not furnishing the investigation report or allowing cross-examination of persons whose statements were recorded'Whether reliance on a coordinate bench decision without examining the facts and merits of the present case was legally justified by the tribunal?

RULINGS / HOLDINGS:

The Tribunal was not justified in deleting the disallowance of Rs. 51,33,870/- on account of share trading as the assessee failed to prove the genuineness of the transactions, which were found to be "sham and fabricated" and involved "organized tax evasion".The Tribunal erred in not considering the Supreme Court's decision in Pr. CIT (Cen)-1 Kolkata Vs. NRA Iron and Steel Pvt. Ltd. and the Calcutta High Court's decision in Pr. CIT (Cen)-2, Kolkata Vs. M/s. BST Infratech Ltd., which establish that losses from penny stocks involved in bogus capital loss claims cannot be allowed.The assessee did not discharge the initial onus under Section 68 as the transactions were shown to be part of a circular trading racket involving price rigging and manipulation, with no genuine business activity of the companies involved.The appeal by the revenue is maintainable notwithstanding the tax effect being below the monetary limit, as the case falls under the exception for "organized tax evasion including cases of bogus capital gains/loss through penny stocks and case of accommodation entries" under para 3.1(h) of CBDT Circular No. 5/2024.There was no violation of principles of natural justice as the assessee was apprised of the investigation report's contents, was given opportunity to reply, and there is no vested right to cross-examine persons whose statements do not specifically indict the assessee.The Tribunal committed a serious error by mechanically following a coordinate bench decision without examining the facts and merits of the present case or recording reasons for applicability, especially since the facts were only "substantially similar" and not identical.

RATIONALE:

The Court applied the legal framework under Section 68 of the Income Tax Act, 1961, which casts the onus on the assessee to prove the source and genuineness of unexplained cash credits or share transactions.The Court relied on authoritative precedents including the Supreme Court's ruling in Sumati Dayal v. CIT, which permits testing genuineness on the "principle of preponderance of human probabilities" and the assessment of surrounding facts and circumstances.The Court emphasized the significance of the investigation report and findings of regulatory authorities (SEBI and SAT) that established manipulation and circular trading in penny stocks, which formed the basis for disallowance.The Court interpreted CBDT Circular No. 5/2024's exception clause (para 3.1(h)) as applicable to cases involving organized tax evasion, thus permitting departmental appeals despite low tax effect.The Court rejected the argument of violation of natural justice, citing that procedural fairness does not require formal cross-examination where the assessee is not specifically indicted, consistent with prior rulings including Swati Bajaj and Kishanlal Agarwalla.The Court noted a doctrinal emphasis on independent fact-based adjudication rather than mechanical reliance on coordinate bench decisions, especially where facts are not identical and the prior decision is under challenge or disposed of under a settlement scheme.

ISSUES:

Whether the addition under Section 68 of the Income Tax Act, 1961, on account of unexplained share capital/premium, was rightly deleted despite failure to establish the genuineness of transactions, identity, and creditworthiness of share subscribers.Whether the onus on the assessee to explain and establish the source of funds under Section 68 was properly applied when the assessee failed to discharge it.Whether the deletion of addition was justified despite the receipt of high premium from entities lacking business prospects and ignoring relevant judicial precedents.Whether the assessing officer and appellate authority correctly evaluated the creditworthiness and genuineness of the share subscribers and transactions, and whether the tribunal erred in reversing those findings.Whether the appeal by the revenue is maintainable despite the tax effect being below the monetary threshold prescribed by CBDT circulars, considering exceptions for organised tax evasion.

RULINGS / HOLDINGS:

The tribunal erred in deleting the addition under Section 68 as the assessee failed to establish the "genuineness of the transactions," the "identity and creditworthiness of the share subscribers," and did not satisfactorily respond to summons for verification.The onus is on the assessee to "prove the genuineness of the transaction, the identity of the creditors, and creditworthiness of the investors" to the satisfaction of the assessing officer, which was not discharged in this case.The deletion was improper as the receipt of "high premium from seemingly unprospective entities" without adequate justification was correctly treated as suspicious, consistent with judicial precedents including Principal Commissioner of Income Tax (Central) -1 Vs. NRA Iron and Steel Pvt. Ltd. and PCIT Vs. BST Infratech Ltd.The assessing officer and appellate authority rightly concluded that the share subscriber companies were "mere paper entities" with "no visible business activity and creditworthiness," and the assessee's failure to produce directors for summons justified drawing adverse inference; the tribunal's contrary finding was a serious error.The appeal by the revenue is maintainable despite the tax effect being below the monetary limit because the case involves "organised tax evasion" as per CBDT Circular No. 9 of 2024, thus exempting it from the threshold.

RATIONALE:

The Court applied the legal framework under Section 68 of the Income Tax Act, 1961, which requires the assessee to satisfactorily explain the nature and source of any sum credited in its books, with the assessing officer's opinion formed objectively on the materials on record being critical.Precedents such as Commissioner of Income Tax Vs. P. Mohanakala and Principal Commissioner of Income Tax (Central) -1 Vs. NRA Iron and Steel Pvt. Ltd. were relied upon to emphasize that the "initial onus is on the assessee" to prove "genuineness," "identity," and "creditworthiness" of investors, especially in private placements involving share capital and premium.The doctrine of "source of source" or "origin of origin" was applied to assess whether the share capital and premium were legitimate or a device to route undisclosed money, with the Court affirming that mere incorporation of subscriber companies does not validate transactions without credible proof of business activity and financial capacity.The Court rejected the tribunal's failure to recognize the adverse inference drawn from non-compliance with summons under Section 131 as a valid investigative tool, noting that the assessing officer had analyzed the financials and found the investing companies' returns showed "NIL income" and no business operations.The Court distinguished decisions cited by the assessee where directors responded to summons and adequate evidence was furnished, underscoring the factual differences in the instant case that warranted the addition.The Court upheld the exception to the monetary threshold for filing appeals in cases involving "organised tax evasion," as per CBDT Circular No. 9 of 2024, allowing revenue's appeal to proceed on merits.

1. Whether the receipts received by a foreign tax resident company from an Indian company towards IT support services and reimbursement of salary expenses of seconded employees constitute 'fee for technical services' (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961 or 'fees for included services' (FIS) under Article 12 of the India-US Double Taxation Avoidance Agreement (DTAA).

2. Whether the payments made for IT support services and reimbursement of salary expenses fall within the narrower definition of FIS under the DTAA or the broader definition of FTS under the Act.

3. Whether penalty under Section 270-A of the Income Tax Act can be imposed on the Assessee for the disputed tax liability, considering the nature of the dispute and the existence of bona fide belief.

Issue 1 & 2: Characterization of Receipts as Fee for Technical Services (FTS) or Fees for Included Services (FIS)

Relevant Legal Framework and Precedents:

- Section 9(1)(vii) of the Income Tax Act, 1961 defines 'fee for technical services' broadly, including payments for managerial, technical or consultancy services.

- Article 12 of the India-US DTAA defines 'fees for included services' (FIS) in a narrower manner than the Act's definition of FTS.

- It is well established that definitions in the DTAA prevail over domestic law definitions and are not controlled by the Income Tax Act's definitions.

- Various judicial authorities have examined whether payments for IT support services and reimbursements for seconded employees' salaries fall within FTS/FIS.

Court's Interpretation and Reasoning:

- The Court noted that the Assessee, a tax resident of Australia, received payments from an Indian company for IT support services including reimbursement of salary expenses for seconded employees.

- The primary dispute was whether such receipts were taxable as FTS under the Act or FIS under the DTAA.

- The Court recognized that the DTAA's definition of FIS is considerably narrower than the Act's definition of FTS.

- The Court emphasized that expressions defined in the DTAA are not to be interpreted based on the Act's definitions but must be understood in the treaty context.

- The Court referred to a comprehensive tabular compilation of judicial decisions from various High Courts and Tribunals, largely favoring the view that such receipts do not constitute FTS/FIS.

Key Evidence and Findings:

- The tabular statement included 17 judicial decisions from different forums, with the majority holding the payments as not constituting FTS/FIS.

- Notably, the Delhi High Court in Centrica India Offshore Pvt. Ltd. took a contrary view, holding that secondment of employees could result in absorption of knowledge and thus attract tax.

- The Assessee's case was supported by several High Court and Tribunal decisions, including the Karnataka High Court in Flipkart Internet Pvt. Ltd., which favored the Assessee's interpretation.

Application of Law to Facts:

- Given the conflicting judicial precedents, the Court acknowledged that the question of taxability of such receipts is a vexed one with plausible opposing views.

- The Assessee's claim that the payments did not fall within FIS under the DTAA was not insubstantial, supported by numerous judicial pronouncements.

- The Assessee had opted for the Vivad Se Vishwas Scheme to settle the tax dispute, indicating an intention to avoid protracted litigation.

Treatment of Competing Arguments:

- The Court considered the unfavorable view of the Delhi High Court in Centrica India Offshore but noted that other High Courts and Tribunals had taken a favorable view for the Assessee.

- The Court recognized the existence of divergent judicial opinions and the complexity inherent in interpreting the scope of FTS/FIS in such contexts.

Conclusions:

- The Court held that the receipts in question do not unambiguously fall within the scope of FTS/FIS as defined under the DTAA and the Act.

- The existence of conflicting judicial views rendered the question a debatable one, precluding a definitive finding against the Assessee on this issue.

Issue 3: Imposition of Penalty under Section 270-A of the Income Tax Act

Relevant Legal Framework and Precedents:

- Section 270-A of the Income Tax Act provides for levy of penalty for concealment of income or furnishing inaccurate particulars of income.

- Penalty is generally not leviable where there is a bona fide belief or a genuine dispute on the taxability of the income.

Court's Interpretation and Reasoning:

- The Tribunal examined the nature of the dispute and noted the existence of judicial precedents favoring the Assessee's view.

- The Tribunal also noted that in related withholding tax proceedings involving IBM India, the payments were accepted as not chargeable to tax.

- Given the conflicting judicial opinions and the bona fide belief of the Assessee, the Tribunal held that penalty under Section 270-A could not be imposed.

Key Evidence and Findings:

- The Assessee's bona fide belief was supported by multiple judicial decisions and acceptance of its stand in withholding tax proceedings.

Application of Law to Facts:

- The Court applied the principle that penalty should not be levied where the question of taxability is debatable and the Assessee has acted in good faith.

Treatment of Competing Arguments:

- The Revenue's appeal against the non-imposition of penalty was considered but rejected on the ground that the dispute was genuine and vexed.

Conclusions:

- The Court upheld the Tribunal's decision to not levy penalty under Section 270-A, recognizing the Assessee's legitimate bona fide belief and the existence of two plausible views.

- No substantial question of law arose for consideration regarding the penalty issue.

ISSUES:

Whether approval under Section 80G of the Income Tax Act can be granted solely on the basis of existing registration under Section 12AA, despite a finding by the Commissioner of Income Tax (CIT) that the society is engaged in commercial activities and not charitable in nature.Whether vocational training and fee-charging activities conducted by a society qualify as "education" within the meaning of Section 2(15) of the Income Tax Act and can be considered charitable.Whether the Commissioner of Income Tax is justified in rejecting an application for approval under Section 80G when the society has registration under Section 12AA and the registration has not been cancelled.

RULINGS / HOLDINGS:

The Court held that the Income Tax Appellate Tribunal (ITAT) was correct in directing that approval under Section 80G be allowed due to the existence of registration under Section 12AA, "irrespective of the finding of the CIT that the society is engaged in commercial activities and cannot be considered as charitable".The Court found that vocational training and fee-based activities do not meet the strict definition of "education" under Section 2(15) of the Act, which contemplates "systematic instruction, schooling or training" and excludes activities such as coaching or commercial training centers from being charitable educational activities.The Court emphasized that once registration under Section 12AA is granted and remains unrevoked, the benefits under Section 80G cannot be denied by the CIT on grounds of non-charitable activities without cancelling the registration first.

RATIONALE:

The Court applied the legal framework established by Section 12AA and Section 80G of the Income Tax Act, relying on precedents from the Gujarat High Court, Punjab and Haryana High Court, and the Supreme Court which emphasize that registration under Section 12AA confers entitlement to benefits under Section 80G unless registration is cancelled.The Court referred to the principle that the CIT cannot reject approval under Section 80G by re-examining the genuineness or charitable nature of activities if registration under Section 12AA is intact, as held in Hiralal Bhagwati and Sant Girdhar Anand Parmhans Sant Ashram cases.The Court acknowledged the distinction between formal education as defined in Section 2(15) and commercial or coaching activities, but held that this issue does not affect the entitlement to Section 80G benefits when Section 12AA registration is valid and unrevoked.The Court noted that the ITAT's decision followed binding precedent and that no contrary binding decision was placed on record by the Revenue to negate the ITAT's findings.No dissent or doctrinal shift was indicated; the Court affirmed established jurisprudence that registration under Section 12AA is a prerequisite and sufficient condition for approval under Section 80G, barring cancellation or revocation.

ISSUES:

Whether an assessment order passed under Section 143 read with Section 147 of the Income Tax Act is valid when proceedings initiated under Section 147 are dropped prior to assessment.Whether a mistake in making an assessment under Section 143 read with Section 147 can be rectified by invoking Section 292B of the Income Tax Act.Whether interest income should be treated under the head "income from other sources" without considering the facts that such interest arises in the ordinary course of business.Whether interest income arising from the business can be netted off against interest paid for deduction purposes.

RULINGS / HOLDINGS:

The assessment order was validly passed under Section 143(3) of the Act, notwithstanding the erroneous reference to Section 147, as the notice under Section 148 was withdrawn and the case proceeded as a regular scrutiny; thus, the assessment was not invalidated by the prior dropping of proceedings under Section 147.The error in quoting Section 147 alongside Section 143(3) in the assessment order is a mistake curable under Section 292B of the Act and does not render the assessment order a nullity.Interest income earned in the ordinary course of business is an integral part of business income and cannot be taxed under Section 56 ("income from other sources"); Section 56 applies only if such interest income is not chargeable under the head "Profits and gains of business or profession".Interest income arising from the business cannot be disallowed or treated separately to reduce deductions under Section 80-IA; accordingly, such interest income can be netted off against interest paid, and deductions under relevant sections must be allowed without such artificial bifurcation.

RATIONALE:

The Court applied the statutory provisions of the Income Tax Act, specifically Sections 143(3), 147, 148, and 292B, and relied on the procedural facts showing withdrawal of the Section 148 notice and issuance of a fresh notice under Section 143(2), establishing that the assessment was a regular scrutiny and not a reassessment under Section 147.The principle that "wrong quoting of a provision or quoting a provision in addition to the right provision under which the order was passed would not invalidate any proceeding" was applied, consistent with established jurisprudence on curable mistakes under Section 292B.The Court relied on precedent from this jurisdiction interpreting Section 56(2)(id), holding that interest income earned in the ordinary course of business is part of business income and excluded from "income from other sources," as well as Supreme Court authority affirming that deductions under various sections must be allowed without artificial reduction by segregating interest income.The Court distinguished the scope and requirements of assessments under Section 143(3) and reassessments under Section 147, noting that the ITAT's observation equating their scope was incorrect, but that the ultimate conclusion remained unaffected because the assessment was under Section 143(3).

ISSUES:

Whether the impugned Assessment Order under Section 143(3) read with Section 144B of the Income Tax Act, 1961, was passed in violation of the principles of natural justice due to denial of effective opportunity of personal hearing through video conferencing.Whether the procedure prescribed under the Standard Operating Procedure (SOP) dated 03.08.2022 for Faceless Assessment under Section 144B of the Act, particularly regarding service of notices and communication, was complied with.Whether failure to grant the requested personal hearing through video conferencing and non-compliance with the SOP amounts to invalidity of the Assessment Order and demand notice.

RULINGS / HOLDINGS:

The impugned Assessment Order and demand notice were passed in "gross violation of the principles of natural justice" as the petitioner was not provided "any effective opportunity of personal hearing through video conferencing" despite a categorical request.Non-compliance with the mandatory requirements of the SOP, including failure to grant personal hearing and inadequate communication, renders the Assessment Order and demand notice invalid and liable to be quashed.The matter is remanded to the National Faceless Assessment Authority to comply with the SOP and pass a fresh order "after following the due procedure of law."

RATIONALE:

The Court applied the procedural framework under Section 144B of the Income Tax Act, 1961, and the SOP dated 03.08.2022 issued by the Ministry of Finance for Faceless Assessment to assess compliance with procedural fairness and natural justice.The SOP mandates centralized communication, including physical letters by speed post and SMS notifications, to ensure effective notice and opportunity to respond, especially under Section 142(1) of the Act.The Court emphasized that the "very idea behind conducting the video conferencing is to ensure that an assessee gets an opportunity to explain the case," and failure to grant such hearing upon request constitutes a breach of natural justice.The Court noted that despite the petitioner's response and request for hearing, the authority proceeded to frame the assessment without granting the opportunity, which was avoidable given the limitation period had not expired.No dissent or doctrinal shift was indicated; the Court strictly enforced adherence to procedural safeguards embedded in the SOP and constitutional principles of natural justice.

ISSUES:

Whether Circular No. 13/2014 dated 28.07.2014 issued by CBDT is ultra vires sections 160 and 164 of the Income Tax Act, 1961.Whether a Category III Alternative Investment Fund (AIF) trust must have the names of beneficiaries explicitly mentioned in the original Trust Deed to avoid being treated as an "indeterminate" trust under section 164 of the Income Tax Act, 1961.Whether the provisions of SEBI Regulations and SEBI Act prohibit mentioning names of investors in the original Trust Deed prior to registration and obtaining certificate from SEBI.Whether the impugned order of the Board for Advance Rulings (BAR) relying on Circular No. 13/2014 to treat the petitioner trust as "indeterminate" is sustainable.Whether the doctrine of impossibility applies to the conflict between SEBI Regulations and Circular No. 13/2014 regarding naming beneficiaries in the original Trust Deed.Whether the petitioner's writ petition under Article 226 is maintainable despite availability of statutory appeal under section 245W of the Income Tax Act.

RULINGS / HOLDINGS:

The impugned Circular No. 13/2014 is to be read down and is not to be applied in a manner that conflicts with SEBI Regulations and the SEBI Act, particularly regarding the requirement to name beneficiaries in the original Trust Deed of Category III AIFs.A trust is not "indeterminate" under section 164 of the Income Tax Act merely because the names of beneficiaries are not set out in the original Trust Deed; the determinability of beneficiaries' shares at or after the formation of the trust is the real test.The SEBI Regulations and section 12 of the SEBI Act prohibit an entity from accepting investments or naming beneficiaries in the original Trust Deed prior to obtaining registration and certificate from SEBI, making the requirement in Circular No. 13/2014 impossible to comply with for Category III AIFs.The impugned order of the BAR is unsustainable as it overlooks binding judicial precedents and the legal impossibility created by the conflicting statutory provisions and Circular No. 13/2014.The doctrine of impossibility ("lex non cogit ad impossibilia") applies, excusing compliance with the requirement to name beneficiaries in the original Trust Deed when such compliance is prohibited by SEBI Regulations and the SEBI Act.The writ petition under Article 226 is maintainable notwithstanding availability of statutory appeal, given the wide impact of the issue and the BAR's failure to consider settled law and the conflict in Circular No. 13/2014.

RATIONALE:

The Court examined the provisions of sections 160, 161, 164, 115U, 115UB, and 43(5) of the Income Tax Act, 1961, the SEBI (Alternative Investment Funds) Regulations, 2012, and section 12 of the SEBI Act, 1992.The Court analyzed CBDT Circular No. 13/2014, which clarifies tax treatment of AIFs as non-charitable trusts under section 164, particularly regarding taxation at the Maximum Marginal Rate where beneficiaries are unnamed in the original Trust Deed.The Court considered earlier CBDT Circular No. 281/1980 and judicial precedents including Division Bench judgments of Karnataka and Madras High Courts, which held that beneficiaries' shares need not be named in the original Trust Deed if they are determinable subsequently, thus excluding application of section 164.The Court identified a conflict between Circular No. 13/2014's requirement to name beneficiaries in the original Trust Deed and SEBI Regulations that prohibit accepting investments or naming investors before registration, leading to an "impossibility" in law.The Court applied the doctrine of impossibility ("lex non cogit ad impossibilia"), supported by authoritative Supreme Court precedents, excusing compliance with impossible statutory requirements.The Court found paragraph 6 of Circular No. 13/2014, which limits its applicability based on High Court jurisdictional decisions, to be contrary to settled constitutional principles of binding precedent and uniform application of law.The Court held that the BAR erred in ignoring binding precedents and the legal impossibility created by conflicting statutory provisions and Circular No. 13/2014, warranting judicial interference under Article 226.

1. ISSUES PRESENTED AND CONSIDERED

• Whether the deletion of addition of Rs. 3,14,00,000/- on account of application of unutilized accumulation under Section 11(2) of the Income Tax Act, 1961 was correct despite the assessee's failure to furnish correct details of the purpose of utilization.
• Whether the ITAT was correct in determining if the claim of capital expenditure on fixed assets (construction of building) was financed by funds accumulated under Section 11(2) in preceding years.
• Whether the conclusion that funds accumulated in earlier years were applied for construction in the current year was justified in absence of specific documentary evidence.
• Whether the deletion of addition of Rs. 8,70,00,000/- was proper despite the assessee not providing details regarding commissioning of the RO water treatment plant and list of beneficiaries of the solar lamp project, thereby undermining proof of application of funds for stated charitable objects.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deletion of addition of Rs. 3,14,00,000/- under Section 11(2) relating to unutilized accumulation

Legal Framework and Precedents: Section 11(2) of the Income Tax Act governs the accumulation of income by charitable trusts for application in future years, allowing accumulation up to 15% of receipts if specified conditions are met. The burden lies on the assessee to show that accumulated funds were utilized for charitable purposes within the prescribed period.

Court's Interpretation and Reasoning: The Court noted that the findings of the NFAC and ITAT that the sum of Rs. 3,14,51,045/- was accumulated in the previous year for a specific purpose were factual in nature. The assessee's claim was supported by Form No. 10 for AY 2015-16 and the depreciation table showing investment as current expenditure for construction.

Key Evidence and Findings: The assessee produced Form No. 10 reflecting accumulation and depreciation schedules indicating capital expenditure. Although the Revenue challenged the absence of detailed purpose, the factual findings by NFAC and ITAT accepted the accumulation and its application.

Application of Law to Facts: Since the accumulation was within permissible limits and utilized for charitable purposes, the addition was rightly deleted. The Revenue failed to establish that the accumulation was not for the stated purpose.

Treatment of Competing Arguments: Revenue argued failure to furnish correct details; however, the Tribunal's acceptance of the accumulation and its application was not found to be perverse or legally incorrect.

Conclusion: The deletion of the addition of Rs. 3,14,00,000/- was upheld as the assessee demonstrated compliance with Section 11(2) and application of accumulated funds.

Issue 2 & 3: Application of accumulated funds for capital expenditure on construction and sufficiency of documentary evidence

Legal Framework and Precedents: Capital expenditure financed by accumulated funds under Section 11(2) must be shown to be for charitable purposes. Documentary evidence is crucial to establish the source and application of funds.

Court's Interpretation and Reasoning: The Court observed that NFAC and ITAT accepted the assessee's explanation that Rs. 3,14,51,045/- was accumulated previously and Rs. 2,89,32,104/- was from current year income, both applied towards construction of building and related capital expenditure. The Tribunal found the depreciation records consistent with this claim.

Key Evidence and Findings: The assessee submitted depreciation tables and Form No. 10. Despite Revenue's contention on lack of specific documentary evidence, the Tribunal found the overall record sufficient to establish the claim.

Application of Law to Facts: The factual findings supported the conclusion that accumulated funds were applied for construction in the current year. The absence of additional documentary evidence did not vitiate the conclusion in light of existing proof.

Treatment of Competing Arguments: Revenue contended insufficiency of documentary proof; however, the Tribunal's acceptance of the evidence was not challenged as perverse or unsustainable.

Conclusion: The Tribunal's finding that accumulated funds were applied for capital expenditure was affirmed, and the deletion of addition on this ground was justified.

Issue 4: Deletion of addition of Rs. 8,70,00,000/- relating to expenditure on RO water treatment plant and solar lantern project

Legal Framework and Precedents: Expenditure incurred by a charitable trust on objects specified in its trust deed and for charitable purposes is eligible for exemption under Section 11. The trust must furnish details proving application of funds to charitable activities, including commissioning of projects and identification of beneficiaries.

Court's Interpretation and Reasoning: The NFAC and ITAT accepted that Rs. 8,40,00,000/- was spent on commissioning a water treatment plant in drought-affected rural areas and Rs. 30,00,000/- on distribution of solar lanterns in backward villages, both qualifying as charitable activities.

Key Evidence and Findings: The assessee provided explanations regarding the purpose and location of the projects. Although the AO faulted the assessee for not furnishing commissioning details and beneficiary lists, the Tribunal found the overall evidence adequate to establish the charitable nature and application of funds.

Application of Law to Facts: The Court noted that the Revenue did not challenge the factual findings as perverse. The Tribunal's acceptance of the expenditure as capital in nature and related to charitable objects was consistent with the law.

Treatment of Competing Arguments: Revenue argued absence of commissioning details and beneficiary lists undermined proof of application. The Tribunal, however, found the explanations and evidence sufficient to uphold the claim.

Conclusion: The deletion of the addition of Rs. 8,70,00,000/- was proper as the expenditure was applied for charitable purposes and the assessee sufficiently established such application.

Additional Observations

• All findings by NFAC and ITAT were factual and not assailed as perverse or legally unsustainable by the Revenue.
• The Revenue failed to raise any substantial question of law warranting interference by the High Court.
• The Court emphasized the distinction between factual findings and questions of law, declining to interfere with the former absent perversity or illegality.