“Section 36(4)”
The decision most relied on for Section 36(4) is CIT v. Abhishek Industries Ltd. (286 ITR 1), cited in 359 judgments on BharatTax.
Leading authorities on Section 36(4)
For interest on borrowed capital to be deductible under Section 36(1)(iii), there must be a nexus between the use of the borrowed funds and the purpose of the business. This decision has been overruled by the Supreme Court in Munjal Sales Corporation v. CIT (2008).
Expenditure incurred by an assessee operating a composite business that generates both taxable and non-taxable income is fully allowable without apportionment. This position led to the subsequent insertion of Section 14A, which disallowed expenditure related to earning exempt income.
This Supreme Court decision is cited as authority in search and seizure assessment proceedings.
Circulars and instructions issued by the Central Board of Direct Taxes (CBDT) under Section 119 of the Income Tax Act have the force of law and are binding on all income tax authorities. These circulars can mitigate the rigour of statutory provisions, provide administrative relief, and ensure uniform application of the Act for the benefit of the assessee.
There can be no estoppel against the statute, meaning tax cannot be levied or collected without express authority of law. An appellate authority may adjudicate additional claims or legal contentions to ensure the correct tax liability is determined.
A statement recorded under Section 132(4) during a search operation constitutes incriminating material and valuable evidence to dislodge earlier findings and make an assessment under Section 153A. Any material unearthed during search operations is also considered valuable evidence for invoking Section 153A.
The assessee must consistently follow one method of accounting and cannot arbitrarily change it, particularly in contravention of Section 145 of the Income Tax Act. This principle prohibits changes in accounting methods that are not in conformity with the law.
This case establishes that a statutory amendment, specifically Section 9(1)(ii) relating to income deemed to accrue or arise in India (salary for services/leave), applies prospectively from its effective date, such as April 1, 2000.
