M.P Hc Imposes Exemplary Cost Of Rs.25K On I-t Dept. For Futile Exercise Of Reopening

While clarifying that there is nothing in Section 148, 148 A or Section 149 of the Income Tax Act, which may prevent the Assessee from taking advantage of said provisions merely because of his failure to file return, the Madhya Pradesh High Court (Jabalpur Bench) quashed the reopening proceedings and held that neither the notice under Section 148A(b) nor order under Section 148 A(d), nor the consequential notice under section 148A give any indication about income escaping assessment, as contended by the Revenue.

Referring to the decision in case of Karnataka High Court in Sanath Kumar Murali wherein it was held that the income chargeable to tax cannot be the gross receipts/consideration in any business transaction, the Division Bench comprising of Justice Sheel Nagu and Justice Avanindra Kumar Singh observed that the Revenue despite being assisted by thousands of experts in the field of finance and taxation, has committed such elementary mistake leading to harassment to the assessee who has been compelled to file the present avoidable piece of litigation.

The Bench highlighted that the Revenue has failed to understand the fundamental difference between sale consideration on one hand and income chargeable to tax on the other.

“While considering the said reply and before passing the impugned order under Section 148A(b) of the IT Act, 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”, added the Bench.

Advocate H. S. Chhabra appeared for the Assessee while Revenue was represented by Advocate Siddharth Sharma.

Briefly, the petitioner/ assessee had approached the present High Court, contending that the income referred to in the reopening order and notice issued under Section 148 is not income chargeable to tax but is the gross proceeds/consideration received by petitioner for sale of 16 scooters during the assessment year 2016-2017 and thus the Revenue has no authority to invoke Section 148A or issue notice under Section 148. The petitioner also claimed that the proceedings for reopening assessment of income having escaped assessment are beyond jurisdiction of the Revenue since it is barred under Section 149.

After considering the submission, the Bench observed that the terms ‘income chargeable to tax’ is different from ‘income’ defined under Section 2(24), and the ‘income chargeable to tax’ is arrived at after deducting the permissible deductions from ‘income’.

Thus, the quantum of ‘income’ is invariably more than the ‘income chargeable to tax’, clarified the Bench.

Finding that the Assessee had submitted the details of sale consideration as well as computation of total income during the assessment proceedings, the Bench illustrated that the Revenue Department has failed to understand the fundamental difference between sale consideration and income chargeable to tax.

Therefore, observing that the Revenue deserves to be saddled with exemplary cost, the High Court imposed a cost of twenty-five thousand on the Revenue Department, out of which fifteen thousand was directed to be paid to the Madhya Pradesh High Court Employees’ Association, Jabalpur and the remaining ten thousand was directed to be paid to the Assessee within a period of 30 days.

Cause Title: Nitin Nema Vs. Principal Chief Commissioner of Income Tax [W.P No. 8311 of 2023 / 2023-Enterslice-7-HC-MP-IT]

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