Cancellation of trust registration over alleged specified violations remanded for fresh hearing after additional evidence admitted.

Cancellation of a trust's registration was challenged on whether the activities amounted to a "Specified Violation" under the Explanation to section 12AB(4), distinguishing non maintenance of books for business incidental activity (clause b) from lack of genuineness of activity (clause e). Tribunal found the cancellation rested on clause (b) without giving an opportunity of hearing; additional evidence was admitted because the assessee could not earlier file it absent a show cause notice. The impugned order was set aside and the matter remanded to the adjudicating officer for de novo consideration of admitted evidence; appeal partly allowed for statistical purposes.

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Issues: (i) Whether the Assessing Officer is required to grant a prior opportunity of hearing to the assessee before making a reference under the second proviso to section 143(3) of the Income-tax Act, 1961; (ii) Whether the Commissioner (Exemptions) cancelled registration under section 12AB(4) by treating the case as a "specified violation" under clause (b) of the Explanation without affording an opportunity to the assessee on that specific clause and whether relief in the form of admission of additional evidence and restoration for fresh adjudication is warranted.

Issue (i): Whether the AO must grant a hearing before making a reference under the second proviso to section 143(3).

Analysis: The statutory scheme of the second proviso to section 143(3) permits the AO to send a reference to the Principal Commissioner or Commissioner where the AO is satisfied that a trust has committed a specified violation; the power to cancel or refuse cancellation of registration is vested with the Principal Commissioner or Commissioner under section 12AB(4). Comparable statutory schemes (for example, section 92CA dealing with references to the Transfer Pricing Officer) have been interpreted to allow the AO to make references without a prior hearing, with the authority receiving the reference being obliged to afford hearing before taking a prejudicial decision. The text of section 12AB(4) requires the Commissioner to call for documents and afford a reasonable opportunity before passing an order cancelling registration.

Conclusion: The AO is not required to grant a prior hearing before making a reference under the second proviso to section 143(3). (Conclusion: in favour of Revenue)

Issue (ii): Whether the Commissioner cancelled registration by relying on clause (b) of the Explanation to section 12AB(4) without giving the assessee an opportunity on that specific allegation and whether the impugned order should be set aside with admission of additional evidence and remand for de novo adjudication.

Analysis: The Explanation to section 12AB(4) distinguishes multiple, specific bases for "specified violation", including clause (b) (non-maintenance of separate books for business incidental to objects) and clause (e) (activity not genuine). The show cause notice focused on general allegations of activities not being genuine and did not specify clause (b) as the basis. The impugned order, however, relied on clause (b) findings without having afforded the assessee an opportunity to meet that specific charge and without considering evidence now tendered before the tribunal. Admission of additional evidence is appropriate where it relates to a matter not put to the party below and where fresh adjudication is necessary for complete and fair disposal.

Conclusion: The cancellation order is vitiated insofar as it proceeded on clause (b) without giving a hearing on that specific allegation; additional evidence is admitted and the matter is restored to the Commissioner (Exemptions) for de novo adjudication after affording a reasonable and adequate opportunity to the assessee. (Conclusion: in favour of Assessee)

Final Conclusion: The appeal is partly allowed for statistical purposes by upholding that the AO need not grant a prior hearing before making a reference under the second proviso to section 143(3), while setting aside and restoring the Commissioner's order insofar as it relied on clause (b) of the Explanation to section 12AB(4) without giving the assessee a specific opportunity to be heard; the Commissioner (Exemptions) is directed to decide afresh after considering admitted evidence and providing a reasonable opportunity of hearing.

Ratio Decidendi: An Assessing Officer may make a reference under the second proviso to section 143(3) without affording a prior hearing; however, the Principal Commissioner or Commissioner exercising power under section 12AB(4) must call for documents and afford a reasonable opportunity of hearing before cancelling registration, and reliance on a specific limb of the Explanation to section 12AB(4) requires that the assessee be given an opportunity to meet that specific allegation.

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