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2024 (9) TMI 261 - AT - Income TaxCancellation registration of the assessee u/s 12AB(4)(b)(i) - Retrospective application of cancellation of registration - assessee submitted that the change being the substantive and penal provision for cancellation it cannot apply retrospective - Whether the CIT(E) is under mandatory obligation to cancel the registration u/s 12AA to the Trust which was already granted earlier, consequent upon amendment to the Act or not? - HELD THAT - The bench noted that the apple of discord for the proceeding under question arose as the AO made proposal based on the assessment proceeding conducted in AY 2017-18 that the assessee trust is not involved in charitable activity but involved in carrying out contract work for various municipal corporations and major part of the receipt comes from those activities. In execution of these contract the assessee also execute sub-contract. Assessee claimed in that proceeding that they are engaged in the preservation and protection of environment but in fact the assessee is doing the commercial activity and thereby doing the activity with profit motive. AO also noted that the assessee trust has advanced a sum to the persons specified u/s. 13(3) of the Act and thus, there is diversion of fund. Assessee also made contract payment to various other parties / concerns referred to in section 13(3) of the Act. Thus, the rule of consistency should follow in favor of the assessee. Even the circular of board no. 21/2016 direct the revenue officer The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable trust granted under section 12AA just because the provision of section 2(15) comes into play. The process of cancellation of registration is to be initiated strictly in accordance with the section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. Thus, on the issue of the doing business by the assessee the finding is already recorded by the bench in the case of the assessee and the same reached finality. Thus, in the case of the assessee when it is held that doing business or not does not warrant the cancellation of registration the revenue should not raise the issue again and there must be some finality on the issue. Thus, whatever observation or reasons discussed in the order of the CIT(E) has no validity as the said issue is already becomes final. Whether the violation observed by the ld. CIT(E) is sufficient to cancel the registration of the trust which has already been granted? - On the first issue we have held that the action is not correct by the ld. CIT(E) vide para 10 above so now the rest two issue left to decide whether the same warrant the cancellation of registration of the trust or not. Now the left over issue that transferring money to related parties as advance or personal benefits and the assessee transferring money to related parties in garb of salary, rent and subcontracts can be reasons to cancel the registration of the trust after the amendment in the law after 01.04.2022 Whether the cancellation will operate from a retrospective date or prospective date ? - This issue is decided in the case of Auro Lab. Vs. ITO 2019 (1) TMI 1478 - MADRAS HIGH COURT holding that in the absence of specific mention of the amended provisions to operate retrospectively, the cancellation cannot operate from a past date and in this case from A. Y. 2017-18. Whether the payment made to specified persons warrants the cancellation of registration of the assessee trust or not? - As it is clear from the facts recorded that the ld.CIT(E), Jaipur has initiated the impugned proceedings of cancellation of registration based on the reference received from ld. DCIT(E), Jaipur dated 06.02.2020 as evident from the Impugned Order itself i.e passed u/s 12AB(4)(b)(i) of the Act. As per the amended provision of section 12AB(4) of the Act, reference has to be after granting of the registration u/s 12AB(1)(a) as evident from the bare reading of the provision itself which states subsequently, if there is reference by Ld. AO, then only the Ld. PCIT/CIT can proceed further. Admittedly in the present case, there is no such reference after granting registration on 23.09.2021. Thus, when the provision for making the reference was inserted in law w.e.f. 01.04.2022 and when at the time of impugned reference, there was even no provision for making such reference under the 2nd proviso to section 143(3) of the Act for the trusts and institution referred under section 11 of the Act. Therefore, the reference itself is without the authority of any statutory provisions and there was no fresh reference by the ld. AO. Further the bench noted that the impugned reference upon which the addition was made and that order is pending for adjudication before ld. CIT(A) and there is no final finding on that aspect of the matter. The bench further noted that there was no intimation to the assessee that the ld. CIT(E) intend to proceeded with retrospective effect. Even nowhere in any of the communication to the assessee was allowed to defend their case and the importance of show cause notice has been emphasized by the Apex Court in case of Umanath Pandey v. State of UP 2009 (3) TMI 526 - SUPREME COURT that Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him. As we note that the ld. CIT(E), Jaipur has issued first show cause notice in which it has been show cause registration u/s 12AA/12AB should be withdrawn due to violation of section 2(15) of the Act (para 5 on page no. 94 of PB) and due to trust money being allegedly mis utilized by specified person as mentioned u/s 13(3) of the Act However, in the impugned order, Ld. CIT(E), Jaipur has invoked clauses (a), (b) and (e) of specified violation as defined under explanation to section 12AB(4) of the Act (which applies prospectively). Therefore, we note that the action of the ld. CIT(E) cancelling the registration of the trust w.e.f. A. Y. 2017-18 is beyond the scope of the show cause notice as the conditions for cancellation of registration on account of specified violation, which were not specified earlier in the law, have been inserted under section 12AB(4) of the Act w.e.f. 01.04.2022 and would accordingly apply prospectively being penal provision and having very harsh consequences . Thus, the action of the ld. CIT(E) in the Impugned Order cancelling the registration of the Assessee retrospectively w.e.f. AY 2017-18 without any basis and without authority of the law as in AY 2017-18, there were no such conditions of specified violations in the law, therefore, Assessee cannot be penalized by reason of the amendment to the law effected subsequently. In view of the above, provision of law, binding precedent of the jurisdictional high court and the CBDT circular the law of specified violation has been inserted w.e.f. 01.04.2022 and hence would not apply retrospectively based on the specified violations (which was defined by Finance Act 2022) based on the transactions occurred in AY 2009-10 or AY 2017-18 or earlier. Thus, we hold that cancellation of registration u/s 12AA(3)/12AB(4) by the ld. CIT(E) is bad in law - appeal of the assessee is allowed.
Issues Involved:
1. Validity of the cancellation of registration under Section 12AB(4)(b)(i) of the Act. 2. Adequacy of opportunity of being heard provided to the assessee. 3. Jurisdictional authority of the CIT Exemption, Jaipur. 4. Retrospective application of cancellation of registration. 5. Alleged violations under Sections 13(1), 13(2)(a), and 13(2)(g) of the Act. 6. Nature of activities carried out by the assessee. 7. Application of Section 40A(3) of the Act. Detailed Analysis: 1. Validity of the Cancellation of Registration under Section 12AB(4)(b)(i) of the Act: The cancellation of the assessee's registration was based on a reference from the DCIT(E), Jaipur, dated 06.02.2020. The CIT(E) initiated proceedings under Section 12AB(4)(b)(i) of the Act, which was introduced by the Finance Act, 2022. The Tribunal observed that the reference was made under the old provisions of Section 12AA, which became inoperative from 01.04.2021. The Tribunal held that the reference was without statutory authority and, therefore, the cancellation of registration was invalid. 2. Adequacy of Opportunity of Being Heard: The Tribunal noted that the CIT(E) issued a show cause notice on 03.03.2023, which did not provide adequate and effective opportunity for the assessee to be heard. The notice did not specify the exact nature of the violations under the new provisions of Section 12AB(4). The Tribunal emphasized the importance of a clear and precise notice, as established by the Supreme Court in Umanath Pandey v. State of UP. The Tribunal found that the CIT(E) traveled beyond the scope of the show cause notice, which was not justified. 3. Jurisdictional Authority of the CIT Exemption, Jaipur: The Tribunal observed that the CIT(E) initiated proceedings based on a reference dated 06.02.2020, which was under the old provisions of Section 12AA. The new provisions of Section 12AB(4) require a fresh reference from the Assessing Officer after granting registration under Section 12AB. Since no such reference was made after 23.09.2021, the Tribunal held that the CIT(E) acted without jurisdiction. 4. Retrospective Application of Cancellation of Registration: The Tribunal held that the cancellation of registration with retrospective effect from AY 2017-18 was without authority of law. The provisions of Section 12AB(4) were introduced by the Finance Act, 2022, and apply prospectively. The Tribunal relied on the judgment of the Rajasthan High Court in Indian Medical Trust v. PCIT, which held that the cancellation of registration cannot be retrospective unless expressly stated by the legislation. 5. Alleged Violations under Sections 13(1), 13(2)(a), and 13(2)(g) of the Act: The CIT(E) alleged that the assessee trust advanced funds to persons covered under Section 13(3) and carried out non-genuine activities. The Tribunal noted that the Finance Act, 2022, introduced new provisions for taxing benefits provided to related persons under Section 115BBI and imposing penalties under Section 271AAE. These provisions apply prospectively and do not warrant the cancellation of registration for transactions that occurred before 01.04.2022. 6. Nature of Activities Carried Out by the Assessee: The CIT(E) held that the assessee was involved in business activities under the guise of charitable activities. The Tribunal referred to its earlier decision in the assessee's case (ITA No. 163/JP/2012), where it was held that the proviso to Section 2(15) is relevant for assessment purposes and not for cancellation of registration. The Tribunal emphasized the rule of consistency and held that the CIT(E) should not have raised the issue again. 7. Application of Section 40A(3) of the Act: The CIT(E) alleged that the assessee made non-genuine cash payments, violating Section 40A(3). The Tribunal noted that the CIT(E) did not provide adequate evidence to substantiate the claim. The Tribunal held that the CIT(E) should have considered the provisions of Section 115BBI and 271AAE, which deal with specified violations and penalties, rather than canceling the registration. Conclusion: The Tribunal set aside the order of the CIT(E) canceling the registration of the assessee trust and restored the registration granted under the new regime. The Tribunal held that the cancellation was bad in law, as it was based on an invalid reference, lacked adequate opportunity for the assessee to be heard, and was applied retrospectively without authority. The Tribunal emphasized the rule of consistency and the prospective application of the new provisions introduced by the Finance Act, 2022.
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