High Court refuses to intervene in Charitable Trust's challenge against Income Tax Act Section 12AA(3) cancellation notice.

The High Court declined to intervene in a case where a Charitable Trust challenged a show cause notice seeking retrospective cancellation of its registration under Section 12AA(3) of the Income Tax Act, 1961. The Court held that the satisfaction required for cancellation should be recorded by the Principal Commissioner at the final decision stage, not at the show cause notice issuance. As the notice indicated prima facie satisfaction, the Court found no reason to interfere and dismissed the writ petition, allowing the Trust to raise all relevant arguments before the Principal Commissioner.

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Issues:
Challenge to show cause notice under Article 226 of the Constitution of India for cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961.

Analysis:
The petitioner, a Charitable Trust, challenged a show cause notice dated 28.02.2018 under Section 12AA(3) of the Income Tax Act, 1961. The notice proposed cancellation of registration granted on 28.07.2006, effective from 01.04.2007. The petitioner contended that the notice suffered from a jurisdictional error as it sought retrospective cancellation without recording satisfaction of non-genuine activities. The petitioner relied on legal precedents to support the argument. The respondent, representing the Income Tax Department, argued that the cancellation was justified based on findings from assessment proceedings for the years 2008-09 to 2014-15, where lack of charitable activities was observed. The respondent also contended that challenging a show cause notice via a writ petition was premature, as the petitioner could raise all pleas before the Principal Commissioner of Income Tax, who would make a final decision recording satisfaction as required by Section 12AA(3). The respondent mentioned the possibility of appealing to the Income Tax Appellate Tribunal against the final order.

The High Court, after considering arguments from both parties, held that the satisfaction required under Section 12AA(3) was to be recorded by the Principal Commissioner at the time of passing final orders. The Court noted that the show cause notice indicated a prima facie satisfaction, and all relevant pleas, including the retrospective cancellation issue, could be raised before the Principal Commissioner. The Court found no reason to interfere at that stage, as the show cause notice was not issued by an incompetent authority. Therefore, the Court declined to exercise its discretionary jurisdiction under Article 226 of the Constitution of India, allowing the petitioner to present all relevant pleas before the concerned authority. The Court dismissed the writ petition without delving into the merits of the controversy.

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