In a significant ruling the Kerala High Court observed that the question to be decided in proceedings under Section 148 of the Income Tax Act, 1961 is whether unaccounted transactions and alleged escaped income would merit exemption.
The Writ Petition was filed challenging order of the Income Tax Department under Section 148A(d) of the Income Tax Act. A perusal of the said order revealed that the appellant herein, who is an assessee under the Income Tax Act and registered under Section 12AA of the Income Tax Act in its capacity as St. John the Baptist Church, a religious institution, had not accounted for certain cash loans and repayments for the assessment year 2016-2017.
It was with a view to scrutinizing the said unaccounted transactions and to ascertain whether there had been a violation of the provisions of Section 12AA of the Income Tax Act, and a possible violation of Section 269 SS and 269 T of the Income Tax Act that the notice under Section 148A was served on the appellant.
The Single Judge who considered the challenge against the order found that the appellant’s acceptance of Rs.1,87,69,000/- in cash and repayment of the same was an apparent violation of Section 12AA and the action of the assessing authority in issuing the notice under Section 148 could not be said to be erroneous in law. The Writ Petition was, therefore, dismissed as devoid of merit.
A Division Bench of Dr Justice AK Jayasankaran Nambiar and Justice VG Arun observed that “In the appeal before us, it is the contention of K.N.Sreekumaran, the counsel for the appellant, that the alleged escaped income, even if taken into account, would not attract any tax liability since the appellant enjoys an exemption in terms of Section 12AA of the Income Tax Act. We note, however, that the exemption under Section 11 read with Section 12AA of the Income Tax Act is one that is subject to certain conditions, and the question to be decided in the proceedings under Section 148 of the Income Tax Act is essentially as to whether the unaccounted transactions and the alleged escaped income would merit an exemption or not.”
“It is for the said examination on merits that the proceedings under Section 148 of the Income Tax Act have been initiated. At this stage, where what is impugned is order under Section 148 A(d), we see no reason to interdict those proceedings at the instance of the appellant. The Writ Appeal, therefore, fails and is accordingly dismissed” the Court noted.
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