2025 (7) TMI 944 - AT - Income Tax

Rejection of application u/s 12AA - as per revenue there are no substantial charitable activities being carried out by the appellant - HELD THAT - Once the assessee has produced the relevant information details and evidence in the shape of financial statements bills/invoices raised by the contractor after completion of the construction work of class rooms/boundary walls work of the govt. schools then without pointing out any infirmity or deficiency in the record filed by the assessee a mere statement that no substantial charitable activities are being carried out by the assessee trust is not justified. Even otherwise the impugned order is a non-speaking and cryptic order which does not exhibit any analysis of the record and material filed by the assessee in response to the notice. The impugned order of CIT(E) is set aside and the mater is remanded to the record of CIT(E) for fresh adjudication by a speaking order after verification and examination of the details documents and other records filed by the assessee as well as after giving an opportunity of hearing to the assessee. Appeals of the assessee allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in these appeals relate to the rejection of the assessee's applications under the Income Tax Act, 1961, specifically:

• Whether the rejection of registration under section 12AB of the Income Tax Act, 1961, by the learned CIT(Exemption) was justified, particularly regarding the finding that the assessee trust was not carrying out substantial charitable activities as required under sections 11 and 12 of the Act.
• Whether the rejection of approval under section 80G(5) of the Income Tax Act, 1961, which is consequential to the registration under section 12AB, was justified on similar grounds.
• Whether the impugned orders passed by the learned CIT(Exemption) were arbitrary, non-speaking, and lacked proper analysis of the evidence and documents submitted by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Rejection of Registration under Section 12AB

Relevant Legal Framework and Precedents: Section 12AB of the Income Tax Act, 1961, mandates registration of trusts or institutions for claiming exemption under sections 11 and 12. The registration requires demonstration of carrying out substantial charitable activities. The Supreme Court's decision in the case of M/s. Ananda Social & Educational Trust vs. CIT & Anr (426 ITR 340) was relied upon by the Revenue to emphasize the necessity of actual charitable activities and proper documentation.

Court's Interpretation and Reasoning: The learned CIT(Exemption) issued notices seeking comprehensive information, including cash flow statements, GST returns, donor lists, and documentary evidence of expenditure aligned with the trust deed. Although the assessee furnished these details, the CIT(Exemption) rejected the application stating no substantial charitable activities were being carried out, without pointing out any specific deficiency or discrepancy in the documentation.

Key Evidence and Findings: The assessee submitted financial statements, income and expenditure accounts, balance sheets, bills and invoices related to construction of classrooms, toilets, and compound walls in government schools, and a government communication recognizing the charitable work. The assessee's objects include educational research and training for societal benefit, which was not disputed.

Application of Law to Facts: The Tribunal noted that the rejection order was cryptic and non-speaking, lacking detailed analysis or identification of defects in the submitted evidence. The mere assertion of absence of substantial charitable activities, despite the production of relevant documents, was deemed unjustified. The Tribunal emphasized that proper verification and examination of the submitted records were necessary before rejecting the application.

Treatment of Competing Arguments: The Revenue highlighted discrepancies between contractor bills and expenditure booked, arguing the need for reconciliation. However, the Tribunal found that the CIT(Exemption) did not specify these discrepancies in the rejection order, nor did it provide an opportunity for the assessee to address such issues. The assessee argued that the rejection was arbitrary and contrary to the record, supported by documentary evidence and government recognition.

Conclusion: The Tribunal set aside the impugned order rejecting registration under section 12AB and remanded the matter to the learned CIT(Exemption) for fresh adjudication. The CIT(Exemption) was directed to issue a speaking order after thorough verification of documents and to provide the assessee an opportunity of hearing.

Issue 2: Validity of Rejection of Approval under Section 80G(5)

Relevant Legal Framework: Section 80G(5) approval is contingent upon registration under section 12AB and requires demonstration of charitable activities qualifying for donations to be eligible for deduction.

Court's Interpretation and Reasoning: The order rejecting approval under section 80G(5) was identical and consequential to the rejection under section 12AB. Since the registration matter was remanded for fresh consideration, the approval matter was also remanded on the same terms.

Application of Law to Facts: The Tribunal did not find it appropriate to uphold the rejection of approval under section 80G(5) without first resolving the registration issue under section 12AB.

Conclusion: The appeal against rejection under section 80G(5) was allowed for statistical purposes and remanded for fresh adjudication consistent with the directions for section 12AB registration.

3. SIGNIFICANT HOLDINGS

"Once the assessee has produced the relevant information, details and evidence in the shape of financial statements, bills/invoices raised by the contractor after completion of the construction work of class rooms/boundary walls work of the govt. schools, then without pointing out any infirmity or deficiency in the record filed by the assessee, a mere statement that no substantial charitable activities are being carried out by the assessee trust is not justified."

"Even otherwise, the impugned order is a non-speaking and cryptic order which does not exhibit any analysis of the record and material filed by the assessee in response to the notice."

"Therefore, in the facts and circumstances of the case, the impugned order of the learned CIT(E) is set aside and the matter is remanded to the record of the learned CIT(E) for fresh adjudication by a speaking order after verification and examination of the details, documents and other records filed by the assessee as well as after giving an opportunity of hearing to the assessee."

The Tribunal established the principle that rejection of registration or approval under the Income Tax Act must be based on a reasoned, speaking order that specifically addresses the evidence and documents submitted by the applicant. Mere conclusory statements without detailed analysis or identification of deficiencies are insufficient.

Final determinations included setting aside the rejection orders under sections 12AB and 80G(5) and remanding both matters for fresh consideration consistent with the directions provided.