2024 (2) TMI 698 - AT - Income Tax

Revocation of Approval granted u/s 10(23C)(iv) - charitable activity u/s 2(15) questioned - as stated by CIT(E) assessee could not give any proper explanation and failed to counter the findings of the Special Audit Team that the assessee is operating as a commercial pharmaceutical company by making its own products and maximising its projects. The activities of the assessee were not charitable and purely commercial in nature. HELD THAT - The Tribunal vide its order 2023 (1) TMI 755 - ITAT DELHI held that the said order passed by the Ld. CIT(E) withdrawing the approval granted under section 10(23C)(iv) of the Act is unsustainable as compliance conditions have to be examined in each assessment year and, in case, there is any violation in compliance conditions in any assessment year, assessee's claim of exemption for the said assessment year can be rejected. However, that cannot be a reason to revoke the approval granted under section 10(23C)(iv) of the Act. One more factor which needs consideration is, till date, assessee's registration under section 12A of the Act as a charitable institution subsists. In fact, approval granted under section 80G of the Act is still continuing. These facts reflect the dichotomy in the stand of the revenue. For the purpose of section 12A and 800 of the Act the assessee is recognized as charitable institution, whereas, for the purpose of section 10(23C)(iv) assessee loses its charitable status. This approach of the revenue is unacceptable. The approval under section 10(23C) of the Act cannot be revoked, more so, when the objects of the assessee have remained same. We, for a moment, do not say that the competent authority under no circumstances can revoke the approval granted under section 10(23C)(iv) of the Act. However, for doing so, the revenue must bring on record cogent material to demonstrate that the assessee has deviated from the core objects based on which approval under section 10(23C)(iv) was initially granted to the assessee. It is also a fact on record that the activities of the assessee are in the category of medical relief to the poor. Thus, if we interpret the provisions of section 2(15) of the Act strictly, the proviso would not apply. That being the case, by referring to the proviso to section 2(15) of the Act, it cannot be said that the assessee is engaged in any activity of business or commercial nature, hence, not existing for charitable purpose. Thus hold that the impugned order passed by learned CIT (Exemption) withdrawing the approval granted under section 10(23C)(iv) of the Act is unsustainable. Decided in favour of assessee.

Summary

Issues Involved:
1. Charitable Activities under Section 2(15) read with Section 10(23C) of the IT Act.
2. Findings of Special Auditor regarding genuineness and incidental nature of activities.
3. Reliance on ITAT's previous order and its acceptance by Revenue.
4. Validity of assessment order based on revoked approval under Section 10(23C)(iv).

Summary:

1. Charitable Activities under Section 2(15) read with Section 10(23C) of the IT Act:
The Revenue argued that the assessee was not carrying out charitable activities as defined under Section 2(15) read with Section 10(23C) of the IT Act. The Tribunal, however, upheld the CIT(A)'s decision, stating that the assessee's activities, including the 'Pehel Project' and 'NACO Project', were indeed charitable. The Tribunal noted that the assessee promoted family planning and health among low-income women and did not derive undue commercial benefits from these activities.

2. Findings of Special Auditor regarding genuineness and incidental nature of activities:
The Special Auditor alleged that the assessee's activities were commercial rather than charitable. The Tribunal dismissed these allegations, noting that the assessee's activities were in line with its charitable objectives and that the revenue authorities failed to provide contrary material evidence. The Tribunal emphasized that the assessee's compliance with pricing regulations and the absence of allegations from government agencies supported the charitable nature of its activities.

3. Reliance on ITAT's previous order and its acceptance by Revenue:
The CIT(A) relied on a previous ITAT order which quashed the CIT(E)'s decision to revoke the assessee's approval under Section 10(23C)(iv). The Tribunal reiterated that the Revenue's appeal did not present any new arguments or evidence that would warrant a different conclusion. The Tribunal cited the Supreme Court's decision in Union of India vs. Kamlakshi Finance Corporation Ltd., emphasizing that non-acceptance of an appellate order by the Revenue does not justify non-compliance unless stayed by a competent court.

4. Validity of assessment order based on revoked approval under Section 10(23C)(iv):
The Tribunal found that the assessment order, which was based on the revoked approval under Section 10(23C)(iv), was invalid. Since the ITAT had already restored the approval, the assessment order had no basis and was liable to be quashed. The Tribunal concluded that the Revenue's appeal lacked substance and dismissed it.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the assessee's activities were charitable and the assessment order based on the revoked approval was invalid. The Tribunal emphasized the need for cogent evidence to revoke charitable status and the importance of following appellate decisions unless stayed by a competent court.