TMI Blog2017 (12) TMI 1218X X X X Extracts X X X X X X X X Extracts X X X X ..... n, hence unsustainable. The next objection of the CIT on violation of section 13(1)(c) the assessee has given a sum of ₹ 25,67,128/- to Sri V. Prabhu Das, the founder of the society and the assessee explained that the surplus funds were given as advance with interest and the entire sum was collected by the society. Though the Ld.AR argued that there was no violation u/s 13(1)(c), we are unable to accept the contention of the Ld.AR and following the decision in the case of Aggarwal Mitra Mandal Trust vs. DIT [2006 (9) TMI 214 - ITAT DELHI-A] direct the AO to restrict the disallowance to the extent of violation but not on total income. Assessee is not registered u/s 25 of the Company’s Act as envisaged u/s 11 to 13 - Held that:- We have considered the order of the Ld.CIT and gone through the section 11 to 13 and we find that there is no requirement for section 11 to 13 that the institution should necessarily registered with Registrar of Company’s Act. The society is registered under Societies Act, also eligible for grant of registration u/s 12AA of I.T.Act. The assesse society was already granted registration and the same was cancelled by the Ld.CIT. The Ld. DR during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption u/s 11. 3. Taking the cue from the observations of the AO, in the assessment order for the A.Y.2009-10, the Ld.CIT initiated proceedings for cancellation of registration u/s 12AA(3) of the Income Tax Act, 1961. The Ld. CIT observed that as per the Memorandum of the Society dated 14.3.1988, the society s aims and objectives are to educate, organize and activise the youth, particularly Rural youth to make use of their strength, knowledge and skill for the all-round development of the rural India specifically irrigation, livestock, and allied activities. Initially the objects were 12 in the memorandum, subsequently, the society added four more objects to the existing 12 objectives as per the resolution of Special General Body meeting. The society s objects were 16 up to 2005 and thereafter, the society has again added two more objects i.e. 17 18 to the existing 16 objects i.e lending and borrowing money.(The complete list of objects are appended in this order in subsequent paragraph.) However, the assessee had concentrated only on the last two objects i.e. borrowing and lending money in the form of micro finance. According to the Ld.CIT, Micro finance institutions sole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objects. The society also retained its discretion to advance the money by obtaining security or without security and it may advance the amounts for any purpose, which it deems fit. There is every possibility of misuse of the discretionary clause for commercial usage. It was also noticed by the CIT that the assessee has adjusted some funds to the Secretary of the Society, viz. Sri V. Prabhu Das during the assessment year 2009-10 in violation of 13(1)(c) of I.T.Act. 6. The assessee explained to the Ld. CIT that the assessee is an NGO working with women s JLG for poverty alleviation and social security through micro credit. In the financial year 2008-09, the organization has disbursed ₹ 45 crores to the poor and below poverty line women groups for helping them gain economic stability by doing small and petty entrepreneurial activities. The major activities of the client group to which organization has lent are petty hotel, animals, vending of vegetables and other small items and agri allied activities. The income generated from micro finance activity of ₹ 6.2 crores for the financial year 2008-09 was stated to have been applied for the advancement of the objects. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. 12. To eradicate illiteracy and ignorance by giving basic literacy and useful education. 13. To help the poor people in getting assistance from Banking institutions, Government and Non Government agencies for poverty eradication. 14. To eradicate social problems like poverty, unemployment, dowry system, beggary, untouchability, alcoholism, etc. 15. To acquire movable and immovable properties and to hold, manage, purchase, sell, lease, rent, mortgage or other deal with the properties for the benefit of the society. 16. To undertake such activities from time to time as shall be deemed necessary for the attainment of the objectives of the society. 17. To borrow, raise or take up money, lend or advance money with or without interest either upon with or without security from any person or person (whether individuals, firms companies, bodies corporate, Government, State, Sovereign, public body or authority, supreme, local or otherwise or other entities), whether in the private or public sector, for any purpose whatsoever, including agriculture, industry, infrastructure, housing, consumer or others. 18. To lend money with or without interest ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld.AR submitted that for attaining objects, micro finance activity is a source of income to carry out the objects of the society. 9.1 With regard to the second objection of the Ld. CIT the A.R submitted that though the assessee is not registered u/s 25 of Company s Act and not an institution as envisaged in section 11, 12 and 13 of the I.T.Act, there is no such requirement under the provisions of I.T.Act and the society is also eligible for registration u/s 12AA of I.T.Act. In fact the assesse society was granted the registration earlier and the Ld.CIT has cancelled the registration already granted. 9.2 The third objection of the Ld.CIT is with regard to financing of rural poor is concerned, the Ld.AR placed paper book containing applications of 242 applicants to whom the loans were granted. The Ld.AR submitted that during the appeal proceedings for the assessment year 2009-10, the assessee submitted the applications for which the AO has submitted the remand report to CIT(A) and given a finding which was verified randomly by the AO. 9.3 The fourth objection of the Ld. CIT was, with regard to violation of section 13(1)(c) is concerned, the Ld.AR argued that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e people. 11. To provide relief in case of Natural disasters like floods, fire accidents, drought, cyclone, tidel wave, earthquake and epidemics etc. 12. To eradicate illiteracy and ignorance by giving basic literacy and useful education. 13. To help the poor people in getting assistance from Banking institutions, Government and Non Government agencies for poverty eradication. 14. To eradicate social problems like poverty, unemployment, dowry system, beggary, untouchability, alcoholism, etc. 15. To acquire movable and immovable properties and to hold, manage, purchase, sell, lease, rent, mortgage or other deal with the properties for the benefit of the society. 16. To undertake such activities from time to time as shall be deemed necessary for the attainment of the objectives of the society. 17. To borrow, raise or take up money, lend or advance money with or without interest either upon with or without security from any person or person (whether individuals, firms companies, bodies corporate, Government, State, Soveriegn, public body or authority, supreme, local or otherwise or other entities), whether in the private or public sector, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the applicants are rural poor with the meagre income of ₹ 10,000 to ₹ 20,000/- per annum. The applications placed before us establish that the advances were made to the rural poor. The DR could not controvert the above facts. Therefore, on this ground, the observation of the CIT, that the assessee failed to prove the advances and loans to the poor is without any foundation, hence unsustainable. 12. The next objection of the CIT is violation of section 13(1)(c). In this case, the assessee has given a sum of ₹ 25,67,128/- to Sri V. Prabhu Das, the founder of the society and the assessee explained that the surplus funds were given as advance with interest and the entire sum was collected by the society. Though the Ld.AR argued that there was no violation u/s 13(1)(c), we are unable to accept the contention of the Ld.AR and following the decision of Hon ble ITAT, Delhi in the case of Aggarwal Mitra Mandal Trust vs. DIT and the decision of ITAT DELHI BENCH 'G' in Income-tax Officer, Ward-2, Rishikesh v. Swami Omkarnanda Saraswati Charitable Trust, [2017] 86 taxmann.com 37 (Delhi - Trib.), direct the AO to restrict the disallowance to the extent of viola ..... X X X X Extracts X X X X X X X X Extracts X X X X
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