Domestic and Direct Tax Updates

To the Newsletter Overview      Subscribe to the Newsletter

Direct Tax – Domestic Tax Updates

Notifications and Circulars

CBDT FAQs: IT Act 2025 & Rules 2026

CBDT has issued FAQs to address key aspects of the transition to the new Income-tax framework which is applicable from 01 April 2026, including the interaction of provisions under the old law with the new legislation, and the treatment of ongoing assessments, reassessments, and appeals. The FAQs also clarify compliance requirements relating to tax payments, return filing, and withholding taxes. The guidance aims to ensure continuity and minimise disruption, confirming that prior-year proceedings will generally follow the earlier law, while the new framework applies prospectively. The FAQs introduce the “tax year” concept, simplify provisions, rationalize rules, and enhance ease of compliance. Form-wise instructions under the new Rules help taxpayers adapt to revised reporting formats. These clarifications align processes with a modern, technology-driven tax regime, enabling businesses to review processes, update systems, and plan proactively for a smooth transition.

CBDT has also issued form-wise FAQs and detailed guidance notes to help taxpayers navigate the newly introduced Income-tax Rules, 2026, effective from 01 April 2026, alongside the Income-tax Act, 2025. The FAQs provide clarity on the purpose, filing process, and compliance requirements for each form, including newly introduced forms for reporting donations, research-related filings, scientific research approvals, and more. These resources serve as educational guidance and do not replace legal interpretation under the Act and Rules.

Domestic Tax Rulings

Bombay HC: Bona fide claims allowed, revise return

In the instant case, the taxpayer earned both Securities Transaction Tax (‘STT’) paid and non-STT paid short-term capital gains and incurred STT-paid short-term capital losses. The taxpayer intended to set off such losses against non-STT paid gains in a tax-efficient manner, which is permissible under law. However, the e-filing utility mandated a different order of set-off, resulting in higher tax liability. Despite raising multiple grievances and seeking rectification, the issue remained unresolved compelling the taxpayer to file a Writ Petition before the Bombay High Court.

The High Court observed that the statutory scheme requires the taxpayer to compute income and make claims at the stage of filing the return, and failure to do so would preclude the taxpayer from raising such claims subsequently. Court held that procedural tools like e-filing utilities are meant for administrative convenience and cannot override substantive rights. The Court rejected the Revenue’s contention that such claims could be examined during assessment and emphasized that denial at the return filing stage defeats the entire assessment and appellate mechanism. Accordingly, the Court directed CBDT to modify the utility to enable such claims and allowed the taxpayer to file a revised return in paper form. It was thus held that bona fide claims cannot be denied due to technical or systemic constraints, reinforcing the primacy of substantive tax rights.

Bombay HC: No tax denial without prior notice

In this case, the Bombay High Court has held that any adjustment made under Section 143(1)(a) of the Income Tax Act, 1961 (‘ITA’) without issuing a prior intimation to the taxpayer is invalid and unsustainable in law. Taxpayer challenged an intimation order, wherein the Central Processing Centre – Income Tax Department (‘CPC’) denied the benefit of concessional tax rate under section 115BAA of the ITA. The denial was primarily on the grounds that Form 10-IC, required to avail the concessional tax regime, was not filed within the prescribed due date under section 139(1) of the ITA. Although the taxpayer had filed the return belatedly along with Form 10-IC, CPC proceeded to make an adjustment without issuing any prior notice or intimation.

Revenue authorities contended that there is no provision under section 115BAA of ITA to provide an opportunity to the taxpayer if the prescribed Form – 10IC is not filed. In this case, not allowing the beneficial tax rate prescribed under section 115BAA of the ITA, does not fall under the provisions of section 143(1)(a) of the ITA, because no addition is made to the total income declared. Consequently, no opportunity needs to be provided to the taxpayer as contemplated under the first and second proviso of Section 143(1)(a) of the ITA.

Rejecting the above contention of the Revenue, the High Court emphasized that it is mandated by the legislature that, before any adjustment is made under section 143(1)(a) of the ITA, an intimation is to be given to the taxpayer of such adjustment, either in writing or in electronic mode. This is clearly stipulated by the first proviso to section 143(1)(a) of the ITA. The second proviso to section 143(1)(a) of the ITA further stipulates that the response received from the taxpayer, if any, to any intimation issued under the first proviso, has to be considered before making any adjustment. In a case where no response is received from the taxpayer within 30 days, then such adjustment can be made by the department.

The Court further highlighted that the Revenue could have potentially sought condonation of delay which reinforces the importance of granting an opportunity to be heard. The Court also relied on one of its earlier decisions wherein it was held that the taxpayer was not given opportunity of being heard on this issue before the intimation was passed, and therefore, there was a clear breach of the principles of natural justice and in any event contravention of the jurisdictional requirements laid down in the ITA. Hence, on this ground the Court held that the adjustment made in the intimation was liable to quashed and set aside.

Bombay HC: No TDS on cost-sharing reimbursements

Bombay High Court has deleted the disallowance made under section 40(a)(ia) of the ITA in respect of cross‑charges paid by the taxpayer to its sister concern, holding that such payments were in the nature of pure reimbursement without any income element and hence not liable to TDS.

In this case, the taxpayer had paid certain cross‑charges to its sister concern under a cost‑sharing agreement for use of field force facilities. Revenue authorities disallowed the said expenditure under section 40(a)(ia) of the ITA on the ground that no tax had been deducted at source, alleging that the payments were in the nature of consideration for business auxiliary services through invoices inclusive of service tax and contained a profit element.

High Court observed that the payments were made in terms of a cost‑sharing agreement and supplementary agreement, under which expenses incurred towards staff costs, travelling, advertising and promotional activities and other miscellaneous expenses were reimbursed on a cost‑to‑cost basis, without any markup. The Court noted that the sister concern to whom taxpayer had made payments, had deducted TDS, wherever applicable, on payments made to third‑party vendors and employees and had not claimed any deduction for the reimbursed expenditure. High Court rejected the Revenue’s contention that levy of service tax implies existence of an income element. Relying on earlier Supreme Court decisions, the High Court held that service tax is leviable only on the gross amount charged for provision of a taxable service, and that any additional amounts that are not directly charged for providing the taxable service cannot be included in the taxable value.

Further, the High Court observed that the amendments introduced by the Finance Act, 2012 to Section 40(a)(ia) and Section 201(1) of the ITA, being beneficial and curative in nature, operate retrospectively. Since the payee had filed its return of income, accounted for the receipts and paid due taxes, and the requisite Chartered Accountant’s certificate had been furnished, the taxpayer could not be treated as an assessee-in-default.

To the Newsletter