2024 (6) TMI 1280 - AT - Income Tax

Cancellation of registration granted U/s.12AA/ U/s. 12AB - Scope of Retrospective application of Section 12AB(4)(ii) introduced by Finance Act, 2022 - CIT (Central) cancelled registration invoking the provisions of section 12AB(4)(ii) invoking the provisions of section 12AB(4)(ii) with retrospective effect though this section was introduced by Finance Act, 2022 w.e.f. 1.4.2022 - HELD THAT - We find force in the argument of ld. A.R. that in income-tax matters, law to be applied is the law in force in the assessment year unless otherwise stated or implied. In the present case, ld. PCIT is cancelling the registration granted u/s 12AA/12AB of the Act w.e.f. previous year 2020-21 relevant to assessment year 2021-22. In our opinion, the law as stated in the assessment year 2021-22 is to be applied and not the law as stood in the assessment year 2022-23. Thus, we are of the view that no retrospective cancellation could be made u/s 12AB(4)(ii) of the Act as it has been provided or is seen to have explicitly provided to have a retrospective character or intended. Therefore, without a specific mention of the amended provisions to operate retrospectively, no cancellation for the earlier years could be made. As decided in case of Auro Lab Ltd 2019 (1) TMI 1478 - MADRAS HIGH COURT PCIT has cancelled the registration under the new provisions of the Act i.e. 12AB(4)(ii) of the Act, which specifically provides that cancellation can be done for such previous year and all subsequent previous years, which makes it clear that the cancellation cannot be retrospective, therefore, in view of the above discussion, we are of the opinion that cancellation of registration with retrospective effect is invalid in these cases. Since the ld. PCIT invoked the provisions of section 12AB(4)(ii) of the Act, which has been introduced by the Finance Act, 2022 w.e.f. 1.4.2022 so as to cancel the registration with retrospective effect from assessment year 2018-19, which is bad in law. Also in the case of Heart Foundation of India 2023 (8) TMI 1063 - ITAT MUMBAI wherein held that registration granted u/s 12A of the Act dated 21.7.1989 cannot be cancelled by ld. PCIT (Central) vide order dated 6.3.2023 w.e.f. assessment year 2016-17, by invoking the provisions of section 12AB(4)(ii) - Appeals of the assessee are allowed.

Summary

Issues Involved:
1. Retrospective application of Section 12AB(4)(ii) of the Income-tax Act, 1961.
2. Validity of cancellation of registration under Section 12AA/12AB for the assessment year 2018-19.
3. Admissibility of evidence and statements under Section 132(4) of the Act.
4. Compliance with the objectives of the trust and the utilization of funds.

Issue-Wise Detailed Analysis:

1. Retrospective Application of Section 12AB(4)(ii) of the Income-tax Act, 1961:

The appellant contended that the Principal Commissioner of Income Tax (PCIT) erred in invoking Section 12AB(4)(ii) of the Act, which was introduced by the Finance Act, 2022, with effect from 01.04.2022, for the assessment year (A.Y.) 2018-19. The appellant argued that the law applicable should be the one in force during the A.Y. 2018-19, which was Section 12AA(4). The Tribunal agreed with the appellant, noting that "in income-tax matters, the law to be applied is the law in force in the assessment year unless otherwise stated or implied." The Tribunal cited several Supreme Court judgments, including Commissioner of Income Tax V. Omkar Saran & Sons and Shree Chowdhary Transport Company Vs. ITO, which held that penal provisions cannot be applied retrospectively unless explicitly stated. Consequently, the Tribunal found that the retrospective application of Section 12AB(4)(ii) was invalid.

2. Validity of Cancellation of Registration under Section 12AA/12AB for the Assessment Year 2018-19:

The appellant argued that the PCIT should have invoked Section 12AA(4) of the Act, which was relevant for the A.Y. 2018-19, instead of Section 12AB(4)(ii). The Tribunal noted that the law applicable during the A.Y. 2018-19 was Section 12AA(4), which allowed for the cancellation of registration if the activities of the trust were not genuine or not carried out in accordance with its objects. The Tribunal concluded that the PCIT's order to cancel the registration under Section 12AB(4)(ii) was "bad in law" and should be annulled. The Tribunal emphasized that "cancellation of registration is penal in nature" and should be based on the law applicable during the year of the alleged infringement.

3. Admissibility of Evidence and Statements under Section 132(4) of the Act:

The appellant challenged the reliance on statements recorded under Section 132(4) from the administrative officer of the trust, who later retracted his statements. The Tribunal noted that the PCIT ignored the fact that there were no confirming statements from any of the trustees and that the administrative officer had retracted his statement during cross-examination. The Tribunal cited Supreme Court judgments, including Attar Singh Gurmukh Singh V. ITO, which held that an assessee could retract a statement made under Section 132(4) and that such statements must be corroborated with independent evidence. The Tribunal found that the PCIT erred in relying on the retracted statements without independent corroboration.

4. Compliance with the Objectives of the Trust and the Utilization of Funds:

The appellant argued that the PCIT erred in finding that the funds of the trust were not fully utilized for its objectives and were used for the personal benefit of the trustees. The Tribunal noted that all transactions were recorded in the books audited by a Chartered Accountant and that there was no evidence to prove that funds were diverted for purposes other than the trust's objectives. The Tribunal concluded that the PCIT's findings were not substantiated by evidence and that the activities of the trust were carried out in accordance with its objects.

Conclusion:

The Tribunal quashed the PCIT's order canceling the registration under Section 12AB(4)(ii) of the Act, finding that the retrospective application of the provision was invalid. The Tribunal allowed the appeals, rendering the other grounds of appeal infructuous. The order was pronounced in the open court on 16th April 2024.