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TMI Blog2017 (7) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... ening the assessment under section 147 of the Act, without appreciating that the reasons for reopening the assessment were in clear contravention of the instructions laid down in circular no. 1/2011 issued by CBDT. Reopening of assessment is thus illegal and hence deserves to be quashed. It is prayed that since the reopening of the assessment is not based upon appreciation of correct provisions of law,'the order of assessment passed under section 147 of the Income tax Act is void ab initio and may kindly be ordered to be quashed. 5. This is a legal ground raised by the assessee challenging validity of the order passed under section 147 of the Income Tax Act, 1961 (in short 'the Act') on the premise that the reasons recorded for reopening were in contravention of the instructions laid down in Circular No.1/2011 issued by the CBDT and hence, the reopening was illegal. 6. Brief facts relating to the issue are that the assessee society was granted registration under section 12A of the Act vide order dated 9.3.1992. Subsequently, the registration granted was cancelled by applying the proviso to section 2(15) of the Act, since it was found that the assessee was deriving receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. 1) Agra Development Authority Vs. CIT (2013)141 ITD 336 (Agra) 2) Director of Income Tax (Exemptions) Vs. Mool Chand Khairati Ram Trust (2011) 339 ITR 622 9. The Ld. DR, on the other hand, relied upon the order of the Assessing Officer and stated that the Assessing Officer had rightly assumed jurisdiction under section 147 of the Act on the basis of cancellation of registration under section 12AA(3) of the assessee for the impugned year by the Ld.CIT. The Ld. DR pointed out that the correctness of the order passed by the Ld. CIT could not have been gone into by the Assessing Officer and could be tested only in appellate proceedings. 10. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The Ld. counsel for the assessee has challenged he reopening on the ground that as per reasons recorded, the only ground for reopening was the cancellation of registration which as per the Ld. counsel for the assessee was to be effective from assessment year 2011-12 only as prescribed by the CBDT and various judicial pronouncements. Therefore, as per the Ld. counsel for the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions in this regard. On going through the CBDT Circular we find that what the Circular states is that power of cancellation of registration, which till then was available only to registrations granted under section 12AA of the Act, is extended to registration granted u./s 12A of the Act also and this power was to be exercised w.e.f. assessment year 2011-12. The relevant portion of the Circular reads as under : 7. Cancellation of registration obtained under section 12.4 7.1 Section 12AA provides the procedure relating to registration of a trust or institution engaged in charitable activities. Section 12AA(3) previously provided that if the activities of the trust or institution are found to be non genuine or its activities are not in accordance with the objects for which such trust or institution was established, the registration grantedundersection12AAcanbecancelledby the Commissioner after providing the trust or institution an opportunity of being heard. 7.2 The power of cancellation of registration is inherent and flows from the authority of granting registration. However, judicial rulings in some cases have held that the Commissioner does not have the power to cancel th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power the Commissioner to cancel a registration obtained under Section 12A as it stood prior to its amendment by the Finance (No.2) Act, 1996. Sub Section (3) was inserted into the provisions of Section 12AA by the Finance (No.2) Act, 2004 with effect from 1 October 2004. As it originally stood, under subsection (3), a power to cancel registration was conferred upon the Commissioner where a trust or an institution 1 (2005) 279 ITR 310 (SC) had been granted registration under clause (b) of subsection (1) of Section 12AA. The Commissioner, after satisfying himself that the objects of the trust or an 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, was vested with the power to pass an order in writing cancelling the registration of such trust or institution. By the Finance Act of 2010, subsection (3) was amended so as to empower the Commissioner to cancel the registration of a trust or an institution which has obtained registration at any time under Section 12A (as it stood before its amendment by the Finance (No.2) Act, 1996). As a result of the amendment, a regulatory framework is now sought to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1999 was retrospective in nature. The Finance Act, 1999 specifically provided that the substituted explanation would come into effect from 1 April 2000. In the above case, it was contended by the appellant that the explanation would not apply while assessing income for the years 199293 and 199394. The Supreme Court observed that the High Court had while dealing with the appeal from the decision of the Tribunal purported to give retrospective effect to the explanation introduced in 1999. This according to the Supreme court was not permissible as the explanation had not come into effect during the assessment years in question. The Supreme Court further held that a cardinal principle of tax Law is that the law to be applied is that which is in force during the relevant assessment years unless otherwise provided expressly or by necessary implication. In that view it was held that the explanation was not retrospective. 7. In the present case, the issue is not with regard to the assessment of income of the petitioners as in the case of Sedco Forex (supra). The issue in this case is with regard to the power to cancel registration of the trust under Section 12AA in view of the amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how cause that was issued to the Petitioner on 31 July 2007, culminated in an order cancelling the registration which was passed on 9 October 2007. The only ground on which the Tribunal interfered with the order was that under Subsection (3) of Section 12AA, as it then stood, the Commissioner had no power to cancel the registration of a trust or institution granted under Section 12A. This decision of the Tribunal was rendered on 19 September 2008, which was prior to the amendment, which was brought in by the Finance Act of 2010. After the amendment by the Finance Act with effect from 1 June 2010, the Commissioner has issued a fresh notice dated 11 March 2011 proposing to invoke the powers under the amended provisions of Section 12AA(3) for cancellation of the registration for the reasons mentioned in the order dated 9 October 2007. The notice which has been issued by the Commissioner is a notice to show cause and it would be open to the Petitioner to submit a reply to the notice on all grounds, including those which are contained in the order dated 9 October 2007. In other words, the contents of the order dated 9 October 2007 shall be treated as a notice to show cause to the Petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order dated 25.2.2013 has cancelled the registration granted to the assessee society w.e.f. 1992. In the absence of registration the assessee had, therefore, no basis for claiming exemption under sections 11 and 12 of the Act at all as rightly held by the Commissioner of Income Tax. This ground of appeal of the assessee is, therefore, dismissed. 17. Ground No.4 raised by the assessee is as under : 4) That the Ld. Commissioner of Income tax, (Appeals), Chandigarh, has erred both on facts and law in confirming the action of Assessing Officer in holding that the sum of Rs. 993327 incurred under the head 'Repair and Maintenance' was capital expenditure and allowing only deprecation thereon and thus making a disallowance of a sum Rs. 884305. The action of the A.O in holding revenue expense debited under the head 'Repair and Maintenance' as capital expenditure is not only unjust, but is also illegal as the same is not based upon correct Appreciation of facts and deserves to be quashed. It is prayed that action of the A.O. holding the revenue expense as capital expenditure to the extent of Rs. 993327 may be quashed and the A.O may be directed to delete the additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls filed by the assessee and cursorily held the expense to be capital in nature without giving any basis for this finding at all. The Assessing Officer while making the disallowance held at para 5 to 6.2 as follows : "5. The assessee is engaged in the business of imparting coachings/tuitions etc. A perusal of P&L a/c shows that the assessee has earned rental income amounting to Rs. 11,53,392/-, after claimed deduction u/s 24(a) at Rs. 3,67,378/-, the income of house property come to Rs. 8,57,215/-. The assessee has also shown income from business and profession amounting to Rs. 17,12,403/- (including rental income). After excluding rental income of Rs. 11,53,392/-, business income comes to Rs. 5,59,011/- which is added to the total income of the assessee. 6. Further, during the year under consideration the assessee has debited an amount of Rs. 11,22,484/- under the head "Repair and Maintenance" details which are as under: SI.No. Expenditure Amount. 1. Electricity 43,602/ 2. Hostel 1,50,593/ 3. Furniture 97,292/- 4. Office Equipment 23,083/- 5. Building 7,02,257/- 6. Sanitary 62,472/- 7. Vehicle 43,185/- Total:- 11,22, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer or before the undersigned in the appellate proceedings. The Assessing Officer has given his findings in para 6.2 of his order that as per the details submitted, the expenses incurred on account of hostel, furniture, building and vehicle were in the nature of capital expenses and this finding of the Assessing Officer has not been contradicted. Therefore, it is held that the Assessing Officer was right in treating this expenditure as capital expenditure and in disallowing the impugned amount. The addition made on this account is, therefore, confirmed. Ground of appeal No. 4 is dismissed."
25. In view of the same, in the interest of justice, we consider it fit to restore the issue back to the file of the Assessing Officer to verify the nature of expenses incurred and thereafter pass a speaking order in accordance with law. We may add that the assessee be granted due opportunity of hearing in this regard and is free to adduce all evidences on which he wishes to place reliance. This ground of appeal raised by the assessee is, therefore, partly allowed.
26. In the result, the appeal of the assessee is partly allowed.
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