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published on 30 July 2025 I reading time approx. 6 minutes

Notifications and circulars

1. Central Board of Direct Taxes (‘CBDT’) issues circular extending the due date for furnishing return of income for Assessment Year (‘AY’) 2025-26 in the case of certain taxpayers

Vide Press Release and Circular No. 06/2025 dated 27 May 2025, CBDT has announced the extension of due date for filing the annual return of income for AY 2025-26 in the case of individual taxpayers and taxpayers who are not subjected to an audit under the provisions of the Income Tax Act, 1961 (‘ITA’). Such taxpayers who are otherwise required to file their annual return of income for AY 2025-26 on or before 31 July 2025 can now file their returns on or before the extended due date of 15 September 2025.

The extension has been provided considering the Income tax Return e-filing utilities have undergone structural changes and content revisions which are aimed at simplifying compliance, enhancing transparency and enabling accurate reporting. CBDT has stated that these changes have necessitated additional time for system development, integration and testing of the corresponding utilities. This extension is aimed at mitigating the concerns raised by stakeholders and providing adequate time for compliance, thereby ensuring the integrity and accuracy of the return filing process.

2. CBDT issues guidelines for compulsory and complete scrutiny selection during Financial Year (‘FY’) 2025-26

Every year the CBDT selects a certain number of taxpayer cases for income tax scrutiny assessment based on its internally framed parameters and guidelines. Scrutiny assessment selection is done either for limited scrutiny of taxpayers on specific issues, or complete scrutiny for any issue that can be considered during assessment proceedings. Considering the scope of scrutiny assessment, CBDT usually defines parameters based on which the taxpayer case is selected for compulsory and complete scrutiny assessment. For the FY 2025-26, where annual return of income filed by taxpayers for FY 2023-24 is to be selected for compulsory and complete scrutiny assessment, CBDT has issued following important guidelines, amongst others:

Cases involving addition in an earlier assessment year(s) on a recurring issue of law or fact and/or law and fact (including transfer pricing issue) – CBDT has clarified that where the additions in such cases exceed INR 5 million in the eight metro jurisdictions (Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune) and INR 2 million in other jurisdictions, and where such additions have become final as no further appeal has been preferred against the assessment order or the additions have been upheld by the Appellate Authorities in favour of Revenue even if further appeal of assessee is pending against such order, such cases shall be selected for compulsory scrutiny assessment in FY 2025-26.
Cases related to specific information regarding tax-evasion – Cases in respect of which specific information pointing out tax-evasion for the relevant assessment year is provided by any law-enforcement agency i.e. Investigation Wing / Intelligence / Regulatory Authority / Agency etc. and the return of income for the relevant assessment year is furnished by the assessee, such cases shall be selected for compulsory scrutiny assessment.
Cases falling within the jurisdiction of International Taxation / Central Circle charges – These cases shall be selected for compulsory scrutiny by the International Taxation and Central Circle charges following the above stated prescribed parameters after obtaining necessary approvals of senior authorities concerned and these selected cases for compulsory scrutiny shall continue to be handled by the International Taxation and Central Circle charges respectively.

Domestic Tax Rulings

1. Mumbai Income Tax Appellate Tribunal (‘ITAT’) allows credit for tax deducted at source (‘TDS’) based on valid physical certificates despite mismatch with TDS credit statement (‘Form 26AS’)

Under the automated processing system of the income tax department, credit for withholding tax i.e. TDS is generally allowed based on reflection of such TDS credit in the online Form 26AS of the taxpayer. In case of mismatches, the TDS credit is disallowed to the taxpayer either during automated processing or during scrutiny assessment proceedings conducted in taxpayers’ case, if any. There can be multiple reasons why the TDS credit gets disallowed, one of the prominent reason being that the TDS deducted is not reflected in the taxpayers’ Form 26AS.

In this context, the Mumbai ITAT recently allowed the claim of taxpayer for credit of TDS which was not reflected in the Form 26AS. ITAT allowed the claim basis the physical TDS certificates available with the taxpayer. ITAT relied on earlier Court judgements wherein it was held that once a valid TDS certificate had been produced, the Revenue authorities were required to give credit of TDS as claimed by taxpayer. The ITAT decision establishes that the rightful TDS claim of taxpayer cannot merely be denied because the same is not reflected in Form 26AS. In fact, the TDS claim needs to be verified by the Revenue authorities and duly granted to taxpayer basis availability of valid physical TDS certificates.

2. Chhattisgarh High Court (‘HC’) rules that debatable adjustments to returned income cannot be made under automated processing system and scrutiny assessment is necessary in such cases

As a matter of procedure, the Centralized Processing Centre of Income Tax Department (‘CPC’) conducts automated processing of income tax returns filed by the taxpayers and issues automated intimation under section 143(1) of the Income Tax Act 1961 (‘ITA’). In cases where any adjustments prescribed under section 143(1)(a) of the ITA are required to be done to the income of the taxpayer prior to finalizing the intimation under section 143(1), CPC is required to issue proposed adjustment notice under section 143(1)(a) to the taxpayer, providing an opportunity of furnishing appropriate explanations and documentary evidence to the taxpayer. Further, there are only certain prescribed adjustments which can be done under section 143(1)(a) of ITA, which are not in the nature of conducting any detailed scrutiny.

In a recent case, the Chhattisgarh HC addressed a situation wherein certain adjustment to the income of the taxpayer was made by the CPC under section 143(1)(a), although there were divergent Court judgements on the said adjustment thus making the issue debatable. As only those adjustments wherein detailed scrutiny is not required are permitted to be done by CPC under section 143(1)(a), the Court held the adjustment invalid and legally erroneous. The Court opined that in such debatable cases, Revenue authorities were supposed to conduct a detailed scrutiny assessment proceeding under section 143(3) of ITA and should not have resorted to section 143(1)(a), to ascertain the taxability of concerned adjustment. The Court judgement highlights the limited extent of adjustments that can be made by the CPC within the contours of section 143(1)(a) and where detailed scrutiny is required, the Revenue authorities are free to resort to provisions of 143(3) of ITA for conducting detailed scrutiny assessment proceedings.

3. Delhi ITAT holds that business setup expenses are deductible even before revenue generation, as business is ‘Ready to Function’

In the case of businesses which are newly set-up in India, business expenses incurred only after the ‘date of setting up of business’ are eligible for deduction, subject to fulfilment of other provisions of ITA. Expenses incurred before the date of setting up of the business are liable to be disallowed while computing the taxable income from business. What constitutes the ‘date of setting up of business’ in the context of relevant provisions of ITA has been a contentious issue, and there have been several Court judgements on this matter based on the peculiar fact pattern of the taxpayers. While the determination of ‘date of set-up of business’ is a factual exercise depending on the type and nature of business, in the context of relevant provisions of ITA, in many past cases the Revenue authorities have taken a stand that ‘date of set-up’ of business is synonymous with ‘date of commencement’ of business.

In the above context, Delhi ITAT had an occasion to ascertain the ‘date of set-up’ of business in the case of taxpayer who was in the business of promoting, establishing, forming, acquiring or investing in entities engaged in the business of designing, developing, marketing, distributing, selling etc. of any software, hardware and programmes. After going through the facts and events of establishing the Indian business of the taxpayer, ITAT explained that there is a clear distinction between ‘commencement of business’ and ‘setting-up of business’. For income tax purposes, the ‘setting up of the business’ and not the ‘commencement of business’ is to be considered.

When a business is established and is ready to commence business then it can be said that the business is set up. There may, however, be an interval between ‘setting up of business’ and ‘commencement of business’ and all business expenses incurred during the interval would be permissible deductions. A business can be said to have been set up and the actual commencement of revenue generating activity does not have any bearing for determining the date of setting up of business. The date of setting up of business is relevant for computation of income under the head “Business and Profession” and allowance of revenue expenditure incurred after that date.

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