PREM CHAND MARKANDA SD COLLEGE FOR WOMEN vs. ASSISTANT COMMISSIONER OF INCOME TAX(EXEMPTIONS),CIRCLE 1,CHANDIGARH AND ANR

Facts

The petitioner, Prem Chand Markanda SD College for Women, is a society running a college and school exclusively for girls. It receives substantial aid from the State Government. Prior to assessment year 2016-17, it enjoyed exemption under Section 10(23C)(iiiab). The petitioner applied for registration under Section 12AA on March 28, 2016, and was granted registration on September 30, 2016, effective from assessment year 2016-17 onwards. It later applied for fresh registration under Section 12AB and was registered for five years from assessment year 2022-23 to 2023-27. The petitioner received notices dated March 16, 2022, and March 29, 2022, under Section 148A(b) and Section 148 of the Income Tax Act, 1961, for assessment year 2015-16, alleging escapement of income due to bank interest and cash deposits. The petitioner's objections, based on the 3rd proviso to Section 12A(2), were dismissed by an order dated March 29, 2022, passed under Section 148A(d). The petitioner filed a writ petition challenging these notices and the order.

Held

The High Court held that the Assessing Officer cannot ignore the 3rd proviso to Section 12A(2) of the Act by issuing a notice under Section 147. The Court noted that the petitioner's objections, filed pursuant to the notice under Section 148A(b), were dismissed by the Assessing Officer without considering the 3rd proviso to Section 12A(2). Therefore, relegating the petitioner to an alternative remedy would not be appropriate. The Court found that the registration of the petitioner-trust was granted on September 30, 2016, effective from assessment year 2016-17. Following the ratio of the Karnataka High Court in Karnataka State Students Welfare Fund's case, the Court concluded that no proceedings under Section 147 could be initiated for assessment year 2015-16. Consequently, the impugned notices and the order passed under Section 148A(d) were set aside as they were contrary to the 3rd proviso to Section 12A(2) of the Act. The Court explicitly stated that the 3rd proviso was not examined by the Allahabad High Court in Shiv Kumar Sumitra Devi Smarak Shikshan Sansthan's case.

Key Issues

1. Whether the Assessing Officer can initiate reassessment proceedings under Section 147 of the Income Tax Act, 1961, for any assessment year preceding the assessment year in which registration under Section 12AA was granted, in light of the 3rd proviso to Section 12A(2) of the Act? (Question of law) Assessee's Contentions: - The 3rd proviso to Section 12A(2) strictly prohibits the issuance of a notice under Section 148 for any year preceding the assessment year in which registration was granted. No action under Section 147 can be taken for such preceding years solely on the ground of non-registration. - Relied on the Karnataka High Court judgment in Commissioner of Income Tax (Exemptions) & another vs. Karnataka State Students Welfare Fund, (2022) 444 ITR 436 (Kar), which held that reassessment could not be opened under Section 147 for a preceding assessment year for which registration had been granted. - Argued that the judgments relied upon by the revenue (Shiv Kumar Sumitra Devi Smarak Shikshan Sansthan and Gian Castings Private Limited) did not examine the 3rd proviso to Section 12A(2) and therefore were not applicable. Revenue's Contentions: - Relied on judgments from the Allahabad High Court (Shiv Kumar Sumitra Devi Smarak Shikshan Sansthan vs. Commissioner of Income-Tax (Exemptions), (2020) 422 ITR 468 (All)), this Court (Gian Castings Private Limited vs. Central Board of Direct Taxes and others, CWP-9142-2022), and the Supreme Court (Phool Chand Bajrang Lal vs. ITO, Raymond Woolen Mills Ltd. vs. ITO, Shri Krishna Pvt. Ltd. vs. ITO) to argue that reassessment can be carried out where the assessee failed to disclose material facts. - Contended that the taxpayer cannot abandon the statutory remedy of appeal and invoke the High Court's jurisdiction under Article 226.