2024 (1) TMI 858 - AT - Income Tax

Exemption u/s 11 - Rejecting the registration u/s 12AA - g enuineness of the activity undertaken by the society i.e., selling of medicines or charity activities have not been proved, therefore, the Ld. CIT(E) rejected the registration - HELD THAT - Considering the facts and circumstances that the assessee has produced the documents in support of the claim for registration and also the copy of the financials for the period ended 31/03/2019, we deem it fit to remand the matter to the file of the AO with direction to consider the documents produced by the appellant including financial statement in terms of judgment of Hon ble Supreme Court in the case of PCIT vs. Ahmedabad Urban Development Authority ( 2022 (10) TMI 948 - SUPREME COURT ). Appeal filed by the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:
The issues involved in this case are the rejection of the appellant's application filed u/s 12AA of the Income Tax Act, denial of registration u/s 12AA of the Act, and the commercial nature of the activities conducted by the assessee.

Issue 1: Rejection of Application u/s 12AA:
The Assessee appealed against the order of the Commissioner of Income Tax (Exemptions) rejecting the application filed u/s 12AA of the Income Tax Act. The grounds of appeal included the alleged error in rejecting the application and the issue of donation received in cash, exceeding the eligible limit for deduction. The Commissioner observed that the appellant's activities, such as selling medicine, did not align with the charitable nature of the society's objectives. The Tribunal considered additional evidence submitted by the appellant and decided to remand the matter for further review by the Assessing Officer.

Issue 2: Denial of Registration u/s 12AA:
The Counsel for the assessee argued that the denial of registration u/s 12AA was based on the commercial nature of the activities, lack of establishment of charitable and religious nature, and predominance of cash transactions. The Department contended that the assessee's commercial activities, especially in selling medicines, rendered them ineligible for registration under section 12AA. The Tribunal noted the absence of proper documentation regarding the purchase and sale of medicines, leading to doubts about the genuineness of the charitable activities. Citing a Supreme Court case, the Department emphasized the limitations on engaging in commercial activities for entities advancing general public utility.

Issue 3: Commercial Nature of Activities:
The Commissioner highlighted concerns about the society's sale of medicine at subsidized rates without adequate documentation of transactions. The Tribunal noted that while some expenses were shown, the lack of detailed accounts for medicine sales raised doubts about the genuineness of the charitable activities. The Counsel for the assessee submitted additional documents and financial statements to support the registration application, invoking a Supreme Court judgment regarding the permissible limits on commercial activities for entities advancing general public utility. Consequently, the Tribunal decided to remand the matter for further consideration by the Assessing Officer in light of the evidence presented.

This judgment underscores the importance of aligning activities with the objectives of entities seeking registration under the Income Tax Act and the necessity of maintaining proper documentation to substantiate charitable endeavors.