Choudhary Gharsiram Memorial Shikshan ... vs Assessee

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 506/JP/2014 fu/kZkj.k o"kZ@Assessment Year : ..........................

Choudhary Gharsiram cuke The Commissioner of Memorial Shikshan Sansthan Vs. Income Tax-III, Jaipur. Near Modi College, Maharaja Surajmal Nagar, P.O. Laxmangarh, District- Sikar. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAAC 6259 L vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Smt. Rolee Agarwal (CIT)

lquokbZ dh rkjh[k@ Date of Hearing : 17/12/2014 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 27/02/2015

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

1. This is an appeal filed by the assessee against the order dt.

30.06.2013 passed by Ld. CIT-III, Jaipur u/s 12AA of the IT Act, 1961.

The effective grounds of appeal are as under:-

"(i) The Learned Commissioner of Income Tax has erred on facts and in law in rejecting the application of assessee for 2 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

grant of registration u/s 12AA of Income Tax Act, 1961. He has further erred on facts and in law in doubting the genuineness of the activities of the assessee by doubting the (i) source of funds brought in the books of accounts in the form of deposits (ii) application of income of the assessee towards its objectives (iii) expenditure on diesel debited in the books of accounts and (iv) fees concession given to several students.

(ii) The Learned Commissioner of Income Tax has erred on facts and in law in refusing registration u/s 12AA by not providing proper opportunity of hearing to the assessee on the issues raised by him for doubting the activities of the trust."

2. Both the grounds of appeal are against refusing to grant

registration u/s 12AA of the Income Tax Act, 1961 (hereinafter referred

as the 'Act'). In this case assessee filed an application in Form No.10A

on 12.12.2013 for registration u/s 12A(1)(aa) of the Act. The ld. CIT

after making various enquiries made certain observations at Pg 2 to 8 of

his order. The summary of these observations are as under:-

(i) At para 3, pg 2 to 6 of the order it was observed that out of 6 depositors as mentioned on Pg 2 of the order, who were required to be produced, only 2

3 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

depositors namely Banwari Lal Bhaskar, and Sh. Rekh Singh Garwal of Garwal Tubewell Co. from whom loan of Rs.12 lacs and Rs.18 lacs respectively were obtained and produced for examination. The CIT found certain discrepancies in their statement recorded by him as mentioned on Pg 4 & 5 of the order. Further it was observed that there are huge deposits and the confirmations submitted were not only incomplete but some of them were inadequate. There are 200 depositors from whom loan amounting to Rs.19,500/- is obtained in cash. These depositors were repaid during the year itself but assessee could file confirmations in 53 cases only. Therefore, considering these circumstances, the genuineness of the deposits is doubtful.

(ii) At para 4, pg 6 it is observed that the assessee society has given advance of Rs.90,000/- to Sh. Hanuman Ram without any interest which is stated to be provided against purchase of furniture but no evidence of supply of furniture was furnished. Thus, the assessee could not adduce the evidence to show the purpose for which amount was advanced to Hanuman Ram which creates serious doubt over the application of income by the society towards its objectives.

4 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

(iii) At para 5, pg 6 to 8 of the order it is observed that assessee society is incurring huge expenditure on purchase of diesel and vehicle running which do not commensurate with the bus fees charged. The expenses prima facie appear on a higher side. The bills for the diesel expenses have been made as per convenience rather on the basis of actual consumption. Statement of Sh. Kurdaram Bhaskar, Chairman of the society was recorded in this connection but he could not satisfactorily reply to the various issues raised.

(iv) At para 6, pg 8 of the order it is observed that assessee society has given fees concession to the several students but basis for such concession is not evident. Sons of the two members of the society are also provided concession in fees. In the absence of the proper guidelines and documentation, there is a lack of transparency in the manner such concessions are given.

2.1 In view of above observations the ld. CIT held that he is

not satisfied with the genuineness of the activities inasmuch as the

source of the funds brought in the books of accounts in form of

deposits is doubtful, the genuineness of the expenditure debited in 5 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

the books of accounts is also doubtful, there is an opaqueness in

which the society is functioning and that the society is controlled by

its Chairman. He therefore, has not considered the case fit for

registration u/s 12AA of the Act. Accordingly, application filed by the

applicant in Form No. 10A dated 12/12/2013 was rejected.

3. Being aggrieved by the order of the CIT-III, Jaipur, the

assessee is before us.

4. The ld. A/R for the assessee submitted as under:-

"The only condition for grant of registration u/s 12AA is that the CIT is to satisfy himself about the objects of the trust/ institutions and the genuineness of its activities. The CIT is satisfied with the objects of the society but is not satisfied with the genuineness of the activity carried out by it for the reasons stated in his order. In respect of the activities of the society he has not disputed to the fact that the only activity of the assessee society is to impart education for which it is running a Secondary School affiliated with CBSE, New Delhi. The students are imparted education in the school run by the society as is evident from the number of the students who were imparted education for the session 2011-12 to 2013-14 placed at PB 51-53, the photographs of the various activities carried out by the students studying in the school run by the assessee society placed at PB 63-78 and the copy of the Income & Expenditure Account for year ending 31.03.2011, 6 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

31.03.2012 and 31.03.2013 placed at PB 33-50 from which it is evident that the society carries out the educational activities without profit motive inasmuch as there is hardly any surplus in the school run by the society. All these evidences prove that the activities of the society are genuine. Therefore, various observations of CIT regarding the deposits raised by the society or the expenditure incurred on vehicle running or the concession in the fees given to the students or the petty advance given are irrelevant issues in examining the genuineness of the activities for the purpose of grant of registration u/s 12AA. These are the issues which are left to the AO for assessment stage in computing the income of the society. For this reliance is placed on the following cases:

(i) CIT Vs. Red Rose School (2007) 163 Taxman 19 (All.)

(ii) Sanjeevamma Hanumanthe Gowda Charitable Trust Vs. Director of Income-tax (Exemptions) (2006) 285 ITR 327 (Kar.)

(iii) CIT & Anr. Vs. Kupparaju Brothers Charitable Foundation Trust (2012) 69 DTR 315 (Kar.)(HC).

(iv) Tagore Children Academy ITA No. 103/JP/09 dated 19.06.

2009 (Jaipur Bench).

(v) DCIT Vs. Cosmopolitan Society 244 ITR 494 (Raj).

(vi) Maharashtra Academy of Engineering & Educational Research (MAEER) Vs. CIT 133 TTJ & 706(Pune) 7 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

So far as various observations made by the ld. CIT are concerned, though they are not relevant for grant of registration u/s 12AA, the same is explained as under:

a) On genuineness of the deposits

(i) In course of the working of the society certain loans were raised by it through its Chairman and the Secretary. The loans which were raised and outstanding as on 31.03.2013 is at PB 35-36. The confirmations of these persons were filed.

The ACIT, Circle Jhunjhunu was required to examine six persons as mentioned at Pg 2 of the order. The ACIT vide letter dt. 13.06.2014 fixed the date of hearing on 20.06.2014. This letter was received by the assessee on 19.06.2014 and therefore the assessee vide its reply dated 20.6.2014 (PB 79-80) filed the PAN/ voter identity card/ ITR as the case may be in respect of such persons. Thereafter the CIT required the assessee to produce these persons before him on 27.06.2014. On this date assessee produced two persons namely Shri Banwari Lal Bhaskar and Sh. Rekh Singh Garwal who have given loan of Rs.12 lacs and Rs.18 lacs respectively. In their statement they accepted giving loan to the assessee society. These statements are made part of the assessment order as Annexure A & Annexure C. Therefore, once they have accepted having giving the loan and also explained the source, the loan received from them cannot be doubted. The further observation of the CIT that 8 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

the signature of Banwari Lal as per the confirmation and as per the PAN No. do not tally (Annexure B of the order) is irrelevant once he has appeared before the CIT and accepted having been given loan to the society. The loan given by Banwari Lal is verifiable from his statement of affairs placed at PB 84-85. In these circumstances the various observations made by the CIT with reference to the statement of these two persons are irrelevant.

(ii) In respect of remaining four persons required to be produced by the CIT, sufficient time was not provided to produce them. However, the genuineness of the loan taken from the bank and their creditworthiness is proved from the documents placed at PB 113-115. Therefore, the loan taken from these four persons cannot be held non genuine.

(iii) The assessee society has also received loan from 200 persons of Rs.19,500/- each. These loans were taken for a temporary period and repaid in the year itself as is evident from Annexure D enclosed with the order. Out of these persons within a short period of two days provided by the CIT, the assessee filed confirmation in respect of 53 depositors. The confirmation of the remaining depositors along with the proof of their identity and their creditworthiness has since been obtained which is available in the paper book. In case of confirmation of one depositor Sh. Mahendra Singh, the CIT has observed that there is 9 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

difference in signature as per the confirmation and as per the passport (Refer Annexure E to the order) ignoring that the passport was issued in 2003 and therefore there is a slight variation in two signatures but the signature on these documents otherwise tally. Therefore, the genuineness of these deposits merely on surmises and conjectures cannot be doubted.

(iv) The statement of Sh. Kurda Ram, Chairman of the society (Annexure F of the order) was also recorded in this connection where in reply to Question No. 11 he has stated that whenever the society needs the funds he arranges the same from his relatives, friends and known persons. In reply to Question No.12 to 16 and 21 he also provided the name and address of such persons. In reply to Question No.17 to 20 he explained that certain amount is arranged by Sh. Arun Kumar, member of the society and provided his full address and mobile no. All these facts established the genuineness of the deposit. Therefore, the CIT was not correct in doubting the genuineness of these deposits.

(v) Otherwise also when the society has obtained the deposits and the same is utilized for the object of the trust, the activity of the society cannot he held non genuine by simply doubting the genuineness of the deposits on mere surmises and conjectures.

10 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

b) On advance given to Sh. Hanuman Ram

The assessee society vide letter dt. 20.06.2014 (PB 79) explained that it has advanced Rs.90,000/- to Sh. Hanuman Ram by cheque for supply of school furniture. The confirmation from Hanuman Ram could not be filed as the time allowed was only two days which was very short. Hanuman Ram is not connected with any of the members of the assessee society. The advance was given in pursuance of the object of the trust. Otherwise also the application of income cannot be a matter which is to be examined at the time of granting registration to the trust as held in various cases stated supra. Therefore, this cannot be a reason to doubt the genuineness of the activities of the trust.

c) Expenditure on purchase of diesel and vehicle running expenses

(i) This issue was raised by CIT for first time on 24.06.2014 when the assessee was asked to give the details of vehicles and the copy of bills of diesel for FY 2012-13. The same is provided before the CIT vide letter dt. 27.06.2012 (PB 111-

112). From the details filed it is evident that the assessee society runs the buses for commutation of the students on cost to cost basis.

11 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

(ii) In the statement of Sh. Kurda Ram recorded on 27.06.2014 (Annexure F of the order) he has explained that the school runs 13 buses and 1 tempo for commuting the students. For control purpose the diesel is purchased from only one petrol pump, it raises monthly bills. He also explained that why the diesel consumption in different months is different. The CIT, however, by referring to these bills and by noting that on different dates in the month, the diesel purchased is of the same quantity observed that the diesel is booked as per convenience and not in accordance with consumption and the same is on excessive side. In making such observation no evidence is brought on record as to how the consumption of diesel is excessive with reference to the distance covered by each bus on different routes in a month. There is no allegation/ evidence that the amount has been siphoned off by the members of the society for their own benefit. Therefore, only on surmises and conjectures, the expenses claimed under this head cannot be said to be excessive so as to refuse registration u/s 12AA of the Act.

d) Concession in fees

(i) The assessee society in its minute dt. 15.06.2010 (PB 128) has resolved that concession in fees be allowed to the poor and to intelligent students. It was accordingly decided that the students who secure 1st, 2nd and 3rd rank in their class should be allowed concession in their fees. Similarly, 12 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

concession of 25% on tuition fees is allowed to the second child of the parent if both the child study in the school of the assessee and in case three children of the parent study in the school run by the assessee, concession of 50% of the tuition fees is given to the first child. Some students are also given free education as per the details furnished at PB 57-59.

(ii) The CIT has observed that concession in fees is given to the sons of the two members of the society ignoring that these students have secured second rank in their class (PB 54 &

102) and therefore they were allowed concession in the fees as allowed to other students. It is not the case of the CIT that concession in the fess is not given to the students and therefore simply on the allegation that there is absence of proper guidelines/ documents or transparency in the matter of giving concession in the fees, the activities of the society cannot be said to be non genuine as to deny registration u/s 12AA."

The ld. A/R thus argued that on none of the issues raised by the CIT, it can be held that the activities of the society is not genuine more particularly when he has not doubted that the education has been imparted by the assessee society to the students. Therefore, he prayed that the CIT be directed to grant registration u/s 12AA to the assessee society."

13 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

5. At the outset, the ld. DR vehemently supported the order of

ld. CIT. It was contended that u/s 12AA the CIT is to satisfy himself

about the object of the trust and genuineness of the activities before

granting the registration. In this case CIT has brought enough material

on record to show that activities of the assessee are not genuine and

therefore the order of CIT be upheld.

6. We have heard the rival contentions of both the parties and

perused the material on record. It is a fact on record that the only

object of the assessee is to promote and impart education and in

pursuance to the same it is running a secondary school affiliated with

Central Board of Secondary Education, New Delhi. The Ld. CIT has

satisfied himself with the object of the assessee but he is not satisfied

with the genuineness of the activities carried out by it for the reasons

mentioned in his order. As per section 12AA of the Act, the

Commissioner is to satisfy himself about the object of the trust or

institution and the genuineness of its activities before granting

exemption u/s 12AA. We find that only because as per the Ld. CIT, the

assessee has raised deposits from various persons or it has given an

advance of Rs. 90,000/- to Sh. Hanuman Ram or that expenditure on

purchase of diesel do not commensurate with the bus fees charged or 14 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

that fees concession is given to the several students but basis for such

concession is evident, cannot be a basis to doubt, the genuineness of

the activities carried out by the assessee more particularly when the

fact of the education being imparted by it to the students is not in

doubt and the assessee has given the explanation in respect of the

issues raised by the Ld. CIT. All the issues raised by the Ld. CIT are the

matters which are to be considered by the AO in the assessment

proceedings and for that reason it cannot be held that activities of the

assessee are not genuine. The ITAT Pune Bench in case of Maharashtra

Academy of Engineering and Educational Research Vs. CIT 133 TTJ 706

with reference to cancellation of registration u/s 12AA(3) has held that

this section confines to inquire about the activities of the trust and its

genuineness, which means, in consonance with the objects for which

created and those objects as also the activities should not be a

camouflage but pure, sincere, charitable and for public utility at large.

The Ld. CIT is not to enter into the area of investigation of source of

income and also application of income, so that the amount of correct

exempt income be prejudged. The various cases relied Supra by the AR

also lays down the similar principle of law. Therefore the activities of

the assessee cannot be held to be non genuine on the reasons 15 ITA 506/JP/2014_ Choudhary Gharsiram Memorial Shikshan Sansthan Vs. CIT-III

mentioned by the Ld. CIT. Accordingly, we direct the Ld. CIT to allow

registration to the assessee u/s 12AA of the Act.

7. In the result, assessee's appeal is allowed.

Order pronounced in the open court on 27/02/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Tk;iqj@Jaipur fnukad@Dated:- 27th February, 2015

*Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- Choudhary Gharsiram Memorial Shikshan Sansthan, Sikar.

2. izR;FkhZ@ The Respondent- The CIT-III, Jaipur

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 506/JP/2014)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar