2025 (2) TMI 981 - AT - Income Tax

Powers provided u/s. 12AB for cancelling the registration granted to the assessee u/s. 12A - PCIT (Central) jurisdiction to cancel the registrations u/s 12A/12AA/12AB - specified violation HELD THAT - As going through the above decisions of Maa Jagat Janani Seva Trust 2024 (7) TMI 1020 - ITAT CUTTACK wherein catena of judgments have been referred and also the ratio laid down in the case of Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd. 2018 (2) TMI 1220 - SUPREME COURT has been followed we find that the same is squarely applicable on the facts of the instant case and therefore we are inclined to hold that since there is no express power provided u/s. 12AB(4) of the Act for cancelling the registration granted u/s. 12A PCIT (Central) grossly erred in issuing show cause notice u/s. 12AB(1) of the Act on 21.07.2023. The said show cause notice is held to be invalid and void ab-initio and therefore finding of ld. PCIT (Central) is reversed and we hold that registration granted u/s. 12A of the Act cannot be cancelled during the proceedings carried out u/s. 12AB(4) of the Act. Assessee challenging the powers available in section 12AB that the show cause notice issued u/s. 12AA on 20.03.2024 is also invalid - Assessee stated that section 12AA(5) of the Act provides that nothing contained in section 12AA of the Act shall apply on or after 01.04.2021 - As in the instant case the proceedings for cancellation of registration have been initiated on 21.07.2023 and therefore even the registration u/s. 12A cannot be cancelled u/s.12AA of the Act in the instant case because the proceedings have been initiated u/s. 12AB which have been brought into Act w.e.f. 01.04.2021. Therefore the show cause notice u/s. 12AA of the Act issued on 20.03.2024 for cancelling the registration u/s. 12AA(3) and 12AA(4) of the Act for the period 01.04.2019 to 31.03.2021 is invalid and ab-initio as the PCIT (Central) has issued the show cause notice dated 20.03.2024 in a section already stood discontinued from 01.04.2021 onwards. Thus the assessee succeeds on this second limb of its legal ground. In the show cause notice PCIT has referred to specified violation committed by the assessee by virtue of which the assessee trust has not applied its income wholly and exclusively for the purpose for which it is established but using it directly or indirectly for the benefits of its trustees and other members of the trust - As sub-section (3) and (4) of section 12AA there is no mention to any specified violation but only refers to the genuineness of the activity carried out by a trust or institution however PCIT has only referred to some specified violations during F.Yrs. 2019-20 to 2021-22 which was going on under scrutiny by AO. There were only few statements which were recorded during the course of search which are the basis of the alleged allegation and that too have been retracted and apart from that no other evidence and no accounted assets unaccounted income were found during search at assessee s premises and therefore they are merely allegations and there is no concrete finding disproving the genuineness of activities of trust. Therefore even sub-section (3) and sub-section (4) of section 12AA could not have been invoked in absence of any specified violation for the years under consideration. To conclude we allow the legal ground raised by the assessee and hold that since the show cause notices issued to the assessee on 21.07.2023 and 20.03.2024 are invalid and void ab-initio for want of express powers for cancellation of registration u/s.12A of the Act and also proceedings wrongly started u/s. 12AA of the Act in view of the amendment brought in from 01.04.2021 and lastly the specified violation word being inserted from 01.04.2022 cannot be applied for the alleged violation made from F.Yrs. 2019-20 to 2021-22 and therefore hold that ld. PCIT (Central) grossly erred in cancelling the registration granted to assessee u/s. 12A on 16.02.2001 and also erred in cancelling the registration granted u/s. 12A r.w.s.12AB of the Act granted on 28.05.2021. Thus registration u/s. 12A and 12AB of the Act granted to the assessee trust are restored. Observation of PCIT based on the seized document and other loose sheets found during the course of search along with the Pendrive found at the residential premises of Chief Accountant of the assessee trust and proceeding to cancel the registration - As remains uncontroverted that assessee trust is carrying out genuine activities as per its objects forming part of registration certificate granted u/s. 12A/12AB of the Act and running a Medical College Hospital and Research Centre. Even ld. PCIT has not referred to any other discrepancy in the regular day to day activity of the assessee trust except to the loose documents found during the course of search and that to only pertaining to F.Yrs. 2019-20 to F.Y. 2021-22. Total focus of the ld. PCIT has been around these documents referred in the impugned order but other than these documents nothing wrong has been found in the regular day to day activity of the assessee trust. We also notice that the alleged documents are only confined to the staff salary doctor salary and capitation fee but the assessee trust is carrying out many more activities and the expenses are of much more magnitude which involves the amount spent towards building construction medicine machines college building and other expenses which are appearing in the audited books of account. If it is established that the assessee trust/societies is carrying out genuine activities as per the objects for which they have been established then the issue arising out of any loose paper/documents/ incriminating material alleging that the funds of the society have been misappropriated or there is ambiguity in the claim of expenses the same can be taken care of at the time of assessing the income and the additions involving such issues can be made but for the remaining income of the society benefit of exemption u/s. 11 of the Act cannot be denied. We are inclined to follow the decision of Shri Jairam Education Society 2021 (10) TMI 911 - ITAT INDORE and the same being squarely applicable on the facts of the instant case hold that PCIT erred in cancelling the registration granted to the assessee u/ss. 12A and 12AB of the Act solely on the ground of alleged documents even when the activities of the assessee trust are found to be genuinely carried out are charitable in nature and are in accordance with the objects of the trust and addition if any emanating out of the seized record can be taken care by the Assessing Officer in the assessment proceeding. Conclusion - PCIT erred in cancelling the registration granted to the assessee u/s. 12A on 16.02.2001 and also erred in cancelling the registration granted u/s. 12A r.w.s.12AB of the Act for period 01.04.2021 onwards. Accordingly registration granted u/s. 12A of the Act and u/s. 12A r.w.s.12AB of the Act stands restored. Allow the Grounds raised by the assessee observing that since the assessee is carrying out genuine charitable activities as per the objects of the trust the ld. PCIT erred in cancelling the registration u/s. 12A/12AB of the Act based on some statements recorded during the course of search but subsequently retracted and other seized material which were the subject matter of assessment proceedings undergoing at that point of time and therefore even if any addition is made by the AO the benefits of registration u/s. 12A/12AB of the Act shall continue to be enjoyed by the assessee for the remaining amount of income earned by it. Assessee succeeds on Ground further because the specified violation allegedly made by the assessee trust cannot be said to be justified because the word specified violation has been brought into the Act from 01.04.2022 and the alleged violation are based on the documents and details for the F.Yrs. 2019-20 to 2021-22 which are prior to 01.04.2022.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

a) Whether the Principal Commissioner of Income Tax (PCIT) had the jurisdiction to cancel the registration of the assessee trust under sections 12A, 12AA, and 12AB of the Income Tax Act, 1961.

b) Whether the powers under section 12AB(4) of the Act allow for the cancellation of registration granted under section 12A.

c) Whether the cancellation of registration was justified based on the alleged violations and whether such cancellation can be retrospective.

d) Whether the activities of the assessee trust were genuine and in accordance with its objects, thereby justifying the continuation of its registration.

2. ISSUE-WISE DETAILED ANALYSIS

a) Jurisdiction of PCIT

- Relevant legal framework and precedents: The jurisdiction of PCIT to cancel registration under sections 12A, 12AA, and 12AB was challenged based on the argument that such jurisdiction was not transferred through an order under section 127 of the Act. The appellant relied on various precedents where it was held that jurisdiction could not be transferred without explicit provisions.

- Court's interpretation and reasoning: The Tribunal held that the PCIT had the jurisdiction to cancel the registration as the case was centralized under PCIT (Central) following a search action, and the notifications issued under section 120 of the Act supported this jurisdictional authority.

- Conclusion: The Tribunal dismissed the challenge to the jurisdiction as 'not pressed' by the appellant.

b) Powers under Section 12AB(4)

- Relevant legal framework and precedents: Section 12AB(4) was introduced to provide a procedure for fresh registration and cancellation of registration for trusts. The appellant argued that section 12AB(4) did not provide express powers to cancel registration granted under section 12A.

- Court's interpretation and reasoning: The Tribunal referred to the Supreme Court's decision in Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd. v. CIT, which held that in the absence of express power, the registration could not be canceled. The Tribunal found that section 12AB(4) did not mention section 12A, and thus, the cancellation of registration under section 12A was not justified.

- Conclusion: The Tribunal held that the show cause notice issued under section 12AB(4) for canceling the registration under section 12A was invalid and void ab-initio.

c) Retrospective Cancellation and Specified Violations

- Relevant legal framework and precedents: The appellant argued that the alleged violations occurred before the introduction of the term 'specified violations' in section 12AB(4) and thus could not be applied retrospectively.

- Court's interpretation and reasoning: The Tribunal noted that the term 'specified violations' was introduced from 01.04.2022, and the alleged violations pertained to financial years prior to this date. The Tribunal relied on precedents that retrospective cancellation was not permissible unless explicitly provided by law.

- Conclusion: The Tribunal held that the cancellation of registration based on specified violations was not applicable for the years in question, and thus, the cancellation was not justified.

d) Genuineness of Activities

- Relevant legal framework and precedents: The genuineness of the activities of the trust was challenged based on alleged cash transactions and capitation fees. The appellant provided evidence of educational and charitable activities to support its case.

- Court's interpretation and reasoning: The Tribunal found that the trust was carrying out genuine educational and charitable activities as per its objects. The Tribunal noted that any discrepancies could be addressed during assessment proceedings but did not justify the cancellation of registration.

- Conclusion: The Tribunal held that the activities of the trust were genuine and in accordance with its objects, and thus, the registration should not have been canceled.

3. SIGNIFICANT HOLDINGS

- The Tribunal held that the PCIT did not have the express power under section 12AB(4) to cancel the registration granted under section 12A, making the cancellation notice invalid.

- The Tribunal emphasized that retrospective cancellation of registration based on specified violations was not permissible as the term was introduced after the alleged violations occurred.

- The Tribunal established that the genuineness of the trust's activities was not in doubt, and any issues could be addressed in assessment proceedings rather than through cancellation of registration.

- The Tribunal restored the registration of the assessee trust under sections 12A and 12AB, allowing the trust to continue its activities with the benefits of registration.