2010 (3) TMI 847 - HC - Income Tax

Exemption u/s 10(20A) of the Income-tax Act denied - registration under section 12AA of the Act - Held that - It was not open to the Assessing Officer to ignore the certificate of registration dated October 23 2003 granted under section 12AA of the Act on this limited count the assessment order appears to be without jurisdiction and the demand in pursuance thereof could not have been sought to be recovered. The respondent was therefore duty bound to stay recovery of the demand raised pursuant to the assessment order for the assessment.

Summary

Issues:
1. Exemption under section 10(20A) of the Income-tax Act, 1961.
2. Registration under section 12AA of the Act.
3. Assessment for the year 2007-08.
4. Stay of demand and communication by the respondent.
5. Challenge to assessment and appeal pending.
6. Judgments cited by both parties.
7. Dispute over exemption and cancellation of registration.
8. Legality of demand and recovery by the Assessing Officer.
9. Jurisdiction of the Assessing Officer and compliance with registration requirements.
10. Stay of demand and recovery.

Analysis:
1. The petitioner, an urban development authority, was exempt under section 10(20A) until 2002-03. After the provision's omission, they obtained registration under section 12AA from April 1, 2002. The Assessing Officer accepted their exemption under section 11 for years up to 2006-07. However, for 2007-08, the officer disallowed certain set-offs, leading to a disputed assessment.

2. The petitioner challenged the assessment and sought a stay of demand, which was partially granted by the respondent with a condition to pay 50% by a specified date. The petitioner contested this communication primarily, citing judgments supporting their case, including the binding nature of a circular by the Central Board of Direct Taxes.

3. The respondent argued non-cooperation by the petitioner during assessment and the cancellation of the registration certificate in February 2010, retroactively affecting the petitioner's eligibility for exemption under section 11. The respondent defended the decision to recover 50% of the demand while staying the rest.

4. The court held that the assessment order for 2007-08, made before the cancellation of the registration certificate, was without jurisdiction. The certificate under section 12AA signifies the fulfillment of conditions for exemption under sections 11 and 12. Thus, the Assessing Officer erred in ignoring the certificate and seeking recovery based on the assessment order.

5. Relying on legal precedent, the court directed the respondent to stay the entire demand until the final disposal of the appeal pending before the first appellate authority. The petitioner's petition was allowed, and the respondent was instructed to refrain from recovering the demand raised in the assessment order for 2007-08 until the appeal's resolution.