TaxTMI 
TaxTMI 
2021 (4) TMI 908
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.... of the circumstances beyond their control. All these condonation averments have gone un-rebutted from the Revenue's side. As per the hon'ble apex court's landmark decision in Collector, Land Acquisition Vs. Mst.Katiji & Ors [167 ITR 471] (SC) and University of Delhi Vs. Union of India, Civil Appeal Nos.9488 & 9489/2019, dt.17-12-2019 holding that such a technical aspect must made way for the cause of substantial justice, the impugned identical delay stands condoned. All these cases are now taken up for hearing on merits. 3. Both the learned representatives inform us at the outset that all these assesses' appeals challenge correctness of the Pr.CIT's order withdrawing their respective Section 10(23C)(vi) approvals. And that we ought to take up ITA No.320/Hyd/2020 in the case of Karshak Vidya Parishad as the 'lead' case for the sake of convenience and brevity. We thus treat the above case as the 'lead' one raising the following substantive grounds: "1.The order of the Pr.CIT (Central), withdrawing the exemption granted u/s.10(23C)(vi), is arbitrary, erroneous, without proper reasons and bad in law. 2.The LearnedPr.CIT (Central) erred in issuing common show c....
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....014 to give power to Pr.CIT to approve or reject exemption u/s.10(23C) but Pr.CIT has erred in rescinding the order of approval already granted in 2009 by the CCIT, without proper authority and finding any defects from the year 2009 onwards. 13.Without prejudicial to the above grounds on withdrawal of approval, we strongly object for withdrawing the approval u/s.10(23C) (vi) of the Act, retrospectively with effect from the date of its sanction in 2009, which is against the legal precedence on the issue. 14.On the facts and in the circumstances of the case Ld.Pr.CIT was under misconceoption while holding that the appellant has done real eatate business, when, in fact, the appellant has just sold out its agricultural lands, desperately, only to discharge its pressing bank liability, which was taken for the purpose of the trust and in the interest of continuing the charitable activity in running education institutes without any hinderance. 15. Ld.Pr.CIT has erred in cancelling the approval u/s.10(23C) of Act, drawing inference that the books of account are not proper, without preperly and judiciously appreciating that the society has maintained books of acco....
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....cation was obtained from the Pr.Commissioner of Income Tax(Central) and the letter dated 6.11.2020 of the PCIT(Central). The clarification is available at pages 144-147 of the Paper Book filed by the undersigned. It is also submitted that as per Notification No.SO 3215(E)[No.60/2019](F.No.370142/ 14/20 18-TPL] (dated 5.9.2019, issued with regard to amendment of Rules 2C and 2CA of the Income Tax Rules, the PCIT has jurisdiction for revocation of approval granted ix] s 10(23C) of the Income Tax Act. It is humbly submitted that the assessee has not raised the issue of jurisdiction before the PCIT and the same is raised for the first time before the Hon'ble ITAT and the assessee was not prevented by any sufficient cause in not raising the said ground before the PCIT. 4. In light of the above , the appeals may kindly be dismissed and the order of the PCIT may kindly be sustained". 5. We have given our thoughtful consideration to the rival pleadings regarding assessee's petition dt.16-10-2020 seeking to admit its above stated additional grounds. There could be hardly any dispute that the very question of Pr.CIT(Central)'s jurisdiction herein to withdraw Section 10(23C)(v....
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.... F.No.CC/Tech.1/22B(62)/2007-08, dated 27.03.2008 subject to the following conditions. i) The assessee will apply its income, or accumulate for application, wholly and exclusively to the objects for which it is established; ii) The assessee will not invest or deposit its funds (other than voluntary contributions received and maintained in the form of jewellery, furniture) for any period during the previous years relevant to the assessment years mentioned above otherwise than in anyone or more of the forms or modes specified in subsection (5) of section 11; iii) This order will not apply in relation to any income being profits and gains of business unless the business is incidental to the attainment of the objectives of the assessee and separate books of accounts are maintained in respect of such business; iv) The assessee will regularly file its return of income before the income tax authority in accordance with the provisions of income tax act, 1961; v) That in the event of dissolution, its surplus and the assets will be given to a charitable organizations with similar objectives and no part of the same will go to any of the mem....
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.... by order, withdraw the approval, as the case may be, and forward a copy of the order rescinding the notification or withdrawing the approval to such fund or institution or trust or any university or other educational institution or any hospital or other medical institution and to the Assessing Officer:" 2. Proposal for withdrawal of approval: 2.1 During the assessment proceeding in consequential the search, it was observed by the assessing officer that the society acted in violation of the conditions laid down for approval u/s.10(23C). The Assessing Office vide letter dated 06.12.2019 sent the proposal for withdrawal of approval u/s.10(23C). The Assessing Officer in her detailed proposal cited various violations as detailed below: i) No proper books of accounts were found during the search which would authenticate that the receipts of the institution were applied to its stated / approved objectives. ii) The society was required to maintain regular books of accounts, reflecting the actual operations of the society. These books of accounts are to be audited and form 10B is required to be filed, along with return of income, certifying the correctne....
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....ome, the above educational society has shown huge expenditures towards salaries, outstanding expenses payable, outstanding salaries payable, huge fixed asset additions. However, no details about the Teaching/ Non-teaching staff employed, how much salary was paid to whom, whether the salary was paid through bank/ cash, no proof of additions made to fixed assets, no bills and vouchers and ledger account copies pertaining to the said expenditure have been furnished even after several questionnaires and show-cause notices. Hence, without sufficient evidence and non-submission of books of accounts from the assessee-societies, it cannot be established beyond doubt that the quantum and nature of expenditure incurred by them is correct." 3.2 Subsequently another show cause was issued on 20/12/2019 as there is a change of incumbent. The issues raised therein are as under. i) No proper books of accounts were found during the search which would authenticate that the receipts of the institution were applied to its stated / approved objectives. ii) The society was required to maintain regular books of accounts, reflecting the actual operations of the society.....
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....g with the return of income. It is also stated that the search party didn't draw any adverse inference against the activities of the assessee. It is further submitted that the assessee has not been 'provided sufficient opportunity to produce necessary information. 4.4 It is submitted that the CIT should have been satisfied that the institution has not applied its income in accordance with the provisions of section 10(23C) and mere suspicion cannot form basis for withdrawal of approval. As a society is in deep financial trouble the lands had to be sold and all the sale proceeds were utilized for the purpose of stated objectives of the society. Therefore, it is submitted that the foundation requisite for the withdrawal of approval u/s.10(23C) is not fulfilled in assessee's case and, hence, it is requested to drop the proceedings. 5.ISSUES FOR CONSIDERATION: I have carefully considered the facts and circumstances of the case and have gone through the submission made on behalf of the society. I have also considered the material found and seized during the search operation and also statement recorded during search and post search investigation. ....
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.... does not mean that the activities of the4 society are true and correct. The fact that the audited accounts of the assessee do not reflect the assessee's society's real affairs and complete transactions of the society have been deliberately hidden from the department. This is a clear violation of conditions of section 10(23C). The charitable nature and education purpose of an institution is reflected through its books of accounts. If the books of accounts are not properly maintained and there are financial transactions outside the books of accounts then the statement that the society's activities are being carried out as per the objects remains only on paper. Nonmaintenance of books in itself reliects the intention of the society members I trustees to hide the actual transactions from the eyes of the approving authority. There is a catena of decision the non_maintenance of proper books of accounts and carrying out of the operations I financial transactions outside the books of accounts casts the shadow on the objectives of the society and hence the genuineness of the society. 5.1.4 The search revealed the fact that the assessees' books were never regularly ....
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....ons both of outright sale as well as development. Large amounts of cash have changed hands in these transactions in flagrant violation of provisions of income tax Act and also Stamp Duty Act. The assessee till date was not able to reconcile how the entire receipts of sale of land were utilized. Further, it is observed from the material seized that thee is diversion of funds of the society for the personal benefit of the members/trustees. The real estate transactions were also structured in such a way to divest the society land at less than market price with obvious intentions. Above all till date the assessee society is not able to submit its correct receipts and payment account along with relevant proof to show that the society's funds have been utilized for the furtherance of objective of the society in accordance with the approval granted by the prescribed authority. 6.2. A perusal of provisions of sec 10(23C) clearly show that the approval to the society is granted subject to the conditions laid down in the then proviso 13. The relevant provisions of Section 10(23C) reads as under:- Government or the prescribed authority is satisfied that- (i) such fu....
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....Islamic Academy of Education Vs. State of Karnataka (2003) (6SCC697) and P.A. Inamdar Vs. State of Maharashtra (2005) (6 SCC 537) also supports the fact that the education is not a commercial activity and hence the evidences found education is not a commercial activity and hence the evidences found during the course of search supports that the assessee has violated the provisions of law and the conditions prescribed while granting the recognition. 6.5. Education would remain as a charity only in a case where education is imparted systematically for a free prescribed by Government. A private aided or unaided professional institution or any other educational institution of a State is required to collect fees with regard to infrastructure and benefit of students of that educational institution. Collection of money over and above fee prescribed by Committee would amount to collection of capitation fee and such an institution would face legal conseqeunces for same (Vodithala Education Society Vs ADIT, [2008] 20 SOT 353 (HYD)]. 6.6 In the case of SCIENTIFIC EDUCATIONAL ADVANCEMENT SOCIETY v. UNION OF INDIA AND ANOTHER [2010], 323 ITR 84 (P&H), the Hon'ble High Court....
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....ounts in their deposition, the Assessing Officer held that such a contumacious conduct in running the affairs of the Trust to go against the basic tenets of the Trust and Trusteeship warrants cancellation of the approval. All these factual findings are perfectly justified and consequently, approved. (Emphasis supplied)" 6.9 The Hon'ble Karnataka high court in the case of Navodaya Education Trust vs Union of India (405 ITR 0030) held as under: "The purpose of exempting such Institutions from Income Tax was obviously to restrict such exemption upon a very strict compliance with the parameters for the same and only bona fide, chaste and pure Educational Institutions could expect such exemptions from the Income Tax which as per the said norms and the rules of interpretation of such provisions of exemption have to be strictly construed by the Courts of law. Any liberal or flexible interpretation 'looking over' the strict compliance of the conditions is likely to defeat the very purpose of grant of such exemption and the business houses which additionally want to run Educational Institutions also as business enterprises cannot be allowed to take the....
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....ining the assumption of jurisdiction to this effect as follows: "F.No. Pr.CIT(C)/Hyd/ Aurora/2018-19 To The Sr.AR-II, ITAT-II, Bech, Hyderabad Sub:- Assessee's appeal in the case of Church Educational Society, Aurora Educational Society, Tarakarama Educational society and Karshak Vidya Parishad- furnishing of information called for - Reg Ref: Your letter in F.No. Sr.AR/ITAT/B-Bench/2020-21 dated 22.10.2020 ***** The report called for is submitted hereunder: 2. The conditional approval U/s.10(23)(C)(vi) was originally granted in all the four cases by Chief Commissioner of Income Tax, Hyderabad-I who was the Prescribed Authority during that period. Consequent to search operation, the aforesaid group cases were centralized with ACIT, CC-2(4), Hyderabad under the administrative control of PCIT(Central), Hyderabad. The CIT(E) amongst others PCITs, on recommendation of PCIT(Central) passed 127 orders assigning the cases to ACIT, CC-2(4), Hyderabad. The proviso to Section 10(23)(C)(vi) of the Income Tax Act, 1961 read with rule 2CA of the Income Tax Rules, 1962 empowers the Prescribed Authority u....
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....order sheet entries (pages 139 to 143) and his clarification dt.06-11-2020 (supra); stand perused. All this detailed evidence makes it clear that the Pr.CIT(Central)'s initial show cause notice dt.16-09-2019 itself forming basis of the impugned entire exercise to withdraw the assessee's approval suffers from inherent lack of jurisdiction as per his own clarification that the CBDT's notification (supra) was issued much later i.e., on 05-11-2019 only. We observe in this clinching backdrop that the PCIT(Central) has erred in law and on facts not only in assuming his Section 10(23C)(vi) jurisdiction on 16-09-2019 (before having being confirmed the prescribed authority's jurisdiction to this effect on 05-11-2019) but also he has wrongly withdrawn the assessee's approval with effect from the date it had been granted the same (supra). And that the latter action also involved illegality since this approval had come way back in the year 2009 as against the search carried out almost after a decade i.e., 23-03-2018. We thus adopt strict interpretation in the given facts and circumstances of the case in the light of Rule2CA of the Income Tax Rules, 1962 and going by hon'ble apex court's consti....