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2025 (5) TMI 1234 - AT - Income TaxRejection of registration u/s. 12AB as well as recognition u/s. 80G - assessee received donation from a private limited company out of CSR fund and immediately within 2 days the assessee purchased 15 computers and school uniform from a vendor who was not available at the address given by the assessee and on verification of the bill CIT(E) found that GST number of that particular vendor is also cancelled. HELD THAT - The founder of the trust has submitted a detailed note which shows various photographs of distribution of computers school uniforms as well as relief to poverty. In the paper book the assessee has also submitted the receipt of 15 computers by various bar associations. The utilization certificate was also produced in the paperbook wherein it is submitted that the assessee trust has utilized the donation for the purpose of which it is granted. However on a plain reading of the order of the ld. CIT(E) we find that assessee has not at all been confronted with the enquiries conducted. Therefore the finding of the CIT(E) is based on enquiries conducted by him result of which is not confronted to the assessee. Before us the assessee has produced overwhelming evidence. However it needs verification. Therefore in the interest of justice we restore the whole issue back to the file of the ld. CIT(E) with a direction to the assessee to substantiate the transaction with the vendor expenditure incurred with evidence and certificate before the ld. CIT(E). Thus the appeal is allowed for statistical purposes.
The core legal questions considered in this judgment revolve around the eligibility of the appellant trust for registration under section 12AB of the Income-tax Act, 1961, and consequent recognition under section 80G of the Act. Specifically, the issues are:
Issue-wise Detailed Analysis 1. Eligibility for Registration under Section 12AB The legal framework for registration under section 12AB requires that a trust or institution engaged in charitable activities must satisfy the tax authorities that its activities are genuine and that funds are applied towards the objects of the trust. Precedents establish that the assessing authority must verify genuineness and proper application of funds before granting registration. The CIT(E) rejected the registration application on the basis that the trust received Rs. 15 lakhs as CSR donation and within two days made payments aggregating approximately Rs. 14 lakh to a vendor for purchase of school uniforms and computers. The vendor, M/s. Alpha Consultancy FZE, was found not to exist at the declared address, and its GST registration was suspended. Further, no satisfactory evidence was provided for expenditure of Rs. 5,55,812 towards relief to the poor. The CIT(E) concluded that the funds were not used for the trust's objects and suspected malpractices. The Court noted that the CIT(E) relied heavily on enquiries about the vendor's existence and GST status but did not confront the assessee with these findings or provide an opportunity to rebut. The assessee produced detailed evidence before the Tribunal, including photographs of distribution of computers and uniforms, utilization certificates from beneficiary Bar Associations, invoices, and bank statements. The assessee explained that the computers were supplied to legal associations and uniforms to children in government schools, consistent with the trust's objectives. The Court emphasized the principle of natural justice requiring that adverse findings based on enquiries must be confronted to the assessee before rejecting registration. Since the assessee was not given such an opportunity, the CIT(E)'s order was found to be procedurally flawed. The Court restored the matter to the CIT(E) for fresh consideration, directing the assessee to substantiate transactions with relevant evidence and comply with any further notices. 2. Recognition under Section 80G Recognition under section 80G is contingent on the trust being registered under section 12AB. The CIT(E) rejected the 80G recognition application solely because the trust was not registered under section 12AB. The Court held that since the 12AB registration issue was being remanded for fresh consideration, the 80G recognition application must also be reconsidered on merits after proper verification and opportunity to the assessee. 3. Procedural Fairness and Opportunity to be Heard The Court underscored the fundamental requirement of procedural fairness in administrative decisions, especially when adverse conclusions are drawn about the genuineness of charitable activities. The CIT(E) conducted enquiries about the vendor but did not communicate or confront the assessee with adverse findings before rejecting registration. This denial of opportunity to be heard was a critical procedural lapse. The Tribunal noted that the assessee's submissions and evidence before it were substantial and warranted verification rather than outright rejection. Hence, the Court directed the CIT(E) to provide the assessee full opportunity to substantiate its claims and produce evidence before deciding afresh. 4. Treatment of Competing Arguments The CIT(DR) supported the CIT(E)'s rejection on grounds of suspicious transactions and non-genuine activities. The assessee countered by producing documentary evidence, photographs, utilization certificates, and detailed explanations of activities. The Court found the assessee's evidence compelling enough to warrant further scrutiny and rejected the CIT(E)'s findings as premature without a proper hearing. Conclusions The Tribunal concluded that the rejection of registration under section 12AB and recognition under section 80G was not sustainable due to procedural infirmities and insufficient confrontation of adverse findings. Both appeals were restored to the CIT(E) for fresh adjudication after affording the assessee an opportunity to produce evidence and respond to enquiries. Significant Holdings "Without confronting the finding of the enquiry that the vendor who supplied the computers as well as school uniform did not exist at the address and further his GST number is also cancelled, the assessee did not have any opportunity to show with alternative evidence that the activities of the assessee are genuine and charitable in nature." "The finding of the ld. CIT(E) is based on enquiries conducted by him result of which is not confronted to the assessee." "In the interest of justice, we restore the whole issue back to the file of the ld. CIT(E) with a direction to the assessee to substantiate the transaction with the vendor, expenditure incurred with evidence and certificate before the ld. CIT(E). The assessee is further directed to comply with the notices of the ld. CIT(E), if any further details are required." "If the activities of the assessee trust are found to be genuine, application for recognition u/s. 80G of the Act may be considered on merits of the case in accordance with law, after giving proper opportunity of hearing to the assessee." The core principles established include the necessity of procedural fairness and the right of the assessee to be confronted with adverse enquiry findings before rejection of registration. The judgment reinforces that registration under section 12AB and recognition under section 80G must be granted only after thorough verification and hearing, not on preliminary or unchallenged findings. Final determinations on each issue are that the rejection of registration under section 12AB and recognition under section 80G is set aside and the matters remanded for fresh consideration in accordance with law and principles of natural justice.
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