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TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 85
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....nd in the alternate, the CIT erred on facts and in law in withdrawing registration retrospectively w.e.f. assessment year 2004-05. iv. That assessee reserves its right to add alter, amend, modify and/or to withdraw any grounds of appeal or during the course of hearing. 2) The assessee M/s Rajeshwari Sangeet Academy Trust in ITA No. 227(Asr)/2013 has raised the following grounds of appeal: i. That on facts and in law the order withdrawing registration u/s 12AA(3) of the Income Tax Act, 1961 is premature, bad in law and void ab-initio. ii. That on facts and in law the assumption of jurisdiction is bad inasmuch as it is based on delegation of power impermissible by law. iii. That on facts and in law the CIT erred in holding that effective opportunity to cross examine was afforded and not availed by the assessee. iv. Without prejudice and in the alternate, the CIT erred on facts and in law in withdrawing registration retrospectively w.e.f. assessment year 2004-05. v. That assessee reserves its right to add alter, amend, modify and/or to withdraw any grounds of appeal or during the course of hearing. 3) Since the issues involved in both the appeals are identical, therefore, we p....
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....commodation entries and also accepted the fact that he has provided accommodation entries to the Apeejay Group through his company M/s Washington Software Ltd. During the course of post search investigations, the beneficiary parties were identified and information was passed onto various field formations by the Investigation Wing, Mumbai for taking further action. As a result of this information, survey operations were conducted under Section 133A of the Act by the Department as the premises of various business entities of the Apeejay Education group on 29.03.2011. During the course of the survey operations, genuineness of purchase of software by Apeejay Education group of cases from M/s Washington Software Ltd. was examined from different aspects. At the time of survey operations at different premises of the group, statements of different persons actively involved in the management and running of Apeejay Group of Institutions were recorded. In their statements, they have admitted that no softwares were ever purchased from M/s Washington Software Ltd. Moreover, on physical verification, softwares alleged to have been purchased from M/s Washington Software Ltd. were not found. Howev....
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....found to be genuine in view of the provisions of Section 13(1)(c) read with section 13(3) of the Act and the registration granted to the assessee society was liable to be cancelled, invoking the provisions of section 12AA(3) of the Act. Accordingly, a notice dated 07.12.2011 was issued to the assessee-society to show cause as to why the registration granted to it under Section 12AA of the Act may not be cancelled. The assessee submitted various replies dated 17.08.2012, 14.09.2012, 18.03.2013 and 25.03.2013 which are reproduced in the order of CIT, Jalandhar-II, Jalandhar, at page nos. 6 to 28. Learned CIT, Jalandhar-II, Jalandhar, listed out the issues that have been raised by the assessee in the various replies mentioned hereinabove at page 29, which for the sake of convenience is reproduced as under: (A) That the registration granted to a trust can be cancelled only when the activities of the trust are not genuine or are not being carried out in accordance with the objective of the trust. (B) That the statement of Sh. Sanjay D. Sonawani of M/s Washington Software Ltd. Pune has got no standing as it has been recorded behind the assessee's back and the assessee has not been prov....
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....ndhar, cancelled the registration granted to the assessee society on 13.05.1999 w.e.f. assessment year 2004-05. The relevant findings at page 29 to 35 of the order of learned CIT, Jalandhar- II, Jalandhar, mentioned hereinabove, are reproduced as under:- "My issue-wise findings in respect of arguments dated 18.03.2013 are enumerated hereunder: (A) The provisions of section 12AA(3) of the Income Tax Act, 1961 has two limbs viz. (i) genuineness of the activities of the society and (ii) the activities of the society are not in accordance with the aims and objects of the society. In the instant case, the activities of the assessee society are certainly not genuine because the funds of the assessee society are being misappropriated right from the F.Y. 2003-04 to F.Y. 09-10 as mentioned above. Sh. Sanjay D. Sonawani, the Managing Director of M/s Washington Software Ltd., has categorically admitted in his various statements that he has not actually supplied the softwares to the assessee society any only the bills have been raised in the name of assessee society. It was also admitted by him that the payment received from the assessee society through cheques have been got discounted from ....
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....ight have undergone imprisonment but it does not controvert the fact that he has actually given accommodation entries to the assessee society. (D) I find that the argument of the counsel that the proceedings initiated on the basis of the statements of Sh. Sonawani are not justified because he has changed his stand in his various statements has no force. Sh. Sonawani has nowhere back tracked from his main deposition that his company, namely, M/s Washington Software Limited, Pune has not supplied the actual software to the assessee society and that his company has issued the bogus bills to the assessee company in lieu of that. Thus, the crux of his statement justifies the proceedings initiated by the undersigned u/s 12AA(3) of the Income Tax Act, 1961. (E) In this regard, it is held that the action of the Assessing Officer in the assessments is an independent action which has no bearing on the proceedings initiated u/s 12AA(3) of the Income Tax Act, 1961. (F) As regards the various judicial pronouncements relied upon by the counsel of the assessee society, these are discussed hereunder:- JUDGMENTS RELIED UPON IN ARGUMENTS DATED 18.03.2013 1. CIT Vs. Red Rose School 212 CTR (All....
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.... personal bank accounts for taxation. The learned Income Tax Appellate Tribunal, Amritsar Bench, Amritsar has held that the irregularities committed by members in their individual capacity cannot be held against the society for the purpose of cancellation of registration. Thus, the facts of the case relied upon by the assessee are distinguishable with those of the facts of the present case and hence are not applicable here. 4. Maharashtra Academy of Engineering & Educational Research (Maeer) Vs. CIT 36 DTR 321 (Pune) In this case, one of the trustees was a Doctor who was involved in an immoral and illegal act of manufacturing and selling of heroin and the Hon'ble Courts held that the case has to be decided on legal principles and no on one's own moral views. This was a case of charging of capitation fee in the form of donation from the kith and kin of a student. But in the present case there is no case for donation or immoral activities of the trustees. Hence the facts of the case relied upon by the assessee are different and not applicable. 5. Institute of Science and Management Vs. CIT(Central), Patna passed on 12.03.2012 by I.T.A.T., Cochin Bench. In this case als....
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....ant case before me, there is clear cut misappropriation of trust's funds consequently for various years. Hence the facts of the case relied upon by the assessee are distinguishable. (8) Kalinga Institute of Industrial Technology Vs. CIT (2008) 23 SOT 74 (Cuttack Bench of I.T.A.T.): In this case the issue decided by the Hon'ble I.T.A.T. was that whether the CIT can utilize his power under Section 12AA(3) of the Income Tax Act, 1961 after a search and seizure proceedings u/s 132(1) of the Income Tax Act, 1961 before completion of the search and seizure assessment for which the assessment was pending before the concerned Assessing Officer. The assessment pending before the Assessing Officer was merely with regard to the documents and valuables etc., found during the course of the search and seizure and there was only one year which involved some misappropriation of trust's funds. But in the present case, although a survey operation u/s 133A of the Income Tax Act, 1961 was conducted on 29.03.2011 at the premises of the assessee trust but that survey was as a consequence of a statement of a person whose company had issued bills for supply of software and these bills were establis....
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....tary of the assessee society as also the details of cheques issued towards the payment to M/s Washington Software Ltd. It is incorrect to say that the softwares have been purchased and installed in the Central office. The investigation carried out by the Department clearly established that the softwares were never purchased. So the argument that the softwares were purchased and installed in the Central Office has no force in view of the findings as mentioned in the preceding paragraphs. As regards the report dated 11.09.2012 of M/s Trident Information Systems Pvt. Ltd. It is noted that this report is prepared at much later stage and the matter of misappropriation of society's funds, which has come to notice in year 2010-11 relates to a period way back to the year 2003-04 and this report is prepared in the year 2012. The veracity of this report is also not reliable in view of the following reasons: (i) It is not established that M/s Trident Information systems Pvt Ltd. is a duly authorized agency by some competent authority to certify the authenticity of the softwares uploaded on assessee society's computers. (ii) By now, the assessee society could have installed some similar so....
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....arguments/submissions will not help the assessee in view of the discussion made in the preceding paragraphs. The counsel for the assessee society has also put forth another argument before me that even if the purchase of the softwares by the assessee from the said company was sham and not real, it is not an act of the society but some official of the society for which the society cannot be punished. In all the above noted written arguments, the assessee society has never adduced any evidence to establish that the management of the society was never involved in the sham transactions of the society with the company of Sh. Sanjay D. Sonawani. Even if some official of the society is pin pointed in all these unreal transactions, the misappropriation which runs into crores of rupees continued for various years cannot be without the knowledge of management. It is pertinent to mention here that all the payments made to WSL have been approved by Sh. Vijay Berlia General Secretary of Society and during survey operation, he couldn't give any satisfactory reply or could not furnish any evidence that software was actually purchased that installed at society premises. WRITTEN ARGUMENTS FURNISH....
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....nbsp;The case law relied upon by the assessee's counsel in these written arguments is also no applicable to the facts of the present case as in that case no opportunity was allowed to the assessee to cross examine the witness in that case. But in the present case opportunity to cross examine has already been allowed by the Assessing Officer to the assessee society before whom assessments for various years were pending, but the counsel for the assessee has not availed the opportunity provided to him. 7. In view of the above mentioned legal and factual position of this case, I am satisfied that the activities of the assessee society are not genuine, as its funds are being misutilized continuously for many years as mentioned above and hence the registration granted to it u/s 12AA(1) of the Income Tax Act, 1961 is liable to be withdrawn and cancelled. I am also satisfied that the funds of the assessee society are also being utilized for the objects of the society from the past many years. Accordingly, taking recourse of the provisions of section 12AA(3) of the Income Tax Act, 1961, the registration granted to the assessee society on 13.05.1999 is hereby cancelled with effect from asse....
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....enience: "12AA (3): Where a trust or an institution has been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided: that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard." 12) Learned counsel for the assessee argued that the activities of the society is to impart education and nothing has been brought on record by learned CIT, Jalandhar-II, Jalandhar, to show that the activities of the institution i.e. imparting education, which are the main object of the institution, are not genuine and therefore, learned CIT, Jalandhar-II, Jalandhar, is not justified in cancelling the registration of the assessee society. Learned counsel for the assessee referred at page 5 of the order of learned CIT, Jalandhar-II, Jalandhar, where the CIT observed that the activities of the assessee socie....
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....ble at page 103 & 104 of PB, and the statement of Smt. Anita Paul available at page 365 to 373 of PB. He also invited our attention towards the report of M/s Trident Information Systems Pvt. Ltd. at page 101 & 102 of PB who after inspection and examination reported that the said software modules were purchased by the assessee and were installed between 2004 to 2011 and the assessee argued that the learned CIT, Jalandhar-II, Jalandhar, has not found any defect in the same. He further filed reports, generated from time to time by the said softwares, which were installed in the Head Office, available at page 106 to 223 of PB. It is argued that the software purchased from M/s Washington Software Pvt. Ltd, though debited to various institutions, is installed in the central server at the head office of utmost importance and requiring secrecy. The software includes various modules and various types of reports are generated. These reports have been mentioned hereinabove and were placed on record at page 106 to 223 of PB. 16) It was argued that it was a concocted story by the vendor only to save his skin and putting onus on others to prove. The balance sheet and profit and loss account of ....
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....d cross examine Mr. Sanjay D. Sonawani in the office of DDIT(Inv.), Pune. In regard to same it is submitted as under: That assessment proceeding in our case is going on before and you are our Assessing Officer. We want to cross examine the witness in your presence as you have to decide our case on the basis of his cross examination. No doubt he is witness of the department and we have right to cross examine him at Jalandhar. However keeping in view your limitations and we being law abiding citizens are ready to bear all the expenditure of Mr. Sanjay D. Sonawani for travelling to Jalandhar as witness. For this purpose we are enclosing herewith demand draft No. 652344 dated 27.03.2013 for drawn on OBC Pune for Rs. 15,000/- in the name of Mr. Sanjay D. Sonawani. You are requested to call me to depose here in Jalandhar before you. In case his expenditure is more than this, we will reimburse the same on his arrival or if you want we can pay in advance. Hence it is prayed that he may please be called to Jalandhar. Thanking you. Yours faithfully For Appejay Education Society Sd/./- (CA Nirmal Mahajan) Counsel Encl: demand draft" 17) Learned counsel for the assessee also invite....
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....alised as a witness what remains is the accounts, vouchers, challans, bank accounts, etc. But, we would observe here that which way lies the truth in Shri Sukla's depositions, could have been revealed only if he was subjected to a cross-examination by the assessee. As a matter of fact, the right to cross-examine a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the cornerstones of natural justice. Here Shri Sukla is the witness of the Department. Therefore, the Department cannot cut short the process of taking oral evidence by merely having the examination-in-chief. It is the necessary requirement of the process of taking evidence that the examination-in-chief is followed by crossexamination and re-examination, if necessary 18) Learned DR, on the other hand, strongly relied upon the order of learned CIT, Jalandhar-II, Jalandhar, as well on the written submission filed by him, which for the sake of convenience is reproduced as under: Regarding:- APJ Education Society, ITA No. 228/Asr/2013 Written Submissions:- The main issued involved in the cancellation of registration u/s 12AA(3) of the I.T. Act by CIT-II, ....
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.... conclusion in para 7 of the order dated 25.03.2013. This decision of the CIT-II is absolutely correct and as per law. At the onset, it is requested that reading of the order u/s 12AA(3) dated 28.03.2013 of IT Act, 1962 ad of the assessment order u/s 143(3) for assessment year 2010-11 passed on 28.03.2013 (page No. 592 to 612 of the Paper Book Volume-2 filed by the assessee) will clear all the doubts and will establish that it was a crystal clear case of claim of bogus/sham expenses on the basis of forged documents (accommodation entries) Back ground of the assessee/Society 1. The society/assessee is managed by one family - 5 members out of 7 members are and belong to Sh. Satyapal, the presidentof the society. (Source Page 14 of the Paper Book filed by the assessee) Sr. No. Name Occupation Address Relationship 1. Stya Paul Business S-361, Panch Shilla Park, New Delhi Father 2. Sushma Berila Business 14, Commercial Complex, Majid Moth, Greater Kailash- II, New Delhi-48 Daughter 3. Yash Raj Aggarwal Business GDPA House Near Railway Godown, Jalandhar -4 4. Vijay Kumar Berila Business 14, Commercial Complex, Majid Mot....
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.... Sh. Sonawani has been debited as expenses of various institutes whose key personnel's were not even aware of the payment or software or purchase of any software. (Source Page No. 365 to 412 of the Paper Book filed by the assessee) 5. The assessee is an old society and have been managing its affairs including books of account on computer. The evidence produced during the proceedings in respect of software only relate to regular software which was used in maintenance of details. There is no specific evidence in respect of evidence regarding software from the WSL. Hence:- 1. The assessee could not explain as to why the so-called software has been installed in the head office whereas expenses have been debited to various institutes of the assessee. 2. The assessee has employed unfair means to siphon off the funds for ulterior motive and hence the activities of the society does not remain genuine. 3. The very soul of charitable activities has been violated which goes to the core of purpose and objects. It is not a case of disputed expenses but a case of pure siphoning off money for non-genuine activities of the society. 4. The assessee has not been able to explain the reaso....
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.... that the main object of the society is to run educational institute and during the year, the assessee was running several schools and colleges. Nowhere, there has been finding in the assessment order that the assessee institute is not imparting education or not carrying out any activity of imparting education which is the main object of the society. It has been held by the Assessing Officer in the said order that the assessee has incurred 91.71% of the receipts which are more than 85%, as required under Section 11(1) of the Act. Similarly, in the order dated 30.12.2011 passed for the assessment year 2009-10, which has been passed after the order under Section 12AA(3) of the Act, available at page 553-563 of PB (Vol. -2), it has been observed by the Assessing Officer in para 2 (page 554) that the main aim of the assessee society is to run educational institute and during the year the assessee was running several schools and colleges and therefore there is no finding with regard to not imparting education to the students or not achieving the objects of the assessee society. In the aforesaid order, at page 562 of PB (Vol. -2), it has been held by the Assessing Officer that the assess....
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....ndhar, has not brought on record any materials that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust. Thus, the order of learned CIT, Jalandhar-II, Jalandhar, cancelling the registration is bad in law and, therefore, is set aside. 21) Reliance has been placed by learned counsel for the assessee in the cases of Chaturvedi Har Prasad Education Society (supra), Maharashtra Academy of Engineering & Educational Research (Maeer) (supra), Institute of Science and Management (supra) and Ajit Education Trust, Bharuch (supra) and these case-laws support our views and all the decisions are placed on record. 22) As regards the purchase of software, much has been relied upon the statement of one Mr. Sanjay D. Sonawani Manager of M/s Washington Software Ltd. who stated that he has provided accommodation entries to the assessee society. From the statements given to the Department from time to time dated 16.03.2011, 12.04.2011, 12.05.2011 and 30.12.2011, it was argued that Mr. Sanjay D Sonawani has contradicted his statements every time and as regards the arguments made by learned Sr. DR Mr. Mahavir Singh that his stand has alre....