2021 (7) TMI 574 - AT - Income Tax

Tribunal Upholds CIT(E) Order Under Section 263, Stresses Trust Registration Verification

The Tribunal upheld the CIT(E)'s order under section 263, finding the AO's order erroneous and prejudicial to Revenue. The Tribunal dismissed the appeal, ... Revision u/s 263 - exemption u/s 11 - when the assessment order was passed, the trust was not registered u/s 12AA - AO is erroneous and prejudicial to the interest of Revenue by incorrectly holding that verification of the fact of registration of the trust under I.T. Act, 1922 was the very basic direction given by the Hon’ble ITAT which the AO has evidently failed to examine whereas no such direction was given by the Hon’ble ITAT which has set aside the case to AO to examine whether exemption granted under the Repeal Act was saved by section 297 of the Act and whether it was consistent with the corresponding provisions of law under the new Act? - whether the trust was registered under IT Act, 1922 and if not, no benefit of exemption is to be granted since prior to the amendment dt. 03.08.2016 the nature of trust, its objects & activities were not the same making the first proviso to section 12A inapplicable? - HELD THAT:- It is a settled position that unless and until the trust is registered under section 12A, it cannot claim the benefit of section 11 of the Act and thus, registration under section 12A is a condition precedent. The Registration was granted by the Commissioner (Exemptions) vide order dated 5th September, 2016 with effect from 03.08.2016 after the assessee has amended its By-laws and Memorandum of Association whereby certain terms and conditions have been completely changed. Constitution of the Trust does not remain the same as it was prior to the amendment and hence when the constitution itself is changed and the registration is granted on the new and amended constitution of the Trust, then the benefit of proviso to section 12A would not be available to the assessee for the assessment year preceding to the year in which such registration is granted. The said proviso to section 12A(2) specifically mentions the proceedings of the assessment are pending before the AO. We are therefore unable to accede to the contention advanced by the ld AR that where there was no provision for issuing a separate order of registration by the Commissioner in 1922 Act, it would not mean that exemption granted u/s 4(3)(i) of 1922 Act is not saved by section 297(2)(k) of the IT Act, 1961. Under the Act of 1961, the Trust whether constituted and/or formed prior to the said Act coming into force or afterwards, is required to move an application for seeking registration before the Commissioner and such trust must be granted registration and duly registered under section 12AA of the Act. There is thus no mandate under the current statue to treat these two set of assessees differently and thus creating separate class of assessees, one which have been formed earlier and got exemption under the Act of 1922 and those formed subsequently and seeking exemption under the Act of 1961. Both the set of assessees are on equal footing without claiming any differential treatment and have to comply with the conditions as prescribed under the Act of 1961 to continue to claim exemption or to claim exemption, as the case may be, under the Act of 1961. Though it may be inferred that the proceedings before the Appellate Authority are also considered to be the assessment proceedings pending but the same are not regarded as pending before the AO. Even otherwise, when the registration is granted on the amended constitution of the Trust, then the benefit of this proviso to section 12A(2) is not available. The said finding applies equally to the impugned assessment year 2011-12 and we donot find any justifiable reason to deviate from the said finding rendered after detail examination of facts and circumstances of the case which permeates equally through the impugned assessment year - even where it is held that the AO has taken a view that the assessee is entitled to exemption u/s 11 in view of the subsequent registration for the impugned assessment year, the said view is clearly erroneous in light of the clear findings of the Tribunal in the assessee’s own case that benefit of proviso to section 12A(2) is not available to the assessee and thus, prejudicial to the interest of the Revenue. We are unable to accede to the various contentions advanced by the ld AR that the AO has complied with the directions of the Tribunal and duly examined this issue with reference to section 4(3)(i) of Act of 1922 vis-à-vis section 11 of the Act of 1961 as so directed by the Tribunal and given the fact that the AO having failed to comply and examine the matter, find that the ld. PCIT was justified in exercising his jurisdiction u/s 263 to enforce the directions of the Tribunal and thus to hold the order so passed by AO as erroneous and prejudicial to the interest of Revenue. In the result, we upheld the order of the ld PCIT in exercise of his powers u/s 263 in setting aside the order so passed by the AO and the grounds of appeal taken by the assessee are hereby dismissed. Issues Involved:1. Legality of the order passed by CIT(E) under section 263.2. Examination of whether the order passed by the AO was erroneous and prejudicial to the interest of Revenue.3. Verification of the trust's registration under the IT Act, 1922.4. Consistency of the exemption granted under the 1922 Act with the provisions of the 1961 Act.5. Applicability of the first proviso to section 12A(2) for pending assessment proceedings.Detailed Analysis:1. Legality of the Order Passed by CIT(E) under Section 263:The assessee challenged the legality of the CIT(E)'s order under section 263, arguing that the order was illegal and bad in law. The Tribunal examined the CIT(E)'s findings that the AO's order was erroneous and prejudicial to the interest of Revenue. The CIT(E) had issued a show cause notice stating that the AO allowed substantial relief to the assessee without proper verification of the trust's registration under the IT Act, 1922, despite specific directions from the ITAT.2. Examination of Whether the Order Passed by the AO was Erroneous and Prejudicial to the Interest of Revenue:The CIT(E) found that the AO assumed the trust was registered under the repealed Act of 1922 without verifying this fact. The CIT(E) noted that the Law Commission's report and the Ministry of Home Affairs' letter did not constitute a formal registration under the IT Act, 1922. The CIT(E) concluded that the AO failed to examine whether the trust was indeed registered under the 1922 Act, making the AO's order erroneous and prejudicial to Revenue.3. Verification of the Trust's Registration under the IT Act, 1922:The Tribunal noted that the ITAT had directed the AO to examine whether the trust was registered under the IT Act, 1922, and whether such registration was saved by section 297 of the IT Act, 1961. The AO, however, did not verify the trust's registration under the 1922 Act and proceeded on the assumption that it was granted. The CIT(E) observed that there was no specific order of registration by the competent authority under the 1922 Act, and the trust's claim of exemption was not substantiated by any documentary evidence.4. Consistency of the Exemption Granted under the 1922 Act with the Provisions of the 1961 Act:The Tribunal examined whether the exemption granted under section 4(3)(i) of the 1922 Act was consistent with the corresponding provisions of the 1961 Act, particularly sections 11, 12, 12A, 12AA, and 13. The Tribunal found that the provisions of the 1961 Act, including the requirement for registration under section 12AA, were more elaborate and stringent compared to the 1922 Act. The Tribunal concluded that the exemption granted under the 1922 Act was not consistent with the provisions of the 1961 Act and could not be saved by section 297(2)(k).5. Applicability of the First Proviso to Section 12A(2) for Pending Assessment Proceedings:The assessee contended that the subsequent registration under section 12AA should apply to the pending assessment proceedings for the relevant assessment year. The Tribunal referred to its earlier decision in the assessee's case for A.Y 2013-14, where it was held that the benefit of the first proviso to section 12A(2) was not available for the assessment years preceding the year of registration, especially when the trust's constitution had changed. The Tribunal upheld this view, stating that the AO's order granting exemption based on subsequent registration was erroneous and prejudicial to Revenue.Conclusion:The Tribunal upheld the CIT(E)'s order under section 263, finding that the AO's order was erroneous and prejudicial to the interest of Revenue. The Tribunal dismissed the assessee's appeal, emphasizing the need for proper verification of the trust's registration under the 1922 Act and consistency with the provisions of the 1961 Act. The Tribunal also reiterated that the benefit of the first proviso to section 12A(2) was not applicable for the assessment years preceding the year of registration.