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TMI Blog2023 (1) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign contribution of Rs. 93,45,00,516/-, whereas, in the income and expenditure account, the assessee has shown such figure at Rs.107,61,69,730/-. Thus, the explanation of the assessee that the foreign contribution in FCRA return has to be shown on receipt basis is acceptable. Allegation of the Special Auditor that the assessee has not maintained separate books of account for the purpose of foreign contribution under the Foreign Contribution Regulation Act, 2010 , is equally unacceptable. The only requirement in law is, the assessee must maintain separate bank accounts for foreign contribution, which the assessee has complied. It is noteworthy, before the departmental authorities, the assessee has specifically submitted that its accounts are maintained in ERP software, viz., Lawson to record transaction. It is understood, ERP software can be used to compute figures of any segment of the entity. Further, we have noted, in case of Ranbaxy Laboratories Ltd. [ 2016 (5) TMI 157 - ITAT DELHI] while considering the issue whether separate books of account are required to be maintained where the accounts are maintained on SAP ERP System, has observed that SAP based ERP system of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny case of the matter, the assessee was granted approval under section 10(23C)(iv) of the Act for the first time in the year 1991. At the time of grant of approval under section 10(23C)(iv) of the Act, the competent authority was satisfied that the assessee has fulfilled the threshold conditions for approval under section 10(23C)(iv) of the Act. Once the assessee satisfies the threshold conditions of section 10(23C)(iv) of the Act, the approval granted cannot be withdrawn, that too, with retrospective effect, alleging violation of certain compliance conditions. The Departmental Authorities have failed to differentiate between the threshold conditions and compliance conditions. The 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment s objectives and priorities under the national health mission; To enlist the services of doctors, paramedical personnel, midwives, social scientists, gynecologists and other specialist and consultants and/or social workers, nurses and volunteers and to complement the efforts of the Government of India in priority health areas of maternal and child health, sanitation, tuberculosis, family planning and gender based violence. To use marketing approaches to fill gaps and address needs of the vulnerable population in the public health space of the country. 3. The assessee was granted registration under section 12A of the Act on 06.12.1991 and under section 80G of the Act on 20.09.2007. The assessee was granted approval under section 10(23C)(iv) by the Central Board of Direct Taxes (CBDT) vide notification issued on 31.01.2007 and such approval was renewed in subsequent assessment years. In course of scrutiny assessment for assessment year 2016-17, the Assessing Officer while verifying the information gathered and available on record, was of the view that the assessee has violated the conditions of approval granted under section 10(23C)(iv) of the Act. The reasons for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has promoted and increased the market feasibility of its own brand IUCD products FREEDOM-5 and FREEDOM-10 in a solely commercial manner. In so far as NACO Project promoted by Ministry of Health and Family Welfare, Departmental of AIDS Control, Government Of India for implementing Condom Social Marketing Programs in six states of Gujarat, Maharashtra, Odisha, Rajasthan, West Bengal and Karnataka, as per agreement dated 21.05.2014, the assessee is required to undertake promotion and advertisement for Deluxe Nirodh Condom Brand owned by Government of India. Whereas, while promoting Delux Nirodh Brand, the assessee has promoted its own Masti brand of Condoms by utilizing the resources. Though, as per agreement, sale of Delux Nirodh Condom brand and Masti brand are to be in the ratio of 70:30, however, assessee has sold Masti brand condoms in excess of 30% of total sale volume in NACO designated states, viz., Orissa, Rajasthan and West Bengal. The assessee made exorbitant profits from sale of condoms, both, Delux Nirodh brand and Masti brand, which were supplied through Government supply mechanism at a subsidized rate of only Rs.0.40 per piece to be sold at Rs. 0.40 per pie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for promotion, brand establishment by mass advertisement of own contraceptive brands. The nature of activity is purely commercial and no charity is involved. Thus, by diverting the Government grants and donor s fund to promote its own brand, the assessee has not applied its income wholly and exclusively for the objects for which it is established, hence, violated the conditions of third proviso to section 10(23C) of the Act. Further, he observed, though, the assessee under the provisions of the Act was required to maintain separate books of account for its charitable and business activities, however, the assessee did not do so. Accordingly, the assessee violated the conditions of 7th proviso to section 10(23C) of the Act. Thus, on the aforesaid premises, learned CIT (Exemption) ultimately concluded that the assessee is not involved in charitable activity as defined under section 2(15) of the Act. Hence, the approval granted under section 10(23C)(iv) was required to be withdrawn. Accordingly, he did so, while referring to various provisions of section 10(23C) of the Act. Being aggrieved, the assessee is before us. 7. Sh. Ajay Vohra, learned Senior Counsel appearing for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g amongst low-income population. He submitted, in order to achieve the charitable objects and also to promote the Government formulated scheme for family planning etc., the assessee is working across the range of health issues to include promotion of institutional deliveries, construction of toilets, cervical cancer screening and treatment, prevention of gender-based violence, family planning and population control, management of tuberculosis, prevention of HIV and sexually transmitted diseases and prevention of non-communicable diseases. He submitted, in this regard, the assessee has established non-financial Memorandum of Understanding (MoU) with different State Governments to technically assist in the implementation of Government sponsored health program and activities. He submitted, the work done by the assessee has been appreciated by various State Governments. In this regard, he drew our attention to the letters of appreciation issued by various State Governments. 9. Drawing our attention to specific allegations of the departmental authorities as well as Special Audit Report, learned counsel submitted, during the assessment year 20016-17, the assessee had received grants f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted, the Government itself distributes 55% of the condoms free or at highly subsidized prices in the interest of general public, therefore, to allege that the assessee is generating profit, in such a case, is unacceptable. In this context, he drew our attention to a decision of the Hon ble Delhi High Court in case of Reckitt Benckiser (India) Ltd. Vs. UOI, WP(C) No. 7705/2013, dated 10.07.2015. 11. Referring to the specific allegation of learned CIT (Exemption) regarding sale of Masti brand condoms, learned counsel for the assessee submitted, the CIT (Exemption) himself has stated that the purchase price of Masti brand condoms from the manufacturer is Rs.1.64 per piece and sale price is 1.93 per piece. From the small margin retained, the assessee had to incur substantial expenditure on distribution and social marketing. Therefore, the assessee actually ends up in loss. That being the case, the allegation of generation of profit is without any basis. 12. As regards the allegation of the departmental authorities in respect of PEHEL Project , learned counsel submitted, the project is an initiative of the assessee to contribute millennium development goal through limiting births ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Freedom 10 were as per the agreement entered into with the parent company and only for charitable purpose. He submitted, the assessee did not commercialize or earn any profits out of the mandate under the PEHEL Project . He submitted, the same is confirmed by the parent organization. He submitted, while alleging that the assessee has earned profit on sale of Freedom 5 and Freedom 10, the departmental authorities have considered the sale price and purchase price alone, while ignoring other substantial expenses like distribution cost, advertisement cost, warehousing cost and other administrative cost. He submitted, if the overall cost is considered, the assessee actually sales the products at loss with no profit earning motive but to fulfill its objectives of increasing awareness and targeting as many number of households to support the Government initiative in this regard. He submitted, contrary to allegations made by the departmental authorities, facts on record would demonstrate that the assessee has not made any profit on sale of contraceptive by promoting its own brand. 14. As regards the allegation of the Special Auditor that the assessee has nexus with another related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hughes Communication India Ltd. Vs. DCIT, ITA No.2346/Del/2014 4550/Del/2018 (Del. Trib.) 17. Without prejudice, he submitted, the CIT (Exemption) could not have withdrawn the approval granted under section 10(23C)(iv) of the retrospectively. In support of such proposition, he relied upon the following decisions: 1. ACIT Vs. Agra Development Authority, 407 ITR 562 (All.) 2. Auro Lab Vs. ITO, 411 ITR 308 (Mad.) 3. Indian Medical Trust Vs. PCIT, 414 ITR 296 (Raj.) 4. Urmila Devi Charitable Trust Vs. CIT (E), ITA No. 4136/Del/2017 (Del. Trib.) 18. Strongly relying upon the observations of the departmental authorities as well as Special Auditor, learned Departmental Representative submitted, various details called for by the Assessing Officer were not furnished in course of assessment proceeding relating to assessment year 2016-07. Drawing our attention to the observations of the Assessing Officer, he submitted, the assessee did not produce complete books of account and other details in course of assessment proceeding. He submitted, even before CIT (Exemption) also, the assessee did not furnish all the books of account required to be maintained by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble organization. It is a fact on record that even as on date, assessee s registration under section 12A and approval under section 80G of the Act is intact. On a careful reading of the impugned order of learned CIT (Exemption), it is very much evident that the trigger point for revocation of assessee s approval under section 10(23C)(iv) of the Act is the proposal given by the Assessing Officer while undertaking the assessment proceeding for assessment year 2016-17. As recorded by learned CIT (Exemption) in paragraph 6.2 of his order, the proposal for cancellation of approval under section 10(23C)(iv) of the Act was mainly for the following reasons: a) Difference in foreign contributions admitted in Income Expenditure account as compared to the foreign contributions as per FCRA return in Form FC-4 filed by the assessee. b) No separate books of account maintained for the business activity as required under 7th proviso to section 10(23C) of the I.T. Act, 1961. c) The assessee is not carrying out any charitable activities as envisaged in Section 2(15) read with section10(23C)(iv) and other enabling sections of Income tax Act in true spirit and intention. 20. As reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the Coordinate Bench, while considering the issue whether separate books of account are required to be maintained where the accounts are maintained on SAP ERP System, has observed that SAP based ERP system of accounting tantamount to maintenance of separate books of account. Thus, applying the ratio laid down by Coordinate Bench, we have to accept assessee s plea that there is no necessity of maintaining separate books of account, once the accounts are maintained in ERP system. Thus, in view of the aforesaid, the allegation of the CIT (Exemption) that due to non-maintenance of separate books of account the condition of 7th proviso to section 10(23C) of the Act is violated, deserves to be rejected. 22. Now, the core issue which arises for consideration is, whether it can be said that the assessee is not carrying out charitable activity as envisaged in section 2(15) read with section 10(23C)(iv) of the Act. In this regard, the main allegation of the departmental authorities is in relation to activities undertaking by the assessee in two targeted projects, viz., Pehel Project and NACO Project . As discussed earlier Pehel Project is an initiative of assessee s parent organiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontribution Regulation Act. Thus, in absence of any contrary material brought on record by the Revenue, it cannot be said that the assessee has utilized the foreign contribution received in respect of Pehel Project for its own commercial gain. 23. As regards the allegation of the Departmental Authorities that the assessee has earned profit by selling products, viz., Masti Brand of condoms in NACO project. The facts on record reveal that, though, as per the agreement with the Government, the Government has to supply the assessee two different brands of condoms, viz., Delux Nirodh and Masti, which are to be sold in the ratio of 70:30 respectively. However, the Government failed to supply the required number of Delux Nirodh indented by the assessee, which resulted in breach of contract and the assessee had to invoke the arbitration clause and the Arbitrator passed an award in favour of assessee. Thus, short supply of Delux Nirodh by the Government compelled the assessee to sell more Masti condoms. It is a further fact on record that condom is categorized as essential drug and the pricing of condoms are regulated under the Government regulations. Therefore, they have to be sold at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble status. This approach of the revenue is unacceptable. 25. In the aforesaid scenario, 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, on overall consideration of facts and materials on record and keeping in view the ratio laid down in the decisions relied upon, we hold that the impugned ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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