2023 (8) TMI 1511 - AT - Income Tax

Cancellation of registration u/s. 10(23C)(vi) - CIT cancelled the registration by invoking clause (b)(ii) of the 15th proviso to section 10(23C) of the Act, pursuant to the reference made by the AO - HELD THAT - Explanation 2(c) deals with a specified violation of any activity of the trust etc. which is either not genuine or is not carried out in accordance with all or any of conditions subject to which the approval was granted. The condition precedent for the applicability of this clause is the carrying out of any activity , which is either not genuine or not in accordance with its objectives. Obviously, the assessee carried out only the activity of imparting education, which was not found to be non-genuine. Such activity was carried out in accordance with the conditions subject to which the assessee was approved. There is no evidence or reference to any material indicating that the assessee carried out any activity other than imparting education or that the activity of education so carried out was not genuine. The above discussion amply proves that the assessee did not commit any specified violation in terms of Explanation 2 to section 10(23C), so as to attract the wrath of the proviso Cancellation of registration has been erected on the statement of the trustee recorded during the course of survey action - Any surrender made without the backing material about the existence of undisclosed income, was of no avail. We have noted that the survey party found certain expenses not properly vouched, which were deficient in some aspects. No quantification of such vouchers w.r.t. the books has been done and simply a surrender of Rs. 9.00 crore came to be made by the assessee. This shows that either the statement was recorded unintentionally u/s 131(1); or as a smart move to get rid of the compliance of the rigid requirement of having corroborative evidence for surrender in the statement u/s 133A(3). We leave this issue here only by making it clear that the discussion anent to the legitimateness and legality of surrender is made only to examine the factual matrix of the case in the context of cancellation of registration. It has nothing to do with the assessments based on such surrender, which have already attained finality. The occurrence of one or more specified violations is sine qua non for cancellation of registration. Since the assessee did not commit any specified violation, we are satisfied that the impugned order, cancelling the registration, is untenable. The same is, therefore, overturned. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of cancellation of registration under section 10(23C)(vi) of the Income-tax Act, 1961.
2. Applicability of the amended 15th proviso to section 10(23C) for assessment years prior to its amendment.
3. Examination of specified violations as per Explanation 2 to section 10(23C).
4. Evidentiary value of statements recorded under section 131(1) during survey actions.

Issue-wise Detailed Analysis:

1. Validity of Cancellation of Registration under Section 10(23C)(vi):
The primary issue in the appeals was the cancellation of registration granted to the assessee-trusts under section 10(23C)(vi) of the Income-tax Act, 1961. The cancellation was initiated by the Pr. Commissioner of Income Tax (Pr.CIT) following a survey action under section 133A, which revealed discrepancies in expense vouchers. The Pr.CIT's decision was based on the trustee's statement admitting undisclosed income and the presence of deficient vouchers. The Tribunal examined whether the cancellation was justified based on the evidence and the legal framework.

2. Applicability of the Amended 15th Proviso to Section 10(23C):
The Tribunal considered the contention that the amended 15th proviso to section 10(23C), effective from 01-04-2022, could not apply to assessment years before its amendment. The Tribunal clarified that the amendment is prospective regarding the initiation of cancellation proceedings but retrospective in effect, governing proceedings from the cut-off date of 01-04-2022. Thus, the Pr.CIT was justified in applying the amended proviso for the cancellation proceedings initiated in 2023.

3. Examination of Specified Violations as per Explanation 2 to Section 10(23C):
The Tribunal analyzed the specified violations under Explanation 2 to section 10(23C), which include:
- Application of income for objects other than those for which the trust was established.
- Income from profits and gains of business not incidental to the trust's objectives.
- Non-genuine activities or activities not carried out per the conditions of approval.

The Pr.CIT invoked the first three clauses of Explanation 2, citing deficient vouchers and the trustee's admission of discrepancies. However, the Tribunal found no evidence that the trust applied income for non-charitable purposes, earned non-incidental business income, or engaged in non-genuine activities. The Tribunal emphasized that the deficiencies in vouchers did not constitute specified violations warranting cancellation of registration.

4. Evidentiary Value of Statements Recorded under Section 131(1) during Survey Actions:
The Tribunal scrutinized the trustee's statement recorded under section 131(1) during the survey, noting its role in the cancellation decision. It highlighted that statements recorded under section 133A (survey) do not carry evidentiary value unless corroborated by material evidence. The Tribunal referred to the Supreme Court's ruling in CIT vs. S. Khader Khan Son, which held that statements made during surveys have no evidentiary value without supporting evidence. The Tribunal concluded that the trustee's statement alone, without corroborative evidence, could not justify the cancellation of registration.

Conclusion:
The Tribunal held that the cancellation of registration under section 10(23C)(vi) was not justified as the assessee did not commit any specified violations per Explanation 2 to section 10(23C). The Tribunal overturned the Pr.CIT's order, reinstating the registration of the assessee-trusts. Both appeals were allowed, and the Tribunal emphasized that the mere presence of deficient vouchers and the trustee's admission during the survey did not constitute valid grounds for cancellation of registration. The order was pronounced in the Open Court on 4th August 2023.