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2019 (7) TMI 315 - AT - Income TaxExemption u/s 11 - cancelling the registration granted to the assessee u/s.12AA - charitable activity or not? - Allegation that the Trust was being run for the purpose of profit and not solely for educational purpose - registration u/s.12AA can be be withdrawn retrospectively or not - amounts received from the students were capitation fee or not - HELD THAT - Funds which have been collected by the assessee and recorded in the note books, which has been seized in the course of search is for the assessee to explain. It must be remembered here that but for the search this diary would not have seen the light of the day. A perusal of the said diary which has been extracted by the PCIT in his order dated 07.12.2016 cancelling the registration u/s.12AA shown amounts having been collected from various students towards various branches of engineering. A perusal of the dates shows that the same has been collected between November, 2009 and June, 2010, substantial portions having been collected between April, 2010 and June, 2010. Admissions taken place during June-July. The assessee has claimed these advances received, as and when the admission is processed, the same have been recorded into the regular books. If the admission is not taken, the amount is returned. It is for the assessee to tally the accounts. There are 214 entries in the said diary. It is not an impossible task to identify the student with the admission and to identify to whom the money has been returned if the admission has not been taken. The Revenue would not be able to identify from the seized diary who is the student and who is not the student because the admission details are also not available in the said diary nor their addresses - if the assessee is able to identify and specify the students, they can be questioned for proving the amounts are not capitation fee paid by such students or parents of such students. In the absence of such identification, the factum of taking capitation fee would stand established against the assessee. Cash Receipts - What stopped the assessee from recording these amounts in the regular books of the assessee. Why were the amounts taken in cash? The law does not bar the receipt of the admission fee from students. - Once it is recorded as the document of collection of capitation fee then it is to be considered that the assessee is doing the business of running an Educational Institution for the purpose of profit. This view also gets supported by the fact that the cash which has been collected by the assessee has not been recorded in the books of the assessee but has been kept outside the regular books as has been accepted by the assessee in cash with its Managing Trustees and others. Thus, there has been a total violation of the provisions of Sec.13(1)(c) Here what is also to be recognized is that, in the course of the search cash was not found either of the premises of the assessee or in the hands of the Managing Trustees and consequently, the cash is deemed to have been used for the purpose other than the objects of the trust, which is also violation of Sec. 13(1)(c). This being so, as the assessee has violated the very basic requirement and provisions for registration u/s.12AA and it has come to the light as a consequence of search of the assessee on 02.07.2010, we are of the view that the cancellation of registration u/s.12AA by the PCIT is on right footing and does not call for any interference. - Decided against assessee. Retrospective cancellation of registration - HELD THAT - Admittedly, this registration has been cancelled on account of the fact that the search on the assessee on 02.07.2010 brought out the evidences in the form of the incriminating documents which showed that the assessee Trust was being run for the purpose of profit and not solely for educational purpose as also on account of the fact that the cash which had been collected in the form of capitation fee had been misappropriated by the Trustees for purposes other than the objects of the Trust and the trustees are unable to show how the funds were used only for attaining the objects of the Trust. - Order of CIT sustained. Arguments of the AR that when the assessments were completed u/s.143(3) on 28.03.2013, the assessee had the approval u/s.10(23C)(vi) and consequently, the denial to grant the benefit of deduction u/s.10(23C)(vi) was wrong - order of the DGIT(Inv.) passed on 18.11.2014 withdrawing the approval u/s.10(23C)(vi) right from the AY 2010-11 is in operation and the same has not been challenged, whether the Assessment Order is passed u/s.143(3) or whether it is passed u/s.144 at the present point of time have no consequences as the assessee has been held to be not eligible for the benefit of deduction u/s.10(23C)(vi). Here, we must make it clear that had the assessee challenged the said order of the DGIT(Inv.) passed on 18.11.2014 withdrawing the approval and if the same had gone in favour of the assessee, then admittedly there would have been room to maneuver in respect of the claim of deduction u/s.10(23C)(vi) for the AYs 2010-11 2011-12. In the absence of such, appeals or challenge to the said order withdrawing the approval u/s.10(23C)(vi) it cannot be held that the assessee is entitled to claim of deduction u/s.10(23C)(vi) for the AYs 2010-11 2011-12.
Issues Involved:
1. Cancellation of registration under Section 12AA. 2. Validity of proceedings for cancellation of registration under Section 12AA. 3. Delay in proceedings for cancellation of registration. 4. Confirmation of assessment orders ignoring Sections 11 and 10(23C)(vi). 5. Reliance on cancellation orders by DGIT(Inv.) and Pr.CIT. 6. Issuance of corrigendum to assessment orders. 7. Alleged violation of Section 13 regarding mobilization advance. 8. Disallowance under Section 40(a)(ia) and other expenses. Detailed Analysis: 1. Cancellation of Registration under Section 12AA: The Tribunal upheld the cancellation of the assessee's registration under Section 12AA by the Principal Commissioner of Income Tax (PCIT), Central-2, Chennai, effective from AY 2010-11. The cancellation was based on findings from a search conducted on 02.07.2010, which revealed that the assessee trust was collecting capitation fees in cash and not recording them in the regular books of accounts. The Tribunal noted that the assessee failed to prove that the funds collected were not capitation fees but regular fees. Consequently, the trust was deemed to be operating for profit, violating the provisions of Section 13(1)(c) of the Act. 2. Validity of Proceedings for Cancellation of Registration: The Tribunal dismissed the assessee's argument that the entire proceeding for cancellation of registration under Section 12AA was invalid. The PCIT had issued a show cause notice based on findings from the search, and the Tribunal found that the assessee was unable to provide satisfactory explanations for the discrepancies found during the search. 3. Delay in Proceedings for Cancellation of Registration: The assessee argued that the cancellation proceedings were delayed and should be completed within a reasonable time. The Tribunal, however, upheld the PCIT's actions, noting that the cancellation was based on substantial evidence obtained during the search, and the delay did not invalidate the proceedings. 4. Confirmation of Assessment Orders Ignoring Sections 11 and 10(23C)(vi): The Tribunal upheld the CIT(A)'s decision confirming the assessment orders, which denied the benefits under Sections 11 and 10(23C)(vi). The assessee's approval under Section 10(23C)(vi) was withdrawn on 18.11.2014, and the Tribunal noted that the assessee did not challenge this withdrawal. Consequently, the denial of benefits under these sections for AYs 2010-11 and 2011-12 was deemed appropriate. 5. Reliance on Cancellation Orders by DGIT(Inv.) and Pr.CIT: The Tribunal found that the CIT(A) was justified in relying on the cancellation orders passed by DGIT(Inv.) and Pr.CIT. The orders were based on substantial evidence from the search, and the Tribunal upheld the findings that the assessee trust was not operating solely for educational purposes but for profit. 6. Issuance of Corrigendum to Assessment Orders: The Tribunal addressed the corrigendum issued on 22.01.2015, which changed the assessment orders from Section 143(3) to Section 144. The Tribunal found that the corrigendum was issued without proper notice and was an afterthought. However, since the approval under Section 10(23C)(vi) was withdrawn retrospectively, the corrigendum did not materially affect the outcome of the assessments. 7. Alleged Violation of Section 13 Regarding Mobilization Advance: The Tribunal addressed the issue of a mobilization advance of ?6 crores paid to M/s.PASPL Constructions, where trustees had substantial interest. The Tribunal found that the assessee failed to demonstrate that the transaction was at arm's length and did not benefit the trustees. Consequently, the violation of Section 13 was upheld. 8. Disallowance under Section 40(a)(ia) and Other Expenses: The Tribunal upheld the CIT(A)'s decision on disallowances under Section 40(a)(ia) and other expenses, noting that these disallowances were made based on substantial evidence and were in accordance with the law. Conclusion: The Tribunal dismissed the appeals filed by the assessee for AYs 2010-11 and 2011-12, upholding the cancellation of registration under Section 12AA and the denial of benefits under Sections 11 and 10(23C)(vi). The Tribunal also upheld the corrigendum issued to the assessment orders and the findings of violations of Section 13. The detailed analysis of each issue demonstrates the Tribunal's reliance on substantial evidence obtained during the search and the legal provisions applicable to the case.
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