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Director Of Income Tax (Exemptions) Vs. Vishwa Hindu Parishad
May, 18th 2017
$~13
*    IN THE HIGH COURT OF DELHI AT NEW DELHI
+                              ITA 14/2004
DIRECTOR OF INCOME TAX (EXEMPTIONS)            ..... Appellant
              Through: Ms. Vibhooti Malhotra, Advocate.

                                versus

VISHWA HINDU PARISHAD                         ..... Respondent
             Through: Mr. S. Krishnan, Advocate.

CORAM:
JUSTICE S.MURALIDHAR
JUSTICE ANIL KUMAR CHAWLA

                              ORDER
%                             08.05.2017
Dr. S. Muralidhar, J.:
1. This appeal by the Revenue is directed against the order dated 30th
June, 2003 passed by the Income Tax Appellant Tribunal (,,ITAT) in
ITA No.4650/Delhi/97 for the Assessment Year (,,AY) 1993-94.

2. The background facts are that the Respondent/Assessee filed an
application on 23rd June, 1973 seeking registration under Section 12A of
the Income Tax Act, 1961 (,,Act). Nearly 26 years thereafter, by an
order dated 24th February 1999, registration was granted by the order of
the Director of Income Tax (Exemptions) [,,DIT(E)].

3.Meanwhile, on 10th December 1992, following the demolition of the
Babri Masjid on 6th December 1992, the Ministry of Home Affairs
(,,MHA) issued a notification declaring the Respondent/Assessee as an

ITA 14/2004                                                    Page 1 of 14
unlawful organisation under the Unlawful Activities (Prevention) Act,
1967 (,,UAPA). The Tribunal constituted under the UAPA confirmed
the ban by its order dated 4th June, 1993.

4. For the AY in question, i.e., AY 1993-94, the last date for filing of the
return was 10th October, 1993. However, the return could not be filed as
all the accounts of the Assessee were seized soon after the ban under the
UAPA was imposed. On account of the failure of the Assessee to file a
return, a notice dated 30th March, 1994 was issued to it under Section
142(1) of the Act. On 29th December 1994, a part of the accounts seized
by the authorities pursuant to the ban order were released to it. These
were the accounts of only the Delhi unit of the Assessee.

5. On 14th January 1995, the Assessee was once again banned under the
UAPA.On 28th June 1995, the Tribunal constituted under the UAPA held
that the Assessee was not engaged in any unlawful activity and lifted the
ban. This was followed by a fresh notice issued under Section 142(1) of
the Act on 18th September, 1995.

6. Before the Assessing Officer (,,AO) the Assessee pointed out at the
hearing on 5th October, 1995 that its accounts that had been seized had
only been released recently. Therefore more time was sought to file the
return along with the accounts. The AO granted time till 25th October,
1995 for that purpose. However, the accounts could not be finalised. On
1st November 1995, the Assessee filed its return but this was not
accompanied by the audit report. The AO gave the Assessee another
opportunity on 7th February, 1996. On 19thand 22nd February 1996,
ITA 14/2004                                                       Page 2 of 14
written submissions were filed by the Assessee before the AO. Inter alia
it was pointed out that the audit report would be prepared and submitted
in a short while.

7. Nevertheless, on 29th February 1996, the AO proceeded to pass the
assessment order where inter alia the entire corpus of the Assessee was
treated as income and brought to tax. On 12th March 1996, the Assessee
filed its audited accounts, books of accounts and audit report. It may be
noted herein that the last date for finalisation of assessment for the AY in
question was 31st March, 1996.

8. At this stage it requires to be noted that for AY 1990-91, the ITAT
passed an order on 30th March, 1995 holding that the activities of the
Assessee were charitable. The Revenue's appeal against the said order
was dismissed by this Court on 8th April, 1997. Thereafter, as already
noted, on 24th February1999, the DIT(E) granted registration to the
Assessee on its application dated 23rd June 1973. For AY 1992-93, the
ITAT again passed an order on 9th August, 2001 holding the
Respondents activities to be charitable.




9.On 31st March 1997, the appeal filed by the Respondent/Assessee
against the assessment order was allowed by the Commissioner of
Income Tax (Appeals) [CIT(A)] holding as under:

i. The books of accounts of the Assessee were audited late for certain
valid reasons.



ITA 14/2004                                                       Page 3 of 14
ii. The audit report was filed along with the revised return on 12 th March,
1996, i.e., after the passing of the assessment order.

iii. The audit report as required under Section 12A(b) of the Act was
filed by the Assessee. However, this was not before the AO. But "even
as per the original return the Appellant was not having any excess of
income over expenditure which could have been taxed."

iv. In the past the Assessee had been held to be a charitable organisation.
Even if the Appellant were to be denied exemption under Section 11 of
the Act for not filing audit report in time, the AO was not justified in
taxing the whole receipts and the corpus fund of the Assessee. The
corpus fund was a carry forward of the earlier years.             In terms of
Sections 11(1)(a) and 12 of the Act this was a capital receipt.

10. The CIT(A) refused to confirm the order of the AO which allowed
only 10% of the expenditure during the AY in question. This was a
departure from the previous AYs where the expenditure incurred by the
Assessee was allowed in full. Accordingly the addition made by the AO
was deleted.

11. In its appeal before the ITAT against the above order of the CIT (A),
the Revenue first raised only one ground which read as under:
       "In the facts and the circumstances of the case, the learned CIT(A)
       had erred in allowing exemption under Section 11 even though no
       order under Section 12A(a) was passed."

12. Subsequently by a written communication dated 18 th July, 2002, the
following additional ground was raised:
ITA 14/2004                                                          Page 4 of 14
       "On the facts and the circumstances of the case, the learned
       CIT(A) erredin allowing exemption under Section 11 even though
       the assessee had been banned on 10.12.92 for a period oftwo years
       under Section 6 of the Unlawful Activities (Prevention)Act,
       1967."

13.By the impugned order dated 30th June 2003, the ITAT dismissed the
Revenues appeal. In para 16 of the impugned order, it was noted by the
ITAT as under:
       "16. During the course of the hearing of the present appeal some
       arguments were also advanced by the ld. DR about the non-filing
       of the audited accounts and the audit report by the respondent but
       in our opinion this issue cannot be raised by the Revenue since the
       initial ground raised before the Tribunal questions the action of the
       CIT (A) in allowing the benefit of section 11 although no order u/s
       12A(a) had been passed by the Director of Income Tax (E).
       Moreover, the registration now has been granted and the order
       relates back to the date of the application."

14. As regards second question, the ITAT observed as under:
       "19. On a query from the Bench as to how the claim for exemption
       U/S 11 had been considered by the Revenue in the preceding and
       succeeding assessment years, the learned counsel for the
       respondent filed before us a chart covering AYs1974-75 to 2002-
       03 contending that in all the preceding assessment years up to AY
       1992-93 benefit of Section 11 had been allowed either by the AD
       or by the CIT(A) and whether the Department had come up to the
       Tribunal, its appeals had been dismissed. As regards subsequent
       assessment years beginning 1994-95 the stand once again was that
       upto AY 1997-98 either the AO had allowed the benefit of section
       11 or the CIT(A) had done so and the orders of the CIT(A) had
       become final, there being no second appeals to the Tribunal by the
       Revenue. For AYs 1998-99 to 2002-03, the assessments were
       stated to be pending. These factual aspects were not rebutted by
       the learned DR and we, therefore, have no hesitation in observing
       that in the preceding and succeeding assessment years, the claim
ITA 14/2004                                                       Page 5 of 14
       for exemption U/S 11 stands allowed to the assessee and the only
       hurdle which seems to be coming in its way for the A.Y. 1993-94
       is the notification issued by the Government declaring it to be an
       unlawful organization and the subsequent order passed by the
       Unlawful Activities (Prevention) Tribunal upholding the
       Notification."

15.The ITAT accordingly held that the Assessee was entitled to the
benefit of Section 11 of the Act and "since during the course of the
hearing, the learned DR on behalf of the Revenue has not raised any
objection to the returned figure as also the relief given by the CIT(A), we
uphold the action of the CIT(A)."

16. At the very first hearing of this appeal on 30th January, 2004, the
following question was framed for consideration:
       "Whether exemption can be allowed under Section 11 of the Act
       to the Assessee despite the fact that the Assessee was not allowed
       registration under Section 12A(a) of the Income Tax Act, 1961
       and also when there was failure on the part of the Assessee to
       comply with the provisions of Section 12A(b) of the Act?"

17.The question framed by this Court as above is actually a combination
of two questions which ought to read as under:

(i) Whether exemption can be allowed to the Assessee under Section 11
of the Act although the Assessee was not registered under Section
12A(a) of the Income Tax Act, 1961?

(ii) Could the Assessee be granted exemption under Section 11 of the
Act when there was a failure on its part to comply with the provisions of
Section 12A (b) of the Act?

ITA 14/2004                                                       Page 6 of 14
18. When the above question was framed the Assessee had not entered
appearance. It was an ex parte order. For a number of dates thereafter the
present appeal was directed to be heard along with ITA Nos.145/2001
and 188/2002. Later both the said appeals were decided by this Court.
The decisions are reported as Commissioner of Income Tax-XI v.
Indian National Congress (I)/All India Congress Committee (2016)
383 ITR 99 (Del.) and Commissioner of Income Tax, Delhi-XI v.
Janata Party (2016) 383 ITR 146 (Del.).

19. As faras question No.(i) is concerned, it is seen that Section 12A of
the Act, titled "Conditions as to registration of trusts, etc." read, at the
relevant time i.e. AY 1993-94, as under:
       "Conditions as to registration of trusts, etc.
       12A. The provisions of Section 11 and Section 12 shall not apply
       in relation to the income of any trust or institution unless the
       following conditions are fulfilled, namely:

       (a) the person in receipt of the income has made an application for
       registration of the trust or institution in the prescribed form and in
       the prescribed manner to the Commissioner before the 1 stday of
       July 1973, or before the expiry of a period of one year from the
       date of the creation of the trust or the establishment of the
       institution."

20.By an amendment with effect from 1st April, 1997 the words
"whichever is later and such trust or institution is registered under
Section 12 AA" were inserted at the end of Section 12A (a) of the Act.
Therefore the said amendment did not apply to the Assessee during the
relevant AY. It will be recalled that the Appellants application for
registration under Section 12A of the Act was made on 23rd June, 1973

ITA 14/2004                                                        Page 7 of 14
i.e. prior to 1st July 1973 and was pending as on the date of the above
amendment. The first part of the condition in clause (a) as it read prior to
the above amendment stood fulfilled. Section 12 AA was itself inserted
by an amendment with effect from 1st April 1997. Therefore, the
question of the Assessee having to get itself registered under Section 12
AA did not arise. By the time the ITAT answered the above question, the
registration under Section 12 A (a) was granted. The registration related
back to the date of the application i.e. 23rd June 1973.

21. Therefore, question (i) framed by the Court is answered in the
affirmative i.e. in favour of the Assessee and against the Revenue.

22. Turning now to question (ii), one of the conditions required to be
fulfilled under Section 12 A (b) of the Act, for a charitable organisation
registered under Section 12 A (1) (a) of the Act to avail of the exemption
under Sections 11 and 12 is that its return should be accompanied by an
audit report prepared by a duly qualified Chartered Accountant as
defined under Section 288 (2) read with the Explanation thereunder.

23. The facts show that the accounts that had been seized by the
authorities pursuant to the ban order under UAPA were only partially
released on 29th December, 1994. The ban ultimately was lifted only on
28th June, 1995. On 5th October 1995, the Assessee wrote a detailed letter
to the Deputy Commissioner of Income Tax (Exemption) seeking time to
file the audit report. The Assessee inter alia pointed out:
       "Now for the period 1st April, 1992 to 9.12.92 also, comprising of
       8 full months and 9 days, the books of accounts maintained by
       VHP were also seized and were inthe custody of Police
ITA 14/2004                                                       Page 8 of 14
       Department mentioned above and, therefore, physically VHP did
       not have any access to these records. Now on 7.9.93 and 8.10.93,
       there were requests from VHP to the Police Department to release
       the books of accounts for preparation and finalisation of the same
       for filing the return under the Income-tax Act for the assessment
       year 1993-94."

24. It was submitted by Ms. Vibhooti Malhotra, learned counsel
appearing on behalf of the Revenue, that there was no satisfactory
explanation for the Assessee not filing the audit report even by the time
of finalisation of the assessment order. She submitted that this was the
maximum time permissible to any Assessee seeking exemption under
Sections 11 and 12 of the Act. She emphasized the mandatory nature of
the requirement under Section 11 of the Act read with Section 12A(b)
thereof. She relied on the decision of this Court in Commissioner of
Income Tax-XI v. Indian National Congress (I)/All India Congress
Committee (supra).

25. In reply, it was pointed out by Mr. Krishnan, learned counsel for the
Assessee, that in the first instance the question concerning the non-filing
of the audit report along with the return was not urged by the Revenue
before the ITAT in its memorandum of appeal. It was not even urged at
the time of raising an additional ground on 18th July 2002. It was sought
to be raised for the first time orally by the Department Representative
(DR) during the course of submissions before the ITAT. This was not
permitted by the ITAT.

26. Mr Krishnan further submitted that there were bona fide reasons for
the inability of the Assessee to get the audit report readied in time. By
ITA 14/2004                                                       Page 9 of 14
itsletter dated 6th October, 1995, the Assessee had explained its difficulty
to the AO. However, since time was running out, the return was filed on
1st November, 1995 but without the audit report. Mr Krishnan referred to
the two written submissions filed by the Assessee on 19 thand 20th
February 1996 before the AO which explained the delay in preparing the
audit report and seeking some more time for that purpose. He submitted
that before the CIT(A) the revised return together with the audit report
was presented and therefore, in those circumstances the CIT(A) was
justified in accepting the audit report and allowing the appeal of the
Assessee.

27. The Court finds that indeed the Revenue did not raise any specific
ground in its appeal before the ITAT on the issue of the non-filing of the
audit report by the Assessee along with its return in terms of Section 12
A(b) of the Act. The Revenue raised only one ground in its appeal before
the ITAT. Thereafter, while the appeal was pending, an additional
ground was urged in writing on 18th July, 2002. Even this did not pertain
to the failure by the Assessee to file the audit report with its return. The
said issue was sought to be urged for the first time during oral arguments
before the ITAT. However, in para 16 of the impugned order, the ITAT
declined to permit the Revenue to do so "since the initial ground raised
before the Tribunal questions the action of the CIT(A) in allowing the
benefit of Section 11 although no order under Section 12A(a) has been
passed by the Director of Income Tax (E). Moreover, the registration
now has been granted and the other relates back to the date of the
application."




ITA 14/2004                                                       Page 10 of 14
28. There appears to be no justification for the Revenue to have not
urged such a ground in its memorandum of appeal. The Court is also not
able to agree with the contention of Ms. Malhotra that this is a pure
question of law and could be raised at any time. It is a mixed question of
law and fact. Consequently the Court is of the view that if the present
appeal had not been admitted ex parteon the first date it is possible that
the Court may not have framed a question on Section 12 A(b) of the Act.

29. Nevertheless the question having been framed, requires to be
examined on its merits. The facts in Commissioner of Income Tax-XI v.
Indian National Congress (I)/All India Congress Committee (supra)
speak for themselves. There, the Assessee was a major political party.It
had not filed the return and along with it the audited accounts for the AY
in question i.e. 1994-95. When it ultimately did produce the audited
accounts, after an inordinate delay at the appellate stage before the CIT
(A),the accounts were found to be unsatisfactory and not presenting a
true and fair picture of the financial affairs of the party. The audit report
produced too was found to be far from satisfactory. The Court found:
"The final audited accounts tendered at the appellate stage contained
various discrepancies and shortcomings. The auditors report submitted
before the CIT (A) ....is woefully short of the requirement of the law." In
the circumstances, this Court held that the INC was not entitled to claim
exemption under Section 13 A of the Act from paying income tax for the
AY in question.


30. Again in Commissioner of Income Tax, Delhi-XI v. Janata Party

ITA 14/2004                                                       Page 11 of 14
(supra), which was a case involving another political party, this Court
found that the audit report filed by the party did not "satisfy the
requirement of the law." Further the accounts produced by the party
"were not such as would enable the AO to properly deduce its income.
The consolidated accounts produced after the filing of the returns
disclosed a figure of voluntary contributions that differed from that
disclosed in the original return."

31. In the present case, however, there is no finding that the audit report
submitted by the Assessee does not satisfy the requirement of the law.
The Assessee's audited accounts too were not doubted. The delay in
submitting the audit report could not be said to be inordinate. The
Assessee was able to show that the delay was due to bona fide reasons
beyond its control. Apart from the letter dated 5th October, 1995
explaining its difficulties, the Assessee's letter dated 19th February, 1996
sought to explain the accounts to the extent available with it as follows:
       "4. The details of Life Member Corpus donations received are
       from 1,848 members of Rs.2,000/- each. Detailed list of
       Rs.36,96,000/- (not the figure you have given in the letter of
       Rs.39,66,000/- wrongly) is enclosed and Rs.36,96,000/- is the
       figure in the Balance Sheet.

       Regarding your query related to Audit Report in Form 10-B and
       furnishing of Audited Accounts, we have to submit as under:

       It is well known fact that VHP was banned for 2 years under
       Unlawful Activities Act on 10.12.92 and the ban lapsed on
       10.12.1994. Again the ban was imposed on 14 th January, 1995
       and by a judgment of the Honble Tribunal by Justice K.
       Ramamurthy, the ban order was quashed on 20.6.1995. Due to the
       above ban, the books of Account of VHP Central Office, Delhi,
ITA 14/2004                                                       Page 12 of 14
       for the Assessment Year 1993-94 were in the custody of Police
       Department. After lifting of the ban, these were collected and then
       the writing of books was completed and accounts finalised. There
       were various centres from where the accounts were to be collected
       before these could be audited.

       The present accounts for the Assessment Year 1993-94 consist of
       the accounts of (i) VHP Delhi Office, (ii) VHP Mumbai Office,
       (iii) Sanskriti Raksha Yojana Office, Mumbai, (iv) Madyanchal
       Office, Lucknow, (v) Uttaranchal Office, Delhi. Sanskriti Raksha
       Yojana Office accounts are audited at Mumbai and Madyanchal
       accounts are audited at Lucknow. The remaining three accounts
       are audited at Delhi.

       As regards Madyanchal, we are enclosing herewith the audited
       accounts which is already incorporated in the accounts furnished
       along with the return which is before your goodself and it tallies.
       Similarly, we are also contacting Sanskriti Raksha Yojana Office
       at Mumbai for expeditiously sending the audited accounts. We are
       expecting these at any time and as soon as these are received, it
       will be compared with the existing consolidated accounts and
       furnished to your goodself in the proper form. Therefore, we need
       time to do the above before giving it to you. We may kindly be
       given time till 5.3.1996."

32.The assessment order was passed on 29th February 1996 and the
Assessee's audit report was ready on 12th March 1996. Hadthe AO
granted the Assessee two weeks' time, the Assessee would have filed its
audit report and the assessment order passed thereafter would still have
been within the deadline of 31st March 1996. It would have caused no
prejudice to the Revenue.


33.The CIT(A) noted that even if there was a non-compliance with
Section 12 A (b) of the Act by the Assessee, thus disentitling it to

ITA 14/2004                                                     Page 13 of 14
exemption under Sections 11 and 12 thereof, the AO was still not
justified in adding the entire corpus of the Assessee to its taxable income.
The corpus fund had been present in the earlier years and was a capital
receipt. Even as per the original return, the Assessee did not have any
excess over expenditure which could have been taxed. The ITAT
committed no error in concurring with the CIT (A).

34. For all the aforementioned reasons, the Court finds that the question
framed at (ii) above has to be answered in the negative, viz., in favour of
the Assessee and against the Revenue. It is held that the Assessee could
not have been denied exemption under Sections 11 and 12 of the Act as
there was no failure to comply with Section 12A (b) of the Act.

35. The above conclusions are in the peculiar facts discussed
hereinabove and also considering that this infraction is for only one AY,
i.e., 1993-94. It is not even the Revenues case that for any year
thereafter or earlier there has been any failure by the Assessee to comply
with the mandatory provisions of the Act.

36.The appeal is accordingly dismissed but in the circumstances with no
orders as to costs.



                                                    S.MURALIDHAR, J



                                            ANIL KUMAR CHAWLA, J
MAY 08, 2017
b'nesh
ITA 14/2004                                                       Page 14 of 14

 
 
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