Section 12A registration cannot be cancelled retrospectively, statutory provisions lack authority for backdated cancellation orders

ITAT Cuttack allowed the assessee's appeal against retrospective cancellation of registration under section 12A. CIT(E) issued show cause notice on 6.10.2022 but cancelled registration retrospectively from 1.4.2014 for assessment year 2015-16, citing fund misuse. ITAT held that sections 12AA/12AB do not provide for retrospective cancellation of registration. CIT(E) failed to provide adequate reasons for rejecting assessee's explanations and relied on assessment order observations rather than show cause notice grounds. The statutory provisions do not authorize cancellation with retrospective effect.

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Issues Involved:
1. Cancellation of registration under Section 12AB(4) of the Income Tax Act, 1961.
2. Retrospective cancellation of registration.
3. Validity of the investigation report used for cancellation.
4. Compliance with procedural requirements for cancellation.

Detailed Analysis:

1. Cancellation of Registration under Section 12AB(4):
The appeal was filed against the cancellation of registration by the CIT(E) under Section 12AB(4) of the Income Tax Act, 1961. The assessee trust was initially granted registration under Section 12A on 21.5.2014, effective from 1.4.2013. The trust was later re-registered under the new regime, with Form 10AC issued for the period from A.Y. 2022-23 to A.Y. 2026-27. A show cause notice was issued on 6.10.2022, and despite the assessee's responses, the CIT(E) cancelled the registration, citing misuse of funds as evidenced by an investigation report.

2. Retrospective Cancellation of Registration:
The CIT(E) cancelled the registration with retrospective effect from 1.4.2014, relevant to the assessment year 2015-16. The tribunal noted that the provisions of Section 12AB do not provide for retrospective cancellation. This view was supported by the decision of the ITAT Bangalore Bench in the case of Amala Jyothi Vidya Kendra Trust vs Pr. CIT, which held that the law applicable is that in force in the assessment year unless explicitly stated otherwise. The tribunal emphasized that the cancellation could not be applied retrospectively, aligning with the principles set out in various Supreme Court rulings, including Isthmian Steamship Lines and Karimtharuvi Tea Estate Ltd. vs. State of Kerala.

3. Validity of the Investigation Report:
The assessee argued that the investigation report, dated 7.2.2020/13.2.2020, was available when the trust was granted re-registration on 5.4.2022, suggesting that the report lacked credibility. The tribunal noted that the CIT(E) did not provide specific reasons for rejecting the assessee's explanations and relied on the assessment orders for 2013-14 and 2014-15. The tribunal found that the investigation report did not justify the retrospective cancellation, especially since it was considered during the re-registration process.

4. Compliance with Procedural Requirements for Cancellation:
The tribunal observed that the CIT(E) failed to provide adequate reasons for rejecting the assessee's responses to the show cause notices. The tribunal highlighted that the procedural requirements under Section 12AB(4) were not met, as the cancellation was based on reasons already considered in the assessment orders. The tribunal reiterated that the law applicable at the time of assessment should be applied, and any amendments introduced later could not be applied retrospectively unless explicitly stated.

Conclusion:
The tribunal concluded that the retrospective cancellation of the assessee's registration was invalid as it was not supported by the statutory provisions. The order of the CIT(E) cancelling the registration with retrospective effect was quashed, and the appeal of the assessee was allowed. The tribunal emphasized that the law in force during the relevant assessment year should be applied, and any amendments introduced later could not be applied retrospectively without explicit provision.

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