2021 (1) TMI 77 - AT - Income Tax

Rectification u/s 254 - order passed by the Id, CIT(E) u/s. 12AA(3) in bad in law in absence of a proper show cause notice issued to the Applicant for cancellation of registration u/s. 12AA - HELD THAT - The case of the Revenue as well as one of the main reasoning given by the tribunal in the captioned order was that this material fact was neither disclosed nor brought on record by the assessee at the time of seeking registration. This may have been disclosed in the notes to the account at the time of filing of return post grant of registration, but certainly it was not disclosed at the time of seeking registration that, what was the purpose and objective of acquiring the AGL on a paltry sum of ₹ 50 lakhs to INC. The tribunal has noted that acquisition of shares in such a manner cannot be held to be in furtherance of the objects of the assessee company. One of the conditions put forth by then Ld. DIT(E) at the time of granting registration was that, if later on it was found that registration has been granted by misrepresentation or suppression of any facts then registration so granted is liable to be cancelled as per the provision of section 12 AA(3) . This term and condition given in the registration has been reiterated by the CIT (E) in the cancellation order. One of the reasoning given by the Tribunal to uphold the cancellation order was that, assessee had suppressed vital and material facts regarding acquisition of shares of AJL and the purpose for which it was acquired at the time of seeking the registration. Thus, there is no substance in this contention that, merely because later on this fact was mentioned in the notes to the account of the balance-sheet filed subsequently along with the return of income amounts to furnishing of information at the time of registration. Accordingly, such contention raised in miscellaneous application is rejected. Erroneous finding that the applicant did not undertake any activity in furtherance of its object prior to cancellation of registration - The finding of the Tribunal and the conclusion drawn besides other facts and material on record was also based on the binding precedent of the finding and the judgment of the Hon ble Delhi High Court, which was rendered almost on the same facts wherein there is a clear-cut observation that all these transactions were hidden from the Income Tax Department. In fact this vital fact was also hidden from the DIT(E) while seeking the registration under section 12AA; and not only that, post granting of registration also no such genuine activities was carried out from the period of granting of registration till the period assessee has surrendered for registration. In this regard observation and conclusion of the Tribunal in paragraph 122 is reiterated. Tribunal has noted that it has noted down various arguments placed by the parties as well as judgment relied upon and also dealt with all the core arguments, but same are not being dealt with, because the findings have been reached on the reasoning and the conclusion given in the foregoing paragraphs and the order of CIT (E) cancelling the registration was upheld. In the impugned miscellaneous application no such mistake has been pointed out which can be said to be a mistake apparent from record which can be held to be rectifiable within the scope and ambit of section 254(2). In any case, the assessee had preferred the appeal on the following two grounds only. On the aforesaid grounds the detail reasoning and finding has been given. Nowhere in the miscellaneous application has the assessee pointed out that, either the grounds have not been adjudicated or has been omitted to be considered by the Tribunal. Thus even otherwise the miscellaneous application filed by the assessee does not stand scope and ambit of section 254(2) of the Act. Accordingly, the miscellaneous application filed by the assessee is dismissed

Issues Involved:
1. Non-issuance of proper show cause notice by CIT(E).
2. Allegation of new case made by the Departmental Representative (DR).
3. Validity of show cause notice and order post surrender of registration.
4. Retrospective application of section 12AA(4).
5. Non-disclosure of purpose behind acquiring AJL shares.
6. Undertaking activities in furtherance of objects prior to cancellation of registration.

Issue-wise Detailed Analysis:

1. Non-issuance of proper show cause notice by CIT(E):
The assessee argued that the CIT(E) did not issue a proper show cause notice before canceling the registration under section 12AA(3). It was contended that the notice lacked independent satisfaction and did not explicitly require the assessee to show cause why the registration should not be canceled. The Tribunal found that a detailed show cause notice was indeed issued by the CIT(E), which included all relevant information and material, thereby providing the assessee with a reasonable opportunity of being heard. The Tribunal concluded that the CIT(E) had followed due process, and the contention of non-issuance of a proper show cause notice was rejected.

2. Allegation of new case made by the Departmental Representative (DR):
The assessee claimed that the DR introduced new arguments and evidence not considered by the CIT(E) in the cancellation order. The Tribunal noted that the DR's arguments were within the scope of the CIT(E)'s findings and did not constitute a new case. The Tribunal emphasized that the DR is permitted to strengthen the case based on existing facts and material. Therefore, the contention that the DR made a new case was dismissed.

3. Validity of show cause notice and order post surrender of registration:
The assessee argued that the show cause notice issued 17 months after the surrender of registration was without jurisdiction and invalid. The Tribunal observed that the surrender of registration does not preclude the CIT(E) from examining the activities of the assessee during the period when the registration was in force. The Tribunal found that the CIT(E) was within his rights to issue the show cause notice and pass the cancellation order. The contention regarding the invalidity of the notice and order post-surrender was rejected.

4. Retrospective application of section 12AA(4):
The assessee contended that section 12AA(4), which allows for cancellation of registration for holding commercial investments, could not be applied retrospectively to cancel registration from AY 2011-12. The Tribunal clarified that the cancellation was not based solely on the holding of shares but on the overall non-genuine activities and non-compliance with the stated objects. The Tribunal found that the cancellation was justified under section 12AA(3), and the retrospective application argument was dismissed.

5. Non-disclosure of purpose behind acquiring AJL shares:
The assessee argued that the purpose of acquiring AJL shares was disclosed in the notes to accounts and income tax returns. The Tribunal noted that this information was not disclosed at the time of seeking registration, which was a material fact. The Tribunal emphasized that the non-disclosure at the time of registration constituted suppression of facts, justifying the cancellation. The contention regarding the disclosure of purpose was rejected.

6. Undertaking activities in furtherance of objects prior to cancellation of registration:
The assessee claimed that it had undertaken activities in furtherance of its objects, including steps to revive AJL and recommence newspaper publication. The Tribunal found that no genuine charitable activities were carried out during the period from the grant of registration to the surrender. The Tribunal noted that the activities cited by the assessee occurred after the surrender and did not justify the retention of registration for the earlier period. The contention regarding undertaking activities was dismissed.

Conclusion:
The Tribunal dismissed the miscellaneous application filed by the assessee, finding no mistake apparent from the record that warranted rectification under section 254(2). The Tribunal upheld the CIT(E)'s cancellation of registration, emphasizing due process, proper issuance of show cause notice, and the non-genuine nature of the assessee's activities.

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