KALAWATI DEVI SURAJ BHAN VERMA MEMORIAL EDUCTATION SOCIETY,NARNAUL vs. COMMISSIONER OF INCOME TAX, CHANDIGARH

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’, NEW DELHI BEFORE SH. SUDHIR KUMAR, JUDICIAL MEMBER AND SH. MANISH AGARWAL, ACCOUNTANT MEMBER

ITA NO. 4292/DEL/2026 (AY 2027-28)

Vs KALAWATI DEVI SURAJ BHAN COMMISSIONER OF VERMA MEMORIAL INCOME TAX, ROOM NO. 1, 5TH FLOOR, EUDCATION SOCIETY, NEAR OLD COURT SHIVAJI C.R. BUILDING, NAGAR NARNAUL-123001 HIMALAYA MARG, HARYANA SECTOR-17-E, (PAN: AADAK5981G) CHANDIGARH-160017

(APPELLANT) (RESPONDENT)

Appellants by Sh. Rajiv Jain, CA Respondent by Sh. K. Hauthang, CIT-DR

Date of hearing: 18/08/2026 Date of Pronouncement: 23/09/2026

ORDER PER SUDHIR KUMAR, JM: This appeal by the applicant/assessee is directed against the order of Ld. Commissioner of Income Tax (Exemptions), Chandigarh passed u/s. 12AB(i)(b)(ii) of the Income Tax Act, 1961 dated 19.2.2026 (hereinafter referred as Act) rejecting the registration u/s. 12AB on the following grounds:- 1. Erroneous finding on donations. The CIT(E) erred in treating donations as diversion of funds. Donations were made out of accumulated surplus and fee receipts, duly supported by receipts and bank statements.

Section 11 expressly permits application of income by way of donations to other charitable institutions with similar objects. 2. Security deposit wrongly treated as non-genuine. The receipt of Rs. 1 crore from National Institute of Value Education was a refundable security deposit supported by cheque and receipt. The agreement containing clause 03(ii) is now enclosed. Absence of the agreement of the SCN stage cannot render the transactions non genuine. 3. Capital Expenditure treated incorrectly. Capital expenditure incurred for charitable purposes constitutes application of income under section 11 sub section 1 clause a. All fixed assets have been duly capitalized, supported by invoices. Ledgers, depreciation schedules, and bank proofs. The finding in para 4.3 of the rejection order is factually incorrect. The allegation that assets wroth Rs. 1.97 crore FY 2022-23, Rs. 1.50 crore in land and Rs. 1.57 crore in other assets were not capitalized is incorrect. All assets have been duly recorded in the books of accounts and supported by complete documentation. 4. Allegation of profiteering baseless : The surplus generated 0.23 percent to 9.71 per cent is minimal and well within the Supreme Court permissible limit of 15 percent. Surplus was applied toward loan repayment infrastructure, and educational facilities. No part of income was diverted for personal gain. 5. Violation of principles of natural justice. The CIT(E) failed to appreciate documentary evidence and judicial precedents. New grounds such as loans and advances were introduced in the final order without being raised in the SCN, violating natural justice. 6. Loans and advances of RS. 1.88 crore fully explained. No query raised in SCN: The CIT(E) erred in holding that loans and advances of Rs.

1.88 crore were unexplained. No query on this issue was raised in the SCN dated 19.1.2026. 2. The brief facts of the case are that assessee has filed application for seeking registration under section 12A(1)(ac)(iii) of the Income Tax Act, 1961 on 27.9.2025. The applicant submitted the documents alongwith the application. It was noted by the Ld. CIT(E) that on perusal of the financial statements and other details furnished, it reveals that applicant had made donations amounting to Rs. 1,80,51,631/- during FY 2023-24 despite having availed substantial interest bearing loans. Further, the balance sheet and income and expenditure accounts reveal that the applicant has significant borrowings and interest liability, while simultaneously making substantial donations and advances. Accordingly, a show cause notice dated 19.1.2026 was issued to the applicant seeking justification regarding donations made, advances given, capital expenditure claimed and the genuineness of activities, alongwith complete financial statements and agreements related to security deposit received. In response thereof, applicant submitted that donations were made out accumulated funds and not from borrowed funds. The Ld. CIT(E) noted that the existence of interest bearing loans establishes that funds were borrowed for operational and capital purposes, and instead of prioritizing repayment of such liabilities or utilizing funds for its own charitable activities, the applicant has diverted substantial amounts towards donations and advances. It was further noted that applicant has shown receipt of Rs. 1 crore from national Institute of Value Education (NVE) as security deposit. Although a receipt has been submitted, no agreement or documentary evidence establishing the nature, purpose and conditions of such receipt has been furnished. Thus, he noted that in the absence of any agreement or substantiating documentation, the genuineness and nature of such transaction cannot be verified. Therefore, the Ld. CIT(E) observed that applicant has failed to establish the genuineness of its activities and has not

provided satisfactory justification or documentary evidence regarding financial transactions, including loans, advances, liabilities and application of income. Hence, the rejected the registration u/s. 12 of the Act to the applicant. Against the above, Applicant is in appeal before the Tribunal. 3. Ld. AR for the applicant reiterated the contentions raised in the grounds of appeal. However, Ld. CIT(DR) relied upon the order of the Ld. CIT(E). 4. We have heard the rival contentions and perused the records. Before us, Ld. AR for the assessee has filed a copy of General Agreement dated 13.4.2023 executed between the applicant and M/s National Institute of Value Education and submitted that the receipt of Rs. 1 crore from National Institute of Value Education was a refundable security deposit supported by cheque and receipt. It was the contention of the Ld. AR that in the absence of any agreement the Ld. CIT(E) rejected the registration u/s. 12A of the Act. It was the further contention of the Ld. AR that donations were made out of accumulated surplus and fee receipts, duly supported by receipts and bank statements. Section 11 expressly permits application of income by way of donations to other charitable institutions with similar objects. It was the further contention of the Ld. AR that Capital expenditure incurred for charitable purposes constitutes application of income under section 11 sub section 1 clause a. All fixed assets have been duly capitalized, supported by invoices. Ledgers, depreciation schedules, and bank proofs. The finding in para 4.3 of the rejection order is factually incorrect. The allegation that assets wroth Rs. 1.97 crore FY 2022-23, Rs. 1.50 crore in land and Rs. 1.57 crore in other assets were not capitalized is incorrect. All assets have been duly recorded in the books of accounts and supported by complete documentation. Further, it was the contention that the surplus generated 0.23 percent to 9.71 per cent is minimal and well within the Supreme Court permissible limit of 15 percent. Surplus was applied toward loan repayment infrastructure, and educational facilities. No part of income was diverted

for personal gain. He further submitted that loans and advances of RS. 1.88 crore fully explained. No query raised in SCN. In view of the aforesaid submissions, we are of the considered view that the issues in dispute needs to be examined and adjudicated by the Ld. CIT(E), afresh, after giving adequate opportunity of being heard to the assessee, in accordance with law, after verifying each and every documents/evidence, including the General Agreement which was not available with the ld. CIT(E) while passing the impugned order. We hold and direct accordingly. 5. In the result, the appeal filed by the applicant/assessee stand allowed for statistical purposes in the aforesaid manner. Order pronounced in the Open Court on 23.09.2026. Sd/- Sd/- (MANISH AGARWAL) (SUDHIR KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER

Date: 23-9-2026

SRBHATNAGGAR Copy forwarded to:- Appellant 1. 2. Respondent 3. CIT 4. CIT(E) 5. DR, ITAT Assistant Registrar