2023 (8) TMI 1027 - HC - Income Tax

Reopening of assessment - determination of income chargeable to tax - distinction between consideration of sale and income chargeable to tax - whether income shown in the impugned order and notice to have escaped assessment, is income chargeable to tax or not? - HELD THAT - Admittedly, the expression income chargeable to tax is not defined in the IT Act. Scheme of the IT 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 IT 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 IT Act from income . As such quantum of income is invariably more than the income chargeable to tax. More so, all penal provisions under the scheme of income tax, emanate from the factum of evasion of tax calculated based on income chargeable to tax. Several High Courts have held that income chargeable to tax cannot be the gross receipts/consideration in any business transaction. The objection of learned counsel for Revenue that the petitioner having failed to file return for the relevant assessment year cannot seek to challenge the impugned order, is heard to be dismissed. The provisions from Section 147 to Section 151 pertaining to subject of income escaping assessment in the IT 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. Neither the notice under Section 148A(b) nor order u/s 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. When petitioner/assessee filed a reply to the notice u/s 148(A)(b) it was clearly revealed that the said amount is the gross receipt of sale consideration of 16 scooters. Meaning thereby that the said amount was the total sale consideration receipt of the transaction in question, and not income chargeable to tax which would obviously be less than the said amount. Along with reply the details of items sold and payment receipt, computation of total income and the computation of tax on total income was worked out and submitted to the Revenue. 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. It may not be out of place to mention that had the Revenue arrived at the correct figure of income chargeable to tax instead of the gross receipts/consideration, the possibility of the amount of Rs.7205084/- coming down to a figure below Rs.50 lacs cannot be ruled out. From the aforesaid discussion what comes out loud and clear is that the Revenue has 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, has committed such elementary mistake leading to harassment to the assessee who has been compelled to file the present avoidable piece of litigation. More so, this Court has been compelled to decide this frivolous matter wasting its precious time and energy which could have been utilized in more pressing matters. Revenue deserves to be saddled with exemplary cost - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the income of Rs.7205084/- shown in the impugned order and notice to have escaped assessment is income chargeable to tax.
2. Whether the proceedings for reopening assessment of income having escaped assessment are beyond the jurisdiction of the Revenue under Section 149.
3. Whether the petitioner is entitled to challenge the impugned order despite not filing a return for the relevant assessment year.

Summary:

Issue 1: Income Chargeable to Tax
The primary issue was whether the amount of Rs.7205084/-, shown to have escaped assessment, is income chargeable to tax. The court noted that the expression "income chargeable to tax" is not defined in the IT Act but is distinct from "income," which is inclusively defined under Section 2(24) of the IT Act. Income chargeable to tax is the amount after deducting permissible deductions from income. The court referenced several High Court decisions, including the Karnataka High Court's decision in Mr. Sanath Kumar Murali Vs. The Income Tax Officer, which clarified that gross receipts/consideration in a business transaction do not constitute income chargeable to tax. The court found that the amount of Rs.7205084/- was the gross receipt from the sale of 16 scooters, not the income chargeable to tax, which would be less after deductions.

Issue 2: Jurisdiction under Section 149
The petitioner argued that the proceedings for reopening the assessment were beyond the jurisdiction of the Revenue as they were barred under Section 149. The court observed that the Revenue's contention that the petitioner failed to file a return for the relevant assessment year does not prevent the petitioner from challenging the impugned order. The court emphasized that the provisions from Section 147 to Section 151 do not support the Revenue's contention and allow the assessee to take advantage of these provisions regardless of their failure to file a return.

Issue 3: Petitioner's Right to Challenge
The court dismissed the Revenue's objection that the petitioner, having failed to file a return for the relevant assessment year, cannot challenge the impugned order. The court noted that the provisions of Section 148, 148A, or 149 do not preclude the assessee from challenging the order. The court found that the Revenue had not correctly distinguished between sale consideration and income chargeable to tax, leading to harassment of the assessee and unnecessary litigation.

Conclusion:
The court quashed the impugned order dated 25.3.2023 under Section 148A(d) and the notice dated 25.3.2023 under Section 148. The Revenue was allowed to invoke Section 148A in accordance with the law. Additionally, the court imposed exemplary costs on the Revenue, awarding Rs.25,000/- to be distributed between the M.P. High Court Employees' Association and the petitioner.