2023 (7) TMI 506 - HC - Income Tax

Reopening of assessment u/s 147 - escapement of income on account of bank interest and cash deposits in two of its bank accounts - scope of 3rd proviso to Section 12A(2) - Validity of order passed u/subsec (d) of Section 148A being without jurisdiction and against the 3rd proviso to Section 12A(2) of the Act - petitioner uploaded its reply taking a plea that as per 3rd proviso to Section 12A(2) of the Act, there was a bar to take any action u/s 147 for any preceding year, in which the registration was granted - HELD THAT - As in the present case, once reply filed by the petitioner pursuant to the notice dated 16.03.2022 (Annexure P-3) had been rejected vide order dated 29.03.2022 (Annexure P-5) without examining the 3rd proviso to Section 12A(2), relegating the petitioner to take alternative remedy would not be appropriate. Registration of the petitioner-trust was granted on 30.09.2016 (Annexure P-1), which was applicable from the assessment year 2016-17. As such, said registration was valid for claiming the benefit under Sections 11 and 12 of the Act. Ii n the present case, as per the ratio of the judgment passed in Karnataka State Students Welfare Fund s case 2022 (1) TMI 654 - KARNATAKA HIGH COURT no proceedings under Section 147 can be initiated for the assessment year 2015-16. Hence, impugned notices and the consequent order passed under Section 148A(d) being contrary to the 3rd proviso to Section 12A(2) of the Act, are set aside.

Summary

Issues:
1. Jurisdiction of notices under Section 148A and Section 148 of the Income Tax Act, 1961.
2. Interpretation of the 3rd proviso to Section 12A(2) of the Act regarding registration of a trust or institution.
3. Validity of notices issued under Section 148A(b) and subsequent orders without considering the 3rd proviso to Section 12A(2).

Issue 1: Jurisdiction of Notices under Section 148A and Section 148 of the Income Tax Act, 1961:
The petitioner sought a writ to quash notices dated 16.03.2022 and 29.03.2022, issued under Section 148A and Section 148 of the Act, along with an order dated 29.03.2022, alleging lack of jurisdiction and violation of the 3rd proviso to Section 12A(2) of the Act. The petitioner, a society receiving substantial aid from the State Government, had applied for registration under Section 12AA of the Act and was granted registration valid from the assessment year 2016-17 onwards. The respondents contested the claim, citing judgments by various courts regarding reassessment based on undisclosed material facts. However, the petitioner argued that the 3rd proviso to Section 12A(2) prohibits action under Section 147 for any year preceding the assessment year of registration. The petitioner referenced a Karnataka High Court judgment supporting this interpretation, leading the court to set aside the notices and order issued.

Issue 2: Interpretation of the 3rd Proviso to Section 12A(2) of the Act:
The court analyzed the 3rd proviso to Section 12A(2) in detail, emphasizing its significance in preventing the initiation of proceedings under Section 147 for years preceding the registration year of a trust or institution. The court referred to a CBDT circular highlighting the genuine hardships faced by charitable organizations due to non-application of registration for prior years. The court also noted that the Allahabad High Court judgment did not consider this proviso, emphasizing the importance of this provision in protecting entities granted registration. The court further highlighted the specific conditions and exceptions outlined in the proviso, ensuring that entities with valid registrations are not subjected to re-assessment for preceding years.

Issue 3: Validity of Notices Issued Without Considering the 3rd Proviso to Section 12A(2):
The court scrutinized the validity of the notices issued under Section 148A(b) and subsequent orders, noting that the authorities failed to consider the 3rd proviso to Section 12A(2) in their decision-making process. The court found that dismissing the petitioner's objections without examining this crucial provision was inappropriate. Given that the petitioner's registration was valid from the assessment year 2016-17, the court concluded that the notices and orders issued were contrary to the 3rd proviso to Section 12A(2) and therefore set them aside. The court allowed the petition in favor of the petitioner based on the interpretation and application of the relevant legal provisions and precedents.

This detailed analysis of the judgment by the Punjab & Haryana High Court provides a comprehensive understanding of the issues involved, the arguments presented by the parties, and the court's decision based on the interpretation of the relevant legal provisions and precedents.