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Facts
The assessee trust had its registration cancelled by the PCIT based on a reference from the AO following a search operation. The AO alleged diversion of funds and bogus expenses. The PCIT invoked provisions of Section 12AB(4) which were amended later.
Held
The Tribunal held that the AO's reference to the PCIT under the second proviso to Section 143(3) was invalid as the provision was introduced after the relevant assessment year. Furthermore, the PCIT wrongly applied the amended provisions of Section 12AB(4) retrospectively, which were not in force at the time of the alleged violations.
Key Issues
Whether the AO's reference to PCIT under the second proviso to Section 143(3) was valid for AY 2021-22. Whether the PCIT erred in applying the amended provisions of Section 12AB(4) retrospectively.
Sections Cited
12AB, 143(3), 269SS, 269T, 132, 12AA
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Income Tax Appellate Tribunal, ‘B’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K
PER SHRI WASEEM AHMED, ACCOUNTANT MEMBER:
This appeal has been filed by the assessee trust against the order passed by the Learned Commissioner of Income Tax (Exemptions) [hereinafter referred to as "Learned CIT(E)"] cancelling the registration certificate granted under section 12AB of the Income Tax Act, 1961 (hereinafter referred to as "the Act") with effect from Assessment Year (A.Y.) 2021-22.
Page 2 of 16 The assessee has filed concise ground of appeal dated 14th 2. December 2024, detailed hereunder:
“1. The PCIT (Central) has erred in cancelling the registration of the assessee-trust by passing an order u/s. 12AB(4) of the Act.
The PCIT (Central) has erred in passing the order u/s. 12AB of the Act based on the reference made by the A.O. under second proviso to S.143(3) of the Act, which reference itself is illegal, beyond jurisdiction and without issuing the prior show cause notice.
The PCIT (Central) has erred in invoking the provisions of S. 12AB(4) of the Act, which came into effect from A.Y. 2022-23, in respect of the year under consideration i.e. A.Y. 2021-22 and thereby retrospectively applying the provisions of the Act.
4. The PCIT (Central) has erred in passing the order in gross violation of the principles of natural justice.
The appellant craves leave to add to, amend, alter or delete the foregoing grounds of appeal.”
The assessee vide letter dated 14th December 2024 filed 3. Additional Ground of appeal challenging the jurisdiction of PCIT (Central) for passing the order cancelling the registration of assessee trust.
At the outset, we note that the learned AR for the assessee at the time of hearing submitted that he has been instructed by the assessee not to press the issue raised in additional ground of appeal. Accordingly, the additional ground of appeal of the assessee is hereby dismissed as not pressed.
5. The effective issue raised by the assessee is that the learned PCIT erred in cancelling the registration under section 12AB(4) of the Act based on AO’s reference as per the provision of second proviso to section 143(3) of the Act which itself was without jurisdiction and illegal and further erred in relying on the amended provision of section 12AB(4) of the Act which was not applicable.
The relevant facts of the case are that the assessee trust was granted registration under section 12AA of the Act, which was subsequently migrated to section 12AB of the Act as per the amended provisions introduced by the Finance Act, 2020. The assessee operates educational institutions, including schools, medical colleges, and engineering colleges etc.
The assessee was subjected to search proceedings under section 132 of the Act on February 17, 2021, and as a consequence, an assessment proceeding for A.Y. 2021-22 was initiated. During the assessment proceedings, the AO, based on the search materials, found that the funds of the assessee were diverted for the personal benefit of the trustees by debiting bogus expenses under the heads "Covid-related expenses" and "Building construction." The AO also found that the assessee had received unaccounted cash in the form of a capitation fee, which was subsequently diverted to the trustees.
Furthermore, the AO discovered based on search materials that the trustees owned hotels, bars, and a marriage hall in their personal capacity. However, the expenditures incurred on the renovation and alteration of these establishments were borne by the assessee’s funds. Additionally, the AO found that the assessee had accepted loans and made repayments in violation of the provisions of sections 269SS and 269T of the Act.
Consequently, as per the provisions of the second proviso to section 143(3) of the Act, the AO made a reference to the learned .
Principal Commissioner of Income Tax (PCIT) on March 6, 2023, recommending the withdrawal of registration granted under section 12AA/12AB of the Act.
Based on the AO’s reference, the learned PCIT issued a show cause notice requiring the assessee to explain the issues arising from the search proceedings for the cancellation of the registration granted under 12AA/12AB of the Act. The assessee was specifically asked to: • Establish the genuineness of the substantial cash expenditure under "Building construction" and "Covid-related expenses."
• Explain the allegations related to the utilization of the assessee's funds for the renovation of hotels, bars, and a marriage hall owned by the trustees.
• Provide an explanation regarding the capitation fee received in cash but not recorded in the books of accounts.
In response to the show cause notice, the assessee submitted its reply. However, the learned PCIT found that the assessee failed to substantiate its claims with documentary evidence. After considering the assessee’s reply, the materials seized during the search, and the statements of various individuals recorded during the search, the learned PCIT concluded that the assessee had incurred expenditures that were not in line with the objectives of the trust. Additionally, the assessee trust had diverted funds for the personal benefit of the trustees. Accordingly, the assessee was found to have committed specified violations under clauses (a), (d), (e), and (f) of the Explanation to section 12AB(4) of the Act. Consequently, the learned PCIT cancelled the . registration granted under section 12AB of the Act with effect from F.Y. 2020-21, relevant to A.Y. 2021-22 and subsequent assessment years.
Being aggrieved by the order of the learned PCIT cancelling the registration certificate under section 12AB of the Act, the assessee is in appeal before us.
The learned AR for the assessee submitted before us that the AO, merely based on certain materials found during the search proceedings, presumed that the assessee had committed specified violations as defined in the explanation to section 12AB(4) of the Act and made a reference to the learned PCIT in accordance with the second proviso to section 143(3) of the Act. The AO, without conducting any inquiry into the veracity and genuineness of the search materials, presumed that the materials found were correct. Therefore, the AO’s satisfaction that the assessee committed specified violations as defined under the explanation to section 12AB(4) of the Act was reached without proper application of mind, and thus, it amounts to 'borrowed satisfaction'.
The learned AR further submitted that the second proviso to section 143(3) of the Act, which empowers the AO to make a reference to the PCIT for the withdrawal of registration, was inserted into the Act by the Finance Act, 2022, with effect from April 1, 2022. Hence, the provision is applicable from A.Y. 2022-23. However, the AO made the reference under this provision for A.Y. 2021-22, when such a provision was not part of the Act. Therefore, the reference made by the AO is invalid, and consequently, the cancellation of registration by the learned PCIT based on such an invalid reference is not justified.
Furthermore, the learned AR submitted that the provisions of section 12AB(4) of the Act, as applicable for the year under dispute, i.e., A.Y. 2021-22, did not contain the concept of 'specified violation.' The provision of section 12AB(4) was amended by the Finance Act, 2022, with effect from April 1, 2022, introducing provisions related to 'specified violations,' such as funds not being applied as per the objectives of the trust, and funds being utilized directly or indirectly for the personal benefit of trustees. Accordingly, the learned AR argued that the learned PCIT committed an error by applying a provision that was inserted with effect from April 1, 2022, to the year under dispute, i.e., A.Y. 2021-22, for the withdrawal of registration under sections 12AA/12AB of the Act, when such a provision was not applicable at that time. In support of his argument, the learned AR relied on decisions of the coordinate bench of this Tribunal and other Tribunal rulings, which are on record.
On the other hand, the learned DR before us submitted that the provisions pre amendment and post amendment relating to the cancellation of the registration certificate under section 12AA/12AB of the Act are the same in substance. As such, under the pre amendment and post amendment provisions, the registration certificate stands withdrawn when the activities of the Trust are not genuine as well as when there is diversion of fund for the purposes other than the purposes for which the trust was established. The learned DR vehemently supported the order of the authority below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, the issues which require adjudication are detailed as under: i. Whether the reference made by the AO to the learned PCIT in accordance with the second proviso to section 143(3) of the Act is without jurisdiction and invalid. ii. Whether the learned PCIT erred in applying the amended provision of section 12AB(4) of the Act vide finance Act 2022 in the given facts and circumstances. iii. Whether the reference made by the AO to learned PCIT was without proper satisfaction and application of mind.
17.1 Regarding question No. 1, we note that the cancellation of the registration by the Learned PCIT was primarily based on the reference made by the AO under the second proviso to section 143(3) of the Act. The assessee has rightly contended that this provision was inserted by the Finance Act, 2022, with effect from April 1, 2022, making it applicable only from AY 2022-23 onwards. Since, the AO’s reference pertains to AY 2021-22, which falls before the enactment of this provision, the invocation of this provision for making a reference to the ld. PCIT is legally untenable. It is the trite law that the provisions of law as applicable to the relevant year has to be applied in that year. In holding so, we draw support and guidance from the judgment of the Hon’ble Delhi High Court in the case of Ericsson India Pvt Ltd vs. ADIT reported in 98 taxmann.com 395 wherein the Hon’ble Delhi High Court after considering the judgment of Hon’ble Supreme Court in case of Brij Mohan v. CIT [1979] 2 Taxman 209/120 ITR 1 SC, held as under: In the opinion of this Court, that judgment does not help the revenue's answer on the charge of lack of jurisdiction and the law as enunciated in Brij Mohan and Varkey Chacko (supra) i.e. that the event of default defines the jurisdiction .
Page 8 of 16 of the concerned authority, who may proceed to initiate the penalty proceedings. In the present case, since "event of default" occurred in March, 2014 i.e. well prior to the date of coming into force the amendment (i.e. 01.10.2014), the impugned order was wholly without jurisdiction.
17.2 The above judgment was further upheld by the Hon’ble Supreme Court in case of ADIT vs. Ericsson India Pvt Ltd reported in 168 taxmann.com 193.
17.3 In view of the above, we hold that any action based on such an invalid reference lacks legal sanctity, rendering the subsequent cancellation order unsustainable. We also note that an identical view was taken by the coordinate Bench of Delhi Tribunal in the case of Lakhmi Chand Charitable Society vs. PCIT reported in 166 taxmann.com 324. The relevant question raised by the assessee and the finding of the Tribunal is extracted as under: Assessee argument: 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.
Tribunal finding: 19. 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 .
Page 9 of 16 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 Section 12AA, 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 17.4 Coming to the second question, we observe that the Learned PCIT has invoked the explanation to section 12AB(4) of the Act to hold the assessee committed "specified violations," particularly in terms of fund diversion for the personal benefit of the trustees and non- application of funds in accordance with the objectives of the trust. However, as rightly pointed out by the Learned AR, the Finance Act, 2022, which introduced the concept of "specified violations" under section 12AB(4) of the Act, became effective only from April 1, 2022. Since the assessment year in dispute is AY 2021-22, these provisions were not applicable at the relevant point of time. Consequently, the PCIT’s reliance on these provisions is erroneous, and the cancellation of the trust’s registration based on inapplicable legal provisions cannot be sustained. In holding so, we also draw support and guidance from the decision of this Tribunal in the case of “Amla Jyothi Vidya Kendra Trust vs. PCIT in & 459/Bang/2023 reported in 157 taxmann.com 235 wherein the bench vide order dated 1st December 2023 held as under: 6. We have heard the rival submissions and perused the materials available on record. The main contention of the ld. A.R. is that the ld. PCIT has cancelled the registration granted to the assessee w.e.f. the previous year i.e. 2020-21 relevant to assessment year 2021-22 by applying the provisions as stood on 12-5-2023, which cannot be applied for the violations of the provisions of section 12AA or 12AB of the Act. According to the ld. A.R., the ld. PCIT has cancelled the registration granted to the assessee since the ld. PCIT was satisfied that one or more specified violations have taken place. The specified violations are mentioned in explanation to section 12AB(4) of the Act as follows: Explanation : For the purposes of this sub-section, the following shall mean "specified violation",-- .
(a) Where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or (b) The trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or (c) The trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not ensure for the benefit of the public; or (d) The trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or (e) Any activity being carried out by the trust or institution— (i) is not genuine, or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or (f) 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 sub-section (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. 6.1 Thus, the contention of the ld. A.R. is that these provisions have been inserted by Finance Act, 2022 w.e.f. 1-4-2022 and if there is a violation in previous year 2020-21 relevant to assessment year 2021-22, these provisions cannot be applied to the assessee's case. For clarity, we will go through the relevant provisions applicable to previous year 2020-21 relevant to assessment year 2021-22 as follows: "12AB(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." 6.2 This section has been amended by Finance Act, 2022 w.e.f. 1-4-2022 as follows: 12AB(4) : Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub- section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently,-- (a) The Principal Commissioner or Commissioner has noticed occurrence .
Page 11 of 16 of one or more specified violations during any previous year; or (b) The Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year; or (c) Such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year; The Principal Commissioner or Commissioner shall— i. call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation; ii. pass an order in writing, cancelling the registration of such trust or institution, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violations have taken place; iii. pass an order in writing, refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violations; iv. forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing Officer and such trsut or institution. Explanation : For the purposes of this sub-section, the following shall mean "specified violation",-- (a) Where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or (b) The trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or (c) The trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not ensure for the benefit of the public; or (d) The trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or (e) Any activity being carried out by the trust or institution— (i) is not genuine, or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or .
(f) 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 sub-section (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. 6.3 As per section 12AB(4) of the Act as applicable to assessment year 2021- 22, the ld. PCIT if he is satisfied that activities of the Trust or institution are not genuine or 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 reasonable opportunity of being heard. As per section 12AB(5) of the Act, when trust or institution complied wholly or in part of the income of such trust or institution in violation of section 13(1) of the Act or if they complied with any other law, for the time being in force by the trust or institution as are material for the purpose of achieving its objectives as mentioned in section 12AB(1)(b)(ii)(B) of the Act. However, in the present case, the ld. PCIT invoked the provisions of section 12AB(4)(a)(ii) of the Act as stood in the assessment year 2022-23. The objection of the ld. A.R. is that for the cancellation of registration for the assessment year 2021-22, he could not invoke the provisions of section 12AB(4)(ii) of the Act which is introduced by Finance Act, 2022 w.e.f. 1-4-2022 and applicable for the assessment year 2022-23 onwards. 6.4 In the case of Isthmian Steamship Lines reported in 20 ITR 572 (SC) wherein the Hon'ble Supreme Court held that "it is a cardinal principle of the tax law that law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication". 6.5 In the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala [1964] 51 ITR 129 (SC) the same view was taken by the Hon'ble Supreme Court. 6.6 Further, the Hon'ble Supreme Court in the case of Shree Choudhary Transport Corpn. v. ITO [2020] 118 taxmann.com 47/272 Taxman 472/426 ITR 289 wherein held as under: 17.4 It needs hardly any detailed discussion that in income-tax matters, the law to be applied is that in force in the assessment year in question, unless stated otherwise by express intendment or by necessary implication. As per section 4 of the Act of 1961, the charge of income-tax is with reference to any assessment year, at such rate or rates as provided in any central enactment for the purpose, in respect of the total income of the previous year of any person. The expression "previous year" is defined in section 3 of the Act to mean "the financial year immediately preceding the assessment year"; and the expression "assessment year" is defined in clause (9) of section 2 of the Act to mean "the period of twelve months commencing on the 1st day of April every year". 17.5 In the case of CIT v. Isthmian Steamship Lines(1951) 20 ITR 572 (SC), a 3-judge Bench of this court exposited on the fundamental principle that "in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied." This decision and various other decisions were considered by the Constitution Bench of this court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala(1966) 60 ITR 262 (SC) and the principle were laid down in the following terms (at pages 264-266 of 60 ITR): "Now, it is well-settled that the Income-tax, as it stands amended on the first day of April of any financial year must apply to the assessments of that year.
Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force…… The High Court has, however, relied upon a decision of this court in CIT v. Isthmian Steamship Lines, where it was held as follows: 'It will be observed that we are here concerned with two datum lines: (1) the 1st of April, 1940, when the Act came into force, and (2) the 1st of April, 1939, which is the date mentioned in the amended proviso. The first question to be answered is whether these dates are to apply to the accounting year or the year of assessment. They must be held to apply to the assessment year, because in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied. The first datum line therefore, affected only the assessment year of 1940-41, because the amendment did not come into force till the 1st of April, 1940. That means that the old law applied to every assessment year up to and including the assessment year 1939-40.' This decision is authority for the proposition that though the subject of the charge is the income of the previous year, the law to be applied is that in force in the assessment year, unless otherwise stated or implied. The facts of the said decision are different and distinguishable and the High Court was clearly in error in applying that decision to the facts of the present case." (Emphasis Supplied) 17.6 We need not multiply on the case law on the subject as the principles aforesaid remain settled and unquestionable. Applying these principles to the case at hand, we are clearly of the view that the provision in question, having come into effect from April 1, 2005, would apply from and for the assessment year 2005-06 and would be applicable for the assessment in question. Putting it differently, the Legislature consciously made the said sub-clause (ia) of section 40(a) of the Act effective from April 1, 20056, meaning thereby that the same was to be applicable from and for the assessment year 2005-06; and neither there had been express intendment nor any implication that it would apply only from the financial year 2005-06." 6.7 Being so, we find force in the argument of ld. A.R. that in income-tax matters, law to be applied is the law in force in the assessment year unless otherwise stated or implied. In the present case, ld. PCIT is cancelling the registration granted u/s 12AA/12AB of the Act w.e.f. previous year 2020-21 relevant to assessment year 2021-22. In our opinion, the law as stated in the assessment year 2021-22 is to be applied and not the law as stood in the assessment year 2022-23. 6.8 Thus, we are of the view that no retrospective cancellation could be made u/s 12AB(4)(ii) of the Act as it has been provided or is seen to have explicitly provided to have a retrospective character or intended. Therefore, without a specific mention of the amended provisions to operate retrospectively, no cancellation for the earlier years could be made. In this regard, it is appropriate to place reliance on the judgement of Hon'ble Madras High Court on the question as to whether the cancellation will operate from a retrospective date in the case of Auro Lab v. ITO [2019] 102 taxmann.com 225/261 Taxmann 364/411 ITR 308 (Mad.) wherein held as under:
Page 14 of 16 "20. On the second question as to whether the cancellation will operate from a retrospective date, it was held that the amendment to section 12AA(3) is prospective and not retrospective in character. The courts reasoned that even when Parliament had plenary powers to enact retrospective legislation in matters of taxation, the amended section is not seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively, the cancellation cannot operate from a past date.
On the third question of the effective date of operation of the cancellation order, it was held that the cancellation will take effect only from the date of the order/notice of cancellation of registration. Since the act of cancellation of registration has serious civil consequences and the amended provision is held to have only a prospective effect the effect of cancellation, in' the event the pending tax appeal is decided in favour of the Revenue, will operate only from the date of the cancellation order, that is December 30, 2010. In other words, the exemption cannot be denied to the petitioner for and up to the assessment year 2010-11 on the sole ground of cancel-lation of the certificate of registration." 6.9 In this case, the ld. PCIT has cancelled the registration under the new provisions of the Act i.e. 12AB(4)(ii) of the Act, which specifically provides that cancellation can be done for such previous year and all subsequent previous years, which makes it clear that the cancellation cannot be retrospective, therefore, in view of the above discussion, we are of the opinion that cancellation of registration with retrospective effect is invalid in these cases. Since the ld. PCIT invoked the provisions of section 12AB(4)(ii) of the Act, which has been introduced by the Finance Act, 2022 w.e.f. 1-4-2022 so as to cancel the registration with retrospective effect from assessment year 2021-22, which is bad in law. We also note that same view has been taken by Coordinate bench of Mumbai in the case of Heart Foundation of India v. CIT [IT Appeal No. 1524 (Mum.) of 2023, of vide order dated 27-7- 2023], wherein held that registration granted u/s 12A of the Act dated 21-7- 1989 cannot be cancelled by ld. PCIT (Central) vide order dated 6-3-2023 w.e.f. assessment year 2016-17, by invoking the provisions of section 12AB(4)(ii) of the Act. Accordingly, we allow the primary ground nos.2, 3, 5 & 12 and order of ld. PCIT passed u/s 12AB(4)(ii) of the Act is quashed.
17.5 We also note that the above finding of the coordinate bench of this Tribunal was further followed in the case of M/s Islamic Academy of Education vs. PCIT in ITA No. 610/Bang/2023. Likewise, we note that note identical view was also taken by the Pune Bench (Tribunal) in the case of N.M. Patel Charitable Trust vs. PCIT in ITA No. 1130/Pun/2024.
17.6 Now coming to third question and without prejudice to above, we find merit in the argument of the ld. AR that the AO’s satisfaction . regarding the assessee's alleged violations was formed without independent inquiry or verification of the materials seized during the search proceedings. The AO appears to have solely relied on the seized documents and statements recorded during the search without conducting any further independent inquiry into the genuineness and authenticity of such materials. This fact can be verified form the notices issued under section 142(1) of the Act dated 20-05-2022 and 05-07- 2022 by the AO during the assessment proceeding which are placed on pages 5 to 6 and 10 to 16 of paper book. It is a well-settled principle that mere possession of incriminating material does not automatically establish wrongdoing unless corroborated with substantive evidence through an independent inquiry.
17.7 Furthermore, we note the provision of section 132(4A) and 292C of the Act provide presumption that in the course of search proceeding any books of account or other document etc found in possession of any person then it may be presumed that such books of account or other document etc belong to such person and content of such books of account or document are true. However, it is settled possession of law that impugned presumption is rebuttable presumption. In the case of hand, it appears that the AO has drawn presumption reading the seized material being true and accordingly made refence to PCIT for alleged violation as specified in the amended provision of section 12AB(4) of the Act. However, we note that AO has drawn such presumption without affording opportunity to the assessee to rebut the same. Hence it can be safely assumed that the AO merely relied on the seized material forwarded the search authority without applying mind. The AO’s . satisfaction, therefore, appears to be a case of borrowed satisfaction, which is legally unsustainable.
17.8 Considering the legal infirmities in the reference made by the AO, the incorrect application of amended provisions retrospectively, the absence of independent verification, we find that the cancellation of the assessee’s registration under section 12AB is legally unsustainable.
17.9 In view of the above findings, we set aside the order of the Learned PCIT cancelling the registration of the assessee under section 12AB of the Act and direct the restoration of registration with immediate effect. The appeal of the assessee is hereby allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in court on 24th day of March, 2025