2018 (3) TMI 68 - AT - Income Tax

Registration u/s 12AA denied - Only reason recorded by learned CIT (Exemptions) for rejection of claim of the assessee is that vide earlier order its application was already rejected and assessee had not filed appeal against that order - Held that - As we have gone through the order dated 03/08/2015 and noted that the order was passed ex-parte qua assessee. Learned A. R. has stated the reason for non appearance to be non receipt of specific notice. Rejection of earlier application and further not filing appeal before higher authorities cannot be held to be reason for assessee not to file a fresh application when its is permitted by the law. Therefore, we do not agree with learned CIT (Exemptions) as regards this finding. As regards other finding relating to remuneration drawn by the assessee and violation of section 13(1)(c), we find that during the financial year 2013-14 the assessee was a commercial company and taking of remuneration from the company was permitted as during that year admittedly the assessee was not registered u/s 12A of the Act. The arguments of Learned D. R. that the assessee had not produced books of account and vouchers is not having any force. At the time of registration, the CIT (Exemptions) is required to examine the objects of the assessee which in the present case are entirely charitable as the company is section 25 company As in the case of CIT vs. Red Rose School 2007 (2) TMI 575 - ALLAHABAD HIGH COURT as held that CIT (Exemptions) has to satisfy himself about the genuineness of the activities of the trust and also the objects of the trust or institution. CIT (Exemptions) is empowered to make inquiries, as he thinks fit, to verify as to whether the activities are genuine or not but on mere presumption and surmises that income derived by the trust or institution will be misused or that there is some apprehension that the same would not be used in a proper manner, cannot be made a basis for rejection of registration. The genuineness of the activities of trust or institution has to be seen keeping in mind the objects thereof which necessarily means that the CIT (Exemptions) shall satisfy himself about the fact that the activities are genuine and in consonance with the objects of the trust or institution. Thus we direct the CIT (Exemptions) to grant registration to the assessee u/s 12A of the Act. - Decided in favour of assessee.

Summary

Issues:
- Rejection of registration u/s 12AA by CIT (Exemptions)
- Non-appearance of assessee in earlier order dated 03/08/2015
- Directors drawing remuneration violating section 13(1)(c)
- Examination of objects and genuineness of activities by CIT (Exemptions)
- Discrepancy in findings between CIT (Exemptions) and assessee's representative

Analysis:

Rejection of Registration u/s 12AA:
The appeal was filed against the order of CIT (Exemptions) rejecting registration u/s 12AA. The assessee contended that the earlier rejection in 2015 was ex-parte, and no specific notice was received, justifying the filing of a fresh application. The Tribunal found this reasoning valid and disagreed with the CIT (Exemptions) on this point. Additionally, the Tribunal noted that the assessee, being a section 25 company with charitable objects, should not be penalized for not appealing the previous rejection.

Non-Appearance in Earlier Order:
The non-appearance of the assessee in the earlier order dated 03/08/2015 was attributed to the non-receipt of a specific notice. The Tribunal accepted this explanation and emphasized that the rejection of the earlier application and the failure to appeal should not prevent the assessee from reapplying as per the law.

Directors Drawing Remuneration Violating Section 13(1)(c):
The CIT (Exemptions) rejected the registration partly due to the directors drawing remuneration, which was seen as a violation of section 13(1)(c). However, the Tribunal pointed out that during the financial year 2013-14, when the remuneration was drawn, the assessee was a commercial company and not registered u/s 12A. Therefore, this finding was deemed irrelevant for the rejection of the application.

Examination of Objects and Genuineness of Activities:
The Tribunal highlighted the necessity for CIT (Exemptions) to examine the objects and genuineness of activities of the assessee, especially in the context of being a section 25 company with charitable objectives. The Tribunal referenced case laws, including the judgment of the Hon'ble Allahabad High Court, emphasizing that the CIT (Exemptions) must ensure that the activities are genuine and aligned with the trust's objectives.

Discrepancy in Findings:
There was a discrepancy between the findings of the CIT (Exemptions) and the assessee's representative regarding the production of documents, bills, and books of account. The Tribunal reviewed the correspondence between the parties and concluded that the findings of the CIT (Exemptions) were contrary to the facts presented by the assessee, leading to the allowance of the appeal.

In conclusion, the Tribunal directed the CIT (Exemptions) to grant registration to the assessee u/s 12A of the Act, considering the nature of the company, the genuineness of activities, and the legal requirements outlined in the relevant provisions and judicial pronouncements.