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primary ground raised by the assessee in respect of the cancellation of the registration u/s.12AA is that it cannot be withdrawn retrospectively.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 2010– 11 & 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.
