Issue No. 291 / June 28th, 2025

Dear Professionals,

We are glad to present to you the 290th 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 131510+ 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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Key Takeaways from Handpicked Rulings

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1) HC: Admits appeal against Section 35(1)(ii) donation disallowance, raises four substantial legal questions. HC admitted the assessee’s appeal, identifying four substantial questions of law relating to the disallowance of a donation under Section 35(1)(ii). These include whether the ITAT failed to consider valid government approval, misapplied the relevant legal standards, and relied on unsupported findings from a survey conducted under Section 133A. HC waived formal service of notice and directed the appellant to file informal paper books within ten weeks. The matter is scheduled to be listed after twelve weeks, and the related stay application has been disposed of………... Click here to read and download HC order 

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2) HC: Illegal transaction cannot be basis for legal relief; Trial Court to inform I-T Dept. of Rs. 42 lakh violation. In a civil suit involving a property dispute, HC directed that the petitioner may inform the Income Tax Department or the trial court regarding a substantial cash transaction of Rs. 42,00,000/- allegedly carried out by Respondent in violation of Income Tax laws. However, the Court clarified that the petitioner cannot seek enforcement of any rights stemming from an illegal transaction. Furthermore, the trial court has been instructed to take appropriate steps to notify the Income Tax Department, in accordance with the directions laid...………... Click here to read and download HC judgment

3) ITAT: Builder’s receipt of optional interior charges outside sale deed doesn’t trigger Section 269SS. ITAT held that the Rs. 1.37 crore received for interior work was not part of the property sale consideration. It was observed that, since the sale proceeds were routed through banking channels, there was no violation of Section 269SS, and consequently, no penalty was justified under Section 271D. The assessee, a construction company, had been penalized under Section 271D for allegedly receiving Rs. 1.37 crore in cash, violating Section 269SS. The company argued that the cash was payment for post-sale interior work, not for the property sale itself. During a 2018 search, documents seized enabled tax authorities to calculate the amount. The company also disclosed additional undisclosed income related to property sales and amenities. Despite this explanation, the penalty was imposed. On review, the ITAT examined the details of the sale, including a specific row house transaction where the full sale consideration was paid through.……….. Click here to read and download ITAT order

4) ITAT: Section 56(2)(viia) inapplicable to genuine family settlements; Affirms Rule 11UA valuation. ITAT rejected the Assessing Officer's (AO) treatment of the transaction as a colorable device intended for tax avoidance. Tribunal ruled that the transfer of shares was consistent with both legal provisions and the intent behind the family settlement. The case involved the valuation of shares in Unitel Finance and Investments Pvt. Ltd. (UFIPL), which were contributed as capital to a firm. Initially, the shares were valued at Rs. 92.88 each, based on a report by a chartered accountant, but a subsequent valuation by a SEBI-registered merchant banker assessed them at Rs. 4,786.53 each. The AO used this discrepancy to add Rs. 126.73 crore to the assessee’s income under Section 56(2)(viia) of the Income-tax Act. However, ITAT noted that the family settlement, which followed the will of Mr. D.M. Neterwala, made it clear that Section 56(2)(viia) does not apply to capital contributions by a partner in a firm, as the share transfer was part of a family arrangement among siblings, made in accordance with their father’s wishes. The ITAT relied on SC ruling in the case of Ram Charan Das wherein it was held that a property transfer between family members in the context of a family settlement is not considered a "transfer" in the legal sense, as it is done to preserve family harmony and goodwill..……….. Click here to read and download ITAT order

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5) HC: Allows assessee's writ, orders ITAT to decide taxability claim u/s 40(a)(i). HC allowed the assessee’s writ petition challenging Income Tax Appellate Tribunal’s (ITAT) refusal to examine the petitioner’s contention regarding the applicability of Section 40(a)(i) of the Income Tax Act. The petitioner, an Indian company engaged in transactions with a Dubai-based non-resident, had initially approached the Authority for Advance Rulings (AAR) seeking clarification on the taxability of these transactions. However, since the assessment proceedings had already begun and the AAR has since been abolished, the application was rejected. Following a series of appeals, the ITAT refrained from deciding on the petitioner’s key contention due to the pendency of the writ petition. The Court has now allowed the writ petition, set aside the ITAT’s order concerning Section 40(a)(i), and directed the ITAT to consider the petitioner’s claim on its merits without further delay. ……….. Click here to read and download HC judgment

6) ITAT: Deletes estimated profit addition; AO erred in ignoring reconciliation between Service Tax and Income Tax turnover. ITAT ruled in favour of the assessee, holding that the Assessing Officer (AO) wrongly disregarded reconciliation documents that explained the turnover differences between service tax and income tax filings. The AO had reopened the assessment based on a reported turnover discrepancy of Rs. 36.62 crores between the income tax and service tax returns. Although the assessee submitted a reconciliation statement along with supporting documents during the proceedings, the AO incorrectly claimed that no evidence was provided. The ITAT observed that turnover recognition under the Service Tax Act—based on advance receipts rather than project completion, differs from income tax accounting, which accounts for the expected discrepancies. Since the assessee had furnished reconciliation documents that were overlooked by the lower authorities, ITAT rejected the AO’s additions related to undisclosed turnover.……….. Click here to read and download ITAT order

7) ITAT: Deletes deemed dividend addition u/s 2(22)(e); Funds originated from bank loan, not accumulated profits. ITAT ruled in favour of the assessee in a case involving the applicability of deemed dividend under Section 2(22)(e) of the Income Tax Act. The Assessing Officer (AO) had initially treated a loan of Rs. 2.72 crore, extended by Millennium Technocrat Colonisers Pvt. Ltd. to entities related to the assessee, as deemed dividend. However, the assessee successfully demonstrated that the funds in question did not originate from accumulated profits but were part of a bank loan sanctioned by ICICI Bank. The loan sanction letter identified the assessee as the primary applicant, with Millennium Technocrat Colonisers Pvt. Ltd. listed as a co-applicant. The loan amount was first credited to the company’s account and subsequently transferred to the assessee. Noting that supporting documents, including bank statements and the sanction letter, confirmed the origin of funds as a bank loan rather than accumulated profits, as also citing that Section 2(22)(e) applies only to payments made out of accumulated profits, ITAT held that the addition, whether full or reduced as proposed by the CIT(A) was not justified..……….. Click here to read and download ITAT order

8) HC: Quashes non-bailable warrant against Arjun Rampal; Offence u/s 276C(2) ‘bailable’. HC quashed the non-bailable warrant issued against the petitioner, Arjun Amarjeet Rampal, by the Magistrate on 9 April 2025 in a case under Section 276C(2) of the Income Tax Act. HC observed that the offence is bailable and the warrant had been issued without adequate reasoning. It held that the Magistrate’s order lacked application of mind and had caused prejudice to the petitioner, particularly since his advocate was present in court on the said date. HC further clarified that this order would not affect the ongoing proceedings on merits before the trial court. The earlier order dated 5 December 2019 will be taken up for consideration by the regular court on 16 June 2025.……….. Click here to read and download HC judgment

9) ITAT: Director’s ill health justified delay in TDS returns; Section 234E fee not sustainable.  ITAT waived the late fee under Section 234E, as the delay in TDS return was due to the director’s illness and returns were filed before the final deadline with no harm to Revenue. The appellant, a one-person consultancy company, filed its TDS returns for the first three quarters of FY 2022-23 late, but before the final due date for the fourth quarter. Despite this, both the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] imposed a late filing fee under Section 234E. The assessee appealed to the ITAT, arguing reasonable cause for the delay and no detriment to Revenue. The Revenue contended that the late fee under Section 234E is mandatory and not subject to reasonable cause. However, the.………... Click here to read and download ITAT order

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