2024 (3) TMI 876 - AT - Income Tax

Registration under section 12A granted in 1992 cannot be retrospectively cancelled under section 12AB(4) for AY 2021-22

ITAT BANGALORE - AT held that the registration granted u/s 12A on 4.6.1992 could not be cancelled retrospectively u/s 12AB(4) for PY 2020-21 (AY 2021-22); ... Cancellation of registration under section 12AB(4) - Distinction between registration under section 12A and registration under section 12AB - Law applicable is the law in force in the assessment year - Prospective operation of statutory amendment - Scope for independent fresh consideration of registration for subsequent assessment yearsCancellation of registration under section 12AB(4) - Distinction between registration under section 12A and registration under section 12AB - Law applicable is the law in force in the assessment year - Prospective operation of statutory amendment - Validity of cancelling the assessee's registration granted under section 12A (effective for AY 2021-22) by invoking section 12AB(4) as amended - HELD THAT: - The Tribunal held that the registration originally granted under section 12A (dated 04/06/1992), which covered the previous year 2020-21 relevant to assessment year 2021-22, could not be cancelled by invoking the substituted provisions of section 12AB(4) introduced by the Finance Act, 2022 w.e.f. 01/04/2022. Applying the settled principle that the law to be applied in income tax matters is the law in force in the relevant assessment year, the Tribunal found that the amended 12AB(4) provisions operate prospectively and do not permit retrospective cancellation of a 12A registration for the earlier assessment year. Consequently, cancellation with retrospective effect to AY 2021-22 by resort to the post 1.4.2022 formulation of section 12AB(4) was held to be bad in law. [Paras 6, 8]The order of the PCIT cancelling the registration under section 12A/12AB with effect from previous year 2020-21 (AY 2021-22) by invoking section 12AB(4) as amended is quashed.Scope for independent fresh consideration of registration for subsequent assessment years - Cancellation of registration under section 12AB(4) - Whether the PCIT may independently consider cancellation of the registration granted under section 12AB for assessment years 2022-23 to 2026-27 - HELD THAT: - The Tribunal clarified that the PCIT's assumption of jurisdiction to cancel a 12A registration for AY 2021-22 did not validate cancelling the subsequent 12AB registration for AYs 2022-23 to 2026-27 on the basis of the earlier year. The Tribunal held that alleged violations in AY 2021-22 cannot be the basis for cancelling the separate registration granted under section 12AB for later assessment years. However, the PCIT is at liberty to initiate fresh proceedings and, after independent consideration under the correct statutory provisions, pass an order under section 12AB(4) (as applicable to those years) if so advised. [Paras 8]Cancellation of the 12AB registration for AYs 2022-23 to 2026-27 cannot be sustained on the basis of the 12A year violation; the PCIT may, if so advised, pass a fresh independent order under section 12AB(4) for those years.Specified violations under the Explanation to section 12AB(4) - Interaction between assessment proceedings and cancellation proceedings - Adjudication of factual allegations of specified violations (cash collections, diversion to trustees, genuineness of activities) relied upon by PCIT for cancellation - HELD THAT: - The Tribunal did not decide the substance of the factual contentions on specified violations (such as alleged cash collections, misappropriation by employees, or application of income for benefit of trustees). Those grounds (contentions numbered 5-11 and related factual submissions) were rendered infructuous by the Tribunal's primary legal finding concerning the invalidity of retrospective cancellation under section 12AB(4). The Tribunal therefore did not adjudicate these factual issues on merits in this order. [Paras 17]The factual contentions regarding specified violations were not finally adjudicated in this order and remain without determination in view of the quashing of the retrospective cancellation.Final Conclusion: The Tribunal partly allowed the appeal: the PCIT's order cancelling registration with effect from previous year 2020-21 (AY 2021-22) by invoking section 12AB(4) as amended is quashed; the PCIT may, if so advised, independently consider and, after fresh proceedings, decide cancellation of the registration granted under section 12AB for assessment years 2022-23 to 2026-27. Factual allegations of specified violations were not finally determined in this order. Issues Involved:1. Jurisdiction of PCIT to cancel registration under Section 12AB(4) of the Income Tax Act.2. Validity of cancellation of registration under Section 12A and 12AB.3. Alleged cash collections and utilization of income for the benefit of trustees.4. Applicability of specified violations under Section 12AB(4) for different assessment years.Summary of Judgment:Issue 1: Jurisdiction of PCIT to cancel registration under Section 12AB(4) of the ActThe appellant argued that the Principal Commissioner of Income Tax (PCIT), Central Circle, Bangalore, has no jurisdiction to cancel the registration under Section 12AB(4) of the Income Tax Act, as the power to grant and cancel such registration lies with the Commissioner of Income Tax (Exemptions), Bangalore, as per Notifications No. 52/2014 and 53/2014. The Tribunal admitted additional grounds of appeal and agreed with the appellant, stating that the PCIT, Central Circle, Bangalore, is not the authorized authority to cancel the registration granted under Section 12A of the Act.Issue 2: Validity of cancellation of registration under Section 12A and 12ABThe Tribunal held that the registration granted under Section 12A of the Act on 04/06/1992, which was effective till the date of 23/09/2021, cannot be canceled under Section 12AB(4) of the Act for the previous year 2020-21 covering the assessment year 2021-22. The Tribunal noted that the provisions of Section 12AB(4) introduced with effect from 01/04/2021, before substitution with effect from 01/04/2022, only enabled the cancellation of registration granted under Section 12AB(1) of the Act. Therefore, the cancellation of registration for the assessment year 2021-22 was held to be invalid.Issue 3: Alleged cash collections and utilization of income for the benefit of trusteesThe Tribunal found that the appellant had provided sufficient evidence to show that the alleged cash collections were misappropriated by two employees without the knowledge of the management. The Tribunal noted that the employees involved had been terminated, and the cash collected had been assessed in their hands. The Tribunal concluded that there was no specified violation by the appellant to justify the cancellation of registration.Issue 4: Applicability of specified violations under Section 12AB(4) for different assessment yearsThe Tribunal held that the specified violations committed in the assessment year 2021-22 could not be the reason to cancel the registration granted for the assessment years 2022-23 to 2026-27. The Tribunal emphasized that the violations for each assessment year should be considered independently. The Tribunal allowed the appeal on this ground and quashed the order of the PCIT canceling the registration for the assessment years 2022-23 to 2026-27.Conclusion:The Tribunal partly allowed the appeal filed by the appellant, quashing the order of the PCIT canceling the registration under Section 12A and 12AB of the Act. The Tribunal held that the PCIT, Central Circle, Bangalore, had no jurisdiction to cancel the registration and that the specified violations for the assessment year 2021-22 could not be the basis for canceling the registration for subsequent years.