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“real income theory”

Judicial DoctrinesCIT vs Shoorji VallabhdasCIT vs Shoorji Vallabhdas205 judgments

The decision most relied on for real income theory is CIT v. Shoorji Vallabhdas & Co. (46 ITR 144), cited in 551 judgments on BharatTax.

Leading authorities on real income theory

CIT v. Shoorji Vallabhdas & Co.
46 ITR 144 · 1962 · Supreme Court
551
citing judgments

Income tax is levied only on real income that actually materializes, not on hypothetical or notional income, even if accounting entries suggest otherwise. If no income results, there is no tax liability.

Poona Electric Supply Co. Ltd. v. CIT
57 ITR 521 · 1965 · Supreme Court
126
citing judgments

Income tax is levied on real income, which represents profits determined by ordinary commercial principles after permissible deductions, considering the probability of realization. This principle distinguishes real profits from statutory profits specified for other purposes under the Income-tax Act.

CIT v. Vasisth Chay Vyapar Ltd.
330 ITR 440 · 2011 · High Court
125
citing judgments

Interest income is taxable under the mercantile system of accounting even if it is not actually recovered, provided there is a right to receive it. The decision also touches upon the treatment of bad debts and provisions for doubtful debts under Section 36(1)(viia).

CIT v. Birla Gwalior (P.) Ltd.
89 ITR 266 · 1973 · Supreme Court
83
citing judgments

The Supreme Court holds that income tax is levied on real income, not on hypothetical or notional accrual. For income to be taxable, it must genuinely accrue or be received, taking into account the realistic probability of its realization.

Judgments citing real income theory

Eris Lifesciences Limited, Ahmedabad vs. NFAC, Delhi (Present Jurisdiction - the Dy. CIT, Circle-2(1)(1)), Ahmedabad

In the result, for assessment year 2022-23, the appeal of the Department is partly allowed for statistical purposes

ITA 913/AHD/2025[2020-21]Status: DisposedITAT Ahmedabad09 Dec 2025AY 2020-21

Bench: Dr. Brr Kumar & Shri Siddhartha Nautiyal

For Appellant: Respondent by: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DRFor Respondent: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DR
Section 14ASection 36(1)(va)Section 37(1)Section 43BSection 80

there is no express bar in section 115JB excluding indexation (iv) denying indexation leads to taxation of unreal income, contrary to the real income theory recognised by the Supreme Court in CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC); and (v) specific provisions governing capital gains override

Eris Lifesciences Limited, Ahmedabad vs. NFAC, Dehi (Present Jurisdiction- the Dy.CIT, Circle-2(1)(1)), Ahmedabad

In the result, for assessment year 2022-23, the appeal of the Department is partly allowed for statistical purposes

ITA 912/AHD/2025[2018-19]Status: DisposedITAT Ahmedabad09 Dec 2025AY 2018-19

Bench: Dr. Brr Kumar & Shri Siddhartha Nautiyal

For Appellant: Respondent by: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DRFor Respondent: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DR
Section 14ASection 36(1)(va)Section 37(1)Section 43BSection 80

there is no express bar in section 115JB excluding indexation (iv) denying indexation leads to taxation of unreal income, contrary to the real income theory recognised by the Supreme Court in CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC); and (v) specific provisions governing capital gains override

DCIT Circle-2(1)(1), Ahmedabad, Vejalpur vs. Eris Lifesciences Limited Shivarth Ambit, Bodakdev Ahmedabad

In the result, for assessment year 2022-23, the appeal of the Department is partly allowed for statistical purposes

ITA 850/AHD/2025[2022-23]Status: DisposedITAT Ahmedabad09 Dec 2025AY 2022-23

Bench: Dr. Brr Kumar & Shri Siddhartha Nautiyal

For Appellant: Respondent by: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DRFor Respondent: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DR
Section 14ASection 36(1)(va)Section 37(1)Section 43BSection 80

there is no express bar in section 115JB excluding indexation (iv) denying indexation leads to taxation of unreal income, contrary to the real income theory recognised by the Supreme Court in CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC); and (v) specific provisions governing capital gains override

Dcie Circle-2(1)(1), Ahemdabad, Vejalpur vs. Eris Lifesciences Limited Shivarth Ambit, Bodakdev Ahmedabad

In the result, for assessment year 2022-23, the appeal of the Department is partly allowed for statistical purposes

ITA 849/AHD/2025[2021-22]Status: DisposedITAT Ahmedabad09 Dec 2025AY 2021-22

Bench: Dr. Brr Kumar & Shri Siddhartha Nautiyal

For Appellant: Respondent by: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DRFor Respondent: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DR
Section 14ASection 36(1)(va)Section 37(1)Section 43BSection 80

there is no express bar in section 115JB excluding indexation (iv) denying indexation leads to taxation of unreal income, contrary to the real income theory recognised by the Supreme Court in CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC); and (v) specific provisions governing capital gains override

DCIT Circle-2(1)(1), Ahmedabad vs. Eris Lifesciences Limited Shivarth Ambit, Bodakdev Ahmedabad

Appeal are dismissed

ITA 848/AHD/2025[2020-21]Status: DisposedITAT Ahmedabad09 Dec 2025AY 2020-21

Bench: Dr. Brr Kumar & Shri Siddhartha Nautiyal

For Appellant: Shri Vartik Choksi, ARFor Respondent: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DR
Section 115JSection 14ASection 36(1)(va)Section 37(1)Section 43BSection 80

there is no express bar in section 115JB excluding indexation (iv) denying indexation leads to taxation of unreal income, contrary to the real income theory recognised by the Supreme Court in CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC); and (v) specific provisions governing capital gains override

DCIT, Circle-2(1)(1) Ahmedabad, Ahmedabad vs. Eris Lifescience Limited Shivarth Ambit, Ahmedabad

In the result, for assessment year 2022-23, the appeal of the Department is partly allowed for statistical purposes

ITA 847/AHD/2025[2018-19]Status: DisposedITAT Ahmedabad09 Dec 2025AY 2018-19

Bench: Dr. Brr Kumar & Shri Siddhartha Nautiyal

For Appellant: Respondent by: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DRFor Respondent: Shri R P Rastogi, CIT-DR & Shri Abhijit, Sr. DR
Section 14ASection 36(1)(va)Section 37(1)Section 43BSection 80

there is no express bar in section 115JB excluding indexation (iv) denying indexation leads to taxation of unreal income, contrary to the real income theory recognised by the Supreme Court in CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC); and (v) specific provisions governing capital gains override

Deputy Commissioner of Income Tax, Central Circle 1(1), Kolkata vs. Axis Overseas Limited, Kolkata

In the result, the appeal of the Revenue is dismissed

ITA 2425/KOL/2024[2013-14]Status: DisposedITAT Kolkata03 Dec 2025AY 2013-14

Bench: Shri Rajesh Kumar, Am & Shri Pradip Kumar Choubey, Jm Dy. Commissioner Of Income Tax, Cc 1(1), Kolkata Axis Overseas Limited Aaykar Bhawan Poorva, 21A, Shakespeare Sarani, Vs. 3Rd Floor, Kolkata-700107, Kolkata-700107, West Bengal West Bengal (Appellant) (Respondent) Pan No. Aagca7497L Assessee By : Shri Siddharth Agarwal, Ar Revenue By : Shri P.N. Barnwal, Dr Date Of Hearing: 13.11.2025 Date Of Pronouncement: 03.12.2025

For Appellant: Shri Siddharth Agarwal, ARFor Respondent: Shri P.N. Barnwal, DR
Section 133(6)Section 68

case of house property, where notional income is taken into account, no other income is considered on notional basis but taken on real income theory. Thus, to be taxable the income must fall under any Sections under the Act. Even in cases when deemed income is taxable under

DCIT, Mumbai vs. Kotak Mahindra Bank Limited, Mumbai

The appeal of the assessee is allowed for statistical purposes and the appeal of the Revenue is dismissed

ITA 4829/MUM/2025[2022-23]Status: DisposedITAT Mumbai26 Nov 2025AY 2022-23

Bench: Shri Vikram Singh Yadav & Shri Sandeep Singh Karhail

For Appellant: Shri Madhur Agrawal a/wFor Respondent: Shri Ritesh Misra, CIT-DR
Section 35DSection 37(1)

facts and circumstances of the case and in law, Ld.CIT(A) erred in concluding that the addition was contrary to the real income theory, without appreciating that Rule 6EA mandates recognition of accrued interest on specified NPAs, even in the absence of actual receipt, for computing income under

Kotak Mahindra Bank Limited, Mumbai vs. DCIT 2(3)(1), Mumbai

The appeal of the assessee is allowed for statistical purposes and the appeal of the Revenue is dismissed

ITA 4501/MUM/2025[2022-23]Status: DisposedITAT Mumbai26 Nov 2025AY 2022-23

Bench: Shri Vikram Singh Yadav & Shri Sandeep Singh Karhail

For Appellant: Shri Madhur Agrawal a/wFor Respondent: Shri Ritesh Misra, CIT-DR
Section 35DSection 37(1)

facts and circumstances of the case and in law, Ld.CIT(A) erred in concluding that the addition was contrary to the real income theory, without appreciating that Rule 6EA mandates recognition of accrued interest on specified NPAs, even in the absence of actual receipt, for computing income under

Vijayraghavan Subramanian Iyer, Mumbai vs. Income Tax Officer 27 3 5 Mumbai, Mumbai

In the result, the appeal filed by the assessee is allowed for statistical purposes

ITA 3465/MUM/2025[2014-15]Status: DisposedITAT Mumbai25 Nov 2025AY 2014-15

Bench: Shri Sandeep Gosain

Section 198Section 250

actuality of the situation. Whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted

DCIT 2(3)(1), Mumbai vs. Tata Industries Ltd, Mumbai

Accordingly, Ground No 2(a) & (b) of the revenue in ITA No. 4109/Mum/2012, therefore stands dismissed

ITA 5690/MUM/2015[2006-07]Status: DisposedITAT Mumbai19 Nov 2025AY 2006-07

Bench: SHRI SAKTIJIT DEY (Vice President), SHRI ARUN KHODPIA (Accountant Member)

Section 115JSection 143(3)Section 14ASection 271(1)(c)Section 37Section 40

been paid in Saudi Arabia on the income which has accrued/ arisen in India. This claim was made on the basis of Real Income Theory. (m) It therefore, follows that the tax which has been paid abroad would not be covered with in the meaning of Section ... which is deemed to accrue or arise in India. Thus, the benefit of the Explanation would now be available and on application of real income theory, the quantum of tax paid in Saudi Arabia, attributable to income arising or accruing in India would be reduced for the purposes of computing

Shri Rajkot District Co-Operative Bank Ltd., Rajkot vs. The Deputy Commissioner of Income-Tax, Circle - 1(2), Rajkot

The appeal is dismissed

ITA 196/RJT/2024[2011-12]Status: DisposedITAT Rajkot04 Nov 2025AY 2011-12

Bench: Dr. Arjun Lal Saini & Shri Dinesh Mohan Sinhaआयकर अपील सं./Ita No.196/Rjt/2024 ("नधा"रण वष" / Assessment Year: (2011-12) Shri Rajkot District Co-Operative Vs. The Deputy Commissioner Of Bank Ltd., Income-Tax, Circle-1(1), Jilla Bank Bhavan, Kasturba Road, Aayakar Bhavan, Race Course Ring Opp. Chaudhary High School, Road, Rajkot-360001 Rajkot-360001 "थायीलेखासं./जीआइआरसं./Pan/Gir No.: Afups2094H (Appellant) (Respondent) Appellant By : Shri D.M. Rindani, Ld. Ar Respondent By : Smt. Pallavi, Ld. Cit(Dr) : 06/08/2025 Date Of Hearing Date Of Pronouncement : 04/11/2025 आदेश / O R D E R Per, Dinesh Mohan Sinha, Jm: Captioned Appeal Filed By The Assessee, Pertaining To Assessment Year (Ay)-2018-19, Is Directed Against The Order Passed By The Commissioner Of Income Tax Office [(In Short “Ld.Cit(A)”] Vide Order Dated 29.12.2023, Which In Turn Assessment Order Passed By Income Tax Department / Assessing Officer Under Section 144C(1) Of The Income Tax Act, 1961 (In Short “The Act”), Vide Order Dated 30.03.2023 2. Grounds Of Appeal Raised By The Assessee, Are As Follows:

For Appellant: Shri D.M. Rindani, Ld. ARFor Respondent: Smt. Pallavi, Ld. CIT(DR)
Section 143(3)Section 144C(1)Section 263Section 271(1)(c)Section 36(1)Section 36(1)(viia)

event as laid down in Kedarnath Jute 82 ITR 363 (SC) and Tuticorin alkali Chemicals 93 taxmann 502 (SC). 5. As per the real income theory which has been well propounded by the Supreme Court (Excel Industries 38 taxmann.com 100 (SC), it is only the income earned ... required to be routed through the Profit and Loss account and treated as income for taxation purposes. 18. Even going by the real income theory the Ld.PCIT, we hold, has rightly found the write back taxable, noting that the write back of the no NPA and hence provision

Seva Bharathi Trust, Chamarajanagara vs. Income Tax Officer, Ward-1, Chamarajanagara

In the result, appeal filed by the assessee is partly allowed

ITA 1486/BANG/2025[2016-17]Status: DisposedITAT Bangalore31 Oct 2025AY 2016-17

Bench: Shri.Laxmi Prasad Sahu & Shri.Keshav Dubeyassessment Year : 2016-17 M/S. Seva Bharathi Trust, Vs. Ito, Sevabharathi College Campus, Ward –1, Chennipuradamole Road, Chamarajanagara. Chamarajanagara – 571 313. Pan : Aabts 6034 K Appellant Respondent Assessee By : Shri. Vageesh Hegde, Ca Revenue By : Shri. Ganesh R. Ghale, Advocate, Standing Counsel For Revenue. Date Of Hearing : 09.10.2025 Date Of Pronouncement : 31.10.2025

For Appellant: Shri. Vageesh Hegde, CAFor Respondent: Shri. Ganesh R. Ghale, Advocate, Standing Counsel for Revenue
Section 11Section 119Section 12A(1)(b)Section 139

which are incurred by the assessee during the year. The Hon’ble Apex Court has decided the issue in respect of taxation on real income theory in the case of Southern Technologies Vs.JCIT(2010) 187 Taxman 346 (SC) in which it has been held as under: Theory of "Real Income ... hence the same cannot be added back as is sought to be done by the Department. In this connection, reliance was placed on "Real Income Theory". 35. We find no merit in the above contention. In the case of Poona Electric Supply

Nalini Tukaram Nikam, Pune vs. ITO Ward 2(3), Pune

In the result, the appeal filed by the assessee is dismissed

ITA 2747/PUN/2024[2017-18]Status: DisposedITAT Pune30 Oct 2025AY 2017-18

Bench: Dr.Manish Borad & Shri Vinay Bhamoreआयकर अपील सं. / Ita No.2747/Pun/2024 Assessment Year : 2017-18

For Appellant: Shri Sharad ShahFor Respondent: Shri Harish Bist
Section 127Section 143(2)Section 143(3)Section 250Section 57

Thus, I pray your honor to consider the above and delete the addition made. I pray your honor to consider the real income theory and delete the addition On without prejudice basis, I also state that bank has created lien (the same can be verified from the letter attached ... Notice of cancellation was given. iii) Bank has created lien so I cannot withdraw the amount. iv) Only real Income be taxed applying Real Income theory. v) There is already a charge of the income before it becomes my income and therefore the same is not taxable in my hand

Erevmax Technologies Pvt. Ltd., Kolkata vs. D.C.I.T./A.C.I.T., Tp-1, Kolkata

Appeal of the assessee is partly allowed for statistical purposes

ITA 2551/KOL/2024[2021-2022]Status: DisposedITAT Kolkata27 Oct 2025AY 2021-2022

Bench: Us In The Paper Book)

Section 143(3)

this addition, has caused in the assessment of grossly notional, fictional and never earned income, in violation of the fundamental principle of 'Real Income theory and its absolute applicability to Chapter X and thus, Transfer Pricing Mechanism. d) Even otherwise, without prejudice to the foregoing grounds, for the sake

DCIT, Central Circle-1(3), Mumbai vs. Amardeep Constructions, Mumbai

In the result, appeal of the revenue bearing ITA No

ITA 3202/MUM/2025[2019-20]Status: DisposedITAT Mumbai13 Oct 2025AY 2019-20

Bench: Shri. Vikram Singh Yadav & Shri. Anikesh Banerjeedcit, Central Circle -1(3), Mumbai Amardeep Constructions Room No. 903, 9Th Floor, Pratishtha 7/08, Patidar Complex, Vs. Bhavan, M.K. Road, Mumbai Kannamwar Nagar No. 2, Near 400020 Vikas High School Vikhroli East, Mumbai 400083 स्थायीलेखासं./जीआइआरसं./Pan/Gir No: Aaufa3513A (Appellant) (Respondent) निर्ााररतीकीओरसे/ Assessee By: Shri. J.P. Bairagra& Ms. Rupa Nanda /Revenue By: Shri. Surendra Mohan (Sr. Dr)

For Appellant: Shri. J.P. Bairagra& Ms. Rupa NandaFor Respondent: Shri. Surendra Mohan (SR. DR)
Section 131Section 133ASection 143(3)Section 250Section 43C

year, as evidenced by execution of sale agreements and receipt of consideration exceeding Rs.230 crores, and failure to recognize such income violates the real income theory? 7. Whether on facts and in law, the Ld. CIT(A) FAILED TО APPRECIATE THAT THE Assessing Officer had rightly estimated income based

Incometax Officer, Ward-3(1), Visakhapatnam vs. Surendra Nath Gubbala, Visakhapatnam

ITA 482/VIZ/2024[2020-21]Status: DisposedITAT Visakhapatnam10 Oct 2025AY 2020-21

Bench: Us:

Section 143(3)Section 144BSection 48

hands under Section 48 of the Act. Our aforesaid view that based on the principle of diversion of income by overriding title and real income theory, the amount of Rs. 7 crores(supra) paid by the purchasers of the property, viz M/s APSN Properties LLP & Ors. directly to the banks ... property based on the demand notices issued by them under Section 13(2) of the SARFASI Act, 2002; and further as per the real income theory, when no part of the sale consideration was either received or accrued to the assessee, therefore, drawing support from the aforesaid judicial pronouncements

Basudeo Bajaj HUF, Mumbai vs. ITO, Ward 18(1)(2), Mumbai

Appeal is dismissed on this ground

ITA 402/MUM/2025[2014-15]Status: DisposedITAT Mumbai30 Sept 2025AY 2014-15

Bench: Shri Narender Kumar Choudhry (Jm) & Shri Omkareshwar Chidara (Am) Basudeo Bajaj Huf Ito Ward 18(1)(2) 108/116, Vithalwadi Room No. 204 2Nd Floor, Kalbadevi Road Vs. Earnest House Mumbai-400 002. Nariman Point Mumbai-400 021. Pan : Aabhb9940F Appellant Respondent

For Appellant: Shri Leyaqat Ali AafaquiFor Respondent: Shri Vimal Punmiya
Section 250Section 36Section 37

this year had to be offered in the current year itself. The Ld. AR of the appellant has argued that, based on ‘Real Income Theory’, interest would be offered as income only when it is received. But, this theory is applicable, when there is no taxable income to be offered

ACIT, Central Circle-2(4), Bangalore vs. Ramchandra Naveen, Bangalore

ITA 2083/BANG/2024[2018-19]Status: DisposedITAT Bangalore26 Sept 2025AY 2018-19

Bench: Shri. Laxmi Prasad Sahu & Shri. Keshav Dubey

For Appellant: Shri. V. Srinivasan, AdvocateFor Respondent: Shri. Subramanian S, JCIT(DR)(ITAT), Bangalore
Section 132(4)Section 153A

INCOME TAX APPELLATE TRIBUNAL "B" BENCH : BANGALORE BEFORE SHRI. LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI. KESHAV DUBEY, JUDICIAL MEMBER

ACIT, Central Circle-2(4), Bangalore vs. Ramchandra Naveen, Bangalore

ITA 2082/BANG/2024[2017-18]Status: DisposedITAT Bangalore26 Sept 2025AY 2017-18

Bench: Shri Laxmi Prasad Sahu & Shri. Keshav Dubey

For Appellant: Shri. V. Srinivasan, AdvocateFor Respondent: Shri. Subramanian S, JCIT(DR)(ITAT), Bangalore
Section 132(4)Section 153A

INCOME TAX APPELLATE TRIBUNAL "B" BENCH : BANGALORE BEFORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI. KESHAV DUBEY, JUDICIAL MEMBER