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Income Tax Appellate Tribunal, DELHI BENCH ‘D’ : NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI KULDIP SINGH
ASSESSEE BY : Shri Sanjay Kumar, CA and Shri Akash Garg, Advocate REVENUE BY : Shri J.K. Mishra, CIT DR Date of Hearing : 27.11.2018 Date of Order : 30.11.2018 O R D E R
PER KULDIP SINGH, JUDICIAL MEMBER :
The appellant, Sarv Hitkari Educational Society (hereinafter referred to as ‘the assessee society’) by filing the present appeal, sought to set aside the impugned order under section 12AA (3) of the Income-tax Act, 1961 (for short ‘the Act’) dated 03.09.2015 passed by Ld. CIT (Exemptions), New Delhi on the following grounds inter alia that:-
“1. On the facts and circumstances of the case the order passed by the ld. CIT (E) is bad in law and illegal and deserves to be quashed.
2. On the facts and circumstances of the case and in law the ld. CIT (E) has grossly erred in withdrawing the registration u/s 12A granted to the assessee society sine 27.12.1999 vide an order u/s 12AA (3) dated 03.09.2015, further followed by an addendum order dated 04.09.2015 u/s 12AA (3) making the withdrawal retrospectively effective from 2008-09 without affording an opportunity.
3. On the facts and circumstances of the case, the grounds on which the aforesaid registration granted to the society has been withdrawn have no substance/merits in law and thus the order of ld. CIT (E) deserved to be quashed.”
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : on receipt of the report from the Assessing Officer that the assessee society had disposed off a land belonging to it for a consideration of Rs.7,50,000/- out of books of account and consequent addition of Rs.7,50,000/- was made u/s 69B of the Act. Treating the factum of disposing off its land for Rs.7,50,000/- by the assessee Trust without permission as ingenuine activity, the ld. CIT (A) cancelled the registration granted to the assessee society u/s 12A of the Act.
3. Feeling aggrieved, the assessee society has come up before the Tribunal by way of filing the present appeal challenging the impugned order passed by the ld. CIT (E).
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Undisputedly, the assessee society being engaged into charitable activities was granted registration u/s 12A of the Act on 27.10.1999. It is also not in dispute that during the year under assessment, the concerned AO made addition of Rs.7,50,000/- to the income of the assessee society u/s 69B of the Act by noticing that assessee society has sold land belonging to it without permission of ld. CIT (E) which makes its activities ingenuine. It is also not in dispute that initial sale deed dated 24.07.2006 qua land measuring 11 canals 19 marlas was executed by one Darshan Singh in favour of assessee society. It is also not in dispute that vide sale deed dated 26.09.2007, the same land measuring 11 canals 19 marlas stood re-transferred to Darshan Singh by the assessee society. It is also not in dispute that the addition of Rs.7,50,000/- made by the AO u/s 69B has been accepted by the assessee society having not been appealed against.
Further, on the other hand, the ld. DR for the Revenue to repel the arguments addressed by ld.AR for the assessee contended that since the CIT (E) had imposed a condition while granting registration u/s 12A of the Act that the assessee society will not transfer its property except with permission, the registration has been rightly cancelled.
No doubt, section 12AA (3) empowers the ld.CIT (E) to cancel the registration of any Trust in case, “he is satisfied that the activities of such Trust are not genuine or are not even carried out in accordance with the object of the Trust.”
Before proceeding further, we would like to peruse the show-cause notice issued by ld. CIT (E) for cancellation of registration granted u/s 12A to the assessee society, available at pages 60 & 61 of the paper book, which is extracted for ready perusal as under :-
“OFFICE OF THE DIRECTOR OF INCOME TAX (EXEMPTIONS), 3RD FLOOR, AAYKAR BHAWAN, LAXMI NAGAR DISTRICT CENTRE, DELHI.110092 PAN: Dated: To, The Principal Officer, Sarve Hitkari Educational Society New Delhi Regd 389, Deepali, Pitampura, New Delhi-34 Sir, Sub : Show cause notice for withdrawal of registration u/s 12AA(3) of The Income-tax Act, 1961 – reply regarding.
This office is in receipt of a report from the concerned Assessing Officer of your society, wherein it has been reported that society has sold a land for Rs.7,50,000/- out of books. Since the said land was sold out of books, a sum of Rs.7,50,000/- was added u/s 69B of the Act and taxed in A.Y. 2008-09 accordingly.
In view of above, it is clear that society has entered into purchase and sale consideration out of books which is a serious violation under the IT Act. Further, while granting registration u/s 12AA, the office of DIT(E) vide order dated 25/10/1999 has imposed certain conditions, one of the conditions, vide item No.(vii) is reproduced as under:-
No asset shall be transferred without the knowledge of the undersigned to anyone including to any trust society non-profit company.
Since the society has sold the land without the permission of this office and moreover the transaction has not been accounted in the books of accounts which was confronted to the society and the same admitted. There is gross violation of IT provisions. Hence genuineness of charitable activities earned by your society is not established.
In light of above facts and non-compliance to the conditions laid down in the registration certificate, you are required in show cause in writing as to why registration granted u/s 12A to the society be not withdrawn in your case.
In this regard, your case is fixed for hearing on 14/6/2011 at 10.30 AM. If you do not wish to avail the opportunity personally, you may submit your reply in writing through an Authorized Representative while any such order is passed. Please note if in case of non- compliance, it will be presumed that you have nothing to say in this regard and the matter will be decided on the basis of material available on record and in accordance with the provisions of the Act. Also produce books of account for F.Y. 2006-07 and 2007-08 on the above date. SD/- (P.V.Rao) Director of Income Tax (Exemptions). Delhi.
Bare perusal of show-cause notice, reproduced above, goes to prove that the ld. CIT (A) has not called upon the assessee Trust to show-cause that its activities are not genuine or are not being carried out in accordance with the object of the Trust rather cancelled the registration on the sole ground that the assessee has transferred its land without prior permission of the CIT (E) and hence indulged into ingenuine activity.
The ld. AR for the assessee society to substantiate his arguments that the land in question has never been transferred in the name of the society as it was without any consideration, drew our attention towards remand report given by the AO, available at pages 98 to 102 of the paper book. AO, in his remand report regarding purchase of land by the assessee society vide sale deed dated 24.07.2006 from Darshan Singh, brought on record the fact that since the son of Darshan Singh, owner of the land in question, was working as workshop superintendent in assessee society’s college, he has transferred the land in question in the name of assessee society so as to show the total holding of 18.5 acres of land with the assessee society as per conditions laid down by All India Council of Technical Education (AICTE).
Though an account payee cheque no.420931 dated 24.07.2006 for a consideration ofRs.7,37,000/- was taken by him but the same was never encashed and possession of the land was also not transferred to the assessee society. AO, in his remand report, has also categorically mentioned that stamp duty for registration of both the sale deeds dated 24.07.2006 & 26.09.2007 have been incurred by the assessee society which have been duly recorded in the books of account and no payment has been mentioned in the books of account for the cost of purchase of land in question. AO, in his remand report, has also mentioned that the real motive for execution of the sale deed by Darshan Singh in assessee society’s name to satisfy the conditions laid down by AICTE to show the land measuring 18.5 acres to start a polytechnic college.
No doubt, the land in question was transferred in the name of assessee society by Darshan Singh by virtue of the sale deed dated 24.07.2006 but its sale consideration has never been passed as the cheque for Rs.7,37,000/- handed over to Darshan Singh has never been encahsed nor any payment in cash is proved to have been made to Darshan Singh by assessee society as books of account has been duly scrutinized by the AO. So the sale deed dated 24.07.2006 in favour of the assessee society being without consideration is void ab initio. Moreover, the land in question stood re-transferred in the name of Darshan Singh by virtue of sale deed dated 26.09.2007.
When the assessee society has not become the owner of the land in question by virtue of sale deed dated 24.07.2006, the same being without consideration, there is no question of violating the terms and conditions laid down by the ld. CIT (E) for transferring the land of the assessee society without his permission. Moreover, when it is also undisputed fact that possession of land remained throughout with Darshan Singh, it shows the statements of Darshan Singh and Rakesh Chand Bajaj recorded by the AO during remand proceedings that the land in question has merely shown to have been transferred to satisfy the conditions laid down by the AICTE to start a polytechnic college are true and correct and as such, no malafide can be attributed. Rather it was a mutual arrangement between them.
In view of what has been discussed above, we are of the considered view that when the assessee society has not become the owner of the land in question, there is no question of indulging in into ingenuine activities or that the activities of assessee society are not being carried out in accordance with the object of the Trust.
Moreover, it is nowhere the case of the CIT (E) that the assessee society is not running in accordance with its aims and objects. No doubt, assessee society has entered into a sham transaction by virtue of the sale deeds dated 24.07.2006 and 26.09.2007 qua the land in question in order to misrepresent AICTE to get the approval for setting up a polytechnic college, but this fact has not proved in any manner that the activities of the assessee trust are not genuine or are not being carried out in accordance with its aims and objects.
Rather in the remand report it is recorded by the AO that assessee society is running an educational institution having 1000 students on its roll with huge teaching staff and no complaint has been received as to its activities.
The contention of the ld. DR that once the addition made by the AO u/s 69B of the Act qua the sale of land in question for a consideration of Rs.7,50,000/- by the assessee society has been accepted by the assessee, the assessee society is estopped from claiming that it has not transferred the land in the name of Darshan Singh, is not sustainable as discussed in the preceding paras that it cannot be treated as a sale transaction at all being without consideration, factum of merely accepting the addition made by AO u/s 69B, would not change the legal position.
So, we are of the considered view that ld. CIT (E) has erred in cancelling the registration granted to the assessee society u/s 12A of the Act. Consequently, appeal filed by the assessee is allowed and CIT (E) is directed to restore/grant the registration to assessee society u/s 12A of the Act. Order pronounced in open court on this 30th day of November, 2018.