Section 145(2) of the Income Tax Act
The decision most relied on for Section 145(2) is CIT v. Birla Gwalior (P.) Ltd. (89 ITR 266), cited in 83 of the 66 judgments on BharatTax that turn on this section.
Leading authorities on Section 145(2)
The Supreme Court holds that income tax is levied on real income, not on hypothetical or notional accrual. For income to be taxable, it must genuinely accrue or be received, taking into account the realistic probability of its realization.
Mark-to-Market (MTM) losses on forward contracts and forex derivatives are allowable as a revenue deduction under Section 37(1) where a binding obligation is created against the assessee. This is provided the assessee consistently follows the same accounting method for both profits and losses.
No disallowance of interest expenditure can be made under Section 36(1)(iii) merely on the presumption of diversion of borrowed funds, if the assessee possesses sufficient interest-free own funds to cover interest-free advances.
The Revenue cannot change the complexion of the case for the first time before the Appellate Tribunal. The Tribunal is not vested with the power to enhance an assessment or withdraw relief granted by the assessing authority.
A real estate development business is considered 'set up' when the assessee is in a position to undertake activities for the acquisition, development, and exploitation of real estate. Expenses incurred between the setting up and commencement of such a business are allowable, even if no revenue is generated or land is classified as a non-current investment.
An assessment order enhancing income without disclosing the basis of enhancement and relying on mere suspicion is not sustainable. Best judgment assessment must be based on relevant material and cannot be arbitrary.
When there is nothing on record to establish the financial capacity, creditworthiness, or relationship of a donor with the assessee, an addition to income can be justified.
Income from unsold flats in the closing stock of a real estate developer is taxable under the head 'Income from house property' based on their annual letting value, even if the developer is engaged in business.
A real estate developer adopting the completed contract method of accounting cannot be forced to follow the percentage completion method under AS-7 if AS-7 has not been specified by the Central Government under section 145(2). The Assessing Officer cannot reject accounts under section 145(3) solely on this ground.
Judgments on Section 145(2)
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