TaxTMI 
TaxTMI 
2024 (9) TMI 261
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....in law and without jurisdiction. 2. Under the facts and circumstances of the case and in law, Ld. CIT Exemption, Jaipur has erred in passing an Impugned Order without providing an adequate and effective opportunity of being heard and has also erred in recording factually incorrect and inconsistent findings against the records. 3. Under the facts and circumstances of the case and in law, the Ld. CIT Exemption, Jaipur has gross erred in law and facts in invoking jurisdiction u/s 12AB (4) of the Act without any reference received as required u/s 12AB(4)(b) as inserted by Finance Act 2022. 4. Under the facts and circumstances of the case and in law, (i) impugned notice u/s 12AB(4)(i) of the Act dated 03.03.2023 is invalid, bad in law and without jurisdiction. (ii) the Ld. CIT Exemption, Jaipur has grossly erred in conducting the enquiry u/s 12AB (4)(b)(i) of the Act without jurisdiction. the Ld. CIT Exemption, Jaipur has grossly erred in referring the matter to departmental valuation officer without authority under the law 5. Under the facts and circumstances of the case and in law, the Ld. CIT Exemption, Jaipur has erred i....
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....01.04.2022, by finance act, 2022. The ld. CIT(E) noted that there was no time barring for 12AA(3) cancellation cases, as well as 12AB(4) in pre amendment in law i.e. 01.04.2022, however, new provisions under section 12AB, the cancellation proceedings were more streamlined, the definition of specified violation was brought in to Act, and cancellation proceedings were made time barred within 6 months from the end of the quarter in which first notice under section 12AB(4) is issued. Language of section 12AB (5), further specified that first notice would be counted only for notices issued after 01.04.2022, as the time barring was first brought in w.e.f. 01.04.2022 only. 3.4 As discussed in earlier para that the proceedings for cancellation of registration of assessee u/s 12AA(3) had already lapsed without passing any order, and in the light of new amendments in the Act, to give effect to the proposal of A.O., fresh notice was to be issued to assessee under the new provisions of the Act. 3.5 Accordingly, notice u/s 12AB(4)(i) was issued to assessee on 03.03.2023 vide which an opportunity was granted to the assessee and thereby the assessee was asked to show cause as to why registr....
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....nd details. Further the valuation officer appointed as also issued letters to assessee for submission of details and allow to inspection of premise for the purpose of valuation, however, assessee has denied submitting any details to valuation officer and denied him the entry in to the premise. Further, assessee has also filed a writ petition to Rajasthan High Court, copy of which was received by this office on 29.09.2023 at about 5 PM, where in it has asked the Hon'ble court to stay these proceedings under section 12AB, and restraining the DVO from valuation. This clearly shows that assessee is in no mood of co-operation and not willing to submit any further details and compliance, as the matter is time barred on 30.09.2023, and lots of opportunities have been given to assessee, the matter decided based on material available on record. 3.6 On examination of proposal of the Assessing Officer as well as details available on record, it has been noticed that the trust is registered u/s 12AA of the I.T. Act. 1961 w. e. f. 06.08.2001 vide registration no. 12A(A)/2001- 02/34/7/1327 dated 08.03.2002, and with the change of registration proceedings w.e.f. 01.04.2021, where in all the....
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....e advances are against the sale of property which is in the name of Shri Vivek Agarwal and his family members. As per copy of agreement filed the said property situated at 16, Shree Gopal Nagar Near Mahesh Nagar Police Station, Gopalpura Bye Pass, Jaipur in the name of Shri Vivek Agarwal and his family members. The AO has held that no evidence was filed to support that the property is in the names of above mentioned 5 persons including one company. In the agreement, any amount of advance given or not has not been mentioned. Further as per copy of ledger account of Shri Vivek Agarwal in the books of the Trust it had seen that it is a current account, and many transactions took place during the year with the closing balance of Rs. 1,27,29,774/-. Apparently, this is diversion of funds for the benefits of trustees which comes under purview of provisions of section 13(2)(a) and 13(2)(g) of the I.T. Act, 1961. The ld. AO has further observed in its proposal, that assessee has also made some more payments to the persons referred u/s 13(3) of the Act. Thus, after recording these facts in the order the ld. CIT(E), he cancelled the registration of the trust by observing as under : 7....
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....d incidental, but is assessee is taking contract and doing work of an vendor for government or any other organisation, same can never be consider its incidental activity, it is its main activity. Further, as clear from the word incidental, it is clear that magnitude of resources devoted by assessee to incidental activity cant be even higher than devoted toward its main objects. It is important to mention here that Hon'ble supreme court in above case hasn't considered even selling books to other that's its students as incidental activity. Even otherwise for anything being incidental, there has to be some charitable activity. However, in case of assessee, there is no incidental activity but it is the main activity. Thus it is clear that assessee business do not fall in any of these. It is also important to mention here that having profits and gain from business or profession, is part of specified violation defined by clause (b) of explanation below section 12AB(4). Which makes assessee liable for cancellation of registration. 7.12 Now the more important question comes that whether assessee is doing this activity as per its objects, or this entire process is beyon....
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....milar issue as taking contract from government or taking subcontract from other person who have taken contract from government can be considered as charitable activities has been dealt in case CIT vs Annadan trust (2018) 258 Taxman 54 (kerala), the Hon'ble High Court of Kerala, where assessee was supplying mid day meal on contract. While dealing this case, Hon'ble Court has clearly held that such activities are purely business and cannot be considered charitable. Infact, Hon'ble Court has also stated that as assessee was getting the tender receipts, which was also the beyond objects of trusts.: x x x x Similar issue is also involved before Hon'ble ITAT, Jaipur in the case of M/s Eternal Foundation vs. CIT(Exemption), Jaipur in ITA No. 1504 & 1505/JP/2018 wherein the Hon'ble Tribunal has observed as under:- x x x x It is clear that the tribunal has held that the activities which have been performed by the applicant society wherein the payments have been received at the instance of fulfilment of the conditions as laid down in MOUS & Agreement are business activities only and cannot be stated as charitable activity. 7.14 Thus, it is clear t....
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....urther the assessee was executing work in metropolitan cities having easy access to banking sector. There is no valid reason for making such huge payments in cash to these volunteers. Even if the argument is taken that these volunteers usually belong to lower economic strata of society having no access to banks, considering that the assessee trust is claiming to be involved in charitable activities it ought to have opened bank accounts of these staff members for their benefit in the long run. 8.5 However no such steps were taken by the assessee trust since its intention was to siphon off the funds under the garb of Pocket Expenses for volunteers. Thus, these cash expenses without documentary evidence remains unexplained and are non-genuine in nature. Further this infringement tantamount to income of the trust been applied by the assessee trust other than for the objects of the trust and thus is in violation of objects of the trust. 8.6 During proceedings, on going through financial statements of the F.Y. 2016-17 it was also observed that the assessee has debited Management salary amounting to Rs 2.69,52,000/- in its Income & Expenditure Account. 8.7 The a....
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.... maintain proper accounts comer under the purview of non-genuineness of activities. Hon'ble ITAT Jaipur bench in case of NIMS University in ITA no. 736/JP/2017 & ITA No. 545/JP/2018 has taken following activities as non-genuine:- * activities are not legal as it has caused some infringement of law. * accounts are not properly maintained or the receipts are not accounted for in the books of accounts. * the trust/society is not registered with competent authority. * it has caused some misrepresentation of facts before any authority. * it has given undue benefits to the trustees or office bearers. * it is selling education. Thus, all the above issues as discussed in earlier paras are also part of non- genuineness of activities. 10. Another general point raised by assessee in its various replies is that, assessee is a charitable institution, registered under Rajasthan public trust act, thus any income even coming from business should not be treated otherwise, as assessee cannot use the same for purpose other than objects of trusts. Though it has been proved that assessee is siphoning of income for benefit of trustees, b....
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....pearing on behalf of the assessee has placed their written submission which is extracted in below; 1. With reference to the hearing held on 21.11.2023 where Hon'ble members asked to submit the written submission on the legal issue involved in the captioned case. In this regard, Appellant hereby submits as under: Key Prospective Amendments in the Law by Finance Act 2021 2. It is important to note that key changes were made in Finance Act, 2021 and Taxation and Other Law (Relaxation and Amendment of Certain Provision) Act, 2020. One of key changes was that every trust or institution registered under section 12AA of the Act required to re-register itself before the specified dates provided u/s 12A(1)(ac) of the Act and sunset clause has been inserted under section 12AA(5) w.e.f. 01.04.2021 and new section 12AB has been inserted. A. Key Prospective Amendments in the Law by Finance Act 2022 3. Finance Act, 2022 introduced new section for taxing the benefits provided to related persons will be treated as "specified income" and will be subjected to following consequences: * Such income will be taxed at the rate of 30% without any deduc....
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....n 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 (b) the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or (c) the trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public; or (d) the trust or institution established for charitabl....
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....her educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via), of clause (23C) of section 10, or any trust or institution referred to in section 11, has committed any specified violation as defined in Explanation 2 to the fifteenth proviso to clause (23C) of section 10 or the Explanation to sub-section (4) of section 12AB, as the case may be, he shall- (a) send a reference to the Principal Commissioner or Commissioner to withdraw the approval or registration, as the case may be; and (b) no order making an assessment of the total income or loss of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall be made by him without giving effect to the order passed by the Principal Commissioner or Commissioner under clause (ii) or clause (iii) of the fifteenth proviso to clause (23C) of section 10 or clause (ii) or clause (iii) of sub-section (4) of section 12AB: B. Impugned order is invalid and bad in law. 8. It is humbly submitted that the impugned order of cancellation of registration is invalid and ....
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.... Even otherwise, from the bare perusal of the contents of the impugned reference it is evident that the same is based on factually incorrect and misconceived notions, which issues is already in appeal before the Ld. CIT(A). Needless to say, if the Assessee succeeds in the appeal, the very basis of the reference and further making the impugned order would be vitiated. It is a wholesome principal of law that once the outcome of pending proceeding has a bearing on the other, one authority should wait for the other to avoid multiplicity of proceedings. The reliance in this context, is placed on judgment of Hon'ble Apex Court in case of in Commissioner of Income-tax v. Bhupen Champak Lal Dalal[2001] 116 Taxman 746 (SC). c. No show cause notice issued for the specified violations: 14. It is accepted principle that a person proceeded against is required to be informed about the exact nature of charges leveled against him. The medium to inform about the nature of charges is issuance of show cause notice. The importance of a show cause notice has been reiterated by Supreme Court in case of Umanath Pandey v. State of UP [2009] 12 SCC 40-43 as under: "Notice is the ....
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..... The conditions for cancellation of registration on account of specified violation, which were not specified earlier in the law, have been inserted under section 12AB(4) of the Act w.e.f. 01.04.2022 and would accordingly apply prospectively being penal provision and having very harsh consequences. However, the Ld. CIT(E) in the Impugned Order has cancelled the registration of the Assessee retrospectively w.e.f. AY 2017-18 without any basis and without authority of law. In AY 2017-18, there were no such conditions of specified violations in the law, therefore, Assessee cannot be penalized by reason of the amendment to the law effected subsequently. 19. To support the above contention, reliance placed on judgment by Hon'ble Madras High Court in the case of CIT v. Kumudam Endowments [2001] 117 Taxman 716 (Mad.) held that: It is well settled law that a person, who has complied with the law as it exists, cannot be penalized by reason of the amendment to the law effected subsequently, unless such intention is expressly stated and the imposition of such penalty is not contrary to any of the provisions of the Constitution. The argument that the assessee should b....
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....176 (Mad.)]. 22. The law of Section 12AB(4) is prospective in nature is evident from CBDT own circular no. 11/2022 dated 03rd June 2022 and also memorandum explaining the amendments, the relevant portion of which is reproduced herein for ready reference: Finance Act, 2022 has inserted sub-section (4) in section 12AB of the Income-tax Act, 1961 (the Act) allowing the Principal Commissioner or Commissioner of Income-tax to examine if there is any "specified violation" by the trust or institution registered or provisionally registered under the relevant clauses of sub-section (1) of section 12AB or subsection (1) of section 12AA. Subsequent to examination by the Principal Commissioner or Commissioner of Income-tax, an order is required to be passed for either cancellation of the registration or refusal to cancel the registration. Similar provisions have also been introduced in clause (23C) of section 10 of the Act by substituting the fifteenth proviso of the said clause with respect to fund or institution trust or institution or any university or other educational institution or any hospital or other medical institution referred under sub-clauses (iv), (v), (vi), (via) of thi....
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....t any show cause notice ; i. Ld. CIT(E) has invoked clause (a) of explanation below 12AB(4) on account of allegation that income of trust are being diverted for benefit of trustee. ii. Ld. CIT(E) alleged that having profit and gain from business or profession is part of specified violation defined by clause (b) of explanation to section 12AB(4). iii. Ld. CIT(E) has also invoked clause (e) of explanation to section 12AB(4). 26. However, none of the events or alleged violation of diversion of funds as alleged by Ld. CIT(E), Jaipur falls under specified violations as defined under explanation to section 12AB(4) of the Act, which is prospective in nature as explained herein above. Further, there is also no finding in the impugned order that the alleged violation is related to events occurring on or after 01.04.2022 without prejudice to fact that no show cause notice for alleged violation was given in the impugned proceedings. f. Law does not provide power to cancel the registration granted u/s 12A(a) of the Act. 27. As per section 12AB(4) of the Act, the registration granted under: i. clause (a), (b) or (c) of section 12AB(1), or ....
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.... Hon'ble ITAT in Assessee's own case. 32. It is humbly submitted that the Hon'ble ITAT has held that the allegation that activities of the Assessee trust are in the nature of trade or commerce cannot be ground for cancellation of registration u/s 12AA(3) of the Act and at can most be ground for denial of exemption u/s 11 of the Act (PB No. 33-34. 33. Further Ld. AO in recent assessment for AY 2020-21 (PB No. 190-199), the activities of the Assessee have been considered as charitable in nature considering the CBDT own circular NO. 11/2008 dated 19.12.2008, which has not been appreciated by the LD. AO while making impugned assessment for AY 2017-18. The decision of the LD. AO which is pending in appeal is per incuriam without considering the decision of Hon'ble ITAT itself and CBDT own circulars. h. No power of cancellation u/s 12AB(4)(b)(i) of the Act 34. Without prejudice to contentions raised herein above, it is humbly submitted that Ld. CIT(E), Jaipur has passed the Impugned Order u/s 12AB(4)(b)(i) of the Act, which power has not been given under the said clause (i) of the said Section. Thus, on this ground also, impugned Order is not tenable. ....
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....of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act. 3. From bare reading of the said section, it is evident that jurisdictional defect is not cured by the said provisions of the Act. 4. Similarly, from bare reading of the Section 292BB of the Act, it is evident that the said provision cures the defect of non-service or improper service of the notice/summon during the proceedings of assessment or reassessment, if the assessee has appeared in the proceeding or cooperated in any inquiry relating to assessment or reassessment. The relevant portion of the said Section is reproduced herein for ready reference: Notice deemed to be valid in certain circumstances. 292BB. Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in ....
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.... Moulviganj Lucknow Income Tax appeal No. 100 of 2015 order dated 30.03.2017 52. It is well settled that a jurisdiction can neither be waived nor created even by consent and even by submitting to jurisdiction, an Assessee cannot confer upon any jurisdictional authority, something which he lacked inherently 53. Even if, it can be said that Assessee submitted to jurisdiction of A.O., law is that Assessee cannot confer jurisdiction on an authority who did not have the same and we find support from Commissioner of Income Tax Vs. Hari Raj Swarup and sons (1982) 138 ITR 462 (Alld.). 8. In view of the above, it is evident that the order passed without authority of law and beyond the power conferred under the law is no rescued by the provisions of Section 292B/292BB of the Act. Accordingly, the legal objections raised by the Appellant are valid and justified." 5. The ld. AR appearing on behalf of the assessee has also placed their another written submission which is extracted in below; 1. With reference to the hearing held on 06.03.2024 and our submission dated 11.12.2023, Appellant hereby further submits that, Ld. CIT(E) has argued in the open court ....
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.... S.No. Particulars Page No. 1. Copy of registration certificate u/s 12A(1)(a) and DevsthanVibhag 1-2 2. Copy of Trust deed 3-12 3. Copy of ITR acknowledgement and Computation of Income 13-15 4. Copy of Audited Financial Statements 16-28 5. Copy of accolades of the Appellant 29-30 6. Copy of order of Hon'ble Bench for AY 2009-10 dated 22.08.2013 31-34 7. Copy of order of Hon'ble High Court for AY 2009-10 35-39 8. Copy of notice issued u/s 142(1) dated 29.01.2019 of AY 2017-18 40-42 9. Copy of reply submitted on 13.02.2019 in response to notice issued u/s 142(1) of the Act. 43-45 10. Copy of notice issued u/s 142(1) dated 13.09.2019 46-48 11. Copy of reply submitted on 30.09.2019 in response to notice issued u/s 142(1) of the Act. 49-50 12. Copy of notice issued u/s 142(1) dated 08.11.2019 51-56 13. Copy of reply submitted on 15.11.2019 in response to notice issued u/s 142(1) of the Act. 57-63 14. Copy of assessment order dated 29.11.2019 for AY 2017-18 64-76 15. Copy of appeal memo against the order dated 29.11.2019 77-79 16. Copy of no....
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....r institution registered or provisionally registered under the relevant clauses of sub-section (1) of section 12AB or subsection (1) of section 12AA. Subsequent to examination by the Principal Commissioner or Commissioner of Income-tax, an order is required to be passed for either cancellation of the registration or refusal to cancel the registration. Similar provisions have also been introduced in clause (23C) of section 10 of the Act by substituting the fifteenth proviso of the said clause with respect to fund or institution trust or institution or any university or other educational institution or any hospital or other medical institution referred under sub-clauses (iv), (v), (vi), (via) of this clause and which have been approved or provisionally approved under the second proviso to the said clause. These amendments are effective from 1st April, 2022. In addition to the specified violations referred above, the power of cancellation has also been granted under sub-rule (5) of rule 17A and sub-rule (5) of rule 2C of the Income-tax Rules, 1962 ( the Rules) to the Principal Commissioner or Commissioner authorised by the Board. This Circular only relates to cancellation of registrat....
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....accordance with the objects of the trust or institution and, therefore, the two conditions stipulated under the provisions of sub-section (3) of section 12AA, which empowers the authority to cancel the registration, do not exist in the present case. [Para 10] 22-26 5. Visakhapatnam Metropolitan Region Development Authority v. Chief Commissioner of Income Tax (OSD) [2020] 116 taxmann.com 711 (Visakhapatnam-Trib.) The assessee has neither established to have made the profit out of the above activities nor proved to be used for other purposes other than it's objects. There was no material placed by the department to establish that the assessee has made trade, commerce or commercial activity and the funds are distributed among the shareholders of the individual persons or for the benefit of any individual or the persons or the association or the profits being remitted to Government account. In the instant case, whatever surplus generated was used for the activities of the assessee society, therefore, the same cannot be held to be the commercial activities. Even otherwise, through Circular No. 21 of CBDT dated 27-11-2016, it has directed the field ....
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.... the Constitution. The argument that the assessee should be denied the exemption for the earlier assessment year when it had not contravened the law, because it had been found to have contravened the law in a subsequent assessment year cannot be accepted. It is the assessment year with which the assessment is concerned, and it is the eligibility of the assessee with reference to the law applicable in that year that is required to be looked into. [Para 4] 57-58 8. Heart foundation of India v. CIT, Pune [ITA no. 1524/Mum/2023, Mumbai-Trib. dated 27.07.2023] In above decision, the Hon'ble Tribunal has also held that the withdrawal of registration cannot be retrospective. In assessee's case, the PCIT has cancelled the registration under the new section 12AB. The clause (ii) to subsection section (4) of section 12AB specifically provides that cancellation can be done for such previous year and all subsequent previous years which makes it clear that the cancellation cannot be retrospective. Therefore, we hold that even otherwise the cancellation of registration by the PCIT retrospectively from AY 2016-17 is not tenable. [Para 9] 59-73 &....
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....ommissioner also but he did not bother to even make a reference of the evidence put on the record. The application of the assessee has been rejected summarily. After taking into consideration all the material on record, it is held, that activities of the society are genuine and it deserves to be granted registration under section 12A. The appeal of assessee is therefore, allowed and the Commissioner is directed to issue registration certificate in accordance with law. [Para 5] 115-119 12. Kanchan Singh Bhuli Devi Shiksha Prasar Samiti v. CIT, Kanpur [2013] 33 taxmann.com 113 (Lucknow-Trib.) Nothing has been brought on record except surplus generated during financial years 2006-07 to 2008-09 that the assessee was ever engaged in the activities other than educational activities. Since it has been repeatedly held by various High Courts and different Benches of the Tribunal that mere generation of surplus/profit in a particular year cannot be a ground for denial of registration under section 12AA and also grant of approval for exemption under section 80G, impugned order passed by the Commissioner is not proper. Therefore, the order of the Commissioner is set aside....
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.... 44] 133-156 14. Prabodhan ShikshanPrasarak Santhan v. DCIT, Ratnagiri Circle [2014] 44 taxmann.com 33 (Pune-Trib.) So basic requirement for invoking section 12AA(3) is that the activities of the trust are not genuine and are not being carried out in accordance with the objects of the trust. The Commissioner has recorded her findings in the order under section 12AA (3) that the trust is imparting knowledge at cost and therefore, not a charitable trust within the purview of section 2(15), secondly, the appellant trust has contravened the provisions of sub-sections 11(5) and 13(1)(c), thirdly, the trust is treated by the chairman and family members/relatives as their private property and enjoyed by them for their benefits only. There is nothing on record to suggest that the trust is not 'genuine'. In fact, the trust is carrying on educational activities which are charitable in nature. The activities are carried out as per its objects. There is no infringement of any of the provisions contained in section 11(5) and 13. The provisions of section 12AA(3) for cancellation/ withdrawal of registration granted to it with effect from 112-1998 under section 12....
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....ommissioner, these observations cannot be construed as legally binding in the sense that noncompliance with such guidance will not have any consequence, unless and beyond what is specifically envisaged by the statute- such as in Section 12AB(4) and (5) as indeed elsewhere, nor the implications of not doing what is set out in the conditions will remain confined to the cancellation of registration when the law stipulates much harsher consequences. To this extent, and in these terms, the legal effect of these conditions, as visualized in the conditional grant of registration dated 24th September 1991, stands vacated. 179-185 17. Relevant extracts of Memorandum of Finance Act 2022 Provisions of sub-section (3) of section 143 provide that no order under this sub-section shall be made, denying the benefits of clause (23C) of section 10, unless the Assessing Officer has intimated the Central Government or prescribed authority the contravention of the provisions of sub-clause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via) of clause (23C) of section 10 and approval granted to such trust or institution has been rescinded. There is no such provision in case....
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.... conduct inquiry as deem fit and then pass order either cancelling the registration if the specified violation is found or denying the cancellation if specified violation are not found." This facts confirm that there is a clear violation of principles of nature justice. 8.1 As it is clear and undisputed that the order is based on the earlier proposal which was on the old provision of the Act. Whereas in the new provision of the law no such default as stated in the amended provision is applied without conducting or issuing a separate notice specifying the defaults, thus the order passed cancelling the registration is bad in law as well as on facts. The ld. AR of the assessee without prejudice to that two observation which is made basis for cancellation of registration submitted that the contention regarding the commercial activities of the trust there is decision of the tribunal in the case of the assessee in ITA no. 163/JP/2012(APB-31-34). In that decision it has been held that "The proviso below section 2(15) of the Act is relevant for the purpose of assessment whereby the assessing officer upon finding that the assessee's activities are in the nature of business or trade, coul....
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....to the retrospective and to made the basis of cancellation of registration. Thus, the show cause notice issued being only two point of business and violation of payment to specified person does not warrant the cancellation of the registration in the new provision of the law. As regards the business activities the apex court held that it does not violate the provisions of law and for the violation of payment to specified person the law take care for charging the higher tax and penalty, so both the reasons made basis for rejection has in fact no force and the order thus is passed without considering the provision of the law required to be quashed. Even the show cause notice deals with the violation of the provision of section 12AB of the Act and if so that law does not apply retrospectively. The assessment in the case of the assessee for A. Y. 2020-21 selected to verify the business income and transactions of trust with the specified persons. The case was completed accepting the claim of the assessee under section 11 & 12 and there is no adverse observation on the business income of the assessee and transactions with the specified persons. The assessment is completed under the facele....
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.... cancellation can be done for such previous year and all the subsequent previous years, which makes it clear that the cancellation cannot be retrospective. The object of the trust is deal the solid waste management and environmental protection which not a business as per the amendment in the law and the judgment of the AUDA. Thus, the preservation of environment is a charitable object and not a general purpose utility for the benefit at large. The agreement with the Thane and Surat Municipality are for the purpose of binding nature of modalities of the operation and not of the business purposes. Based on this argument the ld. AR of the assessee challenged the order under dispute. 9. Per contra, the ld. DR representing the revenue stated that the assessee is engaged in the business under the guise of charitable activities. There is no object in the trust deed to undertake the charitable activity by applying the tenders and the participation by way of tender is nothing but a business activity of the trust. The object permits the assessee mainly to undertake the waste management in urban and rural areas with the participation of community and to do promotional of academic activitie....
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....ed by volunteers were furnished by the assessee. Thus, it has been noted by the ld. CIT(E) that the assessee is doing business of contract work. There is no reason as to why the huge cash payments were made by the assessee even though they operate in metropolitan cities. All these activities for the receipt and payment of booking non-genuine expenditure clearly prove that the assessee is doing business under the guise of charitable activity. In the trust deed there is no power to the trustees to accept the contract amount or that of the tender participation amount as per clause 7 of the trust deed reproduced at page 41 of the impugned order of ld. CIT(E). The ld. DR in support of the contention supported the order of the ld. CIT(E) wherein he relied upon the decision of Kerala High Court in the case of CIT Vs. Annadan Trust [ 258 Taxman 54]. In that case Hon'ble High Court held that "when a particular institution, as in the above case, is involved in implementation of welfare schemes of the Government, we cannot find any charity in that. The mere assertion that there is no profit motive will not suffice especially when for implementing the schemes the assessee takes money from the ....
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....o other activity except undertaking the contract work obtained from the tender. The provision of section 12AA and 12AB as discussed in the written submission are similar it does not violate the provision of the Act. The provision of section 12AB(4)(b) provides power to the ld. CIT(E) to cancel the registration for any previous year either from the reference of the AO or from the record. The assessment order referred to u/s. 143(3) of the Act is not under reference and thus, cannot be relied upon. The ld. DR also submitted that section 12AB empower to cancel the registration if the case is selected in accordance with the risk management strategy, formulated by the board. Thus, both the section 12AA(4) and 12AB(4) are being similar in nature the registration has rightly been cancelled. Since, there is complete satisfaction of the provision of section 12AB(4) the registration has rightly been cancelled. There is specific information from the AO that there is siphoning of funds by way of payment to specified person the invocation of jurisdiction by the ld. CIT(E) is correct and to be sustained. The payment made by the assessee for the alleged land transaction has not been justified by ....
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.... II. Activities are not in accordance with the objects of trust or institution. C. Thereafter, by finance act, 2014, without prejudice to powers available in 12AA(3), CIT was further given powers to cancel the registration of trust due to the operation of applicability of forfeiture of Income under section 13(1). The said provisions were added in form of 12AA(4). Before coming further. I am here by reproducing the section 12AA(4) as inserted by finance act 2014. "(4) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section- 12A (as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)) and subsequently it is noticed that the activities of the trust or the institution are being carried out in a manner that the provisions of section-11 and 12 do not apply to exclude either whole or any part of the income of such trust or institution due to operation of sub-section (1) of section-13, then, the Principal Commissioner or the Commissioner may by an order in writing cancel the registration of....
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....eligious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970; (d) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year- (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or ....
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....eof] of the Finance Act, 1972. In short. 13(1) is applicable broadly on four conditions:- a) Any part of income or property held for private religious purpose. b) Any income of property is applied for benefit of religious caste or community. c) Any part of trust or property is misused or applied for direct or indirect benefit of management or their relatives as specified in section 13(3) d) If funds of trusts or income were invested for modes other than 11(5). Thus we read 12AA(4) and 13(1) together it is clear that apart from two earlier conditions of cancellation as given in 12AA0), it also included four conditions us given in section 13(1). So from 01.10.2014 CIT was empowered to carry out cancellation if:- I. The activities of such trust/institution are not genuine. Or II. Activities are not in accordance with the objects of trust or institution. Or III. Any part of income or property held for private religious purpose. Or V. Any part of trust or property is misused or applied for direct or indirect benefit of management or their relatives as specified in section 13(3). ....
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....isions expressly, however, same was always there in view of definition of charitable objects in section 2(15). Thus for better under standing I would like to compare each part of specified violation in new regime vis-à-vis their position in pre 2022. Specified Violation post 2022 Whether such authority was in earlier regime. (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 This part is cumulative of conditions given in earlier D part for V & VI application of income or property for benefit of 13(3) persons and violation of 11(5), both were available as earlier by virtue of section 12AA(4) r.w.s. 13(1)(c) & 13(1)(d). (b) the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives: ne This power was expressly not available but was built in by definition of charitable objects under 2(15) and....
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....on, than would refer the case to CIT/PCIT, who in turn would cancel the registration under 12AA/12AB However, by considering the fact that cancellation is mainly comes under the Jurisdiction of CTT, position from 01.04.2022 was revered, that from 01.04.2022, Α.Ο. would notice the specified violation and would send reference to CIT, and it is CIT, who would decide that violation has occurred or not, and A.O. will pass its order only after finalisation of position by CIT. So saying that prior to 01.04.2022, A.O. was not have any power to make reference is mis interpretation of provisions. A.O. was certainly have powers to make reference to CIT about any violation in 13, however, he need to wait for the order of CIT regarding the same. So the net effect is only, that now A.O, would not make any addition, until issue is decided by CIT, while earlier A.O. was free to take his decisions and send the matter to CIT for cancellation during the assessment or after the assessment 7. Contents in para &, that impugned order is invalid is totally baseless. The impugned order is well speaking order, where it has been proved that assessee is doing following acts which makes ....
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....d in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner shall,- (i) call for such documents or information from the trust or institution, or make such inquiry as he thinks 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....
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....2AB(4) can be invoked only after granting registration under 12AB is wrong, as it also state that same can also be invoked after grant of 12AA (1)(b) i.e. prior to 01.04.2021. Thus 12AB(4) can well be initiate for any violation of assessee prior to 01.04.2021 too. 9. In para 13, assessee has stated that allegations in impugned reference not attained finality, thus impugned order based on such reference is premature. This argument of assessee is again baseless, 12AB(4), nowhere bind CIT to the order or A.O., infact. 12AB(4), clearly state that three conditions on which CIT can assume jurisdiction: a) CIT notice occurrence of any specified violation for any year. b) CIT receive reference from A.O. c) Case selected by RMS. In instant case, this office has received the reference from A.O., which is annexed as Annexure A to this submission, which clearly says that assessee i. Assessee is doing business in garb of charitable activities. ii. Assessee is transferring money to related parties as advance, thus applying the income and properties of trust for personal benefits of trustees and its related persons. iii Asses....
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....pecific clause have not been mentioned in these notices, however, all the specified violations were enumerated with facts and figures. Now coming to the law, law do not prescribe issuing of show cause notice in this regard, 12AB(4), only prescribe to call for detail from assessee or conduct enquiry as deemed fit, and than pass order either cancelling the registration if specified violation is found or denying the-cancellation if specified vistation are not found. Thus this argument of assessee is also invalid. Further the case laws given by assessee are not at all related to fact and section on in this case, thus have no applicability 11. In para 18 to 23, assessee has taken the view that section 12AB is prospective and is effective only from A.Y. 2022-23, this argument of assessee is also invalid and without any basis and also do not hold correct on fact of the case and the position of law. 12AB is a procedural section, which is amply clear by the fact that earlier procedural section under section 12AA has been omitted on the same date as introduction of 12AB. Now coming to the decision quoted by assessee, if we read them carefully it appears by those decision Hon'ble....
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....ther being emphasised, that this cancellation is not for proviso of 2(15), but for assessee doing business in garb of charity, assessee is having business income which is neither from property held under trust nor incidental to its objects, assessee not doing its activities as per the trust deed, assessee is utilising properties of trust for the benefit of persons covered under section 13(3) thus not applying the properties for the objects of trusts, assessee is shiphoning of money in cash as well cheque thus working non genuinely and using the properties of trusts not for the objects of trust. Thus this cancellation order is nowhere covered by order of Hon'ble tribunal made in 2013. 15. In para 34 to 36 assessee has claimed that order has been passed under 12AB(4)(b)(i) which is only for calling for information thus no cancellation can be effected by that clause. In this regard, it is humbly submitted that in this case, section is only 12AB, clause applicable is sub clause (4), so the section actually is only 12AB(4) which is correctly mentioned in show cause as well as final order, the rest part (b)(i) has been added inadvertently and just typographical mistakes, whi....
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....rovisions of act, the substance has to prevail over the form, and to this effect only 2928 has been taken in statue and has been applied by various Hon'ble Court. Encl: 1. Annexure 'A-Proposal received from A.O. 2. B-1,B-2 & B-3-Letter Notices sent to assessee." 10. In the rejoinder the ld. AR of the assessee submitted that the change being the substantive and penal provision for cancellation it cannot apply retrospective. The basis made for cancellation is also covered by the legislative intention to be charged at higher tax and prescribed the levy of penalty and when there is specific provision to deal with particular situation no general provision be applied in the case of the assessee thus the provision applied by the revenue is not applied after 01.04.2021. Even the fresh registration has been given by the revenue to the assessee in the new regime. The object of the new regime to be seen and the observation of the old regime cannot applied in the present facts and circumstances of the case. In the order of the assessment passed no such violation as alleged has been examined by the ld. AO. The previous year's alleged violation of A. Y. 17-1....
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....ues were pointed out by the ld. AO: a) the assessee is doing business in the grab of charitable activities. b) the assessee is transferring money to related parties as advance, thus applying the income and properties of trust for personal benefits of trustees and its related persons. c) Assessee is transferring money to related parties in grab of salary, rent and subcontracts. The bench noted that for the issue of doing the business in the grab of charitable activities the same has been disputed by the revenue and in that case the decision of the co-ordinate bench in ITA no. 163/JP/2012 wherein the bench held that- "5. Heard parties with reference to material on record. The provisions of section 12AA(3) of the IT Act, which are relevant to the issue are reproduced as under :- "(3) Where a trust or an institution has been granted registration under clause (b) of sub section (1) (or has obtained registration at any time under section 12A (as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996) and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not ....
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....ility of these provisions." Thus, on the issue of the doing business by the assessee the finding is already recorded by the bench in the case of the assessee and the same reached finality. The apex court on such repeated issue noted in the case of Parashuram Pottery Works Co. Ltd Vs ITO [ 1977] 106 ITR 1 at page 10 "At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity". Even the apex court also held on the rule of consistency in the case of Radha Soami Satsang v. CIT (1991) 11 TMI 2 observed that; We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustai....
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.... and income of trust for the benefit of trustees and its related parties, and also siphoning off money by booking non genuine expenditure, it is clear that assessee has done specified violation namely clause (a), (b) (e), of explanation to section 12AB(4), as well as violation of 12AA(3) (the earlier clause), thus ils registration is liable to be cancelled. 12. Though assessee is doing the activities beyond its objects since 2009, when it undertook the first contract, and applied money of trust for personal benefits of trustees atleast from F.Y. 2015-16, however, as these proceedings were initiated in response to proposal from A.O. for A.Y. 2017-18, thus registration of trust is being cancelled w.e.f A.Y 2017-18 and subsequent years. As assessee has received registration in new regime under section 12A(1)(ac)(i), based on earlier certificate. As same has been cancelled thus assessee's new registration dated 23.09.2021 is also being cancelled. URN number issued to assessee AAAAC0873CE20217 is also being cancelled. 12.1 As the order under challenge is related to the provision of section 12AA of the Act it would be necessary to go through the substantive provision of secti....
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....he trust is applied for benefit of specified persons like author of trust, trustees etc.; or (iv) its funds are invested in prohibited modes, then the Principal Commissioner or the Commissioner may cancel the registration if such trust or institution does not prove that there was a reasonable cause for the activities to be carried out in the above manner. This amendment will take effect from 1st October 2014. 12.2 The ld. CIT(E) has already noted that though the reference of the ld. AO was in that section 12AA of the Act, but that provision of the Act becomes inoperative before any order was passed by the ld. CIT(E) and that proceedings becomes null and void. There after the provision of section 12AB becomes operative w.e.f. 01.04.2022 and ld. CIT(E) noted that there was no time barring for 12AA(3) proceedings for cancellation of registration but the amended provision of section 12AB made time barred such proceeding upon 6 months from the end of the quarter in which first notice u/s. 12AB(4) is issued. Since the proceeding in the case of the assessee u/s. 12AA(3) already lapsed without passing any order and considering the new provision of law a fresh notice was issu....
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....istration for the trusts or institution referred u/s 11 of the Act. As it is clear from the facts recorded that the ld.CIT(E), Jaipur has initiated the impugned proceedings of cancellation of registration based on the reference received from ld. DCIT(E), Jaipur dated 06.02.2020 as evident from the Impugned Order itself i.e passed u/s 12AB(4)(b)(i) of the Act. As per the amended provision of section 12AB(4) of the Act, reference has to be after granting of the registration u/s 12AB(1)(a) as evident from the bare reading of the provision itself which states subsequently, if there is reference by Ld. AO, then only the Ld. PCIT/CIT can proceed further. Admittedly in the present case, there is no such reference after granting registration on 23.09.2021. Thus, when the provision for making the reference was inserted in law w.e.f. 01.04.2022 and when at the time of impugned reference, there was even no provision for making such reference under the 2nd proviso to section 143(3) of the Act for the trusts and institution referred under section 11 of the Act. Therefore, the reference itself is without the authority of any statutory provisions and there was no fresh reference by the ld. AO. Fu....
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.... the amendment to the law effected subsequently. We derive support to reach to this conclusion from the decision of the Hon'ble Rajasthan High Court in the case of Indian Medical Trust v. PCIT [2019] 108 taxmann.com 93 (Rajasthan) where it has been held that: Indisputably, the order dated 16th Jan, 2018, made by the Commissioner of Income Tax thereby canceling the registration granted under section 12A and withdrawing the approval given under section 10 (23C) (v) & 10 (23A) (via) of the Act of 1961, to the petitioner Trust with retrospective effect from the date of 01st April, 2006, was arbitrary in the face of the provisions of the Act of 1961; and therefore, cannot be deemed to be in consonance with any possible interpretation to be valid or legal. This court is of the opinion that the provisions of section 12AA (3) of the Act of 1961, empowers the Commissioner of Income Tax to initiate steps for cancellation of the registration of a Trust, but, the legislation had no intention of giving the said provision, a retrospective effect. For in such a situation, the same would have been clearly specified in the said provision. Interpretation of the said provision has to be harm....