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TMI Blog2021 (12) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... id abinitio. 1.1.1 That the order passed is void and unsustainable inter alia for the following reasons: (a) That it grossly violates principles of natural justice, fair play and Equity mandated by law. (b) That it lacks Jurisdiction/competence to deal with and adjudicate on the subject matter. (c) That it lacks jurisdiction in the absence of statutory conditions precedent to valid assumption and exercise thereof. 2. That on facts and in law the PCIT-Gurgaon erred in cancelling the registration granted to the appellant u/s 12AA of the Act vide order F. No. CITll/ CHD/Tech/12A/324/2010-11/4776 dated 22nd February 2011. 2.1 That on facts and in law the PCIT-Gurgaon has erred in not appreciating that charitable activities carried on by the appellant were genuine and that the same were being carried out in accordance with its object and bye laws. 3. That on facts and in law the PCIT-Gurgaon has erred in invoking and exercising jurisdiction u/s 12AA(3) and 12AA(4) of the Act and that too on basis of untested and unconsidered alleged search material, merely on the allegations, suspicions and surmises in the Report of the Investigation Wing without awaiting its appris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y / Trust which was created for charitable purpose and registered under the Society Registration Act (XXI of 1860) vide Registration No. 2650 of 2009-10 on 28.10.2009. The assessee society / Trust is Registered under section 12AA of the Act vide order dt. 22/02/2011 of Ld. CIT-II, Chandigarh w.e.f A.Y. 2011-12 and also registered under section 80G(5)(vi) of the Act vide order dt. 21/02/2011 of Ld. CIT-II, Chandigarh. The objects of the assessee Trust are mentioned in its Memorandum of Association (MOA) and Rules & Regulations. The Trust is engaged in providing education and running various educational institutions including Chandigarh University at VPO. Gharuan, Kharar-Ludhiana Road, SAS Nagar, Mohali. The assessee Trust belongs to Chandigarh Group of colleges, a leading private group of colleges in Northern India and runs several colleges from three campuses situated in Landran,Gharuan and Jhanjeri. All the colleges are run in the name of the following three educational Trusts / societies. S.No. Name of Society/Trust PAN Address of the trust Campus address 1 Shri Guru Ram Dass Educational Society AACTS6157Q Landran, Mohali VPO. Landran, SAS Nagar, Mohali 2 Chandigarh E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same are not reproduced herein. According to the Ld. Pr. CIT(C), the various incriminating documents / evidences regarding siphoning off funds of the trust to its trustees / members by booking bogus expenses were found during the course of search and post search proceedings which shows that the activity of the assessee were not genuine and not being carried out in accordance with object of the society. He therefore issued a detailed show cause notice dt. 24/11/2020 asking the assessee to explain as to why the Registration already granted under section 12AA of the Act vide order dt. 22/02/2011 may not be cancelled by invoking the provisions of Section 12AA(3) and 12AA(4) of the Act. 5.2 In response the assessee furnished the written submissions before the Ld. Pr. CIT(C) who mentioned the gist of the submissions as under: i) The cancellation of registration cannot be made on the basis of the findings of search and seizure operation and cancellation of registration should not be done till the final assessment is completed. ii) The activities of the assessee trust are genuine and are being carried out in accordance with the objects of the trust. Hence, the registration grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Joint Commissioner, Deputy Commissioner / Assistant Commissioner etc. have been given different powers which are exercised by them in accordance with the provisions of the Act and satisfaction arrived by them independently. He was of the view that there was no requirement that Principal Commissioner / Commissioner should rely on the findings of the assessment proceedings and wait for its conclusion for granting or cancelling the registration under section 12AA of the Act. The reliance was placed on the following case laws : * Hind Charitable Trust Vs. Principal Commissioner of Income Tax, (Central), Lucknow [2018] 93 Taxmann.com 483(All.) * CIT Vs. SPL'S Siddhartha Ltd. [2012] 17 Taxmann.com 138 (Delhi) * Kalinga Institute of Industrial Technology Vs. CIT [ 2011] 336 ITR 389 (Orissa) 5.5 The Ld. Pr. CIT observed that a detailed show cause notice had been issued to the assessee which was based on the statement, documents and evidence etc. collected during the search and post search proceedings and also on perusal of the return and details examined by the A.O. during the assessment proceedings and that the show cause notices issued, properly record the basis for initiation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome, hence to decide the eligibility of Section 12AA of the Act subsequently after having been granted earlier, the test to be applied are twin; (1) whether the activities of the trust are being carried out as per the stated objects and genuine and income is derived only from the property held under the trust ("Source test") (2) whether the trust is applying entire receipt/income solely for the charitable purposes of trust as required u/s 11,12 & 13 ('Application Test'). The Ld. Pr. CIT further observed as under: 9.4 Further, in order to avail the exemption u/s 11 & 12, not only all the activities of the trust should be genuine but at the same time the income should be applied solely towards the objects of the trust ('Application test). Application of income towards charitable purposes only is one of the critical tests for being eligible u/s 11 & 12 and consequential continuation of registration u/s 12AA. The application of income towards the objects of the trust impliedly also pre-envisages that all the receipts/expenses of the trust are duly & completely recorded in the books of account properly on regular basis. The expression appearing in section 11 (1)(a) "to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit to the persons mentioned u/s 13(3) of the Act. 5.9 Ld. Pr. CIT was of the view that conspectus of decisions on the subject provides that at the time of granting registration under section 12AA(1) of the Act, only the objects and purposes are required to be seen and if any violation is noted subsequently the registration shall be liable to be cancelled under section 12AA(3)/12AA(4) of the Act, which by implication follows that once the assessee is not required to prove the genuineness of its activities at the time of initial registration and subsequently if any violation is found then the onus of proving that the activities were carried out genuinely as per the objects of the trust only and otherwise, shall lay heavily on the assessee and not on the Revenue. The reliance was placed on the judgment of the Hon'ble Apex Court in the case of : * Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar & Company & Others which overruled the 3 Judges Bench decision in the case of * Sun Export Corporation Mumba Vs. Collector of Customs, Mumbai (1997) 6 SCC 564 5.10 The Ld. Pr. CIT was also of the view that violation of the conditions of Sections 11,12 & 13 can also tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing FY 2017-18 for purchase of Plot No.147, Sector 9, Chandigarh in the names of Sh. Satnam Singh Sandhu and Smt. Damandeep Kaur. d) Diversion of funds of Rs. 56,00,000/- (received as gift of CAD 1,00,000) through money laundering for purchase of a house at Canada in the name of Smt. Damandeep Kaur during FY 2019-20. e) Diversion of funds amounting to Rs. 30,00,000/- during FY 2015-16 to Smt. Jasmail Kaur. f) Diversion of funds through accommodation entries of unsecured loan by Sh. Satnam Singh Sandhu and his partnership firms - Amount of Rs. 4,90,00,000 received by Golden Infotech from the shell company Alps Management Solutions Pvt. Ltd. (FY 2018-19), amount of Rs. 4,79,50,000 received by Chandigarh Multiplex Projects from the shell company LTE Info Technologies Pvt. Ltd. (FY 2018-19), amount of Rs. 5,00,00,000 (FY 2017-18) & Rs. 4,85,00,000 (FY 2019-20) received by Sh. Satnam Singh Sandhu from the shell companies LTE Info Technologies Pvt. Ltd. and Syamali Security and Consultant Pvt. Ltd. respectively. g) Diversion of funds amounting to Rs. 4,69,41,200 and Rs. 2,80,75,400 paid to Sh. Rashpal Singh Dhaliwal and his wife Smt. Karamjit Kaur (Trustees of Chandigarh Educ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant income was not exempted under section 11 or 12 of the Act, by the virtue of the provision of Section 13(1)(c) or Section 13(1)(d) of the Act, tax shall be charged on the relevant income or part of relevant income, at the maximum marginal rate, the Ld. Pr. CIT observed that the judgments relied by the assessee related to the period when the provisions of section 12AA(4) of the Act was not in the statute which was inserted w.e.f 01/10/2014 and provides that if the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 of the Act do not apply to exclude either whole or any part of income of such trust or institution due to operation of sub section (1) of section 13 of the Act then the Ld. Pr. CIT or the Commissioner may by an order in writing cancel the registration of such trust or institution. Therefore the registration under section 12AA of the Act can be cancelled even if the provisions of section 11 & 12 of the Act do not apply to the part of the income due to operation of section 13(1) of the Act. 5.15 According to the Ld. Pr. CIT there is no specific provision to restrict the denial of exemption to the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the jurisdiction of the Income Tax Authorities which may be relevant to decide the issue. Those notifications were as under: S.No. Details of Notification Jurisdiction of Income Tax Authority 1. NOTIFICATION NO. S.O. 2754(E) [NO. 52/2014 (F.NO. 187/38/2014 (ITA-I))] DATED 22.10.2014 Commissioner of Income-tax (Exemption) 2. NOTIFICATION NO. S.O. 2752(E) [NO. 50/2014 (F.NO. 187/38/2014 (ITA-I))] DATED 22.10.2014 Jurisdictional Principal Commissioner of Income-tax 3. NOTIFICATION NO. S.O. 2915(E) [NO. 70/2014 (F.NO. 187/37/2014 (ITA-I))] DATED 13.11.2014 Principal Commissioner of Income-tax (Central) 5.18 The Ld. Pr. CIT observed that the aforesaid notification no. 70/2014 dt. 13/11/2014 provides for the jurisdiction of Pr. CIT(Central), Gurgaon and as per the Clause B of the notification, the Principal Commissioners/Commissioners of Income-tax(Central) or Joint Commissioners of Income-tax, subordinate to them shall exercise powers and perform the functions as stipulated in the Income-tax Act, 1961 in respect of such cases or classes of cases or such persons or classes of persons, assigned to Assessing Officers subordinate to them, under section 127 of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs u/s 153A of the Act have been initiated in this case for AYs 2014-15 to 2019-20, which are pending. Before passing the order, Pr. CIT (Central), Gurugram conveyed his concurrence to the CIT (Exemption), Chandigarh for transfer of the case to his charge under the Assessing Officer ACIT, Central Circle-2, Chandigarh vide letter No. 5480-91 dated 29.01.2020. b. Since the transfer was from one Assessing Officer to other Assessing Officer having offices situated in the same city i.e. at Chandigarh, as per the provisions of section 127(3) of the Act there was no requirement to give a reasonable opportunity of being heard in the matter to the assessee. c. Subsequent to the transfer of case, notices u/s 153A was issued by the Assessing Officer to the assessee. More than one month has expired since then and the assessee has not called in question the jurisdiction of the present AO i.e. ACIT, Central Circle-2, Chandigarh. In this regard, it is worthwhile to reproduce the provisions of section 124(3) df the Act which reads as under: - "(3) No person shall be entitled to call in question the jurisdiction of an Assessing Officer- c. where an action has been taken under section 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistration u/s 12AA of the Act shall also be exclusively vested in the Commissioners of Income Tax(Exemption) only and no other Commissioner or Pr. Commissioner can exercise such power. He also observed that such power shall be governed by the provisions of the Income Tax Act which specifically gives this power to Pr. Commissioner or Commissioner. Once a case is transferred under section 127 of the Act, Pr. CIT(Central) shall exercise all the powers and perform the functions as stipulated in the Income Tax Act, in respect of the case so assigned to the A.O. subordinate to him. 5.24 The Ld. Pr. CIT observed that Section 127 of the Act is a separate code of its own, sub section 1 of Section 127 of the Act empowers the Pr. Director General or Pr. Chief Commissioner or Chief Commissioner or Pr. Commissioner or Commissioner, as stipulated therein, to transfer any case from one or more A.O. subordinate to him. In other words the aforesaid authority can transfer the case records of an assessee from one A.O. to another functioning under his own charge. On the contrary, Section 127(2) of the Act, empowers the foregoing authorities to transfer the cases of assessee from the A.O. from his j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and the jurisdiction stood transferred in favour of ACIT/ DCIT, Central Circle-2, Chandigarh. From the plain reading of the order u/s 127(2) dated 14.05.2020, it may be seen that the transfer of jurisdiction over the appellant's case from the charge of ACIT/DCIT, Circle-1 (E), Chandigarh to ACIT/ DCIT, Central Circle-2, Chandigarh was absolute. k. In the circumstances when one reads the definition of "case" as set out in the explanation to section 127 of the Act, then it means that when a Chief Commissioner or Commissioner makes an order for transfer of jurisdiction in exercise of the powers conferred by section 127 of the Act, from an AO who is vested with jurisdiction by virtue of direction/order issued under sub-section (1) or (2) of section 120 of the Act to another AO who is not vested with such jurisdiction as per direction/order issued u/s. 120(1) and (2) of the Act; then by virtue of such transfer order u/s. 127 of the Act, the jurisdiction of an AO vested on an AO as per sec. 120(1) or (2) of the Act is taken away. Accordingly, after 14.05.2020, ACIT/DCIT, Circle-1 (E), Chandigarh could not have exercised any powers conferred on the AO by the Act for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the said objects and purpose of the trust, the fulfillment of other conditions for continuance of registration could not be verified and it was imperative that the fulfillment of those conditions must be tested, when after grant of the registration, the violation of any condition was found or conditions of the registration itself get vitiated. Therefore the cancellation of registration was required to be made for the period when the violation was done and not from the date when the violation was detected. The Ld. Pr. CIT further observed that if the withdrawal of registration was to be done only prospectively from the date of detection of violation then the exemption already availed for the period there was violation but detected subsequently would get allowed by default which will prompt the unscrupulous trusts to violate the conditions of registration under section 12AA of the Act with impunity till it is detected and withdrawn from a prospective date which is neither the intention of the Act nor such interpretation is permissible, which allows the mischief to succeed even for the period for which the conditions are not found to be fulfilled on ground that the registration can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, Jurisdictional Objections raised in this regard were as under: * Action of PCIT-Gurgaon in exercising jurisdiction to invoke powers u/s 12AA(3) and 12AA(4) of the Act premised report of Investigation Wing is premature as assessment proceedings u/s 153A of the Act for AYs 2014-15 to AY 2019-20 are pending. The jurisdictional AO is parallelly conducting an investigation in the matter. The AO is yet to form an opinion after take into consideration the findings of Investigation Wing and the replies of the appellant hence proceedings initiated u/s 12AA(3) /(4) should be kept in abeyance. * That as per CBDT Notification dated 22nd October 2014 PCIT Gurgaon had no jurisdiction u/s 12AA over the matter. Additional time was sought for submitting a detailed reply on merits of allegations levied in show cause notice 11. 12.03.2021 Writ Petition Filed before the Hon'ble P&H HC against SCN so issued for cancellation of registration u/s 12AA by Pr. CIT(C) 12. 17.03.2021 Writ Petition disposed of by Hon'ble P&H High Court. Hon'ble High Court has held as under: ""Limited grievance of the petitioner is that show cause notice, and Annexure P-5 has been issued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h University' in 2012 and that the group of colleges has a combined strength of 45,000 students. The primary object of the assessee society is to impart education which is being discharged very effectively and the same finds its support from the fact that the number of students as well as number of courses are increasing in each upcoming year since the inception of the Trust. 7.4 Ld. Counsel for the Assessee on the basis of the chart of sequence of events incorporated in the former part of this order submitted that search action under section 132 of the Act had taken place in the assessee's case on 03/10/2019 and the case was centralized under section 127 of the Act vide order dt. 14/05/2020 passed by the Ld. CIT(E), Chandigarh. Thereafter notice under section 153A of the Act was issued by the Ld. ACIT, CC-2,Chandigarh on 07/09/2020, in response to thereof the assessee filed the return of income on 19/10/2020, the A.O. issued notice under section 143(2) of the Act for selecting the return of income filed under section 153A of the Act for scrutiny on 05/11/2020 and again issued detailed questionnaire under section 142(1) of the Act on 21/11/2020. Thereafter, the Ld. Pr. CIT issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard nor considered the appraisal done by the concerned A.O before cancelling the registration granted to the assessee under section 12AA of the Act. Therefore, the impugned order passed by the Ld. Pr. CIT may be set aside. Reliance was placed on the following case laws: * Fedco(P) Ltd. and Ors Vs. S.N. Bilgrami and Ors reported in AIR 1960 SC 415 (SC) * ITO Vs. Ashoke Glass Works reported in 125 ITR 491 (Calcutta) * DCIT Vs. Sahara India Financial Corporation Ltd. reported in 183 ITD 266 (Delhi-Trib) * CIT Vs. Parke Davis (India) Ltd. reported in 239 ITR 820 (AP) * CIT, Faridabad Vs. Motorola India Limited reported in 326 ITR 156 (P&H) * Ramshila Enterprises (P.) Ltd. Vs. CIT reported in 383 ITR 546 (Calcutta) * PCIT, Pune Vs. Sungard Solutions (I)(P.) Ltd. reported in 415 ITR 294 (Bombay) * State Bank of India Vs. Chandra Govindji(Km.) reported in (2000) 8 SCC 532 (SC) * GKN Driveshaft (India) Ltd. Vs. ITO & Ors. reported in (2003) 1 SCC 72 (SC) * P.N. Eswara Iyer and Ors. Vs. Registrar, Supreme Court of India reported in (1980) 4 SCC 680 (SC) * Kalinga Institute of Industrial Technology Vs. CIT reported in 113 TTJ 906 (Cuttack) * Kalinga Instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable opportunity of being heard to the assessee and without considering outcome of the assessment to be framed by the A.O. on merit. 8. In her rival submissions the Ld. CIT DR strongly supported the impugned order passed by the Ld. Pr. CIT. It was further submitted that the Ld. Pr. CIT has just acted upon the direction given by the Hon'ble Jurisdictional High Court and decided the case of the assessee within one month which was the limit given by the Hon'ble High Court. It was further submitted that the Ld. Pr. CIT issued the notice dt. 24/11/2020 and the assessee furnished the reply dt. 04/01/2021 and thereafter on 01/02/2021, so it cannot be said that sufficient time was not given to the assessee for giving the reply. It was further submitted that the Hon'ble High Court directed the Ld. Pr. CIT to dispose off the objection furnished by the assessee which had been disposed off, therefore, the directions given by the Hon'ble High Court were complied by the Ld. Pr. CIT. It was also stated that reasonable opportunity of being heard was provided to the assessee on 05/01/2021, 19/01/2021 and 01/02/2021. Therefore it cannot be said that a due and reasonable opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the registration already granted to the assessee under section 12AA of the Act was cancelled. It was pointed out that even when the case was adjourned for 10/02/2021 at 11.00 A.M no entry in the order sheet has been made for the said date, the reference was made to page no. 2 of the Departmental paper book which is the copy of the order sheet. Accordingly it was submitted that the impugned order passed by the Ld. Pr. CIT without providing due and reasonable opportunity of being heard to the assessee and without considering the order passed by the A.O. on merit, may be set aside. 10. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case it is not in dispute that the Ld. Pr. CIT passed the impugned order exparte on 22/03/2021 and cancelled the registration already granted to the assessee under section 12AA of the Act by invoking the provisions of section 12AA(3)/12AA(4) of the Act. The said provisions read as under: 12AA. (3) Where a trust or an institution has been granted registration under clause (b) of sub-section(1) or has obtained registration at any time under section 12A as it stood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjournment is sought for. The earlier adjournment, if any, granted would certainly be for reasonable grounds and that aspect need not be once again examined if on the date on which adjournment is sought for the party concerned has a reasonable ground. The mere fact that in the past adjournments had been sought for would not be of any materiality. If the adjournment had been sought for on flimsy grounds the same would have been rejected 11.1 Similarly in the case of P.N. Eswara Iyer and Ors. Vs. Registrar (supra) it has been held as under: The right to be heard is of the essence but hearing does not mean more than fair opportunity to present one's point on a dispute followed by a fair consideration thereof by fair minded judges. Presentation can be written or oral, depending on the justice of the situation. Where oral persuasiveness is necessary it is unfair to exclude it and therefore, arbitrary too. But where oral presentation is not that essential, its exclusion is not obnoxious. What is crucial is the guarantee of the application of an instructed, intelligent, impartial and open mind to the points presented. From the ratio laid down in the aforesaid referred to cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record entire receipt or expenses in the books of accounts. In the present case nothing is brought on record to substantiate that the A.O. had undertaken aforesaid exercise as regards to the provisions contained in Section 11, 12 and 13 of the Act. 11.3 On a similar issue the Coordinate Bench of the ITAT at Cuttack in the case of Kalinga Institute of Industrial Technology Vs. CIT(supra) held as under: Registration of a trust and cancellation of the same are administrative functions, whereas assessment of the trust is a quasi-judicial function. An administrative function and quasi-judicial function cannot be mixed up together. However, the power entrusted with the Commissioner for cancellation of registration should be in consonance with the provisions. In the instant case, the Commissioner had proposed the cancellation proceeding on the basis of the finding of the search and seizure operation. Therefore, the question far consideration arose as to whether the Commissioner should have waited till the final asses sment was completed or not. The apprehension of the revenue regarding continuance of registration to be against the interest of the correct on one hand; on the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ramed by the A.O. cancelled the registration already granted under section 12AA of the Act vide order dt. 22/02/2011, the said action of the Pr. CIT in the present case was a premature one particularly when no submissions were made dt. 04/01/2021 & 01/02/2021 by the assessee on merits of the case and this fact has been pointed out by the Ld. Pr. CIT in para 6 at page 5 of the impugned order wherein it has been mentioned that the submissions contained mostly the legal issues. 11.5 We therefore considering the totality of the facts as discussed hereinabove are of the considered view that the due and reasonable opportunity of being heard was not provided by the Ld. Pr. CIT to the assessee after the direction given by the Hon'ble Jurisdictional High Court on 17/03/2021 and the impugned order passed by the Ld. Pr. CIT on 22/03/2021 exparte, against the provisions as contained in the proviso of sub section 3 of section 12AA of the Act which provides that the reasonable opportunity of being heard is to be provided before cancellation the registration. In that view of the matter the impugned order passed by the Ld. Pr. CIT (Central) is set aside and the issue is remanded back to his f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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