AO cannot invalidate section 12A registration granted by CIT (Exemption) - only CIT (Exemption) has authority

ITAT Mumbai held that AO cannot invalidate registration granted by CIT (Exemption) under section 12A. Trust amended object clause without informing CIT (Exemption), leading AO to deny section 11 exemption. However, CIT (Exemption) initiated withdrawal proceedings but subsequently dropped them after considering the amendments. ITAT ruled AO lacked authority to override CIT (Exemption)'s decision. Trust's objects remained for Daivadnya community benefit, not violating section 13(1)(d). Assessment order was void and set aside. Appeal allowed.

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Issues Involved:
1. Denial of exemption under Section 11 of the Income-tax Act, 1961.
2. Denial of exemption under Section 11(1A) for Long-Term Capital Gains (LTCG).
3. Addition made for transfer entry from 'Building Amenities Fund 2011' to 'Building Fund'.

Detailed Analysis:

1. Denial of Exemption under Section 11:

The assessee filed its return of income and was selected for scrutiny. During the assessment proceedings, the assessing officer observed that the assessee had amended its object clause without prior permission or intimation to the Commissioner of Income-tax (Exemption). The officer held that the trust deed was not covered under Section 11 due to the lack of fresh registration after the insertion of new objects. Consequently, the exemption under Section 11 was denied, and the assessee was assessed as an 'AOP'.

The assessee argued that the registration under Section 12A remains valid until canceled by the Commissioner through due process under Section 12AA(3). The Commissioner had initiated but eventually dropped proceedings for cancellation of the registration. The assessee contended that the amended objects were charitable and within the scope of the trust's general objectives. The trust deed had been submitted to the Commissioner during renewal applications for exemption certificates under Section 80G(5), indicating no statutory requirement at the relevant time to intimate amendments.

The CIT(A) upheld the assessing officer's decision, but the appellate tribunal noted that the CIT (Exemption) had dropped the proceedings for withdrawal of registration, indicating the objects were within charitable activities. The tribunal observed that the assessing officer had no authority to invalidate the registration granted by the CIT (Exemption). Consequently, the assessment order was deemed void, and the exemption under Section 11 was allowed.

2. Denial of Exemption under Section 11(1A) for LTCG:

The assessee claimed exemption under Section 11(1A) for LTCG, asserting that the sales proceeds were invested in another capital asset, i.e., fixed deposits with a scheduled bank. The CIT(A) sustained the disallowance, but the tribunal directed the assessing officer to reconsider the exemption following the decision in favor of the assessee on the first issue.

3. Addition Made for Transfer Entry from 'Building Amenities Fund 2011' to 'Building Fund':

The CIT(A) sustained an addition of Rs. 95,00,000, being the amount transferred from 'Building Amenities Fund 2011' to 'Building Fund'. The assessee argued that this accounting entry did not result in taxable income. The tribunal, considering the favorable decision on the first issue, directed the assessing officer to follow the directions and delete the addition accordingly.

Conclusion:

The tribunal allowed the appeal, directing the assessing officer to grant the exemption under Section 11 and reconsider the related grounds in light of this decision. The order emphasized the validity of the registration under Section 12A and the charitable nature of the trust's amended objects.

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