2025 (6) TMI 486 - AT - Income Tax

Cancelling the registration granted u/s 12A - assessee has made specific violation as mentioned in clause (g) of Explanation to section 12AB(4) - HELD THAT - Since the assessee in the instant case has applied for registration in Form 10A on 27.11.2021 on which date the order cancelling the registration granted earlier was pending before the Tribunal for adjudication therefore the assessment has not attained finality and since the provisions of clause (g) to Explanation to section 12AB(4) were inserted by the Finance Act 2023 w.e.f. 01.04.2023 therefore we are of the considered opinion that the Ld. PCIT should not have cancelled the registration merely on the ground that the assessee has made specific violation as mentioned in clause (g) of Explanation to section 12AB(4) of the Act. We find the Co-ordinate Bench of the Tribunal in the case of Inclusive Recycling Foundation 2025 (2) TMI 912 - ITAT PUNE has held in light of the Circular No.7/2024 issued by the CBDT on 25.04.2024 i.e. after the filing of application by the assessee wherein the issue of mentioning wrong section code has been addressed / considered as a common and frequent error and since the Ld. PCIT in the instant case has not given any finding on any other violation except that the assessee obtained the registration on the basis of false information that its registration has not been cancelled therefore we deem it proper to restore the issue to the file of the PCIT with a direction to examine as to whether the assessee is in fact carrying out any charitable activities post registration in 2021 and decide the issue as per fact and law. In our opinion even if there were prior alleged violations however if the activities of the assessee trust post registration are in full compliance with the provisions of the Act cancelling the registration in our opinion is not in accordance with law since the assessee is making a fresh application as per the amended provisions of the Act. The Ld. PCIT shall verify the records / submissions made by the assessee and while adjudicating the issue he will examine if there are any violations of activities post registration in 2021 and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

The core legal questions considered by the Tribunal in this appeal revolve around the validity and legality of the cancellation of registration granted under section 12A(1)(ac)(i) of the Income Tax Act, 1961 (the Act) to the appellant trust. The key issues include:

1. Whether the cancellation of registration under section 12AB(4) of the Act was justified on the ground that the appellant furnished false or incorrect information while applying for registration in 2021, given that its prior registration was cancelled in 2018 and the appeal against that cancellation was pending at the time of fresh application.

2. Whether the amendment to section 12AB(4), particularly clause (g) of the Explanation inserted by the Finance Act, 2023 with effect from 01.04.2023, can be applied retrospectively to cancel registration granted prior to the amendment.

3. The correct interpretation and applicability of section 12A(1)(ac)(i) of the Act regarding eligibility for registration, especially when prior registration had been cancelled and an appeal was pending.

4. Whether the cancellation order violated principles of natural justice by not properly considering the appellant's submissions and by being arbitrary and without independent application of mind.

5. Whether the cancellation was based solely on past violations without any fresh findings on the genuineness of charitable activities carried out by the appellant post-registration in 2021.

6. The effect of judicial precedents regarding the finality of assessment or registration proceedings when appeals are pending, and whether the appellant had a bona fide belief in its eligibility for registration.

Issue-Wise Detailed Analysis

1. Cancellation on Grounds of Furnishing False or Incorrect Information

The legal framework involves section 12AB(4) of the Act, which empowers the Principal Commissioner or Commissioner to cancel registration if specified violations occur, including if the application contains false or incorrect information (clause (g) of the Explanation to section 12AB(4)). The cancellation order relied on the fact that the appellant had indicated "No" to whether any prior application for registration was rejected, despite the fact that its registration was cancelled in 2018 and the appeal was pending at the time of fresh application in November 2021. The PCIT held that the appellant was not entitled to registration under section 12A(1)(ac)(i) since the prior registration was cancelled and thus the fresh application contained false information.

The appellant argued that since the appeal was pending, the cancellation order was not final and hence it was justified in applying for fresh registration. The Tribunal noted relevant judicial precedents including decisions of the Gujarat and Patna High Courts which held that assessment or registration proceedings remain pending until the appeal is finally disposed of and the order is given effect to by the assessing authority. These precedents support the appellant's position that the cancellation order was not final at the time of fresh application.

The Tribunal also observed that the appellant's activities post-registration in 2021 had not been examined or found to be non-compliant by the PCIT. The appellant submitted that it was engaged in bona fide charitable activities with substantial infrastructure and compliance.

2. Retrospective Application of Finance Act, 2023 Amendment to Section 12AB(4)

The amendment inserting clause (g) into the Explanation to section 12AB(4) came into effect on 01.04.2023, after the appellant's application and registration in 2021. The PCIT relied on this clause to cancel the registration. The appellant contended that this amendment could not be applied retrospectively to cancel registration granted before its enactment.

The Tribunal extensively analyzed the principle that tax laws apply prospectively unless expressly stated otherwise. It relied on authoritative Supreme Court rulings which establish that the law in force in the relevant assessment year applies, and retrospective application of substantive provisions is impermissible unless explicitly provided. The Tribunal referred to coordinate bench decisions holding that section 12AB(4) amendments have no retrospective effect and cancellation orders cannot be made effective retrospectively.

The Tribunal found merit in the appellant's contention and held that the retrospective application of clause (g) of Explanation to section 12AB(4) was legally untenable. It held that cancellation with retrospective effect is invalid and that the PCIT's order cancelling registration from AY 2022-23 onwards on this basis was bad in law.

3. Interpretation and Application of Section 12A(1)(ac)(i)

Section 12A(1)(ac)(i) permits trusts that were registered under the old regime to apply for registration under the new regime within a specified timeline. The PCIT held that the appellant was ineligible as its prior registration was cancelled effective 2007-08 and upheld by the Tribunal in 2023, so it was not registered at the time of fresh application in 2021.

The appellant argued that since the appeal was pending, the cancellation was not final and it was eligible to apply. The Tribunal noted that the PCIT's interpretation was strict but the pending appeal and judicial precedents on finality of proceedings favored the appellant's position. The Tribunal directed that the genuineness of the appellant's activities post-registration should be examined rather than relying solely on prior cancellation.

4. Principles of Natural Justice and Procedural Fairness

The appellant contended that the PCIT passed the cancellation order arbitrarily without properly considering submissions or affording adequate opportunity to rebut findings. The Tribunal noted that the PCIT did not make any adverse findings on the appellant's activities post-registration and relied solely on past cancellation and alleged false information in the application form.

The Tribunal found that the PCIT's order lacked an independent application of mind to the facts and circumstances and did not comply fully with principles of natural justice. It held that cancellation should not be based solely on prior allegations without fresh inquiry into current compliance.

5. Reliance on Past Violations Without Fresh Findings

The PCIT's cancellation was based on prior search and seizure findings from 2013 and the 2018 cancellation order, which had been adjudicated upon. No new violations or contraventions post-registration in 2021 were established. The Tribunal emphasized that cancellation should be based on current non-compliance and not merely on past adjudicated issues.

6. Effect of Pending Appeal on Finality of Proceedings

The Tribunal relied on judicial precedents that assessment or registration proceedings do not attain finality until appeals are disposed of and orders given effect to. The appellant's appeal against the 2018 cancellation was pending at the time of fresh application and registration in 2021. Thus, the appellant had a bona fide belief in its eligibility for registration.

7. Directions and Application of Law to Facts

The Tribunal quashed the cancellation order dated 05.02.2025 passed under section 12AB(4) of the Act on the ground of retrospective application of the 2023 amendment and on the ground of pending appeal affecting finality. It restored the issue to the PCIT for fresh adjudication on whether the appellant is carrying out charitable activities post-registration in 2021 and whether any violations have occurred post-registration. The Tribunal clarified that the PCIT may pass a fresh order for cancellation for subsequent years if violations are found but not based on prior adjudicated facts.

Significant Holdings

"We find force in the arguments of the Ld. Counsel for the assessee that the amendment to section 12AB(4) cannot be applied retrospectively as it has not been provided or seen to have explicitly provided to have retrospective character or intention."

"In income-tax matters, the law to be applied is the law in force in the assessment year unless otherwise stated or implied."

"The assessment proceeding cannot be said to be complete and is pending till the appeal is heard and disposed of by the Tribunal and the order of the Tribunal is given effect to by the assessing authority."

"Cancellation of registration with retrospective effect is invalid in these cases."

"Cancellation should not be based solely on prior adjudicated violations without fresh inquiry into the genuineness of activities post-registration."

"The Principal Commissioner or Commissioner should examine if there are any violations of activities post registration and decide the issue as per fact and law."

The Tribunal's final determination was to allow the appeal for statistical purposes, quash the cancellation order, and remit the matter to the PCIT for fresh consideration of the appellant's charitable activities and compliance post-registration in 2021, applying the law prospectively and respecting principles of natural justice.

← Previous Next →