Can a tax authority levy tax on an amount declared as an income by the assessee, even if that amount isn’t legally taxable?
An issue before Hon’ble Pune ITAT was whether a tax authority levy tax on an amount declared as an income by the assessee, even if that amount isn’t legally taxable?
The case covers the importance of Article 265 of the Constitution, which states that “no tax shall be levied or collected except by authority of law.”
In the instant case Assessee during survey action admitted certain amount as his income and even paid taxes on it in ITR, even in Assessment Proceeding no objection was raised on the declared income.
During the First Appeal, when the legality of taxing an amount that should not be considered income was questioned, the Hon’ble CIT(A) dismissed the concern, stating that the declaration was capitalized in the accounts.
Taking the matter further, the Assessee approached the Hon’ble ITAT with the critical issue: Can the Income Tax department impose a tax on an amount that doesn’t qualify as income? Is such taxation consistent with Article 265 of the Indian Constitution? Essentially, the question was whether the tax charged was in line with the authority of law.
Hon’ble ITAT decide this issue in favour of Assessee, reinforcing a significant principle
The crux of this matter revolves around the idea that an admitted income declaration, if found to be factually incorrect or legally not taxable, shouldn’t be subjected to tax under Article 265. The ITAT’s reference to the Supreme Court ruling in CIT vs. Shelly Products strongly emphasizes that tax obligations must only apply to income that is legally chargeable.
The copy of the order is as under:
