9911796707
TMI Blog2024 (9) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... he preservation and protection of environment but in fact the assessee is doing the commercial activity and thereby doing the activity with profit motive. AO also noted that the assessee trust has advanced a sum to the persons specified u/s. 13(3) of the Act and thus, there is diversion of fund. Assessee also made contract payment to various other parties / concerns referred to in section 13(3) of the Act. Thus, the rule of consistency should follow in favor of the assessee. Even the circular of board no. 21/2016 direct the revenue officer The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable trust granted under section 12AA just because the provision of section 2(15) comes into play. The process of cancellation of registration is to be initiated strictly in accordance with the section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. Thus, on the issue of the doing business by the assessee the finding is already recorded by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even no provision for making such reference under the 2nd proviso to section 143(3) of the Act for the trusts and institution referred under section 11 of the Act. Therefore, the reference itself is without the authority of any statutory provisions and there was no fresh reference by the ld. AO. Further the bench noted that the impugned reference upon which the addition was made and that order is pending for adjudication before ld. CIT(A) and there is no final finding on that aspect of the matter. The bench further noted that there was no intimation to the assessee that the ld. CIT(E) intend to proceeded with retrospective effect. Even nowhere in any of the communication to the assessee was allowed to defend their case and the importance of show cause notice has been emphasized by the Apex Court in case of Umanath Pandey v. State of UP [ 2009 (3) TMI 526 - SUPREME COURT ] that Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30/09/2023 [here in after ld. CIT(E)] cancelling the registration of the assessee under section 12AB(4)(b)(i) of the Act. 2. In this appeal, the assessee has raised following grounds: - 1. Under the facts and circumstances of the case and in law, the Impugned Order Passed u/s 12AB(4)(b)(i) of the Act dated 30.09.2023 passed by Ld. CIT Exemption, Jaipur under Section 12AB(4) of the Act and under erstwhile Section 12AA(3) of the Act canceling the registration of the Assessee granted u/s 12AB is arbitrary, perverse, bad in law and without jurisdiction. 2. Under the facts and circumstances of the case and in law, Ld. CIT Exemption, Jaipur has erred in passing an Impugned Order without providing an adequate and effective opportunity of being heard and has also erred in recording factually incorrect and inconsistent findings against the records. 3. Under the facts and circumstances of the case and in law, the Ld. CIT Exemption, Jaipur has gross erred in law and facts in invoking jurisdiction u/s 12AB (4) of the Act without any reference received as required u/s 12AB(4)(b) as inserted by Finance Act 2022. 4. Under the facts and circumstances of the case and in law, (i) impugned notice u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inoperative from 01.04.2021, and section 12AB was added. Thus, the notice issued to assessee become null and void after the change in the provision of the Act and no order could have been passed. 3.3 Substantial changes were made through the amendment in cancellation and registration proceedings. Thereafter the provisions of section 12AB(4) (5) again got substituted w.e.f. from 01.04.2022, by finance act, 2022. The ld. CIT(E) noted that there was no time barring for 12AA(3) cancellation cases, as well as 12AB(4) in pre amendment in law i.e. 01.04.2022, however, new provisions under section 12AB, the cancellation proceedings were more streamlined, the definition of specified violation was brought in to Act, and cancellation proceedings were made time barred within 6 months from the end of the quarter in which first notice under section 12AB(4) is issued. Language of section 12AB (5), further specified that first notice would be counted only for notices issued after 01.04.2022, as the time barring was first brought in w.e.f. 01.04.2022 only. 3.4 As discussed in earlier para that the proceedings for cancellation of registration of assessee u/s 12AA(3) had already lapsed without passin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whom related transactions have been made. However, the assessee again chosen not to appear on 25.09.2023 and sent reply. There after assessee was called by the ld. CIT(E) office on 25.09.2023 again on 26.09.2023 to submit complete reply and produce the persons as called for. The assessee has refused to give any further submission and refused to produce the persons and details. Further the valuation officer appointed as also issued letters to assessee for submission of details and allow to inspection of premise for the purpose of valuation, however, assessee has denied submitting any details to valuation officer and denied him the entry in to the premise. Further, assessee has also filed a writ petition to Rajasthan High Court, copy of which was received by this office on 29.09.2023 at about 5 PM, where in it has asked the Hon'ble court to stay these proceedings under section 12AB, and restraining the DVO from valuation. This clearly shows that assessee is in no mood of co-operation and not willing to submit any further details and compliance, as the matter is time barred on 30.09.2023, and lots of opportunities have been given to assessee, the matter decided based on material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust are in the nature of trade and commerce and cater solely to the profit motive of trust. Further, it has been noted by A.O. that during the course of assessment proceedings that the assessee trust has advanced Rs. 2.25 crore to the persons covered u/s 13(3) of the I.T. Act. 3.9 During the course of assessment proceedings the assessee claimed that these advances are against the sale of property which is in the name of Shri Vivek Agarwal and his family members. As per copy of agreement filed the said property situated at 16, Shree Gopal Nagar Near Mahesh Nagar Police Station, Gopalpura Bye Pass, Jaipur in the name of Shri Vivek Agarwal and his family members. The AO has held that no evidence was filed to support that the property is in the names of above mentioned 5 persons including one company. In the agreement, any amount of advance given or not has not been mentioned. Further as per copy of ledger account of Shri Vivek Agarwal in the books of the Trust it had seen that it is a current account, and many transactions took place during the year with the closing balance of Rs. 1,27,29,774/-. Apparently, this is diversion of funds for the benefits of trustees which comes under pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rying out assesses objects. Para 59, 72, 73, 74 of that order is reproduced as under:- x x x x The above logic and reasoning though given in context of education, clearly provide the light on case of assessee, that if assessee would have been selling the products produced during the garbage collection, same may be considered incidental, but is assessee is taking contract and doing work of an vendor for government or any other organisation, same can never be consider its incidental activity, it is its main activity. Further, as clear from the word incidental, it is clear that magnitude of resources devoted by assessee to incidental activity cant be even higher than devoted toward its main objects. It is important to mention here that Hon'ble supreme court in above case hasn't considered even selling books to other that's its students as incidental activity. Even otherwise for anything being incidental, there has to be some charitable activity. However, in case of assessee, there is no incidental activity but it is the main activity. Thus it is clear that assessee business do not fall in any of these. It is also important to mention here that having profits and gain from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e every trust deed shattered. Thus, in light of above discussion it is clear that assessee is not only doing the business but also carrying out these activities beyond the objects of trusts, and authority of trustee. This make the trust as non-genuine too. 7.13 The similar issue as taking contract from government or taking subcontract from other person who have taken contract from government can be considered as charitable activities has been dealt in case CIT vs Annadan trust (2018) 258 Taxman 54 (kerala), the Hon'ble High Court of Kerala, where assessee was supplying mid day meal on contract. While dealing this case, Hon'ble Court has clearly held that such activities are purely business and cannot be considered charitable. Infact, Hon'ble Court has also stated that as assessee was getting the tender receipts, which was also the beyond objects of trusts.: x x x x Similar issue is also involved before Hon ble ITAT, Jaipur in the case of M/s Eternal Foundation vs. CIT(Exemption), Jaipur in ITA No. 1504 1505/JP/2018 wherein the Hon ble Tribunal has observed as under:- x x x x It is clear that the tribunal has held that the activities which have been performed by the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no authenticity does not discharge the assessee's onus of establishing the genuineness of these expenses. 8.4 Further the assessee was executing work in metropolitan cities having easy access to banking sector. There is no valid reason for making such huge payments in cash to these volunteers. Even if the argument is taken that these volunteers usually belong to lower economic strata of society having no access to banks, considering that the assessee trust is claiming to be involved in charitable activities it ought to have opened bank accounts of these staff members for their benefit in the long run. 8.5 However no such steps were taken by the assessee trust since its intention was to siphon off the funds under the garb of Pocket Expenses for volunteers. Thus, these cash expenses without documentary evidence remains unexplained and are non-genuine in nature. Further this infringement tantamount to income of the trust been applied by the assessee trust other than for the objects of the trust and thus is in violation of objects of the trust. 8.6 During proceedings, on going through financial statements of the F.Y. 2016-17 it was also observed that the assessee has debited Man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of money of trust for personal purpose, not maintain proper accounts comer under the purview of non-genuineness of activities. Hon'ble ITAT Jaipur bench in case of NIMS University in ITA no. 736/JP/2017 ITA No. 545/JP/2018 has taken following activities as non-genuine:- activities are not legal as it has caused some infringement of law. accounts are not properly maintained or the receipts are not accounted for in the books of accounts. the trust/society is not registered with competent authority. it has caused some misrepresentation of facts before any authority. it has given undue benefits to the trustees or office bearers. it is selling education. Thus, all the above issues as discussed in earlier paras are also part of non- genuineness of activities. 10. Another general point raised by assessee in its various replies is that, assessee is a charitable institution, registered under Rajasthan public trust act, thus any income even coming from business should not be treated otherwise, as assessee cannot use the same for purpose other than objects of trusts. Though it has been proved that assessee is siphoning of income for benefit of trustees, by booking various bogus expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written submission which is extracted in below; 1. With reference to the hearing held on 21.11.2023 where Hon ble members asked to submit the written submission on the legal issue involved in the captioned case. In this regard, Appellant hereby submits as under: Key Prospective Amendments in the Law by Finance Act 2021 2. It is important to note that key changes were made in Finance Act, 2021 and Taxation and Other Law (Relaxation and Amendment of Certain Provision) Act, 2020. One of key changes was that every trust or institution registered under section 12AA of the Act required to re-register itself before the specified dates provided u/s 12A(1)(ac) of the Act and sunset clause has been inserted under section 12AA(5) w.e.f. 01.04.2021 and new section 12AB has been inserted. A. Key Prospective Amendments in the Law by Finance Act 2022 3. Finance Act, 2022 introduced new section for taxing the benefits provided to related persons will be treated as specified income and will be subjected to following consequences: Such income will be taxed at the rate of 30% without any deduction under the newly inserted section 115BBI. Such specified income will be liable to penalty u/s. 271AAE. 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii), as the case may be, to the Assessing Officer and such trust or institution. Explanation. For the purposes of this sub-section, the following shall mean specified violation , (a) where any income derived from property held under trust, wholly or in part for charitable or religious purposes, has been applied, other than for the objects of the trust or institution; or (b) the trust or institution has income from profits and gains of business which is not incidental to the attainment of its objectives or separate books of account are not maintained by such trust or institution in respect of the business which is incidental to the attainment of its objectives; or (c) the trust or institution has applied any part of its income from the property held under a trust for private religious purposes, which does not enure for the benefit of the public; or (d) the trust or institution established for charitable purpose created or established after the commencement of this Act, has applied any part of its income for the benefit of any particular religious community or caste; or (e) any activity being carried out by the trust or institution, (i) is not genuine; or (ii) is not being carried ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sub-section (4) of section 12AB, as the case may be, he shall (a) send a reference to the Principal Commissioner or Commissioner to withdraw the approval or registration, as the case may be; and (b) no order making an assessment of the total income or loss of such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall be made by him without giving effect to the order passed by the Principal Commissioner or Commissioner under clause (ii) or clause (iii) of the fifteenth proviso to clause (23C) of section 10 or clause (ii) or clause (iii) of sub-section (4) of section 12AB: B. Impugned order is invalid and bad in law. 8. It is humbly submitted that the impugned order of cancellation of registration is invalid and is bad in law on various grounds, which grounds are raised without prejudice to each other grounds, the said grounds are as follows: a. Assumption of jurisdiction on the basis of reference of the AO u/s 143(3) of the Act is bad in law. 9. In the present case, Ld. CIT(E), Jaipur has initiated the impugned proceedings of cancellation of registration based on the reference received from Ld. DCIT(E), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should wait for the other to avoid multiplicity of proceedings. The reliance in this context, is placed on judgment of Hon ble Apex Court in case of in Commissioner of Income-tax v. Bhupen Champak Lal Dalal[2001] 116 Taxman 746 (SC). c. No show cause notice issued for the specified violations: 14. It is accepted principle that a person proceeded against is required to be informed about the exact nature of charges leveled against him. The medium to inform about the nature of charges is issuance of show cause notice. The importance of a show cause notice has been reiterated by Supreme Court in case of Umanath Pandey v. State of UP [2009] 12 SCC 40-43 as under: Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him. 15. In the case of Biecco Lawrie Ltd v. State of Wes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be penalized by reason of the amendment to the law effected subsequently. 19. To support the above contention, reliance placed on judgment by Hon ble Madras High Court in the case of CIT v. Kumudam Endowments [2001] 117 Taxman 716 (Mad.) held that: It is well settled law that a person, who has complied with the law as it exists, cannot be penalized by reason of the amendment to the law effected subsequently, unless such intention is expressly stated and the imposition of such penalty is not contrary to any of the provisions of the Constitution. The argument that the assessee should be denied the exemption for the earlier AY when it had not contravened the law, because it had been found to have contravened the law in subsequent AY cannot be accepted. It is assessment year with which the assessment is concerned, and it is the eligibility of the assessee with reference to the law applicable in the year that is required to be looked into. 20. Reliance is also placed on judgment of Rajasthan High Court in the case of Indian Medical Trust v. PCIT [2019] 108 taxmann.com 93 (Rajasthan) where it has been held that: Indisputably, the order dated 16th Jan, 2018, made by the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent to examination by the Principal Commissioner or Commissioner of Income-tax, an order is required to be passed for either cancellation of the registration or refusal to cancel the registration. Similar provisions have also been introduced in clause (23C) of section 10 of the Act by substituting the fifteenth proviso of the said clause with respect to fund or institution trust or institution or any university or other educational institution or any hospital or other medical institution referred under sub-clauses (iv), (v), (vi), (via) of this clause and which have been approved or provisionally approved under the second proviso to the said clause. These amendments are effective from 1st April, 2022. In addition to the specified violations referred above, the power of cancellation has also been granted under subrule (5) of rule 17A and sub-rule (5) of rule 2C of the Income-tax Rules, 1962 ( the Rules) to the Principal Commissioner or Commissioner authorised by the Board. This Circular only relates to cancellation of registration/approval or provisional registration/approval in the case of specified violation . The relevant extracts of memorandum explaining the budget proposa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is related to events occurring on or after 01.04.2022 without prejudice to fact that no show cause notice for alleged violation was given in the impugned proceedings. f. Law does not provide power to cancel the registration granted u/s 12A(a) of the Act. 27. As per section 12AB(4) of the Act, the registration granted under: i. clause (a), (b) or (c) of section 12AB(1), or ii. clause (b) of section 12AA(1) of the Act, can be cancelled by the PCIT or CIT by passing an order in writing when condition specified under section 12AB(4) are fulfilled. However, in the present case, Ld. CIT-I, Jaipur has granted registration u/s 12A(a) of the Act w.e.f. 06.08.2001 (refer page no. 1 of PB). It is submitted that law does not provide power to cancel the registration granted u/s 12A(a) of the Act, it is restricted to clause (a),(b) or (c) of Section 12AB(1) and clause (b) of Section 12AA(1) of the Act. 28. The Appellant was granted registration u/s 12A(a) of the Act and said registration intentionally have not been made part of section 12AB(4) of the Act by the law makers. Even otherwise, for the sake of argument, if it is considered to be an accidental omission in the law, then also, being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o contentions raised herein above, it is humbly submitted that Ld. CIT(E), Jaipur has passed the Impugned Order u/s 12AB(4)(b)(i) of the Act, which power has not been given under the said clause (i) of the said Section. Thus, on this ground also, impugned Order is not tenable. 35. In view of the foregoing submission as explained herein above, it is humbly submitted that Impugned Order passed by Ld. CIT(E), Jaipur is without jurisdiction, arbitrary, perverse, without authority of law, bad in law and thus deserves to be quashed. 36. The Humble Appellant is available for further information/clarifications, if any required for adjudication of appeal on the very issue of maintainability of Impugned Order. 6. In addition to the above written submission, the ld. AR appearing on behalf of the assessee submitted a supplementary submission on legal issues: SUPPLEMENTARY SUBMISSION ON LEGAL ISSUES INVOLVED IN THE APPEAL The humble Appellant prays for placing on records, it s further submission on legal issued involved in appeal in continuation of the submission filed earlier on 08.12.2023. It is prayed that the same may be read along with the written submission on legal issue involved in capt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment. 5. The said section is not applicable in the present as the contentions raised are relating to illegality of the Impugned Order as well as exercising power without authority of law and without jurisdiction. 6. In view of the above, the Ld. CIT(E) has wrongly contended that Appellant has participated in the proceedings therefore, it is precluded from raising objections as to the jurisdiction as well as power of the Ld. CIT(E). The Appellant has always raised its objection during the proceedings and even otherwise its participation through authorized representative was under protest only. Nonetheless it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... open court on 06.03.2024 that Appellant Trust is engaged in business activities would cover under the clause (b) of specified violations as defined under explanation to Section 12AB(4) of the Act. 2. In this regard, it is humbly submitted that if any trust or institution has earned income from profit and gains of business, there is no such condition to invoke the proceeding of cancellation of registration in earlier regime. The said contention is also admitted by the Ld. CIT(E) in his submission dated 29.01.2024 in para 4(F) that this power was expressly not available but was built in by definition of charitable objects under 2(15) and section 11(4) and section 11(4A), which prohibits any business for trust. The relevant extracts of the said para 4(F) of submission of Ld. CIT(E) is reproduced: 3. Appellant hereby submits that cancellation of registration is being penal provisions, then law has to specifically provide for the same. Cancellation being the harsh provision, specific provision is required, and Ld. CIT(E) could not have assumed the power not conferred by the law. 4. As already submitted in the earlier submission of Appellant that the activities of Appellant Trust are per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act 88-90 19. Copy of registration certificate in form no. 10AC dated 28.02.2023 u/s 80G(5) of the Act 91-92 20. Copy of notice issued u/s 12AB(4)(b)(i) of the Act dated 03.03.2023 93-98 21. Copy of reply submitted on 08.03.2023 in response to notice dated 03.03.2023 99-112 22. Copy of notice issued u/s 12AB(4)(b)(i) of the Act dated 21.03.2023 113-114 23. Copy of reply submitted on 28.03.2023 in response to notice dated 21.03.2023 115-132 24. Copy of notice issued u/s 12AB(4)(b)(i) of the Act dated 17.08.2023 133-136 25. Copy of reply submitted on 25.08.2023 in response to notice dated 17.08.2023 137-153 26. Copy of notice issued u/s 12AB(4)(b)(i) of the Act dated 11.09.2023 issued in case of Shri Vivek Agarwal 154-158 27. Copy of reply submitted on 12.09.2023 and 18.09.2023 in response to notice dated 11.09.2023 by Shri Vivek Agarwal 159-165 28. Copy of order passed for appointment of officer for conducting enquiry dated 15.09.2023. 166-167 29. Copy of replies submitted on 25.09.2023 in response to notice dated 17.08.2023 168-182 30. Copy of ITAT orders for AY 2010-11 and 2014-15 183-189 31. Copy of assessment order dated 12.09.2022 for AY 2020-21. 190-199 32. Copy of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g hit by sub-section (3) of section 115TD and becoming liable to tax on accreted income. The cancellation of registration without justifiable reasons may, therefore, cause additional hardship to an assessee institution due to attraction of tax-liability on accreted income. The field authorities are, therefore, advised not to cancel the registration of a charitable institution granted u/s 12AA just because the proviso to section 2(15) comes into play. The process for cancellation of registration is to be initiated strictly in accordangs with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. [Para 5] 10-11 GROUNDS FOR CANCELLATION OF REGISTRATION 3. CIT, CC v. A.S. Kupparaju Brothers Charitable Foundation Trust [2012] 17 taxmann.com 242 (Kar.) In deciding the genuineness of the trust what is to be seen is whether in terms of the objects set out in the trust deed whether the trust is carrying on its activities or not. If in the process of carrying on the trust activities, there is any misapplication of the property, misappropriation of funds that would not render the trust itself as non est. If the funds of the trust are misused, income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine. The Chief Commissioner has cancelled the registration on presumptions and assumptions without having proper material. Therefore, the order of the Chief Commissioner passed under section 12AA(3) is cancelled and the registration granted to the assessee is restored. Accordingly, appeal of the assessee is allowed. [Para 10.1] 27-46 6. Rajasthan Gau Sewa Sangh v. ITO, Ward 6(2), Jaipur [2015] 55 taxmann.com 465 (Jaipur-Trib.) The arguments of the assessee about the legislative scheme of provisions with regard to registration of trust under section 12AA, meaning of charitable object and power of withdrawal of registration under section 12AA(3) have some merit. The conclusion of order of the Commissioner in withdrawing the registration did not appear to conform to the specific conditions laid down in section 12AA(3). An order withdrawing the registration of trust is a drastic action and the law provides a statutory mechanism of assessment, verification of trust activities, and apportionment of income and expenditure of various activities of the trust. Benefits of sections 11 and 12 can be extended on the basis of scrutiny and verification by the Assessing Officer. The Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. [Para 20] 74-84 10. Indian Medical Trust v. PCIT, Jaipur [2019] 108 taxmann.com 93 (Rajasthan) Thus, it is more than clear that section 12AA(3), doesn't suggest or in any way contemplate that the registration of the assessee may be cancelled with retrospective effect. And therefore, this Court is of the view that the cancellation of registration can only be prospective. [Para 29] 85-114 SURPLUS IS NOT GROUND TO CHALLENGE GENUINENESS OF ACTIVITIES 11. Make the Future of Country Educational Society v. Ld. CIT, Rohtak [2012] 20 taxmann.com 586 (Delhi) From perusal of the order passed by the Commissioner, it nowhere reveals that which object is not charitable and how it is not charitable. Similarly, it is not ascertainable as to how the activities of the assessee are not genuine. The Assistant Commissioner has recommended for grant of registration to the assessee. The only reason assigned by the Joint Commissioner is that in assessment year 2008-09, society has shown surplus at 21.4 per cent over the gross receipts. A marginal surplus would not establish as to how the activities of the assessee could not be put to a test of genuineness, if there is surplus from the activities o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust is genuine one, i.e., the objects are genuine, if the activities are not genuine and the same not being carried on in accordance with the objects of the trust, this will offer a good ground for cancellation of registration. Thus in every case grant of registration as well as cancellation of registration rests on the satisfaction of the Commissioner on findings given on the parameters given in section 12AA(1) and 12AA(3), as the case may be. [Para 32] The revenue placed heavy reliance on the proviso to section 12AA(3) and submitted that when the assessee has received income from conduct of the matches, which are commercial in nature, the objects of the trust ceased to be charitable. It submitted that going by the definition of 'charitable purpose' under section 2(15) the Commissioner had rightly assumed jurisdiction under section 12AA(3) to cancel the registration. It further pointed out that for the finding to be recorded that the activities of the trust are not genuine, one must necessarily look into the objects of the association. If the objects of the association reveal commercial nature in the conduct of matches, the association cannot be one for charitable pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enuine. Admittedly, the students are being admitted every year. Students are studying in all courses. Thus the object of the constitution of the trust namely imparting of education is going on uninterruptedly. Therefore, it cannot be said that the activities of the trust are not being carried out in accordance with the objects of the trust. When the aforesaid two conditions are fully satisfied, on the ground that the trustees are misappropriating the funds of the trust the registration of the trust cannot be cancelled. If the trustees are misappropriating the funds, if they are maintaining false accounts, it is open to the authorities to deny the benefit under section 11, but that is not a ground for cancellation of registration itself. That is precisely what the Tribunal has held. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue. [Para 8] 174-178 CONDITIONAL REGISTRATION IS NOT VALID 16. Bai Navajbai Tata Zoroastrian Girls School v. CIT, Mumbai [ITA no. 2177/Mum/2021, Mumbai Trib., dated 29.07.2022] Learned Commissioner s guidance about the conduct of the assessee- which is what in substance, the conditions attached to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R of the assessee also submitted that the present order is based on the notice issued dated 03.03.2023 (APB-93-98) wherein the allegation was in two part first is that the assessee is in receipt of the money on which TDS u/s. 194C of the act were received as contract receipts for removal of solid waste and the same was considered as violative of provision of section 2(15) of the Act. The second part of the notice was that the assessee has advanced a sum of Rs. 2,25,68,932/- to the person covered u/s. 13(3) of the Act and the same was considered as diversion of funds for the benefit of the trustees. Thus, the notice no where suggested that the action of the PCIT is proposed to cancel the registration of the trust in a new law and that too retrospectively. He also pointed out that the preamble of the notice mentioned the section 12AB(4)(b)(i) of the Act but the same does not deal in the body of the notice issued to the assessee of any such violation which has been mentioned in the order of the cancellation and moreover, the show cause notice does not deal it to cancel it from retrospectively. Even the ld. CIT(E), through the ld. DR vide submission dated 29.01.2024 vide para 10 submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that in such situation the registration of the trust does not warrant the cancellation of the same, but may warrant the penalty or higher rate of tax on such income. The ld. AR of the assessee also vehemently and repeatedly argued that the reference was made by the ld. AO which is based on the old law, this fact is undisputed by recorded in the order of the ld. CIT(E). Again making those objections, making the basis to invoke the cancellation for which the action has already favored to the assessee vide ITAT order in ITA no. 163/JP/2012. As regards the impugned and alleged show cause notice deals the provision of section 12AA of the Act and not 12AB of the Act in the first part of the show cause notice and in the second part for violation of section 13(2)/13(3) there is no reference to invoke the provision of section 12AB and when this defaults already deal with the higher tax and penalty in the separate provision of the law the same cannot be made basis for rejection of the registration of the trust and that is for the second time. Thus, the entire order of the ld. CIT(E) is based on the reference made by the ld. AO in the old regime of the provision which has been subsequently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge based on the provision of section 115BBI 271AAE, in fact same has already been considered in the subsequent assessment year for A. Y. 2020-21. In that assessment year the benefit of the registration was given even though the case was selected under CASS for those two aspect which the ld. CIT(E) had undertaken. The transaction with the related parties has thus been given again a detailed investigation the same cannot be considered to deny the registration to the assessee trust. There is no finding in the order that the activities of the trust are not as per the trust deed which warrants rejection of the registration. The apex court has allowed that the if the activities are done at reasonable profit rate the same cannot violate the provision of section 11 12 of the Act. The registration of the trust was again granted to the trust under new regime vide registration dated 23.09.2021 (APB-88-90), that registration being in new law. The subsequent observation on business activities and benefit to the specified person also covered under the new law which does not warrant the rejection of the registration of the trust, as there is no reference by the ld. AO in the new regime. The juris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and not the business activity undertaken by the assessee. The activity is thus a business activity and not a charitable activity of the trust as the same is done with a motive of earning profit and there is no element of the charitable activity. The assessee as participated in the tender has to qualify for technical bidding and financial bidding. Not only that they are participating with the other parties enjoying the benefit of business and thereby not paying taxes under the guys of the trust activity. The ld. CIT(E) has categorically pointed out that the assessee is doing the business activity. The ld. CIT(E) also finds that there is irregularity in the cash payment to not identified person. The assessee failed to give the name of the person to whom the payment is made by the assessee. This analysis of the fact is detailed done and recorded in the order of cancellation registration by the ld. CIT(E). As observation from the payment sheet that thumb impressions seem to be forged and it was observed by him that there is repetition of thumb after every few counts. The assessee was called upon to produce the original payment sheet but were not produced by them. Thus, it is clear th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) says coming from the accumulated part of the property held in trust (c) says income from the property held expended for the welfare of the society. Thus, in the activity done by the assessee none of the condition is prescribed being satisfied the benefit cannot be given to the trust as all the activities of the trust are coming under the heard of profit and gains of business or profession. The assessee while doing the business activity has made the transaction of capital expenditure and that of the revenue with the specified persons itself are in volume suggest the assessee is doing business under the guise of the charitable activities. In the written submission vide para F the revenue has also argued as to the specified violation post 2022 whether there was an authority in the earlier regime or not. Based on that ld. DR supported the order of the ld. CIT(E). Since there was a specific reference from the ld. AO and the ld. AO has power to reference and not rejection based on that after passing the detailed order the ld. CIT(E) cancelled the registration of the assessee trust. The ld. DR referring the submission in para 7 submitted that the order under dispute is well speaking ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-compliance of any other law by virtue of section 12AA(4)(b) w.e.f 01.09.2019. Thus if we see, for the period of A.Y 2017-18, Act was having 6 cases for cancellation of registration under section 12A, two by virtue of 12AA(3) and 4 by virtue of 12AA(4) r.ws 13(1). And these 6 become 7 w.e.f 01.09.2019. 4. For the sake of brevity and clarity, it is being cleared that though section 12AB has been introduced in 1. T. Act w.e.f. 01.04.2021, and cancellation section namely 12AB(4) in present form has been introduced w.e.f from 01.4.2022, power of cancellation of 12A once granted was available with department atleast from 2004, though the scope of same and applicability of section has varied over the period of time. I am roughly covering the evolution of cancellation provisions over the period of time for better understanding of the issue, A. In pre 2004, there were no specific section/express provisions for withdrawal of 12A. B. Indian Parliament first time, by finance Aut, 2004 has inserted sub section 12AA(3) w.ef 01.10.2004, by which express power for withdrawal of registration were provided, if the activities of such trust/institution are not genuine or are not being carried out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)] : Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the expiry of one year from the end of the previous year in which such asset is acquired or the 31st day of March, 1993, whichever is later; (iii) any funds representing the profits and gains of business, being profits and gains of any previous year relevant to the assessment year commencing on the 1st day of April, 1984 or any subsequent assessment year. Explanation. Where the trust or institution has any other income in addition to profits and gains of business, the provisions of clause (iii) of this proviso shall not apply unless the trust or institution maintains separate books of account in respect of such business. Explanation. For the purposes of sub-clause (ii) of clause (c), in determining whether any part of the income or any property of any trust or institution is during the previous year used or applied, directly or indirectly, for the benefit of any person referred to in sub-section (3), in so far as such use or application relates to any period before the 1st day of July, 1972, no regard shall be had to the amendments made to this section by section 7 [other than sub-clause (ii) of clause (a) thereof] of the Finance Act, 1972. In short. 13(1) is applicable broadly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by which provisions of 12AA including 12AA(3) (4) were made inoperative and new provisions were enacted in name of 12AB. Where in 12AB(4) 12AB(5) has dealt with cancellation. 12AB(4), was analogous to section 12AA(3), and 12AB(5) was analogous to 12AA(4). So in this period also the conditions of cancellation remain same, except the change of section. F. By finance Act, 2022, w.e.f 01.04.2022, 12AB(4) (5) were again amended and section comes in present form and procedure for cancellation was streamlined. It is the first time that time barring date is brings in statute for cancellation cases, and procedure for reference from AO was also brought in statue during the assessment stage, and specified violation were defined. However, if we see closely, all of the specified violation were already part of 12AA(3) (4) and later on 12AB(4) (5), except clause (b), which was added newly in cancellation provisions expressly, however, same was always there in view of definition of charitable objects in section 2(15). Thus for better under standing I would like to compare each part of specified violation in new regime vis- -vis their position in pre 2022. Specified Violation post 2022 Whether such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. 5. Thus, the argument of assessee in para 6 is invalid and based on wrong interpretation, and prior to 12A8 too, by virtue of section 12AA(3) and 12AA(4) CIT was empower to cancel registration on seven different types of violation as given in para 4.(D) above. 6. Content in para 7 are partly correct regarding the insertion proviso below 143(3) we.f from, 01.04. 2022, which require A.O to make reference to CIT regarding specified violation during the pendency of assessment. However, if we analyse this insertion, along with new 12AB(4) proviso wef 01.04.2022 vis-a-vis position of cancellation and assessment procedure prior to 01.04.2022 either in 12AB(4) or under 12AA, it becomes clear that prior to 01.04.2022, the position was that A.O. need to find the violation of 13, make the assessment, deny the exemption, than would refer the case to CIT/PCIT, who in turn would cancel the registration under 12AA/12AB However, by considering the fact that cancellation is mainly comes under the Jurisdiction of CTT, position from 01.04.2022 was revered, that from 01.04.2022, . . would notice the specified violation and would send reference to CIT, and it is CIT, who would decide that violation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is important to reproduced the 12AB(4) (which has also been produced by assessee.:- 12AB(4) Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub-section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently, (a) the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or (b) the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year; or (c) such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner shall, (i) call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified violation; (ii) pass an order in writing, cancelling the registration of such trust or institution, after affording a reasonable opportunity of bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner or Commissioner, on or after the 1st day of April, 2022, calling for any document or information, or for making any inquiry, under clause (i) of sub-section (4).] If we see in the opening line, it clearly states that provisions of section 12AB(4) can be invoked subsequent to :- Granting of registration under clause (a) or clause (b) or clause (c) of sub- section (1) of 12AB...........Or..... clause (b) of sub-section (1) of section 12AA as the case may be, So, Assessee argument that 12AB(4) can be invoked only after granting registration under 12AB is wrong, as it also state that same can also be invoked after grant of 12AA (1)(b) i.e. prior to 01.04.2021. Thus 12AB(4) can well be initiate for any violation of assessee prior to 01.04.2021 too. 9. In para 13, assessee has stated that allegations in impugned reference not attained finality, thus impugned order based on such reference is premature. This argument of assessee is again baseless, 12AB(4), nowhere bind CIT to the order or A.O., infact. 12AB(4), clearly state that three conditions on which CIT can assume jurisdiction: a) CIT notice occurrence of any specified violation for any year. b) CIT receive reference from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is doing business in garb of charitable activities ii. Assessee is transferring money to related parties as advance, thus applying the income and properties of trust for personal benefits of trustees and its related persons. iii. Assessee is transferring money to related parties in garb of salary, rent and subcontracts. Though specific clause have not been mentioned in these notices, however, all the specified violations were enumerated with facts and figures. Now coming to the law, law do not prescribe issuing of show cause notice in this regard, 12AB(4), only prescribe to call for detail from assessee or conduct enquiry as deemed fit, and than pass order either cancelling the registration if specified violation is found or denying the-cancellation if specified vistation are not found. Thus this argument of assessee is also invalid. Further the case laws given by assessee are not at all related to fact and section on in this case, thus have no applicability 11. In para 18 to 23, assessee has taken the view that section 12AB is prospective and is effective only from A.Y. 2022-23, this argument of assessee is also invalid and without any basis and also do not hold correct on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawal was made by CIT-2, Jaipur for violation of proviso to section 2(15), and Hon'ble tribunal has rightly held that proviso to section 2(15) is applicable for assessment on year to year basis, and not a valid ground for cancellation of registration. It is further being emphasised, that this cancellation is not for proviso of 2(15), but for assessee doing business in garb of charity, assessee is having business income which is neither from property held under trust nor incidental to its objects, assessee not doing its activities as per the trust deed, assessee is utilising properties of trust for the benefit of persons covered under section 13(3) thus not applying the properties for the objects of trusts, assessee is shiphoning of money in cash as well cheque thus working non genuinely and using the properties of trusts not for the objects of trust. Thus this cancellation order is nowhere covered by order of Hon'ble tribunal made in 2013. 15. In para 34 to 36 assessee has claimed that order has been passed under 12AB(4)(b)(i) which is only for calling for information thus no cancellation can be effected by that clause. In this regard, it is humbly submitted that in this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alid and case is quashed only on technical ground of addition of clause (b)(i), would unnecessary create scope of another proceedings, and just to deter such duplicate proceedings where action is true and lawful in the light of provisions of act, the substance has to prevail over the form, and to this effect only 2928 has been taken in statue and has been applied by various Hon'ble Court. Encl: 1. Annexure 'A-Proposal received from A.O. 2. B-1,B-2 B-3-Letter Notices sent to assessee. 10. In the rejoinder the ld. AR of the assessee submitted that the change being the substantive and penal provision for cancellation it cannot apply retrospective. The basis made for cancellation is also covered by the legislative intention to be charged at higher tax and prescribed the levy of penalty and when there is specific provision to deal with particular situation no general provision be applied in the case of the assessee thus the provision applied by the revenue is not applied after 01.04.2021. Even the fresh registration has been given by the revenue to the assessee in the new regime. The object of the new regime to be seen and the observation of the old regime cannot applied in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 13(3) of the Act and thus, there is diversion of fund. The assessee also made contract payment to various other parties / concerns referred to in section 13(3) of the Act. Thus, three issues were pointed out by the ld. AO: a) the assessee is doing business in the grab of charitable activities. b) the assessee is transferring money to related parties as advance, thus applying the income and properties of trust for personal benefits of trustees and its related persons. c) Assessee is transferring money to related parties in grab of salary, rent and subcontracts. The bench noted that for the issue of doing the business in the grab of charitable activities the same has been disputed by the revenue and in that case the decision of the co-ordinate bench in ITA no. 163/JP/2012 wherein the bench held that- 5. Heard parties with reference to material on record. The provisions of section 12AA(3) of the IT Act, which are relevant to the issue are reproduced as under :- (3) Where a trust or an institution has been granted registration under clause (b) of sub section (1) (or has obtained registration at any time under section 12A (as it stood before its amendment by the Finance (No.2) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be initiated strictly in accordance with the section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions. Thus, on the issue of the doing business by the assessee the finding is already recorded by the bench in the case of the assessee and the same reached finality. The apex court on such repeated issue noted in the case of Parashuram Pottery Works Co. Ltd Vs ITO [ 1977] 106 ITR 1 at page 10 At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity . Even the apex court also held on the rule of consistency in the case of Radha Soami Satsang v. CIT (1991) 11 TMI 2 observed that; We are aware of the fact that, strictly speaking, res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness and profession at par with other entities, and also applying the properties and income of trust for the benefit of trustees and its related parties, and also siphoning off money by booking non genuine expenditure, it is clear that assessee has done specified violation namely clause (a), (b) (e), of explanation to section 12AB(4), as well as violation of 12AA(3) (the earlier clause), thus ils registration is liable to be cancelled. 12. Though assessee is doing the activities beyond its objects since 2009, when it undertook the first contract, and applied money of trust for personal benefits of trustees atleast from F.Y. 2015-16, however, as these proceedings were initiated in response to proposal from A.O. for A.Y. 2017-18, thus registration of trust is being cancelled w.e.f A.Y 2017-18 and subsequent years. As assessee has received registration in new regime under section 12A(1)(ac)(i), based on earlier certificate. As same has been cancelled thus assessee s new registration dated 23.09.2021 is also being cancelled. URN number issued to assessee AAAAC0873CE20217 is also being cancelled. 12.1 As the order under challenge is related to the provision of section 12AA of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or property of the trust is applied for benefit of specified persons like author of trust, trustees etc.; or (iv) its funds are invested in prohibited modes, then the Principal Commissioner or the Commissioner may cancel the registration if such trust or institution does not prove that there was a reasonable cause for the activities to be carried out in the above manner. This amendment will take effect from 1st October 2014. 12.2 The ld. CIT(E) has already noted that though the reference of the ld. AO was in that section 12AA of the Act, but that provision of the Act becomes inoperative before any order was passed by the ld. CIT(E) and that proceedings becomes null and void. There after the provision of section 12AB becomes operative w.e.f. 01.04.2022 and ld. CIT(E) noted that there was no time barring for 12AA(3) proceedings for cancellation of registration but the amended provision of section 12AB made time barred such proceeding upon 6 months from the end of the quarter in which first notice u/s. 12AB(4) is issued. Since the proceeding in the case of the assessee u/s. 12AA(3) already lapsed without passing any order and considering the new provision of law a fresh notice was iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation for the trusts or institution referred u/s 11 of the Act. As it is clear from the facts recorded that the ld.CIT(E), Jaipur has initiated the impugned proceedings of cancellation of registration based on the reference received from ld. DCIT(E), Jaipur dated 06.02.2020 as evident from the Impugned Order itself i.e passed u/s 12AB(4)(b)(i) of the Act. As per the amended provision of section 12AB(4) of the Act, reference has to be after granting of the registration u/s 12AB(1)(a) as evident from the bare reading of the provision itself which states subsequently, if there is reference by Ld. AO, then only the Ld. PCIT/CIT can proceed further. Admittedly in the present case, there is no such reference after granting registration on 23.09.2021. Thus, when the provision for making the reference was inserted in law w.e.f. 01.04.2022 and when at the time of impugned reference, there was even no provision for making such reference under the 2nd proviso to section 143(3) of the Act for the trusts and institution referred under section 11 of the Act. Therefore, the reference itself is without the authority of any statutory provisions and there was no fresh reference by the ld. AO. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment to the law effected subsequently. We derive support to reach to this conclusion from the decision of the Hon ble Rajasthan High Court in the case of Indian Medical Trust v. PCIT [2019] 108 taxmann.com 93 (Rajasthan) where it has been held that: Indisputably, the order dated 16th Jan, 2018, made by the Commissioner of Income Tax thereby canceling the registration granted under section 12A and withdrawing the approval given under section 10 (23C) (v) 10 (23A) (via) of the Act of 1961, to the petitioner Trust with retrospective effect from the date of 01st April, 2006, was arbitrary in the face of the provisions of the Act of 1961; and therefore, cannot be deemed to be in consonance with any possible interpretation to be valid or legal. This court is of the opinion that the provisions of section 12AA (3) of the Act of 1961, empowers the Commissioner of Income Tax to initiate steps for cancellation of the registration of a Trust, but, the legislation had no intention of giving the said provision, a retrospective effect. For in such a situation, the same would have been clearly specified in the said provision. Interpretation of the said provision has to be harmonious rather tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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