2018 (4) TMI 885 - HC - Income Tax

Show cause notice u/s 12AA(3)/(4) for cancellation of registration already granted - writ petition maintainability against a show cause notice - Held that - The satisfaction contemplated in Section 12AA (3) is to be recorded by the Principal Commissioner of the Income Tax at the time of passing the final orders. At this stage while issuing the show cause notice he has mentioned a prima facie satisfaction in this regard. All pleas including the plea that the registration can not be cancelled with retrospective effect can be raised by the petitioner before the Principal Commissioner, who shall necessarily consider all the relevant pleas and take a decision thereon after recording his satisfaction in terms of Section 12AA (3) and there is no reason for this Court at this stage to believe that he would not do so. It is not a case where the show cause notice has been issued by an incompetent authority without jurisdiction, which could persuade us to interfere in the mater at this stage. In this view of the matter, we decline to exercise our discretionary jurisdiction under Section 226 of the Constitution of India leaving it open for the petitioner to raise all relevant pleas before the concerned authority.

Summary

Issues:
Challenge to show cause notice under Article 226 of the Constitution of India for cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961.

Analysis:
The petitioner, a Charitable Trust, challenged a show cause notice dated 28.02.2018 under Section 12AA(3) of the Income Tax Act, 1961. The notice proposed cancellation of registration granted on 28.07.2006, effective from 01.04.2007. The petitioner contended that the notice suffered from a jurisdictional error as it sought retrospective cancellation without recording satisfaction of non-genuine activities. The petitioner relied on legal precedents to support the argument. The respondent, representing the Income Tax Department, argued that the cancellation was justified based on findings from assessment proceedings for the years 2008-09 to 2014-15, where lack of charitable activities was observed. The respondent also contended that challenging a show cause notice via a writ petition was premature, as the petitioner could raise all pleas before the Principal Commissioner of Income Tax, who would make a final decision recording satisfaction as required by Section 12AA(3). The respondent mentioned the possibility of appealing to the Income Tax Appellate Tribunal against the final order.

The High Court, after considering arguments from both parties, held that the satisfaction required under Section 12AA(3) was to be recorded by the Principal Commissioner at the time of passing final orders. The Court noted that the show cause notice indicated a prima facie satisfaction, and all relevant pleas, including the retrospective cancellation issue, could be raised before the Principal Commissioner. The Court found no reason to interfere at that stage, as the show cause notice was not issued by an incompetent authority. Therefore, the Court declined to exercise its discretionary jurisdiction under Article 226 of the Constitution of India, allowing the petitioner to present all relevant pleas before the concerned authority. The Court dismissed the writ petition without delving into the merits of the controversy.