Section 254(2) of the Income Tax Act
Income-tax Act, 2025: s.363
Section 254(2) 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(2) is CIT v. Tata Elxsi Ltd. (349 ITR 98), cited in 818 of the 902 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.
Co-operative societies or banks engaged in both agricultural and non-agricultural activities are entitled to deduction under Section 80P of the Income Tax Act, 1961, limited only to the profits derived from agricultural activities, not 100% of their gross profits.
A composite agreement, even if charges are broken down, cannot be dissected to apply Section 194I for TDS on rent when the agreement is a business arrangement for mutual obligations.
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.
Amounts collected by an assessee under a statutory obligation and directed to be kept in a separate account for a specific purpose, such as a molasses storage fund, do not belong to the assessee and should be excluded from its total income.
