Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH E: NEW DELHI
Before: SHRI S.RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
Order
: 23.05.2025 O R D E R
PER S.RIFAUR RAHMAN,ACCOUNTANT MEMBER :
The assessee has filed appeal against the order of the Learned Pr. Commissioner of Income Tax (Central)-3, New Delhi [“Ld. PCIT”, for short] dated 30.06.2024. Brief facts of the case are, the assessee is an education society running 2. school registered under Society Registration Act XXI of 1860 vide Registration No.5/19704/1989. The society was registered u/s 12A (a) of the Income Tax Act, 1961 (for short ‘the Act’) vide Registration No.1183 dated 08.02.1990 (Refer Page no. 1 of PB) and this registration was effective upto AY 2021-22. After insertion of clause (AC) in section 12(1) of the Act, the registration of the society was renewed from AYs 2022-23 to 2026 27 vide registration dated 31.08.2021 (Refer page no. 7 to 15 of PB). Thus, the assessee society has been granted / renewed registration u/s 12A by the Income Tax department from inception FY 1989-90 till FY 2025-26. The assessee society is also notified under Section 10(23C)(vi) of the Act (Refer page no 2 to 6 of PB). Search and seizure operation was carried out in the case of the assessee on 14.10.2020. Pursuant to search, the assessment in the case of assessee society was made u/s 153A/143(3) for AYs 2015-16 to AY 2021-22. The Ld. PCIT (Central)-3 has passed the impugned order whereby the registration of the assessee u/s 12A has been withdrawn/cancelled. The reasons given by the Ld. PCIT for withdrawal/cancellation of registration are that during the course of search, various incriminating documents/evidences were gathered and it was found by the AO that the assessee society is indulged in non-genuine activities and that there was diversion of funds of the society and also violation of section 13(1)(c) of the Act.
3. Aggrieved with the above order, assessee is in appeal before us raising following grounds of appeal :-
“1. On the facts and circumstances of the case and in law, the order 12A r.w.s. 12AA and Section 12AB (4) of the Act passed by Pr. Commissioner of Income Tax, Central - 3 (hereinafter referred as PCIT) is erroneous, bad in law, without jurisdiction and barred by limitation.
2. On the facts and circumstances of the case and in law, the Ld. PCIT has no jurisdiction to cancel the registration u/s 12A r.w.s. 12AA and Section 12AB of the Act.
3. On the facts and circumstances of the case and in law, the PCIT erred in cancellation of registration u/s 12A r.w.s. 12AA and Section 12AB of the Income Tax Act, 1961 4 On the facts and circumstances of the case and in law, the PCIT erred in holding the registration under Section 12A r.w.s. 12AA and Section 12AB is cancelled from the previous year relevant to the Assessment year 2020-21 and subsequent Assessment years. 5 On the facts and circumstances of the case and in law, the PCIT erred in holding the registration under Section 12A r.w.s. 12AA and Section 12AB is cancelled from the previous year relevant to the Assessment year 2012-13 and subsequent Assessment Years. 6 On the facts and circumstances of the case and in law, the PCIT erred in withdrawing the registration of the appellant u/s 12A r.w.s. 12AA and Section 12AB of the Act.
7. On the facts and circumstances of the case and in law, the PCIT erred in holding that activities of M/s Meenakshi Foundation were found to be non- genuine and were not being carried out in accordance with the declared aims & objects and conditions subject to which registration was granted to it u/s 12A r.w.s. 12AA, and section 12AB of the Income Tax Act, 1961.
On the facts and circumstances of the case and in law, the reasons given/allegation made/adverse inference drawn by PCIT for cancellation the registration of the appellant u/s 12A r.w.s. 12AA and Section 12AB of the Act are erroneous and not sustainable.” At the time of hearing, ld. AR of the assessee submitted as under :- 4. “1. The PCIT has no jurisdiction to pass the order of cancellation of registration. The said authority lies with CIT (exemption) Delhi only. The transfer of case u/s 127 by and order dated 04.01.2021 is only for the purpose of coordinated assessment and not for the purpose of exercising jurisdiction for cancellation of registration the assessee has been duly considered by coordinate bench of tribunal in the case of Lakhmi Chand Charitable Society V. PCIT -Central 3 (ITA No.1803/Del/2024. It is pertinent to point out that the order u/s 127 in the case of the assessee and the case of Lakhmi Chand Charitable society (supra) is common (Refer page no. 66 of PB). The cases of the appellant and Lakhmi Chand Charitable Society (supra) are arising out of same search. The PCIT cancelling the registration u/s 12A in both the cases is same. The Hon'ble Bench in the case of Lakhmi Chand Charitable Society (supra) vide order dated 22/08/2024 has held the order passed by PCIT to be without jurisdiction. Thus the present case of the appellant stands covered in its favour by the decision of Hon'ble ITAT.
It is further submitted that the impugned order passed by the PCIT - Central is on the ground that during the course search u's 132 of the Act in the case of the assessee on 14.10.2020 various incriminating evidences were found. In this regard as submitted above, the assessment for AY 2015-16 to AY 2021-22 were made by the Assessing Officer on 24/02/2022 and no adverse inference was drawn in any of the assessment orders. As a matter of fact, in the assessment order, the AO has specifically mentioned that the objects of the society appears to be charitable in nature within the meaning of section 2(15) of the Act. In this regard para 4 and 5 of the assessment order for AY 2015-16 (Refer page no. 18 of PB) are reproduced as under:- “4) The society is registered u/s 12Aa) &80G(5)(v) of the Act. It is also u/s 10(23C(v) of the Act, The object of the society appear to be charitable in nature within the meaning of section 2(15) of the Act. 5) During the under consideration, the society was running senior secondary school in the name of Meenakshi Public School and Mecnakshi World School and copy of Income & Expenditure account, balance sheet along with complete notes to account by the auditor, audit report u/s 12A(b) of the Act etc., was furnished by the assessee during the course of assessment proceedings which is placed on record.”
Similar finding/observations have been given by the assessing officer in the assessment orders of all the year (A.Y. 2015-16 to A.Y. 2021-22). It is pertinent that all the above assessment orders were passed with prior approval of high authority i.e., JCIT.
As a matter of fact, the above assessment order were never found to be erroneous and prejudicial to interest of revenue by the PCIT. Had there been any error in the above assessment order, the PCIT would have exercised jurisdiction u/s 263 of the Act. In other words, the above assessment orders passed pursuant to search have become final and have been accepted by the PCIT himself. Thus, the reasons given by PCIT for withdrawing /cancellation of registration that incriminating material were found during search is erroneous and self- contrary.
5. It is also pertinent to state that the registration of the appellant u/s 12A has been renewed by the competent authority on 31.08.202 1 i.e. much after the date of search.
6. It is further submitted that there is no power/jurisdiction to cancel/with draw the registration with retrospective effect. This aspect also stands covered in favor of the appellant by ITAT order in case of Lakhmi Chand Charitable Society(supra).
Further to above, it is submitted that the PCIT has passed the impugned order on the basis of reference from the assessing officer. In this regard it is submitted that firstly the assessing officer has himself passed the assessment order u/s 153A/143(3) after the search and has himself admitted the appellant to the carrying out charitable activities. Secondly, the reference by the assessing officer can only be made prior to the completion of assessment. In this regard, reference is invited to the second proviso to section 143(3) which is as under : - Provided further that where the Assessing Officer is satisfied that any fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub- clause (v) or any university or other educational institution referred to in sub- clause (vi) or any hospital or other medical institution referred to in sub-clause (via), of clause (23C) of section 10, or any trust or institution referred to in section 11, has committed any specified violation as defined in Explanation 2 to the fifteenth proviso to clause (23C) of section 10 or the Explanation to sub- section (4) of section 12AB, as the case may be, he shall- (a) send a reference to the Principal Commissioner or Commissioner to withdraw the approval or registration, as the case may be; and (b) no order making an assessment of the total income or loss of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall be made by him without giving effect to the order passed by the Principal Commissioner or Commissioner under clause (ii) or clause (iii) of the fifteenth proviso to clause (23C) of section 10 or clause (i) or clause (iii) of sub-section (4) of section 12AB: Therefore, the reference made by the AO after the completion of assessment is contrary to the provisions of law and, therefore, the said reference and the consequent impugned order passed by the PCIT - Central is totally erroneous and without jurisdiction.”
On the other hand, ld. DR of the Revenue submitted that ld. PCIT has passed reasoned order and he brought to our notice page 15 of the impugned order. He submitted that in search proceedings, certain incriminating materials were found and based on the above material, the AO has passed the assessment order as well as recommended for cancellation of registration. He submitted that ld. PCIT has rightly cancelled the registration granted to the assessee. Further he brought to our notice page 28 of the impugned order and submitted that the Trustees have taken advantages on account of unaccounted cash available with the assessee. He further submitted that divergent of funds not by the Trustees themselves is not necessary and he heavily relied on the findings of the lower authorities and respective orders.
Considered the rival submissions and material placed on record. We observed that on the similar facts available on record, the coordinate Bench has decided the exactly similar issue in the case of Lakhmi Chand Charitable Society vs. PCIT, Central 3, New Delhi in vide order dated 22.08.2024 as under :- “10. We have heard the rival submissions made by the respective parties, we have further perused the relevant materials available on record including the orders passed by the authorities below.
The case of the assessee is this that the reference dated 04.05.2022 and also dated 31.07.2023 made by the Assessing Officer on the basis of 2nd Proviso to Section 143(3) of the Act is not applicable in the case in hand. The said reference granted under Section 12AA can only be made during the pendency of the assessment proceedings which admittedly has been concluded on 29.03.2022 for the appellant before us. According to the appellant’s counsel such reference could have been made only during the course of assessment proceedings so that the effect of such order passed by the PCIT can be considered while passing final order of assessment by the Assessing Officer. In the case in hand as the assessment proceedings has already been concluded on 29.03.2022 the effect of such alleged violation cannot be made in the assessment order itself as was the main argument advanced by the Ld. Counsel appearing for the assessee before us. 11.1 Moreso, this particular 2nd proviso to Section 143(3) of the Act was substituted and made effective from 01.04.2022 whereby and whereunder the Assessing Officer has been vested with the power to make reference to the PCIT for institutions granted registration under Section 12AA/12AB of the Act. In that view of the mater as there was no provision existing in the statute prior to 01.04.2022 vesting jurisdiction upon the Assessing officer to make reference for alleged violation under Section 12AB(4) of the Act as amendment to Section 12AB(4) and 2nd proviso to Section 143(3) were made w.e.f 01.04.2022. The reference has, thus, no basis and is liable to be quashed.
12. In addition to that, it was submitted by the Ld. A.R. that the reference in terms of 2nd proviso to Section 143(3) of the Act is to be made to the CIT(E) and not to the PCIT or Commissioner to whom the assessing officer would be subordinate. In the case in hand, it appears from the impugned order dated 31.03.2024 that the PCIT has acted on the reference made by the Assessing Officer. In that view of matter the impugned order issued by the Ld. PCIT cancelling the registration passed on the reference of the Assessing Officer purportedly under 2nd proviso to Section 143(3) is without jurisdiction and therefore liable to be quashed.
13. The further case made out by the appellant is this that the PCIT invokes Section 12AA of the Act, while issuing show cause notices dated 05.07.2023 and 16.08.2023 whereas Section 12AA(5) of the Act provides that the provision of Section 12AA are not to be applied on or after 01.04.2021. In that view of the matter the show cause notices mentioned hereinafter issued by the Ld. PCIT are flawed and not maintainable in view of the provision of Section 12AA (5) of the Act. 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.
14. Section 12AB(4) was substituted by the Finance Act 2022 w.e.f 01.04.2022 vesting jurisdiction to the Ld. PCIT to cancel registration granted under Section 12AA(1) of the Act or under Section 12AB(1) of the Act. As Section 12AB(4) was not in existence in the statute prior to 01.04.2022 such specified violation, if any, existed prior to 01.04.2022 cannot be touched by the Ld. PCIT by invoking Section 12AB(4) of the Act.
15. Otherwise also the alleged violation specified in the show cause notices pertained to the period prior to search dated i.e. 14.10.2020 and therefore proceeding emanating under Section 12AB(4) of Act proposing cancellation of Registration for Assessment Year 2015-16 to 2021-22 is totally unlawful and ultravires to the provisions of Section 12AB(4) of the Act.
16. As per the contentions made by the Ld. Counsel appearing for the assessee before us that the jurisdiction to grant and/or withdrawing exemption vest with the Ld. CIT(Exemption). The transfer to case under Section 127 of the Act by and under the order dated 04.01.2021 is only for the purpose of coordinated assessment and not for the purpose of exercising jurisdiction for cancellation of registration. In that view of the matter it cannot be assumed that with the transfer of case of the appellant under Section 127 of the Act for coordinated assessment by the CIT(Exemption) Delhi by and under the order dated 04.01.2021 also transfers the proceedings for cancellation of registration. The order under Section 127 dated 04.01.2021 does not speak that Section 12A registration has also been transferred to the jurisdiction of Ld. PCIT, Central Delhi and thus exercising such powers by the said PCIT-3 for cancellation of registration is not in terms of the statutory provision rather bad in law and therefore, liable to be quashed.
The jurisdiction to withdrew exemption vests with the “prescribed authority”. The PCIT has no jurisdiction to withdraw or cancel the exemption. In this regard the Notification No. 52/2014 and 53/2014 both dated 22.10.2014 vesting powers to the Ld. CIT(Exemption) Delhi in the territorial area specified in Column No. 4 of the said notification who are claiming exemption inter/alia under Section 12A of the Act has been relied upon. It is the case made out by the appellant that by and under the said notification the Ld. CIT(E) has been constituted separately for the purposes mentioned therein. Thus, it is the CIT(E) to exercise the power not the PCIT as has been wrongly done in the case in hand. In this case he has referred the judgment passed in the matter of Aggarwal Vidhya Pracharni Sabha Vs. PCIT in passed by the Coordinate Bench, relevant portion whereof is as follows: “9. After giving thoughtful consideration to the facts and circumstances of the case and to the submissions, it comes up that the admitted case of the Revenue is that there was no specific order under any provisions of the Act other than the order dated 26.10.2020 passed u/s 127 of the Act centralizing the case of M/s Aggarwal Vidya Pracharni Sabha consequent to a search and seizure action u/s 132(1) of the Act to vest Id. PCT, Gurgaon the powers to pass the impugned order. The Id. DR has relied on the Explanation attached to section 127 of the Act to submit that the word, 'case' has been defined for the purpose of section 127 and consequent to the centralization of the assessment, the Id. PCIT, Gurgaon had got powers to commence proceedings u/s 12AB(4) of the Act for cancellation of registration of the assessee. 9.1 In this context, the Id counsel for the assessee has heavily relied on the CBDT Notification No 52/2014 made available at page 2 to 6 of the paper book submitting that in regard to powers u/ss 11 and 12 of the Act, the CIT (Exemptions), Chandigarh specific jurisdiction and which could not have been transferred. Relying on the order u/s 127 of 26.10.2020, it was submitted that the order specifically mentions the transfer of case for carrying out post search investigation and meaningful assessment and not for any other purpose like cancellation of the registration 10. Now to decide the question of valid exercise of jurisdiction by Ld. PCIT, Gurgaon, will be first relevant to reproduce the section 127 of the Act as follows- “Power to transfer cases. 127. (1) The Principal Director General or Director General or Principal Chief Commissioner Of Chief Commissioner 01 Principal Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer of Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him. (2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner of Principal Commissioner or Commissioner, (a) where the Principal Directors General or Directors General or Principal Chief Commissioners or Chief Commissioners of Principal Commissioners of Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order, (b) where the Principal Directors General or Directors General or Principal Chief Commissioners or Chief Commissioners or Principal Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner as the Board may, by notification in the Official Gazette, authorise in this behalf. (3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer of Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place. (4) The transfer of a case under sub-section (1) or sub-section (2) may be made at any stage of the proceedings, and shall not render necessary the re-issue of any notice already issued by the Assessing Officer or Assessing Officers from whom the case is transferred. Explanation.--In section 120 and this section, the word "case", in relation to any person whose name is specified in any order or direction issued there under, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year. 10.1 Further, we consider it appropriate to reproduce relevant portion of Section 12AB and relevant part Rule 17A as under:- "Section 12AB, 12AB Procedure for fresh registration (1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub section (1) of section 12A, shall, (a) where the application is made under sub clause (i) of the said clause, pass an order in writing registering the trust or institution for a period of five years, (b) where the application is made under sub-clause (11) or sub-clause (iii) or sub clause (iv) or sub clause (v) of the said clause,-- (1) call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about (A) the genuineness of activities of the trust or institution, and (B) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects, and (ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities under Item (A), and compliance of the requirements under item (B), of sub-clause (1), (A) pass an order in writing registering the trust or institution for a period of five years; (B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its registration after affording a reasonable opportunity of being heard, (c) where the application is made under sub-clause (vi) of the said clause, pass an order in writing provisionally registering the trust or institution for a period of three years from the assessment year from which the registration is sought, and send a copy of such order to the trust or institution.
(2) All applications, pending before the Principal Commissioner or Commissioner on which no order has been passed under clause (b) of sub section (1) of section 12AA before the date on which this section has come into force, shall be deemed to be an application made under sub clause (vi) of clause (ac) of sub-section (1) of section 12A on that date. (3) The order under clause (a), sub-clause (ii) of clause (b) and clause (c), of sub-section (1) shall be passed, in such form and manner as may be prescribed, before expiry of the period of three months, six months and one month, respectively, calculated from the end of the month in which the application was received. (4) Where registration of a trust or an institution has been granted under clause (a) or clause (b) of sub-section (1) and subsequently, the Principal Commissioner or Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution after affording a reasonable opportunity of being heard. (5) Without prejudice to the provisions of sub-section (4), where registration of a trust or an institution has been granted under clause (a) or clause (b) of sub section (1) and subsequently, it is noticed that- (a) the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section 13, or (b) the trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of subsection (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality, then, the Principal Commissioner of the Commissioner may, by an order in writing, after affording a reasonable opportunity of being heard, cancel the registration of such trust or institution." Rule 17A "(5) On receipt of an application in Form No. 10A, the Principal Commissioner or Commissioner, authorised by the Board shall pass an order in writing granting registration under clause (a), or clause (c), of sub-section (1) of section 12AB read with sub-section (3) of the said section in Form No. 10AC and issue a sixteen digit alphanumeric Unique Registration Number (URN) to the applicants making application as per clause (1) of the sub-rule (1). (6) If, at any point of time, it is noticed that Form No. 10A has not been duly filled in by not providing, fully or partly, or by providing false or incorrect information or documents required to be provided under sub rule (1) or (2) ог by not complying with the requirements of sub-rule (3) or (4), the Principal Commissioner or Commissioner, as referred to in sub- rule (5), after giving an opportunity of being heard, may cancel the registration in Form No. 10AC and Unique Registration Number (URN), issued under sub-rule (5), and such registration or such Unique Registration Number (URN) shall be deemed to have never been granted or issued. (7) In case of an application made under sub-clause (vi) of clause (ac) of sub- section (1) of 4 section 12A as it stood immediately before its amendment vide the Finance Act, 2023,] during previous year beginning on 1st day of April, 2021, the provisional registration shall be effective from the assessment year beginning on 1st day of April, 2022. (8) In case of an application made in Form No. 10AB under clause (ii) of the sub rule (1), the order of registration or rejection or cancellation of registration under sub-clause (ii) of clause (b) of sub-section (1) of section 12AB shall be in Form No. 10AD and in case if the registration is granted, sixteen digit alphanumeric number Unique Registration Number (URN) shall be issued by the Principal Commissioner or Commissioner referred to in of sub-section (1) of section 12AB. (9) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall: (i) lay down the form, data structure, standards and procedure of, (a) furnishing and verification of Form No. 10A or 10AB, as the case may be, (b) passing the order under clause (a), sub clause (11) of clause (b) and clause (c) of sub-section (1) of section 12AB. (ii) be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said application made or order so passed as the case may be.] 11. Further, it will be appropriate to reproduce the order u/s 127(2) dated 26.10.2020 available at page No. 1 of the paper book:- “Order u/s 127 (2) of the Income Tax Act, 1961 Consequent to the search & seizure operations u/s 132 of the I.T. Act, 1961 in Dev Wines Group (D.OS 19.02.2020), the Pr. Commissioner of Income Tax (Central), Gurugram vide letter F.No. Pr.CIT(C)/GGM/Cent./Dev Wines/2020- 21/969 dated 24.08.2020 has been given concurrence and requested for centralization of the following cases related M/s. Dev Wines Group to DC11, Central Circle 2, Faridabad for coordinated post search investigation & meaningful assessment Accordingly, in exercise of power conferred by sub-section (2) of Section 127 of the Income Tax Act, 1961 and under all other powers enabling me in this behalf, 1, the Commissioner of Income Tax (Exemptions), Chandigarh hereby transfer the following case(s), particulars of which are mentioned hereunder in Columns (2) and (3) from the Assessing Officer mentioned in Column (4) therein, to the of the Assessing Officer mentioned in Column (5) – Sr. Name and address of PAN From To No. the assessee 1) (2) (3) (4) (5) 1. M/s. Aggarwal AABTA3490Q Circle – 2(E), DCIT, Central Vidhya Pracharni Chandigarh Circle – 2, Sabha (Aggarwal Faridabad. College, Ballabhgarh) DLC-CC-136-4 This order shall take effect from 26.10.2020."
We also consider it appropriate to reproduce the relevant part of the Notification dated 22.10 2014 providing for the territorial jurisdiction of CIT(E) in furtherance of powers given to the Board u/s 120 (1) and (2) of the Act, made available at pages 2 to 5 of the paper book:- "NOTIFICATION New Delhi, the 22nd October, 2014 (Income Tax) S.O. 2754 (E).--In exercise of the powers conferred by sub-section (1) and (2) of section 120 of the Income-Tax Act, 1961 (43 of 1961) and in supersession of the notification of the Government of India, Central Board of Direct Taxes number S.0.880(F), dated the 14th September, 2001, published in the Gazette of India, Extraordinary, Part 11, Section3, Sub section (ii), dated the 14th September, 2001, except as respects things done or omitted to be done before such supersession, the Central Board of Direct Taxes hereby – Sr. Designation Headquarters Territorial Cases or classes of cases No. Area (1) (2) (3) (4) (5) 1. Commissioner State of Union All cases of persons in of Income-tax Gujarat, Territory of the territorial area (Exemption), Daman and specified in column (4) Ahmedabad. Diu, Union claiming exemption Territory of under clauses (21), (22), Dadra and (22A), (22B),(23), Nagar Haveli (23A), (23AAA), (23B), (23C), (23F), (23FA), (24), (46) and (47) of Section 10, Section 11, Section 12, Section 13A and section 13B of the Income tax Act, 1961 and assessed or assessable by an Income- tax authority at Serial Number 1 to 20 specified in the notification of Government of India bearing number S.O. 2752 dated the 22nd October, 2014.
………… ………… 4. Commissioner Chandigarh States of All cases of persons in of Income-tax Jammu and the territorial area (Exemption), Kashmir, specified in column (4) Chandigarh. Himachal claiming exemption Pradesh, under Clauses (21), (22), Punjab (22A), (22B) (23), (23A) Haryana and (23AAA), (23B), (23C), Union (23F), (23FA), (24), (46) Territory of and (47) of Section 10, Chandigarh Section 11, Section 12, Section 13A and section 13B of the Income tax Act, 1961 and assessed or assessable by an Income-tax authority at Serial Number 50 to 68 specified in the notification of Government of India bearing number S.O. 2752 dated the 22nd October, 2014.
2. This notification shall come into force with effect from the 15th day of November, 2014. [Notification No. 52/2014/F No. 187/38/2014(ITA. I)] DEEPSHIKHA SHARMA Director” 12.1 A reference was made by Ld. AR about the circular no 11 of 2022 MANU/DTCR/0011/2022 dated 3rd June 2022, giving clarification regarding Form No.10 AC till the date of the circular and it will be relevant to reproduce para 1 of this circular herebelow; “Circular No. 11 of 2022: MANU/DTCR/0011/2022 F. No.370142/4/2021-TPL Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes (TPL Division) Dated: 3rd June, 2022 Sub: Clarification regarding Form No 10AC issued till the date of this Circular - reg. Finance Act, 2022 has inserted sub-section (4) in section 12AB of the Income- tax Act, 1961 (the Act) allowing the Principal Commissioner or Commissioner of Income-tax to examine if there is any "specified violation" by the trust or institution registered or provisionally registered under the relevant clauses of sub-section (1) of section 12AB or subsection (1) of section 12AA. Subsequent to examination by the Principal Commissioner or Commissioner of Income-tax, an order is required to be passed for either cancellation of the registration or refusal to cancel the registration. Similar provisions have also been introduced in clause (230) of section 10 of the Art by substituting the fifteenth proviso of the said clause with respect to fund or institution trust or institution or any university or other educational institution or any hospital or other medical institution referred under sub clauses (iv), (v), (vi), (via) of this clause and which have been approved or provisionally approved under the second proviso to the said clause These amendments are effective from 1st April, 2022. In addition to the specified violations referred above, the power of cancellation has also been granted under sub-rule (5) of rule 17A and sub rule (5) of rule 20 of the Income-tax Rules, 1962 (the Rules) to the Principal Commissioner authorised by the Board. This Circular only relates to cancellation of registration/approval or provisional registration/approval in the case of "specified violation".
Now, as we go through the impugned order passed u/s 12AB(4) of the Act, the PCIT mentions that consequent to the completion of assessment proceedings, facts were communicated to his office by the AO pertaining to AY 2014-15 to 2020 vide his letter dated 23.08.2022. This letter dated 23.08.2022 has been reproduced at page No.32 of the impugned order and it shows that this letter was issued in supersession of earlier letter dated 11.04.2022. Further, the subject of the letter is as follows:- “Sub. Proposal for cancellation of registration granted u/s 12AA/12AB of the Act as per provisions of Section 12AB(4) of the Act in the case of 'Aggarwal Vidya Pracharni Sabha’ ” – Reg. 13.1 Then what comes up is that the Id. PCIT has made out a case that the powers he had exercised u/s 12AB(4) are by virtue of clause (a) to sub-section (4) of section 12AB on the basis of 'noticing' occurrence of specified violation. The Id. PCIT has considered himself to be empowered by virtue of Explanation attached to section 127, defining 'case', to commence proceedings under this Act u/s 12AB(4) after the order dated u/s 127 dated 16.10.2020.
Having considered the aforesaid, it comes up that the order of transfer u/s 127 dated 26.10.2020 is shown to be passed under sub-clause (a) to subsection (2) of section 127 of the Act which gave powers to CIT(E) Chandigarh to pass order of transfer qua such 'Assessing Officers' who are subordinate to other the Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner Thus when we consider the definition of "Assessing officer" u/s 2(7A) of the Act, certainly PCIT, Gurgaon, who has passed the Impugned order is not an 'assessing officer, and order passed dated 26.10.2020, under sub clause (a) to sub-section (2) of section 127 of the Act only referred to transfer of Jurisdiction of 'assessing officer subordinate to CIT(E) Chandigarh to DCIT, Central Circle-2, Faridabad DLC-CC-136-4 as assessing officer and not original jurisdiction of CIT(E) Chandigarh with regard to the subject matter as stands vested by order of CBDT dated 22/10/2014. 14.1 Further, what is material is that by the Notification dated 22.10.2014 the Board, exercising powers under sub-section (1) and sub-section (2) of section 120 vested powers to perform all the functions in respect of class of cases referred in the column No.5 of the Schedule of this Notification and had created a specific jurisdiction on territorial basis in regard to the provisions generally dealing with claim of exemptions u/ss 10,11,12, 13A and section 138 of the Act. 14.2 Thus as we refer to the Notification dated 22.10.2014, the clause (a) vested powers with Commissioners of Income-tax (Exemptions), for class or class of cases pertaining to section 10, section 11, section 12, section 13A and section 138 of the Art and clause (b), to issue orders in writing for the exercise of 'their powers and perform all 'their functions by Additional Commissioners of Income tax or Joint Commissioners of Income tax and Tax Recovery Officers who are subordinate to them and that signifies that again this delegation of powers by CIT(E), Chandigarh could have been qua officers subordinate to CIT(E), Chandigarh only and not, in any way, gave powers to CIT(E), Chandigarh to pass an order u/s 127(2)(b) of the Art to transfer powers vested by Board to any other Tax Authority. 14.3 Next, as we refer to Section 12AB and Rule 17A which have come into effect from 01.04.2021, and read it with the Circular no. 11 MANU/DTCR/0011/2022 dated 3rd June 2022, it comes up that section 12AB(2) of the Act provides that the pending td applications under clause (b) of sub-section (1) of section 12AA before the date on which section 12AB came into force shall be deemed to be applications made under sub-clause (4) of clause (ac) of sub-section (1) of section 12A on that date for grant of at registration. 14.4 However, as far as provision of cancellation of the registration provided by sub- section (4) of section 12AA is concerned, sub-section (4) of section 12AB brings into place a completely new self-contained procedural code for conducting inquiry about specified violations', cancelling registration or refusing to cancel registration. 14.5 The Rule 17A, as clarified by Circular dated 3rd June 2022 provides that is addition to the 'specified violations', the power of cancellation has also been granted under sub rule (5) of rule 17A and sub-rule (5) of rule 2C of the Income tax Rules, 1962 to the Principal Commissioner or Commissioner authorised by the Board. The authorization u/s 12AB or Rule 17A if have to be construed, by virtue of Board Notification dated 22.10.2014, then we pointed out during the hearing, to Id. D.R that this Notification dated 22.10.2014 does not mention specifically that the powers which can be exercised by Id. PCIT u/s 12AB(4) of the Act and which have come into effect from 01.04.2021 would also be exercised by virtue of this Notification dated 22.10.2014 or that further jurisdiction u/s 12AB of the Act could be transferred to other authorities as per this Notification. The query was left unsatisfied and no other Notification a Circular was brought to our notice.”
Thus, at one end, in the absence of any specific reference of section 12AB in the Notification dated 22.10.2014 or there being subsequent authorisation by any Circular or Notification of the Board, we conclude that at the time of passing the order u/s 127 of the Act on 26.10.2020, CIT(E), Chandigarh did not have powers to as such transfer his jurisdiction u/s 127(2)(a) of the Act, for the purpose of Section 12AB has come into effect from 01.04.2021 Accordingly, under no circumstance while passing order u/s 127 of the Act on 26.10.2020, CIT(E), Chandigarh could have transferred his powers u/s 12AB of the Act to any other authority. 15.1 On the other hand, Id. PCIT, Gurgaon by virtue of the Explanation defining the scope of 'case' for the purpose of section 127, did not have power vested in him to cancel registration u/s 12AB(4) The 'case' refers to assessment initiated as a consequence of search or consequential proceedings to such assessments only and cannot be extended to special powers of Id. CIT(E), Chandigarh, Thus, the assumption of jurisdiction on the basis of the order dated 26.10.2020 of CIT(E), Chandigarh is completely illegal and that makes the whole exercise of Id. PCIT passing the impugned order liable to be quashed.
Furthermore, if examine the legality of the procedure followed by Id. PCIT, Gurgaon to pass order u/s 12AB(4), by recourse to exercise of powers by virtue of clause (a) of sub-section (4) of section 12AB, it comes up that Id.PCIT, Gurgaon admits that a 'proposal for cancellation of the registration of the assessee trust granted u/s 12AA of the Act was forwarded vide letter dated 23.08.2022 by the AD through the Range head. In this context, if we refer to second proviso to subsection (3) of section 143 of the Act, the same provides that if the AO is satisfied about any specified violation provided in sub-section (4) of section 12AB, the AO shall send a 'reference' to the PCIT or Commissioner to withdraw the approval or registration, as the case may be, and clause (b) to this proviso provides that no order making an assessment of total income or loss of such institution or trust shall be made without giving effect to the order passed by PCIT or Commissioner. In the case in hand, the Ld.PCIT, Gurgaon has reproduced the part of letter dated 23.08.2022 which has observed about a 'proposal' of cancellation of registration u/s 12AB(4) and based upon the same, the Id. PCIT had initiated action. The assessment by said assessing officer was completed in September, 2021, so, before the letter dated 23.08.2022 the assessment proceedings stood culminated. Thus, there was no occasion for concerned AO to invoke 'reference' powers under second proviso to sub-section (3) of section 143 of the Act. To that extent Ld. PCIT observations are correct. 16.1 However, what is relevant here is that in any case the 'reference' by jurisdictional AO was to be made not to the PCIT or Commissioner, to whom this AO was subordinate but one authorised by board for the purpose of Section 12AB. The one who could grant or cancel the registration as per amended provisions which is not PCIT, Gurgaon, but, would be CIT(E), Chandigarh. Thus assumption of jurisdiction for cancellation of registration u/s 12AB(4) of the Act by virtue of aforesaid transfer of jurisdiction order u/s 127 of the Act is not conceivable.” … “21. In the light of the aforesaid discussion and the law cited before us, we are of the considered view that the impugned order has been passed by Ld. PCIT, Gurgaon, without jurisdiction in context to territorial powers and subject matter as well not in accordance with law and same is liable to be quashed. Accordingly, the additional ground raised
by the assessee is allowed. Since the relief is granted to assessee by allowing additional ground itself, the adjudication of other grounds raised by the assessee become academic in nature and are left open. Resultantly, the appeal of the assessee is allowed and the impugned order is quashed.”
18. Having regard to the judgment as relied upon by the Ld. A.R we are of the considered opinion that the reference made in terms of 2nd proviso of Section 143(3) of the Act to the PCIT to whom the AO was subordinate is not permissible rather it is the CIT(E) Delhi, having territorial jurisdiction specified in Column 4 of the Notification Nos. 52/2014 and 53/2014 both dated 22.10.s2014 from whom exemption inter/alia under Section 12A of the Act is being claimed is the appropriate authority. In fact by and under the said notification the CIT(Exemption) has been constituted separately for the purposes mentioned therein. In that view of the matter the order passed by the PCIT cancelling registration of the appellant society on the reference made by the Assessing Officer is found to be flawed and without jurisdiction.
Apart from that after considering the 2nd proviso of Section 143(3) of the Act, we find that the reference granted under Section 12AA of the Act is permissible to be made only during the pendency of the assessment proceeding. However, in the case in hand the assessment proceeding has already been concluded on 29.03.2022. In fact, the reference could be made only during the course of assessment proceedings so as to enable the Ld. AO to give effect of the order passed on reference in the Assessment Order itself. Moreso, the said proviso has been inserted w.e.f 01.04.2022 in the statute to make reference to the PCIT by the AO under Section12AA, 12AB of the Act. In that view of the matter application of a particular provision of law which was not in existence during the material point of time cannot be said to have been rightly invoked.
So far as the provision of Section 12AB(4) of the Act as exercised by the PCIT is concerned the Ld. A.R relied upon a judgment passed by the Bangalore Bench in the case of M/s Islamic Academy of Education, Manglore in for Assessment Year 2021-22, a copy whereof has also been annexed to the paper book filed before us by the appellant. While dealing with this particular aspect of the matter the Bench has been pleased to observe as follows: “8.1.9 registration Before the amendment by the Finance Act, 2022, Section 12AB(4) provided for cancellation of registration in case of any violation under Section 13. The amended Section 12AB(4) does not consider a violation of Section 13(l)(c) and Section 13(l)(d) as specified violations. Consequently, the registration cannot be cancelled on the ground that the assessee has violated Section 13(l)(c) or Section 13(1)(d). 8.1.10 The Finance Act 2023 has inserted clause (g) in Explanation to Section 12AB(4) to provide that giving incomplete, false, or inaccurate information in a registration application under Section 12A(l)(ac) will be deemed as a “specified violation" that can lead to the cancellation of registration. 8.2 Thus, it means that the following registration could be cancelled:
8.2.1 The PCIT/CIT can cancel the following registrations granted to a trust or institution: (a) Final registration or provisional registration granted under section 12AB(1)(a)/(b)/(c); (b) Final registration granted under section 12AA(1). The erstwhile provision did not cover cases of provisional registration granted under section 12AB(1)(c). Now, the provisional registration granted for the first time can also be cancelled by the authorities. 8.3 As seen from the above, since the assessee has secured the registration u/s 12A of the Act dated 4.6.1992, which was effective till the date of 23.9.2021 and this registration granted u/s 12A cannot be cancelled u/s 12AB(4)(ii) of the Act for the previous year 2020-21 covering the assessment year 2021-22. On the other hand, he could cancel the registration from assessment year 2022-23 onwards u/s 12AB(4)(ii) of the Act. In our opinion, if there is any violation in the previous assessment year 2020-21 relating to the assessment year2021- 22, this cannot be reason to cancel the registration granted for the assessment year 2022-23 to 2026-27 as the assumption of jurisdiction u/s 12AB(4)(ii) of the Act is itself wrong on the reasons discussed herein above. The specific violation committed by the assessee in any of these assessment years is to be considered independently and not the violation committed in assessment year 2021-22 for cancelling the registration granted u/s 12AB of the Act for the assessment year 2022- 23 to 2026-27. As such, we make it clear that the ld. PCIT at liberty to pass the fresh order of cancellation independently u/s 12AB(4)(ii) of the Act for these assessment years i.e. 2022-23 to 2026-27, if so advised. Accordingly, we allow this ground taken by the assessee. Ordered accordingly.”
We find inspiration from the essence of the ratio laid down in the above judgment and observe that in view of the provision of Section 12AA(5) of the Act as the provision of Section 12AA cannot be applied on order after 01.04.2021 the show cause notices issued by the PCIT to the appellant dated 05.07.2023 and 16.08.2023 are, thus, found to be erroneous and therefore liable to be quashed. Once the show cause is found to be non est in the eyes of law, the entire proceeding is naturally found to be on a wrong foundation of law and thus, liable to be set aside. Similarly, invoking the provision of Section 12AB(4) of the Act by the PCIT to cancel registration for specified violation is also not permissible at the same has not seen the light of day prior to 01.04.2022; the same is therefore, not applicable to Assessment Years 2015-16 to 2021-22 as wrongly has been applied in the case in hand.
Thus, having regard to these particular facts and circumstances of the case the issuance of show cause notices proposing cancellation of registration alleging specified violation occurred prior to 01.04.2022 i.e. for Assessment Year 2015-16 to 2021-22 and the final order passed by the Ld. PCIT cancelling registration of the appellant society for Assessment Year 2015-16 to 2021-22 by wrongly invoking the provision of Section 12A r.w.s 12AA and 12AB(4) of the Act is found to be erroneous, bad in law, whimsical, in non application of mind and thus, unsustainable.
Before parting we would like to note that the further direction given by the Ld. PCIT to this effect that even if the appellant society is found that specified violation is not in existence then also the consequential cancellation order would continue to operate independently by and under the impugned order dated 31.03.2024 is nothing but colourable exercise of power, not only arbitrary or erroneous but establishes the biasness on the part of the authorities below; by hook or crook the authority was bent upon to cancel the registration of the appellant trust which is evident from such observation and/or decision made by the Ld. PCIT. In fact, on that score alone the order passed by the Ld. PCIT is also found to be bad in law and liable to be quashed. With the aforesaid observations we thus, quash the impugned order passed by the Ld. PCIT.
The appeal is, therefore, allowed.”
7. Respectfully following the above decision, we are inclined to allow various grounds raised
by the assessee in this case and accordingly, we quash the impugned order passed by the ld. PCIT cancelling 12A registration granted to the assessee.