Sanjay Memorial Institute of Technology, Ganjam v. CIT, Bhubaneswar

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK ( ) BEFORE . . HONBLE SHRI K.K.GUPTA ACCOUNTANT MEMBER. /AND . . . S HRI K.S.S.PRASAD RAO JUDICIAL MEMBER / I.T.A.NO. 395/CTK/2010 / ASSESSMENT YEAR SANJAYA MEMORIAL INSTITUTE OF TECHNOLOGY HILPATNA BERHAMPUR GANJAM 760 005 ORISSA PIN: AAAJS 0276 N - - - VERSUS - COMMISSIONER OF INC OME - TAX BHUBANESWAR 751 007 ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI A.K.PADHY AR / FOR THE RESPONDENT: / SHRI S.K.DASH DR / ORDER . . . SHRI K.S.S.PRASAD RAO JUDICIAL MEMBER . THIS APPEAL IS FILED BY THE ASSESSEE HAVING BEEN AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME TAX DT.31.8.2010. 2. THE ASSESSEE HAS RAISED THE FOLLOWING ISSUES IN THE GROUNDS OF APPEAL. (I) THE ORDER PASSED BY THE CIT REJECTING THE REGISTRATION U/S.12AA ON THE BASIS OF GENUINENESS OF THE ACTIVITIES VIS - - VIS BOOKS OF ACCOUNT IS ARBITRARY ILLEGAL AND UNJUSTIFIED UNDER LAW MORE SO THE ORDER IS PASSED WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE ASSESS EE TO EXPLAIN THE FIGURES IN THE AUDITORS STATEMENT OF ACCOUNTS TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE CASE. (II) THE ORDER PASSED BY THE CIT IS WRONG IN OBSERVING THAT THERE IS INADEQUATE INFRASTRUCTURE DEVELOPMENT AND HUGE EXPENDITURE TOWARDS ADVERTISEMENT WITHOUT ALLOCATING TOWARDS CHARITY ON EDUCATION IS ARBITRARY SURMISE AND UNCALLED FOR IN THE LIGHT OF THE PARTICULAR FACTS AND CIRCUMSTANCES OF THE CASE. (III) THE ORDER OF THE CIT IN REJECTION OF THE CONDONATION OF DELAY PETITION FILED BY THE ASSESSEE IS ILLEGAL ARBITRARY AND UNJUSTIFIED IN LAW IN THE FACTS AND CIRCUMSTANCES OF THE CASE. I.T.A.NO. 395/CTK/2010 2 3. THE LEARNED AR OF THE ASSESSEE HAS CONTENDED BEFORE THE TRIBUNAL APART FROM REITERATING THE GROUNDS OF APPEAL THAT THE ASSESSEE SOCIETY WAS ESTABLISHED ON 29.8.1980 UNDER THE REGISTRATION OF SOCIETIES ACT 1960. ITS PRINCIPAL OBJECTS ARE TO ESTABLISH MAINTAIN AND CARRY ON INSTITUTION WITH OR WITHOUT BRANCHES TO GIVE INSTRUCTION VIVA - VOCE OR BY POST OR BY LECTURES OR THROUGH CINEMATOGRAPHIC FILMS OR OTHE RWISE TO BOTH SEXES FOR THE PURPOSE ETC. IN THE FIELD OF ENGINEERING SCIENCE AND TECHNOLOGY TO ORGANIZE DEBATES SEMINARS EXPEDITIONS RESEARCH WORK PUBLIC MEETINGS ETC. AND OTHER ENTERPRISES FOR FURTHERING OF CAUSES OF OBJECTIVES AS A GENERAL PERS ONAL OR TECHNICAL AND TO CONDUCT COACHING CLASSES FOR STUDIES FOR PREPARING CANDIDATES FOR APPEARING IN A.M.I.E. EXAMINATION OR TECHNICAL EXAMINATION CONDUCTED BY ANYBODY IN INDIA. IT HAS FILED A PETITION DT.2.2.2010 ALONG WITH AN APPLICATION FOR REGISTRAT ION U/S.12AA ON5.2.23010 REQUESTING TO CONDONE THE DELAY IN APPLYING FOR REGISTRATION U/S.12AA AND GRANT REGISTRATION FROM THE DATE OF INCEPTION OF THE SOCIETY I.E. 29.8.1980. IT HAS GIVEN THE REASONS FOR BELATED FILING OF THE APPLICATION FOR REGISTRATION STATING THAT THE OLD MANAGEMENT OF THE SOCIETY COULD NOT APPLY FOR SUCH REGISTRATION U/S.12A OF THE ACT ON ACCOUNT OF IGNORANCE AND DUE TO DISPUTES AMONGST THE MANAGEMENT CONTINUING TILL THE DATE OF APPLICATION. THE LEARNED CIT HAS REFUSED TO CONDONE THE DELAY OBSERVING THAT THE APPLICATION IN FORM NO.10A WAS FILED IN HIS OFFICE ON 5.2.2010 WHICH IS AFTER 1.4.2007 DISENTITLING ITSELF FOR CONDONATION OF DELAY. WHILE CONSIDERING THE APPLICATION FOR REGISTRATION THE LEARNED CIT(A) HAS DISCUSSED ABOUT THE BOO KS OF ACCOUNT AND FINANCIAL STATEMENTS COUPLED WITH THE ACTIVITIES OF THE SOCIETY IS PURELY BASED ON SURMISES ONLY AND THEREBY CAME TO THE CONCLUSION THAT THE DEFECTS POINTED OUT BY HIM IN THE ACCOUNTS AND STATEMENT OF ACCOUNT FILED BEFORE HIM DISCLOSED TH AT THE ACTIVITIES CARRIED ON BY THE SOCIETY IS NOT GENUINE AND SO ALSO THE BOOKS OF ACCOUNT OF THE ASSESSEE. FURTHER HE OBSERVED ON GOING THROUGH THE FINANCIAL STATEMENTS FOR THE ASSESSMENT YEARS 2007 - 08 TO 2009 - 10 THAT THE ASSESSEE SOCIETY IS ACCUMULATING SUBSTANTIAL AMOUNTS OF ASSETS EVEN AFTER THREE DECADES AND TO EXPAND ITS ASSETS OUT OF THE FEES COLLECTED FROM THE STUDENTS IN PURSUANCE OF THEIR EDUCATION. KEEPING IN VIEW THE TOTAL CIRCUMSTANCES THE CIT HAS DOUBTED THE GENUINENESS OF THE SOCIETY AND IT S ACTIVITIES AND REJECTED THE I.T.A.NO. 395/CTK/2010 3 REGISTRATION U/S.12AA. AGGRIEVED WITH THIS ORDER THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. DURING THE COURSE OF HEARING THE LEARNED AR OF THE ASSESSEE HAS VEHEMENTLY ARGUED ASSAILING THE IMPUGNED ORDER CONTENDING INT ER ALIA THAT THE LEARNED CIT HAS NOT DOUBTED THE ESTABLISHMENT OF THE SOCIETY. AFTER GOING THROUGH THE FINANCIAL STATEMENTS SUBMITTED BY THE ASSESSEE BEFORE HIM THE LEARNED CIT HAS ONLY OPINED THAT THE ASSESSEE HAS ACCUMULATING THE FUNDS RECEIVED IN THE F ORM OF FEES COLLECTED FROM STUDENTS AND ACQUIRED HUGE PROPERTIES BUT AT THE SAME TIME IT HAS SPENT A MEAGER PART OF THE SAID FUNDS ONLY FOR THE ACTIVITIES OF IMPARTING EDUCATION TO THE STUDENTS. IT HAS FURTHER SUBMITTED THAT THE OBSERVATION OF THE LEARNED CIT THAT THE ASSESSEE HAS AMAS ING ASSETS BY APPLYING THE FUNDS COLLECTED AS FEES FROM THE STUDENTS WITHOUT SPENDING SUBSTANTIAL PORTION THEREOF FOR THE ACTIVITIES OF IMPARTING EDUCATION TO THE STUDENTS. THIS CONCLUSION WAS REACHED BY THE LEARNED CIT WITHO UT PROPERLY APPRECIATING THE FINANCIAL STATEMENTS AND BOOKS OF ACCOUNT PRODUCED BY THE ASSESSEE. WHILE COMING TO THIS CONCLUSION THE LEARNED CIT HAS NOT TAKEN INTO CONSIDERATION THAT ADVERTISEMENT WAS DONE BY THE SOCIETY IN ORDER TO SEE THE SEATS ALLOTTED BY THE AICTE AND UNIVERSITY OF BPUT ARE FILLED IN TOTALLY. THE LEARNED CIT HAS NOT CONSIDERED THE CRUCIAL ASPECT OF SECTION 20 OF THE SOCIETIES REGISTRATION ACT WHICH SAYS ABOUT THE TYPES OF SOCIETIES NAMELY CHARITABLE SOCIETIES SOCIETY ESTABLISHED FOR THE PROMOTION OF THE SCIENCE LITERATURE OR THE FINE ARTS FOR EDUCATION AND PUBLIC ART MUSEUMS AND GALLERIES AND CERTAIN OTHER TYPE OF MUSEUMS. THE LEARNED CIT HAS NOT ABLE TO CONSIDER THE HISTORY OF SECTION 12A OF THE I.T.ACT AND THE STAGES AT WHICH IT UNDERWENT CHANGES FROM TIME TO TIME. APART FROM THAT THE LEARNED CIT HAS NOT BEEN ABLE TO POINT OUT AS TO HOW THE SOCIETY IS NOT GENUINE AND THE ACTIVITIES CARRIED ON BY IT ARE NOT IN FURTHERANCE OF OBJECTS OF THE SOCIETY AS SHOWN IN THE MEMORANDUM OF A SSOCIATION. THEREFORE IN THESE FACTS AND CIRCUMSTANCES OF THE CASE THE IMPUGNED ORDER PASSED BY THE LEARNED CIT REJECTING THE PETITION FOR CONDONATION OF DELAY FILED BY THE ASSESSEE AND REJECTING THE REGISTRATION U/S.12AA OF THE ACT IS NOT SUSTAINABLE FO R LEGAL SCRUTINY AND IT REQUIRES TO BE SET ASIDE. I.T.A.NO. 395/CTK/2010 4 5. CONTRARY TO THIS THE LEARNED DR HAS SUPPORTED THE IMPUGNED ORDER CONTENDING INTER ALIA THAT THE LEARNED CIT HAS CONSIDERED THREAD BARE THE FACTS COUPLED WITH THE FINANCIAL STATEMENTS AND BOOKS OF ACCOUN T FURNISHED BY THE ASSESSEE AND RIGHTLY CAME TO THE CONCLUSION THAT THE ASSESSEE IS NOT GENUINE AND HENCE REJECTED THE REGISTRATION SOUGHT FOR BY THE ASSESSEE U/S.12A. THE LEARNED CIT HAS REJECTED DELAY CONDONATION PETITION FILED BY THE ASSESSEE RIGHTLY O BSERVING THAT THERE IS NO PROPER AND SUFFICIENT EXPLANATION FROM THE ASSESSEE FOR FILING THE APPLICATION FOR REGISTRATION U/S.12AA LONG AFTER THE FORMATION OF THE SOCIETY IN 1980. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE HE CONTENDED THAT THE ORDER PASSED BY THE LEARNED CIT IS VERY MUCH RIGHT AND REQUIRES TO BE UPHELD BY DISMISSING THE APPEAL OF THE ASSESSEE. 6. ON CAREFUL ANALYSIS OF THE MATERIAL MADE AVAILABLE TO THE TRIBUNAL IN THE LIGHT OF THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND THE LAW AP PLICABLE THERETO WE FOUND THAT THE PROVISIONS U/S.12AA ARE THAT THE CIT ON RESPECT OF THE APPLICATION FOR REGISTRATION OF THE TRUST OR INSTITUTION MADE TO HIM SHALL CALL FOR SUCH DOCUMENTS OR INFORMATION FROM THE TRUST OR INSTITUTION AS HE THINKS NECESSA RY IN ORDER TO SATISFY HIMSELF ABOUT THE GENUINENESS OF ACTIVITIES OF THE TRUST OR INSTITUTION AND MAY ALSO MAKE SUCH INQUIRIES AS HE MAY DEEM NECESSARY IN THIS BEHALF. AFTER SATISFYING HIMSELF ABOUT THE OBJECTS OF THE TRUST OR INSTITUTION AND THE GENUINEN ESS OF ITS ACTIVITIES HE SHALL PASS AN ORDER IN WRITING REGISTERING THE TRUST OR INSTITUTION. IF HE IS NOT SATISFIED ABOUT THE OBJECTS OF THE TRUST OR INSTITUTION AND GENUINENESS OF THE ACTIVITIES HE SHALL PASS AN ORDER IN WRITING REFUSING TO RE GISTER TH E TRUST OR INSTITUTION AND COPY OF SUCH ORDER SHALL BE SENT TO THE APPLICANT. FROM A READING OF THIS PROVISION IT IS CLEAR THAT THE CIT SHALL SATISFY HIMSELF ABOUT THE TRUST OR INSTITUTION AND GENUINENESS AND ITS OBJECTS AND ACTIVITIES BY CALLING FOR NECE SSARY DOCUMENTS OR INFORMATION AS HE REQUIRES. IN THE IMPUGNED ORDER IT IS MADE OUT BY THE CIT THAT THE INFORMATION AS REQUIRED BY HIM WAS FURNISHED BY THE ASSESSEE. AT THE SAME TIME WHILE ANALYZING THE FINANCIAL STATEMENTS SUBMITTED BEFORE HIM BY THE A SSESSEE THE CIT HAS TAKEN AWAY BY THE HUGE INVESTMENTS MADE BY THE ASSESSEE IN FIXED ASSETS SUCH AS BUILDINGS LABORATORIES ETC AND ALSO FOUND THAT CONSIDERABLE AMOUNT WAS SPENT FOR I.T.A.NO. 395/CTK/2010 5 ADVERTISEMENT PURPOSES. BUT HE IS OF THE OPINION THAT EXORBITANT AMOUNTS WERE SPENT FOR ADVERTISEMENT AND THE SOCIETY IS MAKING INVESTMENTS IN FIXED ASSETS LIKE BUILDINGS AND LABORATORIES. AT THE SAME TIME THE CIT HAS IGNORED THE OBJECTS OF THE INSTITUTION AS ENVISAGED IN THE MEMORANDUM OF ASSOCIATION OF THE INSTITUTION WHICH INCLUDES IMPARTING EDUCATION OF YOUNGER GENERATION BY ESTABLISHING MAINTAINING AND CARRYING INSTITUTION IN THE FIELDS OF ENGINEERING SCIENCE SUCH AS CIVIL ENGINEERING MECHANICAL ENGINEERING ELECTRICAL ENGINEERING ELECTRONICAL ENGINEERING METALLURGIC AL ENGINEER AERONAUTICAL ENGINEERING AND ALL OTHER ENGINEERING SCIENCES AND TECHNOLOGY APART FROM OTHER THINGS MENTIONED IN THE OBJECTS OF THE INSTITUTION. FOR DOING THESE THINGS IT IS EMINENT TO HAVE NECESSARY INFRASTRUCTURE SUCH AS SPECIOUS BUILDINGS W ITH AL L FACILITI ES AND LABORATORIES WITH MODERN EQUIPMENTS AND HAVING TALENTED FACULTIES THOSE ARE BASED IN THE FIELD CONCERNED OF THE OBJECTS. NOWHERE IT IS MENTIONED IN THE IMPUGNED ORDER BY THE CIT THAT THE INSTITUTION IS NOT SPENDING THE AMOUNT TO ACHI EVE THESE PRIMARY OBJECTS AND NOWHERE HE HAS GIVEN A COMPARATIVE FIGURES FOR ABOVE SAID OBJECTS TO THAT OF THE AMOUNTS SPENT FOR ADVERTISEMENT AND IT IS NOT THE CASE OF THE CIT THAT THE ASSESSEE HAS DIVERTED THE FUNDS COLLECTED BY IT EITHER BY DONATION OR BY FEES FROM STUDENTS TO OTHER OBJECTS THEN THE OBJECTS MENTIONED IN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE. IN THAT VIEW OF THE MATER IT CAN NEVER BE SAID THAT THE INSTITUTION IS NOT GENUINE AND THE INSTITUTION IS NOT CARRYING OUT ITS OBJECTS BY U SING THE FUNDS RECEIVED BY IT OR FEES COLLECTED FROM THE STUDENTS BY IT. THEREFORE THE BASIS FOUND BY THE CIT FOR REFUSAL OF THE REGISTRATION IS UNFOUNDED AND NOT SUSTAINABLE FOR LEGAL SCRUTINY. THE ASSESSEE HAS EXPLAINED THE REASONS FOR DELAY AS ITS ORG ANIZERS ARE MORE INVOLVED IN MAKING NECESSARY ARRANGEMENTS FOR ARRANGING CONSTRUCTION OF BUILDINGS AND INSTALLATION OF LABORATORIES AND FETCHING FOR QUALIFIED FACULTIES IN THE FIELD MENTIONED IN THE OBJECTS CLAUSES OF THE SOCIETY THEREBY IF FIND NO TIME T O MOVE FOR REGISTRATION UNDER THE INCOME - TAX ACT. ON THE OTHER HAND IT IS NOT THE CASE OF THE CIT THAT THE DELAY IS ATTRIBUTABLE TO THE NEGLIGENCE THAT TOO INTENTIONAL NEGLIGENCE ON THE PART OF THE ASSESSEE. THEREFORE IN THE ABSENCE OF SUCH IMPORTANT FIN DINGS THE IMPUGNED ORDER PASSED BY THE CIT IS BAD AND UNSUSTAINABLE FOR LEGAL SCRUTINY. HENCE WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED ORDER IS LIABLE TO I.T.A.NO. 395/CTK/2010 6 SET ASIDE. WE THEREFORE SET ASIDE THE IMPUGNED ORDER OF THE CIT DIRECTING THE CIT TO CONDON E THE DELAY AND ISSUE REGISTRATION TO THE ASSESSEE AS PRAYED FOR BY IT IN THE APPLICATION. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS HEREBY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 15 TH FEBRUARY 2011 S D/ - S D/ - ( . . ) (K.K.GUPTA) ACCOUNTANT MEMBER. ( . . . ) (K.S.S.PRASAD RAO) JUDICIAL MEMBER. ( ) DATE: 15 TH FEBRUARY 2011 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : SANJAYA MEMORIAL INSTITUTE OF TECHNOLOGY HILPATNA BERHAMPUR GANJAM 760 005 ORISSA 2 / THE RESPONDENT: COMMISSIONER OF INCOME - TAX B HUBANESWAR 751 007 3 . / THE CIT 4 . ( )/ THE CIT(A) 5 . / DR CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY / BY ORDER [ ] SENIOR PRIVATE SECRETARY ( ) ( H.K.PADHEE ) SENIOR.PRIVATE SECRETARY.