2023 (10) TMI 39 - HC - Income Tax

Exemption u/s 11 - Cancellation of registration u/s 12A - whether or not there has been an infraction of well-established principles of natural justice and if at all, exercise of jurisdiction with material irregularity has occurred? - whether the balance of convenience is presently in favour of the petitioner, and would any irreparable harm be caused to the petitioner, if an interim order, as sought by the petitioner, is not granted. HELD THAT - Prima facie, the petitioner has made out a case that the registration could not have been cancelled for years earlier than the period commencing from 28.05.2021. In the ordinary course, the registration granted to the petitioner on 28.05.2021, would have extended till Assessment Year (AY) 2006-07. The cancellation of registration would definitely entail a consequence, which would result in disabling the petitioner from accepting any contributions from domestic contributors. The petitioner is an organization which survives on contributions. The employees engaged by the petitioner and its work depend on the contributions that it receives. Therefore, the balance of convenience, as it stands, is in favour of the petitioner. Eligibility for interim relief - Insofar as this aspect is concerned, we can only say that the inability of the petitioner to accept donations may derail its programmes, which are in the pipeline. Thus, having an overall view of the matter, we are of the opinion that the petitioner has made a case for grant of interim stay and for further examination of the matter by the court. Accordingly, issue notice. List the matter on 30.11.2023. In the meanwhile, the operation of the impugned order shall remain stayed, subject to the petitioner maintaining a proper account of the contributions received by it, including the details of the contributors.

Summary

Issues Involved:
The judgment involves challenging an order passed under Sections 12A, 12AA, and 12AB(4) of the Income Tax Act, 1961 regarding cancellation of registration, breach of natural justice, and jurisdictional flaws.

Challenge to Order under Income Tax Act:
The writ petition challenges the order dated 30.06.2023 under Sections 12A, 12AA, and 12AB(4) of the Income Tax Act, 1961. The petitioner's counsel highlighted flaws in the order, including non-furnishing of the survey report, retrospective cancellation of registration, breach of natural justice by not allowing cross-examination, and lack of personal hearing for the third Show Cause Notice.

Contentions of Petitioner's Counsel:
The senior counsel for the petitioner emphasized the organization's existence since 1973 and its work in policy and research. He argued that the cancellation of registration should have been limited to the year of violation as per Section 12AB(4)(ii) of the Act. The counsel also raised concerns about the lack of opportunity for cross-examination and personal hearing.

Respondent's Submission:
The Additional Solicitor General representing the respondents acknowledged the absence of furnishing the survey report and the denial of cross-examination opportunity. He stated that the order primarily affects the registration granted on 28.05.2021, with consequences for previous years to follow automatically.

Judicial Observations and Decision:
The court refrained from delving into the case's merits but focused on principles of natural justice and jurisdictional irregularities. The court found merit in the petitioner's argument that registration could not be canceled for years before 28.05.2021. Considering the impact on the petitioner's operations, the court granted interim relief, staying the operation of the impugned order and directing the petitioner to maintain detailed records of contributions and their utilization.

Court's Directions and Future Proceedings:
The court directed the petitioner to file a counter-affidavit within six weeks and listed the matter for further hearing. The operation of the impugned order remained stayed, subject to compliance with accounting and spending requirements. The petitioner was instructed to align contributions with its objectives and notify any violations to the court. Parties were directed to act based on the digitally signed copy of the order.