Hyderabad Science Society, Hyderabad V. ACIT (Exemptions), Hyderabad

ITA 268/Hyd/2022

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9761 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 07-08-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 06-07-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Retrospective amendment; Benefit of exemption; Cancellation of registration; Bogus
• Section: 12A; 12AA

Judgement Text

ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 1 of 11 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri K. Narasimha Chary, Judicial Member ITA Nos.268 & 269/Hyd/2022 Assessment Years: 2015-16 & 2016-17 Hyderabad Science Society Hyderabad PAN:AAATH3789F Vs. ACIT (Exemptions) Hyderabad (Appellant) (Respondent) Assessee by : Shri P Murali Mohan Rao, CA Revenue by: Shri K.P.R.R. Murty, CIT(DR) Date of hearing: 08/08/2022 Date of pronouncement: 26/10/2022 ORDER Per R.K. Panda, A.M The above two appeals filed by the assessee are directed against the order dated 09.06.2022 of the learned CIT-(A) NFAC, Delhi relating to A.Ys.2015-16 & 2016-17 respectively. Since identical grounds have been raised by the assessee in both these appeals, therefore, these were heard together and are being disposed of by this common order. ITA 268/Hyd/2021 – (A.Y 2015-16) 2. Facts of the case, in brief, are that the assessee is a charitable society carrying out scientific research and is registered u/s 12A of the I.T. Act, 1961. It filed its return of income for the impugned A.Y on 31.3.2016 declaring total income of Rs. ‘Nil’, ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 2 of 11 During the course of assessment proceedings, the Assessing Officer noted that the assessee has received donation to the tune of Rs.29,07,17,560/-. Further, he noted that the assessee has transferred substantial part of this donation to the following 3 parties: Dreams of the Century Rs.15,09,78,250 Monipure Women Dev.Society Rs. 6,67,07,250 Vichar Manch Rs. 3,19,92,000 Total Rs.24,96,77,500 ============= 3. He observed that the assessee is engaged in carrying out scientific research. Some of the activities in this field carried out during the year are stated as under: a) R&D Projects in Robotics b) Application of Nickel Titanium Alloys c) Rodent Control using sand blasting techniques d) Interactive displays for visuals training aids. 3.1 It was supposed to carry out research work on its own as per the aims and objectives. However, substantial amount of fund was transferred to the above 3 parties as project sponsorship. On being questioned by the Assessing Officer, the assessee replied as under which has been reproduced by the Assessing Officer in the assessment order: “Since these societies were carrying out the research in those projects in which the Hyderabad Science Society was also interested to carry out research, the society felt hat it would be a better idea to sponsor the research than to carry out the Same on its own and also since we were working on a project for the Defense Ministry and were not able to find time to carry Out other projects. Further all the trusts to whom the sponsorships are given are also registered under the income tax act and have similar objects-..” 4. The Assessing Officer noted that the project reports submitted by the societies are not used for assessee’s own ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 3 of 11 research projects. No further research work was carried out on these projects and the assessee could not prove as to how it was benefitted by the research work carried out by these parties. He, therefore, held that the expenditure incurred on project sponsorship was not really meant for achievements of its aims and objects. The Assessing Officer referred to the inspections conducted on 5.12.2016 and observed that most of the parties who had donated the funds to the assessee have claimed deduction u/s 35(1)(ii) of the I.T. Act on donation made to the assessee. However, the donors were not eligible for claim of such deduction as the assessee society had such registration till 31.3.2007. He further noted that the donation received by the assessee was subsequently transferred to the above mentioned 3 parties. The Assessing Officer recorded the statement of Shri Sanjar Ali Khan on 7.12.2016 wherein in his reply to question No.7 regarding identification of the donor, he stated that the donations were received on appeal made in this regard and the donors have sent their representatives conveying their willingness to donate certain amounts. He had also stated that the donors, in turn, had made certain preconditions wherein the society was allowed to retain certain percentage of amount donated by them and the balance amounts had to be donated to the societies identified by them. On being questioned as to why this precondition was made by the donor, it was stated that the society had no choice but to accept the precondition made by the donor. He had also admitted that none of the members of the assessee society know the donor or donee personally. In view of the above, the Assessing Officer held that the institutions which were granted donations are bogus and that the institutions which received the donation did not have valid registration u/s 12A for ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 4 of 11 the A.Y 2015-16. He, therefore, rejected the claim of exemption by the assessee u/s 11 of the Act by recording the following: “9 The explanation offered by the assessee is considered but not tenable. Assessee has received substantial amount as donation which in turn re-donated to the three parties as mentioned above after retaining part of it. The re-donation was Compulsion to the assessee as per terms and conditions of getting donation from the donors. Assessee has allowed to utilize its banks account to receive donations and subsequent transfer. It is noteworthy that assessee had transferred the fund to Vichar Manch in account no. 400120110000339, Bank of India, Bara Bazar Branch which was opened for specific purpose of money laundering by one Mr. Pankaj. This has made it clear that assessee directly or indirectly involved in money laundering chain. Out of donation of Rs. 29.07 Crores, the assessee re-donated the sum of Rs. 24.96 Crores to these three parties as per the directions of the donors or their representatives. In the process, the assessee had retained an amount of Rs. 4.11 Crores, out of total donation received. It is claimed that this sum is utilized for its own research activities. The registration of these three societies has been cancelled with retrospective effect. These three parties do not have valid registration for A.Y. 2015-16. Moreover, the assessee indulged in the activities of money laundering. Accordingly, it can be concluded that assessee has not carried out its activities as per its aims and objects. Hence it will not come to the assessee's rescue that at the time of making donation, these parties were having valid registration u/s 12A of the I. T. Act. Accordingly, I disallow assessee's claim of exemption u/s 11 of the I.T.Act as assessee's activities are not matching with its aims and objects. Accordingly, assessee's income over expenditure is taxed as per AOP status. Penalty proceedings u/s 271(1)c of I. T. Act is initiated separately for filing of inaccurate particulars of income”. 5. In appeal, the learned CIT (A) upheld the action of the Assessing Officer. 6. Aggrieved with such order of the learned CIT (A), the assessee is in appeal before the Tribunal by raising the following grounds of appeal: “1. The Ld. CIT(A) erred in dismissing the appeal instead of allowing the same. ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 5 of 11 2 a)The Ld. CIT(A) ought to have appreciated that the order of Cancellation of registration passed by the CIT (Exemptions), Hyderabad u/s 12AA (3) r.w.s. 12AA (4) of the Income Tax Act, 1961, dated 31.12.2018 in the appellant’s case has been quashed by the Hon'ble ITAT, Bench "B", Hyderabad, vide their order in ITA No.361/Hyd/2019 dated 07.09.2021. b) The Ld. CIT(A) ought to have appreciated that when once the cancellation order passed u/s 12AA (3) r.w.s. 12AA (4) dated 31.12.2018 has been quashed by the Hon'ble ITAT, the existing registration u/s 12AA of the Act is restored to the appellant. c) The Ld. CT(A) ought to have appreciated that when the registration u/s 12AA of the Act is restored on 07.09.2021, the denial of exemption u/s 11(1)(c) of the Act for the assessment year under consideration i.e., assessment year 2015-16 is not in order. 3 (a) The Ld. CIT(A) erred in holding that the appellant was not able to 3. prove that how it was benefitted by the research work carried out by| the three other organization. b)The Ld. CIT(A) erred in holding that the expenditure incurred on project sponsorship was not really meant for achievement of the appellant's aims and objects. c)The Ld. CIT(A) erred in holding that the appellant society did not transfer the fund to three other societies for carrying out any research work but transferred to adhere to the precondition set by donors to re-donate the fund to the particular societies and that it has nothing to do with the project sponsorship. d) The Ld. CIT(A) erred in holding that the impugned donation to the appellant was given for specific purpose of getting fraudulent benefit of exemption/deduction. 4. The Ld. CIT(A) ought to have appreciated that the AO erred in determining the total income of the appellant at Rs. 3,92,40,750/- instead of Nil income as declared by the appellant. 5. The Ld. CIT(A) has erred in observing that the appellant is directly or indirectly involved in money laundering claim. 6. The Ld. CIT(A) has erred in concluding that the appellant has not carried out its activities as per its aims and objects. The Ld. CIT(A) erred in holding that the denial of benefit of exemption. 7. was fair and reasonable as the appellant had violated the pre- conditions for allowing exemption u/s 11 of the Act. 8. The Ld. CIT(A) ought to have appreciated that the appellant is eligible to the exemption claimed under section 11 of the Act as it is carrying out the objects which are wholly charitable. ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 6 of 11 9 The Ld. CIT(A) ought to have appreciated that the Assessing Officer erred in rejecting the exemption u/s 11 of the Act even though the assessee is holding a valid registration u/s 12AA of the Act at the time of making the assessment. 10. The Ld. CIT(A) erred in holding that the appellant had acted as an intermediary for destined diversion of funds without any research related work from the said funds, thus blatantly violating the provisions of section 11 and 12A of the Act. 11. The appellant may add or alter or amend or modify or substitute or delete and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal”. 7. The learned Counsel for the assessee strongly challenged the order of the learned CIT (A) in upholding the order of the Assessing Officer. Referring to page 33 of the Paper Book, he drew the attention of the Bench to the copy of the letter issued by the Department of Scientific & Industrial Research, Govt. of India by renewing the recognition of scientific and industrial research organizations. Referring to page 83 of the Paper Book, he drew the attention of the Bench to the letter issued by the Ministry of Home Affairs, Govt. of India, dated 31.10.2016 requesting Mr. Sanjar Ali Khan to give a presentation to explain the technology, R&D processes and other information related to the project. Referring to page No.84 of the Paper Book, he drew the attention of the Bench to the letter issued by the Ministry of Home Affairs, Govt. of India to Shri Turabul Hussain, President of the assessee Society regarding permission given to the society to visit the area of responsibility of Jammu Frontier BSF on NCNC basis to understand the operational requirement and field conditions and thereafter propose any scientific solution for improvement of border security. ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 7 of 11 8. Referring to page 89 to 92 of the Paper Book, he drew the attention of the Bench to the order of the Tribunal in ITA No.361/Hyd/2019 dated 7.9.2021 restoring the registration u/s 12AA. Referring to pages 93 to 95 of the Paper Book, he drew the attention of the Bench to the order passed by the CIT (Exemption) granting exemption to the assessee trust u/s 12AA vide order dated 8.6.2022. He submitted that since the CIT(E) has restored the registration u/s 12AA, which was cancelled by him on the basis of the recommendation of the Assessing Officer, therefore, in the interest of justice this matter should be restored to the file of the Assessing Officer for fresh adjudication of the issue. 9. The learned DR, on the other hand, heavily relied on the order of the Assessing Officer and the CIT(A). He submitted that the assessee in the instant case has indulged in money laundering activities, since substantive donation received by the assessee has been transferred to three parties which are given by the Assessing Officer at Page 3 of the assessment order. The assessee in the instant case has not done any research work and in turn has transferred the funds to other societies/trusts. Therefore, the Assessing Officer was fully justified in denying the benefit of exemption u/s 11 of the I.T. Act. He submitted that the learned CIT (A) has passed the order giving valid reasons while rejecting the grounds raised by the assessee. He accordingly submitted that the order of the CIT(A) should be upheld and the grounds raised by the assessee should be dismissed. 10. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned CIT(A) and the paper book filed on behalf of the assessee. We have also ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 8 of 11 considered the various decisions cited before us by both sides. We find the assessee in the instant case is a Society engaged in carrying out scientific research work. The assessee during the year under consideration has received donation to the tune of Rs.29,07,17,560/- out of which an amount of Rs.24,96,77,500/- has been transferred to three different parties, the details of which are given at Para 2 of this order. We find the Assessing Officer disallowed the claim of exemption u/s 11 of the I.T. Act on the ground that the assessee has received substantial amount as donation which in turn are transferred to the three parties and the redonation was compulsion to the assessee as per the terms and conditions of getting donations from the donors. The assessee has allowed to utilize its Bank A/c to receive donation and subsequently transfer the same which is nothing but laundering of money. We find the CIT(A) upheld the action of the Assessing Officer. It is the submission of the learned Counsel for the assessee that since the Tribunal has restored the registration u/s 12A which was cancelled by the PCIT and since the PCIT has passed consequential order by granting registration u/s 12A, therefore, the denial of exemption u/s 11 is not justified. 11. We find the Assessing Officer in the instant case denied exemption u/s 11 for the impugned A.Y and following this order he also rejected the claim of benefit u/s 11 of the I.T. Act. for the A.Y 2016-17. After the orders passed by the Assessing Officer for the A.Ys 2015-16 and 2016-17, the Pr.CIT cancelled the registration issued to the assessee u/s 12A of the I.T. Act. We find on appeal by the assessee, the Tribunal vide ITA No.361/Hyd/2019 dated 7.9.2021 restored the registration u/s 12AA of the I.T. Act and the CIT vide order dated 8.6.2022 has given the appeal effect and has granted registration u/s 12AA of ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 9 of 11 the I.T. Act. Under these circumstances, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to grant one more opportunity to the assessee to substantiate his case and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes. ITA No.269/Hyd/2022 – A.Y. 2016-17 12. The grounds raised by the assessee are under: “1. The learned CIT (A) erred in dismissing the appeal instead of allowing the same. 2. (a) The learned CIT (A) ought to have appreciated that the order of cancellation of registration passed by the CIT (Exemptions), Hyderabad u/s 12AA (3) r.w.s. 12AA (4) of the Income Tax Act, 1961, dated 31.12.2018 in the appellant's case has been quashed by the Gro Hon'ble ITAT, Bench "B", Hyderabad, vide their order in ITA No.361/Hyd/2019 dated 07.09.2021. b) The Ld. CIT(A) ought to have appreciated that when once the cancellation order passed u/s 12AA (3) r.w.s. 12AA (4) dated Tech Gro 31.12.2018 has been quashed by the Hon'ble ITAT, the existing registration u/s 12AA of the Act is restored to the appellant. c The Ld. CIT(A) ought to have appreciated that when the registration u/s 12AA of the Act is restored on 07.09.2021, the denial of exemption u/s 11(1)(c) of the Act for the assessment year under consideration i.e., assessment year 2016-17 is not in order. 3. a) The Ld. CIT(A) erred in holding that the appellant was not able to prove that how it was benefitted by the research work carried out by Gro the three other organization. b) The Ld. CIT(A) erred in holding that the expenditure incurred on project sponsorship was not really meant for achievement of the Gro appellant's aims and objects. c) The Ld. CIT(A) erred in holding that the appellant society did not transfer the fund to three other societies for carrying out any research but transferred to adhere to the precondition set by donors to redonate the fund to the particular societies and that it has nothing to do with the project sponsorship. ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 10 of 11 d) The Ld. CIT(A) erred in holding that the impugned donation to appellant was the given for specific purpose of getting fraudulent benefit of exemption/ deduction. 4. The Ld. CIT(A) ought to have appreciated that the AO erred in determining the total income of the appellant at Rs. 5,77,71,128/- instead Rs. of Nil income as declared by the appellant. 5. The Ld. CIT(A) has erred in observing that the appellant is directly or indirectly involved in money laundering claim. 6. The Ld. CIT(A) has erred in concluding that the appellant has not carried out its activities as per its aims and objects. 7. The Ld. CIT(A) erred in holding that the denial of benefit of exemption was fair and reasonable as the appellant had violated the pre-conditions for allowing above exemption u/s 11 of the Act. 8. The Ld. CIT(A) ought to have appreciated that the appellant is eligible to As stated the exemption claimed under section 11 of the Act as it is carrying out the above objects which are wholly charitable. 9 The Ld. CIT(A) ought to have appreciated that the Assessing Officer erred in rejecting the exemption u/s 11 of the Act even though the assessee is As stated above holding a valid registration u/s 12AA of the Act at the time of making the assessment. 10. The Ld. CIT(A) erred in holding that the appellant had acted as an intermediary for destined diversion of funds without any research related above work from the said funds, thus blatantly violating the provisions of section 11 and 12A of the Act.. 11. The appellant may add or alter or amend or modify or substitute or delete Ground and/or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal”. 13. After hearing both the sides, we find the grounds raised by the assessee in the instant appeal are identical to the grounds of appeal in ITA No.268/Hyd/2022. We have already decided the issue and the grounds raised by the assessee have been restored to the file of the Assessing Officer for fresh adjudication. Following similar reasoning, we restore the issue for this year also to the file of the Assessing Officer for adjudication of the issue afresh in the light of the directions given therein. The ITA Nos 268 and 269 of 2022 Hyderabad Science Society Hyderabad Page 11 of 11 grounds raised by the assessee are accordingly allowed for statistical purposes. 14. In the result, both the appeals filed by the assessee are allowed for statistical purposes. Order pronounced in the Open Court on 26 th October, 2022. Sd/- Sd/- (K. NARASIMHA CHARY) JUDICIAL MEMBER (R.K. PANDA) ACCOUNTANT MEMBER Hyderabad, dated 26 th October, 2022. Vinodan/sps Copy to: S.No Addresses 1 Hyderabad Science Society, c/o P. Murali & Co. C.A. 6-3-655/2/3 Somajiguda, Hyderabad 500082 2 Asstt. CIT (Exemptions) Hyderabad 3 CIT (A)- NFAC, Delhi 4 Pr. CIT- (Exemptions) Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File By Order