2018 (11) TMI 641 - AT - Income Tax

Registration u/s 12AA eligibility - proof of charitable activities - Held that - Appellant society was enjoying the registration granted to it by the CIT(E), Ghaziabad u/s 12AA of the Act. Understand how can the CIT(A) question the authority of the CIT(Exemptions) for granting registration u/s 12AA of the Act. CIT(Exemptions) to decide the allowability or otherwise of the registration u/s 12A. CIT(A) should not have made any observation on that aspect and should have restricted himself to the issues raised before him. At the most, the CIT(A) could have enhanced the addition made by the Assessing Officer, which is within his powers. But by no stretch of imagination it can be accepted that the first appellate authority is making enhancement while commenting on the powers of the CIT(Exemptions). First appellate authority has crossed his powers in deciding the appeal and, therefore, his findings have to be set aside. Coming to the action of the Assessing Officer, find that the AO has doubted the surplus ₹ 6,36,591/- without examining each and every item of income. Therefore, restore this issue to the file of the AO. AO is directed to examine each and every item of income and decide the issues afresh after allowing reasonable opportunity of being heard to the assessee. Accordingly, the enhancement is set aside and the order of the Assessing Officer is restored back to his file.

Summary

Issues involved:
Appeals against CIT(A) order regarding entitlement to registration U/S.12-AA, tax treatment of gross receipts, additions made without notice, and authority to question registration.

Analysis:

1. Entitlement to Registration U/S.12-AA:
The appellant, a Resident Welfare Association registered under the Registrar of Societies and U/S 12AA of the Income-tax Act, challenged the CIT(A)'s decision to treat the entire receipt as income. The CIT(A) questioned the registration granted by the CIT(Exemptions) and denied the benefit of Doctrine of Mutuality. The ITAT held that the CIT(A) overstepped by questioning the registration authority's decision. The ITAT emphasized that the CIT(A) should have focused on the issues raised rather than challenging the registration. The ITAT set aside the CIT(A)'s findings on this matter.

2. Tax Treatment of Gross Receipts:
The Assessing Officer doubted a surplus amount earned from commercial activities without examining each income item. The CIT(A) upheld the AO's decision without proper examination. The ITAT directed the Assessing Officer to re-examine each income item and provide a fair opportunity for the assessee to be heard. The ITAT set aside the enhancement made by the CIT(A) and restored the issue back to the Assessing Officer for fresh consideration.

3. Additions Made Without Notice:
The appellant objected to the CIT(A) enhancing income without prior notice on issues like the applicability of section 57 and intent to tax gross receipts. The ITAT noted that the CIT(A) failed to consider the evidence presented and passed an order without proper examination. The ITAT emphasized the importance of giving the assessee a chance to respond before making additions. The ITAT set aside the CIT(A)'s decision on this issue.

4. Authority to Question Registration:
The ITAT reiterated that the CIT(A) should not question the authority of the CIT(Exemptions) in granting registration U/S 12AA. The ITAT clarified that the CIT(A) should focus on the issues raised in the appeal rather than challenging the registration authority. The ITAT held that the CIT(A) exceeded his powers in commenting on the registration grant. The ITAT set aside the CIT(A)'s findings in this regard.

In conclusion, the ITAT allowed the appeals for statistical purposes, emphasizing the importance of proper examination of income items, giving the assessee a fair opportunity to be heard, and restricting the CIT(A) to issues raised in the appeal without questioning registration authority decisions.