2022 (4) TMI 607 - AT - Income Tax

Exemption u/s 11 - cancellation of registration granted u/s 12AA - assessee society had invested in equity shares with IGL and in Zoom Enterprises Ltd.which investment was not as per the provision of section 11(5) - HELD THAT - Appellant-society has been granted registration with the stipulation that the provisions of section 11 and 12 of the Act shall apply in the case from the assessment year 2020-21, which means the relevant financial year will be 2019-20 for which the provisions of section 11 and 12 would apply in the case of the appellant-society - A perusal of the impugned order of the Ld. CIT(E) reveals that the Ld. CIT(E) has taken cognizance of the balance sheet of the appellant-society as on 31.03.2018 which shows that the alleged investments made in equity shares were made as on 31.03.2018, which was prior to the grant of registration to the appellant-society. There is no allegation that the appellant-society has committed any violation of the provisions of section 11 and 12 of the Act after grant of registration. The order of cancellation of registration of the appellant-society, on the basis of the investments made prior to grant of registration when there was no such condition imposed on the appellant-society to comply the provisions of section 11 and 12 of the Act, cannot be held to be justified. The impugned order of the ld. CIT(E) is set aside and the registration of the appellant-society is ordered to be restored and the appeal of the appellant-society stands allowed.

Summary

Issues:
Cancellation of registration u/s 12AA of the Income Tax Act based on investments made by the appellant-society in equity shares prior to the grant of registration. Allegation of violation of provisions of section 11(5) and section 13(1)(d) of the Act. Compliance with prescribed procedure for cancellation of registration u/s 12AA.

Analysis:

Cancellation of Registration u/s 12AA:
The appellant-society appealed against the cancellation of its registration granted u/s 12AA of the Income Tax Act. The Commissioner of Income Tax (Exemptions) cancelled the registration based on investments made by the society in equity shares with IGL and Zoom Enterprises Ltd. The Commissioner invoked section 13(1)(d) due to the alleged violation of section 11(5) of the Act. The appellant contended that the cancellation was unjust as the investments were made before the grant of registration, and no violations occurred post-registration. The Tribunal found that the cancellation based on pre-registration investments, without any post-registration violations, was unjustified. Consequently, the Tribunal set aside the Commissioner's order and restored the registration of the appellant-society.

Allegation of Violation of Provisions:
The Commissioner's basis for cancelling the registration was the alleged violation of section 11(5) and section 13(1)(d) of the Act due to investments made by the appellant-society in equity shares. However, the Tribunal noted that the registration was granted with the understanding that the provisions of section 11 and 12 would apply from the assessment year 2020-21 onwards. As the investments were made prior to the grant of registration and there were no violations post-registration, the Tribunal deemed the cancellation unjustified. The appellant-society had not breached any provisions or conditions after being granted registration u/s 12AA of the Act.

Compliance with Prescribed Procedure:
The appellant-society argued that the Commissioner did not follow the prescribed procedure for cancellation of registration under section 12AA of the Act. The appellant contended that no proper opportunity was given to present its case in response to the show-cause notice, and the cancellation was based on an ex parte order. The Tribunal considered these arguments and found that the cancellation lacked justification due to the investments being made prior to the grant of registration, and no violations occurring post-registration. Therefore, the Tribunal ordered the restoration of the appellant-society's registration, setting aside the Commissioner's decision.

In conclusion, the Tribunal's judgment in the present appeal favored the appellant-society, setting aside the cancellation of registration u/s 12AA of the Income Tax Act. The decision highlighted the importance of considering the timeline of investments concerning the grant of registration and the absence of violations post-registration in determining the validity of cancellation orders.