Aggarwal Vidya Pracharni Sabha Vs PCIT, Central (ITAT Delhi)
Introduction: The recent ruling by the Delhi ITAT in the case of Aggarwal Vidya Pracharni Sabha vs. PCIT, Central has brought to light significant issues regarding the jurisdictional authority in registration cancellation under Section 12AB(4). The order, dated 08.01.2024, has declared the cancellation by PCIT Central as without jurisdiction.
Detailed Analysis: The ITAT’s extensive analysis underscores the absence of specific references to Section 12AB in the 2014 Notification and the lack of subsequent authorization by Circular or Notification. The conclusion is drawn that when the order was passed under Section 127 of the Act on 26.10.2020, CIT(E), Chandigarh, did not possess the authority to transfer jurisdiction under Section 12AB, which became effective from 01.04.2021.
The ruling further dissects the powers of PCIT, Gurgaon, emphasizing that the ‘case’ in Section 127 cannot extend to the special powers of CIT(E), Chandigarh. The assumption of jurisdiction based on the order dated 26.10.2020 is deemed illegal, rendering the impugned order liable to be quashed.
The assessment completed in September 2021 is highlighted, emphasizing that the concerned AO had no grounds to invoke ‘reference’ powers under the second proviso to sub-section (3) of Section 143. The attempt by PCIT, Gurgaon, to invoke powers under clause (a) of sub-section (4) of Section 12AB is scrutinized and deemed inappropriate.
The analysis also questions the legality of the exercise of power under Section 12AB(4), stating that PCIT, Gurgaon, should have first formed an opinion on the ‘specified violation’ before issuing the notice dated 08.09.2022. The absence of explicit mention of the ‘specified violation’ in the impugned order raises concerns about the validity of the entire process.
Conclusion: In conclusion, the Delhi ITAT’s ruling in the Aggarwal Vidya Pracharni Sabha case highlights the critical issues surrounding the jurisdiction of PCIT Central in the registration cancellation process under Section 12AB(4). The lack of authority, improper invocation of powers, and procedural lapses make the entire exercise questionable and unsustainable. This landmark decision carries significant implications for trusts facing registration cancellation, emphasizing the importance of adhering to legal procedures and ensuring proper jurisdiction.
FULL TEXT OF THE ORDER OF ITAT DELHI
The assessee has come in appeal against the order dated 29.03.2023 passed by the Principal Commissioner of Income Tax (Central), Gurgaon (hereinafter referred to as ld. PCIT) U/s 12AB(4) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), cancelling registration granted to the assessee u/s 12AA of the Act.
2. The relevant facts giving rise to this appeal are that the Appellant assessee known by name ‘Aggarwal Vidya Pracharni Sabha’ is a charitable and registered under the Society Registration Act (XXI of 1860). The assessee trust/society is registered under Section 12AA of the Act vide order dated 27.09.2002 of Ld. CIT, It comes up from the impugned order that the society has been created for charitable purposes especially to promote the cause of education specially Commercial and Industrial education by establishing school and colleges etc. Further, the assessee trust is not registered u/s 80G(5)(vi) of the Act.
2.1 A search and seizure operation u/s 132 of the Act was carried out on 02.2020 at various entities of Dev Wine Group including the assessee trust and as a part of this search, its key trustee/members and other related persons were also covered. During the course of search and post search proceedings, various incriminating documents/evidences regarding diversion of funds of M/s Aggarwal Vidya Pracharni Sabha to other entities controlled and managed by Sh. Devender Kumar Gupta were allegedly found and seized. It is also alleged by Revenue that funds of the assessee trust was misappropriated by Sh. Devender Kumar Gupta for his personal benefit. Consequent to the search and seizure action under section 132(1) of the Act, the case of “M/s Aggarwal Vidya Pracharni Sabha” was centralized with the ACIT/DCIT, Central Circle-2, Faridabad vide order F. No. CIT(E)/CHD/Tech/2019- 20/133 passed u/s 127 of the Act dated 26.10.2020 by the CIT(E), Chandigarh. Subsequently, assessment proceedings u/s 153A of the Act were completed in this case for the block period from A.Y. 2014-15 to 2020- 21.
2.2 As per the impugned order, consequent to the completion of assessment proceedings certain facts were communicated to the office of PCIT(Central) Grugaon by the Assessing Officer pertaining to Assessment Years 2014-15 to 2020-21 vide his office letter dated 23.08.2022. Further, the assessment records for all the relevant A.Y.s were requisitioned by the PCIT(Central), Gurgaon. There after the impugned order was passed by cancelling the registration of the assessee by invoking powers under Section 12AB(4) of the Act.
3. The assessee has raised following grounds of appeal.
“1. That PCIT (Central) Gurgaon vide impugned order dated 29.03.2023 has seriously erred in withdrawing registration granted under old law sec. 12AA of 1961 Act with retrospective effect from 01.04.2014 by arbitrarily and unlawfully invoking inapplicable provisions of sec. 12AB(4) of 1961 Act, which is fundamentally flawed and totally contrary to mandate of 1961 Act.
2. That PCIT (Central) Gurgaon vide impugned order dated 29.03.2023 has seriously erred in withdrawing registration granted under old law sec. 12AA of 1961 Act with retrospective effect from 01.04.2014 on basis of invalid and unlawful SCN u/s 12AB(4) dated 06.03.2023 which is totally flawed and without authority of law and totally contrary to mandate of 1961 Act as highlighted in reply dated 03.2023
3. That PCIT (Central) Gurgaon vide impugned order dated 29.03.2023 has seriously erred in withdrawing registration granted under old law sec. 12AA of 1961 Act with retrospective effect from 04.2014 by not following series of binding/ fully applicable judicial precedents of higher/constitutional courts which squarely covered the issue in hand in petitioner favour thereby acting in total judicial indiscipline which is evident from face of impugned order.
4. That PCIT (Central) Gurgaon vide impugned order dated 29.03.2023 has seriously erred in withdrawing registration granted under old law sec. 12AA of 1961 Act with retrospective effect from 04.2014 by not appreciating the legislative intent as narrate d in binding CBDT Circular no. 23/2022 (dated 03.11.2022) which fully supported petitioner subject contention on total non applicability of subject provision of sec. 12AB(4) to instant case.
5. That the appellant craves leave to add/ alter any/all grounds of appeal before or at the time of hearing of the appeal.
3.1 Assessee has also raised following additional ground of appeal:
“That impugned order passed by PCIT-Central Gurgaon U/s 12AB(4) dated 29.03.2023 is void ab initio and is jurisdictionally flawed as said PCIT (Central) did not have valid jurisdiction under 1961 Act, to pass subject registration cancellation order, which power is only available with concerned CIT(Exemption) only here CIT-Exemption (Chandigarh)”
4. Heard and perused the record. The Ld. AR has argued on three legal issues and we consider it appropriate to deal with the same at first instance. The first ground contended is that the transfer of case u/s 127 of the Act was only with regard to the assessments and not for the purpose of cancellation of registration.
4.1 Secondly, that reference for cancelling the registration granted u/s 12AA could only be made during the pendency of assessment proceedings w.e.f. 01.04.2022. However, the basic fact of this case was ignored that assessment proceedings in this case was completed during FY 2021-22. As such, the 2nd proviso to section 143(3) is not applicable to the instant case.
4.2 Third, that in any case cancellation of registration could not have been with retrospective effect.
5. In this context as we appreciate the impugned order it comes up that PCIT(Central) Gurgaon has found these contention of the assessee trust as not acceptable on merits and also not as per provisions of the Act. He observes in impugned order that as in this case, assessment was completed in September 2021 and it was noted by the AO that the assessee had applied its funds/income other than for the object of the trust. Subsequently, he submitted a proposal for cancellation of the registration of the assessee trust granted u/s 12AA of the Act vide his later dated 23.08.2022 through his Range Head and the perusal of aforesaid copy of first page reveals that subject of the letter has been written as proposal for cancellation and does mention not ‘reference’ under 2nd proviso of section 143(3) of the Act.
5.1 Ld. PCIT further held that second proviso of section for making reference for cancellation of registration granted u/s 12AA was inserted w.e.f. 1.04.2022. Therefore, it was humanly impossible for the AO to make reference in accordance with the said proviso which was not in existence. As such, proposal of the AO cannot be termed as reference as per provisions of 2nd proviso of section 143(3) of the Act.
6. As with regard to questioning of jurisdiction of Ld. PCIT(Central) Gurgaon on territorial or subject basis, he concluded that in the instant case, assessment proceedings was completed by the AO by observing some adverse inference that the assessee trust diverted its funds to other entities and as such assessee had applied its funds/income other than for the object of the trust. The said fact was communicated by the AO to PCIT(Central) Gurgaon vide his office letter dated 23.08.2022. The proposal of the AO was “independently examined” by office of Ld. PCIT(Central) Gurgaon and which “noted” that the assessee trust had continuously diverted its funds to other entities controlled, associated and managed by Sh. Devender Kumar Gupta, Chairman of the assessee trust by conduit in contravention of the object of the trust. Ld. PCIT(Central) Gurgaon observes that it was on perusal of assessment records as well as proposal of the AO, it was ‘noticed’ that the assessee trust has committed one or more specified violation. Thereafter, information was called for, from the assessee trust vide letter dated 08.09.2022. Thus Ld. PCIT(Central) Gurgaon concluded that as such, the contention of the assessee trust that the information was called for as per clause (b)of section 12AB, on reference of AO, is totally based upon the surmise and conjecture and is without any basis and the Ld. PCIT(Central) Gurgaon had exercised powers under clause (a) of section 12AB. Therefore, Ld. PCIT(Central) Gurgaon, held it had jurisdiction to proceed further.
6.1 As far as the contention by the assessee trust was concerned that jurisdiction cannot be assumed by relying/analyzing assessment records for previous years which was not the mandate of Finance Act 2022. The Ld. PCIT(Central) Gurgaon observed that at first, it can be seen that in the section 12AB(4) the word any previous year has been written meaning thereby specified violation committed by the assessee trust during any previous year which may be only one previous year or may be more than one previous year.
6.2 Further, PCIT(Central) Gurgaon relied sub clause (ii) of Section 12AB(4) and held that PCIT, after giving reasonable opportunity of being heard, can cancel the registration of such trust in all subsequent previous years.
6.3 Next with regard to the contention of the assessee that cancelation of the registration under section 12AB cannot be made with retrospective effect, provisions of sections 12AB(4) were relied and PCIT(Central) Gurgaon concluded that power has been envisaged to the PCIT under the said statute to cancel the registration of the trust wherein even registration was granted as per clause (b) of sub-section (1) of section 12AA. Ld. PCIT(Central) Gurgaon further relied sub-section 5 of section 12AA, as per which ‘nothing contained in this section shall apply on or after the first day of April 2021’ and held that it means that registration under the section i.e. section 12AA must have been granted prior to 01.04.2021 and such registration can be cancelled by invoking the provisions of section 12AB(4) of the Act. Thus, Ld. PCIT(Central) Gurgaon concluded that registration granted under section 12AA prior to 01.04.2021 can be cancelled by invoking the provisions of section 12AB of the Act.
6.4 PCIT(Central) Gurgaon dealing with the contention that registration u/s 12AB of the Act cannot be granted retrospectively and thus the cancellation cannot be made retrospectively observes that registration of a trust and its cancellation u/s 12AB are two different procedure/proceedings. Ld. PCIT(Central) Gurgaon held that Section 12AB itself states that registration granted under Section 12AA can also be cancelled by invoking provisions of Section 12AB. Therefore, contention of the assessee trust holding grant of registration and its cancellation at par is not correct interpretation of the Act.
7. Now before us, as with regard to the issue whether impugned order passed u/s 12AB(4) cancelling registration u/s 12AA w.r.ef 1.04.2014 is valid in eyes of law? Ld. AR has relied coordinate bench decisions of Jaipur bench ITAT in case of Wholesale cloth merchant association dated 06.01.2021 ITAT ITA no. 688/JP/2019 and Jodhpur bench order in case of Pacific academy of higher education and research society dated 25.01.2023 ITA no. 04/JODH/2020
7.1 Further he contended that as per CBDT notification 52/2014 only competent authority who can pass order u/s 12AB (u/s 12AA) which is concerned CIT(E) Chandigarh only and not PCIT (Central) Gurgaon.
7.2 It was further submitted that it is settled law by Hon’ble Supreme Court that presumption is against retrospectivity and 367 ITR 466 Vatika Township case was relied.
7.3 It was contended that concept of “specified violation” and withdrawal of registration as “substituted’ was introduced vide Finance Act 2022 and as per explanatory CBDT circular 23/2022 dated 11.2022 para 9.3.3, the same is applicable from 1.04.2022 and has to be only applicable from FY 22-23 and AY 23-24 and not prior to that so admittedly without any specified violation being there after 1.04.2022, entire impugned proceedings u/s 12AB cancelling registration w.e.f 1.4.2014 is totally unlawful and ultra vires to sec. 12AB of 1961 Act.
7.4 It was submitted that when impugned action is taken u/s 12AB (4) made effective from 1.04.2022 by legislature as per explanatory CBDT circular then invoking specified violation u/s 12AB(4) before 1.04.2022 from 1.04.2014 for alleged violation much prior to 1.04.2022 is itself against the clear legislative He submitted that registration cancellation being draconian/punitive act cannot be given such retrospective effect. Ld. Counsel also submitted that even otherwise there is no specific/implied power given u/s 12AB for retrospective cancellation of registration as usurped by respondent/PCIT.
8. Ld. DR heavily relied the Explanation of word ‘case’ in section 127 of the Act to submit that the transfer of jurisdiction u/s 127 brings into effect the transfer of all the pending and prospective cases of the assessee and no distinction can be made on any basis. He submitted there is no error in the impugned order and no irregular exercise of jurisdiction and Ld. PCIT, Gurgaon has exercised powers by virtue of his own knowledge of the issue and not on reference by Ld. AO.
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 Ld. PCIT, Gurgaon the powers to pass the impugned order. The ld. 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 ld. 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 ld. 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 had 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, it 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 or Chief Commissioner or 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 or 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 or Principal Commissioner or Commissioner,—
(a) where the Principal Directors General or Directors General or Principal Chief Commissioners or Chief Commissioners or Principal Commissioners or 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 or 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 (ii) or sub-clause (iii) or sub- clause (iv) or sub-clause (v) of the said clause,—
(i) 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 (i),—
(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 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,
then, the Principal Commissioner or 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 (i) 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) or 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
(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,
(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
(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 (ii) 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 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.O.S 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 DCIT, 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, I, 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) –
SCHEDULE
