This tax newsletter highlights pivotal rulings across both Income Tax and GST. In a significant relief for taxpayers, the Allahabad High Court has held that criminal prosecution cannot be sustained once the related concealment penalty is quashed. On the GST front, in a landmark decision, the Tripura High Court has read down Section 16(2)(c), shielding bona fide purchasers from ITC denial due to supplier defaults. This edition also delves into crucial updates on the Commissioner’s power to rectify assessee errors under Section 264, the continuity of concessional tax rates, and the correct limitation period for filing GST refund.
INCOME TAX UPDATES
Important Case Laws & Judicial Rulings
Criminal Prosecution Quashed After Deletion of Penalty – Allahabad High Court (05 Jan 2026)
In the case of Shiv Kumar Jaiswal Versus The State Of U.P, the Allahabad High Court ruled that criminal prosecution for willful tax evasion under Sections 276C and 277 cannot be sustained once the underlying penalty for concealment under Section 271(1)(c) has been deleted by appellate authorities. The Court held that the penalty order forms the very basis of the criminal complaint. Its deletion, having attained finality, removes the substratum of the prosecution, making its continuation an “idle and empty formality” and an abuse of the process of court.
Commissioner’s Power u/s 264 Extends to Correcting Assessee’s Own Errors in ITR – Bombay High Court (24 Dec 2025)
The Bombay High Court, in Swaminarayan Mandir Trust vs. CIT (Exemptions), held that the revisional jurisdiction of the Commissioner under Section 264 is wide enough to grant relief for errors committed by the assessee in its own income tax return. The Court clarified that the Supreme Court’s ruling in Goetze (India) Ltd., which restricts the Assessing Officer from entertaining claims not made in the return, does not apply to the Commissioner’s broader supervisory powers under Section 264. This power is intended to prevent miscarriages of justice, including rectifying legitimate claims missed by the assessee.
Continuity of Concessional Tax Rate u/s 115BAB Not Hampered by Belated Return in Subsequent Year – ITAT Pune (06 Jan 2026)
In Satara Engineering Projects and Equipments Private Limited vs. DCIT, the ITAT ruled that once a company validly opts for the concessional tax rate under Section 115BAB in the first year by filing Form 10-ID within the due date, the benefit continues for all subsequent years. The Tribunal held that filing a belated return in a subsequent assessment year does not disqualify the assessee from the concessional rate for that year. The condition of exercising the option before the due date is a one-time requirement applicable only to the first year of the claim.
Donations for CSR Eligible for Deduction u/s 80G – ITAT Mumbai (06 Jan 2026)
The ITAT Mumbai, in ICICI Securities Limited vs. PCIT, held that donations forming part of Corporate Social Responsibility (CSR) expenditure are eligible for deduction under Section 80G. The Tribunal clarified that while CSR spending is mandatory under the Companies Act and must be disallowed as a business expense under Section 37(1), this does not preclude a claim under Chapter VIA. Since the choice of the donee remains voluntary, the donation does not lose its character for the purpose of Section 80G. The revisionary order by the PCIT was quashed, as the AO’s view was plausible and supported by judicial precedents.
Section 14A Disallowance Not Addable to Book Profit for MAT – ITAT Pune (14 Nov 2025)
In the case of Assistant Commissioner of Income Tax, Pune vs. Praj Industries Limited, the ITAT reaffirmed the principle that expenditure disallowed under Section 14A cannot be added to the net profit for computing ‘book profit’ under Section 115JB for Minimum Alternate Tax (MAT). The computation of book profit is strictly governed by the adjustments enumerated in Explanation 1 to Section 115JB, and disallowances under other sections of the Act cannot be imported into it.
Additions in Unabated Assessments Require Incriminating Material – ITAT Delhi (28 Nov 2025)
The Delhi ITAT, in Dy. Commissioner Of Income Tax, Noida vs M/s. Ace Infracity Developers Pvt. Ltd., reinforced the Supreme Court’s ruling in Abhisar Buildwell. It held that in completed/unabated assessments, no addition can be made under Section 153A unless it is based on incriminating material found during the search. The Tribunal deleted additions made u/s 68 and 69A, noting the AO’s reliance was not on specific incriminating material. It also clarified that cash duly recorded in the books of account cannot be subject to an addition under Section 69A, which applies only to assets not recorded in the books.
Interest on MACT Award is a Non-Taxable Capital Receipt – ITAT Chandigarh (06 Jan 2026)
Following the jurisdictional High Court’s decision, the ITAT in Mrs. Kusum Chauhan Versus ITO held that interest received on compensation from the Motor Accident Claims Tribunal (MACT) is part of the compensation itself and retains its character as a non-taxable capital receipt. The Tribunal clarified that Section 145B is merely a timing provision for taxation upon receipt and does not create a charge of tax on a receipt that is not in the nature of income. Further, income cannot be taxed on a hypothetical basis when the amount is held under a court-ordered lien and is not accessible to the assessee.
Immunity Certificate under DTDRS, 2016 Bars Revisional Action u/s 263 – Rajasthan High Court (11 Dec 2025)
In Principal Commissioner Of Income Tax-I Jaipur, Versus Shri Ram Das Maheshwari, the High Court held that an immunity certificate issued under the Direct Tax Dispute Resolution Scheme, 2016, once operative and unchallenged, makes the matter conclusive. Consequently, the PCIT’s revisional jurisdiction under Section 263 is ousted for the matter covered by the certificate. The immunity granted is general against the ‘imposition of penalty’ and is not confined to a specific penalty section, thereby barring any revisional action aimed at changing the charging section of the penalty.
Circulars / Notifications
CBDT Notification No. 01/2026 – (05 Jan 2026)
The Central Board of Direct Taxes specified Inbar Holding RSC Limited as a specified person for the purposes of Section 10(23FE) of the Income-tax Act, 1961. This notification grants tax exemption on income in the nature of dividend, interest, or long-term capital gains from eligible investments made by the pension fund in India between the date of notification and 31st March 2030, subject to fulfillment of prescribed conditions.
GST UPDATES
Important Case Laws & Judicial Rulings
Section 16(2)(c) Read Down to Protect Bona Fide Purchasers from Supplier Default – Tripura High Court (06 Jan 2026)
In a landmark decision in M/S. Sahil Enterprises vs Union Of India, the Tripura High Court held that the condition under Section 16(2)(c) of the CGST Act (tax must be paid to the government) cannot be invoked to deny Input Tax Credit (ITC) to a bona fide purchaser who has genuinely paid the tax to the supplier. The Court “read down” the provision, restricting its application to transactions that are collusive or fraudulent. This protects a purchasing dealer who cannot be expected to ensure the selling dealer’s compliance, placing the onus on the department to recover the tax from the defaulting supplier.
Limitation for Refund Runs from Initial Application Date, Not Revised Filing – Karnataka High Court (12 Dec 2025)
The Karnataka High Court, in Homag India Private Limited vs. The Joint Commissioner, clarified a crucial point on limitation for GST refunds. The court ruled that for computing the two-year limitation period under Section 54, the relevant date is the date of the initial refund application, not the date of a subsequent or revised application filed after a deficiency memo is issued. This decision prevents the department from using deficiency memos to render validly filed refund claims time-barred.
Mere Route Deviation with Valid Documents is Not Tax Evasion; Penalty u/s 129 Not Justified – Karnataka High Court (05 Nov 2025)
In M/S Hysum Steel vs The Joint Commissioner, the court held that a mere deviation of a transport vehicle from its declared route, when the goods are accompanied by all valid documents like a tax invoice and e-way bill, is insufficient to invoke detention and penalty under Section 129. The court ruled that there must be positive evidence of an intent to evade tax. In cases of minor procedural defects or inadvertent route changes without malafide intent, the appropriate provision is the general penalty under Section 125 of the Act.
Provisional Attachment u/s 83 Lapses After One Year, Cannot be Renewed – Karnataka High Court (19 Dec 2025)
The Karnataka High Court, in Imthiyaz Versus Additional Commissioner of Commercial Taxes, held that a provisional attachment order under Section 83 of the CGST Act automatically ceases to have effect upon the expiry of one year from the date of the order, as mandated by Section 83(2). Relying on a Supreme Court precedent, the court affirmed that the Revenue is barred from issuing a fresh or renewed provisional attachment order on the same matter once the initial one-year period has lapsed.
Bar on Dual Proceedings by Central and State GST Authorities on Same Subject Matter – Karnataka High Court (08 Dec 2025)
In M/S Electronic City Motors vs Joint Commissioner, the court held that Section 6(2)(b) of the CGST Act imposes a complete and mandatory bar on the initiation of parallel proceedings by State GST authorities on a subject matter where proceedings have already been initiated by the Central GST authorities, and vice-versa. The “first-in-time” rule applies, and any order or notice issued by the second authority in violation of this statutory bar is without jurisdiction and liable to be quashed.
Single Composite Assessment Order for Multiple Tax Periods is Invalid – Andhra Pradesh High Court (31 Dec 2025)
The Andhra Pradesh High Court, in MADEENA STEELS Versus THE ASSISTANT COMMISSIONER OF STATE TAXES, ruled that tax authorities cannot pass a single, composite assessment order that covers more than one financial year or tax period. Citing a binding Division Bench precedent, the court held that assessment proceedings must be conducted separately for each distinct tax period as defined under the GST law. A composite order clubbing multiple years is procedurally invalid and liable to be quashed.
Amnesty Scheme Benefits Extended to Taxpayers Who Complied Just Before Scheme Began – Madras High Court (02 Jan 2026)
The Madras High Court, in the case of Ms.Kandan Hardware Mart vs The Assistant Commissioner (ST) (FAC) & Ors., held that denying the benefit of a late fee amnesty scheme to taxpayers who filed their belated returns just before the scheme’s commencement date is arbitrary and violates Article 14 of the Constitution. The court extended the benefit of the capped late fee (Rs. 10,000) to such taxpayers. It also ruled that where a specific penal late fee under Section 47 is levied, the residuary “General Penalty” under Section 125 cannot be imposed for the same default.
Illness of Accountant Constitutes ‘Sufficient Cause’ for Condoning Appeal Delay – Calcutta High Court (08 Dec 2025)
In M/s Rama Steel Trade Pvt. Ltd. vs Commissioner of Commercial Taxes & Ors., the Calcutta High Court held that the illness of an assessee’s accountant can constitute ‘sufficient cause’ for condoning a delay in filing a tax appeal. The court recognized the crucial role of an accountant in preparing the relevant facts and figures for an appeal and ruled that rejecting the condonation plea merely because the accountant was not the authorized signatory is an arbitrary application of the law.
Circulars / Notifications
CBIC Notification No. 19/2025 – Central Tax (Rate) (31 Dec 2025)
The government has amended Notification No. 9/2025- Central Tax (Rate) to revise GST rates on certain goods. Effective February 1, 2026:
a) The notification inserts new entries in Schedule II (9% rate) and Schedule III (20% rate), specifically listing “Biris” and other related tobacco products.
b) Schedule VII – 14% has been omitted.
CBIC Notification No. 20/2025 – Central Tax (31 Dec 2025)
Notification No. 20/2025 – Central Tax introduces Rule 31D in the Central Goods and Services Tax Rules, 2017 providing a method to determine the value of supply of goods bearing retail sale price. Effective February 1, 2026, the notification prescribes that, for specified goods like pan masala and tobacco products, the value of supply shall be deemed to be the retail sale price less the applicable tax amount. Additionally, the notification exempts registered persons other than manufacturers from the provisions of Rule 86B in respect of goods specified under rule 31D, on which the tax has been paid by the supplier on the basis of retail sale price.
Health Security se National Security Cess Rules, 2026 Notified – Notification No. 01/2026 (01 Jan 2026)
The Central Government has notified the Health Security se National Security Cess Rules, 2026, which will come into force from February 1, 2026. This new cess is a capacity-based levy targeted specifically at the machinery used for manufacturing tobacco, pan masala, and other similar notified goods. The rules establish the complete procedural framework for this cess, including mandatory registration of manufacturing units, filing of machinery declarations, monthly payments, and return filing. A key aspect for taxpayers is that the cess will be calculated based on the maximum rated speed of the machinery, irrespective of actual production. The rules also detail the process for claiming cess abatement for non-operational periods of 15 days or more, subject to prior intimation and machine sealing.
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Key Topics Covered: Shiv Kumar Jaiswal vs State of U.P. | Swaminarayan Mandir Trust vs CIT (Exemptions) | Satara Engineering Projects and Equipments Pvt. Ltd. vs DCIT | ICICI Securities Ltd. vs PCIT | ACIT, Pune vs Praj Industries Ltd. | DCIT, Noida vs Ace Infracity Developers Pvt. Ltd. | Mrs. Kusum Chauhan vs ITO | PCIT-I Jaipur vs Shri Ram Das Maheshwari | M/s Sahil Enterprises vs Union of India | Homag India Pvt. Ltd. vs Joint Commissioner | M/s Hysum Steel vs Joint Commissioner | Imthiyaz vs Additional Commissioner of Commercial Taxes | M/s Electronic City Motors vs Joint Commissioner | Madeena Steels vs Assistant Commissioner of State Taxes | Ms. Kandan Hardware Mart vs Assistant Commissioner (ST) | M/s Rama Steel Trade Pvt. Ltd. vs Commissioner of Commercial Taxes | Health Security se National Security Cess | Change in Tobacco GST Rates