Landmark Cases on Assessment Procedure

Appellate authorities can consider new claims and additional grounds if the relevant facts are already on record. The purpose of assessment is to correctly determine tax liability, allowing both parties to raise issues.

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 applies in tax matters, meaning a fundamental aspect found to be true in one assessment year should not be changed in a subsequent year if the order was not challenged.

In non-abated assessments, the Assessing Officer can make additions under section 153A based on books of accounts or documents found during a search but not produced during the original assessment, provided such material is incriminating.

A statement recorded under Section 132(4) of the Income Tax Act, 1961, does not by itself constitute incriminating material for making additions to income.

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.

Assessment based solely on a statement recorded under Section 132(4) of the Income Tax Act requires the statement to be relatable to incriminating material or evidence found during the search, especially when considering Section 158BB(1) which restricts computation of undisclosed income to evidence found during search.

The recording of a satisfaction note by the Assessing Officer is a jurisdictional prerequisite for assessments under Section 153C, and the six-year limitation period for such assessments is reckoned from the date this satisfaction is recorded.

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.

Proceedings under Section 153A are initiated only if assessment/reassessment proceedings are pending on the date of search/requisition. Already finalized assessments for the years covered under Section 153A do not abate.

A notice issued under section 148 to a non-existent entity, such as an amalgamating company post-merger, is a substantive illegality, rendering assessment proceedings void ab initio. Participation in such proceedings does not estop the assessee from challenging the validity of the notice.

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.

Assessment orders are bad in law if they are passed without valid approval from the Additional Commissioner under Section 153D, or if such approval is granted mechanically without application of mind.

Proceedings under Section 153A of the Income Tax Act are not confined solely to incriminating material found during a search, and the Assessing Officer can assess total income for the relevant years.

A taxing statute must be interpreted strictly based on what is clearly expressed, without implying anything not stated or importing provisions to supply deficiencies. A person must clearly fall within the ambit of the charging section for tax to be levied.

Where an assessment order is merely a copy-paste of observations from an investigation wing's appraisal report without independent verification, it is not a valid basis for making additions to income.

Amendments to tax laws that are explanatory, declaratory, curative, or clarificatory in nature are judicially construed as retrospective, especially if they are intended to remedy unintended consequences.

An appellate authority cannot introduce a new source of income that was not considered by the Assessing Officer; taxability of new sources should be addressed through reassessment provisions like Section 147/148 or revision under Section 263.

The appellate authority cannot enhance an assessment by considering a source of income that was not examined by the Assessing Officer. The scope of appellate power is limited to the subject matter considered by the Assessing Officer.

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.

Invocation of Section 153A for assessment is unjustified in years for which no incriminating material was found during a search, particularly when the Supreme Court has dismissed SLPs against such findings.

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.

A clarificatory or declaratory amendment to a statutory provision has retrospective effect from the date the original provision came into force, as its purpose is to clarify existing law rather than introduce new law.

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 requirement to file a certificate or form (e.g., Form 10CCB, 10-IC) along with the return of income for claiming a deduction (e.g., under sections 80-IB, 115BAA) is directory regarding its timing. Such a deduction is allowable if the requisite form is filed before the final order of assessment, as procedural requirements should not override substantive benefits.

Tax authorities have an obligation to act in accordance with law and assist assessees who are over-assessed due to mistake, misconception, or lack of proper instruction, ensuring only legitimate taxes are collected.

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.

The cardinal principle of tax law dictates that the law applicable to an assessment is the law in force for the relevant assessment year, unless the statute expressly or implicitly provides otherwise. A clarificatory statutory explanation must be read into the main provision from its inception.

The validity of approval is a fundamental issue that can be raised at any time, and the Tribunal has jurisdiction to hear such issues even if they did not originate from the orders of the CIT(A).

The project completion method and the percentage of completion method are both recognized methods for recognizing income from real estate contracts.

The Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days.

Deemed dividend under section 2(22)(e) cannot be taxed in the hands of a non-shareholder. The Supreme Court confirmed this view, affirming the Delhi High Court's decision in Ankitech.

A deduction claimed under Section 36(1)(va) for employee contributions remitted after the statutory due date but before the return filing due date cannot be disallowed during intimation processing under Section 143(1) if the issue is debatable. Such a disallowance cannot be made automatically based solely on auditor's mention of actual vs. due dates in the tax audit report.

Rule 8D of the Income Tax Rules, read with Section 14A, applies prospectively. It cannot be applied to any assessment year prior to Assessment Year 2008-09.

The requirement to file an audit report along with the income tax return, as specified in provisions like Section 80J(6A) or 80-IA(7), is directory and not mandatory. Substantial compliance is achieved if the audit report is submitted at any time before the assessment is framed or completed, and benefits should not be denied merely due to a delay in furnishing it.

Approval of draft assessment orders under Section 153D must be granted with due application of mind, not mechanically. Approving multiple cases, such as 38 in a single day, without proper scrutiny amounts to mechanical approval, rendering the assessment invalid.

The rule of consistency applies when facts or legal positions remain unchanged in earlier assessment years, preventing the Revenue from adopting a divergent stance in subsequent years without new material. This ensures stability and predictability in tax assessments.

The tax law applicable to an assessment year is the law in force during that year, unless expressly or implicitly provided otherwise. Explanations to a statutory provision are only clarificatory if they clear up ambiguity and do not change or add to the main section.

No addition can be made in respect of a completed assessment in the absence of incriminating material, especially when considering the object and purpose of Section 153-A.