Landmark Cases on Business Income and Deductions

Income from finished flats treated as stock-in-trade is to be computed under the head 'income from business'. This applies even to unsold flats.

Losses arising from forward contracts entered into as part of regular business activity are to be treated as normal business losses.

Income from a deferred VAT rebate granted by a state government for sales tax incentives is not considered income derived from an industrial undertaking and is therefore not eligible for deduction under Section 80IC.

A mutual concern may be held to carry on a business or trade with its members, even if the surplus from such trade is not considered income or profit. The court adopted a stricter approach in applying the principle of mutuality, emphasizing the identity of contributors and recipients.

The profit from on-money receipts can be estimated. The Ahmedabad Tribunal had estimated this at 8%, which was upheld by the Gujarat High Court, and the Supreme Court dismissed the revenue's SLP in the case of ITO v. Anand Builders.

Disallowance under Section 14A cannot be made if the assessee has not earned any exempt income during the relevant assessment year.

Reserve Bank of India (RBI) guidelines cannot override the statutory provisions of the Income Tax Act. Provisions of the Income Tax Act prevail over RBI directives.

Expenditure capitalized as tangible/know-how/brand development that is revenue in nature can be claimed as a revenue expense in a revised return, with depreciation claimed thereon being consequently reduced.

Expenditure that does not result in any enduring benefit to the assessee is allowable as a deduction under Section 37. The issue is squarely covered in favour of the assessee when there is a clear finding that such expenditure does not result in any enduring benefit.

When an assessee is a sub-contractor, a net profit rate of 7% applied by the CIT(A) is justified.

Disallowance of interest under section 14A of the Income-tax Act, 1961, is not permissible if no income has been earned from the investment in question.

Deduction under section 80IA is available to developers who undertake entrepreneurial and investment risk, not to contractors who only undertake business risk. The purpose of the tax benefit is to encourage investment in infrastructure development, not merely civil construction work.

A company's mere non-liquidation or its obligation to share profits or return deposits does not inherently signify it's carrying on business, especially if there's no express intention to resume operations after an undertaking acquisition.

The manufacture of mineral oil includes mineral oil obtained by a refining process from crude oil. This indicates that the term 'mineral oil' in tax law can encompass finished products derived from crude oil, not just the raw material.

The tribunal considered the issue of deductibility of employees' contribution to PF and similar funds, particularly in relation to Sections 36(1)(va) and 43B(b).

Expenditure incurred for acquiring mining rights to win and extract minerals from the earth is capital in nature, while expenditure for acquiring already-won minerals on the surface, considered stock-in-trade, is revenue expenditure.

A payment made to eliminate competition is a capital expenditure, not a deductible business expense, as it secures an enduring benefit.

An employee's contribution to provident fund and ESI deposited before the due date of filing the return is allowable as a deduction under Section 36(1)(va) read with Section 43B.

Amounts referred to under section 40(a)(ia) of the Income-tax Act, 1961, are not deductible in computing income chargeable under the head 'Profits and gains of business or profession'.

A housing project approved before the amendment to Section 80IB(10) in 2005 is not subject to the conditions introduced by that amendment, such as the requirement for a completion certificate, if the assessee was not otherwise obligated to produce it.

Expenditure incurred wholly and exclusively for the purpose of business, as stipulated in Section 37(1) of the Income Tax Act, is allowable as a deduction. This applies even if the expenditure is for deposits made due to commercial exigency and fulfills obligations under other statutes.

The provision for obsolescence of finished goods and spares is permissible. The issue relates to the allowance of provision for obsolescence of finished goods and spares.

Ad hoc disallowances cannot be made without basis, and the assessee's claim must be accepted if books of account are not rejected. Income from FDRs is considered business income if inextricably linked to business activities, such as providing security for a letter of credit.

Income declared during a survey under section 133A is to be treated as business income, and section 115BBE will not apply to such income.

Business commencement is marked by the first activity undertaken to acquire immovable property, and expenses incurred during the interval between business setup and commencement are deductible.

Payments made to ward off business rivalry or acquire an existing business are capital in nature. This is especially true if the benefit obtained is for a specified period and involves the acquisition of business in a specified area.

Disallowance under section 36(1)(va) for employee's contributions to PF/ESI, even if not deposited within the stipulated time, is deleted if the Tribunal's finding is correct.

A claim for deduction under section 80P must be made in a valid return filed within the timelines prescribed by the Act (prior to April 1, 2018, this included sections 139(1), 139(4), 142(1), or 148; post-amendment, only section 139(1) is accepted). Statutory benefits like this deduction require strict adherence to legal conditions.

Where the issue of bogus purchases is contentious, courts may allow a lumpsum disallowance of 5% of alleged bogus purchases as a reasonable measure, provided it is not treated as a precedent.

The Assessing Officer should exercise discretion under Section 40A(3) by considering business expediency, surrounding circumstances, and the facts of each case, balancing legal requirements with assessee hardship, rather than relying solely on Board circulars.

The conditions for claiming a bad debt deduction under Section 36(1)(vii) read with Section 36(2) are not fulfilled if the assessee fails to provide details of the parties associated with the debts or evidence that these amounts were offered to tax in earlier years. An alternate claim for loss under Section 28 is denied without evidence substantiating the loss in the relevant assessment year.

The provision of section 36(1)(vii) prior to April 1, 1989, and post amendment does not require an assessee to prove that a debt has become irrecoverable; mere write-off in accounts is sufficient.

A lump sum payment of lease premium, whether paid at once or in installments, constitutes capital expenditure, distinguishing it from rent or royalty which are revenue expenditures.

An isolated transaction, even if not part of the assessee's regular business, can be considered an adventure in the nature of trade if it bears clear indicia of trade. The fact that a transaction is not in the ordinary course of business does not change its character.

Disallowance of expenditure incurred to earn exempt income under Section 14A cannot exceed the amount of exempt income earned.

The distinction between capital and revenue expenditure is a fine line and determined on a case-to-case basis by applying the relevant yardstick to the facts.

Expenditure incurred to remove the possibility of recurring disadvantage is not considered a payment made to secure an enduring advantage. Revenue expenditure is operational and intended for the furtherance of the enterprise.

A business concern can still be considered to be carrying on its business even if there are long intervals of inactivity, provided it is kept alive, retains its registered office, and holds meetings. It is not necessary for a business to have work constantly to be considered in existence.

A company is not required to prove that a debt has become bad to claim a deduction; writing off the debt as irrecoverable in the company's accounts is sufficient, especially after the amendment of Section 36(1)(vii) from April 1, 1989.

Section 80IA(9A) applies only at the stage of allowing deduction, not at the computation stage. Combined deductions under Section 80IA and 80HHC cannot exceed the gross total income.

A one-time payment of lease rent, even if commuted and discounted over a long period like 90 years, is revenue in nature and therefore an allowable business expenditure. The Assessing Officer must record satisfaction before applying Rule 8D for disallowance under Section 14A.

An assessee is eligible for deduction under section 80IA in respect of work executed by it on behalf of a Joint Venture (JV), even if the entire work was executed by the assessee for and on behalf of the JV. This eligibility is upheld even when the Assessing Officer disputes the ITAT's order.

Where purchases are found to be bogus or accommodation entries, the entire purchase amount cannot be added as income; only the profit element embedded therein should be treated as income, as the assessee would have necessarily procured materials to execute works.

Expenditure incurred before commencement of business is deductible if the business has been set up, meaning the assessee is ready to commence operations, even if no commercial activity has begun.

An assessee has the right to change its method of accounting, even if the new method is detrimental to revenue, provided the change is bona fide and consistently applied.

The case is cited for the proposition that a company can be considered eligible business expenditure.

The assessment of profits for insurance companies is governed by specific rules within schedules, and the Assessing Officer (AO) cannot make adjustments if Section 44 has been invoked. Insurance businesses may be entitled to exemptions under Section 10(15) even when Section 44 applies, as Section 44 does not exclude such claims.

A person is considered to be engaged in business if they are involved in buying, selling, or supplying goods, and the term 'business' in taxing statutes refers to an occupation or profession that occupies the person's time and attention.

The restatement of borrowings, excluding those used for importing machinery, should be allowed as a revenue reduction.