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Judgment
ORDER
Per Kavitha Rajagopal, J M:
This appeal is filed by the assessee Society challenging the order of the Learned Commissioner of Income Tax (Exemptions) [‘Ld. CIT(E)’ for short], dated 23.02.2026 passed u/s. 12A of the Income Tax Act, 1961 (‘the Act', for short).
As there was no representation on behalf of the assessee, we hereby proceeds to dispose of this appeal by hearing the Ld. DR and on perusal of the material available on record.
The assessee has raised the following grounds of appeal:-
“1.GROUND NO. 1: LEGAL ERROR IN APPLYING SECTION 12AB PROVISIONS The learned Commissioner of Income Tax (Exemptions) has erred in law and on facts in rejecting the application for registration under Section 12AB of the Income-tax Act, 1961, without properappreciation of the statutory provisions and judicial precedents.
Sub-ground 1.1: Misinterpretation of "Genuineness of Activities"
The order is bad in law because:
•The authority has failed to distinguish between "genuineness of activities" and "prudence of expenditure"
•Section 12AB(1)(b) requires examination of genuineness of activities, not micro-management of each expenditure decision
•The appellant society has been genuinely carrying out educational activities, which is not disputed
•A single expenditure item cannot be the sole basis for rejecting registration when overall charitable objects and activities are genuine
Relevant Legal Framework:
Section 12A (1) (ac)(ii) of the Income-tax Act, 1961 provides that trusts/institutions which have been granted registration under Section 12AA/AB and subsequently adopted modifications can apply for fresh registration within 30 days of such modification.
Section 12AB(1)(b) empowers the Principal Commissioner/Commissioner to call for documents/information and make inquiries to satisfy himself about the genuineness of activities of the trust/institution.
Key judicial principle: The assessment of genuineness must be holistic and cannot be based on isolated transactions without establishing systematic diversion of funds.
GROUND NO. 2: FACTUAL AND EVIDENTIAL ERRORS
Sub-ground 2.1: Failure to Appreciate Documentary Evidence
The order suffers from perversity because:
•The authority has not considered that educational institutions commonly organize educational tours, excursions, and outdoor learning programs as part of modern pedagogy
•The membership with Mahindra Holiday Resorts is a legitimate mechanism to facilitate such educational activities at economical rates
•The authority has rejected the application without examining:
o The balance sheet showing overall charitable application of funds
o The percentage of this expenditure vis-à-vis total receipts (which was minimal as stated)
The nature and objects of the society as educational institution
o Other activities and programs conducted by the society
Sub-ground 2.2: Unreasonable Expectation of Documentation at Registration Stage
The order is contrary to natural justice because:
•At the registration stage under Section 12AB, the focus is on examining objects and overall genuineness, not conducting detailed audit of each transaction
•Tour schedules and student participation details are operational records that may not be immediately available, especially for future planned activities
•The membership was taken for organizing future educational tours -demanding proof of past usage is logically inconsistent
•The authority has not provided adequate time or specific format for producing evidence
Supporting Principle: Registration proceedings are not assessment proceedings. The standard of proof and level of scrutiny differ. The authority cannot demand the same degree of documentation as would be required in assessment proceedings.
GROUND NO. 3: VIOLATION OF PRINCIPLES OF NATURAL JUSTICE
Sub-ground 3.1: Inadequate Opportunity to Explain
The order violates principles of natural justice because:
•Only one hearing notice dated 30.01.2026 was issued with response filed on 05.02.2026
•No further opportunity was granted to submit additional documents after the authority found initial reply insufficient
•The authority should have specifically pointed out deficiencies and allowed reasonable time to cure them
•Rejection based on "insufficient evidence" without granting adequate opportunity amounts to violation of natural justice
Sub-ground 3.2: Non-Application of Mind to Reply Submitted
The order demonstrates non-application of mind because:
•The reply specifically explained that membership was for educational tours and outdoor learning programs
•The reply clarified it was not for personal use of trustees/members
•The reply mentioned the expenditure was minimal compared to total receipts
•These submissions were summarily dismissed without proper evaluation
GROUND NO. 4: ERRONEOUS APPLICATION OF "NEXUS WITH CHARITABLE OBJECT" TEST
Sub-ground 4.1: Narrow Interpretation of Educational Activities
The order is bad in law because:
•The authority has taken an unduly restrictive view of what constitutes educational activity
•Modern education encompasses experiential learning, outdoor education, and exposure visits
•Educational tours are recognized pedagogical tools for holistic development of students
•The observation that "educational tours can be organized through ordinary arrangements" is arbitrary and shows lack of understanding of institutional planning and cost optimization
Sub-ground 4.2: Ignoring Commercial Prudence
The order fails to appreciate that:
•Taking membership for organizing multiple tours may be more economical than ad-hoc bookings
•Advance planning through memberships ensures availability and better rates
•This represents prudent financial management, not diversion of charitable funds
•Small percentage of total receipts indicates proportionate and reasonable expenditure
GROUND NO. 5: LEGAL ERROR IN CONSEQUENCE OF REJECTION
Sub-ground 5.1: Ultra Vires Order Regarding Supersession of Earlier Registration
The concluding paragraph of the order is legally untenable:
The order states: "This rejection would also supersede any registration granted u/s 12AB of the Act by any authority at any earlier time."
This is bad in law because:
•Section 12AB does not empower the authority to retrospectively cancel/supersede registrations granted earlier
•Cancellation of registration is governed by separate provisions under Section 12AB(4) with distinct procedures and grounds
•The authority cannot exceed jurisdiction by adding consequences not contemplated in law
•If earlier registration exists, it can only be cancelled through proper cancellation proceedings with opportunity of hearing.”
The brief facts are that the assessee had filed an application for registration u/s 12A(1)(ac)(ii) of the Act dated 29.09.2025 for registration u/s 12AB of the Act in Form 10AB before the Ld. CIT(E). The Ld. CIT(E) rejected the assessee’s application on the ground that despite several opportunities granted, the assessee had not furnished any documentary evidences such as tour schedules or programmes, details of students’ participation, invoices co-relating the membership usage with educational tour or any other record to substantiate the assessee’s claim thereby holding that the assessee has failed to explain the genuineness of its activities. Aggrieved, the assessee is in appeal before us challenging the order of the Ld. CIT(E).
It is observed that the assessee mas made an advance to Mahindra Holiday Resorts as per its balance sheet for the year ending 31.03.2025 for which the Ld. CIT(E) has sought for details from the assessee to demonstrate how the same was in furtherance of the charitable objects of the Society. The assessee submitted that the payment made to Club Mahindra membership was for organising educational tours, different tour learning programmes and exposure visits for students and the same was not intended for the personal use of trustees or its members. The assessee further contended that the impugned expenditure was only a small percentage of the total receipts of the Society. The Ld. CIT(E) rejected the assessee’s contention for want of supporting documentary evidences. The assessee was aggrieved by the order of the Ld. CIT(E) on various grounds including violation of principles of natural justice where the assessee contends that only one notice of hearing dated 30.01.2026 was issued to the assessee for which the assessee had filed its response on 05.02.2026. The assessee submits that no further opportunity was granted to the assessee for submitting additional documents, neither was any specific efficiency pointed out for the purpose of curing the same. The assessee also challenged the rejection of application on the merits stating that at the time of registration only the objects and genuineness of the Trust has to be considered and not a roving inquiry as to the receipts and expenditure which is subject matter of the assessment, if any.
On the above facts, we deem it fit to remand this issue back to the file of Ld. CIT(E) for considering the application filed by the assessee for registration after giving sufficient opportunity of hearing to the assessee. The Ld. CIT(E) is also directed to examine the issue with regard to the objects of the Trust and the genuineness of its activities as per the mandate of the provisions of law, as we are conscious of the fact that it is a settled proposition of law by various High Courts and the Apex Court that at the time of registration, these are the only aspects that the Ld. CIT(E) ought to have examined for the purpose of registration of the Trust u/s 12AB of the Act. On the above observation, we allow the grounds raised by the assessee for statistical purpose.
In the result, the appeal filed by the assessee is hereby allowed for statistical purpose.
Order pronounced in the open court on 31.07.2026.