TMI Blog2021 (10) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... ociety with regard to imparting of education and carrying out charitable activities. Addition based on loose papers - As 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. Whether 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? - This ground to be infructuous in nature firstly because the ld. Pr. CIT has carried out the proceeding u/s 12AA(3) of the Act as well as 12AA(4) of the Act. Though rightly contended that amended provision i.e. section 12AA (4) of the Act were inserted from 01.04.2014 but it in itself cannot challenge the validity of the impugned order because Ld. Pr. CIT has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained the details of salary of teaching staff and non-teaching staff, person wise details of salary payment, summery of source of funds, sundry creditors and also hand written documents showing the amount of fees collection 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. Treating income of assessee as business income - assessee not carrying ay charitable activity u/s 2(15) - HELD THAT:- We are of the view that assessee is not carrying out any business of profession and it is established that the assessee is a charitable society running for charitable purpose and imparting education through its colleges and institutions and the objects of the assessee society failed under the provisions of section. 2(15) of the Act and is not in the nature of advancement of any other object of general public nor it is involved in carrying out of any activity in the nature of trade, commerce or business. Therefore neither the proviso t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view that the alleged addition has been made by the Ld. AO merely on surmises and conjectures which deserves to be deleted - allow ground raised by the assessee. Suppressed unrecorded fees - HELD THAT:- From perusal of the alleged loose sheet which is neither signed no the author of it is known we observe that some jottings of fees collection, major expenses, bank loan, unsecured loan, assets are written. Prima facie, it looks to be a some estimate or projection or rough jottings which may have been carried out at any particular time. It in itself indicates that this sheet is a dumb document/rough jottings which cannot be correlated to the actual figures for F.Y. 2009-10. Such loose sheets are not signed and author of such sheet is not known. The same cannot be treated as part of the regular books of accounts of assessee, therefore, entries in such loose sheets are irrelevant. Even otherwise the Ld. AO has taken a particular version whereas as Ld. CIT(A) has taken another version which raises doubts on the correctness of the loose sheets and it further lays emphasis that this sheets is merely a rough jotting. We, therefore, in absence of any corroborative evidence brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, 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 ₹ 286,69,615/- treating the assessee to be carrying on business and not charitable activity. Income over expenditure shown in the profit and loss account at ₹ 1,96,50,937/- was treated as business income and further based on the seized documents additions for bogus expenses on salary at ₹ 20,48,173/- were disallowed u/s 37 and also addition of ₹ 69,70,505/- was made for unexplained money on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous, 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 unlawful and be quashed. (6) That on the facts in the circumstances of the case and in law, the activities of the assessee are genuine and are being carried out in accordance with the objects of the trust and, therefore, the provisions of section 12AA(3) are not applicable. Hence the order of Pr. CIT is unlawful and, therefore, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 ₹ 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 ₹ 2048173/- therefore, be kindly deleted. 4. That on the facts in the circumstances of the case and in law, the learned lower authorities wholly wrong and opposed to fact that the society had paid ₹ 561877 to Vijay Ramani who is the member of the society and therefore, there is violation of section 13(1)(c) of the I.T. Act and hence the society is not eligible for the deduction/exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 exercise and perform powers and functions in relation to said person or class of persons as may be specified in the notification. 5. CBDT vide notification no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 Principal Commissioner or Commissioner,- (a) . (b) . (3) 12. From the combined reading o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/s 133A of the Act in the case of assessee. The assessment has been completed u/s 148/143(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 15.02.2018 requested that the registration u/s 12A granted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A on 29.11.2002 w.e.f. 01.04.2002. Search Seizure operations Chirayu Group on 04.11.2016. Cash and jewellery were found at the residence of the family members of Director and promoter of various entities of Chirayu Group. c. Pg 3 para 4 Proposal for cancellation by Ld. AO duly recommended by Addl. CIT (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leged irregularity in the admission in one of the colleges noted by CBI should not have been taken as a basis for cancelling registration u/s 12AA e. Pg 50 para 29 Allegation on the genuineness of donors and creditworthiness in doubt, we observe that this issue has no strength to form a basis for cancellation of registration u/s 12AA(3). This issue to be dealt in regular assessment proceedings. f. Pg 61 para 36 Consistently held by Hon ble Courts and Coordinate Benches that registration granted u/s 12AA cannot be cancelled by invoking provisions of 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and the registration granted u/s 12AA be restored w.e.f. 01.04.2008. b) Divine Shiksha Samiti [2020] 121 taxmann.com 175 Hon ble Jurisdictional High Court of Madhya Pradesh order pronounced on 06.01.2020 HEAD NOTE ..Whether therefore, where there was no doubt about genuineness of objects of society for grant of registration under section 12AA, Tribunal was correct in directing Commissioner (Exemption) to grant registration to society under section 12AA, irrespective of findings of Commissioner (Exemption) that there was diversion of income of assessee society for providing undue benefit to its office bearers and thus society existed for purpose of profit of office bearers 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 (Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 12AA(4). [PCIT order page 20 para 23] 3. Section 12AA(4) was inserted w.e.f. 01.10.2014 which provides that the registration u/s 12AA can be cancelled for violation of provisions of section 13(1). In the instant case, as mentioned in the show cause notice, assessment for AY 2010-11 was completed u/s 143(3) rws 147 by alleging that provisions of section 13(1)(c) are violated. Assessment proceedings relate to AY 2010-11 i.e. a period prior to the insertion of provisions of section 12AA(4). Allegation of misappropriation of funds is made only for one year i.e. AY 2010-11 and not in any other years. Nothing negative has been observed by the Ld. Pr.CIT (Central), Bhopal from the date of grant of registration u/s 12A on 01.04.2008 except 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) and section 13(3). Violation of provisions of section 13 cannot be a basis for cancellation of registration u/s 12AA. Impugned order cancelling the registration u/s 12AA ought to be quashed. D. Apropos ground no. 7 payment of excess salary, funds of the charitable trust were siphoned out and used by the members of the charitable society, fee receipts not fully reflected in the audited accounts 1. Ld. Pr. CIT(Central), Bhopal has made reference to various rough notings, jottings and calculations appearing in the various loose papers and has drawn inferences on the basis of such loose papers found in the search of Shri Prakash Hariramani from his residence. 2. Nothing corroborative has been brought on record to establish a. Salary was paid to non existing employees b. Higher salary was paid by cheque 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 pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor. Ld. Pr. CIT(Central), Bhopal without bringing on record cogent and positive material concluded that the fee receipts are not fully reflected in the audited financials. 10. The document seized from the residential premises of Shri Prakash Hariramani contains rough notings and jottings and the difference in no case can be treated as under recording of fee receipts. These notings and jottings are projections/estimation of the collection of fees and do not reflects the actual collection of fees. 11. Assessee preferred an appeal before Ld. CIT(A) against order passed u/s 143(3) rws 147 for AY 2010-11. Before Ld. CIT(A), assessee along with other grounds raised the following grounds of appeal a. Disallowance of expenditure of ₹ 3,52,94,416 and [PB 97, ground no. 3] b. Addition on concealment of fees of ₹ 69,70,505 [PB 98, ground no. 7] Ld. CIT(A) accepted the audited books of accounts of the assessee. Ld. CIT(A) allowed the ground raised on disallowance of expenditure of ₹ 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). [P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order; (b) where the Directors General or Chief Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the Official Gazette, authorise in this behalf. (3) Nothing in sub- section (1) or sub- section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place. (4) The transfer of a case under sub- section (1) or sub- section (2) may be made at any stage of the proceedings, and shall not render necessary the re- issue 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing officer or Assessing Officers (whether with or without concurrent jurisdiction) and the of ices of all such officers are situated in the same city, locality or place. 4.5) The appellant has placed reliance in the ITAT, Indore's decision in the case of Chirayu Charitable Foundation I ITA no.l79 IIND/2019 , facts of which case does not squarely relates to the present case. Moreover, the additional ground raised by the appellant is regarding challenge of jurisdiction of the Pr.CIT(C), is not a subject in the citation referred. 4.6) The appellant has taken ground that instant exercise relating to revocation of registration of the assessee is without jurisdiction. Section 12AA read with rule 17 A and 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). Powers entrusted u/s 12A112AA are to be exercised by the jurisdictiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on applicability of section 12AA(3). In regard to the above, the appellant has resorted to different grounds which are as under: 5.1) In the instant case allegation of misappropriation of funds made only for one year i.e. A.y. 2010-11 and not in any other years. However, for the entire period from the date of grant of registration U/S 12A on 01.04.2008, Ld. Pr. CIT(Central), Bhopal has observed that the affairs of the assessee are not genuine and are not being carried out in accordance of the objects of the appellant and also the funds of the assessee are being used for the benefits of the members of the assessee. 5.2) Pr. CIT(Central), Bhopal has cancelled the registration U/S 12AA with effect from 01.04.2008 (with retrospective effect). 5.3) If the provision of section 13 are violated, then the Assessing Officer 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 for cancellation of registration U/S 12AA(3). The appellant has placed reliance on various decisions in support of his ground. Comments: 6.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apers alleged to be incriminating in nature were found during the course of search. It is a normal procedure that subsequent to search all the cases relating to the group are centralized with central circle for making assessment by this process of centralization, it also becomes easy for the Ld. Assessing Officer to assess the income along with referring the seized material which interconnected and relating to group concerns/associates/individuals. 13. In the instant case, order u/s 127(2) of the Act dated 23.11.2016 was passed by the CIT(E), Bhopal. Copy of this order is reproduced below: 14. From perusal of the above order, we find that the jurisdiction of the assessee has been transferred from DCIT(E), Bhopal to ACIT(Central)-2 Bhopal. We also note that the Permanent Account No. of the assessee have been migrated to the ACIT(Central)-2 Bhopal. This order came to force w.e.f. 23.11.2016. Though assessee has referred to various judicial pronouncements in its reports but the same will not be of any support to the assessee since the jurisdiction has been transferred after following the procedure provided under the Act and Rules of the Income Tax Act, along with pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the trust of society or institutions is running for charitable objects and activities is carried out are genuine in nature. In the instant case, the seized material relied upon does not establish that the activities of the assessee are not genuine and are not being carried out in accordance with objects. It is merely on the basis of certain loose papers found and seized during the search operation carried out in the case of Prakash Hari Ramani(related to Ramani group) at his residence that Ld. Pr. CIT(Central) preceded to cancel the registration granted earlier. 15b.We find that recently this Tribunal in the case of Chirayu Charitable Foundation (ITANo.179/Ind/2019 dated 09.02.2021 dealing with similar issue of cancellation of registration u/s 12AA of the Act on the allegation of genuineness of donation and their creditworthiness. This tribunal after placing reliance on various judicial pronouncements held that registration u/s 12AA of the Act cannot be cancelled unless it is established by material evidence that the activities of such trust or institutions or society are not genuine or are not being carried out in accordance with objects of the trust. The relevant portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- from M/s Herbicure Health Care Bio Herbal Research Foundation in the A/Y 2011-12 by paying an amount of ₹ 1,00,00,000/- in cash to M/s Herbicure Health Care Bio Herbal Research Foundation itself. This allegation is totally untrue as nothing of this sort has been written or mentioned in the confirmation, given by M/s Herbicure Health Care Bio Herbal Research Foundation. Till date no evidence to the contrary has been made available to the assessee which could substantiate your honour's allegation that the amount of₹ 1,00,00,000/- was paid by the assessee in cash to the donor in exchange of donation received by cheque. However, in case, there is any authentic material available with your honour which could throw some light on this issue, the same may be given to the assessee so that a specific reply on the same could be submitted on it (ii) The Co-ordinate Bench of Mumbai in the Case of Lilavati Kirtilal Mehta Medical Trust, Bandra V. CIT (Central) I, Mumbai [2019] 108 taxmann.com 272 (Mumbai - Trib.) the Hon ble ITAT, Mumbai Held that :- Now, we may go back to section 12AA(3) of the Act, which prescribes only two conditions under which the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ib.) Tamil Nadu Cricket Association v. DIT (Exemption) 633/221 Taxman 275/[2013] 40 taxmann.com 250 (Mad.) 12. Therefore, in view of our aforesaid discussion, on the preliminary point itself, we find that the impugned order of the Commissioner cancelling the registration u/s. 12AA(3) of the Act is bereft of a valid jurisdiction. (iii)The Hon ble Karnataka High Court in the case of CIT Vs. Islamic Academic of Education reported in 229 Taxman 274 (Karn) held as under :- In the instant case, the material on record shows that the Trust has established educational institution and imparting medical education. Every year, students are admitted. Huge investment is made for construction of buildings for housing the college, hostel and to provide other facilities to the students who are studying in the College. The College is recognized by the Medical Council of India, State of Karnataka and all other statutory authorities. Therefore, it cannot be said that the Trust is not genuine. Admittedly, the students are being admitted every year. Students are studying in all courses. Thus the object of the constitution of the Trust namely imparting of education is going ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12AA(3) of the Act, do not make out any case, which can show the activities of the assessee are not genuine or that the activities of the assessee are not being carried out in accordance with the objects of the trust or institution. The fact that the Assessee was paying commission to persons who solicit students for studying in the Assessee s institution cannot lead to the conclusion that the Assessee is not imparting education. Similarly purchase of a BMW car, borrowing of loans from Sindhi Financiers, non maintenance of regular books of accounts, violations of provisions of Sec.13(1)( c) of the Act in as much as the trustees were paid enormous salary are all by way of passing reference having norelevance to whether or not the Assessee was pursuing education as its main object. There are no facts brought out in the impugned order regarding the genuineness of the activities of the trust or as to whether the object of education was not pursued by the Assessee as its main and predominant activity. In fact, the order of the DIT(E) does not anywhere show that the assessee is not imparting education. The complaint of the revenue seems to be that education is being imparted but on commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not by any stretch of imagination be regarded as retrospective alternation of the law. In the case before us, as per the amendment by the Finance Act, 2010, the Commissioner has claimed to be empowered to initiate steps for the cancellation of the registration of a trust or Institution where the activities of the trust or institution are not genuine or are not being carried out in accordance with the objects thereof even in relation to a trust which was registered under S. 12A as it then stood. So basic requirement for invoking S. 12AA(3) is that the activities of the trust are not genuine and are not being carried out in accordance with the objects of the trust. The CIT has recorded her findings in the order u/s 12AA(3) that the trust is imparting knowledge at cost and therefore, not a charitable Trust within the purview of S. 2(15) of the Act, secondly, the appellant trust has contravened the provisions of Ss. 11(5) and 13(1) (c) of the Act. Thirdly, the trust is treated by the Chairman and family members /relatives as their private property and enjoyed by them for their benefits only. There is nothing on record to suggest that the Trust is not 'genuine'. In fact, the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution. Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. The provisions of section 12AA of the Act, deals with procedure for registration of trust/institutions. As per said section, the Commissioner shall look into the objects of the trust and its activities and satisfy himself about that the objects of the trust are charitable in nature and its activities are genuine and such activities are carried out in accordance with its objects. Sub-section (3) inserted with effect from 1st Oct., 2004 empowers the Commissioner to cancel the registration of a trust or institution granted under clause (b) of sub-section (1) when subsequent to grant of registration the Commissioner is satisfied that activities of trust or institution are not genuine or are not being carried out in accordance with objects of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing we would like to summarise our findings and observations in following manner:- (i) As regards the alleged donations received from various concerns mentioned in the impugned order, we are satisfied with the identity of the alleged donors, genuineness of the transaction of giving donatiion to the assessee trust since most of the alleged donors are either charitable trusts or known to the Directors/ Promoters and the transactions being carried out through banking channel and we are also satisfied with the creditworthiness of the alleged donors as they have sufficient financial strength to provide the donation to the assessee trust, (ii) As regards the alleged irregularity in education process noted by CBI the matter is still subjudice with the court and the order of Regulatory Authority namely Admission Fee Regulatory Committee stand stayed by the Hon'ble jurisdictional High Court vide stay order dated 23.7.2015 which is effective till date. The alleged irregularity is for one of the year in only one of the college run by the trust amongst other hospitals and colleges which are undisputedly providing charitable services in the field of medical and education. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A cannot be cancelled from retrospective effect. For this view we place reliance on the judgment of Hon'ble Madras High Court in the case of Auro Lab v. ITO (2019) 102 taxmann.com 225 dated 23.01.2019 wherein Hon'ble Court held that Since the act of cancellation of registration has serious civil consequences and the amended provision is held to have only a prospective effect the effect of cancellation, in the event the pending Tax Appeal is decided in favour of the Revenue, will operate only from the date of the cancellation order, that is 30.12.2010. In other words, the exemption cannot be denied to the petitioner for and up to the Assessment Year 2010-11 on the sole ground of cancellation of the certificate of registration. [emphasis supplied] 15d. In view of the above discussion with regard to ground no.1 2 6 of the assessee s appeal, in light of the judgments and decisions referred herein above settled and judicial principles, we are of the considered view that firstly, Ld. Pr. CIT erred in cancelling the registration with retrospective effect from 01.04.2008 and secondly, we are also of the view that Ld. Pr. CIT erred in cancelling the registration u/s 12AA(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 i.e. A.Y. 2010-11 and not for any other year. Nothing adverse has been observed by Ld. Pr. CIT(Central) from the date of registration u/s 12AA of the Act i.e. 01.04.2008 till the date of passing impugned order except for A.Y. 2010-11. It is judicially settled that if provisions of section 13(1)(c) of the Act are attracted, the benefits of exemption under section 11 12 of the Act are not available to the assessee, it is subject matter of the assessment proceedings as to whether the exemption u/s 11 12 of the Act is to be denied or forfeited to the extent of violation of provision of section 13(1)(c) of the Act is formed by the Ld. AO but it can in no way lead to cancellation of registration granted u/s 12AA of the act unless any cogent and positive material is brought on record to establish that the society is not carrying out genuine charitable activities as per the objects for which it has established. If the provisions of section 13 are violated, it empowers the assessing officer to forfeit the exemption permissible u/s 11 12 of the act only to the extent of amount not allowed u/s 11 12 of the Act. However, such violation cannot form a ground for cancellation of registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness receipts at ₹ 69,70,505/- and also denied the deduction for capital expenditure claimed by the assessee having been applied for charitable purposes. Income assessed at ₹ 2,86,69,615/-. Assessee challenged all the finding of the ld. AO before the Ld. CIT(A) and partly succeeded. Ld. CIT(A) held that proceedings u/s 148 of the Act are valid Ld. CIT(A) also held that in view of the seized loose papers and the finding of the ld. AO the assessee society is not running for charitable purpose and therefore, not entitled for claiming deduction u/s 11 12 of the Act. Ld. CIT(A) allowed claim of expenditure of at ₹ 3,52,94,416/- denied by the ld. AO and held that the real income of the assessee is loss at ₹ 1,56,43,479/- as against the income of ₹ 1,96,50,937/- considered by the ld. AO. Ld. CIT(A) also confirmed the addition for bogus salary expenditure of ₹ 20,48,173/-. However, Ld. CIT(A) granted partial relief with regard to addition of ₹ 69,70,505/- made by the Ld. AO on account of suppression of fee by calculating the difference at ₹ 8,47,694/- thereby giving relief of ₹ 61,22,811/-. Ld. CIT(A) also dismissed the assessee s c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n documents were found and seized from the residence of Shri Prakash Hariramani which relate to the assessee. These documents are LPS -6, LPS-7 and LPS-ll. [PB 38] 5. Nowhere it has been provided in section 13 that if some part of the income is applied for the benefit of persons mentioned in section 13(3), then the income of the institution will take colour of business and it will become automatically assessable u/s 28 of the Act. Section 13 provides that only the said part of the income will not be qualified for the purpose of exemption/deduction u/s 11 and 12 of the Act. [PB 45] 6. By applying the provisions of section 11 and 12, computation of income was submitted by assessee according to which, loss of ₹ 4,82,20,098 was claimed by the assessee, including claim for capital expenditure. [PB 46] 7.Without prejudice to the claim of assessee u/s 11 12, loss of ₹ 1,56,43,480 was arrived at by applying the provisions of section 28 for which computation was submitted. [PB 41] 8.In the reasons recorded, reference has been made to various loose papers on which various rough noting, jottings, calculations are made. It is onthis basis that inferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of search. [PB 49] 14. Shri Vijay Hariramani was also covered by the search conducted in the Hariramani Group. No evidence/document was found to establish corroboratively that he had siphoned off the funds of the institution by booking of the alleged bogus salary and taking extra cash. [PB 49] 15.The seized paper does not reflect if any amount was paid to Shri Vijay Hariramani. Assessee submits that 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 ₹ 5,61,877 from the assessee institution. Further there is no corroborative evidence to establish the flow of money from the assessee institution to Shri Vijay Hariramani. Addition based merely on surmises and conjectures is bad in law, unsustainable and ought to be deleted. [PB 50] 16.Without prejudice, denial of whole exemption is unlawful and bad in law. Exemption under section 11 12 may be limited only to the amount which has been considered for section 13(1). Reliance is placed on the following ludicial precedents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submitted 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 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 Barkartullah University, Bhopal. 1635 students are studying various courses in its Institute. Thus, the assessee is carrying out the activities genuinely and in accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Assessee submits that despite relief granted by Ld. CIT(A) for which Department is not in appeal, entire claim of exemption u/s 11 12 cannot be disallowed by re-characterizing it as income under the head Profits and Gain of Business or Profession . Only that part of the income of the assessee shall not qualify for the purpose of exemption u/s 11 and 12 of the Act which is held to be covered u/s 13 and not otherwise. C. Apropos Ground no.3 Allegation of bogus salary expenditure of ₹ 20,48,173 1. In the reasons recorded, Ld. AO has made reference to the document seized from the residential premises of Shri Prakash Hariramani at para (iii), page 60 to 63 of LPS -11. On the basis of this document, Ld. AO has inferred that assessee has paid bogus salary of ₹ 20,48,173. [AO Page 4 to 7 and Page 10 Para 12 to 14] 2. Loose papers on the basis of which Ld. AO has alleged that assessee has paid bogus salary of ₹ 20,48,173 is some working done by a person not known which contains name of employee, cash, cheque and difference for months from April 2009 to Feb 2010 and then total. There are two categories teaching staff and non-teaching staf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablish that the there is shortage of cash and that one of the trustees has siphoned this excess cash generated on account of booking of alleged bogus salary expenses. It is submitted that one of the trustees, Shri Vijay Hariramani was also subjected to the search but no documents or material was seized to establish that the said trustee siphoned the funds of the assessee society by booking bogus salary expenses. 6. 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. Hon ble Apex Court in the case of V C Shukla and Common Cause (A Registered Society) 30 ITJ 197, has been 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. [PB 48] 7. Consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The addition has been made merely on the basis of the loose paper. It is submitted that the difference 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 done by some person not known to assessee. The document contains broad noting of various items and does not reflect the actual figures. [AO Page 12 and PB 55] 2. 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] 3. Actual collection of fees after taking into acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions section 11 were amended according to which the capital expenditure incurred were not considered as application of fund applicable from AY 2015-16 and only depreciation was to be considered as application of funds. This amendment is applicable prospectively. The year under consideration is AY 2010-11 hence the amended provisions are not applicable. Accordingly, amount of capital expenditure of ₹ 3,25,76,619 be kindly allowed as application of funds u/s 11 and 12. Considering the above facts, circumstances of the case, submissions made, documents on record and judicial precedents, additions/disallowance made and re-characterisation done by Ld. AO ought to be deleted. 23. Per contra Ld. DR supported the finding of both lower authorities and also submitted that seized loose papers indicates that the assessee society is involved in diverting the funds of the society to the benefit of its members and also claimed excess expenditure by issuing salary cheque of higher amount to the employees and taking the cash back from them. 24. We have heard rival contentions and perused the records placed before us and carefully gone through the submissions made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g education under various streams for last many years, under the approval of related organizations of Central Government. 26a. We, therefore, under the given facts and circumstances, are of the considered view that both lower authorities erred in treating income of assessee as business income. We are of the view that assessee is not carrying out any business of profession and it is established that the assessee is a charitable society running for charitable purpose and imparting education through its colleges and institutions and the objects of the assessee society failed under the provisions of section. 2(15) of the Act and is not in the nature of advancement of any other object of general public nor it is involved in carrying out of any activity in the nature of trade, commerce or business. Therefore neither the proviso to section 2(15) are applicable to the assessee nor it can be held that assessee is carrying out business of profession. Thus, ground No.2 of the assessee appeal is allowed. 27. Apropos to ground No.3 for the alleged disallowance of bogus salary expenditure of ₹ 20,48,173/- we find that based on the seized loose papers LPS-11, the Ld. AO alleged th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in denying exemption claimed u/s 11 12 of the Act based on the observation that the payment of ₹ 5,61,877/- has been made to the trustees from the funds of the society. 28a. We find that in the alleged loose sheets placed at page 9 of assessment order there is a summary of transactions for the period 01.04.2009 to 30.06.2010 including consolidated figures for assets expenses, liabilities source of funds etc. In the last line of the sheet is mentioned that shortage of cash, (Vijay Sir) as on 30.06.2010 and an amount of ₹ 5,61,877/- is mentioned against it. Prima facie, it seems that the alleged figure of ₹ 5,61,877/- is linked to Vijay sir and the date is 30th June 2010 which falls under the A.Y. 2011-12. However, Ld. AO has made the addition for A.Y. 2010-11. This fact in itself proves that the action of the Ld. AO of making addition during A.Y. 2010-11 was wrong. Also it is evident from the assessment order that this particular issue placed at page 9 of the assessment order, there are various other items with figures mentioned in front of them. Ld. AO had not made any comment nor made any efforts to examine the correctness of these figures, Ld. AO has m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74900 Bus receipts 2781375 Hostel fees 21000 Advance fees as on 31.03.2010 6325612 Less: opening advance fees as on 31.03.2009 2930825 3394787 Caution money as on 31.3.2010 694500 Less: opening caution money as on 31.3.2009 363000 331500 25773749 Therefore, the difference come at ₹ 847694/-(₹ 2,66,21,443- ₹ 2,57,73,749). Therefore the addition made by AO to the extent of ₹ 8,47,694/- is confirmed the appellant will get relief of ₹ 61,22,811/- . Therefore, the appeal on this ground is partly allowed. 29a. From perusal of the alleged loose sheet which is neither signed no the author of it is known we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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