Trust registration cancellation overturned due to retrospective application of penal provisions under section 12AB

The ITAT Jaipur allowed the assessee trust's appeal against cancellation of registration under section 12AB(4)(b)(i). The CIT(E) cancelled registration retrospectively from AY 2017-18 based on alleged violations including business activities and payments to specified persons under section 13(3). The tribunal held that specified violation provisions inserted by Finance Act 2022 effective from 01.04.2022 cannot apply retrospectively being penal in nature. The reference for cancellation was made without proper statutory authority as no fresh reference existed after registration grant on 23.09.2021. Additionally, the show cause notice scope was exceeded and procedural requirements were not met. The cancellation order was deemed bad in law.

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Issues Involved:
1. Validity of the cancellation of registration under Section 12AB(4)(b)(i) of the Act.
2. Adequacy of opportunity of being heard provided to the assessee.
3. Jurisdictional authority of the CIT Exemption, Jaipur.
4. Retrospective application of cancellation of registration.
5. Alleged violations under Sections 13(1), 13(2)(a), and 13(2)(g) of the Act.
6. Nature of activities carried out by the assessee.
7. Application of Section 40A(3) of the Act.

Detailed Analysis:

1. Validity of the Cancellation of Registration under Section 12AB(4)(b)(i) of the Act:
The cancellation of the assessee's registration was based on a reference from the DCIT(E), Jaipur, dated 06.02.2020. The CIT(E) initiated proceedings under Section 12AB(4)(b)(i) of the Act, which was introduced by the Finance Act, 2022. The Tribunal observed that the reference was made under the old provisions of Section 12AA, which became inoperative from 01.04.2021. The Tribunal held that the reference was without statutory authority and, therefore, the cancellation of registration was invalid.

2. Adequacy of Opportunity of Being Heard:
The Tribunal noted that the CIT(E) issued a show cause notice on 03.03.2023, which did not provide adequate and effective opportunity for the assessee to be heard. The notice did not specify the exact nature of the violations under the new provisions of Section 12AB(4). The Tribunal emphasized the importance of a clear and precise notice, as established by the Supreme Court in Umanath Pandey v. State of UP. The Tribunal found that the CIT(E) traveled beyond the scope of the show cause notice, which was not justified.

3. Jurisdictional Authority of the CIT Exemption, Jaipur:
The Tribunal observed that the CIT(E) initiated proceedings based on a reference dated 06.02.2020, which was under the old provisions of Section 12AA. The new provisions of Section 12AB(4) require a fresh reference from the Assessing Officer after granting registration under Section 12AB. Since no such reference was made after 23.09.2021, the Tribunal held that the CIT(E) acted without jurisdiction.

4. Retrospective Application of Cancellation of Registration:
The Tribunal held that the cancellation of registration with retrospective effect from AY 2017-18 was without authority of law. The provisions of Section 12AB(4) were introduced by the Finance Act, 2022, and apply prospectively. The Tribunal relied on the judgment of the Rajasthan High Court in Indian Medical Trust v. PCIT, which held that the cancellation of registration cannot be retrospective unless expressly stated by the legislation.

5. Alleged Violations under Sections 13(1), 13(2)(a), and 13(2)(g) of the Act:
The CIT(E) alleged that the assessee trust advanced funds to persons covered under Section 13(3) and carried out non-genuine activities. The Tribunal noted that the Finance Act, 2022, introduced new provisions for taxing benefits provided to related persons under Section 115BBI and imposing penalties under Section 271AAE. These provisions apply prospectively and do not warrant the cancellation of registration for transactions that occurred before 01.04.2022.

6. Nature of Activities Carried Out by the Assessee:
The CIT(E) held that the assessee was involved in business activities under the guise of charitable activities. The Tribunal referred to its earlier decision in the assessee's case (ITA No. 163/JP/2012), where it was held that the proviso to Section 2(15) is relevant for assessment purposes and not for cancellation of registration. The Tribunal emphasized the rule of consistency and held that the CIT(E) should not have raised the issue again.

7. Application of Section 40A(3) of the Act:
The CIT(E) alleged that the assessee made non-genuine cash payments, violating Section 40A(3). The Tribunal noted that the CIT(E) did not provide adequate evidence to substantiate the claim. The Tribunal held that the CIT(E) should have considered the provisions of Section 115BBI and 271AAE, which deal with specified violations and penalties, rather than canceling the registration.

Conclusion:
The Tribunal set aside the order of the CIT(E) canceling the registration of the assessee trust and restored the registration granted under the new regime. The Tribunal held that the cancellation was bad in law, as it was based on an invalid reference, lacked adequate opportunity for the assessee to be heard, and was applied retrospectively without authority. The Tribunal emphasized the rule of consistency and the prospective application of the new provisions introduced by the Finance Act, 2022.

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