Centre for Rural Reconstruction Through Social Action, Rajahmundry V. THE CIT , Rajahmundry

ITA 589/VIZ/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6442 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 05-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Charitable institution; Cancellation of registration
• Section: 143(3); 12A; 12AA; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 589 /VIZAG/ 2013 ( / ASSESSMENT YEAR: 2009 - 10 ) CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY CIT RAJAHMUNDRY [PAN : AAAAC1803C ] ( / AP PELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI T.S.N. MURTHY, DR / DATE OF H EARING : 16.11.2017 / DATE OF PRONOUNCEMENT : 20 .12.2017 / O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INCOME TAX (CIT), RAJAHMUNDRY VIDE F.NO.III/12AA/CIT/RJY/2012 - 13 D ATED 1.7.2013 FOR THE ASSESSMENT YEAR 2009 - 10. 2 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY 2. THE ASSESSEE SOCIETY NAMELY CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL ACTION, RAJAHMUNDRY, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009 - 10 ON 30.9.2009 DECLARING THE TOTAL INCOME OF RS. 6,24, 14,468/ - AND CLAIMED THE ENTIRE INCOME AS EXEMPT U/S 11 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') , SINCE IT POSSESSED THE VALID REGISTRATION U/S 12A A OF THE ACT. T HE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE ACT, ACCEPTING THE IN COME RETURNED. LATER , ON THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 0 2.11.2011, DETERMINING THE TOTAL INCOME AT RS.2 0,05,605/ - DENYING EXEMPTION U/S 11 OF THE ACT. THE SOCIETY CARRIED ON VARIOUS CHARITABL E ACTIVITIES OVER A PERIOD OF TIME AND HAS BEEN GRANTED EXEMPTION U/S 11 TILL THE A.Y.2009 - 10. THE ASSESSING OFFICER(AO) DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT IN VIEW OF AMENDMENT MADE TO SECTION 2(15) BY INSERTION OF PROVISO TO THE EFFECT THAT , IF THE ACTIVITIES CARRIED ON INVOLVE ANY TRADE OR COMMERCE THEN THE ACTIVITY WHICH IS OTHERWISE CHARITABLE WILL LOSE THE CHARACTE R OF BEING CHARITABLE IN NATURE, AND ACCORDINGLY DENIED THE EXEMPTION U/S 11. 3. TAKING THE CUE FROM THE OBSERVATIONS OF THE AO, IN THE ASSESSMENT ORDER FOR THE A.Y.2009 - 10, THE LD. CIT INITIATED PROCEEDINGS FOR CANCELLATION 3 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY OF REGISTRATION U/S 12AA(3) OF THE INCOME TAX ACT, 1961. THE LD. CIT OBSERVED THAT A S PER THE MEMORANDUM OF THE SOCIETY DATED 14.3.1988, THE SOCIETYS AIMS AND OBJECTIVES ARE TO EDUCATE, ORGANIZE AND ACTIVISE THE YOUTH, PARTICULARLY RURAL YOUTH TO MAKE USE OF THEIR STRENGTH, KNOWLEDGE AND SKILL FOR THE ALL - ROUND DEVELOPMENT OF THE RURAL INDIA SPECIFICALLY IRRIGATION, LIVESTOCK, AND ALLIED ACTIVITI ES. INITIALL Y THE OBJECTS WERE 12 IN THE MEMORANDUM , S UBSEQUENTLY, THE SOCIETY ADDED FOUR MORE OBJECTS TO THE EXISTING 12 OBJECTIVES AS PER THE RESOLUTION OF SPECIAL GENERAL BODY MEETING. THE SOCIETY S OBJECTS WERE 16 UP TO 2005 AND T HEREAFTER, THE SOCIETY HAS AGAI N ADDED TWO MORE OB JECTS I.E. 17 & 18 TO THE EXISTING 16 OBJECTS I.E L ENDING AND BORROWING MONEY. (THE COMPLETE LIST OF OBJECTS ARE APPENDED IN THIS ORDER IN SUBSEQUENT PARAGRAPH. ) HOWEVER, THE ASSESSEE HAD CONCENTRATED ONLY ON THE LAST TWO OBJECTS I.E. BORROWING AND LENDING MONEY IN THE FORM OF MICRO FINANCE. ACCORDING TO THE LD. CIT , MICRO FINANCE INSTITUTIONS SOLELY EXISTING FOR PROVIDING INTEREST BEARING LOANS CANNOT BE TREATED AS CHARITABLE ACTIVITIES UNLESS SUCH INSTITUTIONS PROVE THAT THESE ACTIVITI ES ARE TOWARDS RELIEF OF POOR AT REASONABLE INTEREST. THE LD . CIT FURTHER OBSERVED THAT THE MICROFINANCE ACTIVITY HIT BY THE AMENDMENT TO SECTION 2(15)OF THE ACT. THE LD.CIT FURTHER OBSERVED THAT THE MICRO FINANCE ACTIVITY OF THE ASSESSE IS NOT INCIDENTAL T O THE MAIN ACTIVITIES OF THE ASSESSE E 4 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY BUT IT REMAINED THE MAIN ACTIVITY OF THE ASSESSE E AND VIEWED THAT THE ASSESSE E IS RUNNING PURELY BUSINESS ORGANIZATION UNDER THE GARB OF REGISTRATION U/S 12AA. 4. THE LD.CIT OBSERVED THAT THE ASSESSE IS LENDING THE AM OUNTS AT FLUCTUAT ING RATES OF INTERESTS TO VARIOUS PARTIES AND T HE ASSESSEE FAILED TO PROVE THAT IT IS ADVANCING LOANS TO THE POOR AND T HE NEEDY FOR THEIR URGENT NEEDS, HENCE NO CHARITY IN ADVANCING SUCH LOANS. EXCEPT PLACING RELIANCE ON THE DECISION OF H ONBLE TRIBUNAL IN THE CASE OF SPANDANA (RURAL AND URBAN DEVELOPMENT ORGANISATION) VS. ACIT (ITAT, VISAKHAPATNAM) IT FAILED TO SUBSTANTIATE ITS CLAIM TO THE EFFECT THAT IT FALLS UNDER THE AMBIT OF THE FACTUAL MATRIX OF CHARITY. 5. T HE LD.CIT VERIFIED THE RETURN OF INCOME AND THE FINANCIAL STATEMENTS, AUDIT REPORTS WHICH REVEAL ED THAT T HOUGH MANY OTHER OBJECTS ARE ON THE DEED, THE ASSESSEE IS TOTALLY CONFINED TO THE ACTIVITY OF MICROFINANCE AND NOT DOING ANY OTHER ACTIVITIES. THE ASSESSEES FINANCIAL P OSITION REFLECTS THAT IT OBTAINED LOANS OF RS. 24,05,78,466/ - AND PAID INTEREST OF RS. 2,83,68,753/ - . IT INCURRED EXPENDITURE ON AUDIT FEE, ADVERTISEMENT, BOOKS AND JOURNALS, 5 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY COMPUTER MAINTENANCE, CONSULTANCY EXPENSES, ELECTRICAL CHARGES, GENERAL EXPENSES, FUNERAL EXPENSES, GRADATIM SOFTWARE EXPENSES, MEMBERSHIP FEE, MICRO INSURANCE EXPENSES, RURAL DEVELOPMENT TRAINING CENTRE EXPENSES, OFFICE MAINTENANCE, OFFICE RENT, POSTAGE AND TELEGRAMS, PRINTING AND STATIONERY, REPAIRS AND MAINTENANCE, AMC PAID TO SOFTWA RE PROVIDER, STAFF RECRUITMENT EXPENSES, STAMP DUTY, TELEPHONE CHARGES, TRAVELLING EXPENSES, VEHICLE FUEL EXPENSES, VEHICLE INSURANCE, VEHICLE MAINTENANCE AND VISITORS EXPENSES THE TOTAL OF WHICH COMES TO RS. 1,20,82,457/ - . THE MAIN SOURCE OF INCOME IS IN TEREST INCOME FROM BANKS AND INTEREST FROM DEBTORS, ETC. A FAIR PERUSAL OF THE EXPENDITURE INCURRED INDICATES THAT THE ASSESSEE INCURRED NOTHING EVEN MINISCULE ELEMENT OF EXPENDITURE TOWARDS THE AVOWED OBJECTS. THE SOCIETY ALSO RETAINED ITS DISCRETION TO ADVANCE THE MONEY BY OBTAINING SECURITY OR WITHOUT SECURITY AND IT MAY ADVANCE THE AMOUNTS FOR ANY PURPOSE, WHICH IT DEEMS FIT. THERE IS EVERY POSSIBILITY OF MISUSE OF THE DISCRETIONARY CLAUSE FOR COMMERCIAL USAGE. I T WAS ALSO NOTICED BY THE CIT THAT THE ASSESSEE HAS ADJUSTED SOME FUNDS TO THE SECRETARY OF THE SOCIETY, VIZ. SRI V. PRABHU DAS DURING THE ASSESSMENT YEAR 2009 - 10 IN VIOLATION OF 13(1)(C) OF I.T.ACT . 6 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY 6. THE A SSESSEE EXPLAINED TO THE LD. CIT THAT THE ASSESSEE IS AN NGO WORKING WITH WOMEN S JLG FOR POVERTY ALLEVIATION AND SOCIAL SECURITY THROUGH MICRO CREDIT. IN THE FINANCIAL YEAR 2008 - 09, THE ORGANIZATION HAS DISBURSED RS. 45 CRORES TO THE POOR AND BELOW POVERTY LINE WOMEN GROUPS FOR HELPING THEM GAIN ECONOMIC STABILITY BY DOING SMALL AND PETTY ENTREPRENEURIAL ACTIVITIES. THE MAJOR ACTIVITIES OF THE CLIENT GROUP TO WHICH ORGANIZATION HAS LENT ARE PETTY HOTEL, ANIMALS, VENDING OF VEGETABLES AND OTHER SMALL ITEMS AND AGRI ALLIED ACTIVITIES. THE INCOME GENERATED FROM MICRO FINANCE ACTIVITY OF RS. 6.2 CRORES FOR THE FINANCIAL YEAR 2008 - 09 WAS STATED TO HAVE BEEN APPLIED FOR THE ADVANCEMENT OF THE OBJECTS. THE ASSESSEE SUBMITTED THAT IT HAD AD VANCED THE UNUTILIZED/IDLE FUNDS TO THE CHIEF FUNCTIONARY AT A REASONABLE RATE OF INTEREST AND HE PAID INTEREST OF RS. 1,22,872/ - AND THE SAME IS NOT IN VIOLATION OF PROVISIONS U/S13(1) (C) OF I.T.ACT. 7 . THE LD. CIT NOT BEING CONVINCED WITH THE SUBMISSIONS OF THE ASSESSE E VIEWED THAT T HE ACTIVITIES OF SOCIETY ARE PURELY COMMERCIAL IN NATURE AND THERE IS N O CHARITY INVOLVED IN THE ACTIVITIES OF THE SOCIETY. THE LD. CIT PLACED STRONG RELIANCE ON THE DECISION OF ITAT, BANGALORE B BENCH IN THE 7 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY CASE OF JANALAKSHMI SERVICES VS. DIRECTOR OF INCOME TAX (EXEMPTION), BANGALORE ORDER DATED 22.8.2008 REPORTED IN (200 9) 33 SOT 197 ( BANG.) TO INFER THAT MICRO FINANCING IF DONE ON COMMERCIAL LINES IS NOT A CHARITABLE ACTIVITY. 7.1. THE LD.CIT FURTHER HELD THAT THE ACTIVITIES OF THE SOCIETY ARE NOT GENUINE AS THE FUNDS WERE DIVERTED FOR THE BENEFIT OF AN INDIVIDUAL MEMBE R WHO IS IN CONTROL OF THE ACTIVITIES OF THE SOCIETY THERE BY VIOLATING THE MEMORANDUM OF ASSOCIATION OF THE SOCIETY AND HENCE CANCELLED THE REGISTRATION GRANTED U/S12AA OF ACT W.E.F.22/06/1990. AGGRIEVED BY THE ORDER OF THE LD.CIT THE ASSESSE IS IN APPE AL BEFORE US. 8 . APPEARING FOR THE ASSESSEE, THE LD. A.R. ARGUED THAT THE OBJECTS OF THE ASSESSE E SOCIETY ARE AS FOLLOWS: 1. T O EDUCATE, ORGANIZE AND ACTIVISE THE YOUTH PARTICULARLY RURAL YOUTH TO MAKE USE OF THEIR STRENGTH, KNOWLEDGE AND SKILLS FOR THE AL L ROUND DEVELOPMENT OF RURAL INDIA . 2. T O PROVIDE EDUCATIONAL , TECHNICAL AND VOCATIONAL TRAINING AND ENCOURAGE SELF - EMPLOYMENT. 3. TO PROMOTE AGRICULTURAL DEVELOPMENT THROUGH IRRIGATION, LAND RECLAMATION AND ADOPTION OF BETTER METHODS TO PROVIDE ADVISORY SERVICE S IN AGRICULTURE. 4. TO ENCOURAGE DAIRY ANIMAL HUSBANDRY, LIVESTOCK REARING, FISHERIES, ETC. 5. PROMOTING COTTAGE INDUSTRIES SUCH AS LEATHER, CRAFT, EMBROIDERY, DRESS MAKING, WEAVING, CARPENTRY ETC. 6. TO ENCOURAGE THE WOMEN ACTIVITIES FOR THEIR WELFARE AND AWA KENING. 8 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY 7. TO TAKE CARE OF THE NEEDS OF THE CHILDREN. 8. TO TAKE CARE OF THE HELPLESS, AGED AND DESTITUTE. 9. TO ENCOURAGE COMMUNITY HEALTH, NUTRITION TRAINING AND EDUCATION. 10. TO HELP IN EVERY WAY TO MEET THE PHYSICAL AND MENTAL NEEDS OF THE PEOPLE. 11. TO PROVID E RELIEF IN CASE OF NATURAL DISASTERS LIKE FLOODS , FIRE ACCIDENTS, DROUGHT, CYCLONE, TIDAL WAVE, EARTHQUAKE AND EPIDEMICS ETC. 12. TO ERADICATE ILLITERACY AND IGNORANCE BY GIVING BASIC LITERACY AND USEFUL EDUCATION. 13. TO HELP THE POOR PEOPLE IN GETTING ASSISTAN CE FROM BANKING INSTITUTIONS, GOVERNMENT AND NON GOVERNMENT AG ENCIES FOR POVERTY ERADICATION. 14. TO ERADICATE SOCIAL PROBLEMS LIKE POVERTY, UNEMPLOYMENT, DOWRY SYSTEM, BEGGARY, UNTOUCHABILITY, ALCOHOLISM, ETC. 15. TO ACQUIRE MOVABLE AND IMMOVABLE PROPERTIES AN D TO HOLD, MANAGE, PURCHASE, SELL, LEASE, RENT, MORTGAGE OR OTHER DEAL WITH THE PROPERTIES FOR THE BENEFIT OF THE SOCIETY. 16. TO UNDERTAKE SUCH ACTIVITIES FROM TIME TO TIME AS SHALL BE DEEMED NECESSARY FOR THE ATTAINMENT OF THE OBJECTIVES OF THE SOCIETY. 17. T O BORROW, RAISE OR TAKE UP MONEY, LEND OR ADVANCE MONEY WITH OR WITHOUT INTEREST EITHER UPON WITH OR WITHOUT SECURITY FROM ANY PERSON OR PERSON (WHETHER INDIVIDUALS, FIRMS COMPANIES, BODIES CORPORATE, GOVERNMENT, STATE, SOVEREIGN , PUBLIC BODY OR AUTHORITY, SUPREME, LOCAL OR OTHERWISE OR OTHER ENTITIES), WHETHER IN THE PRIVATE OR PUBLIC SECTOR, FOR ANY PURPOSE WHATSOEVER, INCLUDING AGRICULTURE, INDUSTRY, INFRASTRUCTURE, HOUSING, CONSUMER OR OTHERS. 18. TO LEND MONEY WITH OR WITHOUT INTEREST (WITH OR WITHOUT S ECURITY) FOR ANY MATURITY, IN ANY FORM WHATSOEVER INCLUDING BY WAY OF LOANS, ADVANCES, INSTALLMENT CREDIT, TRADE FINANCE, HIRE OR OTHERWISE TO ANY PERSON OR PERSONS(WHETHER INDIVIDUALS, FIRMS, COMPANIES, BODIES CORPORATE, GOVERNMENT, STATE, SOVEREIGN, PUB LIC BODY OR AUTHORITY, SUPREME, LOCAL OR OTHERWISE OR OTHER ENTITIES) WHETHER IN THE PRIVATE OR PUBLIC SECTOR, FOR ANY PURPOSE WHATSOEVER, INCLUDING AGRICULTURE, INDUSTRY, INFRASTRUCTURE, HOUSING, CONSUMER OR OTHERS 8 .1 . THE LD.AR ARGUED THAT THE ASSESSEE IS IN THE MICRO FINANCE ACTIVITY AND HELP ING THE POOR AND NEEDY WITH LESS THAN MARKET RATES OF INTEREST AND 9 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY IT IS COVERED BY SECTI O N 2(15) OF THE I.T.ACT WHICH DEFINES CHARITABLE PURPOSE TO INCLUDE THE FOLLOWING : (I) RELIEF O F THE POOR (II) EDUCAT I ON (III) MEDICAL RELI EF AND (IV) THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY 8.2. THE EXPRESSION RELIEF OF THE POOR HAS BEEN EXPLAINED BY THE BOARD IN ITS CIRCULAR NO.11 OF 2008 DATED 19.12.2008 STATING THEREIN AS UNDER : RELIEF OF THE POOR ENCOMPASSES A WID E RANGE OF OBJECT FOR THE WELFARE OF THE ECONOMICALLY AND SOCIALLY DISADVANTAGED OR NEEDY. IT WILL, THEREFORE, INCLUDE WITHIN ITS AMBIT PURPOSES SUCH AS RELIEF TO DESTITUTE, ORPHANS OR THE HANDICAPPED, DISADVANTAGED WOMEN OR CHILDREN, SMALL AND MARGINAL F ARMERS, INDIGENT ARTISANS OR SENIOR CITIZENS IN NEED OF AID. ENTITIES WHO HAVE THESE OBJECTS WILL CONTINUE TO BE ELIGIBLE FOR EXEMPTION EVEN IF THEY INCIDENTALLY CARRY ON A COMMERCIAL ACTIVITY, SUBJECT, HOWEVER TO THE CONDITIONS STIPULATED UNDER SECTION 1 1(4A) OR THE SEVENTH PROVISO TO SECTION 10(23C) WHICH ARE THAT (I) THE BUSINESS SHOULD BE INCIDENTAL TO THE ATTAINMENT OF THE OBJECTIVES OF THE ENTITY AND SEPARATE BOOKS OF ACCOUNT SHOULD BE MAINTAINED IN RESPECT OF SUCH BUSINESS. 9. SINCE THE ASSESSEE IS IN THE MICRO FINANCE ACTIVITY, THE ACTIVITY ITSELF IS A CHARITABLE ACTIVITY AS HELD BY ITAT, VISAKHAPATNAM IN THE CASE OF SPANDANA 10 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY (RURAL AND URB AN DEVELOPMENT ORGANIZATION) VS. ACIT (ITAT - VSP) (40 DTR 153). THE SAME VIEW IS UPHELD BY HONBLE JURISDICTIONAL HIGH COURT IN ITT A NO.30 4 /2013 DATED 1 0 .07.2013. THEREFORE, THE LD.AR ARGUED THAT THE ISSUE WITH REGARD TO THE MICRO FINANCE ACTIVITY IS CHARI TABLE ACTIVITY OR NOT IS PUT AT REST BY HONBLE HIGH COURT IN THE JUDGEMENTS CITED SUPRA. SECTION 2(15) ALSO SUPPORTS THE SAME VIEW. LD.AR SU BMITTED THAT FOR ATTAINING OBJECTS , MICRO FINANCE ACTIVITY IS A SOURCE OF INCOME TO CARRY OUT THE OBJECTS OF THE SO CIETY. 9. 1 WIT H REGARD TO THE SECOND OBJECTION OF THE LD. CIT THE A.R SUBMITTED THAT THOUGH THE ASSESSEE IS NOT REGISTERED U/S 25 OF COMPANYS ACT AND NOT AN INSTITUTION AS ENVISAGED IN SECTIO N 11, 12 AND 13 OF THE I.T.ACT, THERE IS NO SUCH REQUIREMENT UNDER THE PROVISIONS OF I.T.ACT AND T HE SOCIETY IS ALSO ELIGIBLE FOR REGISTRATION U/S 12AA OF I.T.ACT. IN FACT THE ASSESSE SOCIETY WAS GRANTED THE REGISTRATION EARLIER AND THE LD.CIT HAS CANCELLED THE REGISTRATION ALREADY GRANTED . 9. 2 THE THIRD OBJEC TI ON OF THE LD. CIT IS WITH REGARD TO FINAN CING OF RURAL POOR IS CONCERNED, THE LD.AR PLACED PAPER BOOK CONTAINING APPLICATIONS OF 242 APPLICANTS TO WHOM THE LOANS WERE GRANTED. THE LD.AR SUBMITTED THAT DURING THE APPEAL PROCEEDINGS FOR THE ASSESSMENT YEAR 2009 - 10, THE 11 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY ASSESSEE SUBMITTED THE APPLICATIONS FOR WHICH THE AO HAS SUBMITTED THE REMAND REPORT TO CIT(A) AND GIVEN A FINDING WHICH WAS VERIFIED RANDOMLY BY THE AO. 9. 3 T HE FOURTH OBJECTION OF THE LD. CIT WAS , WITH REGARD TO VIOLATION OF SECTION 13 (1)(C) IS CONCERNED, THE LD.AR ARGUED THAT THE ASSESSEE HAS ADVANCED MEAGER AMOUNT WHICH WAS UNUTILIZED/IDLE COMPARED TO THE TOTAL V OLUME OF THE FUNDS HANDLED DURING THE YEAR. THE ASSESSEE HAS CHARGED INTEREST ON ADVANCES AND THE AMOUNT IS SECURED BY PER SONAL GUARANTEE OF V. PRABHU DAS AND THER E WAS NO VIOLATION OF THE PROVISION OF SECTION 13(1)(C) OF I.T.ACT WHICH WARRANTS CANCELLATION OF REGISTRATION . THE ASSESSEE PLACED RELIANCE ON AG G ARWAL MITRA MANDAL VS. DIT [106 ITD 531] (DEL) AND ARGUED THAT EVEN IF IT IS CONSIDERED AS A VIOLATION EXEMPTION U/S 11 SHOULD BE RESTRICTED TO THE EXTENT OF VIOLATION BUT NOT ON THE TOTAL INCOME. 9. 4 WITH REGARD TO THE FIFTH OBJECTION OF ADDITIONAL OBJECTS, LD.AR ARGUED THAT IT WAS ONLY A PASSING REMARK OF THE CIT A ND THE CIT HAS NOT STRESSED UPON AMENDMENTS. THE AMENDMENT RELATED TO 17 AND 18 IS OBJECTS OF THE SOCIETY WITH REGARD TO THE MICRO FINANCE ACTIVITY WHICH ARE MEANT FOR GENERAL PUBLIC UTILITY AND THE SOURCE OF INCOME TO ACHIEVE THE OBJECTS . MERELY BECAUSE THE AMENDMENT WAS MADE WITHOUT PRIOR APPROVAL, 12 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY REGISTRATION ALREADY GRANTED CANNOT BE CANCELLED AN D THE LD.AR PLACED RELIANCE ON KRUPA NIDHI EDUCATIONAL TRUST VS D IRECTOR OF I NCOME T AX [2012] 27 TAXMANN.COM 11 (BANG. ) ITAT, BANGALORE. ON THE OTHER HAND, T HE LD.DR RELIED ON THE ORDERS OF THE LD. CIT . 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE IS ENGAGED IN THE FOLLOWING ACTIVITIES WHICH ARE CLAIMED TO BE FOR CHARITABLE PURPOSES. 1. TO EDUCATE, ORGANIZE AND ACTIVISE THE YOUTH PARTICULARLY RURAL YOUTH TO MAKE USE OF THEIR STRENGTH, KNOWLEDGE AND SKILLS FOR THE ALL - ROUND DEVELOPMENT OF RURAL INDIA. 2. TO PROVIDE EDUCATIONAL, TECHNICAL AND VOCATIONAL TRAINING AND ENCOURAGE SELF - EMPLOYMENT. 3. TO PROMOTE AGRICULTURAL DEVELOPMENT THROUGH IRRIGATION, LAND RECLAMATION AND ADOPTION OF BETTER METHODS TO PROVIDE ADVISORY SERVICES IN AGRICULTURE. 4. TO ENCOURAGE DAIRY ANIMAL HUSBANDRY, LIVESTOCK REARING, FISHERIES, ETC. 5. PROMOTING COTTAGE INDUSTRIES SUCH AS LEATHER, CRAFT, EMB ROIDERY, DRESS MAKING, WEAVING, CARPENTRY ETC. 6. TO ENCOURAGE THE WOMEN ACTIVITIES FOR THEIR WELFARE AND AWAKENING. 7. TO TAKE CARE OF THE NEEDS OF THE CHILDREN. 8. TO TAKE CARE OF THE HELPLESS, AGED AND DESTITUTE. 9. TO ENCOURAGE COMMUNITY HEALTH, NUTRITION TRA INING AND EDUCATION. 10. TO HELP IN EVERY WAY TO MEET THE PHYSICAL AND MENTAL NEEDS OF THE PEOPLE. 11. TO PROVIDE RELIEF IN CASE OF NATURAL DISASTERS LIKE FLOODS, FIRE ACCIDENTS, DROUGHT, CYCLONE, TIDEL WAVE, EARTHQUAKE AND EPIDEMICS ETC. 13 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY 12. TO ERADICATE ILLITERAC Y AND IGNORANCE BY GIVING BASIC LITERACY AND USEFUL EDUCATION. 13. TO HELP THE POOR PEOPLE IN GETTING ASSISTANCE FROM BANKING INSTITUTIONS, GOVERNMENT AND NON GOVERNMENT AGENCIES FOR POVERTY ERADICATION. 14. TO ERADICATE SOCIAL PROBLEMS LIKE POVERTY, UNEMPLOYME NT, DOWRY SYSTEM, BEGGARY, UNTOUCHABILITY, ALCOHOLISM, ETC. 15. TO ACQUIRE MOVABLE AND IMMOVABLE PROPERTIES AND TO HOLD, MANAGE, PURCHASE, SELL, LEASE, RENT, MORTGAGE OR OTHER DEAL WITH THE PROPERTIES FOR THE BENEFIT OF THE SOCIETY. 16. TO UNDERTAKE SUCH ACTIVI TIES FROM TIME TO TIME AS SHALL BE DEEMED NECESSARY FOR THE ATTAINMENT OF THE OBJECTIVES OF THE SOCIETY. 17. TO BORROW, RAISE OR TAKE UP MONEY, LEND OR ADVANCE MONEY WITH OR WITHOUT INTEREST EITHER UPON WITH OR WITHOUT SECURITY FROM ANY PERSON OR PERSON (WHET HER INDIVIDUALS, FIRMS COMPANIES, BODIES CORPORATE, GOVERNMENT, STATE, SOVERIEGN, PUBLIC BODY OR AUTHORITY, SUPREME, LOCAL OR OTHERWISE OR OTHER ENTITIES), WHETHER IN THE PRIVATE OR PUBLIC SECTOR, FOR ANY PURPOSE WHATSOEVER, INCLUDING AGRICULTURE, INDUSTR Y, INFRASTRUCTURE, HOUSING, CONSUMER OR OTHERS. 18. TO LEND MONEY WITH OR WITHOUT INTEREST (WITH OR WITHOUT SECURITY)FOR ANY MATURITY, IN ANY FORM WHATSOEVER INCLUDING BY WAY OF LOANS, ADVANCES, INSTALMENT CREDIT, TRADE FINANCE, HIRE OR OTHERWISE TO ANY PE RSON OR PERSONS(WHETHER INDIVIDUALS, FIRMS, COMPANIES, BODIES CORPORATE, GOVERNMENT, STATE, SOVEREIGN, PUBLIC BODY OR AUTHORITY, SUPREME, LOCAL OR OTHERWISE OR OTHER ENTITIES) WHETHER IN THE PRIVATE OR PUBLIC SECTOR, FOR ANY PURPOSE WHATSOEVER, INCLUDING A GRICULTURE, INDUSTRY, INFRASTRUCTURE, HOUSING, CONSUMER OR OTHERS 10.1. THOUGH CLAUSE(17) AND (18) ARE ADDITIONAL OBJECTIVES, AND STATED TO BE NO APPROVAL HAS BEEN TAKEN BY THE ASSESS E E , THE LD. CIT HAS MADE ONLY PASSING R EMA RK AS SUBMITTED BY THE LD.AR BU T NOT STRESSED THE REQUIREMENT OF APPROVAL. THE CIT HAS NOT CANCELLED THE REGISTRATION FOR NOT TAKING THE APPROVAL. A S STATED BY THE LD.AR M ERELY BECAUSE THE AMENDMENT WAS MADE WITHOUT PRIOR APPROVAL, REGISTRATION ALREADY GRANTED CANNOT BE CANCELLED AS REL IED UPON BY THE ASSESSE IN THE CASE OF KRUPA NIDHI 14 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY EDUCATIONAL TRUST VS D IRECTOR OF I NCOME T AX , [2012] 27 TAXMANN.COM 11 (BANG. ) ITAT, BANGALORE. THE OBJECTS OF THE 17 AND 18 ARE WITH REGARD TO MICRO FINANCE ACTIVITY OF THE BORROWING AND LENDING THE MONIE S TO RURAL POOR WHICH IS CHARITABLE IN NATURE AS PER THE DECIDED CASE LAWS . THE MICRO FINANCE ACTIVITY IS HELD TO BE CHARITABLE IN NATURE AS DECIDED BY THIS TRIBUNAL IN THE CASE OF SPANDANA (RURAL AND URBAN DEVELOPMENT ORGANIZATION) VS. ACIT, [ 40 DTR 0 15 3 ] AND HONBLE HIGH COURT UPHELD THE ORDER OF TRIBUNAL. THE ASSESSEE ALSO ESTABLISHED THAT IT IS ADVANCING LOANS TO THE POOR AND NEEDY WHICH IS DISCUSSED IN THE SUBSEQUENT PARAGRAPHS. RESPECTFULLY , FOLLOWING THE ORDER OF THE HONBLE HIGH COURT, WE HOLD THA T MICRO FINANCE ACTIVITY OF BORROWING AND LENDING TO THE POOR PEOPLE IS CHARITABLE ACTIVITY. 11. THE NEXT OBJECTION OF THE CIT IS THAT THE ASSESSEE IS NOT LENDING THE MONIES TO THE POOR AND NEEDY AND THERE IS NO EVIDENCE WITH REGARD TO THE ADVANCEMENT OF THE LOANS TO THE POOR AND NEEDY FOR THEIR URGENT NEEDS . THE LD.AR PLACED THE PAPER BOOK WITH THE LOAN APPLICATIONS AND ALSO THE HOUSE HOLD CARDS. THESE EVIDENCES WERE ALSO PLACED BEFORE THE AO FOR REMAND REPORT FOR THE ASSESSMENT YEAR 2009 - 10. ON GO ING THROUGH THE APPLICATIONS, WE OBSERVE THAT THE APPLICANTS ARE RURAL POOR WITH THE MEAGR E 15 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY INCOME OF RS.10,000 TO RS.20,000/ - PER ANNUM. THE APPLICATIONS PLACED BEFORE US ESTABLISH THAT THE ADVANCES WERE MADE TO THE RURAL POOR. THE DR COULD NOT CONTROVE RT THE ABOVE FACT S . THEREFORE, ON THIS GROUND, THE OBSERVATION OF THE CIT, THAT THE ASSESSEE FAILED TO PROVE THE ADVANCES AND LOANS TO THE POOR IS WITHOUT ANY FOUNDATION, HENCE UNSUSTAINABLE . 12. THE NEXT OBJECT ION OF THE CIT IS VIOLATION OF SECTION 13(1)(C). IN THIS CASE, THE ASSESSEE HAS GIVEN A SUM OF RS.25,67,128/ - TO SRI V. PRABHU DAS, THE FOUNDER OF THE SOCIETY AND THE ASSESSEE EXPLAINED THAT THE SURPLUS FUNDS WERE GIVEN AS ADVANCE WITH INTEREST AND THE ENTIRE SUM WAS COLLECTED BY THE SOCIETY. THOUGH THE LD.AR ARGUED THAT THERE WAS NO VIOLATION U/S 13(1)(C), WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LD.AR AND FOLLOWING THE DECISION OF HONBLE ITAT, DELHI IN THE CASE OF AGGARWAL MITRA MANDAL TRUST VS. DIT AND THE DECISION OF ITAT DELHI BENCH 'G' IN INCOME - TAX OFFICER, WARD - 2, RISHIKESH V. SWAMI OMKARNANDA SARASWATI CHARITABLE TRUST, [2017] 86 TAXMANN.COM 37 (DELHI - TRIB.), DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF VIOLATION BUT NOT ON TOTAL INCOME. 16 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY 13. THE LAST GROUND WAS THAT THE ASSESSEE IS NOT REGISTERED U/S 25 OF THE COMPANYS ACT AS ENVISAGED U/S 11 TO 13. WE HAVE CONSIDERED THE ORDER OF THE LD.CIT AND GONE THROUGH THE SECTION 11 TO 13 AND WE FIND THAT THERE IS NO REQUIREMENT FOR SECTION 11 TO 13 THAT THE IN STITUTION SHOULD NECESSARILY REGISTERED WITH REGISTRAR OF COMPANYS ACT. THE SOCIETY IS REGISTERED UNDER SOCIETIES ACT , ALSO ELIGIBLE FOR GRANT OF REGISTRATION U/S 12AA OF I.T.ACT. THE ASSESSE SOCIETY WAS ALREADY GRANTED REGISTRATION AND THE SAME WAS CANC ELLED BY THE LD.CIT. THE LD. DR DURING THE APPEAL HEARING DID NOT PLACE ANY CASE LAW SUPPORTING THE CONTENTION OF THE CIT. 14. THE CIT HAS NOT PROVED THAT THERE IS NO CHARITABLE ACTIVITY AND THE SOCIETY IS NOT GENUINE AND IS RUNNING ON COMMERCIAL ACTIVIT Y WITH TANGIBLE EVIDENCE. AS PER THE DISCUSSION IN THE PRECEDING PARAGRAPHS THE SOCIETY IS CARRYING ON CHARITABLE ACTIVITIES AS PER THE OBJECTS. 1 5 . THEREFORE WE HOLD THAT THE CANCELLATION OF REGISTRATION U/S 12AA OF THE ACT IS UNSUSTAINABLE AND WE SE T ASIDE THE ORDER OF THE LD. CIT AND ALLOW THE 17 I TA NO.589/VIZAG/2013 CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL (ACTION), RAJAHMUNDRY REGISTRATION ALREADY GRANTED TO BE CONTINUED. HOWEVER, WE DIRECT THE AO TO RESTRICT THE EXEMPTION U/S 11 WITH REGARD TO THE VIOLATION OF SECTION 13(1)(C) TO THE EXTENT OF THE VIOLATION. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. T HE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 20 TH DEC 17 . SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM: /DATED : 20 .12.2017 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO : - 1. / THE APPELLANT CENTRE FOR RURAL RECONSTRUCTION THROUGH SOCIAL ACTION, 73 - 12 - 4A, PREM TOWERS, NARAYANAPURAM, RAJAHMUNDRY 2 . / THE RESPONDENT THE CIT, RAJAHMUNDRY 3 . ( ) / THE CI T (A) , RAJAHMUNDRY 4 . , , / DR, ITAT, VISAKHAPATNAM 5 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM