IMPROVEMENT TRUST,KHANNA vs. ACIT(EXEMPTION), CIRCLE-I, CHANDIGARH

In the present appeal Assessee has raised the following grounds:

The appeal preferred by the assessee against the quantum assessment was dismissed by the Ld. CIT(A). Thereafter, the penalty order was also confirmed by the Ld. CIT(A) vide impugned order dated 27.05.2025. 4. Against the order of the Ld. CIT(A) the assessee preferred in appeal before us.

During the course of hearing the Ld. AR submitted that the penalty has been wrongly sustained without appreciating the fact that the assessee was holding registration under section 12AA at the relevant time. It was further contended that the said registration, though withdrawn subsequently, has been restored by the Tribunal in ITA No. 406/Chd/2013 vide order dated 21.02.2019, which has also been affirmed by the Hon’ble High Court.

1 It was thus submitted that once the registration stands restored, the very basis of denial of exemption and consequent levy of penalty ceases to exist, and therefore the penalty is liable to be deleted.

Per contra, the Ld. DR relied upon the orders of the lower authorities and submitted that the penalty has been rightly levied and confirmed, as the additions made in the assessment have been sustained at the first appellate stage.

We have heard the rival submissions and perused the material available on record. The issue involved in the present appeal lies in a narrow compass, namely, whether the penalty levied under section 271(1)(c) can survive in the event the assessee is found to be holding a valid and subsisting registration under section 12AA for the relevant assessment year.

1 It is an admitted position that the assessee’s registration under section 12AA was subject matter of dispute and has subsequently been restored by the Tribunal, which order has been affirmed by the Hon’ble High Court. The consequence of such restoration, particularly whether it relates back to the relevant assessment year i.e. A.Y. 2012-13, requires factual verification at the level of the Ld. CIT(A).

2 In our considered view, the existence of a valid and subsisting registration under section 12AA for the relevant assessment year goes to the root of the matter, as the claim of exemption under section 11 would be founded on such registration. In case it is found that the assessee was duly holding a valid registration for A.Y. 2012-13, the claim made by the assessee cannot be treated as non-bona fide and consequently, the penalty imposed under section 271(1)(c) would not be sustainable.

3 Since this crucial aspect has not been properly examined by the Ld. CIT(A), we deem it appropriate, in the interest of justice, to restore the matter to the file of the Ld. CIT(A) for fresh adjudication. Accordingly, the impugned order is set aside and the matter is remanded back to the file of the Ld. CIT(A) with the direction to verify as to whether the assessee was having a valid and subsisting registration under section 12AA for A.Y. 2012-13. 7.4 In the event it is found that such registration was validly in force for the relevant assessment year, the penalty imposed under section 271(1)(c) shall not be sustained. The Ld. CIT(A) shall afford reasonable opportunity of being heard to the assessee and decide the issue in accordance with law.

In the result, the appeal of the assessee is allowed for statistical purposes.

""थ"/ The Respondent 3. आयकर आयु"/ CIT 4. आयकर आयु" (अपील)/ The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय आिधकरण, च"ीगढ़/ DR, ITAT, CHANDIGARH 6. गाड" फाईल/ Guard File