Section 135 of the Income Tax Act
The decision most relied on for Section 135 is CIT v. HCL Comnet Systems & Services Ltd. (305 ITR 409), cited in 118 of the 113 judgments on BharatTax that turn on this section.
Leading authorities on Section 135
For computing book profits under Section 115JB, an Assessing Officer's power is limited to examining duly certified books and making adjustments only as per the Explanation. A provision for bad and doubtful debts, being a diminution in the value of an asset (receivable), does not constitute a 'provision for liability' under Clause (c) of the Explanation and therefore cannot be added back.
Expenditure incurred for the welfare of society at large, even with a remote nexus to the assessee's business, is an allowable revenue expenditure under Section 37(1), as the concept of business has evolved to include corporate social responsibility and generating goodwill.
An assessment order is not erroneous and prejudicial to the revenue merely because it does not explicitly discuss an issue for which the Assessing Officer had raised queries and the assessee had provided a response. In such a scenario, the Principal Commissioner cannot invoke revisionary powers under Section 263.
Donations made as part of Corporate Social Responsibility (CSR) expenditure are eligible for deduction under Section 80G if all conditions of Section 80G are satisfied. Such expenses are not automatically disallowed merely because they are CSR expenditure, in the absence of specific amendments to Section 80G similar to those in Section 37(1).
Section 263 cannot be invoked to revise an assessment where the Assessing Officer has made an enquiry, examined the details submitted by the assessee, and applied their mind to be satisfied about the admissibility of a claim.
When an assessee has both borrowed funds and sufficient interest-free own funds, and makes interest-free advances, it is presumed that the advances were made from the own funds, and no interest disallowance is made under Section 36(1)(iii) on the borrowed funds.
Compensation received for a non-compete covenant or for not carrying on a specific business activity is a capital receipt and not liable to tax as business income.
Expenditure incurred by an assessee on an asset that remains the property of a third party is revenue expenditure if it is made for commercial expediency and does not result in the acquisition of a capital asset or an enduring benefit for the assessee.
A revision under Section 263 is invalid if the Commissioner relies on Explanation 2 to Section 263 without providing the assessee with a show cause notice and an opportunity to be heard. The Supreme Court has affirmed this principle, dismissing the Revenue's appeal.
Recurring payments made for the use of an asset are treated as revenue expenditure, as they are not payments for the acquisition of the asset itself.
Judgments on Section 135
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