Key ITAT Rulings: Reassessment, Section 80G, DTAA & Transfer Pricing

Ajay Singh Vs ACIT (ITAT Delhi), ITA No. 1934/Del/2023, 07 February 2025: –

Basic Issue of the Case

Key concern in this case was whether reassessment initiated by AO u/s. 148 of IT Act, 1961  for AY 2012–13 was lawful. This action was based solely on a report from Assistant Director of Income Tax (Investigation)  with no independent investigation carried out by AO.

As a result  Rs. 25 lakhs were added u/s. 68 and categorizing bank deposits as unexplained cash credits.

Arguments Made by the Assessee

Reopening of assessment was entirely based on the Investigation report , AO neither formed an independent opinion nor conducted his own inquiry.

Assessee argued the notion of ‘borrowed satisfaction’ meaning the AO merely echoed the views of the investigation without applying his own judgment.

Supporting documentation for the credits included

• 10 lakhs received from a friend, Krishan Bans Bahadur (now deceased) through bank transfers, backed by bank statements.
• 15 lakhs received from PAN India Motor Pvt Ltd. with confirmations, PAN information, and bank records.
• Assessee also noted the AO had wrongly disregarded disclosed exempt income of Rs. 15,26,571 shown in the ITR and relied only on taxable income to question creditworthiness.

ITAT’s Decision & Analysis

ITAT annulled the reassessment, stating AO action amounted to mere borrowed satisfaction from the Investigation report.

Key observations :

• AO failed to conduct any independent inquiry or apply his own mind before reopening the case.
• assessee’s explanations were satisfactory, transactions were routed through banking channels, and repayments were properly documented.

Appeal was allowed by the Bench (Judicial Member: Shri Challa Nagendra Prasad), and the addition under Section 68 was struck down.

Relevant Income Tax Provisions & Explanation

• Section 148 – Reassessment proceedings must be backed by tangible material requiring AO to form independent belief, not just rely on third-party reports.
• Section 68 – Puts the burden on the assessee to explain the nature and source of credits, once done, arbitrary additions cannot stand.
• Doctrine of Borrowed Satisfaction – This principle disallows reassessment if the AO mechanically relies on reports from the investigation wing without personal scrutiny.

Key Takeaways from Decision

This case sets an important precedent – reassessment cannot be triggered solely on external reports like those from the Investigation Wing unless the AO does independent groundwork.

Stresses AO duty to apply independent reasoning and conduct necessary inquiries.

If transactions are executed via banking channels and substantiated with valid documents, invoking Section 68 without due cause is unjustified.

Consultants must verify whether the AO reasons for reopening are independently formed. If not, such reassessments should be promptly challenged.

This ruling strengthens position against reopening u/s. 148 when not backed by AO direct effort or inquiry.

Navsari Modh Vanik Panch Vs CIT (ITAT Surat), ITA No.1265/SRT/2024, Dated: 17/02/2025

Fundamental Issue of the Case

Central problem here was refusal of the application u/s 80G(5) of IT by the Commissioner of Income Tax Exemptions since trust had religious goals and consequently did not qualify as ‘purely charitable’. Central challenge here was whether refusal violated procedural protections and statutory provision under Rule 11AA(2)(g) of IT Rules, 1962.

Submission by the Assessee

Assessee trust, a Section 12A/12AB registered trust created in 1953, sought Section 80G(5) approval.

Authorised Representative CIT(E) had overstepped the limits of inquiry by:

1. Using financial accounts outside the most recent period of three years, in violation of Rule 11AA(2)(g).

2. Neglecting to serve a show-cause notice or to give a chance to respond before expanding the scope

It was further submitted that:

No religious expense in the said three years of account.

Trust would be willing to provide audited financials to support this.

Object mentioned by CIT(E) in the context of temple administration was ancillary       and not predominant, and entire operations were purely charitable.

Decision Rendered by ITAT & Analysis

ITAT quashed the rejection order and sent the matter back to the CIT(E) for fresh adjudication.

It maintained that:

Trust had been already registered under Section 12A/12AB, a requirement before Section 80G registration.

Inquiry under Rule 11AA(2)(g) is confined to whether income exceeding 5% was spent on religious purposes during the immediately preceding three years.

CIT(E) did not find any such violation, nor did it provide any pre-rejection procedural opportunity.

Directed the CIT(E) to limit the inquiry only to the stipulated time and to give authorization if requirements under Rule 11AA(2)(g) are fulfilled.

Appeal allowed on statistical grounds and matter remitted back.

Section of Income Tax Covered and Explanation

Section 80G(5): Gives permission to charitable trusts to enable the donors to claim deductions if the institution is not religious in character and fulfills conditions specified.
Rule 11AA(2)(g): Restricts the inquiry to whether the trust spent over 5% of income during the previous three accounting years before the application.
Section 12A/12AB: Trust registration is compulsory in order to be eligible for exemption and later for 80G certification

The case specifies the interrelation of Sections 12A and 80G, and procedural compliance under Rule 11AA(2)(g).

Takeaway from Decision

• Supports the procedural protections under Rule 11AA and limits arbitrary interpretation by CIT(E) beyond the allowed inquiry period.
• Determines that Section 80G sanction cannot be withheld based on imprecise citations to religious goals unless violation is established clearly during the applicable three-year period.
• Focuses on the entitlement of the assessee being heard prior to rejection and the requirement of a speaking order based on adequate inquiry.
• Instructs consultants to provide audited financials of the previous three years that reflect less than 5% religious spending, if any.
• Positive precedent in challenging technical deficiencies or excessive interpretations in rejections under 80G.

Coursera Inc. Vs ACIT (ITAT Delhi), ITA No. 1958/Del/2025, Dated: 29/05/2025, AY 2022-23

Core Issue :-

Question before Tribunal was whether Rs.156 crore earned by Coursera Inc. US-based online education platform—from Indian users should be taxed in India as ‘royalty’ or ‘fees for technical services’ under the India – USA Double Taxation Avoidance Agreement. AO believed that since Coursera was offering access to technical content, this income should be taxable under Article 12 of the DTAA.

Arguments Presented by Coursera

• Coursera explained that it simply provides a platform where educational content from various universities and institutions is hosted.
• It emphasized that no technical know-how, skills, or processes were transferred to users in India.
• Users accessed recorded content on their own – there was no one-on-one help or human support involved.

Based on this, Coursera argued that:

1.income shouldn’t be treated as “royalty” because there’s no transfer of rights in the content.

2. It doesn’t qualify as FTS either, since no technical knowledge or skills were ‘made available’ to the user – something Article 12(4)(b) of the DTAA specifically requires.

Coursera also relied favorable rulings from the ITAT in its own cases for earlier years AY 2020–21 and 2021–22, where similar income had already been held to be non-taxable.

ITAT’s Decision and

The Delhi Bench of the ITAT, led by Shri Vijay Pal Rao and Shri Naveen Chandra, ruled in Coursera’s favor and deleted the tax addition made by AO and Tribunal found as under : –

• Dispute Resolution Panel (DRP) wrongly upheld the addition, especially when the High Court had already supported ITAT’s earlier rulings in Coursera’s favor.
• AO couldn’t show that any kind of technical expertise or skill had been ‘made available’ to Indian users, as required under Article 12(4).
• Since there was no human involvement and the users only accessed pre-loaded content, the payments couldn’t be treated as FTS.
• Payments were for using the content – not for acquiring rights to the content so they don’t qualify as royalty either.

Tribunal also referred to similar judgments in the Elsevier and Relx Inc. cases, reinforcing its stance.

• Relevant Tax Provisions and Interpretation

Article 12(3) & 12(4) of the India-USA DTAA:

• Article 12(3) defines “royalty” and applies only when rights in intellectual property are transferred.
• Article 12(4)(b) covers FTS but only when technical know-how or skills are actually passed on to the user.

In this case, ITAT found that:

No copyright or similar rights were transferred so no royalty.

No technical skills or expertise were made available so no FTS.

Tribunal also emphasized that human intervention is essential for something to be called FTS. Since that was absent here, the income didn’t fall into that category.

Key Takeaways : –

This decision is a valuable precedent simply giving passive access to educational content online does not attract tax in India as royalty or FTS under the India–US DTAA.

It underscores the importance of the make available test FTS only applies when there is an actual transfer of knowledge or skills.

The role of human interaction is central. If the service is fully automated or based on pre-recorded content, it likely falls outside the FTS definition

Consultants advising global ed-tech or SaaS firms can rely on this ruling to plan operations in India more confidently especially around withholding tax obligations.

This judgment helps in challenging overreach by tax authorities where there is  no clear transfer of copyright or no technical assistance offered.

DCIT Vs Piaggio Vehicles Pvt. Ltd. (ITAT Pune), ITA. No. 867/Pun/2022, Dated: 27/05/2025, AY 2015-16

Dispute : – The core issue in this case was how the Transfer Pricing Officer calculated the profit margin on Piaggio’s export transactions. The TPO applied a uniform profit margin of 34.42% based on internal data from non-Associated Enterprise sales across all categories of exports to AEs. The problem of Piaggio exported both its own manufactured goods and goods sourced globally and each had very different cost structures and profit profiles. The blanket application of one margin across all types of exports led to a transfer pricing adjustment of Rs. 3.78 crore.

Argue 0f  Piaggio

Piaggio explained that its AE exports were not one-size-fits-all. They fell into three distinct buckets:

1.Vehicle spares

2. Components for two- and three-wheelers

3. Components for four-wheelers

Here is how they approached pricing:

• For exports of own manufactured goods, Piaggio used internal TNMM, comparing profits from similar non-AE domestic sales.
• For globally sourced goods, where there were no comparable internal sales, it relied on external TNMM, using independent third-party data.

The company said that only the spares Category Asegment had reliable internal comparables. For the other two categories B and C applying internal TNMM didn’t make sense because there were no similar non-AE transactions. Still TPO lumped everything together and applied the same 34.42% margin causing a major distortion in the profit calculation especially since globally sourced goods yielded margins as low as 2.44% compared to 28.96% for manufactured exports.

Decision & Analysis by ITAT : –  

Pune Bench of the ITAT offered partial relief to Piaggio and sent the matter back to AO for a fresh look

• It acknowledged that three categories of exports had different functions, risks and profit margins.
• It agreed with Piaggio that only the spares category had valid internal comparables.
• Applying the same internal margin across all categories was incorrect and not aligned with transfer pricing principles.
• It also referred to an earlier ruling in Piaggio own case where similar issues had been considered.

AO was directed to:

• Re-examine the pricing approach, especially the use of external comparables for globally sourced goods.
• Give Piaggio the chance to submit supporting documents and ensure a proper review based on facts and data.

Relevant Tax Provisions Explained

Section 92CA(1): This section lets the AO refer cases to the TPO for determining the Arm is Length Price in international transactions.

Section 92C: It lays down how to determine the ALP including through Transactional Net Margin Method.

Key Takeaways on Methodology:

• TNMM compares net margins from similar uncontrolled transactions.
• Internal TNMM works only if there is real comparability.
• When that is missing like for globally sourced goods with no internal comparables external TNMM should be used.

Key Learnings  : –

This case reinforces need to benchmark export segments separately when they differ in function or sourcing.

Don’t lump all transactions together aggregation without justification can lead to flawed conclusions.

Whether using internal or external TNMM choice must be backed by solid data and clear functional analysis.

Practitioners should ensure that:

• Product categories are clearly segmented,
• Sourced vs. manufactured items are distinguished in the TP study and
• Economic analysis supports the selected method.

This ruling sets a strong precedent to contest arbitrary transfer pricing adjustments especially when they are based on oversimplified assumptions or poor aggregation.

JCIT – 14(1)(1) vs M/s. Aries Agro Ltd. Case Number :  ITA No. 244/Mum/2025 

Date of Judgement :  30 April 2025

 Fundamental Issue :-

The crucial point here was whether cash deposits by Aries Agro Ltd. in the demonetisation period 01.11.2016 to 08.11.2016 were to be accepted as unexplained cash credits u/s 68 of the IT. AO asked questions regarding the increase in cash deposits and arguing that the assessee could not prove the creditworthiness and genuineness of those receipts.

Submission by the Assessee

– Assessee clarified that the deposits in cash were not cash sales but realisations from previous credit sales to clients.

Comprehensive documentary evidence, such as

• name, address, PAN, ledgers, and confirmations from 357 customers
• Audit trail in the form of cash book, sales register and audited financials
• Section 133(6) confirmations by a number of parties regarding cash payments
• Spoke strongly that its books of account had been audited and not rejected by AO and that the deposits had been recorded in the normal course of business.

Decision & Analysis ITAT

ITAT affirmed the deletion of additions u/s 68 and rejected the appeal of the Revenue.

Bench Observations (Sandeep Gosain, JM and Prabhash Shankar, AM):

• Books of the assessee were audited and supported by verifiable documents.
• No discrepancy in purchase, sales or stock ledgers was observed.
• Believed that cash realisations were already a part of income of the business that dealing with cash realisations as unexplained credits u/s 68 would amount to double taxation.
• Refused to accept the Revenue’s use of the theory of human probability (in Durga Prasad More & Sumati Dayal cases) holding that AO had presented no contrary material or evidence to refute the assessee’s explanation.
• Determined that the cash deposits were real and supported therefore no addition u/s 68 was called for.

Section of Income Tax Covered and Explanation

Section 68 – Unexplained Cash Credits

If any amount is found entered in the books of an assessee and no satisfactory explanation regarding the nature and source is offered by assessee, such amount should be treated as income.

In this case:

Satisfactory and verifiable documents supported the explanation furnished by assessee.

It is the view of the ITAT that after the receipts are realisations of actual credit sales reflected in books and acknowledged by customers, Section 68 would not be applicable.

Section 133(6): Utilized successfully by assessee to validate evidence through customer confirmations.

Takeaway from this Decision :-

• Emphasizes that audited, verifiable and documented books of account can successfully refute additions u/s 68.
• Shows how third-party confirmations and accounting can be effective in resisting additions due to demonetisation.
• Establishes that credit sales realisations during or even prior to demonetisation, even if found in bulk deposits are not per se suspicious if adequately documented.
• Significant precedent against arbitrary application of human probability assumptions where there is no unfavourable finding in books or share position.
• Consultants must recommend clients to keep good documents for cash realisations particularly during sensitive times such as demonetisation and get themselves prepared for third-party auditing

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