Gopal Nathani & Raji Nathani – [2026] 184 taxmann.com 322 (Article)

Can what was done in substance in India be neutralised by how it was drafted on paper abroad. In the notable case of Oracle Systems Corporation v. Addl. DIT [2026] 184 taxmann.com 34 (Delhi-Trib.) [02-03-2026], Oracle Systems Corporation (a US entity) entered into a Software Support Services Agreement with its 100% Indian subsidiary, Oracle India Pvt. Ltd. (OIPL). Under this agreement, the US entity received 56% of software revenue from OIPL, which it offered to tax at a 15% rate as “royalty” under the Double Taxation Avoidance Agreement (DTAA). The Assessing Officer (AO) initially sought to tax this income at 42.23% by treating OIPL as a Permanent Establishment (PE) of the US parent. However, the Income Tax Appellate Tribunal (ITAT) ruled there was no PE in India, citing a lack of evidence that the US company had disposal of, access to, or control over OIPL’s premises. Consequently, the tribunal held that no business profits could be attributed to a PE or taxed in India in the hands of the US Corporation.

1. The Revenue Structure

Despite the tribunal’s ruling, a factor that remains under-highlighted is the sheer scale of revenue transfer in this case. The US Corporation captures 56% of gross revenue as royalties, while simultaneously maintaining entitlement to 100% of profits via dividends. This leaves OIPL with only 44% of revenue, essentially to cover local infrastructure and operating expenses. This structure—combining 100% ownership with a 56% revenue transfer—suggests both a Sufficient Economic Connection (SEC) and a Significant Economic Presence (SEP) in India under Explanation 2A to Section 9(1).

2. SEP and POEM

The Income Tax Act provides two critical provisions for such scenarios under section 6(3) and section 9(1) Explanation 2A reading as under:

Explanation 2A. For the removal of doubts, it is hereby clarified that the significant economic presence of a non-resident in India shall constitute “business connection” in India and “significant economic presence” for this purpose, shall mean:

(a) transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or

(b) systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means.

Provided that the transactions or activities shall constitute significant economic presence in India, whether or not,—

(i) the agreement for such transactions or activities is entered in India;

(ii) the non-resident has a residence or place of business in India; or

(iii) the non-resident renders services in India – Provided further that only so much of income as is attributable to the transactions or activities referred to in clause (a) or clause (b) shall be deemed to accrue or arise in India.]

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Case Details: Rajarajeswari Hospitals (P.) Ltd., In re [2026] 183 taxmann.com 710 (AAR-TAMILNADU)

Judiciary and Counsel Details

• C. Thiyagarajan & B. Suseel Kumar, Member

Facts of the Case

The applicant, a multi-speciality hospital engaged in providing comprehensive healthcare services, sought an advance ruling on whether the supply of medicines, consumables, implants, and other medical items to in-patients and out-patients would qualify as an exempt supply under healthcare services. It was submitted that supply of such items to in-patients during the course of treatment forms part of a composite supply wherein healthcare service is the principal supply, and hence should be exempt. It was further submitted that such supplies are naturally bundled and provided in conjunction with treatment until discharge. The matter was accordingly placed before the Authority for Advance Ruling (AAR).

AAR Held

The AAR held that the supply of medicines, consumables, implants, and other medical items to in-patients constitutes a composite supply of healthcare services, wherein healthcare service is the principal supply, and therefore qualifies for exemption under Entry No. 74 of Notification No. 12/2017-Central Tax (Rate), dated 28-06-2017 read with Section 11 of the CGST Act. It was observed that such supplies are naturally bundled and integral to treatment provided during hospitalisation. For outpatients, the supply of medicines and related items is not a composite supply since patients can procure them independently; hence, such supplies are taxable, except consultation services, which remain exempt as healthcare services.

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Notification No. S.O. 1397(E); Dated: 18.03.2026

The Central Government has amended the monetary limits for adjudication under the Foreign Exchange Management Act (FEMA) by revising the allocation of cases among adjudicating authorities.

1. Rationalisation of Adjudication Thresholds

The amendment substitutes the entries against serial numbers 3 and 4 in the existing table governing jurisdiction of adjudicating officers.

Under the revised framework:

• Cases involving amounts exceeding ₹2 crore but not exceeding ₹10 crore are now assignable to both:

  1. Additional Director of Enforcement, and
  2. Joint Director of Enforcement

2. Removal of Earlier Distinction

Previously, the adjudication framework differentiated between:

• ₹2 crore to ₹5 crore, and
• ₹5 crore to ₹10 crore

This distinction has now been removed, and both ranges have been consolidated into a single unified slab of ₹2 crore to ₹10 crore.

3. Implications of the Amendment

The revised structure:

• Provides greater flexibility in allocation of cases
• Enables efficient distribution of workload among enforcement authorities
• Simplifies the adjudication framework under FEMA

4. Objective of the Amendment

The amendment aims to:

• Streamline adjudication processes
• Improve administrative efficiency in handling FEMA cases
• Ensure optimal utilisation of enforcement resources

Overall, the rationalisation enhances operational effectiveness in the adjudication of foreign exchange violations.

Click Here To Read The Full Notification

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Case Details: Hoscar System (P.) Ltd. vs. Assistant Commissioner (ST) [2026] 184 taxmann.com 263 (Madras)

Judiciary and Counsel Details

• C. Saravanan, J.
• N. Viswanathan for the Petitioner.
• T.N.C. Kaushik, Additional Government Pleader for the Respondent.

Facts of the Case

The petitioner, a registered taxpayer, faced retrospective cancellation of GST registration pursuant to issuance of a show cause notice (SCN). Subsequently, a SCN in Form GST DRC-01 was issued proposing the demand on account of alleged excess availment of ITC. In the absence of any reply from the petitioner, an order in Form GST DRC-07 was passed determining the liability and noting the non-response. It was contended that the impugned order failed to specify whether the alleged excess IGST ITC had been utilised or remained unutilized, and lacked a clear factual determination on this point, rendering it unsustainable. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that a valid demand under Section 16 read with Section 73 of the CGST Act requires a clear finding regarding the nature and utilisation of ITC. It was observed that the impugned order did not disclose whether the excess IGST ITC had been utilised, which is a material factor in determining liability. The Court further noted that the absence of a speaking order and the lack of specific factual findings vitiated the adjudication process. Accordingly, the impugned order was quashed, the matter was remanded for fresh adjudication on merits within a stipulated period, and all recovery proceedings were directed to remain in abeyance pending such de novo proceedings.

The post HC Quashes ITC Demand Order Lacking Findings on Utilisation appeared first on Taxmann Blog.

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Editorial Team – [2026] 184 Taxmann.com 373 (Article)

Global Financial Insights is a weekly feature for the Accounts and Audit Module subscribers of Taxmann.com. It provides you with the latest updates on financial reporting and auditing practices from across the globe. Here is this week’s financial update:

1. FRC Issues Interim Guidance for Safeguarding Auditors Following FCA’s New Supplementary Regime

The Financial Conduct Authority (FCA) has introduced a new Supplementary Regime for payment and e-money institutions, effective from 7th May 2026, with the objective of strengthening safeguarding practices and enhancing consumer protection. The regime places increased emphasis on robust recordkeeping, regular reconciliations and stronger governance frameworks, addressing gaps observed in existing safeguarding arrangements.

In light of these developments, safeguarding auditors will play a critical role in evaluating firms’ compliance with the enhanced requirements, particularly during the initial phase of implementation, when both legacy frameworks and new expectations coexist.

To support this transition, the Financial Reporting Council (FRC) has issued Interim Guidance on Payment and E-Money Safeguarding Assurance Engagements. The guidance aims to assist auditors in maintaining consistency and quality in assurance engagements, while exercising appropriate professional judgement in a changing regulatory environment.

The Interim Guidance outlines broad principles to help auditors plan and perform their work under the new regime. It is intended as a temporary measure until the FRC develops a dedicated safeguarding assurance standard, which is expected to be issued following public consultation in 2027. Further, the FRC has clarified that the guidance is non-mandatory in nature and does not introduce new requirements or override existing regulations such as the Electronic Money Regulations (EMRs), Payment Services Regulations (PSRs) or CASS 15. Instead, it serves as a practical reference point during the transition period.

Overall, the Interim Guidance acts as a transitional tool to help safeguarding auditors adapt to the FCA’s Supplementary Regime, supporting a consistent and high-quality approach until a formal assurance standard is introduced.

Source – Financial Reporting Council

2. FRC Issues Guidance to Improve Interpretation of Departures from Corporate Governance Code

The Financial Reporting Council (FRC) has released updated guidance on ‘comply or explain’ reporting to help investors and other stakeholders better interpret instances where companies choose not to follow specific provisions of the UK Corporate Governance Code.

Amid the ongoing reporting season, the FRC has clarified that departures from the Code should not automatically be viewed negatively. Instead, a clear, well-reasoned explanation may reflect a more thoughtful, tailored approach to governance, aligned with a company’s specific circumstances.

The guidance focuses on improving how such explanations are understood, encouraging users of financial statements to assess the quality and transparency of disclosures rather than relying solely on whether a company has fully complied with the Code. It highlights that meaningful explanations can provide deeper insight into how boards apply governance principles in practice.

The FRC has also drawn attention to a tendency among companies to report full compliance to avoid scrutiny, even where alternative approaches may be more appropriate. This has led to standardised disclosures that offer limited value to users. The updated guidance seeks to address this by promoting more informative and entity-specific reporting.

Looking ahead, the FRC will continue to monitor reporting practices and plans to share its observations on the quality of such disclosures in its upcoming annual corporate governance review.

Source – Financial Reporting Council

Click Here To Read The Full Article

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Case Details: Securities and Exchange Board of India vs. Terrascope Ventures Ltd., etc. [2026] 184 taxmann.com 332 (SC)

Judiciary and Counsel Details

• K.V. Viswanathan & J.B. Pardiwala, JJ.
• Navin Pahwa, Sr. Adv., Dhaval Mehrotra & Ms Aditi Desai, Advs. for the Appellant.
• Mahfooz Ahsan Nazki, Aor, Mahfooz A. Nazki, Amicus Curiae, Vivek Rajan D.B., Ms Nazarat Fatima & Hemant Gupta, Advs. for the Respondent.

Facts of the Case

In the instant case the respondent company issued a notice for an Extra Ordinary General Meeting (EoGM) disclosing, under Section 173(2) of the Companies Act, 1956 read with Regulation 73(1) of the SEBI (ICDR) Regulations, 2009, that the proceeds of a proposed preferential allotment would be used for capital expenditure including acquisitions, long-term working capital, marketing, setting up of offices abroad and other approved corporate purposes.

A special resolution was passed, and preferential allotment was made to 42 entities, raising about Rs. 15.88 crores.

The SEBI alleged that, immediately upon receipt, the company diverted proceeds to purchase shares of other companies and to grant loans/advances, contrary to disclosed objects. The SEBI issued a show cause notice for alleged Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) violations and, by a final order, recorded that the company had utilised proceeds for objects not disclosed in the EoGM notice.

The SEBI imposed penalties on the company of Rs. 70 lakhs under Section 15HA of the SEBI Act, Rs. 30 lakhs under Section 23E of the Securities Contracts (Regulation) Act, 1956 (SCRA), and Rs. 25 lakhs each on the Managing Director and the Director for PFUTP violations.

On an appeal, the Securities Appellate Tribunal (SAT) set aside SEBI’s orders, holding that once utilisation of proceeds was ratified by shareholders on 29.09.2017, acts became valid/authorised, there was no variation in utilisation, and consequently, there was no violation of Clause 43 of the Listing Agreement.

It was noted that since the entire amount raised was utilised for an object other than one set out in the EoGM notice, and ratification was sought after committing illegality, reliance on Section 27 read with Section 62(1)(c) of the Companies Act, 2013 was completely misplaced.

Supreme Court Held

The Supreme Court held that the subsequent shareholder ratification dated 29.09.2017 and the MoA amendment dated 12.03.2014 could not validate such variation, as it was a plainly illegal act impacting a vast array of stakeholders other than shareholders of the company.

Therefore, the impugned order passed by the SAT could not be sustained and was to be set aside. Thus, the penalty imposed was not disproportionate.

List of Cases Reviewed

• Order of Securities Appellate Tribunal, Mumbai in Appeal Nos. 116 of 2021, 114 of 2021 and 115 of 2021, Dated 02.06.2022 (para 79) set aside

List of Cases Referred to

• SEBI v. Rakhi Trading (P.) Ltd. [2018] 90 taxmann.com 147/146 SCL 163 (SC) (para 37)
• SEBI v. Kanaiyalal Baldevbhai Patel [2017] 85 taxmann.com 267/144 SCL 5 (SC) (para 37)
• SEBI v. Kishore R. Ajmera [2016] 66 taxmann.com 288/134 SCL 481 (SC) (para 37)
• Shri Lachoo Mal v. Shri Radhey Shyam (1971) 1 SCC 619 (para 59)
• Government of Andhra Pradesh v. K. Brahmanandam 2008 taxmann.com 10758 (SC) (para 60)
• Pramod Kumar v. U.P. Secondary Education Services Commission (2008) 7 SCC 153 (para 61)
• Birkbeck Permanent Benefit Building Society, In re (1912) 2 Ch. D. 183 (para 62)
• Dr. A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India 1962 SCC OnLine SC 9 (para 62)
• SEBI v. Ram Kishori Gupta [2025] 173 taxmann.com 299/188 SCL 714 (SC) (para 67)
• Nirmal N. Kotecha v. SEBI [2021] 129 taxmann.com 221/167 SCL 831 (SAT – Mumbai) (para 67).

The post Shareholder Ratification Cannot Validate Illegal Fund Diversion | SC appeared first on Taxmann Blog.

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Case Details: State of Madhya Pradesh vs. Rajkumar Yadav [2026] 184 taxmann.com 279 (SC)

Judiciary and Counsel Details

• N.V. Anjaria & Ahsanuddin Amanullah, JJ.
• Sarad Kumar Singhania, Aor, Karan Singh & Kanishk Sharma, Advs. for the Appellant.
• Harmeet Singh Ruprah, Ashutosh Yadav, Aors, Santosh Kumar, Sr. Adv., Rajiv R. Mishra & Ms Suruchi Yadav, Advs. for the Respondent.

Facts of the Case

In the instant case, the respondent applied for the post of constable (driver) in the police force. During the character verification, the screening committee rejected his candidature on account of his involvement in a criminal case of kidnapping and the rape of a minor girl, which was a conduct undoubtedly amounting to moral turpitude.

The respondent challenged the rejection in a writ petition. The Single Judge dismissed the writ petition, treating the acquittal as not clean and upholding the refusal to induct him into police service.

The Division Bench of the High Court set aside the Single Judge’s order, quashed the screening committee’s decision and directed the competent authority to reconsider the respondent’s case for the appointment as constable (driver) by treating the acquittal as clean and honourable.

It was noted that the acquittal founded on the benefit of doubt is an acquittal based on technical grounds, and giving the benefit of doubt and thus not convicting the offender is a technical consideration applied.

Further, it was noted that, it is a question of recruiting a person into the service or continuing him in service or extending an employee some service benefit, his criminal antecedents, involvement in criminal activity, the conduct amounting to the moral turpitude, registration of a criminal case as well as nature of his acquittal in a criminal case are all germane considerations to be applied.

Supreme Court Held

The Supreme Court observed that the area of discretion vested with the screening committee in this regard is wide enough to permit it to exclude a candidate or reject him for the purpose of giving appointment.

The Supreme Court held that the domain of considering fitness and suitability of a candidate for the purpose of taking him in service belongs to the employer and where the employer or screening committee of the employer has acted to discard, exclude or reject candidature by applying relevant considerations and has not acted arbitrarily or whimsically, Courts have no role to interpose.

Thus, the impugned order passed by the Division Bench of the High Court could not be sustained in the eye of the law and the same was to be set aside.

List of Cases Reviewed

• Order of High Court of Madhya Pradesh in Writ Appeal No. 297 of 2023 judgment dated 20.07.2023 (para 10) set aside

List of Cases Referred to

• Commissioner of Police, New Delhi v. Mehar Singh (2013) 7 SCC 685 (para 5.3)
• Avtar Singh v. Union of India (2016) 8 SCC 471 (para 5.4)
• Union Territory, Chandigarh Administration v. Pradeep Kumar (2018) 1 SCC 797 (para 5.5)
• Management of Reserve Bank of India v. Bhopal Singh Panchal [1994] 1993 taxmann.com 1218 (SC) (para 5.7)
• State of Madhya Pradesh v. Parvez Khan (2015) 2 SCC 591 (para 7.2).

The post Police Job Can Be Denied Despite Acquittal on Doubt | SC appeared first on Taxmann Blog.

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Case Details: Chamber of Tax Consultants vs. Commissioner of Income-tax (Exemptions) [2026] 184 taxmann.com 374 (Bombay)

Judiciary and Counsel Details

• B. P. Colabawalla & Firdosh P. Pooniwalla, JJ.
• Percy Pardiwalla, Sr. Adv., Dharan Gandhi & Ms Aanchal Vyas, Advs. for the Petitioner.
• Arjun Gupta for the Respondent.

Facts of the Case

The petitioners were public charitable trusts registered under the applicable laws and had either applied for fresh registration or renewal of registration under section 12AB. The Commissioner (Exemptions) rejected their applications primarily on the ground that the trust deeds did not contain explicit irrevocability and/or dissolution clauses.

Further, while filing Form 10AB, the trusts were required to answer whether the trust deed contained a clause stating that the trust is irrevocable. The e-filing utility did not permit submission of the form unless the applicant selected “Yes.” Accordingly, the petitioners selected “Yes,” even though their trust deeds did not expressly contain such a clause. The Department treated this as furnishing false or incorrect information, constituting a specified violation under section 12AB.

The matter reached before the High Court.

High Court Held

The Bombay High Court held that a public charitable trust is inherently irrevocable by operation of law, unless the trust deed expressly provides a power of revocation. The Court observed that under the Maharashtra Public Trusts Act (MPT Act), even where a trust is revoked, the trust property does not revert to the settlor but is dealt with in accordance with statutory provisions, such as vesting in the Public Trusts Administration Fund or being applied to similar charitable purposes. Thus, the fundamental condition of revocability, as contemplated under section 63 of the Income-tax Act, can never be satisfied merely due to the absence of an explicit clause.

The Court categorically ruled that the absence of an irrevocability clause or dissolution clause in the trust deed is not a valid ground for rejecting registration under section 12AB. It emphasised that neither section 12AA nor section 12AB prescribes such a requirement. The statute only requires satisfaction regarding the genuineness of activities and the charitable nature of objects, and not the presence of specific drafting clauses in the trust deed.

The Court also relied on statutory safeguards already embedded in law. It noted that provisions such as section 13(1)(c) prevent misuse of income or property for the benefit of specified persons, including the settlor, while section 115TD imposes exit tax on dissolution or conversion of trusts. Additionally, section 55 of the MPT Act incorporates the doctrine of cy-pres, ensuring that trust assets are applied to similar charitable purposes rather than reverting to the settlor. These safeguards adequately address the Revenue’s concerns.

With respect to Form 10AB, the Court strongly criticised the design of the e-filing utility. It held that the system compelled applicants to select “Yes” to proceed with filing, thereby forcing them to make a declaration that may not strictly align with the wording of the trust deed. The Court ruled that such compelled responses cannot be treated as false or incorrect information, and the Department cannot penalise applicants for deficiencies in its own system.

The Court further directed the Revenue to modify the utility of Form 10A/10AB and replace the existing question with a more appropriate formulation: “Is the trust/institution revocable?”.

List of Cases Reviewed

• CIT v. Tara Educational & Charitable Trust [IT Appeal No. 247 of 2015, dated 31-07-2017] (para 33) followed

List of Cases Referred to

• CIT v. Tara Educational & Charitable Trust [IT Appeal No. 247 of 2015, dated 31.07.2017] (para 6)
• Controller of Estate Duty v. Smt. Mangala [1983] 143 ITR 491 (Bombay) (para 14)
• Smt. Virbala K. Kewalram v. Ramchand Lalchand 1996 (4) ALL MR 490 (para 15).

The post No Section 12AB Denial for Missing Irrevocability Clause | HC appeared first on Taxmann Blog.

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Case Details: Sudhanshu Kardam vs. Comptroller and Auditor General of India - [2026] 184 taxmann.com 284 (SC)

Judiciary and Counsel Details

• Vikram Nath & Sandeep Mehta, JJ.
• Rahul Bajaj, Ms Sarah, Kathiravan N, Advs. & Ayyam Perumal Karthik M., Aor for the Petitioner.
• Ms Archana Pathak Dave, Anil Kaushik, A.S.Gs., Vaibhav Dwivedi, Abhishek Jain, Ishaan Sharma, Madhav Sinhal, Kamal Digpaul, Ms Harshita Choubey, Mahendra Kumawat, Pranjal Singh, Aashna Gill, Nachiketa Joshi, Diwakar Sharma, Aastha Singh, Yogesh Vats, Rajeshwari Shankar, Padmesh Mishra, Advs., Amrish Kumar, Dr N. Visakamurthy, Aors, S. N. Terdal, (Aor)

Facts of the Case

In the instant case, the Staff Selection Commission (SSC) initiated recruitment for Group ‘B’ and Group ‘C’ posts, and two vacancies were earmarked for the post of the Auditor in the office of the Comptroller and Auditor General of India (CAG) under the ‘Other PwD’ category.

The respondent no. 3, a PwD candidate with a disability certificate recording mental illness at 55%, applied under ‘PwD-Other’ and OBC categories, qualified for the examination, opted for the Auditor, and was recommended for the appointment.

The CAG returned certain dossiers, including that of the respondent no. 3, stating that the post of the Auditor had been identified as not suitable for PwBD with mental illness, and that rejection was formally communicated on 30 September 2021.

The appellant, a similarly placed PwD candidate from the Scheduled Caste category with Specific Learning Disability above 40% (Category ‘D’), had challenged the same communication before the Central Administrative Tribunal (CAT) in a separate original application and was later impleaded before the High Court in the writ arising from the respondent no.3’s case.

The respondent no. 3 filed Original Application No. 339 of 2022 before the CAT, relying on the Gazette Notification dated 4 January 2021 issued by the DEPwD, asserting that the ‘mental illness’ benchmark disability was included as suitable for the post of the Auditor. The CAT allowed the application on 23 January 2023, directing the CAG to constitute a Medical Board to assess the respondent no.3’s fitness and, if found fit, to offer an appointment to the post.

The CAG challenged the CAT order before the High Court. The Division Bench set aside the CAT’s order and restored the communication dated 30 September 2021 by which the respondent no.3’s dossier had been returned. The appellant’s impleadment application in the High Court was allowed during the writ proceedings. Thereafter, an appeal was made before the Supreme Court.

Supreme Court Held

The Supreme Court observed that in view of the Gazette Notification dated 04.01.2021 issued by the Ministry of Social Justice and Empowerment identifying suitable posts for persons with benchmark disabilities in Group ‘C’ posts, the appellant and the respondent no.3 (SSC CGLE-2018 candidates) were to be considered for appointment in the office of the Comptroller and Auditor General of India.

The Supreme Court held that the Staff Selection Commission was to be directed to forward their dossiers to the CAG and, if the posts advertised vide notification dated 05.05.2018 had already been filled, the respondents were to create supernumerary posts to accommodate both candidates.

List of Cases Reviewed

• Order of High Court of Delhi in Writ Petition (C) No. 5904 of 2023, Dated 29-05-2025 (para 21) set aside

The post CAG Must Follow 2021 PwBD Notification for SSC CGLE-2018 Auditor Appointment | SC appeared first on Taxmann Blog.

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Case Details: Shilpa Shetty Kundra vs. Deputy Commissioner of Income-tax - [2026] 184 taxmann.com 318 (Mumbai-Trib.)

Judiciary and Counsel Details

• Narender Kumar Choudhry, Judicial Member & Prabhash Shankar, Accountant Member
• Ms Simran Dhawan & Ravi Gantara, Advs. for the Appellant.
• Leyaqat Ali Aafaqui, Sr. D.R. for the Respondent.

Facts of the Case

The assessee, Shilpa Shetty Kundra, was an individual who earned income from a business or profession and interest income. During the relevant assessment year, she received a gift from her husband amounting to Rs. 12.54 crores.

During the assessment proceedings, the assessee furnished copies of the gift deed and the acknowledgement for the income tax return filed by her husband. However, the Assessing Officer (AO) found that the husband had shown income of Rs. 27,71,020 in his return of income for A.Y 2020-21, which is not commensurate with the amount of gift of Rs. 12,54,54,594.

The AO issued a show-cause notice to the assessee and, unsatisfied with the response, made additions to the assessee’s income under section 68. On appeal, the CIT(A) affirmed the addition made by the AO. The matter reached the Mumbai Tribunal.

ITAT Held

The ITAT observed that although the assessee had produced the gift deed and PAN details, she failed to demonstrate the actual movement of funds, as neither the bank statements nor clear evidence of transfer were produced before the authorities. The assessee failed to provide details of the transaction involved and/or the mode of payment for the gift. The assessee did not file the bank statement, despite the AO specifically asking on various occasions. Even her husband’s income tax return was not commensurate with the amount gifted.

The assessee claimed that she had received a gift from her husband out of natural love and affection. However, the mode of payment/mode of gift/detail of transferring the gifted amount was nowhere mentioned in the Gift Deed.

The Tribunal further observed discrepancies in the explanation regarding the source of the funds. The assessee claimed that the donor had received funds from an overseas entity (Kuki Investments), but the relevant entries were not properly correlated with disclosures in the donor’s income-tax returns, particularly in Schedule FA relating to foreign assets.

The financial details and schedules in the donor’s returns also did not clearly substantiate the availability of funds or their subsequent transfer as a gift. Consequently, the Tribunal held that the assessee had not fully discharged the primary onus under Section 68 to establish the identity of the donor, the genuineness of the transaction, and the donor’s creditworthiness with cogent documentary evidence.

At the same time, the Tribunal noted that certain additional documents, including income-tax returns and bank statements, had been produced only at the appellate stage and required proper verification. Considering the overall circumstances, the Tribunal remanded the matter back to the jurisdictional Assessing Officer for fresh examination.

List of Cases Reviewed

• CIT v. Orissa Corporation (P) Ltd. AIR 1986 SC 1849
• CIT v. Divine Leasing & Finance Ltd [2007] 158 Taxman 440/299 ITR 268 (Delhi) (para 31) distinguished

List of Cases Referred to

• CIT v. Orissa Corporation (P) Ltd. AIR 1986 SC 1849 (para 14)
• CIT v. Divine Leasing & Finance Ltd [2007] 158 Taxman 440/299 ITR 268 (Delhi) (para 14).

The post ITAT Questions Rs. 12.54 Cr Gift to Shilpa Shetty | Section 68 Addition Upheld appeared first on Taxmann Blog.

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