EK ONKAR SAMAJ BHALAI SANSTHA,JALANDHAR vs. ASSESSING OFFICER, CHANDIGARH

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, CHANDIGARH Physical Hearing BEFORE HON’BLE SHRI LALIET KUMAR, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं. / ITA No.1702/CHANDI/2025 Ek Onkar Samaj Bhalai Sanstha CIT (Exemptions) Nanak Hut, Seechewal, Shahkot Sector-17 बनाम/ Vs. Jalandhar Chandigarh - 160017 �ायीलेखासं./जीआइआरसं./PAN/GIR No. AAATE-3824-C (अपीलाथ�/Appellant) (��थ� / Respondent) : अपीलाथ�कीओरसे/ Appellant by : Shri Anand Chopra (CA) – Ld. AR ��थ�कीओरसे/Respondent by : Shri Manav Bansal (CIT) – Ld. DR सुनवाईकीतारीख/Date of Hearing : 14-05-2026 घोषणाकीतारीख /Date of Pronouncement : 02-06-2026 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aggrieved by registration cancellation order for Form 10AC as passed by Ld. Commissioner of Income Tax (Exemption), Chandigarh, [CIT(E)] on 14-11-2025, the assessee is in further appeal before us. The Ld. AR advanced arguments and referred to various documents to substantiate the case of the assessee. The Ld. CIT-DR, on the other hand, stated that the assessee was merely engaged in trading activities only and no charitable activities were being carried out by the assessee during the year and therefore, the cancellation of

registration was justified. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under. Proceedings before Ld. CIT(E) 2.1 Upon perusal of impugned order, it could be seen that the assessee deposited cash of Rs.14.69 Crores in its bank accounts during FY 2021-22. Accordingly, the assessee was required to substantiate the source of the same. The Ld. CIT(E) also doubted the genuineness of the activities of the assessee-trust and accordingly, show-caused the assessee on 20-06-2025. 2.2 It transpired that the assessee trust was running four general stores located in different areas with primary object of supplying essential goods to the local public at affordable and subsidized rates. The day-to-day sales collections were being deposited in the bank accounts of the assessee. It was noted by Ld. CIT(E) that the assessee was initially registered as a charitable institution u/s 12A of the Act vide order dated 17-08-2012. Under new scheme of registration, the assessee was granted registration u/s 12(1)(ac)(i) by CPC on 05-04-2022 which was valid for AYs 2022-23 to 2026-27. 2.3 Upon perusal of assessee’s objects, it was observed that the society had ten different aims and objects. The primary objects include spreading or educational awareness in the villages, to open educational institutions, make efforts to eliminate literacy, protect interest of helpless and destitutes, make efforts for development of backward areas, to eradicate pollution, promote health and positive moral values in the people. The last of the object was to establish

shops, industries for providing articles of basic needs at lowest possible rates to the victims of economic exploitation and spend the profits thereof on projects of public welfare and education. However, the assessee only pursued last object which was to establish shops, industries etc. for providing articles of basic needs at lowest possible rates to victims of economic exploitation and spend the profits thereon on projects of public welfare and education. It was observed by Ld. CIT(E) that the object pursued by the society was vague. There was no restriction for general public and anybody could buy goods from assessee’s stores and the goods sold were not for the benefit of poor or victims of economic exploitation. It was not explained by the society as to how the society ensures that beneficiaries were only those who were victims of economic exploitation. Therefore, the goods were not for the benefit of any victims of economic explanation which was subjective and vague term. The society was running chain of retail stores like any other commercial establishment and it was systematically generating profits. The Gross Profit Rates during FYs 2020-21, 2021-22 & 2022-23 were 10.72%, 7.45% & 6.33% respectively whereas corresponding net profit rates were 6.48%, 2.58% & 0.34% respectively. 2.4 The assessee maintained that its activities were charitable in nature which was carried out without any profit motive. Its operations were akin to public welfare entities like Army / BSF canteens service meant for special sections for welfare and not for commerce. The income was stated to be applied for charitable purposes and

therefore, it was entitled for continuation of registration as a charitable trust. 2.5 The Ld. CIT(A) held that running of retail store could not be termed as charitable in nature. Merely selling goods cheaper from other market players would not entitle the society to claim charitable statues as the law does not provide for any such criteria. Only a small fraction of income was applied towards charitable purposes whereas huge administrative expenditure was incurred by the assessee. The donation to the poor students out of gross profit was merely 1.21% for FY 2020-21 & 4.74% in FY 2021-22 whereas there was no donation to poor students in FY 2022-23. The expenditure on donations was very small in comparison to assessee’s gross receipts. The decrease in profits as claimed by the assessee was only due to increase in administrative expenditure. The society applied its profits only towards single activity viz. donations to poor students and that too, only a miniscule amount was applied towards it. Therefore, running of retail stores could not be held to be charitable activity u/s 2(15). The activity was not aligned with the objects of the society as mentioned in Memorandum of Association (MOA). The society was not able to demonstrate as to how its goods / services were only for poor / victims of economic exploitation. The activity of the society was inconsistent with the altruistic principles underlying charitable activities. The legislative intent behind Sec.2(15) was clear that the assessee should not carry out activities which are in the nature of trade, commerce or business or providing services for a consideration unless such activity

is purely incidental to the attainment of the charitable object and devoid of profit motive. The provision of goods through retail shops generate income which was neither incidental nor essential for fulfilling the charitable object rather it represents a quid pro quo transaction between the trust and the public. The trust had various other objects but it was not engaged in any of them rather it focused only on the operations of its profitable activities through the retail shops. The same would not constitute charity u/s 2(15). Accordingly, the activities of the society were not genuinely charitable and the same were not carried out as per the declared objects. The explanation of the assessee was not found to be satisfactory. The huge volume of cash deposits in the bank accounts was generated from commercial activity even though other objects as mentioned in the MOA remained to be pursued by the assessee. No substantial convincing evidence of charitable activity could be submitted by the society. As per the scheme of the law, registration u/s 12AB could not be granted merely because some activity, howsoever, loosely charitable, is being undertaken. The activities must be genuine and more importantly, carried out in accordance with the stated objects of the society. However, in the present case, the activities were not charitable and the same were not being carried out as per the declared objects. The provisions of Sec. 12AB(4) / (5) and specified violations as mentioned in explanation to section 12AB(4) post amendment by Finance Act, 2022 were applicable to the facts of the case and the registration was liable to be cancelled. Accordingly, by virtue of Sec.12AB(4), the

registration granted by CPC on 05-04-2022 for five years was cancelled. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 3. From assessee’s financial statements for FY 2024-25 as placed in the paper book, it could be ascertained that the assessee has carried out sales of Rs.23.84 Crores and earned gross profit of Rs.175.76 Lacs. The other income of the assessee includes discount and interest income. The assessee has made donations for poor student for Rs.16.91 Lacs which is less than 1% of total turnover of the assessee. Though the assessee has reflected excess of expenditure for Rs.6.73 Lacs, however, the same is after debit of donation of Rs.16.91 Lacs. If the donation is added back, the net surplus of the assessee would be 10.18 Lacs. The assessee has not received any kind of voluntary donations etc. Similar are the financials for FY 2023-24 wherein the turnover of the assessee is Rs.21.13 Crores. The assessee has excess of income over expenditure for Rs.13.72 Lacs which is after debiting donation of Rs.9.30 Lacs. If the donation is added back, the assessee has generated net profit of Rs.23.02 Lacs. There are no voluntary donations as received by the assessee during this year also. Similar are the financials for FY 2022- 23 wherein the assessee has generated similar kinds of net profit. No voluntary donation has been received by the assessee in this year also. Further, in any of the three years, the assessee has not expanded anything tangible towards charitable activities except for grant of small donations. The perusal of financials would show that the

assessee is carrying out trading activities and advancing minuscule donations out of surplus as generated from trading activities. Pertinently, none of the primary objects as stated in MOA are being pursued by the assessee rather it is other way around. The assessee is carrying out trading activity and out of surplus so generated, donating a minuscule portion thereof for poor students. In our considered opinion, receipt of donations for charitable purposes and expansion thereof for similar purposes is an essential feature of a charity which ingredients are conspicuously missing in the present case. It is nowhere shown that the goods as sold at assessee’s retail stores was meant exclusively for poor or people suffering from economic exploitation. As rightly held by Ld. CIT(E), running of retail stores could not fall within the ambit of charitable activity u/s 2(15). This activity is not, at all, aligned with the declared objects of the assessee-society. The actual activity of the society is inconsistent with the altruistic principles underlying charitable activities. No tangible charity is shown to be done by the assessee and therefore, trading activity could not be branded as an activity which is purely incidental to the attainment of the charitable object. The provision of goods through retail shops would neither be incidental nor essential for fulfilling the declared charitable objects. Therefore, the activity of the assessee could not be said to be charitable activity u/s 2(15). Accordingly, we endorse the action of Ld. CIT(E) and reject various submissions made by Ld. AR before us. The registration has correctly been revoked by Ld. CIT(E). We order so.

-Sd- -Sd- (LALIET KUMAR) (MANOJ KUMAR AGGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AS Dated: 02-06-2026 आदेश की �ितिलिप अ�ेिषत /Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

ASSISTANT REGISTRAR

ITAT CHANDIGARH