Reopening of assessment for past years on account of the cancellation of Registration u/s 12AA is not permissible unless registration was obtained by fraud, collusion or concealment of any material fact
ABCAUS Case Law Citation:
ABCAUS 2742 (2019) (01) HC
The Petitioner had filed the instant Petition against the order rejecting the objections filed by the petitioner with respect to the reopening u/s 147 of the Income Tax Act, 1961 (the Act).
The petitioner trust was granted registation by the Commissioner of income Tax (CIT) under Sec 12A of the Act as it stood prior to the year 1996 with Medical Relief as the main object of the Trust.
The returns of income were assessed periodically by the Department and assessment orders passed year after year until the amendment to Section 12AA was introduced to specifically empower the proper officer to cancel the registration granted under erstwhile Sec 12A of the Income Tax Act, 1961.
Subsequent to the said amendment, the CIT cancelled the registration granted to the petitioner on the allegation that the petitioner failed to fulfil the conditions required for enjoying the exemption under Section 12A of the Act.
The Income Tax Appellate Tribunal (ITAT) upheld the said cancellation order of the Commissioner. The petitioner filed a TAX Appeal before the High Court against the ITAT Order confirming the cancellation which was pending adjudication.
Meantime, the Income Tax Department proceeded to reopen the assessment for the four assessment years after rejecting the objections filed by the petitioners.
Aggrieved, the instant Petition was filed.
It was argued that there was no allegation of escapement of income on account of any act of commission or omission on the part of the petitioner. It was the contention of the petitioner that reopening of the completed assessment is not permissible under the law on a mere change of opinion of the assessing officer.
It was argued that completed assessment can be reopened only when there is material on record to show that the declarations made by the assessee for the relevant assessment years are fraudulent or not truthful. It was further submitted that each of the assessment year is a separate unit and shall be assessed independent of one another on the basis of the provisions for that relevant assessment year.
The petitioner alleged that the assessment was proposed to be reopened on the only ground that the registration u/s 12A stood cancelled by the order passed subsequent to the amendment to Section 12AA(3) of the Act by Finance Act 2010 effective from 01.06.2010.
It was the contention of the petitioners that the amendment to the Sec 12 AA (3) was prospective and therefore reopening assessments on the basis of the cancellation order of the Commissioner seriously prejudiced their substantive interests and burden them with serious civil consequences.
It was also pointed that allowing the Assessing Officer (AO) to reopen the assessments for the past period on the ground of cancellation of the registration will amount to the AO assuming the powers of cancellation which even the granting authority did not have during the relevant period of time until the amendment to Section 12AA(3).
The Hon’ble High Court observed that the issues agitated in the Petition were pure questions of law and answered them one by one as under:
i. Whether the commissioner had the power to cancel the certificate of registration before he was specifically empowered to do so by the amendment dated 01.06.2010 to sec 12 AA (3)?
Without any express powers conferred under the statue, review or revocation was not permissible. The order passed by the Commissioner under Section 12AA is neither legislative and nor executive and essentially quasi judicial in nature and Section 21 of the General Clauses Act is not applicable to the order passed by the commissioner under Sec 12 AA.
ii. Whether the effect of the power of cancellation conferred to the comissioner vide amendment to Sec 12 AA (3) dated 01.06.2010 is prospective or retrospective?
Without a specific mention of the amended provisions to operate retrospectively, the cancellation can not operate from a past date.
iii. What will be the effective date on which the petitioner will lose his registration and the entitlement to exemption on account of the cancellation order?
The cancellation will operate only from the date of the cancellation order
iv. Whether the completed assessment for the past years can be reopened on account of cancellation of the certificate of registration at a distant date?
Unless the assessee obtained registration by fraud, collusion or concealment of any material fact, the registration granted can never be alleged to be a nullity. Therefore, reopening the assessment for the past years on account of the cancellation of Registration u/s 12A is not permissible under the law.
