Case Law Details

Case Name : Last Hour Ministry Vs CIT (Exemptions) (ITAT Cochin)
Appeal Number : ITA No. 12/Coch/2021
Date of Judgement/Order : 17/03/2022
Related Assessment Year :

Last Hour Ministry Vs CIT (Exemptions) (ITAT Cochin)

A perusal of the order cancelling registration wherein various reasons have been given as mentioned earlier apparently show that these reasons would at best give rise to violations u/s.13(1)(c) and 13(1)(d) of the Act which would result in additions in the assessment and re­assessment. Such violations, if any to be assessed as income taxable at the marginal rate.

A perusal of the provisions of Section 12AA(4) shows that the cancellation of registration is permissible in respect of trust/institution which has been granted registration if the activities of the trust or the institution are being carried out in a manner that the provisions of Section 11 and 12 do not apply to exclude either the whole or any part of the income of such trust or institution due to the operation of sub-section(1) of Section 13 or the trust or the institution has not complied with the requirements of any other law.

Reading of the provisions of Section 12AA(4) shows that there has to be primarily an order saying that the activities of the trust or the institution are being carried out in the manner that the provisions of Section 11 and 12 do not apply. That order primarily has to be done by the AO, who is a quasi-judicial authority. This is because it is the AO, who makes the assessment after examining all the evidences after putting the assessee to show cause and it is that assessment order itself which becomes the subject matter of appeal at various stages which could result in the confirmation of the assessment, reduction or modifications of the additions made.

The cancellation of registration without such an order is effectively precluding the AO to do the assessment in a free and fair manner. Admittedly, the Ld.CIT(E) is an Administrative Commissioner and once he gives a specific direction as he has made in the order cancelling the registration, the hands of the assessing authority gets tied down. The independence of the assessing authority gets infringed. This is not permissible. In fact reading of the provisions of Section 12AA(4) clearly shows that it is only after the quasi-judicial authority has completed its part, the violations can be even claimed to be there. In regard to the violation of any other law, the provisions of Section 12AA(4) clearly and categorically says that such violation or recording of such violation should have attained finality. Allegations per se cannot be the ground for the cancellation of registration. On this ground itself, the order passed by the Ld.CIT(E) is liable to be quashed and we do so.

FULL TEXT OF THE ORDER OF ITAT COCHIN

These four appeals are filed by the assessee against the cancellation of registration u/s.12AA of the Income Tax Act, 1961 (Act) by the Ld.CIT(Exemption)-Kochi, dated 01-01-2021 in the case of assessees referred in items 1, 2 & 4 and order dated 31-12-2020 in the case of assessee referred in item No.3 above. As the facts in all these cases are identical, they are being disposed-of by this common order.

2. Sri M.V.Siddharth, Advocate appeared on behalf of the assessee and Shri Shantham Bose, CIT-DR & Smt. J.M.Jamunna Devi, Sr.DR appeared on behalf of Revenue.

3. It was submitted by the Ld.AR that in case of Last Hour Ministry, the registration u/s.12A was granted to the assessee on 21-02-2004. In the case of Love India Minstries the registration u/s.12A was granted to the assessee on 07-09-1992. In the case of Ayana Charitable Trust, the registration u/s.12A was granted to the assessee on 20-11-1980. In the case of Believers Eastern Church the registration u/s.12A was granted to the assessee on 01-10­1993. It was the submission that there was a survey on the premises of the four assessees on 26-02-2020. In the course of survey, various issues had been looked into. It was the submission that subsequently on 05-11-2020, search proceedings u/s.132 of the Act had been conducted on all the four assessees. It was the submission that as a consequence of the survey conducted on 26­02-2020, show cause notice had been issued by the Ld.CIT(E) on 04-12-2020 in the case of Last Hour Ministry and on 03-12-2020 in the case of other three assessees. The assessees had responded to the said show cause notices vide letter dt.15-12-2020, wherein it was brought to the attention of the Ld.CIT(E) that a search had been conducted on the assessees on 05-11-2020 and that substantial seizures and prohibitory orders were in operation. It was also mentioned that the searches were not yet concluded. It was also the submission that the substantial records have been kept under the prohibitory orders and consequently, the assessees were not in a position to respond specifically to the various points raised in the show cause notice on account of the non-availability of the records. It was the submission by the Ld.AR that by order dt.01-01-2021, the registration of assessees had been cancelled except in case of Ayana Charitable Trust, which was cancelled by an order dt.31-12-2020. It was submitted by the Ld.AR that for the purpose of cancellation of registration, the Commissioner has raised the following reasons:

i. The trust/entities constituting are found to be not independent of one another;

ii. The return of income filed by the trust/entities are incorrect and incomplete;

iii. Expenses out of corpus funds have been claimed towards application;

iv. Amounts set apart for specific purposes are found to have been indiscriminately and improperly used;

v. Expenditures incurred have been determined to be not towards the objects of the trust;

vi. Purchases of other trusts possessing immoveable properties;

vii. Inflation of expenses;

viii. Mis-use of trust properties;

ix. Violation of Foreign Contribution (Regulation) Act, 2010 (FCRA) in obtaining funds;

x. Claims of advances as expenses and application.

Statements were recorded from the Trustees and the Chartered Accountant wherein substantial disclosures of the un­accounted incomes had been made. It was the submission that at the outset, these reasons at best read to violations of 13(1)(c) and 13(1)(d) of the Act which could have resulted in additions. In regard to the disclosures made in the course of the survey in the sworn statements recorded from the trustee and Chartered Accountants, have been retracted. It was the submission that none of the reasons mentioned by the Ld.CIT(E) questioned the genuineness of the trust. It was the further submission that as the search had taken place on the assessee on 05-11-2020 in view of the 2nd proviso to Section 153A, the proceedings arising out of the survey would also abate in so far as the proceedings under the survey could at best result in an assessment u/s.143(3) of the Act in respect of the year of survey and Section 143(3) r.w.s.147 in respect of the said earlier years which could be re-opened. But once the search has taken place, all earlier pending proceedings get abated and the assessment goes under the provisions of Section 153A of the Act. It was the submission that the cancellation of the registration was liable to be annulled.

4. In reply, the Ld.DR submitted that there are substantial reasons for cancellation of the registration. In the course of survey, substantial evidences had been found against the assessee and on the basis of the evidences found during the course of survey and the sworn statements, the registration had been rightly cancelled. It was the submission that the assessee had been given the opportunity to reply to the show cause notice but the assessee cannot hide behind the search action and it should not be permitted. It was the submission that the retraction of the statements recorded are only an after thought and should not be given any credence.

In respect of the 2nd proviso to Section 153A, it was the submission by the Ld.DR that it has nothing to do with the cancellation of the registration and what Section 153A provides for is that the assessment and re-assessment proceedings and pending proceedings shall get abated. It was the submission that the cancellation of registration was on account of the evidences found in the course of the survey and it is very evident from the show cause notice, wherein it categorically says “survey and subsequent action carried out taken in the assessee’s cases”. It was the submission that the order cancelling the registration is liable to be upheld.

5. We have considered the rival submissions. A perusal of the order cancelling registration wherein various reasons have been given as mentioned earlier apparently show that these reasons would at best give rise to violations u/s.13(1)(c) and 13(1)(d) of the Act which would result in additions in the assessment and re­assessment. Such violations, if any to be assessed as income taxable at the marginal rate.

A perusal of the provisions of Section 12AA(4) shows that the cancellation of registration is permissible in respect of trust/institution which has been granted registration if the activities of the trust or the institution are being carried out in a manner that the provisions of Section 11 and 12 do not apply to exclude either the whole or any part of the income of such trust or institution due to the operation of sub-section(1) of Section 13 or the trust or the institution has not complied with the requirements of any other law.

Reading of the provisions of Section 12AA(4) shows that there has to be primarily an order saying that the activities of the trust or the institution are being carried out in the manner that the provisions of Section 11 and 12 do not apply. That order primarily has to be done by the AO, who is a quasi-judicial authority. This is because it is the AO, who makes the assessment after examining all the evidences after putting the assessee to show cause and it is that assessment order itself which becomes the subject matter of appeal at various stages which could result in the confirmation of the assessment, reduction or modifications of the additions made.

The cancellation of registration without such an order is effectively precluding the AO to do the assessment in a free and fair manner. Admittedly, the Ld.CIT(E) is an Administrative Commissioner and once he gives a specific direction as he has made in the order cancelling the registration, the hands of the assessing authority gets tied down. The independence of the assessing authority gets infringed. This is not permissible. In fact reading of the provisions of Section 12AA(4) clearly shows that it is only after the quasi-judicial authority has completed its part, the violations can be even claimed to be there. In regard to the violation of any other law, the provisions of Section 12AA(4) clearly and categorically says that such violation or recording of such violation should have attained finality. Allegations per se cannot be the ground for the cancellation of registration. On this ground itself, the order passed by the Ld.CIT(E) is liable to be quashed and we do so.

Even otherwise, reading of proviso to Section 12AA(4) shows that there is liberty available with the assessee to show that there was reasonable cause for the activities to be carried out in the said manner. This proviso clearly shows that the assessee could reply or show reasonable cause only after the quasi-judicial authority being the assessing authority questions the assessee during the course of assessment. Further, the reading of 2nd proviso to Section 153A clearly shows that assessments/re-assessments which are pending for a period of six assessment years abates. This clearly shows that even assuming proceedings had been initiated for the purpose of completing an assessment or re-assessment as a consequence of the survey, even those proceedings would stand abated as on the date of search. Thus clearly there is no assessment order nor any evidence specifically conclusively found or established against the assessee on the issues raised by the Ld.CIT(E) by an order of any quasi-judicial authority nor has the violation of any other law reached finality. On this ground also the cancellation of exemption by the Ld.CIT(E) is liable to be quashed as the same is premature and we do so.

6. In the result, all these appeals of assessee are allowed. Dictated and pronounced in the open court on 17th March, 2022

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