Charitable registration restricts reassessment of validity during assessment; cancellation proceedings, not revision, must be used to challenge status.

Registration as a charitable trust results from prior statutory scrutiny of objects and limits the assessing officer's ability to re examine validity of that registration during assessment; where the Commissioner seeks to challenge charitable status, the proper statutory route is cancellation of registration rather than treating an assessment as erroneous for not re adjudicating registration. Consequently, a revisional order setting aside assessment solely because the trust's objects and dissolution clause allegedly render it non charitable is impermissible in the absence of affirmative findings of breach of conditions or misuse of funds; the revisional power cannot be exercised on those grounds alone.

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Issues: Whether the revision order under section 263 of the Income-tax Act, 1961 setting aside the assessment for AY 2011-12 on the ground that the trust's objects and dissolution clause render it non-charitable was valid.

Analysis: The tribunal examined (i) the effect of an existing registration under section 12A of the Income-tax Act, 1961 on the assessing officer's duty during assessment proceedings, and (ii) whether the reasons cited by the Commissioner (Exemptions) - namely the trust's objects and the provision on dissolution of trust proceeds - rendered the assessment order erroneous and prejudicial to the revenue so as to justify exercise of revisional power under section 263. The tribunal noted that registration under section 12A entails prior examination of the trust's objects and that the assessing officer is subordinate to the Commissioner and is not empowered to revisit the validity of that registration during assessment. The proper course, if the Commissioner considers the objects non-charitable, is to initiate cancellation of registration under the statutory scheme rather than to treat the assessment as erroneous for failing to re-evaluate the registration. The tribunal also observed that the Commissioner did not point to findings of breach of conditions (such as application of funds contrary to objects or reliance on section 13 violations) that would directly support a conclusion that the assessment was erroneous and prejudicial to revenue.

Conclusion: The revision order under section 263 was set aside and the appeal of the assessee was allowed; the assessment order could not be treated as erroneous and prejudicial to the revenue on the grounds advanced by the Commissioner (Exemptions).

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