2021 (7) TMI 574 - AT - Income Tax

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

Bharatpur Royal Family Religious & Ceremonial Trust Moti Mahal Versus CIT (E) Jaipur

Bharatpur Royal Family Religious & Ceremonial Trust Moti Mahal Versus CIT (E) Jaipur - [2021] 92 ITR (Trib) 690 (ITAT [Jai]) 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and Prejudicial to the Interest of Revenue:The CIT(E) found that the AO assumed the trust was registered under the repealed Act of 1922 without verifying this fact.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.