Denial of exemption u/s 10(26) upheld as address of assessee in PAN was of Mumbai and he could not produce any evidence of residing in specified area
In a recent judgment, Hon’ble High Court of Jammu and Kashmir has upheld denial of exemption under section 10(26) as address of the assessee in PAN was of Mumbai and he could not produce any evidence that during the Assessment Year he was resident in the specified area.
ABCAUS Case Law Citation:
4588 (2025) (06) abcaus.in HC
In The instant case, the petitioner invoked extraordinary jurisdiction under Article 226 of the Constitution of India for quashing and setting aside the order passed by the Principal Commissioner of Income Tax (PCIT) under Section 264 of the Income Tax Act, 1961 (the Act). The petitioner also challenged the assessment order passed by the Assessing Officer (AO.
The AO had noticed a large amount of cash deposit by the petitioner in bank account. It was also found by the AO that the petitioner had neither filed the original return of income nor any response to the notice under Section 148 of the Act.
The Assessing Authority was thus prima facie of the opinion that the aforesaid amount of deposit had remained unexplained by the petitioner for the relevant Assessment Year.
Accordingly, a notice under Section 148 of the Act was issued followed by notices under Section 142(1) of the Act asking the petitioner to file the details/explanation/documents/evidence etc. However, the petitioner failed to comply with the aforesaid notice.
The Investigation Wing of the Income Tax Department conducted an investigation and submitted its report indicating that the Bank had not been filing their Annual Information Return properly and correctly, as is mandated and required under Section 285BA of the Act. Pursuant to the investigation report prepared by the Investigation Wing, a notice under Section 133(6) of the Act was issued to the Bank calling for the account statement of the petitioner.
The Bank furnished the bank statements of the petitioner, which indicated different deposits made by the petitioner in four different accounts. A show cause notice was issued to the petitioner for completing the assessment under Section 144 of the Income Tax Act. The notice was based upon the information on record, and the petitioner was asked as to why the amount of cash deposited in bank should not be added to his income for the assessment year under consideration.
The petitioner responded to the show cause notice and in his written submission submitted claimed that he was a resident of Kargil and, therefore, exempted from paying Income Tax under Section 10(26) of the Act. He also submitted a resident certificate issued by the Tehsildar, Kargil.
The Petitioner further indicated that his source of income was earnings from conducting religious tours to Syria, Iran and Iraq for the residents of Kargil. It was thus claimed that the income was derived by him on account of these tours.
The reply was considered by the Assessing Authority and an assessment order was passed treating the income as taxable. Penalty notice under Section 271(1)(c) of the Act was issued separately.
Feeling dissatisfied and aggrieved by the assessment order, a revision petition under Section 264 of the Act was filed by the petitioner before the Principal Commissioner of Income Tax who declined to interfere with the order of assessment and has dismissed the revision petition filed by the petitioner.
The impugned order passed by the Principal Commissioner and the order of assessment passed by the AO were called in question by the petitioner primarily on the ground that the petitioner, being a Schedule Tribe and a resident of Union Territory of Ladakh, is exempted from payment of Income Tax under Section 10(26) of the Act. A strong reliance is placed by the petitioner on a resident certificate issued by the Tehsildar, Kargil and the Schedule Tribe certificate issued by the same authority.
The Hon’ble High Court observed that in order to claim exemption under section 10(26), an assessee must satisfy the following three conditions, (i) The person claiming exemption should be a member of a Schedule Tribe as defined in clause (25) of Article 366 of the Constitution. (ii) The assessee should be residing only in the Ladakh region of the State of Jammu and Kashmir. (iii) The income in respect of which exemption is claimed must be an income which accrues or arises to him from any source in the specified area by way of dividend or interest on securities.
The Hon’ble High Court further noted that the assessee had failed to file return for the relevant Assessment Year despite having been registered with the Income Tax Department vide PAN. At the time of applying for the PAN, the petitioner had given his address at Mumbai. Pursuant to the show cause notice issued under Section 144 of the Act, calling upon the petitioner to show cause as to why cash deposits should not be added to his income for the year under consideration. The petitioner could not furnish relevant material/documents to satisfy the conditions explicitly laid down in Section 10(26) of the Act. He did submit a Schedule Tribe certificate dated but could not prove that during the relevant year he was residing anywhere in Ladakh region. He also could not sufficiently demonstrate before the Assessing Authority that the amount which was found deposited in his accounts maintained with the J&K Bank, was income derived from source/sources in the specified area.
The Hon’ble High Court opined that whether a person is or was residing in the specified area and whether the income in respect of which he is claiming exemption is derived from a source/sources in the said area is a question of fact to be determined by the Assessing Authority on the basis of evidence produced before it.
The Hon’ble High Court further observed that petitioner had claimed that he had earned the income in question by conducting religious tours to Syria, Iran and Iraq for the residents of Ladakh. However, he could not furnish any proof to the satisfaction of the Assessing Authority. The petitioner also failed to furnish any proof that he was residing in the specified area i.e. in the Ladakh region. The resident certificate issued by the Tehsildar was not proof enough to demonstrate that during the relevant Assessment Year the petitioner was residing in the Ladakh region. The Assessing Authority, thus, rightly found the claim for exemption under Section 10(26) of the Act filed by the petitioner, not supported by any evidence.
The Hon’ble High Court further observed that Principal Commissioner aptly held that the petitioner had given his address as Mumbai, as is evident from his PAN, and was accordingly assessed by the jurisdictional Assessing Authority at Mumbai. This was indication enough to show that the petitioner was conducting his business of Tour and Travels from Mumbai and, therefore, no income which accrued or arose to him from any source in the Ladakh region.
Accordingly, the Hon’ble High Court held that there was no reason or justification to take a view contrary to the concurrent view taken by the two Authorities under the Act. The petitioner having failed to satisfy the three conditions laid down in Section 10(26) of the Act, was not entitled to claim exemption of his entire income. What was agitated before the Court clearly fall in the realm of disputed questions of fact. The two Authorities under the Act i.e., Jurisdictional Assessing Authority and the Principal Commissioner, having concurrently determined the questions of fact, this Court in the exercise of its jurisdiction under Article 226 of the Constitution of India, would be loath to interfere with such concurrent findings of fact arrived at by two quasi-Judicial Authorities performing adjudicatory functions under the Act.
As a result, the Petition was dismissed.
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