M/S P.D. MEMORIAL RELIGIOUS & EDUCATIONAL ASSOCIATION,HARYANA vs. ACIT, FARIDABAD

PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER

All these appeals arise out of different orders of the Ld.CIT(Central), Ludhiana as well as the Ld.CIT(A)-I, Ludhiana. As the issues arising in all these appeals are common and belonging to the same assessee, for the sake of convenience they are heard together and disposed of by way of this common order.

condoned the delay in filing the Application and granted registration u/s 12AA of the Act on 16th January, 2011.

2.1. A search and seizure operation u/s 132 of the Act was conducted at the residential premises of Shri Vijender Singh Lakhan, the treasurer of the assessee Trust, on 4.8.2005. On the very same date, survey u/s 133A was also conducted at the premises of the Assessee Trust. During the course of search, cash of Rs.1,86,71,150/- and jewellery of Rs.6,15,000/- was found at the residential premises of Shri Vijender. It was also alleged that a number of incriminating documents, relating to the activities of the Trust, as well as its Members were found. The Ld.CIT(Central), Ludhiana passed an order u/s 12AA(3) of the Act dt. 29.1.2008 cancelling the registration of the Trust. Later on 9.4.2008, a Corrigendum to order u/s 12AA(3) of the Act was passed by the Ld.CIT(Central), Ludhiana stating that the cancellation of registration would be effective from 1.10.2004.

2.2. Later the Ld.CIT(Central), Ludhiana vide order dt. 13.6.2008 granted registration to the assessee Society u/s 12AA of the Act. The assessee Society had filed a fresh Application u/s 12A(a) of the Act in the prescribed proforma on 20.5.2004. In an order the Ld.CIT(Central), Ludhiana states that the registration shall have effect from the A.Y. 2008-09 onwards. Thus the registration for the Society between the period 1.10.2004 and up to the A.Y. 2008-09 was withdrawn by the Revenue vide order dt. 29.1.2008. Registration u/s 12AA was granted to the assessee for the rest of the Assessment Years.

2.3. The assessee carried the matter in appeal. The ITAT Chandigarh B Bench in ITA 396/Ch./2008 order dt. 4.7.2008 restored the issue to the file of the Ld.CIT for fresh consideration, in the light of certain subsequent developments.

2.4. Thereafter the Ld.CIT(Central), Ludhiana once again cancelled the registration granted under s.12AA of the Act vide the impugned order dt. 28.5.2009. The grounds of cancellation are as follows.

(i) The AO in the assessment order has made substantive additions like unrecorded capitation fee amounting to Rs.2478150 etc. (ii) The AO in the assessment order for the AY 2000-2001 to 2006-07 u/s 143(3)/264 of the Act dt. 27.3.2008 has clearly brought out that the funds available with the Trust were being used for purposes which do not relate to charity, as defined in terms of S.2(15) of the Act. (iii) There is no material on record to prove that the assessee is not engaged in genuine charitable activities for the period for which registration had been freshly applied for i.e. for the AY 2009-10 onwards and hence the grant of fresh registration does not prejudice the cancellation of the earlier registration granted.

“1. That the Ld.CIT(Central) was not justified in upholding his earlier order u/s 12AA dated 29.1.2008, for cancellation of the registration of the trust on the ground that activities of the trust are not genuine. 2. That the conclusions arrived at by the Ld.CIT(Central) about the genuineness of the activities are de-hors the material on record and hence needs to be set aside. 3. The appellant prays for granting any consequential relief and or legal claim arising out of this appeal before the disposal of the same. 4. The appellant prays for any addition, deletion, amendment, modification, alteration and rectification I the grounds of appeal before the disposal of the same.”

6.1. This issue is no more res integra.

(a) The Hon’ble Delhi High Court in the case of DIT(E) vs. Mool Chand Khairati Ram Trust (2011) reported in 339 ITR 622 (Delhi), held as follows. “Held: Power of cancellation of registration obtained u/s 12A came to be incorporated by way of amendment introduced u/s 12AA(3) by the Finance Act, 2010 wef 1st June,2010; Director of IT was not therefore justified in cancelling the registration u/s 12AA(3) wef Dec.2002-03 vide his order dt. 30th June,2009.”

(b) In the case of Kapoor Educational Society vs. CIT (2010) reported in 134 TTJ 250 it was held as follows. “Held: Amendment of s.12AA(3) by the Finance Act, 2010 w.e.f. 1st June,2010 is prospective in nature and if any trust/institution has been registered prior to 1st Oct.2004, either u/s 12A or 12AA, CIT has no power to cancel the registration u/s 12AA(3).”

6.2. In the above case, the Lucknow “B” Bench of the Tribunal held that, amendment to S.12AA(3) by the Finance Act, 2010 w.e.f. 1st June, 2010 is

prospective in nature and if any Trust is registered under Section 12AA or under Section 12A, the Ld.CIT has no power to cancel the registration under Section 12AA(3).

6.3. At paras 8 and 9 of the order, the Tribunal held as under:

“8. In the case of Oxford Academy for Career Development (supra), a dispute arose whether S.12AA(3) has retrospective effect and whether the CIT could cancel the registration granted to a trust/institution prior to 1st Oct.2004. The Hon’ble Jurisdictional High Court Lucknow Bench in the case of Oxford Academy for Career Development(supra) at headnotes held as under: ‘The order cancelling the registration granted to a trust or institution u/s 12AA being a quasi judicial order does not fall within the category of orders mentioned u/s 21 of the General Clauses Act, 1897, which provides that the power conferred on an authority to issue orders includes the power conferred on an authority to issue orders include the power to rescind such orders, and the CIT earlier granting the registration to a trust or institution. S.12AA(3) was incorporated wef 1st Oct.2004, to empower the CIT to cancel the registration granted to a trust or institution. The object of this provision is not clarificatory or explanatory. So prior to that date, the authorities granting registration had no inherent power to withdraw or revoke the registration already granted. (Emphasis ours).

jurisdiction to cancel the registration granted to the assessee society u/s 12A and that the order passed by the CIT u/s 12AA(3) is without jurisdiction, bad in law and liable to be quashed. We accordingly quash the impugned order of the Ld.CIT cancelling the registration granted to the assessee society u/s 12A of the Act on 1st March,1999. The appeal of the assessee stands allowed.” (emphasis ours)

(c ) The Hon’ble Allahabad High Court in the case of Oxford Academy for Career Development vs. Chief CIT, reported in 315 ITR 382 (2009), held as follows: “S.12AA(3) was incorporated in the Act wef 1st Oct.2004 and not applicable retrospectively, registration granted to assessee on 1st April,1999 could not therefore be cancelled by CIT by invoking powers u/s 12AA(3), even assuming, the CIT has power to rescind the order of registration on the ground that the registration had been obtained by practicing fraud or forgery, there was nothing in the show cause notice or in the impugned order, alleging that the petitioner had obtained the registration by practicing fraud or forgery.”

(d) Similarly in the case of M/s Ajit Education Trust vs. CIT(2010) 46 DTR 482 (ITAT Ahd), it was held that “Amendment of sub s.(3) of S.12AA wef 1st June,2010 should not be applicable retrospectively and its operation has to be effective from the date it was introduced and onwards and therefore CIT was not justified in cancelling, saying there was nothing to show cause notice in the impugned order alleging that the petitioner had obtained the registration by practicing fraud or forgery.”

(e) Similar is the proposition in the case of DIT vs. NH Kapadia Education Trust, ITAT Ahmedabad Bench reported in 136 ITD 111 (Ahmd.)

6.4. Applying the propositions laid down in these case laws to the facts of this case we hold that the action of the Ld.CIT in cancelling the registration granted to the assessee u/s 12AA of the Act, with retrospective effect from 1.10.2004 vide order dt. 28.5.2009 is bad in law.

6.5. Even otherwise the Hon’ble Madras High Court in the case of CIT vs. Sri Guru Gorakh Nath Charitable Educational Society reported in 378 ITR 685 (P&H): had held that “The provisions of S.12AA also give the power under sub section (3) to cancel the registration of the trust if it is not carried out in accordance with the objects of the Commissioner has to keep in mind that he is not to act as an assessing authority while deciding the application u/s 12AA and the enquiry regarding genuineness of the activities with a charitable purpose is to be kept in mind. The objects of the trust, thus, have to be taken into consideration.”

6.6. The Hon’ble Karnataka High Court in the case of CIT vs. Islamic Academy of Education (2015) 54 Taxmann.com 255 (Karnataka) held that “S.12A read with S.80G of the Income Tax Act, 1961 Charitable or religious trust – Registration of (Cancellation of registration ) – Whether, where assessee trust was fulfilling its main object of imparting education by establishing educational institution and taking admission of students every year, only on basis that trustees were misappropriating funds of said trust, registration of trust could not be cancelled – Held, yes in favour of the assessee.”

6.7. U/s 12AA(3) of the Act, the Ld.CIT, Central, Ludhiana can cancel the registration earlier granted to the assessee only if two conditions are fulfilled. These are (a) the activities of the Trust or Institution are not genuine, or (b) the activities are not being carried out in accordance with the objects of the Trust or Institution.

6.8. The Ld.CIT, Central, Ludhiana in his order has not made any allegation that the activities of the Trust are not genuine. In fact a perusal of the assessment orders reveal that the A.O. has accepted that the activities of the Trust is education. It is also not the case of the Ld.CIT that, the assessee is not carrying out activities in accordance with the objects. On the same objects and activities, a fresh registration was granted u/s 12AA of the Act to

the assessee vide order dt. 13.6.2008 with effect from 2009-10. Thus the cancellation of registration is bad in law.

6.9. Further we observe that in the assessment orders for the A.Y. 2005-06 and 2006-07 there is no addition made by the A.O. on the ground that capitation fee of Rs.24,78,150/- was collected by the assessee. Thus the ground on which the cancellation was done is factually incorrect. The other finding of the Ld.CIT was that the funds available with the Trust were used for the purposes not relating to charity. The Ld.CIT has not substantiated his conclusion and has only made a bald statement. On the other hand the A.O. for the A.Y. 2005-06 as well as for the A.Y. 2006-07 accepted the return of income filed by the assessee. Except for minor adjustments, there is no finding of using the funds for purposes other than education/charity. Hence this finding of the Ld.CIT is also factually incorrect.

6.10. In any event this is not a ground on which the registration can be cancelled u/s 12AA(3) of the Act. Receiving capitation fees cannot be a ground for cancellation. The Hon’ble Karnataka High Court in the case of CIT vs. Islamic Academy of Education (supra) held that registration cannot be cancelled on the basis that the Trustees were misappropriating the funds of the Trust. Similar are the other decisions of the other High Courts which are referred to above.

6.11. The only adverse finding in the assessment order was in respect of cash of Rs.1.53 crores found from the treasurer of the Trust for the A.Y. 2006-07. The Ld.CIT(A) in the quantum appeals vide order dt. 17.5.2010 deleted the entire addition for the reasons given in his order. Thus this circumstance also does not survive.

6.12. Hence for all these reasons, in our considered opinion, he has exceeded his jurisdiction in cancelling the registration granted dt. 16.1.2001, u/s 12AA

of the Act. Hence this order dated 28.5.2009, passed u/s 12AA(3) is hereby quashed.

i) Whether on the facts and in the circumstances of the case, the Ld. CIT (A) was right in holding the assessment completed u/s 147 of the I. T. Act to be erroneous by relying on the issue of change of opinion -not allowed for reopening the assessment and ignoring the fact that wrong application of law cannot be permissible view taken by the AO at the time of assessment and can be changed for appreciating the law. ii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred both in law and on facts in deleting the addition of Rs. 1,16,60,000/- made by the AO u/s 2(24)(iia) of the Income Tax Act, 1961. c) by giving contradictory findings in his order by endorsing the stand of the Assessing Officer on the applicability of Section 2(24)(iia) of the Income Tax Act on the one hand and deleting the addition of Rs. 1,16,60,000/- on the other hand, without remanding the submission of the assessee to the Assessing Officer for his views. d) relying on the additional evidence produced by the assessee before Ld. CIT(A) even though there is no documentary evidence produced by the assessee before the AO during the course of assessment proceedings to establish that the donation received by the assessee was specifically meant for Corpus.

8.1. After hearing rival contentions we find that the order of the A.O. cannot be sustained, consequent to our finding that the Ld.CIT, was wrong in

cancelling the registration of the assessee, by invoking his powers u/s 12AA(3) of the Act. The assessment was framed consequent to cancellation of the registration granted to the assessee u/s 12AA of the Act.

8.2. On the issue of reopening we uphold the following finding of the Ld.CIT(A).

“I agree with the argument of the AR that the AO as fully aware of the fact 'of cancellation of registration vide CIT(C) order dated 29.01.2008 and it on this basis the assessment had been framed on the basis of seized documents at an income of Rs.28,30,541/-. The facts regarding corpus donation of Rs.1,16,60,000/- had been inquired into and no addition on the same was found to be called for. The subsequent cancellation of registration after the setting . aside by the Hon'ble ITAT had no impact on the facts of the case as on the date of passing order u/s 143(3)/264 the registration of the trust stood cancelled already. It therefore becomes clear that the AO had proceeded to reopen the assessment framed u/s 143(3)/264 without brining on record any new fact that was not available to the AO at the time of original assessment. This means that it is only an attempt to rectify the perceived mistake in the order by resorting to the provisions of Sec.148 which amounts to review of his own order. There are catena of judgements by various High Courts that assessment framed u/s 143(3) cannot be reopened on the basis of change of opinion and AO did not have the power of review of his own order u/s 148. If the AO of the view that his assessment order suffers from any infirmity/mistake which is prejudicial to the interest of revenue, then the same could be proposed for review u/s 263. The analysis of following judicial pronouncements makes it amply clear that review of the assessment order by invoking provisions of section 148 is not permitted.”

8.3. As we have upheld the finding of the First Appellate Authority that the reopening is bad in law, and as we have also held that the very basis on which assessment was made seized to exist in view of our order in ITA 986/Del/2009, we dismiss this appeal by the Revenue.

9.1. The assessment order passed by the A.O. u/s 143(3) r.w.s. 147 of the Act on31.12.2010 was revised by the Ld.CIT u/s 263 of the Act on the ground that this order was erroneous and prejudicial to the interest of Revenue. In view of

our decision in ITA no.986 this order u/s 263 of the Act has to be quashed. Even otherwise, when the AO has made of addition of corpus donation of Rs.1,16,00,600/- and when this issue was the subject matter of appeal before the Ld.CIT(A), the conclusion of the Ld.CIT, Central Gurgaon that there is an error in the order of the AO dt. 31.12.2010, which is prejudicial to the interest of Revenue is wrong and hence cannot be sustained. The reason for reopening of the assessment was cancellation of registration u/s 12AA of the Act. Consequently assessments were framed of the Ld.CIT invokes powers u/s 263 of the Act for the very same reason without taking into account the assessment proceedings. Thus this order of the Ld.CIT is cancelled and the appeal of the assessee is allowed.

This is an appeal filed by the Revenue directed against the order of the Ld.CIT(A)-I, Ludhiana dt. 17.5.2010 pertaining to the A.Y. 2006-07 on the following grounds.

2005 to the date of search with it and not deposited the same with the bank. 3. The Ld, CIT(A) has erred both in law and 011 facts of the case in deleting an addition of Rs, 1,86,71, 150/- made by the A.O. u/s 69A of the Act on account of unexplained money/cash found during search on 04.08.2005 without fully appreciating the statement of one Sh. Ram Niwas, Superintendent of PDM College of Engg. (an employee of one of the Institution of the assesee trust ) that whenever the fee is received from the students, it is deposited in the bank account of the Institute on the same day or at the most next day and that on today i.e. 04.08.2005 (the date of search), there is no cash balance with the Institute and as such when there was no cash with the Institute for deposit in the bank on the day of search, then from where the cash so found with the trust came in. 4. The Ld, CIT(A) has erred both in law and on facts of the case in deleting an addition of Rs.l,86,71,150/- made by the A/O. u/s69A of the Act on account of unexplained money/cash found during search on .04.08.2.005 heavily relying on the statement of Shri B.S. Lather,Treasurer of the assessee trust without taking cognizance of the documents found and seized during search (marked as D-19, D-20, D-21 and D-29) which prove that trust PDMRA has been accepting capitation fee over and above the normal fee, leading to conclude that the cash so found during search was the capitation fee received by the assessee trust over and above the normal prescribed fees and thus rightly added to the returned Income by the Assessing Officer.

23.09.2005 in the presence of the authorized representative of the assessee trust and extracts taken there from. Hence, any entry made in the books of accounts by the institutes under PDMREA till the date of search Le. 04.08.2005 have not been examined by the Ld. CIT(A) and therefore, his order suffers from infirmity on this account. 7. The Appellant craves leave to add or amend the grounds of appeal on or before the appeal is heard and disposed off.

10.1. Facts in brief:- During the course of search and seizure at the residence of Shri BS Mathur, the treasurer of the assessee Society and Mrs. Bimla Singh on 4.8.2005, the following cash was found and seized .

10.2. Shri BS Mathur was examined on oath on 4.8.2005. He submitted that out of the total cash, approximately Rs.8 lakhs belongs to him and that the remaining belongs to different Institutions of the assessee Society, of which he is the Treasurer. On the amount of Rs.33 lakhs found in the possession of the Chair Person, he submitted that this was kept with her for emergency purposes and that the cash also belongs to the colleges of the Society. He further explained that the books of accounts were not up to date and hence would not be in a position to give the cash balance as per the books.

10.3. One Shri Ram Niwas the Superintendent of the assessee Society was also examined on oath on 4.8.2005. In reply to questions Mr.Ram Niwas submitted that no cash amount is kept in the accounts branch of the college and that all the fee received is deposited in the bank account either on the same day or at the maximum, the next day. He clarified that he receives fee

only in respect of engineering college and not in respect of other colleges i.e. pharmacy, polytechnical and public school. The A.O. made an addition. On appeal the Ld.CIT(A) deleted the same.

10.4. Aggrieved the Revenue is in appeal.

10.5. After considering rival submissions we find that the assessee has updated its incomplete books of accounts. While doing so all these cash receipts were recorded and cash balance available as per the cash book of various colleges came to Rs.1,77,05,365/-. These books have been audited and the AO during the course of assessment proceedings did not reject these books. The assessments have been framed on the basis of these books. In fact the AO in order passed u/s 154 of the Act on 10.10.2008 allowed the loss as per the books. Nowhere in the impugned assessment order passed u/s 143(3) r.w.s. 264 of the Act the AO has recorded a finding that the books of accounts have been rejected. When the cash found is as per the book balances, no further addition can be made. Reliance was placed on the statement of Mr.Ram Niwas by the AO is erroneous, for the reason that, he was talking only about the engineering college. Once the cash found is as per balance available in the books and when the assessments are framed based on these books, without rejecting the same, then the addition made of cash found, would be double addition. Thus we agree with the finding given by the Ld.CIT at pages 10 and 11 of his order. In the result this appeal of the Revenue is dismissed.

Both parties submitted that the issues as well as the findings of the A.O. and that of the Ld.CIT are identical with the facts in ITA 4340/Del/11 for the A.Y. 2005-06. Both parties adopted the arguments advanced by them in that appeal, for this appeal also.

11.1. Consistent with the view taken in ITA 4340/Del/11 for the A.Y. 2005- 06, we uphold the order of the Ld.CIT(A) and dismiss this appeal of the Revenue.

12.1. After hearing rival contentions we have to allow this appeal of the assessee in view of our decision in ITA 986/Del/2011, wherein we quashed the order of the Ld.CIT(A) dt. 28.5.2009, cancelling the registration granted u/s 12AA of the Act.

12.2. In the result the appeal of the assessee is allowed.

Order pronounced in the Open Court on 07th April, 2016.

Sd/- Sd/- (SUCHITRA KAMBLE) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: the 07th April, 2016

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