2012 (2) TMI 122 - HC - Income Tax

Education society registered u/s 12A denial of registration u/s 10(23C)(vi) discrepancies in accounts pointed out on the basis of the records produced during the course of proceedings u/s 10(23C)(vi) - Held that -Prescribed authority is required to examine various aspects and thereafter issue directions/stipulations and impose conditions. On violation of the said conditions and stipulations, it is open to the prescribed authority to cancel the registration. The distinction between assessment proceedings and proceeding under Section 10(23C)(vi) has been explained and elucidated by the Supreme Court in case of American Hotel and Lodging Association Education Institute (2008 (5) TMI 17 - SUPREME COURT OF INDIA). Order of remit is being passed to decide the application for registration u/s 10(23C) (vi) of the Act afresh. Further, interim order passed on 28.11.2011 staying the reassessment proceedings u/s 148 for the A.Y. 2009-10, is vacated and comes to an end. It will be open to the A.O. to proceed in accordance with law.

Summary

Issues Involved:
1. Rejection of application for registration under Section 10(23C)(vi) of the Income Tax Act.
2. Discrepancies in financial records and their implications.
3. Jurisdiction and scope of the prescribed authority under Section 10(23C)(vi).
4. Impact of Supreme Court's decision in American Hotel and Lodging Association Education Institute case.
5. Past conduct and regular assessment proceedings.
6. Remittance of the case for fresh consideration.
7. Interim order and reassessment proceedings under Section 148.

Detailed Analysis:

1. Rejection of Application for Registration under Section 10(23C)(vi):
The petitioner, Anand Education Society, challenged the order dated 29.04.2010 by the Director General of Income Tax (Exemption), which rejected their application in Form No.56D for registration under Section 10(23C)(vi) of the Income Tax Act for the assessment year 2008-09 onwards. The rejection was based on alleged discrepancies in the petitioner's financial records from the assessment years 2006-07 to 2009-10.

2. Discrepancies in Financial Records:
The impugned order highlighted discrepancies related to the sale of buses, vehicle maintenance, maintenance of furniture, and the sale of furniture/fixed assets. The respondent concluded that the petitioner had debited bogus and exaggerated expenses and maintained accounts improperly, suggesting a diversion of funds for non-educational purposes. Consequently, it was inferred that the funds collected were not applied solely for educational purposes, leading to the rejection of the application under Section 10(23C)(vi).

3. Jurisdiction and Scope of the Prescribed Authority:
The petitioner's counsel argued about the jurisdiction and scope of the power exercised by the respondent while adjudicating an application under Section 10(23C)(vi). The Supreme Court's decision in American Hotel and Lodging Association Education Institute Vs. Central Board of Direct Taxes was cited, which elaborated on the conditions and compliance required for approval under Section 10(23C)(vi). It was emphasized that the prescribed authority must vet the application, call for documents, and ensure the genuineness of the applicant's activities before granting approval.

4. Impact of Supreme Court's Decision:
The Supreme Court decision clarified that the prescribed authority must stipulate conditions for approval and monitor compliance. The distinction between assessment proceedings and proceedings under Section 10(23C)(vi) was highlighted. The respondent should have considered these guidelines and issued directions or imposed conditions rather than outright rejecting the application based on alleged discrepancies.

5. Past Conduct and Regular Assessment Proceedings:
The petitioner's counsel pointed out that regular assessment proceedings under Section 143(3) for the assessment year 2008-09 resulted in the acceptance of the petitioner's return declaring NIL income. This order was passed after the impugned order, indicating that the discrepancies noted by the respondent might not have been substantial. The court refrained from commenting on the merits of the allegations but noted that the respondent should reconsider the application in light of the Supreme Court's decision.

6. Remittance of the Case for Fresh Consideration:
The court issued a writ of certiorari, quashing the order dated 29.04.2010, and directed the respondent to pass a fresh order on the application for registration under Section 10(23C)(vi). The respondent was instructed to consider the Supreme Court's guidelines and decide the application afresh. The court did not express any opinion on the merits of the allegations or the necessity of granting exemption.

7. Interim Order and Reassessment Proceedings under Section 148:
The interim order staying the reassessment proceedings under Section 148 for the assessment year 2009-10 was vacated. The Assessing Officer was allowed to proceed in accordance with the law. The petitioner was given the liberty to challenge the reassessment proceedings if deemed appropriate. The tax authorities were also permitted to proceed with the notice for withdrawal of exemption under Section 12A.

Conclusion:
The writ petition was disposed of, and the court directed the respondent to reconsider the application for registration under Section 10(23C)(vi) afresh, taking into account the Supreme Court's decision in the American Hotel and Lodging Association Education Institute case. The interim order was vacated, and the petitioner was allowed to challenge any reassessment proceedings as per the law.