Some Landmark Judgments of Supreme Court on Direct Taxes

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Binding force of a Supreme Court Judgment:
The following propositions are well-settled with regard to the
binding nature of a judgment of the Supreme Court:
Under art 141 of the Constitution, ‘The law declared by the
Supreme Court shall be binding on all courts within the
territory of India’. Once there is a pronouncement of the
highest Court of the land, the same is binding on all courts,
tribunals and all authorities in view of this article
[CIT v. Vallabhdas 253 ITR 543 (Guj.)]. If the Supreme Court
has construed the meaning of a section, then any decision to
the contrary given by any other authority must be held to be
erroneous and such error must be treated as an error apparent
on the record.
Needless to say, a judgment of Supreme Court is binding on all
High Courts. But it is the principle laid down in the judgment,
and not every word appearing therein, that becomes the law of
the land. Further, art 141 will not be attracted if law is not
declared or stated vocally to support the conclusion reached
for deciding the lis; because a conclusion may be on facts – it
may not and does not necessarily involve consideration of law.
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When the Supreme Court declares the law and holds either a
particular levy to be valid or invalid, the law laid down by the
Supreme Court in that judgment would bind not only those
parties who were before the court but also others in respect of
whom appeal had not been filed [ U.P Pollution Control Board
v. Kanoria Ind. Ltd. 259 ITR 321 (SC)].
In case of conflict between the decisions of the Supreme Court,
the decision of the larger bench should be followed. Between
two decisions of benches of equal strength of the Supreme
Court, the later decision should be followed, provided the
earlier decision is considered.
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 Acceptance
or Rejection of Petition for
Special Leave to Appeal:
The Supreme Court elaborately dealt with the effect of
acceptance or rejection of a special leave petition in
Kunhayammed v. State of Kerala, (245 ITR 360) and has held
that when there is a refusal of special leave to appeal in non speaking order, i.e., an order that does not assign reasons for
the dismissal of the special leave petition, it does not amount
to a declaration of the law as laid down by the Supreme Court,
since there is no law that has been declared. On the other
hand, if the refusal is in the form of a speaking order, it then
becomes a declaration of law within the meaning of art 141 of
the Constitution binding not only on the parties but also on all
judicial fora in the country.
In either case, the doctrine of merger, which would effectuate
the merger of the decision of the lower court with the Supreme
Court order, is not attracted. But once special leave to appeal
from an order has been granted by the Supreme Court, the
order passed thereafter by the Supreme Court would be an
appellate order and would then attract the doctrine of merger;
whether the order reverses, modifies or affirms the decision of
the lower court, and whether it is a speaking or non-speaking
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Thus, the mere fact that the Supreme Court refuses to grant
special leave to appeal against a judgment does not
necessarily imply that it accepts that judgment as correct,
though in the circumstances of a case such an inference may
be permissible. Conversely, the mere filing of a special leave
petition or grant of leave to appeal or pendency of appeal
against the High Court’s judgment does not denude that
judgment of its binding effect.
(Kanga, Palkhivala and Vyas – VOL.1, Ninth Edition Page:36-3738)
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 Reliance
on Decisions:
A precedent is an authority only for what it actually decides
and not for what may remotely or even logically follow from it;
and a decision on a question that has not been argued cannot
be treated as a precedent. Judgments must be read as whole
and observations in judgments should be considered in the
context in which they are made and in the light of questions
that were before the court. In CIT v. Sun Engineering Works
Pvt. Ltd. (198 ITR 297) the Supreme Court observed:
It is neither desirable nor permissible to pick out a word or a
sentence from the judgment of the Supreme Court divorced
from the context of the question under consideration and treat
it to be the complete law declared by the court. The judgment
must be read as a whole and the observations from the
judgment have to be considered in the light of the questions
which were before the court. A decision of the Supreme Court
takes its colour from the questions involved in the case in
which it is rendered and, while applying the decision to a later
case, courts must carefully try to ascertain the true principle
laid down by the decision.
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 Ratio
Decidendi, Obiter Dicta, and Casual
Two questions may arise before the court for its determination.
The court may determine both, although only one of them may
be necessary for the ultimate decision of the case. The
question which was necessary for determination of the case
would be the ratio; the opinion of the court on the question
which was not necessary to decide the case would be only
obiter dictum. The difference between obiter dictum and
‘casual observations’ of the Supreme court is that casual
observation are made on points which do not arise for the
determination of the court at all. Thus, it would be incorrect to
say that every opinion of the Supreme Court would be binding
upon the High Court in India; the only opinion which would be
binding would be an opinion expressed on a question that
arose for the determination of the Supreme Court, even though
ultimately it might be found that the particular question was not
necessary for the decision of the case. The obiter dicta of the
Supreme Court should be followed by the High Courts; but
where they are in conflict with the ratio of the same or another
decision of the Supreme Court, the ratio should be followed in
preference to the obiter dicta.
(on page:42)
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Badridas Daga v. CIT
34 ITR 10 (SC)
“Profits and gains which are liable to be taxed u/s.10(1) of the 1922
Act [corresponding to sec.28 of the 1961 Act], are what are
understood to be such under ordinary commercial principles.
When claim is made for a deduction for which there is no specific
provision in Act, whether it is admissible or not will depend on
whether, having regard to accepted commercial practice and
trading principles, it can be said to arise out of the carrying of the
business and to be incidental to it. If that is established, then the
deduction must be allowed, provided of course there is no
prohibition against it, express or implied, in the Act.”
CIT v. S. C. Kothari
82 ITR 794 (SC)
"If a business is illegal, neither the profits earned nor the losses
incurred would be enforceable in law: but that does not take the
profits out of the taxing statute. Similarly, the taint of illegality of
the business cannot detract from the losses being taken into
account for computation of the amounts which can subjected to
tax under section 10(1). The tax collector cannot be heard to say
that he will bring the gross receipts to tax, he can only tax profits
of a trade or business. That cannot be done without deducting
losses and the legitimate expenses of the business.“
CIT v. Piara Singh [ 124 ITR 40 (SC) ]
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Dr. T. A. Quereshi v. CIT
157 Taxman 514 (SC)
“The Explanation to Sec.37 has really nothing to do with the
present case as it is not a case of business expenditure, but of
business loss. Business losses are allowable on ordinary
commercial principles in computing profits. Once it is found that
the heroin seized formed part of the stock-in-trade of assessee, it
follows that the seizure and confiscation of such stock -in-trade
has to be allowed as a business loss. Loss of stock-in-trade has to
be considered as a trading loss. Vide CIT v. S.N.A.S.A. Annamalai
Chettiar AIR 1973 SC 1032.”
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CIT v. SMIFS Securities Ltd.
348 ITR 302 (SC)
Held that goodwill is an asset within the meaning of section 32 and
depreciation on 'goodwill' is allowable under the said section.
Techno Shares & Stocks Ltd. v. CIT
327 ITR 323 (SC)
The right of membership, conferred upon a member under BSE
membership card in terms of rules and bye-laws of BSE, which
includes right of nomination, is a ‘licence’ or ‘akin to a licence’
which is one of the items which falls in section 32(1)(ii). The right
to participate in the market has an economic and monetary value. It
is an expense incurred by the assessee which satisfies the test of
being a ‘licence’ or “any other business or commercial right of
similar nature” in terms of section 32(1)(ii).
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Mysore Minerals Ltd. v. CIT
239 ITR 775 (SC)
The term ‘owned’ as occurring in section 32(1) must be assigned a
wider meaning. Any one in possession of property in his own title
exercising such dominion over the property as would enable
others being excluded therefrom and having right to use and
occupy the property and/or to enjoy its usufruct in his own right
would be the owner of the buildings though a formal deed of title
may not have been executed and registered as contemplated by
the Transfer of Property Act, 1882, Registration Act, etc. ‘Building
owned by the assessee’ - the expression as occurring in section
32(1) - means the person who having acquired possession over the
building in his own right uses the same for the purposes of the
business or profession though a legal title has not been conveyed
to him consistently with the requirements of laws such as Transfer
of Property Act and Registration Act, etc., but nevertheless is
entitled to hold the property to the exclusion of all others.
Refer: CIT v. Podar Cement (P.) Ltd. 226 ITR 625 (SC)
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S. A. Builders Ltd. v. CIT
158 Taxman 74 (sc)
It is not in every case that interest on borrowed loan has to be
allowed if the assessee advances it to a sister concern. It all
depends on the facts and circumstances of the respective case.
For instance, if the directors of the sister concern utilize the
amount advanced to it by the assessee for their personal benefit,
obviously it cannot be said that such money was advanced as a
measure of commercial expediency. However, money can be said
to be advanced to a sister concern for commercial expediency in
many other circumstances. Where holding company, has a deep
interest in its subsidiary, and the holding company advances
borrowed money to a subsidiary without interest and the same is
used by the subsidiary for some business purposes, the holding
company would ordinarily be entitled to deduction of interest on its
borrowed loans.
ACIT v. Tulip Star Hotel Ltd.
21 97 (SC)
Hon’ble Supreme Court held “In our view, S.A. Builders Ltd. v.
Commissioner of Income-Tax (Appeals) and Another, reported in
288 ITR 1, needs reconsideration.”
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CIT v. Core Health Care Ltd.
298 ITR 194 (SC)
Section 36(1)(iii) of the 1961 Act has to be read on its own
terms. It is a Code by itself. Section 36(1)(iii) is attracted when
the assessee borrows the capital for the purpose of his
business. It does not matter whether the capital is borrowed in
order to acquire a revenue asset or a capital asset, because of
that the section requires is that the assessee must borrow the
capital for the purpose of his business. This dichotomy
between the borrowing of a loan and actual application thereof
in the purchase of a capital asset, seems to proceed on the
basis that a mere transaction of borrowing does not, by itself
bring any new asset of enduring nature into existence, and that
it is the transaction of investment of the borrowed capital in the
purchase of a new asset which brings that asset into existence.
The transaction of borrowing is not the same as the
transaction of investment. If this dichotomy is kept in mind it
becomes clear that the transaction of borrowing attracts the
provisions of section 36(1)(iii).
Vardhman Polytex Ltd. V. CIT [210 Taxman 261 (SC)]
Hon’ble Supreme Court followed the decision of CIT v. Core
Health Care Ltd. (Supra).
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T. R. F. Ltd. v. CIT
323 ITR 397 (SC)
Vijaya Bank v. CIT
323 ITR 166 (SC)
“As regards to Sec 36(1)(vii) the law is well settled. After
01/04/1989, it is not necessary for the assessee to establish that
the debt, in fact, has become irrecoverable. It is enough if the bad
debt is written off as irrecoverable in the accounts of the
It is not imperative for assessee-bank to close individual account of
each of its debtors in its books; a mere reduction in loans and
advances or debtors on asset side of its balance sheet to the extent of
provision for bad debt would be sufficient to constitute write off.
Southern Technologies Ltd. v. Jt. CIT
187 Taxman 346 (SC)
“The nature of expenditure under the IT Act can not be conclusively
determined by the manner in which accounts are presented in terms of
RBI Directions 1998. In our view, RBI Directions 1998, though deviate
from accounting practice as provided in the Companies Act, do not over
ride the provisions of the IT Act. RBI Directions 1998 and the IT Act
operate in different fields.”
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Southern Technologies Ltd. v. Jt. CIT
187 Taxman 346 (SC)
Section 37 applies only to items which do not fall in Sections 30 to 36; if
a provision for doubtful debt is expressly excluded from section
36(1)(vii), then such provision can not be claimed as a deduction u/s 37
even on the basis of ‘real income theory.’
CIT v. Dhanrajgirji Raja
91 ITR 544 (SC)
It is not open to the department to prescribe what expenditure assessee
should incur and in what circumstances he should incur that
expenditure. Every businessman knows his interest best.
Sassoon J. David & Co. (P.) Ltd. v. CIT
118 ITR 261 (SC)
The expression ‘wholly and exclusively’ used in section 10(2)(xv) of the
1922 Act [corresponding to Sec 37(1) of the 1961 Act] does not mean
necessarily. The fact that somebody other than the assessee is also
benefited by the expenditure should not come in the way of an
expenditure being allowed by way of deduction if it satisfies otherwise
the tests laid down by law.
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CIT v. Woodward Governor India (P.) Ltd.
312 ITR 254 (SC)
Section 37(1), read with section 145, of the Income-tax Act, 1961 Business expenditure - Allowability of - Assessment year 1998-99 Whether expression ‘expenditure’ as used in section 37 may, in
circumstances of a particular case, cover an amount which is really
a ‘loss’, even though said amount has not gone out from pocket of
assessee - Held, yes
Whether loss suffered by assessee on account of foreign
exchange difference as on date of balance sheet is an item of
expenditure under section 37(1) - Held, yes
Whether an enterprise has to report outstanding liability relating to
import of raw material using closing rate of foreign exchange and
any difference, loss or gain, arising on conversion of said liability
at closing rate should be recognized in profit and loss account for
reporting period - Held, yes
II. Section 43A of the Income-tax Act, 1961 - Foreign currency, rate
of exchange, change in - Assessment year 1998-99 - Whether
amendment to section 43A by Finance Act, 2002 w.e.f 1-4-2003 is
amendatory and not clarificatory - Held, yes
Whether under unamended section 43A, ‘actual payment’ was not a
condition precedent for making necessary adjustment in carrying
cost of fixed asset acquired in foreign currency - Held, yes
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Whether therefore, prior to amendment to section 43A, assessee
was entitled to adjust actual cost of imported assets acquired in
foreign currency on account of fluctuation in rate of exchange at
each balance-sheet date, pending actual payment of varied liability
- Held, yes
Bharat Earth Movers v. CIT
245 ITR 428 (SC)
The law is settled: if a business liability has definitely arisen in the
accounting year, the deduction should be allowed although the
liability may have to be quantified and discharged at a future date.
What should be certain is the incurring of the liability. It should
also be capable of being estimated with reasonable certainty
though the actual quantification may not be possible. If these
requirements are satisfied, the liability is not a contingent one. The
liability is in praesenti though it will be discharged at a future date.
It does not make any difference if the future date on which the
liability shall have to be discharged is not certain.
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India Cements Ltd. V. CIT
60 ITR 52 (SC)
A loan obtained can not be treated as an asset or advantage for the
enduring benefit of the business of the assessee. A loan is a
liability and has to be repaid and, it is erroneous to consider a
liability as an asset or an advantage. The nature of the expenditure
incurred in raising a loan would not depend upon the nature of
purpose of the loan. A loan may be intended to be used for the
purchase of raw material when it is negotiated, but the company
may, after raising the loan, change its mind and spend it on
securing capital assets. Therefore, the purpose for which the new
loan was required was irrelevant to the consideration of the
question whether the expenditure for obtaining the loan was the
revenue expenditure or capital expenditure.
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CIT v. Woodward Governor India (P.) Ltd.
312 ITR 254 (SC)
E.D. Sassoon & Co. Ltd. v. CIT
26 ITR 27 (SC)
SC Held “ under the mercantile system of accounting, what is due is
brought into credit before it is actually received; it brings into debit an
expenditure for which a legal liability has been incurred before it is
actually disbursed.”
Right to receive coupled with obligation to Pay. “Unless and until
there is created in favour of the assessee a debt done by
somebody it can not be said that he has acquired a right to receive
the income or that income has accrued to him.”
CIT v. Shoorji Vallabhdas & Co.
46 ITR 144 (SC)
Godhra Electricity Co. Ltd. v. CIT
225 ITR 746 (SC)
In this case Hon’ble Supreme Court has followed its earlier decision of
Soorji Vallabhdas & Co. (supra) and held as follows:- “Income tax is a
levy on income. No doubt, the Income tax Act takes into account two
points of time at which the liability to tax is attracted, viz., the accrual of
the income or its receipts; but the substance of the matter is the
income. If income does not result at all, there can not be a tax, even
though in book-keeping, an entry is made about a hypothetical income,
which does not materialize.”
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Sanjeev Woolen Mills v. CIT [ 279 ITR 434 (SC)]
“What is material for the purpose of Sec.145 of the I.T Act,1961, is,
the method should be such that the real income, profits and gains
can be properly deduced therefrom. If the method adopted does
not afford a true picture of the profits, it would be rejected, but
such rejection should be based on cogent evidence and would be
done with caution. The power can be exercised by the A.O to
choose the basis and manner of computation of income but he
must exercise his discretion and judgment judicially and
CIT v. British Paints India Ltd.
[188 ITR 44 (SC)]
Even if the assessee had adopted a regular system of accounting,
it was the duty of the Assessing officer u/s 145 of the Income Tax
Act, 1961, to consider whether the correct profits and gains could
be deduced from the accounts so maintained. If he was of the
opinion that the correct profits could not be deduced from the
accounts, he was obliged to have recourse to the proviso to
section 145 of the Income Tax Act, 1961. There is no estoppel in
these matters, and the officer is not bound by the method followed
in the earlier years.
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CIT v. Woodward Governor India (P.) Ltd.
312 ITR 254 (SC)
SC Held “The accounting method followed by an assessee
continuously for a given period of time has to be presumed to be
correct till the AO comes to the conclusion for reasons to be given
that the system does not reflect true and correct profit.”
UCO Bank v. CIT
237 ITR 889 (SC)
The method of accounting which is followed by the assessee-bank
is mercantile system of accounting. However, the assessee
considers income by way of interest pertaining to doubtful loans as
not real income in the year in which it accrues, but only when it is
realized. A mixed method of accounting is thus followed by the
assessee-bank. This method of accounting adopted by the
assessee is in accordance with accounting practice.
Kachwala Gems v. JCIT
288 ITR 10 (SC)
SC held “Books are rightly rejected u/s 145(3). It was the assessee
himself who was to blame as he did not maintain proper books.
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CIT v. Woodward Governor India (P.) Ltd. [312 ITR 254 (SC)]
Under Sec.28(i), one needs to decide the profits and gains of the
business. Therefore one has to take into account stock in trade for
determination of profits. The 1961 Act makes no provision with
regard to valuation of stock but the ordinary principle of
commercial accounting requires that in the P&L A/c the value of the
stock in trade at the beginning and at the end of the year should be
entered at cost or market price, whichever is the lower. This is how
the business profits arising during the year need to be computed.
While anticipated loss is taken into account, anticipated profit in
the shape of anticipated value of the closing stock is not brought
into account. (on page: 263)
Sanjeev Woolen Mills v. CIT
[279 ITR 434 (SC)]
The market value of the stock has been taken into consideration
while arriving at chargeable income although the market value of
the stock is more than the cost value of the stock. The profit
earned is only notional. There is no transfer of the goods and the
closing stock remains the opening stock of the next accounting
year. The income which has not been derived at by the assessee
cannot be said to be the income chargeable for income and,
therefore, the rejection of the accounts maintained by the assessee
for the valuation of the closing stock by the Assessing Officer and
confirmed by the High Court is in accordance with law.
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Chainrup Sampatram v. CIT [24 ITR 481 (SC)]
A. L. A. Firm v. CIT [189 ITR 285 (SC)]
In order to arrive at the correct picture of the trading result of the
partnership on the date when it ceases to function, the valuation of
the stock in hand should be made on the basis of the prevailing
market price.
Sakthi Trading Co. V. CIT [250 ITR 871 (SC)]
“Valuation of closing stock at cost or at market value whichever is
less is a generally accepted and established rule of commercial
Where on the dissolution of the firm the business is taken over by
a partner without discontinuance and the value of the closing stock
determined under the regular method of accounting is accepted by
the partners in the settlement of accounts for dissolution
purposes, the ITO cannot substitute the market value in respect of
the closing stock alone for the purpose of determining the income
of the firm up to the date of dissolution.
CIT v. Ahmedabad New Cotton Mills Co. Ltd. [4 ITC 245 (PC)]
Where both opening and closing stock are under valued, both
should be altered.
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Tirunelveli Motor Bus Service Co. (P.) Ltd. v. CIT [78 ITR 55 (SC)]
Unless it is proved that an allowance or deduction has been made
in the assessment in any previous year in respect of loss,
expenditure or trading liability, it is not open to the revenue to refer
to section 41(1) for charging the tax on the receipt by the assessee
by refund or otherwise of such expenditure in a subsequent year.
Polyflex (India) (P.) Ltd. v. CIT [257 ITR 343 (SC)]
In the instant case, it was the first clause that squarely applied but
not the second one. Whether there was cessation or remission of
liability was an irrelevant line of enquiry. The correct way of
understanding section 41(1) is to read with latter clause - ‘some
benefit in respect of such trading liability by way of remission or
cessation thereof’ as a distinct and self-contained provision. To
read the phrases ‘by way of remission or cessation thereof; as
governing the previous clause as well, i.e. ‘obtained any amount in
respect of such loss or expenditure’, would be doing violence to
the language and structure of the provision. That apart, the
operation of the provision which is designed to have widest
amplitude will get constricted and truncated by reason of such
interpretation. (On page 350)
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CIT v. Tirumalaiswamy Naidu & Sons.
[230 ITR 534 (SC)]
The sales tax collected by the assessee had to be treated as its
income. Any payment of sales tax made by the assessee was
equally liable to be deducted from the profits made by the
assessee. If any deduction was given from that income and later
the same was refunded back to the assessee, the refund would
have the character of revenue receipt. It had to be treated as a
receipt on the revenue account and had to be assessed as such.
The amount of sales tax refunded would be liable to tax under
express provision of section 41(1). The assessee, however, would
be entitled to claim deduction of sales tax refunded when such
refund was made to customers.
Bombay Dyeing and Mfg. Co. Ltd.
[AIR 1958 SC 328]
“When a debt becomes time barred it does not become
extinguished but is only unenforceable in court of law.”
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CIT v. T. V. Sundaram Iyengar & Sons Ltd.
222 ITR 344 (SC)
In the present case, the money was received by the assessee
in course of carrying on his business. Although it was treated
as deposit and was of capital nature at the point of time it was
received, by influx of time the money has become the
assessee's own money. What remains after adjustment of the
deposits has not been claimed by the customers. The claims of
the customers have become barred by limitation. The assessee
itself has treated the money as its own money and taken the
amount to its profit and loss account. There is no explanation
from the assessee why the surplus money was taken to its
profit and loss account even if it was somebody else's money.
In fact, as Atkinson, J. pointed out that what the assessee did
was the commonsense way of dealing with the amounts.
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Kale khan Mohammad Hanif v. CIT
50 ITR 1 (SC)
"Whether the burden of proving the source of the cash credits is
on the assessee ?"
 It seems to us that the answer to this question must be in the
affirmative and that is how it was answered by the High Court. It is
well established that the onus of proving the source of a sum of
money found to have been received by the assessee is on him. If
he disputes liability for tax, it is for him to show either that the
receipt was not income or that if it was, it was exempt from
taxation under the provisions of the Act. In the absence of such
proof, the Income-tax Officer is entitled to treat it as taxable
Shreelekha Benerjee v. CIT
49 ITR 112 (SC)
Before the department rejects such evidence, it must either show
an inherent weakness in the explanation or rebut it by putting to
the assessee some information or evidence which it has in its
possession. The department cannot by merely rejecting
unreasonably a good explanation, convert good proof into no
proof. It is within the range of these principles that such cases
have to be decided.
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CIT v. K.S. Kannan Kunhi
87 ITR 395 (SC)
Roshan Di Hatti v. CIT
107 ITR 938 (SC)
A.O must examine the merits of assessee’s explanation for Cash
Credit in the books. No addition can be made by merely observing
that the explanation is not satisfactory.
“The impossibility of the assessee having earned such a huge
amount of profit within a few months immediately after migration to
India in the disturbed and unsettled conditions which then
prevailed must, therefore, necessarily support the inference that
the assessee must have brought these assets from Lahore.”
CIT v. Durga Prasad More
82 ITR 540 (SC)
“The law does not prescribe any quantitative test to find out
whether the onus in a particular case has been discharged or not. It
all depends on the facts and circumstances of each, case. In some
cases, the onus may be heavy whereas, in others, it may be
nominal. There is nothing rigid about it.”
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CIT v. Orissa Corporation Pvt. Ltd.
159 ITR 78 (SC)
“In this case the assessee had given the names and addresses of
the alleged creditors. It was in the knowledge of the revenue that
the said creditors were the income-tax assessees. Their index
number was in the file of the revenue. The revenue, apart from
issuing notices under section 131 at the instance of the assessee,
did not pursue the matter further. The revenue did not examine the
source of income of the said alleged creditors to find out whether
they were credit-worthy or were such who could advance the
alleged loans. There was no effort made to pursue the so-called
alleged creditors. In those circumstances, the assessee could not
do any further. In the premises, if the Tribunal came to the
conclusion that the assessee has discharged the burden that lay
on him then it could not be said that such a conclusion was
unreasonable or perverse or based on no evidence. If the
conclusion is based on some evidence on which a conclusion
could be arrived at, no question of law as such arises.”
CIT v. Daulat Ram Rawatmull
87 ITR 349 (SC)
“The onus to prove that the apparent is not the real is on the party
who claims it to be so.”
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Sumati Dayal v. CIT
214 ITR 801 (SC)
“There is no dispute that the amounts were received by the
appellant from various race clubs on the basis of winning
tickets presented by her. What is disputed is that they were
really the winnings of the appellant from the races. This raises
the question whether the apparent can be considered as real.
As laid down by this Court, apparent must be considered real
until it is shown that there are reasons to believe that the
apparent is not the real and that the taxing authorities are
entitled to look into the surrounding circumstances to find out
the reality and the matter has to be considered by applying the
test of human probabilities.
CIT v. Durga Prasad More [1971] 82 ITR 540, at pp. 545, 547
CIT v. P. Mohanakala
291 ITR 278 (SC)
NRI gifts – addition confirmed by Hon’ble Supreme Court by
following decision of Sumati Dayal v. CIT (supra).
K.P.Shah Associates - Chartered Accountants
CIT v. Smt. P. K. Noorjahan
237 ITR 570 (SC)
“This clearly indicates that the intention of the Parliament in
enacting section 69 was to confer a discretion on the ITO in the
matter of treating the source of investment which has not been
satisfactorily explained by the assessee as the income of the
assessee and the ITO is not obliged to treat such source of
investment as income in every case where the explanation offered
by the assessee is found to be not satisfactory.”
Chuharmal v. CIT
172 ITR 250 (SC)
“Section 110 of the Evidence Act is material in this respect and the
High Court relied on the same which stipulates that when the
question is whether any person is owner of anything of which he is
shown to be in possession, the onus of proving that he is not the
owner, is on the person who affirms that he is not the owner. In
other words, it follows from the well-settled principle of law that
normally, unless contrary is established, title always follows
K.P.Shah Associates - Chartered Accountants
CIT v. Walfort Share & Stock Brokers (P.) Ltd.[326 ITR 1 (SC)]
Sec.14A of the I.T Act, 1961 - Income - Expenditure incurred in
relation to income not includible in total income – A.Y 2000-01
Whether words ‘expenditure incurred’ in section 14A refers to
expenditure on rent, taxes, salaries, interest, etc., in respect of
which allowances are provided for under sec. 30 to 37; a return
of investment or a pay back is not ‘expenditure incurred’ in
terms of section 14A - Held, yes - Whether for attracting section
14A, there has to be a proximate cause for disallowance, which
is its relationship with tax exempt income and since pay-back
or return of investment is not such proximate cause, section
14A is not applicable in such cases - Held, yes
Section 94 of the I.T Act, 1961 - Avoidance of tax by certain
transactions in securities - Whether by inserting section 94(7)
with effect from 1-4-2002, Parliament has not treated dividend
stripping transactions as sham or bogus - Held, yes - Whether
by applying section 94(7) in a case for A.Y falling after 1-4-2002,
loss to be ignored would be only to extent of dividend received
and not entire loss and, thus, losses over and above amount of
dividend received would still be allowed - Held, yes
K.P.Shah Associates - Chartered Accountants
Kishanchand Chellaram v. CIT
125 ITR 713 (SC)
The Hon’ble Supreme Court after considering all the facts and
circumstances observed that though the proceedings under
Income Tax Law are not governed by the strict rules of evidence,
the Department is bound to afford an opportunity to controvert and
cross examine the evidence on which the department places its
Income-tax Officer v. M. Pirai Choodi
334 ITR 262 (SC)
Section 143 of the Income-tax Act, 1961 - Assessment - General –
A.Y. 2004-05 - Order of assessment passed without granting an
opportunity to assessee to cross-examine, should not have been
set aside by High Court; at most, High Court should have directed
Assessing Officer to grant an opportunity to assessee to crossexamine concerned witness [In favour of revenue].
K.P.Shah Associates - Chartered Accountants
Mehta Parikh & Co. v. CIT
30 ITR 181 (SC)
“Affidavits filed but contents have not been disproved by cross
examining the deponent it would not be open to Revenue to
disregard the averments made in the affidavit.”
[Glass Lines Equipments Co. Ltd. V. CIT 253 ITR 454 (Guj.) ]
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Navnitlal C. Javeri v. K.K.Sen, Appellate Assistant
56 ITR 198 (SC)
UCO Bank v. CIT
237 ITR 889 (SC)
“CBDT has power, inter alia, to issue circulars to tone down the
rigour of the law and ensure fair enforcements of its provisions; so
long as such a circular is in force it would be binding on the
Departmental authorities in view of the provisions of Sec.119 to
ensure a uniform and proper administration and application of the
I.T Act.”
K.P.Shah Associates - Chartered Accountants

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