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Judgment
PER SUDHIR KUMAR, JUDICIAL MEMBER:
This appeal by the assessee is directed against the orders of the Commissioner of Income Tax (Exemption), Chandigarh [hereinafter referred to as “CIT(E)”] vide order dated 18.02.2026.
The assessee has raised the following grounds in appeal as under:
1.That on facts and in circumstances of the case the Ld. CIT(Exemption) erred and was not justified in holding that the rent paid by the society to the Member of the society for taking their land on rent for running of the Educational Institutions run by the Society is for the purpose of providing profit to the office bears and not for charitable purposes.
2.That the Ld. CIT (E) has erred in law and on facts in holding that the activities of the appellant are not genuine merely on the basis of doubts raised regarding lease documentation and rent expenditure. The appellant society is admittedly engaged in the field of education which squarely falls within the definition of “charitable purpose” under section 2(15) of the Act. Accordingly, the impugned rejection proceeds on an incorrect legal test by treating documentary doubt as equivalent to absence of genuineness, which is unsustainable in law.
3.The impugned order is vitiated by violation of principle of natural justice. Through a notice was issued the Ld. CIT(E) has failed to duly consider and appreciate the explanations and documents furnished by the appellant and deal with the submission in a reasoned and issue-wise manner. The rejection proceeds on generalized observations without addressing the specific clarifications provided, thereby rendering the order non-speaking and arbitrary.
4That the rejection order is mechanical non speaking and passed without application of mind violating principle of natural justice.
4.The appellant craves to leave to add alter or amend the ground of appeal at the stage of hearing and all the ground are without prejudice to each other
The assessee has moved the application for the registration of the trust under section 12AB of the Income Tax Act,1961 (in short “the Act”) for A.Y.2026-27 but the Ld. CIT(E) rejected the application of the applicant for registration holding that explanation furnished by the applicant is not supported by reliable documentary evidence and fails to satisfactory, explain the inconsistency between the ownership of building assets and payment of rent. The Ld. CIT(E) has observed in his order as under:
4.2It is further observed that despite having a substantial building block reflected in its, fixed assets, the applicant has claimed substantial and sharply increasing rent expenditure over the years without furnishing credible and legally enforceable lease documentation. The explanation furnished by the applicant is not supported by reliable documentary evidence and fails to satisfactory, explain the inconsistency between the ownership of building assets and payment of rent.
4.3Here, it would also be pertinent to note that the Hon’ble Supreme Court in the case of CIT(Exemption) vs. Jagannath Gupta Family Trust dated 01-02-2019[2029] 411 ITR 235 (SC), noted that the Hon’ble High Court had allowed the writ petition mainly on one ground i.e. one bogus donation would not establish that the activities of the trust are not genuine and held that such a reason assigned by the High Court is erroneous and runs contrary to the plain language of section 12AA(3) of the Act. This show that the Hon’ble Supreme Court noted that even a single non-genuine entry / event is sufficient to hold that the activities of the trust are not genuine.
5.In view of the foregoing, the case has not been found to be a fit case for registration as charitable institution. Accordingly, the undersigned is of the considered view that the applicant has failed to furnish reliable and legally valid documentary evidence substantiating its claim regarding lease of land and justification of substantial rent expenditure. The inconsistencies in financial reporting and absence of credible supporting documents raise serious doubts regarding the correctness of financial disclosures and genuineness of activities. Accordingly, the present application of the applicant filed in Form 10 AB u/s 12A(1)(ac)(ii) of the Act is rejected and registration is cancelled for the above discussion reasons.
Ld. AR of the assessee submitted that the assessee trust has taken the land on rent from the members with the valid agreement. The assessee trust has constructed the building from the society in the balance sheet the assessee has shown the building not the land. He further submitted that application was wrongly rejected on the basis of the unregistered agreement and the rent paid to related person.
The Ld. DR has submitted that the Ld. AR has failed to provide the relevant documents before the Ld. CIT (E), the application was rightly rejected.
We have heard the parties and perused the material available on record. The Ld. CIT(E) has rejected the application on the ground that assessee has failed to furnish reliable and legally valid documentary evidence. We find that the assessee filed the rent agreement on which basis the rent was paid. In the balance sheet the assesee trust has shown the building. The opportunity to furnish the other detailed was not provided to the assessee. Since in the instant case the Ld. CIT(E) has dismissed the application in non-providing the legally valid documentary evidence, therefore, considering the totality of the facts and circumstances of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Ld. CIT(E) with a direction to grant one final opportunity to the assessee to substantiate, its claim and decide the issue as per fact and law. The assessee is also directed to appear before the Ld. CIT(E) and co-operate in the proceedings. The grounds raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purpose.