Section 12AB(4) lacks authority to Retrospectively cancel 12A registrations: ITAT Pune

Cancellation of Registration U/s 12A: Retrospective applicability of amended definition of Specified Violation u/ 12AB(4)

Summary: The assessee, a charitable trust operating a medical college and hospital, faced cancellation of its registration after a search operation revealed alleged violations. The assessee argued that the PCIT lacked authority under Section 12AB to cancel the registration granted under Section 12A, and that “specified violations” couldn’t be applied retrospectively. The Tribunal ruled that Section 12AB(4) does not provide powers to cancel Section 12A registrations, and the notices issued were invalid. The allegations were based on retracted statements and lacked concrete evidence. The Tribunal quashed the cancellation and restored the trust’s registration.

The issue of cancellation of Registration and retrospective applicability of the term “Specified Violation” as amended in S. 12AB(4) by the Finance Act 2022, has been considered and decided in assessees’s favour in the decision of M.M. Patel Charitable Trust ITA No.1130/PUN/2024, decided on 21/02/2025. The analysis of the decision and its key takeaways are discussed below

Background:

i) The assessee is a Public Charitable Trust operating a Medical College, Hospital, and Research Centre. It was granted registration under Section 12A of the Income Tax Act on 16.02.2001, which was later renewed under Section 12AB(1) effective from 01.04.2021.

ii) A search operation under Section 132 of the Income Tax Act was conducted on 25.08.2022, during which certain documents alleged to be incriminating were seized.

iii) The Principal Commissioner of Income Tax (PCIT) initiated proceedings to examine whether the trust had committed “specified violations” under Section 12AB(4).

iv) A show-cause notice was issued proposing the cancellation of the trust’s registration under Sections 12A, 12AA, and 12AB(4).

v) Finally PCIT cancelled the Registraion of Trust 12A/12AA from F.Y. 2019-20 to F.Y. 2020-21 i

Assessee’s Contentions:

The assessee raised multiple challenges:

i) Jurisdiction of PCIT:

The assessee contested the PCIT’s authority to cancel the registration under Section 12A, arguing that the powers under Section 12AB(4) do not extend to cancelling registrations granted under Section 12A.

ii) Powers under Section 12AB: The assessee argued that:

• • There is no express power under Section 12AB to cancel registrations granted under Section 12A.
  • The notices issued under Section 12AB(4) (on 21.03.2023) and Section 12AA (on 20.03.2024) were void ab initio (invalid from the outset).
  • The concept of “specified violation” was introduced only from 01.04.2022 and could not be applied retrospectively to earlier years (2019-20 to 2021-22).

iii) Merits of the Case:

• • The assessee contended that the allegations (e.g., receiving cash refunds for staff salaries, doctors’ salaries, PG stipends, and capitation fees) were based on retracted statements of employees and lacked concrete evidence. The Managing Trustee also denied any involvement in such transactions.

Issues Before the Tribunal:

The Tribunal addressed the following key issues:

i) Jurisdiction of PCIT:

The assessee initially challenged the PCIT’s jurisdiction but later did not press this issue.

The Tribunal dismissed these grounds as “not pressed”.

ii) Powers under Section 12AB:

• The Tribunal examined whether Section 12AB(4) provides express powers to cancel registrations granted under Section 12A. It concluded that Section 12AB(4) only applies to registrations granted under Section 12AB(1) and Section 12AA, and not Section 12A.
• The Tribunal held that the notice issued under Section 12AB(4) was invalid and void ab initio because there was no express power to cancel Section 12A registrations.
• The Tribunal also found that the notice issued under Section 12AA was invalid because Section 12AA was discontinued from 01.04.2021, and proceedings should have been initiated under Section 12AB.

iii) Retrospective Application of “Specified Violation”:

• The Tribunal noted that the term “specified violation” was introduced by the Finance Act, 2022, effective from 01.04.2022. Since the allegations pertained to the financial years 2019-20 to 2021-22, the concept of “specified violation” could not be applied retrospectively.

iv) Merits of the Cancellation:

• The Tribunal examined the allegations and found that they were based on retracted statements and loose documents found at an employee’s residence. There was no concrete evidence to substantiate the claims.
• The Tribunal held that the genuineness of the trust’s activities was not disproven, and the cancellation of registration was not justified.

v) Legal Precedents Cited:

• The Tribunal relied on the Supreme Court’s judgment in Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd. vs. CIT (2018) 90 com 281 (SC)), which held that “The CIT (Commissioner of Income Tax) has no express power to cancel registrations granted under Section 12A unless such power is explicitly provided in the statute. The order granting registration under Section 12A is a quasi-judicial order and cannot be cancelled without express statutory authority.”
• The Tribunal also referred to the Coordinate Bench’s decision in Maa Jagat Janani Seva Trust, TA No.248/CTK/2023, dated16.07.2024 which held that “cancellation of registration cannot be applied retrospectively unless expressly provided in the statute.”

vi) Tribunal’s Findings:

• Jurisdiction of PCIT: The challenge was dismissed as not pressed.
• Powers under Section 12AB:

> The Tribunal held that Section 12AB(4) does not provide express powers to cancel registrations granted under Section 12A. The notice issued under Section 12AB(4) was invalid and void ab initio.

> The notice issued under Section 12AA was also invalid because Section 12AA was discontinued from 01.04.2021.

• Retrospective Application of “Specified Violation:

The Tribunal held that the concept of “specified violation” could not be applied to years prior to 01.04.2022.

• Merits of the Case

The Tribunal found that the allegations were based on retracted statements and lacked concrete evidence. The genuineness of the trust’s activities was not disproven.

vii) Conclusion:

• The Tribunal quashed the cancellation of registration under Section 12A, holding that:

> There was no express power under Section 12AB(4) to cancel registrations granted under Section 12A.

> The notices issued under Section 12AB(4) and Section 12AA were void ab initio.

> The concept of “specified violation” could not be applied retrospectively.

> The allegations were unsubstantiated and based on retracted statements.

• The Tribunal ruled in favor of the assessee, reversing the PCIT’s order and restoring the trust’s registration under Section 12A.

viii) Key Takeaways:

• No Express Power under Section 12AB(4): The Tribunal emphasized that Section 12AB(4) does not provide express powers to cancel registrations granted under Section 12A.
• Retrospective Application Invalid: The concept of “specified violation” introduced in 2022 cannot be applied to earlier years.
• Lack of Concrete Evidence: The allegations were based on retracted statements and lacked substantive evidence, making the cancellation unjustified.
• Quasi-Judicial Nature of Registration Orders: The Tribunal reiterated that orders granting registration under Section 12A are quasi-judicial and cannot be cancelled without express statutory authority.