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Judgment
PER S. RIFAUR RAHMAN, AM:
The assessee has filed appeals against the order of the learned Commissioner of Income Tax (Exemptions), Chandigarh [“ld. CIT(E)”, for short] dated 17.03.2026 and 18.02.2026 u/s 12AB of the Income Tax Act, 1961 (for short ‘the Act’) respectively and ITA No. 3782/Del/2026 is a lead case in this appeal.
Brief facts of the case are that the assessee filed an application in Form 10AB on 30.09.2025 seeking registration u/s 12AB of the Income Tax Act, 1961 (in short the ‘Act’). The assessee is established with the objects of promoting education and it is established on 25.06.1996. After considering the application in Form 10AB, the ld. CIT(E) observed that as per the provisions of section 12AB of the Act, two condition has to be specified for grant of registration, apart from examination of objects of the society, satisfaction of the Competent Authority in respect of genuineness of the activities particularly when the applicant is an ongoing activity. After going through the income and expenditure statement and details of loan and advances appearing in the balance sheet, she observed that the assessee has shown loan and advances amounting to Rs. 1.07 crores. When the assesse was asked to furnish the details, it was submitted that the assesse has given the advances to vendors and contractors for the purpose of development of infrastructure and for availing services connected with the educational activities of the institution. Further she observed that apart from the list of parties and amounts, the assessee has not furnished any supporting documentary evidence such as agreements, invoices work orders, confirmations from the parties. She observed that in absence of such supporting documents it is not sufficient to establish that the funds of the society were applied in furtherance of its charitable objects. Since, the assesse has not substantiated the nature and purpose of substantial amounts reflected under the head loans and advances and has not furnished sufficient documentary evidence to establish that the funds of the society are applied strictly in furtherance of its charitable objects. Accordingly, she rejected the application filed by the assessee and further observed that this rejection would also superseded/cancel any registration granted u/s 12AB of the Act by any authority or any earlier time.
Aggrieved with the above order, the assessee is in appeal before us raising the following common grounds of both the appeals in ITA Nos. 3782 & 3783/Del/2026:
“A) That Ld. CIT Exemption vide impugned order passed us 12AB of the Act (1961 Act) erred in not granting the registration to applicant assessee u/s12AB of 1961 Act and erred in rejecting the appellant's application based on untenable/arbitrary/irrational reasoning/grounds;
B) That Ld CIT Exemption vide impugned order passed us 12AB of the Act (1961 Act) erred in not granting the registration to applicant assessee u/s12AB of 1961 Act without appreciating that admittedly and undisputedly assessee's objects/activities do clearly qualify as eligible "charitable purpose" u/s 2(15) of 1961 Act;
C) That Ld CIT Exemption vide impugned order passed us 12AB of the Act (1961 Act) erred in not granting the registration of applicant assessee u/s12A of 1961 Act transgressing/going beyond the well settled scope of permissible examination u/s 12AB of 1961 Act at registration stage where only restricted examination can be taken;
At the time of hearing the ld. AR of the assessee submitted that the other stage of granting registration the scope of examination by CIT(E) is already settled by the decision of various courts in this regard he submitted the following submissions:
“Hon'ble SC in case of Commissioner of Income Tax Exemptions v. M/s International Health Care Education and Research Institute 482 ITR 287 (HELD)
"We may only say that mere registration under Section 12-AA automatically does not entitle any charitable trust to claim exemption under Section 10 and 11 respectively of the Act, 1961. When a return is filed by any trust claiming exemption it is for the assessing officer to look into all the materials and satisfy itself whether the exemption has been claimed genuinely or not. If the assessing officer is not convinced it is always open for him to decline grant of exemption"
Hon'ble Apex Court decision in case of DIT (Exemption) vs D.R.Ranka Charitable Trust 447 ITR 766 held
"Dismissing the appeal of the Revenue the Court held that only condition that requires to be fulfilled for the purposes of seeking renewal were as specified under section 80G(5)(ii) of the Income-tax Act, 1961 and the clauses narrated therein and that the questions whether or not renewal was justified, and whether or not the income of the assessee had been applied for charitable purposes were questions of fact to be gone into by the assessing authority at the time of assessing the income of the assessee and that the Tribunal was not right in law in holding that the assessee-trust was not eligible for renewal for approval under section 80G of the Act."
This decision has been recently applied by Hon'ble Chattisgarh high court in cases of CIT Exemption Bhopal vs M/s M/s Shri Agrasen Jan Kalyan Trust TAXC No. 118 of 2024 (13/08/2025)
"In the instant case, the ITAT after considering the submissions of parties, recorded a categorical finding in paragraph 10 of the order that the objects of the assessee Trust are charitable objects eligible for approval under Section 12AA of the IT Act, which is substantiated by the Department itself by granting registration under Section 1244 on 25-3-2021. Therefore, the order directing grant of registration under Section 12AA of the IT Act is neither perverse nor contrary to the record."
CIT Exemption Bhopal vs Shree Vimalnath Jain Swetamber Mandir Trust TAXC No. 31 of 2019 (01.04.2025) "In view of the categorical finding recorded by the ITAT that the purposes and objects of the assessee Trust are both charitable and religious in nature, which could not be contradicted competently by learned counsel appearing for the appellant/Revenue during the course of argument before us, as such, the ITAT is absolutely justified in holding that the assessee Trust is entitled for registration under Section 12AA of the Act, which is pure and simple finding of fact based on the evidence available on record and is neither perverse nor contrary to law.”
Hon'ble Rajasthan high court in case of CIT Exemption Jaipur vs Shri Baba Balak Nath Seva Sansthan D.B. Income Tax Appeal No. 60/2025 (08.09.2025) on issue of registration u/s12AB vis a vis charitable activity held "The assessee is a registered charitable trust whose applications for registration under Section 12AB of the Act were rejected. The applications were disallowed on two grounds, namely, object Nos.3 and 6 of the deed of the applicant relate to activities which, according to the Income Tax Officer, are commercial/business in nature and secondly, the activities carried out by the assessee were not in accordance with the objects of the trust.
4.The ITAT has come to a factual finding that the objects mentioned in the deed are not in the nature of business or commercial and secondly, the trust has not carried out any such activity. The ITAT has also come to a factual finding that the statement of income and expenditure account for the last five years also does not indicate that any such activity has ever been carried out. It is settled law that if the authority is coming to a finding that the objects in the deed are commercial or business in nature, then they should also give a finding that the dominant intention of the trust or the institution is profit making. That is not the case and that is also not reflected from the income and expenditure account.
Hon'ble MADRAS High court in case of CIT vs P.S.Ramasamy Telugu Minority Educational DATED: 01.07.2025 TCA No.324 of 2011
"Moreover, we do not find anywhere, as rightly observed by the ITAT, that assessee did not carry out its objectives. Assessee has been enjoying the exemption in the past and only when it sought renewal, these objections are raised without pointing out any difference in the activities carried on by assessee in the past and in the immediate previous three years which were considered by appellant to deny the exemption. The nature of activities of assessee has been the same since its incorporation.”
On the other hand, the ld. DR relied on the details and 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 and the ld. CIT(E) observed that the assessee has given certain advances to other parties to the extent of Rs. 1.07 crores. When the details were called for, assessee has submitted the details of party-wise amount; since assessee has not substantiated the advances by giving the relevant supporting documents, the ld. CIT(E) has rejected the application and also gone ahead to cancel the existing registration granted earlier. On careful consideration, we observed that the ld. CIT(E) has observed certain advances were given according to her was not explained properly, in our view, she could have asked the assessee to substantiate the above advances by giving one more opportunity but she found it convenient to reject the application as well as cancel the registration granted earlier which to our mind is arbitrary. This is fact on record that the assesse has in existence and imparting the education activities and assessee has not violated any of the provisions of the Act at least not brought our notice by either party, that being the case merely ld. CIT(E) observed certain deviation or certain deviation of funds and without establishing how the above funds were utilized in violation of the objects or not established how the same is in violation of the law. In our view, she should have given proper opportunity to the assessee to submit the relevant documents before cancelling the registration. The action of the ld. CIT(E) to reject as well as cancelling the earlier registration is against the established and settled position of law. The various decisions of Hon’ble Supreme Court and High Court establishes the fact that at the stage of granting registration, the ld. CIT(E) has to give proper opportunity to the assessee which demand natural justice before acting against the assessee particularly at the stage of registration. Ld. CIT(E) first has to establish whether the objects of the trust are charitable objects eligible for approval u/s 12AB and if not satisfied with the certain activities of the trust, the assessee should be granted proper opportunity of being heard before rejecting the said application. In our considered view in the present case ld. CIT(E) was in hurry to reject the application than giving proper opportunity to the assessee. Therefore, we are inclined to remit this issue back to the file of the ld. CIT(E) to give one more opportunity to the assessee before taking any decision as per law.
In the result, both the appeals filed by the assessee are allowed for statistical purposes.