Section 254(2) of the Income Tax Act
The decision most relied on for Section 254(2) is CIT v. Tata Elxsi Ltd. (349 ITR 98), cited in 800 of the 208 judgments on BharatTax that turn on this section.
Leading authorities on Section 254(2)
When computing deduction under Section 10A, if communication or telecommunication expenses are excluded from export turnover, they must also be excluded from total turnover to maintain consistency and apply the ordinary meaning of 'turnover' in context.
The Supreme Court holds that deductions under Chapter VI-A, including those under Section 80P, are allowable only on the income included in the gross total income as per the provisions of Section 80AB of the Income-tax Act. This ensures that deductions are calculated on the actual income qualifying for such benefit after all other adjustments.
Income received by an assessee under a franchise or licensing agreement, where franchisees provide courses using the assessee's license, is often characterized as revenue share rather than payment for services, which impacts its taxability concerning Fees for Technical Services.
The assessee bears the onus to establish any claim for deduction of expenditure when computing taxable income, especially when parties from whom purchases were allegedly made deny such transactions before sales tax authorities.
An Assessing Officer (AO) is expected to conduct a detailed inquiry during assessment proceedings under Section 143(3) and should not accept the assessee's claims at face value. A failure to investigate glaring issues amounts to a lack of proper inquiry.
Reassessment proceedings initiated under section 147 are invalid if the Assessing Officer fails to demonstrate the assessee's failure to make a true and full disclosure of material facts necessary for assessment. The reasons recorded for reopening must specifically allege such a failure, and mere absence of an assessment cannot justify reopening beyond four years.
For reopening an assessment, the Assessing Officer must have a reason to believe that income has escaped assessment, not merely a reason to suspect. The Assessing Officer needs tangible material to form this belief.
A mistake apparent from the record that prejudices a party is rectifiable under section 254(2) of the Act.
The assessee bears the onus to prove the genuineness of purchases, especially when suppliers have denied sales, and mere reliance on previous assessment orders is insufficient.
Judgments on Section 254(2)
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