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Recent Judgements in Direct Tax

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Table of Contents

1. Penalty for Non-Disclosure of Foreign Assets Is Discretionary

This Special Bench ruling of the Income Tax Appellate Tribunal (ITAT), Mumbai examined the scope and nature of Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Facts of the Case

  • Husband and wife failed to report their foreign investment in Avestar Global Opportunities SPC (Cayman Islands) in Schedule FA for AY 2020–21.
  • The investment was made through RBI’s LRS using tax-paid income.
  • They claimed the omission was an oversight and had been disclosed in later years.
  • The AO and CIT(A) levied and confirmed a ₹10 lakh penalty each under Section 43 of the Black Money Act, holding it to be mandatory.

Judgement

  • The Special Bench of ITAT Mumbai held that the word “may” in Section 43 gives the AO discretion to impose penalty; it is not automatic.
  • The requirement of opportunity of hearing under Section 46(3) confirms that the penalty is not mandatory.
  • Relied on Hindustan Steel Ltd. v. State of Orissa (SC) and Ankit International (Bom HC) to support discretionary interpretation.

Conclusion

  • Penalty for non-disclosure of foreign assets is not mandatory.
  • The AO can decide whether to impose it based on the facts and circumstances of each case.
  • The matter was remanded to the Division Bench to decide on merits.

2. TDS Refund Cannot Be Denied for 26AS Mismatch if Form 16A Is Valid

This case from the Income Tax Appellate Tribunal (ITAT), Mumbai Bench dealt with the issue of TDS credit denial due to mismatch in Form 26AS. The taxpayer had furnished Form 16A certificates and supporting bank proofs showing that tax was indeed deducted and deposited by the deductor, but the Assessing Officer (AO) refused to grant TDS credit solely because the amount was not reflected in Form 26AS.

Facts of the Case

  • The assessee, a co-operative society exempt under Section 80P, filed refund claims for TDS deducted for AYs 2009–10 to 2012–13 and 2015–16, supported by Form 16A certificates.
  • The Assessing Officer (AO) denied the refund on the ground that the TDS amounts were not reflected in Form 26AS.
  • The assessee filed a written petition before the Allahabad High Court challenging the denial and seeking refund.

Judgement

  • The High Court relied on rulings of the Delhi High Court in Court On Its Own Motion v. CIT and its own decision in Rakesh Kumar Gupta v. Union of India, holding that non-reflection of TDS in Form 26AS cannot be the sole ground to deny refund.
  • The Court observed that:
    • If the assessee provides valid Form 16A certificates, the AO must verify them instead of rejecting the refund.
    • A taxpayer cannot be penalized for the deductor’s failure to upload TDS details.
    • It is the AO’s duty to verify and allow the refund once TDS is confirmed.

Conclusion

  • The assessee is entitled to refund of TDS amounts once Form 16A certificates are verified and accepted.
  • The AO cannot deny refund solely due to mismatch with Form 26AS and must complete verification within four weeks.
  • Decision: In favour of the assessee.

3. Section 87A Rebate via Revised ITR

The case concerns whether a taxpayer can claim the rebate under Section 87A through a revised return if it was missed in the original income-tax return. The issue arose after CPC denied the rebate claimed in the revised ITR, treating it as invalid.

Facts of the Case

  • The appellant (Thejaswini Jakkaraju) filed her original income-tax return on 22 June 2024 for FY 2023-24
  • In the original return she did not claim the rebate under Section 87A.
  • On 11 July 2024 she filed a revised return, claiming the rebate under Section 87A (amounting to about ₹21,350).
  • The processing centre (CPC) denied the rebate claim in the intimation under section 143(1)
  • On appeal, the CIT(A) rejected the claim, holding that the revision was not permissible simply because the taxpayer opted for the old regime / changed tax regime and that the “error or omission” prerequisite for filing a revised return was not met
  • On appeal, the ITAT Bengaluru held in favour of the taxpayer, allowing the claim for rebate under Section 87A via the revised return.

Judgment – Key Reasoning

  • The ITAT found that the omission to claim the rebate under Section 87A in the original return constituted a genuine error or omission — which is the statutory trigger for filing a revised return under section 139(5) of the Act.
  • The Tribunal distinguished the leading precedent of CIT v. Wipro Ltd. (which dealt with using a revision to convert a return into a loss-return) on facts, observing that this case did not involve loss-creation but simply an omission of a valid relief.
  • It also referred to the decision of the Bombay High Court in Chamber of Tax Consultants v. DGIT(System) [2025] 473 ITR 85, supporting the proposition that the rebate under Section 87A is available under both old and new tax regimes and that the assessing officer should not mechanically deny it when admissible.
  • Accordingly, the Tribunal directed the AO to allow the rebate claim of ₹21,350 under Section 87A

  Conclusion & Practical Implication

  • The decision confirms that a taxpayer who fails to claim a rebate under Section 87A in the original ITR can still claim it by way of a revised return, provided the revised return is filed in time and the omission qualifies as an “error or omission”.
  • For advisory practice:
    • Review all clients’ returns to check whether they omitted rebate under Section 87A (or other reliefs) in the original ITR.
    • If so, check whether a revised return can/has been filed within the statutory window (section 139(5)) and ensure compliance with Form/filing requirements.
    • For future filings, emphasise early reconciliation and correct claim of rebates/reliefs to avoid reliance on corrective filing.
    • Alert clients that while the Tribunal allowed the rebate here, care must be taken: the department’s processing (CPC) may still reject such claims; hence documentation and timely revision are crucial.

Also keep in mind: there remain controversies and conflicting positions (especially regarding special-rate incomes such as short-term capital gains) where the rebate may not be allowed, or demands issued. For example, even though the ITAT decision supports the revised return claim, other issues like special rate incomes may complicate the rebate eligibility.

4. License Fee for Use of Goodwill Allowable as Business Expense

The case involved the allowability of license fee paid for use of goodwill and the ad hoc disallowance of travelling and entertainment expenses claimed by Remfry & Sagar, a prominent law firm.The Revenue questioned whether the license fee paid to a partnership firm owning the goodwill violated Bar Council rules and was therefore disallowable under Section 37(1) of the Income-tax Act. The Assessing Officer had also made a 5% ad hoc disallowance of business expenses without identifying any discrepancy.

Facts of the Case

  • The assessee, a law firm, paid a license fee to another partnership firm (which owned the goodwill “Remfry & Sagar”) for using the goodwill in its business.
  • The Assessing Officer disallowed this expenditure, arguing that it amounted to sharing of remuneration, violating the Bar Council of India Rules.
  • The assessee also claimed travelling and entertainment expenses, which were reduced by 5% on an ad hoc basis by the AO, citing possible personal elements.
  • The CIT(A) and ITAT deleted both disallowances. The Revenue appealed before the Delhi High Court.

Judgement

  • The High Court upheld the ITAT’s decision, following its earlier judgment in CIT v. Remfry & Sagar [2025]
  • It held that the license fee was paid wholly and exclusively for business purposes, as it enabled the firm to benefit from the goodwill and reputation of the name “Remfry & Sagar”.
  • The Court clarified that such payment did not violate the Bar Council Rules, as it was not a sharing of fees, but merely consideration for using goodwill — a legitimate business asset.
  • Regarding the travelling and entertainment expenses, the Court noted that the AO had not pointed out any discrepancy or personal use and had made the disallowance purely on presumptions. Therefore, the deletion of disallowance was justified.

Conclusion

  • The license fee for use of goodwill was allowable as business expenditure under Section 37(1).
  • The ad hoc 5% disallowance of travelling and entertainment expenses was unjustified and rightly deleted.
  • The Delhi High Court held that no substantial question of law arose, thereby dismissing the Revenue’s appeal.

Result: Decision in favour of the assessee – both the license fee and expense claims were upheld as valid business deductions.

 

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