DISHA EDUCATION SOCIETY,RAIPUR vs. COMMISSIONER OF INCOME TAX, EXEMPTION, BHOPAL

Per Vijay Pal Rao, JM:

These two appeals by the Assessee are directed against the composite order dated 07.03.2023 of Commissioner of Income Tax (Exemption), rejecting application of the assessee for registration u/s 12A and approval u/s 80G(5) of the Act. The assessee has raised following grounds in these two appeals:

ITANo.164/Ind/2023

“1. That on the facts and in the circumstances of the case and in law, the order dated 7/3 / 2023 passed u/s 12AB(1)(b) of the Act by ld. CIT(Exemption), Bhopal is illegal and void-ab-initio.

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ITA No.164 & 165/Ind/2023 Disha Education Society Page 2 of 14 2. That on the facts and in the circumstances of the case and in law, the CIT(E) erred in rejecting application of the appellant for registration u/s 12A(1)(ac)(iii) of the Act. 3. That on the facts and in the circumstances of the case and in law, the ld. CIT(Exemption), Bhopal erred in treating the violation of GST Law, Non-payment of TDS, Non-provisioning of interest on bank loan and delay payment of PF/ESIC as material violation to the object of the appellant society. 4.The appellant craves to add, alter or delete any of the grounds of appeal during the course of appellate proceedings.” ITANo.164/Ind/2023

“1. That on the facts and in the circumstances of the case and 0 in law, the order dated 7/3 / 2023 passed u/s 80G(5)(ix) of the Act by ld. CIT(Exemption), Bhopal is illegal and void-ab-initio. 2. That on the facts and in the circumstances of the case and in law, the CIT(E) erred in rejecting application of the appellant for registration u/s 80G(5)(ix) of the Act. 3. That on the facts and in the circumstances of the case and in law, the Id. CIT(Exemption), Bhopal erred in treating the violation of GST Law, Non-payment of TDS, Non-provisioning of interest on bank loan and delay payment of PF/ESIC as material violation to the object of the appellant society. 4. The appellant craves to add, alter or delete any of the grounds of appeal during the course of appellate proceedings.”

ITA No.164 & 165/Ind/2023 Disha Education Society Page 3 of 14 the CIT(E) denied the regular registration while passing the impugned order.

i) earlier registration was granted to the assessee was withdrawn on the ground of involvement of money laundering.

ii. Violation of the law on account of non-payment of loan to the bank, short fall of TDS as per the audit report, outstanding/belated payment of PF & ESIC, non-payment of GST on rent receipt and the retirement benefit of employee’s are not accounted as per AS-15.

3.1 Ld. Sr. Counsel has submitted that all these objections raised by the CIT(E) has nothing to do with the violation of any provisions of law. Further the cancellation of earlier registration has been restored by this Tribunal vide order dated 08.06.2023 in ITANo.32 & 60 of 2019. He has further submitted that the non payment of interest/loan to the banks/financial institutions does not amount to violation of any law but it is only non-performance of contractual obligation and recovery proceedings are pending before DRT. He has filed the copy of order sheets in the Original Application pending before the DRT, Jabalpur in the matter of Central Bank of India vs. Disha Education Society in OA/540/2017. Ld. Sr. Counsel then submitted that in any case when the matter is still sub-judice then it is not violation of any law while carrying out activities and achieving the objects of the assesse society for imparting education. Further short deduction of TDS as pointed out in the audit report is also not a violation of any law relating the activities of the assesse society but this can at the most lead to the disallowance of expenditure or deferment of the claim of expenditure. He has pointed out that there is no outstanding of PF and ESIC for the financial years 2020- 21 & 2021-22 onwards but only for one year i.e. F.Y.2019-20 there was outstanding of PF & ESIC. Therefore, this cannot be a ground for rejection Page 3 of 14

ITA No.164 & 165/Ind/2023 Disha Education Society Page 4 of 14 of application for registration u/s 12AB of the Act. Ld. Sr. counsel then submitted that the assessee society is exempt from GST registration as per the Notification no.12/2017 Central Tax (Rate ) dated 28.07.2017. Therefore, the assesse was not required to pay the GST.

3.2 As regards the provision for retirement benefit of the employees as per AS-15, Ld. Sr. counsel has submitted that the CIT(E) has considered the notes of auditor wherein the auditor has remarks that the assesse has not made the provisions for retiral benefits as per AS-15. However, that does not amount to violation of any law governing the assessee and its charitable activities. He has pointed out that there is no requirement as per the provisions of Income Tax Act or any other Act that assessee should maintain its account as per AS-15. He has referred to clause (f) of explanation to section 12AB(1)(b) and submitted that the non-compliance of requirement of any other law as referred in sub-clause (i)(B) of clause (b) of sub-section (1) has been explained as the provisions of law and the order, direction or decree by whatever name called holding that such non- compliance as occurred has either not been disputed or has attained finality. Therefore, Ld. Sr. Counsel has submitted that the non-payment of loan/debts still pending before the DRT and no order or direction or decree has been passed and consequently it has not attained finality. Therefore, it will not amount to non-compliance of requirement of any other law. He has also referred to the record placed in paper book no.2 to show the payment of outstanding PF & ESIC as well as TDS. Ld. Sr. Counsel has submitted that there is no statutory requirement of making any provisions of retiral benefit of the employees. Though, the retirement benefits is an obligation to be paid by the assessee at the time of retirement and hence non-accounting or making provision for retirement benefit is not in violation of any other law. He has referred to the reply of the assessee before the CIT(E) and submitted that the assesse has explained that non-payment of loan installments and interest thereon is not in contravention of any statute or law being in force but it is only a contractual obligation and recovery proceeding are pending before DRT.

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ITA No.164 & 165/Ind/2023 Disha Education Society Page 5 of 14 Similarly non-making of provisions of retirement benefit of employees does not fall within the violation of any other law and the auditor has pointed out that it is only as per the AS-15 the assesse is required to make the provisions in the accounts. Similarly the assessee has explained that non- payment/charging of GST is also not in violation of object of the assesse society or any law as the assesse is exempt from registration for GST. Thus, Ld. Sr. counsel has submitted that the reasons which are made basis of rejection of application of assessee for registration u/s 12AB as well as approval u/s 80G(5) by CIT(E) are not in conformity with the provisions of section 12AB of the Act. He has relied upon the following decisions:

“1. Doctor Madal Lal Atri Charitable Trust versus CIT (Exemption) Lucknow ITA/03/Agr/2021. 2.Shree Guru Govind Singh Educational Trust versus CIT (Exemption) Lucknow ITA 8962/Del/2019. 3.Bai Navajbai Tata Zoroastrian Girls School versus CIT (Exemption), Mumbai ITA/2177/Mum/2021 4.Ananda Social & Educational Trust versus Commissioner of Income Tax [2020] 114 taxmann.com 693 (SC) 5.CIT versus Red Rose School [2007] 163 Taxman 19 (Allahabad) 6.Commissioner of Income-tax (Exemptions), UP versus Reham Foundation LKO [2019] 111 taxmann.com 379 (Allahabad) 7.Commissioner of Income-tax, (Exemption) v. Association of Third Party Administrators [2020] 114 taxmann.com 534 (Delhi) 8.Chamber of Indian Charitable Trusts v. PCIT Mumbai I.T.A. Nos. 2168 & 2169/Mum/2021.”

ITA No.164 & 165/Ind/2023 Disha Education Society Page 6 of 14 its finding by various decisions. He has relied upon the impugned order of the CIT(E).

i. The registration u/s 12AA of the Income Tax act 1961 was previously cancelled vide order dated 14.11.2018 on the various grounds mentioned in the said order and matter is still pending with ITAT.

ii.) As per the audit report the auditor has made remarks that the assessee has not accounted interest on the outstanding term loan raised from Central Bank of India, Raipur

iii.) The assessee has not deducted or paid TDS against the interest payment to Cholamandlam investment and finance Company Limited.

iv) The assesse society had not paid PF and ESIC as well as TDS as on 31.03.2020

v.) As per the audit report there are various rental income received by the assessee during the last three year however no GST is charged by the assesse.

vi.) The assesse society has not complied with the provisions regarding retirement benefit payable to the employees as per the AS-15 issued by the institute of Chartered Accountant of India

5.1 Thus, the CIT(E) has observed that there is a violation to various other law as per section 12AB(1)(b)(i) of the Act. The assessee filed its reply which was not accepted by the Commissioner while passing the impugned order. Ld. CIT(E) has held that the non-payment of loan and Page 6 of 14

ITA No.164 & 165/Ind/2023 Disha Education Society Page 7 of 14 interest on outstanding loan to the bank is a violation of other law. Similarly the non-charging of GST, outstanding of PF and ESI and short deduction of TDS is also held to be violation of the law as per section 12AB(1)(b)(i) of the Act. Thus, the CIT(E) has rejected the application for registration u/s 12AB as well as approval u/s 80G(5) by considering the fact that the earlier registration granted u/s 12A was cancelled on the ground of money laundering and there are violations of other law time being in force. The CIT(E) has relied upon the judgment of Hon’ble Supreme Court in case of New Noble Educational Society vs. Chief Commissioenr of Income Tax to fortify its finding.

5.2 We will deal with the reasons given by CIT(E) for rejection of application one by one. As regards the cancelation of the registration granted earlier u/s 12AA of the Act. We find that the said cancelation order dated 14.11.2018 has been set aside by this tribunal vide order dated 18.06.2023 in ITANo. 32 & 60 of 2019 in para 11 to 17 as under:

“11. We have thoughtfully considered the submissions and referred to case laws relied upon by the assessee. The assessee’s contention has got merit which is further substantiated by the department by granting them registration u/s 12A(1)(ac)((vi) & 80G(5)(iv) of the Income Tax Act on 10.03.2022. In view of the aforesaid observations, we do not see any substance in the contention of the department and therefore, are of the view that once the department itself has accepted that the assessee’s activities are genuine, the cause for invoking provisions of section 10AA(3), effecting the cancellation of registration u/s 12A becomes nullified and therefore, considering the explanations and decisions in favour of various donors allegedly involved in the transactions of bogus donations who have granted donations to the assessee trust, we are of the opinion that the order of cancelation by ld. CIT(E) cannot survive, since the registration is granted to the assessee society having no change in its activities, byelaws and objects in a later year. We therefore, set aside the order of ld. CIT(E) and direct to restore registration u/s 12A of the society. In the result grounds raised in the present appeal are allowed. In the result, appeal no. 32/RPR/23019 of the assessee is allowed. 12. Now, we are taking the appeal filed by the assessee in ITA No. 60/RPR/2019, wherein the assessee has challenged the order of ld. CIT(E), Bhopal dated 15.02.2019 regarding cancellation of approval u/s 10(23)(c)(vi).

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ITA No.164 & 165/Ind/2023 Disha Education Society Page 8 of 14 13. The assessee has raised the following grounds under this appeal. “1. That on the facts and circumstances of the case and in law, The learned Commissioner of Income Tax (Exemption) erred in cancelling the approval granted u/s 10(23C)(iv) of the Act vide order dated 15.02.2019. 2.That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Exemption) erred in not following the principles of natural justice while cancelling the approval granted to the appellant u/s 10(23C)(iv) of the Act. 3. That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Exemption) could not point out a single instance of misapplication of the funds of the appellant towards the objects of the appellant and also could not point out single instance wherein the appellant has deviated from its objects. 4. That on the facts and circumstances of the law and in law, The Commissioner of Income Tax (Exemption) relied on various reports and other documents which were irrelevant to the facts of the case of the appellant and same also not confronted to the appellant even after specific request for the copy of the same.” 14. Brief facts of the case are that, the assessee whose registration u/s 12A has already been cancelled u/s 12AA(3) of the Act vide order dated 14.11.2018. Subsequently, a proposal was received from the AO duly recommended by the range head for cancellation of approval given to the assessee trust u/s 10(23)(c)(vi) of the Act. The ld. CIT(E), Bhopal has discussed the involvement of some entities in money laundering activities from whom the assessee has received bogus donations. A show cause notice was issued on 03.12.2018 requesting the assessee society to explain as to why the exemption u/s 10(23)(c)(vi) should not be cancelled of the assessee. The written submission dated 06.02.2019 in response to the show cause notice were made by the assessee. The submissions of the assessee are duly considered, however, the same were not found acceptable by the department. The ld. CIT(E) has noted various information received from ld. CIT(E), Kolkata as well as from DCIT (Inv.), Units 7(iv), Mumbai, discussed the modus operandi pertaining to bogus donations, reproduced relevant part of the statements recorded u/s 133A of the IT. Act and has concluded that the assessee societie’s activities are found to be not genuine, even the donations received and shown in its accounts are nothing but bogus accommodation entries. In light of such irregularities pointed out, the ld. CIT(E) considered that the assessee society is not entitled for approval u/s 10(23C)(vi) of the I.T. Act, 1961 and therefore, the approval granted u/s 10(23C)(vi) by the then ld. CIT(E), Raipur vide dated 22.09.2008 was withdrawn w.e.f 01.04.2010.

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ITA No.164 & 165/Ind/2023 Disha Education Society Page 9 of 14 15. The ld. AR of the assessee society, at the outset, has submitted and reiterated the facts and submissions made in ITA No. 32/RPR/2019, which has been discussed in that forgoing paras of this order. 16. The ld. CIT-DR also vehemently supported the order of ld. CIT(E) and reiterated their submissions as discussed in ITA No. 32/RPR/2019 in that forgoing paras. 17. We have considered rival submissions since the cancellation of registration u/s 12A is restored by us in terms our observations hereinabove, in ITA No. 32/RPR/2019, we are of the considered view that since, the provisional registration u/s 12AA(i)(ac)(vi) and 80G(v)(iv) of I.T. Act has already been granted by ld. PCIT on 10.03.2022, therefore, the activities of the assessee societies are considered as genuine. In back drop of aforesaid discussion, we are inclined to set aside the order of ld. CIT(E) withdrawing the approval to the assessee society u/s 10(23C)(vi) dated 15.02.2019 and direct ld. CIT(E) to restore approval u/s 10(23C)(vi) to the assessee society. In the result ground of the appeal in the instant appeal of the assessee are allowed.” Therefore, the first reason cited by the CIT(E) while rejecting the application for registration u/s 12AB and approval u/s 80G(5) is no more in existence as this tribunal has already set aside the said order of cancellation and restored the earlier registration granted to the assessee u/s 12AA of the Act.

5.3 The second objection of the CIT(E) is regarding the non-payment of interest on outstanding loans to Central Bank of India, the recovery proceedings of the same are pending before the DRT, Jabalpur in OA 540/2017. It is pertinent to note that the non-payment of the loan and interest to the bank would amount to non-discharging contractual obligation as per the loan agreements and only if a decree or order of the court is passed against the assessee which has attained finality the same can be considered as non-compliance of the order/decree of the court. The conditions as prescribed u/s 12AB(1) as per clause (a) & (b) are as under:

"12AB. Procedure for fresh registration.—(1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall,— (a) where the application is made under sub-clause (i) of the Page 9 of 14

ITA No.164 & 165/Ind/2023 Disha Education Society Page 10 of 14

said clause, pass an order in writing registering the trust or institution for a period of five years; (b) where the application is made under sub-clause (ii) or sub- clause (iii) or sub-clause (iv) or sub-clause (v) of the said clause,— (i) call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about— (A) the genuineness of activities of the trust or institution; and (B) the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects; and (ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item (A), and compliance of the requirements under item (B), of sub-clause (i),— (A) pass an order in writing registering the trust or institution for a period of five years; (B) if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its registration after affording a reasonable opportunity of being heard;

5.4 As per clause (b)(i) the CIT(E) while considering the application for registration satisfy himself inter alia the compliance on the part of the applicant of such requirement of any other law for the time being in force as are material for the purpose of achieving its objects. Therefore, while achieving objects the trust should not violate any other law for the time being in force. The said sub-clause is explained in clause (f) of explanation to sub-section(1) of section 12AB reads as under:

“Explanation- For the purpose of this section the following shall mean specified violation:- (a) Xxxxx (b) Xxxxxx (c) Xxxxx (d) Xxxx

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ITA No.164 & 165/Ind/2023 Disha Education Society Page 11 of 14 (e) Xxxxx (f) The trust or institution has not complied with the requirement of any other law, as referred to in item (B) of sub-clause(i) of clause (b) of sub-section (1) and the order direction or decree by whatever name called holding that such non-compliance has occurred, has either not been dispute or has attained finality.” 5.5 Thus, it is clarified that the violation means the trust or institution has not complied with requirement of any other law and the order, direction or decree by whatever name called holding that non-compliance has occurred has either not been disputed or has attained finality. Therefore, the violation of any law is either undisputed or it has been held by order or direction or decree which has attained finality. In the case in hand the non-payment of loan to the bank is clearly a default on the part of the assessee of its contractual obligation however, that default of repayment of loan itself would not be considered as a non-compliance of any other law time being in force in terms of section 12AB(1)(b)(i). To understand the violation of non-compliance of any other law time being in force it has to be seen in the context of violation of provisions of law governing the activities of the institution or trust for achieving its objects or violation of the provisions of law which governs or regulates the institution or trust itself. The non-payment of the loan of the bank does amount to violation of any law which governs or regulates the activities of the assesse in achieving the objects. Therefore, this condition is only to look into the function of the assessee and activities as to whether the assessee has adopted any unlawful means for achieving the objects. A non-performance of contractual obligation would not constitute non- compliance of such requirement of any other law for time being in force. Since the matter of recovery of outstanding loan is still pending for adjudication before DRT therefore, neither it is undisputed violation nor has this default of payment attained finality. Therefore, this ground of rejecting the application has no legs to stand.

5.6 The next objection of the CIT(E) in rejecting application is non- deduction or payment of TDS. Though there was non-payment of TDS and Page 11 of 14

ITA No.164 & 165/Ind/2023 Disha Education Society Page 12 of 14 short deduction of TDS by the assessee on certain payments of interest however, the said deficient payment was made good in the subsequent year and there is no outstanding in the subsequent years. Even otherwise the short deduction of TDS and belated payment of TDS does not amount to non-compliance with the requirement of any other law time being in force which is material for achieve the objects of the assessee. These noncompliance of deduction and payment of TDS are having their own remedies under the income Tax Act and subject matter of assessments. Hence, non-deduction or short deduction of TDS cannot be a ground for refusal of registration.

6.1 The Next objection of the CIT(E) is regarding not making provisions for retirement benefit of the employees as per AS-15. Though as a prudent employer it is required to make timely provision for retirement benefit of the employees so as to avoid the default in timely payment of retirement benefits. However, this is only an accounting requirement as per AS -15 issued by ICAI and there is no statutory requirement for making such provision by the assessee society. The only requirement is to pay the retiral benefit to the employees at the time of retirement. Therefore, non- making of the provisions of retirement benefit cannot be held as a non- Page 12 of 14

ITA No.164 & 165/Ind/2023 Disha Education Society Page 13 of 14 compliance of requirement of any other law time being in force which is material for the purpose of achieving its objects.

6.2 Ld. CIT(E) has also raised an objection regarding not charging GST by the assessee on the rental income and thereby it was considered as non-compliance of requirement of other law time being in force. The assessee has explained before the CIT(E) that the assessee is not registered with the GST department. As per the notification no.12/2017 dated 28th June 2017 of Government of India, Ministry of Finance Department of Revenue, the services by an entity registered u/s 12AA of the Income Tax Act 1961 by way of charitable activity is exempted from the GST and the rate of GST will be nil in such cases. Therefore, Government of India as vide this notification has exempted the entities registration u/s 12AA from GST hence, the assesse was not required to pay the GST and even was not required to register under the GST. Accordingly the said ground of CIT(E) is contrary to the notification no.12 of 2017 dated 13.06.2017 of Government of India. The registration granted u/s 12AA to the assesse society vide order dated 07.03.2003 and subsequent cancelled vide order dated 14.11.2018 has been restored by the tribunal and therefore, the said registration was still subsisting till the impugned order was passed by the CIT(E). Hence the assesse being registered u/s 12AA was exempt from the GST registered as per notification of Government of India and consequently no violation of any law time being in force.

ITA No.164 & 165/Ind/2023 Disha Education Society Page 14 of 14 2019-20 and therefore, it was not the case of the department that the assesse is a perpetual defaulter of payment of PF and ESIC or TDS. Hence, in the facts and circumstances of the case there is no dispute regarding the charitable objects of the assesse society and genuineness of the activity being already registered u/s 12A since 2003. Accordingly in the facts and circumstances of the case and in view of our finding on each and every objection raised by the CIT(E), we set aside the impugned order of the CIT(A) and direct the CIT(E) to grant registration to assessee u/s 12AB as well as approval u/s 80G(5) of the Act.

Order pronounced in the open court on 22.11.2023

Sd/- Sd/-

(B.M. BIYANI) (VIJAY PAL RAO) Accountant Member Judicial Member

Indore, 22.11.2023

Patel/Sr. PS

Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore

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