Section 264 of the Income Tax Act
The decision most relied on for Section 264 is Swadeshi Cotton Mills Co. Ltd. v. CIT (171 ITR 634), cited in 99 of the 147 judgments on BharatTax that turn on this section.
Leading authorities on Section 264
The Assessing Officer's power to direct a special audit under Section 142(2A) requires an objective assessment of account complexity, not subjective satisfaction. Accounts are 'complex' only if they are genuinely difficult to understand, and the AO must first make a genuine attempt to comprehend them before ordering a special audit.
When an assessee possesses sufficient interest-free funds, it is presumed that any interest-free advances or investments made are from these funds, preventing disallowance of interest under Section 36(1)(iii). This principle applies if own capital and interest-free loans exceed the interest-free advances given.
An assessment order is invalid if it relies on adverse material collected by the Assessing Officer without providing the assessee an opportunity to confront and rebut it, as this constitutes a serious violation of the principles of natural justice, specifically *audi alteram partem*.
A higher authority's approval for an income tax proposal must reflect an application of mind to the facts and cannot be deemed from a mere nomination. An assessment made without providing reasonable opportunity to the assessee violates principles of natural justice and is therefore invalid.
Employees of Public Sector Undertakings (PSUs) and nationalized banks are not considered government employees for the purpose of exemption under section 10(10AA) of the Income Tax Act, 1961, and are not discriminated against when compared to Central and State Government employees.
Deemed dividend under Section 2(22)(e) is taxable in the hands of the shareholders, not the company. The Assessing Officer's reliance on the Bhaumik Colour decision is noted.
The determination of Arm's Length Price (ALP) for international transactions involving debt requires consideration of both the amount on which interest should be charged and the arm's length rate for that interest. Guidelines are provided for computing the ALP of the international transaction of 'debt arising during the course of business.'
Judgments on Section 264
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