DISTT. RED CROSS SOCIETY,FARIDABAD vs. ITO (E), FARIDABAD

PER O.P. KANT, AM:

These two appeals by the assessee are directed against two separate orders, both dated 23/12/2019, passed by the learned Commissioner of Income-tax (Appeals)-Faridabad [in short ‘the Ld. CIT(A)’] for assessment year 2014-15 and 2015-16 respectively. Being common grounds involved, we have heard these appeals together and disposed off by way of this consolidated order for convenience and avoid repetition of facts.

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3.1 For assessment year 2015-16, the assessee filed return of income on 30/09/2015 declaring nil income. The case was selected for scrutiny assessment. In the scrutiny assessment completed on 10/11/2017 under section 143(3) of the Act, the excess of income over the expenditure amounting to Rs.1,50,46,031/- was assessed as taxable income on the ground that society had not been granted registration under section 12AA for the assessment year concerned. 3.2 Aggrieved with the assessment orders passed, the assessee challenged those orders before the Ld. CIT(A). For assessment year 2010-11, the assessee filed additional evidence, which were forwarded by the learned CIT(A) to the Assessing Officer calling for his objection and comments. The assessee also raised additional ground challenging validity of the jurisdiction of the ITO, Word-I(2), Faridabad, in issuing notice under section 148 of the Act to the assessee. The Ld. CIT(A) observed that no return of income was filed by the assessee and the assessee attended the assessment proceeding before the AO. The Ld. CIT(A) further noted that the assessee never objected the jurisdiction of the Assessing Officer within the time allowed and, therefore, in terms of section 124(3)(b) of the Act, the assessee was not entitled to question the jurisdiction of the ITO, Ward-I(2), Faridabad. The Ld. CIT(A) noted that cash deposit of ₹ 57,20,005/- was part of total gross receipts from various projects. 3.3 Before the Ld. CIT(A), it was explained that registration under section 12AA of the Act was granted in the case of the assessee on 21/03/2016 and notice under section 148 of the Act was issued on 31/03/2017, and therefore, when notice under

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section 148 was issued by the Assessing Officer, the assessee had already been granted registration under section 12AA of the Act. The assessee relied upon provision of section 12A(2) read with proviso and argued that once registration under section 12AA was granted, it shall be applicable for all preceding assessment years. The applicability of the proviso to section 12A(2) of the Act has been adjudicated by the leaned CIT(A) as under:

“15, From the perusal of the above, it is noted that the 2nd proviso provides that no action u/s 147 would be taken by the AO only due to non-registration of such entity u/s 12AA of the Act. From the facts of the case, it is noted that action u/s 147 has been taken in this case on the basis of unexplained cash deposits in the savings bank account by the appellant and not on the basis of non-registration u/s 12AA of the Act. The appellant had not filed ITR for assessment year 2010-11. Thus, it is found that the case of the appellant is not covered by the 2nd proviso to Section 12A(2) of the Act and thus there is no merit in the above submissions made by the appellant on this account. Further, during the appellate proceedings, the learned AR argued that alternatively once registration u/s 12AA was granted, the same will be applicable for all preceding assesment years as per the 1st proviso to Section 12A(2),As notice u/s 148 of the Act has been issued subsequent to date of registration and, therefore, the appellant was eligible for the exemption u/s 11/12 of the Act for A.Y. 2010-11. However, it is noted that the appellant, in this case, has not furnished the ITR for the year under consideration u/s 139 of the Act as well as u/s 148 of the Act. In the absence of the ITR for the relevant year and audit report in Form 10B, there is no merit in such claim of the appellant u/s 11/12 of the Act. Even if, the argument of the Learned AR is accepted that as the proceedings u/s 148 of the Act have been initiated on 31.03.2017 subsequent to date of registration u/s 12AA of the Act (21.03.2016), even then there is no merit in such argument. From the record, it is noted that the appellant has not furnished the ITR and thus has not made activities performed during A.Y. 2010-11. In order to claim the benefit of provision of Section 11/12 of the Act for A.Y. 2010-11, the onus was on the appellant to show that objects and activities of the appellant, were same for A.Y. 2010-11 and 2016-17 (for which registration under Section 12AA has been granted) as required u/s 12A(2) read with 1st proviso. The appellant has failed to do so. In the circumstances, it is found that the appellant could not substantiate that the 1st proviso to Section 12A(2) of the Act was applicable to its case and, therefore, has not been found eligible for

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exemption u/s 11/12 of the Act for A.Y. 2010-11 on this account also.”

3.4 Thus, the Ld. CIT(A) has examined applicability of first proviso to section 12A(2) and upheld the finding of the Assessing Officer on the ground that in absence of evidence to support that objects and activities of the assessee were same for assessment year 2010-11 and 2016-17. The learned CIT(A) has noted that assessee failed to substantiate requirement of first proviso to section 12A(2) of the Act. Accordingly, the learned CIT(A) dismissed the grounds raised by the assessee. 4. In assessment year 2015-16, also the Ld. CIT(A) upheld the order of the Assessing Officer on the ground of lack of evidence to support requirement of the first proviso to section 12A(2) of the Act i.e. the object and activities of the assessee was same for assessment year 2015-16 and 2016-17 (the assessment year in which registration was granted). The relevant para of Ld. CIT(A) for assessment year 2015-16 is reproduced as under:

“14. From the record, it is noted that the appellant during the assessment proceedings and appellate proceedings has not made available the objects and details of activities performed during A.Y. 2015-16. In order to claim the benefit of provision of Section 11/12 of the Act for A.Y. 2015 -16, the onus was on the appellant to show that objects and activities of the appellant were same for A.Y.2015- 16 and 2016-17 (for which registration under Section 12AA has been granted) as required u/s 12A(2) read with 1st proviso. The appellant has failed to do so. In the circumstances, it is found that the appellant could not substantiate that the 1st proviso to Section 12A(2) of the Act was applicable to its case and, therefore, has not been found eligible for exemption u/s 11/12 of the Act for A.Y. 2015- 16. The AO had specifically mentioned that the addition has been made as the appellant was not found eligible for exemption. Accordingly, it is held that the AO was justified in making addition

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of Rs.1,50,46,031/-. The same is hereby confirmed. Grounds of appeal No. 1 to 3 and Additional Ground No. C are dismissed.”

4.1 The other grounds raised by the assessee were also dismissed by the Learned CIT(A). 5. Before us, the Learned Counsel of the assessee fileda paper- book, containing pages 1 to 60 for assessment year 2010-11 and another paper-book, containing pages 1 to 54 for assessment year 2015-16. 6. Before us, the learned Counsel of the assessee argued common ground of eligibility under first proviso and second proviso to section 12A(2) of the Act and submitted that in case assessee gets relief on this ground, the other grounds will be rendered only academic. Accordingly, we have heard both the parties on the issue of the applicability of first proviso and second proviso to section 12A(2) of the Act. 7. We have heard both the parties on the issue in dispute. We find that Assessing Officer has denied the benefit of exemption of excess income of the society over the expenditure in terms of section 11 and 12 of the Act, mainly on the ground that no registration of the society under section 12AA of the Act was in operation during the assessment year 2010-11 and 2015-16. The Ld. CIT(A) examined the reliance placed by the assessee on first proviso and second proviso to section 12A(2) of the Act, which reads as under:

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“Conditions for applicability of sections 11 and 12. 12A. (1) …………………………………………………………………………………… (2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made: [***] [Provided that ……………………………………………………………………………. Provided further that where registration has been granted to the trust or institution under section 12AA or section 12AB ], then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the objects and activities of such trust or institution remain the same for such preceding assessment year: [Provided also] that no action under section 147 shall be taken by the Assessing Officer in case of such trust or institution for any assessment year preceding the aforesaid assessment year only for non-registration of such trust or institution for the said assessment year: Provided also that provisions contained in the first and second proviso shall not apply in case of any trust or institution which was refused registration or the registration granted to it was cancelled at any time under [section 12AA or section 12AB ].]”

7.1 The Ld. CIT(A) in respect of first proviso has held that the assessee failed to substantiate before him, whether the objects and activities of the assessee for assessment at 2010-11 was same as assessment year 2016-17 (i.e. the assessment year in which registration u/s 12AA has been granted). Regarding the second proviso, the Ld. CIT(A) held that the assessment proceedings have been initiated on the issue of cash deposit in the bank account and not on the issue of non-availability of registration under section 12AA of the Act. 7.2 Before us, the Learned Counsel of the assessee submitted that assessee is willing to substantiate evidence in support of the claim that objects and activity of the assessee for the assessment year 2010-11 are same to the object and activity for assessment

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year 2016-17 and therefore, matter may be restored back to the file of the Assessing Officer for verification of the claim of the assessee with the documentary evidences. The Learned departmental representative did not object to restoring of the matter to the Assessing Officer for verification of objects and activity for assessment year 2010-11 and 2015-16 vis-à-vis objects and activity for assessment year 2016-17. Accordingly, in the interest of substantial justice, the matter of verification of objects and activities of the assessee for assessment year 2010-11 and 2015-16 vis-à-vis assessment year 2016-17 (i.e. the assessment year in which registration under section 12AA of the Act is granted) so as to examine the eligibility of the assessee under first proviso to section 12A(2) of the Act. The assessee shall be afforded adequate opportunity of being heard. 7.3 As far as applicability of second proviso is concerned, though the Assessing Officer issued notice under section 148 of the Act, after recording reasons on the issue of cash deposits in bank account, however, that the addition in reassessment proceeding has been made mainly on the ground that no registration under section 12AA of the Act was available in assessment year 2010-11. Since we have already restored the appeal for assessment year 2010-11, on the ground of first proviso to section 12A(2), we are not adjudicating the issue of applicability of second proviso in assessment year 2010-11, as same is rendered only academic. 7.4 The other grounds raised by the assessee are also not adjudicated, as same are also rendered academic.

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Sd/- Sd/- (SUCHITRA KAMBLE) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 18th November, 2021. RK/-(DTDC) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi