2022 (12) TMI 872 - AT - Income Tax

Exemption u/s 11 - application of registration made by the appellant u/s 12A rejected - In the books of account nothing is shown to have spent on charity by the Trust which is also evident from Income Expenditure accounts - HELD THAT - Income and expenditure account indicates free medical camps, treating the patient at concessional rates being organised by the assessee. We further find that the photographs along with the bills and vouchers produced before the learned CIT(E) of the Act have not been properly considered by the learned CIT(E). Further, the return filed with Charity Commissioner has also not been doubted by the learned CIT(E) of the Act. Thus we are of the considered view that the details filed by the assessee have not been properly examined by the learned CIT(E) of the Act while denying the registration to the assessee under section 12AA of the Act. Therefore, we deem it appropriate to set aside the impugned order and direct the learned CIT(E) to de novo adjudicate upon the application for registration filed by the assessee under section 12A - Appeal by the assessee is allowed for statistical purposes.

Issues Involved:
1. Denial of registration under section 12AA of the Income Tax Act, 1961.
2. Denial of certificate under section 80G of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Denial of Registration under Section 12AA of the Income Tax Act, 1961:

The primary grievance of the assessee was the rejection of its application for registration under section 12A of the Income Tax Act, 1961. The assessee trust, constituted by a trust deed dated 01/07/2013 and registered with the Charity Commissioner, Mumbai, filed an application for registration under section 12A in the prescribed Form No. 10B. The learned Commissioner of Income Tax (Exemptions), Mumbai ["learned CIT(E)"], denied the registration under section 12AA of the Act, citing several reasons:

(a) Unknown Source of Receipts: The trust received Rs 25 to 30 lacs, but the source of these funds was not disclosed. Large amounts, such as Rs. 5,00,000/- in cash, were received from a political party without any confirmation or specification of the parties involved.

(b) Misrepresentation in Books of Account: The amounts received were shown as reflected in the trustees' accounts, leading to misrepresentation in the books of account. The trust did not show any expenditure on charity in its income and expenditure accounts.

(c) Lack of Record for Spending: No records were maintained for the claimed charitable spending. Substantial amounts were paid to Zenith Hospitals, where trustees are owners, and Rs. 88,000/- was spent on trustees' travel, which could not be related to charitable work. Large withdrawals were made by the trustee, claiming it was spent on patients, but no records were maintained.

(d) Misrepresentation of Transactions: The books of accounts and audit reports did not accurately reflect the trust's expenses towards its objectives. The trustees benefited from the trust's funds, and the transactions were shown differently in the books of accounts.

The learned CIT(E) concluded that the trust did not satisfy the conditions for granting registration under section 12AA, as the source of receipts was unknown, expenditure was not substantiated, and trustees derived benefits from the trust's funds.

Upon appeal, the tribunal considered the submissions and material on record. The assessee argued that the trust was established for treating tuberculosis patients and had organized free medical camps. The trustees could not maintain activity records until the financial year 2017-18, but thereafter, activities were recorded in the income and expenditure account. The tribunal found that the learned CIT(E) only considered events prior to the financial year 2017-18 and did not properly examine the documents submitted by the assessee, including photographs, bills, vouchers, and returns filed with the Charity Commissioner. Therefore, the tribunal set aside the impugned order and directed the learned CIT(E) to re-adjudicate the application for registration under section 12A, allowing the assessee to file all supporting documents.

2. Denial of Certificate under Section 80G of the Income Tax Act, 1961:

The assessee also challenged the rejection of its application for the grant of a certificate under section 80G of the Act. Given that the issue of registration under section 12AA was remanded for re-adjudication, the tribunal deemed the appeal for the certificate under section 80G premature. The assessee was advised to file a fresh application for the certificate under section 80G after receiving registration under section 12AA. Consequently, the appeal concerning section 80G was dismissed as premature.

Conclusion:

The tribunal allowed the appeal regarding the registration under section 12AA for statistical purposes, directing a re-evaluation by the learned CIT(E). The appeal for the certificate under section 80G was dismissed as premature, with the assessee advised to reapply post-registration under section 12AA.

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