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TMI Blog2023 (8) TMI 1521X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant does not have clean hands, it does not deserve liberal consideration of the appellate forum. The appellant only gets the relief on the basis of strict and liberal interpretation of law in the light of facts and circumstances. We have already held in foregoing paragraph that the activities of the assessee are not genuine within the meaning of section 12AA(3) of the IT Act. We have further held that the assessee is hit by section 12AA(4)(a) read with section 13(1)(c)(ii) of IT Act, and by section 12AA(4)(b) of IT Act. X X X X Extracts X X X X X X X X Extracts X X X X ..... ancellation of registration u/s. 12AA of the Income Tax on the following reasons mentioned in brief: 1. The assessee society is not filing its return. 2. That the demand of Rs. 19,92,860/- has been of during the course of the assessment proceedings. 3. That the bank account was opened in the name of the member of the society. 4. That the return of income filed for assessment years are incomplete and do not properly state about the section under which the exemption is claimed i.e. u/s. 11 or u/s 10(23C)(ad) of the Income Tax Act, 1961. On the basis of the recommendation of the JCIT(E). Lucknow a show cause notice dated 08-08-2016 was issued stating that : 1. It has come to notice of this office that though the society is registered u/s 12AA of the income Tax Act, but the society is not regularly filing its return of income and the return of income for the AY 2010-11, 2011-12 and 2012-13 were filed by the society in response to notice u/s 148 of the IT. Act. These returns are incomplete and do not properly state about the section under which the exemption is claimed i.e. whether u/s 11 or u/s 10(23C)(mad) of the IT. Act 2. The bank account of the society were ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng heard due of this of incumbent office letter vide to the change ITBA/COM/F/17/2020-21/1028739015(1) dated 25-11-2020 fixing the date of hearing on 08-12-2020. In response, no proper adjournment was sought. Looking at the facts and circumstances of the case, it is noticed that the assessee itself submitted that the bank account of the society was attached by the Income Tax Department so they opened another bank account and funds have been shifted to another account which is in the name of the member of the society, Shri Alok Anchal. This clearly proves that the society willfully violated the provisions of IT Act by doing such act." (A.2) In the course of appellate proceedings in Income Tax Appellate Tribunal ("ITAT" for short), following documents were filed from the side of the appellant assessee: (I) Paper book of case laws, containing copies of the following decisions: S. No. Particulars 1. M/s. Shine Educational and Social Welfare Trust, Aadhavan Arts and Science College Campur vs. CIT-I, ITAT Chennai, ITA No. 2778/Mds/2014 Order dated 27.02.2015 2. CIT(E) vs. Shri Sai Darbar Charitable Trust (Dharamsala) 395 ITR 576 (PH) 3. Bhartiya Kishan Sangh Sewa Niketan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chal Memorial Educational Society has been transferred to the applicant trust with a view to avoid the tax liability which was determined on the said society vide a demand of Rs. 19,92,860/- raised during the course of assessment proceedings u/s 144 of the Income Tax Act, 1961 for the A.Y. 2009-10 by the Dy. CIT Circle-1, Bareilly and subsequently the accounts of the society were attached u/s 226(3) of the income Tax Act, 1961 for the recovery of the said demands and demands of earlier years as evident from the report of the Income Tax Officer (Exemption), Bareilly vide F.No. ITO-[Exemp.]/BLY/Regd. u/s 12A/2016-17/227. 3. On perusal of the Receipts and Payments Accounts for the F.Y. 2015-16, it is found that the applicant has not even initiated any act of charity as none of the debit heads correspond to any act of charity for the F.Y. 2015-16. It Is important to note here that a report of the Income Tax Officer (Exemption), Bareilly vide F.No. ITO- [Exemp.]/BLY/Regd. u/s 12A/2016-17/227 forwarded by the Addl. CIT(Exemption), Lucknow through F. No. Addl CIT(Ex.)/Lko/2016-17 1961 in the case of Shri Ram Murti Anchal Memorial Educational Society (Don & Dona Convent School) Shahjaha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s intended for public benefit towards serving the personal motives of the society members but has also failed to comply by the law of the land by not adhering and complying to the notice of demand of Rs. 19,92,860/- that was generated during the course of assessment proceeding u/s 144 of the Income Tax Act, 1961 for the A.Y. 2009-10 by the Dy. CIT. Circle-1, Bareilly for Shri Ram Murti Anchal Memorial Educational Society, instead it has grossly digressed from the fundamentals of charity and has indecorously converted its assets so as to form a new trust by the name Shri Ram Murti Anchal Memorial Educational Trust and is trying to fraudulently secure benefits under the garb of the same. It is true that while considering an application for the said registration the object and genuineness of the activities of the applicant need to be looked at, however in the instant case the said applicant trust and it's application for registration is nothing but a mere subterfuge by which a set of committee members constituting a distinguished set of individuals are trying to evade tax liability and are transferring assets with a view to escape the law of the land and in the process have failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons for approval u/s 80G of the Act. Hence, we do not find any justification to interfere in these orders of learned CIT. 8. The law requires a conjunctive test whereby objects of the applicant society have to be charitable and genuineness of charitable activities should be established for registration of application u/s 12A. Mere recital of objects or activities without cogent or corroborative evidence is not sufficient by themselves to enable a registering authority to arrive at the satisfaction mandated by law. In the instant case, the documents on record do not suffice to establish the genuineness of activities. As such the findings of fact regarding its charitable activities or rather the lack thereof arrived at on the basis of the evidence filed and arguments addressed stand uncontroverted. This is fatal to the claim of the applicant. 9. It is clear, that applicant has failed to provide sufficient material to corroborate the charitable nature of the objects and genuineness of the activities. Despite being provided timely opportunity the applicant has not been able to substantiate its claim. 10. In view of the facts and above decisions, I am unable to accept the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee society for the A.Y. 2010-11 has escaped from assessment as stipulated under section 147 of Income Tax Act, 1961. Notice u/s 148 of the I.T, Act, 1961, was issued on 30.03.2014 through registered post by the then Income Tax officer Shahjahanpur. Further Notice u/s 142(1) was issued and served upon the assessee by the ITO-1(5), Shahjahanpur. Due to change of incumbent on accounts of change of jurisdiction, notices u/s 142(1) were issued on 17.11.2015, 22.12.2015, 11.01.2016 and 29.01.2016 fixing the date of compliance on 26.11.2015, 05.01.2016, 21.01.2016 and 19.02.2016 respectively which were returned back with postal remark "R". The notice u/s 142(1) of the I.T. Act, 1961 dated 29.01.2016 was also served through ITI of this office on 30.01.2016. In compliance of this notice, assessee filed its return of income on 17.02.2016 declaring total income at Nil. Accordingly, notice u/s 143(2) was issued on 18.02.2016 fixing the date of compliance on 29.02.2016.In response to the notice Shri Sanjay Saxena, CA, attended from time to time and submitted written submission along with necessary details/documents. Books of accounts along with bills/ vouchers etc. were produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , however same. The Ld. Council of the assessee failed to submit the reason for signing of two balance sheet on two different dates. 6. A perusal of the balance sheet submitted under cover of letter dated 14.03.2016 shows that the assessee had a cash balance of Rs. 81,01,965/-. Where has the gross receipt during the year amounted the Rs. 76,31,150/- only. This shows that the affairs of the society are not being managed in a prudent manner as no person of sound mind would carry this much of cash and also not depositing any Penny in the bank account. It also cannot be ruled out about misutilization of society fund by the managing persons by showing such large cash balances. 7. The aforesaid act, of the assessee clearly established that it is not compliant with the Law. 8. As per the audited consolidated balance sheet the gross receipt of the assessee society amounted Rs. 99,94,915/- and the society has applied an amount of Rs. 70,30,135/- for the charitable purposes during the year as per the audit report submitted on 14.03.2016. The application for charitable purposes thus, works out to 70.34% which is less than the 85% as required under the provision of the under income ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f I.T. Act, The assessee failed to establish the genuineness of exemption claimed under section 10(23C)(iiiad) of I.T. Act during scrutiny assessment proceedings for the A.Y. 2007-08 and the AO accordingly disallowed the claim of exemption. The findings of AC are no still uphold by Hon'ble ITAT Bench B, Lucknow while sending back the matter to CIT(A), Bareilly for fresh adjudication vide order no. ITA/426/LKW/2013 dated 07.02.2014. The inspector of income tax Shri Mukesh Kumar has mentioned in his reported dated 28.03.2014 that during field enquiry of assessee society and school, total income of the assessee school is approx 54.50 lakh during the year. In view of the aforesaid facts and report and applicability of section 139/10(23C)(iiiad), I have reason to believe and satisfaction to record that income of Rs. 54.50 lakh of assessee society for the A.Y. 2011-12 has escaped from assessment as stipulated under section 147 of Income Tax Act, 1961." Notice u/s 148 of the I.T, Act, 1961 was issued post. By the then Income Tax officer Shahjahanpur, Notices u/s 142(1) was issued which were served upon the assessee. Due to change of incumbent on accounts of change of juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of return suo-moto also is contravention of the provision of section 12AA and section 13 of the income tax act, 1961. 5. The society has compiled balance sheet of the society and school and also consolidated balance sheet. Whereas under cover letter dated 19.02.2016 the assessee has submitted balance sheet as on 31.03.2011 which is signed by Mr. P.D.S. Shahni on 30.09.2013. However under cover of letter dated 14.03.2016 the assessee has submitted balance sheet signed by Shri S.K. Saxena on 30.09.2011 for the year ending 31.03.2011 (A.Y. 2011-12). Thus the assessee has got two balance sheets signed on two different dates. The contents and other things are, however same. The Ld. Council of the assessee failed to submit the reason for singing of two balance sheet on two different dates. 6. A perusal of the balance sheet submitted under cover of letter dated 14.03.2016 shows that the assessee had a cash balance of Rs. 16,52,267.57/-, and advance to Mr. Alok Anchal Rs. 1,63,08,933.50/-. Since the assessee had not operated any bank account during the year how the amount has been advanced to him, who is a managing trustee of the society, is not under stood. It clearly shows that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pur after recording reasons as under : "It has been gathered from records and report of ITO of this office Shri Mukesh Kumar that the assessee society has not filed return of income for the year under consideration A.Y. 2012-13. The filing of income is mandatory according to section 139 of I.T. Act, in such cases of assessee society which enjoys income from imparting education through school (namely Don & Dona Convent at Mohalla Jhanda Kalah, Shahjahanpur) and claimed exemption of income under section 10(23C). The assessee society, as evident from records, has filed return of income up to F.Y. 2007-08 relevant to A.Y. 2009-09 claiming exemption under section 11(4) and 10(23C)(vi) of I.T. Act, The assessee failed to establish the genuineness of exemption claimed under section 10(23C)(iiicd) of I.T. Act during scrutiny assessment proceedings for the A.Y. 2007-08 and the AO accordingly disallowed the claim of exemption. The findings of AO are no still uphold by Hon'ble ITAT Bench B, Lucknow while sending back the matter to CT(A), Bareilly for fresh adjudication vide order no.ITA/426/LKW/2013 dated 07.02.2014. The inspector of income tax Shri Mukesh Kumar has mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 10B dated 30.09.2012 in respect of financial year ending on 31.03.2012 from M/S S.K. Saxena & company which is submitted to this office on 14.03.2016. 4. Mr. Alok Anchal had in a affidavit dated 13.03.2014 before Ld. Income Tax officer Ward-1(4), Shahjahanpur, has deposed that "he had opened bank account in Vijya Bank bearing account no.714901011000426. for society's funds in his personal name as the society's bank account had been seized by the income tax department for recovery of demand for earlier year'. Thus the opening bank account of the society in the personal name of the trustees is clear violation of the provision of the section 13(5) of the income tax act, 1961. Non filing of return suo-moto also is contravention of the provision of section 12AA and section 13 of the income tax act, 1961. 5. The society has compiled balance sheet of the society and school and also consolidated balance sheet. Where as under cover letter dated 18.02.2016 the assessee has submitted balance sheet as on 31.03.2012 which is signed by Mr. P.D.S. Shahni on 30.09.2013. However under cover of letter dated 14.03.2016 the assessee has submitted balance sheet singed by Shri S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on file and deposed by the Manager of the Society Shri Alok Anchal before the ITO-1(4), Shahjahanpur. Moreover, in any case the provisions of section 10(23C) also require application of income to the extent of 85% of the gross receipts for the educational purposes. From the discussion in para 8 above, the application is at 83.78 % of the gross receipts during the year. In the light of this fact and profit motive of the society, the assessee is not entitled for exemption u/s 10(23C)(iiiad) of the I.T.Act, 1961. 10. From the aforesaid discussion, it is seen that the assessee society is neither entitled for exemption u/s 10(23C)(iiiad) of the I.T. Act nor u/s 11 of the IT Act, 1961." (B.1) On perusal of the aforesaid assessment orders, it is found that during assessment proceedings for assessment year 2010-11, 2011-12 and assessment year 2012-13; the assessee claimed benefit u/s 10(23C), and not u/s 11 of IT Act. The Assessing Officer held that the assessee was neither entitled for exemption u/s 10(23C) nor u/s 11 of IT Act. (C) At the time of hearing before us, learned Counsel for the assessee submitted that the objects of the assessee continued to be charitable and therefore, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the previous year of the person in receipt thereof-- (a) any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; (b) in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste; (bb) [***] (c) in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof-- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub- section (3) 72[, such part of income as referred to in sub-clauses (i) and (ii)] : 13(3) The persons referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present appeal before us) were channelized directly/indirectly for the benefit of the members of the management committee which was in direct violation of section 13(1)(c) of IT Act. It was furthermore observed by him that SRMAMET had been carved out of SRMAMES that had not only channelized the funds intended for public benefit towards serving the personal motives of SRMAMES (the appellant assessee in the present appeal before us) but had also failed to comply by the law of the land by not adhering and complying to the notice of demand of Rs. 19,92,860/- that was generated during assessment proceedings for assessment year 2009-10; and that SRMAMES had grossly digressed from the fundamentals of charity and had indecorously converted its assets so as to form a new trust (SRMAMET), trying to fraudulently secure benefits under the garb of the same. Still further it was observed by him that SRMAMET was a subterfuge by which evasion of tax liability was tried and assets were transferred with a view to escape the law of the land. It was implied by learned CIT(E) that SRMAMES (the appellant assessee in the present appeal before us) and SRMAMET had entered into a collusive arrangement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble High Court quashed the notice issued by the Income Tax Officer (Technical). In the case before us, there is no allegation that the CIT(E) did not exercise the power u/s 12AA(3) herself. In the case of Shine Educational and Social Welfare Trust vs. CIT in I.T.A. No.2778/Mds/2014, Chennai Bench of the Income Tax Appellate Tribunal held that non filing of return was not a case for cancellation of registration. The order of Chennai Bench of ITAT is on clearly distinguishable facts, in view of foregoing paragraphs (A.1), (A.2.1), (B), (B.1) and (D.1) of this order. There are many facts in the present case before us, which distinguish the present case before us from the case of Shine Educational and Social Welfare Trust vs. CIT (supra), which are adverse to the assessee in the dispute before us. We shall return to these facts later in this order. Moreover, in any case, it was held in the aforesaid decision in the case of Shine Educational and Social Welfare Trust vs. CIT (supra) that cancellation of registration can be exercised u/s 12AA(3) by literal interpretation of law and has impliedly held that widening the scope of section 12AA(3) may be possible if there are case la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. Firstly, therefore, it is obvious from the foregoing discussion that the appellant assessee before us has not approached ITAT with clean hands. Secondly, from the foregoing, it is also inferred that the activities of the appellant assessee are not genuine within the meaning of section 12AA(3) of IT Act. Thirdly, the assessee applicant is in violation of section 13(1)(c) of IT Act and is consequently hit by section 12AA(4)(a) read with section 13(1)(c)(ii) of IT Act. Fourthly, the assessee has not complied with Income Tax Act (not only by entering into collusive arrangements to evade recovery of tax dues, but also by not filing returns of income u/s 139 of IT Act, as is evident from perusal of impugned order dated 21/01/2021 of learned CIT(E). Therefore, the assessee, on strict and literal interpretation of Income Tax Act, is hit by section 12AA(4)(b) of the IT Act. (D.2) When the appellant does not have clean hands, it does not deserve liberal consideration of the appellate forum. The appellant only gets the relief on the basis of strict and liberal interpretation of law in the light of facts and circumstances. (D.2.1) We have already held in foregoing paragraph ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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