Section 127 of the Income Tax Act
Income-tax Act, 2025: s.243
Section 127 of the Income-tax Act, 1961 corresponds to section 243 (Power to transfer cases) of the Income-tax Act, 2025.
Read section 243 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 127 is CIT v. Gem Plus Jewellery India Ltd. (330 ITR 175), cited in 207 of the 1,067 judgments on BharatTax that turn on this section.
Leading authorities on Section 127
Disallowances made under various sections, such as for PF/ESIC contributions, result in an increase in business profits, and these enhanced profits are eligible for deduction under Sections 10A and 10AA. Similarly, gains from foreign exchange fluctuations directly linked to export sales are also eligible for deduction under Section 10A.
The Delhi High Court affirms that additions made by the Assessing Officer in assessment proceedings under Section 153A are valid when such additions are based on incriminating material found during a search. The decision did not address the validity of additions in the absence of incriminating material.
For a limited company, expenses cannot be disallowed merely on the grounds of presumed personal use of assets by directors or by treating the expenditure as a non-business purpose. Percentage disallowances of expenses in such cases are not sustainable.
Appeals before the Income Tax Appellate Tribunal (ITAT) must be filed before the bench with territorial jurisdiction over the Assessing Officer's location or the assessee's principal place of business.
Disallowance under section 40(a)(ia) cannot be made when the assessee has deducted tax at a lesser rate, as opposed to no deduction. The second proviso to section 40(a)(ia) is applicable retrospectively, mitigating disallowance where tax is deposited by the recipient.
Circulars issued by the Central Board of Direct Taxes (CBDT) under Section 119 of the Income Tax Act are legally binding on the revenue authorities in their administration and implementation. This binding character applies even if the circulars depart from the correct interpretation of the law and cannot be ignored to the prejudice of the assessee.
Passing a final assessment order under Section 143(3) directly, without first issuing a draft assessment order under Section 144C(1) for an eligible assessee, constitutes a fundamental jurisdictional defect. This defect cannot be cured by a subsequent corrigendum, especially if issued beyond the prescribed period of limitation.
When an assessee has sufficient interest-free own funds available to make interest-free advances or investments, it is presumed that such advances or investments are made from these interest-free funds, thereby preventing the disallowance of interest expenditure under Section 36(1)(iii).
Tribunals should consider questions of law arising from facts on record, even if raised for the first time, if the issue is jurisdictional and requires no further fact-finding.
When no specific statutory period of limitation exists, proceedings under Section 201(1) and 201(1A) of the Income-tax Act, particularly for payments to non-residents, must be initiated within a reasonable period of four years. This limitation also applies to consequential penalty proceedings under Section 271C.
