#Tax disallowance

ITAT Jaipur holds that margin penalties levied by NCDEX for shortfalls in commodity trading are compensatory in nature and not prohibited under Section 37 of the Income Tax Act. The ruling deletes the 10% ad hoc disallowance under Section 36(1)(iii), setting a precedent for the tax treatment of such penalties in business expenditure claims.

ITAT Delhi has ruled that reassessment proceedings initiated under Section 147 for cash deposits cannot be used to impose disallowances under Section 40A(3) for unrelated cash payments to suppliers. This reinforces that reassessment is confined to the specific reasons recorded at reopening, protecting assessees from collateral tax demands without fresh evidence. A critical safeguard for businesses facing broad-based reassessments.

ITAT Delhi has sanctioned a 5% disallowance of Rs.31 lakh in alleged bogus purchases under Section 69C, treating it as a fair, non-precedential middle ground where full disallowance lacks evidentiary support but complete acceptance is untenable. This nuanced approach affects exporters and cash-intensive businesses facing disputed purchase trails, offering a new benchmark for adjudicating borderline cases without setting binding precedent.

ITAT Delhi holds that adjustments under Section 143(1) of the Income Tax Act for late PF/ESI deposits under Section 36(1)(va) cannot be applied retrospectively for assessment years preceding the Checkmate Services ruling (2022). The tribunal quashed additions of Rs. 2.38 crore, reinforcing that tax disallowances must align with judicial precedents applicable to the relevant assessment year.

ITAT Delhi clarifies that Section 69C of the Income Tax Act mandates disallowance only when the source of expenditure remains unexplained, not merely when transaction genuineness is doubted. The ruling shields taxpayers from additions where payments are traceable, even if vendors fail to respond or services are unverified.

ITAT Delhi ruled that disallowance under Section 14A read with Rule 8D is unsustainable if no exempt income exists in the relevant assessment year, even if investments were held. The decision reinforces that the 2020 Finance Act amendment, making dividends taxable in shareholders' hands, nullifies Section 14A applicability for such cases, impacting tax assessments for companies with non-yielding investments.

ITAT Mumbai rules that disallowance under Section 14A read with Rule 8D must be limited to the actual exempt income earned, ensuring proportionality in tax computation. This decision reinforces the legal principle that tax disallowances cannot surpass the income claimed as exempt, impacting taxpayers and revenue authorities alike.

Madras High Court rules that funds misappropriated by a related party (husband of a partner) cannot be deducted as business expenditure under Section 40A(2) of the Income Tax Act. The judgment underscores that such claims require strict documentary evidence and cannot be justified merely by internal allegations of misappropriation, reinforcing tax compliance rigor for related-party transactions.

ITAT Delhi holds that where sales from alleged bogus purchases are accepted, full disallowance under Section 69C is unjustified; addition must be restricted to a reasonable proportion.