2015 (7) TMI 85 - AT - Income Tax

Registration u/s 12AA(3) withdrawn - genuineness of purchase of software or mere accommodation entry - validity of statement of various persons recorded during investigation - Held that - In the present case, the activities of the assessee-trust which are mainly of imparting education to the students under various institutions referred in the order of learned CIT, Jalandhar-II, Jalandhar, have been found to be genuine and no allegation regarding not imparting of education has been framed by learned CIT, Jalandhar-II, Jalandhar, in its order passed under Section 12AA(3) of the Act or by the Assessing Officer in his order passed for the assessment years 2004-05 & 2009-10, referred hereinabove. The activities of the trust are found to be genuine and according to us the activities of the trust are genuine and cannot be said to be for non-charitable purposes, especially that there is not even a whisper from learned CIT, Jalandhar-II, Jalandhar, with regard to the non-genuineness of the activities of the trust which are found to be in consonance with the objects of the trust and therefore, the learned CIT, Jalandhar-II, Jalandhar, is not justified in cancelling and withdrawing the registration granted under Section 12AA of the Act i.e. w.e.f. the assessment year 2004-05. In the present case, learned CIT, Jalandhar-II, Jalandhar, has not brought on record any materials that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust. Thus, the order of learned CIT, Jalandhar-II, Jalandhar, cancelling the registration is bad in law and, therefore, is set aside. The aforesaid statement recorded by the Department was whether under threat of tax liability of 100 crores is not evidenced by any documentary evidence by learned A.R. In the present issue, the assessee has submitted the explanation vide letter dated 14.09.2012 available at page 8 to 10 of the order of learned CIT, Jalandhar-II, Jalandhar, in which it was stated that the software purchased from Washington Software Limited though debited to various institutions, is installed in the central server at the head office of utmost importance and required secrecy. The software includes various modules and various types of reports which include data of students and also about the institutions. It generates reports which are very big and contain large number of pages. Some of the reports were produced before the learned CIT, Jalandhar-II, Jalandhar, and are available on record. Such reports have been stated to be wrong by learned CIT, Jalandhar-II, Jalandhar. The assessee, for supplementing his contention, has enclosed the report of Trident Information System Pvt. Ltd. certifying that the software were duly installed in the central server at the head office and the said report is available on record as mentioned hereinabove. It was argued that the said software system has generated the reports right from 2004 to 2011.In this regard and keeping in view the facts and circumstances as above, it cannot be a case for withdrawal/cancellation of registration granted under Section 12AA(1) of the Act - Decided in favour of assessee.

Summary

Issues Involved:
1. Premature withdrawal of registration under Section 12AA(3) of the Income Tax Act, 1961.
2. Alleged denial of effective opportunity to cross-examine.
3. Retrospective withdrawal of registration.
4. Assumption of jurisdiction based on impermissible delegation of power.

Issue-wise Detailed Analysis:

1. Premature Withdrawal of Registration under Section 12AA(3):
The appeals concern the withdrawal of registration under Section 12AA(3) of the Income Tax Act, 1961 for both M/s Apeejay Education Society and M/s Rajeshwari Sangeet Academy Trust. The Commissioner of Income Tax (CIT) Jalandhar-II observed that both societies were engaged in providing accommodation entries through bogus bills for software purchases from M/s Washington Software Ltd. (WSL). The CIT concluded that the activities of the societies were not genuine and misappropriated funds, thus justifying the withdrawal of registration.

2. Alleged Denial of Effective Opportunity to Cross-Examine:
The assessees argued that they were not provided an effective opportunity to cross-examine Sh. Sanjay D. Sonawani, who admitted to providing accommodation entries. The CIT contended that the opportunity was provided but not availed by the assessees. The Tribunal noted that although the assessees requested cross-examination in Jalandhar and even offered to bear the expenses, the Department did not facilitate this, thus denying them a fair chance to cross-examine.

3. Retrospective Withdrawal of Registration:
The CIT withdrew the registration retrospectively from the assessment year 2004-05. The Tribunal found that the CIT did not provide substantial evidence that the primary activities of the societies (imparting education) were not genuine or against their objectives. The Tribunal emphasized that the main object of the societies was to run educational institutions, which was not disputed by the CIT or the Assessing Officer in their respective orders.

4. Assumption of Jurisdiction Based on Impermissible Delegation of Power:
M/s Rajeshwari Sangeet Academy Trust additionally argued that the assumption of jurisdiction was based on an impermissible delegation of power. The Tribunal did not specifically address this issue separately but focused on the broader context of procedural fairness and the genuineness of the societies' activities.

Conclusion:
The Tribunal concluded that the primary activities of the societies were genuine and in line with their objectives of imparting education. The Tribunal found that the CIT did not bring adequate evidence to prove that the societies' activities were not genuine or were misappropriated continuously for many years. Consequently, the Tribunal set aside the orders of the CIT, restoring the registration of both societies under Section 12AA of the Income Tax Act, 1961, and allowed the appeals of both M/s Apeejay Education Society and M/s Rajeshwari Sangeet Academy Trust.