Institute of Science & Management, Ranchi V. The CIT(Central), Patna

ITA 13/RAN/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60097 (ITAT-RANCHI)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: misc
• Appeal Filed On: 02-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARSHWARDHAN PD SR S C
• Assessee Lawyers: A K RASTOGI
• Keywords: Depreciation; Search and seizure; Document seized; Charitable institution; Opportunity of being heard; Principle of natural justice; Benefit of exemption; Cancellation of registration; Documents seized
• Section: 143(3); 133A; 37(1); 12A; 12AA; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI CIRCUIT BENCH, RANCHI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI SHAMIM YAHYA (ACCOUNTANT MEMBER) ITA NO.13/RANCHI/2011 ASSESSMENT YEAR-N.A. INSTITUTE OF SCIENCE & MANAGEMENT, ISM CAMPUS, PUNDAG, JAGGARNATHPUR, RANCHI PAN- AAATI 6144D VS. THE CIT (CENTRAL) PATNA (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI A.K. RASTOGI, ADVOCATE RESPONDENT BY: SHRI HARSHWARDHAN PD., SR. S.C. DATE OF HEARING : 14.02.2012 DATE OF PRONOUNCEMENT:12.03.2012 O R D E R PER B.R. MITTAL, JM : THIS APPEAL IS FILED BY ASSESSEE AGAINST ORDER OF LD. CIT (CENTRAL) DT. 29.6.2011 VIDE WHICH HE HAS CANCELLED THE REGISTRAT ION OF ASSESSEE SOCIETY U/S. 12AA(3) OF THE INCOME-TAX ACT, ON FOLLOWING GR OUNDS: 1. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS E RRED IN CANCELING REGISTRATION GRANTED BY THE THEN CIT U /S 254 (1)/12AA DT. 27.9.2001. 2. FOR THAT THE LEARNED CIT CE NTRAL, PATNA HAS ERRED IN CANCELLING THE REGISTRATION WHICH WAS DIRECTED TO BE GRANTED BY THE ORDER OF HONBLE TRIBUNAL AND HENCE THE CIT HAS NO JURISDICTION/AUTHORITY TO CANCEL THE REG ISTRATION GRANTED TO THE APPELLANT AT THE INSTANCE OF HONBLE TRIBUNAL. 3. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS ER RED IN RELYING ON THE FINDINGS CONTAINED IN THE ASSESSM ENT ORDER FOR A.YS. 2003-04 TO 2009-10 AS WELL AS ON OR DER OF ITA NO. 13/RANCHI/2011 2 DGIT (INV.), PATNA DATED 29.12.2010 WITHDRAWING THE APPROVAL U/S 10(23C) GRANTED VIDE NOTIFICATION DATE D 29.04.2009 BY THE THEN CCIT, RANCHI. 4. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS VIO LATED THE PRINCIPLES OF EQUITY, NATURAL JUSTICE AND FAIR PLAY BY NOT CONFRONTING THE APPELLANT WITH THE FINDINGS AND MAT ERIAL USED FOR THE PURPOSES OF CANCELING THE REGISTRATION IN T HE ORDER IMPUGNED. 5. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS ERR ED IN HOLDING THAT VIDE NOTICE DATED 15.02.2011 (WRONGLY NOTED AS 03.03.2011 IN THE ORDER IMPUGNED) THE APPELLANT WAS REQUIRED TO PROVE THE GENUINENESS OF WORK CARRIED OUT BY THE INSTITUTION. 6. FOR THAT THE NOTICE DATED 15.02.2011 BEARING NO. 4742 (COPY ENCLOSED) MERELY REQUIRES THE PRESENCE OF THE APPELLANT ON CAPTIONED SUBJECT AND WAS SIGNED BY THE HEADQUAR TERS OF THE COMMISSIONER AND NOT BY THE COMMISSIONER HIMSEL F THAT TOO WITHOUT ASSIGNING ANY REASON WHATSOEVER AND / O R WITHOUT CONFRONTING THE APPELLANT ON THE MATERIAL / EVIDENC ES / FINDINGS USED WHILE PASSING THE ORDER IMPUGNED. 7. FOR THAT THE ORDER PASSED IS VIOLATIVE OF PRINCI PLES OF EQUITY NATURAL JUSTICE AND FAIR PLAY. 8. FOR THAT THE WHOLE ORDER IS AB-INITIO VOID FOR W ANT OF COMPLIANCE TO THE RULE OF NATURAL JUSTICE. 9. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS ERR ED IN HOLDING THAT THE ACTIVITIES OF INSTITUTION ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE INSTITUTI ON. 10. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS NO T BROUGHT ON RECORD CONTRAVENTION OF ANY OF THE OBJECTS BY TH E APPELLANT. 11. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS FA ILED TO APPRECIATE THAT THE APPELLANTS SOCIETY EXISTS SOLE LY FOR EDUCATIONAL PURPOSES AND NO OTHER ACTIVITY HAS BEEN FOUND IN COURSE OF SURVEY AND / OR ESTABLISH BY THE DEPARTME NT AT ANY POINT OF TIME. 12. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS ER RED IN HOLDING THAT THE APPELLANT IS ENGAGED IN BUSINESS A CTIVITIES RAISING SURPLUS INCOME YEAR AFTER YEAR. ITA NO. 13/RANCHI/2011 3 13. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS IG NORED THE PROVISIONS OF LAW AND THE CIRCULAR ISSUED BY CBDT W HILE ALLEGING CARRYING ON OF BUSINESS ACTIVITY AND SURPLUS. 14. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS FA ILED TO APPRECIATE THAT SURPLUS, IF ANY, CANNOT BE A GROUND FOR ALLEGING CARRYING ON OF BUSINESS ACTIVITIES. 15. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS ER RED IN HOLDING THAT THE APPELLANT IS MAKING PAYMENT TO SAL ARY OF OFFICE BEARERS WHICH IS DISPROPORTIONATELY HIGH. 16. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS ER RED IN HOLDING THAT FUNDS HAVE BEEN UTILIZED BY THE OFFICE BEARERS FOR PERSONAL PURPOSES. 17. FOR THAT THE OBSERVATION OF CIT THAT FUNDS HAVE BEEN UTILIZED FOR PERSONAL PURPOSES OF OFFICE BEARERS IS WHOLLY MISCONCEIVED AND CONTRARY TO THE RECORDS OF THE APP ELLANTS CASE. 18. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS ER RED IN HOLDING THAT EXPENSES ON GUEST ENTERTAINMENT IS INA DMISSIBLE WHEREAS THE FACTS REMAINS THAT THE SAME HAS BEEN IN CURRED FOR ACHIEVING THE AIMS AND OBJECTS OF THE APPELLANT. 19. FOR THAT THE LEARNED CIT, CENTRAL, PATNA HAS FA ILED TO APPRECIATE THAT THE CONDITION PRECEDENT FOR INVOKIN G SECTION 12AA(3) IS ABSENT IN THE APPELLANTS CASE AND HENCE CANCELLATION OF REGISTRATION IS WRONG, ILLEGAL AND UNJUSTIFIED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE APPELLANT S CASE. 20. FOR THAT THE WHOLE ORDER IS BAD IN FACTS AND LA W OF THE CASE AND IS FIT TO BE MODIFIED. 21. FOR THAT THE OTHER GROUNDS, IF ANY, SHALL BE UR GED AT THE TIME OF HEARING OF THE APPEAL. 2. THE RELEVANT FACTS ARE THAT ASSESSEE IS A SOCIET Y REGISTERED UNDER THE SOCIETIES REGISTRATION ACT AND FORMED ON 30.9.1986. A COPY OF MEMORANDUM OF ASSOCIATION ALONGWITH CERTIFICATE OF REGISTRATI ON IS PLACED AT PAGES 73 TO 91 OF THE PAPER BOOK. ON PERUSAL OF COPY OF MEMORAND UM OF ASSOCIATION , IT IS OBSERVED THAT THERE ARE VARIOUS OBJECTS MENTIONED B UT DOMINANT OBJECT OF THE ASSESSEE SOCIETY IS TO IMPART EDUCATION BY RUNNING AN INSTITUTE NAMELY INSTITUTE OF SCIENCE AND MANAGEMENT (ISM). IT IS OBSERVED THAT ASSESSEE ITA NO. 13/RANCHI/2011 4 SOCIETY WAS GRANTED REGISTRATION U/S. 12A/12AA OF I .T. ACT ON 27 TH SEPTEMBER, 2001 WITH EFFECT FROM 1.4.2000. A COPY OF THE SAID CERTIFICATE IS PLACED AT PAGE 23 OF PAPER BOOK. 3. LD. CIT HAS STATED IN THE IMPUGNED ORDER DT. 29. 6.2011 VIDE WHICH HE HAS CANCELLED THE REGISTRATION OF ASSESSEE SOCIETY THAT THERE WAS A SEARCH AND SEIZURE OPERATION U/S. 132(1) OF THE I.T. ACT IN TH E RESIDENTIAL PREMISES OF R.A.K. VERMA GROUP OF CASES ON 20.3.2009 AND SUBSEQ UENT DATES. ALONG WITH SAID SEARCH AND SEIZURE OPERATION, A SURVEY OPERATI ON U/S. 133A OF THE I.T. ACT ON 20.3.2009 WAS ALSO CARRIED OUT IN THE CASE O F THE ASSESSEE. HE HAS STATED THAT ORDER U/S. 143(3) WAS PASSED ON 30.12. 2010 FOR ASSESSMENT YEAR 2009-10 AND ORDERS U/S. 153C R.W. S 143(3) WERE PAS SED ON 30.12.2010 FOR ASSESSMENT YEARS 2003-04 AND 2008-09. 4. LD. CIT HAS STATED THAT ASSESSEE WAS GRANTED APP ROVAL FOR EXEMPTION 10(23C)(VI) OF I.T. ACT VIDE NOTIFICATION DT. 29.4. 2009 BUT THE SAME WAS WITHDRAWN VIDE ORDER OF DGIT(INVESTIGATION) PANTA D T. 29.12.2010, AS IT WAS NOTICED THAT ASSESSEE HAD CONTRAVENED THE PROVISION S OF SEC. 10(23C) OF I.T. ACT. IT IS RELEVANT TO STATE THAT LD. CIT HAS STAT ED THE FOLLOWING REASONS TO FORM AN OPINION THAT ACTIVITIES OF THE INSTITUTE WE RE NOT BEEN CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE INSTITUTION. 1. THAT SALARY HAS BEEN PAID TO SHRI RAK VERMA, CHAIRM AN OF THE INSTITUTE OF SCIENCE AND MANAGEMENT IN CONTRAVE NTION OF SEC. 13(3) OF THE I.T. ACT, 1961. 2. THAT RS. 2,40,000/- HAD BEEN PAID TO SMT. JYOTI VER MA, WIFE OF SH. RAK VERMA, CHAIRMAN OF INSTITUTE OF SCIENCE AND MANAGEMENT DURING F.Y. 2008-09. 3. THAT HUGE AMOUNT HAD BEEN WITHDRAWN BY SHRI RAK VER MA AND OTHER OFFICE BEARERS/EMPLOYEES IN THE NAME OF ADMINISTRATIVE EXPENSES. NO DETAILS OR BILLS ETC . HAD BEEN SUBMITTED BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS TO JUSTIFY THESE WITHDRAWALS UNDER THE GUISE OF ADMINISTRATIVE EXPENSES. THESE AMOUNTS WERE NOTH ING BUT DEFALCATION OF FUND OF THE SOCIETY BY THE MEMBERS/A ND OFFICE BEARERS OF THE SOCIETY. ITA NO. 13/RANCHI/2011 5 4. THAT ASSESSEE HAD DEBITED RS. 3,07,175/- UNDER THE HEAD STUDENT ACTIVITIES & WELFARE. IT WAS NOTICED THA T A SUBSTANTIAL AMOUNT WAS BEING CHARGED FROM THE STUDE NTS UNDER THE HEAD PLACEMENT CHARGE WHICH WAS SPENT O N VARIOUS OFFICIALS AND MANAGEMENT PERSONNEL FOR THEI R ENTERTAINMENT, WINE AND FOOD UNDER THE HEAD GUEST ENTERTAINMENT EXPENSES. SUCH EXPENSES ON ENTERTAI NMENT ARE NOT ALLOWABLE UNDER THE I.T. ACT, 1961. 5. THAT THE INSTITUTE HAD PAID RS. 11,32,000/- IN F.Y. 2006-07 AND RS. 38,240/- ON 25.2.2009 AS ADVANCE TO SHRI B. K. SINGH FOR CONSTRUCTION OF GIRLS HOSTEL. SINCE THE GIRL S HOSTEL WAS A RENTED PREMISES AND THE LAND LADY WAS MRS. JYOTI VE RMA, WIFE OF THE TRUSTEE/OFFICE BEARER OF THE INSTITUTE HIMSELF, THIS EXPENDITURE WAS PERSONAL IN NATURE AND HAD BEEN PAI D IN CONTRAVENTION OF SEC. 13(3) OF THE I.T. ACT, 1961. 6. THAT THE ASSESSEE HAD CONTRAVENED PROVISIONS OF SEC . 11(1) AND 11(5) OF THE I.T. ACT 1961 AS APPARENT FROM ASS ESSMENT ORDERS FOR 2003-04 TO 2009-10. COMPLIANCE TO THE P ROVISIONS OF SEC. 11(1) AND 11(5) ARE ESSENTIAL CONDITIONS FO R AVAILING EXEMPTION U/S. 11 OF THE I.T. ACT, 1961. 7. THAT THE SURPLUS OF INCOME OF THE ASSESSEE GENERATE D OVER THE PERIOD IS AS UNDER: YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 EXCESS OF INCOME OVER EXPENDITURE RS.34,66,026/- RS.8,06,354/- RS.68,16,587 RS.1,41,01,153/- RS.1,18,91,451/ PERCENTAGE 22.13% 25% 28.825 41.48% 35 .98% FROM THE ABOVE, IT IS QUITE APPARENT THAT THE INSTI TUTE HAD BEEN EARNING HUGE INCOME OVER THE PERIOD OF TIME. THE MAIN SOURCE OF SUCH SURPLUS INCOME IS TO BE ATTRIBUTED TO THE FEES TAKEN FROM THE STUDENTS FOR THEIR PARTICIPATION IN DIFFERENT COURSES. 5. IN VIEW OF ABOVE REASONS, LD. CIT CANCELLED THE REGISTRATION OF THE ASSESSEE-SOCIETY GRANTED U/S. 254(1)/12A/12AA OF I. T. ACT DT. 27 TH SEPTEMBER, 2001. HENCE ASSESSEE IS IN APPEAL BEFOR E TRIBUNAL DISPUTING THE SAID ORDER OF LD. CIT. ITA NO. 13/RANCHI/2011 6 6. ON BEHALF OF THE ASSESSEE SUBMISSIONS WERE MADE FIRSTLY DISPUTING THE VALIDITY OF THE NOTICE ISSUED U/S 12AA(3) OF THE IN COME-TAX ACT AND SECONDLY DISPUTING THE ACTION OF THE LD. CIT TO CANCEL REGIS TRATION GRANTED TO THE ASSESSEE SOCIETY. 7. IN RESPECT OF VALIDITY OF VALIDITY OF NOTICE ISS UED, LD. AR REFERRED TO PAGE 20 OF PAPER BOOK AND SUBMITTED THAT SAID NOTIC E DT. 15.2.2011 WAS ISSUED BY INCOME TAX OFFICER STATING THE SUBJECT MA TTER AS CANCELLATION OF REGISTRATION U/S. 12AA(3) OF I.T. ACT AND ASKING TH E ASSESSEE TO APPEAR BEFORE LD. CIT EITHER PERSONALLY OR THROUGH ITS AUTHORIZED REPRESENTATIVE. HE SUBMITTED THAT IN THE SAID NOTICE NO REASONS HAVE B EEN GIVEN ON THE BASIS OF WHICH REGISTRATION IS PROPOSED TO BE CANCELLED. HE FURTHER SUBMITTED THAT NOTICE ISSUED WAS NOT UNDER THE SIGNATURE AND SEAL OF LD. CIT AND THEREFORE, LD. CIT HAS NOT ASSUMED JURISDICTION TO PROCEED TO CANCEL REGISTRATION GRANTED TO THE ASSESSEE. LD. A.R. SUBMITTED THAT IN RESPONS E TO NOTICE DATED 15.2.2011, ASSESSEE FILED A REPLY DT. 3.5.2011, COP Y PLACED AT PAGE 21 AND 22 OF PAPER BOOK WHEREIN IT WAS STATED THAT ASSESSEE SOCIETY IS CARRYING ON ITS ACTIVITIES FOR CHARITABLE PURPOSES I.E. EDUCATION A S PER SECTION 2(15) OF THE INCOME-TAX ACT AND ALSO REQUESTED THAT IF ANY CLARI FICATION IS REQUIRED, ADEQUATE AND REASONABLE OPPORTUNITY MAY BE GRANTED TO ENABLE THE ASSESSEE TO FURNISH THE SAME BEFORE ANY ADVERSE ORDER IS PAS SED. LD. A.R. SUBMITTED THAT NO FURTHER AND ADEQUATE OPPORTUNITY WAS GRANTE D TO THE ASSESSEE AND LD. CIT HAS CANCELLED THE REGISTRATION BY THE IMPUG NED ORDER DATED 29.6.2011. LD. A.R. SUBMITTED THAT PURPOSE OF NOTIC E ISSUED U/S 12AA(3) IS ANALOGUES TO NOTICE ISSUED U/S 263 OF INCOME-TAX A CT BY CIT. HE RELIED ON THE DECISION OF HONBLE MADHYA PRADESH HIGH COURT I N THE CASE OF CIT VS. SATTAN DAS MOHAN DAS SIDHI 230 ITR 591 AND DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GARDEN SILK MILLS LTD. V S. CIT 221 ITR 861 SUBMITTED THAT IT HAS BEEN HELD THAT IF THE NOTICE ISSUED U/S 263 IS NOT UNDER THE SEAL AND SIGNATURE AND/OR IF NOTICE ISSUED, SUF FERS FROM WANT OF DETAILS ON THE BASIS OF WHICH LD. CIT ASSUMES JURISDICTION THA T THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF REVENUE, ON THIS VERY ITA NO. 13/RANCHI/2011 7 GROUND, THE ASSUMPTION OF JURISDICTION BY LD. CIT U /S 263 OF THE ACT HAS BEEN HELD TO BE INVALID, ILLEGAL AND ORDER PASSED BY LD. CIT U/S 263 OF THE ACT WAS QUASHED. THE LD. A.R. SUBMITTED THAT SIMILAR VIEW H AS BEEN TAKEN BY ITAT, PATNA BENCH IN THE CASE OF SATISH KUMAR KESHRI VS. ITO (TECH) PATNA 104 ITD 382. 8. LD. A.R. FURTHER SUBMITTED THAT THE IMPUGNED ORD ER HAS BEEN PASSED BY LD. CIT CANCELING THE REGISTRATION WITHOUT CONFR ONTING THE ASSESSEE WITH THE MATERIAL USED AGAINST IT. HENCE, THERE IS VIOLA TION OF PRINCIPLE OF NATURAL JUSTICE AND RELYING ON THE DECISION OF THE HONBLE PATNA HIGH COURT IN THE CASE OF RAMANAND PRASAD AND OTHERS VS. STATE OF BIHAR 19 83 BR&LJ 84 SUBMITTED THAT THE ORDER IS LIABLE TO BE ANNULLED. 9. THUS LD. A.R. HAS DISPUTED VALIDITY OF NOTICE ON 3 GROUNDS I.E. (I) LETTER DATED 15.2.2011 WAS NOT ISSUED UNDER SEAL AND SIGNA TURE OF THE COMMISSIONER OF INCOME-TAX, (II) ASSUMPTION OF JURI SDICTION WITHOUT A DETAILED SHOW CAUSE NOTICE IS INVALID FROM ITS INCE PTION AND (III) NON CONFRONTATION OF MATERIALS/EVIDENCES RELIED UPON FO R PASSING THE IMPUGNED ORDER. 10 (I). WITHOUT PREJUDICE TO ABOVE, LD. AR SUBMITT ED THAT GROUNDS TAKEN BY LD. CIT FOR CANCELLATION OF REGISTRATION A RE NOT VALID. HE SUBMITTED THAT WITH REGARD TO VIOLATION OF SEC. 13(3) OF I.T. ACT CONSIDERED BY LD. CIT OWING TO PAYMENT OF SALARY TO RAK VERMA AND HIS WIF E SMT. JYOTI VERMA, LD. CIT HAS MISUNDERSTOOD THE INTENT AND PURPORT OF SEC . 13(3) OF THE ACT. HE SUBMITTED THAT HE HAS OVER LOOKED PROVISIONS CONTAI NED IN SUB-SECTION (2) OF SEC. 13. LD. AR REFERRED TO CLAUSE (C) OF SUB-SECT ION (2) OF SEC. 13 OF THE ACT AND SUBMITTED THAT IF AN AMOUNT IS PAID BY WAY OF S ALARY IN EXCESS OF REASONABLE SUM, CAN ONLY BE DEEMED TO HAVE BEEN USE D OR APPLIED FOR THE BENEFIT OF PERSON REFERRED TO IN SUB-SECTION (3) OF SEC. 13 OF I.T. ACT. THEREFORE, PAYMENT TO THE EXTENT IT IS REASONABLE I S NOT HIT BY SECTION 13. HE SUBMITTED THAT LD. CIT HAS NOT DISPUTED THAT SHRI R AK VERMA IS CHAIRMAN AND ITA NO. 13/RANCHI/2011 8 LOOKING AFTER DAY TODAY AFFAIRS OF THE INSTITUTE I N HIS MANAGERIAL CAPACITY AS HEAD OF THE INSTITUTION AND AS A TEACHER. FURTHER IT IS NOT SPECIFIED BY THE DEPARTMENT AS TO WHAT EXTENT SALARY PAID TO SHRI VE RMA IS UNREASONABLE AND/OR HAS NOT QUANTIFIED THE REASONABLE SALARY FOR THE SERVICES RENDERED BY SHRI VERMA. LD. AR FURTHER SUBMITTED THAT MRS. VER MA IS ACTIVELY INVOLVED IN THE AFFAIRS OF THE INSTITUTE OF ASSESSEE AS COUNSEL OR FOR ADMISSION. SHE IS DEVOTING 10-12 HOURS A DAY INCLUDING HOLIDAYS. HE SUBMITTED THAT MRS. VERMA INVOLVED IN THE AFFAIRS OF INSTITUTE SINCE LONG BUT HAS BEEN PAID SALARY FOR THE FIRST TIME IN FINANCIAL YEAR 2008-09 AMOUNTING TO R S. 2,40,000/-. LD. AR SUBMITTED THAT RENDERING OF SERVICES BY MRS. VERMA HAS NOT BEEN DISPUTED BY DEPARTMENT NOR IT HAS BEEN SPECIFIED BY DEPARTMENT AS TO WHAT EXTENT, THE SALARY PAID TO MRS. VERMA IS UNREASONABLE AND/OR HO W MUCH SALARY IS REASONABLE FOR THE SERVICES RENDERED BY HER. HE SU BMITTED THAT ALLEGATION OF VIOLATION OF SEC. 13(3) OF THE I.T. ACT WITH REGARD TO PAYMENT OF SALARY IS DEVOID OF ANY MERIT. 10(II). LD. AR FURTHER SUBMITTED THAT WITH REGARD TO ADMINISTRATIVE EXPENSES, IT REPRESENTS VARIOUS PETTY EXPENSES INC URRED IN ACHIEVING AIMS AND OBJECTS OF THE ASSESSEE SOCIETY. HE SUBMITTED THAT THIS GROUND HAS BEEN TAKEN BY DEPARTMENT IN VIEW OF ACCOUNTANTS STATEM ENT RECORDED U/S. 133A BUT NO OPPORTUNITY WAS GIVEN TO CROSS EXAMINE THE SAID ACCOUNTANT AND HENCE IT IS NOT AN ADMISSIBLE EVIDENCE. LD. AR SUB MITTED THAT AO WHILE PASSING ASSESSMENT ORDERS DISALLOWED ENTIRE EXPENSE ON THE GROUND THAT SAME HAD BEEN SPENT AGAINST THE AIMS AND OBJECTS OF THE TRUST AND FOR PERSONAL USE OF OFFICE BEARER/EMPLOYEES BUT NO SPEC IFIC ITEM HAS BEEN IDENTIFIED IN ANY OF THE YEARS EXCEPT ONE ITEM THA T TOO UNDER THE HEAD TRAVELLING EXPENSE WHICH HAS BEEN UTILIZED AGAINST THE AIMS AND OBJECTS AND/OR SPENT FOR THE BENEFIT/PERSONAL USE OF THE O FFICE BEARERS/EMPLOYEES. LD. AR FURTHER SUBMITTED THAT REVENUE RELIED ON ON E IMPOUNDED DOCUMENT BEARING IDENTIFICATION MARK S-5 AT PAGE 17 & 18 DT. 30.6.2007 WHICH IS OF RS. 3,734/- ON PRIVATE TOUR OF SHRI VERMA AND MRS. VERM A. HE SUBMITTED THAT SHRI VERMA UNDERTOOK TRAVELLING TO VARIOUS CITIES I NCLUDING KOLKATA FOR ITA NO. 13/RANCHI/2011 9 ADMISSION AND PLACEMENT OF STUDENTS. THAT IN ONE S UCH TRIP, MRS. VERMA WHO WAS INVOLVED IN THE AFFAIRS OF THE INSTITUTE AS COUNSELOR FOR ADMISSION ACCOMPANIED HIM AND WHILE RETURNING, ONE OF HIS DAU GHTER ALSO JOINTED FROM KOLKATA TO RANCHI. HE SUBMITTED THAT SINCE MRS. VE RMA WAS INVOLVED IN THE AFFAIRS OF THE INSTITUTE SINCE LONG AND NO REMUNERA TION/SALARY WAS PAID TO HER PRIOR TO FINANCIAL YEAR 2008-09 AND AS A GOOD GESTU RE, IT WAS THOUGHT FIT AND PROPER NOT TO TAKE REIMBURSEMENT OF EXPENSE INCURRE D ON TRAVELLING OF MRS. VERMA AND HER DAUGHTER. LD. AR SUBMITTED THAT DISA LLOWANCE UNDER THIS HEAD HAS BEEN MADE BY AO WHILE MAKING THE ASSESSMENT ON ADHOC BASIS @ 25% AND THUS THE INCURRING OF EXPENSE FOR ACHIEVING AIM S AND OBJECTS OF ASSESSEE SOCIETY HAS NOT BEEN DENIED. 10(III). LD. AR FURTHER SUBMITTED THAT IN RESPECT OF DEBIT OF RS. 3,07,175/- UNDER THE HEAD STUDENT ACTIVITIES AND WE LFARE, COLLECTION OF PLACEMENT CHARGES AND EXPENDITURE UNDER THE HEAD GU EST ENTERTAINMENT, THERE IS NO DISALLOWANCE MADE BY AO WHILE PASSING A SSESSMENT ORDER FOR ASSESSMENT YEAR 2009-10 IN RESPECT OF EXPENSES INCU RRED UNDER THE HEAD STUDENT ACTIVITIES AND WELFARE. HE SUBMITTED THAT COLLECTION OF PLACEMENT CHARGES FROM THE STUDENTS HAVE NOT BEEN FOUND TO B E SUPPRESSED AND/OR HAVE NOT BEEN HELD TO BE CHARGED ILLEGALLY AND/OR C HARGED NOT FOR THE PURPOSES OF EDUCATION. HE FURTHER SUBMITTED THAT A S FAR AS EXPENSES INCURRED ON GUEST ENTERTAINMENT, THE AO WHILE PASSI NG ASSESSMENT ORDERS FOR ASSESSMENT YEARS 2003-04 TO 2007-08 AND 2009-10 HAS DISALLOWED 25% OF THE EXPENSES ON THE GROUND THAT IT IS NOTICED THAT A SUBSTANTIAL AMOUNT IS BEING CHARGED FROM THE STUDENTS UNDER THE HEAD PLA CEMENT CHARGE WHICH IS SPENT ON VARIOUS OFFICIALS AND MANAGEMENT PERSONAL FOR THEIR ENTERTAINMENT, WINE AND FOOD UNDER THE HEAD GUEST ENTERTAINMENT E XPENSE. THIS KIND OF ACTIVITY OF SERVING WINE DOES NOT ALLOWABLE UNDER T HE I.T. ACT . HE SUBMITTED THAT IT IS NOT THE CASE OF AO THAT THE EXPENDITURE IS NOT GENUINE AND/OR ARE NOT VOUCHED AND VERIFIABLE. HE SUBMITTED THAT THE VERY FACT THAT AO HAS ALLOWED 75% OF THE EXPENDITURE, IT PROVES THAT EXPE NDITURE HAS BEEN INCURRED FOR THE PURPOSE OF ACHIEVING AIMS AND OBJECTS OF TH E ASSESSEE SOCIETY I.E. ITA NO. 13/RANCHI/2011 10 IMPARTING OF EDUCATION. HE SUBMITTED THAT IN RESPE CT OF EXPENDITURE INCURRED ON WINE AND FOOD SPENT ON VARIOUS OFFICIALS AND MAN AGEMENT PERSONNEL IS NOT ALLOWABLE UNDER THE I.T. ACT AS PER AO BUT THE SAME IS NOT HIT BY EXPLANATION TO SEC. 37(1) OF I.T. ACT AS INCURRING OF SUCH EXPE NDITURE IS NOT AN OFFENCE OR IS PROHIBITED BY LAW. LD. AR FURTHER SUBMITTED THAT TOTAL OF SUCH EXPENSES IS ONLY RS. 2,490/- AND STRAY EXAMPLE OF CONSUMPTION O F LIQUOR BY THE GUEST CANNOT BE A GROUND FOR CANCELLATION OF REGISTRATION . 10(IV). LD. AR FURTHER SUBMITTED THAT IN RESPECT O F PAYMENT OF RS. 11,32,000/- AND RS. 38,240/- TO SHRI B.K. SINGH, IT WAS AN ADVANCE FOR CONSTRUCTION OF GIRLS HOSTEL WHICH IS IN CONSONAN CE TO THE OBJECT OF THE ASSESSEE SOCIETY. HE SUBMITTED THAT INSTITUTE RUN BY ASSESSEE IS A CO- EDUCATION AND THE ADMISSION IS BEING DONE ON THE BA SIS OF ALL INDIA TEST. THE GIRL CANDIDATES GENERALLY FACE PROBLEM IN GETTING H OSTEL. THE ASSESSEE SOCIETY DECIDED TO CONSTRUCT GIRLS HOSTEL IN THE BUILDING OF MRS. VERMA AND IN THIS RESPECT AN AGREEMENT WAS EXECUTED ON 10.1.2005 UNDE R WHICH MRS. VERMA AGREED TO GIVE UPPER OPEN SPACE OF THE BUILDING FOR CONSTRUCTION OF GIRLS HOSTEL. LD. AR REFERRED PAGES 53 TO 57 OF PAPER BO OK WHICH IS THE COPY OF SAID AGREEMENT AND SUBMITTED THAT GROUND FLOOR AND FIRST FLOOR OF THE SAID BUILDING HAD ALREADY BEEN GIVEN TO ASSESSEE SOCIET Y FOR HOSTEL PURPOSES. THEREFORE, THE SAID ADVANCE WAS TOWARDS CONSTRUCTIN G GIRLS HOSTEL AND THE ADVERSE INFERENCE DRAWN BY LD. CIT THAT SUBSTANTIAL AMOUNT WAS ADVANCED BY ASSESSEE SOCIETY TO MRS. JYOTI VERMA FOR PERSONAL P URPOSES IS CONTRARY TO THE FACTS. HE SUBMITTED THAT THERE IS NO CONTRAVENTION OF SEC. 13(3) OF I.T. ACT. 10(V). LD. AR FURTHER SUBMITTED THAT OBJECTION OF LD. CIT THAT THERE IS CONTRAVENTION OF SEC. 11(3) OF I.T. ACT ON THE GROU ND THAT SURPLUS FUND BEYOND REASONABLE PROPORTION IS NOT FACTUALLY CORRE CT. HE SUBMITTED THAT CLAUSE (A) OF SUB-SECTION (1) OF SEC. 11 PERMITS AC CUMULATION UPTO 15% AND EXPLANATION BELOW SUB CLAUSE (D) PERMITS ACCUMULATI ON EVEN BEYOND 15% IN CERTAIN CIRCUMSTANCES. LD. AR SUBMITTED THAT DETAI LS GIVEN BY LD. CIT AT PAGE-2 OF IMPUGNED ORDER TO WORK OUT PERCENTAGE OF SURPLUS IS WITHOUT ITA NO. 13/RANCHI/2011 11 CONSIDERING THE CAPITAL OUTLAY. LD. AR RELYING ON THE DECISION OF APEX COURT IN THE CASE OF SRM.M. CT.M. TIRUPPANI TRUST VS CIT 230 ITR 636 SUBMITTED THAT CAPITAL OUTLAY EXPENSES ARE APPLICATION OF FUND. L D. AR SUBMITTED THAT IF CAPITAL OUTLAY EXPENSES AND DEPRECIATION IS CONSIDE RED, THE PERCENTAGE OF ACCUMULATION IS WITHIN PERMISSIBLE LIMIT PRESCRIBED UNDER THE ACT. THEREFORE, THE SAID GROUND CONSIDERED BY LD. CIT FOR CANCELLAT ION OWING TO SOME SURPLUS IS NOT JUSTIFIED. LD. AR FURTHER REFERRED DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF VANITA VISHRAM TRUST VS CCIT 3 27 ITR 121 AND THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST AND OTHERS VS UNION OF INDIA AND OTHERS REPORTED IN 327 ITR 73 AND ALSO DECISION OF APEX CO URT IN THE CASE OF AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE VS CBDT 301 ITR 86 AND SUBMITTED THAT MERE EXISTENCE OF PROFIT/ SURPLUS DO NOT DISQUALIFY THE INSTITUTE TO BE CALLED AN EDUCATIONAL INSTITUTI ON. LD. AR ALSO REFERRED CBDT CIRCULAR NO. 1112 DT. 29 TH OCTOBER, 1977 AND SUBMITTED THAT CBDT HAS HELD THAT BENEFIT OF SECTION 11 IS TO BE CONFERRED TO ED UCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND EVEN IF THERE I S SOME SURPLUS AT THE END OF THE YEAR, AN EDUCATIONAL INSTITUTION IS ELIGIBLE FOR EXEMPTION. LD. AR SUBMITTED THAT THERE IS NO FACT BROUGHT ON RECORD B Y LD. CIT THAT PROFIT/SURPLUS FUND OF THE INSTITUTE HAS BEEN DIVER TED FOR PERSONAL USE OF THE OFFICE BEARER OF THE ASSESSEE. HE FURTHER SUBMITTE D THAT OBJECTION HAS ALSO BEEN TAKEN BY LD. CIT OF CONTRAVENTION OF SEC. 11(5 ) OF THE ACT BECAUSE AS PER OPINION OF AO, THERE WAS CASH IN HAND AND DEMAN D DRAFT WITH THE ASSESSEE SOCIETY AND STATED THAT SAME ARE NOT THE M ODES PRESCRIBED BY SEC. 11(5) OF THE ACT. LD. AR SUBMITTED THAT DEMAND DRA FT ARE MONEY LYING IN BANK THUS COVERED U/S. 11(5)(III) OF THE ACT. HE F URTHER SUBMITTED THAT BENEFIT OF EXEMPTION TO THE EXTENT OF 15% U/S. 11(1)(A) IS UNFETTERED AND NOT SUBJECT TO ANY CONDITION. LD. AR REFERRED TO SEC. 11(2) OF THE ACT AND SUBMITTED THAT IT DOES NOT WHITTLE DOWN OR TO CUT ACROSS THE EXEMP TION PROVISIONS CONTAINED IN SEC. 11(1)(A) SO FAR AS ACCUMULATED INCOME OF TH E PREVIOUS YEAR IS CONCERNED. HE SUBMITTED THAT ONLY THE SURPLUS COVE RED U/S. 11(2) ARE REQUIRED TO BE INVESTED IN TERMS OF SEC. 11(5) AND THE ACCUMULATION WITHIN ITA NO. 13/RANCHI/2011 12 PERMISSIBLE LIMIT OF 15% ENTAILS NO PRE-REQUISITE C ONDITION FOR INVESTMENT AND PLACED RELIANCE ON THE DECISION OF HONBLE APEX COU RT IN THE CASE OF ACIT VS. A.L.N. RAO CHARITABLE TRUST 216 ITR 697. LD. AR A LSO REFERRED CBDT CIRCULAR NO. 8/2002 DT. 27.8.2002 TO SUBSTANTIATE HIS ABOVE SUBMISSION. HE SUBMITTED THAT THERE IS NO VIOLATION OF SEC. 11(5) OWING TO C ASH IN HAND AND DEMAND DRAFT ARE DULY RECORDED IN THE BOOKS OF ACCOUNT AND THE AUDITED SET OF ACCOUNTS. 10 (VI) LD. AR FURTHER SUBMITTED THAT ASSESSEE IS R UNNING AN INSTITUTE AND TILL DATE IT IS RECOGNIZED BY AICTE. HE SUBMITTED THAT ABOUT 450 STUDENTS ARE STUDYING IN THE INSTITUTE RUN BY ASSESSEE SOCIETY. LD. AR FURTHER SUBMITTED THAT ASSESSEE FILED RETURNS FOR ASSESSMENT YEARS 20 10-11 AND 2011-12 ON DUE DATE CLAIMING EXEMPTION U/S. 11 AND AO HAS NOT DIST URBED THE ASSESSMENT TILL DATE. LD. AR FURTHER SUBMITTED THAT IT IS NOWHERE P ROVIDED UNDER THE I.T. ACT THAT TO AVAIL EXEMPTION U/S. 11/12 OF I.T. ACT, EDU CATION MUST BE PROVIDED TO THE POOR PERSON ONLY AND/OR FREE OF COST. HE SUBMI TTED THAT CONDITIONS PRECEDENT FOR EXERCISE OF JURISDICTION U/S. 12AA(3 ) OF I.T. ACT IS ABSENT AS LD. CIT HAS NOWHERE STATED IN THE IMPUGNED ORDER THAT A CTIVITIES CARRIED ON BY ASSESSEE SOCIETY ARE NOT GENUINE AND/OR HAVE NOT BE EN CARRIED OUT IN ACCORDANCE WITH ITS OBJECTS. HE SUBMITTED THAT ASS ESSEE IS CARRYING ON ITS EDUCATIONAL ACTIVITIES SYSTEMATICALLY AND THE RECEI PTS ARE UTILIZED FOR THE PURPOSE OF EDUCATION AS COULD BE EVIDENT FROM THE A UDITED SET OF ACCOUNTS FILED ALONGWITH RETURN OF INCOME FROM YEAR TO YEAR. LD. AR SUBMITTED THAT THE IMPUGNED ORDER OF LD. CIT IS NOT VALID IN LAW AND S AME SHOULD BE QUASHED. 11. ON THE OTHER HAND LD. DEPARTMENTAL REPRESENTATI VE SUPPORTED THE ORDER OF LD. CIT. HE SUBMITTED THAT THERE WAS A SE ARCH AND SEIZURE OPERATION IN THE PREMISES OF RAK VERMA GROUP OF CASES WHO AR E THE MANAGING COMMITTEE MEMBER OF THE SOCIETY AND SIMULTANEOUSLY SURVEY WAS CARRIED OUT IN THE PREMISES OF ASSESSEE SOCIETY. HE SUBMITTED THAT PURSUANT TO THE IRREGULARITIES FOUND, NOTICE WAS ISSUED FOR CANCELL ATION OF REGISTRATION AND THE ASSESSEE FILED ITS REPLY DT. 3.5.2011, A COPY OF WH ICH IS PLACED AT PAGE 21 TO ITA NO. 13/RANCHI/2011 13 23 OF PAPER BOOK. LD. DR SUBMITTED THAT FAIR OPPOR TUNITY OF HEARING WAS GIVEN TO ASSESSEE BEFORE CANCELLATION OF REGISTRATI ON ORDER WAS PASSED BY LD. CIT. LD. DR SUBMITTED THAT ACTIVITY OF THE ASSESSE E SOCIETY IS NOT IN ACCORDANCE WITH ITS OBJECTS AS ASSESSEE WAS USING I TS SURPLUS FUNDS FOR THE BENEFIT OF IFS OFFICE BEARERS AND TRUSTEES. HE FUR THER SUBMITTED THAT IF THE ACTIVITIES ARE NOT CARRIED ON IN ACCORDANCE WITH AI MS AND OBJECTS FOR WHICH SOCIETY IS FORMED, CANCELLATION OF REGISTRATION IS JUSTIFIED. LD. DR REFERRED SEC. 2(15) OF I.T. ACT AND SUBMITTED THAT AS PER AMENDME NT, IF SOCIETY IS CARRYING OUT ITS ACTIVITY IN THE NATURE OF TRADE COMMERCE OR BUSINESS OR ANY ACTIVITY OF RENDERING ANY SERVICES IN RELATION TO ANY TRADE, CO MMERCE OR BUSINESS FOR A CESS OR FOR ANY OTHER CONSIDERATION, , IT SHALL NOT BE A CHARITABLE PURPOSE. LD. DR SUBMITTED THAT ASSESSEE IS MAKING SURPLUS BY CHA RGING HIGHER FEE FROM THE STUDENTS AND THEREFORE ASSESSEE IS CARRYING ON ITS ACTIVITY OF EDUCATION IN THE NATURE OF TRADE OR BUSINESS AND HENCE IT COULD NOT BE CONSIDERED AS CHARITABLE PURPOSE. LD. DR SUBMITTED THAT LD. CIT HAS RIGHTLY CANCELLED THE REGISTRATION GRANTED TO ASSESSEE SOCIETY U/S. 12A/12AA OF THE I. T. ACT. 12. IN REPLY TO SUBMISSIONS OF LD. D.R., LD. A.R. R EFERRED CBDT CIRCULAR NO. 11/2008 DATED 19.12.2008 AND SUBMITTED THAT AS PER SAID CIRCULAR IT HAS BEEN CLARIFIED THAT NEWLY INSERTED PROVISO TO SECTION 2( 15), ON WHICH LD. D.R. HAS PLACED RELIANCE, WILL NOT APPLY IN RESPECT OF FIRST 3 LIMBS OF SECTION 2(15)OF THE ACT I.E. (I) RELIEF OF THE POOR, (II) EDUCATION OR (III) MEDICAL RELIEF. HE SUBMITTED THAT IT WAS CLARIFIED THAT IT WILL CONSTITUTE CHARI TABLE PURPOSE EVEN IF IT INCIDENTALLY INVOLVES THE CARRYING ON OF COMMERCIAL ACTIVITIES. LD. A.R. FURTHER SUBMITTED THAT IF THERE IS ANY UTILIZATION OF FUND WHICH IS NOT IN ACCORDANCE WITH AIMS AND OBJECTS AND/OR IN ACCORDANCE WITH THE PROVISIONS OF THE ACT, THE BENEFIT COULD BE DENIED IN NOT GIVING EXEMPTION U/S 11 OF THE ACT AT THE TIME OF ASSESSMENT BUT REGISTRATION CANNOT BE CANCELLED. LD. A.R. SUBMITTED THAT THE ORDER OF THE LD. CIT IS NOT VALID AND THE SAME SHOULD BE QUASHED. 13. WE HAVE CAREFULLY CONSIDERED THE ORDER OF THE LD. CIT, SUBMISSIONS OF LD. REPRESENTATIVE OF THE PARTIES, THE CASES CITED BEFORE US AND HAVE ALSO PERUSED RELEVANT PAGES OF THE PAPER BOOK PLACED BEF ORE US. ITA NO. 13/RANCHI/2011 14 14. WE OBSERVE THAT THE ASSESSEE IS A SOCIETY REGIS TERED UNDER THE SOCIETIES REGISTRATION ACT AND ITS DOMINANT OBJECT IS TO IMPART EDUCATION BY RUNNING AN INSTITUTE ISM. WE OBSERVE THAT THE ASSES SEE WAS GRANTED REGISTRATION U/S 254(1)/12A12AA OF THE ACT ON 27.9. 2001 EFFECTIVE FROM 1.4.2000 AND A COPY OF THE SAID CERTIFICATE IS PLAC ED AT PAGE 23 OF THE PAPER BOOK. WE OBSERVE THAT THERE WAS A SEARCH AND SEIZUR E OPERATION IN THE RESIDENTIAL PREMISES OF R.A.K. VERMA GROUP OF CASES U/S 132(1) ON 20.3.2009 AND SIMULTANEOUSLY A SURVEY OPERATION U/S 133A OF I NCOME-TAX ACT WAS CARRIED OUT IN THE CASE OF THE ASSESSEE. 15. WE OBSERVE THAT ON BEHALF OF LD. CIT, A NOTICE U/S. 12AA(3) OF I.T. ACT DT. 15.2.2009 WAS ISSUED UNDER THE SIGNATURE OF I.T . OFFICER (HQRS.) ADMN. & TECH, COPY PLACED AT P-20 OF THE PAPER BOOK PROPOSI NG TO CANCEL THE REGISTRATION OF THE ASSESSEE GRANTED U/S. 12AA OF T HE I.T. ACT. WE CONSIDER IT PRUDENT TO STATE THE CONTENTS OF SAID NOTICE WHICH READS AS UNDER: GOVERNMENT OF INDIA OFFICE OF THE COMMISSIONER OF INCOME TAX (CENTRAL), PATNA F.NO.CIT(C)/PAT/ISM, RANCHI/10(23C) &12AA(3)/2010-2 011/4742 15 TH FEBRUARY, 2011 TO THE SECRETARY, INSTITUTE OF SCIENCE AND MANAGEMENT ISM CAMPUS, AT: PUNDAG, P.O. DHURWA, P.S. JAGARNATHPUR, RANCHI-834 004 SIR, SUB: CANCELLATION OF REGISTRATION U/S 12AA(3) OF T HE INCOME TAX ACT,1961 IN THE CASE OF INSTITUTE OF SC IENCE AND MANAGEMENT ISM CAMPUS, AT: UNDAG, P.O. DHURWA, P.S. JAGARNATHPUR,RANCHI-834 004 ITA NO. 13/RANCHI/2011 15 PLEASE REFER TO THE ABOVE. I AM DIRECTED TO INFORM THAT THE COMMISSIONER OF IN COME-TAX (CENTRAL), PATNA DESIRES YOUR APPEARANCE AT 11.00 A.M. ON 03.03.2011 ITSELF EITHER PERSONALLY OR THROUGH YOUR AUTHORIZED REPRESENTATIV E. YOURS FAITHFULLY, SD/- (INDRESHWAR DAYAL) INCOME TAX OFFICER (HQRS.) ADMN. & TECH FOR: COMMISSIONER OF INCOME-TAX (CENTRAL), PATNA 16. WE OBSERVE THAT ASSESSEE FILED ITS REPLY DT. 3. 5.2011 COPY PLACED AT PAGES 21 AND 22 OF PAPER BOOK. THEREAFTER LD. CIT HAS PASSED IMPUGNED ORDER DT. 29.6.2011 TO CANCEL THE REGISTRATION OF A SSESSEE SOCIETY. BEFORE WE CONSIDER THE ISSUE AS TO WHETHER THE NOTICE ISSUED FOR CANCELLATION OF REGISTRATION IS VALID OR NOT. WE CONSIDER IT NECES SARY TO STATE SEC. 12AA(3) OF I.T. ACT WHICH READS AS UNDER: 12AA (3): WHERE A TRUST OR AN INSTITUTION HAS BEEN GRANT ED REGISTRATION UNDER CLAUSE (B) OF SUB-SECTION (1) [O R HAS OBTAINED REGISTRATION AT ANY TIME UNDER SECTION 12A [AS IT STOOD BEFORE ITS AMENDMENT BY THE FINANCE (NO.2) AC T, 1996 (33 OF 1996)]] AND SUBSEQUENTLY THE COMMISSIONER IS SATISFIED THAT THE ACTIVITIES OF SUCH TRUST OR INSTITUTION AR E NOT GENUINE OR ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST OR INSTITUTION, AS THE CASE MAY BE, HE SH ALL PASS AN ORDER IN WRITING CANCELING 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 GI VEN A REASONABLE OPPORTUNITY OF BEING HEARD.] 17. IT IS OBSERVED THAT POWER OF CANCELLATION OF R EGISTRATION CAN BE EXERCISED BY THE COMMISSIONER IF HE IS SATISFIED TH AT ACTIVITIES OF SUCH TRUST OR INSTITUTION ARE NOT GENUINE OR NOT BEING CARRIED OU T IN ACCORDANCE WITH THE ITA NO. 13/RANCHI/2011 16 OBJECT OF THE TRUST OR INSTITUTION, AS THE CASE MAY BE. THE LD. CIT BEFORE PASSING AN ORDER IN WRITING CANCELING THE REGISTRAT ION OF SUCH TRUST OR INSTITUTION SHALL GIVE A REASONABLE OPPORTUNITY OF BEING HEARD TO SUCH TRUST OR INSTITUTION. NOW THE QUESTION ARISES AS TO WHETHER LD. CIT HAS GIVEN REASONABLE OPPORTUNITY TO THE ASSESSEE BEFORE EXERCISING HIS P OWER TO CANCEL REGISTRATION U/S 12AA(3) OF THE INCOME-TAX ACT. 18. IT IS OBSERVED THAT IN THE NOTICE ISSUED DATED 15.2.2011, THE LD. CIT HAS NOT GIVEN ANY REASONS AND/OR INDICATED THE BASI S ON WHICH CANCELLATION OF REGISTRATION IS PROPOSED U/S 12AA(3) OF THE INCOME- TAX ACT. WE OBSERVE THAT WHEN LD. CIT ASSUMES JURISDICTION U/S 263 OF THE IN COME-TAX ACT ON THE GROUND THAT THE ASSESSMENT ORDER PASSED BY THE ASSE SSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE, HE HAS TO STATE BASIS IN THE NOTICE AS IT WAS HELD BY THEIR L ORDSHIPS OF HONBLE HIGH COURT OF GUJARAT IN THE CASE OF GARDEN SILK MILLS L TD. (SUPRA) THAT WHEN THE SHOW CAUSE NOTICE ISSUED U/S 263 OF THE ACT DO NOT INDICATE THE BASIS ON WHICH LD. CIT HAS ASSUMED JURISDICTION U/S 263 OF T HE ACT, THE SAID NOTICE IS VAGUE AND IS LIABLE TO BE QUASHED. A SIMILAR QUESTI ON CAME BEFORE THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF SATTAN DAS MOHAN DAS SIDHI (SUPRA) WHERE IN IT WAS HELD THAT WHEN A NOTICE ISS UED U/S 263 IS TO BE SENT TO THE ASSESSEE, THE NOTICE SHOULD CONTAIN REASONS AS TO HOW THE ORDER IS PREJUDICIAL TO THE REVENUE. THEIR LORDSHIPS OF MADH YA PRADESH HIGH COURT HELD THAT IF THE COMMISSIONER DID NOT FAIRLY INDICA TE THE GROUNDS USED BY HIM FOR ORDERING CANCELLATION OF ASSESSMENT MADE BY THE INCOME-TAX OFFICER, THE TRIBUNAL WAS JUSTIFIED IN REVERSING THE COMMISSIONE RS ORDER AS THE ASSESSEE WAS DEPRIVED OF FAIR OPPORTUNITY TO SHOW CAUSE AGAI NST PROPOSED ACTION. FURTHER, ITAT PATNA BENCH IN THE CASE OF SATISH KUM AR KESHRI (SUPRA) QUASHED THE PROCEEDINGS INITIATED U/S 263 OF THE AC T AS ILLEGAL AND INVALID ON THE GROUND THAT WHEN SHOW CAUSE NOTICE THROUGH WHIC H LD. CIT ASSUMED JURISDICTION U/S 263 OF THE ACT WAS NOT UNDER HIS S EAL AND SIGNATURE AND ALSO THAT NOTICE SUFFERED FROM WANT OF DETAILS ON THE BA SIS OF WHICH LD. CIT CAME ITA NO. 13/RANCHI/2011 17 TO THE CONCLUSION THAT ASSESSMENT ORDER IS ERRONEOU S AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 19. WE ARE OF THE CONSIDERED VIEW THAT THE NOTICES TO BE ISSUED U/S 12AA(3) OF THE ACT BY COMMISSIONER OF INCOME-TAX TO PROCEED TO CANCEL REGISTRATION GRANTED U/S 12A/12AA OF THE ACT IS AKI N TO THE NOTICE TO BE ISSUED BY LD. CIT U/S 263 OF THE INCOME-TAX ACT, BECAUSE N OTICE TO BE ISSUED U/S 263 OF THE ACT ALSO REQUIRES FAIR OPPORTUNITY TO BE GIVEN TO THE ASSESSEE BEFORE LD. CIT PASS AN ORDER IN RESPECT OF THE ASSE SSMENT ORDER PASSED BY THE ASSESSING OFFICER TO FORM AN OPINION THAT THE A SSESSMENT ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. SIMILARLY, LD. CIT BEFORE PASSING AN ORDER U/S 12AA(3) OF THE ACT HAS TO SATISFY HIMSELF THAT ACTIVITIES OF SUCH TRUST OR INSTITUTION ARE NO T GENUINE OR ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE T RUST OR INSTITUTION AND TO PROCEED TO CANCEL THE REGISTRATION OF SUCH TRUST OR INSTITUTION HAS TO GIVE A REASONABLE OPPORTUNITY OF BEING HEARD TO SUCH TRUST OR INSTITUTION AND FOR WHICH HE HAS TO GIVE A NOTICE TO SUCH TRUST OR INST ITUTION. THEREFORE, SUCH NOTICE TO BE ISSUED, SHOULD CONTAIN SPECIFIC REASON S AND/OR MATERIAL TO BE USED AGAINST THE ASSESSEE, SO THAT THE ASSESSEE COU LD REPLY AND BE GIVEN A FAIR AND REASONABLE OPPORTUNITY BEFORE ANY ORDER IS PASSED. THE HONBLE PATNA HIGH COURT HAS ALSO HELD IN THE CASE OF RAMANAND PR ASAD AND OTHERS (SUPRA) THAT ADHERENCE TO THE PRINCIPLE OF NATURAL JUSTICE IS A FUNDAMENTAL OBLIGATION MORE PARTICULARLY WHERE PEOPLE ARE AFFECTED BY THE ACTS OF AUTHORITY. IT WAS STATED BY THEIR LORDSHIPS OF PATNA HIGH COURT THAT RIGHT TO BE HEARD BEFORE AN ADVERSE ORDER IS PASSED, WHICH ENTAILS CIVIL CONSEQ UENCES, IS, BY IMPLICATION, A DUTY TO ACT FAIRLY. IT WAS STATED THAT EVEN WHERE T HE ORDER IS ADMINISTRATIVE IN CHARACTER, AN ADMINISTRATIVE ORDER WHICH INVOLVES C IVIL CONSEQUENCES MUST BE MADE CONSISTENTLY WITH THE RULES OF NATURAL JUSTICE AFTER INFORMING THE AGGRIEVED PARTY OF THE CASE AGAINST THEM. 20. WE OBSERVE THAT IN THE CASE BEFORE US, IT IS A FACT THAT IN THE NOTICE ISSUED DATED 15.2.2011, REPRODUCED HEREIN ABOVE, IS NOT UNDER THE SEAL AND ITA NO. 13/RANCHI/2011 18 SIGNATURE OF THE COMMISSIONER AND IT IS ALSO A FACT THAT IT DOES NOT STATE THE REASONS/MATERIALS SO THAT THE ASSESSEE COULD BE CON FRONTED WITH THE MATERIALS/EVIDENCES USED AGAINST IT BEFORE LD. CIT ASSUMED JURISDICTION U/S 12AA(3) OF THE ACT TO CANCEL THE REGISTRATION OF TH E ASSESSEE SOCIETY. THEREFORE, WE FIND MERITS IN THE CONTENTION OF THE LD. A.R. THAT NOTICE ISSUED U/S 12AA(3) OF THE ACT IS NOT VALID AND ACCORDINGLY THE ORDER OF LD. CIT TO CANCEL REGISTRATION OF THE ASSESSEE SOCIETY IS NOT VALID AND IS LIABLE TO BE QUASHED. 21. NOT ONLY THAT THE NOTICE ISSUED U/S. 12AA(3) IS NOT VALID, WE ALSO OBSERVE THAT THE REASONS AS STATED BY LD. CIT ON TH E BASIS OF WHICH HE HAS CANCELLED THE REGISTRATION ARE NOT SUSTAINABLE IN L AW. 22. WE OBSERVE THAT LD. CIT HAS STATED THAT ASSESSE E HAS PAID SALARY TO SHRI VERMA, CHAIRMAN OF ISM AND TO SMT. JYOTI VERMA , WIFE OF SHRI RAK VERMA IN CONTRAVENTION OF SEC. 13(3) OF I.T. ACT. THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT SHRI VERMA IS THE CHAIRMAN A ND IS ENGAGED IN THE ACTIVITIES OF ASSESSEE SOCIETY ON A FULL TIME BASIS . FURTHER HIS WIFE SMT. JYOTI VERMA IS ALSO INVOLVED IN THE AFFAIRS OF ASSESSEES INSTITUTE AS COUNSELOR FOR ADMISSION. LD. AR SUBMITTED THAT SHE IS DEVOTING 1 0-12 HOURS A DAY. THE RELEVANT CLAUSE IS CLAUSE (C) OF SUB-SECTION (2) O F SEC. 13 WHICH DEALS WITH PAYMENT OF SALARY AND WE CONSIDER IT NECESSARY TO R EPRODUCE IT, WHICH READS AS UNDER: IF ANY AMOUNT IS PAID BY WAY OF SALARY, ALLOWANCE OR OTHERWISE DURING THE PREVIOUS YEAR TO ANY PERSON RE FERRED TO IN SUB-SECTION (3) OUT OF THE RESOURCES OF THE TRUST O R INSTITUTIONS FOR SERVICES RENDERED BY THAT PERSON TO SUCH TRUST OR INSTITUTION AND THE AMOUNT SO PAID IS IN EXCESS OF WHAT MAY BE REASONABLY PAID FOR SUCH SERVICES. 23. ON PERUSAL OF IT, IT IS OBSERVED THAT AN AMOUNT PAID BY WAY OF SALARY IN EXCESS OF REASONABLE, SUM CAN ONLY BE DEEMED TO HAV E BEEN USED OR APPLIED FOR THE BENEFIT OF PERSON REFERRED TO IN SUB-SECTIO N(3). THEREFORE, PAYMENT OF SALARY TO THE EXTENT IT IS REASONABLE, IS NOT HIT B Y SEC. 13 OF THE ACT. WE ITA NO. 13/RANCHI/2011 19 OBSERVE THAT DEPARTMENT HAS NOT , AS MENTIONED HERE INABOVE, DISPUTED THAT MR.VERMA AND MRS. JYOTI VERMA ARE LOOKING AFTER DAY TODAY AFFAIRS OF INSTITUTE. THEREFORE, EVEN IF THERE IS ANY EXCESS PAYMENT OF S ALARY, SAME IS TO BE DISALLOWED AND THE BENEFIT OF SEC. 11/12 WILL NOT B E ALLOWED TO THAT EXTENT. HOWEVER, IT IS NOT MENTIONED IN THE IMPUGNED ORDER OF CIT AND/OR ANY MATERIAL IS PLACED ON RECORD BY DEPARTMENT TO STATE AS TO WHETHER THE SALARY PAID BY ASSESSEE SOCIETY TO SHRI VERMA OR MRS. VERM A ARE UNREASONABLE. THEREFORE, GROUND TAKEN BY LD. CIT IN THE IMPUGNED ORDER THAT THERE IS VIOLATION OF SEC. 13(3) OF THE ACT IS DEVOID OF ANY MERIT. 24. FURTHER WE OBSERVE THAT ANOTHER GROUND TAKEN BY CIT IN THE IMPUGNED ORDER IS THAT HUGE AMOUNT HAD BEEN WITHDRAWN BY SHR I VERMA AND OTHER OFFICE BEARERS/EMPLOYEES IN THE NAME OF ADMINISTRAT IVE EXPENSES. HOWEVER, LD. AR HAS MADE HIS SUBMISSION THAT VARIOUS AMOUNTS UNDER THE HEAD ADMINISTRATIVE EXPENSES ARE PETTY EXPENSES INCURRED IN ACHIEVING AIMS AND OBJECTS OF ASSESSEE SOCIETY. LD. AR SUBMITTED THAT IN THE SEIZED DOCUMENTS WHICH IS MARKED S-5, THERE IS ONLY ONE AMOUNT OF RS . 3,734/- FOR INCURRING OF EXPENSES ON PRIVATE TOUR OF MR. VERMA AND HIS FAMIL Y. LD. AR DURING THE COURSE OF HEARING HAS MADE HIS SUBMISSION THAT SHRI VERMA AND MRS. VERMA HAD UNDERTAKEN TRAVELLING TO VARIOUS CITIES INCLUDI NG KOLKATA FOR ADMISSION AND PLACEMENT OF STUDENTS. IT WAS SUBMITTED THAT WHILE RETURNING, ONE OF THE DAUGHTER OF SHRI VERMA JOINTED FROM KOLKATA TO RANC HI AND AT THE MOST THAT FAIR COULD BE SAID TO HAVE NOT BEEN INCURRED FOR AI MS AND OBJECTS OF ASSESSEE SOCIETY. LD. AR SUBMITTED THAT AO MADE DISALLOWANC E OF TRAVELLING EXPENSES ON AN ADHOC BASIS OF 25%. WE OBSERVE THAT BESIDES ABOVE, NO DETAILS HAD BEEN GIVEN AS TO HOW MUCH AMOUNT WITHDRAWN IN THE N AME OF ADMINISTRATIVE EXPENSES WAS NOT SPENT FOR THE PURPOSE OF SOCIETY. FURTHER, WE ARE OF THE CONSIDERED VIEW THAT IF ANY AMOUNT HAS BEEN WITHDRA WN AND NOT SPENT FOR THE AIMS AND OBJECTS OF ASSESSEE SOCIETY, THE BENEFIT O F SEC.11 TO THAT EXTENT COULD NOT BE ALLOWED BUT IN THE ABSENCE OF ANY SUCH DETAILS IN THE IMPUGNED ORDER, ONE CANNOT GO TO THE CONCLUSION THAT THE AC TIVITIES OF ASSESSEE SOCIETY ARE NOT RUN AS PER ITS AIMS AND OBJECTS I.E. EDUCA TION. ITA NO. 13/RANCHI/2011 20 25. THE OTHER GROUND WHICH HAS BEEN TAKEN BY LD. CI T IN THE IMPUNGED ORDER IS IN RESPECT OF DEBITING A SUM OF RS. 3,07,1 75/- UNDER THE HEAD STUDENT ACTIVITIES AND WELFARE. IT IS STATED BY LD. CIT TH AT SAID AMOUNT WAS SPENT ON VARIOUS OFFICIALS AND MANAGEMENT PERSONAL FOR THEIR ENTERTAINMENT, WINE AND FOOD UNDER THE HEAD GUEST ENTERTAINMENT EXPENSE. DURING THE COURSE OF HEARING, LD. AR MADE HIS SUBMISSION AS MENTIONED HE REIN ABOVE, AND WE OBSERVE THAT AO, IN ASSESSMENT YEARS 2003-04 TO 200 7-08 AND 2009-10 DISALLOWED 25% OF THE EXPENSES ON THE GROUND THAT A MOUNT CHARGED FROM THE STUDENTS UNDER THE HEAD PLACEMENT CHARGE, WAS SPENT ON VARIOUS OFFICIALS AND MANAGEMENT PERSONAL FOR THEIR ENTERTAINMENT, WINE A ND FOOD AND THIS KIND OF ACTIVITY OF SERVING WINE IS NOT ALLOWABLE UNDER THE I.T. ACT. WE FIND SUBSTANCE IN THE SUBMISSION OF LD. AR THAT AOS ALLOWING 75% OF SUCH EXPENDITURE PROVES THAT EXPENDITURE HAD BEEN INCURRED FOR THE P URPOSES OF THE ASSESSEE SOPCIETY WHICH IS RUNNING OF AN EDUCATIONAL INSTITU TION. FURTHER, LD. AR SUBMITTED THAT ONLY A SUM OF RS. 2,490/- OF THE TOT AL AMOUNT DEBITED UNDER THE HEAD GUEST ENTERTAINMENT EXPENSES, WAS THE EXPE NSES TOWARDS SERVING WINE TO THE GUEST WHO WERE SEMI GOVERNMENT EMPLOYEE S/ NON GOVT. EMPLOYEES. THE FOOD WAS SERVED WHEN THEY VISITED T HE CAMPUS FOR SELECTION OF STUDENTS AND THE FOOD SERVED WAS NORMAL COURTES Y AND CUSTOMARY IN NATURE. WE AGREE WITH LD. AR THAT WHEN THE OUTSIDE GUESTS VISIT THE CAMPUS FOR SELECTION OF STUDENTS, FOOD ETC. HAVE TO BE SER VED AND THE SAID AMOUNT CANNOT BE SAID TO HAVE BEEN SPENT NOT FOR THE PURPO SE OF ASSESSEE SOCIETY. AT THE MOST, THE AMOUNT WHICH WAS SPENT FOR SERVING WINE/ HARD LIQUOR CAN BE SAID NOT TO HAVE BEEN SPENT FOR THE PURPOSE OF ACTI VITIES OF INSTITUTE I.E. RUNNING AN EDUCATIONAL INSTITUTION AND BENEFIT TO T HAT EXTENT COULD BE DENIED WHILE CONSIDERING EXEMPTION U/S. 11/12 OF I.T. ACT BUT WE ARE OF THE CONSIDERED VIEW THAT IT COULD NOT BE A GROUND FOR C ANCELLATION OF REGISTRATION. 26. IN RESPECT OF THE GROUND TAKEN BY LD. CIT FOR G IVING ADVANCE OF RS. 11,32,000/- AND RS. 38,240/- TO SHRI B.K. SINGH, WE OBSERVE THAT LD. CIT HIMSELF HAS MENTIONED IN THE SAID ORDER THAT THE SA ID AMOUNT WAS GIVEN TO ITA NO. 13/RANCHI/2011 21 SHRI B.K. SINGH FOR CONSTRUCTION OF GIRLS HOSTEL. WE OBSERVE THAT ALREADY THERE IS A GIRLS HOSTEL IN THE PREMISES BELONGING TO MRS . VERMA, WIFE OF MR VERMA, CHAIRMAN OF THE INSTITUTE OF ASSESSEE SOCIETY AND S HE HAS BY WAY OF AGREEMENT DT. 10.1.2005, COPY PLACED AT PAGE 55 TO 57 OF PAPER BOOK, ALLOWED CONSTRUCTION OF HOSTEL ON UPPER OPEN SPACE OF THE SAID PREMISES. THEREFORE, THE SAID AMOUNT WAS GIVEN AS ADVANCE TO SHRI B.K. SINGH FOR THE CONSTRUCTION OF GIRLS HOSTEL AND ACCORDINGLY IT CO ULD NOT BE SAID THAT THE SAID AMOUNT WAS PAID/SPENT IN CONTRAVENTION OF SEC. 13(3 ) OF I.T. ACT. 27. LASTLY WE OBSERVE THAT LD. CIT HAS STATED THAT THERE WAS SURPLUS FUND TO THE ASSESSEE SOCIETY AND THE SURPLUS FUND WAS NO T INVESTED AND DEPOSITED AS PER SEC. 11(5) OF THE ACT. IN THIS REGARD, LD. AR HAS SUBMITTED THAT LD. CIT WHILE CONSIDERING THE SURPLUS FUND HAS NOT CONS IDERED THE APPLICATION OF FUND FOR CAPITAL OUTLAY. FURTHER LD. AR SUBMITTED THAT IF THE CAPITAL OUTLAY IS CONSIDERED AS APPLICATION OF FUND, THE AVAILABLE FU ND IS BELOW 15% IN MOST OF THE ASSESSMENT YEAR. THE LD. AR REFERRED PAGE-10 O F PAPER BOOK AT THE TIME OF HEARING OF APPEAL WHICH CONTAIN WRITTEN SUBMISS ION FILED AND SUBMITTED THAT THE PERCENTAGE OF SURPLUS FUND IN ASSESSMENT Y EARS 2004-05, 2006-07, 2007-08 AND 2008-09 WERE NEGATIVE AND ONLY IN THE A SSESSMENT YEAR 2005- 06, THERE WAS A SURPLUS OF10.06%. LD. DR AT THE T IME OF HEARING DID NOT DISPUTE THE SAID DETAILS WHICH ARE GIVEN AT PAGE-10 OF THE PAPER BOOK. WE AGREE WITH LD. AR THAT HONBLE APEX COURT HAS HELD IN THE CASE OF S.RM.M.CT.M. TIRUPPANI TRUST VS CIT (SUPRA) THAT AM OUNT SPENT FOR CONSTRUCTION OF BUILDING WHICH IS TO BE UTILIZED FO R THE PURPOSE OF AIMS AND OBJECTS OF ASSESSEE SOCIETY IS THE APPLICATION OF F UND. ON PERUSAL OF SAID DETAILS GIVEN AT PAGE-10 OF THE PAPER BOOK, WE OBSE RVE THAT IF THE CAPITAL OUTLAY IS REDUCED FROM THE TOTAL RECEIPT, THERE IS A NEGATIVE SURPLUS WITH THE ASSESSEE SOCIETY FROM ASSESSMENT YEARS 2004-05 TO 2 008-09 EXCEPT IN ASSESSMENT YEAR 2005-06 AND THAT TOO IS 10.06% WHIC H IS BELOW 15%. WE AGREE WITH LD. AR THAT SURPLUS TO THE EXTENT OF 15% IS NOT REQUIRED TO BE DEPOSITED AS PER SEC. 11(5) OF I.T. ACT. THE SURPL US COVERED U/S. 11(2) ARE OVER AND ABOVE 15% SURPLUS WHICH ARE REQUIRED TO BE INVESTED IN TERMS OF ITA NO. 13/RANCHI/2011 22 SEC. 11(5) OF THE I.T. ACT. IN THIS RESPECT, WE RE FER CBDT CIRCULAR NO. 8/2002 DT. 27 TH AUGUST, 2002, WHICH READS AS UNDER: THROUGH THE FINANCE ACT, 2002, CLAUSE 23(C) OF SEC . 10 HAS BEEN AMENDED TO PROVIDE THAT WHERE MORE THAN 15 % (25% UNDER PRE-SUBSTITUTED CLAUSE (A) OF THE INCOME IS ACCUMULATED ON OR AFTER THE FIRST DAY OF APRIL 2002 , THE PERIOD OF ACCUMULATION OF THE AMOUNT EXCEEDING 15%(25% UNDER PRE-SUBSTITUTED CLAUSE(A) OF ITS INCOME SHALL, IN N O CASE, EXCEED 5 YEARS (10 YEARS UNDER PRE-SUBSTITUTED CLAUSE (A). THUS, ONLY 15% OF THE INCOME CAN NOW BE ACCUMULATED FOR AN UNL IMITED PERIOD AND WITHOUT ANY CONDITION. 28. IN VIEW OF ABOVE, SEC. 11(2) WILL OPERATE QUA T HE BALANCE 85% OF TOTAL INCOME. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO VIOLATION OF SEC. 11(5) OF THE ACT OWING TO CASH IN HAND AND DEM AND DRAFT WHICH HAVE NOT BEEN DISPUTED TO BE DULY RECORDED IN THE BOOKS OF ACCOUNT. 29. NOW COMING TO THE QUESTION AS TO WHETHER SURPLU S FUND COULD BE A GROUND FOR COMING TO THE CONCLUSION THAT ASSESSEE I S NOT RUNNING AN INSTITUTE FOR EDUCATIONAL PURPOSES AND THE REGISTRATION COULD BE CANCELLED U/S. 12AA(3) OF THE I.T. ACT. BEFORE WE CONSIDER THE CASES CITE D BEFORE US, WE CONSIDER IT NECESSARY TO REFER CBDT CIRCULAR NO. 1112 DT29TH OC TOBER, 1977 WHEREIN CBDT HAS STATED THAT EVEN IF THERE IS A SURPLUS AT THE END OF THE YEAR AND THE SAID SURPLUS IS UTILIZED FOR EDUCATIONAL INSTITUTIO NS AND IS NOT DIVERTED FOR PERSONAL USE OF THE PROPRIETOR THEREOF, THEN THE IN COME OF EDUCATIONAL INSTITUTION WILL NOT BE SUBJECT TO TAX. IN THIS CO NTEXT, IT IS ALSO RELEVANT TO REFER THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CASE OF OXFORD ACADEMY FOR CAREER DEVELOPMENT VS. CHIEF COMMISSIONER OF IN COME-TAX AND ORS. 315 ITR 382, WHEREIN ON THE BASIS OF THE INFORMATION IT WAS FELT BY THE DEPARTMENT THAT THE SOCIETY WAS BEING RUN FOR THE P URPOSE OF PROFIT AND THAT THE PRESIDENT AND ITS FAMILY MEMBERS WERE ALSO OBTA INING BENEFIT FROM IT AND ACCORDINGLY A NOTICE WAS ISSUED TO CANCEL THE REGIS TRATION GRANTED U/S 12A OF THE ACT. IT WAS ALSO CONTENDED ON BEHALF OF THE DEP ARTMENT THAT THERE WAS UNUSUAL HUGE MARGIN AND THE ASSESSEE WAS ENGAGED IN THE COMMERCIAL ITA NO. 13/RANCHI/2011 23 ACTIVITIES RATHER THAN CHARITABLE. THAT AS PER BALA NCE SHEET, HUGE AMOUNT FROM THE STUDENTS WAS CHARGED. THE PROFIT MARGIN EMBODIE D IN THE CHARGES TAKEN FROM THE STUDENTS WAS HUGE AND IT PROVES THE PROFIT MOTIVE OF THE ASSESSEE. THEIR LORDSHIPS OF THE HONBLE ALLAHABAD HIGH COURT AFTER CONSIDERING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF A MERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE (SUPRA) HELD THAT ONCE THE APPLICANT INSTITUTION CAME WITHIN THE PHRASE EXIST SOLELY FO R EDUCATIONAL PURPOSE AND NOT FOR PROFIT, NO OTHER CONDITION LIKE APPLICATIO N OF INCOME WAS REQUIRED TO BE COMPLIED WITH. THE PRESCRIBED AUTHORITY WAS ONLY REQUIRED TO EXAMINE THE NATURE, ACTIVITIES AND GENUINENESS OF THE INSTITUTI ON. THE MERE EXISTENCE OF PROFIT/SURPLUS DID NOT DISQUALIFY THE INSTITUTION. IT WAS FURTHER STATED THAT FOR GRANT OF APPROVAL SECTION 11 & 13 DID NOT APPLY. TH EIR LORDSHIPS OF THE HONBLE ALLAHABAD HIGH COURT HAS ALSO CONSIDERED TH E DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. SURAT CITY GYMKHA NA 300 ITR 214 WHEREIN IT WAS OBSERVED THAT AFTER REGISTRATION, FURTHER PROB E INTO OBJECT IS NOT PERMISSIBLE. 30. IN THE CASE BEFORE US THERE IS NO DISPUTE TO T HE FACT THAT THE ASSESSEE IS ENGAGED IN EDUCATION. EDUCATION IS PERSE A CHARI TABLE PURPOSE AS DEFINED IN SECTION 2(15) OF THE ACT. MOREOVER, CBDT VIDE ITS C IRCULAR NO.11/2008 DATED 9.12.2008 HAS ALSO WHILE CONSIDERING THE IMPLICATIO N THAT HAS ARISEN FROM THE AMENDMENT MADE BY FINANCE ACT, 2008 BY ADDING A PRO VISO TO SECTION 2(15) OF THE ACT HAS STATED AS UNDER: DEFINITION OF CHARITABLE PURPOSE UNDER SECTION 2(15) OF THE INCOME-TAX ACT, 1961 SECTION 2(15) OF THE INCOME TAX ACT, 1961 (`ACT) DEFINES CHARITABLE PURPOSE TO INCLUDE THE FOLLOWING:- (I) RELIEF OF THE POOR (II) EDUCATION (III) MEDICAL RELIEF, AND (IV) THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY. AN ENTITY WITH A CHARITABLE OBJECT OF THE ABOVE NAT URE WAS ELIGIBLE FOR EXEMPTION FROM TAX UNDER SECTION 11 OR ALTERNATIVEL Y UNDER SECTION 10(23C)OF THE ACT, HOWEVER, IT WAS SEEN THAT A NUMB ER OF ENTITIES WHO ITA NO. 13/RANCHI/2011 24 WERE ENGAGED IN COMMERCIAL ACTIVITIES WERE ALSO CLA IMING EXEMPTION ON THE GROUND THAT SUCH ACTIVITIES WERE FOR THE ADVANC EMENT OF OBJECTS OF GENERAL PUBLIC UTILITY IN TERMS OF THE FOURTH LIMB OF THE DEFINITION OF `CHARITABLE PURPOSE. THEREFORE, SECTION 2(15) WAS AMENDED VIDE FINANCE ACT, 2008 BY ADDING A PROVISO WHICH STATES THAT THE `ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY SHALL NOT B E A CHARITABLE PURPOSE IF IT INVOLVES THE CARRYING ON OF (A) ANY ACTIVITY IN THE NATURE OF TRADE, COMMERCE O R BUSINESS; OR (B) ANY ACTIVITY OF RENDERING ANY SERVICE IN RELATI ON TO ANY TRADE, COMMERCE OR BUSINESS; FOR A CESS OR FEE OR ANY OTHER CONSIDERATION, IRRES PECTIVE OF THE NATURE OF USE OR APPLICATION, OR RETENTION OF THE INCOME FROM SUCH ACTIVITY. 2. THE FOLLOWING IMPLICATIONS ARISE FROM THIS AMEND MENT 2.1. THE NEWLY INSERTED PROVISO TO SECTION 2(15) W ILL NOT APPLY IN RESPECT OF THE FIRST THREE LIMBS OF SECTION 2(15), I.E., RE LIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF. CONSEQUENTLY, WHERE THE PURPOSE OF A TRUST OR INSTITUTION IS RELIEF OF THE POOR, EDUCATION OR MEDICAL RELIEF, IT WILL CONSTITUTE CHARITABLE PURPOSE EVEN IF IT INCIDENTALLY INVOLVES THE CARRY ING ON OF COMMERCIAL ACTIVITIES. 2.2. `RELIEF OF THE POOR ENCOMPASSES A WIDE RANGE OF OBJECTS FOR THE WELFARE OF THE ECONOMICALLY AND SOCIALLY DISADVANTA GED OR NEEDY. IT WILL, THEREFORE, INCLUDE WITHIN ITS AMBIT PURPOSES SUCH A S RELIEF TO DESTITUTE, ORPHANS OR THE HANDICAPPED, DISADVANTAGED WOMEN OR CHILDREN, SMALL AND MARGINAL FARMERS, INDIGENT ARTISANS OR SENIOR CITIZ ENS IN NEED OF AID. ENTITIES WHO HAVE THESE OBJECTS WILL CONTINUE TO BE ELIGIBLE FOR EXEMPTION EVEN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACT IVITY, SUBJECT, HOWEVER, TO THE CONDITIONS STIPULATED UNDER SECTION 11(4A) O R THE SEVENTH PROVISO TO SECTION 10(23C) WHICH ARE THAT (I) THE BUSINESS SHOULD BE INCIDENTAL TO THE ATTAI NMENT OF THE OBJECTIVES OF THE ENTITY, AND (II) SEPARATE BOOKS OF ACCOUNT SHOULD BE MAINTAINED IN RESPECT OF SUCH BUSINESS. SIMILARLY, ENTITIES WHOSE OBJECT IS `EDUCATION OR `MEDICAL RELIEF WOULD ALSO CONTINUE TO BE ELIGIBLE FOR EXEMPTION AS CHARITABLE INSTITUTIONS EVEN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACTIVITY SUBJECT TO THE CONDITIONS MENTIONED ABOVE. ITA NO. 13/RANCHI/2011 25 31. THEIR LORDSHIPS OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF PINEGROVE INTERNATIONAL CHARITABLE TRUST (SUPRA) HA S OBSERVED THAT AN EDUCATIONAL INSTITUTION WOULD NOT CEASE TO EXIST FO R EDUCATIONAL PURPOSES MERELY BECAUSE IT HAS GENERATED SURPLUS INCOME AFTE R MEETING ITS EXPENDITURE. IN THE CASE OF TMA PIE FOUNDATION VS. STATE OF KARNATAKA (2002) 8 SCC 481 THEIR LORDSHIPS OF HONBLE APEX COURT HAS HELD THAT PRIVATE EDUCATIONAL INSTITUTIONS ARE BOUND TO GENERATE FUND S FOR BETTERMENT AND GROWTH OF THE INSTITUTION AND FOR WHICH THERE MAY B E A SURPLUS FOR FURTHERANCE OF EDUCATION. THEREFORE, IT IS NOT ONLY PERMISSIBLE BUT AN IMPORTANT REQUIREMENT TO RUN THE INSTITUTIONS OF SUCH A STRAI N. THEIR LORDSHIPS OF THE APEX COURT HAS ALSO STATED IN THE CASE OF ADITANAR EDUCATIONAL INSTITUTION 224 ITR 310 THAT WHEN SURPLUS IS UTILIZED FOR EDUCATION AL PURPOSE, I.E. FOR INFRASTRUCTURE DEVELOPMENT, IT CANNOT BE SAID THAT THE INSTITUTION WAS HAVING THE OBJECT TO MAKE PROFIT. IT WAS OBSERVED THAT THE SURPLUS IS USED FOR MANAGEMENT AND BETTERMENT OF THE INSTITUTION COULD NOT BE TERMED AS PROFIT. NOT ONLY THIS ITAT AHMEDABAD BENCH IN THE CASE OF A JIT EDUCATIONAL TRUST VS. CIT 46 DTR 482 HAS HELD THAT MERELY BY GRANTING A R EGISTRATION U/S 12A/12AA TO A TRUST IPSO-FACTO IS NOT ENTITLED FOR THE EXEMP TIONS PRESCRIBED U/S 11 & 12. A TRUST CAN GET EXEMPTION U/S 11 & 12 ONLY IF IT FU LFILLS THE REQUISITE CONDITIONS LAID DOWN THEREIN. THERE IS NO MATERIALS BEFORE US THAT THE ASSESSEE IS NOT CARRYING ON ITS ACTIVITIES AS PER ITS OBJECTS NOR T HERE IS ANY MATERIAL ON RECORD THAT IT IS NOT A GENUINE SOCIETY. 32. DURING THE COURSE OF HEARING, LD. AR SUBMITTED THAT ASSESSEE FILED RETURNS ON DUE DATE FOR ASSESSMENT YEAR 2010-11 AND 2011-12 CLAIMING EXEMPTION U/S. 11 AND TILL DATE THE ASSESSMENT(S) H AS NOT BEEN DISTURBED. LD. DR DURING THE COURSE OF HEARING HAS NOT DISPUTE D AND/OR CONTROVERTED THE SAID CONTENTION OF LD. AR. MOREOVER, LD. DR HAS NO T DISPUTED THE FACT THAT ABOUT 450 STUDENTS ARE STUDYING IN THE INSTITUTE AN D THE COURSE RUN BY T HE ASSESSEE INSTITUTE ARE MBA, HOTEL MANAGEMENT AND FO OD TECHNOLOGY. IT HAS ALSO BEEN NOT DISPUTED THAT ASSESSEE INSTITUTE IS R ECOGNIZED BY AICTE AND THE SAID RECOGNITION HAS NOT BEEN WITHDRAWN TILL DATE. ITA NO. 13/RANCHI/2011 26 33. CONSIDERING THE ABOVE FACTS, WE ARE OF THE CONS IDERED VIEW THAT THE CONDITION PRECEDENT TO CANCELLATION OF REGISTRATION U/S. 12AA(3) OF THE ACT ARE NOT SATISFIED BECAUSE ONCE REGISTRATION IS GRANTED, LD. CIT CAN CANCEL REGISTRATION ONLY IF HE SATISFIES THAT THE ACTIVITI ES OF SUCH TRUST OR INSTITUTION ARE NOT GENUINE OR ARE NOT BEEN CARRIED OUT IN ACCO RDANCE WITH THE OBJECTS OF THE TRUST OR INSTITUTION. HOWEVER THE FACTS, AS ME NTIONED HEREIN ABOVE, PRIMA FACIE ESTABLISH THAT ASSESSEE IS RUNNING THE INSTIT UTE OF EDUCATION AND THE SAID INSTITUTION IS SET UP AS PER ITS AIMS AND OBJECTS F OR WHICH ASSESSEE SOCIETY IS FORMED AND THE REGISTRATION U/S. 12AA WAS GRANTED T O IT VIDE REGISTRATION CERTIFICATE DT. 27.9.2001, COPY PLACED AT PAGE-23 O F PAPER BOOK. MERELY BECAUSE SOME AMOUNT HAS BEEN SPENT BY ASSESSEE SOCI ETY WHICH IS NOT IN ACCORDANCE WITH ITS AIMS AND OBJECTS, AT THE TIME O F GIVING EXEMPTION U/S. 11 & 12 OF THE ACT, BENEFIT OF EXEMPTION COULD BE DENI ED TO ASSESSEE FOR THE SAID CLAIM BUT IT COULD NOT BE THE BASIS FOR CANCELLATIO N OF REGISTRATION OF ASSESSEE SOCIETY. HENCE, THE REASONS GIVEN BY LD. CIT IN TH E IMPUGNED ORDER FOR CANCELLATION OF REGISTRATION IS NOT IN ACCORDANCE W ITH LAW. HENCE CANCELLATION OF REGISTRATION TO ASSESSEE BY LD. CIT IS NOT LEGAL . THEREFORE, ORDER OF LD. CIT FOR CANCELLATION OF REGISTRATION OF ASSESSEE EVEN ON THE GROUNDS GIVEN BY HIM IS LIABLE TO BE SET ASIDE. 33. IN THE RESULT, WE HOLD THAT ORDER OF THE LD. CI T FOR CANCELLATION OF REGISTRATION OF THE ASSESSEE IS NOT VALID. HENCE, T HE ORDER OF CANCELLATION OF REGISTRATION OF ASSESSEE SOCIETY PASSED BY LD. CIT DATED 29 TH JUNE, 2011 IS QUASHED. 34. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 12 TH MARCH, 2012 SD/ - SD/ - ( SHAMIM YAHYA ) ( B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 12 TH MARCH,2012 RJ ITA NO. 13/RANCHI/2011 27 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR RANCHI CIRCUIT BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI