2021 (7) TMI 758 - AT - Income Tax

Exemption u/s 11 - Applicants registration granted u/s 12AA of the Act had been cancelled by the Ld.Pr.CIT - Denial of natural justice - Assessee seeking stay of the operation of the order of the Ld. Pr.CIT as the order had been passed in violation to the principles of natural justice without providing opportunity of being heard and without providing sufficient time to rebut the allegations made in the show cause notice - HELD THAT - Prima facie case has been made out by the applicants of grave injustice being done to them by the passing of the impugned orders of the Ld.Pr.CIT u/s 12AA(3)(4) of the Act ,to which the present stay applications pertain. Prima facie the applicants have demonstrated denial of fair hearing by the Ld.Pr.CIT while passing the orders cancelling registration pointing out that despite seeking time to file submissions on merits the Ld.Pr .CIT passed his order without affording any such opportunity. .DR was unable to make any strong arguments to rebut the same only pointing out to the opportunity afforded when replies were filed by the assessee raising jurisdictional objections .The said orders undoubtedly have serious adverse implications on the pending assessment proceedings consequent to search action on the assessee. In the absence of registration u/s 12AA of the Act, the income of the assessee no longer remains eligible for exemption u/s 11 and 12 of the Act and further the AO may have his own limitations in conducting a fair investigation on the search material before him when the Ld.Pr.CT on the basis of the very same material has found the activities of the assessee not eligible for registration. Further noting the fact that the limitation for passing the assessment order is 30/09/2021, we are of the view that interest of all would be subserved by an early hearing of the appeals against order of the Ld.Pr.CIT in which the present applications have been filed. The present stay applications relate are directed to be fixed for hearing on 07.07.2021

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Premature assumption of jurisdiction by the Principal Commissioner of Income Tax (Pr.CIT) to revoke registration.
3. Impact of the cancellation order on pending assessment proceedings.

Detailed Analysis:

Violation of Principles of Natural Justice:
The applicants contended that the order cancelling their registration under section 12AA was passed without providing an adequate opportunity to be heard. They argued that sufficient time was not given to rebut the allegations made in the show cause notice. The Tribunal noted that the applicants had specifically asked for more time to make their submissions on the merits of the case in their letter dated 04.01.2021. Despite this, the Pr.CIT passed the cancellation order on 22.03.2021, without affording any opportunity to the applicants to file their submissions on the merits of the case. The Tribunal found that a prima facie case of grave injustice was made out by the applicants, demonstrating denial of fair hearing by the Pr.CIT.

Premature Assumption of Jurisdiction:
The applicants argued that the action of the Pr.CIT in revoking the registration was premature as the assessment proceedings under section 153A were still pending. The Tribunal noted that the assessment proceedings were interrupted by the COVID-19 pandemic and were extended to 30.09.2021. The jurisdictional Assessing Officer (AO) had yet to adjudicate upon the findings of the Investigation Wing and the replies of the assessee. The Tribunal observed that the Pr.CIT's action was based on the material collected during the search and seizure operation, which was still under investigation by the AO. The Tribunal referenced the ITAT Cuttack Bench's decision in the case of Kalinga Institute of Industrial Technology Vs. CIT, which dealt with a similar issue and quashed the Pr.CIT's order as premature.

Impact on Pending Assessment Proceedings:
The applicants contended that the cancellation of registration had serious adverse implications on the pending assessment proceedings. They argued that without the registration under section 12AA, their income would no longer be eligible for exemption under sections 11 and 12 of the Act. The Tribunal agreed that the cancellation order would adversely affect the assessment being framed under section 153A, as the AO might have limitations in conducting a fair investigation when the Pr.CIT had already found the activities of the assessee not eligible for registration. The Tribunal noted that the limitation for passing the assessment order was 30.09.2021 and directed an early hearing of the appeals against the Pr.CIT's order to ensure a fair resolution.

Conclusion:
The Tribunal found that the applicants had made a prima facie case of grave injustice due to the denial of fair hearing and the premature assumption of jurisdiction by the Pr.CIT. The Tribunal directed an early hearing of the appeals on 07.07.2021 and instructed both parties to cooperate in the speedy disposal of the appeals. The stay applications were dismissed and disposed of in these terms. The Tribunal clarified that any observations made would not impact the adjudication of the appeals.