2022 (4) TMI 92 - AT - Income Tax

Exemption u/s 11 - Cancellation of registration u/s. 12AA post survey - Assessee contended that survey proceedings gets abated after search and assessment u/s 153A - violations u/s.13(1)(c) and 13(1)(d) which would result in additions in the assessment and reassessment and such violations, if any to be assessed as income taxable at the marginal rate - HELD THAT - A perusal of the provisions of Section 12AA(4) shows that the cancellation of registration is permissible in respect of trust/institution which has been granted registration if the activities of the trust or the institution are being carried out in a manner that the provisions of Section 11 and 12 do not apply to exclude either the whole or any part of the income of such trust or institution due to the operation of sub-section (1) of Section 13 or the trust or the institution has not complied with the requirements of any other law. Reading of the provisions of Section 12AA(4) shows that there has to be primarily an order saying that the activities of the trust or the institution are being carried out in the manner that the provisions of Section 11 and 12 do not apply. That order primarily has to be done by the AO, who is a quasi-judicial authority. This is because it is the AO, who makes the assessment after examining all the evidences after putting the assessee to show cause and it is that assessment order itself which becomes the subject matter of appeal at various stages which could result in the confirmation of the assessment, reduction or modifications of the additions made. The cancellation of registration without such an order is effectively precluding the AO to do the assessment in a free and fair manner. Admittedly, the Ld. CIT(E) is an Administrative Commissioner and once he gives a specific direction as he has made in the order cancelling the registration, the hands of the assessing authority gets tied down. The independence of the assessing authority gets infringed. This is not permissible. In fact reading of the provisions of Section 12AA(4) clearly shows that it is only after the quasi-judicial authority has completed its part, the violations can be even claimed to be there. In regard to the violation of any other law, the provisions of Section 12AA(4) clearly and categorically says that such violation or recording of such violation should have attained finality. Allegations per se cannot be the ground for the cancellation of registration. On this ground itself, the order passed by the CIT(E) is liable to be quashed and we do so. Reading of proviso to Section 12AA(4) shows that there is liberty available with the assessee to show that there was reasonable cause for the activities to be carried out in the said manner. This proviso clearly shows that the assessee could reply or show reasonable cause only after the quasi-judicial authority being the assessing authority questions the assessee during the course of assessment - reading of 2nd proviso to Section 153A clearly shows that assessments/re-assessments which are pending for a period of six assessment years abates. This clearly shows that even assuming proceedings had been initiated for the purpose of completing an assessment or re-assessment as a consequence of the survey, even those proceedings would stand abated as on the date of search. Thus clearly there is no assessment order nor any evidence specifically conclusively found or established against the assessee on the issues raised by the Ld. CIT(E) by an order of any quasi-judicial authority nor has the violation of any other law reached finality. - Decided in favour of assessee.

Summary

Issues:
Cancellation of registration u/s. 12AA of the Income Tax Act, 1961.

Analysis:

Issue 1: Grounds for Cancellation of Registration
The appeals were filed against the cancellation of registration u/s. 12AA by the Ld. CIT(Exemption)-Kochi. The reasons cited for cancellation included lack of independence among trust/entities, incorrect income filings, improper fund usage, non-alignment of expenditures with trust objects, violations of FCRA, and more. The assessee argued that the cancellation was based on violations of 13(1)(c) and 13(1)(d) of the Act, which could have resulted in additions. However, the reasons did not question the genuineness of the trust. The cancellation was challenged on the grounds that the search proceedings could only result in assessments under Section 153A, and all earlier pending proceedings should abate post-search.

Issue 2: Arguments and Counter-Arguments
The appellant contended that the cancellation was based on evidence found during the survey, which the assessee couldn't respond to adequately due to prohibitory orders on records. The retraction of statements was dismissed as an afterthought. The respondent argued that the cancellation was justified based on survey evidence and sworn statements, irrespective of the search proceedings. The respondent emphasized that Section 153A abatement did not affect the cancellation decision, which was supported by the show cause notice referencing actions taken post-survey.

Issue 3: Legal Provisions and Quashing of Cancellation
The Tribunal analyzed Section 12AA(4) and highlighted that cancellation required an order by the AO, a quasi-judicial authority, after due assessment procedures. The cancellation without such an order hindered fair assessment and infringed on the assessing authority's independence. The Tribunal ruled that cancellation without a completed assessment was premature and violated the provisions of Section 12AA(4). The liberty provided to the assessee to show reasonable cause post-assessment was also emphasized. Additionally, the abatement of pending assessments due to Section 153A further supported the quashing of the cancellation.

Conclusion
The Tribunal allowed all appeals, annulling the cancellation of registration u/s. 12AA. The decision was based on the premature nature of the cancellation, lack of completed assessment procedures, and the infringement on the assessing authority's independence. The judgment emphasized the importance of following due process and completing assessments before taking such drastic actions.

The detailed analysis of the judgment provides insights into the legal reasoning behind the decision to annul the cancellation of registration under Section 12AA of the Income Tax Act, 1961.