Sec 12AA, 147, 148 : Charitable purposes – Cancellation of registration – Law Applicable – Sec. 12AA amended in 2004 enabling cancellation of registration – Provision not retrospective – Cancellation cannot be made with retrospective effect.

Reassessment – Notice consequent to cancellation of registration as a charitable institution – No allegation of fraud – Notice not valid.

Facts : The assessee was granted registration by the Commissioner under section 12A of the Income Tax Act, 1961, as it stood prior to the year 1996 with medical relief as its main object. The returns of income were assessed periodically by the Department and the assessment orders passed year after year until the amendment to Sec 12AA was introduced to specifically empower the AO to cancel registration granted under erstwhile Sec 12A. Subsequent to amendment, by order dated December 30, 2010, the registration granted to the assessee was cancelled on the allegation that the assessee has failed to fulfill the conditions required for enjoying the exemption available to the assessee. In appeal before Tribunal,  the cancellation order was upheld. The assessee subsequently preferred appeal before the High Court which is pending adjudication. Meanwhile,  the AO reopened the assessment for the assessment years 2004-05, 2005-06, 2006-07 & 2007-08 after rejecting the objections filed by the assessee.

Held : (i) that the cancellation would operate only from the date of cancellation order. In other words, the exemption U/s 11 could not be denied to the assessee for and up-to the assessment year 2010-11 on the sole ground of cancellation of the certificate of registration.

(ii) That unless the assessee had obtained registration by fraud, collusion or concealment of any material fact,  the registration granted could never be alleged to be a nullity. It was evident that the fact of the cancellation of the registration triggered the reassessment proceedings and evidently formed the preamble to each of the orders. And clearly, there was no allegation of fraud or misdeclaration on the part of the assessee and the Department was candid in confessing that the certificate was granted erroneously. Therefore, the reopening of the assessment for the past years on account of cancellation order, in the case of the assessee by the AO was not permissible under the law. The reassessment proceedings were liable to be quashed.

Auro Lab Vs ITO [2019] 411 ITR 308 (Mad)