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2016 (6) TMI 35 - ITAT DELHI

2016 (6) TMI 35 - ITAT DELHI - TMI - Registration under section 12-AA cancelled - Held that:- Under section 12AA of the Act, a review what is open to scrutiny is only the pursuit of objects as registered. In the case of CIT vs. Surya Educational & Charitable Trust (2011 (10) TMI 47 - PUNJAB AND HARYANA HIGH COURT ) it has been held that the Learned CIT ought not to concern himself with the application of funds beyond examining the genuineness of the pursued of the avowed objects.

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erated that only when the registered objectives are not pursued or that the very pursued of activities is bogus or sham then only a cancellation order can survive and endure. In absence of such finding by the Learned CIT, we are of the view that he was not justified in cancelling the registration granted to the appellant-assessee under section 12AA of the Income-tax Act, 1961. We thus while setting aside such cancellation order of the Learned CIT questioned before us restore the registration gra .....

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four grounds: 1. On the facts and in the circumstances of the case and in law, the CIT erred in holding that the Assessee society did not exist for educational purposes, without assigning any cogent reasoning for this conclusion; 2. On the facts and in the circumstances of the case and in law, the CIT erred in ordering cancellation of the Assessee s registration under section 12-AA of the Income-tax Act; 3. Without prejudice to the grounds at (1) & (2) above, the CIT erred in ordering the c .....

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on record and the queries relied upon. 3. The brief facts of the case are that the Appellant Society was registered on 25.02.2004 for the promotion of education. The facts in details are at pages 336 to 343 of the Paper Book. On that basis that it was running educational institutions in terms of its objectives imparting of education on a charitable basis, the appellant moved an application to the Ld. Commissioner of Income-tax u/s 12AA of the Income Tax-Act, 1961 (the Act) for registration. The .....

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ried out on the Society during which various officials of the Society including the office-bearers were interrogated and their statements were recorded on oath. These statements were relied upon later for the purpose of cancelling the Society s registration u/s 12AA of the Act. The statements relevant to this point are contained in the Paper Book at Page No. 100, 133 and 186. 3.2 It remained the submission of the Appellant Society that these statements taken during survey u/s 133A of the Act rec .....

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. 3.3 In the survey several documents and papers including accounting papers, registers and voucher were impounded. These papers relate to the period beginning with 2011and extend up to the date of the very survey i.e. 28.02.2012. All these papers are discussed in detail in about 70 pages of the impugned order while withdrawing registration. The seriousness of the charge in terms of the withdrawal order is that the activities of the society/institution are not genuinely carried out for charitabl .....

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tion of ₹ 1 lakh in the A.Y. 2009-10 &, 2010-11 and ₹ 1.50 lakhs in AY 2011-12 for unvouched expenses has been made in the A.Y. 2012-13 as the Assessing Officer refused to go by the accounts. He chose to follow the allegations made in the impugned order of withdrawal of registration. The assessment order is the subject matter of the appeal before Ld. CIT(A). In the orders for A.Y. 2009-10 to 2011-12 benefit of section 11 has been refused only on the ground that the registration u .....

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o 70 of the order impugned are arising out of a mis-appreciation and convoluted understanding of the several day book entries and vouchers of the various educational institutions run from one central office of the society. All these documents and papers had to be sorted out and analyzed both for their origin and for their ultimate destination. Yet they were arbitrarily and summarily considered for the purpose of withdrawing the registration by culling the state of affairs on the basis of such ac .....

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the aims and objectives of the Society. All these entries have in due course, been regularised and recorded in the regular books of accounts maintained in the normal course of educational activities. They have all been subjected to audit. All audit reports year after year are unexceptionably unqualified and clean. These audited accounts have been filed with the returns of the income for the respective years with the Assessing Authorities. These accounts have been scrutinized under section 143(3 .....

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education activities. No other activity has either been notice or reported in the Assessment Orders. These orders take note of the survey and to the seizure of the numerous documents therein termed uncharitably and erroneously as incriminating. The Assessing Officer choose to follow the baseless, unverified and unsubstantiated allegations made in the impugned order of withdrawal of registration. The audited accounts have been completely ignored by the Assessing Officer in this year. The assessm .....

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the withdrawal of registration. 4.1 The Learned AR submitted further that in all the assessments framed so far it has been held that the Society is only into the activity of the education. Even in the withdrawal order there is not whisper about any activity other than educational activity being carried out by the Appellant Society. 4.2 The several other allegations of financial irregularities which are contained in the withdrawal order have been the subject matter of consideration in the various .....

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year. Be that as it may, any financial irregularity as may ultimately remain would be the subject matter of reprimand in terms of the punitive contents of section 11 of the Act. That is the mandate to the Department in terms of the decision in the case of Guru Gobind Singh Educational Society vs. CIT (2009) 118 ITD 207 (Asr) . 4.3 The Learned DR further contended that simply on the ground that there are financial irregularities, it was impermissible to drastically and arbitrarily act to withdraw .....

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on. That occurred because on the basis scanty/disparate details sought peremptorily and on the spot such that the needful could not be done. All that was however, done during the course of the assessment. There is nothing wrong with constitution and composition of the society. Allegations to this effect as are contained at page 73 of the impugned order are wrong. So long as the objectives of the Society are carried out in terms of the declared mandate, no objection can be raised as to the consti .....

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5 The Learned AR also furnished following parawise answers to the specific allegations labeled in Para 15.2 of the order impugned: i. The head of the society Sri Sunil Sharma has not drawn any remuneration from the Society. He has sufficient sources of income from other sources to meet his needs from his other bodies and entities. Even otherwise any head of the institution is entitled to draw remuneration such that it is neither excessive nor unreasonable. This has been ruled specifically in the .....

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tion has ever been done. This is baseless allegation made with the purpose of supplying strength to an order which is otherwise weak and emaciated. It is categorically denied that Sri Sunil Sharma has siphoned off any cash. If it was so, then why is it, that in none of the assessment orders framed for the AYs 2009-10 to 2011-12 after the Survey such propensity is pointed out. The allegation is fallacious. iii. All fees receipts are regularly issued in the normal course of collection. There is ab .....

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ion 11 of the Act and nothing beyond. So long as the objects as declared have been faithfully pursued there can be no valid cancellation of registration. v. Introduction of the any unaccounted money in the day book is categorically emphatically denied. The Assessing Officer conducting the assessment has not pointed out any such instance. The allegation emanates out of a misunderstanding by the author. vi. There is no negative cash balance at any time. Cash has to be adjusted inter se between the .....

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sets or in the services procured by the Society. All allegations in this regard are imaginary and anamolous. viii. The salaries paid to the staff is on actual basis. Nobody has pocketed anything at anytime. All claims of salary as per the books of accounts have been allowed without any demur by the concerned Assessing Officer. The allegation is totally meaningless. ix, x & xi These allegations have already been referred to in the earlier part of the narrative and are not repeated here in the .....

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irit of public policy. xiv. Discrepancy, mis-appreciation, violation of law etc. as stated in the impugned cancellation order are all false and fictitious. Those allegations do not find their echo in the regular assessment orders framed by the respective authorities. The complaint is totally erroneous. xv. No proper opportunity was given by the Commissioner. He was bent upon ensuring the closure of the Society s educational institutions for the reasons best known to him. xvi. The Society has bee .....

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or irregularity in the activity of imparting education by the Society there was just no authority or power with Commissioner to cancel the Registration u/s 12AA of the Act. The Learned AR cited the judgment of the Hon ble Rajasthan High Court in DCIT v. Cosmopolitan Education Society (2000) 244 ITR 494(Raj.). 4.7 The Learned AR argued that it is an established principle that the cancellation of registration u/s 12AA of the Act has to await an assessment. He referred the decision in the case of .....

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ot open to the CIT for scrutiny. That is the prerogative of the AO during the assessment. In CIT vs. Surya Educational & Charitable Trust (2011) 203 Taxman 53 (P&H) it has been held that the CIT ought not to concern himself and with application of funds. Beyond examining the genuineness of the pursuit of the avowed objects there is nothing else falling to the fold of the Commissioner for scrutiny or comments in an issue like this. He placed reliance on the decisions in the case of Tamil .....

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can survive and endure. This is submitted in terms of the authorities in CIT vs. Sarvodaya Ilakkiya Pannai (2012) 343 ITR 300 (Mad); Chaturvedi Har Prasad Educational Society (2011) 45 SOT 108 (Luck); Maharashtra Academy of Engineering & Educational Research vs. CIT (2010) 133 TTJ (Pune) 706; Ajit Education Trust vs. CIT (2010) 42 SOT 415 (Ahd); CIT vs. Ved Vidya Dham (2013) 219 Taxman 115 (P&H). 4.10 The above submissions have been made compendiously with regard to the several grounds .....

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e assessments for the AYs 2009-10 to 2011-12 are all clean assessments. Thus the charge as foisted on the Society by the Learned Commissioner in the withdrawal order is all erroneous and unsustainable. So far as the assessment year 2012-13 is concerned the Assessing Officer refused to go by the book version and the records of the Society. He preferred to adopt the observations and findings of the Learned CIT as made in the withdrawal order. That was patently erroneous. Nevertheless against that .....

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truthfully and faithfully. The ingredients of sub-section (3) of Section 12AA of the Act as to any abstraction or aberration is conspicuously absent despite excruciating scrutiny in assessment. All that happened in the face of the withdrawal order was biased and perverse and which was on record. It is, therefore, prayed that directions be kindly issued quashing the order withdrawing the registration u/s 12AA of the Act and to restore the status-qua-ante prevailing on to the date of the search. 5 .....

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tual fact it existed for the benefit of the office bearers of the Society. 5.1 The several discrepancies in the accounts as listed in the impugned order and as referred to supra were cited by the Ld. CIT-DR as material sufficient for the cancellation of the registration granted to the society ab initio. 5.2 The Ld. CIT-DR quoted extensively instances from the impugned order where from it was clear that the cash of the society was appropriated without any authorization and was siphoned off in lie .....

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been introduced qua day book entries in contravention of law and accounting principles and such monies remained unrecorded in the regular business books of account. No explanation for the source of expenses much less possible reason for the negative balances of cash was tendered. The third party verification done in respect of the purchases from certain parties supplying goods/services to the Society revealed that they were bogus. They were mere entries made siphoning off cash. 5.5 The Learned C .....

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he Administrators out of the Society s funds for personal benefit. The President and his wife did not have any ostensible source of income commensurate with their high standard of living. The Society was used as a milch-cow to pay for the personal needs of the President and his wife. Even the installments of the loan for the purchase of a Tata Safari vehicle owned by Shri Sharma was paid by the Society. The running cost of such vehicles was also met by the Society. 5.6 The Learned CIT(DR) submit .....

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te information as sought had not been furnished. There was an attempt to impede the course of law for reasons quite obvious. The violations and discrepancies were certainly against the letter and spirit of the constitution/memorandum of the Appellant s society as well as certain provisions of law. 5.7 The Ld. CIT-DR emphasised that it was established beyond doubt, that the activities of the Society were neither genuine nor were the activities of the Society carried out in accordance with the obj .....

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stated that whatever was being urged on behalf of the Department in defence of the impugned order was not borne by the subsequent assessments. All that was pointed out were accounting mistakes. He relied upon the assessment orders for the AYs 2009-10 to 2011-12, all of which were framed after the survey, to submit that the sole activity pursed by the Society was educational. Further for the AY 2012-13 the AO had failed to weigh the evidence pro and con and had blindly relied upon the allegations .....

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ince inceptions and up to AY 2011-12 the assessment framed after scrutiny were all clear cases where the authenticity of the educational pursuits had been conceded by the Assessing Officers themselves. No other activity had even been alleged. Such findings of the Assessing Officer could not be overturned by the CIT-DR without relevant material being brought on record. As to the genuineness of the educational activities, there was no doubt for in all the assessment orders including the last one f .....

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d in the appeal be allowed. 7. Having gone through the provisions laid down under sec. 12AA of the Income-tax Act, 1961, it is clear that a Learned CIT can exercise powers under sec. 12AA(3) of the Income-tax Act, 1961 for withdrawal of registration granted to the assessee-society under section 12AA(1)(b) of the Act only when he is satisfied that the activities of the society are not genuine or are not being carried on in accordance with objects of society. Similar view has been expressed in the .....

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ctivity. On appeal, the ITAT set aside order of the Learned CIT holding that none of the conditions under sec. 12AA(3) of the Act were violated and, therefore, satisfaction which was arrived at by Learned CIT was not justified. The order of the ITAT was upheld by the Hon'ble Madras High Court. Hon'ble High Court held that the only reason given by the Learned CIT to cancel the registration was that the activities of the trust were not charitable and, therefore, the trust was not entitled .....

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registration he would be empowered to cancel and that too, only on above stated two conditions laid down under sec. 12AA(3) of the Act. As to whether the income derived from such transaction would be assessed for tax and as to whether the trust would be entitled to exemption under sec. 11 are entirely the matter left to the Assessing Officer to decide as to whether it should be assessed or exempted. In the case of Ajit Education Trust vs. CIT (supra), the assessee trust was imparting education .....

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justifiable on the part of the Learned CIT to deny registration. 7.1 In the present case before us, while cancelling the registration under sec. 12AA(3) of the Act, it is nowhere alleged in specific terms by the Learned CIT that the appellant-assessee is not imparting education or not doing the other activities as a part of its objects on the basis of which registration under sec. 12A(a) of the Act was granted earlier. The trust being undisputedly running educational institution and imparting ed .....

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ncellation order can survive and endure. In the present case, the allegations level by the Learned CIT on the basis of which he has cancelled/withdrawn the registration granted to the assessee under sec. 12AA, remained that there were several anomalies in maintenance of its funds. After detailed discussion, he has summarized these allegations in para No.15.2 of the order impugned. These allegations were based upon the statements of the office bearers of the appellant society recorded during the .....

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