Court Cases

Supreme Court Cases:

Power Subsidy Linked to Operating Costs Is Revenue Receipt-Industrial Growth Objective Alone Is Not Decisive

1. Mepco Industries Ltd. v. Commissioner of Income Tax, Madurai

2026 INSC 1090 | Civil Appeal No. 8694 of 2012 | Supreme Court | Decided on 07.10.2026

Facts of the case:

For AY 1997-98, the assessee, engaged in manufacturing potassium chlorate, received an electricity subsidy of Rs. 16,20,745 under the Government of Pondicherry’s Power Subsidy Scheme. The subsidy was calculated at 33% of power charges for the first three years, 20% for the fourth year and 10% for the fifth year after commencement of production. The assessee treated it as a capital receipt, contending that the scheme aimed to promote new industries in backward areas. The AO, CIT(A), Chennai ITAT and Madras High Court treated it as a taxable revenue receipt.

Issue

Whether the electricity subsidy received under the Government of Pondicherry’s scheme constituted a capital receipt or a taxable revenue receipt?

Held

The Supreme Court held that the character of a subsidy must be determined by applying the “purpose test” after examining the scheme as a whole. The timing, source or form of the subsidy is not conclusive; its immediate and operative purpose is decisive.

The subsidy was calculated with reference to actual electricity charges incurred after commencement of production and directly reduced the cost of manufacturing operations. It was neither linked to capital investment nor required to be utilised for acquiring plant, constructing a factory, repaying capital borrowings or creating any capital asset. Therefore, it constituted an operational subsidy and was taxable as a revenue receipt.

The Court followed Sahney Steel & Press Works Ltd. v. CIT (supra) and CIT v. Ponni Sugars & Chemicals Ltd. (supra), while distinguishing CIT v. Chaphalkar Brothers (supra). The assessee’s appeal was accordingly dismissed.

Contributor’s Comments

This ruling clarifies that the broad objective of promoting industrialisation does not automatically make a subsidy capital in nature. The operative mechanism of the scheme remains decisive. Where the subsidy is linked to electricity consumption and reduces recurring production costs, it is a revenue receipt, notwithstanding that the scheme generally seeks to promote industries in backward areas.

Telangana High Court:

Delayed Appeal Is Still a Pending Appeal-DTVSV Benefit Cannot Be Denied on Technical Grounds

2. Nafees Sultana v. National Faceless Assessment Centre & Ors.

Writ Petition No. 14939 of 2025 | Telangana High Court | Decided on 21.09.2026

Facts of the case:

For AY 2014-15, the petitioner, an individual and housewife, was alleged to have received rental income of Rs. 1,50,56,000 without filing a return. An ex parte assessment under sections 147, 144 and 144B was passed on 26.03.2022, determining income at Rs. 1,10,56,130. The petitioner filed quantum and penalty appeals on 14.12.2022 with delay. While those appeals were pending, she filed Form No. 1 under the Direct Tax Vivad Se Vishwas Scheme, 2024 on 31.01.2025. The appeal was subsequently dismissed on 17.02.2025, and Form No. 1 was rejected on 20.03.2025 on the ground that no appeal was pending on the specified date, 22.07.2024. The Hyderabad ITAT later set aside the appellate order and remanded the appeal for fresh adjudication.

Issue

Whether a delayed appeal pending on the specified date could be treated as a pending appeal for availing the benefit of DTVSV, 2024?

Held

The Telangana High Court held that the appeal was pending on 22.07.2024, notwithstanding the delay and the absence of a condonation petition at the initial stage. The appellate authority had entertained the appeal, issued notices and ultimately decided it on merits in addition to the question of delay. Therefore, the appeal had to be treated as pending for the purposes of DTVSV, 2024.

Following Anand Asrani v. CBDT (supra) and Tejal Mayur Rao v. Pr. CIT (supra), the Court held that the Designated Authority could not examine whether the appeal was valid, competent or maintainable. It also referred to the principles in CIT v. Shatrusailya Digvijaysingh Jadeja (supra), Raja Kulkarni v. State of Bombay (supra) and Tirupati Balaji Developers (P.) Ltd. v. State of Bihar (supra), affirming that an appeal does not cease to be pending merely because it may subsequently be found irregular or time-barred. The rejection of Form No. 1 was quashed, and the authority was directed to reconsider it by treating the appeal as pending.

Contributor’s Comments

This ruling reinforces the beneficial and litigation-settlement object of DTVSV, 2024. Once an appeal is filed and remains before the appellate authority on the specified date, the Designated Authority cannot reject the declaration by independently examining its validity or the delay involved. A delayed or procedurally defective appeal remains a pending appeal until the competent appellate forum decides otherwise.

Bombay High Court:

Digital Order Starts the Clock-Revenue Cannot Revive Limitation by Awaiting a Certified Copy

3. Sanjay Nathalal Shah v. ACIT

Writ Petition (L) No. 29400 of 2026 | Bombay High Court | Decided on 05.10.2026

Facts of the case:

The original limitation for completing the assessment for AY 2023-24 was 31.03.2025. A special audit was directed under section 142(2A) on 10.02.2025, when only 49 days remained. The Bombay High Court quashed that direction on 08.01.2026, and the digitally signed order was supplied to the AO through WhatsApp on 10.01.2026 and emailed to the PCIT on 12.01.2026. Nevertheless, the Department treated 04.02.2026, when the certified copy was received, as the relevant date and issued a second special-audit direction on 25.03.2026. The special audit report was furnished on 21.07.2026.

Issues

1. Whether limitation under section 153 recommenced upon receipt of the digitally signed order or only upon receipt of its certified copy?
2. Whether the second special-audit direction dated 25.03.2026 and the consequential report were valid after expiry of the assessment limitation?

Held

The Bombay High Court held that clause (iv) of Explanation 1 to section 153 refers only to receipt of a “copy” of the order, unlike clause (ii), which expressly requires a “certified copy.” Therefore, the Department was not entitled to await receipt of the certified copy. The Court also relied upon CBDT Instruction No. 2/2022, which requires the Department to promptly download and communicate High Court orders.

Considering either 10.01.2026, when the digitally signed order was supplied to the AO, or 12.01.2026, when it was emailed to the PCIT, the assessment became time-barred by 11.03.2026 or, at the latest, 13.03.2026. Consequently, the second special-audit direction dated 25.03.2026 and the report dated 21.07.2026 were quashed as being without jurisdiction. Following CIT v. Shelly Products (supra), the Court held that no valid assessment could thereafter be passed and the returned income stood deemed to have been accepted.

Contributor’s Comments

This significant ruling recognises a digitally signed judicial order as sufficient for computing limitation under clause (iv) of Explanation 1 to section 153. The Revenue cannot extend limitation by awaiting a certified copy when the digital order has already been received. Any special-audit direction or assessment proceeding initiated after expiry of limitation is without jurisdiction, resulting in deemed acceptance of the returned income.

Hyderabad ITAT:

Rs. 176.11 Crore On-Money Addition Collapses-Unsigned Papers and Standalone Protective Assessment Carry No Evidentiary Weight

4. Trinity Infraventures Ltd. v. DCIT

ITA Nos. 788 & 763/Hyd/2020 and connected ITA No. 466/Hyd/2020 | AY 2010-11 | Hyderabad ITAT | Decided on 23.09.2026

Facts of the case

Pursuant to a search in the MBS Group, documents concerning land transactions allegedly undertaken by the assessee were seized. The AO treated Rs. 176.11 crore as unaccounted on-money, comprising a substantive addition of Rs. 9,14,15,873 and a protective addition of Rs. 166,96,84,127. The books were also rejected under section 145(3), and profit was estimated at 16% of gross receipts of Rs. 53,79,87,046. The CIT(A) deleted the on-money additions but sustained the 16% profit estimation. In the connected appeal concerning Goldstone Infratech Ltd., the CIT(A) deleted a separate addition of Rs. 21,28,99,500 under section 50С.

Issues

1. Whether an on-money addition of Rs. 176.11 crore could be sustained on unsigned and uncorroborated seized documents?
2. Whether a protective addition could be made without a corresponding substantive addition in any other case?
3. Whether estimation of profit at 16% of gross receipts was excessive?
4. Whether a separate addition under section 50C was permissible when the entire land-sale receipts had already been taxed in the hands of Trinity Infraventures Ltd.?

Held

The Hyderabad ITAT upheld the deletion of the entire on-money addition, holding that the Revenue failed to establish receipt of on-money through credible evidence. The unsigned draft agreement and other seized documents did not prove that the assessee had received the alleged consideration. The subsequent orders of the Telangana High Court and the Supreme Court also established that the land belonged to the State of Telangana. Further, the protective addition of Rs. 166,96,84,127 was unsustainable in the absence of any corresponding substantive addition.

On profit estimation, the Tribunal found that 16% was excessive and directed estimation at 10% of gross receipts. Relying upon Madhucon Projects Ltd. v. DCIT (supra) and Arihant Builders, Developers & Investors Ltd. v. ACIT (supra), it observed that lower rates had been adopted for contract receipts. The deletion of the section 50C addition of Rs. 21,28,99,500 was also affirmed since the entire land-sale consideration had already been assessed in the hands of Trinity Infraventures Ltd. and no separate consideration was shown to have been received by the connected assessee.

Contributor’s Comments

This significant ruling reinforces that substantial on-money additions cannot rest upon unsigned or uncorroborated documents without proof of actual receipt. It also clarifies that a protective addition cannot survive independently without a corresponding substantive assessment and that the same transaction cannot be taxed twice in different hands. Profit estimation must remain reasonable and aligned with the nature of business and comparable judicial precedents.

Low Income Alone Cannot Disprove Creditworthiness—Section 68 Addition Deleted for Lack of Revenue Inquiry

5. Rekha Corporation Pvt. Ltd. v. DCIT

ITA No. 1272/Hyd/2025 | AY 2013-14 | Hyderabad ITAT | Decided on 21.08.2026

Facts of the case:

For AY 2013-14, the AO treated unsecured loans of Rs. 2,38,48,000 as unexplained under section 68 due to the lenders’ low income, prior cash deposits and incomplete documents. The AO also disallowed employees’ PF/ESI contribution of Rs. 1,00,268, paid after the statutory due dates but before the return-filing due date. The CIT(A) sustained both additions.

Issues:

1. Whether unsecured loans of Rs. 2,38,48,000 could be added under section 68 merely because the lenders had disclosed low taxable income?
2. Whether employees’ PF/ESI contribution of Rs. 1,00,268, paid after the statutory due date but before the return-filing due date was allowable?

Held:

The Hyderabad ITAT held that the assessee discharged its initial burden under section 68 by furnishing confirmations, PAN details, tax records, bank statements and running ledger accounts. The AO failed to rebut this evidence by examining the lenders or conducting further inquiry. Relying on Orissa Corporation (P.) Ltd. (supra), Nemi Chand Kothari (supra), Rohini Builders (supra) and Gaurav Triyugi Singh (supra), it held that low returned income alone does not establish lack of creditworthiness and deleted the addition of Rs. 2,38,48,000. Following Kamdhenu Steel & Alloys Ltd. (supra), the Tribunal refused to remand the matter to fill gaps in the Revenue’s investigation. However, following Checkmate Services (P.) Ltd. (supra), it upheld the PF/ESI disallowance of Rs. 1,00,268.

Contributor’s Comments

This significant ruling affirms that once the initial onus under section 68 is discharged, the Revenue must rebut the evidence through proper inquiry. Low returned income alone cannot negate creditworthiness, nor can remand be sought to fill investigative lacunae. However, delayed employees’ PF/ESI contributions remain disallowable under Checkmate Services (P.) Ltd. (supra).

Other ITAT Case:

Search Material Must Travel Through Section 153A-Reassessment Under Section 148 Held Void

6. DCIT v. Kammna Autopart Sales (P.) Ltd.

ITA No. 2337/Kol/2025 | AY 2013-14 | Kolkata ITAT | Decided on 07.10.2026

Facts of the case:

The original assessment was completed under section 143(3) on 14.12.2015. Following a search conducted on 12.02.2020, the AO reopened the assessment by issuing notice under section 148 on 31.03.2021, based entirely on material found during the search. An addition of Rs. 10,07,00,000 was made under section 68 in respect of alleged bogus receipts from the sale of investments. The CIT(A) granted substantial relief by deleting Rs. 9,56,65,000. In the Revenue’s appeal, the assessee challenged the validity of the reassessment under Rule 27.

Issues

1. Whether a respondent successful before the CIT(A) could challenge the jurisdictional validity of reassessment under Rule 27?
2. Whether proceedings based exclusively on material found during a search could be initiated under section 148 instead of section 153A?

Held

The Kolkata ITAT admitted the jurisdictional ground under Rule 27, relying upon Sanjay Sawhney v. Pr. CIT (supra). It held that section 153A is a self-contained code containing a non-obstante clause that overrides the general reassessment provisions under sections 147 and 148. Once the reopening was admittedly founded entirely upon material discovered during the search, the AO had no discretion to proceed under section 148.

Although AY 2013-14 was the seventh year preceding the year of search, it fell within the extended “relevant assessment year” contemplated under section 153A. The alleged escaped income of Rs. 10,07,00,000, represented by investments in shares or securities, exceeded the statutory threshold of Rs. 50 lakh. Therefore, the only lawful recourse, subject to fulfilment of the prescribed conditions, was the extended machinery under section 153A. The notice under section 148 and the consequential assessment were accordingly quashed as void ab initio, rendering the Revenue’s appeal infructuous.

Contributor’s Comments

This significant ruling reinforces that sections 153A and 148 operate in mutually exclusive fields and that search-based material must be assessed only under section 153A. It also reiterates the principle already affirmed by our Hyderabad ITAT in ITO v. Shiva Kumar Thota, ITA No. 996/Hyd/2024, AY 2017-18, decided on 10.12.2025, that a successful respondent may raise a pure jurisdictional ground under Rule 27 without filing a separate appeal or cross-objection.