Commissioner Empowered to Examine Survey and Search Findings When Deciding Section 12AA Registration: Orissa High Court Rules in Favour of Revenue

Case Overview

Case Name: CIT (Exemption) Vs Orissa Cricket Association (Orissa High Court)
Related Assessment Year: 1997-98
Forum: Orissa High Court

Background and Context

The Revenue preferred an appeal before the Orissa High Court challenging the common order dated 26 December 2017 passed by the Income Tax Appellate Tribunal (ITAT), Cuttack Bench, in ITA No. 335/CTK/2017 (for Assessment Year 1997-98) and ITA No. 210/CTK/2016 (for Assessment Year 2011-12). The present appeal specifically targeted the order relating to Assessment Year 1997-98.

The High Court admitted the appeal on the following substantial question of law:

"Where an assessee seeking registration under section 12AA in course of conducting its activities under the objects has suffered survey and, search and seizure of its honorary secretary and there has been violation of provisions in section 13(1)(c), can the facts be considered for the purpose of satisfaction on the application for grant of registration?"

Submissions of the Revenue

The Revenue contended that the Commissioner of Income Tax (Exemption) had correctly exercised his authority in rejecting the assessee's registration application by order dated 26 May 2017. The grounds cited for refusal were as follows:

  • Funds belonging to the assessee were diverted for the personal benefit of office-bearers of the society, constituting a violation of Section 13(1)(c) of the Income Tax Act, 1961
  • Receipts received from the Board of Control for Cricket in India (BCCI) were incorrectly classified as corpus funds rather than being treated as revenue receipts
  • A survey operation under Section 133A was carried out at the premises of the assessee association, along with search and seizure proceedings under Section 132 at the residential premises of the honorary secretary
  • Incriminating documents and books of account were recovered and impounded during these proceedings
  • A tax demand was raised for the block period commencing from Assessment Year 2000-2001, and this demand was subsequently confirmed by the first appellate authority

The Revenue argued that the ITAT had committed a legal error in setting aside the Commissioner's well-reasoned order, and that the substantial question of law ought to be answered in favour of the Revenue.

Submissions of the Assessee

The assessee submitted that it had subsequently received provisional registration under Section 12A for Assessment Years 2022-23 to 2026-27, through an order dated 28 May 2021. Based on this development, the assessee argued that the issues raised in the present appeal had become academic in nature and no longer required adjudication.

A coordinate Bench had also passed an order dated 2 August 2022, noting the grant of provisional registration and observing that the issues raised in the appeals appeared to have become academic.

Without prejudice to the above preliminary submission, the assessee relied upon the following judicial precedents:

  1. C.I.T. (ADDL.) v. Surat Art Silk Cloth Mfrs. Assn., reported in (1980) 2 SCC 31 — particularly the concurring judgment of Pathak, J. at paragraph 31
  2. Ananda Social and Educational Trust v. CIT, reported in (2020) 17 SCC 254 — paragraphs 19 to 21
  3. Tamil Nadu Cricket Association v. Director of Income Tax (Exemptions), reported in (2013) 40 taxmann.com 250 (Madras) — paragraphs 32, 37 and 45
  4. Director of Income Tax v. Foundation of Ophthalmic and Optometry Research Education Centre, reported in (2013) 355 ITR 361 — paragraphs 10 and 11

Relevant Statutory Framework: Section 12AA Before the Finance Act, 2019 Amendment

The High Court examined Section 12AA(1) as it existed prior to its amendment by the Finance Act, 2019 with effect from 1 September 2019. The relevant portion is reproduced below: