TaxTMI 
TaxTMI 
2021 (12) TMI 582
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....} u/s 12AA(3)/(4) of the Act is bad in Law and void abinitio. 1.1.1 That the order passed is void and unsustainable inter alia for the following reasons: (a) That it grossly violates principles of natural justice, fair play and Equity mandated by law. (b) That it lacks Jurisdiction/competence to deal with and adjudicate on the subject matter. (c) That it lacks jurisdiction in the absence of statutory conditions precedent to valid assumption and exercise thereof. 2. That on facts and in law the PCIT-Gurgaon erred in cancelling the registration granted to the appellant u/s 12AA of the Act vide order F. No. CITll/ CHD/Tech/12A/324/2010-11/4776 dated 22nd February 2011. 2.1 That on facts and in law the PCIT-Gurgaon has erred in not appreciating that charitable activities carried on by the appellant were genuine and that the same were being carried out in accordance with its object and bye laws. 3. That on facts and in law the PCIT-Gurgaon has erred in invoking and exercising jurisdiction u/s 12AA(3) and 12AA(4) of the Act and that too on basis of untested and unconsidered alleged search material, merely on the allegations, ....
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....heard, invoked and exercised the Jurisdiction under section 12AA(3) & 12AA(4) of the Act. 5. The facts of the case in brief are that the assessee is a society / Trust which was created for charitable purpose and registered under the Society Registration Act (XXI of 1860) vide Registration No. 2650 of 2009-10 on 28.10.2009. The assessee society / Trust is Registered under section 12AA of the Act vide order dt. 22/02/2011 of Ld. CIT-II, Chandigarh w.e.f A.Y. 2011-12 and also registered under section 80G(5)(vi) of the Act vide order dt. 21/02/2011 of Ld. CIT-II, Chandigarh. The objects of the assessee Trust are mentioned in its Memorandum of Association (MOA) and Rules & Regulations. The Trust is engaged in providing education and running various educational institutions including Chandigarh University at VPO. Gharuan, Kharar-Ludhiana Road, SAS Nagar, Mohali. The assessee Trust belongs to Chandigarh Group of colleges, a leading private group of colleges in Northern India and runs several colleges from three campuses situated in Landran,Gharuan and Jhanjeri. All the colleges are run in the name of the following three educational Trusts / societies. S.No. Name of Society/Trust ....
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....y and not to any individual member / Officer bearer". 5.1 Ld. Pr CIT(C) mentioned the details of the members / trustees shown by the assessee in its ITR at page nos. 4 and 5, for the cost of repetition the same are not reproduced herein. According to the Ld. Pr. CIT(C), the various incriminating documents / evidences regarding siphoning off funds of the trust to its trustees / members by booking bogus expenses were found during the course of search and post search proceedings which shows that the activity of the assessee were not genuine and not being carried out in accordance with object of the society. He therefore issued a detailed show cause notice dt. 24/11/2020 asking the assessee to explain as to why the Registration already granted under section 12AA of the Act vide order dt. 22/02/2011 may not be cancelled by invoking the provisions of Section 12AA(3) and 12AA(4) of the Act. 5.2 In response the assessee furnished the written submissions before the Ld. Pr. CIT(C) who mentioned the gist of the submissions as under: i) The cancellation of registration cannot be made on the basis of the findings of search and seizure operation and cancellation of registration sh....
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....ITR 1 (SC) • U.P. Distillers Association Vs. Commissioner of Income-tax [2017] 399 ITR 143 (Delhi) 5.4 The Ld. PCIT observed that in the Income Tax Act, all the authority such as Principal Commissioner / Commissioner, Additional Commissioner / Joint Commissioner, Deputy Commissioner / Assistant Commissioner etc. have been given different powers which are exercised by them in accordance with the provisions of the Act and satisfaction arrived by them independently. He was of the view that there was no requirement that Principal Commissioner / Commissioner should rely on the findings of the assessment proceedings and wait for its conclusion for granting or cancelling the registration under section 12AA of the Act. The reliance was placed on the following case laws : • Hind Charitable Trust Vs. Principal Commissioner of Income Tax, (Central), Lucknow [2018] 93 Taxmann.com 483(All.) • CIT Vs. SPL'S Siddhartha Ltd. [2012] 17 Taxmann.com 138 (Delhi) • Kalinga Institute of Industrial Technology Vs. CIT [ 2011] 336 ITR 389 (Orissa) 5.5 The Ld. Pr. CIT observed that a detailed show cause notice had been issued to the assessee which wa....
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....served that the grant of registration under section 12AA is only a procedural provisions and a condition precedent for availing the benefit under section 11 and 12 by specified category of entities and that the Section 11, 12 & 13 of the Act further lay down additional conditions in order to exclude the income from total income, hence to decide the eligibility of Section 12AA of the Act subsequently after having been granted earlier, the test to be applied are twin; (1) whether the activities of the trust are being carried out as per the stated objects and genuine and income is derived only from the property held under the trust ("Source test") (2) whether the trust is applying entire receipt/income solely for the charitable purposes of trust as required u/s 11,12 & 13 ('Application Test'). The Ld. Pr. CIT further observed as under: 9.4 Further, in order to avail the exemption u/s 11 & 12, not only all the activities of the trust should be genuine but at the same time the income should be applied solely towards the objects of the trust ('Application test). Application of income towards charitable purposes only is one of the critical tests for being eligible u/s 11 & 12....
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....ch is prohibited by law (iii) The trust does not record entire receipts or expenses in the books of account which prevents verification of application of income solely for charitable purposes as per the provisions of section 11(1 )(a) of the Act or (vi) allows application or use of income or property of the trust for direct or indirect benefit to the persons mentioned u/s 13(3) of the Act. 5.9 Ld. Pr. CIT was of the view that conspectus of decisions on the subject provides that at the time of granting registration under section 12AA(1) of the Act, only the objects and purposes are required to be seen and if any violation is noted subsequently the registration shall be liable to be cancelled under section 12AA(3)/12AA(4) of the Act, which by implication follows that once the assessee is not required to prove the genuineness of its activities at the time of initial registration and subsequently if any violation is found then the onus of proving that the activities were carried out genuinely as per the objects of the trust only and otherwise, shall lay heavily on the assessee and not on the Revenue. The reliance was placed on the judgment of the Hon'ble Apex Court in the case o....
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.... under: a) Diversion of funds amounting to Rs. 14,21,17,932/- during FY 2019-20 under the head 'Fee'. b) Diversion of funds amounting to Rs. 63,93,98,466/- from FYs 2012-13 to 2018- 19 booking bogus expenses under the heads 'Capital Work in Progress'/'Building under Construction'. c) Diversion of funds amounting to Rs. 6 crore during FY 2017-18 for purchase of Plot No.147, Sector 9, Chandigarh in the names of Sh. Satnam Singh Sandhu and Smt. Damandeep Kaur. d) Diversion of funds of Rs. 56,00,000/- (received as gift of CAD 1,00,000) through money laundering for purchase of a house at Canada in the name of Smt. Damandeep Kaur during FY 2019-20. e) Diversion of funds amounting to Rs. 30,00,000/- during FY 2015-16 to Smt. Jasmail Kaur. f) Diversion of funds through accommodation entries of unsecured loan by Sh. Satnam Singh Sandhu and his partnership firms - Amount of Rs. 4,90,00,000 received by Golden Infotech from the shell company Alps Management Solutions Pvt. Ltd. (FY 2018-19), amount of Rs. 4,79,50,000 received by Chandigarh Multiplex Projects from the shell company LTE Info Technologies Pvt. Ltd. (FY 2....
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.... Deputy Commissioner of Income-tax [2003] 130 Taxman 82 (AP) • Little Tradition Vs. Deputy Director of Income-tax (Exemption), Trust Circle-IV, New Delhi [2009] 119 ITD 127 (Del) • Director of Income-tax Vs. Maruti Center for Excellence 208 Taxman 236 (Del) • Teleprolu Bapanaiah Vidyadharma Nidhi Trust Vs. Commissioner of Income-tax 167 ITR 482 (AP) 5.14 As regards to the submissions of the assessee that as per the proviso to section 164(2) of the Act where the whole or any part of the relevant income was not exempted under section 11 or 12 of the Act, by the virtue of the provision of Section 13(1)(c) or Section 13(1)(d) of the Act, tax shall be charged on the relevant income or part of relevant income, at the maximum marginal rate, the Ld. Pr. CIT observed that the judgments relied by the assessee related to the period when the provisions of section 12AA(4) of the Act was not in the statute which was inserted w.e.f 01/10/2014 and provides that if the activities of the trust or the institution are being carried out in a manner that the provisions of sections 11 and 12 of the Act do not apply to exclude either whole or any part of income of....
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.... that once the provisions of section 13(1)(c) r.w.s 13(3) of the Act are invoked, surplus is brought to tax, payment made in excess of what is reasonable is disallowed and added to income and the total income so calculated is taxed at maximum marginal rate as per section 164(2) of the Act. 5.17 As regards to the submissions of the assessee that the issue of cancellation of registration under section 12AA of the Act shall be dealt upon by the CIT(E) only and not by Pr. CIT(Central). The Ld. Pr. CIT mentioned that there were three notifications issued by the CBDT under section 120 of the Act in respect of the jurisdiction of the Income Tax Authorities which may be relevant to decide the issue. Those notifications were as under: S.No. Details of Notification Jurisdiction of Income Tax Authority 1. NOTIFICATION NO. S.O. 2754(E) [NO. 52/2014 (F.NO. 187/38/2014 (ITA-I))] DATED 22.10.2014 Commissioner of Income-tax (Exemption) 2. NOTIFICATION NO. S.O. 2752(E) [NO. 50/2014 (F.NO. 187/38/2014 (ITA-I))] DATED 22.10.2014 Jurisdictional Principal Commissioner of Income-tax 3. NOTIFICATION NO. S.O. 2915(E) [NO. 70/2014 (F.NO. 187/37/2014 (ITA-I))] DATED 13.11....
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....facts of the said case were different from the assessee's case for the following reasons: a. In the case of the assessee a search action u/s 132 of the Act was carried out on 03.10.2019 and as a part of the search, besides the assessee trust its key trustees/ members and other related persons were also covered. Consequent to the search and seizure action the case of the assessee trust was centralised and transferred from the DCIT/ACIT, Circle-1(E), Chandigarh to the ACIT, Central Circle-2, Chandigarh vide order F.No. CIT(E)/CHD/Tech/ 2019-20/133 dated 14.05.2020 passed u/s 127 of the Act by the CIT(Exemption), Chandigarh. Assessment proceedings u/s 153A of the Act have been initiated in this case for AYs 2014-15 to 2019-20, which are pending. Before passing the order, Pr. CIT (Central), Gurugram conveyed his concurrence to the CIT (Exemption), Chandigarh for transfer of the case to his charge under the Assessing Officer ACIT, Central Circle-2, Chandigarh vide letter No. 5480-91 dated 29.01.2020. b. Since the transfer was from one Assessing Officer to other Assessing Officer having offices situated in the same city i.e. at Chandigarh, as per the provisions of secti....
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....rder in writing from higher authorities such as Chief Commissioner of Income Tax (Exemption) Delhi or CBDT and an opportunity of being heard to be given to the assessee, the Ld. Pr. CIT observed that since the transferor and transferee AOs are located in the same city there was no need for giving an opportunity of being heard to the assessee. 5.23 He further observed that the notification no. 52/2014, issued by CBDT under section 120(1) and 120(2) of the Act only authorizes the Commissioner of Income Tax to exercise and perform all the functions in respect of cases or classes of cases specified therein. This notification nowhere provides that power to grant/refuse the registration or cancel the registration u/s 12AA of the Act shall also be exclusively vested in the Commissioners of Income Tax(Exemption) only and no other Commissioner or Pr. Commissioner can exercise such power. He also observed that such power shall be governed by the provisions of the Income Tax Act which specifically gives this power to Pr. Commissioner or Commissioner. Once a case is transferred under section 127 of the Act, Pr. CIT(Central) shall exercise all the powers and perform the functions as stipulat....
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....erving as under: j. The jurisdiction over the assessee's case initially was vested with the ACIT/DCIT, Circle-1(E), Chandigarh. The vesting of jurisdiction with the said officer was in terms of the Notification No. 52 issued by the CBDT u/s. 120(1) of the Act or by Income-tax Authorities (sec. 116) who were delegated the powers to issue orders/directions vesting the jurisdiction of assessment over the authorities subordinate to it. The said Assessing Officer enjoyed jurisdiction over the appellant upto 14.05.2020. Thereafter, by virtue of order dated 14.05.2020 passed by the CIT (Exemption) u/s 127(2), the said AO i.e. ACIT/DCIT, Circle-1(E), Chandigarh was divested of his jurisdiction over the assessee and the jurisdiction stood transferred in favour of ACIT/ DCIT, Central Circle-2, Chandigarh. From the plain reading of the order u/s 127(2) dated 14.05.2020, it may be seen that the transfer of jurisdiction over the appellant's case from the charge of ACIT/DCIT, Circle-1 (E), Chandigarh to ACIT/ DCIT, Central Circle-2, Chandigarh was absolute. k. In the circumstances when one reads the definition of "case" as set out in the explanation to section 127 of th....
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....any year would trigger the denial of exemption of section 115TD which tax the entire accreted income upon cancellation of registration also suggests that the registration is to be cancelled from beginning itself irrespective of the year where such specific violation has been noted and that the cancellation of registration under section 12AA(3) of the Act (which has come on statute w.e.f 01/10/2004) and 12AA(4)of the Act (which has come on statute w.e.f 01/10/2014) may be given effect either from the date from which the trust was found to be violating the conditions of registration under section 12AA or w.e.f F.Y. 2010-11 when the society was granted registration. 5.27 The Ld. Pr. CIT observed that at the time of granting registration except for the said objects and purpose of the trust, the fulfillment of other conditions for continuance of registration could not be verified and it was imperative that the fulfillment of those conditions must be tested, when after grant of the registration, the violation of any condition was found or conditions of the registration itself get vitiated. Therefore the cancellation of registration was required to be made for the period when the viola....
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....andigarh University Trust granted University Status as 'Chandigarh University' 3. 03.10.2019 Search Action u/s 132 of the Act 4. 14.05.2020 Cases Centralised u/s 127 vide order dated 14.05.2020 passed by CIT(E) Chandigarh 5. 07.09.2020 Notices issued u/s 153A by the ACIT Central Circle 2 Chandigarh. 6. 19.10.2020 Return of income for AYs 2014-15 to 2019-20 filed in reply to notices u/s 153A of the Act. 7. 05.11.2020 Notice u/s 143(2) issued selecting returns filed u/s 153A for scrutiny 8. 21.11.2020 Notice u/s 142(1) issued along with detailed questionnaire. 9. 24.11.2020 SCN issued by Pr. CIT(C) for cancellation of registration u/s 12AA 10. 04.01.2021 & 01.02.2021 Partial Replies filed before PCIT(C) against cancellation of registration u/s 12AA. Briefly stated, Jurisdictional Objections raised in this regard were as under: • Action of PCIT-Gurgaon in exercising jurisdiction to invoke powers u/s 12AA(3) and 12AA(4) of the Act premised report of Investigation Wing is premature as assessment proceedings u/s 153A of the Act for AYs 2014-15 to AY 2019-20 are pending. The jurisdictional AO is p....
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....g carried out in accordance with the object of the assessee society and it had been proposed that the registration of the assessee trust be cancelled by invoking the provisions of Section 12AA(3) and 12AA(4) of the Act. It was stated that the so called allegations mentioned in the show cause notice were only the prima facie inference as drawn by the department during the post search exparte investigation by the Director of Investigation, Panchkula and the matter has still not attained finality, therefore, the cancellation of registration validly granted to the assessee by the department would further jeopardize the conduct of educational activities as carried out by the assessee. 7.3 It was further stated that it was not in doubt that the assessee trust is engaged in imparting education to students and the group's Gharuan campus was granted a University status as 'Chandigarh University' in 2012 and that the group of colleges has a combined strength of 45,000 students. The primary object of the assessee society is to impart education which is being discharged very effectively and the same finds its support from the fact that the number of students as well as number of courses are....
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....ase not later than one month." 7.5 Ld. Counsel for the Assessee submitted that the Ld. Pr. CIT without giving any opportunity of being heard after the direction of Hon'ble P&H High Court passed the order on 22/03/2021 and cancelled the registration of the assessee society granted under section 12AA of the Act, even when he himself admitted in para 3 of his order that the assessee asked more time for furnishing the reply on merit. It was stated that the Ld. Pr. CIT passed the impugned order in haste, after the direction given by the Hon'ble Jurisdictional High Court, without giving any opportunity of being heard to the assessee. It was submitted that the provisions contained in sub section 3 of section 12AA of the Act clearly provides that the reasonable opportunity of being heard to be given to the assessee. It was contended that the Ld. Pr. CIT neither gave proper opportunity of being heard nor considered the appraisal done by the concerned A.O before cancelling the registration granted to the assessee under section 12AA of the Act. Therefore, the impugned order passed by the Ld. Pr. CIT may be set aside. Reliance was placed on the following case laws: • Fe....
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....e show cause notice will require extensive working and some more time was required. 7.8 It was further submitted that the reliance was placed by the assessee, on the decision of the ITAT, Cuttack Bench in the case of Kalinga Institute of Industrial Technology Vs. CIT in Appeal No. 86 (Cuttack) of 2007, order dated 05/10/2007 wherein the facts were similar to the assessee's case i.e; the Ld. CIT(admin) has proposed the cancellation of registration under section 12AA of the Act and proceeded on the basis of the findings of the search and seizure operation and that the search and seizure operation was the basis for conclusion of the final assessment proceedings, the action of the Ld. CIT was held as premature (copy of the said order was also furnished which is placed on the record). It was stated that the aforesaid decision of the ITAT Cuttack Bench was not overruled. It was accordingly submitted that the Ld. Pr. CIT was not justified in cancelling the registration already granted to the assessee under section 12AA of the Act without giving due and reasonable opportunity of being heard to the assessee and without considering outcome of the assessment to be framed by the A.O. on mer....
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....objections of the assessee at the earliest on 22/03/2021. 9. In his rejoinder the Ld. Counsel for the assessee submitted that first notice was served upon the assessee on 03/01/2021 for hearing on 05/01/2021 i.e; after the gap of one day, however the assessee could not contact the counsel since the time was very short and therefore the adjournment was sought and the case was adjourned to 19/01/2021 on the said dated the assessee sought time to file the copy of the case laws on the issue as to whether the Director (Exemption) had a jurisdiction or the Ld. Pr. CIT was having the jurisdiction, therefore the case was adjourned to 01/02/2021, on the said date the assessee furnished the reply and submitted that the issue of jurisdiction goes to the root of the matter, it was also submitted that the exemption claimed by the assessee can only be withdrawn by the Ld. CIT(E) and not by the Ld. Pr. CIT, therefore, the case was adjourned for 10/02/2021. However, there was no discussion on the said date and the impugned order has been passed exparte on 22/03/2021 and the registration already granted to the assessee under section 12AA of the Act was cancelled. It was pointed out that even whe....
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.... of clause(a) of sub-section (1) and the order, direction or decree, by whatever name called, holding that such noncompliance has occurred, has either not been disputed or has attained finality, Then, the Principal Commissioner or the Commissioner may, by an order in writing, cancel the registration of such trust or institution: Provided that the registration shall not be cancelled under this sub-section, if the trust or institution proves that there was a reasonable cause for the activities to be carried out in the said manner. From the provisions contained in proviso to sub section 3 of Section 12AA of the Act, it is crystal clear that no order under this sub section shall be passed unless such trust or institution has been given reasonable opportunity of being heard. 11. As regards to the issue relating to the reasonable opportunity of being heard, the Hon'ble Apex Court in the case of SBI Vs. Chandra Govindji (supra) held as under: In ascertaining whether a party had reasonable opportunity to put forward his case or not, one should not ordinarily go beyond the date on which adjournment is sought for. The earlier adjournment, if any, granted ....
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....e A.O. In the instant case the Ld. Pr. CIT while cancelling the registration of the assessee trust considered the provisions contained in section 11, 12 and 13 of the Act and also mentioned that to decide the eligibility of section 12AA of the Act subsequently after having been granted earlier, the tests to be applied are as to whether the activity of the Trust are being carried out as per the stated object and income was derived only from the property held under the Trust (Source Trust)and as to whether the Trust was applying entire receipt / income solely for the charitable purpose of the Trust as required under section 11, 12 and 13 (application test). However, the application test under section 11, 12 and 13 of the Act, could have been applied only after the outcome of the examination by the A.O. from the record. In our opinion, the A.O only after proper examination of the assessee's record may be in a position to come to the conclusion as to whether the benefit directly or indirectly from the property or the income has been derived by the person mentioned under section 13(3) of the Act or as to whether the assessee Trust record entire receipt or expenses in the books of accoun....
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....ness the Commissioner should have taken precaution to complete the assessment expeditiously and then should have arrived at the conclusion of proposed cancellation of registration. The present act of the Commissioner amounted to interruption in the assessment proceeding. The power under section 12AA(3) enunciated under the Act is an unbridled power in the hands of the Commissioner to safeguard the interest of the revenue as and when he is satisfied to do so. It does not mean that this unbridled power given by the Act after much deliberations in the Parliament should be utilized without clear cut satisfaction. As per strict judicial discipline the power of punishment is an unbridled power like the present power of cancellation envisaged under section 12AA(3). But such unbridled power should be utilized quite cautiously and consciously. Therefore, the order of the Commissioner was a premature one which had been utilized at a premature stage in haste. Therefore, said order was to be set aside and the registration of the assessee-trust was to be continued. 11.4 In the present case also the Ld. Pr. CIT without waiting the outcome of the assessment framed by the A.O. cancelled the reg....