Janak Charitable & Education Society, ... vs Department Of Income Tax

Income Tax Officer(E), vs Janak Charitable & Education Society, Trust Ward-IV, Laxmi Nagar, 439, Sainik Vihar, New Delhi-110034. Distt. Centre, Delhi-110092. PAN-AAATJ2177K (APPELLANT) (RESPONDENT)

Appellant by Sh.Gaurav Dudeja, Sr.DR Respondent by Sh.Sanjay Wadhwa, Adv. & Sh.Sanjeev Khurana, CA

Date of Hearing 28.04.2015 Date of Pronouncement 30.04.2015

ORDER PER DIVA SINGH, JM

These two appeals filed by the Revenue assail the correctness of the separate orders dated 30.03.2012 of the CIT(A)-XII, New Delhi in 2002-03 & 2004-05 assessment years on identical grounds. For ready-reference, we reproduce the grounds raised in ITA No.-2945/Del/2012 hereunder:-

1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made u/s 68 of the Act as the assessee trust has violated the conditions for grant of exemption u/s 12A of the Acct.

2. The appellant craves leave to add, to alter or amend any ground of appeal raised above at the time of hearing."

2. The relevant facts as emanating from the record are that the AO vide his order dated 20.12.2010 in the second round before him observes that the original assessment in the case was completed u/s 143(3)/148 of the Income tax Act, 1961 whereby exemption u/s 11 & 12 of the Act was denied to the assessee society. The assessee succeeded before the CIT(A) and the Revenue assailed the said order before the ITAT wherein the Co-ordinate Bench vide its order in ITA No.-3347/Del/2008 dated 19.06.2009 restored the issue back to the file to the AO with the following observations:-

I.T.A .Nos.-2945 & 2946/Del/2012

"We have considered the facts of the case and rival submissions. From the facts mentioned in the assessment order, it does not appeal to us that the assessee has tried to enter unaccounted money in the books of account as donations. Inspite of repeated opportunities, no explanation was filed before the AO or the Ld. CIT(A). It is true that these amounts were shown as income by way of donations, but that does not settle the character of receipts. The AO has also not mentioned reasons, being the conditions imposed for grant of registration, because of which exemption was denied to the assessee u/s 11 & 12. In these circumstances, we think it fit to restore the matter to the file of the AO with a direction to consider the matter afresh and pass a speaking order on both the issues, after hearing the assessee."

2.1. In this factual background the AO examined the claim of the assessee that donations had been received totaling to Rs. 24,93,000/- from 24 persons, the details of which were referred in the original assessment order.

These alleged donations were found to have been received in a span of 5 to 10 days i.e during the period 05.09.2001 to 11.09.2001. Referring to facts recorded in the original assessment proceedings where letters u/s 133(6) were issued to these alleged donors which more or less returned unserved. The said fact duly stood confronted to the assessee. Accordingly in the re- assessment proceedings, the AO required the assessee to explain vide order sheet entry dated 24.11.2010 that on facts where the funds stood collected by unallowable means, why benefit of section 11 & 12 should not be denied resulting in addition of the alleged donation being added back as income from undisclosed sources.

2.2. In response thereto, the assessee vide letter dated 03.12.2012 is found to have offered the following explanation, the same is extracted from the assessment order:-

"M/s Janak Charitable & Education Society has accepted donations of Rs.24.93 lakh, during AY 2002-03 and claimed exemption of Rs.24.74 lakh (i.e. excess of income over expenses) on the basis of actual utilization for defined purpose i.e. for purchase of school land from DDA for the purpose of carrying school activities. Actual utilization was duly submitted earlier by way of following enclosures :-

1. Allotment cum demand letter issued by DDA for Rs.24,51,737/-.

2. Copy of challan for depositing the above said demand together with interest amount of Rs.55,165/-.

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In this way, assessee has fully complied with all conditions of sec. 11 & 12 of the Income Tax Act. "

2.3. The AO considering the submissions of the assessee and extracting the statement of the entry operators given to the Investigation Wing, New Delhi i.e. Sh. Mukesh Gupta, S/o- Sh.R.D.Gupta duly confronted to the assessee concluded that the assessee had collected funds through illegal means and from entry operators who have provided only bogus accommodation entries. Referring to the statement of Sh.Mukesh Gupta, Son of Sh. R.D.Gupta, the entry operator who maintained/controlled a number of bank accounts concerned with the help of number of associates who on record had admitted that no real business was done and the books of accounts were never produced in regard to the entry operating business. The purpose of which has been accepted as for making payment to DDA for which purpose the assessee needed funds urgently. The arrangement so made through illegal means was held to be in contravention to the provisions of law. Consequently it was held that the assessee has violated the conditions for grant of exemption u/s 12A of the Act as a result thereof the benefits u/s 11 & 12 of the Act was denied. Accordingly addition for the payment of commission for the purpose of arranging the funds also incurred out of undisclosed sources of income was also made.

2.4. In the second round before the CIT(A) which is the order under challenge the assessee again succeeded. The Ld. CIT(A) held that the AO could not specify which conditions of Section 11 & 12 has not been complied. She was also of the view that the issue was covered by the decision of the Hon'ble Delhi High Court in the case of DIT Vs. Kehsav Social Charitable Foundation (2005) 146 Taxman 569 and S.R.M.M. C.T.M. Tirripani Trust Vs. CIT (1998) 145 CTR (SC). The said finding is under challenge.

3. Similarly the facts in ITA no.-2946/Del/2012 are more or less identical except for the fact that herein the issue has not travelled to the ITAT and the issue was decided by the Ld. CIT(A) in assessee's favour by relying on the same judicial precedent name Keshav Social Charitable Foundation. The relevant facts as appearing in the assessment order dated 27.10.2012 passed

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u/s 147/143(3) show that the assessee had declared a NIL income. After issuing notice u/s 148 & 143(2) etc. the assessee in the scrutiny assessment was required to explain the alleged donations. The AO taking note of the fact that the assessee society was formed in 1994 was registered u/s 12A(a) of the I. T. Act, 1961 vide No.J-353-1994-365 had shown receipts of Rs.63,73,880/- against which excess of income over expenditure has been shown at Rs.62,81,564/-. During the course of assessment proceedings, the assessee was asked to furnish the details and information as per order sheet entries on various dates but the assessee failed to comply with the same. The AO held that the assessee even failed to furnish its bank statement as well as produce the books of accounts. In view of the failure to produce books of accounts despite being specifically asked for on various occasions, it was held that the assessee has not maintained regular books of accounts which was held to be a clear cut violation of conditions precedent to allowing exemption u/s 12A of the Act.

3.1. Herein also referring to the statement of Sh.Mukesh Gupta, the entry operator the AO concluded that the assessee had collected funds through illegal means. He took note of the fact that a perusal of the bank accounts of these entry operators revealed that there was a cash deposit of Rs.5,00,000/- in the bank account of M/s Ethnic Creations Pvt. Ltd. and there was a credit entry of Rs.5,01,000/- in the bank account of M/s Rabik Exports. The said credit entry was by way of transfer from A/c CA-52203 i.e. of M/s New General Trading Co., another company and its bank account was also controlled by the same entry operator. On a perusal of their bank accounts, the AO held it was further revealed that there were frequent cash deposits or credit entries prior to the clearance of cheques issued to the beneficiaries. In these bank accounts there was never a closing balance of more than Rs.10,000/- and the credit and debit entries were in crores of rupees whereas there was nothing on record to show that these parties had the means to enter into such huge transactions. The assessee was also found to have failed to furnish the details of other parties from whom donations have been received during the year. Therefore, it was held that the genuineness

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remained unverified. The reasons recorded for reopening of the case it was held were provided to the assessee.

3.2. Accordingly it was held that the assessee has collected funds through illegal means and thus having violated the conditions for grant of exemption u/s 12A the benefits u/s 11 & 12 of the Act was denied.

3.3. On challenging the action before the Ld. CIT(A) the appeal was allowed in favour of the assessee relying upon the judicial precedent of the Hon'ble Delhi High Court in Kehsav Social Charitable Foundation (cited supra). The said order is under challenge in the present proceedings.

4. Aggrieved by this, the Revenue is in appeal before the Tribunal in both the years.

5. The ld. Sr. DR relying upon the findings recorded in the assessment order by the AO in both the years submitted that the Ld.CIT(A) on facts has granted relief solely relying upon the decision of the Hon'ble Delhi High Court (cited supra) and has failed to address the remaining crucial findings on record namely that the so called alleged donations were arranged through entry operators. The statement recorded in the assessment order confronted to the assessee it was submitted stood unaddressed by the CIT(A). These were heavily relied upon. It was his stand that application of funds will come subsequently as in the facts of the present case the assessee is faced with a finding that the so called donations far from being voluntary donations as the Act contemplates is infact not a donation but introduction of funds through bogus means by resorting to entry providers who as per Q.No.-7 has accepted that no real business was ever done and only accommodation entries were provided. The funds as per record it was submitted were so arranged admittedly due to the financial need of assessee to make payment to DDA. 5.1. Inviting attention to the judgment dated 06.03.2012 of the Delhi High Court in the case of CIT vs Sh. Vishwa Vigyan Telugu Linguistic Minority Education Society in ITA No.-17/2010 (copy filed), it was submitted that the impugned order deserves to be set aside.

5.2. Reliance was also placed on the decision rendered in the Writ Petition by the Hon'ble Allahabad High Court in the case of M/s Fateh Chand Charitable Trust vs CIT dated 27.05.2013 in Writ Tax No.-1629 of 2010 (copy

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filed). Accordingly it was his prayer that the impugned order in both the appeals be set aside.

6. The Ld. AR appearing on behalf of the assessee submitted that the remand was made by the ITAT directing the AO to specify which condition u/s 11 & 12 has been violated. In the facts of the present case it was his submission that the issue should be restored to the AO as the said requirement has not been fulfilled. No arguments canvassing a contrary view were advanced in the face of the judicial precedent cited by the Ld. Sr. DR.

7. The Ld. Sr. DR in reply submitted that the order is explicit as when the alleged donation was not voluntary which is the specific requirement of the Act thus where evidently the funds have been facilitated through entry operators violation stands demonstrated. The need for the funds at the relevant point of time also stands addressed. Accordingly it was his prayer that the issue should be restored to the CIT(A).

8. We have heard the rival submissions and perused the material available on record. On a consideration thereof on facts, we are of the view that the impugned order cannot stand in the eyes of the law. The CIT(A) has failed to address the speaking findings on record made by the AO namely that the assessee had collected funds through illegal means. The so called donations through entry operators who admittedly did no business whatsoever and only provided accommodation entries cannot be termed as "donations" let alone "voluntary donations" in the eyes of law. It is a matter of record that at the relevant point of time the assessee was in need of funds for making payments to DDA and the urgency in the need of funds as per record was addressed by arranging the funds through illegal means in contravention of law. These facts on record have not been addressed by the CIT(A). The impugned order in both the years is contrary to the facts on record and also the judicial precedent cited by the Ld. Sr. DR who has placed reliance on the judgement of the Delhi High Court in the case of CIT vs Sh. Vishwa Vigyan Telugu Linguistic Minority Education Society (cited supra). 8.1. In the aforesaid judgement which has been rendered in the case of an assessee who too was a charitable society, the Hon'ble High Court was pleased to consider the following question of law:-

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"whether Income tax Appellate Tribunal was right in deleting the addition of Rs.88,32,845/- made by the Assessing officer and holding that Section 68 is not applicable?"

8.1.1. Considering the fact that the donors as per the finding of the AO did not have adequate funds, the Hon'ble High Court remanded the matter back to the AO. Herein also the AO had made addition u/s 68. The Hon'ble High Court considering the findings of the ITAT, it is seen remanded the matter back with the following finding:-

"The findings recorded by the Tribunal in the impugned order, which has been quoted above are therefore, partly factually incorrect and cannot be sustained. As noticed above the order of the tribunal is bereft of reasoning, consideration and is cryptic. In view of the above position we allow the present appeal and answer the aforesaid question in negative i.e. in favour of the appellant-Revenue and against the respondent-assessee. We accordingly pass an order of remit to the Tribunal to pass a fresh decision. We clarify that we have not expressed any view on merits."

(emphasis provided)

8.2. The view taken to set aside the impugned order in both the years is further strengthened by the judgement of the Hon'ble Allahabad High Court in M/s Fateh Chand Charitable Trust (cited supra) wherein the assessee challenged the validity of the notice issued u/s 148 in Writ proceeding before the Hon'ble High Court which was dismissed with strictures against the respective tax authorities. The facts taken into consideration by the Hon'ble High Court in the case of a public charitable trust were the factum of receiving donations by way of accommodation entries by cheque on payment of commission. In the facts of that case the assessee in support of its claim in the Writ petition had also referred for consideration of the Hon'ble High Court that the Revenue in the original assessment proceedings had taken up the cancellation of Registration u/s 12A by the Commissioner however it was dropped afterwards. The said argument and fact was relied upon to seek a quashing by way of writ the issuance of notice u/s 148. The departmental stand in the face of bogus entries which were shown as "donations" through accommodation entries provided by paying commission to the entry operator was strongly censured by the Hon'ble High Court as the

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donations through the "conduit pipe" of cheques by entry providers moved the Hon'ble High Court to make the following serious observations:-

"It is shocking to note that the Commissioner of Income Tax, Muzaffarnagar who passed the above order has dropped the proceedings for cancellation of registration without assigning any reason. The order being bereft of any reason cannot be treated an order in the eyes of law. One fails to understand what impelled him to do so. The order being bereft of any reason is no order in the eyes of law and is liable to be ignored being illegal and void. The petitioner's counsel was put to notice to support the order. The only reply he could give is that in the present petition the order dated 25.1.2008 is not in issue. We are not at all impressed by the said argument. When there as a transaction of RS.1,57,00,000/- a speaking order even dropping the proceeding at least was required. We, therefore, hold that the petitioner cannot derive any advantage from the aforesaid order.

The income tax authorities are required to administer the Act. The right to administer, cannot obviously include the right to mal-administer. Thus, we find no words to express anguish as what kind of governance it had been."

8.2.1. Their Lordships further went on to make the following serious observations in the facts of that case which may need to be extracted here:-

"Having regard to what has been said above, we find that it is a case where the then Assessing Officer (Shri Bhopal Singh), the Additional Commissioner of Income Tax, Range-II Muzaffarnagar and Shri Kundan Misra, the then Commissioner of Income Tax, Muzaffarnagar who passed the order dated 25.1.2008 have abdicated their duties. The Court in the exercise of supervisory jurisdiction under Articles 226 and 227 of the Constitution of India cannot be a mute spectator. Such actions on the part of the department not only bring disrepute to the department but also encourages the dishonest assessees and promotes the nefarious activities which not only causes loss to revenue but also promotes dishonestly. An honest tax payer feels cheated. Let the matter be examined by the Chief Commissioner of Income Tax and appropriate departmental proceedings may be taken out against the erring officials. A copy of this judgment may also be sent to the Chairman of the Central Board of Direct Taxes for an appropriate action."

8.3. Accordingly in view of the detailed reasons given hereinabove, we find that the departmental appeal deserves to be allowed. The impugned order having failed to address the relevant crucial facts considering the judicial precedent is set aside. The issue is restored back to the file to the CIT(A) with

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the direction to pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.

9. Since the reasons and findings in 2004-05 assessment year are based on these very facts which have been addressed in the earlier part of this order and it was a common stand of the parties before the Bench that the arguments would remain identical. Thus, following the view taken in 2002- 03 assessment year setting aside the impugned order, the issue herein also is restored with similar direction back to the file of the CIT(A). The Ld. CIT(A) shall pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard.

10. In the result the appeals of the Revenue are allowed for statistical purposes.

The order is pronounced in the open court on 30th of April 2015.

Sd/- Sd/- (INTURI RAMA RAO) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 30/04/2015 *Amit Kumar*

Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI

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