Registration Under Section 12A of Income Tax Act, 1961 can not be cancelled Merely because some amount has been spent by assessee-society which is not in accordance with its aims & objects
Cancellation of Registration U/s. 12A for expenditure not related to aims & objects ?
IN THE ITAT RANCHI BENCH
Institute of Science & Management
v.
Commissioner of Income-tax, (Central), Patna
IT Appeal No. 13 (Ranchi) of 2011
MARCH 12, 2012
ORDER
B.R. Mittal, Judicial Member
This appeal is filed by assessee against order of Ld. CIT (Central) dt. 29.6.2011 vide which he has cancelled the registration of assessee society u/s. 12AA(3) of the Income-Tax Act, on following grounds:
“1. For that the learned CIT, Central, Patna has erred in canceling registration granted by the then CIT u/s 254 (1)/12AA dt. 27.9.2001.
2. For that the learned CIT Central, Patna has erred in cancelling the registration which was directed to be granted by the order of Hon’ble Tribunal and hence the CIT has no jurisdiction/authority to cancel the registration granted to the appellant at the instance of Hon’ble Tribunal.
3. For that the learned CIT, Central, Patna has erred in relying on the findings contained in the assessment order for A.Ys. 2003-04 to 2009-10 as well as on order of DGIT (Inv.), Patna dated 29.12.2010 withdrawing the approval u/s 10(23C) granted vide notification dated 29.04.2009 by the then CCIT, Ranchi.
4. For that the learned CIT, Central, Patna has violated the principles of equity, natural justice and fair play by not confronting the appellant with the findings and material used for the purposes of canceling the registration in the order impugned.
5. For that the learned CIT, Central, Patna has erred in holding that vide notice dated 15.02.2011 (wrongly noted as 03.03.2011 in the order impugned) the appellant was required to prove the genuineness of work carried out by the institution.
6. For that the notice dated 15.02.2011 bearing no.4742 (copy enclosed) merely requires the presence of the appellant on captioned subject and was signed by the headquarters of the commissioner and not by the Commissioner himself that too without assigning any reason whatsoever and/or without confronting the appellant on the material/evidences/findings used while passing the order impugned.
7. For that the order passed is violative of principles of equity natural justice and fair play.
8. For that the whole order is ab-initio void for want of compliance to the rule of natural justice.
9. For that the learned CIT, Central, Patna has erred in holding that the activities of institution are not being carried out in accordance with the objects of the institution.
10. For that the learned CIT, Central, Patna has not brought on record contravention of any of the objects by the appellant.
11. For that the learned CIT, Central, Patna has failed to appreciate that the appellant’s society exists solely for educational purposes and no other activity has been found in course of survey and / or establish by the department at any point of time.
12. For that the learned CIT, Central, Patna has erred in holding that the appellant is engaged in business activities raising surplus income year after year.
13. For that the learned CIT, Central, Patna has ignored the provisions of law and the circular issued by CBDT while alleging carrying on of business activity and surplus.
14. For that the learned CIT, Central, Patna has failed to appreciate that surplus, if any, cannot be a ground for alleging carrying on of business activities.
15. For that the learned CIT, Central, Patna has erred in holding that the appellant is making payment to salary of office bearers which is disproportionately high.
16. For that the learned CIT, Central, Patna has erred in holding that funds have been utilized by the office bearers for personal purposes.
17. For that the observation of CIT that funds have been utilized for personal purposes of office bearers is wholly misconceived and contrary to the records of the appellant’s case.
18. For that the learned CIT, Central, Patna has erred in holding that expenses on guest entertainment is inadmissible whereas the facts remains that the same has been incurred for achieving the aims and objects of the appellant.
19. For that the learned CIT, Central, Patna has failed to appreciate that the condition precedent for invoking section 12AA(3) is absent in the appellant’s case and hence cancellation of registration is wrong, illegal and unjustified on the facts and in the circumstances of the appellant’s case.
20. For that the whole order is bad in facts and law of the case and is fit to be modified.
21. For that the other grounds, if any, shall be urged at the time of hearing of the appeal.
2. The relevant facts are that assessee is a society registered under the Societies Registration Act and formed on 30.9.1986. A copy of Memorandum of Association alongwith certificate of registration is placed at pages 73 to 91 of the Paper Book. On perusal of copy of Memorandum of Association, it is observed that there are various objects mentioned but dominant object of the assessee society is to impart education by running an institute namely “Institute of Science and Management (ISM). It is observed that assessee society was granted registration u/s. 12A/12AA of I.T. Act on 27th September, 2001 with effect from 1.4.2000. A copy of the said certificate is placed at page 23 of Paper Book.
3. Ld. CIT has stated in the impugned order dt. 29.6.2011 vide which he has cancelled the registration of assessee society that there was a search and seizure operation u/s. 132(1) of the I.T. Act in the residential premises of R.A.K. Verma group of cases on 20.3.2009 and subsequent dates. Along with said search and seizure operation, a survey operation u/s. 133A of the I.T. Act on 20.3.2009 was also carried out in the case of the assessee. He has stated that order u/s. 143(3) was passed on 30.12.2010 for assessment year 2009-10 and orders u/s. 153C r.w. s 143(3) were passed on 30.12.2010 for assessment years 2003-04 and 2008-09.
4. Ld. CIT has stated that assessee was granted approval for exemption 10(23C)(vi) of I.T. Act vide notification dt. 29.4.2009 but the same was withdrawn vide order of DGIT(Investigation) Panta dt. 29.12.2010, as it was noticed that assessee had contravened the provisions of Sec. 10(23C) of I.T. Act. It is relevant to state that Ld. CIT has stated the following reasons to form an opinion that activities of the institute were not been carried out in accordance with the objects of the institution.
“1. That salary has been paid to Shri RAK Verma, Chairman of the Institute of Science and Management in contravention of Sec. 13(3) of the I.T. Act, 1961.
2. That Rs. 2,40,000/- had been paid to Smt. Jyoti Verma, wife of Sh. RAK Verma, Chairman of Institute of Science and Management during F.Y. 2008-09.
3. That huge amount had been withdrawn by Shri RAK Verma and other office bearers/employees in the name of ‘Administrative expenses’. No details or bills etc. had been submitted by the assessee during the course of assessment proceedings to justify these withdrawals under the guise of “Administrative Expenses”. These amounts were nothing but defalcation of fund of the society by the members/and office bearers of the society.
4. That assessee had debited Rs. 3,07,175/- under the head ‘Student Activities & Welfare’. It was noticed that a substantial amount was being charged from the students under the head ‘Placement Charge’ which was spent on various officials and management personnel for their entertainment, wine and food under the head ‘Guest Entertainment Expenses’. Such expenses on entertainment are not allowable under the I.T. Act, 1961.
5. That the Institute had paid Rs. 11,32,000/- in F.Y. 2006-07 and Rs. 38,240/- on 25.2.2009 as advance to Shri B.K. Singh for construction of girls’ hostel. Since the girl’s hostel was a rented premises and the land lady was Mrs. Jyoti Verma, wife of the Trustee/office bearer of the Institute himself, this expenditure was personal in nature and had been paid in contravention of Sec. 13(3) of the I.T. Act, 1961.
6. That the assessee had contravened provisions of Sec. 11(1) and 11(5) of the I.T. Act 1961 as apparent from assessment orders for 2003-04 to 2009-10. Compliance to the provisions of Sec. 11(1) and 11(5) are essential conditions for availing exemption u/s. 11 of the I.T. Act, 1961.
