LIEVENENT MAHIPAT MEMORIAL SIKSHA SAMITI,BAHADURGARH vs. CIT EXEMPTIONS CHANDIGARH, CHANDIGARH

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ITA 3793/DEL/2026Status: DisposedITAT Delhi06 August 202610 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the CIT(E) rejected the application primarily on suspicion without sufficient evidence and without granting a proper opportunity to the assessee. Therefore, the matter was remitted back to the CIT(E) for a fresh decision after providing the assessee with a further opportunity to be heard.

What were the facts?

The assessee, a charitable trust running an educational institution, applied for registration under Section 12AB and approval under Section 80G. The CIT(E) rejected the application, citing concerns over substantial interest-bearing loans taken by the assessee and large advances given to various parties, which were not adequately substantiated as being for charitable objects.

What were the issues?

Whether the CIT(E) erred in rejecting the application for registration under Section 12AB and approval under Section 80G without proper verification and opportunity to the assessee, particularly concerning the genuineness of advances made by the trust.

Which sections of the Income-tax Act were involved?

Section 12AB,Section 80G,Section 12A(1)(ac)(ii),Section 2(15)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘F’: NEW DELHI

Before: SHRI S. RIFAUR RAHMAN & SHRI VIMAL KUMAR

Hearing: 22.06.2026Pronounced: 06.08.2026

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] even dated 19.02.2026 u/s 12AB and 80G of the Income Tax Act, 1961 (for short ‘the Act’) respectively and ITA No. 3792/Del/2026 is a lead case in this appeal.

2 ITA Nos. 3792 & 3793/Del/2026 Lievenent Mahipat Memorial Siksha Samiti 2. 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 30.09.2025 seeking registration u/s 12AB of the Act. The assessee is engaged in the charitable object of education, running Modern Senior Secondary School and college of Education. In support of the same assessee submitted the following documents along with the above said application i.e., trust deed, financial statements, and relevant information called for by the department. During verification of the financial statement, ld. CIT(E) observed from the balance sheet as on 31.03.2024 that assessee has availed loans aggregating to Rs. 9.25 crores from banks/NBFCs and she observed that the assessee has given the advances of Rs. 6.22 cores to various persons and concerns. She observed that the advances appeared to be made to members, relatives of members, contractors and other trusts, which prima facie did not appear to be for the charitable objects of the society. Accordingly, a show-cause notice dated 06.01.2026 was issued to the assessee to justify the above said advances, in furtherance of the objects of the society. In response, the assessee submitted a detailed reply stating that the loans were raised for purchase of vehicles, payment of salary, construction and development of school infrastructure, hostels, smart classes, swimming pool, playgrounds etc. and advances were given for purposes such as re- imbursement of past expenses of members, advances to contractor, procurement of buses and educational material, advances for architectural services, honorarium,

3 ITA Nos. 3792 & 3793/Del/2026 Lievenent Mahipat Memorial Siksha Samiti education loan to a relative of a member, financial aid to another educational trust (Navodya Educational Trust), and other support services. It was further submitted that all advances are temporary, recoverable, interest free or nominal-interest, and no trustee or related party has derived undue benefit. The assessee also has given detailed party-wise and reasons given for loans and advances for the sake of brevity which reproduced as below:

4 ITA Nos. 3792 & 3793/Del/2026 Lievenent Mahipat Memorial Siksha Samiti

3.

After considering the above submissions, the ld. CIT(E) observed that the assesseee has borrowed substantial funds from banks/NBFCs at interest, while simultaneously advancing large sums to third parties. Such a pattern of interest- bearing borrowings coupled with large advances is inconsistent with prudent

5 ITA Nos. 3792 & 3793/Del/2026 Lievenent Mahipat Memorial Siksha Samiti charitable conduct and raises serious doubts regarding application of funds for charitable objects. She was of the view that these advances do not constitute charitable activities of the society and observed that direct or indirect financial benefit to specified persons. No contemporaneous documentary evidence such as bills, vouchers, agreements, utilization statements, or governing body resolutions has been produced to substantiate that such advances were given strictly and exclusively for the objects of the society. Further she observed that the advances and contractors may be permissible in genuine construction activity, however, the assessee has failed to correlate the advances with specific work orders etc. since the assessee failed to substantiate the above advances, she came to the conclusion that the applicant has failed to justify how such huge advances are in furtherance of its charitable activities. Accordingly, she has rejected the application filed in Form AB u/s 12A(1)(ac)(ii) of the Act.

4.

Aggrieved with the above order, the assessee is in appeal before us raising the following grounds of appeal in ITA No. 3792/Del/2026:

“1. The learned CIT (Exemptions) erred in law and on facts in rejecting the application for registration under section 12AB without properly appreciating the objects and activities of the appellant society. 2. The learned CIT (Exemptions) failed to appreciate that the appellant is engaged in the charitable activity of education, which is covered under section 2(15) of the Act.

6 ITA Nos. 3792 & 3793/Del/2026 Lievenent Mahipat Memorial Siksha Samiti 3. The learned authority erred in drawing adverse inference from the loans and advances reflected in the financial statements without establishing that the same were not in furtherance of the objects. 4. The learned CIT (Exemptions) failed to consider that the loans were utilized for Infrastructure development and running of educational institutions, and advances were given in the normal course of activities.

5.

The learned authority erred in holding that the advances resulted in benefit to specified persons without bringing any cogent material on record.

6.

The learned CIT (Exemptions) erred in alleging lack of supporting evidence without granting sufficient opportunity to the appellant to furnish further details.

7.

The learned authority failed to appreciate that at the stage of registration, only the objects and genuineness of activities are to be examined and not detailed application of funds.

The appellant craves leave to add, alter, vary, omit, substitute and amend the above grounds of appeal, at any time of hearing of appeal, so as to enable your good self to decide this appeal according to the law.”

5.

Grounds of appeal in ITA No. 3793/Del/2026:

“1. That the order passed by the learned CIT (Exemptions), Chandigarh rejecting approval under section 80G is bad in law and on facts and is liable to be set aside.

2.

That the learned CIT (Exemptions) erred in rejecting the application under section 80G without examining the objects and activities of the appellant on merits.

3.

That the rejection of approval under section 80G has been made solely on account of non-grant of registration under section 12AB, without any independent application of mind.

4.

That the learned CIT (Exemptions) failed to appreciate that the rejection of registration under section 12AB has been challenged before the Hon'ble Income Tax Appellate Tribunal and the matter is sub-judice.

7 ITA Nos. 3792 & 3793/Del/2026 Lievenent Mahipat Memorial Siksha Samiti 5. That the learned authority erred in not keeping the application under section 80G pending or deciding it subject to the outcome of the appeal against rejection of registration under section 12AB. 6. That the learned CIT (Exemptions) failed to appreciate that upon grant of registration under section 12AB, the appellant would be entitled to approval under section 80G, subject to fulfillment of prescribed conditions.

7.

That the impugned order is arbitrary, unjustified, and liable to be quashed or set aside, with a direction to reconsider the application under section 80G after disposal of appeal relating to section 12AB. The appellant craves leave to add, alter, vary, omit, substitute and amend the above grounds of appeal, at any time of hearing of appeal, so as to enable your good self to decide this appeal according to the law.”

6.

At the time of hearing the ld. AR of the assessee brought our notice detailed facts available on record and submitted that the ld. CIT(E) has verified the financial statement of the trust and found certain discrepancies on advances given to the office staffs and other members against the genuine activities carried out by them. He submitted that at the time of granting registration, the ld. CIT(E) has to specify in respect of genuineness of the activities and compliance with statutory requirements in the given case. The ld. CIT(E) has extended herself in order to verify the genuineness of the activities and verify certain financial transaction without finding any activities in contravention to the objects of the society. He submitted that various activities carried on by the assessee to impart education which is charitable activity as per section 2(15) of the Act. All the loans and advances given by the assessee is closely linked to the imparting of above charitable activities, mere discrepancies in

8 ITA Nos. 3792 & 3793/Del/2026 Lievenent Mahipat Memorial Siksha Samiti the financial statement does not prove that assessee is not in the charitable activities. He prayed accordingly. 7. On the other hand, the ld. ‘DR’ relied on the finding of the ld. CIT(E) and supported the same.

8.

Considered the rival submissions and materials placed on record. We observed that the ld. CIT(E) before giving registration u/s 12AB verified the financial statement submitted by the assessee, while verifying the same, she observed that assessee has obtained interest bearing loans from bank/NBFCs and against that the assessee has given loans/advances to various parties which are directly or indirectly not connected with the construction of the new school, buses financial assistance to (Navodya Educational Trust) and other sundry advances towards medical drive, counselling, honorarium for career counselling, supply of educational materials and various other maintenance and educational purposes. However, ld. AR submitted that all those advances were given directly connected to the activities carried on by the assessee. All the advances are given one way or other connected to the activities carried on by the assessee. Nowhere in the order passed u/s 12AB, ld. CIT(E) has found all the advances which are not meant for charitable activities merely on the basis of suspicion, she has rejected the application. Further in our considered view in case she has some doubts on the genuineness of the

9 ITA Nos. 3792 & 3793/Del/2026 Lievenent Mahipat Memorial Siksha Samiti advances given by the assessee, she could have given one more opportunity to the assessee to submit the relevant documents instead of rejecting the application. The ld. CIT(E) rejected the application merely on the basis of suspicion, no doubt, she has to satisfy herself on the genuineness of the activities, in our view, she cannot take the decision in isolation. 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 and extent proper opportunity of being heard to the assessee and decide the issue afresh as per law.

9.

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

10.

Since, the facts given in ITA No. 3792/Del/2026 are exactly similar in the facts of the present case, the findings given in ITA No. 3792/Del/2026 is applicable mutatis mutandis. Assessee’s this appeal also allowed for statistical purposes.

11.

In the result, both the appeals filed by the assessee are allowed for statistical purposes. Orders are pronounced in the Open Court on 06.08.2026

Sd/- Sd/- (VIMAL KUMAR) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 06.08.2026 *GP/Sr.PS* Copy forwarded to: 1. Appellant

10 ITA Nos. 3792 & 3793/Del/2026 Lievenent Mahipat Memorial Siksha Samiti 2. Respondent 3. CIT(E) 4. CIT 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI

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