2022 (2) TMI 162 - AT - Income Tax

Revisionary petition u/s. 264 - Assessment u/s 11 - grant of registration u/s. 12AA denied - HELD THAT - Assessee vide its reply dated 29.12.2020 filed before ld. CIT(E), merely required the ld. CIT(E) to hold the proceedings for grant of registration u/s.12AA in abeyance till the disposal of revisionary petition u/s. 264. It is a different matter that the application for registration u/s. 12AA is to be disposed of by ld. CIT(E) within the time provided under the statute and the request of the assessee to keep it in abeyance may not be acceded to keeping in view statutory limitation of time imposed by the 1961 Act. Thus, under these circumstances wherein the application filed by the assessee seeking registration u/s. 12AA was disposed of by ld. CIT(E) in limine on the grounds that the assessee is seeking withdrawal of its application and without disposing of the said application on merits, we are of the considered view that the order dated 04.03.2021 passed by ld. CIT(E) rejecting the registration sought by the assessee u/s. 12AA of the 1961 Act, be set aside and the application of the assessee seeking registration u/s. 12AA be restored back to the file of the ld. CIT(E) for fresh decision on the application filed by the assessee for grant of registration u/s. 12AA of the 1961 Act. Reference is drawn to the provisions of Section 12AA which obligates/empowers ld. CIT(E) to make enquiries as to the genuineness of the objects and activities of the trust/institution seeking registration u/s. 12A and the compliances of such requirements of any other law for the time being in force by the trust/institution as are material for achieving its objects and further the ld. CIT(E) is also empowered to make such inquiries as he deemed necessary in this behalf, which may requires verification of records, inquiries to be made as to genuineness of the activities of trust/institution and investigation of facts in connection therewith. The relevant provision of the statute to that effect are contained in Section 12AA(1)(a) of the 1961 Act. Now, in denovo proceedings as ordered by us, the assessee is directed to file all necessary replies before ld. CIT(E) to queries as were raised or as may be raised by ld. CIT(E) in connection with the application filed by the assessee seeking registration u/s. 12AA - CIT(E) will admit all evidences/explanations filed by the assessee in its defense, and then decide on the application of the assessee for registration u/s. 12AA on merits in accordance with law. Assessee appeal allowed for statistical purposes.

Issues Involved:
1. Rejection of application for registration under Section 12AA of the Income-tax Act, 1961.
2. Filing of return of income for AY 2017-18.
3. Invocation of revisionary powers under Section 264 of the Income-tax Act, 1961.
4. Denial of credit of prepaid taxes.
5. Initiation and subsequent dropping of penalty proceedings under Sections 270A and 272A(1)(d) of the Income-tax Act, 1961.

Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA:
The primary issue revolves around the rejection of the application filed by the assessee for seeking registration under Section 12AA of the Income-tax Act, 1961. The assessee, a society registered in 1958, claimed mutual benefit and no element of trade, focusing on mutual help among its members. The application was rejected by the CIT(E) on the grounds that the assessee sought withdrawal of its application, as inferred from the reply dated 29.12.2020. The Tribunal found that the reply was not a withdrawal request but a conditional non-pressing of the application until the disposal of the revisionary petition under Section 264. Consequently, the Tribunal set aside the CIT(E)'s order and restored the application for fresh decision on merits.

2. Filing of Return of Income for AY 2017-18:
The assessee did not file its return of income since its inception, claiming mutual benefit. However, during the demonetization period, the assessee deposited substantial cash, leading to a notice under Section 142(1) for AY 2017-18. The assessee eventually filed its return declaring an income of ?88,17,990, which included rent and bank interest income. The Revenue accepted the returned income and framed the assessment under Section 144.

3. Invocation of Revisionary Powers under Section 264:
The assessee filed a revisionary petition under Section 264 against the assessment order dated 24.12.2019, seeking to set aside the assessment and refund prepaid taxes. The Hon'ble Allahabad High Court dismissed the writ petition filed by the assessee, recognizing the statutory remedy under Section 264. The revisionary petition was ultimately dismissed by the Pr. CIT, who held that not all income of mutual concerns is exempt from tax, specifically interest on fixed deposits and income from non-members.

4. Denial of Credit of Prepaid Taxes:
The AO initially denied credit of prepaid taxes in the assessment order, which was later rectified under Section 154, allowing the credit. This issue was resolved without causing prejudice to the assessee.

5. Initiation and Subsequent Dropping of Penalty Proceedings:
Penalty proceedings were initiated under Sections 270A and 272A(1)(d) but were later dropped by the Revenue. The Tribunal noted that these proceedings attained finality without causing prejudice to the assessee.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the CIT(E) to reconsider the application for registration under Section 12AA on merits, providing the assessee an opportunity to respond to queries and submit necessary evidence. The Tribunal emphasized that the CIT(E) should decide the application expeditiously and in accordance with the law, without being influenced by any observations made in the Tribunal's order.

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