Landmark Cases on Assessment Procedure

When two equally plausible interpretations of a taxing provision are possible, or when conflicting views exist from non-jurisdictional High Courts, the interpretation that favors the assessee must be adopted.

An assessee cannot raise a new claim or a claim not made in the original or revised return of income for the first time directly before the Assessing Officer during assessment proceedings.

The principle of consistency dictates that if the facts and circumstances remain unchanged across assessment years, the revenue cannot adopt a divergent or adverse position on an issue that was previously allowed after due deliberation.

The Supreme Court held that while legitimate tax planning is permissible, transactions structured as a "colourable device" or "subterfuge" solely to avoid tax are impermissible. It mandates a judicial shift to look beyond the form to the substance of a transaction, allowing the lifting of the corporate veil in tax evasion arrangements.

Expenditure can only be disallowed under Section 14A if the income is exempt and not part of the total income. The Assessing Officer must first record dissatisfaction with the assessee's accounts or computation before proceeding to make a disallowance under Section 14A or applying Rule 8D.

The issuance of a notice under Section 143(2) within the statutory time limit is mandatory for completing an assessment under Section 143(3), and the failure to do so renders the assessment invalid. This defect is not curable under Section 292BB of the Income Tax Act, 1961.

CBDT and CBEC circulars, along with administrative instructions, are binding on departmental authorities, who must not act in contravention of them. However, these circulars and instructions are not binding on courts or assessees.

CBDT circulars and instructions, while not binding on courts or assessees, are strictly binding on income-tax departmental authorities, who cannot act in contravention of them.

Amendments to the Income-tax Act that are curative, clarificatory, or beneficial in nature apply retrospectively from the date the original statutory provision was introduced, even if not explicitly stated.

An assessee can make an additional claim for deduction or file a revised computation of income during assessment proceedings, even if a revised return of income has not been filed. Such additional claims or grounds can also be admitted at the appellate stage.

In a best judgment assessment, some guesswork is inherent, but the estimate must be fair and not arbitrary. Books of account can be rejected under Section 145(3) if the assessee fails to substantiate entries or prove the genuineness of transactions, leading to estimation of income.

A taxpayer can legitimately arrange their commercial affairs to reduce tax liability, as permissible tax planning differs from tax evasion. Only real income is subject to tax, not hypothetical or notional income imputed by the Assessing Officer.

Legislation is ordinarily presumed not to have retrospective operation, especially for taxing statutes unless explicitly stated or when intended to remove hardship for the assessee. The decision clarifies the principles for determining whether an amendment to a taxing statute applies prospectively or retrospectively, distinguishing between clarificatory and substantive amendments.

An approval under Section 153D of the Income Tax Act must demonstrate that the approving authority applied its mind to the draft assessment order, and a perfunctory or mechanical approval invalidates subsequent adjustments.

The requirement of statutory prior approval by a high-ranking authority, even if administrative, serves as an in-built protection against arbitrary exercise of power by the Assessing Officer. While such approval need not record elaborate reasoning, the approving authority has a heavy duty to ensure it is not an empty ritual, fulfilling its purpose of supervisory control.

The approving authority, such as the Additional Commissioner, must apply its mind and indicate its thought process when granting approval for draft assessment orders, even if elaborate reasons are not required.

When an assessing authority is uncertain about the true ownership of funds or in whose hands income should be assessed, it can frame a protective assessment to safeguard the Revenue's interest. Such protective assessments remain valid until the substantive assessment is finalized.

An Income-tax Tribunal, operating anywhere in the country, must respect and follow the law laid down by any High Court, even if it is a non-jurisdictional High Court, as long as there is no contrary decision from another High Court on that specific legal point. The law declared by such a High Court is considered the final law of the land for the Tribunal.

The Supreme Court established principles for best judgment assessments, stating that some guesswork is inevitable but the assessment must be bona fide, rational, and free from bias or capriciousness. An appellate authority cannot substitute its judgment for that of the Assessing Officer unless the AO's assessment is shown to be biased, irrational, vindictive, or capricious, especially when the assessee fails to provide proper accounts or counter-evidence.

The Supreme Court holds that circulars issued by the Central Board of Direct Taxes (CBDT) are binding on all officers and persons employed in the execution of the Income-tax Act. These circulars are binding even if they deviate from the provisions of the Act, particularly when issued to relieve hardships.

Issuance of a notice under Section 143(2) is a mandatory requirement for completing an assessment when a return is filed, including reassessment under Section 147/143(3). The complete absence of this notice renders the assessment invalid and is not curable by Section 292BB.

A statute or amendment can apply retrospectively even without an express provision, if such application is a necessary implication from the language used, especially for clarificatory amendments or those intended to cure an acknowledged evil for the community's benefit.

The Assessing Officer is duty-bound to grant relief to an assessee wherever it is due, even if such relief has not been specifically claimed by the assessee during the assessment proceedings.

The Supreme Court has not reached a majority verdict on whether the time spent in Dispute Resolution Panel (DRP) proceedings under Section 144C should be included within the overall limitation period prescribed by Section 153(3). Consequently, the legal position on the interplay between Sections 144C and 153 remains unresolved at the Supreme Court level.