2022 (6) TMI 1112 - AT - Income Tax

Exemption u/s 11 - presumption that registration u/s.12A and 80(G)(5) is cancelled - as section 12A registration was not traceable assessee again applied for it - HELD THAT - As assessee expressed that the 12A registration was not traceable but placed on record that after receipt of the 12A, 80(G) registration was granted and was effective and not cancelled till the completion of the assessment. They have made necessary efforts to bring the facts on record by applying to the CIT(E) by writing a letter and upon no response they have subsequently availed the registration u/s.12AA of the Act. All these facts were not disputed by the ld. DR. We have also persuaded the extract of the Notes to the Provisions of Finance (No. 2), 2014 as given in CBDT circular no. 01/2015 dated 21.01.2015 where in the board has clarified so as to applicability of the registration certificate Thus once the registration has been granted and there is no contrary finding on record about the rejection of the trust registration the benefit of section 11 and 12 of the Act shall be available in respect of any income derived from held under trust in any assessment proceeding for an earlier assessment year which is pending before the Ld.AO. Here the ld. AR of the assessee already proved that the circumstantial evidence suggest that the assessee is having the registration but unable to provide the certificate and they have made sufficient effort to find out the truth and have also availed the fresh registration which is granted without any adverse observations on the activities of the trust. Thus the denial of benefit under section 11 of the Act by the ld. AO merely on account non production of registration certificate is incorrect and we direct the AO to grant the benefit of section 11 12 benefit to the assessee and also direct to delete the addition made on this count consequent there upon. Appeal of assessee allowed.

Issues Involved:
1. Denial of exemption under sections 11 and 12 of the Income Tax Act.
2. Disallowance of capital expenditure and surplus income under section 11(1)(a).
3. Consideration of the first proviso to Section 12A(2) of the Income Tax Act.
4. Validity of the registration certificate under section 12AA.
5. Applicability of the registration granted to earlier years.

Detailed Analysis:

Issue 1: Denial of Exemption under Sections 11 and 12
The core issue across the assessment years 2016-17, 2017-18, and 2018-19 was the denial of exemption under sections 11 and 12 of the Income Tax Act. The Assessing Officer (AO) disallowed the exemption because the assessee failed to furnish the registration certificate under section 12AA during the assessment proceedings. The assessee argued that the objectives of the society had not changed since its inception, and the registration granted in AY 2019-20 should be applicable retrospectively. The appellate authority upheld the AO's decision, stating that the registration was effective only from AY 2020-21 onwards.

Issue 2: Disallowance of Capital Expenditure and Surplus Income
For AY 2016-17, the AO disallowed capital expenditure of Rs. 3,10,754 and surplus income of Rs. 5,80,036 under section 11(1)(a), adding these amounts back to the total income. The assessee contended that the denial was unjustified as the objectives of the society remained unchanged, and the registration under section 12AA should apply retrospectively. Similar disallowances were made for AY 2017-18 and AY 2018-19, with the AO adding back accumulated amounts and donations to the total taxable income.

Issue 3: Consideration of the First Proviso to Section 12A(2)
The assessee argued that the first proviso to Section 12A(2), introduced by the Finance (No.2) Act, 2014, should apply. This proviso allows for the application of sections 11 and 12 to any income derived from property held under trust for any assessment year preceding the year of registration, provided the assessment proceedings are pending and the objectives of the trust remain unchanged. The assessee claimed that this proviso should apply retrospectively, allowing for exemptions in the preceding years.

Issue 4: Validity of the Registration Certificate under Section 12AA
The assessee provided a copy of the registration certificate under section 80G, arguing that this implied the existence of a valid 12AA registration, as 80G registration requires 12AA registration. Despite the original 12AA certificate being misplaced, the assessee applied for and received a new 12AA registration in December 2019, effective from AY 2020-21. The assessee argued that the absence of any adverse findings or cancellation of the 80G or 12AA registration should allow for the application of sections 11 and 12.

Issue 5: Applicability of the Registration Granted to Earlier Years
The Tribunal considered the explanatory notes to the Finance (No. 2), 2014, and CBDT Circular No. 01/2015, which clarified that the benefit of sections 11 and 12 should apply retrospectively if the trust's objectives and activities remain unchanged. The Tribunal emphasized that the denial of exemption merely due to the non-production of the registration certificate was incorrect. The Tribunal directed the AO to grant the benefit of sections 11 and 12 and delete the additions made on this count.

Conclusion:
The Tribunal allowed the appeals for all three assessment years, directing the AO to grant the benefit of sections 11 and 12 and delete the additions made. The Tribunal emphasized that the registration under section 12AA, once granted, should apply retrospectively as per the first proviso to Section 12A(2), provided the trust's objectives and activities remain unchanged. The decision was based on the principle that the legislative intent was to prevent genuine hardship to charitable organizations due to technical lapses in registration.

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