Educational trust registration cancellation under section 10(23C)(vi) overturned due to lack of specified violations

ITAT Pune held that CIT's cancellation of registration under section 10(23C)(vi) was untenable. The educational trust's registration was cancelled based on trustee's statement during survey surrendering Rs. 9 crore as undisclosed income. ITAT found no specified violation under Explanation 2 to section 10(23C) as the trust conducted only genuine educational activities in accordance with approved conditions. The surrender lacked corroborative evidence and improperly vouched expenses were not quantified. Since occurrence of specified violations is prerequisite for cancellation and none existed, the cancellation order was overturned in favor of the assessee.

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Issues Involved:
1. Validity of cancellation of registration under section 10(23C)(vi) of the Income-tax Act, 1961.
2. Applicability of the amended 15th proviso to section 10(23C) for assessment years prior to its amendment.
3. Examination of specified violations as per Explanation 2 to section 10(23C).
4. Evidentiary value of statements recorded under section 131(1) during survey actions.

Issue-wise Detailed Analysis:

1. Validity of Cancellation of Registration under Section 10(23C)(vi):
The primary issue in the appeals was the cancellation of registration granted to the assessee-trusts under section 10(23C)(vi) of the Income-tax Act, 1961. The cancellation was initiated by the Pr. Commissioner of Income Tax (Pr.CIT) following a survey action under section 133A, which revealed discrepancies in expense vouchers. The Pr.CIT's decision was based on the trustee's statement admitting undisclosed income and the presence of deficient vouchers. The Tribunal examined whether the cancellation was justified based on the evidence and the legal framework.

2. Applicability of the Amended 15th Proviso to Section 10(23C):
The Tribunal considered the contention that the amended 15th proviso to section 10(23C), effective from 01-04-2022, could not apply to assessment years before its amendment. The Tribunal clarified that the amendment is prospective regarding the initiation of cancellation proceedings but retrospective in effect, governing proceedings from the cut-off date of 01-04-2022. Thus, the Pr.CIT was justified in applying the amended proviso for the cancellation proceedings initiated in 2023.

3. Examination of Specified Violations as per Explanation 2 to Section 10(23C):
The Tribunal analyzed the specified violations under Explanation 2 to section 10(23C), which include:
- Application of income for objects other than those for which the trust was established.
- Income from profits and gains of business not incidental to the trust's objectives.
- Non-genuine activities or activities not carried out per the conditions of approval.

The Pr.CIT invoked the first three clauses of Explanation 2, citing deficient vouchers and the trustee's admission of discrepancies. However, the Tribunal found no evidence that the trust applied income for non-charitable purposes, earned non-incidental business income, or engaged in non-genuine activities. The Tribunal emphasized that the deficiencies in vouchers did not constitute specified violations warranting cancellation of registration.

4. Evidentiary Value of Statements Recorded under Section 131(1) during Survey Actions:
The Tribunal scrutinized the trustee's statement recorded under section 131(1) during the survey, noting its role in the cancellation decision. It highlighted that statements recorded under section 133A (survey) do not carry evidentiary value unless corroborated by material evidence. The Tribunal referred to the Supreme Court's ruling in CIT vs. S. Khader Khan Son, which held that statements made during surveys have no evidentiary value without supporting evidence. The Tribunal concluded that the trustee's statement alone, without corroborative evidence, could not justify the cancellation of registration.

Conclusion:
The Tribunal held that the cancellation of registration under section 10(23C)(vi) was not justified as the assessee did not commit any specified violations per Explanation 2 to section 10(23C). The Tribunal overturned the Pr.CIT's order, reinstating the registration of the assessee-trusts. Both appeals were allowed, and the Tribunal emphasized that the mere presence of deficient vouchers and the trustee's admission during the survey did not constitute valid grounds for cancellation of registration. The order was pronounced in the Open Court on 4th August 2023.

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