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1. Non-compete Fees paid – Not a capital expenditure – Allowable as deduction u/s. 37

Assessee was engaged in business of importing, marketing and selling electronic office products and equipment in India. During the year, the assessee paid a sum of Rs. 3 crores to L &T as non-compete fees for not setting up or undertaking any business in India of selling, marketing and trading in electronic office products for 7 years. The amount was claimed as a deductible revenue expenditure. The assessing officer held that such an expenditure had brought into existence an advantage of enduring nature and, hence, treated payment of Rs. 3 crores as capital expenditure. The assessee’s claim was not allowed by the lower authorities and the High Court.

On appeal to the Supreme Court, the Supreme Court held that the non-compete fee only seeks to protect or enhance profitability of business, thereby facilitating carrying on of business more efficiently and profitably and, thus, such payment neither results in creation of any new asset nor accretion to profit earning apparatus of payer. Further, on facts of the case, the Supreme Court held that assessee had not acquired any new business and there was no addition to profit making apparatus of assessee, assets remained same and expenditure incurred was essentially to keep a potential competitor out of same business and, thus, non-compete fee paid by assessee was an allowable revenue expenditure under section 37(1).

Sharp Business System v. CIT (2025) 181 taxmann.com 657 (SC)

2. Bogus purchases from hawala operators – Addition u/s. 69C – Addition confirmed by High Court – Dismissal of SLP by Supreme Court

Case of the assessee was taken up for reassessment on basis of information received from DGIT(Inv.)/Sales Tax Department that assessee made bogus purchases from hawala operators. Assessing Officer made addition of entire amount of bogus purchases to income of assessee under the provisions of section 69C. Commissioner (Appeals) and Tribunal restricted disallowance to profit margin on unproven purchases. On appeal by revenue, the High Court held that since assessee had failed to prove purchases including source of expenditure by not offering any explanation in course of reassessment proceedings, provisions of section 69C were clearly attracted and, therefore, Assessing Officer was justified in making addition of entire amount of bogus purchases. [See : Pr. CIT v. Kanak Impex (India) Ltd. (2025) 474 ITR 175 (Bombay)]

The assessee filed SLP before the Supreme Court. The Supreme Court observed that there was no reason to interfere with impugned order passed by High Court. Thus, the SLP filed by the assessee was dismissed.

Kanak Impex (India) Ltd. v. Pr. CIT (2025) 180 taxmann.com 790 (SC)

3. Penalty u/s. 271(1)(c) – Not recording of proper satisfaction as regards the applicable limb – Penalty held not valid by Tribunal and confirmed by High Court – Dismissal of SLP by Supreme Court

Assessee claimed exemption under section 10(23C)(vi). The assessing officer opined that assessee had concealed its income or furnished inaccurate particulars of income to claim exemption. Accordingly, he levied penalty upon assessee. The Tribunal deleted penalty on ground that Assessing Officer while completing assessment had not recorded proper satisfaction as to which limb of section 271(1)(c) had not been fulfilled by assessee and, thus, even order passed for levying penalty for concealment was invalid and bad in law. The order of the Tribunal was confirmed by the High Court. [See : CIT (E) v. Maharashtra Academy of Engineering and Educational Research [2025] 180 taxmann.439 (Bombay)]

On SLP filed by the revenue, the Supreme Court held that the court did not find good ground to interfere with impugned judgment in exercise of jurisdiction under Article 136 of Constitution of India. Holding so, the Supreme Court dismissed the SLP filed by way of a speaking order.

CIT (E) v. Maharashtra Academy of Engineering and Educational Research [2025] 181 taxmann.com 288 (SC)

4. Reassessment beyond three years – Approval from Pr. CIT instead of Pr. CCIT – Violation of section 151 - Reassessment held as invalid by High Court – Dismissal of SLP by the Supreme Court

Revenue issued a notice under section 148A(b) to the assessee- HUF after three years from end of relevant assessment year. Order under section 148A(d) was passed holding that income had escaped assessment. Assessee filed a writ petition before the High Court challenging the validity of the order u/s. 148A(d). The assessee contended that the prior approval of Principal Commissioner was not appropriate as per section 151 of the Act. High Court held that first proviso to section 148 and section 151, when read conjointly, demonstrates that approval of specified authority is mandatory. Further, approval was sought from authorities specified in clause (i), as against clause (ii) of section 151. High Court accordingly quashed the notice and order on ground that there was no approval of specified authority as indicated in section 151(ii). [See : Twylight Infrastructure Pvt. Ltd. (2024) 463 ITR 702 (Del.)]

On SLP file by the Revenue, the Supreme Court held that the SLP was squarely covered by judgment of SC in Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70 (SC). Accordingly the assessee will be governed by reasons discussed in said judgment and, thus, SLP filed by revenue was dismissed.

Dy. CIT v. C. E. Info Systems Ltd. [2025] 180 taxmann.com 703 (SC). / Also see ITO v. Laxmibaug Sahakari Patpedhi Maryadit [2025] 181 taxmann.com 345 (SC)

5. Outstanding liabilities to banks on account of cheques issued to suppliers which were later on cancelled – Held as unexplained cash credit u/s. 68 since not substantiated

Assessee had reflected certain liabilities owed to three banks in its books of accounts. These liabilities were not supported by bank statements. The assessing officer concluded that assessee had reflected bogus credits in its accounts and made an addition to declared income of assessee. Assessee claimed that outstanding liability had arisen on account of cheques issued to various suppliers for purchase of materials that were not presented to concerned banks. However, due to downturn in real estate market, assessee returned materials purchased and recovered cheques issued to various suppliers. Tribunal, however held that assessee had failed to establish liability reflected as payable to banks and upheld additions made by Assessing Officer.

On further appeal to High Court by the assessee, it was noted there was no material on record to show that assessee had received goods from suppliers, which were subsequently returned. Since there were no documentary evidence produced by assessee to establish transactions as claimed, decision of Tribunal was held to be not suffering from any perversity or patent illegality. Accordingly the appeal of the assessee was dismissed by the High Court.

Harsha Associates P. Ltd. v. Dy. CIT [2025] 174 taxmann.com 727 (Delhi)

6. Excess Foreign Tax Credit availed – Penalty u/s. 270A – section held not invocable for excess foreign tax credit

For assessment year 2017-18, the assessee filed his income-tax return in which he claimed deduction of Foreign Tax Credit (FTC) in accordance with rule 128 of Income-tax Rules, 1962. Intimation under section 143(1) and assessment order under section 143(3) both accepted returned income without any variation. Subsequently, a show cause notice was issued to assessee proposing penalty under section 270A for alleged under-reporting/misreporting of income in relation to claim of FTC. Assessee submitted detailed replies. However, Assessing Officer passed impugned penalty order under section 270A.

The assessee filed a writ petition to the High Court. The High Court held that section 270A would be invocable only if there was under-reporting of income or misreporting of income, and said provisions would not apply in instant case insofar as assessee was concerned who was only alleged to have availed excess foreign tax credit. Merely because assessee had allegedly made excess claim of foreign tax credit, necessary ingredients enabling revenue to initiate penalty proceedings by invoking section 270A would not arise.

Srinivasa Gandhi Sampath v. ACIT [2025] 181 taxmann.com 308 (Karnataka)

7. Salary earned by Non-resident from Indian Employer for services rendered outside India – Held not taxable in India – Section 5 r.w.s. 6 of Income-tax Act

Assessee, an individual employed with an Indian company, was deputed on a short-term foreign assignment to Philippines during relevant year. He stayed in India for only 29 days and was, therefore, a non-resident. Assessee declared Indian-sourced salary of about ₹86.91 lakhs as taxable and excluded about ₹1.14 crores being salary attributable to services rendered outside India. Assessing Officer held that since employer was an Indian company and salary was paid from India, income accrued in India and made addition. This was confirmed by the CIT (A).

On further appeal to the Tribunal, the Tribunal held that it is a settled position of law that salary accrues at the place where services are rendered. Merely because employer is an Indian company and salary may have been disbursed from India, source of accrual could not be shifted to India. Situs of employment and rendering of services determines accrual. Therefore, salary relating to services rendered in Philippines by a non-resident employee could not be treated as income accruing or arising in India within meaning of section 5(2)(b) of the Act. Therefore, addition made towards salary earned outside India was not sustainable.

Debashis Das v. ACIT International Taxation [2025] 181 taxmann.com 787 (Kolkata Tribunal).

8. Assessment Year 2017-18 – Cash deposited during demonetisation - Appeal to Income-tax Appellate Tribunal by Revenue – Lower tax effect – For computation of tax effect, the higher rate of tax cannot be considered for transactions prior to 15-12-2016 – Amendment to section 115BBE not retrospective

During demonetisation period, assessee deposited Specified Bank Notes in his bank account - Assessing Officer held that assessee failed to establish genuineness of cash sales and made addition as unexplained cash credit under section 68 read with section 115BBE. Commissioner (Appeals) deleted said addition. Revenue filed appeal before Tribunal. Assessee filed cross-objection contending that tax effect, computed at normal rate, was less than Rs. 60 lakhs and, therefore, Revenue’s appeal was liable to be dismissed on ground of low tax effect.

Tribunal held that since amendment to section 115BBE came into force with effect from 15-12-2016, higher rate of tax prescribed therein could not be applied retrospectively and, consequently, for computing tax effect, normal rate of income-tax was required to be applied and Revenue’s appeal fell within ambit of low tax effect and was to be dismissed.

ITO v. Mahendrakumar Bhagvandas [2025] 181 taxmann.com 508 (Rajkot Tribunal)