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TMI Blog2024 (7) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the provisions of sections 11, 12 and 13 of the Act, in our considered view, the said changes need not to be informed to the department. Therefore, in our considered view, the Ld.CIT(E) erred in observed that above issue is deviation/specified violation referred to u/s. 12AB(4) of the Act for cancellation of registration of Trust. Unexplained security deposit received - The appellant has filed ledger extract which shows receipt of amounts from the developer through proper banking channel. The assessee has explained the credit with necessary evidences before the AO and argued that said sum of Rs. 1 crore was received from builder as advance for security deposit. AO did not accept the explanation of the assessee and has made addition u/s. 68 of the Act for the AY. 2017-18. The assessee has challenged the assessment and additions made thereon before the appellate authorities, which is pending for adjudication. Unless the issue is reached finality, by adjudication from the appellate authorities, in our considered view it cannot be said that additions made by the AO towards unexplained credit is sacrosanct and further the said addition violated the provisions of section 13(1)(c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take an adverse inference against the assessee - the selling rate of any property depends on various factors, including the time of the sale, terms and conditions between the parties relationship with the seller and location of the property. Therefore, there cannot be any uniform selling rate for all flats in society and particularly in different time. Therefore, the allegation of the Ld.CIT(E) based on the self-serving report of Inspector of Income Tax is only a suspicion, without any evidence to the contrary that the appellant has sold property as claimed by the Ld.CIT(E) - there is no evidence including any agreement to sell with the department to allege that even a single flat was sold for the rate claimed by the Inspector of Income Tax. Therefore, the conclusion drawn by the CIT(E) on the basis of the inspector report to cancel the registration of the Trust u/s. 12AB(4) of the Act is illegal and devoid of merits. Non-intimation of transfer of property and acquisition of property - As regards the transfer of property held by the Trust in pursuant to Joint Development Agreement, in our considered view, the said transaction has been entered into with the court permission in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the said land for the purpose of construction of hospital, in our considered view, cancellation of Lease Deed cannot be a strategy of imagination referred to u/s. 12AB(4) of the Act. If the Trust Deed provides for the trustees and entered into various agreement for better utilization of the Trust, including buying and selling of the property, such an act should not be considered as repugnant to the provisions of sections 11, 12 and 13 of the Act unless the activity or changes carried out by the Trust, which is repugnant to the provisions of sections 11, 12 and 13 of the Act. In our considered view, the Trust need not to intimate the said act or take permission from the Ld.CIT(E) before entering into the said transactions. Application of income for purposes other than charitable purposes as appellant has constructed Gosala in Nandiwanaparthy village land which is not in accordance with the objects of the Trust - The reasons given by the Ld.CIT(E) for cancellation of registration is unwarranted and devoid of merit for the simple reason that construction and maintenance of Gosala has definitely come under the advancement of any other object of general public utility. Therefore, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the order for cancellation U/s. 12AB(4) based on surmises and assumption of incorrect facts. 3. The Learned Commissioner of Income Tax (Exemptions) is not justified in cancelling the registration of the Trust without properly appreciating the fact there are no violation of Provisions of Section 11 to 13 of Income Tax Act. 4. The final findings of the Learned Commissioner of Income Tax itself indicate that he himself is not sure of the provisions under which the registration is cancelled and hence the order of the Ld. Commissioner of Income tax is incorrect. 5. The Learned Commissioner of Income Tax failed to appreciate the fact that the alleged deviations/violations for initiating the proceedings for cancellation of registration are not in accordance with law. 6. The Learned Commissioner of Income Tax is not justified in cancelling the registration with effect from 16.08.2018, especially when there is no violation of Provisions of IT Act in that year. 7. In the absence of mentioning the DIN in the order passed under 12AB(4), the order passed is invalid and needs to be treated to have been never issued. 8. The Learned Commissioner of Income Tax (Exemptions), order is in violation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 12AA of the Act shall not be cancelled as per section 12AB(4) of the Act. In the said show cause notice, the CIT(E) observed that the appellant Trust violated certain provisions of the Income of the Income tax Act, 1961 ( the Act ), by not adhering to the conditions of registration granted u/s. 12A of the Act. According to the CIT(E), the assessee has violated/deviated in respect of the following five issues: i. Non-intimation of change of Trustees to the Department; ii. Unexplained security deposit received; iii. Activity of construction and sale of flats and under reporting of sale consideration; iv. Non-intimation of transfer of property and acquisition of property; v. Application of income for purposes other than charitable purposes. 6. The Ld.CIT(E) observed that the Trust has failed to intimate the change in the constitution of Trust like change in appointment of trustees to the department. The Ld.CIT(E) further noted that on demise of Mydam Raghuveer on 25-06-2017, his daughter Ms. M. Shireesha has been appointed as one of the trustees. Similarly, on demise of Myadam Kishan Rao in January, 2021, his daughter Smt. Anuradha Vippala was included as one of the trustees. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the constitution of Trust, the Trust has appointed new trustees to fill the vacancy caused due to sudden death of trustees in pursuant to the clause provided in the Trust Deed, where the trustees can fill the casual vacancy of the trustees by any persons and such changes need not to be reported to the Income Tax Department. The appellant further stated that it has received a sum of Rs. 1 crore from Trishala Infratech in the FY. 2016-17 relevant to the AY. 2017-18 towards security deposit for Joint Development Agreement to be entered into with the above party for development of the property and this fact has been explained to the AO. But, the AO made additions towards Rs. 1 crore u/s. 68 of the Act as un-explained cash credit even though the identity, genuineness and creditworthiness of the person who paid the money has been explained. Further, the additions made by the AO has been disputed in appeal before the appellate authorities and the matter is pending for adjudication. Unless the issue is decided in appeal, it cannot be said that such violation constitutes a specified violations referred in explanation to Section 4 of section 12AB of the Act. The appellant has also replie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s discussed the issue at length in light of the deviations/violations referred to in his show cause notice and subsequent reply submitted by the assessee on various occasions and opined that non-intimation of changes of appoitment to the Trust violates provisions of section 13 of the Act. The Ld.CIT(E) further noted that the assessee has entered into Joint Development Agreement for development of property and sales which is in the nature of adventure in the nature of trade and commerce which falls under proviso to section 2(15) of the Act. Further, the assessee by entering into trade and commerce, has violated provisions of section 13(1)(c) by employing a modus operandi as per which the trustees have benefitted in the manner where the property has been sold for higher consideration whereas the sale consideration has been offered by or accounted in the books of accounts of the Trust as per the registered sale deed, which is evident from the report of the Inspector. The meaning thereby that, the Trust has diverted the funds or property of the Trust for the benefit of the Trustees specified u/s. 13(1)(c) of the Act. The Ld.CIT(E) also rejected the explanation of the assessee with rega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order passed by the Ld.CIT(E) cancelling registration and reasons given therein submitted that none of the reasons given by the Ld.CIT(E) does fall under any of the above category to invoke the provisions of section 12AB(4) of the Act. 10. The ld. Counsel for the assessee further submitted that in so far as non-intimation of changes of trustees to the department, there is no search requirement as per the statute to inform any changes in appointment/retirement of any trustees. The requirement of taking permission from the Commissioner of Exemptions arises only in a case whet the amendments is proposed to the Trust Deed which is repugnant to the provisions of section 11, 12 and 13 of the Income Tax Act, 1961. He further submitted that the Ld.CIT(E) erred in invoking the provisions of Section 12AB(4) of the Act on the ground that in the assessment, additions were made u/s. 68 of the Act, ignoring the fact that the said assessment has been challenged before the appellate authorities and adjudication is pending. Further, the Trust has given property for joint development in pursuant to the court s order in terms of section 34 of the Indian Trust Act and the court has allowed to ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts thereby making additions u/s. 68 of the Act by the AO for the AY. 2017-18, non-intimation of transfer of property and acquisition of property and application of income for purpose other than the objective of the Trust. Ld.CIT(E) after considering the relevant facts has rightly cancelled registration granted to the appellant Trust by exercising powers vested with him u/s. 12AB(4) r.w.s. 12AB(5) of the Act and, therefore, the order should be upheld. 12. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the appellant, M/s. Myadam Kishan Rao Charitable Trust was established in the year 1976 with the objects of imparting education, providing medical relief to the poor and the advancement of any other object of general public utility, which is evident from the objects clause provided in the Trust Deed. The appellant Trust has registered u/s. 12A of the Act from 1992 and got re-registered from the amended provisions by the Finance Act, 2020 for the AY. 2022-23 to 2026-27 vide order dt. 25-05-2021. From the objects of the trust coupled with regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration of the Trust. 14. In light of above legal position, if we examine the deviations/violations referred to by the Ld.CIT(E) for cancellation of registration u/s. 12AB(4) of the Act, we find that there is no substance or merit in the reasons given by the Ld.CIT(E) for cancelling registration of the Trust u/s. 12AB(4) of the Act for the simple reason that none of the five reasons given by the Ld.CIT(E) falls under any of specified violations referred to in explanation to section 12AB(4) of the Act. The first deviation referred to by Ld.CIT(E) is non-intimation of changes of trustees to the department. Admittedly, the appellant has made two changes to the trustees of the Trust. On demise of Mydam Raghuveer on 25-06-2017, his daughter Ms. M. Shireesha has been appointed as one of the trustees. Similarly, on demise of Myadam Kishan Rao in January, 2021, his daughter Smt. Anuradha Vippala appointed as one of the trustees. The above two changes were made as per the clauses of the Trust Deed which provides for appointment of trustees, for filling casual vacancies arise in the Trust. Once the Trust Deed provides for appointment of trustees, including filling of casual vacancies on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance for security deposit. The AO did not accept the explanation of the assessee and has made addition u/s. 68 of the Act for the AY. 2017-18. The assessee has challenged the assessment and additions made thereon before the appellate authorities, which is pending for adjudication. Unless the issue is reached finality, by adjudication from the appellate authorities, in our considered view it cannot be said that additions made by the AO towards unexplained credit is sacrosanct and further the said addition violated the provisions of section 13(1)(c) of the Act. In our considered view, it is pre-mature for the Ld.CIT(E) to come to the conclusion that additions made in the assessment is a basis to hold that the assessee is not maintaining books of accounts properly and further the said violation comes under specified violation referred to u/s. 12AB(4) of the Act. Therefore, on this ground, the assumption of jurisdiction by the Ld.CIT(E) and cancellation of registration is illegal and devoid of merit. 16. The next point considered by the Ld.CIT(E) is activity of construction and sale of flats and refunding of sale consideration. As we have noted earlier in this order, the appellant Trus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as engaged in the business activity of buying and selling of the property or entering into Joint Development Agreement with land owners in commercial lines and carrying on trade and commerce. The appellant Trust is only exploiting its property, which is incidental to the attainment of main objects of the Trust of construction of a hospital that too when the Trust finds that the property in question was not suitable for its objects and which can be utilised to construct hospital in some other land owned or possessed by the Trust for the purpose of construction of hospital. Therefore, we are of the considered view that the allegation of the Ld.CIT(E) that the Trust is engaged in the activity of trade and commerc is devoid of merit and fails. 17. As regards the allegation of the Ld.CIT(E) in light of the report of the Inspector dt. 07-11-2022, in our considered view said report issued by the Inspector of Income Tax is only a self-serving document for the Ld.CIT(E) to take an adverse inference against the assessee. We have gone through the report of the Inspector and find that, he claims to have visited the marketing office of the property and one marketing person stated that the base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom one of the trustees. As regards the transfer of property held by the Trust in pursuant to Joint Development Agreement, in our considered view, the said transaction has been entered into with the court permission in terms of section 34 of the Indian Trust Act. The Hon'ble City Civil Court, Secunderabad has passed an order and permitted the appellant to transfer the property subject to a condition that sale proceeds should be applied for objects of the Trust. Once the property has been sold with the permission of court, in our considered view, there is no requirement under the law to intimate the transfer of property to the Income Tax Department or to the Ld.CIT(E). Although subsequent amendment to section 12AB which has been inserted by the Finance Act, 2021 with effect from AY. 2022-23 stipulates that the Ld.CIT(E) can impose any other conditions while granting registration u/s. 12AA of the Act, in our considered view, the Ld.CIT(E) cannot impose any conditions, which cannot be enforceable or implemented. Further, while granting registration u/s. 12AA of the Act, Ld.CIT(E) can impose a condition which can be repugnant to the provisions of section 11, 12 and 13 of the Act. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of sections 11, 12 and 13 of the Act unless the activity or changes carried out by the Trust, which is repugnant to the provisions of sections 11, 12 and 13 of the Act. In our considered view, the Trust need not to intimate the said act or take permission from the Ld.CIT(E) before entering into the said transactions. Therefore, in our considered view, the cancellation of registration by the Ld.CIT(E) on this ground is illegal and devoid of merit. 20. The next point that is considered by the Ld.CIT(E) for cancellation of registration u/s. 12AB(4) of the Act is application of income for purposes other than the objects of the Trust. According to the Ld.CIT(E), the appellant has constructed Gosala in Nandiwanaparthy village land which is not in accordance with the objects of the Trust. Therefore, the Ld.CIT(E) opined that the Trust has diverted the funds for the purpose other than the objects of the Trust, which tantamount to violations referred to u/s. 12AB(4) of the Act, which warrants cancellation of registration of Trust. In our considered view, the reasons given by the Ld.CIT(E) for cancellation of registration is unwarranted and devoid of merit for the simple reason that c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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