TaxTMI 
TaxTMI 
2016 (9) TMI 213
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.... (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 National Bank, Ramnagar, Roorkee * A/c No. 469002100000119, Punjab National Bank, Dehradu....
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....m 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 was found to be not genuine and fabricated one. He also observed that the reply of HPISPL revealed that only 251 lapto....
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.... 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 polytechnic college. He also mentioned that OD facility of Rs. 30 crores from PNB, Saharanpur was channeled through Delhi Parties and an amount of Rs. 292 lakhs was paid....
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.... 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 CONFORMITY WITH THE PROVISIONS OF SECTION 12AA OF THE INCME TAX ACT, 1961: a) The above mentioned society i.e. Uttarakhand Uthan Samiti was registered under the Societies Registration Act, 1860 vide Registration Certificate No. 81/2004-05 dated 14/05/2004 with the Registrar of Societies, Uttarakhand. Further, the society was renewed by Registra....
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....tion 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 compared to what would have been charged by an outside Contractor, since the management has got the construction done themselves they have been able to keep the cost so low. Besides the above building construction lot of other construction like the following have also been done: 1. Complete boundary wall of Dehradun Campus of 150 Bigha. 2. Complete boundary wall of Saharanpur Campus of 130 Big....
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....gy 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 with Sanjay Bansal or his concerns. As regards genuineness of business done by him, we shall like to submit that the society acted in good faith and we cannot comment on whether the books of accounts were maintained by him or not. That is best known to him only. The firm supplied computers, laptops and accessories to the society and payments were made through account payee cheques against bills issued by the ven....
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....sis, 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 fabricated invoice to the bank. Computers, Peripherals & Accessories were purchased against it from M/s Fortech Computer Systems, Dharampur Danda, Dehradun (Prop. Mr. Sunil Dandriyal) and not from M/s Fortech Computer Systems, G-10 Siddhartha, 96 Nehru Place, New Delhi as alleged by your goodself. Further, as regards your statement that the bank did not receive any other documents in support of laptops, we shall like to submit that the....
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....ied. 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 purposes for which it was sanctioned and for the furtherance of the objects of the society. 13) OBSERVATION REGARDING INVETSMENT IN PROPERTY In point no. 13 of your letter dated 30,01.2015, your goodself has alleged that Sanjay Bansal has diverted the fund of society for investment in immovable properties. Also it has been alleged that the funds have been transferred to M/s Ganga Realtors Pvt. Ltd. for purchase of plots in their individ....
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....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 respect of each such party in the above points which clearly shows that the society has made genuine purchases from the mentioned concerns. 16) In respect of your query regarding SKIET, your goodself have alleged cash payments of Rs. 35 to 40 crores to the outgoing trustees of that trust. It is respectfully submitted that no payment of Rs. 40 Crores as mentioned in your notice has been paid and therefore the allegation is denied. The do....
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....t 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 Rs. 30 crores and Term Loan A/c 170900IC00000025 of Rs. 8 crores, we shall like to submit that the above loans were taken for the furtherance of objects of the society and were utilized for the same. Payments to various parties of Delhi were made for the purpose of purchasing contiguous land in Gurgaon/Delhi for setting up Educational Institutions, University, Colleges and Schools. Also, it was planned to establish gymnasium, Exercise Centre and H....
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....cation 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. Ltd., we shall like to submit that the advance was given by the society for purchase of land in Gurgoan/Haryana, The terms of MOU provided that interest would be charged only if the party does not return back the amount within specified period of expiry of MOU. Since the amount was received back within the stipulated time, no interest was charged. The society cannot comment on utilization of funds by the parry. A copy of MOU executed with the party and....
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....e 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 able to indicate any justifiable evidence or document that the funds of the trust had been utilized for the aims and objectives of the trust. He further observed that in order to eligible for registration u/s 12A of the Act, the objectives have to be for the purpose of education or other charitable work and that Section 12AA of the Act provides for cancellation of this registration when the Pr. CIT is satisfied that the activities of such trust or Instituti....
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....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 arbitrary manner by the ld. Pr. CIT without providing adequate reasonable opportunity and in violation of the principle of natural justice. It was further submitted that the explanations and evidences furnished against the unfounded allegation were not given due consideration and findings were given unilateral, without material and evidences on record. It was also submitted that the assessee society had been running educational institutes in accordance with its ob....
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....in 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 view of the overwhelming evidences furnished by the bank and assessee, the department should have taken action in the hands of M/s Fortech and should not have harmed the activities of a charitable institution. It was stated that the assessee society was running several educational institutions and complied with all the statutory norms of building, lab equipments, computers, accessories, peripherals and affiliation by statutory bodies like AICTE and that every....
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.... 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, threat etc, the denial of the transaction could not have resulted in the transaction being held as bogus. Particularly when, the transactions were supported by bills, payments by account payee cheques, entries in the audited books of accounts, their utilization by the society and the existence of the building constructed with the materials supplied etc. None of those material evidences had been disapproved and moreover, no opportunity for cross examination of....
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....honed 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 used to achieve the objects of the assessee and even the invoices were fictitious and the loans which were diverted for non-charitable activities were repaid from the fees collected from the students and even the purchases were inflated. Therefore, the objectives for which the assessee Society was established were not fulfilled. It was pointed out that the trustee of the assessee Society surrendered the income during the course of search for the reasons that the unaccounted income was earned by the assessee societ....
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....r 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 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 o....
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....g 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 satisfied, he would grant registration. In the event, upon an inquiry, the Commissioner was not satisfied, he could refuse registration. Similarly, under subclause (3) of the section 12AA, the registration can be cancelled on the ground that the Commissioner was satisfied that the activities of such trust was not genuine or was not being carried out in accordance with the objects of the trust. The fact that some activities, which were not solely carried out for charitable purpose could not be a ground for cancelling the regis....