I. KEY UPDATES
Guidelines For Compulsory Selection of Returns for Complete Scrutiny During The Financial Year 2026-27 – Procedure For Compulsory Selection In Such Cases.
The guidelines specify the categories of cases that will be mandatorily selected for scrutiny, including cases involving surveys, searches, reassessment proceedings, cancelled registrations of exempt entities, recurring additions in earlier years, and specific information relating to tax evasion. The instruction also prescribes the procedure to be followed by the Income-tax Department for selecting such cases and clarifies that notices under section 143(2) for returns filed during FY 2025–26 must be issued by 30 June 2026.
Key highlights:
- Prescribes the mandatory parameters for selection of Income-tax Returns (ITRs) for Complete Scrutiny during FY 2026-27.
- Covers survey cases, search/requisition cases, and cases where notice has been issued under Section 148.
- Includes cases involving cancelled or withdrawn registration/approval where exemption has nevertheless been claimed.
- Covers cases involving recurring additions in earlier assessment years exceeding the prescribed monetary thresholds.
- Includes cases identified on the basis of specific and credible tax-evasion information.
- Prescribes the approval process, jurisdictional transfer procedure and processing through NaFAC, wherever applicable.
- Requires timely issue of notice under Section 143(2) and uploading of prescribed documents on the assessment system.
- Provides separate procedural guidelines for International Taxation and Central Charges cases.
[LETTER F.NO.225/56/2026/ITA-II, DATED 4-6-2026]
II. Income Tax Case Laws
1) Where Chief Commissioner rejected condonation applications of cooperative societies for delay in filing returns solely for non-furnishing of particulars, such rejection was unsustainable given their entitlement to deduction under section 80P vis-à-vis section 80AC and due dates under section 139, and hence delay was to be condoned with assessments or appeals to proceed accordingly.
Case: T943 Vickrapandiyam Primary Agricultural Co-operative Credit Society Ltd. v CCIT ([2026] 187 taxmann.com 97 (Madras)[01-06-2026], High court of Madras)
Court: High Court of Madras
Verdict Date: 1 June 2026
Issues: Whether the rejection of condonation applications filed by cooperative societies for delay in filing income-tax returns was justified merely because certain particulars were not furnished; and whether such delay should be condoned to enable the societies to claim deduction under Section 80P despite the requirement of timely filing under Section 80AC read with Section 139 of the Income-tax Act. The matter pertained to AYs 2018-19 to 2023-24.
Analysis: The petitioners were cooperative societies engaged in providing credit facilities and other activities eligible for deduction under Section 80P. Due to non-completion of statutory audits, lack of expertise, and disruptions caused by the COVID-19 pandemic, they failed to file their returns within the prescribed due dates under Section 139(1). Consequently, applications were filed before the Chief Commissioner seeking condonation of delay under CBDT Circular No. 13/2023 dated 26.07.2023 and Circular No. 14/2024 dated 30.10.2024. However, the Chief Commissioner rejected the applications on the ground that the societies had not furnished certain particulars called for.
The Madras High Court observed that the petitioners were otherwise entitled to deduction under Section 80P and that denial of such substantive benefit solely on account of delayed filing was a procedural issue. The Court held that the CBDT circulars were issued to alleviate genuine hardship under Section 119(2)(b), and therefore deserved a liberal and purposive interpretation. It found that the Chief Commissioner had adopted an unduly technical approach by insisting on detailed explanations and rejecting applications merely for non-furnishing of particulars, contrary to the object of the circulars. The Court further noted that there was no allegation of tax evasion and that the cooperative movement served a significant public interest, warranting a benevolent approach towards condonation of delay.
Conclusion: The Madras High Court held that the rejection of condonation applications was unsustainable. The impugned orders were set aside, the delay in filing returns was directed to be treated as condoned, and the cooperative societies were permitted to pursue assessment and appellate remedies on the basis that their delayed returns would be considered for claiming deduction under Section 80P. The writ petitions were allowed in favour of the assessees.
2) Where Assessing Officer issued order under section 148A(d) and notice under section 148 on 29.07.2022 for income escaping assessment, as original notice under section 148 was deemed issued on 24.06.2021 and limitation expired on 16.06.2022, subsequent proceedings were invalid as time barred.
Case: Hina Prakash Shah v. Income-tax Officer [2026] 187 taxmann.com 401 (Gujarat)
Court: High Court of Gujarat
Verdict Date: 09 June 2026
Issues: Whether an order passed under Section 148A(d), notice issued under Section 148, and consequential reassessment proceedings for AY 2014-15 were valid when issued after expiry of the limitation period computed on the basis of the “surviving time” doctrine laid down by the Supreme Court in UOI v. Ashish Agarwal and UOI v. Rajeev Bansal.
Analysis: The Assessing Officer had originally issued a notice under Section 148 on 24.06.2021 during the extended limitation period available under TOLA. Pursuant to the Supreme Court’s decision in UOI v. Ashish Agarwal, such notice was deemed to be a notice under Section 148A(b). Thereafter, information was furnished to the assessee on 25.05.2022, granting 15 days to respond, and the assessee filed its reply on 07.06.2022. However, the order under Section 148A(d) and the fresh notice under Section 148 were issued only on 29.07.2022.
The High Court, relying upon the Supreme Court decisions in UOI v. Ashish Agarwal and UOI v. Rajeev Bansal, held that the validity of such reassessment proceedings must be tested with reference to the “surviving time” available under the erstwhile limitation provisions read with TOLA. Since the original notice was issued on 24.06.2021, the surviving period available for issuance of the reassessment notice expired on 16.06.2022. Consequently, the order under Section 148A(d) and notice under Section 148 issued on 29.07.2022 were beyond the surviving limitation period and therefore invalid. The Court also noted that the Revenue could not dispute the computation of limitation advanced by the assessee.
The Court further observed that, as clarified by the Supreme Court in Rajeev Bansal, reassessment notices under the new regime must be issued within the surviving limitation period, and all notices issued beyond such period are liable to be quashed as time-barred.
Conclusion: The Gujarat High Court allowed the writ petition and quashed the order under Section 148A(d) dated 29.07.2022, the notice under Section 148 dated 29.07.2022, and all consequential reassessment proceedings. It was held that the reassessment notice was issued beyond the surviving limitation period (which expired on 16.06.2022) and was therefore time-barred and invalid.
3) Where assessee claimed deduction under section 80G in respect of donation made to Odisha State Disaster Management Authority as part of CSR obligation and said institution was approved under section 80G(5)(vi), deduction could not be denied merely because donation formed part of CSR expenditure.
Case: Kellog Brown and Root Engineering and Construction India (P.) Ltd. v. Deputy Commissioner of Income-tax [2026] 187 taxmann.com 342 (Delhi – Trib.)
Court: Income Tax Appellate Tribunal, Delhi
Verdict Date: 05 June 2026
Issues:
- Whether foreign exchange gains/losses arising on realization of export proceeds from services rendered to Associated Enterprises (AEs) are to be treated as operating in nature while computing Profit Level Indicator (PLI) under TNMM for determining Arm’s Length Price (ALP).
- Whether deduction under Section 80G can be denied merely because the donation was made as part of Corporate Social Responsibility (CSR) obligations under Section 135 of the Companies Act, 2013.
- Whether the assessee was entitled to double taxation relief under Section 90 where the claim had been accepted by the DRP and Assessing Officer but corresponding credit was not granted while computing tax liability..
Analysis:
- The assessee was engaged in providing engineering, technical consultancy, and IT/ITES services to its AEs and benchmarked its international transactions under TNMM using OP/TC as the PLI. While computing its margins, it treated foreign exchange gains/losses arising from realization of export proceeds as operating in nature. The TPO and Assessing Officer, relying on Safe Harbour Rules under Rule 10TA, treated such gains/losses as non-operating and made a transfer pricing adjustment. The Tribunal held that since the assessee had not opted for the Safe Harbour regime and the foreign exchange gains/losses arose from realization of normal business receipts from services rendered to AEs, such gains/losses were operating in nature. Consequently, the Assessing Officer was directed to verify the factual position and recompute the PLI accordingly.
- With regard to deduction under Section 80G, the assessee had donated ₹50 lakh to Odisha State Disaster Management Authority (OSDMA), an institution approved under Section 80G(5)(vi), and claimed a deduction of 50% thereof. The Assessing Officer denied the deduction on the ground that the payment formed part of CSR expenditure. The Tribunal observed that although CSR expenditure is not deductible as business expenditure under Section 37(1), there is no statutory prohibition against claiming deduction under Section 80G for eligible donations, except in specific cases such as contributions to Swachh Bharat Kosh and Clean Ganga Fund. Since OSDMA was an approved institution under Section 80G, the deduction was held allowable.
- On the issue of foreign tax credit, the Tribunal noted that both the DRP and the Assessing Officer had accepted the assessee’s claim for double taxation relief under Section 90 and had not drawn any adverse inference. However, while computing the final tax liability, the corresponding credit was not granted. Since both parties agreed that the matter required verification, the Tribunal restored the issue to the Assessing Officer for verification and grant of relief in accordance with law.
Conclusion: The Tribunal held that foreign exchange gains/losses arising from realization of export proceeds from services rendered to AEs are operating in nature for transfer pricing purposes and directed recomputation of ALP. It further allowed deduction under Section 80G in respect of CSR-related donations made to OSDMA and restored the issue of foreign tax credit under Section 90 to the Assessing Officer for verification and grant of relief. The appeal was partly allowed.
4) Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and CBDT notifications extending time limits under Income-tax Act and Benami Act do not apply to proceedings under Black Money Act.
Case: Smt. Bindu Todi v. DDIT (Inv.)-1, Gurgaon [2026] 187 taxmann.com 344 (Delhi – Trib.)
Court: Income Tax Appellate Tribunal, Delhi
Verdict Date: 05 June 2026
Issues: Whether the time-limit extensions granted under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and subsequent CBDT notifications apply to proceedings under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act), and whether an assessment order passed under Section 10(3) of the Black Money Act beyond the limitation prescribed under Section 11 was valid.
Analysis: The assessee was alleged to have received undisclosed payments of about ₹15.67 lakh from a British Virgin Islands company, Woodstock Universal Ltd. (WUL). Based on information received through FT&TR references, the Assessing Officer issued a notice under Section 10(1) of the Black Money Act on 10.04.2018 and passed an assessment order under Section 10(3) on 17.02.2022. The assessee challenged the assessment as being time-barred.
The Tribunal noted that under Section 11 of the Black Money Act, the assessment had to be completed within two years from the end of the financial year in which the notice was issued. Since the notice was issued on 10.04.2018, the limitation expired on 31.03.2021. The Revenue argued that the limitation stood extended under TOLA and related notifications.
The Tribunal rejected this contention, holding that the later TOLA notifications extended time limits only for proceedings under the Income-tax Act and the Benami Act, and not for the Black Money Act. It also held that no exclusion of time was available for FT&TR references, as the information had been received before initiation of proceedings.
Accordingly, as the assessment order was passed on 17.02.2022, after expiry of the limitation period, the Tribunal held the assessment to be time-barred and quashed the entire proceedings.
Conclusion: The Tribunal held that TOLA and subsequent CBDT notifications extending limitation periods did not apply to proceedings under the Black Money Act. As the assessment order under Section 10(3) was passed after expiry of the limitation period prescribed under Section 11, it was held to be time-barred and was quashed. The assessee’s appeal was allowed
5) Where Assessing Officer, in an ex parte assessment, treated time deposits and foreign currency purchases made by an assessee-NRI as unexplained investments under section 69 and interest credited in bank account as unexplained cash credit, since assessee had not explained sources before Assessing Officer or DRP, matter was to be restored to Assessing Officer for de novo adjudication after providing a reasonable opportunity of hearing
Case: Sonepal Singh Kohli v. Income-tax Officer (Int-Tax) [2026] 187 taxmann.com 326 (Mumbai – Trib.)
Court: Income Tax Appellate Tribunal, Mumbai
Verdict Date: 08 June 2026
Issues: Whether additions made in an ex parte assessment towards time deposits, foreign currency purchases, and bank interest as unexplained investments/cash credits were sustainable when the assessee had not explained the source of such transactions before the Assessing Officer or the DRP
Analysis: The assessee, an NRI residing in the USA, did not file a return of income. Based on information available with the Department, the Assessing Officer noticed time deposits of ₹30 lakh, foreign currency purchases of ₹38.34 lakh, and interest credits in the assessee’s bank account. Since the assessee failed to respond to notices, the assessment was completed ex parte, treating these amounts as unexplained investments and cash credits.
The Tribunal held that the Assessing Officer was justified in following the procedure under Section 144C, as the assessee was a non-resident. It also noted that the assessee had neither responded during assessment proceedings nor challenged the additions on merits before the DRP.
However, considering the assessee’s claim that the non-compliance was due to bona fide reasons and that he had not been able to explain the source of the transactions, the Tribunal granted one final opportunity. Accordingly, the assessment order was set aside and the matter was remanded to the Assessing Officer for fresh adjudication after providing a reasonable opportunity of hearing.
Conclusion: Revision u/s 263 quashed. The ITAT correctly set aside the CIT(E)’s order. Mere inadequacy of inquiry, as opposed to a complete absence of inquiry, does not attract revisional jurisdiction under Section 263.
6) Where assessee engaged in bullion and jewellery trading recorded alleged bogus purchases which stood embedded in declared sales and closing stock, and books with quantitative details were accepted without invoking section 145(3), disallowance in respect of such purchases could not exceed gross profit element embedded therein
Case: Vineet Agarwal v. ACIT-2 [2026] 187 taxmann.com 288 (Delhi – Trib.)
Court: Income Tax Appellate Tribunal, Delhi
Verdict Date: 05 June 2026
Issues: Whether the entire amount of alleged bogus jewellery purchases could be disallowed when the purchases were reflected in the sales and closing stock, the quantitative records were accepted by the VAT authorities, and the Assessing Officer had accepted the books of account without invoking Section 145(3).
Analysis: The assessee, a bullion and jewellery trader, declared income of ₹16.88 lakh and maintained audited books of account with complete quantitative records. The Assessing Officer treated jewellery purchases of ₹1.92 crore as bogus and added the entire amount to income, despite accepting the books of account, sales, closing stock, and quantitative details, which were also accepted by the VAT authorities.
The assessee contended that the alleged purchases were already reflected in the disclosed sales and closing stock and that, since the books had not been rejected under Section 145(3), the entire purchase amount could not be disallowed.
Accepting these contentions, the Tribunal held that once the books of account, sales, and closing stock are accepted, the addition on account of alleged bogus purchases cannot exceed the profit element embedded therein. Accordingly, the Tribunal directed the Assessing Officer to recompute the income by applying the average gross profit rate of the preceding five years instead of disallowing the entire purchase amount.
Conclusion: The Tribunal held that the entire alleged bogus purchases could not be added to income when the books of account, sales, and closing stock were accepted. The addition was directed to be restricted to the gross profit element embedded in the purchases, and the Assessing Officer was directed to recompute the income accordingly. The appeal was partly allowed in favour of the assessee.
7) Where assessee, an agriculturist, declared agricultural income supported by crop-sale documents and addition originally made under section 69C was re-characterized by CIT(A) as an addition under section 68 without issuing any specific show-cause notice regarding such change, action of CIT(A) was unsustainable and findings of CIT(A) on this issue were liable to be quashed.
Case: Chander Veer Singh Bhullar v. Income-tax Officer [2026] 187 taxmann.com 532 (Delhi – Trib.)
Court: Income Tax Appellate Tribunal, Delhi Bench ‘SMC’
Verdict Date: 04 June 2026
Issues:
Whether the CIT(A) could change the nature of an addition from Section 69C (unexplained expenditure) to Section 68 (cash credit) without issuing a specific show-cause notice to the assessee.
Whether an ad hoc disallowance of 20% of business expenditure was justified in the facts of the case.
Analysis: The assessee had declared agricultural income supported by land records and crop-sale receipts. The Assessing Officer made an addition under Section 69C by estimating cultivation expenses at 50% of agricultural receipts. In appeal, the CIT(A) changed the nature of the addition from Section 69C to Section 68 without issuing any show-cause notice to the assessee.
The Tribunal held that the CIT(A) could not change the statutory provision under which the addition was made without first putting the assessee on notice and granting an opportunity of hearing. Accordingly, the CIT(A)’s findings on this issue were quashed.
Regarding the ad hoc disallowance of expenditure, the Tribunal noted that the Assessing Officer had incorrectly recorded the assessee’s financial results and had not properly examined the facts. Considering the circumstances, the Tribunal held that the 20% disallowance was excessive and restricted it to 10%.
Conclusion: The Tribunal held that the CIT(A) could not convert an addition made under Section 69C into one under Section 68 without issuing a specific show-cause notice to the assessee, and therefore quashed the findings on that issue. It further held that the 20% ad hoc disallowance of expenditure was excessive and restricted the disallowance to 10%. The appeal was partly allowed in favour of the assessee.
8) Where assessee, engaged in jewellery business, deposited large cash sums during demonetisation and explained deposits as cash sales fully recorded in accepted books, with supporting documents provided and trading results not rejected, no addition under section 68 for unexplained cash credits was permissible
Case: Indowestem Commodities and Energy Trade (P.) Ltd. v. ITO [2026] 186 taxmann.com 739 (Delhi – Trib.)
Court: ITAT Delhi Bench
Verdict Date: 15 May 2026
Issues:
- Whether cash deposits made during the demonetisation period, duly recorded as cash sales in accepted books of account, could be treated as unexplained cash credits under Section 68.
- Whether share application money could be added under Section 68 merely due to non-compliance with certain provisions of the Companies Act.
Analysis: The assessee, engaged in the jewellery business, deposited ₹6.34 crore during the demonetisation period and explained the deposits as cash sales recorded in its books of account. The Tribunal noted that the sales were supported by bills, vouchers, VAT returns, and bank records, and that the books of account and trading results had not been rejected by the Assessing Officer. It held that once the books and sales are accepted, no separate addition under Section 68 can be made in respect of the cash deposits arising from such sales.
The assessee had also received share application money of ₹60 lakh, which was refunded in the subsequent year without allotment of shares. The Tribunal observed that the Assessing Officer had not disputed the identity or creditworthiness of the investor and had made the addition solely on account of alleged non-compliance with the Companies Act. It held that violations of the Companies Act may attract penalties under that Act but cannot, by themselves, justify an addition under Section 68.
Conclusion: The Tribunal held that no addition under Section 68 could be made where cash deposits were fully explained through recorded sales reflected in accepted books of account. It further held that mere non-compliance with the Companies Act does not justify an addition under Section 68 in the absence of any defect regarding identity, genuineness, or creditworthiness. Accordingly, both additions were deleted and the assessee’s appeal was allowed.
9) Where notice under section 148 was issued after expiry of three years with approval of PCIT instead of authority specified under section 151(ii), such notice and consequential assessment order were invalid and liable to be quashed
Case: Accenture Impex (P.) Ltd. v. Deputy Commissioner of Income-tax [2026] 187 taxmann.com 678 (Delhi – Trib.)
Court: ITAT Delhi Bench
Verdict Date: 16 June 2026
Issues: Whether a notice issued under Section 148 after expiry of three years from the end of the relevant assessment year is valid when the approval under Section 151 is obtained from the Principal Commissioner of Income-tax (PCIT) instead of the authority specified under Section 151(ii).
Analysis: The assessee’s case was reopened on the basis of information relating to suspicious bank transactions and alleged fraudulent export activities. The notice under Section 148 dated 11.07.2022 was issued after obtaining approval from PCIT-1, Delhi. The assessee contended that since more than three years had elapsed from the end of the relevant assessment year, approval was required from the Principal Chief Commissioner/Chief Commissioner or other authority specified under Section 151(ii), and not from the PCIT.
The Tribunal accepted the assessee’s contention and, relying on the Supreme Court’s decision in Union of India v. Rajeev Bansal, held that Section 151 acts as an important safeguard against mechanical reopening of assessments. Since the approval was obtained from an authority not prescribed under Section 151(ii), the notice under Section 148 was issued without valid sanction and was therefore invalid in law.
Conclusion: The Tribunal held that where more than three years had elapsed from the end of the relevant assessment year, approval for reopening must be obtained from the authority specified under Section 151(ii). Since the notice under Section 148 was issued with approval from the PCIT instead of the competent authority, the notice and the consequent reassessment order were quashed. The appeal was allowed in favour of the assessee.
10) Where assessee converted unsecured loans into preference share capital and utilized part of its interest-bearing borrowings for interest-free investments and advances, disallowance under section 36(1)(iii) was to be restricted to actual interest paid on such borrowings, i.e., Rs. 3.95 lakhs, together with interest at 10 per cent on a loan of Rs. 68.62 lakhs, aggregating to Rs. 10.81 lakhs
Case: Cinflex Infotech (P.) Ltd. v. ACIT [2026] 187 taxmann.com ___ (Delhi – Trib.)
Court: ITAT, Delhi Bench
Verdict Date: 17-06-2026
Issues:
- Whether disallowance of interest under Section 36(1)(iii) was justified where interest-bearing funds were allegedly used for making interest-free advances and investments.
- Whether unsecured loans received by the assessee could be treated as unexplained cash credits under Section 68 despite the assessee furnishing evidence regarding identity, creditworthiness, and genuineness of the lenders.
Analysis:
The Assessing Officer disallowed interest expenditure under Section 36(1)(iii) on the ground that interest-bearing funds were utilized for making interest-free advances and investments. The Tribunal observed that while part of the borrowed funds had been diverted, the disallowance sustained by the CIT(A) exceeded the actual interest liability incurred by the assessee. Accordingly, the Tribunal restricted the disallowance to ₹10.82 lakh.
The Assessing Officer had also made an addition of ₹80 lakh under Section 68 by treating unsecured loans as bogus. The Tribunal noted that the assessee had furnished certificates of incorporation, PAN details, financial statements, and bank statements of the lender companies, thereby establishing their identity, creditworthiness, and the genuineness of the transactions. It further observed that the loans were received through banking channels and were repaid subsequently. Since the Revenue had brought no direct evidence to prove that the loans were bogus and had proceeded merely on suspicion of circular transactions, the addition under Section 68 was held to be unsustainable.
Conclusion: The Tribunal partly allowed the assessee’s appeal by restricting the disallowance under Section 36(1)(iii) to ₹10.82 lakh. It further upheld the deletion of the ₹80 lakh addition under Section 68, holding that once the assessee establishes the identity, creditworthiness, and genuineness of the lenders, no addition can be made merely on suspicion or conjecture. The Revenue’s appeal was dismissed.
11) Where reassessment was initiated solely on ground of non-adoption of stamp duty value for computing capital gains and no addition was made on that ground in reassessment, disallowance of deduction under section 54 on a different issue could not be sustained and such addition was not valid in reassessment order.
Case: Narendra Vinayak Palmure v. Income-tax Officer [2026] 187 taxmann.com 748 (Bangalore – Trib.)
Court: ITAT, Bangalore
Verdict Date: 16 June 2026
Issues: Whether an addition made on an issue unrelated to the reasons recorded for reopening can be sustained where no addition is ultimately made on the issue for which reassessment proceedings were initiated.
Analysis: The assessee’s case was reopened under Section 147 on the ground that the stamp duty value of a property had not been adopted for computing capital gains. However, in the reassessment order, the Assessing Officer did not make any addition on this issue and instead disallowed the deduction claimed under Section 54.
The Tribunal, relying on the decision of the Bombay High Court in CIT v. Jet Airways (I) Ltd., held that where reassessment is initiated for a specific item of escaped income, the Assessing Officer must make an addition on that very issue. If no addition is made on the reason recorded for reopening, any addition made on another issue cannot survive. Since no addition was made regarding the alleged understatement of sale consideration, the disallowance of deduction under Section 54 was held to be unsustainable.
Conclusion: The Tribunal held that when no addition is made on the issue forming the basis of reopening under Section 147, no other addition can be sustained in the reassessment proceedings. Accordingly, the disallowance under Section 54 was deleted and the assessee’s appeal was allowed.
12) Where Assessing Officer issued notices for reassessment after expiry of three years from end of relevant assessment years and obtained approval from Principal Commissioner instead of specified authority as required under section 151(ii), initiation of reassessment was without authority of law and void ab initio.
Case: ITO v. Neelesh Hasmukh Doshi (HUF) [2026] 187 taxmann.com 843 (Mumbai – Trib.)
Court: ITAT, Mumbai
Verdict Date: 19 June 2026
Issues: Whether reassessment proceedings initiated after the expiry of three years from the end of the relevant assessment year are valid where the approval under Section 151(ii) was obtained from the Principal Commissioner instead of the specified authority, i.e., the Principal Chief Commissioner.
Analysis: The Assessing Officer issued notices under Section 148 beyond three years from the end of the relevant assessment years after obtaining approval from the Principal Commissioner of Income Tax. The Commissioner (Appeals) held that, under Section 151(ii), the mandatory approval in such cases had to be obtained from the specified authority, namely the Principal Chief Commissioner of Income Tax, and therefore the reassessment proceedings were void ab initio.
The Tribunal relied upon the decisions of the Bombay High Court in Mrs. Chitra Supekar v. ITO and Cipla Pharma and Life Sciences Ltd. v. Dy. CIT, which held that failure to obtain approval from the competent authority prescribed under Section 151(ii) invalidates the reassessment proceedings. Since the approval had been obtained from an incompetent authority, the reassessment proceedings lacked legal sanction.
Conclusion: The Tribunal held that reassessment proceedings initiated beyond three years without obtaining approval from the specified authority under Section 151(ii) are without authority of law and void ab initio. Accordingly, the Revenue’s appeals were dismissed, and the order of the Commissioner (Appeals) was upheld.
13) Where assessment order involving substantial additions was passed without granting adequate opportunity to assessee to explain alleged discrepancies, thereby reducing the opportunity of hearing to a mere ritualistic formality, writ petition was maintainable despite availability of an alternative statutory appellate remedy, and assessment order, consequential demand notice and connected penalty proceedings were liable to be quashed and matter remanded for fresh assessment.
Case: Pricewaterhouse Coopers (P.) Ltd. v. Assistant Commissioner of Income-tax [2026] 187 taxmann.com 981 (Calcutta)
Court: High Court at Calcutta
Verdict Date: 25 June 2026
Issues: Whether an assessment order passed under Section 143(3), along with consequential demand and penalty proceedings, is liable to be quashed for violation of the principles of natural justice where the assessee was denied a meaningful and effective opportunity of hearing.
Analysis: The petitioner challenged the assessment order contending that despite responding to notices issued during scrutiny proceedings, the Jurisdictional Assessing Officer issued a show-cause notice on 28.03.2026 requiring a reply by 30.03.2026 and passed the assessment order on the very same day without granting a meaningful opportunity of hearing. The High Court held that mere issuance of notices does not satisfy the principles of natural justice; the opportunity afforded must be real, effective, and reasonable. Relying on Tin Box Co. v. CIT and other judicial precedents, the Court held that an assessment passed in breach of natural justice cannot be cured at the appellate stage and is liable to be set aside notwithstanding the availability of an alternate statutory remedy.
Conclusion: The High Court held that the assessment order suffered from gross violation of the principles of natural justice and denial of an effective opportunity of hearing. Accordingly, the assessment order, consequential demand notice, and penalty proceedings were quashed, and the matter was remanded to the Assessing Officer for fresh assessment after granting the assessee a meaningful opportunity of hearing.
14) Where assessee engaged in trading of ferrous and non-ferrous metals made purchases from alleged accommodation entry providers and corresponding sales were undisputed with no adverse stock findings, entire alleged bogus purchases could not be added and only profit element embedded therein was liable to be taxed; accordingly, addition was to be restricted to 8 per cent of such purchases
Case: Pruthvi Singh Solanki v. Income-tax Officer [2026] 187 taxmann.com 982 (Ahmedabad – Trib.)
Court: ITAT, Ahmedabad Bench ‘B’
Verdict Date: 23 June 2026
Issues: Whether the entire amount of alleged bogus purchases can be added under Section 69C where the corresponding sales are accepted and no discrepancy is found in the stock records.
Analysis: The Assessing Officer treated purchases of ₹50.34 lakh from alleged accommodation entry providers as bogus and added the entire amount to the assessee’s income. The Tribunal observed that the assessee, being a trader, had recorded corresponding sales which were not disputed by the Revenue, and no adverse findings were recorded regarding the stock. It held that once sales are accepted, the entire purchases cannot be disallowed, as at most the assessee may have procured goods from the grey market while obtaining accommodation bills. Accordingly, only the profit element embedded in such purchases could be taxed, and the addition was restricted to 8% of the alleged bogus purchases.
Conclusion: The Tribunal held that where corresponding sales are accepted and no stock discrepancy is found, the entire alleged bogus purchases cannot be added. Only the profit element embedded in such purchases is taxable. Accordingly, the addition was restricted to 8% of the alleged bogus purchases, and the assessee’s appeal was partly allowed.
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