2016 (6) TMI 35 - AT - Income Tax

Registration under section 12-AA cancelled - Held that - Under section 12AA of the Act, a review what is open to scrutiny is only the pursuit of objects as registered. In the case of CIT vs. Surya Educational & Charitable Trust (2011 (10) TMI 47 - PUNJAB AND HARYANA HIGH COURT ) it has been held that the Learned CIT ought not to concern himself with the application of funds beyond examining the genuineness of the pursued of the avowed objects. Examination of the application of funds is the prerogative of the Assessing Officer during the assessment. Since there is no finding anywhere that the society has not carried out its objective of imparting education or in other words there is no finding that any activity other than education is being pursued by the society, we are of the view that the Learned CIT(Appeals) was not justified in cancelling of registration invoking the provisions of sec. 12AA (3) of the Income-tax Act, 1961. It is reiterated that only when the registered objectives are not pursued or that the very pursued of activities is bogus or sham then only a cancellation order can survive and endure. In absence of such finding by the Learned CIT, we are of the view that he was not justified in cancelling the registration granted to the appellant-assessee under section 12AA of the Income-tax Act, 1961. We thus while setting aside such cancellation order of the Learned CIT questioned before us restore the registration granted under sec. 12AA - Decided in favour of assessee

Issues Involved:

1. Whether the CIT erred in holding that the Assessee society did not exist for educational purposes.
2. Whether the CIT erred in ordering cancellation of the Assessee’s registration under section 12AA of the Income-tax Act.
3. Whether the CIT erred in ordering the cancellation of registration with effect from 28.08.2008 without any material or adverse finding for any period before the year 2012.
4. Whether the CIT erred in relying on extraneous and irrelevant material which was not properly confronted to the Assessee.

Issue-wise Detailed Analysis:

1. Existence for Educational Purposes:

The appellant, an educational society, was registered for promoting education and had been carrying on educational activities since its registration on 25.02.2004. The CIT canceled the registration on the grounds that the society did not exist for educational purposes. However, the Tribunal noted that the society had been running educational institutions and imparting education as per its objectives. The Tribunal found that the CIT did not provide specific evidence to support the claim that the society was not engaged in educational activities. The Tribunal concluded that the society was indeed carrying out educational activities and the CIT's conclusion was not justified.

2. Cancellation of Registration under Section 12AA:

The CIT canceled the society's registration under section 12AA based on a survey conducted under section 133A, during which various documents and statements were recorded. The CIT alleged that the society's activities were not genuinely charitable and were not in line with its objectives. The Tribunal, however, held that the CIT's decision was based on erroneous and unsubstantiated allegations. The Tribunal emphasized that the registration could only be canceled if the society's activities were not genuine or not in accordance with its objectives. Since the society was engaged in educational activities, the cancellation of registration was deemed unjustified.

3. Effective Date of Cancellation:

The CIT ordered the cancellation of the society's registration with effect from 28.08.2008, despite no adverse findings for any period before 2012. The Tribunal noted that the society had been granted exemption up to the assessment year 2008-09 and that the CIT's order lacked material evidence for the period before 2012. The Tribunal found this retrospective cancellation to be unjustified, as the society had been complying with its objectives and there were no adverse findings for the earlier periods.

4. Reliance on Extraneous and Irrelevant Material:

The CIT relied on various documents and statements obtained during the survey, which the society argued had no evidentiary value. The Tribunal agreed with the society's contention, citing precedents that statements recorded during a survey under section 133A do not hold evidentiary value. The Tribunal also noted that the CIT had not properly confronted the society with the material relied upon for cancellation. The Tribunal concluded that the CIT's reliance on such material was improper and could not justify the cancellation of registration.

Conclusion:

The Tribunal set aside the CIT's order canceling the society's registration under section 12AA. It held that the society was genuinely engaged in educational activities and that the CIT's decision was based on unsubstantiated allegations and improper reliance on survey material. The Tribunal restored the society's registration, emphasizing that the application of funds and financial irregularities should be scrutinized by the Assessing Officer during assessment, not by the CIT during the cancellation of registration. The appeal was allowed, and the registration under section 12AA was restored.

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