Issues: Whether abnormal idle costs arising from COVID-19-induced underutilisation of a captive service provider's manpower and infrastructure required a capacity-utilisation adjustment while determining its arm's length margin under TNMM.

Analysis: Rule 10B(3) of the Income-tax Rules, 1962 permits reasonably accurate adjustments to eliminate material differences affecting profits; it does not require identical capacity-utilisation or idle-cost data of comparable companies to be publicly available. Transfer-pricing analysis permits reasonable economic estimation rather than mathematical precision. Extraordinary underutilisation materially depressed the assessee's operating margin because fixed employee and infrastructure costs continued despite reduced activity. The abnormal idle costs, their business nexus, and the methodology for their computation were not found to be fictitious, non-business, unreliable, or incorrect. The absence of confidential internal data of independent comparables could not by itself justify rejecting a demonstrated and reasonably quantified adjustment.

Conclusion: The COVID-19-related abnormal idle costs had to be neutralised through an appropriate capacity-utilisation adjustment. The adjusted operating margin of 14.25% exceeded the comparable median margin of 11.84%; therefore, the international transactions were at arm's length and no transfer-pricing adjustment was warranted.

Issues: (i) Whether inclusion of comparables failing the related-party-transaction filter was valid; (ii) Whether a wholly Government-owned company could be retained as a comparable for sourcing support services; (iii) Whether a company operating on a commission-based revenue model was comparable to a cost-plus service provider; (iv) Whether entities rendering infrastructure project-management services and sectoral consultancy services were functionally comparable to sourcing support services.

Issue (i): Whether inclusion of comparables failing the related-party-transaction filter was valid.

Analysis: The directions required exclusion of entities failing the related-party-transaction filter. Despite this, Mudra Online Technologies Private Limited was retained although it failed that filter. The final restoration direction also sets aside inclusion of ERM India Private Limited.

Conclusion: Inclusion of the entities failing the related-party-transaction filter was invalid, in favour of the assessee.

Issue (ii): Whether a wholly Government-owned company could be retained as a comparable for sourcing support services.

Analysis: EdCIL (India) Limited was under the control of the Ministry of Education and was wholly Government-owned. Its Government undertaking status rendered it unsuitable for the comparable set.

Conclusion: EdCIL (India) Limited must be excluded from the comparable set, in favour of the assessee.

Issue (iii): Whether a company operating on a commission-based revenue model was comparable to a cost-plus service provider.

Analysis: Adbur Private Limited earned revenue from purchase or sale of advertising space or time on a commission basis, whereas the tested services were compensated on a cost-plus basis. The differing revenue models produced materially different profit profiles and impaired comparability.

Conclusion: Adbur Private Limited must be excluded as a comparable, in favour of the assessee.

Issue (iv): Whether entities rendering infrastructure project-management services and sectoral consultancy services were functionally comparable to sourcing support services.

Analysis: Artefact Projects Limited derived its revenue from project-management and consultancy services for infrastructure projects, including engineering and architectural services. Infollion Research Services Private Limited provided consultancy across distinct industry sectors. Their functions were dissimilar to sourcing support services.

Conclusion: Artefact Projects Limited and Infollion Research Services Private Limited must be excluded as comparables, in favour of the assessee.

Final Conclusion: The transfer-pricing benchmarking is to be redetermined by the Transfer Pricing Officer after exclusion of the invalid comparables and after affording the assessee an opportunity of hearing.

Ratio Decidendi: Comparable entities must satisfy applicable related-party-transaction filters and functional comparability; entities with materially different ownership characteristics, functions, or revenue models cannot be retained in the comparable set.

Issues: Whether the assessment complied with the faceless assessment procedure and principles of natural justice where additions were made without prior specific enquiries, without proper consideration of the assessee's replies, and without an effective personal hearing.

Analysis: The prescribed procedure required the show-cause notice to be issued only after necessary enquiries, verification and collection of relevant information. The assessment was preceded by only one notice under Section 142(1), while material particulars concerning bank receipts, the alleged capital nature of partnership-firm receipts, Category III AIF redemption proceeds, and the sale of unlisted shares had either not been specifically sought or were not properly addressed after the replies were furnished. The addition concerning AIF redemption was made on a basis not raised in the show-cause notice, and the addition of sale proceeds as unexplained credits relied on the purchaser's source of funds although that information had not been sought. The hearing notice allowed only a few hours for appearance, and no fresh hearing was provided after the video-conference link failed. These defects demonstrated arbitrariness, non-application of mind, and denial of a meaningful opportunity to respond.

Conclusion: The assessment order, consequential demand notice, and penalty show-cause notices could not be sustained for breach of the prescribed procedure and principles of natural justice. The assessment proceedings are to recommence from the show-cause-notice stage, with specific further queries where required, proper consideration of the assessee's submissions, and an effective personal hearing before any adverse decision.

Issues: (i) Whether the additional legal ground challenging extended search-assessment jurisdiction was admissible; (ii) Whether notices and assessments for years beyond six assessment years were valid where the alleged escaped income was not represented in the form of an asset.

Issue (i): Whether the additional legal ground challenging extended search-assessment jurisdiction was admissible.

Analysis: The ground was purely legal, went to the root of the assessment, required no fresh facts, and could be determined from the assessment record. A general challenge to the validity of the search assessment had also been raised earlier.

Conclusion: The additional ground was admitted in favour of the assessee.

Issue (ii): Whether notices and assessments for years beyond six assessment years were valid where the alleged escaped income was not represented in the form of an asset.

Analysis: The fourth proviso to Section 153A(1) permits action beyond six assessment years only where material in the Assessing Officer's possession reveals escaped income represented in the form of an asset and meeting the prescribed monetary threshold. The additions were based solely on alleged on-money receipts. The assessment orders did not identify any escaped income represented by an asset of the specified nature.

Conclusion: The extended-period notices and consequent assessments were invalid and void ab initio, in favour of the assessee.

Final Conclusion: The assessments for all relevant years stood quashed; the remaining grounds became academic.

Issues: Whether a reassessment is valid where the recorded reasons for reopening were not supplied to the assessee despite a request.

Analysis: The legal framework governing reopening requires that, upon request, the recorded reasons be furnished to enable the assessee to raise objections. The assessment records and the factual report confirmed that no evidence existed of the recorded reasons having been communicated or supplied during the reassessment proceedings.

Conclusion: The reassessment was invalid and was quashed, in favour of the assessee.

Issues: Whether the assessee could be denied taxation under the new tax regime merely because the return of income was filed after the due date under section 139(1), despite timely filing of Form 10-IE.

Analysis: The requirement concerning the timing of Form 10-IE and the return for opting for the new tax regime was treated as directory rather than mandatory. The timely filing of Form 10-IE, together with the principle that delay in filing the return or Form 10-IE may be condoned, supported acceptance of the tax-regime option.

Conclusion: The assessee was entitled to be taxed under section 115BAC notwithstanding the delayed filing of the return; the issue was decided in favour of the assessee.

Issues: Whether Foreign Tax Credit can be denied solely because Form 67 was filed beyond the prescribed time.

Analysis: The foreign income had been offered to tax in India, taxes had been paid abroad, and eligibility for credit of those foreign taxes was undisputed. The delay in furnishing Form 67 was treated as incapable of prejudicing the assessee's substantive entitlement to Foreign Tax Credit.

Conclusion: Foreign Tax Credit shall be granted to the assessee and the requisite rectification shall be carried out.

Issues: Whether commission paid to non-resident agents for procuring export orders, where services were rendered outside India and the agents had no permanent establishment or business operations in India, was chargeable to tax in India so as to require tax deduction at source and justify disallowance.

Analysis: Commission earned by non-resident agents for services rendered outside India does not accrue or arise in India merely because export orders were obtained for an Indian payer. Tax deduction at source is required only where the payment is chargeable to tax in India. No material established that the agents rendered services in India or had a permanent establishment or business operations in India; the mere connection of commission with export orders executed in India was insufficient to make the income taxable in India.

Conclusion: The foreign-agent commission was not chargeable to tax in India; no tax was deductible at source, and the disallowance was deleted in favour of the assessee.

Issues: Whether the notice for reassessment issued after expiry of three years from the end of the relevant assessment year was valid when approval under Section 151 was granted by the Principal Commissioner instead of the competent Principal Chief Commissioner.

Analysis: For assessment year 2019-20, more than three years had elapsed when approval was obtained and the notice was issued. The approval recorded applicability of the extended limitation provision, but was granted by the Principal Commissioner, whereas the competent authority in the circumstances was the Principal Chief Commissioner. The sanction was consequently invalid and could not confer jurisdiction for reassessment.

Conclusion: The reassessment notice and the consequential assessment were invalid and were quashed, in favour of the assessee.

Issues: Whether reassessment initiated under Sections 147 and 148 pursuant to sanction under Section 151 was valid.

Analysis: The sanction proforma and recorded reasons omitted the earlier assessment completed under Section 143(3). The sanctioning authority merely endorsed that it was a fit case for notice under Section 148, without referring to any material or record, and the approval was undated. These circumstances established that the sanction was granted mechanically and without application of mind. A sanction under Section 151 is a statutory safeguard and must reflect meaningful satisfaction based on the relevant facts and applicable law.

Conclusion: The sanction under Section 151 was invalid; consequently, the notice under Section 148, assumption of reassessment jurisdiction under Section 147, and consequential reassessment were quashed in favour of the assessee.

Issues: (i) Whether the availability and filing of a statutory appeal barred exercise of writ jurisdiction where the assessment was challenged for breach of natural justice; (ii) Whether the faceless assessment order was vitiated by non-consideration of authenticated replies, inadequate time to respond to the show-cause notice, and denial of an effective personal hearing.

Issue (i): Whether the availability and filing of a statutory appeal barred exercise of writ jurisdiction where the assessment was challenged for breach of natural justice.

Analysis: The appellate remedy had been invoked only to preserve limitation. Availability of an alternate remedy is a rule of self-restraint and does not preclude writ jurisdiction where the impugned action is affected by violation of principles of natural justice.

Conclusion: The writ petition was maintainable notwithstanding the pending statutory appeal, in favour of the assessee.

Issue (ii): Whether the faceless assessment order was vitiated by non-consideration of authenticated replies, inadequate time to respond to the show-cause notice, and denial of an effective personal hearing.

Analysis: The acknowledgements containing hash values authenticated the responses under Section 144B(6)(xii) of the Income-tax Act, 1961. The replies filed in response to the notice under Section 142(1) and the show-cause notice were disregarded despite their authenticated submission. The show-cause notice afforded effectively only two working days, contrary to the prescribed minimum period of seven days. Although the technical failure affecting the video-conference hearing was notified, no fresh hearing was offered before the assessment was completed.

Conclusion: The assessment was rendered invalid for gross breach of principles of natural justice, in favour of the assessee.

Final Conclusion: The assessment must be undertaken afresh from the show-cause stage after considering the assessee's replies and providing any required further opportunity and an effective personal hearing before an adverse determination.

Ratio Decidendi: An assessment completed without considering authenticated responses and without affording a meaningful opportunity to respond and be heard violates principles of natural justice and is amenable to writ jurisdiction despite an alternate remedy.

Issues: (i) Whether the undertaking was eligible for deduction under section 80-IE despite its acquisition from an associated concern and the allegation that old or used plant and machinery exceeded the permissible limit; (ii) Whether section 80-IE(6) read with section 80-IA(10) justified notional allocation of selling and distribution, research and development, royalty, management and other expenses, or further disallowance of remuneration to the working partner, while computing eligible profits; (iii) Whether the central excise duty incentive was includible in eligible profits for deduction under section 80-IE.

Issue (i): Whether the undertaking was eligible for deduction under section 80-IE despite its acquisition from an associated concern and the allegation that old or used plant and machinery exceeded the permissible limit.

Analysis: Section 80-IE(3) requires that the eligible undertaking must not be formed by splitting up or reconstruction of an existing business and must not be formed by transfer of previously used plant or machinery beyond the permitted threshold. The concurrent factual findings established that the undertaking was transferred while under construction, commercial production commenced thereafter, and the change was confined to ownership of the undertaking. The material did not establish splitting up or reconstruction. The Revenue also failed to make supplier-level enquiry to support its presumption that machinery treated as old was previously used; duplicate bills, photocopies, or unavailable lorry receipts did not by themselves establish use of the machinery. The reconciled evidence did not show that old or used machinery exceeded 20 per cent of the total plant and machinery.

Conclusion: The undertaking satisfied the conditions for deduction under section 80-IE, in favour of the assessee.

Issue (ii): Whether section 80-IE(6) read with section 80-IA(10) justified notional allocation of selling and distribution, research and development, royalty, management and other expenses, or further disallowance of remuneration to the working partner, while computing eligible profits.

Analysis: Section 80-IA(10), as applied through section 80-IE(6), permits re-computation only where the course of business between closely connected persons is so arranged as to yield more than ordinary profits to the eligible undertaking. Although a close connection existed, no reliable evidence established such an arrangement or that the associated concern had actually borne the assessee's expenses. General statements recorded during survey without oath had only corroborative value and were subsequently retracted. A turnover-based comparison of expenses, without verification of the actual distribution network, business operations, or expenses incurred for the assessee, could not support notional allocation. The royalty and management-fee adjustments were also unwarranted where remuneration had been provided to the working partner for the facilities extended, and no further adjustment was supported. No double disallowance of remuneration was permissible after the assessee had itself added back the amount in its revised return.

Conclusion: No notional expense allocation, further reduction of eligible profits, or additional disallowance of working-partner remuneration was warranted under section 80-IA(10), in favour of the assessee.

Issue (iii): Whether the central excise duty incentive was includible in eligible profits for deduction under section 80-IE.

Analysis: The applicable incentive scheme was directed at industrial development and employment generation in the concerned area. The incentive accordingly bore the character of a capital receipt rather than a production or trade receipt. Its exclusion from taxable income necessarily required its exclusion from computation of eligible profits under section 80-IE; the resulting treatment was tax-neutral because the deduction otherwise available was at 100 per cent.

Conclusion: The central excise duty incentive is a capital receipt and must be excluded from both total income and eligible profits for section 80-IE purposes, in favour of the assessee.

Final Conclusion: The assessee's entitlement to the section 80-IE deduction and the computation of its eligible profits were sustained, with the excise incentive excluded as a capital receipt.

Ratio Decidendi: Re-computation of profits under section 80-IA(10) requires cogent evidence of an arrangement producing more than ordinary profits; a close connection and turnover-based presumptions alone are insufficient.

Issues: Whether the assessee's international transaction of purchase of services for resale could be characterised as provision of information technology enabled services for transfer-pricing purposes.

Analysis: The characterisation as an information technology enabled service provider was affirmed without cogent reasons and without examining the assessee's functions, assets and risks or explaining the departure from the earlier characterisation despite no material change in facts. Although the Advance Pricing Agreement did not cover the relevant assessment year, its examination of the functional profile, acceptance of the Transactional Net Margin Method and reseller characterisation were relevant material for fresh consideration. The Assessing Officer was directed to examine the assessee's characterisation, consider the Advance Pricing Agreement terms if reasonably applicable, or otherwise determine the arm's length price on the basis of the transfer-pricing study and applicable law.

Conclusion: The characterisation of the assessee as an information technology enabled service provider was set aside, and the transfer-pricing issue was restored for fresh adjudication.

Issues: (i) Whether the claimed loss was a genuine business loss arising from business carried on during the relevant year; (ii) Whether interest on borrowings used for acquiring shares in another company was allowable on grounds of commercial expediency; (iii) Whether disallowance under Section 14A of the Income-tax Act, 1961 could exceed the exempt income earned, and whether the Explanation inserted by the Finance Act, 2022 applied retrospectively; (iv) Whether the deletion of the addition for share capital under Section 68 of the Income-tax Act, 1961 was sustainable where the funds were allegedly routed through group entities.

Issue (i): Whether the claimed loss was a genuine business loss arising from business carried on during the relevant year.

Analysis: Allowability of a business loss requires genuine business activity. The advisory-fee receipt and corresponding expenditure arose under back-to-back, mirror-image agreements between group entities, executed on the same date for identical services. The assessee did not establish independent provision of services, infrastructure, or commercial activity; the entries were recorded through year-end journal entries without actual fund movement. The arrangement lacked commercial substance and constituted a colourable device to create the appearance of business activity.

Conclusion: In favour of Revenue. The claimed loss was not allowable as a business loss.

Issue (ii): Whether interest on borrowings used for acquiring shares in another company was allowable on grounds of commercial expediency.

Analysis: Section 36(1)(iii) of the Income-tax Act, 1961 permits interest deduction only for capital borrowed for the purposes of business or profession. Commercial expediency required a demonstrated business nexus between the borrowed funds, the acquisition of shares, and the assessee's business. The record did not establish that the investee was a subsidiary at the relevant time, that the assessee had a deep commercial interest in it, or that acquiring its shares served the assessee's business. The acquisition was therefore not shown to be commercially expedient.

Conclusion: In favour of Revenue. The interest disallowance was sustained.

Issue (iii): Whether disallowance under Section 14A of the Income-tax Act, 1961 could exceed the exempt income earned, and whether the Explanation inserted by the Finance Act, 2022 applied retrospectively.

Analysis: The Explanation to Section 14A of the Income-tax Act, 1961 inserted by the Finance Act, 2022 was applied prospectively. For the relevant assessment year, disallowance under Section 14A read with Rule 8D of the Income-tax Rules, 1962 could not exceed the exempt income earned. The amount of exempt income nevertheless required verification.

Conclusion: In favour of assessee. The disallowance is limited to the exempt income actually earned, subject to verification.

Issue (iv): Whether the deletion of the addition for share capital under Section 68 of the Income-tax Act, 1961 was sustainable where the funds were allegedly routed through group entities.

Analysis: Under Section 68 of the Income-tax Act, 1961, the assessee must establish the identity and creditworthiness of the subscriber and the genuineness of the transaction. Although the subscriber's identity was established, same-day transfers showed that substantially identical sums moved from the subscriber to the assessee, onward to another group entity, and back to the subscriber. The assessee did not explain the application of the share-capital funds or the purpose and manner of these circular transactions. Genuineness, a necessary limb of the statutory test, remained unverified.

Conclusion: The deletion of the share-capital addition was set aside, and the issue was restored for fresh examination after affording opportunity to the assessee.

Final Conclusion: The business-loss claim and interest deduction were denied; the disallowance relating to exempt income was confined to the verified exempt income; and the share-capital credit requires a fresh determination on genuineness.

Issues: (i) Whether the land sold was agricultural land excluded from the definition of capital asset; (ii) Whether deduction under Section 54B was available for investment in the land purchased; (iii) Whether the validity of the revision order could be challenged in proceedings arising from the consequential assessment.

Issue (i): Whether the land sold was agricultural land excluded from the definition of capital asset.

Analysis: The registered sale deed described the land as industrial-purpose land, the revenue record showed it as uncultivated, and the purchaser acquired it for non-agricultural use. The assessee had also returned the gain from its sale as capital gain. Applying the test concerning the actual and intended use of land, these circumstances established that its character at the time of sale was non-agricultural.

Conclusion: The land was a capital asset and not agricultural land; this issue was decided against the assessee.

Issue (ii): Whether deduction under Section 54B was available for investment in the land purchased.

Analysis: The purchased land was classified in the registered purchase deed as industrial-purpose land. Further, the sold land had not been used for agricultural purposes during the prescribed preceding period, as reflected by the revenue record and its established industrial character. The statutory conditions for the deduction were therefore not met.

Conclusion: Deduction under Section 54B was not allowable; this issue was decided against the assessee.

Issue (iii): Whether the validity of the revision order could be challenged in proceedings arising from the consequential assessment.

Analysis: The revision order had not been independently challenged. The appeal arose from the appellate order concerning the consequential assessment, and did not permit a challenge to the unappealed revision order.

Conclusion: The challenge to the revision order was barred in these proceedings; this issue was decided against the assessee.

Final Conclusion: The assessment treating the transferred land as a taxable capital asset and denying the claimed agricultural-land reinvestment relief remains sustained, and the unchallenged revision order cannot be assailed collaterally.

Ratio Decidendi: Land is not excluded as agricultural land where the cumulative evidence of its recorded status, contractual description, use and intended non-agricultural exploitation establishes its non-agricultural character; deduction for reinvestment in agricultural land requires satisfaction of the prescribed agricultural-use conditions.

Issues: Whether refund arising after an assessment under Section 201 or an appellate order can be made conditional upon filing Form 26B or withheld against outstanding demands without an order under Section 245.

Analysis: Section 201 concerns assessment of tax deducted at source, whereas Section 200A, Rule 31A and Form 26B govern processing and adjustment of TDS statements at the CPC stage before assessment. A refund quantified upon an assessment under Section 201 or pursuant to an appellate order is a vested and crystallised entitlement, with applicable interest. The Form 26B procedure does not govern such refund. Withholding or adjustment of the quantified refund is permissible only through a legally passed order under Section 245; outstanding demands, including demands relating to associated TANs, cannot by themselves justify non-payment.

Conclusion: Form 26B cannot be compelled for refund arising from an assessment under Section 201 or an appellate order, and the refund cannot be withheld absent a lawful order under Section 245. The assessee is entitled to payment of the quantified refund with applicable statutory interest.

Issues: Whether reassessment notices issued after three years from the end of the relevant assessment year were valid when sanctioned by the Principal Commissioner instead of the authority specified under section 151(ii).

Analysis: Notices under section 148 were issued after expiry of three years from the end of the relevant assessment year, when section 151(ii) required prior approval of the Principal Chief Commissioner, Principal Director General, Chief Commissioner, or Director General. Approval by the Principal Commissioner was therefore not jurisdictionally competent. The authority competent to grant approval is determined with reference to the date of issuance of the notice, not the date on which approval was obtained. The proviso to section 151 inserted with effect from 01.04.2023 could not be applied retrospectively to exclude the period allowed for a reply to the notice under section 148A(b).

Conclusion: The reassessment notices issued with approval of the Principal Commissioner were invalid and quashed; the consequential reassessment orders were vitiated, in favour of the assessees.

Issues: (i) Whether the reassessment initiation complied with statutory safeguards, natural justice, and limitation; (ii) Whether the approved resolution plan barred reassessment for the pre-effective-date period.

Issue (i): Whether the reassessment initiation complied with statutory safeguards, natural justice, and limitation.

Analysis: Reassessment under the Income-tax Act, 1961 required a preliminary inquiry under Section 148A(a) and an independent application of mind. The proceedings were founded solely on external reports without the required inquiry. The failure to disclose the third-party material relied upon also denied an effective opportunity to rebut the allegations. The initiation was additionally beyond the applicable statutory limitation.

Conclusion: In favour of the assessee: the reassessment initiation was without jurisdiction and legally unsustainable.

Issue (ii): Whether the approved resolution plan barred reassessment for the pre-effective-date period.

Analysis: Section 14 of the Insolvency and Bankruptcy Code, 2016 imposes a statutory moratorium, and Section 238 gives the insolvency framework overriding effect. The approved resolution plan was binding upon governmental authorities and expressly prohibited reassessment or revision proceedings concerning the period preceding its effective date. Tax claims not preserved under the plan stood extinguished.

Conclusion: In favour of the assessee: reassessment for the period covered by the resolution plan was barred.

Final Conclusion: Revenue authorities cannot pursue reassessment claims for the relevant period in disregard of mandatory reassessment safeguards and the binding insolvency resolution framework.

Ratio Decidendi: An approved insolvency resolution plan that expressly extinguishes or bars tax claims for a specified earlier period binds revenue authorities and precludes reassessment for that period.