INCOME TAX CASE LAW 06.07.2026
| Relevant Act | Section | Case Law Title / Issuing Authority | Citation / Notification No. | Brief Summary |
| Income-tax Act, 1961 | TDS Exemption (IFSC Units) | Central Board of Direct Taxes (CBDT) | Click Here | Exempts TDS under Section 194 (noted as 393 in edit) on lease rent or supplemental lease rent paid to eligible IFSC units engaged in leasing aircraft or ships, provided the lessor submits Form No. 1(N) and opts for deduction under Section 147. Effective from 1 April 2026. |
| Income-tax Act, 1961 | Section 4 (Income – Chargeable As) | Mahindra and Mahindra Financial Services Ltd. v. DCIT | Click Here | Following the principle of consistency, where an assessee has consistently neither claimed notional forex losses nor offered corresponding year-end notional gains on ECB/forex derivative restatements, an inadvertent omission to exclude such gains from total income is allowable for exclusion if bona fides are established. |
| Direct Tax Vivad Se Vishwas Act, 2020 | Section 5 (Time & Manner of Payment) | Sonu Marketing (P.) Ltd. v. UOI | Click Here | Where an assessee fulfilled all scheme conditions and made full payments for two assessment years, but Form 5 was issued for only one year due to a technical error clubbing the payments, the revenue is legally bound to rectify the error and issue the pending Form 5 to conclude the proceedings. |
| Income-tax Act, 1961 | Section 12AA (Charitable Trust – Registration) | CIT v. Ponnaiyah Ramajeyathammal Educational and Charitable Trust | Click Here |
1. Following the insertion of Section 12AA(3), the Commissioner holds the statutory power to cancel the registration of trusts registered even prior to 1-10-2004.
2. Gross misuse/diversion of trust funds (e.g., investing in trustees’ concerns, dual fee accounting, capitation fees, cash seizure from the Managing Trustee) justifies cancellation under Section 12AA(3).
3. A cancellation order cannot operate retrospectively from the date of original registration; it applies only from the date the cancellation order is passed. |
| Income-tax Act, 1961 | Section 14A (Exempt Income Disallowance) | Aamby Valley Ltd. v. ACIT | Click Here | No disallowance under Section 14A read with Rule 8D can be sustained for a financial year in which the assessee has earned absolutely no exempt income. |
| Income-tax Act, 1961 | Section 14A (Exempt Income Disallowance) | Axis Bank Ltd. v. ACIT | Click Here | No disallowance of interest expenditure is warranted under Section 14A if the bank has sufficient interest-free own funds to make the investments, and the Assessing Officer fails to demonstrate any infirmity in the disallowance computation methodology. |
| Income-tax Act, 1961 | Section 28(i) (Business Income) | Axis Bank Ltd. v. ACIT | Click Here | Gains arising from the sale of long-term/strategic investments by a bank are assessable under ‘Capital Gains’ and not ‘Business Income’, provided they were not held for regular banking trading operations and the Department had accepted identical treatments in preceding years. |
| Income-tax Act, 1961 | Section 28(i) (Business Income) | Sakthi Traders v. ITO | Click Here | Estimation of business income by applying a net profit rate of 2% on disclosed turnover is fully justified and non-arbitrary where an assessee fails to produce books of account during scrutiny assessment. |
| Income-tax Act, 1961 | Section 32 (Depreciation) | Vodafone Idea Ltd. v. ACIT | Click Here |
1. While depreciation on capitalized Asset Restoration Cost (ARC) is disallowed based on precedents, the AO must allow an alternative claim for ARC as a revenue expenditure under Section 37(1).
2. Depreciation on the right to use 3G spectrum is allowable if the same has been consistently allowed in the assessee’s own case in past years and no distinguishing facts are brought on record by the Revenue. |
| Income-tax Act, 1961 | Section 36 (Other Deductions) | Aamby Valley Ltd. v. ACIT | Click Here | Sundry balances written off (including old advances, excess stamp duty, and vendor balances) that fail the test of ‘bad debts’ under Section 36(1)(vii) are still deductible either as business expenditure under Section 37(1) or as business loss under Section 28(1). |
| Income-tax Act, 1961 | Section 36(1)(iii) (Interest on Borrowed Capital) | Axis Bank Ltd. v. ACIT | Click Here | If a bank possesses mixed funds where interest-free own funds exceed the investment made in Capital Work-in-Progress (CWIP), a legal presumption arises that the CWIP was funded via interest-free sources, negating any interest disallowance despite amendments to Section 36(1)(iii). |
| Income-tax Act, 1961 | Section 37(1) (Business Expenditure) | Axis Bank Ltd. v. ACIT | Click Here | Disallowance of ESOP expenditure as capital in nature is liable to be deleted if identical disallowances in the assessee’s own case failed to withstand judicial scrutiny in prior assessment years. |
| Income-tax Act, 1961 | Section 37(1) (Business Expenditure) | Aamby Valley Ltd. v. ACIT | Click Here |
1. Business expenses crystallized during the year are deductible even if invoices are in the name of a group concern, adhering to past judicial consistency.
2. Prior period expenses (Rs. 3.39 lakhs) are deductible if they are revenue-neutral.
3. Electricity consumption charges paid to statutory authorities for regular business operations are fully allowable. |
| Income-tax Act, 1961 | Section 37(1) (Business Expenditure) | Mahindra and Mahindra Financial Services Ltd. v. DCIT | Click Here | Corporate club membership fees are allowable as business expenditure. However, in the absence of absolute evidence of exclusive business utility, a 20% disallowance on general club facility usage expenses is sustainable. |
| Income-tax Act, 1961 | Section 37(1) (Business Expenditure) | Schwing Stetter (India) (P.) Ltd. v. Addl./Joint/Dy./Asst. CIT | Click Here | Reopening an assessment based solely on information (like net forex losses and warranty provisions) already fully disclosed and scrutinized in the original return amounts to a mere ‘change of opinion’, rendering the reassessment void. |
| Income-tax Act, 1961 | Section 37(1) (Business Expenditure) | Vodafone Idea Ltd. v. ACIT | Click Here |
1. Annual license fees to DoT are capital in nature and governed exclusively by Section 35ABB, not Section 37(1).
2. Payments for IBM hardware capitalized as a finance lease in books but where ownership stays with IBM are revenue lease rentals deductible under Section 37(1).
3. Subscriber verification non-compliance fees paid to DoT are compensatory rather than penal, thus not hit by Explanation 1 to Section 37(1).
4. WPC spectrum use charges paid to DoT are revenue in nature and fully allowable. |
| Income-tax Act, 1961 | Section 40(a)(ia) (Business Disallowance – TDS) | Aamby Valley Ltd. v. ACIT | Click Here |
1. Disallowance of consultancy charges is sustained for components not proven to be service-tax elements or unsupported by evidence.
2. Interest paid without TDS triggers disallowance under Section 40(a)(ia) unless proof is given that the recipient offered it to tax; relief under the second proviso read with Section 201 is subject to verification. |
| Income-tax Act, 1961 | Section 41(1) (Remission/Cessation of Liability) | Vodafone Idea Ltd. v. ACIT | Click Here | Writing back customer security deposits of amalgamated entities in the books is taxable as income by invoking Section 41(1) and/or Section 28(iv), as established by prior negative precedents against the assessee. |
| Income-tax Act, 1961 | Section 43D (Deemed Interest on NPAs) | Axis Bank Ltd. v. ACIT | Click Here | Additions on account of deemed interest income on Non-Performing Assets (NPAs) are liable to be deleted if the issue is covered by a favorable order in the assessee’s own case and the Revenue fails to provide contrary findings. |
| Income-tax Act, 1961 | Section 68 (Unexplained Cash Credits) | Aamby Valley Ltd. v. ACIT | Click Here | Customer advances cannot be treated as unexplained cash credits under Section 68 if the assessee successfully proves the identity, creditworthiness, and genuineness of the clients alongside the business nature of the transactions. |
| Income-tax Act, 1961 | Section 68 (Unexplained Cash Credits) | O3 Developers (P.) Ltd. v. ITO | Click Here | Reopening based on a mere presumption that high-value bank entries are incoherent with business is impermissible when transactions are between group entities, fully audited, and supported by returns. Lack of an NBFC license or interest non-charging does not imply income escapement. |
| Income-tax Act, 1961 | Section 68 (Unexplained Cash Credits) | ACIT v. Shiv Kumar Gupta | Click Here | A reopening notice based purely on generic Investigation Wing information regarding ‘penny scrips’ without establishing a rational nexus or quantifying the escaped income in the reasons recorded is invalid if LTCG was already disclosed in the original return. |
| Income-tax Act, 1961 | Section 69 (Unexplained Investments) | PCIT (Central) v. Center Point Gems (P.) Ltd. | Click Here | Where purchases from certain entities are held to be bogus but corresponding sales are accepted and recorded, additions/disallowances must be restricted to a reasonable percentage of the alleged bogus purchases rather than the entire amount. |
| Income-tax Act, 1961 | Section 69A (Unexplained Moneys) | DCIT v. Hargobind Hazarimal Tejwani | Click Here | Even if a search on third parties yields incriminating material without immediate recording of satisfaction under Section 153C, subsequent investigation revealing linked banking transactions justifies valid reassessment proceedings under Section 147. |
| Income-tax Act, 1961 | Section 69A (Unexplained Moneys) | Sakthi Traders v. ITO | Click Here | Cash deposits made during demonetization cannot be separately added under Section 69A if they form part of the total turnover on which business income has already been estimated; separate addition amounts to double taxation. |
| Income-tax Act, 1961 | Section 80G (Deductions on Donations) | Mahindra and Mahindra Financial Services Ltd. v. DCIT | Click Here | Section 80G deduction cannot be denied to an NBFC corporate merely because the donations also qualify as Corporate Social Responsibility (CSR) expenditure under the Companies Act, subject to statutory verification of the donation receipts. |
| Income-tax Act, 1961 | Section 80HHC (Deductions for Exporters) | K.L.G. Knit Wear v. ACIT | Click Here | For computing export deductions under Section 80HHC, only 90% of net interest income (gross interest minus interest paid) included in business profits should be reduced, rather than the gross interest, as settled by the Supreme Court in ACG Associated Capsules. |
| Income-tax Act, 1961 | Section 80-IB (Industrial Undertaking Deductions) | K.L.G. Knit Wear v. ACIT / P.V. Hemalatha v. CIT | Click Here |
1. Section 80-IA(9) restricts concurrent deductions under other provisions of Heading ‘C’ to the extent of deduction claimed under Section 80-IA, without restricting gross income computation.
2. Inclusion of adjoining land not part of the approved project/amenities cannot be used to meet the minimum “one acre” plot size condition for housing project deductions under Section 80-IB(10). |
| Income-tax Act, 1961 | Section 80JJAA (New Workmen Employment) | Mahindra and Mahindra Financial Services Ltd. v. DCIT | Click Here | Read with Section 80A, an employment deduction under Section 80JJAA cannot be allowed during assessment or appellate stages if no such claim was explicitly made in the original return of income. |
| Income-tax Act, 1961 | Section 90 (Double Taxation Relief / FTC) | Axis Bank Ltd. v. ACIT | Click Here | The requirement of filing Form No. 67 to claim Foreign Tax Credit (FTC) is directory rather than mandatory. An assessee is legally entitled to raise an additional FTC claim before the AO or appellate authority without filing a revised return. |
| Income-tax Act, 1961 | Section 92B (Transfer Pricing – International Transaction) | Vodafone Idea Ltd. v. ACIT | Click Here | Advertising, Marketing, and Promotion (AMP) expenses cannot be treated as a separate international transaction using the ‘Bright Line Test’ to make TP adjustments unless the Revenue establishes a specific arrangement or understanding with the Associated Enterprise (AE). |
| Income-tax Act, 1961 | Section 92C (Transfer Pricing – ALP) | Vodafone Idea Ltd. v. ACIT | Click Here |
1. RBI-approved effective all-in-cost is a highly relevant benchmark for external CUP data on ECB interest from AEs; adjustments are deleted if the rate aligns with commercial parity.
2. Utilizing a controlled transaction (agreements involving related parties) as a comparable under the CUP method for brand royalty benchmarking is invalid; TP adjustments based on it must be deleted. |
| Income-tax Act, 1961 | Section 147A (Assessing Officer – Sec 148/148A) | Talati and Panthaky Associated Designers LLP v. ACIT | Click Here | Where an e-filed writ petition is untraceable after Supreme Court remand, the petitioner is permitted to file amendments to challenge the vires of Section 147A without producing the original petition, and physical reverification is dispensed with. |
| Income-tax Act, 1961 | Section 153 (Time Limit for Assessment) | Nomura Research Institute Financial Technologies India (P.) Ltd. v. UOI | Click Here | A giving-effect order passed by the Assessing Officer to implement a CIT(A) order beyond the statutory limitation period prescribed under Section 153 is a nullity. The revenue must refund the principal sum along with interest under Section 244A from the expiry of the limitation period until the date of actual payment. |
| Income-tax Act, 1961 | Section 194H (TDS on Commission/Brokerage) | Vodafone Idea Ltd. v. ACIT | Click Here | Pre-paid SIM/talktime discounts allowed by telecom operators to distributors are commercial discounts and do not constitute ‘commission’. Therefore, no TDS is deductible under Section 194H, and disallowances under Section 40(a)(ia) are untenable. |