Section 254(1) of the Income Tax Act
Income-tax Act, 2025: s.363
Section 254(1) falls under section 254 of the Income-tax Act, 1961, which corresponds to section 363 (Orders of Appellate Tribunal) of the Income-tax Act, 2025.
Read section 363 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 254(1) is S. Ranganathan J in Yadu Hari Dalmia v. Commissioner of Income Tax, Delhi (Central) (126 ITR 48), cited in 77 of the 1,265 judgments on BharatTax that turn on this section.
Leading authorities on Section 254(1)
Section 68 was introduced to codify and clarify existing judicial principles regarding unexplained cash credits and to plug loopholes, rather than to introduce entirely new law. The Assessing Officer must conduct exhaustive inquiries and gather material before making any additions for unexplained credits.
For a valid reassessment under Section 147, the Assessing Officer must record substantive reasons to believe income has escaped assessment, as a mere boilerplate statement of non-disclosure or non-filing is insufficient. Furthermore, a taxpayer's disclosure is not considered full and true if it requires further inquiry by the AO to ascertain material details, especially under Explanation 1 to Section 147.
The Assessing Officer must consider fresh claims made during assessment proceedings, as income tax proceedings are not adversarial and income should be computed according to law, unless a statutory bar exists. The Supreme Court's decision in Goetze (India) Ltd. does not restrict appellate authorities from entertaining new claims.
Assessment orders passed by an Assessing Officer are liable to be set aside if they disregard binding instructions or circulars issued by the Central Board of Direct Taxes (CBDT), especially concerning the selection of returns for scrutiny. The CBDT circulars are binding on all officers of the Income-tax department.
Expenditure incurred for making advertisement films is revenue expenditure if it relates to an ongoing business. However, if the expenditure is for a brand to be used in a business yet to commence, it is capital expenditure.
Payment received for refraining from carrying on a competitive business is treated as a capital receipt. High Courts may misinterpret prior Supreme Court judgments like Gillanders Arbuthnot & Co. Ltd. in their decisions.
Appeals should normally be decided on merits rather than dismissed on technical grounds like delay, unless there is gross negligence or mala fide intention by the assessee.
Retention money withheld by a contractee is not taxable in the year it is retained, but only in the year the obligations under the contract are fulfilled and the amount becomes due to the assessee.
Deduction under Section 54 or 54F for capital gains can be allowed even if multiple residential units are acquired, provided they are used as a single residential unit or can be combined into one for the purpose of residence.
