TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 991
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....nted to it by the ld. CIT (E) vide his order dated 31.07.2006. The factum of this registration has been mentioned by the ld. CIT (E) while issuing a Show Cause Notice as to why registration be not withdrawn. There has been changes in the Scheme of registration admissible to Charitable Institution by way of Finance Act, 2021 and assessee has been granted registration u/s 12A(1)(ac)(iii) on 18.07.2023. The controversy started from the assessment of assessment year 2013-14 to 2015-16. The AO during the assessment proceedings of these assessment years noticed that there was an imprest deposit against the name of Shri Anshu Kataria, Chairman of the assessee Society. The AO also observed that there were donations which are alleged to be corpus donations received from the students in far flung areas of the country. The AO doubted this donation received by the Institution which was received at Rs. 1,63,73,648/- in assessment year 2013-14 and this amount varies in subsequent assessment years, namely 2014-15 and 2015-16. Armed with these facts on their cumulative setting, AO was of the view that assessee has violated Section 13(1)(c) and 13(1)(d) read with Section 13(3) of the Income Tax Act....
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.... the A.O. for his comments, the Assessing Officer did not make any comment on such affidavits and as such the ld. CIT(A) has passed order without taking into consideration the affidavit filed by the Assessee during the appellate proceedings. From the facts of the case it has also emerged that statements of only seven students out of 1500 students were recorded by the Assessing Officer and such statements were made basis for disallowance of the entire amount of Rs. 1,73,73,648/- by applying the provisions of section 115BBC and section 68 of the Act treating corpus donations received from students to be anonymous donations. 8. We find that the not considering the evidence filed by the Assessee during the appellate proceedings before the ld. CIT(A) is not justified on the part of the ld. CIT(A). In fact, the case laws relied upon by the ld. CIT(A) on the decision of 'CIT (E) vs. Jagannath Gupta Family Trust', reported in 411 ITR 235 is also not appropriate. It is because in Jagannath Gupta Family Trust's case (supra), the matter was relating to the money laundering in lieu of cash, such is not the factual position in this case. Further, even the statements of students recorde....
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....in the Anshu Kataria's imprest account represented fees deposited by students of states, where they were unable to deposit the same into Trust's account, in the personal account of Sh. Anshu Kataria. On perusal of the said reply, it was seen that assessee had failed to justify the reasonability of the said transaction and purpose of the same. The assessee had provided undue benefit to the chairman of the society. Since Sh. Anshu Kataria was Chairman of the society, he fell under the category of persons as defined in Sec. 13(3)(c) of the I.T. Act, 196. Assessee had shown payments to its chairman as imprest. This amount was fund of the assessee, which should have been part of the unutilized income of the entity and deposited in modes u/s 11(5) of the Act. As the assessee had made payments to its Chairman without any interest or security, which was not reasonable & amounted to undue benefit accorded to the chairman of the society. So assessee's claim of exemption was denied u/s 13(1)(c) and u/s 13(1)(d) of I.T. Act, 1961." 10. The Counsel of the Assessee also argued on the line of his reply filed before the ld. CIT(A), which is as under:- "This imprest wa....
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....ficer. In case of (A) ACIT Indicula Trust Society [2012] 21 taxmann.com 144/52 SOT 1 (Delhi - Trib.) was held that where the Trust provides benefit directly or indirectly, to be specified persons mentioned u/s 13(3) the benefit of exemption u/s 11 will not be available to that extent. The issue was whether the trust will lose exemption on its entre income, if it is found that the specified person has been benefited directly or indirectly by the trust in respect of a part of income, or whether only that part of income which goes to the benefit of specified person will only lose the exemption. The ITAT felt that of section 13(1)(c) (ii) of the benefit of exemption should be denied only to the extent of the benefit provided." 11. The ld. DR relied mostly on the authorities below. 12. The ld. CIT(A) in his order has given his findings on this issue as under:- "7.3.1 The submission of the assessee that imprest was out of fees collected in cash from students of remote states like Orissa, Bihar and J&K by the Chairman on his tour is not tenable in the light of fact that as per MOA of the assessee, it was not duty of the Chairman to travel across states collectin....
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....ction of collecting fee from the students and depositing in the Chairman's personal account may not be treated as such a big crime so that section 13(1)(c) and 13(1)(d) read with section 13(3) could be invoked. However, as filed in the written submissions by the Counsel of the Assessee as per the findings of the Delhi Bench of the Tribunal in the case of 'ACIT Indicula Trust Society', (2012) 21 taxmann.com 144 / 52 SOT 1 (Delhi - Trib.) is as under:- The maximum addition that could have been made u/s 13 is the amount that has been diverted for the benefit of the interested persons and for not the entire surplus as has been made by the learned Assessing officer. In case of (A) ACIT Indicula Trust Society [2012] 21 taxmann.com 144/52 SOT 1 (Delhi - Trib.) it was held that where the Trust provides benefit directly or indirectly, to the specified persons mentioned u/s 13(3) the benefit of exemption u/s 11 will not be available to that extent. The issue was whether the trust will lose exemption on its entre income, if it is found that the specified person has been benefited directly or indirectly by the trust in respect of a part of income, or whether only that part of income w....
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....6 were framed by the Assessing Officer on 28.03.2016. 14.12.2016 and 17.11.2017 respectively. The assessee preferred appeals against the assessment orders before the Commissioner of Income Tax(Appeals) which were decided by the Commissioner of Income Tax(Appeals) vide separate orders of even date i.e. 05.03.2019. Appeals of the assessee trust for AYs 2013-14, 2014-15 and 2015-16 were filed before the Hon'ble 1 TAT in the year 2019 by the assessee against the orders of the Commissioner of Income Tax(Appeals) while an appeal for AY 2014-15 was filed by the Revenue against the order of the Commissioner of Income Tax(Appeals). The appeals were listed for hearing before the Hon'ble ITAT on 19.06.2024. It has been mentioned in your SCN that it rias been brought to notice by CIT(DR), ITAT vide letter F. No. CITDR)-2/ITAT/2024-25/257 dated 14.06.2024 that the society has violated the provisions of Section 2(15) read with Section 12A of the Income Tax Act 1961. It has further been mentioned in the notice that the trust funds were being misused to the advantage of trustees/chairman and on account of receipts being anonymous donations masqueraded as receipts from students. It....
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....hese issues were raised during the assessment proceedings, appellate proceedings before the Commissioner of Income Tax (Appeals) which events culminated into filing of appeals before the Hon'ble lTAT both by the assessee and the revenue in the year 2019.Thus, it was always in the knowledge of your office regarding the alleged violations as mentioned in the SCN. Thus, issuance of SCN as of today suffers from inordinate delay especially when the issues being raised in SCN have been settled by the Hon'ble ITAT vide orders dated 25.07.2024 i.e before the issuance of the impugned SCN. Without prejudice to the above, it is submitted that Your Notice for Cancellation of Registration/Approval [Ref: ITBA/EXM/F/EXM46/2024-25/1067525498(1) dated 12.08.2024 invokes Clause No. (4) of Section 12AB of the Income-tax Act and certain other facts and situations involving this assessee to impute that the registration u/s 12A r.w.s 12AA r.w.s 12AB of the Income-tax Act granted to this assessee vide Orders CIT- II/CHD/TECH/179/1522 dated 31.07.2006 and 12A(1)(ac)(iii) dated 18.07.2023 deserve to be withdrawn or cancelled. Towards the above, the following submissions are being relied up....
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....assessee. The impact of these provisions is therefore prospective and cannot be given retrospective effect, also in view of the decision of the Supreme Court in the case of Sedco Forex International Drill Inc. v. CIT [2005] 279 ITR 310 wherein it has been held that even the provisions of an Explanation cannot be given retrospective effect unless specifically provided by the statute. A cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force. But if it changes the law, it is not presumed to be retrospective irrespective of the fact that the phrase used are 'it is declared' or 'for the removal of doubts'. Casus omissus (the principle that a matter which has not been provided in the statute but ....
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....a specific mention of amended provisions to operate retrospectively, no cancellation for earlier years could be made - Held, yes - Whether therefore, invoking provisions of section 12AB(4)(ii), which had been introduced by Finance Act, 2022 with effect from 1-4-2022 for cancellation of registration with retrospective effect from relevant assessment year 2021-22, was bad in law as it was not explicitly provided in amended provisions to operate retrospectively - Held, yes - Whether thus, cancellation of registration granted to assessee-trusts was to be quashed - Held, yes " • • 162 taxmann.com 806 (Punjab & Haryana) Commissioner of Income-tax, Patiala v. Young Scholar's Educational Society • Welham Boys' School Society [2006] 285 ITR 74 (Uttaranchal) • 160 taxmann.com 217 (Bangalore - Trib.) Islamic Academy of Education v. Principal Commissioner of Income-tax (Central) -Violation committed by assessee trust in assessment year 2021-22 could not be basis of cancelling section 12AB registration for assessment year 2022-23 to assessment year 2026-27, as each year was to be considered independently. As such, any adversar....
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....f section 12AA, as the case may be, and subsequently, (a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for an: previous year; or (c) such case has been selected 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 " IMP: It is clear from the contents of your Notice referenced above that NONE of the preconditions prescribed to initiate any proceedings or actions towards attempted cancellation of registration duly granted u/s 12AA to this assessee exist or have been stated in such Notice. The alleged "one or more specified violations" that you have sought to identify are not of the nature of "specified violations" as defined in the said Section 12AA and can be readily explained (as done below) as bona fide actions in keeping with the substance, intent, purpose and spirit of Section 2(15) of t....
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....d by the AO that the assessee had shown an amount of Rs. 13,46,927/- to Sh. Anshu Kataria (Chairman of the assessee trust) as imprest. During the assessment proceedings, the nature of this account and purpose of the same was asked from the assessee. The assessee had given contradictory explanations i.e. on one occasion, it had stated that the amount was advance and on the other occasion, it had stated that it was repayment of loan. The AO held that the assessee had not given a reasonable explanation of the reason for giving money to a specified person without any Interest or security and had rather given different explanation vide Different replies. Therefore, the AO held that Sh. Anshu Kataria, Chairman of the society, had taken undue benefit of the property of the society and had retained an amount of Rs. 13,46,927/- without any specific purpose. Accordingly, section 13(l)(c)/l 3(l)(d) were invoked and surplus was brought to tax and the assessee was treated as an AOP" Our Comments: It may be kindly noted that all of the above arguments and findings of the Assessing Officer (AO) are extracted in his order of assessment for the AY 2015-16. although this Assessment Year is ....
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....es including imprest payments for one AY 2014-15 and disallowing the analogous ones for the AYrs 2013-14 and 2015-16 is a demonstrated evidence and testimony of the above position; Thus, there is differential and inconsistent approach taken by stating only the imprest payments for the AY 2015-16 while not stating the respective amounts for the AYrs 2013-14 and 2014-15 which is yet another example and demonstrated evidence and testimony of the insignificance of these payments, particularly in any manner suggestive of wholesale deviations by the assessee from the need of furthering its stated charitable objectives. There are several judicial precedents that hold for the impugned assessment years that hold that the entire exemption will NOT be forfeited and exemption will be denied only to the extent of the violation committed [Gurudayal Berila Charitable Trust v/s ITO, Fifth (1990) 34 ITD 489 (Mum), Director of IT (Exemptions) v/s Sheth Mafatlal Gagalbhai Foundation Trust (2001) 249 ITR 533 (Bom.), Asst. CIT v/s Sri Ramchandra Educational & Health Trust (2010)128 TTJ 408. Reliance is also placed on the following decisions for the above proposition : Sr. ....
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.... disallowance and assessability of the said payment have been upheld by the ITAT for non-applicability of tax-exemption u/s 13 of the Act cannot be construed to arrive at the sweeping, unfounded and reasonless view and finding that the entire activities of the society are unworthy of tax-exemption through the instrument of cancellation of registration granted to the society u/s 12A r.w.s 12AB of the Act. In the above incomplete statement of facts and position extracted verbatim in the notice from the order of assessment, reference has been made to the disallowance of exemption u/s 11 and 12 -an assessment related matter - on account of the application of Sections 13(1)(c) and 13(1)(d), which position was upheld by the CIT (A) in Appeal No. 10255/2/17-18 dated 05.03.2019. The relevant portions from the said order were reproduced thereafter in your notice (which are discussed below). Although the upholding of this assessee's appeal on the matter of disallowance of exemption, as mentioned disingenuously in your said notice by the CIT (A), it is pointed out again and relevantly that the said appeals of the assessee against the additions made in the orders of asses....
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....adge of altruism deal in public money and such public bodies are not meant to be bled in order to favour Us functionaries/office bearers. In that light and also infractions pointed earlier including the issue of anonymous donations (unsubstantiated donations) the AO is right in denying the exemption claimed by the assessee and taxing the surplus amount. The assessee has clearly deviated not only from its objects by opening up its conduits for bogus, unsubstantiated and anonymous donations but also acted to benefit its Chairman directly. The plea that during the year only 2 lakhs had been added to the imprest account does not take away anything from the severe visitation of denial of exemption account of benefitting any person covered u/s 13 of the Act" Our Position: Firstly, the aforesaid Order of the CIT (A) no longer exists being subsumed by the later Orders of the ITAT referred earlier which has nullified every contentious issue and aspect of the said Order of the CIT (A) including the sweeping, pompous, moralizing, sanctimonious and verbose generic statements of the CIT (A) and limited the matter to the small one of disallowing the imprest payment for exemption and ord....
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....er of record that the imprest account of the Chairman stands squared off in the immediately succeeding year i.e AY 2016-17. Copy of the ledger account is attached herewith. The imprest expense argument is what has been accepted by the ITAT and the earlier positions taken by the assessee on the impugned amount being of the nature of an advance and later, the repayments of loans are therefore not of any material consequence. It is improper and unfair and outside of and antithetical to judicial discipline that your Notice in reference makes these irrelevant observations. Further, the statement in the Notice that the "Trust funds were being misused to the advantage of Trustees /Chairman and on account of receipts being anonymous donations masqueraded as receipts from students" is once again likely derived from the Assessment Order that now stands subsumed and obliterated by the later Orders of the ITAT. We are therefore only concerned about the grey and recondite zone of inadequately explained imprest payments forming the basis of the disallowance ordered by the ITAT. This matter can be clearly understood to have ended there with the findings of the ITAT and ....
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.... "specified violation" shown to have been taken place nor has any reference received from the Risk Management System (RMS). In respect of the question of a reference received from the Assessing Officer being a matter of consideration, it can be readily and conclusively seen that there has been no such reference cited anywhere in the Notice. A "reference" in context would take the form of a direct readily and properly identified letter from an Assessing Officer citing and/or highlighting violations of the statute that would warrant a cancellation of registration. You in the Notice make and identify no such reference which (in) action is in any much less serious violation of the relevant per-condition stated in Section 12AB(4). There has just been extracts cited and quoted selectively from the Assessment Order and order od CIT(A), certain pre-existent facts that do not have legal existence now, since the Assessment Order and order of CIT(A) in question has itself ceased to exist as having been superseded and nullified by the ITAT's Orders. In our view therefore, there is no case that has been made out at this time for any adversarial action against the ....
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....hich are run for charitable/religious purposes for AYs prior to AY 2023-24. 4.2 Bringing consistency in the provisions relating to payment to specified person i) Under section 13 of the Act, trusts or institutions under the second regime are required not to pass on any unreasonable benefit to the trustee or any other specified person. It is proposed to insert twenty first proviso in clause (23C) of section 10 of the Act to provide that where the income or part of income or property of any trust or institution under the first regime, has been applied directly or indirectly for the benefit of any person referred to in sub-section (3) of section 13, such income or part of income or property shall be deemed to be the income of such person of the previous year in which it is so applied. The provisions of sub-section (2), (4) and (6) of section 13 of the Act shall also apply to trust or institution under the first regime, ii) This amendment will take effect from 1st April, 2023 and will accordingly apply in relation to the assessment year 2023-24 and subsequent assessment years. [Clause 4] Summary: The following summarizing reason-headers are therefore....
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....ccount is attached at Page. All of the Orders of the AO and the CIT(A) on the matter of assessment that have been referenced do not exist today as well as on the date of issue of the Notice as these stand obliterated by the orders of the ITAT. In consequence, any references to them in the Notice are invalid and do not come within the definitional ambit and construct of Section 12AB(4). In the light of the above submissions, it is humbly prayed that the SCN so issued be withdrawn and the proceedings initiated be dropped. (Tejmohan Singh) Advocate Encl: Pages 1-55. 5. With the assistance of the ld. Representative, we have gone through the record carefully. In our opinion, the impugned order is not sustainable because the very foundation of facts considered by the ld. CIT (E) arise from the impugned assessment order in assessment year 2013-14 to 2015-16. The view point of the AO travelled to the second Appellate Authority for consideration and his reasoning did not meet the approval of the second Appellate Authority. In other words, ITAT did not accepted the version of the AO and held that assessee is entitled for the benefit of Section 11 and&nb....
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....igious 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; x x x (2) Without prejudice to the generality of the provisions of clause (c)[ and clause (d)] of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- x x x (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonab....