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2024 (7) TMI 1125 - AT - Income TaxRejection of registration u/s 12A and approval u/s 80G(5) - earlier registration was granted to the assessee was withdrawn on the ground of involvement of money laundering and Violation of the law on account of non-payment of loan to the bank, short fall of TDS as per the audit report, outstanding/belated payment of PF ESIC, non-payment of GST on rent receipt and the retirement benefit of employee s are not accounted as per AS-15 - meantime due to amendment in the provisions of section 12A of the Act the assessee again applied for registration under the new law and provisional registration u/s 12AB and approval u/s 80G(5) HELD THAT - As regards the cancelation of the registration granted earlier u/s 12AA of the Act. we find that the said cancelation order has been set aside by this tribunal vide order 2023 (6) TMI 1404 - ITAT RAIPUR as considered rival submissions since the cancellation of registration u/s 12A is restored we are of the considered view that since, the provisional registration u/s 12AA(i)(ac)(vi) and 80G(v)(iv) of I.T. Act has already been granted by ld. PCIT on 10.03.2022, therefore, the activities of the assessee societies are considered as genuine. We are inclined to set aside the order of ld. CIT(E) withdrawing the approval to the assessee society u/s 10(23C)(vi) and direct ld. CIT(E) to restore approval u/s 10(23C)(vi) to the assessee society. Non-payment of interest on outstanding loans to Central Bank of India - Non-payment of loan to the bank is clearly a default on the part of the assessee of its contractual obligation however, that default of repayment of loan itself would not be considered as a non-compliance of any other law time being in force in terms of section 12AB(1)(b)(i). To understand the violation of non-compliance of any other law time being in force it has to be seen in the context of violation of provisions of law governing the activities of the institution or trust for achieving its objects or violation of the provisions of law which governs or regulates the institution or trust itself. The non-payment of the loan of the bank does amount to violation of any law which governs or regulates the activities of the assesse in achieving the objects. A non-performance of contractual obligation would not constitute non- compliance of such requirement of any other law for time being in force. Since the matter of recovery of outstanding loan is still pending for adjudication before DRT therefore, neither it is undisputed violation nor has this default of payment attained finality. Therefore, this ground of rejecting the application has no legs to stand. Non- deduction or payment of TDS - Though there was non-payment of TDS and short deduction of TDS by the assessee on certain payments of interest however, the said deficient payment was made good in the subsequent year and there is no outstanding in the subsequent years. Even otherwise the short deduction of TDS and belated payment of TDS does not amount to non-compliance with the requirement of any other law time being in force which is material for achieve the objects of the assessee. These noncompliance of deduction and payment of TDS are having their own remedies under the income Tax Act and subject matter of assessments. Hence, non-deduction or short deduction of TDS cannot be a ground for refusal of registration. Non deposit of PF and ESIC - Non-payment/delayed payment to the contribution to PF and ESI has consequential disallowance as per the provisions of income tax Act and are subject matter of assessment. Hence, the belated payments of PF ESIC cannot be held as non-compliance with the requirement of any other law time being in force as per the provisions of section 12AB(1)(b)(i). We may clarify that these default or delayed payments of PF ESIC as well as TDS are not in the nature of violation of provisions of law governing activity of the assessee or governing/regulating the assessee society itself are material for achieving the objects of assesse. Not making provisions for retirement benefit of the employees as per AS-15 - Though as a prudent employer it is required to make timely provision for retirement benefit of the employees so as to avoid the default in timely payment of retirement benefits. However, this is only an accounting requirement as per AS -15 issued by ICAI and there is no statutory requirement for making such provision by the assessee society. The only requirement is to pay the retiral benefit to the employees at the time of retirement. Therefore, non- making of the provisions of retirement benefit cannot be held as a non- compliance of requirement of any other law time being in force which is material for the purpose of achieving its objects. Not charging GST by the assessee on the rental income and thereby it was considered as non-compliance of requirement of other law time being in force - Government of India as vide this notification has exempted the entities registration u/s 12AA from GST hence, the assesse was not required to pay the GST and even was not required to register under the GST. Accordingly the said ground of CIT(E) is contrary to the notification no.12 of 2017 dated 13.06.2017 of Government of India. The registration granted u/s 12AA to the assesse society vide order dated 07.03.2003 and subsequent cancelled vide order dated 14.11.2018 has been restored by the tribunal and therefore, the said registration was still subsisting till the impugned order was passed by the CIT(E). Hence the assesse being registered u/s 12AA was exempt from the GST registered as per notification of Government of India and consequently no violation of any law time being in force. There is no dispute regarding the charitable objects of the assesse society and genuineness of the activity being already registered u/s 12A since 2003. Thus we set aside the impugned order of the CIT(A) and direct the CIT(E) to grant registration to assessee u/s 12AB as well as approval u/s 80G(5) of the Act. Assessee appeal allowed.
Issues Involved:
1. Legality of the order dated 07.03.2023 passed under sections 12AB(1)(b) and 80G(5)(ix) of the Income Tax Act. 2. Rejection of the application for registration under section 12A(1)(ac)(iii). 3. Rejection of the application for approval under section 80G(5)(ix). 4. Alleged violations of GST Law, Non-payment of TDS, Non-provisioning of interest on bank loan, and delayed payment of PF/ESIC. Detailed Analysis: 1. Legality of the Order Dated 07.03.2023: The appeals challenge the composite order dated 07.03.2023 by the Commissioner of Income Tax (Exemption) [CIT(E)], which rejected the application for registration under section 12A and approval under section 80G(5). The appellant argued that the order was "illegal and void-ab-initio." 2. Rejection of the Application for Registration Under Section 12A(1)(ac)(iii): The appellant society was initially granted registration under section 12A on 07.03.2003, which was canceled on 14.11.2018. However, this Tribunal set aside the cancellation order on 08.06.2023, restoring the registration under section 12AA and approval under section 80G. Despite this, the CIT(E) denied regular registration under the amended provisions of section 12A. The CIT(E) cited various reasons for rejection, including: - Previous involvement in money laundering. - Violations related to non-payment of loans, shortfall in TDS, delayed PF & ESIC payments, and non-payment of GST on rental receipts. - Non-compliance with Accounting Standard 15 (AS-15) for retirement benefits. The Tribunal found that these objections did not constitute violations of any provisions of law relevant to the activities of the appellant society. The Tribunal emphasized that non-payment of loans and interest is a contractual obligation and not a statutory violation. The Tribunal also noted that the appellant was exempt from GST registration per Notification No. 12/2017 and that the short deduction of TDS and delayed PF & ESIC payments had been rectified in subsequent years. 3. Rejection of the Application for Approval Under Section 80G(5)(ix): The CIT(E) also rejected the application for approval under section 80G(5)(ix) on similar grounds as those for section 12A. The Tribunal reiterated its findings that these objections were not material violations affecting the charitable activities of the appellant society. 4. Alleged Violations: - GST Law: The appellant argued that it was exempt from GST registration under Notification No. 12/2017. The Tribunal agreed, stating that the appellant was not required to pay GST or register under GST. - Non-payment of TDS: The Tribunal noted that any shortfall in TDS was rectified in subsequent years and did not constitute a violation of law affecting the appellant's activities. - Non-provisioning of Interest on Bank Loan: The Tribunal found that non-payment of loans and interest was a contractual issue and not a statutory violation. - Delayed Payment of PF/ESIC: The Tribunal acknowledged that while there were delays in PF & ESIC payments for one financial year, there were no outstanding payments in subsequent years. This did not amount to a violation affecting the appellant's charitable activities. Conclusion: The Tribunal set aside the impugned order of the CIT(E) and directed the CIT(E) to grant registration under section 12AB and approval under section 80G(5). The Tribunal found that the objections raised by the CIT(E) were not material violations affecting the charitable activities of the appellant society. The appeals were allowed, and the order was pronounced in the open court on 22.11.2023.
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