Appellate order quashes invalid PCIT decision, restores s.10(23C)(vi) approval and s.12AA registration to assessee citing lack of jurisdiction

ITAT Indore allowed the assessee's appeals and quashed the order dated 26.12.2019 passed by PCIT (Central) rejecting approval under s.10(23C)(vi) and registration under s.12AA. The Tribunal held that, as per CBDT notification, jurisdiction over the assessee vested in CIT (Exemption), Bhopal and not in PCIT (Central); therefore, the impugned order was passed without authority and was void ab initio. The jurisdictional objection could be raised at any stage. The Tribunal directed restoration of the earlier approval under s.10(23C)(vi) and registration under s.12AA.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the Additional Grounds challenging the jurisdiction of the authority and the validity of the show cause notice and impugned order could be admitted at the appellate stage.

(2) Whether, in view of the CBDT notification issued under section 120(1)/(2), the jurisdiction to exercise powers and perform functions relating to exemption under section 10(23C)(vi) and registration under section 12AA in respect of entities in Madhya Pradesh vested exclusively in the Commissioner of Income-tax (Exemption), Bhopal, and not in the Principal Commissioner of Income-tax (Central).

(3) Whether the Principal Commissioner of Income-tax (Central) had legal authority or jurisdiction to issue the show cause notice and to pass the order withdrawing approval under section 10(23C)(vi) and cancelling registration under section 12AA.

(4) Consequentially, whether the impugned order withdrawing approval under section 10(23C)(vi) and cancelling registration under section 12AA was void and liable to be quashed, and the original approval/registration restored.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Admissibility of Additional Grounds

Interpretation and reasoning

The Tribunal noted that the assessee raised Additional Grounds specifically challenging the jurisdiction of the authority issuing the show cause notice and passing the impugned order, and contending that both were bad in law, invalid and without jurisdiction. It was submitted that these were pure questions of law going to the root of the matter. The Tribunal recorded that the Departmental Representative did not object to admission of these Additional Grounds. The Tribunal, relying on the principle that pure legal grounds affecting jurisdiction and validity of proceedings can be raised at any stage, admitted the Additional Grounds.

Conclusions

The Additional Grounds challenging the jurisdiction of the Principal Commissioner of Income-tax (Central) and the validity of the show cause notice and impugned order were admitted for adjudication.

Issue (2) and (3): Jurisdiction to withdraw approval under section 10(23C)(vi) and cancel registration under section 12AA in light of CBDT notification; validity of action by Principal Commissioner of Income-tax (Central)

Legal framework as discussed

(a) The Tribunal examined the CBDT Notification dated 22.10.2014 issued under section 120(1) and (2), together with its Schedule, whereby:

- The Commissioner of Income-tax (Exemption), Bhopal, having headquarters at Bhopal, was vested with powers and functions in respect of cases of persons in the States of Madhya Pradesh and Chhattisgarh claiming exemption under, inter alia, section 10(23C), section 11 and section 12.

- Clause (a) of the Notification directed that such Commissioner shall exercise powers and perform all functions in respect of specified "cases or classes of cases" within the territorial areas set out.

- Clause (b) authorised such Commissioner to issue orders in writing for exercise of powers and performance of functions by Additional Commissioners, Joint Commissioners and Tax Recovery Officers subordinate to him.

(b) The Tribunal also referred to and relied upon the reasoning of a co-ordinate Bench in a similar matter, which had examined sections 120 and 127 and the CBDT notification of similar tenor, and had held that:

- Jurisdiction for exemption matters under sections 10(23C), 11, 12 etc. is specifically assigned to the Commissioner of Income-tax (Exemption) by CBDT notification.

- Section 127 empowers transfer of cases only between Assessing Officers and not between Commissioners; nor does the notification permit a Commissioner (Exemption) to transfer his statutory powers to another Commissioner or Principal Commissioner.

- Delegation authorised by the notification is only to subordinate officers (Additional/Joint Commissioners, TROs), not to another Commissioner or Principal Commissioner of the same or different charge.

Interpretation and reasoning

(i) The Tribunal noted that the assessee is located in Indore (State of Madhya Pradesh) and is a person claiming exemption under section 10(23C)(vi) and holding registration under section 12AA. Accordingly, by virtue of the CBDT Notification, only the Commissioner of Income-tax (Exemption), Bhopal, was the competent "prescribed authority" to exercise powers and perform functions in relation to approval under section 10(23C)(vi) and registration under section 12AA for such cases.

(ii) It was contended that the Principal Commissioner of Income-tax (Central) had acted on the footing that, because of a search under section 132 and centralisation of cases for coordinated assessment under section 153A, he could also exercise powers regarding grant/withdrawal of approval and registration. The Tribunal examined this contention in light of:

- The express allocation of jurisdiction in the CBDT Notification, which carved out a separate and exclusive jurisdiction for the Commissioner of Income-tax (Exemption) over exemption-related matters; and

- The scheme of delegation in the Notification, limiting onward delegation only to subordinate officers (Additional/Joint Commissioners, TROs) and not to any Principal Commissioner (Central).

(iii) The Tribunal applied the reasoning of the co-ordinate Bench decision in a parallel fact situation, which had held that:

- Transfer of assessment proceedings to a Central Circle for "co-ordinated assessment" does not ipso facto transfer jurisdiction for exemption/registration proceedings under section 12A/12AA to the Principal Commissioner (Central).

- Proceedings for assessment and proceedings for grant/withdrawal of registration or exemption are distinct, fall under different statutory provisions, and are to be conducted by different designated authorities.

- Registration under section 12A/12AA, and its cancellation, can be dealt with only by the "prescribed authority" empowered by statute or by CBDT notification; a Principal Commissioner (Central) has no inherent or derivative power to cancel such registration or withdraw approval under section 10(23C)(vi) unless specifically authorised.

(iv) The Tribunal recorded that the Departmental Representative could not show any provision, notification, or order under which the Principal Commissioner of Income-tax (Central) was vested with authority to issue the show cause notice or pass the impugned order withdrawing approval under section 10(23C)(vi) and cancelling registration under section 12AA.

(v) On the objection that the assessee had not raised this jurisdictional challenge earlier before the lower authorities, the Tribunal held that:

- The objection concerns the very jurisdiction and competence of the authority to act.

- Actions by an officer lacking legal authority are void ab initio and can be challenged at any stage.

- The timing of raising such a pure question of law does not validate an order passed without jurisdiction.

Conclusions

(a) The Tribunal held that, as per the CBDT Notification under section 120, the exclusive jurisdiction over entities in Madhya Pradesh claiming exemption under section 10(23C)(vi) and holding registration under section 12AA vested in the Commissioner of Income-tax (Exemption), Bhopal.

(b) The Principal Commissioner of Income-tax (Central) had no authority or jurisdiction to issue the show cause notice dated 15.11.2019 or to pass the order dated 26.12.2019 withdrawing approval under section 10(23C)(vi) and cancelling registration under section 12AA.

(c) The centralisation of cases for coordinated assessment pursuant to a search under section 132 did not confer, expand or shift jurisdiction in respect of exemption/registration powers from the Commissioner of Income-tax (Exemption) to the Principal Commissioner of Income-tax (Central).

(d) The impugned order dated 26.12.2019 passed by the Principal Commissioner of Income-tax (Central) was without jurisdiction, bad in law, invalid and void ab initio.

Issue (4): Consequence of lack of jurisdiction; relief

Interpretation and reasoning

Having found the impugned order to be without jurisdiction, the Tribunal held that it was not necessary or appropriate to adjudicate upon the merits of the other grounds raised, including findings on genuineness of activities, application of income, or applicability of section 13(1)(c). Once the foundational jurisdiction of the authority is absent, all consequential actions are rendered void, and the order cannot survive on merits.

Conclusions

(a) The show cause notice dated 15.11.2019 and the order dated 26.12.2019 withdrawing approval under section 10(23C)(vi) and cancelling registration under section 12AA were quashed as being without jurisdiction.

(b) The approval under section 10(23C)(vi) and registration under section 12AA earlier granted to the assessee were directed to be restored.

(c) In view of the quashing of the impugned order on jurisdictional grounds, the remaining grounds on merits did not require adjudication.

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