SC Dismisses Rs. 5L Cost imposed by Allahabad HC against Income Tax Dept for Initiating Reassessment with Incorrect Information [Read Order]

The apex court dismissed Rs. 5L penalty imposed on the income tax department
Supreme Court - Allahabad High Court - Allahabad HC - Income Tax Dept - Reassessment with Incorrect Information - taxscan

The cost of Rs. 5 lakhs was dismissed by the Supreme Court which was imposed by the Allahabad High Court following the power abuse of the income tax department. The apex court condoned the delay, however, without going into merits, set aside the cost imposed  by the High Court.

The SLP was filed by the department itself to delete the cost imposed by the Allahabad High Court. The bench of Justices B V Nagarathna and Nongmeikapam Kotiswar Singh, in its decision stated that “That in the event, this Court is not inclined to interfere in the matter on merits then the order as to costs of Rs.5,00,000/- may be set aside.

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Learned counsel for the respondent submitted that there is no merit in this special leave petition.

However, as far as waiving of the cost is concerned, the matter is left to the discretion of this Court. In the circumstances, we dismiss the special leave petition. However, the order regarding cost of Rs.5,00,000/- imposed on the petitioners herein is set aside.”

This is the case where the Additional Solicitor General of India himself admitted that the reassessment was based on incorrect information and acknowledged mistakes as outlined in the counter affidavit dated July 24, 2022 before the High Court.

The brief facts of the case is that the assessee, S R Cold Storage challenged proceedings initiated by the Income Tax Department under Sections 147/148 of the Income Tax Act, 1961 before the Allahabad High Court alleging that reassessment proceedings were initiated without factual information. The department has imposed a high demand of Rs. Rs.16,90,61,731/- on the assessee.

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The petitioner’s counsel argued that the proceedings were based on erroneous and unfounded information, as well as misleading counter affidavits that resulted in persistent harassment. The National Faceless Assessment Center and the Insight portal were criticized for their inefficacy and inaccuracies, which led to an arbitrary and abusive reassessment order.

The Allahabad High Court had previously sought explanations from the respondents on May 26 and 30, 2022, which went unaddressed. The petitioner criticised the counter affidavit from the Principal Chief Commissioner for exposing systemic failures and a disregard for legal principles, potentially threatening officers performing quasi-judicial duties.

On behalf of the respondents, the Learned Additional Solicitor General of India admitted that the reassessment was based on incorrect information and acknowledged mistakes as outlined in the counter affidavit dated July 24, 2022.

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The high court noted that in the para 10 of the counter affidavit,the department has admitted that the reported cash deposit of Rs. 13,67,24,000 was attributed to the petitioner’s Bank of Baroda account, based on information originally from the Joint Director of Income Tax ( Inv. ) Unit-III, Kanpur.

However, in paras 5 and 6 of the counter affidavit, Respondent No. 1 conceded that this figure was incorrect, and the accurate amount is Rs. 3,41,81,000, which is reflected in the petitioner’s Form 26AS.

This discrepancy revealed that the actual cash deposit was made in the Union Bank of India, not Bank of Baroda. Consequently, the reassessment proceedings under Sections 147/148 of the Income Tax Act, 1961, based on the erroneous Rs. 13,67,24,000 figure, were fundamentally flawed and unjust. The initiation of these proceedings and the subsequent reassessment order dated 31.03.2022 exemplify a severe misuse of authority and a clear breach of natural justice principles.

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The Allahabad High Court stated that “For detailed reasons recorded by us in forgoing paragraphs of this judgment, it is evident that the respondents have 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/-. We have also found that the reassessment proceedings were without jurisdiction.”

The High Court initially imposed a cost of Rs. 50 lakhs on the Income Tax Department, directing that it be deposited into the Prime Minister’s National Relief Fund. Subsequently, following a petition from the department requesting a reduction, the cost was lowered to Rs. 5 lakhs. However, the Supreme Court has now annulled this Rs. 5 lakh cost, effectively removing the financial penalty imposed on the department.

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