Case Studies of Landmark Income Tax Judgments | TaxPundit

In the case of IKKI Saree Centre vs. DCIT, the Delhi Bench of the ITAT (C Bench) comprising Judicial Member Vikas Awasthy and Accountant Member S. Rifaur Rahman, allowed the assessee’s appeals for AYs 2018-19, 2019-20 and 2020-21. The Tribunal quashed the assessments passed under section 153C of the Income Tax Act, 1961, holding that after the insertion of sub-section (3) to section 153C by the Finance Act, 2021, w.e.f. 01.04.2021, the section no longer applies to searches initiated on or after that date. For an unsearched person, the date of search is deemed to be the date on which the seized material is received by the Assessing Officer, or where that date is unavailable, the date of the satisfaction note. Here, the satisfaction was recorded on 20.06.2022, after the cutoff, making the 153C proceedings void ab initio. The correct course is to undertake reassessment under sections 147/148. The decision follows the principles laid down in PCIT vs. Ojjus Medicare (P.) Ltd. and the coordinate Bench rulings in Lekh Raj vs. DCIT and Shivdham Buildtech Pvt. Ltd.

In the case of Kohler Co. v. DCIT, ITA No. 185/Bang/2025 (AY 2020-21), the Bangalore Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal filed against the CIT(A)’s order dated 27 November 2024. The dispute involved addition of ₹3,94,78,124 received by Kohler Co. (US tax resident) from its Indian AEs, Kohler Power India Pvt. Ltd. and Kohler India Corporation Pvt. Ltd., on account of reimbursement of expenses. The AO originally taxed it as fees for technical/managerial services; CIT(A) confirmed the taxability by holding that the assessee had a service PE under Article 5(2)(l) of the India-USA DTAA. The ITAT set aside both orders and directed deletion of the addition, holding that the receipts were pure cost-to-cost reimbursements without any mark-up and no income accrued to the assessee. The Tribunal found that the conditions for a service PE were not cumulatively satisfied as services were rendered remotely from outside India by third-party vendors, no employees/personnel of the assessee were present in India, and activities did not continue in India for 90 days. The decision is significant for foreign enterprises making cross-charge reimbursements to Indian group entities and clarifies the threshold for service PE under the India-USA DTAA.

The Supreme Court considered the validity of a Show Cause Notice (SCN) issued to M/s Tata Steel Limited under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017 for financial years 2018-2019 to 2020-2021. The SCN was based on audit objections and alleged suppression of facts, but lacked any foundational facts to support the allegation. The Court held that the extended limitation period of five years under Section 74 can only be invoked when the notice contains factual basis indicating fraud, willful misstatement or suppression. The mere recital of statutory words is insufficient. The Court also computed the limitation period after excluding the pandemic period (15.03.2020 to 28.02.2022) as directed by the Supreme Court’s order in In Re Cognizance for Extension of Limitation. The SCN dated 13.06.2025 was found to be beyond the extended limitation period. The Court set aside the SCN and the consequential Order-in-Original dated 26.12.2025, but allowed the Department liberty to issue a fresh SCN under Section 74 with proper foundational facts, provided the order is passed before 28.02.2027. The appeal was accordingly allowed.

In Pratima Singh v. ITO, the ITAT Agra SMC Bench allowed the assessee’s appeal and quashed the reassessment proceedings for AY 2020-21. The Assessing Officer had issued a notice under section 148A(b) dated 12.03.2024 which merely sought details and documents relating to an alleged unexplained property investment and agricultural income, without demonstrating how the information suggested escapement of income. The Tribunal, relying on the Gujarat High Court’s decision in Chetak Nandkumar Gandhi v. ITO, held that section 148A(b) notices cannot be used for verification or as enquiry letters; they must be show-cause notices based on concrete information suggesting escaped assessment. Consequently, the notice under section 148A(b), the order under section 148A(d), the notice under section 148, and the assessment order under section 147 read with section 144B were all quashed and set aside. The appeal was allowed, and the other grounds were not adjudicated being academic.

This appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘H’, involved the disallowance of royalty expenditure of Rs.10,38,78,761/- paid by Mobitech Creations Private Limited to One Plus Technology (Shenzhen) Co. Ltd. (OPT). The Assessing Officer (AO) had treated the assessee as an associated enterprise of OPT under Section 92A(1)(g) and benchmarked the royalty rate to 5% using RoyaltyStat data, disallowing the excess over 5%. The CIT(A) upheld the order ex-parte. The assessee filed additional grounds challenging the assumption of jurisdiction under transfer pricing provisions. The ITAT admitted the additional grounds based on the Supreme Court decision in NTPC Limited vs. CIT. On merits, the ITAT found that OPT was not a related party to the assessee, as it was never disclosed as such in financial statements or any communication. The AO’s reliance on exclusive distributorship to infer an associated enterprise was misplaced, as exclusivity alone does not satisfy the statutory definition. Since the parties were independent, the transfer pricing provisions had no application, and the transaction was to be treated as an independent third-party transaction. The AO had no power to adjust the price of an independent transaction under section 37(1) in the absence of any provision. Accordingly, the royalty expenditure was allowable as business expenditure. The appeal was allowed.

In Principal Commissioner of Income Tax 5 Kolkata v. Syama Prasad Mookherjee Port Kolkata (Calcutta High Court, ITA 49 of 2026, decided on 21.08.2026), the High Court dismissed the revenue’s appeal under Section 260A and confirmed the ITAT’s order deleting disallowances of Rs.710.68 crore for superannuation fund contributions, Rs.33.11 crore for gratuity fund contributions, and Rs.8.38 crore for belated PF/ESI contributions for AY 2018-19. The Court held that extraordinary ad hoc contributions to meet actuarial shortfalls in approved superannuation and gratuity funds are not subject to Rule 87 and Rule 103 ceilings because they are neither ordinary annual contributions nor initial contributions. Once a fund is approved by the Commissioner, the AO cannot sit in judgment over that approval or apply rule ceilings to disallow actuarially required contributions. On PF/ESI, because the Kolkata Port Trust regulations do not prescribe a statutory due date, the general 15th-of-month deadline from the Employees’ Provident Fund Scheme does not apply; the Form 3CD entry was a software-generated artificial date. Substantial questions 1, 2, 3 and 5 were answered in the negative and question 4 in the affirmative, all against the revenue and in favour of the assessee.

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, in Baba Banda Singh Bahadur v. CIT(Exemption), has allowed the appeal of the assessee society against rejection of its application for renewal of approval under Section 80G of the Income Tax Act, 1961. The CIT(Exemption) had rejected the application relying on the Supreme Court’s decision in Upper Ganges Sugar Mills and holding that the society’s objects included construction and maintenance of temples, gurudwaras, and religious places, making it engaged in religious activities. The ITAT found that the prescribed authority did not examine the society’s financials to determine actual religious activities. The Tribunal emphasized that a memorandum of association often contains broad objectives for future flexibility, and actual activities must be examined. The financial statements for 2021-2025 showed no religious expenditure, and the Bye Laws reflected primary charitable purposes such as running a hospital, promoting education, and enhancing social cohesion. The Tribunal applied the Essential Religious Practices (ERP) test from the Supreme Court’s landmark Shirur Mutt case and held that merely having some religious objectives cannot be grounds for denial unless the predominant object is religious activity or proselytisation. It also noted the statutory relaxation under Section 80G(5B) permitting religious expenditure up to 5% of total income. The ITAT concluded that the CIT(E) took a narrow interpretation and directed grant of approval within four weeks. This ruling clarifies that for approval under Section 80G, the actual predominant activities and financials are decisive, and the presence of a religious objective in the MOA is not fatal.

The Revenue appealed against the CIT(A)’s deletion of additions totaling Rs.97,02,60,256/- arising from the Assessing Officer’s substitution of the actual sale consideration for transfer of unlisted shares. The assessee had transferred 5,95,500 equity shares of BSVL to ADPL on 30.09.2019 at Rs.265 per share, which was higher than the FMV of Rs.257.20 under Rule 11UA, and had adjusted the consideration through a running loan account. On 07.02.2020, after a separate Definitive Agreement with an Advent Group company and the closing of that transaction, the assessee transferred further shares at Rs.1,893.98 per share. The AO, relying on surrounding circumstances and newspaper reports, substituted the consideration for the first transfer with the higher amount. The Tribunal, after a detailed analysis of the statutory framework, held that Section 48 permits computation only with reference to the actual consideration received or accruing, and that substitution is permissible only under specific deeming provisions like Section 50CA, which were not applicable since the actual consideration exceeded FMV. The Tribunal found the two transfers to be distinct and the AO’s approach to be without statutory authority, thereby upholding the CIT(A)’s order deleting the additions.