TaxTMI 
TaxTMI 
2016 (9) TMI 213
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.... u/s 12AA(3) & (4) of the Income Tax Act, 1961 (hereinafter referred to as the Act). 4. Facts of the case in brief are that the assessee is running Educational Institutions, a search operation was carried out on 26.04.2012 at the premises of the assessee. During the course of search certain documents were found and seized. The ld. Pr. CIT issued a show cause notice dated 30.01.2015 u/s 12AA(3) of the Act to the assessee and asked to explain/clarify as to why the registration u/s 12AA of the Act granted by the CIT vide order dated 24.11.2007 not be cancelled. The ld. Pr. CIT observed that the documents seized during the course of search revealed that Sh. Sanjay Bansal had siphoned off the society's fund and the funds so siphoned off were utilized for acquiring properties by him and by his family members. He further observed that his wife Smt. Seema Bansal had opened following bank accounts in the name of the employees: • A/c No. 61059655944, State Bank of Bikaner and Jaipur, Dehradun • A/c No. 705020110000202, Bank of India, Dehradun • A/c No. 3898002100021547, Punjab National Bank, Roorkee • A/c No. 3898002100012538, Punjab Nat....
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....55.68 lakhs and after sanctioning & disbursing the said term loan, the bank had not obtained the purchase bill from the assessee society in support of purchase of laptops/computers for which the loan was sanctioned and that the bank had waived the condition of insurance of laptops /business note books and moreover no inspection report in respect of end use of the term loan was available with the bank as stated in letter dated 27.07.2012 of Chief Manager, PNB, Avas Vikas Branch, Saharanpur. 7. The ld. Pr. CIT also pointed out that a further term loan of Rs. 262 lakhs was sanctioned by the PNB, NAV, Saharanpur to the assessee society for purchase of 1050 laptops worth Rs. 393.12 lakhs to be distributed to the students of the institute from M/s CAD ARENA, near Hostel Royal Palace, Roorkee. According to the ld. Pr. CIT, M/s CAD ARENA was not an authorized distributor of HPISPL for supply of laptops in North India and the said company had not issued the proforma invoice No.J9AD109932 dated 19.08.2010 for the value of Rs. 3,93,12,000/- and that the letter issued by Sh. Naman Patil (Manager Sales-North India) of HPISPL confirming advance of Rs. 59,99,500/- on behalf of M/s CAD ARENA wa....
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....ade a disclosure of Rs. 4,02,25,780/- as undisclosed investment in the aforesaid funds in the return filed u/s 153A of the Act and that Sh. Sanjay Bansal and Smt. Seema Bansal had also disclosed Rs. 86,00,000/- as undisclosed investments in purchase of properties which prima facie proved that the funds of the assessee society had been utilized for personal/non charitable purposes. The ld. Pr. CIT also discussed the details of repayment of term loans/over drafts of the concerns mentioned in the former part of this order and in para 14 of the impugned order, he was of the view that the repayment had been made by way of the diversion of the funds belonging to the assessee society. 9. The ld. Pr. CIT also mentioned that the purchases were made by the assessee on the basis of fake and fabricated bills. The relevant discussion has been made in para 17 of the impugned order for the cost of repetition, the same is not reproduced herein. The ld. Pr. CIT also stated that the documents seized during the course of search revealed that Sh. Sanjay Bansal had made cash payments of about Rs. 35 to 40 crores to the outgoing trustees for taking over the control and management of the institute and....
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....ke bills/invoices had been submitted to the bank for sanctioning the term loan which has not been utilized for the purposes for which it was sanctioned. The ld. Pr. CIT also observed that the funds of the assessee society had been siphoned off by the Chairman Sh. Sanjay Bansal through fictitious concerns and it had been utilized for personal purposes for acquiring land/properties in individual name or in the name of family members and that the funds had also been misused by giving interest free loan/advances for noneducational purposes. Therefore, the affairs of the assessee trust were not being carried out as per objectives of the trust and moreover, the activities were carried out in a manner that the provisions of Section 11 & 12 of the Act did not apply to exclude either whole or part of income due to operation of sub-Section (1) of Section 13 of the Act. The ld. Pr. CIT asked the assessee to submit the explanation/clarification, if any, as to why registration u/s 12A of the Act, granted vide order dated 24.11.2007 not be cancelled. 12. In response the assessee submitted its reply dated 28.02.2015 which is reproduced verbatim as under: "OBJECTS OF THE SOCIETY IN CONFORMIT....
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....utory bodies. It is apparently evident that the society has been incurring recurring expenses along with incremental (developmental) expenses to meet the expansion requirement of all these courses as per the norms of aforesaid statutory bodies. f) We shall humbly like to submit that every year new construction, extension of Academic facilities, addition of laboratory and equipments, computers & peripherals are mandatory and binding for approval and extension of affiliation thereof. Therefore, it is pertinent to state that the society funds are being utilized in the above activities. The approximate year wise square feet construction and the cost incurred is given below: Sr. Year Dehradun & Saharanpur Campus 1 2005-06 34000 2 2006-07 71500 3 2007-08 40000 4 2008-09 115000 5 2009-10 80000 6 2010-11 193000 7 2011-12 76000 8 2012-13 18000 TOTAL 627500 Thus the total constructed area is approx 6,27,500 square feet and the cost incurred is approx Rs. 33 Crores, which is totally justified considering the average rate of construction per square feet which is in fact quite low as....
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....Fortech Computers was solely based on the principle of purchasing best quality at the lowest price, which is incidental to the attainment of the objectives of the society. The purchase consideration for the same was paid to him from the term loan Account No. 1175002100007941 with PNB Kaulagarh Raod, Dehradun, OD Account No. 1175009301046063 and Account No. 1175002100008302 of Dev Bhoomi Institute of Technology through account payee cheques. The computers/laptops and accessories were purchased from M/s Fortech Computers in bulk and later on the price quoted by the firm was paid through account payee cheques. Further, we shall like humbly submit that your goodself have mentioned in the notice that withdrawals from account of M/s Fortech Computers have been made by Sunil Dandriyal, Atul, Neeraj Tyagi and Sushil Kumar who have been alleged to be employees of Shri Sanjay Bansal in his concern M/s Bansal Associate & Engineers, however, this is not true. Only Mr. Sunil Dandriyal was an employee and the others were neither the employees of Sanjay Bansal nor worked in Bansal Associate & Engineers. In fact, Mr. Sushil Kumar was the employee of Society. These people had no connection wi....
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....o. 2 to 40. Further year wise Approval copy is dully attached for both DEHRADUN and SAHARANPUR Campus as Annexure C Page No. 41 to Page 179. We shall further like to submit that it has been alleged that Mr. Sanjay Bansal siphoned off society's funds which were alleged to have been utilized for acquiring properties by him and his family members. It is submitted that the allegations are incorrect and are without any basis, material and evidence. Detailed submission in this regard has also been made subsequently in the reply." 13. The assessee also gave reply for the queries relating to the various firms from whom the assessee made the purchases. The ld. Pr. CIT has mentioned the submissions of the assessee relating to those firms at page nos. 20 to 29, for the cost of repetition these are not reproduced herein. As regards to the query relating to term loan and the investments in the property, the submissions of the assessee before the ld. Pr. CIT were as under: OBSERVATION REGARDING TERM LOAN As regards your query related to Term Loan A/c No. 1175001C00000378, we shall like to submit that as alleged, the society, Uttarakhand Uthan Samiti has not submitted any fabri....
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....r goodself that only 251 laptops have been received by the society from M/s Hewlett Packard India Sales Private Limited, 24, Salarpuria, arena Hosur Main Road, Adugodi, Bangalore. Rest of the laptops have been received from M/s Cad Arena, Dharampur Danda, Dehradun. The allegation that the society has not purchased any laptops against the Term Loan of Rs. 262 Lacs is totally wrong and the sanctioning of loan by bank is totally justified. As regards your goodself's allegation that the accounts have been opened by Mr. Sanjay Bansal, in the name of Fortech Computer Systmes, M/s Rana Steels, Cad Arena, Pawan Kumar & Co and Negi Builder & Suppliers we deny the said allegation and confirm that no such account has been opened by Mr. Sanjay Bansal. We have already clarified above that these accounts do not pertain to the society or to Sh. Sanjay Bansal. Moreover, the society is not concerned of these entities and it has acted in good faith. As already mentioned above, it was in the best interest of the society to place order with the person who provided minimum and reasonable rates and the society has done the same. Therefore the society has correctly utilized the term loans for the purpose....
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....leged that the amounts credited in the bank accounts of the fictitious concerns are from the term loan and OD accounts of Uttarakhand Uthan Samiti and bank account of DBIT College. The allegation is completely denied in light of the fact that the term loans and ODs were taken by the society for the advancement of objects of the society. These loan accounts have been utilized for incurring all the expenditure necessary for fulfillment of the objects of the society. To substantiate, a list of utilization of term loans of ODs is attached herewith as Annexure P page No. 569 to 578: From the above details it is clear that all the loans and OD accounts have been used for furtherance of objects of the society. The allegations made are without any basis, material or evidence. There are no credits in the bank account of any fictitious concerns much less from the Term Loans and OD of the society nor any expenditure in the nature of alleged bogus purchases were booked from such non-existing concerns. 15) In point no. 15 of your notice dated 30.01.2015, your goodself have mentioned details of payments made to some concerns. In this regard we have already submitted the complete details in....
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....y. c) In reference to Rishiraj Building Material Supplier, we shall like to submit that we are not aware who has submitted these bills and for what purpose. Mr. Sanjay Bansal has not submitted any such bill to the bank nor has it been recorded in the books of accounts of society. Thus, the allegation is denied. d) In reference to your query no 17(c) on page 13 of questionnaire dated 30.01.2015 related to Pawan Kumar, we shall like to submit that we are not aware who has submitted these bills and for what purpose. Mr. Sanjay Bansal has not submitted any such invoice to the bank nor has it been recorded in the books of accounts. Since no such expenditure has been incurred and neither claimed in the books of accounts, the allegation that the society has claimed any bogus expenditure is incorrect and there is no question of disallowance of the same. We shall further like to submit that no details of alleged various bill of Pawan Kumar have been given by your goodself in the impugned notice, society is not in position to make further submission in this regard. 18) In respect of your query no. 18 on page 13 of questionnaire dated 30.01.2015 regarding OD A/c 1709009300044883 of R....
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....ransferred to other accounts, however, in this respect we shall like to submit that the society paid amount for a project and it was not binding on the party to immediately utilize the amount for that project. When an advance is given, the party can utilize it for its business purpose. A copy of MOU executed with the parry and ledger Account evidencing return of payment is attached herewith as Annexure R, page No. 583 to 586. c) M/s Chand Sons Education City Pvt. Ltd. and M/s CKSR Impex International Pvt. Ltd.: The amounts of Rs. 3.66 crores and Rs. 3.44 crores were paid by Sh. Sanjay Bansal to M/s Chand Sons Education City Pvt. Ltd. and M/s CKSR Impax International Pvt. Ltd. respectively for setting up of school/college with the party. The MOU was executed for a time period and if the conditions were not fulfilled before the date of expiry of MOU, then only the party was required to return back the advance paid to it. A copy of MOU executed with the party and ledger Account evidencing return of payment is attached herewith as Annexure S, page No 587 to 598. d) M/s Santosh Timber Trading Pvt Ltd.: As regards advance of Rs. 3 crores given to M/s Santosh Timber trading Pvt. ....
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....ty and ledger Account evidencing return of payment is attached herewith as Annexure W, page No. 622 to 625. h) Sh. Sunil Jalan: The advance of Rs. 5.5 crores was given for purchase of land in Delhi/Gurgaon region for setting up new colleges. It was only for the furtherance of objects of the society. A copy of MOU executed with the party and ledger Account evidencing return of payment is attached herewith as Annexure X, page No. 626 to 635. Based on the above submissions, we shall like to submit that the allegation imposed by your goodself that the funds of the society have been used for non-educational purposes is completely denied. No funds of the society have been siphoned off by Sh. Sanjay Bansal. It is evident from the above submissions that the society is being run in consonance with the objectives of the society for which it was established and all the conditions stipulated in section 11 & 12 of Income Tax Act, 1961 are being compiled by the society. Thus it is requested to your goodself that the registration granted u/s 12A by the CIT may not be cancelled," 14. The ld. Pr. CIT after considering the submissions of the assessee observed that that assessee had not been....
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....the aims and objectives for which registration was granted. The ld. Pr. CIT was of the view that the registration of the assessee can be cancelled even in the case when it is found that the certain income received by the assessee trust was not exempted u/s 11 of the Act, due to certain provisions of Section 13(1) of the Act becoming operative. The ld. Pr. CIT observed that the evidence found during the course of search were considered to be belonging to the assessee and the contents of such documents were true, the assessee had not been able to rebut any of the evidence or information found by the AO indicating that the funds of the assessee trust had been siphoned out for activity other than the objectives and it was evident that the funds of the assessee trust had been used for the purpose of other than education and the objectives of the trust. The ld. Pr. CIT, therefore, cancelled the registration granted u/s 12A of the Act. 15. Being aggrieved the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the registration u/s 12A of the Act was cancelled and exemption was disallowed in arbi....
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....ers, laptops distributed to the students, inspection reports of the affiliating and approving authorities like AICTE etc. It was further submitted that the Bank loans were taken and utilized by the assessee for its object, were returned from the society's own funds and this fact would not have been interpreted against the assessee. It was also submitted that interest free advances to certain concerns and individuals were given under proper agreements for certain work which was essential for the promotion of the objects of the assessee Society, like provision of Hostel accommodation for students etc. It was contended that the assessee furnished overwhelming evidences for purchase of 800 laptops from M/s Fortech Computer System including bills, payments by account payee cheques receipt of 800 laptops and their distributions amongst students, intimation to the bank regarding receipt of 800 laptops and payments to M/s Fortech for the same etc. The aforesaid evidences were not contradicted by the ld. Pr. CIT who did not say that the payments were not made for 800 laptops, still he believed the letter of M/s Fortech saying that only 467 laptops were sold. It was further contended that in....
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....accessories, peripherals were also purchased at reasonable rates and even lower than what would have been charged by other concerns. Therefore, the ld. Pr. CIT without looking into the aforesaid facts and without pointing out anything excessive, unreasonable or wrong, straightaway gave an unfounded and unsubstantiated findings that construction, purchases, etc. were bogus. It was submitted that even no benefit was derived by Sh. Sanjay Bansal or his associates from the above transactions, therefore, the provisions of Section 13 of the Act were not applicable. It was pointed out that the distribution of the laptops were duly confirmed on stamp paper and receipted/acknowledged, paid periodically by the students over a period of 4 years and those documents were shown to the AO/Competent Authority in the course of the proceedings u/s 12AA of the Act and 10(23C)(vi) of the Act but no proper notice was taken thereof and ignored in order to pass an adverse order with pre-conceived notions and to justify the search conducted in this case. It was further stated that merely because certain statements were obtained from the owners of the supplier firms under duress, coercion, undue influence,....
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....2 Taxman 108 • Tamila Nadu Cricket Association Vs DIT(E) (2014) 360 ITR 633 • CIT Vs Babu Mohan Lal Arya Smarak Education Trust (2014) 42 Taxman.com 255 (All) • CIT Vs Ved Niketan Dham, Public Charitable Trust (2013) 219 Taxman 115 (P&H) 16. In his rival submissions the ld. CIT DR strongly supported the impugned order passed by the ld. Pr. CIT and reiterated the observations made in the said order. It was further submitted that the funds of the assessee Society were siphoned off by the promoters/trustee which was apparent from the documents found during the course of search. It was further submitted that the trustee of the assessee Society namely, Sh. Sanjay Bansal opened various bank accounts in the names of the employees or the concerns associated with them and all the withdrawals were through the bearer cheque which were diverted for activities other than the educational activities which was the main objectives of the assessee. It was also pointed out that Sh. Sanjay Bansal and his wife were the introducers for most of the bank accounts and the loans were given to the relatives for non-business purposes. Therefore, the funds were not use....
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....e the bank account was opened. In the present case, the assessee constructed the building which was in existence and nothing was brought on record to establish that the assessee was not in possession of the building constructed by obtaining the term loan from various banks, even the loan was sanctioned and disbursed by the bank after proper verification and there was no allegation form the concerned bank that the loan was obtained by the assessee by making mis-representation or furnishing inaccurate particulars or documents. The ld. Pr. CIT also alleged that the assessee Society purchased the computers and laptops from the associated concerns of the trustees but nothing is brought on record to substantiate that those computers/laptops etc. were purchased at a higher rate than the market rate rather the claim of the assessee was that those were purchased at a lesser ate then the market rate which benefited the assessee Society. In the present case, it is also noticed 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 th....
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....ssessee 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. 18. On a similar issue the Hon'ble Allahabad High Court in the case of CIT Vs Babu Mohan Lal Arya Smarak Educational Trust (supra) held as under: "Where in course of search carried out at assessee's premises, certain documents were found indicating some receipt of cash against admission of students in various courses run by assessee trust, in view of act that presumption under section 292C was rebutted by denial of assessee as no evidence of actual receipt of donation or capitation fees was found in search, registration granted under section 12AA could not be cancelled on basis of seized documents." 19. Similarly, the Hon'ble Allahabad High Curt in the case of CIT Vs Varansai Catholic Education Society (supra) held as under: "From a perusal of section 12AA, it is clear that the Commissioner was required to satisfy himself about the genuineness of the trust by making necessary inquiries and if he was satisf....