Wholesale Cloth Merchant Association Vs PCIT (ITAT Jaipur)
ITAT observed that due to the negligence or cheating of past executive members and bad intention of misappropriation of funds by ex-president, they had not maintained the books of accounts and get their accounts audited by a chartered accountant. But after change of management and involvement of new committee, books of accounts have been prepared and audit has also been done. During the A.Y. from 2014-15 to 2016-17 heavy amount was withdrawn by the ex-president, out of total amount some entries are debited in account of Sh. Tejendra Pal Singh and some entries are debited in other parties account because vouchers was made in the name of other parties name and later on came to know that these parties have not received amount and when management went to bank to trace out the truth all disputed entries were bearer cheques, but at that time books of accounts have been finalized and audited, so assessee was not able to change the account name. Therefore, FIR was filed by the trust against the ex-president (i.e. Tejendra Pal Singh) for the cheating or fraud. Therefore, we are of the view that because of the misdeeds of ex-president, the whole trust cannot be allowed to suffer, which is otherwise against the principles of natural justice. Further nowhere it has been proved that the Act of the President was in the knowledge of the assessee and the other members were involved knowingly and were part of that fraud. And if any fraud has been done behind the assessee, then the same cannot be treated as done by the assessee. Therefore, keeping in view our above discussion and observation, we are of the view that registration of the assessee could not be cancelled because of non-filing of I.T. return and audit report or on account of misdeeds of ex-president.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The present appeal has been filed by the assessee against the order of the ld. Pr.CIT(Central), Rajasthan, Jaipur dated 22/03/2019 passed U/s 12AA(3) and 12AA(4) of the Income Tax Act, 1961 (in short, the Act). Following grounds have been taken by the assessee:
“1. That in the facts and in the circumstances of the case and in law, the ld Pr. CIT(Central), Rajasthan, Jaipur has grossly erred in cancelling the registration of the assessee appellant trust under Section 12A of the Act by invoking Section 12AA(4) of the Act w.e.f. 01/04/2013.
2. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.”
3. In the facts and in the circumstances of the case and in law the penalty proceedings initiated u/s 271F, 271(1)(b), 271(1)(c) may kindly be deleted.
4. The petitioner craves the right to add, alter or in any way amend the grounds of appeal at or before the hearing.”
The assessee has also raised additional grounds of appeal and the same is reproduced as under:
“1. That the impugned order dated 22.03.2019 passed by the ld. Pr. CIT(Central), Jaipur as well as the Show cause Notice dt. 22.02.2019 issued by Ld. Pr. CIT(Central), Jaipur both are bad in law, invalid, illegal as well as on the facts of the case and without jurisdiction and for many other reasons. Hence the Registration so cancelled u/s 12A is contrary to the provisions of law and facts of the case the same kindly be quashed.
2. That the Ld. Pr. CIT(Central) grossly erred in law as well as on the facts of the case in cancelling the Registration granted u/s 12A on the basis of issue relating to assessment, which have no bearing with the registration u/s 12A, namely fraud done by ex-president, non-filing the return and audit report invoking the provision Sec. 12AA(3) and 12AA(4) etc. vide show cause notice dt.22.02.2019 and order dated 22.03.2019 with retrospective effect from A.Y. 2013-14 onwards on the wrong basis and footing. Hence the Registration so cancelled u/s 12A is contrary to the provisions of law and facts of the case the same kindly be quashed.
These additional Grounds of appeal are being legal grounds of appeal and also clearly arose from the order of Pr. CIT(Central) and having directly linked up with other grounds of appeal before your honours and as per settled law and legal position that the legal grounds of appeal may be taken at any stage.
Therefore in the interest of justice your honours are humbly requested to kindly admit the above additional grounds of appeal and oblige.”
2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
3. In this appeal, the assessee has also raised additional grounds of appeal. The grounds taken are legal in nature and connected with main grounds of appeal, therefore, for the sake of convenience, we admit additional grounds raised by the assessee for adjudication.
4. The brief facts of the case are that the assessee is a Trust and is registered under the Non-Trading Companies Act, Rajasthan vide Reg. Certificate No. 215/1976 dated 09.03.1976 and the Trust having main objects to develop the cloth business in Kota for the benefit of the general public or businessmen under the name of Wholesale Cloth Merchant Association, Kota. The Trust is also registered u/s 12A of the Income Tax Act, 1961 (in short, the Act) vide registration certificate No. 8/93-94/2609 dated 10.08.1994. The ld. Pr. CIT in its order dated 22/03/2019 noted that the registration was granted so as to enable the assessee to fulfil all the objectives enumerated in the deed/ Memorandum of Association. However, it was observed by the ld. Pr. CIT that the assessee is not working as per the objective of the Trust and case falls u/s 12AA(3) & 12AA(4) of the Act on the reason that a search and seizure action was conducted in the case of “Bajaj Group”, Kota on 30.06.2016 and consequent survey u/s 133A of the Act was also conducted at the assessee on 19.07.2016. During the course of survey statement of Sh. Giriraj Nayati, President of the assessee Trust was recorded on oath, who admitted that the assessee had filled the return of the income only up to A.Y. 2013-14 and had not filed the ITR for A.Y. 2014-15 to 2016-17 and also not filed the Tax Audit Report and assessee has continuously been claiming exemption u/s 11 and 12 of the Act. In view of the above, the ld. Pr. CIT(Central) has held that the activities of the assessee association are not ‘genuine’ and are not being carried out in accordance with the stated objects of the assessee. Therefore, the Registration of the assessee u/s 12A was cancelled by invoking the provisions of Sec. 12AA(3) and 12AA(4) w.e.f. 01.04.2013 i.e. from the financial year in which the irregularities came to notice.
5. Against the impugned order of the ld. Pr.CIT, the assessee has preferred the present appeal before us on the grounds mentioned hereinabove
6. Ground No. 1 and additional grounds No. 1 and 2 of the appeal are interrelated and interconnected and relates to challenging the order of the ld. Pr.CIT (Central), Rajasthan for cancelling the registration of the assessee Trust U/s 12A of the Act. Therefore, we have decided to adjudicate these grounds by this common order.
7. The ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. Pr.CIT. It was submitted that the ld. Pr.CIT has grossly erred in cancelling the registration of the assessee Trust U/s 12A of the Act by invoking provisions of Section 12AA(4) of the Act w.e.f. 01/04/2013. It was submitted that the impugned order dated 22/03/2019 passed by the ld. Pr.CIT as well as show cause notice dated 22/02/2019 issued by him are bad in law, invalid, illegal and are without jurisdiction. The registration so cancelled U/s 12A of the Act of the assessee Trust is contrary to the provisions of law and facts of the case. The ld AR also submitted that ld. Pr.CIT(Central) had grossly erred in law as well as on the facts of the case in cancelling the registration on the basis of issue relating to assessment, which has no bearing with the registration U/s 12A of the Act i.e. fraud done by Ex-President, non-filing the return and audit report invoking provisions U/s 12AA(3) and 12AA(4) vide show cause notice dated 22/03/2019 and order dated 22/03/2019 with retrospective effect from A.Y. 2013-14 onwards. The ld AR also relied upon the written submissions as well as additional written submissions filed before us and the same is reproduced hereinbelow:
1. Show cause notice as well as order is without jurisdiction:
1.1 At the very outset it is submitted that the show cause notice issued by the ld. Pr. CIT(Central) as well as the consequent order passed by him is illegal and is without jurisdiction. Because as admittedly the assessee is a trust registered u/s 12A of the IT Act and this class of assessee or case come in the Jurisdiction of CIT(Exemption), Jaipur w.e.f. 22.10.2014.
1.2. As in Sec. 120 of the IT Act the criteria of Jurisdictions of Income Tax Authorities has been provided by the CBDT and as per provisions of Sec. 120(3) there are four criteria as under:
(3) In issuing the directions or orders referred to in sub-sections (1) and (2), the Board or other income-tax authority authorised by it may have regard to any one or more of the following criteria, namely :—
(a) territorial area;
(b) persons or classes of persons;
(c) incomes or classes of income; and
(d) cases or classes of cases.
1.3 And as per this the CBDT by the Notification No. 52/2014 and 53/2014 dated 22.10.2014 has given power to CIT(Exemption) Jaipur for the state of Rajasthan for All cases of persons in the territorial area specified in column (4) claiming exemption under clauses (21), (22), (22A), (22B), (23), (23A), (23AAA), (23B), (23C), (23F), (23FA), (24), (46) and (47) of section 10, section 11, section 12, section 13A and section 13B of the Income-tax Act, 1961 and assessed or assessable by an Income-tax authority at serial numbers 131 to 140 specified in the notification of Government of India bearing number S.O. 2752 dated the 22nd October, 2014.
Thus, from the Oct. 2014 CIT(Exemption) has been constituted separately for these class or type of cases. Hence, the case of the assessee admittedly falls in the jurisdiction with the CIT(Exmp.). Copy of Notification is enclosed (PB303-309).
1.5 As a search and Seizure operation has been carried out in the case of SPS (Bajaj Group) Kota on 30.06.2016. In consequent there a survey u/s 133A has also been carried out on the assessee in 19th July 2016. Thereafter the ld. ADIT(Inv.) Kota has sent a proposal u/s 127 to the Pr. DIT(Inv.) Raj. Jaipur on dt. 19.08.2016 to transfer the case for limited purpose i.e for the Assessment proceedings vide letter dt. 19.08.2016(PB292-293) and the reason for centralize in the case of assessee was given for Co-Ordinate Assessment with the cases of SPS Bajaj Group (PB293). The Pr.DIT has sent the same to the Pr. CIT(Central) vide letter dt. 29.09.2016 (PB295-296). Thereafter the Pr. CIT(C) has written letter to Pr.CIT(E) dt. 28.09/03.10.2016(PB297-298) to transfer the case from ITO(E) Kota to ACIT, Central Kota. Thereafter the CIT(E) has transferred the case from ITO(E) Kota to ACIT, Central Kota vide letter dt. 05/06.12.2016 (PB299). In all these there is no any copy or notice or information have been sent to the assessee.
1.6 Thereafter the ld. DCIT(CC) Kota, has sent a proposal to the Pr. CIT(C), Jaipur to cancel the 12A registration of the assessee vide letter dt. 31.12.2018 has been received in the office of Pr. CIT(C) on dt. 23.01.2019 vide order sheet (PB300). On the basis of proposal form DCIT(CC) Kota, the ld. Pr. CIT has issued the show cause notice to the assessee u/s 12AA(3)/(4) on dt. 22.02.2019. Thereafter the assessee has appeared and filed the details and submissions before the Pr. CIT(Jaipur) on dt. 18.03.2019 and the ld. Pr. CIT(C) has passed the impugned order on dt.22.03.2019 u/s 12AA(3) and 12AA(4).
1.7 Thus on perusal of the above facts and proceedings of 127 was only for a limited purpose of Co-Ordinate Assessment. And as there was neither any search in & Seizure nor any notice u/s 153A or 153C or assessment u/s 153A or 153C in the case of assessee and there was only a survey u/s 133A. And the assessment has also been completed u/s 148/143(3) on dt. 19.12.2018. As the assessment has been completed the purpose of transfer u/s 127A has also been completed. Although No any notices regarding the transfer of the cases u/s 127 have been sent to the assessee for the purpose of Co-ordinate assessment. And the purpose of transfer was Co-Ordinate Assessment as clearly mentioned in the transfer letter 19.08.2016(PB293). And the assessment was completed u/s 148 rws 143(3) 19.12.2018 and the proposal was sent to the Pr. CIT(C ) thereafter i.e on dt. 31.12.2018 received in the office of Pr. CIT(C) on dt. 23.01.2019(PB300) after more than one month.
1.8 Thus on perusal of the above facts and proceedings of 127 was only for a limited purpose of Co-Ordinate Assessment. And as there was neither any search in & Seizure nor any notice u/s 153A or 153C or assessment u/s 153A or 153C in the case of assessee and there was only a survey u/s 133A. And the assessment has also been completed u/s 148/143(3) on dt. 19.12.2018. As the assessment has been completed the purpose of transfer u/s 127A has also been completed. Although No any notices regarding the transfer of the cases u/s 127 have been sent to the assessee for the purpose of Co-ordinate assessment. And the purpose of transfer was Co-Ordinate Assessment as clearly mentioned in the transfer letter 19.08.2016(PB293). And the assessment was completed u/s 148 rws 143(3) 19.12.2018 and the proposal was sent to the Pr. CIT(C ) thereafter i.e on dt. 31.12.2018 received in the office of Pr. CIT(C) on dt. 23.01.2019(PB300) after more than one month.
1.9 In said Notification there is no mention that the CIT(Exmp.) can transfer its power or jurisdiction to other CIT or Pr. CIT. In the said notification the CBDT has authorised the CIT(Exmp.) to issue order in writing for the exercise of the powers and functions by the Add. CIT or JCT or TRO who are the subordinate to them and has authorised to the Add. CIT to issue order in writing for the exercise of the powers by the Assessing Officer who are the subordinate to them. In section 124 Jurisdiction of Assessing Officer has been given not Jurisdiction of Commissioner.
1.10. Further in Sec. 127 power of transfer of cases have been given and transfer of cases is given from one Assessing Officer to other Assessing officer not from CIT to CIT. Sec. 127 provides as under:
127. (1) The Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him.
(2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,—
(a) where the Principal Directors General or Directors General or Principal Chief Commissioners or Chief Commissioners or Principal Commissioners or Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order;
(b) where the Principal Directors General or Directors General or Principal Chief Commissioners or Chief Commissioners or Principal Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner as the Board may, by notification in the Official Gazette, authorise in this behalf.
(3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place.
(4) The transfer of a case under sub-section (1) or sub-section (2) may be made at any stage of the proceedings, and shall not render necessary the re-issue of any notice already issued by the Assessing Officer or Assessing Officers from whom the case is transferred.
Explanation.—In section 120 and this section, the word “case”, in relation to any person whose name is specified in any order or direction issued there under, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year.
1.11. In Sec 120 (4) to 120(6) also provide how the work assigned to the subordinate officers as under
(4) Without prejudice to the provisions of sub-sections (1) and (2), the Board may, by general or special order, and subject to such conditions, restrictions or limitations as may be specified therein,—
(a) authorise any Principal Director General or Director General or Principal Director or Director to perform such functions of any other income-tax authority as may be assigned to him by the Board;
(b) empower the Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner to issue orders in writing that the powers and functions conferred on, or as the case may be, assigned to, the Assessing Officer by or under this Act in respect of any specified area or persons or classes of persons or incomes or classes of income or cases or classes of cases, shall be exercised or performed by an Additional Commissioner or an Additional Director or a Joint Commissioner or a Joint Director, and, where any order is made under this clause, references in any other provision of this Act, or in any rule made thereunder to the Assessing Officer shall be deemed to be references to such Additional Commissioner or Additional Director or Joint Commissioner or Joint Director by whom the powers and functions are to be exercised or performed under such order, and any provision of this Act requiring approval or sanction of the Joint Commissioner shall not apply.
(5) The directions and orders referred to in sub-sections (1) and (2) may, wherever considered necessary or appropriate for the proper management of the work, require two or more Assessing Officers (whether or not of the same class) to exercise and perform, concurrently, the powers and functions in respect of any area or persons or classes of persons or incomes or classes of income or cases or classes of cases; and, where such powers and functions are exercised and performed concurrently by the Assessing Officers of different classes, any authority lower in rank amongst them shall exercise the powers and perform the functions as any higher authority amongst them may direct, and, further, references in any other provision of this Act or in any rule made thereunder to the Assessing Officer shall be deemed to be references to such higher authority and any provision of this Act requiring approval or sanction of any such authority shall not apply.
(6) Notwithstanding anything contained in any direction or order issued under this section, or in section 124, the Board may, by notification in the Official Gazette, direct that for the purpose of furnishing of the return of income or the doing of any other act or thing under this Act or any rule made thereunder by any person or class of persons, the income-tax authority exercising and performing the powers and functions in relation to the said person or class of persons shall be such authority as may be specified in the notification.
1.12 And as per Sec. 120(6) the CBDT by the Notification No. 52/2014 and 53/2014 dated 22.10.2014 has given power to CIT(Exemption) Jaipur for the state of Rajasthan for All cases of persons in the territorial area specified in column (4) claiming exemption under clauses (21), (22), (22A), (22B), (23), (23A), (23AAA), (23B), (23C), (23F), (23FA), (24), (46) and (47) of section 10, section 11, section 12, section 13A and section 13B of the Income-tax Act, 1961 and assessed or assessable by an Income-tax authority at serial numbers 131 to 140 specified in the notification of Government of India bearing number S.O. 2752 dated the 22nd October, 2014.
1.13 Thus firstly as per above notification, provisions of Sec. 120 and 127 the ld. CIT(Exmp.) cannot transfer or hand over or given his work or power or duties to the other same rank of CIT at all to cancel the Registration u/s 12AA. However, at the worst, if it is necessary then there has to be followed proper proceedings in writing. As there has to be some order in writing from his higher authorities i.e. from Chief Commissioner of Income Tax (Exmp.) Delhi or CBDT in writing and an opportunity of being heard is to be given to the assessee before transferring the case and all these are absent in the present case as we have come to know on the inspection of the 12A cancellation proceeding records in the office of Pr. CIT(Central) Jaipur as an official inspection has been done by the undersigned Counsel on 04.03.2020.
1.14. In the Act in s. 127 the transfer of cases has been given to the Assessing Officers not to Commissioners of Income Tax and CIT is not an Assessing Officer. To pass an order for 12A registration or cancellation is not in the jurisdiction or power with an Assessing Officer. Thus, how the case for the purpose of 12AA proceedings can be transferred from the CIT (Exmp.) Jaipur to Pr. CIT(Central) Jaipur. Hence the registration u/s. 12A can be withdrawn only by the Prescribed Authority who has empowered to grant the same and by the Notification dt. 22.10.2014 the CIT(Exmp.) has empowered for the same, hence the Pr.CIT (Exmp.) cannot cancelled the same, this is not the matter of assessment.
1.15 As in the present case being a search on the third party and consequent the survey carried out in assessee’s case the case u/s 127 has been transfer to the Central Circle for the limited purpose of Co-Ordinate assessment admittedly (PB293). It means not that the 12A proceeding has been transferred to the Pr. CIT(Central) Automatically, when both the proceedings are separately or independent and also has to be done or conducted by the different rank Authorities. And when for the purpose of Exemption cases or 12A registration a Separate Commissioner of Income Tax has been Authorized for whole of Raj. by the CBDT by the Notification dt. 22.10.2014.
1.15 The ld AR has relied on the decision in the case of DilipTanaji Kashid vs. M.l. Karmakar PR. CIT& ANR. (2018) 304 CTR 0436 (Bom)
1.16 No Transfer or agreement u/s 127 for 12AA proceedings:- However on inspection of the record and letters of transfer of case u/s 127(PB292-300) we have not found any such agreements between both the CIT’s regarding the 12A proceedings. The agreement was only limited purpose of Co-Ordinate assessments. On perusal of the Instruction No. F.No.286/88/2008IT(Inv-II) dt. 17.09.2008which referred by the Revenue for transfer the case is regarding the search assessment where the search conducted it is not regarding the 12AA or other proceedings which have to be done by the CIT’s or other higher Authorities to Assessing Officers. And as per all the above position there must be a separate agreement between CIT’s for the above purpose. In the Instruction No. F.No.286/88/2008IT(Inv-II) dt. 17.09.2008 in para (d) it has been provided that the ADIT (Inv.) should send proposal for Centralization through Add. ADIT(Inv) with in 30 of initiation of search. And in the present case the search in the other group case was conducted on 30.06.2016 and the ADIT(Inv.) has sent the proposal on 19.08.2016 i.e. after 30 days.
The ld AR has relied on the decision in the case of Rentworks India (P) Ltd. vs. Pr.CIT & ANR. (2017) 100 CCH 0258 Mum HC
Ajantha Industries & Ors. vs. Central Board Of Direct Taxes & Ors. (1976) 102 ITR 0281
Noorul Islam Educational Trust vs. CIT AND Ors (2016) 388 ITR 0489 (SC)
1.17 Thus in view of the above facts and legal position the show cause notice issued as well as the consequent order passed by the Pr. CIT(Central) is illegal and without jurisdiction and liable to be quashed.
2. The ld AR has further submitted that no denial or cancellation of registration for the misappropriation of fund by other persons: Further it is submitted that the ld. Pr. CIT has cancelled the 12A registration on the misappropriation of fund by other persons, which is also incorrect. He has relied upon the following decision:
CIT V/s State Urban Development Agency (Suda) (2013) 85 CCH 0179 All HC.
CIT vs. A.S. Kupparaju Brothers Charitable Foundation Trust (2012) 205 TAXMAN 0009
Kunhitharuvai Memorial Charitable Trust vs. CIT(Central) (2017) (1) TMI 1671 (Cochin)
3. No denial or cancellation of registration for the reason not filling the ITR and Audit Report:
3.1 Further it is submitted that ld. Pr. CIT has cancelled the registration on the ground that the assessee has not filed its ROI and Audit report. The reason of not filing of the same are that as the assessee is trust and was depended on the accountant and the president and the other members were under impression that the act of return filling, Audit report and books are being care take by them. As there was on default since its registration from 1976 to 2013. And the fraud done by the president and books not completed by the accountant was not in the knowledge of the assessee. However when these facts have come to the notice of the assessee it filed its ROI income and Audit report. Hence for the negligence of the President and accountant the whole institute must not be punished.
3.2 However it is also settled legal position of law that if an assessee has not filed his ROI and filed ROI and not shown any claim or deduction in the ROI filed and claim the same during the course of assessment proceedings even although during the course of appellate proceedings. The Honble courts has allowed the same by stating that if the assessee is entitled for any claim as per law cannot be denied for the reason that he has not claimed in the ROI. In this regard, he has relied upon the decision in the case of Amina Ismil Rangari vs. ITO (2017) 51 CCH 0595 Mum Trib
3.3 However the assessee had file the ROI and Audit report in response to the notice u/s 148. And also much prior to issuance of show cause notice for cancellation. And at the time of issuance of Show cause notice u/s 12AA(3)/12AA(4)no return or Audit report were pending. As per the section 147 and section 148 of the Income Tax Act 1961 itself provide the opportunity to assessee for filing the return of income, hence we could not say that the Income Tax Return was late filed. And the Return filed u/s 148 is treated as filed u/s 139 and all the provision are applicable for the same. If there was any default why the show cause notice has been given when the default had come to the notice of the Revenue in July 2016 and the notice has been issued 31 Months i.e. Feb. 2019. And even in last three years i.e. form F.Y. 2016-17 to 2018-19 no defaults have been found.
3.4 Further the ld. Pr. CIT in the entire order has stated that the assessee has not filed Tax audit report. In this regard it is submitted that the assessee is trust registered u/s 12A and not a businessman and not doing the business. Hence Tax Audit u/s 44AB is not applicable in this case. The same is applicable for the person who is doing business or trading. Hence the allegation of the ld. Pr. CIT is wrong or incorrect or invalid. And liable to be quash. The Audit of the trust comes u/s 12A(b) in form 10B.
3.5 Further if there was any procedure default for non-filing the ITR and Audit report, for that there many other penalties or provision has been given and in Sec. 12AA(3)/12AA(4) it has not been provided anywhere that if an assessee has not filed ITR and Audit report the registration shall be cancelled. The ld AR has also relied on the following decisions:
CIT vs. Raj State Seed & Organic Production Certification (2018) 98 CCH 0466 Raj HC
Cotton Textiles Export Promotion Council v/s ITO (Exemption) 117 ITD 90 (Mum)
Additional Director of Income Tax (Exemption) v/s Manav Bharati Child Institute & Child Psychology 20 SOT 517(Del)
Haryana Welfare Board v/s CIT 83 CCH 268(P&H)
Association of Corporation & Apex Societies of Handlooms v/s ADIT 351 ITR 287(Del)
Raghavan Nair vs. ACIT 402 ITR 0400 (Ker) (2018)
3.6. The ld. Pr. CIT stated that if a person fails to get audited his books of accounts from a chartered accountant, then he will not able to get benefit of section 11, 12 and 12A. But many provisions are in the nature of procedural compliance hence if that kind of provision are not satisfied even though assessee would not be punished for cancellation of registration u/s 12A. In this regard, he has relied on the following decisions:
M/s Sir Kika Bai Prem Chand Trust Vs. ITO Mumbai ITAT
CIT v/s Hardeodas Agarwalla Trust 198 ITR 511(Cal)
CIT vs. Lucknow Public Educational Society318 ITR 0223 (All HC)
Kunhitharuvai Memorial Charitable Trust vs. DCIT (2019) 6 TMI 595 (Cochin)
4. Application of funds deemed to have been made for the benefit of specified person Section 13(2): In some earlier years there was a miss happening with the assessee association that his president deliberately withdraw cash from association’s bank account for his personal use in the name of other person, out of that kind of withdrawal some amount has been debited to our ex-president account (Sh. Tejendra Pal Singh), by keeping the other members in dark or without their knowledge. For that kind of transaction association had also filed FIR against him for miss utilization of funds/ betray/ Forgery/imitation/ replica of signatures/ for unfaithful work and Misappropriation of funds of trust. Except above mentioned transactions no any mistakes is found in daily activities/transactions of the trust. As the assessee:
a. No Loan given to any specified person during the year under consideration.
b. None of any specified persons are allowed to use land, building or any other property.
c. No Salary, allowances are paid to specified persons during the year under consideration.
d. Association will not provide any kind of services to specified persons without inadequate remuneration.
e. No property / Shares and security transferred by any specified person to association.
f. No property / Shares and security transferred to any specified person from association.
g. No income or property of trust diverted to a specified person.
h. Trust has not invested any fund where specified person having substantial interest.
4.1. Only due to the negligence or cheating of past executive members and bad intention/intention of miss appropriation of funds of ex-president, they were not willing to maintained the books of accounts and get their accounts audited by a chartered accountant. But after change of management and involvement of new committee, books of accounts have been prepared and audit has also done and now all the work is going on in proper way. During the A.Y. form 2014-15 to 2016-17 heavy amount withdrawn by the ex-president, out of total amount some entries are debited in account of Sh. Tejendra Pal Singh and some entries are debited in other parties account because vouchers was made in the name of other parties name and later on came to know that these parties have not received amount and when management went to bank to trace out the truth all disputed entries were bearer cheques, but at that time books of accounts have been finalized and audited, so assessee was not able to change the account name. Hence at the time of filing FIR they include all the amount. This amount not given by the trust to the president but the same was misappropriated, pinched, embezzled and cheated by the ex-president therefore FIR filed by the trust against the ex-president (i.e. Tejendra Pal Singh). Copy of FIR is enclosed (PB28-34). And for the cheating or fraud by the Ex-President, if any, the whole trust cannot be suffered, which is against the principal of natural justice.
Further nowhere it has been proved that the Act of the President was in the knowledge of the assessee and the other members were involved knowingly. And was part of that fraud. And if any fraud has been done behind the assessee cannot be treated as done by the assessee. Assessee has not itself given any benefit to the assessee.
5. No retrospective effects should be given: Further the ld. Pr.CIT (Central) cancelled such approval from A. Y. 2014-15, though the assessee has already assessed from A. Y. 2014-15 under section 143(3)/148 of the Income Tax Act. And it is also settled legal position of law that Registration cannot be cancelled from retrospective effects. In this regard, he has relied upon the following decisions:
State of Rajasthan and others vs Basant Agrotech India Ltd. and other 388 ITR 81(SC)
Indian Medical Trust V/s PCIT (Central) 2019 (6) TMI 996 (Rajasthan)
Oxford Academy for Career Development Vs. Commissioner of Income Tax: (2009) 315 ITR 382
Assistant Commissioner of Income Tax Vs. Agra Development Authority: (2018) 90 Taxman 288
CIT V/s Manav Vikas Avam Sewa Sansthan 336 ITR 250 (All)
5.1 No cancellation of Registration u/s 12A can be made of all years:
In the present case the ld. Pr. CIT(C)or PA has found or made allegation or objection or diversion of mis appropriations of funds and not filling the Audit report and ITR, if any only in A.Y. 2014-15 to 2016-17 & not in other years either prior years or later years, if so then how the cancellation of Registration u/s 12A can be made for other years except A.Y. 2014-15 to 2016-17 if any at the worst. Hence at the worst no withdrawal can be made except for the A.Y. 2014-15 to 2016-17 if any, however as we have already stated that no retrospective cancellation can be made.
Further neither in the Sec. 12AA(3) nor in Sec. 12AA(4) it has been provided or is seen to have explicitly provided to have a retrospective character or intend. Therefore, without a specific mention of the amended provisions to operate retrospectively no cancellation for the past years or date and the same at the worst can be made from the date of show cause notice or date of order for cancellation. He has relied upon the decision in the case of Auro Lab vs. ITO (2019) 411 ITR 0308 (Mad) 20
6. The ld. Pr. CIT(C) has stated that the activities of the assessee associations are not genuine and are not being carried out in accordance with the stated objects of the assessee. However the allegation of the ld. Pr. CIT(C) are incorrect. Because there was no change in the activities of the assessee since starting to till date. The ld. PCIT(C ) has failed to state that which activities have be en done by the assessee in these years there apart to earlier and what activities are not according to the aims and objects of the Associations or have not been followed or done. The assessee has not violated any provision of Sec. 12AA(3)/12AA(4). An allegation remains only allegation unless not proved.
The ld AR has also filed additional written submissions and the contents of the same are reproduced below:
1. No denial or cancellation of registration for the reason not filling the ITR and Audit Report for the A.Y. 2014-15 to 2016-2017:
1.1 That clause (ba) was inserted by Finance Act, 2017 to section 12A(1) of the Act, w.e.f. 01.04.2018
(ba) the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions 19 ITA 688/JP/2019 M/s Wholesale Cloth Merchant Association Vs Pr.CIT of sub-section (4A) of section 139, within the time allowed under that section.
1.2 In the matter, the memorandum explaining the relevant provisions of the Finance Bill, 2017 reads as under:
“as per the existing provisions of said section, the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise. In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Act.
These amendments are clarificatory in nature.
These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years
1.3 Circular No.02/2018 dated 15.02.2018 containing “Explanatory Notes to the Provisions of the Finance Act, 2017” on insertion of clause (ba) in Sub section (1) of section 12A is quoted as under:
“the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139 of the Income-tax Act, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax.
Amendment to section 12A of the Income-tax has been made so as to provide for additional condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Income-tax Act.”
“Thus, for a trust registered u/s 12AA of the Act to avail the benefit of exemption u/s 11 shall inter-alia file its return of income within the time allowed u/s 139 of the Act. Accordingly, orders u/s 143(1)(a) in those cases in which demand has been raised on this issue may please be rectified. ”
Hence, the Assessing Officer can deny the grant of exemption u/s. 11 of the Act for belatedly filing of return from the assessment year 2018-19 onwards.
1.4 The ld. AR has relied on the following judicial pronouncements:
(i) United Educational Society v. JCIT (2019) 7 TMI 738 (ITAT Delhi)
(ii) Sahid Munshi Ram Memorial Education Society v. CIT (2017) 11 TMI 1128 (ITAT Delhi)
1.5 Application of funds deemed to have been made for the benefit of specified person: That due to internal differences between the office bearers a FIR came to be filed for misappropriation of funds by the new management against the previous management. Subsequently, the Police after thorough investigation not finding any case for misappropriation of funds has proposed FR (Final Report) in the instant FIR vide its report dated 31.01.2019.
1.6 That in the instant case, the ld. Assessing Officer & ld. Pr. Commissioner of Income-tax without any independent verification have alleged misappropriation of funds. The assessment of the assessee appellant trust and its ex-president Shri Tejendra Pal Singh was done by the same Assessing Officer and in the assessment orders passed u/s. 153A of the Act dated 20-21.12.2018 for the A.Y. 2014-2015 to 2016-2017 in the case of Shri Tejendra Pal Singh, no addition has been proposed for so called misappropriated income. Thus, without carrying out any independent verification and on account of mere suspicion, without any proof the said allegation has been levelled against the assessee appellant Trust. In this regard he has relied upon the decision in the case of ACIT v. Sri Koundinya Educational Society (2019) 1 TMI 266 (ITAT Visakhapatnam)
8. On the other hand, the ld CIT-DR has relied upon the order passed by the ld. Pr.CIT(Central), Rajasthan and also submitted that there were various evidences in possession of the department which indicated that the assessee was not working as per the objectives referred and therefore, the case of the assessee falls 12AA(3) and 12AA(4) of the Act based on the following observations:
“3. A search & seizure action was conducted in the cases of “Bajaj Group” group of Kota on 30.06.2016. The case of the assessee was covered under survey u/s 133A of the Income-tax Act. During the course of survey, the statement of Shri Giriraj Nayati, president of the association was recorded on oath. Shri Giriraj Nayati had admitted that the assessee had filed IT Returns only upto A.Y, 2013-14. At the time of survey, the assessee had not filed IT Returns for A.Y. 2014-15, 2015-16 and 2016-17. The assessee has also not filed the tax audit report which is required to be filed by the assessee. However, the assessee has continuously been claiming exemptions u/s 11 and 12 of the Income-tax Act. Such a claim by the assessee is illegal in view of provisions of Section 12A(1)(b), which is reproduced as under:
Conditions for applicability of sections 11 and 12
12A. (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:—
(a)
(aa) …..
(ab) ……..
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below subsection (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed;
4. In view of Section 12A(1)(b), the assessee was required to furnish both the IT Return as well as the Tax Audit Report in order to claim benefit of Section 11 & 12. However, since F.Y. 2013-14, the assessee was neither filing IT Returns nor the Tax Audit reports. By wrongly claiming exemptions without filing IT Returns, the activities of the assessee are not being conducted in accordance with the objectives of the assessee-trust.
5. It was also observed that the then president of the assessee trust Shri Tejendra Pal Singh Sahni has withdrawn huge amounts from the assessee’s account and utilized these monies for personal benefit, which is also evident from the submission of the Authorized Representative before the Assessing Officer, which is reproduced as under:-
“Details of account withdrawn by the past president of the association:-As per records of the association and FIR filed by the association against the then president of the association total amounting Rs.2,52,00,000/- withdrawn by the then president, out of this an amount of Rs.1,08,00,000/- transferred in the account of Sh. Rajendra Gupta and remaining amount was withdrawn from bank through bearer Cheques and vouchers made in the name of some contractors of the association but out of these contractors some contractors denied the receipt of cheques from the Association. After that episode, Association tried to know the truth, therefore Association went to bank and got all the copies of disputed cheques and found all the cheques were bearer cheques. List of Disputed cheques for the year under consideration are hereby produced for your kind reference:
