2016 (9) TMI 213 - AT - Income Tax

Tribunal restores society's tax registration under Income Tax Act Section 12A, citing genuine educational activities.

The tribunal allowed the appeal and restored the registration of the assessee society under Section 12A of the Income Tax Act. The cancellation of ... Registration of the assessee society u/s 12AA(3) & (4) cancelled - allegations of the ld. Pr. CIT that the funds were siphoned off for the purpose other than the activities to achieve the objects of the assessee Society - Held that:- No verification was made from the students to substantiate that laptops/computers claimed to be distributed amongst the students were not given to them and even the recovery from the students towards the cost of the said laptops/computers has not been doubted. In the present case, the trustee of the assessee Society namely Sh. Sanjay Bansal surrendered the undisclosed income detected during the course of search in his individual capacity which has been accepted by the department, in view of the above it cannot be said that funds of the assessee society were used for non-charitable purposes. In the instant case, there is no denial by the various concerns from which the assessee made the purchases for the building material or computers or laptops etc. Therefore, the allegations of the ld. Pr. CIT that the funds were siphoned off for the purpose other than the activities to achieve the objects of the assessee Society are not sustainable. In the present case nothing is brought on record to substantiate that the assessee was not running the educational institutions for imparting the education which is a charitable activity. In the present case, it is an admitted fact that the assessee had been granted registration u/s 12A of the Act, since the assessee Society is engaged in running of educational institution and it is not brought on record at any stage that the assessee was not engaged in educational activity through various educational institution established by it and if the ld. Pr. CIT or the AO was not satisfied for various expenses incurred by the assessee than proper action would have been taken u/s 11 or 13 of the Act. A search was conducted at the assessee’s premises, however, no evidence of receipt of donation or capitation fee was found during the search and the presumption u/s 292C of the Act were rebutted by denial of the assessee that the purchases of the material for construction of the building and computers/laptops for distribution amongst the students were made through some of associated concerns of the trustees at the reasonable rate which were even lower than the market rate. The Banks granted the term loans to the assessee trust for the construction of building and purchase of the computers/laptops after proper verification. The assessee also repaid the term loan by making the payments of the installment and no finding has been recorded by the ld. Pr. CIT that the activities of the assessee trust were not genuine or not being carried out in accordance with the objects of the assessee trust. Therefore, the ld. Pr. CIT was not justified in cancelling the registration already granted u/s 12A of the Act, by invoking the provisions of Section 12AA of the Act. - Decided in favour of assessee Issues Involved:1. Cancellation of registration under Section 12AA(3) & (4) of the Income Tax Act, 1961.2. Allegations of siphoning off funds by the trustees.3. Authenticity and utilization of term loans.4. Genuineness of purchases and expenditures.5. Compliance with the objectives of the trust.Detailed Analysis:1. Cancellation of Registration under Section 12AA(3) & (4) of the Income Tax Act, 1961:The main issue in this appeal is the cancellation of the registration of the assessee society under Section 12AA(3) & (4) of the Income Tax Act, 1961. The Principal Commissioner of Income-tax (Central), Kanpur, cancelled the registration on the grounds that the funds of the society were siphoned off for non-charitable purposes. The assessee argued that the cancellation was based on unfounded allegations and without proper consideration of the explanations and evidence provided.2. Allegations of Siphoning Off Funds by the Trustees:The Principal CIT observed that during a search operation, documents were found indicating that the funds of the society were siphoned off by one of the trustees, Sh. Sanjay Bansal, and used for personal purposes. The funds were allegedly diverted to various bank accounts opened in the names of employees and fictitious concerns. The assessee contended that the purchases and transactions were genuine and made in the interest of the society, and the funds were used for the objectives of the trust.3. Authenticity and Utilization of Term Loans:The Principal CIT alleged that term loans obtained by the society for purchasing laptops and constructing buildings were misused. The assessee countered this by stating that the loans were utilized for the intended purposes, and the purchases were made at competitive rates. The bank had sanctioned and disbursed the loans after proper verification, and there was no allegation of misrepresentation from the bank.4. Genuineness of Purchases and Expenditures:The Principal CIT claimed that the purchases of laptops, computers, and building materials were made from associated concerns at inflated prices and were fictitious. The assessee provided evidence of payments made by account payee cheques, entries in audited books of accounts, and physical existence of the purchased items. The assessee also argued that the purchases were made at lower rates than market prices, benefiting the society.5. Compliance with the Objectives of the Trust:The Principal CIT concluded that the activities of the trust were not genuine and not carried out in accordance with its objectives. The assessee argued that it was running educational institutions, which is a charitable activity, and complied with all statutory norms. The AICTE inspection reports confirmed the existence of the building and the distribution of laptops to students. The assessee contended that the funds were used for educational purposes, and the registration should not be cancelled.Conclusion:The tribunal found that the Principal CIT's decision to cancel the registration was not justified. The evidence provided by the assessee, including the physical existence of buildings, computers, and laptops, and the proper utilization of term loans, supported the genuineness of the activities. The tribunal held that the assessee was running educational institutions in accordance with its objectives and the provisions of the Income Tax Act. The appeal was allowed, and the registration under Section 12A was restored.