Income Tax Appellate Tribunal - Pune
Parkar Medical Foundation , Ratnagiri vs Assessee on 31 July, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member
and Shri R.K. Panda, Accountant Member
ITA Nos. 861 & 1423/PN/2012
Parkar Medical Foundation,
828 Parkar Hospital, Shivajinagar,
Ratnagiri-415639
PAN No.AAATP4632P .. Appellant
Vs.
Dy. Commissioner of Income Tax,
Ratnagiri Circle, Ratnagiri .. Respondent
Assessee by : Shri Sunil Ganoo
Revenue by : Shri A.K. Modi
Date of Hearing : 07-07-2014
Date of Pronouncement : 31-07-2014
ORDER
PER R.K. PANDA, AM :
ITA No. 861/PN/2012 filed by the assessee is directed against the
order dated 29-03-2012 passed by the CIT-II, Kolhapur u/s. 12AA(3) of the Income Tax Act, 1961 cancelling the registration granted to the assessee trust u/s. 12A of the I.T. Act. ITA No. 1423/PN/2012 filed by the assessee is directed against the order dated 09-05-2012 passed by the CIT-II, Kolhapur withdrawing approval accorded u/s. 80G(5)(vi) of the IT. Act, 1961. For the sake of convenience both the appeals were heard together and are being disposed of by this common order. ITA No. 861/PN/2012 :
2. Facts of the case, in brief, are that the assessee is a trust, engaged in providing medical facility/aid. It was created by Dr. Almiya Dawood Parkar, and his wife Dr. (Mrs.) Mumtaj Alimiya Parkar, who were 2 engaged in medical profession in their personal capacity, prior to creation of the trust. Latter on they created the assessee trust vide trust deed dated 28-03-2002, appointing themselves as the only trustees, in the capacity of Managing Trustees, and Secretary & Treasurer, respectively. Subsequently, vide resolution dated 10-09-2007, three new trustees were appointed.
2.1 The trust was granted registration u/s. 12A of the I.T. Act, 1961 by the CIT, Kolhapur, vide Certificate No. KOP/HQ.III/217-P- 123/62/247/2002-03, on 03-12-2002 as a Charitable Trust. Subsequently, the Ld. CIT verified the records available and noted that the assessee trust was engaged in carrying on Medical Profession, i.e. Multi-speciality Hospital, on commercial basis wherein fixed amount of fees was charged, on the basis of treatment given and facilities provided, from all the patients. She noted that the discount given to the patients were claimed as charity, and the surplus was actually diverted towards the trustees under the guise of Salary, Rent, Professional Fees, Utilization Fees, etc. and was subsequently utilized for personal benefits, including education of Son and Daughter-in-law of the trustees. She, therefore, issued a show-cause notice to the assessee on 19-12-2011 under provisions of Sec. 12AA(1)(b)(ii) of the I.T. Act pointing out the above discrepancies and asked the assessee to explain as to why the registration granted earlier should not be withdrawn.
3. The assessee objected to the above show-cause notice on the ground that the same was based on observations of the A.O in the assessment orders for A.Ys. 2004-05, 2005-06 & 2008-09. It was explained that the assessee trust had advantage of well established 3 hospital of the trustees, along with flourishing business. The founder trustees, being motivated by philanthropic consideration are taking only nominal portion of fees collected by the trust for their services rendered. It was argued that the surplus of the trust is not distributed amongst the trustees but is retained for the charity and expansion of the hospital. Relying on a number of decisions including the decision of Hon'ble Kerala High Court in the case of CIT Vs. Pulikkal Medical Foundation (P) Ltd. reported in 210 ITR 299 and the decision of Hon'ble Bombay High Court in the case of Vanital Vishram Trust Vs. CCIT reported in 327 ITR 121, the assessee requested to drop the proceedings.
4. However, the Ld. CIT was not convinced with the submission made before her. She noted that the show-cause notice was issued on the basis of examination of records by herself and not on the basis of observation of the A.O. in the assessment order. She also rejected the submission of the assessee that the Charity Commissioner has not objected to the reasonableness of certain expenditure which were pertaining to the trustees and held that the same is not binding on the Commissioner of Income Tax and she is free to arrive at her own findings, particularly with respect to provisions relating to Income Tax Act, 1961. She noted that for the A.Y. 2008-09 the assessee has shown the following income :
(i) Other Income (medical & other professional fees) Rs.2,13,84,461
(ii) Bank Interest Rs.13,477/- ____ Total Rs.2,139,7,938/-
---------------------
Similarly, she noted that the assessee has shown the following amounts paid to the trustees:
4
Professional Fees Rs.3336000/-
Salaries Rs.854881/-
Utilization charges Rs.160250/-
Building Rent Rs.840000/-
Remuneration to son of the Trustees Rs.120000/-
Remuneration to Daughter-in-law of the Trustee Rs.120000/-_
Total Rs.5431131/-
-----------------
4.1 From the above details she noted that the assessee has siphoned out almost 26% of the total receipts under one pretext or the other. It is for purely personal benefits of the trustees which show that the trustees of the assessee trust are running a commercial medical establishment, with a profit making intention, under the guise of the Charitable Trust. She further noted that the trust has also agreed to pay fees to the extent of Rs.13.50 Lakhs for the post-graduation studies of the son of the trustees, who is also working with the trust as a residential doctor. Similar amount is agreed to be paid in the case of Daughter-in-law of the trustees for pursuing the post-graduation, who is also working with the trust. Further the assessee trust has given advance of Rs.6,48,216/- to M/s. Image Diagnostics, a firm where the chief trustee is also a partner, and is conducting its business from the same premises. According to her there is a clear contravention of provisions of Sec. 11(5) of the I.T. Act, 1961. She further noted that the assessee trust is charging fixed amount of fees, depending on the basis of treatment given and facilities provided, from all the patients. There is a fixed schedule for various items of professional consultancy provided. According to Ld.CIT, the so called discount given by the assessee in the bills claiming to be charity has not been explained by the assessee as genuine charity. The assessee failed to substantiate its claim by providing concrete figures of the actual bill amount, the percentage of discount provided, and the final amount of bill collected from patients. 5 It has not established, with sufficient evidence that such discount is substantial, when compared to the total turnover, running into Cores of Rupees. Further there are no set of governing rules for providing such discounts. According to her, it is not the case that such discounts are provided to all the patients, or certain class of patients, at a fixed rate. Such discount is available to random patients, at the will and whims of the trustees, and therefore, the same cannot be treated to be charity within the meaning of Sec. 2(15) of the I.T. Act.
4.2 As regards the claim of the assessee that the trustees have given a well equipped running Hospital, along with building and instruments, for philanthropic purposes, and for charity of public at large, she noted that the trust is paying substantial amount as rent and usage charges, which are over and above the Salary and Professional fees paid to all the four members of the family by the trust. Therefore, she was of the opinion that the trustees have not given anything i.e. immovable property, medical instruments, or even services, without any consideration.
4.3 In view of the above, she was of the opinion that the assessee has not only infringed the provisions of Sec. 13(1) (c) & 11(5) of the I.T. Act, but is running a Commercial Medical Establishments, with profit making intention, and is taking undue advantage of the tax concessions given by the statute to the institutions engaged in Genuine Charitable activities. This goes against the very spirit of the term Charitable Trust as is envisaged for the purpose of the Income Tax Act. In view of the above and observing that the assessee failed to establish its claim with sufficient documentary evidence as a Charitable Society and charitable 6 activities therein, within the meaning of Sec. 2(15) of the Act. She cancelled the registration granted earlier u/s.12AA of the I.T. Act, 1961.
5. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds :
"1. In the facts and circumstances of the case and in law, the impugned order passed by the learned C.I.T. being arbitrary, perverse, malicious and patently illegal, bad in law and legally unsustainable the same may please be vacated and the registration granted u/s 12 A of the I.T. Act 1961 to the appellant trust vide order dt.03/12/2002 may please be restored.
2. In the facts and circumstances of the case and in law, since the impugned order passed by the learned C.I.T. is based purely on the observations of the learned Assessing Officer during the scrutiny assessment proceedings for A.Y.2004-05, A.Y.2005-06 and A.Y.2008-09 [which assessments are challenged before learned C.I.T.[A] Kolhapur] and being an outcome of non application of mind on the part of the learned C.I.T. the same is bad in law and being without jurisdiction the same may please be vacated.
3. In the facts and circumstances of the case and in law, the conclusions drawn by the learned C.I.T. that the appellant trust has violated the provisions of Section 13[l][c] & 11 [5] of the I.T. Act 1961 being arbitrary, perverse, malicious and based on no evidence the same may please be vacated and the impugned order may please be quashed.
4. In the facts and circumstances of the case and in law the various alleged instances cited by the learned C.I.T. in support of the alleged violations of the provisions of Section 13[l][c] & 11 [5] of the I.T. Act 1961 being arbitrary, perverse and based on no evidence the same may please be vacated and the impugned order may please be quashed.
5. In the facts and circumstances of the case and in law, the conclusion drawn by the learned C.I.T. that the appellant trust is running a Commercial Medical Establishment being arbitrary, perverse, malicious and based on no evidence the same may please be vacated and the impugned order may please be quashed.
6. It may please be held that the appellant trust does exist for charitable purpose and is carrying out the charitable activities as envisaged u/s 2[15] of the I.T. Act 1961 and consequently the impugned order may please be annulled and the registration granted u/s 12 A of the I.T. Act 1961 to the appellant trust vide order dt.03/12/2002 may please be restored.
7. The appellant may please be awarded cost u/s 254 [2B] of the I.T. Act 1961 for arbitrary, perverse and malicious exercise of judicial powers by the learned C.I.T. in passing the impugned order, which has tarnished the image of the appellant trust and its trustees in the minds of common public at Ratnagiri and the nearby area wherein the 7 appellant trust is well known for its magnificent charitable activities in the field of medical treatment to the poor and needy persons.
8. The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal."
6. Grounds of appeal No.1, 5 and 6 relate to validity of cancellation of registration granted earlier u/s.12A of the I.T. Act. 6.1 The Ld. Counsel for the assessee strongly challenged the order of the Ld.CIT cancelling the registration granted earlier. As regards the allegation of the Ld.CIT that the assessee trust is running the multi specialty hospital on commercial basis, he submitted that the trust exists solely for charity which is evident from the Aims and objects mentioned in the Trust deed. The trust does not exist for making profits and the application of the trust funds is to be made strictly for attaining the aims and objects of the trust. Referring to the copy of the Trust deed he submitted that the Profits, if any, of the Trust cannot be distributed directly or indirectly, by way of dividend or otherwise amongst certain group of individuals, settlers of the trust or donors. He submitted that merely because surplus is generated it cannot be said that the trust is carrying out the commercial activities. Referring to various decisions he submitted that where the purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of Charitable purpose as given in Section 2(15) of the I.T. Act 1961 would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the Trust. Where the predominant object of the activity is to carry out the charitable purpose and not to earn profit, it would not lose its character 8 of a charitable purpose merely because some profit arises from the activity. For the above proposition, he relied on the following decisions:
i. Additional CIT vs. Surat Art Silk reported in 121 ITR Page 1 [SC] ii. Vanita Vishram Trust vs. Chief CIT reported in 327 ITR Page 121 [BOM] iii. CIT vs. Pulikkal Medical Foundation [P] Ltd reported in 210 ITR Page 299 [Ker] iv. ITO vs. Dharamshils Cancer Foundation & Research Centre reported in 128 ITD Page 1 [ITAT Delhi] v. Gulab Devi Memorial Hospital Trust vs. CIT reported in 132 TTJ Page 90 [Asr][UO] 6.2 He submitted that the CBDT in its Circular No. 11 of dt.
l9/12/2008 has clarified that where the purpose of a trust or institution is relief of the poor, education or medical relief, it will constitute "charitable purpose" even if it incidentally involves the carrying on of commercial activities. He submitted that the CIT has lost sight of the fact that for attaining its object, the assessee Trust is not getting any grants from any Govt. The Trust is fully dependent upon donations and surplus generated from hospital activities for doing charitable work. The Act does not expect the trustees to sell their properties and feed the charity. He accordingly submitted that the charge labelled against the assessee trust that it is running the hospital on commercial basis and in violation of the provisions of Section 2[15] of the I.T. Act 1961 is devoid of merits and bad in law.
6.3 As regards the allegation of Ld.CIT that giving discounts and concession in bills to few patients does not amount to charity he submitted that the term "charity" is not defined in the I.T. Act 1961. 9 The assessee trust is governed by the provisions of The Maharashtra Public Trusts Act [previously known as The Bombay Public Trusts Act 1950] Referring to the decision of Hon'ble Bombay High Court in the Writ Petition [PIL] No.3132 of 2004 decided on 17/08/2006 in the case of Sanjiv Gajanan Punalekar v/s State of Maharashtra and Others he submitted that the Hon'ble court has framed the scheme for treatment to indigent patients and weaker section patients for the purposes of Section 41AA of the Bombay Public Trust Act 1950. The assessee trust is covered under the said scheme and is under legal obligation to compulsorily spend certain amount for charity as per the said scheme and also has to reserve and earmark 10% of the total number of operational beds for indigent patients and provide medical treatment to the indigent patients free of cost and reserve and earmark 10 % of the total number of operational beds at concessional rate to the weaker section patients as per the provisions of the Section 41AA of the B.P.T. Act 1950. He submitted that the assessee trust is under an obligation to submit periodical statements to the Charity Commissioner about the amounts spent on charity as per the aforesaid scheme framed by the Hon'ble Bombay high Court. He submitted that the amount spent on charity and objects of the Trust is duly reflected in the final accounts of the trust, the copies of which are already filed on records. Therefore, when the assessee trust is complying with the statutory obligations, it is incorrect and false to suggest that the appellant trust is not spending any amount on charity and giving only discounts and concessions in few bills which is not a charity.
106.4 As regards the allegation that there is contravention of provisions of Section 13(1)(c) of the I.T. Act 1961 which warrants cancellation of registration granted to the trust u/s 12 AA of the I.T. Act 1961, he submitted that there are no alleged violations of Section 13(1)(c) of the I.T. Act 1961. Without prejudice to above and by way of an alternate submission, he submitted that under the provisions of Section 12AA(3) of the I.T. Act 1961, the powers of the CIT are confined to enquire about the activities of the trust and its genuineness. The C.I.T. cannot examine whether there is any violation of the provisions of Section 13(1)(c) of the I.T. Act 1961. In support of this contention he relied on the decision of the Pune Bench of the Tribunal in the case of Maharashtra Academy of Engineering & Educational Research [MAEER] v/s C.I.T. reported in 133 T.T.J. Page 706 6.5 As regards various alleged instances cited by the learned C.I.T. in support of alleged violations of the provisions of Section 13(1) (c) and 11(5) of the I.T. Act 1961, the Ld. Counsel for the assessee referred to clause 31 of the Trust deed at page 104 of the paper book which reads as under :
"Any Trustee being a Doctor, Lawyer, Accountant or other persons engaged in any profession or business shall be entitled to be paid all the usual professional fees or proper charges for the time expended, business transacted and acts done by him or by any of his partners, in connection with the Trust thereof including acts which a Trustee not being in any profession or business could have done personally inspite of the fact that he shall then be a trustee of these presents".
Referring to the above, he submitted that since the CIT has given a specific finding about the alleged violation of the provisions of Section 13(1)(c) of the I.T. Act 1961, the assessee has raised Ground of appeal 11 Nos.2 to 4, He submitted that in order to avoid multiplicity of proceedings the same should be adjudicated as the appeals for A.Y.2004-05,A.Y.2005-06 and A.Y.2008-09 are pending before learned C.I.T.(A) Kolhapur wherein identical issues are involved. He submitted that the payment of professional fees of Rs.33,36,000/-, salary of Rs.9,54,881/-, utilization charge of Rs.1,60,250/- and building rent of Rs.8,40,000/- to the trustees during A.Y. 2008-09 do not violate the provisions of section 13(1)(c) of the I.T. Act, 1961. 6.6 As regards the Powers of Charity Commissioner under the provisions of The Maharashtra Public Trust Act in case of mis- utilization of funds by the trustees for their personal benefits, he submitted that vide Sections 34, 36, 36A, 37,38,39,40,41 of The Maharashtra Public Trust Act, adequate safeguards are provided for the protection and due and proper utilization of trust funds. During all these years the Charity Commissioner has never raised any objection that the trustees have taken undue monetary advantage of their position. The decision of Hon. Bombay High Court in the case reported in 327 ITR Page 185 supports the contention that the decision of the Charity Commissioner on the financial affairs of the trust is binding on the tax authorities and has evidentiary value. He accordingly submitted that the order of Ld.CIT cancelling the registration granted earlier u/s.12AA be set-aside.
7. The Ld. Departmental Representative strongly supported the order of the CIT(A). He submitted that the assessee, in the instant case, was running the hospital on a commercial basis. It is charging fixed 12 amount of fee depending on the treatment of patients. The assessee has failed to substantiate with evidence that the dominant part of the running of the hospital is charity. On the contrary the trustees who control the trust along with family members are charging for everything provided by them. The trust has even sponsored the PG Medical study of the son and daughter-in-law of the trustees. Relying on various decisions he submitted that the CIT was justified in cancelling the registration granted earlier u/s.12A of the I.T. Act, 1961. He also relied on the following decisions :
1. Jacob vs. Tahsildar (1989) 176 ITR 243 (Ker)]
2. Indian Chamber of Commerce vs. CIT 1975 CTR (SC) 271 :
(1975) 101 ITR 796 (SC)
3. Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234 (SC).
4. Sri Aurobindo Annai Trust v.CIT-l, Madurai MT APPEAL NOs.
1773 and 1774(Mad.)/2009 order dated 18-03-2011 (ITAT Chennai Bench)
8. We have considered the rival arguments made by both the sides and perused the records. We have also considered the various decisions relied on by both the sides. We find in the instant case the assessee trust was granted registration u/s.12A of the I.T. Act by the CIT, Kolhapur vide Certificate No. KOP/HQ.III/217-P-123/62/247/2002-03, on 03-12-2002. We find the Ld.CIT cancelled the registration granted earlier on the ground that the assessee trust is running the hospital on commercial basis with profit motive and is taking undue advantage of tax concession given by the statute to the institutions engaged in genuine charitable activities. Further, according to Ld.CIT, the assessee trust has violated the provisions of section 13(1)(c) and 11(5) and therefore not entitled to registration u/s.12A of the I.T. Act. 13 8.1 As per the provisions of section 12AA(3) the Commissioner can cancel the registration granted earlier if he /she is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or the institution. In the instant case, there is no such finding given by the Ld.CIT that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust. While granting registration u/s.12A on 03-12-2002, the then CIT, Kolhapur has gone through the objects of the trust and the genuineness of the activities. There is no change in the objects of the trust in the meantime. The Ld.CIT has not brought on record any material to show that the activities of the Trust are not being carried out in accordance with the objects of the Trust or the institution. Therefore, we do not find any reason as to how the CIT can cancel the registration granted earlier in contravention of the provisions of section 12AA(3) of the I.T. Act. Once registration is granted to the trust/institution and if subsequently the AO finds during the assessment proceedings that the income of the charitable trust is applied directly or indirectly for the benefit of the persons referred to in section 13(3), then he has ample power to deny exemption to that extent u/s.13(1)(c) of the I.T. Act. This view of ours finds support from the decision of Jodhpur Bench of ITAT in the case of Modern Defence Shikshan Sansthan Vs. CIT reported in 108 TTJ (Jod.) 732. 8.2 We find the Chandigarh Bench of the Tribunal in the case of Himachal Pradesh Environment Protection and Pollution Control Board Vs. CIT reported in 125 TTJ (Chd.) 98 which has been relied on by the Pune Bench of the ITAT in the case of Maharashtra Academy of 14 Engineering as Educational Board (MAEER) (Supra) has observed as under :
"19. In any event, as a plain reading of s. 12AA(3) would indicate that a registration granted under s. 12AA can only be withdrawn when the CIT is satisfied that (a) the activities of the trust or the institution are not 'genuine'; or (b) the activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. There cannot be any other legally sustainable reason for cancelling or withdrawing the registration granted under s. 12AA. By no stretch of logic, the activities of the assessee can be said to be not genuine and the assessee is admittedly pursuing the objects for which it was established. When the assessee is engaged in bona fide activities, with the framework of law, to pursue its objectives, it cannot be said that the activities of the assessee are not genuine. Learned CIT has also not brought on record any material to demonstrate activities of the assessee are not being carried out in accordance with the objects of the trust or the institution. Under these circumstances, the withdrawal of registration granted under s. 12AA cannot be sustained in law. Learned CIT has extensively referred to as to why the assessee is not eligible for exemption under s. 11 as the activities of the assessee cannot be said to be for 'charitable purposes' defined under s. 2(15), but then this aspect of the matter is relevant for the assessment proceedings and not in the context of exercise of CIT's powers under s. 12AA (3). The impugned order passed by the learned CIT is thus vitiated in law on this count as well."
8.3 Similar view has been taken by various other decisions which are placed in the paper book. In view of the discussion above, we hold that the Ld.CIT is not justified in cancelling the registration granted earlier to the assessee trust u/s.12A of the I.T. Act, 1961.
9. Since the assessee succeeds on this legal issue, the grounds raised by the assessee in ground of appeal No. 2 to 4 become academic in nature and therefore, do not require adjudication. In any case, these matters are subject matter of scrutiny assessment proceedings for A.Yrs. 2004-05, 2005-06 and 2008-09 before CIT(A). Therefore, any decision on merit of such issues would result in prejudging the outcome of those appeals which are separate proceedings. Therefore, those grounds become infructuous.
15
10. In ground appeal No.7 the assessee has requested the Tribunal to award cost u/s.254(2B) of the I.T. Act.
11. The Ld. Counsel for the assessee submitted that due to cancellation of the assessee trust, huge tax demand running into lakhs of rupees are raised against the trust. The bank accounts of the assessee trust are under attachment and the department has made the working of the assessee trust as an impossibility. He submitted that the assessee trust was the only trust of its kind in the district of Ratnagiri giving medical help to the poor patients. There is no other better equipped hospital in the area. The illegal action of the department by abusing judicial powers has caused serious prejudice and injustice to the assessee trust as wrong signals are transmitted in the society that the assessee trust is a big fraud. It has adversely affected the reputation of the trust as well as the trustees who are eminent medical practitioners. He submitted that there exists an unpleasant social environment in Ratnagiri which is a small district place. Since the trustees are from the minority community, the impugned orders of the department have embarrassed the trustees and the trust. Referring to the decisions of the Hon'ble Supreme Court in the case of Union of India Vs. Raja Mohammed Amir Mohammad Khan (copy enclosed) and in the case of Urban Improvement Trust, Bikaner Vs. Mohanlal reported in 2010 (001-SCC-0512 (SC) and the decision of the Hon'ble Rajasthan High Court in the case of Charanjilal Tak Shyam Parwani & Party Vs. Union of India reported in 252 ITR 333 he requested that cost of the appeal may please be awarded to the assessee trust which will act as deterrent 16 for illegal and malafide orders passed by the authorities causing irreparable loss to the assessee as well as to the society at large.
12. The Ld. Departmental Representative on the other hand strongly opposed the argument of the Ld. Counsel for the assessee. He submitted that the CIT-II, Kolhapur has passed a detailed speaking order u/s.12AA(3) of the I.T. Act in the course of discharging of her sovereign duty as CIT. He submitted that in this case there is no element which distinguishes activities of commercial run hospital with this foundation claimed to be medical relief at large. Referring to the order of the CIT he reiterated that the assessee trust is a purely commercial establishment with dominant object being charity of self and therefore the CIT was justified in cancelling the registration granted earlier. He further submitted that since the matter under consideration is quasi-judicial and has not reached finality, therefore, calling the order as arbitrary, perverse and malicious would amount to pre-judging the outcome of the appeal. There is nothing on record to demonstrate any malafide on the part of the CIT. Further, there is nothing on record that the assessee trust or the trustees have been harassed because of belonging to the minority community. He submitted that it is beyond comprehension to give colour of religion to tax proceedings. Such unsubstantiated and baseless allegations reflect bias on the part of the assessee and such allegations deserve to be condemned and rejected. He accordingly submitted that the ground raised by the assessee to award cost should be dismissed with a warning to the assessee not to raise such extraneous and baseless allegations in order to maintain decorum of the proceedings before the Hon'ble Tribunal. 17
13. We have considered the rival arguments made by both the sides. In our opinion the Ld.CIT has passed an order u/s.12AA(3) of the Act during the course of discharge of her duty as CIT. While discharging her duty, her action might have caused some hardship to the assessee due to error of judgement but that in our opinion does not warrant levy of cost on the department. The Hon'ble Supreme Court in the case of Pooran Mal Vs. Director of Inspection (Investigation), Income Tax, New Delhi and others reported in 93 ITR 505, while adjudicating relief claimed in respect of action taken u/s.132 of the I.T. Act has observed as under (at page 518 and 519) :
"We are, therefore, to see what are the inbuilt safeguards in section 132 of the Income tax Act. In the first place, it must be noted that the power to order search and seizure is vested in the highest officers of the department. Secondly, the exercise of this power can only follow a reasonable belief entertained by such officer that any of the three conditions mentioned in section 132(1) (a), (b) and (c) exists. In this connection it may be further pointed out that under sub rule (2) of rule 112, the Director of Inspection or the Commissioner, as the case may be, has to record his reasons before the authorisation is issued to the officers mentioned in sub section (1). Thirdly, the authorisation for the search cannot be in favour of any officer below the rank of an Income tax Officer. Fourthly, the authorisation is for specific purposes enumerated in (i) to (v) in sub section (1), all of which are strictly limited to the object of the search. Fifthly, when money, bullion, etc., is seized the Income tax Officer is to make a summary enquiry with a view to determine how much of what is seized will be retained by him to cover the estimated tax liability and how much will have to be returned forthwith. The object of the enquiry under sub section (5) is to reduce the inconvenience to the assessee as much as possible so that within a reasonable time what is estimated due to the Government may be retained and what should be returned to the assessee may be immediately returned to him. Even with regard to the books of account and documents seized, their return is guaranteed after a reasonable time. In the meantime the person from whose custody they are seized is permitted to make copies and take extracts. Sixthly, where money, bullion, etc., is seized, it can also be immediately returned to the person concerned after he makes appropriate provision for the payment of the estimated tax dues under sub section (5), and, lastly, and this is most important, the provisions of the Criminal Procedure Code relating to search and seizure apply, as far as they may be, to all searches and seizures under section 132. Rule 112 provides for the actual search and seizure being made after observing normal decencies of behaviour. The person in charge of the premises searched is immediately given a copy of the list of articles seized. One copy is forwarded to the authorising officer. Provision for the safe custody of the articles after seizure is also made in rule 112. In our opinion, the safeguards are adequate to render the provisions of search and seizure as less onerous and restrictive as is 18 possible under the circumstances. The provisions, therefore, relating to search and seizure in section 132 and rule 112 cannot be regarded as violative of articles 19(1)(f) and (g).
A minor point was urged in support of the above contention that section 132 contains provisions which are likely to affect even innocent persons. For example, it was submitted, an innocent person who is merely in custody of cash, bullion or other valuables, etc., not knowing that it was concealed income is likely to be harassed by a raid for the purposes of search and seizure. That cannot be helped. Since the object of the search is to get at concealed incomes, any person, who is in custody without enquiring about its true nature, exposes himself to search. Sub section (4) of section 132 shows the way how such an innocent person can make the impact of the search on him bearable. All that he has to do is to tell the true facts to the searching officer explaining on whose behalf he held the custody of the valuables. It will be then for the Income tax Officer to ascertain the person concerned under sub section (5)."
13.1 In that case, it was observed that it causes serious invasion of the privacy of a person. Still the Hon'ble Court held that even though the innocent is likely to be harassed by a raid for the purpose of search and seizure that cannot be helped. In the instant case, there is no such action of search and seizure which causes serious invasion in the privacy of the person. The Commissioner was discharging her quasi- judicial duty. Further, there is nothing on record to suggest that the action of the CIT was malafide. Therefore, we do not find any merit in the submission of the Ld. Counsel for the assessee to award cost for the action of the Commissioner cancelling the registration granted earlier u/s.12AA of the Act.
13.2 The two Supreme Court decisions relied on by the Ld. Counsel for the assessee are distinguishable and not applicable to the facts of the case. Those cases were related to property dispute for which cost was awarded for dereliction of duty by Govt. officers in their administrative capacity. However, in the instant case the officer was discharging her duty in a quasi-judicial matter. So far as the decision of the Hon'ble 19 Rajasthan High Court in the case of Charanjilal Tak Shyam Parwani & Party (Supra) is concerned, there also facts were different. In that case, the respondent ITO issued illegal notice to the petitioner and later withdrew the same. Under these circumstances, the Court directed the respondent to pay for the advocate fee and litigation expenses incurred by the petitioner in prosecuting writ proceedings. However, in the instant case, there is no prima-facie illegality in issuing the notice. We, therefore, do not find any merit in the argument of the Ld. Counsel for the assessee to award cost. The ground raised by the assessee is accordingly dismissed.
ITA No.1423/PN/2012
14. The grounds raised by the assessee are as under :
"1. In the facts and circumstances of the case and in law, the impugned order passed by the learned C.I.T. being arbitrary, perverse and patently illegal, bad in law and legally unsustainable the same may please be vacated and the approval u/s 80G [5][vi] of the I.T. Act 1961 granted to the appellant trust vide order dt.31/12/2009 passed by the learned C.I.T.II Kolhapur may please be restored.
2. The appellant may please be awarded cost u/s 254 [2B] of the I.T.Act 1961 for arbitrary, perverse and malicious exercise of judicial powers by the learned C.I.T. in passing the impugned order, which has tarnished the image of the appellant trust and its trustees in the minds of common public at Ratnagiri and the nearby area wherein the appellant trust is well known for its magnificent charitable activities in the field of medical treatment to the poor and needy persons.
3. The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal."
14.1 After hearing both the sides, we find the trust was granted approval u/s.80G(5)(vi) of the I.T. Act. on 30-12-2009 for the period from 23-02-2009 to 31-03-2011 and valid in perpetuity unless specifically withdrawn in view of Board's Circular No.07/2010 order dated 27-10-2010. We find the Ld.CIT subsequently withdrew the 20 approval granted u/s. 80G(5)(vi) of the I.T. Act on the ground that the registration granted earlier u/s.12AA has been cancelled by her. We have already restored the registration u/s.12A of the I.T. Act granted earlier by setting aside the order of the CIT in the preceding paragraphs. Therefore, we restore the approval granted earlier u/s. 80G(5)(vi) of the I.T. Act to the assessee trust. The grounds raised by the assessee are accordingly allowed.
15. In the result, both the appeals filed by the assessee are allowed in the terms as indicated above.
Pronounced in the open court on 31-07-2014.
Sd/- Sd/-
(SHAILENDRA KUMAR YADAV) (R.K. PANDA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune Dated: 31st July, 2014
RK/Satish
Copy of the order forwarded to :
1. Assessee
2. Department
3. The CIT-II, Kolhapur
4. The D.R, "B" Pune Bench
5. Guard File
By order
// True Copy //
Senior Private Secretary
ITAT, Pune Benches, Pune