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2024 (3) TMI 876
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....of the appellant's case and consequently, the impugned order passed deserves to be quashed. 3. The learned PCIT ought to have appreciated that the provisions of section 12AB[4] of the Act does not empower him to either examine "specified violations" for the assessment years covered by registration granted u/s. 12A of the Act or cancel such registration granted u/s. 12A of the Act for such assessment years and that the power to examine and cancel registration u/s. 12AB[4] was limited to registration granted u/s. 12AA[1][b]or u/s. 12AB[1]of the Act and therefore, the impugned order passed cancelling registration u/s. 12A of the Act for the assessment year 2021-22 and as a further consequence thereof, cancelling the registration granted u/s. 12AB of the Act for the subsequent years is bad in law and the same requires to be quashed. 3.1 Without prejudice to the above, the impugned order passed cancelling the registration of the appellant u/s 12AB[1] of the Act obtained by the appellant from the AY 2022-23 to the AY 2026-27 is also bad in law in as much as there are no specified violations that are noticed or found by the learned PCIT for the aforesaid assessment y....
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....trust and that the alleged cash collections etc., regarded as specified violations related to institutions being run by Yenepoya [Deemed to be University] and not the appellant trust and hence, the entire proceedings taken against the appellant trust is opposed to law and facts of the appellant's case. 8. Without prejudice to the above, the learned PCIT failed to appreciate that there was no case to hold that the appellant had collected cash from students in as much as the appellant had only provided concession to its students under the facts and in the circumstances of the appellant's case. 8.1 The learned PCIT ought to have appreciated that the cash was collected from students allegedly noticed at the time of search were actually cash collected by two of the employees of Yenopoya University viz. Mr Mohammed Bava and Mr Umar Farooq, without the knowledge of the management in lieu of the concession granted by them and thus, it cannot be regarded that the appellant had made cash collection from students under the facts and in the circumstances of the appellant's case. 8.2 The learned PCIT failed to appreciate that the aforesaid 2 employees viz.....
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....lleges with the Government that permits collection of higher fees from a small portion of the students admitted under the said scheme does not mean that the appellant was not charitable in nature and thus, there was no specified violation as per Explanation [e] to Section 12AB[4] of the Act under the facts and in the circumstances of the appellant's case. 12. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs." 3. The assessee has raised following additional grounds of appeal: 1. Without prejudice to the grounds raised in the original grounds-of appeal, the impugned order passed u/s. 12AB(4) of the Act by the learned Pr. CIT, Central, Bengaluru, dated 21/06/2023 is bad in Law and void ab-initio in as much as the learned Pr. CIT, Central, Bengaluru, has not been vested with the power to discharge the function of the Income tax authority for purposes of section 12AB(4) of the Act considering the Notificatio....
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....of the Act at that time, which is before-the insertion of section 12AA of the Act, with effect from 01 /04/1997. Thereafter, and by virtue of the amendment made by insertion of section 12AB requiring fresh registration with effect from 01/04/2021, the assessee trust, applied for and was granted recognition u/s 12AB by the learned CIT, CPC on 23/09/2021 for the assessment years 2022-23 to 2026-27. Thus, the assessee trust was registered u/s. 12A of the Act upto and inclusive of the assessment years 2021-22 and thereafter, the assessee trust had secured the registration u/s. 12AB of the Act for the assessment years 2022-23 to 2026-27. 3.4 He submitted that there was a search conducted in the premises of the assessee trust on 17/02/2021. During the course of the said search, there was no incriminating material in the form of any undisclosed assets or undisclosed income of the assessee trust that was either found or seized, for there existed none. However, during the course of search proceedings certain documents were seized which is suspected to contain details of the alleged cash collection for admissions of students to "Yenepoya Dental College" and "Yenepoya Ayurveda Medical Coll....
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.... (23C), (23F), (23FA), (24), (46) and (47) of section 10, section 11, section 12, section 13A and section 13B of the Income-tax Act, 1961 and assessed or assessable by an Income-tax authority at serial numbers 21 to 34 specified in the notification of Government of India bearing number S.O. 2752 dated the 22nd October, 2014. The said notification bearing S.O. 2752 dated 22nd October, 2014 is a notification issued u/s. 120(1) & (2) of the Act under which the Pr. Commissioner or Commissioner of Income tax are given jurisdiction over cases based on territorial area, class of persons and class of cases. Sl. No. 21 to 34 of the said notification relates to state of Karnataka and includes all cases and classes of persons except cases and classes of persons who are claiming exemption u/s. 11 of the Act and other similar provisions. 3.8 He submitted that the provisions of section 124 of the Act are relevant, which confers jurisdiction on the Assessing Officers by virtue of the directions issued u/s. 120(1) or 120(2) of the Act. It states that the Assessing Officer shall be vested with the jurisdiction over any area, then such Assessing Officer shall have jurisdiction over any person who....
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.... the CBDT has authorized the learned CIT (Exemptions), Bangalore to issue order in writing for the exercise of the powers and functions by the Add. CIT or JCIT or TRO who are subordinate to him, and has authorized the Add. CIT to issue order in writing for the exercise of the powers by the Assessing Officer who are subordinate to him. 3.12. Hence, he submitted that the registration u / s 12A cannot be withdrawn by the learned Pr. CIT (Central), Bangalore, who is not the income tax authority empowered to grant the same in first place and therefore, the learned Pr. CIT (Central) has no power to cancel and withdraw the same. Thus, he submitted that the impugned order passed by him cancelling the registration is without jurisdiction and not sustainable in law. 4. We have heard the both the parties on admission of additional grounds. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon'ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional grounds for the purpose of adjudic....
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....5 018 02. Yenepoya Dental College YMDC Campus University Road Nithyananda Nagar, Deralakatte Mangalore - 575 018 03 Yenepoya Nursing College Kollarakodi Naringana Village, Deralakatte Post Mangalore 575 018 04 Yenepoya Physiotherapy College Kollarakodi Naringana Village, Deralakatte Post Mangalore 575 018 05 Yenepoya Pharmacy College & Research Centre Kollaakodi Naringana Village, Deralakatte Post Mangalore 575 018 06 Yenepoya Institute of Arts, Science Commerce and Management Balmatta road, Mangalore 575002 07 Yenepoya School of Allied Health Professional Mudipu Campus, Near Soorya Tech Park, Kayargoli, Kurnad Post, Bantwal taluk 574 153 08 Yenepoya Ayurveda Medical College Kollarakodi Naringana Village, Deralakatte Post Mangalore 575 018 09 Yenepoya Homeopathy Medical College Kollarakodi Naringana Village, Deralakatte Post Mangalore 575 018 10 Yenepoya Naturopathy & Yogic Science College Kollarakodi Naringana Village, Deralakatte Post Mangalore 575 018 5.2 Furthermore, as a result of the above arrangement, only the following educational institutions continue to be run and administered under the ba....
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....ined that there was no case of cash collections for admission of students and the entries in the seized materials actually represented concession provided to the students by the Management. ASSESSMENT PROCEEDINGS FOR AY 2021-22: 5.8 An order of assessment was passed by the learned A.O. for the AY 2021-22 u/s 143[3] of the Act dated 30/03/2022, wherein the learned A.O. has made an addition of Rs. 1,31,85,000/- for the alleged violation of the provisions of section 13[1][c] of the Act. In the assessment order so passed, it has been held that the assessee had collected certain amounts in cash from students of BAMS & BDS courses, which has not been accounted in the regular books of accounts. It has been held that the said cash receipts from students were collected by the trustees and hence, constitutes benefit provided to the trustees that is hit by the provisions of section 13[1][c] of the Act. The following are the pertinent observations / findings of the learned A.O. in the assessment order passed:- [a] In course of search conducted, digital evidence was found in the computer operated by Mr. Umar Farook, Accounts Superintendent, YENOPOYA [DEEMED TO BE UNIVERSITY] alon....
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....ts and the assessee trust was unaware of v these malpractices carried out by the employees as well as some agents. He also stated that an enquiry officer was appointed to conduct an enquiry on these matters that has now come to light. 5.11 The aforesaid statements of Mr. Y Mohammed Farhad, are also corroborated by the following materials / statements recorded u/s. 131 of the Act in course of the post search appraisal operations from the following persons:- [i] Affidavit of Mr. Mohammed Bava dated 26/02/2024 and letter containing the affidavit dated 24/03/2021 filed on 26/03/2021 before the Investigation Wing confessing to have collected cash in lieu of concession and misappropriating the same; [ii] Letter containing the affidavit of Mr. Umar Farookh dated 24/03/2021 filed on 26/03/2021 before the Investigation Wing confessing to have collected cash in lieu of concession and misappropriating the same; [iii] Statement of Preethi recorded on 05/07/2021 in which she has explained that the Whatsapp chats with Umar Farookh as relating to cash collected by agents; [iv] Statement recorded from Umar Farookh on 12/07/2021 in which he has explained that ....
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....re had taken up the proceedings without considering the fact that the assessee has already filed an appeal against the assessment order passed for the AY 2021-22 and the same was pending disposal. 5.16 In course of the proceedings before the learned PCIT, Central Circle, Bangalore, it was explained by the assessee that it was providing concession to its students" in furtherance of its object of charity. However, two employees viz. Mr. Mohammed Bava and Mr. Umar Farooq had collected cash in lieu of passing on the concession to the students and had misappropriated the cash so collected, which came to the knowledge of the assessee only during the course of search conducted. The assessee trust submitted that action was taken against the said employees, who were removed from service. In short, there was no violation committed by the assessee. 5.17 After considering the objections raised by the assessee, the learned PCIT, Central Circle, Bangalore has passed the impugned order dated 21/06/2023 cancelling the registration of the assessee as granted under section 12A/12AB of the Act, from the previous year 2020-21 relevant to the assessment year 2021-22 onwards, holding that there we....
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....ower to cancel the registration granted u/s. 12A as it stood before amendment by the Finance [No.2] Act, 1996 was enabled with effect from 01/06/2010. Thus, it is only thereafter that the registration granted u/s. 12A could be cancelled. This clearly bring out the fact that the registration granted u/s. 12A is different from the registration granted u/s. 12AA[1][b] of the Act. 6.4 He submitted that upon the introduction of Section 12AB of the Act w.e.f 01/04/2021, subsection [5] to Section 12AA of the Act was inserted stating that "Nothing contained in this section shall apply on or after 01/04/2021". In other words, the power to cancel registration granted u/s. 12A and the registration granted u/s. 12AA[1][4] of the Act can no longer be done in terms of section 12AA[3] of the Act after 01/04/2021. 6.5 He submitted that several amendments were carried out by the Finance Act, 2021 to the provisions relating to the assessment of charitable institutions. Firstly, section 12A was amended by inserting clause [ac] to sub-section 1 which required all trusts that were enjoying registration under the erstwhile provisions of section 12A or under section 12AA of the Act to compulsorily ....
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....egistered u/s. 12A of the Act and thus, the same was never obtained. 6.10 Thus, he submitted that from a plain reading of the aforesaid provisions of the Act, it is evident that the provisions of section 12AB [4] of the Act does not empower the learned PCIT to either examine "specified violations" for the assessment years covered by registration granted u/s. 12A of the Act or cancel such registration granted u/s. 12A of the Act for such assessment years. The power to examine and cancel registration u/s. 12AB [4] of the Act is limited to registration granted u/s.12AA [1] and 12AB [1] of the Act. 6.11 Furthermore, he submitted that when the aforesaid provisions of section 12AB[4] of the Act are viewed in light of the erstwhile provisions of section 12AA[3] of the Act, it is clear that there was a power to cancel registration u/s. 12A in the provisions contained in 12AA [3], which is absent in the present provisions of section 12AB [4] of the Act. 6.12 He submitted that in as much as the registration secured by the assessee u/s 12A of the Act was in force for the AY 2021-22 it is submitted that the impugned order passed cancelling registration u/s. 12A of the Act for the asse....
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....the Principal Commissioner or Commissioner shall- i call for such documents or information from the trust or institution, or make such inquiry as he things necessary in order to satisfy himself about the occurrence or otherwise of any specified violation; ii pass an order in writing, cancelling the registration of such trust or institution, after affording a reasonable opportunity of being heard, for such previous year and all subsequent previous years, if he is satisfied that one or more specified violations have taken place; iii pass an order in writing, refusing to cancel the registration of such trust or institution, if he is not satisfied about the occurrence of one or more specified violations. iv Forward a copy of the order under clause (ii) or clause (iii), as the case may be, to the Assessing officer and such trust or institution. Explanation - For the purposes of this sub-section, the following shall mean "specified violation",-- a) Where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or....
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....istration can be cancelled if the trust has not complied with the requirement of any other law which are material for the purpose of achieving its object and the order/decree by whatever name called, holding such noncompliance has occurred and has either not been disputed or attained finality. 8.1.4 Finance Act, 2020 had inserted a new Section 12AB. The existing Section 12AA providing for cancellation shall remain effective upto 31-03-2021. The new Section 12AB is applicable from 01-04-2021. It has the enabling provision on the same line as in the existing Section 12AA, empowering the Principal Commissioner or Commissioner to cancel the registration in specified cases, Section 12AB (5) corresponds to Section 12AA (4) and the cancellation powers continue to remain similar except the fact that under Section 12AB(1)(b)(ii), the CIT may deny renewal of registration and also initiate cancellation proceedings at the time of renewal proceedings. 8.1.5 The new provision has provided yet another power of cancellation under Section 12AB(l)(b)(ii)(B) which can be exercised during the process of renewal under Section 12AB. The new provisions also provide powers of cancellation under Sect....
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.....2021 and this registration granted u/s 12A cannot be cancelled u/s 12AB(4)(ii) of the Act for the previous year 2020-21 covering the assessment year 2021-22. On the other hand, he could cancel the registration from assessment year 2022-23 onwards u/s 12AB(4)(ii) of the Act. In our opinion, if there is any violation in the previous assessment year 2020-21 relating to the assessment year 2021-22, this cannot be reason to cancel the registration granted for the assessment year 2022-23 to 2026-27 as the assumption of jurisdiction u/s 12AB(4)(ii) of the Act is itself wrong on the reasons discussed herein above. The specific violation committed by the assessee in any of these assessment years is to be considered independently and not the violation committed in assessment year 2021-22 for cancelling the registration granted u/s 12AB of the Act for the assessment year 2022-23 to 2026-27. As such, we make it clear that the ld. PCIT at liberty to pass the fresh order of cancellation independently u/s 12AB(4)(ii) of the Act for these assessment years i.e. 2022-23 to 2026-27, if so advised. Accordingly, we allow this ground taken by the assessee. Ordered accordingly. 8.4. Even otherwise, w....
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....e order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality. 6.1 Thus, the contention of the ld. A.R. is that these provisions have been inserted by Finance Act, 2022 w.e.f. 1.4.2022 and if there is a violation in previous year 2020-21 relevant to assessment year 2021-22, these provisions cannot be applied to the assessee's case. For clarity, we will go through the relevant provisions applicable to previous year 2020-21 relevant to assessment year 2021- 22 as follows: "12AB(4): Where registration of a trust or an institution has been granted under clause (a) or clause (b) of sub-section (1) and subsequently, the Principal Commissioner or Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution after affording a reasonable opportunity of being heard." 6.2 This section has been amended by Finance Act, 2022 w.e.f. 1.4.2022 as follows:....
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....gious purposes, which does not ensure for the benefit of the public; or d) The trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or e) Any activity being carried out by the trust or institution- (i) is not genuine, or (ii) is not being carried out in accordance with all or any of the conditions subject to which it was registered; or f) The trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause (i) of clause (b) of sub-section (1), and the order, direction or decree, by whatever name called, holding that such non-compliance has occurred, has either not been disputed or has attained finality. 6.3 As per section 12AB(4) of the Act as applicable to assessment year 2021- 22, the ld. PCIT if he is satisfied that activities of the Trust or institution are not genuine or not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancellin....
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....SC), a 3-judge Bench of this court exposited on the fundamental principle that "in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied." This decision and various other decisions were considered by the Constitution Bench of this court in the case of Karimtharuvi Tea Estate Ltd. v. State of Kerala (1966) 60 ITR 262 (SC) and the principle were laid down in the following terms (at pages 264-266 of 60 ITR): "Now, it is well-settled that the Income-tax, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force...... The High Court has, however, relied upon a decision of this court in CIT v. Isthmian Steamship Lines, where it was held as follows: 'It will be observed that we are here concerned with two datum lines: (1) the 1st of April, 1940, when the Act came into force, and (2) the 1st of April, 1939, which is the date ....
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.... is seen to have explicitly provided to have a retrospective character or intended. Therefore, without a specific mention of the amended provisions to operate retrospectively, no cancellation for the earlier years could be made. In this regard, it is appropriate to place reliance on the judgement of Hon'ble Madras High Court on the question as to whether the cancellation will operate from a retrospective date in the case of Auro Lab Ltd. Vs. ITO (2019)411 ITR 308 (Mad) wherein held as under: "20. On the second question as to whether the cancellation will operate from a retrospective date, it was held that the amendment to section 12AA(3) is prospective and not retrospective in character. The courts reasoned that even when Parliament had plenary powers to enact retrospective legislation in matters of taxation, the amended section is not seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively, the cancellation cannot operate from a past date. 21 On the third question of the effective date of operation of the cancellation order, it was held that the cancel....
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....nt years 2022-23 to 2026-27. 10.1 This ground is allowed in view of our findings in ground No.2 of this order as discussed above. Ground No. 4: 11. The ld. A.R. submitted that the registration granted u/s. 12A and 12AB of the Act were under two separate orders / proceedings, which operated for different assessment years and therefore, separate proceedings ought to have been taken for each order of registration and concluded by a separate order and thus, the common order passed cancelling the registration u/s 12A/12AB of the Act from the FY 2020-21 and all subsequent previous years is a nullity. 11.1 This ground is allowed in terms of our findings in ground No.2 of this order as discussed above. Ground No. 5 & 6: 12. The ld. A.R. submitted that no power to take proceedings for cancellation of registration alleging "specified violations" when the facts on the basis of which the allegation of "specified violations" were made have already been examined by the learned A.O. in assessment proceedings for the assessment year 2021-22 taking a particular view, which had not yet reached finality due to the pending appellate proceedings, thereby transgressing the jurisdiction....
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....by the appellant and the materials on record. It is submitted that the existence of registration is a precondition for allowance of exemption u/s. 11 of the Act and thus, the learned CIT [A] would be forced to issue directions for enhancement of income by denying the entire exemption u/s. 11 of the Act as a result of the impugned order of the learned PCI T, which has been consciously allowed by the learned A.O. in the assessment order passed. 12.4 He submitted that at this stage, it is also relevant to point out that there is an inference or findings that has to be drawn from facts based on the materials found in course of search. Such findings have already been recorded in the assessment order passed for the assessment year 2021-22. On the same facts, action is taken by the learned PCI T for cancellation of registration. These facts and inference drawn by the learned A.O. are subject matter of an appeal before the learned CIT [A] at present and thereafter, the same would have to be considered by the Hon'ble ITAT, which is final fact-finding authority in second appeal, if any. 12.5 Thus, he submitted that the parallel action taken for cancellation of the registration when....
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....Once the assessment is completed, the cancelation of the registration could not be done when the matter is before the appellate authorities. Thus, section 12AB[4][a] also has to be construed in a manner that is harmonious with the other 2 clauses. 13. The ld. D.R. relied on the order of the ld. PCIT. 14. This ground is infructuous in view of our findings in ground No.2 of this order as discussed above. Ground Nos. 7 to 11: 15. On merits, the ld. A.R. submitted that the sum and substance of the entire finding recorded by the learned F5ClT is that there is collection of cash from students that is not recorded in the books of the trust and that such cash has been diverted to the trustees and therefore, it is a specified violation. The assessee has denied collection of cash and has submitted that it had conducted an enquiry whereby it was discovered that two employees had misappropriated the discounts allowed by management and collected cash. In support of the said stand and explanation tendered vide submissions filed before learned PCIT, the following documents forming part of the paper book were submitted and referred to: 8 No cash collection, only concession Sam....