2019 (4) TMI 1119 - AT - Income Tax

Grant of registration u/s 12A denied - irregularities committed by the assessee in the past which led learned CIT(E) to come to adverse conclusion as to satisfaction of objectives and genuineness of activities of the assessee - HELD THAT - The assessee deserves one more opportunity wherein we are setting aside the issue of registration of the assessee trust u/s. 12A back to the file of the Ld. CIT(Exemption) for denovo consideration of the assessee aforesaid application for registration u/s 12A after considering the entire material/evidences brought on record by the assessee in the set aside proceeding on merits in accordance with law. Now, the ITR for AY 2018-19 is also available which can also be looked into by learned CIT(E) to arrive at decision whether the assessee is entitled for registration u/s 12A of the 1961 Act or not. All the issues are kept open and we clarify that we have not commented on the merits of the issue in this appeal. The learned CIT(E) is directed to admit all evidences/explanations submitted by the assessee in set aside proceedings and decide afresh grant of registration u/s 12A on merits in accordance with law. CIT(E) shall grant proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. Appeal of the assessee allowed for statistical purposes.

Issues Involved:
1. Rejection of the assessee's application for registration under Section 12AA of the Income Tax Act, 1961.
2. Alleged non-compliance with statutory requirements and maintenance of records.
3. Determination of the genuineness of the trust's activities and objectives.
4. Opportunity for the assessee to rectify past errors and provide necessary documentation.

Issue-wise Detailed Analysis:

1. Rejection of the Assessee's Application for Registration under Section 12AA:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Exemptions) [CIT(E)] rejecting the application for registration under Section 12AA of the Income Tax Act, 1961. The CIT(E) had rejected the application on the grounds that the assessee had failed to prove the genuineness of its activities and objectives. The CIT(E) observed that the trust had committed several lapses in the past, which raised serious doubts about the genuineness of its activities and objectives.

2. Alleged Non-compliance with Statutory Requirements and Maintenance of Records:
The CIT(E) noted that the trust, although formed in 1968 and registered with the Charity Commissioner in 1972, had not complied with statutory requirements such as maintaining regular books of accounts, submitting audit reports, and keeping a register of movable and immovable property as mandated by the Bombay Public Trusts Act, 1950. The trust had also not maintained a separate bank account, and the income and expenditure related to the school were shown in the individual account of Mrs. Sushila Khairajani, a trustee, rather than in the name of the trust.

3. Determination of the Genuineness of the Trust's Activities and Objectives:
The CIT(E) held that the trust had allowed the rights and permission to run the school to be used by a trustee in her personal capacity, deriving profit from the same. The CIT(E) stated that both the objects of the trust and the genuineness of its activities are cumulative requirements for granting registration under Section 12AA. The onus is on the applicant to produce all relevant documents and information to enable the registering authority to arrive at the requisite satisfaction about the objects of the trust and the genuineness of its activities.

4. Opportunity for the Assessee to Rectify Past Errors and Provide Necessary Documentation:
The tribunal observed that the assessee had initiated steps to correct past errors and mistakes from the financial year 2017-18 onwards. New trustees were appointed with the approval of the Charity Commissioner, and efforts were made to regularize the activities of the school within the fold of the trust. The tribunal noted that the CIT(E) had been overshadowed by the errors committed in the past and had not considered the actions taken by the assessee to correct these errors. The tribunal set aside the issue of registration under Section 12AA and remanded it back to the CIT(E) for fresh consideration, directing the CIT(E) to admit all evidences and explanations submitted by the assessee and decide the matter on merits in accordance with the law. The tribunal emphasized the need for the CIT(E) to grant proper and adequate opportunity of being heard to the assessee in accordance with the principles of natural justice.

Conclusion:
The tribunal allowed the appeal for statistical purposes, setting aside the order of the CIT(E) and remanding the matter back for fresh consideration, ensuring that the assessee is given an opportunity to present all relevant evidence and explanations to substantiate its claim for registration under Section 12AA.

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