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TMI Blog2024 (7) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... tration 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection of application for registration u/s 12A of the Act. The assesse society was granted registration u/s 12A of the Act vide order dated 07.03.2003. The said registration was cancelled by CIT(E) vide order dated 14.11.2018. However, this Tribunal vide order dated 8th June 2023 has set aside the order of the CIT(E) cancelling/withdrawal of the registration u/s 12A and thereby restored the registration of the assessee u/s 12AA of the Act as well as approval u/s 80G. In the 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) was granted vide order dated 10.03.2022 however, the CIT(E) denied the regular registration while passing the impugned order. 3. Ld. Sr. counsel for the assesse has submitted that the CIT(E) has rejected the application for registration u/s 12A as well as approval u/s 80G by citing various reasons; i) earlier registration was granted to the assessee was withdrawn on the ground of involvement of money laundering. ii. Violation of the law on account of non-payment of loan to the bank, short fall of TDS as per the audit rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to clause (f) of explanation to section 12AB(1)(b) and submitted that the non-compliance of requirement of any other law as referred in sub-clause (i)(B) of clause (b) of sub-section (1) has been explained as the provisions of law and the order, direction or decree by whatever name called holding that such non- compliance as occurred has either not been disputed or has attained finality. Therefore, Ld. Sr. Counsel has submitted that the non-payment of loan/debts still pending before the DRT and no order or direction or decree has been passed and consequently it has not attained finality. Therefore, it will not amount to non-compliance of requirement of any other law. He has also referred to the record placed in paper book no.2 to show the payment of outstanding PF ESIC as well as TDS. Ld. Sr. Counsel has submitted that there is no statutory requirement of making any provisions of retiral benefit of the employees. Though, the retirement benefits is an obligation to be paid by the assessee at the time of retirement and hence non-accounting or making provision for retirement benefit is not in violation of any other law. He has referred to the reply of the assessee before the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application of the assessee for registration u/s 12AB and approval u/s 80G(5) issued show cause notice dated 13.2.2023 asking the assessee to reply against the observation set out therein. The extract of the same are as under: i. The registration u/s 12AA of the Income Tax act 1961 was previously cancelled vide order dated 14.11.2018 on the various grounds mentioned in the said order and matter is still pending with ITAT. ii.) As per the audit report the auditor has made remarks that the assessee has not accounted interest on the outstanding term loan raised from Central Bank of India, Raipur iii.) The assessee has not deducted or paid TDS against the interest payment to Cholamandlam investment and finance Company Limited. iv) The assesse society had not paid PF and ESIC as well as TDS as on 31.03.2020 v.) As per the audit report there are various rental income received by the assessee during the last three year however no GST is charged by the assesse. vi.) The assesse society has not complied with the provisions regarding retirement benefit payable to the employees as per the AS-15 issued by the institute of Chartered Accountant of India 5.1 Thus, the CIT(E) has observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation u/s 12A of the society. In the result grounds raised in the present appeal are allowed. In the result, appeal no. 32/RPR/23019 of the assessee is allowed. 12. Now, we are taking the appeal filed by the assessee in ITA No. 60/RPR/2019, wherein the assessee has challenged the order of ld. CIT(E), Bhopal dated 15.02.2019 regarding cancellation of approval u/s 10(23)(c)(vi). 13. The assessee has raised the following grounds under this appeal. 1. That on the facts and circumstances of the case and in law, The learned Commissioner of Income Tax (Exemption) erred in cancelling the approval granted u/s 10(23C)(iv) of the Act vide order dated 15.02.2019. 2. That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Exemption) erred in not following the principles of natural justice while cancelling the approval granted to the appellant u/s 10(23C)(iv) of the Act. 3. That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Exemption) could not point out a single instance of misapplication of the funds of the appellant towards the objects of the appellant and also could not point out single instance wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cancellation of registration u/s 12A is restored by us in terms our observations hereinabove, in ITA No. 32/RPR/2019, 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. In back drop of aforesaid discussion, we are inclined to set aside the order of ld. CIT(E) withdrawing the approval to the assessee society u/s 10(23C)(vi) dated 15.02.2019 and direct ld. CIT(E) to restore approval u/s 10(23C)(vi) to the assessee society. In the result ground of the appeal in the instant appeal of the assessee are allowed. Therefore, the first reason cited by the CIT(E) while rejecting the application for registration u/s 12AB and approval u/s 80G(5) is no more in existence as this tribunal has already set aside the said order of cancellation and restored the earlier registration granted to the assessee u/s 12AA of the Act. 5.3 The second objection of the CIT(E) is regarding the non-payment of interest on outstanding loans to Central Bank of India, the recovery proceedings of the same are pending bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) Xxxxx (b) Xxxxxx (c) Xxxxx (d) Xxxx (e) Xxxxx (f) The trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause(i) of clause (b) of sub-section (1) and the order direction or decree by whatever name called holding that such non-compliance has occurred, has either not been dispute or has attained finality. 5.5 Thus, it is clarified that the violation means the trust or institution has not complied with requirement of any other law and the order, direction or decree by whatever name called holding that non-compliance has occurred has either not been disputed or has attained finality. Therefore, the violation of any law is either undisputed or it has been held by order or direction or decree which has attained finality. In the case in hand the 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. 6.1 The Next objection of the CIT(E) is regarding 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. 6.2 Ld. CIT(E) has also raised an objection regarding not charging GST by the assessee on the rental income and thereby it was considered as non-compliance of requ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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