ITAT Quashes Cancellation of Trust Registration Over Jurisdictional and Procedural Lapses, Rules Specified Violation Clause u/s 12AB(4) Not Applicable Retrospectively [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has set aside the cancellation of registration under Section 12AB of the Income Tax Act, 1961 and ruled that the Principal Commissioner of Income Tax (PCIT) lacked jurisdiction and that the "specified violation" clause under Section 12AB(4) was inapplicable for the financial years in question.

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Hemkunt Foundations (assessee) was registered under Section 12A and Section 80G of the Income Tax Act. The trust reapplied for registration post-amendment, which was granted on 24.09.2021. The Investigation Wing shared evidence found during the survey with the Assessing Officer (AO) and the PCIT, alleging multiple violations.

Based on the survey findings and a reference from the AO, the PCIT issued show-cause notices citing "specified violations" under Section 12AB(4), including alleged breaches of the Foreign Contribution (Regulation) Act (FCRA), misapplication of funds, and unrecorded cash transactions.

The PCIT canceled the trust’s registration under Section 12AB from Financial Year (FY) 2021-22 onwards vide order, claiming the trust’s activities were not genuine and violated its objectives. Aggrieved by the PCIT’s Order, the assessee appealed to the ITAT,

The assessee argued that the PCIT lacked jurisdiction, as the authority to grant or cancel registration under Section 12AB vested solely with the Commissioner of Income Tax (Exemption) [CIT(E)].

The assessee further contended that the "specified violation" clause under Section 12AB(4), introduced by the Finance Act, 2022, effective from 01.04.2022, could not apply to FY 2020-21 or FY 2021-22.

The assessee relied on precedents such as the ITAT’s ruling in Aggarwal Vidya Pracharni Sabha vs. PCIT and Lakhmi Chand Charitable Society vs. PCIT, which held that only CIT(E) has jurisdiction over Section 12AB matters and that post-2022 provisions cannot apply retrospectively.

The two-member bench, comprising M. Balaganesh (Accountant Member) and Vimal Kumar (Judicial Member) held that the PCIT lacked jurisdiction, as the authority to cancel registration under Section 12AB rested with CIT(E), per the amended provisions.

The tribunal ruled that the "specified violation" clause under Section 12AB(4), effective from 01.04.2022, could not be applied to FY 2020-21 or FY 2021-22, therefore the cancellation order was legally unsustainable.

The tribunal also found procedural lapses in the PCIT’s notices, which failed to clearly identify the alleged violations before seeking information, violating principles of natural justice. The tribunal cited the Aggarwal Vidya Pracharni Sabha precedent, the tribunal quashed the PCIT’s order as without jurisdiction and not in accordance with law.

The appeal of the assessee was allowed.

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