PCIT lacked jurisdiction to cancel registration under Section 12AB(4) for pre-2022 assessment years

ITAT Delhi allowed the appeal challenging cancellation of registration under Section 12AB(4). The tribunal held that PCIT lacked jurisdiction as CIT(E) Delhi was the appropriate authority for exemption matters under territorial jurisdiction notifications. The reference under Section 143(3) second proviso was impermissible as assessment proceedings had concluded before the provision's insertion effective 01.04.2022. Show cause notices dated 05.07.2023 and 16.08.2023 were erroneous since Section 12AB(4) provisions were not applicable to assessment years 2015-16 to 2021-22, predating the provision's effective date. The cancellation order was quashed as bad in law and unsustainable.

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Issues Involved:
1. Jurisdiction of the PCIT to cancel registration.
2. Validity of the reference made by the AO for cancellation.
3. Applicability of Section 12AA and Section 12AB(4) for cancellation.
4. Retrospective cancellation of registration.
5. Alleged violations and diversion of funds.
6. Procedural fairness and opportunity to cross-examine.

Detailed Analysis:

1. Jurisdiction of the PCIT to Cancel Registration:
The appellant argued that the PCIT lacked jurisdiction to cancel the registration, as the power to grant and withdraw exemptions vests with the CIT(Exemption). The Tribunal agreed, citing the CBDT Notification Nos. 52/2014 and 53/2014, which specify that the CIT(Exemption) has territorial jurisdiction over cases claiming exemption under Section 12A of the Act. The Tribunal referenced the case of Aggarwal Vidhya Pracharni Sabha Vs. PCIT, where it was held that the PCIT did not have jurisdiction to cancel registration under Section 12AB(4) of the Act.

2. Validity of the Reference Made by the AO for Cancellation:
The appellant contended that the reference made by the AO on 04.05.2022 and 31.07.2023 was invalid as it was made after the assessment proceedings had concluded on 29.03.2022. The Tribunal agreed, noting that the 2nd proviso to Section 143(3) of the Act, which allows the AO to make such a reference, was effective from 01.04.2022 and thus could not be applied retrospectively.

3. Applicability of Section 12AA and Section 12AB(4) for Cancellation:
The appellant argued that Section 12AA was incorrectly invoked by the PCIT, as it is not applicable after 01.04.2021. The Tribunal agreed, stating that the power to cancel registration granted under Section 12A r.w.s 12AB of the Act can no longer be exercised under Section 12AA(3) after 01.04.2021. The Tribunal also noted that Section 12AB(4) was substituted by the Finance Act 2022 w.e.f 01.04.2022, and thus any specified violation prior to this date could not be addressed under this section.

4. Retrospective Cancellation of Registration:
The appellant contended that the retrospective cancellation of registration from Assessment Year 2015-16 was unlawful. The Tribunal agreed, citing the Bangalore Bench's decision in M/s Islamic Academy of Education, which held that violations occurring before the introduction of Section 12AB(4) on 01.04.2022 could not be grounds for cancellation under this section.

5. Alleged Violations and Diversion of Funds:
The PCIT's order cited violations of Sections 11(1)(a), 11(1)(d), and 13(1)(c) of the Act, including diversion of funds through bogus bills and unaccounted cash. The appellant rebutted these allegations, arguing that the findings were based on assessment orders under appeal and lacked credible evidence. The Tribunal found that the show cause notices issued by the PCIT were flawed and not maintainable, as they pertained to periods before the relevant provisions were in effect.

6. Procedural Fairness and Opportunity to Cross-examine:
The appellant argued that the cancellation proceedings relied on retracted statements and inadmissible electronic evidence, without providing an opportunity to cross-examine witnesses. The Tribunal noted that the AO had provided details of seized documents and relevant material to the appellant. However, the Tribunal found that the procedural fairness was compromised due to the reliance on retracted statements and the denial of cross-examination, which violated principles of natural justice.

Conclusion:
The Tribunal quashed the order passed by the PCIT dated 31.03.2024, cancelling the registration of the appellant society for Assessment Years 2015-16 to 2021-22. The Tribunal found the order to be without jurisdiction, bad in law, and procedurally flawed. The appellant's appeal was allowed, and the impugned order was set aside.

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