Shri Pal Goel Educational Society, Muzaffarnagar V. CIT (Exemption), Lucknow

ITA 4341/DEL/2018

AI Insights

The case involves Shri Pal Goel Educational Society, which appealed against the cancellation of its registration under section 12AA of the Income Tax Act, 1961 by the Commissioner of Income Tax (Exemptions), Lucknow. The cancellation was based on allegations that the Society was not operating in accordance with its objectives, was making profits, and was involved in money laundering. The Tribunal examined the evidence, including the Society's compliance with financial regulations and the actual operations of the educational institution it runs. The Tribunal concluded that the Society had been wrongly accused and that the cancellation of its registration was not in accordance with the principles of natural justice.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302793 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 05-01-2023
• Assessment Year: misc
• Appeal Filed On: 06-06-2018
• Other Referred Cases: Devlok Tirth Yatra Samiti vs. ITO, Sharda Educational Trust vs. CIT (Central), CIT vs. Sarvodaya Ilakkiya Pannai, The Scientific Education vs. Union of India And Another, M/s Joginpally BR Education Society, Hyderabad vs. Commissioner of Income tax (Central), Hyderabad
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Opportunity of being heard; Principle of natural justice; Cancellation of registration; Set aside
• Section: 143(3); 133(6); 12AA; 143(2)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G”: NEW DELHI BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER ITA No.4341/Del/2018 Assessment year: - O R D E R PER ASTHA CHANDRA: The appeal by the assessee arises out of the order dated 26.03.2018 of the Ld. Commissioner of Income Tax (Exemptions), Lucknow (“CIT(E)”) passed under section 12AA(3) of the Income Tax Act, 1961 (the “Act”). 2. The assessee has taken the following grounds of appeal:- “1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in cancelling the registration granted to the assessee u/s 12AA with effect from 26.03.2018 by Shri Pal Goel Educational Society, 1298, Circular Road, Muzzafarnagar, Uttar Pradesh. Vs. CIT (Exemption) Lucknow. (Appellant) (Respondent) Assessee by: Shri Rakesh Gupta, Advocate Shri Somil Agarwal, Advocate Shri Deepesh Garg, Advocate Department by : Shri H.K. Chaudhary, CIT(DR) Shri Sumit Kumar Verma, Sr. DR Date of Hearing 07.04.2022 06.01.2023 Date of pronouncement 06.04.2023 ITA No. 4341/Del/2018 2 invoking section 12AA(3) inter alia on the alleged ground that the activities of the appellant society cannot be said to be carried out in accordance with its objects and that too by recording incorrect facts and findings and in violation of principles of natural justice. 2. That having regard to the facts and circumstances of the case, Ld. CIT(E) has erred in law and on facts in observing as under while cancelling the registration u/s 12AA(3) of the Act. (a) That the appellant society is not running for any charity and it is also not being run as per its objectivities (b) That the society is making clear profit and laundering money vide which illicit funds have been channalised. (c) That the society had made malafide attempt to camouflage the tax liability vide false statement and inflated expenses. (d) That the funds of the society are being used for the benefit of the interest persons. 3. That in any view of the matter and in any case, action of Ld. CIT(E) in cancelling the registration u/s 12AA(3) is bad in law and against the facts and circumstances of the case and is contrary to the principles of natural justice as the impugned order has been passed without considering the submission of the assessee and that too by recording incorrect facts and findings.” 3. It is a case of survey conducted at the registered office of the Shri Pal Goel Educational Society (“the Society”) on 15.09.2017. On the basis of the survey reports a show cause notice for the cancellation of registration under section 12AA(3) of the Act was issued by the Ld. CIT(E) to the Society on 19.12.2017 as the survey reports indicated that the Society was not maintaining the regular books of account as well as complete registers apart from the anomalies found in the functioning of the Society. Moreover, the activities of the Society were in variance with the norms mandated by law by ITA No. 4341/Del/2018 3 manipulating funds with a prime motive of laundering of the said funds. The Society was also involved in carrying out activities that were not in accordance with the objects of the Society. Compliance to the show cause notice was sought on 04.01.2018. 4. Vide reply dated 03.01.2018 it was submitted that the Society is running an Educational Institute under the name of Indraprastha Institute of Management and Technology (IIMT) as per its objects. As to the maintenance of regular books of account, it was submitted that the regular books of account are maintained at its Head Office at 1298, Circular Road, Muzaffarnagar which are up-to-date and can be produced before any authority of the Department. It was also stated that the books of account for Assessment Year (“AY”) 2015-16 were duly produced before the Ld. Dy. CIT Exemption Circle, Ghaziabad (“DCIT(E)”) from time to time during the assessment proceedings. 4.1 Regarding the statement of Shri S.P. Singh, Director Administration, it was submitted that he was not entrusted with the work of accounts. That is why he replied that he did not know where the books of account for Financial Year (“FY”) 2010-11 to 2015-16 are kept. Only Secretary Shri Sankalp Kulshreshta could tell. As regards the statement of Mrs. Urvashi Goswami, Accountant it was submitted that she was working as cashier for fee receipts and expenditure. She had replied that she had cash book for the period from April till date and cash book of earlier years are with the Secretary Shri Sankalp Kulshreshta. The statement of both the persons establish that books of account were with Shri Sankalp Kulshreshta, the Secretary of the Society. In his statement on oath recorded under section 131 of the Act, Shri Sankalp Kulshreshta stated in reply to question No. 9 that books of account and ledgers are available at the Head Office and offered to produce them, if so directed. ITA No. 4341/Del/2018 4 4.2 As to the statement of Smt. Abha Kulshrestha, it was submitted that being a patient of depression and dementia etc. she lost her mental balance and could not reply properly to the survey team. 5. As regards the alleged expenses of Rs. 12,66,36,000/- for 1680 students of B. Tech it was submitted that the said figure is projected and proposed expenditure for maximum number of seats of B. Tech. As there is permission for total 420 seats in B. Tech four years course therefore multiplying by four the total number of seats comes to 1680 i.e. 420 x 4. The actual number of students in B. Tech in all four years is 288 students in FY 2015-16 and total receipts of the Society for FY 2015-16 is at Rs. 3,42,30,630/-. 5.1 It was further stated that the number of students actually admitted by the Institution (IIMT) is very well evident from the roll list of University. As such the alleged expenses has no relevance as the assessee is not in a position to make such a huge payment as the Institute is running in losses and is being run by taking secured and unsecured loans. During survey no vouchers and documents relating to the alleged expenditure was at all found. The assessee has maintained each and every vouchers for all the receipts and all the expenditure which are verifiable from the books of account. Thus, the projected figures for expenses of 1680 students has no relevance as the assessee was having 288 B. Tech students during FY 2015- 16. 6. As regards payment of alleged salary of Rs. 7,02,51,193/- the assessee submitted that it was only proposed and projected and were never actually paid to anybody which stands test checked by the Ld. DCIT(E) by calling five persons to whom alleged salary was paid. All of them categorically denied to have received any salary from the assessee. It was stated that the assessee actually paid salary to 40 persons for the month of January, 2015 at Rs. 4,86,889/- through bank transfer. ITA No. 4341/Del/2018 5 7. Regarding the alleged manipulating funds with prime motive of laundering the said funds, it was submitted that the Society has not given any fund/ loan to any other persons except a small amount of salary advance to the employees which is evident from the balance sheet for the FY 2014-15, 2015-16 and 2016-17. It was stated that due to financial crisis the assessee had to take secured and unsecured loan to run the college. It was also submitted that as against available seats of 1680 the number of students actually admitted for B. Tech course was 454, 288 and 190 only in session 2014-15, 2015-16 and 2016-17 respectively. In terms of percentage, the seat filled was 27.02%, 17.14% and 11.31% respectively. In Polytechnic course as against seats available for the session 2014-15, 2015-16 and 2016-17 the actual number of students admitted was 354, 320 and 355 respectively. Thus the total number of students in both the courses amounted to 808, 608 and 545 in session 2014-15, 2015-16 and 2016-17 respectively. The receipts from the small number of students were not even sufficient to meet day to day expenditure and run the institution properly. Hence, the question of laundering the funds did not arise. 8. It was emphasised that the assessee is maintaining regular books of account and is running an educational institution as per the objective of the Society. Attention was also drawn to the decision of the Tribunal in the case of Devlok Tirth Yatra Samiti vs. ITO (ITA No. 2425/Del/2013) in which the Tribunal relied on the coordinate bench decision in the case of Sharda Educational Trust vs. CIT (Central) 147 ITD 271 (Agra Trib.) dated 24.05.2013. The reliance was also placed on the decision of Hon’ble Madras High Court in CIT vs. Sarvodaya Ilakkiya Pannai (2012) 343 ITR 300 (Mad.) and CBDT Circular No.21/2016 dated 27.05.2016. 9. The aforesaid submissions of the assessee were not acceptable to the Ld. CIT(E) who cancelled the registration granted under section 12AA to the assessee w.e.f. 26.03.2018 observing in para 7 of his order as under :- ITA No. 4341/Del/2018 6 “In view of above facts the society is not running for any charity and it is also not being run as per objectives but it is making clear profit and laundering money vide which illicit funds have been channelized vide false statement and inflated expenses with a malafide attempt to camouflage the tax liability on the said funds. Reliance is also placed in the case of The Scientific Education vs. Union of India And Another decided on 10 February, 2009 CWP No. 2052 of 2009 of Hon'ble Punjab and Haryana High Court and M/s Joginpally BR Education Society, Hyderabad vs. Commissioner of Income tax (Central), Hyderabad, ITA No. 585/Hyd/2012 of Hon'ble ITAT, Hyderabad. The registration granted u/s 12AA can be cancelled u/s 12AA(3) of the Income Tax Act, if the activities of the Trust are not genuine or the activities are not being carried out in accordance with the object of the Trust/ Institution. In this case it is not and cannot be the objective of the assessee Trust to utilize the funds of the society for benefit of the interested persons. Thus the activities of the society cannot be said to be carried out in accordance with objects of the society. At the same time it can be inferred that no genuine activities are being carried out by the assessee. Accordingly, the registration granted to the Trust is liable to be cancelled in view of the above facts, provisions of the Act and judgments cited. In view of the above facts, the registration granted u/s 12AA to the assessee is cancelled w.e.f. 26.03.2018.” 10. Aggrieved, the assessee filed appeal before the Tribunal and all the grounds relate thereto. 11. The Ld. AR refuted the allegation contained in the survey report that the assessee was not maintaining the regular books of account by drawing our attention to the assessment order dated 30.12.2017 for AY 2015-16, assessment order dated 21.12.2018 for AY 2016-17, assessment order dated 09.08.2019 for AY 2017-18 which were all completed under section 143(3) of the Act after examining the books of account produced before the Assessing Officer (“AO”) by test check. It is submitted that on 26.03.2018, the date on which the Ld. CIT(E) passed the order, the AR of the assessee along with the ITA No. 4341/Del/2018 7 Accountant attended the proceedings before the Ld. CIT(E) at Lucknow and produced before him the books of account, attendance registers, bills and vouchers etc. Para-wise rejoinder on the report dated 19.02.2018 of the Ld. AO was also filed before the Ld. CIT(E) on 26.03.2018 which has not been considered by him. 12. Regarding the observation of the Ld. CIT(E) that the financial statements presented to Admission and Fee Control Board and that before the Income Tax Department were inconsistent with each other and excess expenses of Rs. 9,50,36,442/- were met out of undisclosed sources and further observation that as per the said Board’s order, taking a fee of Rs. 70,800/- from the student and therefore, qua 1680 students, total fee comes to Rs. 11,89,44,000/- whereas the assessee has shown receipt of Rs. 4,25,39,838/- in its income and expenditure account filed with the return, the Ld. AR submitted that figure submitted before the Fee Fixation Committee was on projected basis taking into consideration the entire sanctioned strength i.e. 1680 students whereas the actual number of students with the Society was only 288 which is verifiable from the records as also from the fact that University conducted examination only for those students who are enrolled in the University for the college. The figures were correctly shown in income and expenditure account and balance sheet filed with the return. The Ld. CIT(E) erred in assuming the projected figures as actual figures. 13. As to the observation of the Ld. CIT(E) the total salary shown to Admission and Fee Control Board was Rs. 8,39,45,000/- whereas salary as per audited accounts was Rs. 1,01,34,407/- and thus the difference of Rs. 7,02,51,193/- was made out of undisclosed source, the Ld. AR submitted that the salary expense of Rs. 8,39,45,000/- was submitted before the Board on hypothetical basis deeming the total number of students to be 1680 whereas the actual number of students were 288. The statement of five persons at random was recorded out of the list of salary for the month of ITA No. 4341/Del/2018 8 January, 2015 and all of them specifically denied receipt of such salary. 14. The Ld. AR pointed out that against the addition of Rs. 80,38,560/- made to the income of the assessee in AY 2015-16, the assessee filed appeal. However, to avoid any further litigation with the Department and to purchase peace of mind, the assessee opted for Vivad Se Vishwas Scheme. 15. The Ld. DR relied on the order of the Ld. CIT(E) and invited our attention to page 4 of the order where reference to Admission and Fee Control Board’s order and statement of the Chairman of the Society is made. The Chairman has stated before the said Board that a fee of Rs. 70,800/- is taken from the students and requested to increase it to Rs. 90,000/- and also filed audited account of recurring expenditure of Rs. 12,66,36,000/- on a total of 1680 students. 16. We have carefully gone through the order dated 26.03.2018 of the Ld. CIT(E), considered the submissions of both the parties and perused the material available in the records. It is obvious from the impugned order of the Ld. CIT(E) that survey was conducted on 15.09.2017 and in his survey report the Addl. CIT (Exemption) Ghaziabad recommended withdrawal of approval granted to the assessee Society under section 12AA of the Act. Show cause notice for cancellation of registration was issued by the Ld. CIT(E) to the Society on 19.12.2017 for compliance on 04.01.2018. The assessee filed written reply dated 03.01.2018 before the Ld. CIT(E) (copy at page 1-7 of Paper Book) but the Ld. CIT(E) has not taken cognizance of this written submission of the assessee in his order with the result the contentions of the assessee remain uncontroverted by the Ld. CIT(E). The hearing in the case was finally adjourned for 26.03.2018 and the assessee filed before the Ld. CIT(E) para-wise rejoinder on the report dated 19.02.2018 of the DCIT(E) Ghaziabad (AO) (copy at pages 164-169 of Paper Book) but there is no whisper in the impugned order of the Ld. CIT(E) that the same was considered. The impugned order by the Ld. CIT(E) was passed on 26.03.2018 itself which indicates that the Ld. CIT(E) was in a hurry to ITA No. 4341/Del/2018 9 close the case without considering the submissions of the assessee which is contrary to the principles of natural justice in violation of the clear mandate contained in proviso to sub-section (3) of section 12AA which reads as under:- “provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.” 17. Coming to the main provision of sub-section (3) of section 12AA, it provides that where a trust or an institution has been granted registration and subsequently, the Principal Commissioner or Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be he shall pass an order in writing cancelling the registration of such trust or institution. 18. On the facts and in the circumstances of the assessee’s case, it is for our consideration whether or not the activities of the assessee trust/ institution are genuine and/ or being carried out in accordance with its objects. The assessee is running an educational institute under the name of Indraprastha Institute of Management and Technology (IIMT). It is registered under section 12AA and has been enjoying exemption under the Act. For the AY 2015-16 the assessee had filed its return declaring income at Nil on 24.09.2015. After initial processing under section 143(1), the case was selected for scrutiny. The last notice under section 143(2) was issued to the assessee on 10.11.2017. In compliance the assessee submitted computation of income, income and expenditure account, balance sheet and other relevant documents. The assessment order passed under section 143(3) on 30.12.2017 (copy at pages 8-11 of Paper Book) takes notice of the survey operation conducted on the assessee under section 133(A) of the Act and observes that books of account of expenses, bills and vouchers and bank statements were also produced before the DCIT(E) (AO) which had been checked by him on test check basis. Similar observation is made in the ITA No. 4341/Del/2018 10 assessment order dated 21.12.2018 for AY 2016-17 (copy at pages 175-177 of Paper Book). It was explained in para wise rejoinder of the assessee on the survey report of the Ld. AO (copy at pages 164-169 of Paper Book) that books of account were kept at head office i.e. 1298 Circular Road Muzzafarnagar where the surveying team did not enter the office premises as they were confined to the outside courtyard of the building. This explanation was not considered at all and the proceedings for cancellation of registration continued unabated under the incorrect premise that complete books of account were not maintained as they were not found during the course of survey. The assessment order of AY 2015-16 and 2016-17 speak eloquently about the production of books of account and other documents suggesting thereby that the allegation of non-maintenance and complete books of account by the assessee is baseless and deserves to be rejected. 19. We find a strange and an anomalous situation. The Ld. CIT(E) cancelled the registration of the assessee Society w.e.f. 26.03.2018 by the impugned order under section 12AA but even after a year and half in assessment order passed on 09.08.2019 for AY 2017-18, the Ld. ACIT(E), the AO completed the assessment under section 143(3) after scrutiny with the clear observation that the assessee is engaged in educational activities and running educational institutes which is registered under section 12AA and enjoying exemption under the Act. Similar treatment has been accorded to the assessee Society in the scrutiny assessment order passed on 24.02.2021 for AY 2018-19 under section 143(3) of the Act after taking notice of the fact of survey conducted in the premises of the assessee on 15.09.2017. These scrutiny assessments for AY 2017-18 and AY 2018-19 nullify the efficacy of the impugned order dated 26.03.2017 passed by the Ld. CIT(E) under section 12AA(3) of the Act. 20. Even otherwise, the impugned order of the Ld. CIT(E) has been passed in utter disregard of the submissions made by the assessee Society from time to time before him as we do not find mention thereof anywhere in his order. The assessee’s submission before the Ld. CIT(E) as to his alleged ITA No. 4341/Del/2018 11 expenses of Rs. 12,66,36,000/- for 1680 students of B. Tech for FY 2015-16 was that the said expenses were the projected figure for 1680 students while the total students were only 288 which was duly corroborated by the Dr.APJ Abdul Kalam Pravidhik University, Uttar Pradesh vide their letter dated December 11, 2018 in response to DCIT (Exemption)’s letter dated December 6, 2018 (copy at pages 554-564 of Paper Book) alongwith which the University enclosed the list of students in session 2015-16 and 2016-17. Thus the allegation that the Institute had 1680 students is far from truth. 21. Likewise as regards alleged salary statement of January 2015 for Rs. 80,38,560/- the submission of the assessee before the Ld. CIT(E) was that this was the projected figure for teaching 2460 students. Veracity of the assessee’s submission was checked by the Ld. AO by calling for information under section 133(6) of the Act from persons whose name appeared in the said salary statement and all of them denied having received any such salary in the month of January 2015 from the assessee. The assessee submitted that the salary paid for the month of January 2015 was at Rs. 4,86,889/- which was verifiable from the record of attendance of teachers for the FY 2014-15 which was also produced before the Ld. CIT(E) for verification which he did not do. 22. It was asserted by the assessee before the Ld. CIT(E) that there is no ambiguity either in the maintenance of books of account or in the fulfilment of the aims and objectives as given in the bye-laws of the assessee Society. It was submitted before the Ld. CIT(E) by the assessee that it is running an educational institute genuinely and the educational activities were being carried out in accordance with the object of the assessee Society and as such the case of the assessee is not covered at all in the provisions of section 12AA(3) of the Act as both the conditions laid down therein are not attracted in the case of the assessee. ITA No. 4341/Del/2018 12 23. We are of the view that the assessee furnished reasonable explanation with regard to each and every allegation made in the survey report with evidence which could not be controverted by the Revenue. 24. On the facts and in the circumstances of the assessee’s case we are inclined to hold that none of the conditions under section 12AA(3) of the Act were violated by the assessee and the Ld. CIT(E) was not justified in cancelling the registration granted to the assessee under section 12AA earlier. Accordingly, we set aside the impugned order of the Ld. CIT(E). 25. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 6 th April, 2023 sd/ sd/- (G. S. PANNU) (ASTHA CHANDRA) PRESIDENT JUDICIAL MEMBER Dated: 6 th April, 2023 Veena Copy forwarded to - 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. ITA No. 4341/Del/2018 13 PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order