Vocational Education Foundation Vs CIT (ITAT Delhi)
Delhi ITAT: 12AB Registration Cannot Be Cancelled Merely Because Educational Trust Engaged Builder for Staff Housing Project
The Delhi ITAT quashed the order cancelling the registration of an educational trust under section 12AB(4), holding that engaging a private builder to develop a staff housing project did not amount to a specified violation warranting cancellation of registration, particularly when there was no evidence of commercial profiteering or deviation from the trust’s charitable objects.
The assessee, an educational society running IEC College of Engineering and Technology, had acquired land from the Greater Noida Industrial Development Authority (GNIDA) under a scheme meant for residential accommodation of employees and staff. Owing to financial constraints and lack of construction expertise, it entered into a turnkey development agreement with a private builder for construction of the housing project, while retaining only the right to recover its land cost and statutory charges without any share in the project’s profits.
The CIT (Exemption) cancelled the trust’s registration alleging that the housing project constituted a commercial activity, that flats had been sold beyond the trust’s objects, and that attachment of the project by the Enforcement Directorate in connection with the Bike Bot Scam indicated violation of other laws attracting section 12AB(4).
The Tribunal found that the trust’s primary activity of imparting education had never been questioned and that the housing project itself was authorised by the trust’s objects and by the GNIDA allotment conditions, which contemplated residential accommodation for members, employees and beneficiaries. It further noted that the trust did not undertake construction itself, earned no profit from the project, and merely acted as a facilitator, with the builder responsible for construction, marketing, collection of sale proceeds and project execution.
The ITAT also observed that the Revenue failed to conduct any enquiry with the allottees or GNIDA to establish that flats had been allotted to persons not entitled under the lease conditions or that the trust had received any amount beyond reimbursement of the land cost. Mere inferences that the builder earned profits or that the project was commercially exploited could not justify cancellation of registration.
As regards the Enforcement Directorate proceedings, the Tribunal held that they were directed against the builder and its promoters, not the assessee-trust, and there was no material to show that the trust had violated any law or participated in the alleged offences. Therefore, the conditions constituting a “specified violation” under section 12AB(4) were not satisfied.
Accordingly, the ITAT held that the cancellation of registration was based on presumptions rather than evidence, quashed the order passed under section 12AB(4), restored the trust’s registration, and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is preferred by the assessee against the order dated 26.09.2025 of the Ld. Commissioner of Income Tax (Exemption) Lucknow,(hereinafter referred as ‘Competent Authority’) against the cancellation of registration u/s 12A(1)(ac)(i) of the Act.
2. Heard and perused the records. The assessee society is registered under the Society Registration Act, 1960 since 25.04.1989. It has been regular registered under the Income Tax Act and exemption under section 11 of the Act has all along been granted. It is claimed that from the beginning, the assessee society is running an educational institute under the name IEC College of Engineering and Technology, imparting education to students in the field of Engineering, MBA, Pharmacy, Hotel Management etc. at Greater Noida, Uttar Pradesh. The educational institute is recognized by AICTE.
2.1 The present dispute has arisen out of allotment of a plot of land in September 2004 by the Greater Noida Industrial Development Authority (“GNIDA”) vide allotment letter dated 23.09.2004, copy of which is placed at PB Pg. 136.This allotment was made in response to the applications invited by the GNIDA as per the terms and conditions stated therein placed at PB Pg. 195-210. The eligibility in respect of allotment of land was to institutions/organizations that are functioning in Greater Noida as on 01.12.2003 for their staff housing or group housing society of their employees. The relevant clause (b) is on PB pg. 197.
2.2 It is claimed that the assessee society applied for the allotment considering the issue of retaining their employees, teaching staff and members. The lack of efficient connectivity to Greater Noida was making it difficult for the society to maintain a stable work force, as employees struggle with long commute hours and limited transportation option available at that time. The objective was to provide affordable and convenient housing options that will not only improve living conditions of the employees, but also helps organization to retain its employees.
2.3 It is submitted for the assessee that the total consideration for allotment of the plot was fixed at Rs. 2.89 crore. The assessee deposited a sum of Rs.1,53,82, 148/- up to Financial Year 2005-06 and the same stood reflected in the books of account of the assessee under the fixed assets schedule, attached at PB pg. 139. However, due to shortage of funds and financial constraints, the assessee could not deposit the balance amount within the stipulated time and consequently GNIDA cancelled the allotment vide order dated 18.09.2006 and forfeited the amount deposited by the assessee. Against the said cancellation, the assessee filed Writ Petition No. 57964 of 2006 before the Hon’ble Allahabad High Court. The Hon’ble High Court vide order dated 26.04.2007 set aside the cancellation order passed by GNIDA and directed execution of the lease deed in favour of the assessee. Pursuant thereto, the assessee deposited the balance consideration amount and lease deed in respect of the aforesaid plot was executed on 06.12.2007. (PB pg. 140-151). Possession of the plot was thereafter handed over to the assessee on 12.12.2007. (PB pg. 152).
2.4 It is claimed that as per the terms of the lease deed, the housing project was required to be completed within the prescribed period and admittedly the assessee was permitted to transfer or convey dwelling units only to duly enrolled members of the society belonging to the same group, whose names had already been communicated to GNIDA at the time of execution of the lease deed. Thus, admittedly the very allotment and lease conditions itself contemplated development of residential accommodation for members/staff of the assessee society and not for any commercial exploitation or sale to outsiders.
2.5 It is claimed that, however, as the assessee society had no prior experience or technical expertise in the field of construction and development of residential housing projects, the project could not be undertaken by the assessee on its own. Accordingly, with the object of expediting the development and completion of the housing project, the assessee entered into an agreement dated 02.04.2012 (PB pg.153-163) with M/s Noble Buildtech Private Limited, whereby thesaid concern M/s Noble Buildtech Private Limited was appointed as contractor for development and construction of the group housing project on turnkey basis and under the agreement, the assessee provided the land for development of the project whereas the contractor was entrusted with the responsibility of undertaking all construction and development activities including obtaining approvals, appointment of architects and contractors, supervision of construction, liaison with authorities, sale of units to prospective allottees, collection of sale proceeds and compliance with statutory requirements. As per the terms of the agreement, the assessee was only entitled to recover its costs incurred towards acquisition of land and statutory charges paid to GNIDA and other authorities and no profit whatsoever was to accrue to the assessee from sale of flats. The entire development activity and management of the project remained with the contractor and the project was executed on turnkey basis.(Clause 7 of the agreement on PB pg. 157). In terms of the aforesaid arrangement, a separate bank account in the name of”VEF White House Apartment” was opened for the purposes of the project. The said account was operated by persons associated with the contractor and all receipts from allottees and payments relating to the housing project were handled and managed by the contractor itself.
2.6 Subsequently, disputes arose on account of failure of the contractor (M/s Noble Buildtech Private Limited) to complete the project within the stipulated period, resulting in complaints by home buyers and allottees. In this regard, a Memorandum of Understanding dated 25.06.2019 (PB pg. 164 168) was executed between the assessee and the contractor, wherein the promoter of the contractor company, namely Mr. V.K. Sharma, undertook to resolve grievances of the allottees and complete the pending obligations. Thereafter, various investigating agencies initiated proceedings against Mr. V.K. Sharma and M/s Noble Buildtech Private Limited in connection with the alleged “Bike Bot Scam”, which had no relation whatsoever with the educational activities of the assessee society. Consequent to the said investigations, properties associated with the contractor, including the housing project land, came to be attached under the provisions of the Prevention of Money Laundering Act.
2.7 It is pointed out that the assessee has throughout claimed exemption under sections 11 and 12 of the Act solely in respect of its educational activities carried on through IEC College of Engineering and Technology and no exemption has ever been claimed in relation to any alleged income from the housing project. The assessee had claimed application of income only in respect of acquisition of land at the time of purchase and no claim of application of income towards construction or development of the housing project was made in subsequent years. The assessee has continuously been carrying on the charitable activity of imparting education since inception and exemption under section 11 of the Act has regularly been allowed in preceding years.
3. Now, during the course of assessment proceedings for AY 2023-24, the assessing officer exercised its powers u/s 12AB(4) of the Act and reported to the Id. CIT(E) on 15.03.2025, of the specified violations found during the assessment. Thereafter, the Id. CIT(E) has issued various notices, which the assessee has duly replied from time to time. However, the Id. CIT(E) vide impugned order dated 26.09.2025 has cancelled the registration of the assessee, citing primarily three allegations and for same on behalf of assessee during the hearing before the bench and in written submissions, following contentions were made;
“I. Allegation regarding activities being “not genuine”
8. The first allegation levelled by the Id. CIT(E) is with regard to alleged violation of clause (e)(i) of Explanation to section 12AB(4) of the Act, namely that the activities of the assessee society are “not genuine”. The finding recorded by the Id. CIT(E) is wholly misconceived and contrary to the material available on record.
9. It is respectfully submitted that the primary and predominant activity carried on by the assessee society since inception is imparting education through IEC College of Engineering and Technology at Greater Noida. The educational activities of the assessee society have never been doubted by the CIT(E) at any stage. There is no adverse finding whatsoever in the impugned order regarding the educational activities being carried on by the assessee society and even the Id. CIT(E) has nowhere alleged that the assessee society is not carrying on genuine educational activities.
10. The entire adverse inference drawn by the Id. CIT(E) pertains only to the plot of land allotted by GNIDA for residential accommodation of employees and staff members. As explained hereinabove, the assessee society had merely acquired the land from GNIDA for the welfare and residential accommodation of its employees and members and thereafter, due to lack of technical expertise and financial capability, entered into a turnkey agreement with M/s Noble Buildtech Private Limited for development of the housing project.
11. It is important to submit that the assessee society itself has neither undertaken any construction activity nor carried on any independent business or commercial activity. The role of the assessee society was limited to providing the land and recovering the amount incurred towards acquisition of land and statutory charges paid to GNIDA and other authorities. The entire construction, development, marketing, allotment and collection activities were undertaken by the contractor independently under the agreement dated 02.04.2012.
12. Further, as per clause 7 of the agreement dated 02.04.2012 placed at PB Pg. 157, the assessee society was only entitled to recover its costs incurred towards acquisition of land and statutory fees etc. and no profit whatsoever was to accrue to the assessee society from the project. Thus, there was absolutely no commercial or profit-making element in the arrangement entered into by the assessee society.
13. It is further evident from the financial statements of the assessee society that except for the amount paid to GNIDA towards acquisition of land between Financial Years 2004 to 2007, no independent expenditure has been incurred by the assessee society for construction or development of the project. The assessee society has not carried out any development activity on its own and no income or profit from the project has ever been claimed exempt under sections 11 and 12 of the Act.
14. The assessee society has throughout claimed exemption under sections 11 and 12 only in respect of its educational activities and not in relation to the housing project. In fact, after acquisition of land, no claim of application of income towards construction or development of the housing project was made by the assessee society in subsequent years.
15. In these facts and circumstances, the allegation of the Id. CIT(E) that the activities of the assessee society are “not genuine” is factually incorrect and contrary to the record.
II. Allegation regarding construction and allotment of flats
16. The second allegation raised by the Id. CIT(E) is with regard to alleged violation of clause (e)(i) of Explanation to section 12AB(4) of the Act, namely that the activities carried on by the assessee society are not being undertaken in accordance with the conditions subject to which registration was granted. The CIT(E) alleged that the assessee society was not entitled to sell or allot flats and that the activity undertaken by the assessee falls outside its objects. The said allegation is based on complete misunderstanding of facts as well as the terms and conditions of allotment made by GNIDA.
17. It is submitted that the land in question was allotted by GNIDA specifically under the Group Housing Scheme meant for institutions and organizations functioning in Greater Noida for residential accommodation of their employees and staff members. The allotment itself contemplated construction of residential units for members and employees of the institution. [PB pg. 197, clause (b)]
18. Further, the lease deed (PB pg. 141, point 2) itself specifically provided that dwelling units could be transferred only to duly enrolled members of the society belonging to the same group and whose names had already been communicated to GNIDA. Thus, the very scheme of allotment and lease conditions recognized development of residential accommodation for employees, members and associated persons of the assessee society and not for commercial exploitation by outsiders.
19. The Id. CIT(E) has failed to appreciate that the assessee society was not engaged in any independent commercial venture. The assessee society had already invested substantial amounts towards acquisition of land from GNIDA and due to shortage of funds and lack ot expertise, it had no practical option except either to forfeit the entire investment or to facilitate completion of the project through a contractor for benefit of its employees and members.
20. The agreement entered into with M/s Noble Buildtech Private Limited was thus only for development of residential accommodation for employees and members of the assessee society. The assessee society was not entitled to any share in profits and was only to recover the amount already incurred towards acquisition of land and statutory dues.
21. Accordingly, the finding of the Id. CIT(E) that the assessee society has carried on activities beyond its objects or engaged in commercial activity is wholly erroneous and unsupported by facts on record.
III. Allegation regarding violation of other laws / PMLA
22. The third allegation raised by the Id. CIT(E) is with regard to alleged violation of clause (f) of Explanation to section 12AB(4) of the Act, namely that the assessee society has allegedly violated provisions of other laws which are material for the purposes of achieving its objects. The said allegation has been made solely on the basis of proceedings initiated by the Enforcement Directorate under the Prevention of Money Laundering Act, 2002 (“PMLA”). However, the said allegation is entirely misconceived, factually incorrect and contrary to the material available on record.
23. It is respectfully submitted that there is absolutely no allegation whatsoever by the Enforcement Directorate against the assessee society. The proceedings initiated by the Enforcement Directorate are against Mr. V.K. Sharma and M/s Noble Buildtech Private Limited in connection with the alleged “Bike Bot Scam”. The allegations made therein relate to alleged diversion and utilization of funds by the contractor company and its promoters and not against the assessee society.
24. In fact, even the Enforcement Directorate itself has categorically acknowledged that the assessee society was not involved in any alleged wrongdoing and the name of the assessee society appeared only because the land on which the project was being constructed stood in the name of the assessee society.
25. The attachment proceedings under MLA are thus in respect of alleged acts of the contractor and not in relation to any activity carried on by the assessee society. There is no allegation anywhere that the assessee society had indulged in money laundering, diversion of funds or violation of any law.
26. It is pertinent to point out that the assessee society has not challenged the attachment proceedings initiated by the Enforcement Directorate only because the Enforcement Directorate itself has nowhere attributed any wrongdoing to the assessee society. The attachment was merely consequential since the land legally stood in the name of the assessee society.
27. In these circumstances, the observation of the Id. CIT(E) that the assessee society has violated provisions of other laws is wholly incorrect, unsupported by evidence and contrary to the findings recorded by the Enforcement Directorate itself.
28. In view of the aforesaid facts, it is respectfully submitted that none of the conditions prescribed under section 12AB(4) of the Act are satisfied in the present case. The assessee society has throughout been carrying on genuine educational activities and there is no adverse finding whatsoever regarding the same. The entire dispute pertains to a housing project undertaken through an independent contractor for residential accommodation of employees and members, wherein the assessee society had no profit motive or commercial involvement.
29. It is therefore respectfully submitted that the Id. CIT(E) has erred both on facts and in law in cancelling the registration of the assessee society under section 12AB(4) of the Act. The impugned order deserves to be quashed and the registration granted to the assessee society under sections 12A/12AB of the Act deserves to be restored.”
5. Ld. DR has however relied the observations of ld. CIT(E) in the order to contended that assessee had entered into commercial venture of construction of flats and selling them, thus specified violation is duly established and there is no error in the conclusions of ld. CIT(E).
6. As for convenience we first reproduce here the grounds of appeal, as on behalf of assessee, all contentions were made only on merits of the sustainability of alleged specified violation, and not on any other, thus considering same to be not pressed;
“1. On the facts and in the circumstances of the case, the order passed by the learned Commissioner of Income Tax (Exemptions), Lucknow [CIT(E)] under section 12AB(4)(ii) of the Income Tax Act, 1961 (“the Act”) cancelling the registration granted to the assessee under section 12A(1)(ac)(i) of the Act is invalid, illegal, without jurisdiction, and liable to be quashed.
2. On the facts and circumstances of the case, the learned CIT(E) has been erred both on facts and in law in cancelling the registration of the trust granted under section 12A (1)(ac)(i) of the Act, despite the fact the assessee trust has fulfilled all the statutory conditions prescribed under the Act and is, therefore, eligible for registration.
3. On the facts and in the circumstances of the case, the learned CIT(E) has erred in cancelling the registration granted under section 12A(1)(ac)(i) of the Act, despite the fact that there is no adverse finding regarding the aims, objects and genuineness of activities of the assessee trust and hence the cancellation of registration is unjustified andunsustainable.
4. On the facts and circumstances of the case, the learned CIT(E) has been erred both on facts and in law in cancelling the registration of the assessee trust despite the fact that income derived by the assessee has been applied for the charitable purposes only and no adverse observation has been made by the Assessing officer (AO) as well as CIT(E) in respect of such application of income.
5. On the facts and circumstances of the case, the learned CITE) has erred both on facts and in law in cancelling the registration despite the fact that assessee has not committed any specific violation as defined under Explanation to sub-section (4) of section 12AB of the Act and therefore the cancellation order passed by the learned CIT(E) under section 12AB(4)(ii) of the Act is invalid, illegal and liable to be quashed.
6. On the facts and circumstances of the case, the learned CIT(E) has erred both on facts and in law in cancelling the registration despite the that the reference made by the AO under second proviso to sub-section (3) of section 143(3) is itself is illegal, invalid and unsustainable.
7. On the facts and circumstances of the case, the learned CIT(E) has erred both on facts and in law in cancelling the registration despite the fact that no valid satisfaction has been recorded by the AO in respect of alleged specified violation as defined in Explanation tosub-section (4) of section 12AB of the Act and in the absence of the same, the reference made by the AO is invalid, non-est and contrary to the provisions of the law.
8. On the facts and circumstances of the case, the learned CIT(E) has erred both on facts and in law in cancelling the registration despite the fact that the reference was made by the Assessing Officer without affording any opportunity of being heard to the assessee and without issuing any show cause notice in this regard, thereby violating the principles of natural justice.
9.(i) On the facts and circumstances of the case, the learned CIT(E) has erred both on facts and in law in holding that activities conducted by the assessee are not in accordance of conditions subject to which the registration was granted under section 12A of the Act and accordingly, cancelling the registration under clause (e)i) of Explanation to sub-section (4) of section 12AB of the Act.
(ii) That the abovesaid allegation made by the AO is invalid, arbitrary, unjust and contrary to the facts on record and has been made without proper application of mind.
10. On the facts and circumstances of the case, the learned CIT(E) has erred both on facts and in law in passing the order rejecting the detailed submissions, explanation and evidences furnished by the assessee to establish that its activities are genuine and are carried out in accordance with all the conditions subject to which the registration was granted, hence, the provisions of clause (e)i) and clause(e)i) of the Explanation to section 12AB(4) are not attracted.
11 (i) On the facts and circumstances of the case, the learned CIT(E) has erred both on facts and in law in passing the order rejecting the contention of the assessee that the activities carried out by it have already been examined during the assessment proceedings of preceding assessment years by the Assessing officer and no adverse inference has been done in those assessment years.
(ii) That the Ld. CIT(E) has erred in disregarding the principle of consistency, when there is no change in the facts or circumstances of the case.
12.(i) On the facts and circumstances of the case, the learned CIT(E) has erred in passing the order holding that assessee trust has committed a specified violation covered under clause(f) of explanation to sub-section (4) of section 12AB of the Act.
(ii) That the CIT(E) has erred in making the above allegation disregarding the contention of the assessee that it has not violated any requirement of any other law as referred to in item(B) of sub-clause (i) of Clause (b) of sub-section (1) of section 12AB of the Act. Hence, the said finding is arbitrary, illegal, and contrary to the facts on record.
13. On the facts and circumstances of the case, the learned CIT (E) has erred both on facts and in law in passing the order merely on the basis of surmises and conjectures and without bringing on record any cogent evidence against the assessee.
14.(i) Without prejudice to the above, the learned CIT(E) has erred both on facts and in law in ignoring the contention of the assessee that alleged activities are incidental to the attainment of objects of the trust and that all conditions prescribed under section 11(4A) of the Act have been duly complied with.
(ii) That the Ld. CIT(E) has erred both on facts and in law in rejecting the detailed submission and explanations furnished by the assessee in this regard.
15. That the assessee craves leave to add, amend or alter any of the grounds of appeal.”
7. Thus the core controversy is if on the facts and circumstances of the case, the learned CITE) has erred both on facts and in law in cancelling the registration despite the fact that assessee has not committed any specific violation as defined under Explanation to sub-section (4) of section 12AB of the Act and therefore the cancellation order passed by the learned CIT(E) under section 12AB(4)(ii) of the Act is invalid, illegal and liable to be quashed.
8. In context to the grounds, if we take into consideration the impugned order dated 29.06.2025 we find that ld. CIT(E) has reproduced in para 2 the report of assessing officer which became basis of cancellation and it is this part which was heavily relied by ld. DR and the same indicates that AO also accepted that flats were being build up for the staff and their family members, however, he alleges it to be activity beyond object. It appears from the information which was relied by the la. AO, that AO had taken into consideration the Enforcement Directorate proceeding of provisional attachment order dated 04.10.2021 against one of the properties “White House”, to arrive to this conclusion. Ld. CIT(E) reproduces the submissions of assesse and thereupon in para 12 at page 58 proceeds to determine the issue involved and concludes that though assesse has within its memorandum of objects as “To acquire or develop any land either on its own or through outside society for development of residential complex or for any similar purpose for its members, associates, employees or beneficiaries” to allege that the constructed premises cannot be sold out to any person who is not member, associate, employee or beneficiaries. Thus, the whole case of ld. AO is on this allegation that if constructed houses are sold to employees or to those persons who are not employees then that would be lead to an activity of construction of house through builder agreement and selling them which was not the purpose for which assesse society was established and thus, it was considered to be covered as a specified violation in clause (e)(ii) of Explanation to sub-section (4) of Section 12AB. Then, the ld. CIT(E) has observed that this activity of selling house cannot even be considered to be covered under sub-section (4A) of Section 11. Ld. CIT(E) also concluded that providing valuable land acquired through funds of trust to a private builder for earing huge profits through construction and sales of flats remains doubtful activity which was neither very transparent nor it can be said to be genuine activity of trust and thus, it is covered in specified violation under clause (e)(i) of Explanation to subsection (4) of Section 12AB. Ld. CIT(E) has then considered assesse to be engaged in criminal activities as there was provisional attachment order of Enforcement Directorate thereby leading to specified violation covered under clause (f) of Explanation to subsection (4) of Section 12AB.
9. Now what is material is that before ld. CIT(E) assesse was issued a notice content of which are available at page No. 16 in para 7 of the impugned order and the relevant queries for the issue of allegedly selling flats beyond the object of society ld. CIT(E) had raised query No. 5 to 9 which we reproduce and for convenience discussion:
5.(i) Please inform as to whether the assessee society, the owner of the land was not a party signing the agreement made by the M/s Noble Buildtech Pvt. Limited with the prospective buyers, as well sale deed executed with the respective buyers (allottees).
(ii) Please furnish copies of 5 sample of agreement made by the M/s Noble Buildtech Pvt., Limited with the prospective buyers (allottees) along with the letters of allotment, and copies of sale deeds.
(iii). Please furnish a list of buyers(allottees) of such houses constructed by M/s Noble Buildtech Pvt. Limited.
6. Please inform, whether, there was any buyer(allottee), which fall in the category of persons who are specified persons (in respect of assessee society) as per the provisions of section 13(3) of the I.T. Act 1961.
7. Please inform whether any discounts/subsidized rates were offered to the employees of the society.
8. Please furnish copy of the order of the adjudicating authority confirming the Provisional Attachment Order by Enforcement Directorate, Lucknow vide (PAO) No.12/2021 dated 04.10.2021 against the property “WHITE HOUSE. Please also inform, whether this order has been disputed by the assessee society and if so, the final outcome of the proceedings/current status of such proceedings.
9. Please Furnish explanation on the following:
a. Considering the aims and objects of the assessee society (as mentioned in reply dated 17.04.2025) how the activity of constructing houses through builder agreement and selling them is treated as a charitable activity and why not it is treated as an activity covered under clause (e) (i) and (e)(ii) of explanation to subsection (4) of section 12AB.
b. Why not the act of confirming the Provisional Attachment Order filed by Enforcement Directorate, Lucknow vide (PAO) No. 12/2021 dated 04.10.2021 against the property “WHITE HOUSE” by the adjudicating authority is treated as specified violation covered under clause (f) of explanation to subsection (4) of section 12AB…”
10. We find that these queries were very specifically addressed on behalf of the assesse and which form the key argument of the assesse as reproduced above. However, for completeness the relevant part of the submissions of the assesse are reproduced below:
“5. Reply to point No.5 SCN dated 05-8-25
i. The Assessee was one of the Party to sign the allotment letters to the allottees, since the owner of the plot on which the flats were built was owned by the Assessee. However, all the decisions regarding the allotment were made by the Contractor.
ii. One sample agreement with for the allotment of flat, signed by the Assessee is attached and as all the Agreements and other records have been kept by the Contractor.
iii. The Assessee does not have any list of the Allottees of the flat. However, a list of Allottees has been made available to the Assessee by the ED as part of the Relied Upon Documents (RUD) which was filed with the ED by the Contractor and the same is attached as Annexure-10. On going through the list it was observed that the Contractor had made 281 allotments in the total of 5 Towers which he had constructed. Most of the Allotments were done in the FY 2013-14 to 2015-16. On physical verification by the Assessee it has been observed that the Tower No.1 to 3 are complete and the allottees have started living, whereas only super-structure of Tower No. 4 has been completed and finishing is pending. As regards Tower No. 5 only basement has been constructed and no further work has been done by the Contractor since 2020.
iv. It is to be noted that the Assessee neither had any control over the money paid by the Allottees to the Contractor nor had any accounts from the Contractor as to how the money has been spent by the Contractor.
6. Reply to point No.6. SCN dated 05-8-15
None of the Allottees is a person as specified in section 13(3) of the Act.
7. Reply to point No.7 SCN dated 03-8-25
As already informed that all the flats were constructed on a Turn-Key basis by the Contractor and the Assessee had no control over the discounts/ subsidy offered to any member or person by the Contractor.”
11. Now the basis of aforesaid discussion it becomes apparent that there is no dispute of the fact that assesse had once of its object in pursuance of which the assesse was found entitled to allotment of land by GNIDA. The allottee in respect of allotment of land was to institutions/organizations that are in Greater Noida for their staff house or group housing society for their employees. It comes up from the material on record in the form of lease deed by which assesse had acquired interest in the land that land was given on lease on the basis that the dwellings shall be given to only those persons whose name is in the list of members communicated to GNIDA on the date of execution lease. The clause II specifically mentioned that such first transfer would however be only after prior approval of Chief Executive Officer, Greater Noida Authority. Next clause V mentioned that subsequent transfer of allotted lease land plot/flat shall be governed by the rules of Transfer of Society. There was restriction that the residential premises would only be alleged to members who do not own any full or in part of leasehold based any residential plot/house/flat in the Greater Noida Industrial Development Area.
12. The copy of this lease deed at page No. 140 and 151 when considered as a whole establishes that the assesse as lesser was only allowed to let the properties conveyed to only members of the society duly enrolled date of lease a copy of which was provided to the society. There is nothing on record nor there is any inquiry by the AO to show that any person who was not a member, associate, employee or a beneficiary of the society as per its memorandum of object was otherwise an original allottee.
13. In this context, it is pertinent to observe that in the reply filed by assesse it was specifically mentioned that in consequent to the collaboration agreement with M/s Noble Buildtech LLP the builder alone was given authority to sell the dwellings and a copy of the agreement available at page No. 153-163 of the paper book would show that it mentions that society has already provided list of members etc. to GNIDA at the time of approval of building plan etc. This agreement mentions that mode of allotment of the dwelling and for convenience we reproduce the same:
“9. FORMATION OF A COMMITTEE:
For smooth implementation of the construction of the Group Housing Project, a Committee is formed to monitor, supervise and oversee the day to day progress of the Project. It shall comprise of three members. Committee is empowered to deal with the Contractor, approve payments, approve price escalations, if any, and do all such acts as may be necessary for completion of the Project. The Committee shall take timely decisions with regard to construction, booking for sale of flats, price determination, revision of sale price, collection of sale price, operation of bank account, payment to Contractor, sub-contractors, Vendors etc. as may be required from time to time for successful implementation of the Project. The Contractor shall deal exclusively with the Committee on all matters relating to the Project, and for this purpose the Committee shall be the exclusive representative of the Society. All decisions of the Committee on any matter relating to the Project shall be binding upon the Society at all times.
10. BOOKING AND SALE OF FLATS
As the Society is a non-profit organization, the Authority has allotted the said plot of land to the Society on the specific condition that it shall construct Flats and sell and transfer the same to the Members/Allottees, who fulfill the eligibility conditions as mentioned in the Lease Deed. The Society will scrutinize the applications of the members/Allottees received by it and make final list of Allottees for the allotment of the flats in the Project. The Society will receive all sale proceeds in the name of “VEF A/c White House Apartments.”
14. The agreement further provides that in case of delay in completion of construction the members/allottees/society shall be entitled to either to claim specific performance or to terminate the agreement and claim damages (clause 16). The agreement makes provision by way of clause 18 that upon receipt of completion and occupation certificate from the authorities the society which was give a notice to the members/allottee for handing over the possession of the flats to the respective members/allottees who have paid the full sale consideration as per the payment plan opted by them. Clause 19 provide for transfer of title of the flats to the purchaser and being relevant is reproduced below:
“19. TRANSFER OF TITLE OF THE FLATS TO THE PURCHASER
On completion of the project, and upon handing over possession, the Society will communicate the final list of allottees to Greater Noida Authority for the purposes of execution and registration of Sub-Lease Deed in favour of the prospective buyers. The Contractor will make arrangement for completion of all these formalities at its own cost and expenses.”
15. As we consider the sum and substance of the agreement we find that the society was merely acting in trust, between the builder and the allottees. The construction activity and expenses of the construction and receipt of consideration were to be accounted with the builder. The agreement made it very explicit by way of clause 7 that out of the sale proceeds of the flats the society will realize its expenditure towards cost of land and statutory fees etc. paid by it to GNIDA. Thus, the society had entered into this agreement that the builder, only as facilitator of its members and others who were found entitled for allotment by not only the society but even GNIDA. The AO has not examined any of the allottee nor has made any inquiry with GNIDA to show that any person who was not entitled as per the lease deed dated 06.1.2007 was otherwise allotted the unit constructed by the builder or that any funds received by the builder beyond the cost of land or other expenses incurred for acquiring land were received by the society.
16. Then, in response to the show cause notice dated 08.05.2025 assessee had specifically informed the AO the list of allottees has been made available to the assesse by the Enforcement Directorate as part of the relied upon document which was filed with the Enforcement Directorate by the contractor and the same was also provided to the AO vide Annexure 10. Inspite of such specific information being available, ld. CIT(E) has failed to make any relevant inquiries and broadly on assumption out of assesse entering into agreement with the builder proceeded to allege that assesse was in business activity of construction and selling houses or that the private builder was benefitted for earning huge profits. No inquiry whatsoever and no observation have been made by the ld. CIT(E) on the basis of material on record like the agreement of assesse with the builder, lease deed or the memorandum of settlement of the assesse with the builder. The assesse has given a very reasonable explanation that once assesse had acquired the land by infusing funds then to avoid the resumption of the land for non-activity leading to loss of funds invested, assesse preferred to go ahead with construction activity by engaging a builder. Even otherwise such an activity of construction could have been done by some external agency only. Thus, based on aforesaid discussion we are inclined to hold that no case of specific, violations is made out. Rather merely on inferences about possible misuse of funds for benefit of builder, a bonafide transaction with regard to an activity, within the scope of Memorandum of assessee, should not be doubted, to hold occurrence of specified violations. Thus cancellation of registration is not justified. The corresponding grounds are sustained. The appeal is allowed and impugned order is quashed.
Order pronounced in the open court on 05.08.2026
