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“commercial substance”

GAARSection 97Section 97140 judgments

The decision most relied on for commercial substance is 277(D- E) and CIT v. U.P. State Industrial Development Corporation (225 ITR 703), cited in 49 judgments on BharatTax.

Leading authorities on commercial substance

277(D- E) and CIT v. U.P. State Industrial Development Corporation
225 ITR 703 · 1997 · Supreme Court
49
citing judgments

The ordinary principles of commercial accounting should be applied for ascertaining profits and gains, provided they do not contradict the Income-tax Act.

Killick Nixon Ltd. v. Deputy Commissioner of Income-tax
20 Taxmann.com 703 · 2012 · High Court
20
citing judgments

Transactions lacking commercial substance, such as circular share transactions designed to generate artificial capital losses, are not genuine and may be disregarded by tax authorities.

Income Tax Vs. India Discount Co. Ltd. 75 ITR 191 (SC), Commissioner of Income Tax v. Provincial Farmers (P) Ltd.
108 ITR 219 · High Court
16
citing judgments

The true nature of a transaction is determined by the substance of the transaction itself, not merely by the nomenclature used in the books of accounts. Payments made for the expansion of an existing business into new geographical areas before commercial exploitation are not necessarily loans or advances but can be considered trading transactions.

Judgments citing commercial substance

Ortus Aircraft Lease 6(Dublin) Limited, Mumbai vs. Deputy Commissioner of Income Tax Circle 3(2)(2) International Taxation, Mumbai

ITA 1106/MUM/2025[2022-23]Status: DisposedITAT Mumbai13 Aug 2025AY 2022-23

Bench: SHRI AMIT SHUKLA (Judicial Member), MS PADMAVATHY S (Accountant Member)

Section 143(3)Section 144C(13)Section 144C(5)

OECD BEPS Action Plan 6 Report, already reproduced above, which affirm that the presence of a favourable treaty network, when coupled with real commercial substance, does not trigger anti-abuse consequences. 71. We further note that the assessee‟s group has leased aircraft to jurisdictions other than India as well

DCIT, Mumbai vs. 2015 Grover Family Trust, Mumbai

In the result, both the appeals of the Revenue are dismissed

ITA 5108/MUM/2024[2016-17]Status: DisposedITAT Mumbai12 Aug 2025AY 2016-17

Bench: SHRI AMIT SHUKLA (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 133ASection 143(3)Section 147Section 94(7)(E)

Reserve (UPR) for payment of dividends. Based on such premise, it was concluded that the scheme was nothing but a colourable device, devoid of commercial substance, designed to enable investors to receive tax-free dividends and simultaneously generate fictitious short-term capital losses for set-off against taxable capital gains ... proof. The burden lies squarely upon the Revenue to establish, by direct, cogent, and credible evidence, that a transaction is colourable or devoid of commercial substance. In the present cases, that burden has not been discharged. What emerges instead is that the investments were genuine, made through proper banking channels

DCIT, Mumbai vs. Cms Computers Limited, Mumbai

In the result, both the appeals of the Revenue are dismissed

ITA 5105/MUM/2024[2016-17]Status: DisposedITAT Mumbai12 Aug 2025AY 2016-17

Bench: SHRI AMIT SHUKLA (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 133ASection 143(3)Section 147Section 94(7)(E)

Reserve (UPR) for payment of dividends. Based on such premise, it was concluded that the scheme was nothing but a colourable device, devoid of commercial substance, designed to enable investors to receive tax-free dividends and simultaneously generate fictitious short-term capital losses for set-off against taxable capital gains ... proof. The burden lies squarely upon the Revenue to establish, by direct, cogent, and credible evidence, that a transaction is colourable or devoid of commercial substance. In the present cases, that burden has not been discharged. What emerges instead is that the investments were genuine, made through proper banking channels

DCIT, Central Circle-1, Ludhiana vs. M/S Ritish Agro Private Limited, Ludhiana

Appeal stand dismissed

ITA 638/CHANDI/2022[2019-20]Status: DisposedITAT Chandigarh04 Aug 2025AY 2019-20

Bench: Hon’Ble Shri Laliet Kumar, Jm & Hon’Ble Shri Manoj Kumar Aggarwal, Am Physical Hearing 1. आयकरअपीलसं./ Ita No. 633/Chandi/2022 (िनधा"रण वष" / Assessment Year: 2019-20) M/S Ritish Agro Private Ltd. Dcit-Central Circle-1 बनाम/ Vs. Malerkotla Road, Rasulra Ludhiana Khanna – 141 401 "थायीलेखासं./जीआइआरसं./Pan/Gir No. Aaccr-7743-J (अपीलाथ"/Appellant) : (""थ" / Respondent) & 2. आयकरअपीलसं./ Ita No.638/Chandi/2022 (िनधा"रण वष" / Assessment Year: 2019-20) Dcit-Central Circle-1 M/S Ritish Agro Private Ltd. बनाम/ Vs. Ludhiana Malerkotla Road, Rasulra Khanna – 141 401 "थायीलेखासं./जीआइआरसं./Pan/Gir No. Aaccr-7743-J (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ"कीओरसे/ Appellant By : Shri Ashwani Kumar (Ca) & Ms. Muskan Garg (Ca) – Ld. Ars ""थ"कीओरसे/Respondent By : Ms. Tarundeep Kaur (Cit) – Ld. Dr सुनवाईकीतारीख/Date Of Hearing : 24-06-2025 घोषणाकीतारीख /Date Of Pronouncement : 04-08-2025 आदेश / O R D E R Manoj Kumar Aggarwal () 1.1 Aforesaid Cross-Appeals Arises Out Of The Order Of Learned Commissioner Of Income Tax (Appeals)-5, Ludhiana Dated 26-07-2022

For Appellant: Shri Ashwani Kumar (CA) & MsFor Respondent: Ms. Tarundeep Kaur (CIT) – Ld. DR
Section 143(3)Section 145(3)Section 250(6)Section 36(1)(iii)Section 68

bogus purchases u/s 68 of the I.T. Act, 1961 without appreciating that in view of non-existent creditors or paper creditors without financial or commercial substance, the burden of assessee in establishing the identity, creditworthiness and genuineness of transactions as required u/s 68 of the Income Tax Act could

M/S Ritish Agro Private Limited, Khanna vs. DCIT, Central Circle-1, Ludhiana

Appeal stand dismissed

ITA 633/CHANDI/2022[2019-20]Status: DisposedITAT Chandigarh04 Aug 2025AY 2019-20

Bench: Hon’Ble Shri Laliet Kumar, Jm & Hon’Ble Shri Manoj Kumar Aggarwal, Am Physical Hearing 1. आयकरअपीलसं./ Ita No. 633/Chandi/2022 (िनधा"रण वष" / Assessment Year: 2019-20) M/S Ritish Agro Private Ltd. Dcit-Central Circle-1 बनाम/ Vs. Malerkotla Road, Rasulra Ludhiana Khanna – 141 401 "थायीलेखासं./जीआइआरसं./Pan/Gir No. Aaccr-7743-J (अपीलाथ"/Appellant) : (""थ" / Respondent) & 2. आयकरअपीलसं./ Ita No.638/Chandi/2022 (िनधा"रण वष" / Assessment Year: 2019-20) Dcit-Central Circle-1 M/S Ritish Agro Private Ltd. बनाम/ Vs. Ludhiana Malerkotla Road, Rasulra Khanna – 141 401 "थायीलेखासं./जीआइआरसं./Pan/Gir No. Aaccr-7743-J (अपीलाथ"/Appellant) : (""थ" / Respondent) अपीलाथ"कीओरसे/ Appellant By : Shri Ashwani Kumar (Ca) & Ms. Muskan Garg (Ca) – Ld. Ars ""थ"कीओरसे/Respondent By : Ms. Tarundeep Kaur (Cit) – Ld. Dr सुनवाईकीतारीख/Date Of Hearing : 24-06-2025 घोषणाकीतारीख /Date Of Pronouncement : 04-08-2025 आदेश / O R D E R Manoj Kumar Aggarwal () 1.1 Aforesaid Cross-Appeals Arises Out Of The Order Of Learned Commissioner Of Income Tax (Appeals)-5, Ludhiana Dated 26-07-2022

For Appellant: Shri Ashwani Kumar (CA) & MsFor Respondent: Ms. Tarundeep Kaur (CIT) – Ld. DR
Section 143(3)Section 145(3)Section 250(6)Section 36(1)(iii)Section 68

bogus purchases u/s 68 of the I.T. Act, 1961 without appreciating that in view of non-existent creditors or paper creditors without financial or commercial substance, the burden of assessee in establishing the identity, creditworthiness and genuineness of transactions as required u/s 68 of the Income Tax Act could

Jelly Samkit Doshi, Sabarkantha vs. The ITO, Ward-1, Himatnagar

In the result the appeal of the assessee is dismissed

ITA 167/AHD/2025[2015-16]Status: DisposedITAT Ahmedabad01 Aug 2025AY 2015-16

Bench: Ms.Suchitra R. Kamble & Shri Makarand V.Mahadeokarasstt.Year : 2015-16 Jelly Samkit Doshi Ito, Ward-1 18, Mahavirnagar Society Vs. Himatnagar. Mahavirnagar, Himatnagar Sabarkantha-383 001. Pan : Bybps 4687 R (Applicant) (Responent) Assessee By : Shri Vipul Khandhar , Ar : Shri Amit Pratap Singh, Sr.Dr Revenue By सुनवाई क" तारीख/Date Of Hearing : 29/07/2025 घोषणा क" तारीख /Date Of Pronouncement: 01/08/2025

For Appellant: Shri Vipul Khandhar , AR
Section 10(38)Section 115BSection 142(1)Section 143(2)Section 250Section 68

price rise, the timing of events, and the outcome of investigations by the Directorate of Income-tax (Investigation), concluded that the transactions lacked commercial substance and upheld the additions under section 68. 4.4 On the other hand, the reliance placed by the assessee on the Coordinate Bench decision in Parasben

Shital Vipulkumar Dholakia, Ahmedabad vs. The Income Tax Officer, Ward-1(1)(3), Ahmedabad

ITA 259/AHD/2024[2021-22]Status: DisposedITAT Ahmedabad31 Jul 2025AY 2021-22

Bench: Ms.Suchitra R. Kamble & Shri Makarand V.Mahadeokar

For Appellant: Shri Tushar Hemani, Sr. Advocate andFor Respondent: Shri Sher Singh, CIT-DR
Section 133(6)Section 142(1)Section 143(3)Section 144BSection 250Section 40A(3)

delivery challans, transportation bills, e-way bills, or any evidence of physical movement of goods led to the conclusion that the alleged transactions lacked commercial substance and were in the nature of fictitious billing. On the issue of payment method, although the assessee had made payments through banking channels ... concerns regarding the identity of the suppliers, the credibility of supporting documentation, and the absence of evidence establishing actual delivery of goods or the commercial substance of the transactions. 3.5 At this juncture, we find it necessary to record certain key observations which arise from the record and the manner

Mahadhan Agritech Limited (Formerly Known As Smartchem Technologies Ltd), Mumbai vs. Assistant Commissioner of Income Tax Central Circle 8(1), Mumbai

In the result, the appeals filed by the assessee are

ITA 5423/MUM/2024[2020-21]Status: DisposedITAT Mumbai24 Jul 2025AY 2020-21
Section 115JSection 132Section 143(3)Section 153ASection 69A

colorable device. Also, the fact that the transaction occurs within a group does not, in itself, render it invalid or devoid of commercial substance. Group restructurings, including demergers, slump sales, etc. are common and legally recognized methods of corporate reorganization. The transaction was carried out under a Court-approved Scheme

Mahadhan Agritech Limited (Formerly Known As Smartchem Technologies Limited ), Mumbai vs. Deputy Commissioner of Income Tax, Central Circle -8(1), Mumbai

In the result, the appeals filed by the assessee are allowed, and the appeal filed by the Revenue is dismissed

ITA 3937/MUM/2024[2019-20]Status: DisposedITAT Mumbai24 Jul 2025AY 2019-20

Bench: SHRI AMIT SHUKLA (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 115JSection 132Section 143(3)Section 153ASection 69A

colorable device. Also, the fact that the transaction occurs within a group does not, in itself, render it invalid or devoid of commercial substance. Group restructurings, including demergers, slump sales, etc. are common and legally recognized methods of corporate reorganization. The transaction was carried out under a Court-approved Scheme

DCIT Central Circle 8(1), Mumbai vs. Mahadhan Agritech Limited, Pune

In the result, the appeals filed by the assessee are allowed, and the appeal filed by the Revenue is dismissed

ITA 3569/MUM/2024[2019-20]Status: DisposedITAT Mumbai24 Jul 2025AY 2019-20

Bench: SHRI AMIT SHUKLA (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 115JSection 132Section 143(3)Section 153ASection 69A

colorable device. Also, the fact that the transaction occurs within a group does not, in itself, render it invalid or devoid of commercial substance. Group restructurings, including demergers, slump sales, etc. are common and legally recognized methods of corporate reorganization. The transaction was carried out under a Court-approved Scheme

Mahadhan Agritech Limited (Formerly Known As Smartchem Technologies Ltd, Mumbai vs. Commissioner of Income Tax(Appeal)--50, Mumai

In the result, the appeals filed by the assessee are allowed, and the appeal filed by the Revenue is dismissed

ITA 2229/MUM/2024[2018-19]Status: DisposedITAT Mumbai24 Jul 2025AY 2018-19

Bench: SHRI AMIT SHUKLA (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 115JSection 132Section 143(3)Section 153ASection 69A

colorable device. Also, the fact that the transaction occurs within a group does not, in itself, render it invalid or devoid of commercial substance. Group restructurings, including demergers, slump sales, etc. are common and legally recognized methods of corporate reorganization. The transaction was carried out under a Court-approved Scheme

Mahadhan Agritech Limited (Formerly Knwon As Smartech Technologies Ltd ), Mumbai vs. Commissioner of Income Tax (Appeals)-Mumbai-50, Mumbai

In the result, the appeals filed by the assessee are

ITA 2228/MUM/2024[2016-17]Status: DisposedITAT Mumbai24 Jul 2025AY 2016-17
Section 115JSection 132Section 143(3)Section 153ASection 69A

colorable device. Also, the fact that the transaction occurs within a group does not, in itself, render it invalid or devoid of commercial substance. Group restructurings, including demergers, slump sales, etc. are common and legally recognized methods of corporate reorganization. The transaction was carried out under a Court-approved Scheme

Mahadhan Agritech Limited (Formerly Known As Smartech Technologies Ltd, Mumbai vs. Commissioner of Income Tax (Appeals)-Mumbai.50, Mumbai

In the result, the appeals filed by the assessee are allowed, and the appeal filed by the Revenue is dismissed

ITA 2227/MUM/2024[2017-18]Status: DisposedITAT Mumbai24 Jul 2025AY 2017-18

Bench: SHRI AMIT SHUKLA (Judicial Member), SHRI GIRISH AGRAWAL (Accountant Member)

Section 115JSection 132Section 143(3)Section 153ASection 69A

colorable device. Also, the fact that the transaction occurs within a group does not, in itself, render it invalid or devoid of commercial substance. Group restructurings, including demergers, slump sales, etc. are common and legally recognized methods of corporate reorganization. The transaction was carried out under a Court-approved Scheme

DCIT, Central Circle-1(3), Bengaluru vs. Late Shri V G Siddhartha, Represented by Legal Heir Ms. Malvika Hegde, Bengaluru

ITA 2132/BANG/2024[2018-19]Status: DisposedITAT Bangalore16 Jul 2025AY 2018-19

Bench: Shri Waseem Ahmed & Shri Keshav Dubey

For Appellant: Shri C Ramesh, CAFor Respondent: Ms. Neha Sahay, JCIT (DR)
Section 132Section 143(3)Section 153A

case of Durga Paras More reported in 82 ITR 540 and the judgment various High Courts concluded that the transaction was devoid of any commercial substance and amounted to a sham intended to evade taxes. Consequently, the loss claimed by the assessee on account of debenture redemption was held ... 1459/Bang/2024 Page 53 of 116 43.4 We also address the argument raised by the department that the transaction lacked “business expediency” or commercial substance. It is a well-settled legal principle that the revenue authorities cannot sit in the chair of the businessman and decide what

DCIT, Central Circle-1(3), Bengaluru vs. Late Shri V G Siddhartha, Represented by Legal Heir Ms. Malvika Hegde, Bengaluru

ITA 2131/BANG/2024[2017-18]Status: DisposedITAT Bangalore16 Jul 2025AY 2017-18

Bench: Shri Waseem Ahmed & Shri Keshav Dubey

For Appellant: Shri C Ramesh, CAFor Respondent: Ms. Neha Sahay, JCIT (DR)
Section 132Section 143(3)Section 153A

case of Durga Paras More reported in 82 ITR 540 and the judgment various High Courts concluded that the transaction was devoid of any commercial substance and amounted to a sham intended to evade taxes. Consequently, the loss claimed by the assessee on account of debenture redemption was held ... 1459/Bang/2024 Page 52 of 116 43.4 We also address the argument raised by the department that the transaction lacked “business expediency” or commercial substance. It is a well-settled legal principle that the revenue authorities cannot sit in the chair of the businessman and decide what

DCIT, Central Circle-1(3), Bengaluru vs. Late Shri V G Siddhartha, Represented by Legal Heir Ms. Malvika Hegde, Bengaluru

In the result the appeal filed by the revenue is hereby dismissed

ITA 2130/BANG/2024[2016-17]Status: DisposedITAT Bangalore16 Jul 2025AY 2016-17

Bench: Shri Waseem Ahmed & Shri Keshav Dubey

For Appellant: Shri C Ramesh, CAFor Respondent: Ms. Neha Sahay, JCIT (DR)
Section 132Section 143(3)Section 153A

case of Durga Paras More reported in 82 ITR 540 and the judgment various High Courts concluded that the transaction was devoid of any commercial substance and amounted to a sham intended to evade taxes. Consequently, the loss claimed by the assessee on account of debenture redemption was held ... 1459/Bang/2024 Page 53 of 116 43.4 We also address the argument raised by the department that the transaction lacked “business expediency” or commercial substance. It is a well-settled legal principle that the revenue authorities cannot sit in the chair of the businessman and decide what

DCIT, Central Circle-1(3), Bengaluru vs. Late Shri V G Siddhartha, Represented by Legal Heir Ms. Malvika Hegde, Bengaluru

In the result the appeal filed by the revenue is hereby dismissed

ITA 2129/BANG/2024[2015-16]Status: DisposedITAT Bangalore16 Jul 2025AY 2015-16

Bench: Shri Waseem Ahmed & Shri Keshav Dubey

For Appellant: Shri C Ramesh, CAFor Respondent: Ms. Neha Sahay, JCIT (DR)
Section 132Section 143(3)Section 153A

case of Durga Paras More reported in 82 ITR 540 and the judgment various High Courts concluded that the transaction was devoid of any commercial substance and amounted to a sham intended to evade taxes. Consequently, the loss claimed by the assessee on account of debenture redemption was held ... 1459/Bang/2024 Page 53 of 116 43.4 We also address the argument raised by the department that the transaction lacked “business expediency” or commercial substance. It is a well-settled legal principle that the revenue authorities cannot sit in the chair of the businessman and decide what

Mr. Ishaan Hegde L/R of Late Sri. V G Siddhartha, Bangalore vs. The Deputy Commissioner of Incomer Tax, Central Circle-1(3), Bangalore

In the result the appeal filed by the revenue is hereby dismissed

ITA 1459/BANG/2024[2018-19]Status: DisposedITAT Bangalore16 Jul 2025AY 2018-19

Bench: Shri Waseem Ahmed & Shri Keshav Dubey

For Appellant: Shri C Ramesh, CAFor Respondent: Ms. Neha Sahay, JCIT (DR)
Section 132Section 143(3)Section 153A

case of Durga Paras More reported in 82 ITR 540 and the judgment various High Courts concluded that the transaction was devoid of any commercial substance and amounted to a sham intended to evade taxes. Consequently, the loss claimed by the assessee on account of debenture redemption was held ... 1459/Bang/2024 Page 52 of 116 43.4 We also address the argument raised by the department that the transaction lacked “business expediency” or commercial substance. It is a well-settled legal principle that the revenue authorities cannot sit in the chair of the businessman and decide what

Mr. Ishaan Hegde L/R of Late Sri. V G Siddhartha, Bangalore vs. The Deputy Commissioner of Incomer Tax, Central Circle-1(3), Bangalore

ITA 1458/BANG/2024[2017-18]Status: DisposedITAT Bangalore16 Jul 2025AY 2017-18

Bench: Shri Waseem Ahmed & Shri Keshav Dubey

For Appellant: Shri C Ramesh, CAFor Respondent: Ms. Neha Sahay, JCIT (DR)
Section 132Section 143(3)Section 153A

case of Durga Paras More reported in 82 ITR 540 and the judgment various High Courts concluded that the transaction was devoid of any commercial substance and amounted to a sham intended to evade taxes. Consequently, the loss claimed by the assessee on account of debenture redemption was held ... 1459/Bang/2024 Page 52 of 116 43.4 We also address the argument raised by the department that the transaction lacked “business expediency” or commercial substance. It is a well-settled legal principle that the revenue authorities cannot sit in the chair of the businessman and decide what

Mr. Ishaan Hegde L/R of Late Sri. V G Siddhartha, Bangalore vs. The Deputy Commissioner of Incomer Tax, Central Circle-1(3), Bangalore

In the result the appeal filed by the revenue is hereby dismissed

ITA 1457/BANG/2024[2016-17]Status: DisposedITAT Bangalore16 Jul 2025AY 2016-17

Bench: Shri Waseem Ahmed & Shri Keshav Dubey

For Appellant: Shri C Ramesh, CAFor Respondent: Ms. Neha Sahay, JCIT (DR)
Section 132Section 143(3)Section 153A

case of Durga Paras More reported in 82 ITR 540 and the judgment various High Courts concluded that the transaction was devoid of any commercial substance and amounted to a sham intended to evade taxes. Consequently, the loss claimed by the assessee on account of debenture redemption was held ... 1459/Bang/2024 Page 53 of 116 43.4 We also address the argument raised by the department that the transaction lacked “business expediency” or commercial substance. It is a well-settled legal principle that the revenue authorities cannot sit in the chair of the businessman and decide what