Case Law Details

Case Name : M/s. Prathyusha Educational Trust Vs ACIT (ITAT Chennai)
Appeal Number : ITA Nos. 637, 638 & 370/Chny/2017
Date of Judgement/Order : 27/05/2019
Related Assessment Year : 2010-11
Courts : All ITAT (7448) ITAT Chennai (300)

M/s. Prathyusha Educational Trust Vs ACIT (ITAT Chennai)

The primary ground raised by the assessee in respect of the cancellation of the registration u/s.12AA is that it cannot be withdrawn retrospectively. The second issue raised is that the Revenue has not established that the amounts received from the students were capitation fee. In respect of the issue raised regarding the advance for construction and the advance having been given to the Contractor to reduce the cost of finance of the builder and the salary paid to the relative of the trustee, the same have already been answered by the Tribunal in its order dated 19.06.2018, which admittedly had reached its finality. The funds which have been collected by the assessee and recorded in the note books, which has been seized in the course of search is for the assessee to explain. It must be remembered here that but for the search this diary would not have seen the light of the day. A perusal of the said diary which has been extracted by the PCIT in his order dated 07.12.2016 cancelling the registration u/s.12AA shown amounts having been collected from various students towards various branches of engineering. A perusal of the dates shows that the same has been collected between November, 2009 and June, 2010, substantial portions having been collected between April, 2010 and June, 2010. Admissions taken place during June-July. The assessee has claimed these advances received, as and when the admission is processed, the same have been recorded into the regular books. If the admission is not taken, the amount is returned. It is for the assessee to tally the accounts. There are 214 entries in the said diary. It is not an impossible task to identify the student with the admission and to identify to whom the money has been returned if the admission has not been taken. The Revenue would not be able to identify from the seized diary who is the student and who is not the student because the admission details are also not available in the said diary nor their addresses. Further, only if the assessee is able to identify and specify the students, they can be questioned for proving the amounts are not capitation fee paid by such students or parents of such students. In the absence of such identification, the factum of taking capitation fee would stand established against the assessee. Further, what stopped the assessee from recording these amounts in the regular books of the assessee. Why were the amounts taken in cash? The law does not bar the receipt of the admission fee from students. The law, however, bars taking of capitation fee for granting admission to students. This is because education has been treated as a charitable activity and the same cannot be run as a business by selling the seats in the college or by taking capitation fee in any manner. The assessee having failed to show that the amounts collected by the assessee are not capitation fee but regular fee, there is no other alternative available to this Appellate Authority to interpret the said documents as nothing but the record of the capitation fee having been collected by the assessee. Once it is recorded as the document of collection of capitation fee then it is to be considered that the assessee is doing the business of running an Educational Institution for the purpose of profit. This view also gets supported by the fact that the cash which has been collected by the assessee has not been recorded in the books of the assessee but has been kept outside the regular books as has been accepted by the assessee in cash with its Managing Trustees and others. Thus, there has been a total violation of the provisions of Sec.13(1)(c) of the Act. Here what is also to be recognized is that, in the course of the search cash was not found either of the premises of the assessee or in the hands of the Managing Trustees and consequently, the cash is deemed to have been used for the purpose other than the objects of the trust, which is also violation of Sec. 13(1)(c) of the Act. This being so, as the assessee has violated the very basic requirement and provisions for registration u/s. 12AA and it has come to the light as a consequence of search of the assessee on 02.07.2010, we are of the view that the cancellation of registration u/s. 12AA by the PCIT, Central-2, Chennai, vide its order dated 07.12.2016 right from the AY 2010-11 is on right footing and does not call for any interference. We are live to the fact that the order has been passed by the PCIT on 07.12.2016 cancelling the registration u/s. 12AA with retrospective effect from the AY 2010-11 onwards. Admittedly, this registration has been cancelled on account of the fact that the search on the assessee on 02.07.2010 brought out the evidences in the form of the incriminating documents which showed that the assessee Trust was being run for the purpose of profit and not solely for educational purpose as also on account of the fact that the cash which had been collected in the form of capitation fee had been misappropriated by the Trustees for purposes other than the objects of the Trust and the trustees are unable to show how the funds were used only for attaining the objects of the Trust. In these circumstances, the order passed by the PCIT, Central-2, Chennai, cancelling the registration u/s.12AA of the Act vide its order dated 07.12.2016 stands upheld.

FULL TEXT OF THE ITAT JUDGEMENT

ITA Nos.637 & 638/Chny/2017 are the appeals filed by the assessee against the Order of the Commissioner of Income Tax (Appeals)-18, Chennai, in ITA No.628 & 732/15-16 dated 12.01.2017 for the AYs 201011 & 2011-12. ITA No.370/Chny/2017 is an appeal filed by the assessee against the order of the Principal Commissioner of Income Tax, Central-2, Chennai, in C.No.2750/C-2/2013-14 dated 17.12.2016, cancelling the registration granted to the assessee u/s.12AA from the AY 2010-12 onwards.

2. Mr. Sailendra Mamidi, PCIT, represented on behalf of the Revenue and Mr. R.Vijayaraghavan, Adv., represented on behalf of the assessee.

3. The appeals of the assessee had been originally heard on 04.04.2018 and an order had been passed on 19.06.2018 dismissing the appeals of the assessee. Miscellaneous Petition came to be filed against to the said order and the Tribunal in its orders in MP Nos.186-188/Chny/2018 dated 13.03.2019 had recalled the orders of the Tribunal for the purpose of adjudicating the following grounds specifically as the same had not been adjudicated when deciding the original appeals:

ITA No.370/Chny/2017:

1. The order of the Principal Commissioner of Income Tax, Central 2, Chennai, cancelling the registration of the appellant under section 12AA of the Act, is against the facts and circumstances of the case, against the law and the principle of equity and natural justice.

2. The entire proceeding for cancellation of registration under section 12AA is invalid. The PCIT erred in issuing the show cause notice on the very issue which had attained finality based on the reply given by the appellant. The SCN issued in the impugned proceedings is mere reproduction of the earlier SCN.

3. The PCIT erred in proceeding with the cancellation of registration after nearly 3 years the date of the original SCN and the reply of the appellant. The PCIT ought to have appreciated that any proceeding initiated should be completed within a reasonable time, even if the law does not prescribe any time limit. Accordingly, the proceeding initiated for cancellation in 2013 on which the appellant has given reply without any delay cannot be given life with a fresh notice.

ITA Nos.637 & 638/Chny/2017:

1. The order of the Commissioner of Income Tax (Appeals)-18, Chennai is against the facts arid circumstances of the case, against the law and the principles of equity and natural justice.

2. The CIT (A) erred in confirming the contents of the asst. order passed by AO which has overlooked the provisions of sec 11 and Sec 10(23C)(vi) which were duly available at the time of passing of asst. order. The CIT(A) ought to have appreciated that the AO does not have jurisdiction to ignore the provisions of sec 11 and Sec 10(23C)(vi), therefore, the asst. order is void-ab-initio.

3. The entire first appellate proceedings took almost Four years to complete from the date of institution of appeal and delayed intentionally to allow the proceedings by DGIT(lnv.) on the cancellation of sec.10(23C)(vi) retrospectively and for the cancellation of sec.12A(a) by PCIT to complete thus the relief under both sections can be denied which is most clandestine way discharging a judicial authority vested in CITA. The CIT(A) ought to have appreciated that any proceeding initiated should be completed within a reasonable time, even if the law does not prescribe any time limit.

5. The learned CIT(A) erred in placing reliance on the cancellation order passed by DGIT(lnv.) which itself was passed overlooking the fundamental facts and the provisions of law and unauthorized in terms of its validity as the cancellation was retrospective which the law does not explicitly permit.

6. The learned CIT(A) erred in placing reliance on the cancellation order of sec.12A(a) by the Pr.CIT which itself was passed overlooking the fundamental facts and the provisions of law and unauthorized in terms of its validity as the cancellation was retrospective which the law does not explicitly permit.

7. The learned CIT(A) ought to have appreciated that the corrigendum is only an afterthought issued after the judicial proceedings taken by the assessee trust and to cover up the lack of jurisdiction the Assessing Officer in denying the benefit u/s.10(23C)(vi).

8. The. CIT(A) ought to have appreciated that the disallowance u/s.40(a)(ia) prior period expense, deposit refund, salary paid to Managing Trustee were made contrary to the facts of the case and against the principles of law.”

4. Consequent to the Miscellaneous Petition order, the appeals came to be heard on 15th May, 2019. For the purpose of filing detailed submission and to specifically point out the issues need to be adjudicated, the appeals were posted for hearing to 16.05.2019. After due exchange of notes between the Ld.AR and the Ld.DR, the Ld.AR filed the following note before the Tribunal, wherein, six specific issues have been raised for adjudication. The note is as follows:

Before the Income Tax Appellate Tribunal, Chennai ‘C’ Bench,
ITA Nos.637, 638 and 370/17
Assessment Years 2010-11 and 2011-12
M/s.Prathyusha Educational Trust

Points not considered in the original order by ITAT – in ITA INos.370, 637
& 638/Chny/2017 Sec 12AA cancellation order, Asst years 2010-11 and 
2011-12:

1. The assessee is a Public Charitable Trust having the main charitable object of running and operating education institutions. The assessee trust was formed vide the trust deed executed on 1.8.2000 and was duly registered under Section 12AA from 22.10.2002 & the approval under section 10(23C)(vi) was granted from 30.04.2008 of the Income Tax Act (‘Act’). The assessee trust runs an engineering college by the name “M/s. Prathyusha Institute of Technology & Management” an institution recognized by AICTE and other accrediting agencies both central and state Govt. The college commenced its operation from the academic year 2001.

2. A search was conducted by the Income Tax Department at the premises of the trust on 02.07.2010, under section 132 of the Act. Subsequently, the assessment was completed for the asst years 2010-11 U/s.143(3) r.w.s 153A and 2011-12 U/s.143(3) vide orders dt. 28.03.2013.

3. Notwithstanding specific provisions under the Income Tax, the AO passed the  assessment order U/s.143(3) on 22.4.2013 without considering the relief under section 10(23C)(vi)/11 of Income Act.

4. The assessee filed appeal before the first appellate authority against both the above referred orders on 22.04.2013 agitating various issues involved in the asst order.

5. Subsequently, the Income tax department has attached the bank account of the assessee during Dec 2014 for nonpayment of tax demands, against which writ petition was filed immediately before the High Court of Madras seeking quashing of bank attachment and one of the contention put forth before the Hon’ble High Court is that Officer “as per the first proviso to section 143(3) which was inserted by the Finance Act, 2002, w.e.f. 1-4-2003, no order making an assessment shall be made by the Assessing Officer without giving effect to the provisions of section 10(23C)(vi) unless the Assessing Officer has intimated the Central Government or the prescribed authority, the contravention of the provisions of section 10(23C)(vi). Only after such approval granted has been withdrawn, he can proceed to pass an order denying the benefit of exemption on the ground of contravention. Having regard to the language employed, the said provision is mandatory. Without complying with the requirement of the said provision, the Assessing Officer gets no jurisdiction to deny the exemption. High Court ordered lifting of Bank Attachment vide its order.

6. Immediately, the successor officer to the original Assessing officer who passed the original asst. order, on a suo-moto basis, without affording any opportunity to the assessee, issued a corrigendum dated 22nd January 2015 stating that while passing the assessment order for assessment year 2010-11 and 2011-12, in the preface in column no.10, ‘the section and sub-section under which the assessment is made’ it was erroneously mentioned as [‘143(3) r.w.s.153A for Asst. year 2010-11] and [‘143(3) for Asst. year 2011-12], instead of ‘section 144 of the Income Tax Act, 1961’ as the assessment was actually made u/s.144 of the Act, as brought out in para 4 of the assessment order.”

7. The assessee filed a Writ petition during February, 2015 against the said corrigendum and the same was disposed vide order dt. 05.07.2016 directing “to challenge the correctness of the impugned corrigendums by raising additional grounds before the Commissioner of Income Tax (Appeals) in the appeal petitions which were filed on 22.04.2013, against the assessment orders dated 28.03.2013, for the years 2010-11 and 2011-12 and the Commissioner of Income Tax (Appeals) is directed to consider the additional grounds raised along with the other grounds already raised in the appeals and after hearing the parties, dispose of the appeals as expeditiously as possible preferably, within a period of three months from the date of receipt of a copy of this order”.

8. The assessee raised the above issue before the CIT(A) appeals as additional ground, a reference to it has been made by the CIT(A) in his order (Para 7 – page No 7).

9. The grounds raised before CIT(A) in respect of corrigendum is as under:

1. Corrigendum to the Assessment order issued nearly two years after the asst. order as an afterthought:

Pursuant to assessment order dated 28.03.2013, for the assessment year 2010-11 under Section 143(3) read with Section 153A of the Act, the AO by corrigendum, dated 22.01.2015, (nowhere the corrigendum specified under which provision of Income Tax Law it has drawn the support for issuing such a corrigendum which has huge ramification on the asst. orders and in a nutshell the issuance of Corrigendum is tax extremism) stated that while passing the assessment order for the assessment year 2010-11 in the preface column (10) “the section and sub-section under which The assessment is made”, it was erroneously mentioned as Section 143(3) read with Section 153A of the Act instead of Section 144 of the Act, as the assessment was actually made under Section 144 of the Act, as brought out in para 4 of the assessment year. In this connection, the appellant makes the following submission.

  • The first proviso to Section 143(3) of the Act makes it clear that no order making an assessment shall be made by the Assessing Officer, without giving effect to the provisions of Section 10(23C)(vi), unless the Assessing Officer has intimated the Central Government or the prescribed authority, the contravention of the provisions of the said Section and only after such approval granted has been withdrawn, he can proceed to pass an order denying the benefit of the exemption on the ground of contravention. However, in the cases on hand, the Assessing Officer without intimating the Central Government/prescribed authority about the contravention of the provisions of Section 10(23C)(vi) has completed the assessments under Section 143(3) read with Section 153A on 28.03.2013. It is further submitted that this objection was raised by the appellant in the Writ Petitions filed by them challenging the notices under Section 226(3) of the Act, after which the first respondent/Assessing Officer has issued the impugned corrigendum, which is erroneous. It is submitted that the provisions of Section 144 of the Act, are applicable only if the appellant fails to comply with the conditions mentioned in clauses (a) (b) & (c) of sub-section (1) of Section 144 and only then, the Assessing Officer shall make the assessment of the total income or loss to the best of his judgment based on the materials covered and determine the sum payable by the assessee on the basis of such assessment. In other words section 144 is complete in itself thus without following any of the procedures laid down under section 144 casually treating the assessment originally made under section 143(3) as an assessment under section 144 is rather unfortunate approach the Dept. has chosen to somehow to bring the additions in the assessment order to tax.
  • It is submitted that the original orders do not indicate that the assessment was made under Section 144 of the Act.
  • It is further submitted that the assessment was passed consequent to a search and based on material seized during the search and the original Assessing Officer did not deem it fit to make the assessment to the best of his judgment in the absence of any material and therefore, the impugned corrigendum issued by the present Assessing officer after two years is an afterthought.
  • Without prejudice, it is submitted that if it is the contention of the Department that the corrigendum was issued invoking power under Section 154 of the Act, then the appellant ought to have been issued a notice under Section 154(3) of the Act and then opportunity of being heard ought to have been given to the Appellant
  • The appellant has cooperated and submitted the details called for during original asst proceedings. The following chronological events of Income tax notices and the response made by the assessee trust will clearly show that the appellant has made available to AO, the necessary records and details to complete the asst.
Sl.
No.
Asst. Year Particulars Remark Action by the Trust
1 2010-11 Notice u/s.153A
dt. 17.10.2011
To prepare and
furnish true and
correct return
Income tax return filed in
response to the notice
2 2010-11 Notice u/s.143(2)
dt. 17.19.2012
To attend for
personal hearing
Revised at the old address
and come to the knowledge
of the Trust much later.
3 2010-11 Notice u/s.142(1)
dt. 01.11.2012
Questionnaire
containing 17
points asked for
Trust replied through its
Authorized Representative
to all the 17 points for both
the asst. years 2010-11 and
2011-12
4

 

2010-11

 

Notice  u/s.143(2)  dt. 12.02.2013 To attend for
personal hearing; No other details
asked for in the
notice
Authorized Representative
and Trust official appeared in person
5 2010-11 Summon u/s.131 dt. 04.03.2013 from ACIT, Central Circle Trustee to
appear in person
Trustee appeared and met,
Commissioner of Income
Tax Central
6 2011-12 Notice u/s.143(2)
dt. 17.09.2012
To attend for
personal hearing
Received at the old address
and come to the knowledge
of the Trust much later
7 2011-12 Notice u/s.142(1)
dt. 01.11.2012
Questionnaire
containing 17
points asked for
Trust replied through its
Authorized Representative
to all the 17 points for both
the asst. years 2010-11 and 2011-12 and also for the previous five asst. years
starting from 2006-07.
8 2011-12 Notice u/s.143(2)
dt.12.02.2013
To attend for
personal
hearing; no
other details
asked for in the
notice
Authorized Representative
and Trust official appeared
in person
9 2010-11 Notice dt. 22.03.2013 Notice stated
that the details
asked for vide
Notice
u/s.142(1)
dt.12.02.2012
AR and official from Trust
appeared in response to
earlier notices and further
no details were asked for by
the AO vide notice
dt.12.02.2013, therefore,
statement mentioned by AO
that the details were asked
for is incorrect
10 2011-12 Notice dt. 22.03.2013 -do- -do-

Therefore, it is submitted that the corrigendum issued post various legal actions taken by the appellant is only an afterthought, contrary to the facts, and liable to be deleted.

2. Further on the alleged violation of Sec 13 by referring to the mobilisation advance paid of Rs.6 crs. in connection with the construction of buildings in the college premises, the following grounds were raised before CIT(A).

The AO has, in the asst order, without any detailed discussion/factual demonstration that the appellant has violated provisions of sec 13, merely alleged that the assessee trust has paid Rs.6 crores to M/s.PASPL Constructions wherein the trustees are having substantial interest and no interest has been charged on such loan/advance given, though the trust itself has paid substantial interest of Rs.2.35 crores and Rs.2.58 crores during asst years 2010-11 and 2011-12 respectively on the loans taken from financial institutions.

In this connection, the assessee submits that The Educational Institution run by the assessee Trust was in need of additional infrastructure to accommodate new admissions and hence the Trustees have decided to put up new buildings and in this process have identified a contractor to execute the work and accordingly a contract has been awarded to them and mobilization advance was paid to execute the work.

It may be appreciated that the provisions of Sec.13 envisages that the transactions of a Trust should not result in any benefit to the parties covered u/s.13. In the current context the contractor engaged by the Trust had all the qualifications and ability to execute the work for construction of college building and the contract is awarded at competitive rates compared to the market rate. The assessee provides herewith the details of contract value agreed and contract value executed and the value at which the work was executed and its reasonableness to the market value etc. which would completely justify and establish that there is no intended benefit that was intended to pass on the members or to the Trustees. Also it is submitted that the commercial veracity of the contracts which should be left to the contracting parties rather than the Revenue stepping into the shoes of assessee by evaluating the veracity of contract terms and their commercial expediency in as much it is well accepted legal proposition that Dept. shall have no role in deciding the commercial consideration of a contract and it should be at best left to the dealing parties as long as the exp is genuine as long as it’s not violative of the provisions of section 13 which should result in some benefit to parties concerned and that is not case here.

10. CIT(A) has held that in view of retrospective cancellation of Sec.12AA/10(23C)(vi), the issue has to be decided against the assessee.

11. Aggrieved assessee, filed appeal before the Hon’ble ITAT Chennai against the order of CIT(A) and one of the grounds of appeal is the validity of the corrigendum and the treatment of the originally passed U/s.143(3) as sec 144, which is as under:

Ground No.7 – “The learned CIT(A) ought to have appreciated that the corrigendum is only an afterthought issued after the judicial proceedings taken up by the assessee trust and to cover up the lack of jurisdiction the AO in denying the benefit U/s.10(23C}(vi).

Whereas, in the original order passed by the ITAT on 19.06.2018, the raised issue was not discussed.

12. Therefore along with other issues which were not discussed in the above referred ITAT order, the assessee raised the ground of corrigendum and sec.144 in the Miscellaneous petition (page no.2 of MP) filed in MP Nos.186 to 188/2018. The ITAT while disposing the Misc Petition vide its order dt.13.03.2019, has directed to consider the issue of validity of corrigendum (Page No. 3 of the MP order).

13. Therefore, it is kindly requested to….

i) As the High Court has directed to consider correctness of the impugned corrigendums as a part of the appeal, the correctness of the corrigenda is to be decided in the appeal.

ii) The CIT(A) had held against the Assessee and the ITAT has not decided the specific ground raised and the ITAT has specifically mentioned this ground requires to be decided, the same is to be decided in this appeal.

iii) As rectification of section under which the original assessment order was passed, from 143(3} to sec.144, was without notice, without adducing reasons and without any basis the corrigenda require to be quashed as invalid.

iv) Once the Assessment is held to be u/s.143(3), it is without jurisdiction as deduction u/s.10(23C)(vi) was not granted, even though the approval under that section was not withdrawn as on the date of the Assessment order. ( CIT v People’s Education Society 42 taxguru.in 353 Kar. )

v) Without prejudice, even if the Assessment is under sec 144, the AO cannot ignore the approval under that section available as on the date of the Assessment order, of which he is aware, and bring to tax income which is to be excluded from the total income under Chapter III.

vi) As regards, withdrawal of approval u/ 12AA:

a. It cannot be withdrawn retrospectively (Auro Lab v ITO 2019 TIOL 344 HC-MAD).

b. As regards amounts received from students, it was explained. Department has not established it is capitation fees. (CIT v Balaji Educational and Public Charitable Trust 374 ITR 274 Mad).

c.  Advance for construction was for the purpose of construction and construction cost was less than the market rate and hence there was no benefit to the associated person. Construction was terminated only at the request of the Assessee.

d. The advance given went to reduce the finance cost of the builder which would have been added to cost of construction. There was also amount due from the Assessee and the entire balance amount was adjusted against the amount due from the Trust. There was no comparison to the market practice regarding granting of advance in case of such a huge contract with estimated cost of Rs. 20 Crores.

e. Salary paid to relative of trustee, who is a MBA degree holder and was looking after the management of the college. AO has not been compared the salary paid to the relative of the trustee with market rate for such services but held it to be violating sec 13(l)(c).

On the above basis, as it is not disputed that Assessee is solely engaged in running an educational institution and the entire receipt was utilized in running the educational Institution, violation if any of any provision, can be considered at the time of assessment and approval u/s.12AA need not be withdrawn

5. It was submitted by the Ld.AR that the assessee is a Charitable Trust, which is running an Educational Institution. It was a submission that the assessee’s trust had registration u/s.12AA from 22.10.2002 and the assessee had also been granted approval u/s.10(23C)(vi) from 30.04.2008. It was a submission that there was a search on the premises of the assessee trust on 02.07.2010. It was a submission that consequent to the search, assessments came to be completed. It was a submission that in the course of the search certain documents were found which were in respect of the advance fee collected from students. It was a submission that the said advances were adjusted against the regular fee as and when the students were admitted to the course. The amounts were recorded in the note books of the assessee, for the purpose of keeping accounts properly, the advances were recorded in the note book which was seized in the course of search and the advance fee collected was kept in cash with the Managing Trustees. It was a submission that the assessee had also transferred substantial portion of the funds to M/s.PASPL Construction i.e. M/s.Prathyusha Associates Shipping Pvt. Ltd. Construction (In short “M/s.PASPL”). It was a submission that the said M/s.PASPL was engaged in constructing the College building. It was a submission that Assessment Order had originally been passed on 28.03.2013 u/s.143(3) r.w.s.153A of the Act and by passing Corrigendum dated 22.01.2015. It was modified to assessments u/s.144, it was a submission that as the AO had without intimating the Central Government/prescribed authority about the alleged contraventions of the provisions of Sec.10(23C)(vi) had completed assessment u/s.143(3) r.w.s.153A on 28.03.2013, the assessee was entitled to the benefits of Sec.10(23C)(vi) of the Act. It was a submission that the recognition u/s.10(23C)(vi) had been withdrawn only on 18.11.2014. It was a submission that consequently, when the assessment was being completed, the assessee had registration u/s.10(23C)(vi) of the Act. The Ld.AR placed before us a list of dates as follows:

Sl.No. Date Event
1 22.10.2002 Registration granted u/s.12AA of the Income tax Act vide proceedings in DIT(E) No. 2(361)72002-03.
2 30.04.2008 Approval granted u/s.10(23C)(vi) of the Act vide Notification in C.No.CCIT III/183/10(23C)/07-08
3 02.07.2010 Investigation wing of the Department conducted a search u/s.132 of the Act in the premises of the Appellant.
4 17.10.2011 Notice u/s.153A of the Act issued by the ACIT, Central Circle-2(3) for the AY 2010-11 and 2011-12
5 09.11.2011 Return of income filed for Asst years 2010-11 & 2011-12 pursuant to notice u/s.153A dt 17.10.2011.
6 28.03.2013 Assessment was completed u/s.143(3) r.w.s 153A of the Act for the Assessment years 2010-11 & 2011-12.
7 22.04.2013 Appeal filed before the  4th  Respondent/C.I.T(Appeals) -II, Central Circle, Chennai for AY 2010-11 & 2011-1 2
8 26.04.2013 Stay Application filed before Assessing Officer.
9 07.05.2013 Order passed by ACIT rejecting the petition for Stay of collection of tax.
10 15.05.2013 Stay Application filed before Joint Commissioner of Income-tax Central- Range II.
11 18.11.2014 Order passed  by   DGIT (lnv) u/s.10(23C)(vi) withdrawing the approval from assessment Year 2010-11 onwards.
12 01.12.2014 Rectification Petition filed u/s. 154 of the Act before DCIT (lnv) pointing out the lack of reasonableness of opportunity to the Petitioner and non-appreciation of certain vital facts. 11.12.2014
13 19.12.2014 Order passed by the Hon’ble High Court in W.P. No. 33376 and 33377 of 2014 directing the JCIT, Central Range II, to pass a  speaking  order on   the stay application  dt   13.05.2014 after
affording an opportunity of Personal hearing.
14 22.01.2015 Nearly after 2 years Corrigendum issued to assessment order passed u/s/s 143(3) r.w.s 153A of the Act for the Assessment Years 2010-11 and section 143(3) for the assessment year 2011­12 stating that assessment was actually made u/s.144 of the Act it was erroneously mentioned as ‘143 r.w.s. 153A of the Income Tax Act. 1961′, instead of ‘section 144 of the Inco Tax Act.
15 06.02.2015 DCIT (inv) vide order u/s.154 rejected the rectification petition.
16 05.07.2016 Order of the Hon’ble High Court in W.P. No. 23341   and 23342 of 2 (permitting the Assessee to challenge the correctness of the corrigendum   by    raising     additional     grounds    before    the CIT(Appeals)   in   the   appeal   petitions   which   were filed on  22.04.2013 against the assessment orders dated 28.03.2013.
17 07.12.2016 Pr CIT vide its order in C.No.2750/C-2/2013-14 cancelled the registration granted u/s.12AA of the Act.
18 12.01.2017 Order of the CIT(Appeals) in ITA Nos.628 & 732 of 2015-16 upheld order of assessing officer denying the exemption granted u/s.10(23C) and 12AA on the ground that exemption originally granted in favour of Assessee has been cancelled by DGIT(lnv) subsequently on 18.11.2014 and 07.12.2016 retrospectively.
19 19.06.2018 Order of the Hon’ble Tribunal in ITA Nos. 370, 637 & 638/2017 dismiss the appeal filed by assessee without disposing of certain grounds appeal.
20 13.03.2019 Order of the Hon’ble Tribunal in M.P.Nos. 186 to 188/2017 in ITA Nos.  370,  637  & 638/2017 recalling its order to decide the
grounds appeal 1 to 3 in ITA No.370/2017 and grounds of appeal 1 to 7 in ITA Nos.637 & 638/2017 dismissing the appeal filed by assessee with disposing of certain grounds of appeal.

6. It was a further submission that in respect of the withdrawal of the registration granted u/s.12AA, the same was cancelled only on 07.12.2016. It was also a submission that the said registration has been cancelled with effect from the AY 2010-11 vide an order dated 07.12.2016 only, by rejecting the assessee’s submission that the seized material representing the advance fee received by the assessee, which was also recorded in the books of the assessee when the admission was granted to the respective students. It was a submission that retrospective cancellation of the registration u/s.12AA and u/s.10(23C)(vi) was not permissible as there was no violation of any of the provisions of the registration u/s.12AA or the recognition u/s.10(23C)(vi) of the Act. It was a submission that for the AY 2010-11 & 2011-12, the assessee may be granted the benefit of the deductions under the provisions of Sec.10(23C)(vi) of the Act as also the benefit of Sec.12AA of the Act. It was also a submission that the assessee’s registration u/s.12AA may be restored in its entirety right from the AY 2010-11. In respect of the specific query from the Bench, whether the assessee has filed any appeal against the order passed by the DGIT (Investigation) dated 18.11.2014 withdrawing the approval u/s.10(23C)(vi) from the AY 2010-11 onwards, it was fairly agreed by the Ld.AR that no appeal has been filed till date against the said order.

Also check section 12a of income tax act.

7. In reply, the Ld.DR submitted that the issue had already been decided by the Tribunal vide its order dated 19.06.2018, wherein, in Para No.7.2, the Tribunal has held as follows:

7,2 From the above, it is clear that on a search and seizure action, it was found that huge amount of Rs.1,57,42,700/- was collected from students, in cash, without issuing any receipts and without entering them in the regular books of accounts maintained by the trust. Subsequently, the assessee was required to prove its exemption claim. After considering the assessee’s submissions etc, the above facts were confirmed with a finding that the impugned sum was lying with the Managing Trustee and others during the said period,  which  have not been used for the objects of the ssessee and the trust, in fact, the assesse has indulged in activities which are not permissible under law etc. The assessee challenged these findings but has not placed material viz certified copies of contemporaneous audited or unaudited profit /loss account or income and expenditure statement, as the case may be, in accordance with the provisions of the Income Tax Act, 1961, and their enclosures and appropriate documents showing that the impugned sum were accounted for by the trust, used for the purposes of the trust etc and hence, it could not assail as to how the decisions arrived by the Lower authority (ies) is/ are not correct etc. In the facts and circumstances, it is clear that the assessee trust has not kept clear and accurate accounts of the trust-property and failed to furnish with full and accurate information as to the impugned amount and state of the trust property. But for the search and seizure action, all the above facts would not have surfaced at all. In view of the above facts and circumstances and since the assessee has not laid any material to prove that the impugned sum was accounted for by the trust, used for the purposes of the trust etc, therefore, the decisions arrived by the Lower authority (ies) is/ are upheld and the corresponding grounds of the assessee’s appeal are dismissed.

8. It was a submission that in respect of the seized diary, wherein, the cash collected from the students have been recorded, the issue has been held against the assessee. It was a further submission that Para No.7.9 of the order of the Tribunal, which reads as follows:

7.9 When we test the facts and circumstances of this case in the light of the above ratios, it is clear that the assessee trust has carried its activities which invited the search and  seizure action by the Revenue, which resulted in unearthing of evidences, inter alia, that the assessee collected huge amount of Rs.1,57,42,700/- from students, in cash, without issuing any receipts and without entering them in the regular books of accounts maintained by the trust. When the assessee, a public charitable trust, has not kept clear and accurate accounts of the trust-property and failed to furnish with full and accurate information as to the impugned amount and state of the trust property, a finding was arrived that the impugned sum was lying with the Managing Trustee and others during the said period, which have not been used for the objects of the assessee trust. These facts have not been disproved. All these activities violate the provisions of the Indian Trusts Act, the Income Tax Act etc and hence the assessee’s case clearly falls within the mischief of all the above clauses of Section 4 of the Indian Trust Act, supra. An assessee which claims to be a Trust existing for Public Charitable Purposes but does not carry its activities in accordance with its objects could certainly  fall within the prohibitions of clauses of 54 of The Indian Trusts Act 1882, as extracted above. Further, allowance of this type of activities would certainly defeat the very provisions of the Income Tax Act, 1962 also. In the facts and circumstances the Ld. PCIT’s decision, inter alia, that the assessee has indulged in activities which are not permissible under law and it has not carried its activities in accordance with its objects is justified and hence all the assessee’s   grounds of appeal on this issue stand dismissed.

9. Clearly shows that, the assessee’s Trust has indulged in activities which are not permissible under law and it has not carried its activities in accordance with its objects. It was a submission that the findings of the PCIT that the assessee has collected capitation fee for the purpose of granting the admission to the students in the Engineering College run by it stands clearly proved. It was a submission that the order of the Ld.CIT(A) for the AYs 2010-11 & 2011-12 and the order rejecting the registration u/s.12AA with retrospective effect from the AY 2011-12 passed by the PCIT was liable to be upheld.

10. We have considered the rival submissions.

11. As the registration u/s.12AA goes to the root of the various assessments, the same is adjudicated first. This would also answer the issue raised by the assessee in Para No.13(vi) of its note submitted. The primary ground raised by the assessee in respect of the cancellation of the registration u/s.12AA is that it cannot be withdrawn retrospectively. The second issue raised is that the Revenue has not established that the amounts received from the students were capitation fee. In respect of the issue raised regarding the advance for construction and the advance having been given to the Contractor to reduce the cost of finance of the builder and the salary paid to the relative of the trustee, the same have already been answered by the Tribunal in its order dated 19.06.2018, which admittedly had reached its finality. The funds which have been collected by the assessee and recorded in the note books, which has been seized in the course of search is for the assessee to explain. It must be remembered here that but for the search this diary would not have seen the light of the day. A perusal of the said diary which has been extracted by the PCIT in his order dated 07.12.2016 cancelling the registration u/s.12AA shown amounts having been collected from various students towards various branches of engineering. A perusal of the dates shows that the same has been collected between November, 2009 and June, 2010, substantial portions having been collected between April, 2010 and June, 2010. Admissions taken place during June-July. The assessee has claimed these advances received, as and when the admission is processed, the same have been recorded into the regular books. If the admission is not taken, the amount is returned. It is for the assessee to tally the accounts. There are 214 entries in the said diary. It is not an impossible task to identify the student with the admission and to identify to whom the money has been returned if the admission has not been taken. The Revenue would not be able to identify from the seized diary who is the student and who is not the student because the admission details are also not available in the said diary nor their addresses. Further, only if the assessee is able to identify and specify the students, they can be questioned for proving the amounts are not capitation fee paid by such students or parents of such students. In the absence of such identification, the factum of taking capitation fee would stand established against the assessee. Further, what stopped the assessee from recording these amounts in the regular books of the assessee. Why were the amounts taken in cash? The law does not bar the receipt of the admission fee from students. The law, however, bars taking of capitation fee for granting admission to students. This is because education has been treated as a charitable activity and the same cannot be run as a business by selling the seats in the college or by taking capitation fee in any manner. The assessee having failed to show that the amounts collected by the assessee are not capitation fee but regular fee, there is no other alternative available to this Appellate Authority to interpret the said documents as nothing but the record of the capitation fee having been collected by the assessee. Once it is recorded as the document of collection of capitation fee then it is to be considered that the assessee is doing the business of running an Educational Institution for the purpose of profit. This view also gets supported by the fact that the cash which has been collected by the assessee has not been recorded in the books of the assessee but has been kept outside the regular books as has been accepted by the assessee in cash with its Managing Trustees and others. Thus, there has been a total violation of the provisions of Sec.13(1)(c) of the Act. Here what is also to be recognized is that, in the course of the search cash was not found either of the premises of the assessee or in the hands of the Managing Trustees and consequently, the cash is deemed to have been used for the purpose other than the objects of the trust, which is also violation of Sec. 13(1)(c) of the Act. This being so, as the assessee has violated the very basic requirement and provisions for registration u/s.12AA and it has come to the light as a consequence of search of the assessee on 02.07.2010, we are of the view that the cancellation of registration u/s.12AA by the PCIT, Central-2, Chennai, vide its order dated 07.12.2016 right from the AY 2010-11 is on right footing and does not call for any interference. We are live to the fact that the order has been passed by the PCIT on 07.12.2016 cancelling the registration u/s.12AA with retrospective effect from the AY 2010-11 onwards. Admittedly, this registration has been cancelled on account of the fact that the search on the assessee on 02.07.2010 brought out the evidences in the form of the incriminating documents which showed that the assessee Trust was being run for the purpose of profit and not solely for educational purpose as also on account of the fact that the cash which had been collected in the form of capitation fee had been misappropriated by the Trustees for purposes other than the objects of the Trust and the trustees are unable to show how the funds were used only for attaining the objects of the Trust. In these circumstances, the order passed by the PCIT, Central-2, Chennai, cancelling the registration u/s.12AA of the Act vide its order dated 07.12.2016 stands upheld.

12. In the result, the appeal filed by the assessee in ITA No.370/Chny/2017 stands dismissed.

For ITA Nos.637 & 638/Chny/2017 for the AYs 2010-11 & 2011­12:

13. In respect of the appeals in ITA Nos.637 & 638/Chny/2017, the main crux of the arguments of the Ld.AR are that when the assessments were completed u/s.143(3) on 28.03.2013, the assessee had the approval u/s.10(23C)(vi) of the Act and consequently, the denial to grant the benefit of deduction u/s.10(23C)(vi) was wrong. The other issue is that the Corrigendum Assessment Order passed on 22.01.2015, whereby, the same was held to be an order u/s.144 was not permissible especially in view of the fact that the order withdrawing the approval u/s.10(23C)(vi) was passed by the DGIT (Inv.) only on 18.11.2014. Another arguments which has also been brought up for consideration is that the retrospective withdrawal of the approval u/s.10(23C)(vi) from the AY 2010-11 was not permissible by passing an order on 18.11.2014. Here, it is to be clearly understood that an order has been passed by the DGIT(Inv.) u/s.10(23C)(vi) withdrawing the approval right from the AY 2010-11 onwards. This order has been passed by the DGIT(Inv.) on 18.11.2014. This order is not a subject matter of the appeal before any authority. The assessee has chosen not to challenge this order. This being so, the validity or the invalidity or the sanctity of this order is not open for question before us and it would have to be deemed that the assessee does not have the approval u/s.10(23C)(vi) right from the AY 2010-11 onwards. The assessee had filed Writ Petition before the Hon’ble jurisdictional High Court of Madras, wherein, the assessee had challenged the rectification order passed on 22.01.2015 rectifying the Assessment Order to be from Sec.143 to Sec.144. The Hon’ble jurisdictional High Court had directed the said issue could be raised in appeal before the Ld.CIT(A). However, it is noticed that the assessee has not raised the issue, as to whether, the order passed by the DGIT(Inv.) u/s.10(23C)(vi) on 18.11.2014 was a valid order or not. As the said order of the DGIT(Inv.) passed on 18.11.2014 withdrawing the approval u/s.10(23C)(vi) right from the AY 2010-11 is in operation and the same has not been challenged, whether the Assessment Order is passed u/s.143(3) or whether it is passed u/s.144 at the present point of time have no consequences as the assessee has been held to be not eligible for the benefit of deduction u/s.10(23C)(vi). Here, we must make it clear  that had the assessee challenged the said order of the DGIT(Inv.) passed on 18.11.2014 withdrawing the approval and if the same had gone in favour of the assessee, then admittedly there would have been room to maneuver in respect of the claim of deduction u/s.10(23C)(vi) for the AYs 2010-11 & 2011-12. However, in the absence of such, appeals or challenge to the said order withdrawing the approval u/s.10(23C)(vi) of the Act, it cannot be held that the assessee is entitled to claim of deduction u/s.10(23C)(vi) for the AYs 2010-11 & 2011-12. Thus, on this issue also grounds raised by the assessee in ITA Nos.637 & 638/Chny/2017 for the AYs 2010-11 & 2011-12 stands dismissed.

14. In the result, the appeals filed by the assessee in ITA Nos.637 & 638/Chny/2017 stands dismissed.

Order pronounced in the Open Court on the 27th day of May, 2019 in Chennai.

Download Judgment/Order

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