Tax Updates

Government Approves International Hospital for Scientific Research Benefits Under Section 35(1)(ii) of Income-tax Act The Central Government has approved an international hospital and research center, operating under an orphanage committee in Kerala, as an institution eligible for scientific research benefits under clause (ii) of sub-section (1) of section 35 of the Income-tax Act, 1961. This approval, effective for five assessment years from 2026-27 to 2030-31, classifies the entity under the category of "Other Institution" for tax purposes. The notification confirms that no individual is adversely impacted by the retrospective application of this approval. Source: https://www.taxtmi.com/highlights?id=90965 #TaxBenefits #ScientificResearch #IncomeTaxAct #HealthcareInnovation - Income Tax

Central Government Approves Institution for Social Science Research Under Section 35(1)(iii) of Income-tax Act The Central Government has approved an institution located in Ahmedabad as an entity engaged in social science or statistical research under the category of "Other Institution" for the purposes of section 35(1)(iii) of the Income-tax Act, 1961. This approval, granted under the relevant Income-tax Rules, applies for five assessment years from 2026-27 to 2030-31. The notification confirms that no individual or party is adversely affected by its retrospective effect. Source: https://www.taxtmi.com/highlights?id=90964 #IncomeTax #ResearchApproval #Section35 #SocialScience - Income Tax

Tax Authority Extends GST Audit Completion Period for 2021-2022 Audits Under Relevant State GST Act The tax authority extended the audit completion period under the relevant state GST Act for audits commencing between April 1, 2021, and March 31, 2022, due to delays caused by requests from audited parties for additional time to produce accounting records. The original three-month completion requirement from the audit start date was deemed insufficient. The extension allows audits to be completed by August 22, 2025, or three months from the actual audit commencement date, whichever is later. This extension is effective immediately. Source: https://www.taxtmi.com/highlights?id=90963 #GST #TaxAudit #AuditExtension #Compliance - GST - States

Import clearance allowed without warehousing if authorization issued before Customs clearance under Para 2.12 FTP 2023 Goods imported, shipped, or arrived before issuance of an import authorization but not yet cleared from Customs may be cleared against a subsequently issued authorization without mandatory warehousing, except for restricted items or those traded through state trading enterprises unless specifically permitted by the Directorate General of Foreign Trade. The requirement to warehouse goods prior to clearance applies only when the authorization is issued after shipment but before Customs clearance. This clarification addresses concerns that warehousing was being imposed even when authorization was obtained before import arrival or clearance, which was contrary to the intended facilitative provision under Para 2.12 of the Foreign Trade Policy, 2023. The policy aims to reduce unnecessary costs and procedural burdens on importers. Source: https://www.taxtmi.com/highlights?id=90962 #ImportPolicy #ForeignTrade #CustomsClearance #TradeFacilitation - DGFT

DFIA Scheme Limits Technical Correlation to Paragraph 4.29 Inputs; Others Require Only Name and Quantity Declaration Under the DFIA Scheme, correlation of technical characteristics, quality, and specification of imported inputs with the exported product is required only for inputs specified in paragraph 4.29 of the Foreign Trade Policy, 2023. For inputs under paragraphs 4.12 and 4.28(iv), only the specific name and quantity of the input used in manufacturing the export product must be declared in the shipping bill, without the need to establish technical correlation. Exporters must provide declarations regarding quality and specifications only for the 22 items listed under paragraph 4.29. This clarification addresses trade concerns about customs enforcement and streamlines compliance requirements, directing authorities to issue appropriate guidance and report any implementation difficulties to the Board. Source: https://www.taxtmi.com/highlights?id=90961 #ForeignTradePolicy #DFIA #ExportCompliance #CustomsRegulation - Customs

Company leasing inter-state property from unregistered landlord must register and pay GST under Section 24(iii) RCM rules A company registered in one state leasing property located in another state from an unregistered landlord must pay GST under reverse charge mechanism (RCM). According to Section 24(iii) of the CGST Act, persons liable to pay tax under RCM are required to obtain registration in the state where the service is received. Since the rented property is in a different state, the company must register there to discharge its GST liability. The place of supply being the location of the property, GST is payable to that state's authorities. Although some opinions suggest that registration in every state of RCM liability is not mandatory, the prevailing interpretation mandates registration in the state of consumption to comply with GST provisions and avoid legal risks. The unregistered status of the landlord does not exempt the recipient from RCM obligations. Source: https://www.taxtmi.com/forum/issue?id=120288 #GST #ReverseCharge #TaxCompliance #Section24iii - GST

Public Charitable Trust Income Taxed Normally, Section 167A and 167B MMR Not Applicable Here The ITAT allowed the appeal of a public charitable trust, holding that the provisions of section 167A and the application of the maximum marginal rate (MMR) under section 167B are not applicable. The tribunal found that the trust's constitution and functions do not permit allocation of income shares among members, negating the relevance of individual shares being determinate or indeterminate. Consequently, the income of the trust must be taxed at normal rates applicable to an AOP or Body of Individuals, without surcharge under section 167B. The decision relied on consistent facts from subsequent assessment years and relevant CBDT circulars, affirming that the trust's income is not divisible among beneficiaries as in private trusts. The trib..... Source: https://www.taxtmi.com/highlights?id=90942 #TaxLaw #CharitableTrust #IncomeTax #Section167B - Income Tax

Penalty under Section 271D barred by limitation; reassessment void due to improper approval under Section 151 The ITAT held that the penalty under section 271D was barred by limitation as it was imposed after the prescribed deadline of 28.02.2023, with the order dated 29.03.2023 being invalid. Additionally, the reopening of assessment was quashed due to improper approval under section 151, rendering the reassessment proceedings void ab initio. Consequently, penalty proceedings under section 271D could not be sustained in the absence of a valid assessment order. The Tribunal relied on precedents confirming that penalty action does not survive when the assessment itself is invalid. Therefore, the penalty levied under section 271D and the reassessment proceedings were set aside, and the appeal of the assessee was allowed. Source: https://www.taxtmi.com/highlights?id=90941 #TaxLaw #Section271D #Assessment #Penalty - Income Tax

AO exceeded jurisdiction by adding income beyond section 148 reasons; reassessment order under section 147 quashed The ITAT held that the AO exceeded jurisdiction by making additions in the reassessment order beyond the income specified in the reasons recorded under section 148. Although the reassessment was initiated for verification of unexplained investment in the purchase of immovable property, no adverse finding or addition was made on this issue. The AO proceeded to assess capital gains and disallow interest on home loans unrelated to the recorded reasons. The Tribunal reiterated that the AO cannot independently assess income outside the scope of the reasons recorded for reopening. Consequently, the reassessment order under section 147 was quashed, and the appeal of the assessee was allowed. Source: https://www.taxtmi.com/highlights?id=90940 #TaxLaw #Section148 #Section147 #IncomeTax - Income Tax

AO cannot replace DCF with NAV under Rule 11UA without new funds or unaccounted income proof The ITAT held that the AO erred in substituting the discounted cash flow (DCF) method with the net asset value (NAV) method under Rule 11UA for valuation of shares allotted to the assessee's promoters, as no new funds were introduced and no unaccounted income was generated. The AO's reliance on discrepancies in projections was insufficient to question the genuineness of the transaction. The subsequent sale of shares to a third party at a higher price supported the valuer's DCF-based valuation. The Tribunal reaffirmed that projections, though not perfectly accurate, cannot be disregarded in favor of NAV, and AO cannot arbitrarily replace the valuation method. Accordingly, the addition under section 56(2)(viib) was deleted, and the assessee's valuation method was upheld. Source: https://www.taxtmi.com/highlights?id=90939 #TaxLaw #Valuation #Rule11UA #Section562viib - Income Tax

Income of Revocable Foreign Trust from Indian NCDs Not Taxable Under Sections 61, 63, 161 & India-UAE DTAA The ITAT held that income earned by the revocable foreign trust from investments in non-convertible debentures of Indian companies is not taxable in India. The trust, settled by a UAE-based entity and registered as an FII, was found exempt from Indian tax liability under the combined application of sections 61, 63, and 161 of the Income Tax Act, read with Article 24 of the India-UAE DTAA. The Tribunal relied on precedent where the Bombay HC quashed the AAR's order imposing tax on a similar trust. Consequently, the additions made by the AO were deleted, and the appeal filed by the trust was allowed, confirming that income accruing to such revocable foreign trusts is not chargeable to tax in India. Source: https://www.taxtmi.com/highlights?id=90938 #TaxLaw #ForeignTrusts #IncomeTax #IndiaUAE - Income Tax

ITAT Upholds 10% WIP Disallowance and Validates Interest on Partner's Capital Under Income Tax Rules The ITAT upheld the CIT(A)'s reduction of disallowance on work-in-progress (WIP) expenses to 10%, finding the revenue's arbitrary adoption of this percentage without objective data impermissible, thereby allowing the assessee's ground and dismissing the revenue's claim. Regarding interest paid to a partner on capital introduced, the tribunal found the assessee's claim substantiated with adequate documentation and no evidence provided by the AO to prove the interest rate was excessive or unreasonable. The interest paid at 10.7% was deemed a legitimate financial cost integral to the project's sustenance. Consequently, the addition made by the AO was set aside, and the revenue's ground was rejected. Thus, both appeals by the revenue were dismissed, affirming the CIT(A)'s orders in favor of the assessee. Source: https://www.taxtmi.com/highlights?id=90937 #IncomeTax #WIPExpenses #InterestOnCapital #ITATDecision - Income Tax

Section 263 Revision Cannot Be Applied Retrospectively to AY 2013-14 Without Proper Inquiry by Commissioner The ITAT held that Explanation 2 to section 263, inserted with effect from 1.6.2015, cannot be applied retrospectively to the assessment year 2013-14. The revision under section 263 requires the Commissioner to form a reasoned opinion that the assessment order was passed without necessary inquiry or verification. In this case, the assessee provided detailed explanations showing adequate verification by the AO. The Commissioner failed to specify what further inquiries were necessary or identify any defects in the assessee's submissions. Consequently, the exercise of revision jurisdiction by the Commissioner was without valid basis and amounted to invalid jurisdiction. The impugned order under section 263 was quashed, and the assessee's appeal was allowed. Source: https://www.taxtmi.com/highlights?id=90936 #TaxLaw #Section263 #IncomeTax #LegalUpdate - Income Tax

ITAT directs AO to allow set-off of house property losses against short-term capital gains under Income Tax Act The ITAT allowed the assessee's appeal, directing the AO to permit set-off of house property losses against short-term capital gains. The tribunal held that under the relevant statutory provision, where there is a net loss under any head other than capital gains and income under capital gains, the loss may be set off against income under any head, including capital gains, subject to the Act's provisions. The AO erred in denying the claim by not applying this provision correctly. Although the CIT(A) considered the argument, the denial was upheld improperly. Consequently, the AO was directed to allow the rectification application and compute the loss accordingly, thereby enabling the assessee to adjust house property losses against capital gains income. Source: https://www.taxtmi.com/highlights?id=90935 #IncomeTax #CapitalGains #HousePropertyLoss #TaxLaw - Income Tax

ITAT Upholds Section 263 Revision, Confirms Validity of Section 144 Ex Parte Assessment Order The ITAT upheld the revision order passed under section 263, affirming that the assessment order issued under section 144 ex parte was justified due to the assessee's failure to appear despite proper notice. The Tribunal noted the assessee's challenge to the assessment before the CIT(A), which remains pending. The AO's additions under sections 43B, 68 read with 115BBE, and estimated long-term capital gains were scrutinized, with the PCIT highlighting procedural irregularities in income estimation and the existence of two sets of financial statements. The Tribunal found no error in the PCIT's conclusion that the assessment was prejudicial to Revenue, particularly due to non-consideration of section 45(4). Consequently, the order under sectio..... Source: https://www.taxtmi.com/highlights?id=90934 #TaxLaw #Section263 #IncomeTax #LegalUpdate - Income Tax

Revision under Section 263 requires total lack of enquiry, not just inadequacy, for valid revision orders The ITAT held that revision proceedings under Section 263 cannot be sustained where there is no total lack of enquiry by the AO, only inadequacy. The AO's investigation was confined to rental income, which was the principal issue, and thus not a complete absence of enquiry. An error or omission regarding the claim of interest under Section 24(a) amounts to inadequate enquiry, requiring the Pr. CIT to conduct independent inquiry before invoking revision powers. The Pr. CIT failed to demonstrate any inquiry or collect material to justify the revision of eight assessment orders, acting in a hurried and mechanical manner without proper application of mind. Consequently, the ITAT set aside the Pr. CIT's revision orders as legally untenable and allowed the assessee's appeal. Source: https://www.taxtmi.com/highlights?id=90933 #TaxLaw #Section263 #IncomeTax #LegalUpdate - Income Tax

Penalty under Section 114 Customs Act requires confiscation under Section 113; no confiscation means no penalty imposed The CESTAT held that penalty under Section 114 of the Customs Act, 1962 is contingent upon confiscation of goods under Section 113. Since there was no confiscation of the exported goods, penalty under Section 114 could not be imposed. The appellant was neither involved in mis-declaration nor overvaluation of export goods, and the Revenue failed to produce evidence linking the appellant to any wrongdoing. The Tribunal relied on precedent where penalty was set aside in similar circumstances. Consequently, the penalty of Rs.4,50,000 imposed under Section 114 was quashed and the appeal was allowed. Source: https://www.taxtmi.com/highlights?id=90932 #CustomsLaw #Section114 #LegalUpdate #TradeCompliance - Customs

Filling Toner Powder in Used Cartridges Counts as Manufacture Under Customs Rules, Duty Demand Set Aside The CESTAT upheld the appellant's prior ruling that filling toner powder into used cartridges constitutes "manufacture" under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. The Tribunal reaffirmed that since the activity qualifies as manufacture, the demand for customs duty, denial of CENVAT credit, and penalty imposed on the appellant were unsustainable. Consequently, the impugned order was set aside, and the appeal was allowed, granting the appellant the benefit of concessional duty. Source: https://www.taxtmi.com/highlights?id=90931 #CustomsLaw #ManufactureDefinition #CENVATCredit #DutyConcessions - Customs

SC allows complaint amendment under Section 200 Cr.P.C. before trial ends if no prejudice to accused The SC allowed the appeal, setting aside the High Court's order that had disallowed the amendment of a complaint under Section 200 Cr.P.C. post-cognizance. The Court held that the criminal court possesses the power to permit amendments addressing curable infirmities in a complaint, provided no prejudice is caused to the accused. Here, the amendment corrected an inadvertent error concerning the product description without altering the complaint's nature or character. Since the amendment occurred before the trial's conclusion and did not prejudice the respondents, the Trial Court rightly allowed it. The High Court erred by considering extraneous issues like GST leviability, which fall outside the criminal trial's scope. The final determinatio..... Source: https://www.taxtmi.com/highlights?id=90930 #CriminalLaw #Section200 #LegalAmendment #CourtRuling - Indian Laws

Business expenses disallowed under Section 37 due to lack of valid contract and insufficient documentary evidence The ITAT upheld the disallowance of business expenditure claimed by the assessee towards payments made to a sister concern for sub-contract execution under section 37. The tribunal concurred with the AO that the assessee failed to provide essential contractual documents, such as a valid contract agreement detailing scope, liabilities, payment terms, and enforceable signatures, thereby undermining the genuineness of the expenditure. The work order submitted lacked critical details of actual work performed and did not establish the assessee or sister concern's role as sub-contractor. The assessee also failed to furnish documentary evidence for third-party verification, reconciliation of payments, and substantiation of claimed amounts, with di..... Source: https://www.taxtmi.com/highlights?id=90929 #TaxLaw #Section37 #BusinessExpenses #ITAT - Income Tax