TECHNICAL EDUCATION COLLEGE,BARNALA vs. CIT EXEMPTIONS, CHANDIGARH

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, CHANDIGARH HYBRID HEARING BEFORE HON’BLE SHRI LALIET KUMAR, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकरअपीलसं./ ITA No.856/CHANDI/2026 Technical Education College CIT (Exemptions) Bhatinda Road, Barnala Room No. 1, 5th Floor, बनाम/ Vs. Punjab – 148101 C.R. Building, Himalaya Marg, Chandigarh – 160017 �ायीलेखासं./जीआइआरसं./PAN/GIR No. AABTT-3261-B (अपीलाथ�/Appellant) : (��थ� / Respondent) अपीलाथ�कीओरसे/ Appellant by : Sh. Sudhir Sehgal (Advocate) – Ld. AR ��थ�कीओरसे/Respondent by : Smt. Kusum Bansal (Pr. CIT) - Ld. DR (Virtual) सुनवाईकीतारीख/Date of Hearing : 30-07-2026 घोषणाकीतारीख /Date of Pronouncement 11-08-2026 : आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)

trustees who extended that loans at nominal rates. The Ld. Pr. CIT-DR referred to the findings of Ld. CIT(E) in the impugned order. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. 2. The reasons leading to rejection of registration application as emanating from para 4.2 of the impugned order is the observation of Ld. CIT(E) that despite continuous surplus generation, the assessee continued to rely on unsecured borrowings and paid interest to private individuals. The assessee did not satisfactorily demonstrate the necessity and expediency of availing such loans when internal accruals were available. It was also not established as to how the payment of interest to related and connected persons advances the charitable purpose of the institution. Further, repayments were made to persons connected with the management which were not clearly disclosed. The pattern of financial transactions, including continuous surplus generation coupled with interest bearing unsecured loans and payment to connected persons raised doubts regarding the manner of application of funds and genuineness of assessee’s activities. The assessee failed to establish that its activities were genuine and was being carried out strictly in accordance with its stated charitable objects. The activities of the assessee-trust were found to be non- genuine and therefore, the application was rejected. Aggrieved, the assessee is in further appeal before us.

Our findings and Adjudication 3. We have carefully considered the rival submissions and perused the material available on record. The issue before us pertains to rejection of the assessee's application seeking registration u/s 12A(1)(ac)(ii) of the Income-tax Act, 1961, on the ground that the financial transactions of the assessee-trust, particularly the availment of unsecured loans, payment of interest thereon and transactions with connected persons, raised doubts regarding the genuineness of its activities and application of funds. Upon perusal of the impugned order, we find that the Ld. CIT(E) has primarily proceeded on the basis of certain financial parameters and has drawn an adverse inference regarding the genuineness of the activities of the assessee-trust. However, before arriving at such a conclusion, it was incumbent upon the Ld. CIT(E) to examine the explanations and supporting evidences furnished by the assessee with regard to the necessity of borrowings, the terms and conditions of such loans, the identity and relationship of the lenders, the utilization of borrowed funds, the purpose of payment of interest, and whether such transactions were in furtherance of the objects of the trust or not. This is the exact submissions of Ld. AR who has pleaded that the assessee could well explain all these facts. 4. It is a settled position that while considering an application for registration u/s 12A of the Act, the scope of enquiry by Ld. CIT(E) is confined to examining the genuineness of the activities of the trust or institution and the compliance of such activities with its stated objects. The examination at this stage is not intended to determine the

allowability of particular expenditure or to undertake a detailed scrutiny of financial transactions as may be undertaken during assessment proceedings. Nevertheless, where certain transactions raise concerns regarding the genuineness of activities, the assessee is required to be afforded a reasonable opportunity to explain the same with supporting material. 5. In the present case, we find that the assessee has placed reliance upon its financial statements and other documents in support of its claim. However, the complete factual position regarding the aforesaid transactions, including the justification for raising unsecured loans despite availability of surplus funds, the purpose for which such funds were utilized, and the nature of payments made to connected persons, requires proper verification and examination by the competent authority. The same has not been examined in detail in the impugned order. 6. In view of the above facts and circumstances, we are of the considered view that the matter requires fresh examination by the Ld. CIT(E). Accordingly, the impugned order is set aside and the matter is restored to Ld. CIT(E) for adjudication afresh in accordance with law. The Ld. CIT(E) shall re-examine the application of the assessee u/s 12A(1)(ac)(ii) after considering all the submissions and evidences furnished by the assessee on the impugned issue. The assessee shall be provided with adequate and reasonable opportunity of being heard and shall be at liberty to place all relevant material in support of its claim.

ASSISTANT REGISTRAR

ITAT CHANDIGARH