PCIT lacks power to cancel section 12A registration under section 12AB(4), specified violation provisions cannot apply retrospectively

ITAT Pune allowed the appeal and restored the trust's registration under sections 12A and 12AB. The tribunal held that PCIT (Central) lacked express powers under section 12AB(4) to cancel section 12A registration, making the show cause notice dated 21.07.2023 invalid. Additionally, the show cause notice dated 20.03.2024 under section 12AA was void as section 12AA became inapplicable from 01.04.2021. The tribunal found that "specified violation" provisions introduced from 01.04.2022 could not be applied retrospectively to alleged violations from financial years 2019-20 to 2021-22. Since the trust was conducting genuine charitable activities per its objects, cancellation based solely on seized documents was improper, with any additions properly addressable during assessment proceedings.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

a) Whether the Principal Commissioner of Income Tax (PCIT) had the jurisdiction to cancel the registration of the assessee trust under sections 12A, 12AA, and 12AB of the Income Tax Act, 1961.

b) Whether the powers under section 12AB(4) of the Act allow for the cancellation of registration granted under section 12A.

c) Whether the cancellation of registration was justified based on the alleged violations and whether such cancellation can be retrospective.

d) Whether the activities of the assessee trust were genuine and in accordance with its objects, thereby justifying the continuation of its registration.

2. ISSUE-WISE DETAILED ANALYSIS

a) Jurisdiction of PCIT

- Relevant legal framework and precedents: The jurisdiction of PCIT to cancel registration under sections 12A, 12AA, and 12AB was challenged based on the argument that such jurisdiction was not transferred through an order under section 127 of the Act. The appellant relied on various precedents where it was held that jurisdiction could not be transferred without explicit provisions.

- Court's interpretation and reasoning: The Tribunal held that the PCIT had the jurisdiction to cancel the registration as the case was centralized under PCIT (Central) following a search action, and the notifications issued under section 120 of the Act supported this jurisdictional authority.

- Conclusion: The Tribunal dismissed the challenge to the jurisdiction as 'not pressed' by the appellant.

b) Powers under Section 12AB(4)

- Relevant legal framework and precedents: Section 12AB(4) was introduced to provide a procedure for fresh registration and cancellation of registration for trusts. The appellant argued that section 12AB(4) did not provide express powers to cancel registration granted under section 12A.

- Court's interpretation and reasoning: The Tribunal referred to the Supreme Court's decision in Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd. v. CIT, which held that in the absence of express power, the registration could not be canceled. The Tribunal found that section 12AB(4) did not mention section 12A, and thus, the cancellation of registration under section 12A was not justified.

- Conclusion: The Tribunal held that the show cause notice issued under section 12AB(4) for canceling the registration under section 12A was invalid and void ab-initio.

c) Retrospective Cancellation and Specified Violations

- Relevant legal framework and precedents: The appellant argued that the alleged violations occurred before the introduction of the term 'specified violations' in section 12AB(4) and thus could not be applied retrospectively.

- Court's interpretation and reasoning: The Tribunal noted that the term 'specified violations' was introduced from 01.04.2022, and the alleged violations pertained to financial years prior to this date. The Tribunal relied on precedents that retrospective cancellation was not permissible unless explicitly provided by law.

- Conclusion: The Tribunal held that the cancellation of registration based on specified violations was not applicable for the years in question, and thus, the cancellation was not justified.

d) Genuineness of Activities

- Relevant legal framework and precedents: The genuineness of the activities of the trust was challenged based on alleged cash transactions and capitation fees. The appellant provided evidence of educational and charitable activities to support its case.

- Court's interpretation and reasoning: The Tribunal found that the trust was carrying out genuine educational and charitable activities as per its objects. The Tribunal noted that any discrepancies could be addressed during assessment proceedings but did not justify the cancellation of registration.

- Conclusion: The Tribunal held that the activities of the trust were genuine and in accordance with its objects, and thus, the registration should not have been canceled.

3. SIGNIFICANT HOLDINGS

- The Tribunal held that the PCIT did not have the express power under section 12AB(4) to cancel the registration granted under section 12A, making the cancellation notice invalid.

- The Tribunal emphasized that retrospective cancellation of registration based on specified violations was not permissible as the term was introduced after the alleged violations occurred.

- The Tribunal established that the genuineness of the trust's activities was not in doubt, and any issues could be addressed in assessment proceedings rather than through cancellation of registration.

- The Tribunal restored the registration of the assessee trust under sections 12A and 12AB, allowing the trust to continue its activities with the benefits of registration.

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