Bhausaheb Harnarayan Rathi Bahuuddeshiya Vikas Foundation, Jalgaon V. Commissioner of Income-tax, (Exemption), Pune

ITA 1313/PUN/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1776 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 09-12-2020
• Assessment Year: misc
• Appeal Filed On: 27-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: EMANATES FROM PASSED
• Section: 12A; 12AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO. 1313/PUN/2019 BHAUSAHEB HARNARAYAN RATHI BAHUUDDESHIYA VIKAS FOUNDATION, RAMHARI NIWAS, PAREKH PARK, ONKAR NAGAR, JALGAON PAN : AAATB3441L VS. CIT (EXEMPTION), PUNE APPELLANT RESPONDENT / ORDER THIS APPEAL BY THE ASSESSEE EMANATES FROM THE ORDER PASS ED BY THE CIT(EXEMPTION), PUNE ON 24-07-2019. 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE DENIAL OF REGISTRATION BY THE LD. CIT(EXEMPTION) U/S 12AA OF THE INCO ME- TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT). 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E WAS SET UP IN 1999 BY CLAIMING ITSELF AS A CHARITABLE AND EDUCATION AL TRUST. THE ASSESSEE E-FILED APPLICATION FOR ITS REGISTRATION U/S. 12A OF THE ACT ON 31-01-2019. THE LD. CIT(E) CALLED FOR CE RTAIN DETAILS. ON PERUSAL OF SUCH DETAILS, HE OBSERVED THAT DURING THE LAST THREE FINANCIAL YEARS ENDING ON 31-03-2016, 31-03-2017 AND ASSESSEE BY SMT. DEEPA KHARE REVENUE BY SMT. DIVYA BAJPAI DATE OF HEARING 09-12-2020 DATE OF PRONOUNCEMENT 09-12-2020 ITA NO.1313/PUN/2019 BHAUSAHEB HARNARAYAN RATHI BAHUUDDESHIYA VIKAS FOUNDATION 2 31-03-2018, THE ASSESSEE DID NOT INCUR ANY EXPENDITURE ON CHARITABLE ACTIVITIES. HE FURTHER OBSERVED THAT THE ASSESSEE HAD FDRS OF RS.2.00 CRORE IN THE F.Y. 2015-16 BUT INCOME WAS NOT DECLARED IN THE INCOME AND EXPENDITURE ACCOUNT. SIMILAR PO SITION WAS FOUND ANENT TO THE FDRS AND INCOME NOT OFFERED FOR EARLIER YEARS AS WELL. THAT IS HOW, THE LD. CIT(E) CAME TO THE CON CLUSION THAT THE ASSESSEE DID NOT SATISFY THE NATURE OF ACTIVITIES AS C HARITABLE FOR ENABLING GRANTING OF THE REGISTRATION U/S.12AA AND THUS TU RNED DOWN THE REGISTRATION. AGGRIEVED THEREBY, THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS THROUGH VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE LD. AR VEHEMENTLY ARGUED THAT THE LD. CIT(E) WAS NOT JUSTIFIED IN EXAMINING THE ACTIVITIES OF THE TRUST FOR THE PURPOSE OF GRAN TING OR REFUSING THE REGISTRATION. IN THIS REGARD, WE FIND THAT SECTION 12AA OF THE ACT DEALS WITH THE PROCEDURE FOR REGISTRATION. SUB-SE CTION (1) PROVIDES THAT THE CIT, ON RECEIPT OF AN APPLICATION FOR REGISTRATION, SHALL: `(A) CALL FOR SUCH DOCUMENTS OR INFORMATIO N FROM THE TRUST OR INSTITUTION AS HE THINKS NECESSARY IN ORDER TO SATISFY HIMSELF ABOUT , - ( I ) THE GENUINENESS OF ACTIVITIES OF THE TRUST OR ITA NO.1313/PUN/2019 BHAUSAHEB HARNARAYAN RATHI BAHUUDDESHIYA VIKAS FOUNDATION 3 INSTITUTION; AND ( II ) THE COMPLIANCE OF SUCH REQUIREMENTS OF ANY OTHER LAW FOR THE TIME BEING IN FORCE BY THE TRUST OR INSTITUTION AS ARE MATERIAL FOR THE PURPOSE OF ACHIEVING ITS OBJECTS, AND MAY ALSO MAKE SUCH INQUIRIES AS HE MAY DEEM NECESSARY IN THIS BEH ALF . CLAUSE (B) OF SUB-SECTION (1) STATES THAT: AFTER SATISFYING HIMSELF ABOUT THE OBJECTS OF THE TRUST OR INSTITUTION AND THE GENUINENES S OF ITS ACTIVITIES HE SHALL PASS AN ORDER IN WRITING GRANTING OR REFUSING THE REGISTRATION. THUS, IT IS EVIDENT FROM THE PRESC RIPTION OF SECTION 12AA OF THE ACT THAT THE POWER OF CIT(E) EXTENDS , INTER ALIA, TO EXAMINING THE GENUINENESS OF THE ACTIVITIES CARRIED OUT BY THE TRUST BEFORE GRANTING ANY REGISTRATION. 5. THE CONTENTION OF THE LD. AR LIMITING THE POWER OF THE LD. CIT(E) IN NOT EXAMINING THE ACTIVITIES OF THE TRUST BEFORE GRA NTING REGISTRATION, IN OUR CONSIDERED OPINION, IS PARTLY CORRECT. T HERE CAN BE TWO SITUATIONS, VIZ., FIRST, WHERE THE TRUST IS NEWLY SET UP AND SEEKS REGISTRATION AND SECOND, WHERE THE TRUST IS ALREADY SE T UP AND SEEKS REGISTRATION AFTER SOMETIME. IN THE FIRST SITUATION, THE RE CAN BE NO QUESTION OF EXAMINATION OF GENUINENESS OF ACTIVITIES AT THE TIME OF REGISTRATION BECAUSE THE ACTIVITIES HAVE NOT TAKEN PLACE AND A TRUST IS ENTITLED IN LAW TO SEEK REGISTRATION AT ANY TIME EVEN BE FORE ITA NO.1313/PUN/2019 BHAUSAHEB HARNARAYAN RATHI BAHUUDDESHIYA VIKAS FOUNDATION 4 UNDERTAKING THE ACTIVITIES. IN SUCH CIRCUMSTANCES, CIT(E) CAN EXAMINE THE PROPOSED ACTIVITIES OF THE TRUST WITH REFERENCE TO ITS OBJECTS. HOWEVER, IN A CASE WHERE THE TRUST IS ALREADY SE T UP FOR A NUMBER OF YEARS AND THEREAFTER AN APPLICATION IS FILED FOR REGISTRATION OF THE TRUST, NO FAULT CAN BE FOUND WITH CIT(E) EXAMINING THE GENUINENESS OF THE ACTIVITIES ACTUALLY CARRIED OUT BY THE ASSESSEE FOR ASCERTAINING WHETHER OR NOT THE REQUISITES O F CHARITABLE NATURE OF ACTIVITIES ARE FULFILLED. BOTH THE CLAUSES (A ) AND (B) OF SECTION 12AA(1) OF THE ACT EMPHASIZE ON CIT(E) SA TISFYING HIMSELF, INTER ALIA, ABOUT THE GENUINENESS OF ACTIVITIES. ACCEPTANCE OF THE CONTENTION OF THE LD. AR IN ALL CIRCUMSTANCES AND ACRO SS THE BOARD WOULD MEAN NEGATING THE MANDATE OF SECTION 12AA, WHIC H IS PATENTLY UNWARRANTED. WE ARE CONFRONTED WITH AN INSTANCE OF THE SECOND SITUATION. THE ASSESSEE WAS SET UP IN THE YEAR 1999 AND THE APPLICATION FOR REGISTRATION WAS MOVED TWENTY YEARS DOWN THE LI NE ON 31-03-2019. IN SUCH A SITUATION, WE CANNOT TAKE AN EX CEPTION TO THE LD. CIT(E) EXAMINING THE ACTIVITIES OF THE ASSESSEE W.R.T. THE ANNUAL ACCOUNTS FOR EARLIER YEARS. 6. NOW LET US EXAMINE THE VIEW CANVASSED BY THE LD. CI T(E) ON MERITS ON THE EXAMINATION OF ANNUAL ACCOUNTS OF THE ASSESSEE THAT ITA NO.1313/PUN/2019 BHAUSAHEB HARNARAYAN RATHI BAHUUDDESHIYA VIKAS FOUNDATION 5 NO CHARITABLE ACTIVITY WAS TRACEABLE AS THERE WAS NO EXPENDITUR E ON THE CARRYING OUT OF THE CHARITABLE ACTIVITIES AND FURTHER THE A SSESSEE WAS NOT PROPERLY SHOWING REQUISITE INTEREST INCOME FROM FDRS. PER CONTRA, THE LD. AR SUBMITTED THAT THE ASSESSEE WAS FOLLO WING A PECULIAR SYSTEM OF ACCOUNTING IN WHICH INTEREST INCOME WAS NO T FULLY ROUTED THROUGH THE INCOME AND EXPENDITURE ACCOUNT BU T 95% OF THE SAME WAS SIMPLY CREDITED TO THE RESPECTIVE FUNDS IN THE BALANCE SHEET AND ONLY 5% WAS TAKEN TO THE INCOME AND EXPENDITURE ACCOUNT. SHE TRIED TO EXPLAIN WITH REFERENCE TO THE ASSESSEES BALANCE SHEET AS ON 31.3.2016 THAT THE AMOUNT SHOWN UNDER THE HEAD ADD : CURRENT IN THE 3 FUNDS REPRESENTE D INTEREST INCOME ON FDRS IN THE PROPORTION OF 75%:10%:10%, WHICH WAS TAKEN DIRECTLY TO THESE FUNDS. SHE FURTHER SUBMITTED THAT THE TE RM LESS UTILIZED REPRESENTED THE AMOUNT OF EXPENDITURE INCUR RED ON ACTIVITIES CARRIED OUT FOR THE PURPOSE. IT WAS HER SUBM ISSION THAT 5% OF INTEREST INCOME ON FDRS WAS TAKEN TO THE INCOME & EXPENDITURE ACCOUNT. 7. REFLECTION OF INTEREST INCOME IN THE MANNER THE ASSES SEE IS SHOWING IS BEYOND OUR COMPREHENSION AND BREACHES ALL THE ACCOUNTING NORMS. INTEREST INCOME, OR FOR THAT MATTER, ANY INCOME ITA NO.1313/PUN/2019 BHAUSAHEB HARNARAYAN RATHI BAHUUDDESHIYA VIKAS FOUNDATION 6 NEEDS TO NECESSARILY TAKEN TO THE INCOME AND EXPENDITURE A CCOUNT. IT IS IMPERMISSIBLE TO TAKE ITEMS OF INCOME STRAIGHT TO THE BALANC E SHEET. FURTHER, THERE IS NOTHING IN THE ANNUAL ACCOUNTS TO DEMONSTRATE THAT `ADD : CURRENT REPRESENTS INTEREST INCOME CREDITED TO THE FUND ACCOUNT AND `LESS : UTILISED SHOWS THE ACTUALLY EXPENDITURE INCURRED ON THE CHARITABLE ACTIVITIES. 8. THE LD. AR STRENUOUSLY EMPHASIZED THAT THE ASSESSE E WAS NOT ACCORDED ADEQUATE OPPORTUNITY OF HEARING INASMUCH AS THE LD . CIT(E), JUST AFTER OBTAINING INFORMATION FROM THE ASSESSEE, PASSED THE IMPUGNED ORDER WITHOUT CONFRONTING WITH HIS POINT OF VIEW OR SEEKING CLARIFICATIONS FROM THE ASSESSEE AS TO CARRYING OR NON- CARRYING OUT OF ANY CHARITABLE ACTIVITIES. A PRAYER WAS MADE THAT ANOTHER OPPORTUNITY MAY BE GRANTED TO EXPLAIN THE FACTUAL MA TRIX IN DETAIL BEFORE THE LD. CIT(E). NO SERIOUS OBJECTION WAS RAISED BY THE LD. DR IN THIS REGARD. IN VIEW OF THE POSITION AS OBTAINING IN THE INSTANT CASE, WE ARE SATISFIED THAT IT WOULD BE IN THE FITNESS OF THINGS IF THE IMPUGNED ORDER IS SET-ASIDE AND THE MATTER IS RESTOR ED TO THE FILE OF THE LD. CIT(E). WE ORDER ACCORDINGLY AND DIRECT HI M TO DECIDE THE ISSUE AFRESH AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. NO OBSERVATION MADE IN THIS ORDER SHOULD ITA NO.1313/PUN/2019 BHAUSAHEB HARNARAYAN RATHI BAHUUDDESHIYA VIKAS FOUNDATION 7 BE CONSTRUED AS A VINDICATION OF THE STAND EITHER OF THE RE VENUE OR THE ASSESSEE. 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH DECEMBER, 2020. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 09 TH DECEMBER, 2020 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(E), PUNE 4. 5. THE CIT CONCERNED , , / DR A, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE ITA NO.1313/PUN/2019 BHAUSAHEB HARNARAYAN RATHI BAHUUDDESHIYA VIKAS FOUNDATION 8 DATE 1. DRAFT DICTATED ON 09-12-2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 09-12-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *