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2021 (12) TMI 582 - AT - Income TaxExemption u/s 11 - registration u/s 12AA Cancelled - Denial of natural justice - assessee contended that the Ld. PCIT(C) without waiting the appraisal report of the A.O. and without giving opportunity of being heard, invoked and exercised the Jurisdiction under section 12AA(3) 12AA(4) - assessee contended that the Ld. PCIT(C) without waiting the appraisal report of the A.O. and without giving opportunity of being heard, invoked and exercised the Jurisdiction under section 12AA(3) 12AA(4) - HELD THAT - In the present case it is not in dispute that the Ld. Pr. CIT passed the impugned order exparte on 22/03/2021 and cancelled the registration already granted to the assessee under section 12AA of the Act by invoking the provisions of section 12AA(3)/12AA(4) From the provisions contained in proviso to sub section 3 of Section 12AA of the Act, it is crystal clear that no order under this sub section shall be passed unless such trust or institution has been given reasonable opportunity of being heard. Reasonable opportunity of being heard is to be given and the fact that in the past, adjournments had been sought for would not be of any materiality. In the present case, the Hon'ble Jurisdictional High Court directed the Ld. Pr. CIT vide order dt. 17/03/2021 to dispose off the objections raised by the assessee and the letters furnished in the response to the show cause notice. However, the Ld. Pr. CIT, without providing any opportunity of being heard to the assessee passed the impugned order on 22/03/2021 exparte which is against the provisions contained in proviso to sub section 3 of section 12AA of the Act. No assessment was framed by the A.O. therefore it is not clear that how and in what manner the Ld. Pr. CIT considered the details examined by the A.O. when the assessment had not been completed by the A.O - Pr. CIT while cancelling the registration of the assessee trust considered the provisions contained in section 11, 12 and 13 of the Act and also mentioned that to decide the eligibility of section 12AA of the Act subsequently after having been granted earlier, the tests to be applied are as to whether the activity of the Trust are being carried out as per the stated object and income was derived only from the property held under the Trust (Source Trust)and as to whether the Trust was applying entire receipt / income solely for the charitable purpose of the Trust as required under section 11, 12 and 13 (application test). Application test under section 11, 12 and 13 of the Act, could have been applied only after the outcome of the examination by the A.O. from the record. In our opinion, the A.O only after proper examination of the assessee s record may be in a position to come to the conclusion as to whether the benefit directly or indirectly from the property or the income has been derived by the person mentioned under section 13(3) of the Act or as to whether the assessee Trust record entire receipt or expenses in the books of accounts. In the present case nothing is brought on record to substantiate that the A.O. had undertaken aforesaid exercise as regards to the provisions contained in Section 11, 12 and 13 of the Act. Pr. CIT without waiting the outcome of the assessment framed by the A.O. cancelled the registration already granted under section 12AA of the Act vide order dt. 22/02/2011, the said action of the Pr. CIT in the present case was a premature one particularly when no submissions were made dt. 04/01/2021 01/02/2021 by the assessee on merits of the case and this fact has been pointed out by the Ld. Pr. CIT of the impugned order wherein it has been mentioned that the submissions contained mostly the legal issues. Reasonable opportunity of being heard was not provided by the Ld. Pr. CIT to the assessee after the direction given by the Hon'ble Jurisdictional High Court on 17/03/2021 and the impugned order passed by the Ld. Pr. CIT on 22/03/2021 exparte, against the provisions as contained in the proviso of sub section 3 of section 12AA of the Act which provides that the reasonable opportunity of being heard is to be provided before cancellation the registration. Pr. CIT (Central) is set aside and the issue is remanded back to his file to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee and also by keeping in view the findings given by the A.O. as regards to the violation of the provisions contained in Section 13(1)(c) - Appeals of the assessee are allowed for statistical purposes.
Issues Involved:
1. Validity and jurisdiction of the Principal Commissioner of Income Tax (PCIT) to cancel the registration under section 12AA of the Income Tax Act, 1961. 2. Alleged violation of principles of natural justice and fair play. 3. Alleged misuse of funds by the trustees and the genuineness of charitable activities. 4. Timing and basis for cancellation of registration. 5. Retrospective cancellation of registration and its implications. Issue-wise Detailed Analysis: 1. Validity and Jurisdiction of PCIT to Cancel Registration: The appeals questioned the jurisdiction of the PCIT (Central) Gurgaon to cancel the registration under section 12AA of the Income Tax Act, 1961. The assessee argued that the CBDT Notification dated 22.10.2014 assigned such jurisdiction to the Commissioner of Income Tax (Exemptions) only, and not to the PCIT (Central). The PCIT, however, referred to various notifications and case laws to assert that he had the jurisdiction to cancel the registration. The Tribunal noted that the jurisdiction over the assessee's case was transferred from the CIT (Exemptions) to the PCIT (Central) under section 127 of the Act, and the PCIT (Central) had the authority to exercise all powers, including cancellation of registration. 2. Alleged Violation of Principles of Natural Justice and Fair Play: The assessee contended that the PCIT did not provide a reasonable opportunity of being heard before canceling the registration, violating principles of natural justice. The Tribunal observed that the Hon'ble P&H High Court had directed the PCIT to consider the objections raised by the assessee and provide a decision within one month. However, the PCIT passed the order ex-parte on 22.03.2021 without providing a fair opportunity to the assessee. The Tribunal emphasized that the reasonable opportunity of being heard is a fundamental requirement under section 12AA(3) of the Act. 3. Alleged Misuse of Funds by Trustees and Genuineness of Charitable Activities: The PCIT based the cancellation of registration on allegations of fund diversion and misuse by the trustees, as evidenced by the search and post-search proceedings. The assessee argued that these were mere allegations and the assessment proceedings were still pending. The Tribunal noted that the PCIT should have waited for the outcome of the assessment proceedings to substantiate the allegations. The Tribunal highlighted that the assessment officer (AO) is the appropriate authority to examine the records and determine the applicability of sections 11, 12, and 13 of the Act. 4. Timing and Basis for Cancellation of Registration: The PCIT cancelled the registration based on the findings from the search and seizure operation, without waiting for the completion of the assessment proceedings. The Tribunal referred to the ITAT Cuttack Bench's decision in the case of Kalinga Institute of Industrial Technology, which held that the cancellation of registration should not be based solely on search findings without final assessment. The Tribunal found the PCIT's action premature and emphasized the need for a thorough assessment before taking such a drastic step. 5. Retrospective Cancellation of Registration and Its Implications: The PCIT cancelled the registration retrospectively from 01.04.2012, citing violations of sections 11, 12, and 13 of the Act. The assessee argued that even if there were violations, the cancellation should not be retrospective. The Tribunal observed that the PCIT should have considered the impact of retrospective cancellation on the assessee's activities and the fact that the assessment proceedings were still pending. The Tribunal set aside the PCIT's order and remanded the matter for fresh adjudication, ensuring due process and consideration of the AO's findings. Conclusion: The Tribunal allowed the appeals for statistical purposes, setting aside the PCIT's order and remanding the matter for fresh adjudication. The Tribunal emphasized the need for providing a reasonable opportunity of being heard to the assessee and considering the findings of the AO regarding any violations of the provisions of the Act.
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