2018 (6) TMI 228 - HC - Income Tax

Reopening of assessment - Rejection of application filed application seeking exemption under Section 12AA - Challenge to order of rejection of its application pending consideration before the Income Tax Appellate Tribunal - Held that - Since the application is filed on 14.12.2016, therefore, the petitioner would be entitled to seek exemption for the AY 2017-18 onwards - same would not benefit the petitioner for previous assessment years - notice u/s 147 is issued for assessment year from 2010-2011 to 2014-15 - thus the question of interfering with the said notices on the premise that the petitioner has challenged the order of rejection of its application filed u/s 12AA and the same is pending consideration before the Income Tax Appellate Tribunal cannot be a basis to quash the said notices - hence notices which are issued for the years prior to AY 2016-2017, the petitioner does not have any right to challenge the same in this proceeding - writ petitions being dismissed.

Issues:
1. Challenge to notices issued under Section 147 of the Income Tax Act during the pendency of an appeal seeking exemption under Sections 11 to 13.
2. Entitlement to exemption under Sections 11 to 13 for the assessment years.
3. Impact of the appeal decision on the exemption for previous assessment years.

Analysis:
1. The petitioner, an Urban Development Authority, filed writ petitions seeking a mandamus against the Income Tax Officer not to act upon notices issued under Section 147 of the Income Tax Act while their appeal for exemption under Sections 11 to 13 was pending before the Income Tax Appellate Tribunal. The petitioner argued that the notices were issued erroneously during the appeal process. The High Court noted that the petitioner's application for exemption was rejected earlier, leading to the appeal. The court observed that the notices were for the period from 2010-2011 to 2014-2015, which was before the application date of 2016. The court held that challenging the rejection of the application does not justify quashing the notices issued for the years preceding the application. The court dismissed the writ petitions, allowing the petitioner to pursue the appeal for subsequent assessment years from 2016-17 onwards but not for the years before that.

2. The petitioner contended that they were entitled to seek exemption under Sections 11 to 13 of the Income Tax Act as an authority constituted under the Karnataka Urban Development Authority Act, 1987. The application for exemption was filed on 14.12.2016, and the rejection order was subject to appeal before the Income Tax Appellate Tribunal. The High Court acknowledged the petitioner's entitlement to seek exemption but clarified that it would apply only from the date of the application onwards, which was 2017-18. The court emphasized that any order passed during the pendency of the appeal would be subject to the tribunal's decision. The court highlighted that the appeal's potential success would benefit the petitioner for the years after 2016-17 when the application was filed, not for the previous assessment years.

3. The court analyzed that even if the petitioner's appeal for exemption under Sections 11 to 13 succeeded, it would only apply to the years following the application date of 14.12.2016. The court clarified that the appeal's outcome would not impact the exemption for the years before 2016-17 when the application was submitted. Therefore, the court concluded that the petitioner could not challenge the notices issued for the years preceding the application in the ongoing proceedings. The court dismissed the writ petitions, allowing the petitioner to pursue the appeal for exemption from 2016-17 onwards but not for the previous assessment years.

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