PCIT lacks power to cancel 12AA registration using prospective Section 12AB(4); restoration ordered, 10(23C) issue academic

ITAT held that cancellation of the assessee's registration u/s 12AA by the PCIT w.e.f. 01.04.2016 by invoking s.12AB(4) was without jurisdiction and invalid. It affirmed the consistent view of various ITAT Benches that only the CIT (Exemptions) is empowered to cancel registration granted u/s 12AA, and that s.12AB(4), introduced w.e.f. 01.04.2022, operates prospectively and cannot be applied retrospectively to earlier years. Consequently, the impugned cancellation order passed by the PCIT was quashed and the assessee's registration u/s 12AA was directed to be restored, rendering the related challenge to DGIT's competence under s.10(23C) academic.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether additional jurisdictional grounds challenging the competence of the authority and retrospectivity of the power under section 12AB(4) could be admitted at the appellate stage.

2. Whether, in view of section 120 and CBDT Notifications assigning jurisdiction in respect of sections 11, 12, 13 etc., the Principal Commissioner of Income Tax (Central) had jurisdiction to cancel registration granted under section 12AA, or whether such power rested exclusively with the Commissioner of Income Tax (Exemptions).

3. Whether the power to cancel registration under section 12AB(4), introduced with effect from 01.04.2022, could be invoked to cancel registration with retrospective effect from 01.04.2016.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admission of additional jurisdictional grounds

Interpretation and reasoning

1. The Tribunal noted that the additional grounds raised were purely jurisdictional, going to the root of the validity of the impugned cancellation order and ultimately affecting taxability.

2. Relying on the principle laid down by the Supreme Court that additional grounds which do not require investigation of new facts and go to the root of the matter can be raised for the first time before the appellate authority, the Tribunal held that such grounds are admissible.

Conclusions

3. The additional grounds challenging (i) the jurisdiction of the Principal Commissioner (Central) to act under section 12AB(4), and (ii) the applicability of section 12AB(4) to cancel registration effective from an earlier date, were admitted for adjudication on merits.

Issue 2: Competence of Principal Commissioner (Central) to cancel registration under section 12AA / 12AB(4)

Legal framework discussed

4. The Tribunal examined section 120, particularly sub-sections (1)-(4), which empower the CBDT to assign, by notification, powers and functions to specified income-tax authorities based on territorial area, persons, incomes, or classes of cases.

5. CBDT Notification No. 52/2014 dated 22.10.2014, issued under section 120(1)-(2), was considered. It specifically vested jurisdiction in the Commissioner of Income Tax (Exemptions), Chandigarh, over all cases in the specified territories claiming exemption under, inter alia, sections 11, 12 and 13.

6. The Tribunal also referred to section 127, its Explanation defining "case", and to section 12AB and Rule 17A, together with CBDT Circular No. 11/2022 dated 03.06.2022 regarding the operation of section 12AB(4) and "specified violations".

Interpretation and reasoning

7. From section 120 and the Notification, the Tribunal inferred that the Board had conferred original and specific jurisdiction in matters relating to exemptions under sections 10, 11, 12, 13A and 13B on the Commissioner of Income Tax (Exemptions), and not on the Principal Commissioner (Central).

8. The order under section 127 transferring the "case" of the assessee was analysed. The Tribunal held that section 127 and its Explanation operate only to transfer cases between Assessing Officers and related assessment proceedings; they do not authorize transfer of the statutory powers vested in the Commissioner of Income Tax (Exemptions) under the CBDT Notification.

9. It was emphasised that the Principal Commissioner (Central) is not an "Assessing Officer" within the meaning of section 2(7A), and the section 127 order concerned only the transfer of assessment jurisdiction, not the transfer of jurisdiction to grant or cancel registration under sections 12AA/12AB.

10. The Tribunal noted that Notification No. 52/2014 does not delegate or permit further transfer of the powers regarding sections 11, 12 and 13 from the Commissioner of Income Tax (Exemptions) to any Principal Commissioner (Central), nor is there any subsequent notification/circular extending such powers under section 12AB to the Principal Commissioner (Central).

11. Precedents of co-ordinate Benches (including decisions where Principal Commissioners (Central) had purported to cancel registrations earlier granted under section 12AA) were relied upon, which consistently held that only the Commissioner of Income Tax (Exemptions), as notified authority, could cancel such registration.

12. The Tribunal rejected the contention that, merely by virtue of the Explanation to section 127 defining "case" or by reason of the second proviso to section 143(3), the Principal Commissioner (Central) obtained competence to exercise powers that the CBDT had, by specific notification, vested in the Commissioner of Income Tax (Exemptions).

Conclusions

13. The Tribunal held that:

(a) Jurisdiction to grant and cancel registration under section 12AA / section 12AB lies with the Commissioner of Income Tax (Exemptions) as per CBDT Notification under section 120.

(b) The Principal Commissioner of Income Tax (Central), Gurgaon, had no jurisdiction or competence to cancel the assessee's registration under section 12AA/12AB(4).

(c) The impugned order cancelling registration was void for lack of jurisdiction.

Issue 3: Applicability of section 12AB(4) and its retrospective effect

Legal framework discussed

14. Section 12AB, introduced with effect from 01.04.2021, and in particular sub-section (4) (as inserted by Finance Act, 2022 with effect from 01.04.2022) providing for cancellation of registration on occurrence of "specified violations", was examined.

15. CBDT Circular No. 11/2022 clarified that amendments introducing the "specified violation" mechanism and cancellation power under section 12AB(4), and the parallel provisions under section 10(23C), are effective from 01.04.2022.

16. Reference was made to decisions of co-ordinate Benches (including Bangalore and Cuttack Benches) holding that section 12AB(4) is prospective and cannot be applied to earlier periods to cancel registrations retrospectively.

Interpretation and reasoning

17. The Tribunal observed that section 12AB(4) constitutes a new, self-contained procedural code for enquiry into "specified violations" and cancellation of registration, distinct from the earlier regime under section 12AA(3)/(4).

18. The Circular and statutory wording were read to indicate that the power under section 12AB(4), grounded in "specified violations", is operative only from 01.04.2022 and is not expressed to have retrospective operation.

19. It was noted that the Principal Commissioner purported to invoke section 12AB(4) to cancel registration with effect from 01.04.2016, i.e., for years prior to the effective date of the provision and the "specified violation" mechanism.

20. The Tribunal, following co-ordinate Bench rulings and the principle against retrospective operation of substantive prejudicial provisions, accepted that section 12AB(4) cannot be applied to cancel registration for periods prior to its coming into force.

Conclusions

21. The Tribunal held that:

(a) Section 12AB(4) is prospective in operation from 01.04.2022.

(b) Cancellation of registration with retrospective effect from 01.04.2016 by invoking section 12AB(4) was beyond the temporal scope of that provision, and legally unsustainable.

Overall disposition

22. On the combined grounds that (i) the Principal Commissioner (Central) lacked jurisdiction to cancel registration under section 12AA/12AB, and (ii) section 12AB(4) could not be applied retrospectively to cancel registration from 01.04.2016, the Tribunal quashed the impugned cancellation order.

23. In view of the quashing of the order on these preliminary jurisdictional and legal grounds, the Tribunal did not adjudicate the other grounds on merits, including alleged "specified violations", limitation, DIN issues, natural justice, and factual allegations regarding application of income or activities of the trust.

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