2024 (11) TMI 238 - AT - Income Tax

Reopening of assessment - assessee was not registered u/s. 12A/12AA of the Act, the assessee was not entitled to exemption u/s. 11 of the Act and due to large surplus, the assessee has not applied the same u/s. 11(2) of the Act which was an allowable accumulation - HELD THAT - There can be no reassessment merely for the reason of non registration of a Trust or Institution. In the present case in hand, there is no iota of doubt that the reassessment was initiated for non registration and the other reasons specified are consequential to such non registration or rather to say for non fulfillment of the conditions due to the non registration. The ld. AR has extensively placed reliance on the decision of Karnataka State Welfare Fund 2022 (1) TMI 654 - KARNATAKA HIGH COURT which has upheld the order of the Tribunal, quashing the reassessment order for the reason that it is violative of the second and third proviso to section 12A(2) of the Act. The assessee s case would not fall under the 3rd proviso to section 12A of the Act where it is not the case of the Revenue that the registration of the assessee Trust was refused or granted and cancelled at any point in time, the assessee ought to get the benefit of the 2nd proviso to section 12A of the Act where reopening merely for non registration is not warranted as per the Act. The ld. AR has also relied on the first proviso to section 12A of the Act where the registration has been granted u/s. 12AA of the Act then the provision of section 11 and 12 of the Act shall apply to the assessment year preceding the assessment year for which the assessment proceedings are pending before the ld. A.O. as on the date of registration along with the cumulative condition that the objects and activities of the Trust remains the same for such preceding assessment year. Here in this case, the assessment proceeding commenced on issuance of the notice u/s. 148 of the Act dated 28.09.2018 and the date of registration was the next day, i.e., 29.09.2018, which implies that the assessment proceeding for earlier years were pending before the ld. A.O. as on the date of such registration, thereby concluding that the provisions of section 11 and 12 of the Act shall apply to income held by the assessee Trust of any assessment year, preceding the assessment year in which the registration was granted. The ld. AR has also placed reliance on the decision of Shree Shyam Mandir Committee 2017 (10) TMI 1450 - RAJASTHAN HIGH COURT which held that the proviso to section 12A(2) of the Act inserted from 01.10.2014 has retrospective effect. On a conjoint reading of the provisions, the CBDT Circular No.1/2015 and the decisions relied upon the assessee, we deem it fit to hold that the reassessment proceeding is bad in law as it is contrary to the proviso to section 12A(2) of the Act and, therefore, liable to be quashed. Ground no. 3 raised by the assessee is hereby allowed.

Issues Involved:

1. Whether the CIT(A) erred in not providing a final opportunity for the assessee to be heard.
2. Whether the CIT(A) failed to pass a speaking order on each ground raised by the assessee.
3. Whether the AO erred in assuming jurisdiction under section 147 without fulfilling the jurisdictional preconditions.
4. Whether the AO erred in assessing the total income overlooking the non-chargeable nature of the income.
5. Whether the AO erred in denying the exemption claim under section 11 due to pending registration under section 12A.
6. Whether the AO erred in denying exemption for amounts accumulated under section 11(2).
7. Whether interest earned on specific funds should be treated as diverted by overriding title.
8. Whether the assessee qualifies as a mutual organization, exempting its income from taxation.

Detailed Analysis:

1. Opportunity to be Heard:
The assessee contended that the CIT(A) did not provide a final opportunity to be heard before passing the appellate order. The tribunal did not specifically address this issue due to the quashing of the reassessment order, rendering other grounds academic.

2. Speaking Order:
The assessee argued that the CIT(A) failed to pass a speaking order on each separate ground raised. This issue was not adjudicated upon as the reassessment order was quashed, making other grounds academic.

3. Jurisdiction Under Section 147:
The primary contention was that the AO assumed jurisdiction under section 147 without fulfilling preconditions, specifically due to the non-registration under section 12A/12AA. The tribunal found merit in the assessee's argument, citing the second proviso to section 12A(2), which prohibits reassessment merely due to non-registration. The tribunal relied on precedents, including the Karnataka High Court's decision in CIT(E) vs. Karnataka State Welfare Fund, and Circular No. 1/2015, to conclude that the reassessment was invalid.

4. Assessment of Total Income:
The AO assessed the total income of the assessee, overlooking its non-chargeable nature under the Act. This issue was not specifically addressed as the reassessment was quashed.

5. Exemption Under Section 11:
The assessee claimed exemption under section 11, asserting that the registration under section 12A was granted on 29.09.2018, while the notice for reassessment was issued on 28.09.2018. The tribunal held that the provisions of sections 11 and 12 apply to the income of the trust for assessment years preceding the year of registration, provided the proceedings were pending as of the registration date. Thus, the tribunal found the AO's denial of exemption contrary to law.

6. Exemption for Accumulated Amounts:
The AO denied exemption for amounts accumulated under section 11(2). As the reassessment was quashed, this issue was not further adjudicated.

7. Interest on Specific Funds:
The assessee argued that interest on specific funds should be treated as diverted by overriding title. This issue was not specifically addressed due to the quashing of the reassessment order.

8. Mutual Organization Status:
The assessee claimed to be a mutual organization, exempting its income from taxation. The tribunal did not further adjudicate this issue as the reassessment order was quashed.

Conclusion:

The tribunal quashed the reassessment order, holding it contrary to the proviso to section 12A(2) of the Act. As a result, other grounds of appeal became academic and were not adjudicated. The tribunal's decision was based on the interpretation of statutory provisions, relevant case law, and CBDT Circular No. 1/2015, which collectively supported the assessee's position against reassessment merely for non-registration under section 12A. All appeals filed by the assessee were allowed.

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