Income Tax Appellate Tribunal - Amritsar
Rajeshwari Sangeet Academy, Jalandhar vs Assessee on 29 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL11
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P. JAIN, ACCOUNTANT MEMBER
I.T.A. No. 228(Asr)/2013
Assessment year: Nil
PAN: AAATA3534F
M/s Apeejay Education Society, Vs. Commissioner of Income
Bhagwan Mahavir Marg, Jalandhar-II, Jalandhar
New Jawahar Nagar, Jalandhar
(Appellant) (Respondent)
With
I.T.A. No. 227(Asr)/2013
Assessment year: Nil
PAN: AAATR2403F
M/s Rajeshwari Sangeet Academy Vs. Commissioner of Income
Trust, Bhagwan Mahavir Marg, Jalandhar-II, Jalandhar
New Jawahar Nagar, Jalandhar
(Appellant) (Respondent)
Appellant by: S/Sh Salil Kapoor, Vikas Jain, Advocates,
Nirmal Mahajan, CA
Respondent by: Sh. Mahavir Singh, Sr.DR
Date of hearing: 29.04.2014
Date of pronouncement: 08.05.2014
ORDER
1) These two appeals of two assessees arise from two different orders of learned Commissioner of Income Tax, Jalandhar-II, Jalandhar, 2 I.T.A. No. 228 & 227(Asr)/2013 passed under Section 12AA(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") dated 25.03.2013 in the case of M/s Apeejay Education Society and 13.03.2013 in the case of M/s Rajeshwari Sangeet Academy Trust. The assessee M/s Apeejay Education Society in ITA No. 228(Asr)/2013 has raised the following grounds of appeal:
i. That on facts and in law the order withdrawing registration u/s 12AA(3) of the Income Tax Act, 1961 is premature, bad in law and void ab-initio.
ii. That on facts and in law the CIT erred in holding that effective opportunity to cross examine was afforded and not availed by the assessee.
iii. Without prejudice and in the alternate, the CIT erred on facts and in law in withdrawing registration retrospectively w.e.f. assessment year 2004-05.
iv. That assessee reserves its right to add alter, amend, modify and/or to withdraw any grounds of appeal or during the course of hearing.
2) The assessee M/s Rajeshwari Sangeet Academy Trust in ITA No. 227(Asr)/2013 has raised the following grounds of appeal:
i. That on facts and in law the order withdrawing registration u/s 12AA(3) of the Income Tax Act, 1961 is premature, bad in law and void ab-initio.
ii. That on facts and in law the assumption of jurisdiction is bad inasmuch as it is based on delegation of power impermissible by law.
iii. That on facts and in law the CIT erred in holding that effective opportunity to cross examine was afforded and not availed by the assessee.
iv. Without prejudice and in the alternate, the CIT erred on facts and in law in withdrawing registration retrospectively w.e.f. assessment year 2004-05.3
I.T.A. No. 228 & 227(Asr)/2013 v. That assessee reserves its right to add alter, amend, modify and/or to withdraw any grounds of appeal or during the course of hearing.
3) Since the issues involved in both the appeals are identical, therefore, we proceed to decide both the appeals by a consolidated order.
4) First of all, we proceed to take up the appeal in the case of M/s Apeejay Education Society in ITA No. 228(Asr)/2013 and since the issues as mentioned hereinabove are identical with that of M/s Rajeshwari Sangeet Academy Trust in ITA No. 227(Asr)/2013, our decision hereinbelow in the case of M/s Apeejay Education Society in ITA No. 228(Asr)/2013 shall identically be applicable in the case of M/s Rajeshwari Sangeet Academy Trust in ITA No. 227(Asr)/2013.
5) The brief facts in the case of M/s Apeejay Education Society in ITA No. 228(Asr)/2013 are that the society has been granted registration under Section 12AA of the Act w.e.f. 01.04.1998 vide order dated 13.05.1999 passed by the then Commissioner of Income Tax, Jalandhar.
On perusal of record, learned CIT, Jalandhar-II, Jalandhar, observed that the assessee society is running various institutions referred to at page nos. 1 & 2 of its order. Learned CIT, Jalandhar-II, Jalandhar, further observed that the said institutions are stated to be engaged in the activity of imparting education to students under various fields. An information was 4 I.T.A. No. 228 & 227(Asr)/2013 received that a search and seizure operation under Section 132(1) of the Act was conducted by the Director of Income-tax (Investigation)-II, Mumbai, at the premises of one Sh. Parag V. Mehta located at 114/114A, Jolly Bhawan No. 1, 10 Marine Lines, Mumbai on 22.03.2011. During the course of search and seizure operation, it was found that Shri Parag V Mehta had given table space to various bogus companies in his premises which do not actually transact any business but are engaged in providing accommodation entries to the needy persons/concerns. Such companies included M/s Washington Software Ltd. (WSL), which was being run by one Sh. Sanjay D Sonawani. The fact that M/s Washington Software Ltd. was a company engaged in providing accommodation entries was admitted by Sh. Parag V Mehta in his statement recorded during the course of search & seizure operations on 22.03.2011. It was further admitted by Shri Parag V Mehta that the said company was providing accommodation bills to interested parties and Sh. Sanjay D. Sonawani was managing all the affairs of that company. Sh. Sanjay D. Sonawani in his statement recorded on 12.05.2011 also admitted that his company M/s Washington Softwares Ltd. was involved in providing accommodation entries and also accepted the fact that he has provided accommodation 5 I.T.A. No. 228 & 227(Asr)/2013 entries to the Apeejay Group through his company M/s Washington Software Ltd. During the course of post search investigations, the beneficiary parties were identified and information was passed onto various field formations by the Investigation Wing, Mumbai for taking further action. As a result of this information, survey operations were conducted under Section 133A of the Act by the Department as the premises of various business entities of the Apeejay Education group on 29.03.2011. During the course of the survey operations, genuineness of purchase of software by Apeejay Education group of cases from M/s Washington Software Ltd. was examined from different aspects. At the time of survey operations at different premises of the group, statements of different persons actively involved in the management and running of Apeejay Group of Institutions were recorded. In their statements, they have admitted that no softwares were ever purchased from M/s Washington Software Ltd. Moreover, on physical verification, softwares alleged to have been purchased from M/s Washington Software Ltd. were not found. However, entries of bogus bills from M/s Washington Software Ltd. were found entered in the books of account of different entities of the group during the course of survey operations. It was also 6 I.T.A. No. 228 & 227(Asr)/2013 admitted that various entities of the group have received only bills for entering in the books of account and no software were ever installed or received by them. Al these enquires indicate and prove beyond doubt that the assessee society has taken accommodation entries from M/s Washington Software Ltd. in the form of bogus bills of purchase of compute softwares. On further verification, it was found during the course of survey operations and other enquiries that M/s Washington Software Ltd. has provided the accommodation entries to the assessee society in various years, the details of which as contained in survey report and other reports received from various departmental authorities are as under:
Financial Year: Amount of accommodation entries(Rs. aprox) 2003-04 Rs. 2,00,00,000/- approx.
2005-06 Rs. 2,50,00,000/- approx.
2006-07 Rs. 3,40,00,000/- approx.
2007-08 Rs. 80,00,000/- approx
2008-09 Rs. 1,20,00,000/- approx
2009-10 Rs. 2,68,60,900/- approx
2010-11 Rs. 2,60,00,000/- approx
7
I.T.A. No. 228 & 227(Asr)/2013
Note: The above figures may vary on actual verification
6) During the course of investigation, the statement of Sh. Sanjay D. Sonawani, Chairman and the Managing Director of M/s Washington Software Ltd. was also recorded, wherein he admitted that he had provided the above noted accommodation entries to the assessee society and that he had charged commissioner @ 1% on the total amount of the entries and the balance amount was given back in cash to the trustees/management of the assessee society.
7) The relevant portion of the statement of Sh. Sanjay D. Sonawani dated 16.03.2013 has been reproduced by CIT, Jalandhar-II, Jalandhar, at page 4 and 5 of his order. It was observed by CIT, Jalandhar-II, Jalandhar, that further statements given by Sh. Sanjay Sonawani to the Departmental Authorities, wherein he retracted from his version that Sh. Parag Mehta, CA was instrumental in helping in undergoing all the bogus activities of M/s Washington Software Ltd. but confirmed his version of giving accommodation entries to the assessee society. Accordingly, CIT, Jalandhar-II, Jalandhar, vide para 4 of his order observed that the activities of the assessee society were not found to be genuine in view of the provisions of Section 13(1)(c) read with 8 I.T.A. No. 228 & 227(Asr)/2013 section 13(3) of the Act and the registration granted to the assessee society was liable to be cancelled, invoking the provisions of section 12AA(3) of the Act. Accordingly, a notice dated 07.12.2011 was issued to the assessee-society to show cause as to why the registration granted to it under Section 12AA of the Act may not be cancelled. The assessee submitted various replies dated 17.08.2012, 14.09.2012, 18.03.2013 and 25.03.2013 which are reproduced in the order of CIT, Jalandhar-II, Jalandhar, at page nos. 6 to 28. Learned CIT, Jalandhar-II, Jalandhar, listed out the issues that have been raised by the assessee in the various replies mentioned hereinabove at page 29, which for the sake of convenience is reproduced as under:
(A) That the registration granted to a trust can be cancelled only when the activities of the trust are not genuine or are not being carried out in accordance with the objective of the trust.
(B) That the statement of Sh. Sanjay D. Sonawani of M/s Washington Software Ltd. Pune has got no standing as it has been recorded behind the assessee's back and the assessee has not been provided opportunity to cross examine him.
(c) That Sh. Sanjay D. Sonawani is himself a doubtful character and man without integrity as he has remained in prison as admitted by him in his statement in some other case and that he has been changing his stance in various statements recorded.
(D) He has referred to various statements of Sh. Sanjay D. Sonawani contending that he has given four statements before the 9 I.T.A. No. 228 & 227(Asr)/2013 Departmental authorities on various dates and in these statements he has back tracked from his from his earlier statement and in the last statement he has again taken a U turn. It is thus pleaded by him that the proceedings initiated on the basis of his statement are not justified.
(E) That the assessments for various years in the case of the assessee are pending before the A.O. and the result of those assessments should be watched before resorting to the provisions of section 12AA(3) of the Act.
(F) That the assessee society has relied upon various judicial pronouncements which envisage that even if the funds of a trust are mis-
utilized or misappropriated and the activities of the trust are as per aims and objects of the society, registration already granted to it cannot be withdrawn, rather the amount of funds misappropriated could be taxed in the relevant years without touching the registration granted u/s 12AA of the Income Tax Act, 1961.
8) Findings of learned CIT, Jalandhar-II, Jalandhar, with regard to the various replies of the assessee mentioned hereinabove were discussed and relevant findings were given at page 29 to 35, in particular observing that learned CIT, Jalandhar-II, Jalandhar, is not satisfied that the cases relied upon by the assessee are applicable to the facts of the present case. The opportunity to cross examine Sh. Sanjay D. Sonawani was provided to the assessee and finally learned CIT, Jalandhar-II, Jalandhar, was not satisfied that the activities of the society were genuine as the funds are being mis-utilized continuously for many years and registration granted under Section 12AA(1) of the Act is liable to be withdrawn and 10 I.T.A. No. 228 & 227(Asr)/2013 cancelled. The learned CIT, Jalandhar-II, Jalandhar, was also satisfied that the funds of the assessee society were not being utilized for achieving the objects of the society for the past many years. Therefore, taking recourse to the provisions of section 12AA(3) of the Act, learned CIT, Jalandhar-II, Jalandhar, cancelled the registration granted to the assessee society on 13.05.1999 w.e.f. assessment year 2004-05. The relevant findings at page 29 to 35 of the order of learned CIT, Jalandhar- II, Jalandhar, mentioned hereinabove, are reproduced as under:-
"My issue-wise findings in respect of arguments dated 18.03.2013 are enumerated hereunder:
(A) The provisions of section 12AA(3) of the Income Tax Act, 1961 has two limbs viz. (i) genuineness of the activities of the society and (ii) the activities of the society are not in accordance with the aims and objects of the society. In the instant case, the activities of the assessee society are certainly not genuine because the funds of the assessee society are being misappropriated right from the F.Y. 2003-04 to F.Y. 09-10 as mentioned above. Sh. Sanjay D. Sonawani, the Managing Director of M/s Washington Software Ltd., has categorically admitted in his various statements that he has not actually supplied the softwares to the assessee society any only the bills have been raised in the name of assessee society. It was also admitted by him that the payment received from the assessee society through cheques have been got discounted from the financiers of Mumbai, payment has been received in cash in lieu of those cheques and after retaining a commissioner of 1% of the total bills, the balance amount has been paid back in cash to the management of the assessee society. Thus, the activities of the trust are proved to be non-
genuine. As far as the second limb of the section 12AA(3) of the Income Tax Act, 1961 is concerned there is no dispute that the activities of the society are towards attaining the objects of the assessee society but it also 11 I.T.A. No. 228 & 227(Asr)/2013 cannot be said in totality as whole of the funds are not being utilized for the purposes of society. Thus on the strength of the first limb of Section 12AA(3) of the Income Tax Act, 1961 as well as second limb, registration granted to the assessee society can be cancelled/withdrawn. (B) Sh. Sanjay D. Sonawani has given his statements to the Department on various occasions. In the first statement he has deposed that he had been undertaking all the bogus activities of M/s Washington Software Ltd. at the instance of one Sh. Parag V. Mehta, CA who has got all the blank cheques signed from him and he (Mr. Mehta) had been utilizing it on his behalf and that he had received total commission of Rs. 32 lacs and balance commission of Rs. 20 lacs is due from Sh. Parag V. Mehta. In his first statement, he has also surrendered the commission of Rs. 32 lacs as his undisclosed income for taxation over and above his regular income. In the later statements, he has retracted from his version that Mr. Parag V Mehta, CA was instrumental in all the bogus activities of the said Company, but has maintained that he has given accommodation entries to the assessee society as he had earlier stated in his first statement. Thus, the version with regard to the accommodation entries given by him to the assessee society of Mr. Sanjay D. Sonawani is corroborated in his various statements and hence in my considered opinion his cross-examination is not required in this case. In this regard a reference is made by the assessee's letters dated 28.02.2013 and 15.03.2013 furnished before the ACIT, Circle III, Jalandhar, wherein the cross-examination of Sh. Sonawani allowed to him by the Assessing Officer has been denied by the assessee society on one pretext of another for the reasons best known to it.
(C) That Mr. Sanjay D. Sonawani could have been involved in some other criminal cases and might have undergone imprisonment but it does not controvert the fact that he has actually given accommodation entries to the assessee society.
(D) I find that the argument of the counsel that the proceedings initiated on the basis of the statements of Sh. Sonawani are not justified because he has changed his stand in his various statements has no force. Sh. Sonawani has nowhere back tracked from his main deposition that his company, namely, M/s Washington Software Limited, Pune has not 12 I.T.A. No. 228 & 227(Asr)/2013 supplied the actual software to the assessee society and that his company has issued the bogus bills to the assessee company in lieu of that. Thus, the crux of his statement justifies the proceedings initiated by the undersigned u/s 12AA(3) of the Income Tax Act, 1961. (E) In this regard, it is held that the action of the Assessing Officer in the assessments is an independent action which has no bearing on the proceedings initiated u/s 12AA(3) of the Income Tax Act, 1961. (F) As regards the various judicial pronouncements relied upon by the counsel of the assessee society, these are discussed hereunder:-
JUDGMENTS RELIED UPON IN ARGUMENTS DATED 18.03.2013
1. CIT Vs. Red Rose School 212 CTR (All) 394:
In para No. 20, itself, it is held "In regard to the genuineness of the activities of the trust or the institution, whose objects do not run contrary to public policy and are, in fact related to charitable purposes, the CIT is again empowered to make enquires as he thinks fit. In case the activities are not genuine and they are not being carried out in accordance with the objects of trust/society or the institution, of course, the registration can again be refused.
This is a case where the refusal of the registration to that trust is being adjudicated by Hon'ble Allahabad High Court and not for withdrawal/cancellation of the registration already granted. Even though the findings and observations of the Hon'ble Court emboldened in the above paragraph go to establish that the Commissioner of Income is empowered to refuse the registration to a trust if its activities are not found to be genuine. If this parameter is applied when the registration of a trust is being reviewed, which has already been granted, this is a good case for withdrawal/cancellation of the registration already granted.
Other facts related and findings underlined in paras 21 to 29 of this judgment are distinguishable on facts and hence not applicable here.
2. CIT Vs. Karima Trust 302 ITR 57 (Jharkhand) 13 I.T.A. No. 228 & 227(Asr)/2013 This is again a case where the grant of registration to a trust is being considered by the Hon'ble Jharkhand High Court and not for withdrawal or cancellation of the registration already granted. In this case also it is observed by the Court that even if there being breach of trusts which are in fact extraneous so far as income tax is concerned does not render the trust from qualifying it to obtain exemption under Section 11 of the Income Tax Act, 1961..." Hence, the facts of this case also distinguishable with those of the present case and hence these are not applicable here.
3. Guru Gobind Singh Educational Society Vs. CIT 118 ITD 207 (ASR) In this case, the facts were that the trustees of the Society had siphoned off the funds of the Society by crediting various payment of the society into their own bank accounts. It was only a one time happening and did not continue for many years as in the present case. When caught, they got shelter of Income Tax Settlement Commission, New Delhi and the trustees owned and surrendered those credit entries into their personal bank accounts for taxation. The learned Income Tax Appellate Tribunal, Amritsar Bench, Amritsar has held that the irregularities committed by members in their individual capacity cannot be held against the society for the purpose of cancellation of registration.
Thus, the facts of the case relied upon by the assessee are distinguishable with those of the facts of the present case and hence are not applicable here.
4. Maharashtra Academy of Engineering & Educational Research (Maeer) Vs. CIT 36 DTR 321 (Pune) In this case, one of the trustees was a Doctor who was involved in an immoral and illegal act of manufacturing and selling of heroin and the Hon'ble Courts held that the case has to be decided on legal principles and no on one's own moral views. This was a case of charging of capitation fee in the form of donation from the kith and kin of a student. But in the present case there is no case for donation or immoral activities 14 I.T.A. No. 228 & 227(Asr)/2013 of the trustees. Hence the facts of the case relied upon by the assessee are different and not applicable.
5. Institute of Science and Management Vs. CIT(Central), Patna passed on 12.03.2012 by I.T.A.T., Cochin Bench.
In this case also, the Hon'ble Bench has observed that ".....the condition precedent to cancellation of registration u/s 12AA(3) of the Act are not satisfied because once registration is granted, learned CIT can cancel registration only if satisfied that the activities of such trust or institution are not genuine or are not been carried out in accordance with the objectives of the trust or institution". In this case again, the I.T.A.T., Ranchi Bench has discussed the two limbs of the provisions of section 12AA(3) of the Income Tax Act, 1961 viz. Genuineness of the activities and the activities in accordance with the objects of the society. In the foregoing paras, it has clearly been discussed that the first limb of section 12AA(3) of the Income Tax Act, 1961 is mainly involved in this case and the requirements of proving the non-genuineness of the activities of the assessee society have been fulfilled elaborately. There is also violation of the provision of second limb as the funds of the Trust are not been properly used to attain the objects of the Trust. Thus this judgment is rather applicable in this case but not for the assessee rather contrary to the arguments of the assessee and against the assessee.
6. Krupanidhi Educational Trust Vs. DIT (2013) 152 TTJ (Bang.) 673:
In this case it is observed by the Hon'ble I.T.A.T., Bangalore Bench that power to cancel registration can be done in two situations (a) satisfaction of the CIT that the activities of the trust are not genuine and
(b) satisfaction of the CIT that the activities of the trust are not being carried out in accordance with the objectives of the trust. In the order of the CIT in that case there was no finding on the satisfaction of any of the two conditions. But in the present case, I am fully satisfied that both the conditions for cancellation of registration u/s 12AA(3) of the Income Tax Act, 1961 are undoubtedly fulfilled. Hence, this case law is not applicable in the present case before me.
7. DCIT Vs. Cosmopolitan Education Society (2000) 244 ITR 494 (Raj.) 15 I.T.A. No. 228 & 227(Asr)/2013 It was a case of grant of registration and not for cancellation of the registration already granted. Moreover, in this case the CIT(A) and the I.T.A.T. recorded a finding of the fact it was not known that any part of the income of the society was misutilized, if a reference to the balance sheet of the assessee is made. But in the instant case before me, there is clear cut misappropriation of trust's funds consequently for various years. Hence the facts of the case relied upon by the assessee are distinguishable.
(8) Kalinga Institute of Industrial Technology Vs. CIT (2008) 23 SOT 74 (Cuttack Bench of I.T.A.T.):
In this case the issue decided by the Hon'ble I.T.A.T. was that whether the CIT can utilize his power under Section 12AA(3) of the Income Tax Act, 1961 after a search and seizure proceedings u/s 132(1) of the Income Tax Act, 1961 before completion of the search and seizure assessment for which the assessment was pending before the concerned Assessing Officer. The assessment pending before the Assessing Officer was merely with regard to the documents and valuables etc., found during the course of the search and seizure and there was only one year which involved some misappropriation of trust's funds. But in the present case, although a survey operation u/s 133A of the Income Tax Act, 1961 was conducted on 29.03.2011 at the premises of the assessee trust but that survey was as a consequence of a statement of a person whose company had issued bills for supply of software and these bills were established to be the bogus bills and there was huge misappropriation of trust's funds continuously for various years. In the case before the Hon'ble I.T.A.T. Cuttack Bench there was not a continuous misappropriation. Hence the facts of the case relied upon by the assessee are different from those of the facts of the case before me.
(9) Paul Mathews & Sons Vs. CIT 263 ITR 101 (Ker) & (10) CIT Vs. S. Khader Khan Son. 300 ITR 157 (Mad.) In these two cases, it has been observed that the power to administer oath is bestowed on the Authorities only u/s 132(4) of the Income Tax Act, 1961 and not u/s 133A of the Income Tax Act, 1961.16
I.T.A. No. 228 & 227(Asr)/2013 Hence, it is held that the oath administered to those assessee was not as per provisions of section 132(4) of the Income Tax Act, 1961 and the statements recorded were not admissible as evidence. But in the instant case, the statement of Sh. Sanjay D. Sonawani, has been recorded as per provisions of Section 133A(3)(iii) of the Income Tax Act, 1961 and hence the judicial pronouncements relied upon by the assessee in the above noted two cases are not applicable.
(11) AIR 1992 SC 711 & (12) 154 ITR 172 As regards his reliance on the said two judgments of Hon'ble Supreme Court, after going through these judgments, it is noted that these are relating to the principles of disciplined which require that the order of the higher authorities and higher courts are to be followed by the lower authorities/lower courts. The judgments relied upon by the counsel for the assessee are distinguishable on facts, as per my findings in the relevant paras above which establish that no indiscipline will be there if the various judgments relied upon by the counsel and distinguished by me are not followed in the present proceedings. Hence, the question of not following those judgments in the case of the assessee trust is not involved in the present case.
WRITTEN ARGUMENTS DATED 14.09.2012 FILED BEFORE MY PREDECESSOR.
In these arguments, it is stated that the software purchased from Washington Software Ltd., though debited to various institutions, is installed in the central server at the head office from where various modules and reports are generated. In support of this contention, he has filed a copy of the report dated 11.09.2012 of M/s Trident Information systems Pvt. Ltd., HO, New Delhi and an affidavit of Sh. Vijay Kumar Berlia, General Secretary of the assessee society as also the details of cheques issued towards the payment to M/s Washington Software Ltd.
It is incorrect to say that the softwares have been purchased and installed in the Central office. The investigation carried out by the Department clearly established that the softwares were never purchased. So the argument that the softwares were purchased and installed in the 17 I.T.A. No. 228 & 227(Asr)/2013 Central Office has no force in view of the findings as mentioned in the preceding paragraphs.
As regards the report dated 11.09.2012 of M/s Trident Information Systems Pvt. Ltd. It is noted that this report is prepared at much later stage and the matter of misappropriation of society's funds, which has come to notice in year 2010-11 relates to a period way back to the year 2003-04 and this report is prepared in the year 2012. The veracity of this report is also not reliable in view of the following reasons:
(i) It is not established that M/s Trident Information systems Pvt Ltd. is a duly authorized agency by some competent authority to certify the authenticity of the softwares uploaded on assessee society's computers.
(ii) By now, the assessee society could have installed some similar softwares in the computers of the Head Office, since it is not certified that as to when these softwares were uploaded on the concerned computers.
(iii) In para 4 of the report (supra) it is mentioned that "However there was no data in the financial accounting module", which means that either the date has been deleted or the software has not been used.
Moreover, there is no mention about the cost price, date of installation, time of installation, it upgradation etc. in the report. Hence the report taken now has no authenticity
(iv) The search & seizure operations and survey operations carried on by the Department at various placed including business premises of the assessee society clearly established that the purchase of softwares by the assessee is bogus.
(v) The statement of Shri Sanjay D. Sonawani has not been reverted by producing any cogent material or reasons. Moreover, assessee society has not availed the opportunity provided to it for cross- examination of Shri Sanjay D. Sonawani for the reasons best know to it. 18
I.T.A. No. 228 & 227(Asr)/2013 The affidavit of Sh. Vijay Kumar Berlia is a self serving document, since he is the office bearer of the assessee society, who has personally approved all the payments made to WSL and thus he is supposed to depose in this manner to justify his earlier action of making huge payments to WSL without getting any product/software in return. The details of various cheques in lieu of payments made are not in dispute, as the various payments made by the assessee through cheques to the company of Sh. Sanjay D. Sonawani have been admitted to have been got discounted form the financiers of Bombay and Pune and that the cash has been admitted to be returned back to the persons managing the affairs of the assessee society and therefore misutilized, as discussed above.
WRITTEN ARGUMENTS DATED 17.08.2012 FURNISHED BEFORE MY PREDECESSOR:
In these arguments, the assessee has given his preliminary information with regard to the registration granted to the assessee society in the year 1999, the number of institutions being run by the assessee society and that what were the main aims and the objects of the assessee society, besides agitating the statement of Sh. Sanjay D. Sonawani. With regard to the statements of Sh. Sanjay D. Sonawani, reference is made to my findings given exhaustively in the foregoing paras which need not to be repeated here. Hence, these arguments/submissions will not help the assessee in view of the discussion made in the preceding paragraphs.
The counsel for the assessee society has also put forth another argument before me that even if the purchase of the softwares by the assessee from the said company was sham and not real, it is not an act of the society but some official of the society for which the society cannot be punished. In all the above noted written arguments, the assessee society has never adduced any evidence to establish that the management of the society was never involved in the sham transactions of the society with the company of Sh. Sanjay D. Sonawani. Even if some official of the society is pin pointed in all these unreal transactions, the misappropriation which runs into crores of rupees continued for various years cannot be without the knowledge of management. It is pertinent to mention here that all the payments made to WSL have been approved by Sh. Vijay Berlia General Secretary of Society and during survey operation, he couldn't give any satisfactory reply or could not furnish 19 I.T.A. No. 228 & 227(Asr)/2013 any evidence that software was actually purchased that installed at society premises.
WRITTEN ARGUMENTS FURNISHED BEFORE ME ON 25.03.2013
In these arguments, the counsel for the assessee society has almost repeated his earlier arguments besides raising the following issues again in a different way, which are dealt with hereunder:-
(A) That Mr. Sonawani has given various statements before the Department Authorities whereby he has changed his stance every time and that these are contrary to each other.
In this regard, I have already observed that although he has given various statements, which are on few issues are contrary to each other, but he has nowhere retracted from his stand that he has actually not supplied the requisite software to the assessee Society and that he has returned the payment back in cash to the assessee received by him from the assessee Society after retaining 1% commission on it. Therefore, the crux of his statement remained the same in all the statements given by him to the Department.
(B) He has further demanded that another expert should be appointed by the Department in order to establish whether the software in question has actually been installed on the computers of Head Office of the assessee Society or not at the expense of the assessee Society. In this regard, it is significant to mention here that the misappropriation of Society's funds has been going on since the financial year 2003-04 and what is the purpose to get it verified now through an expert. What is the authenticity that any software if at all available in assessee's computers is not installed now after the misappropriation has come to light. Therefore, the demand of the assessee made at this stage is not justified. (C) That without allowing cross examination of Sh. Sanjay D. Sonawani, any adverse decision taken by the Department against the 20 I.T.A. No. 228 & 227(Asr)/2013 assessee Society will tantamount of denial of sufficient opportunity of being heard to the assessee Society.
In this regard, I have already given my finding that the assessee's counsel has failed to avail the opportunity provided to cross examine Sh. Sanjay D. Sonawani as per his letters dated 28.02.2013 and 15.03.2013 furnished before the ACIT, Circle-III, Jalandhar. Hence his claim that his cross examination has been denied to him in a ploy just to delay the present proceedings.
(D) The assessee has also relied upon a case law pronounced by Hon'ble Orissa High Court in CIT Vs. Billu Patnaik, 190 ITR 396. The case law relied upon by the assessee's counsel in these written arguments is also no applicable to the facts of the present case as in that case no opportunity was allowed to the assessee to cross examine the witness in that case. But in the present case opportunity to cross examine has already been allowed by the Assessing Officer to the assessee society before whom assessments for various years were pending, but the counsel for the assessee has not availed the opportunity provided to him.
7. In view of the above mentioned legal and factual position of this case, I am satisfied that the activities of the assessee society are not genuine, as its funds are being misutilized continuously for many years as mentioned above and hence the registration granted to it u/s 12AA(1) of the Income Tax Act, 1961 is liable to be withdrawn and cancelled. I am also satisfied that the funds of the assessee society are also being utilized for the objects of the society from the past many years. Accordingly, taking recourse of the provisions of section 12AA(3) of the Income Tax Act, 1961, the registration granted to the assessee society on 13.05.1999 is hereby cancelled with effect from assessment year 2004-05."
9) Learned counsel for the assessee Mr. Salil Kapoor, Advocate argued and invited our attention at pages 1 & 2 of the order of learned CIT, Jalandhar-II, Jalandhar, that the CIT himself recorded the findings 21 I.T.A. No. 228 & 227(Asr)/2013 after examining the records that the society is running various institutions listed out at pages 1 and 2 of the order of learned CIT, Jalandhar-II, Jalandhar. Learned CIT, Jalandhar-II, Jalandhar, has further mentioned that the institutions are engaged in the activity of imparting education to the students under various fields.
10) Mr. Salil Kapoor, Advocate, also invited our attention towards the assessment made under Section 143(3)/147 of the Act dated 30.12.2011 for the assessment year 2004-05 available at page 530 - 551 of PB (Vol. -2), in particular at page 534, where the Assessing Officer, has given his finding in para 3 that the main aim of the assessee society is to run educational institute and during the year the assessee was running several schools and colleges. Similarly for the assessment year 2009-10, the Assessing Officer has passed the assessment order dated 30.12.2011 under Section 143(3) of the Act, available at page 553-563 of PB (Vol.
2), where also the Assessing Officer has given his finding that the main aim of the society is to run educational institutions and during the year, the assessee was running several schools and colleges. Nowhere, learned CIT, Jalandhar-II, Jalandhar, in its order dated 25.03.2013, has even made any allegation that the assessee society is not engaged in the 22 I.T.A. No. 228 & 227(Asr)/2013 activity of imparting education or is not running schools or colleges in various fields. There is no finding of learned CIT, Jalandhar-II, Jalandhar, in its order that the assessee society has contravened or has gone against any of the specific objects of the assessee society. Rather the Assessing Officer, keeping into consideration the search & seizure conducted on 22.03.2011 at the premises of one Parag V Mehta under Section 132(1) of the Act and various statements, has observed that the main objects of assessee society is to run educational institutions and during the year, the assessee has been running several schools and colleges, as mentioned hereinabove.
11) Learned counsel for the assessee invited our attention to the provisions contained in Section 12AA(3) of the Act, the same is reproduced as under for the sake of convenience:
"12AA (3): Where a trust or an institution has been granted registration under clause (b) of sub-section (1) and subsequently the Commissioner 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 institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution:
Provided: that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard."23
I.T.A. No. 228 & 227(Asr)/2013
12) Learned counsel for the assessee argued that the activities of the society is to impart education and nothing has been brought on record by learned CIT, Jalandhar-II, Jalandhar, to show that the activities of the institution i.e. imparting education, which are the main object of the institution, are not genuine and therefore, learned CIT, Jalandhar-II, Jalandhar, is not justified in cancelling the registration of the assessee society. Learned counsel for the assessee referred at page 5 of the order of learned CIT, Jalandhar-II, Jalandhar, where the CIT observed that the activities of the assessee society were not found to be genuine in view of the provisions of Section 13(1)(c) read with Section 13(3) of the Act and on this basis, the registration granted to the assessee was liable to be cancelled. In this regard, it was argued by learned counsel for the assessee that the activities of the society are not to purchase and sale of software and nothing has been brought on record by learned CIT, Jalandhar-II, Jalandhar, to show that any income of the assessee society has been applied directly or indirectly for the benefit of the persons referred to in section 13(3) of the Act.
13) Learned counsel for the assessee relied upon the decisions in the case of CIT Vs. Red Rose School, dated 07.02.2007 decided by 24 I.T.A. No. 228 & 227(Asr)/2013 Hon'ble Allahabad High Court reported in (2007) 212 CTR (All) 394; CIT Vs. Karimia Trust reported in 302 ITR 57 (Jharkhand) in support of his argument. He further relied upon the decisions of various courts of law, which are as under:
i. Chaturvedi Har Prasad Education Society Vs. Commissioner of Income Tax (I.T.A.T. Lucknow 'A' Bench) reported in (2010) 46 DTR 121 at PB 450 to 454 ii. Maharashtra Academy of Engineering & Educational Research (Maeer) Vs. Commissioner of Income Tax reported in (2010) 36 DTR 321 (I.T.A.T., Pune 'A' Bench) at PB 454 to 484.
iii. Institute of Science and Management Vs. CIT (Central), Patna, passed in ITA No. 13(Ranchi) of 2011, dated 12.03.2012 at page 60 of PB 60 to 70.
iv. Ajit Education Trust, Bharuch Vs. CIT in ITA No. 2666/Ahd/2008, dated 07.09.2010 reported in [2010] 42 SOT 415 (Ahd.)
14) Relying upon the aforesaid decisions and the arguments made hereinabove, learned counsel for the assessee further argued that learned CIT, Jalandhar-II, Jalandhar, is not justified in withdrawing and cancelling the registration granted under Section 12AA(1) of the Act w.e.f. 01.04.1998 vide order dated 13.05.1999. The order under Section 12AA(3) of the Act cancelling the registration w.e.f. assessment year 2004-05 is liable to be set aside and prayed to restore the registration so 25 I.T.A. No. 228 & 227(Asr)/2013 granted under Section 12AA(1) of the Act vide order dated 13.05.1999 w.e.f. 01.04.1998 w.e.f the assessment year 2004-05.
15) He further argued that the assessee had actually purchased the software and had made the payment through account payee cheques to M/s Washington Software Ltd. (WSL). In this regard, affidavit of Sh. Vijay Kumar Berlia is available at page 103 & 104 of PB, and the statement of Smt. Anita Paul available at page 365 to 373 of PB. He also invited our attention towards the report of M/s Trident Information Systems Pvt. Ltd. at page 101 & 102 of PB who after inspection and examination reported that the said software modules were purchased by the assessee and were installed between 2004 to 2011 and the assessee argued that the learned CIT, Jalandhar-II, Jalandhar, has not found any defect in the same. He further filed reports, generated from time to time by the said softwares, which were installed in the Head Office, available at page 106 to 223 of PB. It is argued that the software purchased from M/s Washington Software Pvt. Ltd, though debited to various institutions, is installed in the central server at the head office of utmost importance and requiring secrecy. The software includes various modules and various types of reports are generated. These reports have been 26 I.T.A. No. 228 & 227(Asr)/2013 mentioned hereinabove and were placed on record at page 106 to 223 of PB.
16) It was argued that it was a concocted story by the vendor only to save his skin and putting onus on others to prove. The balance sheet and profit and loss account of M/s Washington Software Limited were placed on record which show nowhere that financial position of the company has gone down due to closure of business. Whereas M/s Washington Software Ltd. is an US based Company and working in India in collaboration with it and with a fear of prosecution, it has denied of having supplied any software. The accounts cannot be taken as false and fabricated as claimed by Mr. Sonawani. Learned CIT, Jalandhar-II, Jalandhar, has accepted that Mr. Sonawani has changed his stance from time to time. It was argued by learned counsel for the assessee that the cheques given to M/s Washington Software Ltd were in turn given to various parties by M/s Washington Software Ltd on different dates as referred by the Assessing Officer in his order for the assessment year 2010-11 dated 28.03.2013 available at page 570 to 612 of PB (Vol-2) in particular at page No. 606 & 607. However, no cheques have been found to be encashed and there is no evidence to show that M/s Washington 27 I.T.A. No. 228 & 227(Asr)/2013 Software Ltd. has withdrawn cash and has paid to any persons referred to in Section 13(3) of the Act. Learned counsel for the assessee invited our attention at page 28 of the order of learned CIT, Jalandhar-II, Jalandhar, where it was specifically given in writing to learned CIT, Jalandhar-II, Jalandhar, that any order passed against the assessee without giving proper opportunity will be against the law whereas learned CIT, Jalandhar-II, Jalandhar, at page 30 mentioned that cross-examination of Mr. Sanjay D Sonawani was allowed to the assessee by the Assessing Officer and it has been denied by the assessee society on one pretext or another. This finding of the learned CIT, Jalandhar-II, Jalandhar, is perverse to the facts for the reasons that on 27.02.2013 the learned counsel for the assessee deposited Rs 15,000/-. Learned counsel for the assessee invited our attention at page 615 of PB (Vol. -2) which is a letter to the ACIT, Circle-3, Jalandhar, dated 28.02.2013, the same is reproduced as under for the sake of convenience:
28.02.2013 The Assistant Commissioner of Income Tax, Circle 3, Jalandhar Re: Apeejay Education Society, Jalandhar, A.Y. 2010-11 28 I.T.A. No. 228 & 227(Asr)/2013 Dear Madam, We acknowledge the receipt of your letter number ACIT/C-
III/JAL/2012-13/6757 dated 18.02.2013, addressed to DDIT (Inv.), Pune and copy to us. In the same you have directed us to visit Pune on 04.03.2013 and cross examine Mr. Sanjay D. Sonawani in the office of DDIT(Inv.), Pune. In regard to same it is submitted as under:
That assessment proceeding in our case is going on before and you are our Assessing Officer. We want to cross examine the witness in your presence as you have to decide our case on the basis of his cross examination.
No doubt he is witness of the department and we have right to cross examine him at Jalandhar. However keeping in view your limitations and we being law abiding citizens are ready to bear all the expenditure of Mr. Sanjay D. Sonawani for travelling to Jalandhar as witness. For this purpose we are enclosing herewith demand draft No. 652344 dated 27.03.2013 for drawn on OBC Pune for Rs. 15,000/- in the name of Mr. Sanjay D. Sonawani.
You are requested to call me to depose here in Jalandhar before you. In case his expenditure is more than this, we will reimburse the same on his arrival or if you want we can pay in advance. Hence it is prayed that he may please be called to Jalandhar.
Thanking you.
Yours faithfully For Appejay Education Society Sd/./-
(CA Nirmal Mahajan) Counsel Encl: demand draft"
17) Learned counsel for the assessee also invited our attention towards the provisions contained in the Code of Civil Procedure, 1908 in 29 I.T.A. No. 228 & 227(Asr)/2013 the relevant Order XVI, Rule 19. But Mr. Sonawani person was not called to Jalandhar and no cross-examination was allowed. Moreover, learned counsel for the assessee invited our attention to the letter reproduced at page 24 to 28 in the order of learned CIT, Jalandhar-II, Jalandhar, where the Department had recorded four statements of Mr. Sanjay D. Sonawani and there are contradictions in these statements and still the Department is trying to use these statements of the person who had retracted from his earlier statement from time to time. Contradictory replies dated 16.03.2011, 12.04.2011, 12.05.2011 & 30.12.2011 are reproduced at page 25 to 26 of the order of learned CIT, Jalandhar-II, Jalandhar. Learned counsel for the assessee again invited our attention at page 26 and 27 of the order of learned CIT, Jalandhar-II, Jalandhar, where Mr. Sonawani has stated in his statement, which was taken under threat and duress, that he was told that he would have a heavy liability of roughly 100 crores and accordingly he frightened and took the name of Parag Mehta. Learned counsel for the assessee argued that the contradictory statements made by Mr. Sonawani cannot be relied upon and cannot be the basis for arriving at a conclusion that the assessee society is not carrying on any charitable activities. The learned counsel 30 I.T.A. No. 228 & 227(Asr)/2013 for the assessee relied upon the decisions of CIT Vs. Eastern Commercial Enterprises (1995) 123 CTR (Cal) 217 available at page 427- 432 of PB (Vol. -2). The relevant para no 4 of the said order, at page 432, is reproduced as under:-
"We have considered the contesting contentions of the parties. It is true that Shri Sukla has proved to be a shifty person as a witness. At the earlier stages, he claimed all his sales to be genuine but before the Assessing Officer in the case of the assessee, he disowned the sales specifically made to the assessee. This statement can at the worst show that Shri Sukla is not a trustworthy witness and little value can be attached to what he stated either in his affidavits or in his examination by the Assessing Officer. His conduct neutralises his value as a witness. A man indulging in double-speaking cannot be said by any means a truthful man at any stage and no court can decide on which occasion he was truthful. If Shri Sukla is neutralised as a witness what remains is the accounts, vouchers, challans, bank accounts, etc. But, we would observe here that which way lies the truth in Shri Sukla's depositions, could have been revealed only if he was subjected to a cross-examination by the assessee. As a matter of fact, the right to cross-examine a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the cornerstones of natural justice. Here Shri Sukla is the witness of the Department. Therefore, the Department cannot cut short the process of taking oral evidence by merely having the examination-in-chief. It is the necessary requirement of the process of taking evidence that the examination-in-chief is followed by cross- examination and re-examination, if necessary
18) Learned DR, on the other hand, strongly relied upon the order of learned CIT, Jalandhar-II, Jalandhar, as well on the written submission filed by him, which for the sake of convenience is reproduced as under:31
I.T.A. No. 228 & 227(Asr)/2013 Regarding:- APJ Education Society, ITA No. 228/Asr/2013 Written Submissions:-
The main issued involved in the cancellation of registration u/s 12AA(3) of the I.T. Act by CIT-II, Jalandhar vide his order dated 25.03.2012.
The brief facts are that during search proceeding on 22.03.2011 u/s 132 of I.T. Act, 1962, on Sh. Parag V. Mehta, R/o 144/114A, Jolly Bhawan No. 110, Maxine Lines Mumbai, it was fond that a table space has been provided to M/s Washington Software Ltd, a (WSL) company of Sh. Sanjay D. Sonawani along with many other companies. It was admitted by Sh. Mehta that his company (WSL) is providing accommodation entries to various persons and Sh. Sonawani was managing the affairs of the company. Later on, Statement of Sh. Sonawani was recorded on various dates and he stated, in addition to other facts, that accommodation entries have been provided to M/s APJ groupd and various institutes managed by it. The details of these accommodations entries were also provided by him year-wise. Though there has been very minor variation in the statements recorded from time to time relating to management and involvement of Sh. Mehta, there is one thread-which has been consistently stated that the WSL has provided accommodation entries to the assessee group after charging Commission of 1% on total entries. These sham/bogus accommodation entries were claimed as expenses by the assessee group. The entities of the assessee group, wherever such expenses were claimed, were surveyed u/s 133A of the I.T. Act, 1962. During survey proceeding, statement of various persons managing the institutes including Principal, Dean, Manager etc. were recorded and are on record. In all these statements, they denied any knowledge of such software of purchase of such software.
Based on above bare facts, the learned CIT-II issued notice u/s 12AA(3) of the IT Act, 1962 for cancellation of registration granted earlier. Proper opportunity was granted to the assessee and detailed replies were filed by the assessee. A request for cross-examination of 32 I.T.A. No. 228 & 227(Asr)/2013 Sh. Sonawani was made before CIT-II as well as before his Assessing Officer. The Assessing Officer allowed them opportunity to cross- examine Sh. Sonawani on 28.02.2013 and 15.03.2013 and on both times, the opportunity was not availed of. So, now the assessee cannot claim that no opportunity to cross-examine was granted. After taking all the facts into consideration and analyzing the totality of circumstances, the learned CIT-II cancelled the registration u/s 12AA(3) by giving detailed reasoning in the body of the order and conclusion in para 7 of the order dated 25.03.2013. This decision of the CIT-II is absolutely correct and as per law. At the onset, it is requested that reading of the order u/s 12AA(3) dated 28.03.2013 of IT Act, 1962 ad of the assessment order u/s 143(3) for assessment year 2010-11 passed on 28.03.2013 (page No. 592 to 612 of the Paper Book Volume-2 filed by the assessee) will clear all the doubts and will establish that it was a crystal clear case of claim of bogus/sham expenses on the basis of forged documents (accommodation entries) Back ground of the assessee/Society
1. The society/assessee is managed by one family - 5 members out of 7 members are and belong to Sh. Satyapal, the presidentof the society.
(Source Page 14 of the Paper Book filed by the assessee) Sr. Name Occupation Address Relationship No.
1. Stya Paul Business S-361, Panch Shilla Park, Father New Delhi
2. Sushma Business 14, Commercial Complex, Daughter Berila Majid Moth, Greater Kailash-
II, New Delhi-48
3. Yash Raj Business GDPA House Near Railway Aggarwal Godown, Jalandhar -4
4. Vijay Kumar Business 14, Commercial Complex, Son-in- Sh.
Berila Majid Moth, Greater Kailash- Stya Paul.
II, New Delhi-48
5. Rajeshwari Business S-361, Panch Shilla Park, Wife
Paul New Delhi
6. Kamna Raj Business 240-L, Model Town,
Aggarwal Jalandhar
33
I.T.A. No. 228 & 227(Asr)/2013
7. Nishant Berila Professional No. 1 Tuglak Lane, New Grand Son of
Delhi Sh. Stya Paul
(2). The prsidentship has been bestowed upon Sh. Satyapal for life and after him, on his lineal descendent and have to remain perpetually in the family.
(source page 8 of the paper book filed by the assessee)
i) The Present President of the Society is Dr. Stya Paul, elder son of late Shri Piyare Lal. Dr. Satya Paul will continue to be the life President of the Society.
ii) In case of his retirement or in case of the post falling vacant otherwise the next President of the Society will be Smt. Sushma Berlia, daughter of Dr. Stya Paul. Smt. Sushma Berila will then continue to be the life president of the Society unless she herself retires.
iii) In case at nay time vacancy occurs, subsequent to 2 c(ii) above in the office of the President due to retirement, resignation or otherwise the vacancy will be filed in amongst by one of the life members of the Society to be elected by the life members only who are either themselves family members, descendants and/or their spouses of Dr. Satya Paul sone of Late Shri. Payare Lal.
3. It s clearly a business venture which has been given the hue of a charitable society - the facts of charitable society peel off as soon the fact of claim bogus/incurred expenses is established with evidence.
So, In reality, the society is a family affair managed by the family of Sh. Satyapal.
Bare Facts
1. The Co (WSL) did not have any office or infrastructure for conducting such business as it was working from table space in the premises of Sh. Parag Mehta.
2. The close connection between Sh. Vijay Berlia -Sec. of the Society and Sh. Mehta is on record. In his statement dated 34 I.T.A. No. 228 & 227(Asr)/2013 29.03.2011. Sh. Berila has admitted that Sh. Parag Mehta -, is son of his old Chartered Accountant.
(source page No. 357-364 of the Paper Book filed by the assessee)
3. Sh. Sonawani -Director of WSL has - categorically stated is all his statements that he provided accommodation entries to the assessee in various years.
(Source Page no. 322 to 356 of the Paper Book filed by the assessee)
4. The accommodation entries obtained from Sh. Sonawani has been debited as expenses of various institutes whose key personnel's were not even aware of the payment or software or purchase of any software.
(Source Page No. 365 to 412 of the Paper Book filed by the assessee)
5. The assessee is an old society and have been managing its affairs including books of account on computer. The evidence produced during the proceedings in respect of software only relate to regular software which was used in maintenance of details. There is no specific evidence in respect of evidence regarding software from the WSL.
Hence:-
1. The assessee could not explain as to why the so-called software has been installed in the head office whereas expenses have been debited to various institutes of the assessee.
2. The assessee has employed unfair means to siphon off the funds for ulterior motive and hence the activities of the society does not remain genuine.
3. The very soul of charitable activities has been violated which goes to the core of purpose and objects. It is not a case of disputed expenses but a case of pure siphoning off money for non-genuine activities of the society.
4. The assessee has not been able to explain the reasons for obtaining show/bogus bills in the hands of various institutes.35
I.T.A. No. 228 & 227(Asr)/2013 Claim of bogus expenses from fictions company raise a valid question made on the genuineness of the activities of the society.
5. The statement of the director of WSL (Sh. Sonawani) recorded from time to time during search proceeding and thereafter lead to only on conclusion that the expenses claimed are not genuine and hence not for genuine activities of the society.
6. Claim of bogus/sham bill of expenses is not only unallowable expenses but goes to the core of the matter as it affects the whole body of the society. A society meant for noble cause of education goes astray-claims bogus/sham expenses, siphons off the funds meant for education-still has the fact of claiming registration u/s 12AA i.e. an exemption from payment of Income Tax.
7. Once it is established that the expenses are not genuine, it is not necessary to prove where the funds gave gone ultimately facts of which are in knowledge of the assessee only.
8. The registration has been cancelled rightly from the year when the claim of the bogus expenses was first made.
The issue needs a view based on totality of the circumstances and facts of the case and no on one or two lines picked up from here and there. The overall facts lead to only one conclusion that it is clear case of non-genuine activities of the society.
So, the learned CIT has rightly cancelled the registration the society u/s 12AA(3) of the I.T. Act.
Submitted Sir, Sd/./-
(Mahavir Singh) Joint Commissioner of Income Tax, Sr. D.R., I.T.A.T., Amritsar.
36
I.T.A. No. 228 & 227(Asr)/2013
19) We have heard the rival contention and perused the facts of the case. There is no dispute to the fact that learned CIT, Jalandhar-II, Jalandhar, who has passed the order under Section 12AA(3) of the Act, has himself observed that the assessee society is running various education institutions under its management and control which are listed out at page nos. 1 and 2 of his order. The said institutions are stated to be engaged in the activities of imparting education to students under various fields. It is also not disputed that the Assessing Officer in the case of assessee, vide his order dated 30.12.2011 passed for the assessment year 2004-05 under Section 143(3)/147 of the Act, which has been passed after the order under Section 12AA(3) of the Act, has observed in para 3, page 534 of PB (Vol. -2), that the main object of the society is to run educational institute and during the year, the assessee was running several schools and colleges. Nowhere, there has been finding in the assessment order that the assessee institute is not imparting education or not carrying out any activity of imparting education which is the main object of the society. It has been held by the Assessing Officer in the said order that the assessee has incurred 91.71% of the receipts which are more than 85%, as required under Section 11(1) of the Act. Similarly, in 37 I.T.A. No. 228 & 227(Asr)/2013 the order dated 30.12.2011 passed for the assessment year 2009-10, which has been passed after the order under Section 12AA(3) of the Act, available at page 553-563 of PB (Vol. -2), it has been observed by the Assessing Officer in para 2 (page 554) that the main aim of the assessee society is to run educational institute and during the year the assessee was running several schools and colleges and therefore there is no finding with regard to not imparting education to the students or not achieving the objects of the assessee society. In the aforesaid order, at page 562 of PB (Vol. -2), it has been held by the Assessing Officer that the assessee has incurred expenses at 95.66% of the receipts which is more than 85%, as required under Section 11(1) of the Act. Learned counsel for the assessee has relied upon the decision in the case of Red Rose School (supra) and the relevant para no. 21 of the order, available at page 317 of PB (Vol. -2) is reproduced as under:
"21. Section 12AA, which lays down the procedure for registration, does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust/ institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects. The profit earning or misuse of the income derived by charitable 38 I.T.A. No. 228 & 227(Asr)/2013 institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution."
20) In the present case, the activities of the assessee-trust which are mainly of imparting education to the students under various institutions referred in the order of learned CIT, Jalandhar-II, Jalandhar, have been found to be genuine and no allegation regarding not imparting of education has been framed by learned CIT, Jalandhar-II, Jalandhar, in its order passed under Section 12AA(3) of the Act or by the Assessing Officer in his order passed for the assessment years 2004-05 & 2009-10, referred hereinabove. The activities of the trust are found to be genuine and according to us the activities of the trust are genuine and cannot be said to be for non-charitable purposes, especially that there is not even a whisper from learned CIT, Jalandhar-II, Jalandhar, with regard to the non-genuineness of the activities of the trust which are found to be in consonance with the objects of the trust and therefore, the learned CIT, Jalandhar-II, Jalandhar, is not justified in cancelling and withdrawing the registration granted under Section 12AA of the Act i.e. w.e.f. the assessment year 2004-05. In the present case, learned CIT, Jalandhar-II, Jalandhar, has not brought on record any materials that the activities of 39 I.T.A. No. 228 & 227(Asr)/2013 the trust are not genuine or are not being carried out in accordance with the objects of the trust. Thus, the order of learned CIT, Jalandhar-II, Jalandhar, cancelling the registration is bad in law and, therefore, is set aside.
21) Reliance has been placed by learned counsel for the assessee in the cases of Chaturvedi Har Prasad Education Society (supra), Maharashtra Academy of Engineering & Educational Research (Maeer) (supra), Institute of Science and Management (supra) and Ajit Education Trust, Bharuch (supra) and these case-laws support our views and all the decisions are placed on record.
22) As regards the purchase of software, much has been relied upon the statement of one Mr. Sanjay D. Sonawani Manager of M/s Washington Software Ltd. who stated that he has provided accommodation entries to the assessee society. From the statements given to the Department from time to time dated 16.03.2011, 12.04.2011, 12.05.2011 and 30.12.2011, it was argued that Mr. Sanjay D Sonawani has contradicted his statements every time and as regards the arguments made by learned Sr. DR Mr. Mahavir Singh that his stand has already been constant with regard to providing accommodation entries to the 40 I.T.A. No. 228 & 227(Asr)/2013 assessee whereas while reading page 26 of order of learned CIT, Jalandhar-II, Jalandhar, in which it has been clearly mentioned by him that Mr. Sonawani was threatened by the Department for the statement dated 16.03.2011 which is reproduced as under:
" I have not made any false statement in Pune on 16.03.2011. In fact at that time I was told that I would have a heavy liability of roughly 100 crores, so I got frightened and took the name of Parag Mehta."
23) The aforesaid statement recorded by the Department was whether under threat of tax liability of 100 crores is not evidenced by any documentary evidence by learned A.R. In the present issue, the assessee has submitted the explanation vide letter dated 14.09.2012 available at page 8 to 10 of the order of learned CIT, Jalandhar-II, Jalandhar, in which it was stated that the software purchased from Washington Software Limited though debited to various institutions, is installed in the central server at the head office of utmost importance and required secrecy. The software includes various modules and various types of reports which include data of students and also about the institutions. It generates reports which are very big and contain large number of pages. Some of the reports were produced before the learned CIT, Jalandhar-II, Jalandhar, and are available on record. Such reports 41 I.T.A. No. 228 & 227(Asr)/2013 have been stated to be wrong by learned CIT, Jalandhar-II, Jalandhar. The assessee, for supplementing his contention, has enclosed the report of Trident Information System Pvt. Ltd. certifying that the software were duly installed in the central server at the head office and the said report is available on record as mentioned hereinabove. It was argued that the said software system has generated the reports right from 2004 to 2011.
24) In this regard and keeping in view the facts and circumstances as above, it cannot be a case for withdrawal/cancellation of registration granted under Section 12AA(1) of the Act and therefore, in these facts and circumstances of the present case, our findings as hereinabove. Learned CIT, Jalandhar-II, Jalandhar, is not justified in withdrawing or cancelling the registration under Section 12AA(3) of the Act. Accordingly, all the grounds of the assessee are allowed.
25) In the result, the appeal of the assessee Apeejay Education Society i.e. ITA No. 228(Asr)/2013 is allowed.
26) Now, we take up the appeal of M/s Rajeshwari Sangeet Academy Trust in ITA No. 227(Asr)/2013. The facts in the present appeal are identical to the facts in the appeal of Apeejay Education Society in ITA No. 228(Asr)/2013 as mentioned hereinabove. 42
I.T.A. No. 228 & 227(Asr)/2013 Accordingly, our order passed in Apeejay Education Society in ITA No. 228(Asr)/2013, mentioned hereinabove, is identically applicable in the present appeal of M/s Rajeshwari Sangeet Academy Trust in ITA No. 227(Asr)/2013. Resultantly, all the grounds of appeal raised by the assessee in ITA No. 227(Asr)/2013 are allowed.
27) In the result, both the appeals i.e. ITA Nos. 228(Asr)/2013 & 227(Asr)/2013 filed by the assessees are allowed. Order pronounced in the open court on 8th May, 2014 Sd/./- Sd/./-
(H.S. SIDHU) (B.P. JAIN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 8th May, 2014
/RK/
Copy of the order forwarded to:
1. The Assessees: M/s Apeejay Education Society & M/s Rajeshwari Sangeet Academy , Bhagwan Mahavir Marg, New Jawahar Nagar, Jalandhar
2. Commissioner of Income Jalandhar-II, Jalandhar
3. The CIT(A),
4. The CIT,
5. The SR DR, I.T.A.T., True copy By order (Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.