JOHN FOUNDATION,SECUNDERABAD V. DCIT., CENTRAL CIRCLE-3(3), HYDERABAD

ITA 643/HYD/2025

AI Insights

The case involves the John Foundation, a charitable trust, which appealed against the cancellation of its registration under section 12AB(4)(ii) of the Income Tax Act, 1961 by the Principal Commissioner of Income Tax (Central), Hyderabad. The cancellation was based on allegations that the Trust had sold books received as donations for profit through a related company, thereby not adhering to the conditions of its registration. The Tribunal examined the facts, including the financial transactions between the Trust and the company, and found that the Trust had not violated the conditions of its registration and had applied the income for its charitable purposes.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 771818 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2022-2023
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: U. MINI CHANDRAN
• Assessee Lawyers: A V RAGHURAM
• Keywords: Business income; Transfer pricing; Fair market value; Gift; Search and seizure; Charitable institution; Cancellation of registration; Benefit of exemption; Bogus
• Section: 143(3); 12A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “A” BENCH: HYDERABAD BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G, ACCOUNTANT MEMBER ITA.No.643/Hyd./2025 Assessment Year 2022-2023 John Foundation, SECUNDERABAD-500 010. Telangana. PAN AAAAJ4163G vs. DCIT, Central Circle-3(3), Hyderabad – 500 004. Telangana. (Appellant) (Respondent) For Assessee : Sri AV Raghuram, Advocate For Revenue : MS. U. Mini Chandran, CIT-DR Date of Hearing : 17.08.2025 Date of Pronouncement : 26.08.2025 ORDER PER MANJUNATHA G. : The above appeal has been filed by the assessee against the order dated 19.03.2025 of the learned Principal Commissioner of Income Tax-(Central), Hyderabad, relating to the assessment year 2022-2023. 2. The assessee has raised the following grounds in the instant appeal : Printed from counselvise.com 2 ITA.No.643/Hyd./2025 1. “On the facts and the circumstances of the case, the order passed by the ld. Pr.CIT(Central), Hyderabad is without jurisdiction and is passed without authority of law and therefore is non est in law. The Id. Pr.CIT(Central) ought to have appreciated that the powers to grant registration or cancel registration under section 12AB(4) of the Income Tax Act, 1961 (hereinafter \"the Act\") vested with Commissioner of Income Tax (Exemptions), Hyderabad. 2. The Id. Pr.CIT(Central) failed to appreciate that, pursuant to search and seizure proceedings in the hands of the Appellant, though the power to make assessments are centralized with the Central Circle, the said power does not extend or confer the jurisdiction to exerce powers under section 12AB(4) of the Income Tax Act by the Id. Pr.CIT(Central). The Id.Pr.CIT(Central) failed to notice that such power is vested by the Hon'ble CBDT only on the ld.CIT(Exemptions). 3. Without prejudice to the above grounds, the Id. Pr.CIT(Central) erred in invoking provisions of section 12AB(4) of the Act though the Appellant did not violate any of the provisions of the Act as mentioned in Explanation to Section 12AB(4) of the Act as \"specified Violations\". 4. The Id.Pr.CIT(Central) erred in holding that the Appellant has not properly recorded the supply of books to Ben Holistic Enterprises Pvt. Ltd. (hereinafter \"Ben Holistic\"), in the books of the Appellant's trust. The ld.Pr.CIT(Central) ought to have appreciated that since the books are received at free of cost by the Appellant, the Appellant can only record the factum of receipt of books by it and supply of books for sale to Ben Holistic. 5. The finding of the Id. Pr.CIT(Central) that Ben Holistic by showing expenditure towards purchase of books (which were received free Printed from counselvise.com 3 ITA.No.643/Hyd./2025 of cost from Appellant) has siphoned of income to that extent, is factually incorrect and cannot be sustained. 6. The findings of the ld. Pr.CIT (Central) with respect to purchases, alleged ulterior motive of claiming indirect benefit to the trustee and his son and alleged violations defined in Explanation to Section 12AB(4) of the as \"specified violations\"), are factually incorrect. 7. The Id. Pr.CIT(Central) erred in holding that the Appellant has committed specified violations of applying the income of the Appellant for purposes other than for the objects of the trust or institution, and that the activities of the Appellant are not being carried out in accordance with all or any of the conditions subject to which registration was granted to Appellant. 8. The Id. Pr.CIT (Central) erred in cancellation of registration granted to the Appellant with effect from asst. year 2022-23 with all attendant consequences including the invocation of provisions of section 115TD of the Act. For these and other grounds that may be urged with the leave of the Hon'ble ITAT, it is prayed that the appeal may be allowed, as prayed for. 3. The assessee has also raised an additional ground which reads as under : “On the facts and in the circumstances, both the authorities below viz., the ld. AO and the Id. PCIT (Central) erred in invoking Explanation to Section 12AB(4) of the Act relating to 'specified violation' for the asst. year 2022- 23. Both the authorities failed to appreciate that the said explanation is brought into the statute by Finance Act, 2022 and is applicable with effect from 01.04.2022 relevant to asst. year 2023-24 onwards, as being substantive in nature.” Printed from counselvise.com 4 ITA.No.643/Hyd./2025 4. Sri AV Raghuram, Advocate-Learned Counsel for the Assessee, during the course of hearing, did not press grounds of appeal nos.1 and 2 and appended his signature in the memorandum of grounds of appeal as “Not Pressed”, to which, the Learned DR has no objection. We, therefore, dismiss grounds of appeal nos.1 and 2 as not pressed. 5. Briefly stated facts of the case are that, the appellant-trust ‘John Foundation’ was registered with Sub- Registrar, Vallabhnagar on 02.02.2007. The main objects of the appellant-trust are -  To establish and run educational institutions, vocational, technical training centers and co-operatives for imparting education and training in fields of agriculture, allied agriculture, animal husbandry, industry, management and any other branches of learning, promoting, knowledge awareness, self- reliance, co-operation, character, motivation, cultural and spiritual values and socio-economic welfare of the peoples. Printed from counselvise.com 5 ITA.No.643/Hyd./2025  To train and equip the poor and needy people so as to be self-supporting.  To render service to lie poor anal needy members of the society undertake social service activities with a view to promote integral and holistic development of farmers, artisans, and other under privileged sections of the community.  To undertake, and support Health and Sanitary projects and programs.  To undertake, develop, support and promote various projects and programs of integrated rural development,  To establish, maintain and run boarding houses and residential institutions for the students.  To help poor und meritorious students in pursuing their studies.  To run homes for aged and destitute.  The advance of any other objects of general public utility. Printed from counselvise.com 6 ITA.No.643/Hyd./2025  It shall be lawful and competent for the Trustees to give donations to other charitable trusts and institutions.  The trust shall be for the benefit of all persons belonging to whatever community irrespective of caste, creed or religion.  The objects of the trust will not include objects involving the carrying on any activities for profit within the meaning of income tax act 1961.  To serve the poor particularly the children through sponsorship and building relationship of mutual respect and support.  To ensure that a maximum amount of sponsorship funds are used for the benefit of sponsored children,  To provide personal correspondence between children and their sponsors.  To provide nutrition for children and housing, assistance to their families.  To render basic medical care to the above category of persons in the society. Printed from counselvise.com 7 ITA.No.643/Hyd./2025  To provide support and training for income generating programs with a view of empower the poor.  To provide family assistance to the sponsored families and to the community.  To conduct workshops, seminars and also support such projects for the promoting the objectives of the trust.  To collaborate with local partners and others in assisting their own efforts to help the poor.  To provide formation,, counseling and training, for natural advancement, character development so as to enable individual to grow as matured persons and contribute to build a better society.  To provide education, scholarships and formation especially in children, youth and adults belonging to the poor sections of the society.  To provide home for poor and orphan Children.  Support of workers who are involved in Social, cultural and spiritual activities. Printed from counselvise.com 8 ITA.No.643/Hyd./2025  To import and export, sell and distribute educational and religious books. 6. Further, the Principal Commissioner of Income Tax-[Central], Hyderabad, has received a Reference under second proviso to section 143(3) of the Income Tax Act, 1961 in the case of the assessee for the assessment year 2022-2023 from the Assistant Commissioner of Income Tax, Central Circle-3(3), Hyderabad and after careful consideration of the proposal and examination of the relevant records depicting the facts of the case, the following imputations were made prima facie by the Assessing Officer to the effect that, sale of books received as gifts from foreign donors for profit. It was noted that, M/s John Foundation received books from foreign donors without any consideration and subsequently these books were supplied to its business concern M/s Ben Holistic Enterprises Pvt. Ltd., which is a closed associate of the assessee trust without properly recording the transactions of sale of books in the books of account of the assessee trust. The books which were otherwise meant for charity were sold by M/s Printed from counselvise.com 9 ITA.No.643/Hyd./2025 Ben Holistic Enterprises Pvt. Ltd to the public at a profit margin @ 25 to 50%. The Assessing Officer noted that, as per clause-L of the objects of the assessee trust, “the objects of the trust will not include objects involving carrying on any activities for profit within the meaning of Income Tax Act”. Thus, the assessee trust M/s John Foundation has earned profit, out of selling the books, which it got as donations in kind from the foreign donors, is in violation of the objectives of the Trust. Since, the assessee trust was failed to discharge onus cast upon it about the utilization of the funds of the trust for the purposes of objects of the society, the learned PCIT-[Central], Hyderabad, issued show cause notice dated 09.09.2024 u/sec.12AB(4)(i) of the Income Tax Act, 1961, calling the assessee trust to explain with supporting documentary evidences as to why the sale of books received as gifts from foreign donors which are sold at a profit to the public and not recording of the sale transactions properly in books of account as occurrence of the following specified violations : Printed from counselvise.com 10 ITA.No.643/Hyd./2025 1. Where any income derived from property held under trust, wholly or in part has been applied, other than for the objects of the trust or institution. 2. Any activity being carried out by the trust or institution is not genuine or is not being carried out in accordance with all or any of the conditions subject to which registration was granted to Society. 3. The trust or institution has income from profits and gains of business which is not incidental to the attainment of its objects. 7. In response, the learned AR of the assessee trust has filed detailed written submissions on 16.01.2025, 04.11.2024 and finally on 13.03.2025, the AR of the assessee appeared and reiterated the contentions made earlier in the written submissions. The sum and substance of the arguments of the appellant before the PCIT-Central are that, the appellant trust is registered as religious and a charitable trust with the main object of imparting education and also carrying out charitable activities, in the area of relief to the poor and any other object of General Public Printed from counselvise.com 11 ITA.No.643/Hyd./2025 Utility [in short “GPU”]. The appellant further contended that, it has received religious books from a foreign donor free of cost and the same has been sold to a third party, although, related to the appellant trust for an average price of Rs.700/- per copy and the sale proceeds has been applied for the objects of the appellant trust including construction of Asha Back to School and Children Home Construction, Education Project Expenses, Hospital Maintenance and Voluntary Skills Training Expenses etc., Since the appellant trust derived income by distributing books through it’s related entity and the proceeds has been utilised for achieving of it's main objects, the question of any income derived from property held under Trust, wholly or in part has been applied, other than for the objects of the trust or institution does not arise. Further, the Trust has carried-out it's activities in accordance with it’s main objects including distribution of books, which is evident from Clause-2 of the Objects of the Trust. Therefore, the allegation that, the activities being carried-out is not genuine or is not being carried-out in accordance with all or any of the objects or Printed from counselvise.com 12 ITA.No.643/Hyd./2025 conditions of registration is incorrect. Therefore, submitted that, the show cause notice issued for proposed cancellation of registration of Trust under section 12AB(4)(ii) of the Income Tax Act, 1961 [in short \"the Act\"], is incorrect. 8. The learned PCIT-Central after considering relevant submissions held that, the appellant trust has failed to discharge it’s onus caste upon it about the utilisation of the funds of the Trust for the purpose of Objects of the Trust and by sale of books received as gifts from foreign donors on a profit to the public through it’s associated concern and is not recording of the sale transactions properly in books of accounts, leads to a specified violation during the previous year relevant to the assessment year under consideration, including income derived from property held under the trust, wholly or in part has been applied, other than for the Objects of the Trust or Institution and further, the activities being carried-out by the Trust or Institution is not being carried-out in accordance with all or any of the conditions, subject to which, registration was granted to the Trust. Therefore, Printed from counselvise.com 13 ITA.No.643/Hyd./2025 rejected the explanation of appellant trust and cancelled the registration granted to the Trust under section 12AB(4)(ii) of the Income Tax Act, 1961. The relevant observations of the learned PCIT-Central are as under “5. On careful consideration of the above written submissions filed against the proposed cancellation of registration of the assessee society, it is found that they are not acceptable for the following reasons : (a) The main contention of the assessee is that the activity of selling books by the assessee trust is incidental to the main activities of the assessee trust and the receipts from the activity of selling books being less than 20% of the aggregate receipts, the activity comes under \"object of general public utility' as per provisions of Sec.2(15) of the Act. The assessee also relied on various case-laws in support its contention. In this regard, it is evident that the issue involved is not selling of books and its receipts from this activity. The main issue involved herein is specified violations as delineated in the provisions of Sec. 12AB(4) of the Act which are discussed as under : (i) Sri Saji Koppa John, a trustee of the assessee trust has set up a company M/s Ben Holistic Enterprises Pvt Ltd with his son Sri Benedict John as Managing Director of the company. (ii) The assessee trust received books from foreign donors without any consideration and the required customs clearances were found to be in the name of the assessee trust. Printed from counselvise.com 14 ITA.No.643/Hyd./2025 (iii) The books received from foreign donors free of cost were subsequently supplied to its business concern M/s Ben Holistic Enterprises Pvt Ltd which is close associate of the assessee trust) without proper recording of the same in the books of accounts of the assessee trust. (iv) The books which were otherwise meant for charity were sold by M/s Ben Holistic Enterprises Pvt Ltd (in the name and style of Asha Books and Music) to the public at a profit margin of 25-50%. (v) During the course of search/post search proceedings, it was observed that the total sales derived by M/s Ben Holistic Enterprises Pvt Ltd for the Financial years 2013-14 to 2014-15 are to the tune of Rs. 10,49,54,810/- out of which an amount of Rs 6,43,01.557/- only was remitted back to the assessee trust Mis John Foundation after deduction operational expenses including salary to Sn Benedict John who is the son of Saji Koppa John, the trustee of the assessee trust. (vi) During the search, it was found that the assessee trust M/s John Foundation resorted to unlawful practices by not recording the transactions of books received-in as donations and also subsequent outward supplies of books to its closely associated business company M/s Ben Holistic Enterprises Pvt Ltd. However, lump-sum amounts were shown to have been received by the assessee trust from the above company which are nothing but the amounts collected the company on sale of books supplied to them by the assessee trust and the said received-in funds were disclosed as income of the trust under the head Printed from counselvise.com 15 ITA.No.643/Hyd./2025 Any Other Income' in the ITRs filed by the assessee trust. Further, the company found to have recorded the above payments made to the assessee trust as expenditure to siphon off its income to that extent and thereby avoiding tax liability. It is evident from this that the son of the trustee of the assessee trust having substantial interest got benefited indirectly from the property in the form of books) of the assessee trust. (vii) Further, by adopting the above said modus operandi, the assessee trust used to shift its revenue generated from the sale of books to its closely associated company M/s Ben Holistic Enterprises Pvt Ltd by unfair adjustments in the books of accounts and showing only the net amount of money received after sale of book from the company as its income which ought to have been offered as the turnover from sale of books in the hands of the assessee trust itself and could have recorded the same in its books. M/s Ben Holistic Enterprises Pvt Ltd has shown expenditure towards purchase of books which are in fact received free of cost from the assessec trust. The books received by the assessee trust were in the form of donations and the expenditure booked by the company M/s Ben Holistic Enterprises Pvt ltd towards purchase of books in its books of accounts is entirely bogus. It is submitted that the assessee could not explain as to why the books received free of cost from foreign donors were transferred to a business entity in which one of the trustee's son has substantial interest. The assessee also did not explain why the transactions of transfer of books from assessee trust to M/s Holistic Enterprises Pvt Ltd was not properly recorded in the books of the assessee trust. The assessee also did Printed from counselvise.com 16 ITA.No.643/Hyd./2025 not explain why M/s Ben Holistic Enterprises Pvt Ltd which has received books from the assessee trust without any consideration show expenditure towards purchase of books. (b) The assessee trust stated that Sri Benedict John, who is the son of the Trusteee Sri Sai Koppa John, is taking annual salary of Rs.6 Lakhs only from Mis Ben Holistic Enterprises Pvt Ltd and that the salary is very less and not commensurate with the qualifications of Mr. Benedict John who completed his Masters Degree in London School of Economics. UK. It was further submitted that M/s Ben Holistic Pvt Ltd did not make any abnormal profits. It was further stated that the amounts received by the assessee trust from M/s Ben Holistic Enterprises Pvt Ltd towards sale of books were spent towards the objects of the trust only. In this connection, the factual findings unearthed during search proceedings and post search enquiries are as under : i. The factual finding during search indicated that the books which were received by the assessee trust free of cost from foreign donors were supplied to a company M/s Ben Holistic Enterprises Pvt Ltd in which Sri Benedict John who is the son of Saji Koppa John, the trustee of the assessee trust, is one of the directors. Further, the books were sold by the said company and only a part of the sales were transferred to the assessee trust after deducting major portion towards operational expenses. During the course of proceedings u/s.12AB(4) before the PCIT(Central), Hyderabad, the assessee could not submit any explanation or evidence contrary to the said factual findings unearthed during search. Printed from counselvise.com 17 ITA.No.643/Hyd./2025 ii. It is pertinent to state that as per its own submissions dated 16.01.2025, the assessee trust itself admitted that as against purchases of Rs.1.21,86,239/- shown in the books of M/s Ben Holistic Enterprises Pvt Ltd, an amount of Rs.58,43,957/- was only transferred to the assessee trust which is less than 50% of the purchases shown by the said company. iii. With regard to the assessee's contention that the said company M/s Ben Holistic Enterprises Pvt Ltd is not making abnormal profits, it is submitted that the said company is showing huge expenditure against sale of books. It is pertinent to state that as per the information with regard to financial results of the said company, the details of revenue, purchases, expenditure and profit for the previous year 2021-22 relevant to Asst Year 2022-23 are as under : Revenue Rs.2,47,48,165.17/- Less : Purchases Rs.1,21,86,239.98/- Expenditure (Salaries & Admn Expenses) Rs.1,20,93,772.15/- Total Rs.2,42,80,012.13/- Profit Rs. 4,68,153.04/- It is evident from the above, against the sale of books of Rs.2,47,48,165.17/-, the said company claimed huge expenditure to the tune of 98% of the sales and declared profit @ 2% of sales only. Further, the assessee's contention that the company is not making abnormal Printed from counselvise.com 18 ITA.No.643/Hyd./2025 profits, is irrelevant as the issue involved at this juncture is the irregularities committed by the assessee trust. iv. With regard to contention of the assessee that Sri Benedict John, son of trustee of assessee Trust, is only an employee of the company M/s Ben Holistic Enterprises Pvt Ltd drawing a minimum salary of Rs.50,000/-approximately, it is submitted that irrespective of the amount of salary being received by Sri Benedict John, he is one of the directors of the company in which his parents held 50% share each and the company has been claiming huge expenditure towards salary and administrative expenses. v. Transfer of books, which are received free of cost and which are the property of the assessee trust, to a company in which the trustee's son is working, is done by the assessee trust with an ulterior motive of claiming indirect benefit to the trustee and his son. Further, receiving of tesser amounts by the assessee trust from Mis Ben Holistic Enterprises Pvt Ltd towards purchase of books from the assessee Trust directly affects the activities of the trust as major amount of sale of books was shown as expenditure by the said company and only a meager portion of sale of books was transferred to the assessee trust by the said company. 6. In view of the foregoing, the assessee trust failed to discharge the onus cast upon it about the utilization of the funds of the trust for the purposes of objects of the society and by sale of books received as gifts from foreign donors at a profit to the public through its associated concern M/s-Bern Holistic Enterprises Pvt Ltd and in not recording of the sale transactions Printed from counselvise.com 19 ITA.No.643/Hyd./2025 properly in books of account the following specified violations occurred during the previous year relevant to the society. 1. Income derived from property held under trust, wholly or in part has been applied, other than for the objects of the trust or institution. 2. Any activity being carried out by the trust or institution is not being carried out in accordance with all or any of the conditions subject to which registration was granted to Society. 7. After careful consideration of the facts and circumstances of the case and taking into cognizance the findings of the search and post search enquiries, it is found that there are occurrences of specified violations during the previous year relevant to A.Y 2022-2023 as defined in explanation to section 12AB(4) of the Act warranting cancellation of registration granted to the assessee society u/s 12AB(4)(ii) of the Act and hence by virtue of powers vested in me u/s 12AB(4)(ii) of the Act, the registration granted vide URN No.AAAAJ4163GE20214 dtd 10.05.2021 is hereby cancelled wef A.Y 2022-2023 with all attendant consequences including the invocation of the provisions of section 115TD of 1.T.Act, 1961.” 9. Aggrieved by the order of the learned Principal Commissioner of Income Tax-[Central], Hyderabad, the assessee trust is now, in appeal before the Tribunal. 10. Sri AV Raghuram, Advocate-Learned Counsel for the Assessee submitted that, the learned PCIT-Central was erred in cancellation of registration of the Trust under Printed from counselvise.com 20 ITA.No.643/Hyd./2025 section 12AB(4)(ii) of the Act, without appreciating the fact that, the appellant trust has carried-out its activities in accordance with the main objects and also applied the income derived from property held under the Trust for achieving all objects and a not applied it’s income other than for the Objects of the Trust or Institution. Learned Counsel for the Assessee further referring to the various evidences including statement recorded from few persons during the course of search submitted that, the sole basis for the learned PCIT-Central to cancel the registration is, on the basis of Reference by Assessing Officer in terms of section 143(3) of the Income Tax Act, 1961, where the Assessing Officer, based on certain notings during the course of search has sent a proposal for cancellation of registration of the appellant trust. The learned PCIT-Central on the basis of the Reference received from the Assessing Officer, has issued show-cause notice on the ground that, income derived from property held under the Trust has been applied, other than for the Objects of the Trust and further, the activities of the Trust are carried-out contrary to Printed from counselvise.com 21 ITA.No.643/Hyd./2025 conditions, subject to which, the registration was granted to the Trust. The learned PCIT-Central cancelled the registration on the ground that, the appellant trust has sold books received from foreign donor free of cost through a sister-concern and allowed substantial benefit to the Company which is evident from the amount of books sold to the Company and amount received from the Company by the Trust. 11. The learned PCIT-Central has cancelled the registration on the sole basis that, the books meant for free distribution to general public, has been sold to a Company for super profit and the Company has earned margin of 25% to 50% on sale of books, whereas, transferred a small amount or minimum amount to the appellant trust, after claiming huge amount of expenditure, including salary to the Director of the Company and Son of the Trustee. Further, the learned CIT(E) observed that, the Company has declared meagre profit of 2% on sales and booked huge expenditure which is unsubstantiated. However, the fact remains that, books received from foreign donor free of cost, Printed from counselvise.com 22 ITA.No.643/Hyd./2025 is not meant for free distribution as claimed by the learned PCIT-Central and there is no evidence with the Department to allege that, any directions from the donor for free distribution of books. Further, the Appellant-Trust has sold/distributed the above books at the rate of Rs.700/- per book to the Company and received the sale proceeds. The Trust has applied the income derived from distribution of books for the Objects of the Trust including Asha Back to School and Children Home Construction, Education Project Expenses, Hospital Maintenance, Voluntary Skills Training Expenses etc., which are the main Objects of the Appellant- Trust. Therefore, the allegation of the learned PCIT-Central that, the Appellant-Trust has sold books meant for free distribution to general public through a related party and earned huge profit and the same has been diverted to the related persons is incorrect. Learned Counsel for the Assessee further referring to copies of invoices issued to Company and receipts for amount received from the Company submitted that, the Trust has received books free of cost. The only expenditure incurred by the Trust for these Printed from counselvise.com 23 ITA.No.643/Hyd./2025 books is, custom duty paid for importing the goods. If we consider the custom duty and other expenditure incurred for importing the books or receiving the books from the foreign donor, the revenue generated from distributing the books is, much higher than the cost incurred by the Appellant-Trust. Further, the entire amount received from distribution of books has been applied for the Objects of the Trust. Although, the learned PCIT-Central alleged that, the expenditure booked by the Company is bogus, but, there is no evidence with the Department either found during the course of search or collected during the course of assessment proceedings to support the said finding. In absence of any finding to the country, the allegation that, the Appellant Trust has applied the income derived from property held under the Trust, wholly or in part, other than for the Objects of the Trust is incorrect. 12. Learned Counsel for the Assessee further referring to the main Objects of the Appellant-Trust submitted that, the Objective Clause provides for import and export, sale and distribution of education and religious Printed from counselvise.com 24 ITA.No.643/Hyd./2025 books. The appellant in accordance with it’s Objects, has distributed the books received from foreign donor and earned substantial amount of revenue and the same has been applied for the Objects of the Appellant-Trust. Since, the activities of distribution of books is in accordance with it’s main Objects, the allegation of the learned PCIT-Central that, the activities being carried-out are not in accordance with the Objects, subject to which, the registration was granted to the Appellant-Trust is incorrect. Learned Counsel for the Assessee further submitted that, assuming for a moment, the activities of distribution of books falls under the definition of “Any other Objects of General Public Utility” [in short “GPU”], but, the fact remains that, the revenue derived from distribution of books is less than 20% of the aggregate receipts of the Appellant Trust for the year under consideration and as per proviso to Section 2(15) of the Income Tax Act, 1961, the Appellant Trust can claim the benefit of exemption under section 11 of the Income Tax Act, 1961 on the income derived from property held under the Trust. Therefore, on this ground also, cancellation of Printed from counselvise.com 25 ITA.No.643/Hyd./2025 registration of the Appellant-Trust under section 12AB(4)(ii) of the Income Tax Act, 1961, is incorrect. 13. Learned Counsel for the Assessee further referring to the additional grounds of appeal filed by the appellant submitted that, the Explanation relating to Section 12AB(4)(ii) of the Income Tax Act, 1961 on ‘specified violation’ is applicable for the assessment year 2023-2024 onwards as being substantive in nature and, therefore, on the basis of said specified violation, registration of any Trust or Institution cannot be cancelled for the assessment year 2023-2024. Since, the learned PCIT-Central cancelled the registration of the Appellant-Trust for the assessment year 2022-2023 and the amendment to Section 12AB(4) of the Act came into effect from the assessment year 2023-2024, the Order passed by the learned PCIT-Central under Section 12AB(4)(ii) of the Income Tax Act, 1961, is illegal and void abinitio and liable to be quashed. Therefore, the Order of the learned PCIT-Central should be quashed. Printed from counselvise.com 26 ITA.No.643/Hyd./2025 14. MS. U. Mini Chandran, learned CIT-DR for the Revenue, on the other hand, supporting the Order of the learned PCIT-Central submitted that, the Appellant-Trust was unduly benefited the income of the Trust to the related parties, which is evident from the facts brought on record by the learned PCIT-Central, where, the books meant for free distribution has been sold to a Company, in which, the Trustees are Directors and in turn, the Company has earned super profits ranging from 25% to 50%, which is evident from the bogus expenditure booked against sales in the hands of the Company. Further, as per the main Objects of the Appellant-Trust, it provides for import and export, sale and distribution of books. Once the books are property of the Trust, the said property cannot be used to be provided for the benefit of the Trustees. Although, the Revenue is not on the point, whether, the expenditure booked by the Company is genuine or not, but, what is to be seen is, when the appellant Objects provides for sale or distribution of books, then, the Appellant-Trust could not explain the necessity of selling those books through a Printed from counselvise.com 27 ITA.No.643/Hyd./2025 related Company. Since, the Appellant-Trust has used the related party for selling the books, which resulted in substantial benefit of the Company, it is a clear case of specified violation and, therefore, the reasons given by the learned PCIT-Central for cancellation of registration under Section 12AB(4)(ii) of the Income Tax Act, 1961, is based on appreciation of relevant facts and findings and thus, the arguments of the appellant that, the allegation of the learned PCIT-Central is only on suspicion and surmises manner without there being any evidence is devoid of merits and cannot be accepted. Therefore, she submitted that, the Order of the learned PCIT-Central should be upheld. 15. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The Appellant-Trust “John Foundation” is registered as religious and charitable Trust in the year 2007 under section 12A of the Income Tax Act, 1961. The registration of the Appellant-Trust has been cancelled under Section 12AB(4)(ii) of the Income Tax Act, 1961 on the ground that, income derived from property held under Printed from counselvise.com 28 ITA.No.643/Hyd./2025 Trust, wholly or in part has been applied, other than for the Objects of the Trust/Institution and the activity of the Trust is not being carried-out in accordance with all or any of the conditions, subject to which, the registration is granted to the Trust. The learned PCIT-Central has discussed the issue at length in light of relevant facts and findings during the course of search conducted in the case of the Appellant- Trust and associated entities and came to the conclusion that, the Appellant- Trust has adopted modus operandi where by shifting it's revenue generated from sale of books to it’s closely Associated Company M/s. Ben Holistic Enterprises Pvt. Ltd., by an unfair adjustment in it’s books of accounts and showing only the net amount of money received after sale of books from the Company as it’s income, which ought to have been offered as turnover from the sale of books in the hands of the Appellant-Trust itself and could have recorded the same in it’s books. The learned PCIT-Central supported the said findings, in light of the Associated Enterprise i.e., M/s. Ben Holistic Enterprise Private Limited and it’s composition of Board of Directors Printed from counselvise.com 29 ITA.No.643/Hyd./2025 and came to the conclusion that, the Directors of the Company are related to the Trustees of the Appellant-Trust and thereby, allowed undue benefit to the Company through unfair means, by selling books meant for free distribution for a super profit ranging from 25% to 50%. The learned PCIT-Central had also discussed the issue in light of income generated from sale of books by the Company and corresponding expenditure booked against the said revenue and observed that, the Company has booked bogus expenditure so as to reduce the profit, which is evident from huge expenditure to the tune of 98% of sales booked for the year under consideration yielding the profit of 2% of sales only. Therefore, the learned PCIT-Central came to the conclusion that, the income derived from property held under the Trust, wholly or in part has been applied, other than for the Objects of the Trust/Institution and further, the activities of the Trust being carried-out contrary to the conditions, subject which, registration is granted to the Appellant-Trust. Printed from counselvise.com 30 ITA.No.643/Hyd./2025 16. We have given our thoughtful consideration to the reasons given by the learned PCIT-Central to cancel the registration under Section 12AB(4)(ii) of the Income Tax Act, 1961, in light of various arguments of the Counsel for the assessee and we, ourselves do not subscribe to the reasons given by the learned PCIT-Central for the simple reason that, whether any income derived from property held under the Trust, wholly or in part has been applied, other than for the Objects of the Trust or Institution, needs to be examined in light of relevant facts brought on record, but, not on the basis of suspicion and surmises or assumptions. The learned PCIT-Central has reached to a conclusion that, income derived from property held under the Trust, has been applied other than for the Objects of the Trust only on the ground that, the books received by the Appellant-Trust from a foreign donor free of cost, has been sold through a related party M/s. Ben Holistic Enterprises Pvt. Ltd., a Company and the profit earned from sale of books has been camouflaged by booking various expenditure which is nothing, but, allowing benefit to the “specified persons” Printed from counselvise.com 31 ITA.No.643/Hyd./2025 referred to under section 13(3) of the Income Tax Act, 1961. In our considered view, although, the learned PCIT-Central has given various reasons for justifying cancellation of registration under Section 12AB(4)(ii) of the Income Tax Act, 1961, but, going by the discussion in the Order passed under Section 12AB(4)(ii) of the Income Tax Act, 1961, what we find is, the learned PCIT-Central assumed that, the Appellant-Trust has sold the books through the Company and earned profit. Further, going by the financials of the Company and other relevant evidences furnished in respect of sales/distribution of books, we find that, the Appellant- Trust has received books from foreign donor without any cost. The Appellant-Trust has incurred import duty and other logistic expenses on bringing the books into India. Except this cost, there is no other cost for the books received from the foreign donor. The Appellant-Trust has sold/distributed the above books at an average sale price of Rs.700/- per book. If we consider the cost incurred on importing the books from outside India and revenue generated from sale of such books, in our considered view, Printed from counselvise.com 32 ITA.No.643/Hyd./2025 the Appellant-Trust has generated substantial revenue from distribution of books, although, through it's related-concern and the said revenue has been applied for the Objects of the Appellant-Trust like Construction of Asha Back to School and Children Home Construction, Education Project Expenses, Hospital Maintenance, Voluntary Skills Training Expenses etc., Further, there is no dispute that, the book has been received from foreign donor free of cost, but, the observation of the learned PCIT-Central that, the said books are meant for free distribution is not backed by any evidence. In absence of any evidence to support the findings of the learned PCIT-Central, in our considered view, the argument that, the books received from foreign donor free of cost, for free distribution, has been sold for super profit cannot be accepted. The other allegation of the learned PCIT-Central is that, the Appellant-Trust has sold the books at a nominal cost to the Company and the Company has sold the books for higher price and earned super profit. We once again notice that, the said findings of the learned PCIT-Central is not backed by any evidence, other than Printed from counselvise.com 33 ITA.No.643/Hyd./2025 assumptions and presumptions, which is evident from the financial statements of the Company, where the Appellant- Trust has proved that, the Company has earned a meagre profit of Rs.4,68,153/- on total sales of Rs.2.47 crores for the financial year 2021-2022. Further, the profit derived from the Company has not only from sale of books purchased from the Appellant-Trust, but, it also includes revenue generated from other stream of business including sale of garments etc. Although, the learned PCIT-Central held that, the Appellant-Trust has camouflaged the revenue by booking or inflating expenditure, in our considered view, there is no evidence with the learned PCIT-Central to allege that, the Appellant-Trust has booked bogus expenditure in the Company to camouflage the sales revenue generated from distribution of books. In absence of any evidence, the observation of the learned PCIT-Central that, the Appellant- Trust has camouflaged the revenue derived from distribution of books, so as to allow the benefit to the related party, is incorrect and cannot be accepted. Printed from counselvise.com 34 ITA.No.643/Hyd./2025 17. In the present case, the learned PCIT-Central cancelled the registration of the Trust on the ground that, income derived from property held under the Trust wholly or in part has been applied other than for the Objects of the Trust or Institution. The learned PCIT-Central reached to the above conclusion on the ground that, the books meant for free distribution has been sold to a Company viz., M/s. Ben Holistic Enterprise Private Limited, in which the Trustees of the Appellant Trust are Directors and further, the said entity falls under the provisions of sec.13(3) of the Income Tax Act, 1961. There is no dispute with regard to the fact that, M/s. Ben Holistic Enterprise Private Limited Company falls under the provisions of sec.13(3) of the Act because, the Son of the Appellant-Trust is the Director of the Company, but, the fact remains that, whether that alone is sufficient to hold that, income derived from property held under the Trust has been applied other than for the Objects of the Trust or Institution is a question of fact which can be ascertained on the basis of relevant reasons given by the learned PCIT, Central in light of any violations referred to Printed from counselvise.com 35 ITA.No.643/Hyd./2025 u/sec.13(1)(c) or 13(2)(a) to (h) of the Income Tax Act, 1961. As per sec.13(2) of the Act, if any part of the income or property of the Trust or Institution is made available for the use of any person referred to in sub-sec.(3) or if any amount is paid by way of salary –cum- allowance or otherwise to any person referred to in sub-sec.(3) out of the resources of the Trust or Institution for the services rendered for the person to such Trust and the amount so paid is in excess of what may be reasonably paid for such services, then, it can be said that, income or the property of the Trust has been used or applied for the benefit of a person referred to in sub- sec.(3) of Sec.13 of the Income Tax Act, 1961. In otherwords, if any amount is paid to a ‘specific person’ for rendering of any services and if such payment is in excess of what may be reasonably paid for such services, then, it can be said that, income or property of the Trust has been applied for the benefit of a person referred to u/sec.13(1) of the Income Tax Act, 1961. In the present case, the case of the learned PCIT, Central is that, books meant for free distribution has been sold to a Company M/s. Ben Holistic Printed from counselvise.com 36 ITA.No.643/Hyd./2025 Enterprise Private Limited for a price which is less than what may be reasonably received for such sale and thereby, allowed benefit to the ‘specified persons’. In our considered view, the said findings of the learned PCIT, Central is without any basis going by the reasons given by the learned PCIT, Central in his order. Further, in our considered view, unless the learned PCIT, Central makes-out a case that, by selling books to a related-person or a specified-person, the Appellant-Trust has made available income or property of the Trust to the ‘specified person’ without any consideration or for a consideration which is less than the fair market value of the said services. Unless any findings to the contrary, in our considered view, merely on the basis of assumption or presumption, it cannot be said that, income or property of the Trust has been applied for the benefit of a person referred to in sub-sec.13(3) of the Income Tax Act, 1961. We further note that, the said findings should either come from the Assessing Officer where he has noticed the violations referred to u/sec.13(1) or 13(2) of the Income Tax Act, 1961, with a reasoning or in the present case, in the Printed from counselvise.com 37 ITA.No.643/Hyd./2025 case of assessment by a Company i.e., M/s. Ben Holistic Enterprise Private Limited, where the Assessing Officer has noticed booking of bogus expenditure to show lesser profit from sale of books purchased from the Appellant-Trust. Since, there is no such finding from the learned PCIT, Central in his order or there is no evidence with the learned PCIT, Central, which otherwise shows that the Assessing Officer has made observations with regard to bogus nature of expenditure in the assessment of the Company M/s. Ben Holistic Enterprise Private Limited, in our considered view, the findings reached by the learned PCIT, Central that, income or property of the Trust has been applied other than for the Objects of the Trust or Institution is only on suspicion and surmises and, therefore, cannot be accepted. 18. Coming back to another observation of the learned PCIT-Central. The learned PCIT-Central observed that, the Appellant Trust has sold books to the Company and has received only part consideration, leaving substantial benefit to the Company is, in violation of provisions of Section-13(1)(c) of the Income Tax Act, 1961. Printed from counselvise.com 38 ITA.No.643/Hyd./2025 The learned PCIT-Central came to the above conclusion on the basis of purchases of Rs.1,21,86,239/- shown in the books of M/s. Ben Holistic Enterprises Pvt. Ltd., and further amount remitted to the Appellant Trust of Rs.58,43,957/- which is almost 50% of the purchases shown by the said Company. The Appellant-Trust has clarified the above allegation of the learned PCIT-Central in light of certain evidences including invoices raised to the Company and receipts raised for receipt of amount from the Company. Learned Counsel for the Assessee explained the above discrepancy noticed by the learned PCIT-Central in light of various evidences including the running account between the Appellant-Trust and the Company and claimed that, the Appellant-Trust sells books to the Company on credit basis and the Company pays to the Appellant-Trust on regular or on periodical basis and finally the entire amount of sales made to the Company has been received by the Appellant- Trust either in the same financial year or in subsequent financial year. We find that, as per the evidences submitted by the Appellant-Trust, the allegation of the learned PCIT- Printed from counselvise.com 39 ITA.No.643/Hyd./2025 Central that, the Appellant-Trust received only part of sale consideration of books is, factually incorrect. Further, the allegation of the learned PCIT-Central that, the Appellant- Trust is not recording the books received from foreign donor in it’s books of accounts, is also incorrect going by the evidences available on record. Learned Counsel for the Assessee has furnished relevant stock-register and claimed that, as soon as the books are received from the donor, the same has been recorded in the stock-register and further, the sale of books is also recorded in the stock-register, so as to maintain quantity details of receipt sales and closing balance. From the above details filed by the Appellant-Trust, we find that, the allegation of the learned PCIT-Central is once again only on the basis of suspicion and surmises, but, not on the basis of any evidence. Although, the learned PCIT-Central took support from the total sale of books by the Company for last several years and amount received by the Appellant-Trust to reach to the above conclusion, but, in our considered view, based on the sales achieved by the Company in their books of accounts and amount received Printed from counselvise.com 40 ITA.No.643/Hyd./2025 by the Appellant-Trust from the Company, it cannot be alleged that, the Appellant-Trust has received only part consideration because, once the sale is on the credit basis and Company pays to the Appellant- Trust on periodical basis, then, what is relevant to see the transaction is, the ledger account of the Company in the books of the Appellant-Trust. In the present case, upon perusal of the relevant ledger account, we find that, whatever amount of sales made to the Company has been received back by the Appellant-Trust either in the same financial year or in the subsequent financial year. Therefore, the observation of the learned PCIT-Central on this aspect is totally incorrect and cannot be accepted. Therefore, we are of the considered view that, cancellation of registration of the Appellant-Trust in terms of Section 12AB(4)(ii) of the Income Tax Act, 1961 on the ground that, income derived from property held under the Trust wholly or in part has been applied, other than for the Objects of the Trust is incorrect and, therefore, we reject the reasons given by the learned PCIT-Central on this ground. Printed from counselvise.com 41 ITA.No.643/Hyd./2025 19. Coming back to second ground, on which, the registration of the Appellant-Trust was cancelled. The learned PCIT-Central, had cancelled the registration on the ground that, the activities of the Appellant-Trust being carried-out are not genuine or is not being carried-out in accordance with all or any of the conditions, subject to which, the registration was granted to the Appellant-Trust. The learned PCIT-Central alleged that, transfer of books which are received free of cost and which are the property of the Appellant-Trust has been given to a Company, in which, the Trustees son is working is done by the Appellant-Trust with an ulterior motive of claiming indirect benefit to the Trustee and his Son. Further, receiving of lesser amounts by the Appellant-Trust from M/s Ben Holistic Enterprises Pvt Ltd towards purchase of books from the Appellant-Trust directly affects the activities of the Appellant-Trust as major amount of sale of books was shown as expenditure by the said Company and only a meagre portion of sale of books was transferred to the Appellant-Trust by the said Company. Therefore, the learned PCIT-Central, came to the Printed from counselvise.com 42 ITA.No.643/Hyd./2025 conclusion that, activity being carried-out by the Appellant- Trust is not genuine or not carried-out in accordance with all or any of the conditions, subject to which, the registration was granted to the Appellant-Trust. In our considered view, the registration was granted to the Appellant-Trust as charitable and religious Trust upon perusal of relevant Objects. Further, upon perusal of relevant objects and activities carried-out by the Appellant- Trust, we find that, the Trust is carrying-out it’s activities in accordance with its Objects by imparting Education, Relief to the Poor, and advancement of any other Objects of General Public Utility [“GPU”]. Further, sale/distribution of books is also as per the main objects of the Appellant-Trust which is evident from ‘Clause-z’ of main objects of the Appellant-Trust, where there is a provision of import or export or sale or distribution of religious books. Since, the distribution of books is, as per the main objects of the Appellant-Trust, in our considered view, the allegation of the learned PCIT-Central that, the activities of the Trust are being carried-out is not in accordance with all or any of the Printed from counselvise.com 43 ITA.No.643/Hyd./2025 conditions, subject to which, the registration is granted to the Appellant-Trust is incorrect and cannot be accepted. Further, registration of the Trust is subject to conditions that, income of any Trust should be applied for the Objects of the Trust and no part of income of the Trust should be applied, other than for the Objects of the Trust or any undue benefit should not be given to the persons specified under section 13(3) of the Income Tax Act, 1961. Since, the Appellant-Trust is carrying it’s activities in accordance with it’s main Objects and also the income derived from property held under the Trust has been applied for the Objects of the Trust, in our considered view, the cancellation of registration on the ground that, activities are not being carried-out in accordance with all or any of the conditions, subject to which, the registration was granted to the Appellant-Trust, is only a suspicion, surmises and not backed by any evidence and cannot be accepted. 20. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, the learned PCIT-Central was erred in Printed from counselvise.com 44 ITA.No.643/Hyd./2025 cancelling the registration granted to the Appellant-Trust under section 12A of the Income Tax Act, 1961 in terms of Section 12AB(4)(ii) of the Income Tax Act, 1961. Thus, we set-aside the Order of the learned PCIT-Central and restore the registration granted to the Appellant-Trust under section 12A of the Income Tax Act, 1961. 21. Coming back to the additional ground of appeal filed by the Appellant-Trust and arguments of both the sides. The Learned Counsel for the Assessee and the Learned DR has argued on the additional grounds of appeal filed by the Appellant-Trust, in light of amendment to Section 12AB(4)(ii) of the Income Tax Act, 1961 by insertion of Explanation with regard to ‘specified violation’ and claimed that, the said amendment is applicable from assessment year 2023-2024 onwards. 22. Since, the cancellation of registration of the Appellant- Trust has been dealt with in accordance with the merits of the case and upon perusal of the relevant arguments, the Order passed by the learned PCIT-Central cancelling registration has been set-aside and registration Printed from counselvise.com 45 ITA.No.643/Hyd./2025 granted to the Appellant Trust has been restored, in our considered view, the arguments of the Counsel for the Assessee and the Revenue on the additional grounds of appeal filed by Appellant Trust are academic in nature and becomes infructuous. Thus, the additional ground filed by the Appellant-Trust is dismissed as ‘infructuous’. 23. In the result appeal of the assessee is allowed. Order pronounced in the open Court on 26.08.2025. Sd/- Sd/- [VIJAY PAL RAO] [MANJUNATHA G] VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 26th August, 2025 VBP Copy to 1. John Foundation, 5-1007, B.R. Nagar, Behind FR Balaiah Nagar, Old Alwal, SECUNDERABAD – 500010. Telangana. 2. The DCIT, Central Circle-3(3), Aaykar Bhavan, Opp. LB Stadium, Basheerbagh, Hyderabad – 500 004. Telangana. 3. The Pr. CIT-(Central), Aaykar Bhavan, Opp. LB Stadium, Basheerbagh, Hyderabad – 500 004. Telangana. 4. The DR ITAT “A” Bench, Hyderabad. 5. Guard File. //By Order// //True Copy// Printed from counselvise.com "