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TMI Blog2021 (10) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... 28.11.2016. The object of the society is imparting education. Trinity Institute of Technology and Research (Institute) is the college established under the assessee society. This college imparts education by offering various courses which include Bachelor of Engineering in various branches like Civil Engineering, Mechanical Engineering, Electronics and Telecommunication Engineering, Computer Science and Information Technology. This Institute also offers courses for MBA and M.Tech. A search and seizure action u/s 132 of the Act was conducted at the various premises of the Ramani Group and associates, Bhopal on 30th August,2016. During the course of search, many documents/loose papers pertaining to the assessee society namely LPS-6, LPS-7, and LPS- 11 were found. Thereafter notice u/s 148 of the Act dated 29.11.2017 was served upon the assessee followed by serving of notices u/s 143(2) & 142(1) of the Act along with questionnaire. During the course of assessment proceedings the assessee was confronted with the seized material and after considering the submissions of the assessee assessment was completed on 29.12.2017, assessing the income at Rs. 286,69,615/- treating the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the facts & in the circumstances of the case and in law, the findings of the learned Pr. CIT that, the affairs of the assessee are not genuine and are not being carried out in accordance with the objects and aims of the trust and the funds of the trust were being used for the benefits of the members of the trust, are wholly wrong, injudicious, unlawful and opposed to facts Hence such findings be quashed and the order of the learned Pr. CIT withdrawing/cancelling the registration be kindly cancelled. (4) That on the facts & in the circumstances of the case and in law, the learned Pr. CIT is wholly wrong and injudicious in his findings that the provisions of section 13(l)(c)(ii) are applicable in this case. Such findings be quashed and it be held that the said provisions of section 13(1)(c)(ii) are not applicable at all. The order of the learned Pr. CIT U/s.l2AA(3) and 12AA(4) is unlawful and, therefore, be kindly cancelled. . (5) That on the facts & in the circumstances of the case and in law, that section 12AA(4) was inserted w.e.f. 01.10.2014 by Finance (No.2) Act, 2014. The said section has no retrospective application and, therefore, the order of learned Pr. CIT is unla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings and issue of notice u/s 148 dated 28.03.2017 are unlawful, bad in law and without jurisdiction hence the assessment made be kindly cancelled. 2. That on the facts & in the circumstances of the case and in law, the learned lower authorities erred and in not justified in assessing the income of the assessee as the income from business and profession u/s 28 of the I.T. Act. The assessee submits that it is running an educational institution and the income of the institution is the income u/s 11 of the I.T. Act. The finding of the ld. Lower authorities assessing the income u/s 28 be kindly quashed and it be held that income of the assessee is assessable as income u/s 11 of the I.T. Act. 3. That on the facts & in the circumstances of the case and in law, the learned lower authorities are wholly wrong and opposed to facts that the assessee has claimed bogus salary expenditure of Rs. 20,48,173 such wrong and injudicious findings be quashed and be held that no bogus expenditure as alleged was claimed by the assessee. The disallowance made at Rs. 2048173/- therefore, be kindly deleted. 4. That on the facts & in the circumstances of the case and in law, the learned lower authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l through a separate application dated 05.02.2021 which is a legal ground going to the root of the matter. Assessee requests that additional ground of appeal may please be admitted in the interest of justice and appropriate adjudication of the matter. 2. Assessee is a charitable society registered u/s 12A of the Act. Registration u/s 12A is granted by CIT (Exemption), Bhopal. Thus, the jurisdiction of registration is with CIT (Exemption), Bhopal. 3. Basis of jurisdiction under the Act has been provided by CBDT under section 120(3) of the Act, which reads - "In issuing the directions or orders referred to in sub-sections (1) and (2), the Board or other income-tax authority authorised by it may have regard to any one or more of the following criteria, namely :- (a) territorial area; (b) persons or classes of persons; (c) incomes or classes of income; and (d) cases or classes of cases." 4. Section 120(6) provides that CBDT may by notification in the Official Gazette direct that for the purpose of furnishing of return of income or doing of any other act or thing under this Act or any rule made thereunder by any person or class of persons, the income tax authority shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was only after the completion of proceedings u/s 143(3) rws 147 that a proposal was sent by the Ld. AO vide letter dated 07.02.2018 through JCIT (Central), Bhopal vide letter dated 15.02.2018 requesting Ld. Pr. CIT (Central), Bhopal for cancellation of registration u/s 12A of the assessee. Notice u/s 12AA was issued by Ld. Pr. CIT (Central), Bhopal on 02.04.2018. In response to this notice, reply was submitted by assessee. Ld. Pr. CIT (Central), Bhopal passed the impugned order u/s 12AA(3) and 12AA(4) on 29.11.2018. [PB 01, 02-06] 11. Proceedings u/s 127 are limited only for the purpose of coordinated assessments. Section 127 of the Act provides for transfer of power from one Assessing Officer to another Assessing Officer. This section does not provide for transfer of power from one CIT to another CIT. Section 127 of the Act reads as - "(1) ..................... (2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Wholesale Cloth Merchant Association - ITA No. 688/JP/2019 - order pronounced on 06.01.2021 - [CLPB 65-122] 2. Para 13 - "We also observe that, thereafter the ld. DCIT(CC) Kota, as sent a proposal to the Pr. CIT(C), Jaipur to cancel the 12A registration of the assessee vide letter dated 31.12.2018. On the basis of proposal from DCIT(CC) Kota, the ld. Pr. CIT has issued the show cause notice to the assessee u/s 12AA(3)/(4) dated 22.02.2019............" 3. In the instant case, Ld. ACIT (Central)-2, Bhopal vide letter dated 07.02.2018 and on the recommendation of JCIT (Central), Bhopal requested Ld. Pr. CIT (Central), Bhopal to cancel registration u/s 12A of the assessee society. It was in view of this proposal that Ld. Pr. CIT (Central), Bhopal issued a show cause notice u/s 12AA dated 02.04.2018. [PCIT page 4 para 5 and 6, PB 01] 4. Para 14 - "We found that the above facts and proceedings of power of transfer U/s 127 was only for a limited purpose of Co- Ordinate Assessment. Neither any search & Seizure action nor any notice u/s 153A or 153C of the Act or assessment u/s 153A or 153C of the Act in the case of assessee were initiated and there was only a survey u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. In the instant case, cancellation of registration granted u/s 12AA is based on certain seized documents in the form of loose sheets. The evidences relied upon for cancellation of registration of the assessee u/s 12AA of the Act do not in any way demonstrate and establish that the receipt are suppressed and expenses are inflated. There is no cogent and positive material which corroboratively demonstrates that money has been allegedly siphoned off for personal benefits of the trustees of the assessee. 3. Proper books of account are maintained by the assessee in the ordinary course of its educational activities. The books of accounts are duly audited and no adverse remarks have been made. There can be instances of financial irregularities, but these have to be corroborated by documentary evidences independently. It was held in the case of DIT(Exemption) v. Venkatesha Education Society (2012) 48 (I) ITCL 27 (Kar) that short comings in the functioning of a society cannot be considered as lack of genuineness of the activities of the society. [PB 76-94] 4. Ld. ACIT(Central)-2, Bhopal vide his letter dated 07.02.2018 and on the recommendation of JCIT(Central), Bhopal dated 15.02.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es ii. Complying with the terms as enumerated in the deed of trust iii. Maintaining proper books of accounts iv. Investing of income in a manner that is in accordance with the law v. No diversion of income or the assets of the trust vi. Applying income only for charitable or religious purposes in terms of the deed of trust. vii. Complying with all other provisions as required under the income tax or any other law. 10. The assessee has complied with all the above listed requirements and has not breached the trust entrusted by the Act while granting registration u/s 12A of the Act. 11. The apprehensions expressed on the basis of surmises and conjectures are incorrect, unjustified and against the facts of the instant case. Thus, the factual and legal position as emerges from the foregoing submissions is that once the registration is granted to a trust or institution it can be cancelled only on breach of either of the two conditions mentioned in section 12AA(3). There is no breach of the above stated condition. Accordingly, the registration to the assessee ought to be continued u/s 12A of the Act. 9. The onus of the factors for cancelling the registration granted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Central), Bhopal. d. Pg 6 para 5 - On the basis of the proposal by Ld. AO show cause notice u/s 12AA was issued by Ld. Pr.CIT(Central), Bhopal e. Pg 9 1st para - Regular assessment conducted & completed much prior to search. All the documents with regards to receipt of donation were furnished. Ld. AO accepted the documents without making any addition. f. Pg 10 1st para - Ld. Pr. CIT cancelled the registration by invoking provisions of section 12AA(3) retrospectively w.e.f. 01.04.2011 vide order dated 26.12.2018. g. Pg 12 para 9 - Issues referred in the show cause notice u/s 12AA are related to regular assessment proceedings and have no bearing on continuation of registration granted u/s 12AA h. Pg 17 last 3rd line - Section 13 applicable for assessment and not for registration i. Pg 53 para 30 - Presumption u/s 292C is applicable only on the searched person a. Charitable Society registered under the M.P. Societies Registration Act, 1973. Main object imparting education. College 'Trinity College' established. Approved by various Government bodies namely AICTE, NCTE and DTE. Affiliated to Rajeev Gandhi Prodhoygik Vishwavidyalay and Barkartullah University, Bhopal. b. Regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 12AA(3) unless it is established by material evidence that the activities of such trusts or institutions are not genuine or are not being carried out in accordance with the objects of the trusts or reasonable opportunity of being heard not granted before cancelling registration. g. Pg 73 point (iv) - Issues raised in show cause notice not relevant for cancellation of registration u/s 12AA(3). These issues to be examined in regular assessment proceedings. Registration granted u/s 12AA can be cancelled only if it is found that the activities of the society/trust are either not genuine or are not being carried out in accordance to objects. h. Pg 74 point (v) - No independent enquiry conducted by Ld. PCIT i. Pg 75 para 39 - Order of Ld. Pr. CIT cancelling registration granted u/s 12AA(1) deserves to be quashed. Hon'ble Bench directed the Revenue to restore the registration u/s 12AA(1) of the assessee society w.e.f. 01.04.2011. a. Ld. Pr. CIT (Central), Bhopal cancelled the registration granted u/s 12AA by invoking provisions of section 12AA(3) and 12AA(4) b. Aims and objects of the assessee society are within the meaning of section 2(15) c. To achieve the aims and objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and not for charitable purpose - Held, yes" [Para 7 and 8] [In favour of assessee] [CLPB 135-140] 11. Without prejudice to the additional ground, it is submitted that the power to cancel the registration is granted only with a prospective effect. It would not affect assessments in respect of earlier assessment years. Ld. Pr. CIT (Central), Bhopal has cancelled the registration u/s 12AA retrospectively w.e.f. 01.04.2008. Without prejudice, order of Ld. Pr. CIT (Central), Bhopal dated 29.11.2018 can at best take effect only from the date of order and cannot apply to completed assessments of earlier assessment years. It is a settled legal position that registration cannot be cancelled from retrospective effect. 12. Reliance is placed on the decision of Hon'ble Madras High Court in the case of Auro Lab - [2019] 102 taxmann.com 225 - dtd. 23.01.2019 - Para 16 - "The questions raised in these writ petitions are broadly summarised as under:-............................ (iii) What will be the effective date on which the petitioner will lose his registration and the entitlement to exemption on account of the cancellation order dated 30.12.2010?" Para 21 - "On the third que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for only one year i.e. AY 2010-11. It is only for AY 2010-11 that Ld. Pr. CIT(Central), Bhopal has alleged that the funds of the assessee are being used for the benefit of the members of the assessee. 4. As mentioned above, section 12AA(4) is not applicable in the instant case for cancellation of registration u/s 12AA which Ld. Pr.CIT(Central), Bhopal has resorted to rendering the impugned order bad in law. 5. When the provisions of section 13(1)(c) are attracted, the benefits of exemption under section 11 and 12 are not available to the assessee which is a subject matter of the assessment proceeding of the assessee and it can in no way lead to cancellation of registration already on record. Nothing cogent and positive has been brought on record to establish if funds of the assessee trust were siphoned in violation of the provisions of law. 6. Provisions of section 13(1)(c) of the Act are not applicable in the present case which again is a subject matter of the assessment proceedings and not relating to granting or cancellation of registration u/s 12A/12AA of the Act. 7. If the provisions of section 13 are violated, it empowers the assessing officer to forfeit the exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heque and difference was repaid by the employees in cash c. Entire income is not shown in the books of accounts d. Fee receipts are not fully reflected in the books of accounts 3. Ld. Pr. CIT(Central), Bhopal has merely referred to the documents seized from the residential premises of Shri Prakash Hariramani based on which the payment of salary is alleged as bogus and paid to non existing employees. No positive and cogent material in the form of statement of any of the employees has been brought on record. There is no corroborative evidence that the shortage of cash indicate that one of the trustee has taken excess cash generated on account of booking bogus salary. 4. Nothing has been brought on record to establish that higher amount of salary was paid in cheque and thereafter the difference amount was repaid by them to the members of the assessee society. It is alleged merely on surmises and conjectures that trustees siphoned the funds of the institution by booking bogus salaries. 5. Reliance is placed on the following judicial precedents of the Hon'ble Supreme Court wherein it is held that in the absence of such independent and corroborative evidences, the rough notings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. Ld. CIT(A) allowed the ground raised on disallowance of expenditure of Rs. 3,25,94,416 which pertains to running and maintaining the educational institute. Department is not in appeal against this relief granted by the Ld. CIT(A). [PB 116] For the addition made on account of concealment of fees of Rs. 69,70,505, Ld. CIT(A) restricted this addition to Rs. 8,47,694 and relief of Rs. 61,22,811 was granted. Department is not in appeal against this relief granted by the Ld. CIT(A). [PB 117] 12. Ld. Pr. CIT(Central), Bhopal erred in not considering the submissions made by the assessee and proceeded to allege that the funds are siphoned and the fees are not fully reflected. Considering the above facts, circumstances of the case, submissions made, documents on record and judicial precedents, cancellation of registration u/s 12AA(3) and 12AA(4) is bad in law, invalid, illegal, without jurisdiction and ought to be restored with effect from 01.04.2008 i.e. original date of granting of registration. 9. Per contra Ld. DR further referred to the order u/s 127 of the Act dated 23.11.2016 issued by CIT(E), Bhopal through which group cases under CIT(E) were centralized under the CIT(Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of any notice already issued by the Assessing Officer or Assessing Officers from whom the case is transferred. Explanation.- In section 120 and this section, the word" case", in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year.] 10. Ld. Departmental Representative(DR) apart from relying on the detailed finding of Ld. CIT(A) as also referred to the following written submissions placed on record: 4.2) In support of grounds of appeal, the appellant has taken plea that CBDT notification no. 52 and 53 dt. 22110/2014 makes it clear that CIT(Exemption), Bhopal shall have the power for the jurisdiction of the territorial area of the states of MP and Chattisgarh and does not specify if the CIT(Exemption) can transfer its power or jurisdiction to other CIT or Pro CIT. In this connection it is submitted that a plain reading of clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional Commissioner I Director of Income Tax (Exemption). Powers entrusted u/s 12A112AA are to be exercised by the jurisdictional Commissioner I Director of Income Tax (Exemption) which include both, granting of the registration and the cancellation thereof. The one who cannot grant the registration also cannot transfer of cases relates to transfer of a case from one Assessing Officer to another Assessing Officer. Matters relating to granting and cancellation of registration u/s 12A112AA are not the subject matters to be dealt by the Assessing Officer but by jurisdictional Commissioner I Director of Income Tax (Exemption). Plea of the appellant that CBDT circular no. 584 dated 13.11.1990 requires that while seeking registration u/s 12A I 12AA, the application is ought to be made to jurisdictional Commissioner I Director of Income Tax (Exemption) is perused and it is found that contents mentioned therein apply to cases where the assessee concerned is a person claiming exemption under any of the provisions mentioned above and was assessed by any income-tax authority having headquarters at four metropolitan cities of Delhi, Bombay, Calcutta and Madras. So, on this ground, appellant&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has placed reliance on various decisions in support of his ground. Comments: 6.1) Though, the case of the appellant was reopened for assessment pertaining to A.Y. 2010- 11 and subsequent to that, on the basis of discrepancies and irregularities noticed by the A.O. during the course of assessment, proposal for cancellation of registration granted to the appellant U/S 12A was made. That the order U/S 12AA(3) and 12AA(4) 'as passed by the Ld. Pr. CIT(Central), Bhopal with retrospective effect, is totally based on discrepancies found by the Pro CIT (Central), Bhopal and it is clearly made part of the order also. 6.2 The appellant has made submission that if the provision of section 13 are violated, then the Ld. AO is empowered to forfeit the exemption permissible U/S 11 & 12 and that also to the extent of amount not allowed U/S 11 & 12 it is also added by the appellant that such violation cannot form a ground cancellation of registration U/S 12AA(3). The appellant has placed reliance on various decisions in support of his ground. The appellant submission that for the violation of section 13, the A.O. is empowered to forfeit tee exemption U/S 11 & 12 limited to the extent of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules of the Income Tax Act, along with passing an official order u/s 127(2) of the Act which finds no ambiguity with regard to the correct assumption of jurisdiction by Ld. Pr. CIT(Central) for conducting the proceedings u/s 12AA of the Act. After going through this office order dated 23.11.2016 given u/s 127(2) of the Act, submission made by the Ld. DR through which revenue has rebutted to all the contentions made by the assessee, we find no merit in the additional grounds raised by the assessee before us challenging the jurisdiction of Ld. Pr. CIT(Central), Bhopal, since this jurisdiction has been assumed by the official order given by the Ministry of Finance Department of Revenue u/s 127(2) of the Act along with transferring PAN of the assesse society from DCIT(E), Bhopal to ACIT(central) -2 Bhopal. Once the PAN is migrated then CIT(E) seize to have any jurisdiction over the assessee with regard to any of proceedings under the Act. We accordingly dismiss the additional grounds raised by the assessee. 15. Apropos to Ground no.1, 2 & 6 assessee has challenged the cancellation of registration u/s 12AA of the Act retrospectively w.e.f. 01.04.2008 by invoking provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trust. The relevant portion of this order is reproduced below:- 36. We further observe that it has been consistently held by the Hon'ble courts and Co-ordinate benches that registration granted to charitable societies u/s 12AA of the Act cannot be cancelled by invoking provisions of Section 12AA(3) of the Act unless and until it is established by material evidence that the activities of such trusts/institution are not genuine or are not being carried out in accordance with the objects of the trusts or the reasonable opportunity of being heard is not granted before cancelling the registration. 37. The Co-ordinate Bench of Lucknow in the case of Fateh Chand Charitable Trust v. CIT (Exemptions) v. CIT (Exemptions) [2017] 83 taxmann.com 33 (Lucknow - Trib.) Hon'ble Tribunal while dealing with the issue of Cancellation of registration under Section 12AA (iii) of the I.T Act held that: Para 13. "Having carefully examined the order of the Id. Commissioner of Income Tax (Exemptions) in the light of the rival submissions, we find that on receipt of certain information from the Id. Commissioner of Income Tax (Exemptions), Kolkata; Id. Commissioner of Income Tax (Exemptions) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powered to cancel the registration earlier granted u/s. 12A of the Act. In our view, the points brought out by the Commissioner in the impugned order are not in the context of the conditions prescribed u/s. 12AA(3) of the Act, but are relevant for the purposes of making an assessment of income. 11. In the present case, the case sought to be made out by the Commissioner is that the violation carried out by the assessee would lead to denial of exemption u/s. 11 & 13 of the Act and, therefore, the pre-requisite of section 12AA(3) of the Act is satisfied. In para 9 of the impugned order, the Commissioner records that the violation of section 11 & 13 of the Act would result in forfeiture of exemption not only for the year in which such transactions occur but also for the years when such arrangement continues to be in force. In our considered opinion, such an approach of the Commissioner is quiet misdirected and is inconsistent with the legal position on the subject contemplated u/s. 12AA(3) of the Act so as to cancel registration already granted. We may add here that we are not shutting out the case of the Revenue to examine whether or not there has been a violation of section 13 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities of the Trust are not being carried out in accordance with the objects of the Trust. When the aforesaid two conditions are fully satisfied, on the ground that the trustees are misappropriating the funds of the Trust the registration of the Trust cannot be cancelled. If the trustees are misappropriating the funds, if they are maintaining false accounts, it is open to the authorities to deny the benefit under section 11 of the Income Tax Act, but that is not a ground for cancelation of registration itself. That is precisely what the Tribunal has held. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue. There is no merit in this appeal. (iv)The Hon'ble Allahabad High Court in the case of Red Rose School reported in (2007) 163 Taxman 19 (All.), wherein it is observed that:- "CIT is entitled to see only the genuineness of objects and activities : It has been held that while refusing application under section 12A the Commissioner has to examine only two aspects, i.e., genuineness of the activities of the trust / institution and object of the trust / institution. Once there is no dispute about the genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The same refers to "relief to poor, medical relief, education and the advancement of any other object of general public utility". The proviso to Sec.2(15) of the Act introduced by the Finance Act, 2008 w.e.f. 1.4.2008 regarding excluding organizations where there is profit motive from the definition of charitable purpose applies only to the category of trusts which has as its object, the object of "advancement of any other object of general public utility". It does not apply to the other categories of charitable purpose viz., "relief to poor, education and medical relief". As rightly pointed out by the learned counsel for the assessee, eleemosynary element is not essential element of charity. It is also not a necessary element in a charitable purpose that it should provide something for nothing or for less than it costs or for less than the ordinary price. The surplus generated, if it is held for charitable purpose and applied for charitable purpose of the assesse, and then the Assessee has to be considered as existing for a charitable purpose. There are enough safeguards provided in Sec.12 and 13 of the Act to ensure that personal benefits of thepersons in control of the tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are carried out as per its objects. There is no infringement of any of the provisions contained in Ss.1 1(5) and 13 of the Act. The provisions of S.12AA(3) for cancellation/withdrawal of registration granted to it w.e.f. 11-2-1998 u/s 12A of the Act are not retrospective and therefore, the impugned order of the CIT passed u/s 12AA(3) is nothing but a review of its earlier order which is impermissible in law. (vii)The decision of Rajasthan Vikas Sansthan Vs. CIT reported in 78 DTR 411 (Raj), wherein it is held as under :- The registration can be cancelled on the ground that the activity of the trust are not genuine or are not being carried out in accordance with the object of the trust. In case there are violations as mentioned in s. 11 and 13 of the Act. Thus the AO while making assessment can deny the exemption to the trust. For getting the exemption u/s 11, registration is pre-requisite. However, registration is not a guarantee for exemption. In case the Trust fails to comply with the requirements as mentioned in s. 11 and 13 of the Act then exemption can be denied. In respect of failure mentioned in s. 11 and 13 in a particular year, it cannot be said that registration is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able activities when the same are not so. The CIT has to make out clear case for exercising powers u/s. 12AA(3). In this case, so far as object of trust is concerned, it is nowhere disputed that assessee is engaged in imparting education. Once an institution came within the phrase "exists solely for educational purpose and not for profit" no other condition like application of income was required to be complied with. The mere existence of profit/surplus did not disqualify the institution. Breach of the conditions of the trust deed would not disentitle the institution from getting the benefit which the institution had been granted earlier being a charitable trust. Nowhere in her order, the CIT has taken any objection to the charitable and educational nature of the institution. In fact, the objects of the institution as declared in the trust deed do reflect that all are philanthropic or benevolent in nature, precisely, for the purpose of imparting education. Strange enough, there is no finding recorded by the CIT contrary to this fact.Rather, this is also not the case of the CIT that the institution is doing some other activity of earning profit other than the activity of running edu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion with the cancellation of registration u/s 12AA(3) of the Act which shows that assessee was not granted reasonable opportunity of being heard on this issue which in itself makes the proceedings bad in law. (iv) The issues raised in the show cause notice dated 6.12.2018 issued by Ld. PCIT are not relevant for cancellation of registration u/s 12AA(3) of the Act. Such types of issues can be examined by the Assessing Officer during the course of regular assessment proceedings wherein on the basis of his examination/ investigation necessary view as permissible in law can be taken if violation of Section 11 and Section 13 of the Act by the assessee are observed. Ld. PCIT can only cancel the registration u/s 12AA(3) of the Act if it is found that the activities of the society/trust are either not genuine or are not being carried out in accordance with its object provided in bye laws. (v) We also find that nothing on record has been brought before us by way of an independent enquiry by Ld. PCIT thereby collecting necessary evidence which can show that the activities of the assessee society are either not genuine or are not being carried out as per the objects of the society which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was established and nor any doubt has been raised about genuineness of the activities carried out by the assessee society with regard to imparting of education and carrying out charitable activities. So far as, the issue arising out of the loose papers is concerned in this case alleging that the fund of the assessee society have been misappropriated by the members of the society or there is any ambiguity in the claim of expenses, it can well be taken care of at the time of assessing the income and if needed the additions can be made to the income of the assessee and the same should be restricted only to the issue involved. However in no case the remaining income of the trust/society should be affected by way of denying the benefit of exemption u/s 11 & 12 of the Act. We accordingly allow ground no.1 2 & 6 of the assessee's appeal. 16. Apropos to ground no.5 assessee has raised an issue that Ld. Pr. CIT erred in invoking the provisions of section 12AA(4) of the Act as it was not applicable in the case of assessee because section 12AA(4) of the Act was inserted w.e.f. 01.10.2014. We however, find this ground to be infructuous in nature firstly because the ld. Pr. CIT has carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 12.06.2019. 17a. We therefore, respectfully following the same, are of the considered view that the violation of u/s 13 of the Act cannot be the basis for cancellation of registration 12AA of the Act. On this legal ground itself the impugned order cancelling registration 12AA of the act deserves to be quashed. Accordingly ground no.3 & 4 of the assessee's appeal are allowed. 17b. Apropos to ground no.7 pertaining to alleged bogus salary expenses and misappropriation of funds by the trust society, the same will be dealt while dealing with the assesee's appeal in ITANo.548/Ind/2019 wherein the assessee has challenged the finding of Ld. CIT(A) confirming the action of the Ld. AO of making certain additions based on the loose papers and treating the assessee as carrying out business and not carrying out charitable activities. So far as the instant appeal is concerned this ground becomes infructuous. In view of the fact that we have already quashed the impugned order since the ld. Pr. CIT has invoked the provisions of section 12AA(3) & 12AA(4) of the Act only on the basis of invoking provisions of section 13(1)(c)(ii) of the Act for cancelling the registration u/s 12AA of the Act wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us and its only assessee who has challenged the finding given against it by Ld. CIT(A). 21. Ld. counsel for the assessee vehemently argued referring to following synopsis:- 1. Assessee is a charitable society registered under the M. P. Societies Registration Act, 1973 since 28.11.2016. Registration u/s 12A was granted on 20.03.2008. The object of the society is imparting education. Trinity Institute of Technology and Research (Institute) is the college established under the assessee society. This college imparts education by offering various courses which include Bachelor of Engineering in various branches like Civil Engineering, Mechanical Engineering, Electronics and Telecommunication Enginnering, Computer Science and Information Technology. This Institute also offers courses for MBA and M.Tech. [PB 01 - 18] 2. It is also submitted that the assessee society is approved by various bodies like All India Council of Technical Education (AICTE), New Delhi, National Council for Teachers Education (Statutory body of Government of India) and Director of Technical Education, Government of India. The institute is also affiliated to Rajiv Gandhi Prodhoygik Vishwavidyalay and Bark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V C Shukla. [PB 47] 9. No enquiry has been conducted by Ld. AO from the employees who are alleged to have been paid higher salary by cheques and amount is received back from them in cash. No such corroborative and independent evidence exists to authenticate the noting and jottings on the loose documents seized. [PB 48] 10. It is a settled law that no addition can be made merely on the basis of loose sheets without any corroborative and independent evidence. Loose sheets do not form "Books of Accounts" and entries in such loose sheets are irrelevant and not admissible u/s 34 of the Evidence Act. Only where the entries are in the books of accounts regularly kept, depending on the nature of occupation, those are admissible. In the case of V C Shukla (supra), it has been held that independent evidence is necessary as to the trustworthiness of those entries which is a requirement to fasten the liability. It also held that meaning of account books would be spiral note book/pad but not loose sheets. [PB 48] 11. In the instant case, the documents referred in the reasons recorded were seized from the residential premises of Shri Prakash Hariramani. It is not evident from the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fees is not on account of under recordings of fee receipts but it is due to projections, jottings, etc. These figures are merely for estimation of collection of fee. The document contains broad noting of various items and does not reflect the actual figures. [PB 55] 22. Ld. counsel for the assessee further referred to the following written submissions: A. Apropos Ground no.1 - initiation of proceedings u/s 148 is bad in law, without jurisdiction 1. Notice u/s 148 was issued on 28.03.2017. In the reasons recorded reference has been made to the various documents seized from the residence of Shri Prakash Hariramani during the course of conduct of search on 30.08.2016. These documents are LPS -6, LPS-7 and LPS- 11. [PB 38] 2. The seized documents so referred in the reasons recorded are the various loose papers. On these loose papers various rough noting, jottings, calculations are made. It is on this basis that adverse inferences have been drawn by the Ld. AO. 3. Nothing corroborative, cogent, positive and independent evidences have been brought on record to negate the submissions made by the assessee. It is submitted that such rough noting, jottings, calculations found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion from a statutory body of Government of India itself establishes the carrying out of education by the assessee. [PB 11, third para] 4. Ld. AO alleged that the assessee society has paid bogus salary of Rs. 20,48,173 and cash payment of Rs. 5,61,877 to one of the trustees Shri Prakash Hariramani. Thereby, Ld. AO concluded that the assessee has violated the provisions of section 13(1)(c) rws 13(2). 5. In view of the above mentioned alleged bogus salary payment and cash payment, Ld. AO concluded that assessee society is not for charitable purpose but is engaged in business or profession. Thus the income earned is to be taxed under the head 'Profits and Gains from Business or Profession'. [AO page 10 para 17] 6. It is submitted that if in any case the provisions of section 13 are not complied with then that part of the income of the said trust or institution shall not qualify for the purpose of exemption u/s 11 and 12 of the Act. 7. Section 13 has nowhere provided that if the said provisions are not complied with then the income of the said trust or institution shall be assessed u/s 28 as profit and gains from business or profession. 8. Both Ld. AO and Ld. CIT(A) erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back from the employee in cash. Such a unilateral inference without any corroborative evidence, cross-verification from any of the employees is devoid of any merit, arbitrary, baseless and absurd. For the same employee, in the months of Sep '09 to Feb '10, the difference is noted as '0'. However, figure of '14000' is noted in the row of cash. From one such above sample reading of the loose paper, it is evidently demonstrated that it was some unknown exercise done by a person not know to the assessee and which was not found in the possession of the assessee. 3. As per the loose paper, the salary paid both by cheque and in cash to teaching and non-teaching staff amounts to Rs. 1,22,56,751. Out of this, Ld. AO has alleged that an amount of Rs. 20,48,173 is bogus and the balance salary payment of Rs. 1,02,08,578 is accepted. Total amount of salary reported in the audited Income and Expenditure account of the assessee is Rs. 1,00,02,326. It is a settled law that any document can be either accepted as a whole or denied in its entirety. Addition made on the basis of such partly accepted document is bad in law and ought to be deleted. [AO Page 10 Para 12-13-14 and PB 32] 4. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been paid one of the trustees of the assessee society, Shri Vijay Hariramani, violating the provisions of section 13(1)(c). [AO Page 9, bottom] 2. It is submitted that the seized paper does not relate to the assessment year under consideration i.e. AY 2010-11. In the very first line of this loose paper, period noted is "(01.04.2009 TO 30.06.2010)". Also, in the last line, for shortage of cash, it is noted "AS ON 30.06.2010". It is evident that these noting on the said loose paper are beyond the period covered by AY 2010-11 and cannot be relied upon for taking an adverse view in the assessment for AY 2010-11. [AO Page 9] Also, noting does not in any manner reflect if any amount was paid to Shri Vijay Hariramani. Also the author of the paper is not known and the basis of tabulation is not appearing in the paper. Search was also conducted in the premises of Shri Vijay Hariramani but nothing corroborative was found to establish that he received an amount of Rs. 5,61,877 from the assessee institution. [PB 49] 3. Nothing corroborative has been brought on record to establish the flow of money from the assessee institution to Shri Vijay Hariramani. Ld. AO has made the addition of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F. Apropos Ground no. 7 - Capital expenditure of Rs. 3,25,76,619 incurred towards application of income u/s 11 and 12 be allowed 1. While disposing ground no. 3, Ld. CIT(A) has accepted the fact of incurring of expenses of Rs. 3,52,94,416 for running and managing the educational institute and given the relief, for which the Department is not in appeal. Conduct of educational activity which is in accordance with the objects of the assessee is not in dispute with this finding given by Ld. CIT(A) and attains finality. [CIT(A) Page 21, Para 4.3] 2. It is evidently demonstrated that assessee is a charitable society registered under the M. P. Societies Registration Act, 1973 since 28.11.2016. Registration u/s 12A was granted on 20.03.2008. The object of the society is imparting education. Trinity Institute of Technology and Research (Institute) is the college established under the assessee society. This college imparts education by offering various courses which include Bachelor of Engineering in various branches like Civil Engineering, Mechanical Engineering, Electronics and Telecommunication Enginnering, Computer Science and Information Technology. This Institute also offers cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other details. So far as these documents are concerned they are having connection to the assessee society and it cannot be said that Ld. AO proceeded without having any adverse material in its possession. We, therefore, find no merit in this ground no.1 raised by the assessee and the same stands dismissed. 26. Apropos to ground no.2 the assessee has challenged that Ld. CIT(A) erred in confirming the finding of Ld. AO treating the assessee of carrying out business and thus assessing income u/s 28 of the Act. We find that assessee society is registered under the M.P. Society Registration Act,1973, holds registration u/s 12AA of the Act since 20.03.2008. The object of the society is imparting education. Trinity Institute of Technology and Research (institute) is the college established under the assessee society offering various courses to the students. The assessee society is approved by various bodies like All India Counsel of Technical Education (AICTE), National Council for Teachers Education (Statutory body of Government of India) and also approved by Director of Technical Education, Government of India. It is also affiliated to Rajiv Gandhi Pradhoygik Vishwavidyalay and Bar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When the salary expenditure showing in the income and expenditure account is less than the alleged amount shown in the loose sheets, there remains no justification of disallowing the salary expenditure. Even otherwise except these loose papers no other incriminating material was found. There is no statement of any employee stating that they were paid higher amount in cheque and difference amount was repaid by them to the members of the society. No appropriate account was taken by the ld. AO for cross checking contents of seized loose sheets with the concerned employee. Hon'ble Apex Court in the case of V.C. Shukla and Common Cause (A registered society) 30 ITJ 197 has held that independent evidence is necessary as to the trustworthiness of those entries which is a requirement to fasten the liability. It is also held that meaning of account books would be spiral note book/pad but not loose sheets." In the instant case, the alleged seized documents on the basis of which disallowance of bogus salary has been made are merely loose sheets which are not corroborated any other evidence to prove the contents of such loose papers. We, accordingly are of the considered view that Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und no.4 & 5 raised by the assessee. 29.Apropos to ground no.6 pertaining to addition of Rs. 8,47,694/- for suppressed unrecorded fees, we find that Ld. AO based on loose sheets seized during the search, copy of which is placed at page 12 of the assessment order, came to conclusion that the society has suppressed its income received from fees collection to the tune of Rs. 69,70,505/-. To arrive at this figure Ld.AO reduced the fees collection of Rs. 1,96,50,938/-shown in the income and expenditure account against fees of Rs. 2,66,21,443/- appearing in the alleged loose sheets. Thereafter when the matter travelled before Ld. CIT(A), he sustained the addition of Rs. 8,47,694/- observing as follows:- Ground No.7: through this ground of appeal the appellant has challenged the addition of Rs. 69,70,505/- on account of suppression of fees. The AO made the addition by adopting the fees collection at Rs. 2,66,21,443/- instead of Rs. 1,96,50,938/-. A per the income and expenditure the total fees collection of the appellant is at Rs. 1,96,50,938/- from the figures of loose papers. The actual receipts comes at Rs. 2,57,73,749/- instead to Rs. 2,66,21,443/- as adopted by AO. The actual rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that since we have already held that Ld. Pr. CIT erred in cancelling the registration of the assessee society u/s 12AA(3) & 12AA(4) of the Act, and also held that the assessee is not carrying out any business or profession nor it is falling under the proviso to u/s 2(15) of the Act. We have also held that the assessee is a charitable society carrying out genuine activities for its charitable objects falling under the provision of section 2(15) of the Act and is therefore eligible for benefit of exemption u/s 11 & 12 of the Act. We have already held that the ld. AO erred in making the additions for A.Y. 2010-11 on the basis of loose sheets and all these disallowance and additions have already been deleted by us. Therefore, under the given facts and circumstances of the case, the assessee is eligible to claim the deduction for capital expenditure of Rs. 3,25,76,619/- u/s 11 & 12 of the Act on an application of societies fund for charitable activity. Thus relevant finding of Ld. CIT(A) is set aside. Ground No.7 of the assessee's appeal is allowed. 31.In the result, appeal of the assessee in ITANo.548/Ind/2019 for A.Y. 2010-11 is partly allowed. 32. In the result, Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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