2024 (1) TMI 998 - AT - Income Tax

Exemption u/s 11 - cancelling registration granted u/s 12AA/12AB of the Act by invoking the provisions of section 12AB(4)(ii) of the Act with retrospective effect - main contention of the ld. A.R. is that the ld. PCIT has cancelled the registration granted to the assessee w.e.f. the previous year i.e. 2020-21 relevant to assessment year 2021-22 by applying the provisions as stood on 12.5.2023, which cannot be applied for the violations of the provisions of section 12AA or 12AB of the Act - HELD THAT - In the present case, the ld. PCIT invoked the provisions of section 12AB(4)(a)(ii) of the Act as stood in the assessment year 2022-23. In the case of Isthmian Steamship Lines 1951 (11) TMI 1 - SUPREME COURT wherein the Hon ble Supreme Court held that it is a cardinal principle of the tax law that law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication . Being so, we find force in the argument of ld. A.R. that in income-tax matters, law to be applied is the law in force in the assessment year unless otherwise stated or implied. In the present case, ld. PCIT is cancelling the registration granted u/s 12AA/12AB of the Act w.e.f. previous year 2020-21 relevant to assessment year 2021-22. In our opinion, the law as stated in the assessment year 2021-22 is to be applied and not the law as stood in the assessment year 2022-23. Thus we are of the view that no retrospective cancellation could be made u/s 12AB(4)(ii) of the Act as it has been provided or is seen to have explicitly provided to have a retrospective character or intended. Therefore, without a specific mention of the amended provisions to operate retrospectively, no cancellation for the earlier years could be made. PCIT has cancelled the registration under the new provisions of the Act i.e. 12AB(4)(ii) of the Act, which specifically provides that cancellation can be done for such previous year and all subsequent previous years, which makes it clear that the cancellation cannot be retrospective, therefore, in view of the above discussion, we are of the opinion that cancellation of registration with retrospective effect is invalid in these cases. Since the ld. PCIT invoked the provisions of section 12AB(4)(ii) of the Act, which has been introduced by the Finance Act, 2022 w.e.f. 1.4.2022 so as to cancel the registration with retrospective effect from assessment year 2021-22, which is bad in law. We also note that same view has been taken by Coordinate bench of Mumbai in the case of Heard Foundation of India in ITA No.1524/Mum/2023 vide order dated 27.7.2023, wherein held that registration granted u/s 12A of the Act dated 21.7.1989 cannot be cancelled by ld. PCIT (Central) vide order dated 6.3.2023 w.e.f. assessment year 2016-17, by invoking the provisions of section 12AB(4)(ii) of the Act. Accordingly, we allow the primary ground and order of ld. PCIT passed u/s 12AB(4)(ii) of the Act is quashed. Appeals of the assessee are allowed.

Summary

Issues Involved:

1. Applicability of Section 12AB(4)(ii) for A.Y. 2021-22.
2. Retrospective cancellation of registration under Section 12AA/12AB.
3. Validity of actions based on retracted statements.
4. Compliance with procedural and legal requirements for cancellation.

Summary:

1. Applicability of Section 12AB(4)(ii) for A.Y. 2021-22:
The appellants argued that the provisions of Section 12AB(4)(ii) introduced by Finance Act 2022 w.e.f. 01.04.2022 should not apply retrospectively to A.Y. 2021-22. The Tribunal noted that the law applicable for penalizing should be the law for the year of committing the offense. The Tribunal cited the Supreme Court's principle that "the law to be applied is the law in force in the assessment year unless otherwise stated or implied." Consequently, the provisions of Section 12AB(4)(ii) could not be applied retrospectively to A.Y. 2021-22.

2. Retrospective Cancellation of Registration under Section 12AA/12AB:
The Tribunal held that the cancellation of registration with retrospective effect is invalid. It emphasized that the amended provisions of Section 12AB(4)(ii), introduced by Finance Act, 2022, should not be applied retrospectively. The Tribunal referred to various judgments, including the Hon'ble Madras High Court's ruling that without specific mention of retrospective operation, cancellation cannot be applied to past years. Therefore, the cancellation of registration for A.Y. 2021-22 was deemed invalid.

3. Validity of Actions Based on Retracted Statements:
The appellants contended that the statements recorded under Section 132(4) from the trust's chairman and other officials, which were later retracted, should not be relied upon without independent evidence. The Tribunal did not specifically address this issue as the primary grounds for cancellation were already quashed.

4. Compliance with Procedural and Legal Requirements for Cancellation:
The Tribunal found that the Principal Commissioner of Income Tax (PCIT) had erred in applying the provisions of Section 12AB(4)(ii) retrospectively. The Tribunal quashed the PCIT's order, stating that the cancellation of registration for A.Y. 2021-22 based on provisions applicable from A.Y. 2022-23 was bad in law. Consequently, other grounds related to procedural and legal compliance became infructuous.

Conclusion:
The appeals were allowed, and the order of the PCIT canceling the registration under Section 12AB(4)(ii) was quashed. The Tribunal emphasized that the law applicable to the assessment year should be applied, and retrospective application of amendments without explicit provision is invalid.