2008 (4) TMI 420 - AT - Income Tax

Cancelling the society registration u/s 12AA(3) - Charitable Or Religious Trust - the registration granted to the assessee-Society on 14-1-1998. HELD THAT - We find from the record that for the AY 1997-98, this issue stands decided in favour of the assessee by the Tribunal (SMC). This was followed by the Division Bench of the Tribunal for the AY 1997-98 in the case of the assessee-Society. Unquestionably, the onus for proving the existence of factors calling for cancellation granted to an institution is on the Department rather than on the institution. In the present case, as noticed, the CIT has miserably failed to discharge such onus. Where a finding stands recorded that no part of the income of the Society was misutilised and the Society is a registered Society, registration cannot be refused. It has been so held in Dy. CIT v. Cosmopolitan Education Society 1999 (8) TMI 13 - RAJASTHAN HIGH COURT . In the present case also, it is seen that there is no finding recorded by the learned Commissioner of Income-tax that the amount has been utilised by the members of the assessee-Society for their personal use and that withdrawal from the bank accounts have not been credited in the accounts of the assessee-Society. Thus, the cancellation of the registration granted to the assessee-Society has been erroneously ordered. Therefore, we do not find any force in the order cancelling the registration already granted to the assessee-Society. The CIT's order is thus liable to be set aside and cancelled on merit. Ordered accordingly. Assessee has raised an alternative contention that the provision in the Act regarding cancellation of registration, i.e., section 12AA was introduced with effect from 1-10-2004 and that this provision cannot be invoked retrospectively. On specific query, the learned counsel for the assessee stated at the bar that this ground has been raised only in the alternative, in the event of the merits of the case going against the assessee. Since the merits of the case have been dealt with and decided in favour of the assessee as above, this ground raised by the assessee is not being gone into by us. Another alternative ground raised by the assessee, is that the learned CIT erred in cancelling the registration without providing reasonable opportunity of being heard to the assessee-Society. This ground stands rejected as withdrawn on the request of the learned counsel for the assessee. In the result, the appeal of the assessee stands partly allowed, as indicated.

Issues Involved:
1. Justification of the cancellation of registration under section 12AA(3) of the Income-tax Act, 1961.
2. Legitimacy of the additional ground filed by the Departmental representative.
3. Alleged irregularities in the bank accounts of the assessee-society.
4. Non-declaration of interest income.
5. Sale of property and donation to another educational society.
6. Non-production of minute book, salary register, pay bills, and receipt books.
7. Advances for land and non-production of certain individuals for examination.
8. Cash in hand not deposited in a scheduled bank.
9. Credited sum in the cash book without supporting documents.

Detailed Analysis:

1. Justification of the Cancellation of Registration:
The primary issue was whether the cancellation of the registration granted to the assessee-society was justified. The Commissioner of Income-tax (CIT) cancelled the registration citing 11 irregularities. However, the Tribunal found that the CIT failed to show that the society was not existing for charitable purposes or that its activities were not genuine. The Tribunal emphasized that mere conjectures and surmises without proof do not justify cancellation.

2. Legitimacy of the Additional Ground Filed by the Departmental Representative:
The Departmental representative's request to raise an additional ground was rejected. The Tribunal noted that the representative lacked proper authorization and that additional grounds can only be filed by the party who filed the appeal, which in this case was the assessee.

3. Alleged Irregularities in the Bank Accounts:
The CIT alleged that the bank accounts in the names of the society members were actually the society's accounts and were used for personal benefits. The Tribunal found that previous decisions by the Commissioner of Income-tax (Appeals) and the Tribunal had already ruled in favor of the assessee, stating that these actions were mere irregularities and not unexplained investments.

4. Non-declaration of Interest Income:
The CIT pointed out that interest income was not declared in the correct assessment year. The Tribunal found this issue irrelevant for the cancellation of registration, as the interest was declared voluntarily in the subsequent year, and this was a technical mistake, not a deliberate concealment.

5. Sale of Property and Donation to Another Educational Society:
The CIT raised concerns about the sale of property and donations to another educational society. The Tribunal found no evidence that these transactions were for personal gain. The transactions were part of a settlement between society members and did not affect the society's charitable activities.

6. Non-production of Minute Book, Salary Register, Pay Bills, and Receipt Books:
The CIT noted that certain documents were not produced during assessment proceedings. The Tribunal accepted the assessee's explanation that these documents were lost or misplaced and noted that an FIR had been filed regarding the lost minute book.

7. Advances for Land and Non-production of Certain Individuals:
The CIT questioned the advances for land and the non-production of individuals for examination. The Tribunal found that the funds were used for the society's purposes and that affidavits from the concerned individuals were provided.

8. Cash in Hand Not Deposited in a Scheduled Bank:
The CIT pointed out that a significant cash amount was not deposited in a scheduled bank. The Tribunal found that this amount was used for purchasing assets for the society and was not for personal use.

9. Credited Sum in the Cash Book Without Supporting Documents:
The CIT noted a credited sum in the cash book without supporting documents. The Tribunal found that the list of donations had been provided to the Assessing Officer, and no case was made out against the assessee.

Conclusion:
The Tribunal concluded that none of the points raised by the CIT justified the cancellation of the registration. The irregularities cited were either explained satisfactorily or were not relevant to the cancellation of registration. The Tribunal emphasized that the burden of proof lies with the Department to show that the society's activities were not genuine or that it existed for profit. The appeal was partly allowed, and the order of the CIT cancelling the registration was set aside.

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