Section 112(1) of the Income Tax Act
Income-tax Act, 2025: s.197
Section 112(1) falls under section 112 of the Income-tax Act, 1961, which corresponds to section 197 (Tax on long-term capital gains) of the Income-tax Act, 2025.
Read section 197 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 112(1) is CIT v. Sutlej Cotton Mills Supply Agency Ltd. (100 ITR 706), cited in 63 of the 27 judgments on BharatTax that turn on this section.
Leading authorities on Section 112(1)
An investment retains its capital nature even if its resale was foreseen and contemplated when made, and the possibility of enhanced values motivated the investment. The classification as a capital asset or stock-in-trade depends on factors like the assessee's intention, frequency of transactions, and acquisition funding.
Disallowance of expenditure under Section 14A for earning income not forming part of total income, such as dividend or interest, requires a clear nexus between the funds utilized and the exempt income.
For reassessment beyond four years, the assessing officer must demonstrate the assessee failed to fully and truly disclose material facts. A mere change of opinion by the officer is insufficient.
An assessment is invalid if the Assessing Officer (AO) seeks only to ascertain the source of funds without forming a belief, based on tangible material, that income chargeable to tax has escaped assessment. A mere expression of doubt or a need for deeper scrutiny without any supporting evidence does not justify invoking reassessment powers.
An Assessing Officer cannot reopen an assessment based on mere suspicion or conjecture; there must be a valid 'reason to believe' that income has escaped assessment, supported by tangible material, not for the purpose of conducting fishing inquiries.
Notional income from interest-free loans or deposits is not taxable under the Income Tax Act in the absence of a specific provision allowing for such taxation.
The nature of gain arising from the transfer of shares or securities depends on the assessee's intention at the time of acquisition.
Reopening of assessment under Section 147 requires the Assessing Officer to have reason to believe that income has escaped assessment, which must be based on tangible material or information and not merely a change of opinion. Failure to disclose material facts by the assessee is also a ground for reassessment.
A search is held to be valid when conducted under similar facts and circumstances, as decided by the Delhi High Court.
The intention with which an asset is acquired determines whether it is stock-in-trade or a capital asset. Merely realizing an investment at a higher price does not make it trading in nature.
