Section 144C(1) of the Income Tax Act
The decision most relied on for Section 144C(1) is East India Pharmaceutical Works Ltd. v. CIT (224 ITR 627), cited in 146 of the 229 judgments on BharatTax that turn on this section.
Leading authorities on Section 144C(1)
Where an assessee has mixed funds (both interest-bearing and interest-free funds) and makes an interest-free advance or investment, it is presumed that the interest-free funds were utilized first if they are sufficient to cover such advances or investments. This prevents disallowance of interest on borrowed funds under Section 36(1)(iii).
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.
A statute's object is to ascertain legislative intent from its plain language, avoiding any construction that adds, substitutes, or rejects words as meaningless. This principle applies to interpreting statutory deadlines, such as those for Transfer Pricing Officer and Assessing Officer orders under Section 153, requiring strict calculation based on the literal meaning of terms like "before" and "prior to".
Customer acquisition costs and advertisement expenditures are treated as revenue expenditures, not deferred expenditures, as there is no general concept of deferred expenditure for such items under Income Tax Law.
Interest income earned by an assessee during the period when its business has not commenced, even from funds meant for capital expenditure, is revenue in nature and is assessable under the head 'income from other sources'. The nature of the income, rather than the source of the funds generating it, determines its taxability.
The failure to issue a draft assessment order under Section 144C(1) of the Income-tax Act is a mandatory procedural requirement, and its non-compliance renders the final assessment order invalid, not merely a curable defect.
When transactions are part of a package deal with a composite price or are interdependent such that an assessee must accept all of them together, they must be aggregated and treated as a single international transaction for transfer pricing purposes.
Retrospective amendments to Section 9(1)(vi) of the Income-tax Act, introducing Explanations 5 and 6 regarding royalty income, do not automatically apply to Double Taxation Avoidance Agreements (DTAAs) if the DTAAs themselves have not been correspondingly amended.
The requirement to pass a draft assessment order under Section 144C of the Act is mandatory. A final assessment order issued without such a draft order is a nullity, constituting an incurable jurisdictional error that cannot be saved by Section 292B, even in set-aside proceedings following an ITAT remand.
Judgments on Section 144C(1)
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