Shanti Shiksha Samiti, Shanti Public Sr. Sec. School vs Commissioner Of Income Tax (Exemptions), Chandigarh

PER S. RIFAUR RAHMAN, AM:

The assessee has filed appeal against the order of the learned Commissioner of Income Tax (Exemptions), Chandigarh [“ld. CIT(E)”, for short] dated 05.03.2026 u/s 12AB of the Income Tax Act, 1961 (for short ‘the Act’).

Brief facts of the case are that the assessee filed an application for registration u/s 12A(1)(ac)(ii) of the Income Tax Act, 1961 (in short the ‘Act’) on 27.09.2025 seeking registration u/s 12AB of the Act, assessee filed relevant documents along with the application, after considering the above documents submitted by the assessee. The ld. CIT(E) observed that he has to examine the two basic conditions for grant of registration which includes apart from examination of objects and the society, satisfaction in respect of genuineness of the activities, particularly when the assessee is ongoing entity. On examination of the financial statement submitted by the assessee, she observed that under the head of other expenses for financial year 2023-24, a substantial amount was debited on account of write off of unsecured loans amounting to Rs. 41.31 lakhs advanced to SPS Educational Trust. Further, details were sought regarding the above advances and other expenses claimed vide notice dated 07.01.2026. In response, the assessee submitted that the expenditure claimed by the assessee comprises write off of unsecured loan which was advanced to SPS Educational Trust and enclosed copy of ledger account and registration certificates of the said trust. Further it was submitted that the loan was advanced more than 10 years ago for charitable purposes and since the amount could not be recovered, it has been written off. After considering the submission of the assessee and after perusal of the ledger account ld. CIT(E) observed that it reflected in the books of SPS International Academy which was transferred/swapped in the books of the assessee on 01.04.2020. The exact nature, purpose and commercial rationale behind such swapping of loan from SPS International Academy to the assessee society was not explained. No resolution of the governing body, agreement for assignment of receivable, or documentary evidence, evidencing the terms and conditions of such transfer has been furnished. Further observed that no loan agreement, sanction letter, repayment schedule or supporting documentation evidencing the original advancement of loan to SPS Educational Trust was placed on record. She observed that in absence of such agreement and supporting documents, the genuineness and charitable nexus of the transaction cannot be verified. Since the assessee could not be substantiated the above claim of the expenditure and in absence of documentary substantiation prevents verification of genuineness of expenditure and in view of the above observations, she was of the view that it is not a fit case for granting registration as charitable institution. Accordingly, she rejected the application.

Aggrieved with the above order, the assessee is in appeal before us raising the following grounds of appeal:

At the time of hearing, the ld. AR submitted that the ld. CIT(E) has rejected the application filed by the assessee without application of mind and further submitted that the ld. CIT(E) has cancelled the registration and went ahead to do financial audit which was not allowed under the existing provisions of law and she has not found any defect or any adverse was pointed out about the nature of charitable activities and genuineness of the activities. He submitted that in absence of concrete findings and without giving proper personal hearing which is against the interest of natural justice. Therefore, prayed that the fair opportunity was not provided to the assessee to represent this case and prayed that the suitable direction may be given.

On the other hand, the ld. DR relied on the findings of the ld. CIT(E).

Considered the rival submissions and materials placed on record. We observed that the assessee filed an application for registration u/s 12AB of the Act after considering the detailed submission of the assessee, ld. CIT(E) observed that from the financial statement that the assessee has claimed write off unsecured loans which was advanced to SPS Educational Trust. We observed that after analyzing the financial statement and claim of write off of unsecured loans during the year under consideration, ld. CIT(E) was of the view that the assessee has not established the genuineness of the above unsecured loan to SPS International Academy and not prove the genuineness of the activities by submitting the relevant loan documents and other relevant documents in respect of write off of the above advances. In our considered view, the ld. CIT(E) has directed the assessee to submit the loan advances and recovery statement etc. In our view, the assesse has granted loans to SPS Educational Trust and the above said trust was already registered u/s 12A and 80G of the Act which are similar to the objects of the society trust and we observed that the assesse has taken over the educational loan from the above said trust in financial year 2023-24 which is apparent on record. We observed that the SPS Educational Trust has given educational advances to the beneficiaries and assessee having similar objects has taken over the education loan from SPS Educational Trust and since its long outstanding the assessee has decided the write off of the above said educational loan in the books of account. Merely because assessee has written off of the said loan, ld. CIT(E) came to the conclusion that the whole activity carried on by the assessee is not charitable without bringing on record, the reasons for reaching such conclusion. In absence of proper findings in this regard, in our considered view, the ld. CIT(E) has grossly rejected the application without application of mind. Further we observed that the assessee was not given proper opportunity of being heard before rejecting the application for registration. In our considered view, the assessee may be given proper opportunity of being heard to the assessee accordingly, we direct the ld. CIT(E) to consider the application afresh and after giving opportunity of being heard to the assessee, directed to grant registration as per law after due verification.

In the result, the appeal filed by the assessee is allowed for statistical purposes.