2024 (7) TMI 213 - AT - Income Tax

Rejection of registration u/s 12AB r.w.s. 12A(1)(ac)(i) - assessee trust is a section 8 company - assessee received donations which has not been routed through I E account - as argued CIT(Exemption) without considering the fact that the assessee trust is a section 8 company registered under the Companies Act, 2013 with a charitable object of providing medical relief to the geriatric population and registered u/s 7(2), rejected the claim of registration without affording proper opportunity to the assessee. HELD THAT - It is an admitted fact that the assessee has filed an application dt 24.04.2023 and the CIT(Exemption) issued first notice to the assessee through ITBA portal on 26.07.2023. After the assessee furnished the details, he issued a show cause notice to the assessee on 06.10.2023, to which the assessee furnished a detailed reply on 11.10.2023. However, we find the CIT(Exemption) without calling for any clarification from the side of the assessee, passed the order on 27.10.2023. Claim of assessee trust that it is a section 8 company registered under the Companies Act, 2013 with charitable object of providing medical relief to the geriatric population and registration u/s 7(2) of the Companies Act, 2013 was not at all considered by the CIT(Exemption) before rejecting the claim of registration u/s 12AA of the Act. We find from the various details furnished by the assessee that the excess of income over expenditure for the year ending 31.03.2022 was Rs. 160,562/- and 31.03.2021 was Rs. 1,79,157/-. Therefore, we fail to understand as to how the CIT(Exemption) has contended that the assessee trust is making substantial surplus when such surplus appears to be nominal. Thus, we deem it proper to restore the issue to the file of Ld. CIT(Exemption) with a direction to grant one more opportunity to the assessee to substantiate its case by filing the requisite details. The grounds raised by the assessee are accordingly allowed for statistical purposes.

Issues Involved:
1. Rejection of registration under section 12AB of the Income Tax Act, 1961.
2. Non-routing of donations through Income & Expenditure account.
3. Lack of details and supporting documents for health camps and awareness programs.
4. Nature of the assessee's activities being commercial rather than charitable.
5. Non-compliance with Rule 17A(2)(g) of the Income Tax Rules, 1962.
6. Lack of supporting evidence for expenditure on the objects of the foundation.

Detailed Analysis:

1. Rejection of Registration under Section 12AB:
The primary issue revolves around the rejection of the assessee's registration under section 12AB of the Income Tax Act, 1961. The CIT(Exemption) rejected the registration due to various discrepancies and lack of sufficient evidence to substantiate the charitable nature of the assessee's activities.

2. Non-Routing of Donations through Income & Expenditure Account:
The CIT(Exemption) noted that the assessee received donations amounting to Rs. 50 Lakhs, which were not routed through the Income & Expenditure (I&E) account. The assessee failed to provide adequate clarification or documentation, such as the donor's identity proof or authorization for the signatory who acknowledged the donation on behalf of the donor.

3. Lack of Details and Supporting Documents for Health Camps and Awareness Programs:
The CIT(Exemption) observed that the assessee claimed to have conducted various health camps and awareness programs but failed to furnish detailed information such as the place and date of activities, names of participants, and supporting bills or invoices. The photographs provided were deemed inconclusive in proving the charitable nature of these activities.

4. Nature of the Assessee's Activities Being Commercial Rather than Charitable:
The CIT(Exemption) found that the objects of the assessee, as stated in their Memorandum of Association (MoA), appeared to be of a commercial nature with an element of profit. The income generated from emergency medical services contracts further supported this view. Despite the assessee's contention that the surplus was minimal and the activities were charitable, the CIT(Exemption) emphasized the commercial elements, such as maintaining affordable tariffs and mobilizing private capital, which indicated a focus on revenue generation rather than purely charitable endeavors.

5. Non-Compliance with Rule 17A(2)(g) of the Income Tax Rules, 1962:
The assessee failed to comply with Rule 17A(2)(g), which requires the submission of self-certified copies of annual accounts for the previous three years or since inception. The assessee only provided accounts for two financial years, thus failing to meet the regulatory requirements.

6. Lack of Supporting Evidence for Expenditure on the Objects of the Foundation:
The CIT(Exemption) noted that the assessee did not provide detailed supporting evidence for the expenditure claimed under the head 'expenses on objects of foundation.' The ledger extract provided was insufficient, and the nature and purpose of the expenditure, as well as how it was incurred in achieving the foundation's objectives, were not clarified.

Tribunal's Decision:
The Tribunal found merit in the assessee's argument that the CIT(Exemption) did not afford a proper opportunity to furnish additional details or clarifications. The Tribunal observed that the CIT(Exemption) passed the rejection order towards the end of the limitation period without seeking further information from the assessee. The Tribunal also noted that the assessee is a section 8 company registered under the Companies Act, 2013, with a charitable objective, which was not adequately considered by the CIT(Exemption).

The Tribunal deemed it appropriate to restore the issue to the file of the CIT(Exemption) with a direction to grant the assessee another opportunity to substantiate its case. The CIT(Exemption) was directed to decide the issue afresh, considering the facts and law, after giving due opportunity of being heard to the assessee.

Conclusion:
The appeal filed by the assessee was allowed for statistical purposes, and the matter was remanded back to the CIT(Exemption) for reconsideration. The Tribunal emphasized the need for a fair opportunity for the assessee to present its case and provide the requisite details to substantiate the charitable nature of its activities.

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