“Section 81(1)(a)”

Rule 8D, for computing disallowance under Section 14A for expenses related to exempt income, applies from Assessment Year 2008-09 onwards; for prior years, a reasonable disallowance must be made. The disallowance under Section 14A cannot exceed the actual exempt income earned.

A loss of tax incurred by the Revenue is considered prejudicial to the interests of the Revenue. This interpretation is key for invoking the revisionary powers under Section 263.

A revision under section 263(1) is justified when the assessment order is erroneous and prejudicial to the interest of the revenue due to an inadequate enquiry or non-application of mind by the assessing officer.

The case is cited for the principle that when a payment is made for a non-compete agreement which is part of a larger business transfer, the characterisation of the payment depends on whether it is for the enduring benefit of the business or for the loss of potential profits.

An addition to income cannot be made solely on the basis of a statement recorded during a search under section 132(4) without independent corroborating evidence. Similarly, a penalty cannot be levied merely on the basis of assessment order findings, allowing the assessee to challenge the underlying facts in penalty proceedings.

Late fees levied under section 234E are deleted if the authorities erred in sustaining the levy, especially when relying on precedents that allow for such deletion.

Expenditure incurred for business exigency is allowable as a deduction under Section 37 of the Income Tax Act. Litigation expenses incurred to protect business are revenue expenditure.

Unabsorbed depreciation available as on April 1, 2002, can be carried forward indefinitely under Section 32(2) of the Income Tax Act, 1961.