Issue No. 294 / Aug 29^th, 2025

Dear Professionals,

We are glad to present to you the 294^th edition of ‘Taxsutra Database Bulletin’, where we keep you updated with current trends in the tax arena!  

“Taxsutra Database”, a true Income-tax research tool, is an archive of over 132454+  Income Tax Rulings reported across ITR, CTR, Taxman, DTR, ITD, TTJ, and ITR (Trib) and also includes recent ‘unreported handpicked rulings of SC, HC & ITAT’

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1) SC to review HC ruling on reassessment for suspicious KKR Mauritius transactions. SC admitted the assessee’s appeal challenging the HC decision, which upheld reassessment proceedings based on non-disclosure of material facts and suspicious transactions indicating “round-tripping” involving KKR Mauritius. HC found sufficient grounds for conducting a deeper investigation under Sections 147 and 148, emphasizing the assessee’s obligation to fully disclose relevant facts. While some of the reasons for reopening appeared speculative, the HC concluded that there was adequate justification to continue the reassessment, striking a balance between the law’s objective to prevent tax evasion and the need to protect taxpayers from unwarranted harassment………….. Click here to read and download SC order

2) SC: Dismisses Revenue’s SLP; Upholds quashing of TDS prosecution citing valid reason for non-compliance. SC dismissed the Revenue's Special Leave Petition (SLP), thereby upholding the HC decision to quash the prosecution for delayed remittance of TDS, which had occurred due to a staff member's maternity leave. SC found no grounds to interfere under Article 136 of the Constitution. HC had quashed the criminal proceedings initiated against the petitioners under Section 276B read with Section 278AA of the Income Tax Act for delayed remittance of TDS. The Court observed that although there was a delay of approximately seven months in depositing the deducted tax, the delay was neither intentional nor driven by malafide intent. SC further noted that lapse occurred due to the relevant staff member proceeding on maternity leave, and the deducted tax was subsequently remitted in full, and the assessee demonstrated continued compliance in subsequent periods. Considering these mitigating circumstances, the SC held that the initiation of prosecution was not justified and accordingly quashed the proceedings……………. Click here to read and download SC order

3) ITAT: No manufacturing, no deduction; Rejects 80-IC claim for Capsule production without chemical change. ITAT dismissed the assessee’s appeal, holding that filling pre-processed mushroom powder into capsules did not amount to manufacturing. Consequently, the Section 80-IC deduction claim was rightly rejected. The assessee, a private limited company engaged in manufacturing Ayurvedic capsules, filed its income tax return for AY 2011-12 claiming a deduction under Section 80-IC. However, during reassessment, the tax authorities denied this deduction on the ground that the assessee was not engaged in manufacturing. The assessee’s appeal was dismissed by the CIT(A). The assessee contended that it held all necessary licenses and certifications and detailed its capsule manufacturing process, emphasizing compliance with regulatory standards. It relied on a Madras HC decision in DXN Herbal Manufacturing India, which held that encapsulating mushroom powder qualified as manufacturing, thereby justifying the deduction claim. Further, the assessee argued that the AO violated principles of natural justice by relying on employee statements and factory inspections without allowing cross-examination, citing the SC ruling in M/s Andaman Timber Industries. The assessee maintained that importing raw mushroom powder and converting it into capsules amounted to manufacturing. The Revenue, however, contended that the process was limited to capsule filling without any value addition or chemical transformation, supported by site inspections, employee statements, and a forensic report. The Revenue also challenged the applicability of the prior Madras HC ruling, noting that it predated the statutory definition of manufacturing under Section 2(29BA) and was therefore not relevant for the assessment year in question. The ITAT examined whether filling mushroom powder into capsules qualifies as manufacturing under Section 80-IC. The AO’s inspection and investigations revealed no manufacturing machinery or value addition at the assessee’s premises; only capsule filling was carried out. Most raw materials were pre-processed and purchased from related parties. The assessee’s claim for deduction was consequently disallowed. The ITAT acknowledged the existence of differing legal opinions but distinguished the earlier Madras HC decision on factual grounds, emphasizing that the assessee failed to adequately respond to inquiries during appeals. It was concluded that no manufacturing activity took place at the assessed premises, and the deduction under Section 80-IC was rightly denied. Furthermore, the ITAT rejected the assessee’s reliance on the prior Madras HC decision, noting that it was delivered before the statutory definition of “manufacture” under Section 2(29BA) was introduced and lacked crucial evidentiary support. The ITAT emphasized that judicial precedents apply only when the facts and law closely correspond. The Tribunal rejected assessee’s plea to cross-examine officials stating that it failed to demonstrate the necessity or identify specific witnesses. ITAT added that the asseseee did not provide credible evidence to prove manufacturing activities at its premises, nor did it rebut inspection findings showing processing occurred at a sister concern. The ITAT held that the assessee failed to discharge the burden of proof to claim the deduction under Section 80-IC and upheld the disallowance. While recognizing the right to cross-examination, ITAT clarified that it is not absolute and must be shown to cause actual prejudice to the proceedings. The assessee neither raised cross-examination requests at earlier stages nor substantiated the need for it. Given the assessee’s failure to provide evidence or challenge the AO’s inspection findings, the ITAT concluded that no manufacturing activity took place. Similar appeals with identical facts were dismissed applying this decision…………... Click here to read and download ITAT Order copy

4) ITAT: Third member concurs with AM, rental income from leased educational infrastructure falls under 'house property'. ITAT Third Member concurred with the view of the Accountant Member, thereby confirming the CIT(A)’s decision that the rental income earned by the assessee from leasing its educational premises and infrastructure to Narayana Educational Society is taxable under the head "Income from House Property" and not as "Business Income." The assessee had leased its entire educational premises and infrastructure to M/s. Narayana Educational Society for a period of 10 years, claiming that it was a temporary arrangement. It contended that the rental income should be treated as business income, relying on the treatment accorded in a prior assessment year. However, the ITAT observed that the Memorandum of Understanding and the lease agreement clearly established that the assessee had relinquished control over the educational premises and ceased its educational operations, with no intention to resume them. The Tribunal found that the assessee was merely exploiting its property for rental income and was not engaged in any business activity. The ITAT further noted that no definitive test exists to conclusively determine whether rental income should be taxed under "Profits and Gains of Business or Profession" or "Income from House Property," as such classification is a mixed question of law and fact. Relying on the SC judgments in Universal Plast Ltd. and Keyaram Hotels (P) Ltd., the ITAT held that in cases where the assessee is not engaged in any business activity, rental income from commercial property must be assessed under the head "Income from House Property." Tribunal noted that, in this case, the assessee’s conduct demonstrated no intent to resume its business post-lease. The leasing arrangement was viewed as mere exploitation of ownership rights over property, rather than the use of business assets. The ITAT also rejected the assessee’s argument based on the principle of consistency, holding that prior-year assessments could not be relied upon due to materially different and distinguishable facts. Accordingly, the assessee’s appeal was dismissed...…………... Click here to read and download ITAT Order copy

5) ITAT: Majority opinion invalidates reassessment; Legal heirs' participation deemed sufficient u/s 159. ITAT, by majority opinion (Third Member), allowed the assessee’s appeal, holding the reassessment proceedings to be invalid in light of the Jet Airways ruling. ITAT held that issuing notice to the legal heirs was not required, as they had already participated in the proceedings. This participation was deemed sufficient to meet the legal requirements under Section 159 of the Income Tax Act and the relevant provisions of the Civil Procedure Code. …………. Click here to read and download ITAT Order copy

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6) ITAT: CIT(A) must adjudicate jurisdictional objections before remanding under amended section 251(1) proviso. ITAT held that although the amendment to the proviso of Section 251(1), effective from 01.10.2024, empowers the CIT(A) to remand best judgment assessments under Section 144, this authority does not relieve the CIT(A) of the obligation to adjudicate legal challenges concerning the Assessing Officer’s (AO’s) jurisdiction. When an assessee raises a jurisdictional objection—such as a claim that the reassessment is time-barred—the CIT(A) is duty-bound to decide the issue, including annulling the assessment if warranted. ITAT criticized the CIT(A) for remanding the reassessment order to the AO without first addressing the jurisdictional challenge, especially in light of the first proviso to Section 147. While the newly inserted proviso to Section 251(1) authorizes the CIT(A) to set aside assessments, it does not justify ignoring jurisdictional defects. The ITAT emphasized that using remand powers to avoid ruling on jurisdiction undermines the legislative intent expressed in the Finance Bill, 2024. Furthermore, there is no statutory requirement compelling the CIT(A) to remand every best judgment assessment under Section 144. Accordingly, the ITAT set aside the CIT(A)’s order and directed a fresh consideration, specifically mandating the CIT(A) to adjudicate the assessee’s jurisdictional challenge….……... Click here to read and download ITAT Order copy

7) ITAT: Refuses to condone delay sans sufficient cause in filing appeal u/s 253(5). ITAT found no “sufficient cause” under Section 253(5) of the Act to condone the delay of 596 days in filing the appeal within the prescribed period under Section 253(3). Consequently, the application for condonation of delay was rejected. Additionally, the ITAT observed that the assessee’s appeal challenged the Assessing Officer’s consequential order under Section 144 read with Section 263, rather than the principal order passed by the PCIT under Section 263. Since the assessee did not raise any grievances against the PCIT’s order and admitted that the grounds of appeal were identical to those previously raised before the CIT(A), the appeal was dismissed for lack of cause and absence of any grievance against the PCIT’s order. ITAT followed the SC ruling in Pathapati Subba Reddy (Died), which emphasized the need for sufficient cause to condone delay…...………... Click here to read and download ITAT Order copy

8) ITAT: Condones delay citing genuine belief in TDS rectification; Orders fresh hearing. ITAT condoned the delay, finding it justified by the assessee’s genuine belief that rectification would resolve the issue. Emphasizing that justice should prevail over procedural delays in the absence of negligence, the ITAT remanded the case for a fresh hearing to prevent unjust enrichment of the State. The assessee had filed its tax return for 2022-23 claiming an excess TDS refund. However, the tax department reduced the TDS credit, resulting in a substantial tax demand. The assessee’s delayed appeal was initially dismissed by the CIT(A) due to lack of valid reasons for the delay. On further appeal before the ITAT, it was noted that while the CPC accepted the declared income, it unjustifiably rejected TDS credit worth Rs. 9,60,271. The assessee contended that the TDS deductions were wrongly applied because the tax department treated it as a seller rather than an agent. Although the JCIT(A) dismissed the appeal as time-barred, the ITAT examined both the merits of the case and the reasons for the delay. It accepted the assessee’s genuine belief that the issue with the TDS credit would be resolved through rectification, deeming the delay reasonable. The ITAT held that denying the delay would uphold an illegal order and result in unjust enrichment of the State. Accordingly, the delay was condoned, and the matter was sent back for a fresh hearing.……...…... Click here to read and download ITAT Order copy

9) ITAT: Legitimate reinvestment in spouse’s property qualifies for capital-gains exemption u/s 54; Rejects AO’s fund rotation claim. ITAT held that the assessee lawfully transferred two flats and subsequently acquired a new residential property from her husband within the prescribed statutory period under Section 54 of the Income Tax Act. The Tribunal remarked that the temporary parking of funds pending fulfillment of TDS formalities did not undermine the genuineness of the reinvestment, and the Assessing Officer’s (AO) allegations of fund rotation were therefore rejected as unfounded. The assessee claimed a Rs. 3.96 crore exemption under Section 54 after selling a property that she owned solely through a 2017 gift deed from her husband. The AO disallowed the exemption, citing lack of original investment, alleged circular transactions, and non-compliance with reinvestment rules, and added Rs. 4.21 crore to her taxable income. Challenging this before the ITAT, the assessee argued that the transaction was legitimate, the new property was properly purchased from her husband, and the exemption was valid. She maintained that the gain was taxed in her name and therefore the exemption claim was justified. The assessee also contended that Section 64(1)(iv) did not apply, cited the extension under the TOLA for reinvestment, and explained the fund movement as a temporary measure necessitated by delays in TDS processing. She denied any intent of tax evasion, emphasizing that transactions between related parties are not legally prohibited. While the Revenue relied on prior findings against her, the ITAT agreed with the assessee that there is no legal restriction on transactions between related parties in this context. The ITAT ruled that the exemption under Section 54 could not be denied solely because the new residential property was purchased from her husband or due to temporary rotation of funds through a related company. Tribunal added that the assessee became the rightful owner of the original property via a valid registered gift deed, received the sale proceeds directly in her bank account, and reinvested the capital gains within the extended time limit granted under the COVID-relief legislation (TOLA). Further noting that all necessary documentation and tax compliance, including TDS deductions were duly completed, the ITAT directed the Assessing Officer to allow the Section 54 exemption of Rs. 3.96 crore as claimed by the assessee.…………. Click here to read and download ITAT Order copy

10) ITAT: Affirms deductions u/s 80P(2)(d) and (e), subject to compliance with section 14A. ITAT emphasized the need to bifurcate godown income based on its usage and ruled that deductions under section 80P(2)(d) are valid, provided section 14A disallowance is applied to avoid duplication. The assessee, a co-operative apex society, claimed deductions under section 80P(2)(e) for rental income from godowns and under section 80P(2)(d) for dividend and interest income from co-operative investments. The Assessing Officer (AO) disallowed both deductions, citing the trading use of godowns and the exemption of dividend income, in addition to applying section 14A disallowance on related expenses. On appeal, the CIT(A) partially allowed the rental income deduction after directing bifurcation due to mixed use of the godowns and rejected the disallowance of dividend income, noting the assessee’s voluntary disallowance of expenses. The Revenue challenged this decision, relying on a prior High Court ruling in the assessee’s own case, Haryana State Cooperative Supply and Marketing Federation Ltd. which was against such claims. However, the assessee cited favourable ITAT decisions supporting deductions based on third-party use of godowns. ITAT agreed that only rental income from godown use by third parties qualifies for deduction and directed the AO to verify lease documents and recompute the deductions accordingly. ITAT also held that deductions under section 80P(2)(d) are allowable but any disallowance under section 14A must avoid duplication with the assessee’s own disallowance. The matter was remanded to the AO for factual verification and fresh computation, and the appeal was allowed for statistical purposes.…………... Click here to read and download ITAT Order copy

11) ITAT: Not just ex-parte, flags potential tax evasion; Directs CIT(A) to probe ‘sham transactions’. ITAT held that this case is not merely an ex-parte matter but potentially involves fraudulent tax evasion through sham transactions. Tribunal directed the CIT(A) to conduct a thorough examination to determine whether any taxes were unlawfully avoided. The assessee had appealed against the ex-parte dismissal of their appeal by the CIT(A) for AY 2015-16, which was due to non-compliance. The dispute arose from a discrepancy between the income reported in the ITR and the receipts shown in Form 26AS. While the assessee partially reconciled this difference, an undeclared amount was added to income. A complex transaction involving the sale and reacquisition of shares in UBV Infrastructure Ltd. allegedly resulted in unaccounted long-term capital gains among family members of the promoter group, including the assessee. The AO rejected the assessee’s explanation, and the CIT(A) dismissed the appeal. Subsequently, the department agreed to hear the case afresh, granting the assessee one final opportunity for a fair hearing. Upon review, the ITAT set aside the earlier ex-parte order and granted the assessee a final chance to present their case before the CIT(A). Following the co-ordinate bench decision in the case of Brajesh Singh Bhadoria, the matter was remanded for fresh consideration under the principles of natural justice. The ITAT expressed suspicion of potential fraud or tax evasion by the assessee and directed the authorities to carry out a detailed investigation. It was noted that if fraud is established, it overrides the principles of natural justice, and any resulting tax additions must be upheld. Tribunal concluded that the Revenue is responsible for conducting a thorough investigation to distinguish between legitimate tax planning and unlawful tax evasion ...…………... Click here to read and download ITAT Order copy