TaxTMI 
TaxTMI 
2024 (2) TMI 661
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....rganisations which are subject to approval under section 10(23C). Ground No. 2: That the CIT(E) erred legally and factually in treating various consistently followed accounting entries as gross irregularities for the following reasons: (i) The income of the appellant is a part of the consolidated fund of India and it is unconditional exempt under section 10(23C) (iiiab) and under any view of the matter the income of the appellant is not subject to tax therefore the question of irregularity does not arise. (ii) That the appellant has been consistently following the impugned accounting treatment and the appellant had applied more than 85% of its income. (iii) There is a mistake in treating the advances for a period 2007 where the correct fact is that out of total Advance 16.05 Crores, Rs. 13.76 Crores is paid 31.03.2022. (iv) That the appellant earned Rs. 5,20,11,467/- as interest on corpus and incurred more than 85% even if such interest is treated as part of income. (v) The appellant temporarily used corpus for specific expenses which is permissible under the law. (vi) There is a gross error of understanding with regard....
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....d more than 85% even if such interest is treated as part of income. (v) The appellant temporarily used corpus for specific expenses which is permissible under the law. (vi) There is a gross error of understanding with regard to Provision on Retirement Benefits as University is Funded by UGC & to comply Format of Annual Accounts prescribed by Ministry of Education such provision is made which is appropriate transferred from Income & Expenditure Account to Receivable A/c, as per Balance Sheet Total Provision Amount in Liability is Equal to Total Receivable Asset Side. Thus, there is no impact on the income of the Organisations remains a compensating entry on both side of the balance sheet. Ground No. 3: That the Ld. CIT erred in law and facts by applying the ratio of the Supreme Court decision in New Noble Educational Society v. CCIT [2022] 143 taxmann.com 276 as the genuineness of the appellant is not under dispute being a Central Government owned/controlled University exempt under section 10(23C). Ground No. 4: That the Appellant craves leave to add, amend, alter or delete all or any of the grounds of appeal at the time of hearing of the appeal. ....
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....ase of the assessee are extracted as under: (i)--lssue raised in show cause Notice- The CAG Audit report dated 24/1 1/2022 has pointed out various deficiencies for FY 2021-22, out of which the deficiencies pointed out have been accepted by the assessee at the S.No. 2(l &ii) of Part B(General) of the reply. Reply of the Assessee:- The observations as per SAR Part B (General) Sr.No.2 are as follows:- (i) Advances of Rs 1,39,69,458/- were given to employees (Non-Interest Bearing) during the period 2014 to 03/2022 is outstanding. (ii) Advances and other amount of Rs 16,05,41 ,586 / of the period 2007 to 03 / 2022 Recoverable in cash or in kind of other is outstanding. Amount of 16,05,41,586/- are advances to various Suppliers for Construction, Equipment Material etc. in which the major amount 13.76 Crore is paid to CPWD for Building Construction work on 31.03.2022. The advances are routine part of work of university & in the CAG Report the values of advances are mentioned in general just to inform & this point is included in every year's report, here we are agreeing with the observation of the audit, and we are continuously purs....
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....under Salary Head is transferred to corpus fund. (Utilization Certificate in F.Y. 2021-22 & Sanction letter in FY2022-23 is attached Page No.7 to 11). Remarks by the undersigned- The reply of the assessee is not acceptable as accounting system followed by the assessee for salary grant is not correct. The salary grant received by the assessee is part of income and cannot be transferred to Corpus Fund. (iv) lssue raised in show cause Notice- The interest income has been earned on the Designated fund during FY 2021-22, which has not been offered as income. Reply of the Assessee: Some designated fund likes Student welfare fund & Teachers benefit fund are specific/Endowment/ earmarked fund the interest earned on the designated fund is added to that particular fund. (Sch.2 of Annual Account Attached Page No. 12) Remarks by the undersigned- The assessee has accepted that the interest amounts of various designated funds have not been offered as income of current year. Explanation offered by the assessee is also not acceptable. The assessee was required to offer the interest amount as income of the year. (v) lssue raised in show cause Notice- Inc....
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....44,865/- has been given and entries of provisions made during the year are shown as under: Provisions to be made in the current year Pension - Rs. 36,94,03,874/- Gratuity - Rs. 6,21,03,123/- Leave Encashment -Rs. 4,00,81,939/- Total Provisions - Rs. 47,15,88,936/- As per the above figures, it is clear that the assessee has claimed Rs. 47,15,88,936/- as expenses which have not been actually incurred but only provisions for future expenditure has been made. In this way the assessee has reduced the profit of the year by Rs. 47,15,88,936/-. (4) The discrepancies mentioned above were also pointed out to the assessee during the physical verification by ITO(E), Bilaspur but the assessee failed to provide the relevant details and explanation on above mentioned points. Hence, the accounts of the assessee are not found genuine and correct and the assessee intentionally not making proper entries to reduce the income. The above-mentioned discrepancies have been pointed out for FY 2021-22 only, however, the assessee is making same accounting in various earlier years. The assessee has submitted Audit reports for FY 2019-20 and FY 202....
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.... "While considering applications for approval, the Commissioner or the concerned authority as the case may be is not bound to examine only the objects of the institution. To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the society, trust or institution genuinely seeks to achieve the objects which it professes. The Commissioner or other authority is not in any manner constrained from examining accounts and other related documents to see the pattern of income and expenditure. " (6) Considering the facts of the case, the application of the assessee filed in Form IOAB for grant of registration u/s 12AB & 80G(5) of the Act is hereby rejected and the provisional registration/approval u/s 12AB in Form 10 AC vide URN No. AAAJG2058GE20221 dated 25.01.2023 & provisional registration/approval u/s 80G(5) in Form 10 AC vide URN No. AAAJG2058GF20225 dated 04.04.2022 granted by CPC is also hereby cancelled as per the provisions of section 12AB(1)(b)(ii)(B) of the Act and as per the second proviso to section 80G(5) of....
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.... In other words, the Commissioner is bound to satisfy himself that the object of the Trust are genuine and that its activities are in furtherance of the objects of the Trust, that is equally genuine. 12.Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done, we are of the view that the term 'activities' in the provision includes 'proposed activities'. That is to say, a commissioner is bound to consider whether the objects of the Trust are genuine charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust. In contrast, the position would be different where the Commissioner proposes to cancel the registration of a Trust under sub-section (3) of section 12AA the Act. There the Commissioner would be bound to record the finding that an activity or activities actually carried on by the Trust are not genuine being not in accordance with the objects of the Trust. Similarly, the situation would be different where the trust has before applying for registration found have undertaken activities contrary to the ....
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....smissed. CIT v Rishabh Foundation Trust in TAXC No.166 of 2017 11. The provision contained under Section 12A nowhere empowers the CIT to assess the objects vis-a-vis the donation received in the first year of its establishment. In a given case it may happen that the trust is not able to commence the charitable activities for various reasons, however, that may not be conclusive of the fact that the trust does not intend to carry on the aims and objects for which it is established. If the aims and objects clearly project the activities of the trust to be charitable in nature, it is not the stage for lifting the veil and assessing whether those activities are actually carried on at the first year of establishment of the trust. 12. In the matters of Commissioner of Income Tax vs Vijay Vargiya Vani Charitable Trust1 and Fifth Generation Education vs Commissioner Income Tax2, it is held that at the stage of Section 12A, the Commissioner is not to examine the application of income. All that he may examine is whether the application is made in accordance with the requirements of Section 12A read with Rule 17A and whether Form No.10A has been properly filled up. H....
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....the coordinate bench of the ITAT, Raipur in the case of Shri Agrasen Jan Kalyan Trust v. Commissioner of Income-tax (Exemption) In ITA no. IT APPEAL NO. 334 (RPR) OF 2016 vide order dated July, 4, 2023 wherein the issue has been discussed and principle of law as laid down by Hon'ble Supreme Court in the case of Ananda Social & Educational Trust v. CIT [2020] 114 taxmann.com 693/272 Taxman 7/426 ITR 340 (SC) [19-02-2020], wherein Hon'ble Apex Court has held as under: 12. Since section 12AA pertains to the registration of the Trust and not to assess of what a trust has actually done; we are of the view that the term 'activities' in the provision includes 'proposed activities'. That is to say, a commissioner is bound to consider whether the objects of the Trust are genuinely charitable in nature and whether the activities which the Trust proposed to carry on are genuine in the sense that they are in line with the objects of the Trust. In contrast, the position would be different where the Commissioner proposes to cancel the registration of a Trust under sub-section (3) of section 12AA of the Act. There the Commissioner would be bound to record the finding that....
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.... No. ITBA/EXM/F/EXM45/2022-23/1049976056(1) dated 21.02.2023 and direct to grant registration u/s 12AB in accordance with law. 8. On the basis of submissions, relying upon the aforesaid case laws Ld. AR requested to struck down the order of Ld. CIT(E), by directing to grant registration u/s 12AB & 80G of the Act to the assessee, who is a Central Government owned/controlled University exempt u/s 10(23C) of the Act, thus, entitled for such registration, accordingly. 9. Ld. CIT DR on the other hand vehemently and strongly supported the order of Ld. CIT(E). 10. We have considered the rival submissions, perused the material available on record and case laws placed before us for our consideration. Before dealing with the issue in hand and interpreting the facts of the case in terms of provisions u/s 12AB, we find it appropriate to extract hereunder the relevant provisions for the sake of immediate reference: 12AB. (1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall,- (a) where the application is made under sub-clause (i) of the said clause, pass an order in writing register....
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.... CIT(E) have thoroughly discussed various discrepancies reported by the CAG to the assessee university for the FY 2021-22, as apparent in the part B of special report wherein it is specifically observed that the loans, advances and deposits are without prior sanction of MoE/UGC. Further, the violation of GST which is accepted by the assessee in its reply before the Ld. CIT(E), it is also observed that the assessee has temporarily utilized the corpus funds against the designated purpose in violation of the provisions of the Act. The contention of the assessee that the competent authority should not have looked into the accounts and activities of the assessee based on various judgments referred to supra while granting the registration as requested can be accepted, but at the same time, we cannot be oblivion of the facts emanating from the observations of the Ld. CIT(E), who was under obligation to look into the and enquire regarding genuineness of the activities of the trust and also the compliance of requirement of any other law for the time being in force, which Ld. CIT(E) have exercised and was came across the details /information culled out from CAG report, establishing deficienc....
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....pplication of income or profits could arise only at the stage of assessment. The court was also of the opinion that the audited books of accounts would be of little or no relevance at the stage of registration or approval. Having regard to the plain terms of the second proviso to Section 10(23C), which refers to the procedure for approval of applications including those made by trusts and institutions imparting education, one can discern no such restrictions. From the pointed reference to 'audited annual accounts' as one of the heads of information which can be legitimately called or requisitioned for consideration at the stage of approval of an application, the inference is clear: the Commissioner or the concerned authority's hands are not tied in any manner whatsoever. "While considering applications for approval, the Commissioner or the concerned authority as the case may be is not bound to examine only the objects of the institution. To ascertain the genuineness of the institution and the manner of its functioning, the Commissioner or other authority is free to call for the audited accounts or other such documents for recording satisfaction where the societ....