Society for Development Alternatives, New Delhi V. DIT (E), New Delhi

ITA 973/DEL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2724 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 25-06-2013
• Assessment Year: misc
• Appeal Filed On: 21-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 143(3); 12A; 12AA; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G NEW DELHI BEFORE SHRI S.V.MEHROTRA, ACCOUNTANT MEMBER AND SMT. DIVA SINGH, JUDICIAL MEMBER I.T.A .NO.-973/DEL/2011 SOCIETY FOR DEVELOPMENT ALTERNATIVES, VS DIT(E), B-32, TARA CRESCENT, AYAKAR BHAWAN, QUTUB INSTITUTIONAL AREA, LAXMI NAGAR DISTT. CE NTRE, NEW MEHRAULI ROAD, DELHI-110092. NEW DELHI-110016. PAN-AAAAS0278B (APPELLANT) (RESPONDENT) APPELLANT BY: SH. VINOD KUMAR BINDAL, CA. RESPONDENT BY: SMT. RENUKA JAIN GUPTA, SR. DR. ORDER PER DIVA SINGH, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 21.01.2011 OF DIT(EXEMPTIONS), DELHI ON THE FOLLOWING GROUNDS :- 1. THE DIT(EXEMPTION) ERRED IN LAW AND ON FACTS IN REJECTING THE REGISTRATION U/S12A OF THE INCOME TAX ACT WITHOUT A PPRECIATING THE OBJECTS OF THE SOCIETY AND ACTIVITIES UNDERTAKEN BY IT AND IGNORING THE FACTS AND EVIDENCES PLACED ON RECORD. THUS THE ORD ER REJECTING THE REGISTRATION SHOULD BE REVERSED AND REGISTRATION U/ S 12A GRANTED TO THE ASSESSEE SHOULD BE REVIVED. 2. THE APPELLANT CRAVES THE LEAVE TO ADD, SUBSTITUT E, MODIFY, DELETE OR AMEND ALL OR ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING. 2. A PERUSAL OF THE IMPUGNED ORDER SHOWS THAT THE DIT (E) ON EXAMINATION OF THE APPLICATION OF THE ASSESSEE HELD THAT THE SOCIE TY WAS NOT GENUINE AND NOT CARRYING ON CHARITABLE ACTIVITIES. AS A RESULT REG ISTRATION U/S 12A WAS CANCELLED. WHILE COMING TO THE SAID CONCLUSION, IT IS SEEN THA T DIT(E) OBSERVED THAT THE ASSESSEE WAS GRANTED REGISTRATION U/S 12A VIDE ORDE R NO.-S-3144/02/626 DATED 29.09.2010 OF DIT(E), IT HAD BEEN GRANTED ON THE GR OUNDS THAT AS PER THE I.T.A .NO.-973/DEL/2011 2 MEMORANDUM OF THE ASSOCIATION, THE MAIN OBJECTS OF THE SOCIETY ARE TO CONSERVE NATURAL RESOURCES, CARRY OUT RESEARCH WORK FOR SCIE NTIFIC, INDUSTRIAL MANAGEMENT AND DEVELOPMENT, IDENTIFY SELECT, ADOPT AND IMPROVE , DEVELOP AND DESIGN APPROPRIATE TECHNOLOGIES, PRODUCTS AND PROCEDURES F OR AGRICULTURE, INDUSTRY, HANDICRAFTS, UNDERTAKE MULTIDISCIPLINARY INVESTIGAT IONS, PROVIDE NECESSARY BACK UP SERVICES TO THE RESEARCH FACILITIES. HOWEVER ON CO NSIDERING THE APPLICATION OF THE ASSESSEE FOR ITS RENEWAL, IT WAS FOUND THAT THE ACT IVITIES WERE CONTRARY TO THE MEMORANDUM OF ASSOCIATION. REFERRING TO THE SCRUTI NY ASSESSMENT MADE U/S 143(3) ON 30.12.2008 FOR THE 2006-07 ASSESSMENT YEA R, IT WAS OBSERVED THAT THE ASSESSMENT WAS CONCLUDED AT ` 17,83,51,220/- AS AGAINST NIL INCOME SHOWN BY THE ASSESSEE. THE REASONS FOR THE SAME WERE THE UNSPEN T AMOUNT IN THE BALANCE-SHEET OF ` 16,92,50,496/- WHICH ACCORDING TO THE ASSESSEE REP RESENTED THE AMOUNTS PERTAINING TO INCOMPLETE PROJECTS WHICH THE ASSESS EE HAD RECEIVED FROM VARIOUS FUNDING AGENCIES FOR CARRYING OUT CERTAIN PROJECTS WHICH WAS HELD AS INCOME OF THE ASSESSEE. 2.1. APART FROM THAT IT WAS ALSO OBSERVED IN THE ASSESSM ENT PROCEEDINGS THAT THE ASSESSEE HAD PLEDGED ITS CORPUS FUNDS AMOUNTING TO ` 12,00,000/- TO THE BANK AS SECURITY TO FACILITATE LOAN TO BORROWERS SOCIETY NA MELY M/S TARA NIRMAN KENDRA AND M/S SOCIETY FOR TECHNOLOGY AND ACTION FOR RURA L ADVANCEMENT. 2.2. WHEN REQUIRE TO EXPLAIN AS TO WHY THE SECURITY HAD BEEN OFFERED WITHOUT ADEQUATE SAFEGUARDS AND AUTHORIZATION, IT WAS SUBMI TTED THAT THE BORROWERS SOCIETIES WERE IN A FINANCIAL CRUNCH AND HAVING CLO SE ASSOCIATION AND ALSO HAVING SIMILARITY OF THE OBJECTS WITH THAT OF THE ASSESSEE ACCORDINGLY THE SOCIETYS FUNDS WERE PLEDGED. 2.3. THE AO OBSERVED THAT SH. ASHOK KHOSLA WAS THE CHAI RMAN OF THE 3 SOCIETIES AND THE TRANSACTION WAS IN CONTRAVENTION TO SECTION 13(1)(C) AND PROVISIONS OF SECTION 13(2) AS SUCH THE TRUSTEE MISUSED THE FUNDS OF CORPUS AND DIVERTED THE I.T.A .NO.-973/DEL/2011 3 INCOME OF THE TRUST IN FAVOUR OF THE INTERESTED PER SONS ACCORDINGLY IT WAS HELD THAT IT WAS IN VIOLATION OF PROVISIONS ATTRACTED THEREBY EXEMPTION U/S 11 WAS DENIED. 3. IN VIEW OF THESE FACTS, A SHOW-CAUSE NOTICE U/S 12 AA(3) DATED 16.06.2010 WAS ISSUED TO THE SOCIETY TO SHOW CAUSE WHY REGISTR ATION GRANTED U/S 12A MAY NOT BE CANCELLED/WITHDRAWN. IN RESPONSE THERETO, THE ASSESSEE AS PER PARA 4 OF THE IMPUGNED ORDER FILED DETAILED REPLIES STATING THAT THE ACTIVITIES OF THE FUNDING AGENCIES ARE CHARITABLE AND WERE WITH NO PROFIT MOT IVES HOWEVER THE REPLY WAS NOT ACCEPTED. THE DIT(EXEMPTION) WAS OF THE VIEW THAT TARA (TECHNOLOGY AND ACTION FOR RURAL ADVANCEMENT) PAGE 4 PARA 6 ARE NOT A CHARITABLE ORGANIZATION AND ARE DOING COMMERCIAL ACTIVITIES AND EARNING INCOME. CONSIDERING THE FACT THAT THE CHAIRMAN OF THE SOCIETY HAD SUBSTANTIAL INTEREST IN THESE TWO COMMERCIAL ENTITIES, IT WAS HOLD THAT BY EXTENDING THE BENEFIT OF PLACING F IXED DEPOSITS OF THE SOCIETY FOR SECURING LOANS TO CARRY ON COMMERCIAL ACTIVITIES BY THE SAID SOCIETY WAS HELD IN VIOLATION OF SECTION 13(2). 3.1. THE DIT(E) FURTHER ADDRESSING THE ACTIONS OF THE A SSESSEE IN PROVIDING PROTOTYPE OF ITS VARIOUS ACTIVITIES TO THE TWO CO MMERCIAL ENTITIES FOR EXPLOITING IT COMMERCIALLY BY THEM AND THE SOCIETY DERIVING NO FI NANCIAL AND ORGANIZATIONAL BENEFIT BY PARTING WITH ITS RESEARCH PRODUCTS WHIC H RESULTED AFTER LABORIOUS RESEARCH ACTIVITIES ON THE PART OF THE ASSESSEE FAC ILITATED BY THE FUNDS RECEIVED FROM THE GOVERNMENT AND NON-GOVERNMENT ORGANIZATIONS TO CARRY ON VARIOUS RESEARCH WORK WHERE THE END RESULT IS UTILIZED COMMERCIALLY BY THE SISTER SOCIETYS HAVING COMMON CHAIRMAN WHERE THE ASSESSEES SOCIETY IS NOT CHARGING ANY AMOUNT FOR PASSING ON PROTOTYPE EVOLVED BY THEM IN RESPECT OF VARIOUS SCIENTIFIC, SOCIAL, ENVIRONMENTAL SUBJECT WAS HELD TO BE NOT A CHARITAB LE ACTIVITY ESPECIALLY SINCE THE BENEFITS OF THE RESEARCH OF THE ASSESSEE IS COMMERC IALLY EXPLOITED BY THE SISTER SOCIETIES. IT WAS ALSO FOUND THAT THE ASSESSEES S OCIETY WAS NOT HAVING SEPARATE BOOKS OF ACCOUNTS FOR EACH PROJECT DESPITE THE FACT THAT EACH PROJECT HAD BEEN AWARDED BY DIFFERENT AGENCIES WITH SPECIFIC TERMS A ND CONDITIONS AS SUCH THE I.T.A .NO.-973/DEL/2011 4 SOCIETY HAD VIOLATED THE PROVISIONS OF SUB-SECTION (4A) OF SECTION 11 OF THE INCOME TAX ACT. THE ASSESSEE SOCIETY IN THE CIRCUMSTANCES WAS HELD TO HAVE FAILED TO DISCHARGE THE ONUS THAT IT WAS CARRYING ON CHARITAB LE ACTIVITIES. THE DIT(E) OBSERVED THAT NOT A SINGLE ACTIVITY HAD BEEN DONE B Y THE ASSESSEE OUT OF ITS OWN FUNDS AND ALL ACTIVITIES WERE CARRIED OUT ON BEHALF OF THE FUNDING AGENCY, SOME OF WHOM WERE VARIOUS GOVERNMENT BODIES. AS A RESULT O F THE ACTIONS OF THE ASSESSEE, IT WAS CONCLUDED DIRECT BENEFIT HAS BEEN CONFERRED ON THESE TWO ENTITIES WITH WHOM THE ASSESSEE SOCIETY HAD A COMMON CHAIRMAN AND IN R ETURN, NO BENEFIT ACCRUED TO THE SOCIETY BEING A PUBLIC BODY ENJOYING TAX BENEFI T. THE RESULTS OF ITS RESEARCH WORK, IT WAS OBSERVED WERE PASSED ON TO THE TWO ENT ITIES WITHOUT SECURING ANY MONETARY GAIN. IN REGARD TO THE FUNDS RECEIVED FOR SPECIFIC PROJECTS, ASSESSEE WAS NECESSARILY REQUIRED TO MAINTAIN SEPARATE ACCOUNTS AND THE RESULTS WERE MADE AVAILABLE TO THE OTHER TWO SOCIETIES WITHOUT JUSTIF YING CHARITABLE NATURE OF ITS ACTIVITIES AND WHY THE RESULTS WERE ALLOWED TO BE C OMMERCIALLY UTILIZED BY OTHERS WITHOUT CHARGING ANYTHING AND THAT TOO FACILITATED FROM THE FUNDS RECEIVED FROM NGO AND GOVERNMENT BODIES ETC. ACCORDINGLY CONSID ERING THESE FACTS, THE EXEMPTION WAS CANCELLED OBSERVING AS UNDER:- 13. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES ME NTIONED ABOVE, IT IS CLEAR THAT THE ACTIVITIES OF THE SOCIETY DO N OT PERMIT FOR CONTINUATION OF REGISTRATION GRANTED U/S 12AA OF TH E IT ACT. THEREFORE, REGISTRATION GRANTED U/S 12AA IS WITHDRA WN SINCE ISSUANCE, AS THE VIOLATION OF SECTION 13(1)(C) R/W SECTION 13 (3) IS IN EXISTENCE FROM THE BEGINNING. NO BENEFIT EITHER DIRECTLY OR INDIRECTLY CAN BE CONFERRED ON TO A PERSON REFERRED TO IN SECTION 13( 3) OF IT ACT BY CHARITABLE ENTITIES ENJOYING BENEFIT U/S 12AA OF IT ACT. IN THE INSTANT CASE, AS DETAILED IN THE EARLIER PARAGRAPHS, DIRECT BENEFIT HAS BEEN PROVIDED TO THESE COMMERCIAL ORGANIZATIONS FOR THEI R PROFITS. THERE IS DIRECT VIOLATION OF SECTION 13 BY CONFERRING THESE BENEFITS ON REGULAR BASIS. ALSO PLEDGING OF SOCIETYS FDRS TO FACILITA TE LOAN TO THOSE REFERRED ABOVE IS VIOLATION OF LAW. APART FROM VIO LATION U/S 13 OF IT ACT, THE SOCIETY ALSO FOUND NOT CARRYING ON ANY CHA RITABLE ACTIVITY ON ITS OWN. WHATEVER ACTIVITY CARRIED, IT IS ONLY DO NE ON CONTRACTUAL OBLIGATION. HENCE, IT IS ESTABLISHED BEYOND REASON ABLE DOUBT THAT THE SOCIETY IS NOT GENUINE AND IT IS NOT CARRYING ON CH ARITABLE ACTIVITIES. I.T.A .NO.-973/DEL/2011 5 ACCORDINGLY, REGISTRATION U/S 12A IS CANCELLED FORT HWITH SINCE INCEPTION. 4. AGGRIEVED BY THIS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, LD. AR INVITED ATTENTION TO COPY OF THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT STATING THAT AGAINST THE ASSESSMENT ORDE R THE RELIEF WAS GRANTED BY THE CIT(A) WHICH WAS CONFIRMED BY THE ITAT IN ITS ORDER DATED 13.01.2012 IN ITA NO-12/2012 & 18/2012, COPY OF THE SAME WAS FILED IN DIT VS SOCIETY FOR DEVELOPMENT ALTERNATIVES, 2012-TIOL-76-HC-DEL-IT. INVITING ATTENTION TO THE SAME, IT WAS SUBMITTED THAT THE DEPARTMENTAL APPEAL WAS DISMISSED AND REFERENCE IN THE SAID JUDGEMENT HAS BEEN MADE TO PLEDGING OF FDR OF ` 12,00,000/- AS COLLATERAL SECURITY FOR ALLOWING CREDIT FACILITY TO TWO SOCIETIES AND THE FACT THAT THE ASSESSEE HAD NOT UTILIZED THE GRANTS AND THE SUM OF ` 16,92,50,496/- APART FROM ANOTHER SUM. INVITING ATTENTION TO THE PARA 6 OF T HE SAID JUDGEMENT IT WAS SUBMITTED THAT THE REVENUE WAS SPECIFICALLY REQUIRE D TO POINT OUT WHETHER THE AO HAD RECORDED ANY FINDING THAT THE PERSONS IN CONTRO L OF THE MANAGEMENT OF THE THREE SOCIETIES AT ANY POINT OF TIME, HAD NOT LESS THAN 2 0% SHARES IN THE PROFIT OF SUCH CONCERNS AND NO SUCH FINDING WAS POINTED OUT BY THE COUNSELS APPEARING ON BEHALF OF THE REVENUE. INVITING ATTENTION TO PAPER BOOK P AGE-1, IT WAS SUBMITTED THAT IN 2006-07 & 2007-08 ASSESSMENT YEARS, THE TRIBUNAL CO NFIRMED THE FINDINGS OF THE CIT(A) WHICH HAS BEEN CONFIRMED BY THE HONBLE HIGH COURT. ACCORDINGLY IT WAS HIS SUBMISSION THAT THE ACTION OF THE DIT(E) IN REJ ECTING THE APPLICATION OF THE ASSESSEE IS NOT MAINTAINABLE. 5. THE LD. SR. DR ON THE OTHER HAND CONTENDED THAT TH E ACTION OF THE SOCIETY IN OFFERING ITS FUNDS AS COLLATERAL IS NOT GOVERNED BY ANY CHARITABLE ACT AND THE ASSESSEES SOCIETY HAS ALSO MADE AVAILABLE ITS RESE ARCH WORK TO THE TWO RELATED SOCIETIES WHO AS PER RECORD HAVE EXPLOITED COMMERCI ALLY THE BENEFIT OF THE EFFORTS OF THE RESEARCH THAT HAS RESULTED ON THE PART OF TH E ASSESSEES SOCIETY FOR WHICH EXEMPTION IS BEING CLAIMED. THESE FACTS AVAILABLE ON RECORD HAVE NEITHER BEEN I.T.A .NO.-973/DEL/2011 6 CONSIDERED NOR DISCUSSED IN THE ORDERS RELIED UPON . IT WAS SUBMITTED THAT THESE ARE COGENT RELEVANCE AND IMPORTANT POINTS WHICH HAVE A BEARING ON THE ISSUE BEING DECIDED. IT WAS REITERATED THAT THE BENEFITS OF TH E RESEARCH HAVE BEEN ALLOWED TO BE EXPLOITED FOR COMMERCIAL CONSIDERING BY THE OTHER TWO SOCIETIES AND THE CHAIRMAN WAS COMMON AS SUCH THE SOCIETY DOES NOT FUNCTION AS PER THE REQUIREMENTS OF THE ACT AND THE REGISTRATION HAS RIGHTLY BEEN REJECTED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE DIT(E) WHILE PASSING T HE ORDER ON 21.01.2011 DID NOT HAVE BENEFIT OF THE ORDER OF THE ITAT WHICH ORDER I S DATED 01.04.2011 FOR 2006-07 ASSESSMENT YEAR IN ITA NO.-1239/DEL/2010 & 139/DEL/ 2011, SIMILARLY THE BENEFIT OF THE JUDGEMENT OF THE HONBLE HIGH COURT RENDERED ON 13.11.2012 WAS NOT AVAILABLE TO THE DIT(E) CONSIDERING THE CONSEQUENT CONTRADICTIONS IN THE ORDERS PASSED BY THE DIT(E) AND ASSESSMENT ORDER NAMELY N ON-MAINTENANCE OF SEPARATE BOOKS OF ACCOUNTS WHICH ISSUE HAS TRAVELED TO THE H IGHER FORUMS NEEDS TO BE TAKEN INTO CONSIDERATION. THE HONBLE HIGH COURT HAS CON SIDERED THE ISSUE OF OFFERING FUNDS OF ` 12,00,000/- AS COLLATERAL SECURITY AND ALSO THE FA CT THAT THE GRANTS WERE NOT VOLUNTARY CONTRIBUTION AS PER SECTION 12 OF THE ACT AND WERE TIED UP GRANTS MONITORED BY THE FUNDING AGENCIES. HOWEVER, IT IS ALSO SEEN THAT THE DETAILED FINDINGS THAT THE BENEFITS OF THE RESEARCH OF THE ASSESSEES SOCIETY WAS MADE AVAILABLE TO THE OTHER TWO SOCIETIES WITHOUT ANY A MOUNTS BEING CHARGED FROM THEM AND THOSE SOCIETIES WERE AS SUCH ALLOWED TO COMMERC IALLY EXPLOIT, THE SAME HAVE NOT BEEN DISCUSSED OR CONSIDERED IN THE ORDER OF TH E TRIBUNAL NOR THE JUDGEMENT OF THE HONBLE HIGH COURT SINCE FACTS NEED TO BE RE-CO NSIDERED AND RECONCILED WITH THE FINDING IN THE LIGHT OF THE JUDGEMENT OF THE H ONBLE HIGH COURT IN ASSESSEES OWN CASE. ACCORDINGLY, THE ISSUE IS RESTORED BACK TO THE FILE OF THE DIT(E) WITH THE DIRECTION TO DECIDE THE SAME IN ACCORDANCE WITH LAW BY WAY OF SPEAKING ORDER AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEI NG HEARD. I.T.A .NO.-973/DEL/2011 7 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 31 ST OF JULY 2013. SD/- SD/- (S.V.MEHROTRA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED: 31/07/2013 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REG ISTRAR ITAT, NEW DELHI