Section 35AD of the Income Tax Act
The decision most relied on for Section 35AD is Redington (India) Ltd. v. Addl. CIT (77 Taxmann.com 257), cited in 363 of the 36 judgments on BharatTax that turn on this section.
Leading authorities on Section 35AD
No disallowance under Section 14A can be made in the absence of actual exempt income, as Section 14A relates to the earning of actual income, not notional or anticipated income, thereby declining to apply the CBDT Circular dated 11th May 2014 in such cases.
When tax is levied under Section 115JB on book profits, no penalty under Section 271(1)(c) for concealment or furnishing inaccurate particulars can be imposed based on additions or disallowances made in the regular computation of income. The regular computation is only for comparative purposes when the final tax liability is based on book profits.
An assessee has the option to choose either the Discounted Cash Flow (DCF) method or the Net Asset Value (NAV) method for share valuation under Section 56(2)(viib) read with Rule 11UA. The Assessing Officer cannot substitute the chosen method or value without identifying a specific error in the assessee's valuation.
Disallowance under Section 14A is not applicable if investments yielding exempt income are made from the assessee's own interest-free funds, and any such disallowance cannot exceed the actual exempt income earned during the year.
Depreciation is allowable on goodwill arising on amalgamation when the consideration paid exceeds the value of tangible assets. It is also allowable on other intangible assets, such as licenses or business/commercial rights of similar nature, under Section 32(1)(ii).
No disallowance under Section 14A of the Income Tax Act, 1961 can be made for expenditure related to exempt income if the assessee has not earned any such exempt income.
Depreciation on goodwill arising from amalgamation is not admissible to the amalgamated company if no goodwill was admitted in the hands of the amalgamating company, applying Explanation 7 to Section 43(1) and the Sixth Proviso to Section 32(1)(ii).
An Income Tax Appellate Tribunal, regardless of its location, must respect a High Court's decision from another state, provided no contrary High Court decision exists. This principle applies to following established precedents.
Disallowance under Section 14A cannot be made in the absence of any exempt income earned by the assessee. The High Court upheld the ITAT order, and the Supreme Court rejected the departmental SLP.
A scheme of amalgamation, once sanctioned by a court, has statutory operation and is distinct from a mere agreement, being final and binding on all parties, including statutory authorities.
Judgments on Section 35AD
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