2022 (9) TMI 353 - AT - Income Tax

Exemption u/s 11 - grant of registration u/s. 12A - CIT (E) rejected the application for grant of registration on the ground that the assessee has given undue benefit to the President Treasurer and has thus violated the provisions of section 13 of the I.T. Act - genuineness of the address is also in doubt because the address of the partnership firm and that of the assessee are same - HELD THAT - The issue has not been properly appreciated by the ld. CIT(E) while denying registration u/s.12AA - The various allegations made by the CIT(E) while denying registration u/s. 12AA have been addressed by assessee, which in our opinion requires verification and proper appreciation of facts by the CIT(E). So far as the allegations of the CIT(E) that the assessee trust has paid undue advantage to the President and Secretary is concerned, it is the submission of the assessee that they are looking after 10 centers and the salary paid to them is commensurate with their qualification and the area of operation and therefore, the same in our opinion requires proper appraisal of facts by the ld.CIT(E). Similarly, the allegation that the address of the partnership firm and that of the assessee are same in our opinion cannot be a ground for denying the benefit of registration u/s. 12AA - So far as the allegation of the ld.CIT(E) that the genuineness of the books of accounts are doubtful is concerned, we find merit in the arguments of assessee that the cash withdrawals so made were utilized for payment of salary and various other expenses and there is no violation of section.40A(3) of the I.T.Act. We find from the order of the PCIT that he has granted registration u/s. 12AA for the period from the AY 2022-23 to AY 2026-27. We are of the considered opinion that the matter requires a revisit to the file of the PCIT for deciding the issue afresh and in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

Issues Involved:
1. Denial of registration under Section 12A of the Income Tax Act.
2. Alleged undue benefit to the President and Treasurer.
3. Shared address with a partnership firm.
4. MoU with business entities.
5. Genuineness of books and cash transactions.
6. Advances and typographical errors.
7. Unregistered lease deed.

Detailed Analysis:

1. Denial of Registration under Section 12A:
The core issue revolves around the rejection of the assessee's application for registration under Section 12A of the Income Tax Act by the CIT (E). The CIT (E) rejected the application on multiple grounds, including undue benefits to the President and Treasurer, shared address with a partnership firm, MoU with business entities, and doubts about the genuineness of books and cash transactions.

2. Alleged Undue Benefit to the President and Treasurer:
The CIT (E) noted that the President and Treasurer received significantly higher salaries compared to other employees with similar qualifications, and there was no attendance register or appointment letter to justify the payments. The Tribunal, however, found merit in the assessee's argument that the President and Treasurer were qualified professionals managing ten training centers, and their salaries were at par with market rates. The Tribunal directed the CIT (E) to reappraise these facts.

3. Shared Address with a Partnership Firm:
The CIT (E) raised concerns about the assessee sharing the same address with NRH Career Developers, a partnership firm. The Tribunal found the assessee's explanation plausible, noting that many entities share space and resources to reduce financial burdens. The Tribunal stated that this alone cannot be a ground for denying registration.

4. MoU with Business Entities:
The CIT (E) questioned the genuineness of the assessee's activities due to its MoU with business entities. The Tribunal, however, accepted the assessee's argument that such MoUs were necessary to qualify for government schemes and that similar practices were followed by other charitable entities. The Tribunal directed the CIT (E) to reconsider this aspect.

5. Genuineness of Books and Cash Transactions:
The CIT (E) doubted the genuineness of the books due to cash transactions and self-withdrawals without corresponding bills. The Tribunal found merit in the assessee's explanation that cash withdrawals were used for salary payments and other expenses, which were within permissible limits under Section 40A(3) of the Act. The Tribunal directed the CIT (E) to verify these claims properly.

6. Advances and Typographical Errors:
The CIT (E) noted unexplained advances and typographical errors in the records. The Tribunal accepted the assessee's explanation that the advance was from the President and not Mr. Karthik, as mentioned due to a typographical error. The Tribunal directed the CIT (E) to re-examine these facts.

7. Unregistered Lease Deed:
The CIT (E) rejected the registration application partly because the lease deed for the office space was unregistered, violating the Registration Act and Indian Stamp Act. The Tribunal found the assessee's argument valid that the lease deed was notarized and accepted by government departments, and this alone should not be a ground for denial of registration.

Conclusion:
The Tribunal found that the CIT (E) did not properly appreciate the facts and directed a re-examination of the case. The Tribunal held that the various allegations made by the CIT (E) require verification and proper appreciation of facts. The Tribunal allowed the appeal for statistical purposes and directed the CIT (E) to decide the issue afresh in accordance with the law after giving due opportunity to the assessee.

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