2024 (7) TMI 1020 - AT - Income Tax

Denial of re-registration u/s. 12A - cancellation of registration retrospectively w.e.f 1.4.2014 insofar as the provisions of section 12AA/12AB - assessee has been misusing the funds received under the guise of donation which was evident from the investigation report - as argued show cause notice for cancellation of registration had been issued by CIT (E) on 6.10.2022 but the cancellation of registration was done w.e.f. 1.4.2014 relevant to assessment year 2015-16 thus provisions of section 12AB does not provide for retrospective cancellation of registration u/s. 12A HELD THAT - A perusal of the order cancelling the registration shows that the ld CIT(E) has not given any reason for rejecting various explanation given by the assessee to various show cause notices issued. All that the ld CIT(E) says that the replies are in relation to observations made by the Assessing officer and has nothing to do with the reasons given for giving show cause notice for cancellation of registration. A perusal of the order of ld CIT(E) clearly shows that the reasons given for the show cause notice are the reasons which are considered by the Assessing Officer in the assessment order for the assessment years 2013-14 2014-15. The assessee has also given reply to various issues in the show cause notice. In any case the show cause notice for cancellation of registration having been issued on 6.10.2022 ld CIT (E) could not have cancelled registration retrospectively w.e.f 1.4.2014 insofar as the provisions of section 12AA/12AB does not provide for the cancellation of registration with retrospective effect. on perusal of provisions of section 12AB(4) of the Act shows that the said provision has been substituted by the Finance Act 2022 w.e.f. 1.4.2022. Before 1.4.2022 the registration could have been cancelled u/s. 12AB(5). However the provisions of section 12AA and Section 12AB came into effect from 1.4.2015. Before that registration was done under section 12A of the Act. One needs to understand that the provisions of section 12A of the Act was amended to 12AA and then 12AB because registration scheme for Trust was to corollary to claim file and smile i.e. to file the registration as admittedly charitable institution. Subsequently the provisions of exemption was brought in and opportunity was given to CIT(E) to deny the exemption still the power for cancellation the registration was granted. However the power to cancel the registration with retrospective effect is not provided in the Statute - Assessee appeal allowed.

Summary

Issues Involved:
1. Cancellation of registration under Section 12AB(4) of the Income Tax Act, 1961.
2. Retrospective cancellation of registration.
3. Validity of the investigation report used for cancellation.
4. Compliance with procedural requirements for cancellation.

Detailed Analysis:

1. Cancellation of Registration under Section 12AB(4):
The appeal was filed against the cancellation of registration by the CIT(E) under Section 12AB(4) of the Income Tax Act, 1961. The assessee trust was initially granted registration under Section 12A on 21.5.2014, effective from 1.4.2013. The trust was later re-registered under the new regime, with Form 10AC issued for the period from A.Y. 2022-23 to A.Y. 2026-27. A show cause notice was issued on 6.10.2022, and despite the assessee's responses, the CIT(E) cancelled the registration, citing misuse of funds as evidenced by an investigation report.

2. Retrospective Cancellation of Registration:
The CIT(E) cancelled the registration with retrospective effect from 1.4.2014, relevant to the assessment year 2015-16. The tribunal noted that the provisions of Section 12AB do not provide for retrospective cancellation. This view was supported by the decision of the ITAT Bangalore Bench in the case of Amala Jyothi Vidya Kendra Trust vs Pr. CIT, which held that the law applicable is that in force in the assessment year unless explicitly stated otherwise. The tribunal emphasized that the cancellation could not be applied retrospectively, aligning with the principles set out in various Supreme Court rulings, including Isthmian Steamship Lines and Karimtharuvi Tea Estate Ltd. vs. State of Kerala.

3. Validity of the Investigation Report:
The assessee argued that the investigation report, dated 7.2.2020/13.2.2020, was available when the trust was granted re-registration on 5.4.2022, suggesting that the report lacked credibility. The tribunal noted that the CIT(E) did not provide specific reasons for rejecting the assessee's explanations and relied on the assessment orders for 2013-14 and 2014-15. The tribunal found that the investigation report did not justify the retrospective cancellation, especially since it was considered during the re-registration process.

4. Compliance with Procedural Requirements for Cancellation:
The tribunal observed that the CIT(E) failed to provide adequate reasons for rejecting the assessee's responses to the show cause notices. The tribunal highlighted that the procedural requirements under Section 12AB(4) were not met, as the cancellation was based on reasons already considered in the assessment orders. The tribunal reiterated that the law applicable at the time of assessment should be applied, and any amendments introduced later could not be applied retrospectively unless explicitly stated.

Conclusion:
The tribunal concluded that the retrospective cancellation of the assessee's registration was invalid as it was not supported by the statutory provisions. The order of the CIT(E) cancelling the registration with retrospective effect was quashed, and the appeal of the assessee was allowed. The tribunal emphasized that the law in force during the relevant assessment year should be applied, and any amendments introduced later could not be applied retrospectively without explicit provision.