2022 (5) TMI 506 - AT - Income Tax

Exemption u/s 11 - grant of approval/registration u/s. 80G rejected - Assessee charging exorbitant fee as stated by ld. CIT(E) - HELD THAT - Matter can be restored back to the file of ld. CIT(E) for de novo consideration of assessee's application for registration/approval u/s. 80G(5) of the Act. We have observed that ld. CIT(E) issued notice dated 02.09.2017 seeking as many as 23 queries. The case was fixed for hearing on 28.09.2017. The assessee sought adjournment, and the case was fixed for 11.10.2017. The assessee had filed part reply before ld. CIT(E) on 11.10.2017, which is placed on record. The case was adjourned to 18.10.2017. On the next date of hearing on 18.10.2017, the assessee/counsel did not appear, and ld. CIT(E) did not give any further opportunity of hearing to the assessee, and rather dismissed the application filed by the assessee for registration/approval u/s. 80G(5) of the 1961 Act on the same date viz. 18.10.2017. Assessee has averred before us that many of the findings of ld. CIT(E) are erroneous/perverse, and if one more opportunity is granted, the assessee shall produce books of accounts, vouchers and other evidences to substantiate its contentions, and the assessee shall also furnish necessary details/evidences if any other queries which ld. CIT(E) may require assessee to explain. The ld. CIT-DR has also fairly stated that the matter can go back to the file of ld. CIT(E) for denovo consideration of assessee's application. Thus, under these circumstances it will be in the interest of justice and fairness to both the parties that the order dated 18.10.2017 passed by ld. CIT(E) be set aside and matter be restored back to the file of ld. CIT(E) for fresh consideration of the assessee's application for registration/approval u/s. 80G(5) - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Rejection of application for registration/approval under Section 80G(5) of the Income-tax Act, 1961.
2. Adequate opportunity of being heard.
3. Assessment of charitable nature of activities.
4. Verification of financial records and expenses.
5. Compliance with Section 13(1)(c) read with Section 13(3) of the Income-tax Act, 1961.

Detailed Analysis:

1. Rejection of application for registration/approval under Section 80G(5) of the Income-tax Act, 1961:
The assessee's application for registration/approval under Section 80G(5) was rejected by the CIT(E) on the grounds that the assessee was not solely existing for educational purposes. The CIT(E) observed that the assessee was primarily running an educational institution on commercial lines without any element of charity to the public at large. The CIT(E) noted significant tuition fees and other charges, indicating commercial activity rather than charitable purposes.

2. Adequate opportunity of being heard:
The assessee argued that proper and adequate opportunity of being heard was not granted by the CIT(E). The CIT(E) had issued a notice with 23 queries and fixed hearing dates, but the assessee sought adjournments and partially responded. On the final hearing date, the assessee did not appear, and the CIT(E) rejected the application without granting further opportunity. The Tribunal noted that the CIT(E) hastened to dismiss the application without giving one more opportunity for the assessee to present its case.

3. Assessment of charitable nature of activities:
The CIT(E) concluded that the assessee was not engaged in charitable activities, based on the observation that the assessee charged high fees and did not invest funds towards charitable objects. The CIT(E) also noted that the expenses claimed by the assessee were exaggerated and mostly bogus, and the assessee was earning significant profits, indicating commercial rather than charitable activities.

4. Verification of financial records and expenses:
The CIT(E) found that the assessee did not produce books of accounts and vouchers for verification. The CIT(E) observed that the assessee failed to provide details of salary expenses and spent large amounts on advertisement and repairs, which were seen as business expenses rather than charitable activities. The Tribunal noted that the assessee claimed its books of accounts and vouchers were available for verification if given another opportunity.

5. Compliance with Section 13(1)(c) read with Section 13(3) of the Income-tax Act, 1961:
The CIT(E) observed that the lease agreements between the assessee and society members granted benefits to the society members, infringing upon Section 13(1)(c) read with Section 13(3). The Tribunal noted that the assessee argued that rent paid was low compared to market rates and did not confer undue benefit to society members.

Tribunal's Decision:
The Tribunal restored the matter to the file of the CIT(E) for de novo consideration, directing the CIT(E) to provide proper and adequate opportunity of hearing to the assessee. The Tribunal emphasized the need for the CIT(E) to pass a reasoned and speaking order, considering the evidence and explanations provided by the assessee. The appeal was allowed for statistical purposes.

Order Pronouncement:
The order was pronounced on 22/04/2022 at Varanasi, U.P.