The Income Tax Appellate Tribunal (ITAT) Pune Bench quashed the Principal Commissioner of Income Tax (Central), Pune's order cancelling the registration of Yashaswi Academy for Skills under Sections 12AA(3), 12AA(4) and 12AB(4) of the Income Tax Act, 1961, holding that alleged violations of Section 13(1)(c) do not constitute 'specified violations' under Section 12AB(4) and the provision cannot be applied retrospectively to transactions prior to 01.04.2022.
Background & Facts
The Dispute
Yashaswi Academy for Skills (assessee), a company incorporated under Section 8 of the Companies Act, 2013 on 20.03.2014, was granted registration under Section 12AA of the Income Tax Act, 1961 on 21.06.2016 for carrying out skill development activities. The registration was renewed under Section 12AB w.e.f. 01.04.2021 for the period AY 2022-23 to 2026-27 via an automated process by the CPC on 28.05.2021. The assessee's main objects, as per its Memorandum of Association, include promoting skill development to meet industry requirements for trained manpower.
Key Facts
- The assessee was incorporated on 20.03.2014 under Section 8 of the Companies Act, 2013
- Initial registration under Section 12AA granted on 21.06.2016 (valid up to AY 2021-22)
- Registration renewed under Section 12AB on 28.05.2021 (valid for AY 2022-23 to 2026-27)
- A survey action under Section 133A was conducted by the department on 06.03.2024
- Based on survey findings, the LD. PCIT(C) passed a cancellation order under Sections 12AA(3)/12AB(4) on 29.09.2025
- The cancellation order cited violations including: personal expenses of directors, salary paid to group concern employees, loans to related parties, repair/maintenance of directors' buildings, and cash stipend payments
- The assessee filed renewal applications for registration under Section 12A(1)(ac)(ii) and approval under Section 80G(5)(ii) on 26.09.2025 and 29.09.2025 respectively
- The LD. PCIT(C) rejected these renewal applications on the grounds that the assessee lacked valid registration under Section 12A r.w.s. 12AB at the time of renewal
- The assessee's turnover for FY 2023-24 was Rs. 9,89,03,57,353/
Procedural History
- 06.03.2024: Survey action conducted under Section 133A by the department
- 29.09.2025: LD. PCIT(C) passed order cancelling registration under Sections 12AA(3)/12AB(4) and 12AB(4)
- 26.09.2025 & 29.09.2025: Assessee filed applications for renewal of registration under Section 12A(1)(ac)(ii) and approval under Section 80G(5)(ii)
- LD. PCIT(C) date unspecified: Renewal applications rejected due to lack of valid registration under Section 12A r.w.s. 12AB
- Assessee filed appeal: ITA No. 2814/PUN/2025 challenging the cancellation order (pending before ITAT)
- 03.07.2026: ITAT (in ITA No. 2814/PUN/2025) held LD. PCIT(C) not justified in cancelling registration and directed restoration
- 15.09.2026: Date of hearing for the present appeals (ITA Nos. 2447 & 2448/PUN/2026)
- 13.10.2026: Date of pronouncement of the present judgment
The Parties' Positions
For the Assessee (Petitioner): Contended that the LD. PCIT(C) lacked jurisdiction to cancel registration under Section 12AB(4) as the alleged violations of Section 13(1)(c) do not fall within the ambit of 'specified violation' as defined in the Explanation to Section 12AB(4); relied on Richmond Educational Society vs. DCIT (ITA No. 4779/Del/2025) and Islamic Academy of Education vs. PCIT(Central) (ITA No. 610/Bang/2023) to argue that Section 13(1)(c) violations cannot trigger registration cancellation post-amendment; asserted that the assessee genuinely carried out educational activities through NEEM/NAPS schemes with 281 faculties and 50,000+ trainees across 14 states.
For the Respondent (Revenue): Argued that the assessee misused its tax-exempt status by diverting income to directors and related parties through personal expenses, bogus stipend payments, and commercial hotel operations; cited decisions like CIT vs. Jagannath Gupta Family Trust and Batanagar Education and Research Trust to contend that Section 13(1)(c) violations justify registration cancellation; maintained that the assessee's activities were not genuine charitable activities but commercial ventures in disguise.
Relief Sought
The assessee sought quashing of the LD. PCIT(C)'s cancellation order dated 29.09.2025, restoration of the original registration granted under Section 12AA on 22.01.1979, and consequential relief including renewal of registration and approval.
The Legal Issue
The central question was whether the Principal Commissioner of Income Tax (Central), Pune had jurisdiction to cancel the assessee's registration under Section 12AB(4) of the Income Tax Act, 1961 based on alleged violations of Section 13(1)(c) when the 'specified violation' concept was introduced into Section 12AB(4) only w.e.f. 01.04.2022 via the Finance Act, 2022, thereby rendering retrospective application invalid for transactions occurring prior to that date.
Arguments Presented
For the Appellant/Petitioner
The assessee relied on the decisions of the Delhi Bench of the Tribunal in Richmond Educational Society vs. DCIT (ITA No. 4779/Del/2025) and the Bangalore Bench in Islamic Academy of Education vs. PCIT(Central) (ITA No. 610/Bang/2023) to argue that violations of Section 13(1)(c) and Section 13(1)(d) do not fall within the ambit of 'specified violation' as defined in the Explanation to Section 12AB(4). It contended that the LD. PCIT(C) could cancel registration only if satisfied about the occurrence of a 'specified violation' under Section 12AB(4), and since the alleged Section 13(1)(c) violations (such as personal expense reimbursements, salary to group concern employees, and loans to related parties) did not meet the statutory definition, the cancellation order was jurisdictionally flawed. The assessee further argued that the Finance Act, 2022 amendment introducing 'specified violation' in Section 12AB(4) applies prospectively only from 01.04.2022, making any reliance on pre-amendment transactions (like those alleged to have occurred between 2016-2020) legally unsustainable. It emphasized that the assessee genuinely carried out skill development activities under NEEM/NAPS schemes, employing 281 faculties and training 50,000+ trainees across 14 states, with all financial transactions aligned to its stated objects.
For the Respondent/State
The LD. CIT-DR contended that the assessee had violated Section 13(1)(c) by applying income for the benefit of trustees and related parties through personal expenses of Shri Abhishek Kulkarni, salary payments to Smt. Shobha Kulkarni and Ms. Abhilasha Kulkarni, loans to related concerns, and repair/maintenance of directors' buildings. It relied on decisions such as CIT vs. Jagannath Gupta Family Trust (SC) and Batanagar Education and Research Trust (SC) to argue that such misuse of trust status justifies registration cancellation. The Revenue maintained that the assessee's activities were not genuine charitable activities but commercial ventures, citing the LD. PCIT(C)'s findings that the assessee was running a hotel/restaurant in the guise of skill development and paying stipends in cash violative of NAPS guidelines. It argued that the assessee had deliberately framed grounds of appeal to bypass transgressions that should be addressed during assessment proceedings, and that the LD. PCIT(C) had correctly quantified the benefit extended to related parties through unsubstantiated claims of cash stipend payments and unverified hotel operations.
The Court's Analysis
The Tribunal began by noting that the LD. PCIT(C) had cancelled registration under Sections 12AA(3), 12AA(4) and 12AB(4) on the ground that the assessee violated Section 13(1)(c) by applying income for the benefit of trustees and related parties. It then examined the Explanation to Section 12AB(4) which defines 'specified violation' as:
"a) where any income of the trust or institution under the second regime has been applied other than for the objects for which it is established; or b) the trust of institution under the second regime has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by it in respect of the business which is incidental to the attainment of its objectives; or c) the trust or the institution under the second regime has applied any part of its income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; or d) the trust or institution under the second regime established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; e) any activity being carried out by the trust or the institution under the second regime, (i) is not genuine; or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or f) the trust or the institution under the second regime has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1) of section 12AB, and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality or g) the application referred to in clause (ac) of sub-section (1) of section 12A contains false or incorrect information"
The Tribunal observed that violations of Section 13(1)(c) (application of income for benefit of trustees/related parties) and Section 13(1)(d) (investment in non-specified modes) are expressly excluded from this definition. It relied on the Delhi Bench's decision in Richmond Educational Society vs. DCIT (supra) and the Bangalore Bench's decision in Islamic Academy of Education vs. PCIT(Central) (supra) to hold that Section 13(1)(c) violations do not constitute 'specified violations' under Section 12AB(4). The Tribunal further noted that the Finance Act, 2022 amendment inserting the 'specified violation' concept in Section 12AB(4) w.e.f. 01.04.2022 applies prospectively only, as evidenced by the Memorandum to the Finance Bill 2022 which states that the consequence of Section 13(1)(c) violations is now restricted to denial of exemption to the extent of diverted income, not cancellation of registration. It held that the LD. PCIT(C)'s show cause notice dated 14.03.2024 was defective because it did not specify which 'specified violation' was being invoked and failed to establish that the alleged violations occurred post-01.04.2022. The Tribunal concluded that the alleged violations pertained to a period prior to 01.04.2022 (as admitted by the Revenue's reliance on transactions up to December 2020), making Section 12AB(4) inapplicable. It found merit in the assessee's argument that the LD. PCIT(C) had not appreciated the genuineness of its skill development activities, which included theoretical training provision, industry partnerships, and compliance with NEEM/NAPS guidelines, and thus the cancellation order was not justified in law.
The Verdict
The assessee succeeded in its appeal. The ITAT Pune Bench set aside the cancellation order dated 29.09.2025 passed by the LD. PCIT(C) under Sections 12AA(3), 12AA(4) and 12AB(4), and directed the restoration of the registration originally granted under Section 12AA on 22.01.1979. No monetary relief was granted as the assessee's relief sought was limited to registration restoration and renewal. The appeal was allowed in full, with the Tribunal declaring the LD. PCIT(C)'s assumption of jurisdiction under Section 12AB(4) vitiated due to the retrospective application of the 'specified violation' concept to pre-amendment conduct.
What This Means For Similar Cases
### Retrospective Application Barred: Specified Violations Under Section 12AB(4) Cannot Apply to Pre-Amendment Conduct
Practitioners must note that the 'specified violation' concept introduced in Section 12AB(4) by the Finance Act, 2022 applies prospectively only from 01.04.2022. Any alleged violation occurring prior to this date cannot trigger registration cancellation under this provision, regardless of its nature. Revenue authorities must verify the timing of alleged misconduct before initiating cancellation proceedings; reliance on pre-2022 transactions is legally unsustainable and will be struck down by tribunals as jurisdictionally flawed.
### Section 13(1)(c) Violations Do Not Constitute 'Specified Violations' Post-Amendment
Following this judgment, income diversion for the benefit of trustees or related parties (Section 13(1)(c)) no longer falls within the ambit of 'specified violation' under Section 12AB(4). Consequently, such violations cannot justify registration cancellation under this provision. The Revenue's remedy is now restricted to assessment-stage consequences under Section 11 (denial of exemption to the extent of diverted income), not registration withdrawal. Taxpayers should structure related-party transactions to comply with Section 13(3) guidelines, knowing that inadvertent violations will affect only exemption eligibility, not registration validity.
### Burden on Revenue to Prove Specific Violation Occurred Post-Amendment
The Revenue bears the burden of proving two elements before invoking Section 12AB(4): (1) that the alleged conduct constitutes a 'specified violation' as defined in the Explanation to Section 12AB(4), and (2) that such violation occurred on or after 01.04.2022. Mere allegations of income diversion or non-genuine activities are insufficient; specific evidence linking the violation to the post-amendment period is mandatory. Practitioners should challenge cancellation orders by demanding proof of both the violation's nature and its temporal occurrence, as demonstrated in this case where the Revenue failed to establish post-01.04.2022 applicability.
