Disallowing amount not treated as allowance by assessee is impermissible under Income Tax Act

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Published 3 November 2026

Case: M/S. Lakshmi Sugar Mills Co. Ltd. v. Commissioner of Income Tax, Delhi -II
Court: Supreme Court of India
Bench: Justice S.V.N. Bhatti and Justice N. V. Anjaria
Citation: 2026 INSC 1162
Decided: 27 October 2026
Statutes: Income Tax Act, 1961
Source: Verdictum

Bottom Line Up Front (BLUF)

In M/S. Lakshmi Sugar Mills Co. Ltd. v. Commissioner of Income Tax, Delhi -II, 2026 INSC 1162, decided on 2026-10-27, the Supreme Court held that disallowing an amount not treated as an allowance by the assessee is impermissible under the Income Tax Act, 1961, setting aside the Assessing Officer's order.

Ratio Decidendi · Legal Principle Established

An amount not treated as an allowance by the assessee cannot be disallowed under the Income Tax Act, 1961.

Practice & Procedural Impact for Advocates

Advocates should scrutinize disallowances made by Assessing Officers to ensure they align with the assessee's treatment of the amount. Litigants can challenge redeterminations of net taxable income based on impermissible disallowances.

Key Legal Takeaways

1Disallowance must correspond to the assessee's classification of an amount as an allowance.
2Assessing Officers cannot unilaterally reclassify amounts for disallowance.
3Appeals against redetermination of taxable income based on such disallowances may succeed.

The Legal Issue The Supreme Court considered an appeal filed by M/S. Lakshmi Sugar Mills Co. Ltd., an assessee aggrieved by the redetermination of its net taxable income. The core legal issue was whether an Assessing Officer could disallow an amount that the assessee itself had not treated as an allowance under the Income Tax Act, 1961.

Court's Reasoning The Bench, comprising Justice S.V.N. Bhatti and Justice N. V. Anjaria, held that disallowing an amount not treated as an allowance by the assessee is impermissible under the Income Tax Act, 1961. The Court found that the Assessing Officer's order, which led to the redetermination of the net taxable income, was flawed because it contravened this principle.

What Follows The Supreme Court set aside the order of the Assessing Officer. This means the redetermination of the net taxable income, which was the subject of the appeal, will be revisited in light of the Court's ruling that such a disallowance was impermissible.