M/S. SRINIVASAN CHARITABLE & EDUCATIONAL TRUST,PERAMBALUR V. ACIT, CENTRAL CIRCLE-1, TRICHY

ITA 44/CHNY/2020

AI Insights

The case involves M/s. Srinivasan Charitable & Educational Trust appealing against the cancellation of its registration under section 12A of the Income Tax Act, 1961, by the PCIT. The cancellation was based on the presumption that the Trust was collecting capitation fees from students, inferred from materials seized during a search operation. The Trust contested the cancellation, arguing that the PCIT's decision was made without proper evidence, jurisdiction, and in violation of natural justice, as it was not given a fair opportunity to defend itself. The Tribunal found that the PCIT had not provided adequate opportunity or material for the Trust to contest the allegations, leading to the setting aside of the cancellation order.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 106998 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-08-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 08-01-2020
• Other Referred Cases: Guduthur Brothers v. ITO, ITO v. M. Pirai Choodi
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NILAY BARAN SOM
• Assessee Lawyers: N. ARJUN RAJ; GIRISH KUMAR
• Keywords: Set aside; Opportunity of being heard; Retrospective amendment; Principle of natural justice; Charitable institution
• Section: 12AA; 22; 12A

Judgement Text

"आयकर अपीलीय अिधकरण, ‘ए’ \u0001यायपीठ, चे\tई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI \u0001ी एबी टी. वक , \u000bाियक सद\u0011 एवं एवं एवं एवं \u0001ी मनोज क ुमार अ\u0019वाल, लेखा सद\u0007 क े सम\u001d BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.44/Chny/2020 िनधा\u000eरण वष\u000e/Assessment Year: 2017-18 M/s. Srinivasan Charitable & Educational Trust, No.274-C, Thuraiyur Road, Perambalur-621 212. Tamil Nadu. v. The ACIT, Central Circle-1, Trichy. [PAN: AAGTS 1793 N] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Mr.N. Arjun Raj, Advocate & Mr.Girish Kumar, Advocate \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Mr. Nilay Baran Som, CIT सुनवाईक\u001aतारीख/Date of Hearing : 22.08.2024 घोषणाक\u001aतारीख /Date of Pronouncement : 08.11.2024 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee Trust against the order of the Learned Principal Commissioner of Income Tax, Central-2, Chennai (hereinafter in short \"the Ld.PCIT”), dated 18.12.2019 cancelling the registration u/s.12A of the Income Tax Act, 1961 (hereinafter in short \"the Act”) granted to the Trust vide letter dated 18.04.2007 with retrospective effect from 01.04.2011 i.e. Assessment Year (hereinafter in short \"AY”) 2012-13 onwards. ITA No.44/Chny/2020 (AY 2017-18) M/s. Srinivasan Charitable & Educational Trust :: 2 :: 2. The assessee raised the following grounds: 1. The order of PCIT/CIT, Central -2, Chennai dated 18.12.2019 in withdrawing the registration originally granted by the CIT-1, Tiruchirapalli u/s 12AA of the Act in C. No. 6162E(83)/2006-07/CIT-1/TRY dated 18.04.2007 is contrary to law, facts, and in the circumstances of the case. 2. The PCIT/CIT erred in withdrawing the exemption granted u/s 12AA of the Act on the presumption adverse search materials existing as a consequence to the search conducted on 15.02.2018 without assigning proper reasons and justification and further ought to have appreciated that the order withdrawing registration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 3. The PCIT/CIT failed to appreciate that there were no adverse search materials for the purpose of initiating and completing the proceedings u/s 12AA(3) of the Act and ought to have appreciated that the conditions prescribed for him to assume jurisdiction u/s 12AA(3) of the Act were not satisfied on the facts of the case thereby vitiating the related findings. 4. The PCIT/CIT failed to appreciate that the presumption of the activities pursued by the appellant as not genuine as well as the further presumption of such activities not carried in accordance with the approved objects were wholly unjustified and ought to have appreciated that the appellant trust had carried on the main/sole object of pursuing the activity of imparting education thereby vitiating the assumption of jurisdiction u/s 12AA(3) of the Act and further vitiating the related findings. 5. The PCIT/CIT failed to appreciate that the loose sheets/diary entries made by the R. Elavarasi, Senior Assistant of the Appellant trust had no evidentiary value while further ought to have appreciated that those materials were seized only from the residence of the said person thereby vitiating the reliance placed on those materials in the absence of cross-examination/verification to establish the presumption of the acceptance of the capitation fees by the appellant trust. 6. The PCIT/CIT failed to appreciate that the misreading of the search materials and answers given in the sworn statements recorded from various persons involved in the administration of the colleges would justify the pleadings of the appellant trust for continuation of the special status tag of public charitable trust. 7. The PCIT/CIT failed to appreciate that in the absence of direct evidence of capitation fees received by the appellant trust, the findings recorded/conclusions reached were wholly unjustified in the light of the law declared by the Supreme Court in the case reported in 103 Taxmann.com 9 affirming the decision of the Bombay High Court reported in 397 ITR 246. 8. The PCIT/CIT failed to appreciate that the decisions relied upon in the impugned order had no application to the facts of the present case and ought to have appreciated that the decisions in favour of the appellant trust were completely ignored and brushed aside. 9. The PCIT/CIT failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law. ITA No.44/Chny/2020 (AY 2017-18) M/s. Srinivasan Charitable & Educational Trust :: 3 :: 10. The Appellant craves leave to file additional grounds/arguments at the a time of hearing. Educational Trust 3. At the outset, the Ld.AR of the assessee brought to our notice that the assessee Trust was formed on 28.08.2006 and later granted registration u/s.12A of the Act vide order dated 18.04.2007 by Ld.CIT, Trichy. And that in the impugned order, the Ld.PCIT has taken note of the trustees; and that the assessee-Trust was formed for establishing Charitable Institutions, Educational Institutions, and Human Resource Development Institutions; and acknowledged that assessee-Trust had accordingly, established several educational institutions like Medical College, etc. The Ld.PCIT upon receiving information from the AO [of the assessee-Trust] took note of the search in the case of Dhana Lakshmi group on 15.02.2018 and seizure of certain loose-sheets from the premise of Smt. R. Ezhilarasi [who was working in the Group for ‘10’ years] was of the opinion that the assessee-Trust was collecting capitation fees from students who got admission in their management quota; and accordingly, on 29.11.2019, the Ld.PCIT conveyed his desire to cancel the registration of the assessee trust u/s. 12AA(3) of the Act by issuing show-cause notice to the assessee. According to the Ld.AR, the assessee received the show cause notice belatedly, i.e., after a week and pursuant to it, the assessee requested the Ld.PCIT to give copies of the incriminating material if any against the assessee. However, according to ITA No.44/Chny/2020 (AY 2017-18) M/s. Srinivasan Charitable & Educational Trust :: 4 :: the Ld.AR, the Ld.PCIT didn’t bother to furnish any such material which he had relied upon to draw adverse view against the assessee while passing the impugned order i.e. cancelling the registration of the assessee Trust u/s.12A of the Act; and Ld AR assailed the impugned action of the Ld.PCIT being violative of Natural Justice and for not giving proper opportunity to the assessee before passing of the impugned order. According to the Ld.AR, no reasonable opportunity was granted to the assessee before passing of the impugned order. Therefore, he prayed to set aside the impugned order. The Ld.AR also pointed out to us that the Ld PCIT on wrong assumption of fact that AO was convinced that assessee-Trust was receiving capitation-fees from students has cancelled the registration on 18.12.2019, when the fact remains that AO framed the assessment orders only after eight days i.e., on 26.12.2019 and to buttress this fact drew our attention to Para No.10 of the impugned order wherein the Ld.PCIT notes that “the evidences which made the AO convince himself regarding the receipt of capitation fees includes handwritten loose sheets seized from the concerned employees of the Trust, ………………………………form part of the seized material”. Thus according to the Ld.AR, the Ld.PCIT has wrongly presumed that the AO was convinced regarding the receipt of the capitation fees, and in this regard, wondered ‘as to how’ the Ld.PCIT could have come to such a conclusion when AO undisputedly passed assessment order after eight ITA No.44/Chny/2020 (AY 2017-18) M/s. Srinivasan Charitable & Educational Trust :: 5 :: days of passing of the impugned order of the Ld.PCIT i.e. only on 26.12.2019 and wondered whether Ld.PCIT was a “CLAIROVOYANT” to know what AO was going to do after a week. In the light of the aforesaid facts, according to the Ld.AR, there was clear violation of provisions of Sec.(3) of sec.12AA of the Act as well as Natural Justice, and therefore, the order of the Ld.PCIT is bad in law and needs to be set aside. Per- Contra, the Ld.DR strongly opposed the submissions of the assessee and asserted that the assessee was given proper opportunity before passing of the impugned order and therefore, he doesn’t want us to interfere with the impugned order of the Ld.PCIT cancelling registration u/s.12A of the Act 4. We have heard both the parties and perused the material available on record. We note that the assessee was a Trust formed on 21.08.2006 and was granted registration u/s.12A of the Act by order dated 18.04.2007. The assessee Trust in consonance with its objectives had established Charitable Institutions, Educational Institutions, etc., and inter alia was running a Medical Colleges also. Pursuant to a search on 15.02.2018, in the premises of M/s.Dhanalakshmi Srinivasan Group which covered the premises of a Senior Assistant, Smt. R. Ezhilarasi, the search party seized certain loose sheets, which according to the Department evidenced that the assessee took capitation fees from the students who got admission in its college in the Management Quota; and according to ITA No.44/Chny/2020 (AY 2017-18) M/s. Srinivasan Charitable & Educational Trust :: 6 :: the Ld.PCIT, he received the information from the AO about the aforesaid facts and based on that he issued letter to the assessee on 29.11.2019 and show-caused the assessee ‘as to why’ the registration u/s.12A of the Act should not be cancelled. According to the assessee, it had received the notice after a weeks’ time; and pursuant to receiving it, duly filed its submissions on 09.12.2019 and stoutly denied the allegation of receiving any capitation fees from the students and asked Ld PCIT, for copies of incriminating materials if any, in his possession, as well as requested for copies of the statements/witnesses if any being relied upon by the Ld.PCIT to take adverse view against it. According to the Ld.AR, neither the statements nor the copies of the incriminating materials were furnished to the assessee to effectively present/defend its case before the Ld.PCIT. According to the Ld.AR, the Ld.PCIT in gross-violation of natural justice and without application of mind in an arbitrary manner and in haste [in less than 10 days] has cancelled the registration of the assessee u/s.12A of the Act on 18.12.2019. Thus, it was urged that the impugned action of the Ld.PCIT having been passed without giving proper opportunity to the assessee violates natural justice and so, bad in law. 5. It is noted that Ld PCIT issued show-cause notice on 26.11.2019 and cancelled the registration u/s 12A on 18.12.2019 i.e, within 22 days [which fact has been contested by assessee, that it received notice only after a week’s time] and assessee denied collecting capitation-fees from ITA No.44/Chny/2020 (AY 2017-18) M/s. Srinivasan Charitable & Educational Trust :: 7 :: students and sought incriminating material/statements if any, being relied upon to draw adverse view against it, which undisputedly has not been furnished to the assessee, therefore it cannot be said that proper opportunity had been granted to assessee before cancelling registration u/s 12A of the Act and therefore there is per-se violation of provisions of sub-Sec.3 of sec.12AA of the Act, which provides that the Ld.PCIT should not pass the order u/s.12AA(3) of the Act unless the assessee Trust has been given a reasonable opportunity of being heard. Reasonable opportunity means the assessee should be given meaningful opportunity of hearing viz to explain/rebut the materials being relied upon by the authority to draw adverse view against it. Furnishing of materials/statements which are relied upon by the Authority/Ld PCIT to draw adverse view against assessee is sine qua non and the assessee ought to have been given opportunity to explain/cross-examine the maker of such adverse-statements. In the absence of such an exercise, the adverse materials/statements cannot be used against the assessee. The principles of natural justice concern procedural fairness and ensures a fair decision to be reached by an objective decisionmaker. It should be remembered that by maintaining procedural fairness protects the right of individuals and enhances public confidence in the process. Audi alteram partem (the right to be heard) & Nemo judex in parte suo (no person shall be a judge in his own cause). The aforesaid two principles were ITA No.44/Chny/2020 (AY 2017-18) M/s. Srinivasan Charitable & Educational Trust :: 8 :: derived from the Romans, who believed that some legal principles were “natural” or self-evident and didn’t require a statutory basis. The principles of natural justice, a cardinal part of which is audi alteram partem, is the bedrock of all quasi-judicial determination. Where there is no Rule to exclude the application of natural justice and if the rights of individual are effected to their prejudices, certainly rule of natural justice applies and can’t be ruled out.The aim of natural justice is to secure justice [A.K.Kraipak v. UoI AIR 1970 SC 150] to put it negatively it is to prevent miscarriage of justice. 6. Moreover, we note that the Ld.PCIT has wrongly presumed the fact that the AO was convinced regarding assessee receiving capitation fees for admission of students whereas it is noted that impugned order of the Ld.PCIT was dated 18.12.2019 whereas the AO framed the assessment only on 26.12.2019. Therefore, there is per-se non-application of mind on the part of the Ld.PCIT; and violation of natural justice, as well as provisions of Sec.12AA(3) of the Act. Hence, we set aside the impugned order of the Ld.PCIT and restore the matter back to the file of the Ld.PCIT with a direction to pass order afresh after giving proper opportunity to assessee and in accordance to u/s.12AA(3) of the Act. [refer decisions of the Hon’ble Supreme Court in the case of Guduthur Brothers v. ITO reported in 49 ITR 480 (SC) as well as in the case of ITO v. M. Pirai Choodi reported in [2011] 334 ITR 262 (SC)]. ITA No.44/Chny/2020 (AY 2017-18) M/s. Srinivasan Charitable & Educational Trust :: 9 :: 7. In the result, appeal filed by the assessee is allowed for statistical purposes. Order pronounced on the 08th day of November, 2024, in Chennai. Sd/- (मनोज क ुमार अ\u0019वाल) (MANOJ KUMAR AGGARWAL) लेखा सद\u0003य/ACCOUNTANT MEMBER Sd/- (एबी टी. वक ) (ABY T. VARKEY) \u0005याियक सद\u0003य/JUDICIAL MEMBER चे\tई/Chennai, !दनांक/Dated: 08th November, 2024. TLN, Sr.PS आदेश क\u001a \u0017ितिलिप अ$ेिषत/Copy to: 1. अपीलाथ\f/Appellant 2. \r\u000eथ\f/Respondent 3. आयकरआयु\u0014/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\rितिनिध/DR 5. गाड\u001dफाईल/GF "