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2021 (8) TMI 1157 - AT - Income TaxExemption u/s 11 - Registration u/s 12AA denied - Assessment of trust - manipulative treatment of funds - genuineness of the activities carried out by the Appellant Society - contradictory treatment of the same amount in one year as Unsecured Loan and another year as Donation and that this is against the Accounting Principle - HELD THAT - CIT exemption while denying the registration to the assessee had wrongly mentioned that as the assessee has shifted from the regime of 10(23C) to 12AA, the same is not permissible in the law and therefore the CIT exemption has denied the registration. Further CIT exemption mentioned above the acceptance of loan by the assessee in the previous year and thereafter the assessee in the financial year 2015-16 had claimed that the loan received by were in the nature of donation. Reasoning given by the CIT exemption cannot be countenanced as the same is contrary to the law laid down in Beant College of Engineering Technology 2019 (5) TMI 631 - PUNJAB AND HARYANA HIGH COURT Therefore this ground of rejection is not sustainable and therefore we reject the same. Acceptance of loan and thereafter in the financial year 2015-16, alleging it to be the donation - Merely on the basis of receipt of loan, and subsequent conversion of loan into donation, Assessee would not be disentitled for the registration under section 12AA of the income tax Act. The correct stage to examination of funds/utilisation of the amount/corpus by the assessee, would be at the time of assessment. Disallowance can be made if any, on examination at the assessment stage it is found that the assessee is not entitled to the exemption under section 11 of the Act and the amount received was chargeable to income of the assessee - at the stage of registration, the CIT exemption cannot deny the registration merely on the basis of the receipt of loan amount. No other reason was given by the CIT exemption for rejecting the application for registration. For that purpose we may rely upon decision in the matter of Ananda Social Educational Trust 2020 (2) TMI 1293 - SUPREME COURT - assessee is entitled to registration under section 12AA - Decided in favour of assessee.
Issues Involved:
1. Legality of the order passed by the Learned Commissioner of Income Tax (CIT). 2. Genuineness of the activities carried out by the Appellant Society. 3. Contradictory treatment of the same amount as Unsecured Loan and Donation. 4. Alleged manipulative treatment of funds and absence of documentary evidence. 5. Shifting from Section 10(23C) to Section 12AA. 6. Qualification for Registration under Section 12AA of the Income Tax Act. Issue-wise Detailed Analysis: 1. Legality of the Order Passed by the Learned Commissioner of Income Tax (CIT): The appellant society contended that the order of the CIT was "bad in law." The Tribunal examined the grounds of rejection provided by the CIT and found that the reasoning given was contrary to the law laid down by the jurisdictional High Court. Specifically, the Tribunal referred to the case of Beant College of Engineering & Technology, which provided a precedent for the issues at hand. The Tribunal concluded that the CIT's reasoning was not sustainable and thus rejected it. 2. Genuineness of the Activities Carried Out by the Appellant Society: The CIT had doubted the genuineness of the activities of the appellant society based on the treatment of funds. The Tribunal, however, noted that at the stage of granting registration, the primary considerations should be whether the purposes of the assessee are charitable in nature and whether the activities are genuine. The Tribunal found that the CIT's conclusions were premature and that the genuineness of activities should be examined during the assessment stage, not at the registration stage. 3. Contradictory Treatment of the Same Amount as Unsecured Loan and Donation: The CIT had held that there was a contradiction in the treatment of the same amount as an unsecured loan in one year and as a donation in the subsequent year. The Tribunal opined that this issue should be examined at the assessment stage rather than at the registration stage. The Tribunal emphasized that merely on the basis of receipt of loan and subsequent conversion into donation, the assessee would not be disentitled to registration under Section 12AA. 4. Alleged Manipulative Treatment of Funds and Absence of Documentary Evidence: The CIT had alleged manipulative treatment of funds and absence of documentary evidence of donations. The Tribunal found that the appellant society had provided sufficient documentary evidence, including affidavits and financial statements, to support its claims. The Tribunal concluded that the CIT's allegations were not substantiated and thus could not be a ground for denying registration. 5. Shifting from Section 10(23C) to Section 12AA: The CIT had argued that the appellant society could not shift from Section 10(23C) to Section 12AA. The Tribunal disagreed, stating that judicial precedents have allowed the pursuance of alternative claims either for Section 12AA or Section 10(23C). The Tribunal noted that the appellant society's shift was due to its gross receipts exceeding the threshold for exemption under Section 10(23C)(iiiad), making it necessary to apply for registration under Section 12AA. The Tribunal found the CIT's reasoning on this issue to be contrary to the law and thus unsustainable. 6. Qualification for Registration under Section 12AA of the Income Tax Act: The Tribunal concluded that the appellant society met the criteria for registration under Section 12AA. The Tribunal referred to the Supreme Court's decision in the case of Ananda Social & Educational Trust, which emphasized that the correct stage for examining the utilization of funds is during the assessment, not at the registration stage. The Tribunal directed the CIT to grant registration to the appellant society from the date of its application, relying on the decision of the Allahabad High Court in the case of Reham Foundation LKO. Conclusion: The Tribunal set aside the order passed by the CIT and directed the respondent to grant registration to the appellant society under Section 12AA of the Income Tax Act. The appeal of the assessee was allowed, with the Tribunal emphasizing that the CIT's grounds for rejection were not substantiated and contrary to established legal precedents.
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