Section 135 of the Income Tax Act
Income-tax Act, 2025: s.256
Section 135 of the Income-tax Act, 1961 corresponds to section 256 (Power of certain income-tax authorities) of the Income-tax Act, 2025.
Read section 256 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 135 is CIT v. HCL Comnet Systems & Services Ltd. (305 ITR 409), cited in 118 of the 205 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.
Expenses incurred for community development, even if not directly linked to business operations, can be considered allowable business expenditure if they foster goodwill and are part of evolving business practices.
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.
The Commissioner cannot invoke revisionary powers under Section 263 solely on the grounds of 'inadequate enquiry' by the Assessing Officer. The AO's assessment order is presumed to be with application of mind, and a mere lack of detailed discussion does not automatically imply non-application of mind.
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.
