The Kerala High Court, in the case of St. John The Baptist Church Vs ITO, upheld the order under Section 148A(d) of the Income Tax Act, 1961. The court found the acceptance and repayment of cash loans by the petitioner, a religious institution, in violation of Section 12AA. This article provides a detailed analysis of the court’s decision and the implications for the petitioner.
Background of the Case: The petitioner, a registered religious institution, faced scrutiny for financial transactions during the assessment year 2016-17. The Assistant Director of Income Tax (Investigation) highlighted interest-free cash loans accepted and repaid by the petitioner, triggering concerns about a violation of registration provisions under Section 12AA and penal provisions under Sections 269SS and 269T.
Reassessment Initiation: The Directorate of Income Tax (Investigation) revealed that the petitioner filed its income tax return for the said assessment year, but discrepancies in audited statements prompted a reassessment. A show-cause notice under Section 148A was issued, questioning the non-reflection of cash loans and repayments in the audited statements.
Assessing Authority’s Opinion: The assessing authority, after considering the petitioner’s response, found no satisfactory explanation regarding the acceptance and payment of a substantial cash loan. The petitioner’s request for exemption based on separate penalty proceedings was not accepted, leading to the issuance of a notice under Section 148 for the alleged escapement of income.
Court’s Rationale: The High Court, in dismissing the writ petition, emphasized the gravity of the petitioner’s acceptance and repayment of Rs. 1,87,69,000 in cash. The court held that this act was a clear violation of Section 12AA, and the assessing authority reasonably concluded that the said amount constituted income that had escaped assessment.
Implications and Conclusion: The court directed the petitioner to file a response to the notice under Section 148, allowing the assessing authority to examine the returns and finalize the assessment after due consideration. The decision underscores the importance of adherence to tax regulations by religious institutions and the authority’s right to reassess income in cases of potential evasion.
Conclusion: The Kerala High Court’s decision in the case of St. John The Baptist Church reinforces the need for transparency and compliance with tax laws, even for religious institutions. The court’s validation of the Section 148A(d) order reflects the authority’s responsibility to address potential income escapement. As the petitioner proceeds with the assessment, the case serves as a reminder of the legal obligations incumbent upon entities enjoying tax exemptions.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
1. The present writ petition has been filed impugning the order in Exhibit P-9 dated 20.04.2023 passed under Clause (d) of Section 148A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for short).
2. The petitioner claims to be a religious institution. Petitioner has been registered under Section 12AA dated 21.09.2007 w.e.f. 01.04.2006. The petitioner has been filing return of its income. The Assistant Director of Income Tax (Investigation), Thrissur had uploaded certain information in respect of financial transactions of the petitioner for the relevant assessment year 2016-17. A perusal of the data provided by the Assistant Director of Income Tax (Investigation) would reveal that the petitioner had accepted (interest free) cash loans (IFL) amounting to Rs. 1,87,69,000/- during the financial year 2015-16 relevant to the assessment year 2016-17 and, out of the said amount Rs.1,69,65,611/- has been repaid by cash during the said financial year itself. It is also evident from the data collected that unpaid loan amount of Rs. 19,30,000/- was outstanding on 31.03.2016 which had also been repaid by cash during the financial year 2016-17. The competent authority was of the opinion that the said transaction in cash was a clear case of violation of the provisions of registration under Section 12AA of the Act and these transactions attract penal provisions under Section 269SS and 269T of the Act.
3. A checking of the e-filing portal reveals that the assessee had filed return of income for the assessment year 2016-17 on 14.06.2017. The gross receipts were stated to be Rs. 2,37,72,528/-with application of income to the tune of Rs. 2,45,92,429/-. The said information obtained from the Directorate of Income Tax (Investigation) would suggest re-opening of assessment due to escapement of income from tax on account of non reflection of cash loan and repayment in audited statements. A show cause notice under Section 148A was issued and served on the assessee on 31.03.2023 to show as to why notice under Section 148 should not be issued in this case. The petitioner had participated in the proceedings. However, on careful consideration of the reply of the assessee, the assessing authority was of the opinion that the petitioner has no explanation relating to the acceptance and payment of loan in cash to the tune of Rs. 1,87,69,000/-. The petitioner/assessee has also not confirmed whether these acceptance and repayment have reflected in their audited financials. Instead, the petitioner had requested to exempt him from 148 proceedings as the Commissioner of Income Tax has initiated separate penalty proceedings.
4. Considering aforesaid facts and in the absence of any materials coming forth from the petitioner or explanation for accepting and making repayment of Rs. 1,87,69,000/- in cash, the notice under Section 148 was issued as in the opinion of the assessing authority, the income chargeable to tax to the tune of Rs. 1,87,69,000/- has escaped assessment in the case of the petitioner for the assessment year 2016-17.
5. Considering the aforesaid fact that the petitioner’s alleged acceptance of Rs. 1,87,69,000/- in cash and repayment of the same was in clear violation of Section 12AA and the assessing authority has been of the opinion that prima facie the said amount was an income of the petitioner which had escaped assessment from payment of the tax, I do not find that the assessing authority had committed any error of law or jurisdiction in passing the impugned order under Section 148A(d) of the Act.
6. The petitioner is required to file his return in response to the notice under Section 148 and if he files the return, the assessing authority shall examine the returns and will finalise the assessment order after hearing the petitioner. At this stage, I do not find any ground to interfere with the impugned order.
In the above facts and circumstances, this writ petition being devoid of merits and substance is hereby dismissed.