Order u/s 148A(d) mentioning sale proceeds as income chargeable to tax quashed. Sale proceeds is not income chargeable to tax. SC declines to interfere with HC order.
In a recent order, Hon’ble Supreme Court has declined to interfere with the order of Hon’ble Madhya Pradesh High Court quashing the order u/s 148A(d) and consequential notice issued u/s 148 which mentioned the entire sale proceeds as income escaping assessment without first arriving at the “income chargeable to tax”.
ABCAUS Case Law Citation:
4255 (2024) (09) abcaus.in SC
In The instant case, the respondent assessee had challenged the order us/ 148A(d) notice under Section 148 of the Income Tax Act, 1961 (the Act) for re-assessment for alleged income escaping assessment.
Before the Hon’ble High Court the case of the assessee was that the income referred to in the impugned order u/s 148A(d) and notice u/s 148 was not income chargeable to tax but was the gross proceeds of sale and thus the Revenue had no authority to invoke Section 148A or issue notice under Section 148.
It was contended that the proceedings for reopening assessment of income having escaped assessment were beyond jurisdiction of the Revenue since it was barred it under Section 149. In support of its ground, the assessee placed reliance on the judgments of Hon’ble Gujarat High Court, Gujarat Karnataka High Court and Hon’ble Bombay High Court.
The question before the Hon’ble High Court was as to whether the amount of gross sale shown in the impugned order and notice to have escaped assessment, was income chargeable to tax or not?
The Hon’ble High Court noted that admittedly, the expression ‘income chargeable to tax’ is not defined in the Act. However, the scheme of the Act specially the provisions which deal with computation of business income make it abundantly clear that definition of expression ‘income’ and ‘income chargeable to tax’ are at variance to each other. The expression ‘income’ is inclusively defined under Section 2(24) of Act whereas ‘income chargeable to tax’ obviously denotes an amount which is less than ‘income’. The ‘income chargeable to tax’ is arrived at after deducting the permissible deductions under Act from ‘income’. As such quantum of ‘income’ is invariably more than the income chargeable to tax.
The Hon’ble High Court dismissed the objection of the Revenue that the assessee having failed to file return for the relevant assessment year cannot seek to challenge the impugned order. The Hon’ble High Court opined that the provisions from Section 147 to Section 151 pertaining to subject of income escaping assessment in the Act do not support the contention of the Revenue. There is nothing in Section 148, 148 A or Section 149 which may prevent assessee from taking advantage of said provisions merely because of his failure to file return.
The Hon’ble High Court further observed that moreover, neither the notice under Section 148A(b) nor order under Section 148 A(d), nor the consequential notice under section 148A give any indication that amount alleged to be income escaping assessment, includes land/buildings/shares/equities/ loans/ advances etc. as contended by the Revenue.
The Hon’ble High Court also observed that in fact when petitioner/assessee filed a reply to the notice under Section 148(A)(b) clearly stating that amount stated was the gross receipt of sale consideration. Meaning thereby that the said amount was not income chargeable to tax which would obviously be less than the said amount.
The Hon’ble High Court observed that while considering the said reply and before passing the impugned order under Section 148A(b), highly casual and perfunctory approach was adopted, turning a Nelson’s eye towards the palpable and elementary aspect of clear distinction between consideration of sale and income chargeable to tax.
The Hon’ble High Court opined that clearly the Revenue failed to understand the fundamental difference between sale consideration on one hand and income chargeable to tax on the other. The Revenue despite being assisted by thousands of experts in the field of finance and taxation, committed such elementary mistake leading to harassment to the assessee who had been compelled to file the present avoidable piece of litigation.
As a result, the Petition was allowed and the Revenue was penalised with cost of Rs. 25,000 out of which Rs. 10,000/- was ordered to be paid to the Petitioner.
Not satisfied with the decision the Revenue filed a Revision Petition before the Hon’ble High Court which was also dismissed with clarification that cost imposed ought not to reflect adversely upon counsel for Revenue. The counsel for Revenue in writ petition had represented the Revenue to the best of his ability and thus the fault, if any, lies with the Revenue and not the counsel.
Aggrieved by the dismissal of the Review Petition by the Hon’ble High Court, the Income Tax Department filed a Special Leave Petition (SLP) before the Hon’ble Supreme Court challenging the said judgment.
However, a division bench of the Hon’ble Supreme Court after hearing the counsel of the Department, declined to interfere with the judgment of the Hon’ble Madhya Pradesh High Court and dismissed the Special Leave Petition.
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