Section 3 — Previous Year

Section 3 of the Income-tax Act, 1961 defines the term 'previous year' which is crucial for determining the assessment year for tax purposes. The 'previous year' is the financial year immediately preceding the assessment year, typically running from April 1st to March 31st. This section is significant because it establishes the time frame during which income is earned and subsequently assessed for taxation in the following year. The concept of the previous year is fundamental in the computation of income and tax liability, as it dictates the period for which income is measured and reported. The burden of proof lies with the taxpayer to accurately report income earned during this period. In practice, this section ensures a standardized period for tax assessment, aligning with the fiscal year used by businesses and the government.

Common Litigation Flashpoints

1. Dispute over the exact dates constituting the previous year
2. Confusion between calendar year and financial year
3. Misalignment of accounting periods for different types of income
4. Challenges in determining the previous year for newly established businesses

Judgments on Section 3 — Previous Year

• M/S. W. T. Suren & Co. Ltd. Vs. The Commissioner of Income Tax. Bombay — SC, 1998
  Payment of gratuity made by the assessee to Rallis India Ltd. was an allowable deduction as it was incurred wholly and exclusively for the purpose of business.
• DCIT Cir-3(1) Kol. vs. M/s Narayani Ispat Pvt. Ltd. — ITAT, 2017
  Interest paid for late deposit of service tax and TDS is allowable as a deduction under Section 37(1) of the Income-tax Act, 1961.
• C.I.T., Ahmedabad vs Reliance Petroproducts Pvt. Ltd. — SC, 2010
  A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee.
• Voltas Limited vs Assistant Commissioner of Income Tax Circle -8(3) (1), Mumbai — HC, 2022
  Reopening of assessment based solely on a change of opinion is impermissible under the Income Tax Act.
• J K Investo Trade (India) Limited vs DCIT — ITAT, 2023
  The assessee is eligible to claim deduction under Section 80G irrespective of the fact that the corpus contribution relates to CSR activities.
• Delhi Duty Free Service [P] Ltd Vs. The Dy. CI.T. — ITAT, 2025
  CSR expenses can qualify for deduction under Section 80G if they meet the necessary criteria outlined in the Income Tax Act.
• T.R.F. Limited vs Commissioner of Income Tax, Ranchi — SC,
  Post-1st April 1989, it is sufficient for the assessee to write off the bad debt in its accounts to claim a deduction under Section 36(1)(vii).
• Roshan-Di-Hatti vs Commissioner of Income Tax — SC,
  The Tribunal's finding of undisclosed income was without material and unreasonable given the circumstances of migration and business conditions.
• DCIT (Central Circle-1) vs Shree Ganesh Edibles Pvt. Ltd. — ITAT,
  Once the assessee furnishes identity, creditworthiness, and genuineness of the lender, the onus shifts to the AO to prove otherwise.
• Kishinchand Chellaram vs The Commr. of Income-Tax Bombay City II, Bombay — SC,
  The burden of proof lies on the Revenue to show that the remittance was made by the assessee and constituted its undisclosed income.
• AT & T Global Network Services India Private Limited vs Assistant Commissioner of Income Tax — ITAT,
  Inadvertent errors in reporting should not preclude the allowance of legitimate deductions if the factual basis is verified.
• The Deputy Commissioner of Income Tax, LTU, Bangalore vs M/s. Biocon Limited — ITAT,
  The provisions of Section 10B are exemption provisions, and profits of the eligible unit should not be set off against losses of non-eligible units.
• Checkmate Services P. Ltd. vs Commissioner of Income Tax-1 — SC,
  The non-obstante clause in Section 43B does not absolve the assessee from the liability to deposit employees' contributions on or before the due date as a condition for deduction.
• Kotak Mahindra Bank Limited vs DCIT — ITAT,
  Claims for deductions not made in the original return cannot be entertained unless filed through a revised return.
• Nuvama Wealth Management Limited vs DCIT — ITAT,
  ESOP discount represents consideration for services rendered by employees and is therefore deductible as business expenditure.
• DCIT-7(1)(1) vs Goldman Sachs (India) Securities Pvt. Ltd. — ITAT,
  Discount on issue of employees stock options is allowable as deduction in computing the income under the head profits and gains of business.
• Deputy Commissioner of Income Tax vs IBM India Private Limited — ITAT,
  ESOP expenditure is allowable as a revenue expenditure if it forms part of employee remuneration and is supported by judicial precedents.
• S. A. Builders Ltd. vs Commissioner of Income Tax (Appeals) Chandigarh & Anr. — SC,
  Interest on borrowed funds advanced to a sister concern should be allowed if the advance was made as a measure of commercial expediency.
• GM Modular Private Limited vs Principal Commissioner of Income Tax – 1 and Ors — HC,
  A bona fide claim based on a binding judicial precedent cannot attract penal consequences even if the precedent is later reversed.
• Reliance Capital Ltd. vs Dy. Commissioner of Income Tax — ITAT,
  If there are sufficient interest-free funds available, it can be presumed that investments were made from these funds rather than borrowed funds.
• M/s. Alubound Dacs India Private Limited vs. Dy. CIT — ITAT, 2024
  CSR expenses mandated by law can be claimed as a deduction under Section 80G if they meet the stipulated conditions.
• Maxopp Investment Ltd vs Commissioner of Income Tax, New Delhi — SC,
  Section 14A mandates the disallowance of expenditure incurred in relation to exempt income, applying the principle of apportionment.
• C.I.T., Delhi vs Bharti Hexacom Ltd. — SC,
  The variable annual licence fee paid under the New Telecom Policy of 1999 is capital in nature and should be amortised under Section 35ABB.
• Munjal Sales Corporation vs Commissioner of Income Tax, Ludhiana & Anr — SC,
  Section 40(b) is not a stand-alone section but a limitation on deductions under Sections 30 to 38.
• Sony Ericsson Mobile Communications India Pvt. Ltd. vs Commissioner of Income Tax – III — HC,
  AMP expenses can be considered an international transaction if they benefit the foreign AE and require compensation at arm's length price.