PAVAI VARAM EDUCATIONAL TRUST,NAMAKKAL vs. PCIT (CENTRAL), CHENNAI-

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ITA 1962/CHNY/2026Status: DisposedITAT Chennai05 August 20267 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the cancellation of registration was based solely on findings that were subsequently overturned by the Tribunal itself in quantum proceedings. Since the foundational basis for cancellation no longer existed, the order of cancellation could not be sustained.

What were the facts?

The Principal Commissioner cancelled the assessee trust's registration under Section 12AB based on alleged fabrication of fee receipts and manipulation of accounts to regularize demonetized currency. This cancellation was based on findings from assessment proceedings for AY 2017-18.

What were the issues?

Whether the cancellation of registration under Section 12AB is valid when the underlying findings of 'specified violation' are reversed in subsequent appellate proceedings. The independence of trust registration proceedings versus assessment proceedings.

Which sections of the Income-tax Act were involved?

Section 12AB,Section 12A(1)(ac)(ii),Section 132,Section 69A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: SHRI GEORGE GEORGE K & MS. PADMAVATHY.S

For Respondent: Mr. Christopher Vasanth, Sr. AR

आदेश / O R D E R

PER PADMAVATHY.S, A.M: This appeal by the assessee is against the order of the Principal Commissioner of Income Tax (Central), Chennai-2 (in short "PCIT") dated 27.03.2026 cancelling the registration u/s. 12AB of the Income-tax Act, 1961 (in short "the Act") w.e.f AY 2017-18.

2.

The assessee is a charitable trust and made an application on 29.09.2025 seeking registration u/s.12A(1)(ac)(ii) of the Act. While processing the application details were called for with regard to the activities

ITA No.1962/Chny/2026 Pavai Varam Educational Trust :- 2 -: carried on by the assessee and also certain details and documentary evidences. A show cause notice was issued to the assessee in this regard as extracted below: “A search u/s. 132 of the IT Act, 1961 was conducted in the case of M/s. Paavai Varam Eductional Trust and others on 27.12.2016, fee receipts of 70304 numbers of students were bogusly prepared by the trust to the tune of Rs. 32.35 crores for the period 01.11.2016 to 08.11.2016 to create the source of the demonetized currency. Since the assessee fabricated the fee receipts to the tune of Rs. 32.35 crores and could not prove the actual fee receipt amount. Based on documents impounded during the search and statements recorded during the search proceedings, it was ascertained that the assessee-trust has fabricated and manipulated the accounts prior to demonetization period and created source of fund of Rs. 32.53 crores to regularise the demonetization cash. During the assessment proceedings, it was found that fee receipts of 70304 numbers of students were bogusly prepared by the trust to the tune of Rs. 32.35 crores for the period 01.11.2016 to 08.11.2016 to create the source of the demonetized currency. Since the assessee fabricated the fee receipts to the tune of Rs. 32.35 crores and could not prove the actual fee receipt amount which were not explained satisfactorily before the Assessing Officer during the assessment proceedings and the same was assessed as unexplained money u/s 69A of the IT Act, 1961. Thus, there is clear violation within the meaning of specified violation' as per Explanation clauses (a) & e(ii) to Subsection (4) of Section 12AB of the IT Act, 1961.”

3.

The assessee in response submitted that the impugned assessment order dated 29.12.2018 passed by ACIT, Central Circle was appealed before the CIT(A) and the CIT(A) partly allowed the appeal. The assessee further submitted that cross appeals are preferred by the assessee as well the Revenue before the Tribunal and the same was pending adjudication. The assessee also submitted that "specified violation" can be construed only when there is such violation confirmed by the appellate authorities and since the order has not reached finality the proposal for rejection may be dropped. The PCIT however did not accept the submission of the assessee and held that : “4. Decision: The submission of the applicant has been perused and found to be unacceptable for the following reasons:

ITA No.1962/Chny/2026 Pavai Varam Educational Trust :- 3 -: 4.1 The objection of the applicant was only on one ground that the findings raised in the showcause notice are pending adjudication before the Hon'ble ITAT, Chennai and have not attained finality. Therefore, the same cannot be treated as specified violation and the proposal for rejection of its application may be dropped. Hereby, it is stated that appeal proceedings are different from trust registration proceedings and the latter proceedings are independent of the former one. The fact that the earlier order is pending adjudication cannot be accepted as a reason for non-pursuance of proceedings u/s 12AB of the IT Act, 1961. Hence, the applicant's ground is rejected.

4.2 However, without prejudice to the above, it can be seen that in the assessee's case, the conclusion arrived at during assessment proceedings were only partly allowed by CIT(A), the First Appellate Authority. The findings that form the part of the SCN pertain to the assessment proceedings for the AY 2017-18. Hence, it is pertinent to consider the appropriate observations made by the CIT(A) in the order passed under section 250 for the AY 2017-18, vide DIN ITBA/APL/S/250/2025- 26/1082973227(1) dated 25.00E TAX DEPART The relevant paragraphs are reproduced as ME under:

6.3.9 Thus, it clearly proves that the fees receipts seized during the course of search and also furnished by the appellant in the course of assessment proceedings with respect to the 1st year B.Pharm students were found to be non-genuine and the appellant had made these fees receipts to make a case that the fees received from said students were genuine so as to claim the source for the cash deposited during the demonetization period.

6.3.11 On examination of the details of fees collected from the said students for the period from 01.04.2016 to 26.12.2016 submitted during the verification and the fees as claimed to have been received from 01.11.2016 to 08.11.2016, it was found that the maximum portion of fees were paid by these students before October 2016 and the fees as recorded from 01.11.2016 to 08.11.2016 were very huge amounts. These findings also support the conclusion that the fees received during 01.11.2016 to 08.11.2016 are not genuine.

6.3.12 Therefore, I am of the opinion that the confirmation letters submitted by the appellant was against the actual fact of the fees collected and it again proves that the fees receipts relied on by the appellant for having received during 01.11.2016 to 08.11.2016 are not genuine

6.3.15 After considering the above facts and circumstances and various conclusion drawn with respect to this issue, I am of the opinion that the fees receipts, which are relied on by the appellant

ITA No.1962/Chny/2026 Pavai Varam Educational Trust :- 4 -: for the claim that it had collected an amount of Rs.32,35,67,589/- during the period 01.11.2016 to 08.11.2016, are found to be not genuine and the same are prepared by the appellant, so as to match with the entries made as fees receipt in its books of account and also to claim the same as source for the cash deposited during the demonetization period

4.3 Here, it can be seen that the CIT(A) has found the submissions made by the assessee before both the assessment and appeal proceedings to be non-genuine, and has affirmed the Assessing Officer in his findings. Although it is noted that both the applicant and the Department has went on further appeal against the order of CIT(A), it is worth mentioning that the findings of the Assessing Officer have been scrutinized in the first round of appeal proceedings and found to be true. What matters to the present proceedings is not the quantum of addition per se but the genuineness of the activities conducted by the trust. The action of the applicant, by fabricating bogus fee receipts and manipulating its accounts to regularize the demonetization cash, which has also been upheld in the first round of appeal, is a clear violation within the meaning of specified violation as per Explanation clause (a) & e (ii) to Subsection (4) of Section 12AB of the IT Act, 1961.

Hence, the submission of the applicant is not acceptable and the activities undertaken by the applicant are held to be violative of the charitable character, for which the applicant trust claims its existence.

Conclusion: 5. In view of the foregoing paragraphs, the undersigned is not satisfied that the activities of the applicant are being carried out in a manner commensurate with a charitable institution and hence deserves rejection. The provisions of section 12AB is states as follows: -

12AB. (1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall,-

(ii) after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item (A) and compliance of the requirements under item (B), of sub-clause (i).-

(A)

(B) if he is not so satisfied, pass an order in writing,--

(1) in a case referred to in sub-clause (ii) or sub-clause (iii) or sub-clause (v) of clause (ac) of sub-section (1) of section 12A rejecting such application and also cancelling its registration;

ITA No.1962/Chny/2026 Pavai Varam Educational Trust :- 5 -: 6. Under the facts and circumstances of the case and by virtue of provisions as above, the application filed by the applicant on 29/09/2025 in Form 10AB u/s. 12A(1)(ac) (ii) seeking registration us/12AB of the Act is rejected and the order for registration granted under section 12AA upto AY 2021-22 and thereafter under section 12AB from AY 2022-23 with URN AAATP6024DE20219 dated 02.10.2021 is cancelled with effect from AY 2017-18 being the assessment year relevant to the previous year in which the violations as discussed above came to notice of the Department.”

4.

The Ld. Authorized Representative (AR) of the assessee submitted that the appeal pending before the Tribunal is disposed off where the Tribunal has allowed the appeal in favour of the assessee and has dismissed the appeal of the Revenue. The Ld. AR in this regard drew our attention to the relevant findings of the Tribunal (page 6 to 76 of paper book). Accordingly, The Ld. AR submitted that the reason based on which the registration u/s. 12AB of the Act is cancelled has been held in favour of the assessee and therefore the cancellation of registration does not survive.

5.

The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities.

6.

We have heard the rival submissions and perused the material available on record. The registration granted to the assessee under section 12AB has been cancelled by the Principal Commissioner primarily on the ground that the assessee had committed a "specified violation" within the meaning of Explanation to section 12AB(4), namely, fabrication of fee receipts and manipulation of accounts to regularise demonetisation cash. The Principal Commissioner has proceeded on the basis of the assessment order for A.Y. 2017-18 and the findings recorded by the first appellate authority, while observing that the pendency of the quantum appeals before the Tribunal would not preclude him from initiating proceedings under section 12AB,

ITA No.1962/Chny/2026 Pavai Varam Educational Trust :- 6 -: since the trust registration proceedings are independent of the assessment proceedings. We notice that the foundation of the impugned order is the finding that the assessee had fabricated fee receipts amounting to ₹32.35 crores and thereby carried out activities which were not genuine. It is not in dispute that the very same findings formed the subject matter of the quantum proceedings arising out of the assessment for A.Y. 2017-18. Though, at the time of passing the impugned order, the appeals before the Tribunal were pending, the subsequent development brought to our notice is that the Tribunal has since disposed of both the appeals. The Tribunal has allowed the appeal of the assessee and dismissed the appeal preferred by the Revenue, thereby reversing the very findings which constituted the sole basis for invoking the provisions of section 12AB.

7.

It is well settled that where an order is founded entirely upon the outcome of another proceeding, the fate of such order necessarily depends upon the sustainability of the foundational finding. Once the very basis on which the Principal Commissioner concluded that the assessee had committed a specified violation ceases to exist by virtue of the appellate order of the Tribunal, the consequential action taken under section 12AB cannot survive independently. The cancellation of registration is not based upon any independent enquiry regarding the objects of the trust or any other material demonstrating that the activities of the assessee are not genuine. The entire reasoning proceeds solely on the alleged fabrication of fee receipts and manipulation of accounts, which allegations no longer survive in view of the decision of the Tribunal in the quantum proceedings. In these circumstances, the substratum of the impugned order having disappeared, the conclusion arrived at by the Principal Commissioner that the assessee had committed a specified violation within the meaning of section 12AB(4) cannot be

ITA No.1962/Chny/2026 Pavai Varam Educational Trust :- 7 -: sustained. Consequently, the cancellation of registration granted under section 12AB also cannot be upheld. Accordingly, we set aside the impugned order passed by the Principal Commissioner cancelling the registration granted to the assessee under section 12AB of the Act and direct restoration of the registration in accordance with law. The grounds raised by the assessee are allowed.

8.

In the result, the appeal of the assessee is allowed.

Order pronounced on 05th day of August, 2026 at Chennai.

Sd/- Sd/- (जॉज� जॉज� के) (पदमावती यस) (Padmavathy.S) (George George K) उपा�� / Vice President लेखा सद�य सद�य /Accountant Member लेखा लेखा लेखा सद�य सद�य चे�नई/Chennai, �दनांक/Dated: 05th August, 2026. EDN, Sr. P.S EJTADA Digitally signed by EJTADA DURGA DURGA आदेश क� �ितिल�प अ�े�षत/Copy to: NARESH 1. अपीलाथ�/Appellant Date: 2026.08.10 NARESH 11:46:58 +05'30' 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

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