TaxTMI 
TaxTMI 
2025 (9) TMI 227
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....e Id. Pr.CIT(Central) failed to appreciate that, pursuant to search and seizure proceedings in the hands of the Appellant, though the power to make assessments are centralized with the Central Circle, the said power does not extend or confer the jurisdiction to exerce powers under section 12AB(4) of the Income Tax Act by the Id. Pr.CIT(Central). The Id.Pr.CIT(Central) failed to notice that such power is vested by the Hon'ble CBDT only on the ld.CIT(Exemptions). 3. Without prejudice to the above grounds, the Id. Pr.CIT(Central) erred in invoking provisions of section 12AB(4) of the Act though the Appellant did not violate any of the provisions of the Act as mentioned in Explanation to Section 12AB(4) of the Act as "specified Violations". 4. The Id.Pr.CIT(Central) erred in holding that the Appellant has not properly recorded the supply of books to Ben Holistic Enterprises Pvt. Ltd. (hereinafter "Ben Holistic"), in the books of the Appellant's trust. The ld.Pr.CIT(Central) ought to have appreciated that since the books are received at free of cost by the Appellant, the Appellant can only record the factum of receipt of books by it and supply of books for sale....
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....ects of the appellant-trust are - * To establish and run educational institutions, vocational, technical training centers and co-operatives for imparting education and training in fields of agriculture, allied agriculture, animal husbandry, industry, management and any other branches of learning, promoting, knowledge awareness, selfreliance, co-operation, character, motivation, cultural and spiritual values and socio-economic welfare of the peoples. * To train and equip the poor and needy people so as to be self-supporting. * To render service to lie poor anal needy members of the society undertake social service activities with a view to promote integral and holistic development of farmers, artisans, and other under privileged sections of the community. * To undertake, and support Health and Sanitary projects and programs. * To undertake, develop, support and promote various projects and programs of integrated rural development, * To establish, maintain and run boarding houses and residential institutions for the students. * To help poor und meritorious students in pursuing their studies. * To run homes for ag....
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....vant records depicting the facts of the case, the following imputations were made prima facie by the Assessing Officer to the effect that, sale of books received as gifts from foreign donors for profit. It was noted that, M/s John Foundation received books from foreign donors without any consideration and subsequently these books were supplied to its business concern M/s Ben Holistic Enterprises Pvt. Ltd., which is a closed associate of the assessee trust without properly recording the transactions of sale of books in the books of account of the assessee trust. The books which were otherwise meant for charity were sold by M/s Ben Holistic Enterprises Pvt. Ltd to the public at a profit margin @ 25 to 50%. The Assessing Officer noted that, as per clause-L of the objects of the assessee trust, "the objects of the trust will not include objects involving carrying on any activities for profit within the meaning of Income Tax Act". Thus, the assessee trust M/s John Foundation has earned profit, out of selling the books, which it got as donations in kind from the foreign donors, is in violation of the objectives of the Trust. Since, the assessee trust was failed to discharge onus cast upo....
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....d, other than for the objects of the trust or institution does not arise. Further, the Trust has carried-out it's activities in accordance with it's main objects including distribution of books, which is evident from Clause-2 of the Objects of the Trust. Therefore, the allegation that, the activities being carried-out is not genuine or is not being carried-out in accordance with all or any of the objects or conditions of registration is incorrect. Therefore, submitted that, the show cause notice issued for proposed cancellation of registration of Trust under section 12AB(4)(ii) of the Income Tax Act, 1961 [in short "the Act"], is incorrect. 8. The learned PCIT-Central after considering relevant submissions held that, the appellant trust has failed to discharge it's onus caste upon it about the utilisation of the funds of the Trust for the purpose of Objects of the Trust and by sale of books received as gifts from foreign donors on a profit to the public through it's associated concern and is not recording of the sale transactions properly in books of accounts, leads to a specified violation during the previous year relevant to the assessment year under consideration, includi....
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....urse of search/post search proceedings, it was observed that the total sales derived by M/s Ben Holistic Enterprises Pvt Ltd for the Financial years 2013-14 to 2014-15 are to the tune of Rs. 10,49,54,810/- out of which an amount of Rs 6,43,01.557/- only was remitted back to the assessee trust Mis John Foundation after deduction operational expenses including salary to Sn Benedict John who is the son of Saji Koppa John, the trustee of the assessee trust. (vi) During the search, it was found that the assessee trust M/s John Foundation resorted to unlawful practices by not recording the transactions of books received-in as donations and also subsequent outward supplies of books to its closely associated business company M/s Ben Holistic Enterprises Pvt Ltd. However, lump-sum amounts were shown to have been received by the assessee trust from the above company which are nothing but the amounts collected the company on sale of books supplied to them by the assessee trust and the said received-in funds were disclosed as income of the trust under the head Any Other Income' in the ITRs filed by the assessee trust. Further, the company found to have recorded the above payments ....
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....ent towards the objects of the trust only. In this connection, the factual findings unearthed during search proceedings and post search enquiries are as under : i. The factual finding during search indicated that the books which were received by the assessee trust free of cost from foreign donors were supplied to a company M/s Ben Holistic Enterprises Pvt Ltd in which Sri Benedict John who is the son of Saji Koppa John, the trustee of the assessee trust, is one of the directors. Further, the books were sold by the said company and only a part of the sales were transferred to the assessee trust after deducting major portion towards operational expenses. During the course of proceedings u/s. 12AB(4) before the PCIT(Central), Hyderabad, the assessee could not submit any explanation or evidence contrary to the said factual findings unearthed during search. ii. It is pertinent to state that as per its own submissions dated 16.01.2025, the assessee trust itself admitted that as against purchases of Rs. 1.21,86,239/- shown in the books of M/s Ben Holistic Enterprises Pvt Ltd, an amount of Rs. 58,43,957/- was only transferred to the assessee trust which is less than 50% o....
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....going, the assessee trust failed to discharge the onus cast upon it about the utilization of the funds of the trust for the purposes of objects of the society and by sale of books received as gifts from foreign donors at a profit to the public through its associated concern M/s-Bern Holistic Enterprises Pvt Ltd and in not recording of the sale transactions properly in books of account the following specified violations occurred during the previous year relevant to the society. 1. Income derived from property held under trust, wholly or in part has been applied, other than for the objects of the trust or institution. 2. Any activity being carried out by the trust or institution is not being carried out in accordance with all or any of the conditions subject to which registration was granted to Society. 7. After careful consideration of the facts and circumstances of the case and taking into cognizance the findings of the search and post search enquiries, it is found that there are occurrences of specified violations during the previous year relevant to A.Y 2022-2023 as defined in explanation to section 12AB(4) of the Act warranting cancellation of registra....
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....sold to a Company for super profit and the Company has earned margin of 25% to 50% on sale of books, whereas, transferred a small amount or minimum amount to the appellant trust, after claiming huge amount of expenditure, including salary to the Director of the Company and Son of the Trustee. Further, the learned CIT(E) observed that, the Company has declared meagre profit of 2% on sales and booked huge expenditure which is unsubstantiated. However, the fact remains that, books received from foreign donor free of cost, is not meant for free distribution as claimed by the learned PCIT-Central and there is no evidence with the Department to allege that, any directions from the donor for free distribution of books. Further, the Appellant-Trust has sold/distributed the above books at the rate of Rs. 700/- per book to the Company and received the sale proceeds. The Trust has applied the income derived from distribution of books for the Objects of the Trust including Asha Back to School and Children Home Construction, Education Project Expenses, Hospital Maintenance, Voluntary Skills Training Expenses etc., which are the main Objects of the Appellant-Trust. Therefore, the allegation of t....
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.... is less than 20% of the aggregate receipts of the Appellant Trust for the year under consideration and as per proviso to Section 2(15) of the Income Tax Act, 1961, the Appellant Trust can claim the benefit of exemption under section 11 of the Income Tax Act, 1961 on the income derived from property held under the Trust. Therefore, on this ground also, cancellation of registration of the Appellant-Trust under section 12AB(4)(ii) of the Income Tax Act, 1961, is incorrect. 13. Learned Counsel for the Assessee further referring to the additional grounds of appeal filed by the appellant submitted that, the Explanation relating to Section 12AB(4)(ii) of the Income Tax Act, 1961 on 'specified violation' is applicable for the assessment year 2023-2024 onwards as being substantive in nature and, therefore, on the basis of said specified violation, registration of any Trust or Institution cannot be cancelled for the assessment year 2023-2024. Since, the learned PCIT-Central cancelled the registration of the Appellant-Trust for the assessment year 2022-2023 and the amendment to Section 12AB(4) of the Act came into effect from the assessment year 2023-2024, the Order passed by the learned ....
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...., 1961 on the ground that, income derived from property held under Trust, wholly or in part has been applied, other than for the Objects of the Trust/Institution and the activity of the Trust is not being carried-out in accordance with all or any of the conditions, subject to which, the registration is granted to the Trust. The learned PCIT-Central has discussed the issue at length in light of relevant facts and findings during the course of search conducted in the case of the Appellant-Trust and associated entities and came to the conclusion that, the Appellant- Trust has adopted modus operandi where by shifting it's revenue generated from sale of books to it's closely Associated Company M/s. Ben Holistic Enterprises Pvt. Ltd., by an unfair adjustment in it's books of accounts and showing only the net amount of money received after sale of books from the Company as it's income, which ought to have been offered as turnover from the sale of books in the hands of the Appellant-Trust itself and could have recorded the same in it's books. The learned PCIT-Central supported the said findings, in light of the Associated Enterprise i.e., M/s. Ben Holistic Enterprise Private Limited an....
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....tifying cancellation of registration under Section 12AB(4)(ii) of the Income Tax Act, 1961, but, going by the discussion in the Order passed under Section 12AB(4)(ii) of the Income Tax Act, 1961, what we find is, the learned PCIT-Central assumed that, the Appellant-Trust has sold the books through the Company and earned profit. Further, going by the financials of the Company and other relevant evidences furnished in respect of sales/distribution of books, we find that, the Appellant-Trust has received books from foreign donor without any cost. The Appellant-Trust has incurred import duty and other logistic expenses on bringing the books into India. Except this cost, there is no other cost for the books received from the foreign donor. The Appellant-Trust has sold/distributed the above books at an average sale price of Rs. 700/- per book. If we consider the cost incurred on importing the books from outside India and revenue generated from sale of such books, in our considered view, the Appellant-Trust has generated substantial revenue from distribution of books, although, through it's related-concern and the said revenue has been applied for the Objects of the Appellant-Trust li....
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....tribution has been sold to a Company viz., M/s. Ben Holistic Enterprise Private Limited, in which the Trustees of the Appellant Trust are Directors and further, the said entity falls under the provisions of sec.13(3) of the Income Tax Act, 1961. There is no dispute with regard to the fact that, M/s. Ben Holistic Enterprise Private Limited Company falls under the provisions of sec.13(3) of the Act because, the Son of the Appellant-Trust is the Director of the Company, but, the fact remains that, whether that alone is sufficient to hold that, income derived from property held under the Trust has been applied other than for the Objects of the Trust or Institution is a question of fact which can be ascertained on the basis of relevant reasons given by the learned PCIT, Central in light of any violations referred to u/sec.13(1)(c) or 13(2)(a) to (h) of the Income Tax Act, 1961. As per sec.13(2) of the Act, if any part of the income or property of the Trust or Institution is made available for the use of any person referred to in sub-sec.(3) or if any amount is paid by way of salary -cum- allowance or otherwise to any person referred to in sub-sec.(3) out of the resources of the Trust or....
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....fficer has made observations with regard to bogus nature of expenditure in the assessment of the Company M/s. Ben Holistic Enterprise Private Limited, in our considered view, the findings reached by the learned PCIT, Central that, income or property of the Trust has been applied other than for the Objects of the Trust or Institution is only on suspicion and surmises and, therefore, cannot be accepted. 18. Coming back to another observation of the learned PCIT-Central. The learned PCIT-Central observed that, the Appellant Trust has sold books to the Company and has received only part consideration, leaving substantial benefit to the Company is, in violation of provisions of Section-13(1)(c) of the Income Tax Act, 1961. The learned PCIT-Central came to the above conclusion on the basis of purchases of Rs. 1,21,86,239/- shown in the books of M/s. Ben Holistic Enterprises Pvt. Ltd., and further amount remitted to the Appellant Trust of Rs. 58,43,957/- which is almost 50% of the purchases shown by the said Company. The Appellant-Trust has clarified the above allegation of the learned PCIT-Central in light of certain evidences including invoices raised to the Company and receipts rais....
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.... same financial year or in the subsequent financial year. Therefore, the observation of the learned PCIT-Central on this aspect is totally incorrect and cannot be accepted. Therefore, we are of the considered view that, cancellation of registration of the Appellant-Trust in terms of Section 12AB(4)(ii) of the Income Tax Act, 1961 on the ground that, income derived from property held under the Trust wholly or in part has been applied, other than for the Objects of the Trust is incorrect and, therefore, we reject the reasons given by the learned PCIT-Central on this ground. 19. Coming back to second ground, on which, the registration of the Appellant-Trust was cancelled. The learned PCIT-Central, had cancelled the registration on the ground that, the activities of the Appellant-Trust being carried-out are not genuine or is not being carried-out in accordance with all or any of the conditions, subject to which, the registration was granted to the Appellant-Trust. The learned PCIT-Central alleged that, transfer of books which are received free of cost and which are the property of the Appellant-Trust has been given to a Company, in which, the Trustees son is working is done by the A....