2024 (8) TMI 1297 - AT - Income Tax

Cancellation of registration u/s 12AB(4) - violation of provisions of Section 11(1)(a) Section 11(1)(d) and Section 13(1)(c) - HELD THAT - We are of the considered opinion that the reference made in terms of 2nd proviso of Section 143(3) of the Act to the PCIT to whom the AO was subordinate is not permissible rather it is the CIT(E) Delhi, having territorial jurisdiction specified in Column 4 of the Notification Nos. 52/2014 and 53/2014 both dated 22.10.2014 from whom exemption inter/alia u/s 12A is being claimed is the appropriate authority. In fact by and under the said notification the CIT(Exemption) has been constituted separately for the purposes mentioned therein. In that view of the matter the order passed by the PCIT cancelling registration of the appellant society on the reference made by the AO is found to be flawed and without jurisdiction. Apart from that after considering the 2nd proviso of Section 143(3) of the Act, we find that the reference granted u/s 12AA of the Act is permissible to be made only during the pendency of the assessment proceeding. However, in the case in hand the assessment proceeding has already been concluded on 29.03.2022. In fact, the reference could be made only during the course of assessment proceedings so as to enable the AO to give effect of the order passed on reference in the Assessment Order itself. Moreso, the said proviso has been inserted w.e.f 01.04.2022 in the statute to make reference to the PCIT by the AO u/s 12AA, 12AB of the Act. In that view of the matter application of a particular provision of law which was not in existence during the material point of time cannot be said to have been rightly invoked. So far as the provision of Section 12AB(4) of the Act as exercised by the PCIT is concerned the Ld. A.R relied upon a judgment passed in the case of M/s Islamic Academy of Education, Manglore 2024 (3) TMI 876 - ITAT BANGALORE As in view of the provision of Section 12AA(5) of the Act as the provision of Section 12AA cannot be applied on order after 01.04.2021 the show cause notices issued by the PCIT to the appellant dated 05.07.2023 and 16.08.2023 are, thus, found to be erroneous and therefore liable to be quashed. Once the show cause is found to be non est in the eyes of law, the entire proceeding is naturally found to be on a wrong foundation of law and thus, liable to be set aside. Similarly, invoking the provision of Section 12AB(4) of the Act by the PCIT to cancel registration for specified violation is also not permissible at the same has not seen the light of day prior to 01.04.2022; the same is therefore, not applicable to Assessment Years 2015-16 to 2021-22 as wrongly has been applied in the case in hand. Thus, having regard to these particular facts and circumstances of the case the issuance of show cause notices proposing cancellation of registration alleging specified violation occurred prior to 01.04.2022 i.e. for Assessment Year 2015-16 to 2021-22 and the final order passed by the PCIT cancelling registration of the appellant society for AY 2015-16 to 2021-22 by wrongly invoking the provision of Section 12A r.w.s 12AA and 12AB(4) of the Act is found to be erroneous, bad in law, whimsical, in non application of mind and thus, unsustainable. Assessee appeal allowed.

Summary

Issues Involved:
1. Jurisdiction of the PCIT to cancel registration.
2. Validity of the reference made by the AO for cancellation.
3. Applicability of Section 12AA and Section 12AB(4) for cancellation.
4. Retrospective cancellation of registration.
5. Alleged violations and diversion of funds.
6. Procedural fairness and opportunity to cross-examine.

Detailed Analysis:

1. Jurisdiction of the PCIT to Cancel Registration:
The appellant argued that the PCIT lacked jurisdiction to cancel the registration, as the power to grant and withdraw exemptions vests with the CIT(Exemption). The Tribunal agreed, citing the CBDT Notification Nos. 52/2014 and 53/2014, which specify that the CIT(Exemption) has territorial jurisdiction over cases claiming exemption under Section 12A of the Act. The Tribunal referenced the case of Aggarwal Vidhya Pracharni Sabha Vs. PCIT, where it was held that the PCIT did not have jurisdiction to cancel registration under Section 12AB(4) of the Act.

2. Validity of the Reference Made by the AO for Cancellation:
The appellant contended that the reference made by the AO on 04.05.2022 and 31.07.2023 was invalid as it was made after the assessment proceedings had concluded on 29.03.2022. The Tribunal agreed, noting that the 2nd proviso to Section 143(3) of the Act, which allows the AO to make such a reference, was effective from 01.04.2022 and thus could not be applied retrospectively.

3. Applicability of Section 12AA and Section 12AB(4) for Cancellation:
The appellant argued that Section 12AA was incorrectly invoked by the PCIT, as it is not applicable after 01.04.2021. The Tribunal agreed, stating that the power to cancel registration granted under Section 12A r.w.s 12AB of the Act can no longer be exercised under Section 12AA(3) after 01.04.2021. The Tribunal also noted that Section 12AB(4) was substituted by the Finance Act 2022 w.e.f 01.04.2022, and thus any specified violation prior to this date could not be addressed under this section.

4. Retrospective Cancellation of Registration:
The appellant contended that the retrospective cancellation of registration from Assessment Year 2015-16 was unlawful. The Tribunal agreed, citing the Bangalore Bench's decision in M/s Islamic Academy of Education, which held that violations occurring before the introduction of Section 12AB(4) on 01.04.2022 could not be grounds for cancellation under this section.

5. Alleged Violations and Diversion of Funds:
The PCIT's order cited violations of Sections 11(1)(a), 11(1)(d), and 13(1)(c) of the Act, including diversion of funds through bogus bills and unaccounted cash. The appellant rebutted these allegations, arguing that the findings were based on assessment orders under appeal and lacked credible evidence. The Tribunal found that the show cause notices issued by the PCIT were flawed and not maintainable, as they pertained to periods before the relevant provisions were in effect.

6. Procedural Fairness and Opportunity to Cross-examine:
The appellant argued that the cancellation proceedings relied on retracted statements and inadmissible electronic evidence, without providing an opportunity to cross-examine witnesses. The Tribunal noted that the AO had provided details of seized documents and relevant material to the appellant. However, the Tribunal found that the procedural fairness was compromised due to the reliance on retracted statements and the denial of cross-examination, which violated principles of natural justice.

Conclusion:
The Tribunal quashed the order passed by the PCIT dated 31.03.2024, cancelling the registration of the appellant society for Assessment Years 2015-16 to 2021-22. The Tribunal found the order to be without jurisdiction, bad in law, and procedurally flawed. The appellant's appeal was allowed, and the impugned order was set aside.