2023 (8) TMI 380 - AT - Income Tax

Registration u/s 10(23C) - 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 - present case is that of survey - HELD THAT - 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. As manifest that the edifice of cancellation of registration has been erected on the statement of the trustee recorded during the course of survey action. Arguendo, it is presumed that the contents of the statement have a binding force and has evidentiary value, still it does not bring the case within any of the specified violation . The 15th proviso to section 10(23C) unambiguously provides that - the Principal Commissioner shall, pass an order in writing cancelling the approval of such fund or institution or trust if he is satisfied that one or more specified violation has taken place. Thus, it is established that 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. Both the sides are in agreement that the facts and circumstances of the other appeal by the related trust in are mutatis mutandis similar. Following the view taken hereinabove, we set aside the impugned order cancelling the registration originally granted u/s. 10(23C)(vi) of the Act. Appeal of assessee allowed.

Summary

Issues Involved:
1. Applicability of the amended 15th proviso to section 10(23C) of the Income-tax Act, 1961.
2. Validity of the cancellation of registration under section 10(23C)(vi) based on survey findings and the statement of the trustee.

Summary:

Issue 1: Applicability of the Amended 15th Proviso to Section 10(23C)
The Tribunal examined whether the amended 15th proviso to section 10(23C), effective from 01-04-2022, could be applied retrospectively to assessment years 2009-10 to 2019-20. The Tribunal held that the provision is prospective in application but retrospective in effect, governing cancellation proceedings initiated from the cut-off date of 01-04-2022. Therefore, the Principal Commissioner of Income Tax (Pr. CIT) was justified in proceeding under the amended proviso.

Issue 2: Validity of Cancellation of Registration
The cancellation of the registration was based on three specified violations under Explanation 2 to section 10(23C):
1. Income applied for objects other than for which the trust was established.
2. Income from profits and gains of business not incidental to the attainment of its objectives.
3. Activities not genuine or not in accordance with the conditions of approval.

Findings on Specified Violations:
- Income Application: The Tribunal found no evidence that the trust applied income for objects other than educational purposes. The deficient vouchers pertained to salaries, perquisites, and bonuses, which were not disproved by the survey team.
- Income from Business: There was no indication that the trust earned income from profits and gains of business unrelated to its objectives.
- Genuineness of Activities: The trust's activities of imparting education were genuine and in accordance with the conditions of approval.

Statement of the Trustee:
The Tribunal noted that the trustee's statement, recorded under section 131 during the survey, lacked evidentiary value as it was not under oath. The statement alone, without corroborative evidence of undisclosed income, could not justify the cancellation of registration.

Conclusion:
The Tribunal concluded that the trust did not commit any specified violation warranting cancellation of registration under section 10(23C)(vi). The cancellation order was overturned, and the appeals were allowed.

Order Pronouncement:
The order was pronounced in the Open Court on 4th August 2023, allowing both appeals and setting aside the cancellation of registration.