The Supreme Court has deleted the cost of Rs. 5 Lakh imposed by the Allahabad High Court for initiating income tax reassessment on factually incorrect information.
The bench of Justice B.V. Nagarathna and Justice Nongmeikapam Kotiswar Singh has dismissed the Special Leave Petition filed by the department and quashed the cost of Rs. 50 Lakh which was imposed initially by the Allahabad High Court and later on it was reduced to 5 Lakhs.
Background – Allahabad High Court Ruling
The income tax department by the reassessment order assed the income of the petitioner by making an addition on account of alleged cash deposit by the petitioner in bank account with the Bank of Baroda representing unexplained cash credit under Section 68 and thus created a demand to the tune of Rs.16,90,61,731/- and initiated penalty proceedings under Section 271AAC(1) of the Act, 1961.
The court noted that the department acted arbitrarily, without jurisdiction, in breach of principles of natural justice and abused the power conferred under the Act, 1961 and thus created a huge demand of income tax of Rs.16,90,61,731/-.
The court found that he reassessment proceedings were without jurisdiction. The information on the basis of which the reassessment proceeding was initiated against the petitioner, has been admitted by the respondent to be incorrect. Despite every effort made by the petitioner and the evidences filed by it to establish that there has been no escapement of income to tax and the information on the basis of which reassessment proceeding has been initiated is unfounded, respondents have not even looked into the reply and evidences filed by the petitioner and even his request for personal hearing through video conferencing was denied.
Only a day’s time was granted to the petitioner to submit reply to the show cause notice in reassessment proceedings which the petitioner submitted within time and yet his request for hearing through video conferencing was declined by the department.
The court noted that the act of the department showed a complete failure to the observance of rule of law on the part of the respondents. A huge demand of Rs.16,90,61,731/- has been created by the department against the petitioner on totally non-existent and baseless ground and that too without any fault or breach by the petitioner.
The court noted that the department acted arbitrarily, illegally without jurisdiction, caused harassment to the petitioner and abused power conferred under the Act, 1961, which resulted in creation of illegal demand of income Tax of Rs.16,90,61,731.
“We find it a fit case to impose a cost of Rs.50,00,000 upon the respondents which shall be deposited by the respondents in the Prime Minister National Relief Fund within three weeks from today,” the court said.
Later on, the department filed the application requesting cost reduction. The department stated that the cost may be reduced considering the action being taken by the department to improve its working and to rule out the possibility of recurrence of such instances which unnecessarily resulted in initiation of proceedings against the petitioner and caused him to file the writ petition. The department is conscious of its mistake and, therefore, undertakes to improve its working and to take all lawful action against the erring officers so as to avoid repetition of such instances in future.
The court while considering department’s request and steps being taken by the department to improve its working so as to rule out possibility of harassment of genuine assessees in the hands of the departmental-officers, reduced the cost from Rs.50 lakhs to Rs.5 lakhs.
Case Title: Union Of India & Ors. Versus S.R. Cold Storage
Case No.: Special Leave Petition (Civil) Diary No.19953/2023
Date: 09-09-2024
Counsel For Petitioner: N Venkatraman
Counsel For Respondent: Abhinav Mehrotra
