MANAGING COMMITEE SRI SAI COLLEGE OF ENGG TECH BADHANI DALHOUSIE ROAD PATHANKOT,PANTHANKOT vs. INCOME TAX OFFICER WARD EXEMPTION CHANDIGARH SECTOR 17-E CHANDIGARH, CHANDIGARH

Brief Facts of the case are that the assessee, Managing Committee Sri Sai College of Engineering Technology, is a charitable society registered under the provisions of the Income-tax Act, 1961

1 During the course of proceedings, the learned Commissioner of Income Tax (Exemptions), Chandigarh called for the financial statements, Income & Expenditure Accounts, Balance Sheets and other allied records of the preceding financial years in order to examine the genuineness of the activities of the assessee and to verify whether such activities were being carried on in accordance with its stated charitable objects. Upon examination of the financial records, the learned CIT(E) observed that while the institution's secured borrowings had substantially declined during the relevant period, its unsecured loans had correspondingly increased. It was further observed that the assessee had received unsecured loans aggregating to approximately Rs.6.53 crores from persons associated with the management of the institution. Considering the magnitude of these transactions, the learned CIT(E) called upon the assessee to furnish complete details of the lenders, loan agreements, confirmations,

In response, the assessee submitted that the loans had been arranged from persons associated with the management for repayment of the outstanding liabilities of the institution towards Punjab National Bank under a One Time Settlement (OTS). The assessee also furnished copies of ledger accounts, identity particulars of the lenders and certain bank statements in support of the transactions. However, the learned CIT(E) observed that the ledger entries relating to certain lenders did not correspond with the entries reflected in the bank statements and that the corresponding bank entries merely reflected "Transfer from HNPACR/OTS (Compromise)". The learned CIT(E) further observed that the assessee had not produced complete documentary evidence relating to the One Time Settlement, loan agreements, governing body resolutions, repayment schedules or documentary evidence establishing the utilisation of the borrowed funds. The learned CIT(E.) also noted an increase in interest expenditure and expressed reservations regarding the institution's financial management. Holding that the assessee had failed to establish the genuineness of its financial transactions and financial documentation, the learned CIT(E), vide order dated

Aggrieved by the said order, the assessee is in appeal before the Tribunal.

The learned Authorised Representative assailed the impugned order and submitted that the learned CIT(E) has exceeded the scope of enquiry contemplated under section 12AB of the Act. It was submitted that the charitable objects of the assessee as well as the educational activities carried on by it have never been doubted by the Revenue. The institution has been continuously engaged in imparting education through Sri Sai University and Sai Group of Colleges and no finding has been recorded that the activities carried on by the assessee are contrary to its stated objects.

The learned AR submitted that the unsecured loans were obtained from the Chairman, Co-Chairman and other persons associated with the management, only to rescue the educational institution from severe financial distress arising from the loan accounts having become Non-Performing Assets. It was argued that Punjab National Bank had initiated proceedings under the SARFAESI Act and issued notices proposing the attachment and sale of the institutional assets. In order to save the educational institution from coercive recovery proceedings and to ensure continuity of educational

The learned AR further submitted that the assessee has now placed before the Tribunal complete documentary evidence including the OTS sanction, correspondence with Punjab National Bank, notices issued under the SARFAESI Act, bank records and other supporting documents establishing the circumstances in which the One Time Settlement was arrived at. It was argued that these documents were not available before the learned CIT(E) and, therefore, the conclusions drawn in the impugned order deserve reconsideration.

It was further submitted that the financial assistance extended by the Chairman and other specified persons was entirely interest- free and no amount of interest was either paid or payable by the society. The learned AR contended that there was neither any diversion of the society's corpus funds nor any personal benefit derived by the specified persons. On the contrary, the specified persons contributed their own funds solely for the liquidation of the institutional liabilities and for protecting the educational institution from attachment under the SARFAESI Act. It was argued that such 6 964/Chd/2026 financial assistance could never be construed as a circumstance disentitling the assessee from registration under section 12AB.

Reliance was placed upon the decisions of the Hon'ble Supreme Court in Ananda Social & Educational Trust v. CIT and New Noble Educational Society v. Chief Commissioner of Income Tax to contend that at the stage of registration the enquiry is confined to the charitable objects and genuineness of activities and issues relating to financial verification should not result in denial of registration unless there is material to establish that the charitable activities themselves are non-genuine. Alternatively, it was prayed that the matter may be restored to the file of the learned CIT(E) for fresh consideration after examining the additional documentary evidence.

Per contra, the learned Departmental Representative strongly supported the impugned order. It was submitted that the learned CIT(E) has passed a detailed and reasoned order after examining the financial statements and the documents furnished by the assessee.

The learned DR submitted that section 12AB casts a statutory obligation upon the Commissioner to satisfy himself regarding the genuineness of the activities of the institution. Such satisfaction necessarily includes examination of financial transactions, transparency in maintenance of accounts and utilisation of charitable funds. According to the learned DR, where substantial unsecured

The learned DR referred to the findings recorded in the impugned order regarding mismatch between the ledger entries and bank statements, absence of loan agreements, non-production of OTS documents, lack of governing body resolutions and absence of satisfactory evidence regarding utilisation of the borrowed funds. It was submitted that these deficiencies prevented the learned CIT(E) from independently verifying the financial transactions and justified the conclusion that the genuineness of the financial affairs of the institution remained unestablished.

The learned DR, therefore, submitted that no infirmity could be found in the order of the learned CIT(E) and prayed that the same be upheld.

We have heard the rival submissions and carefully examined the material available on record. It is an undisputed position that the assessee is engaged in running educational institutions, and the charitable objects of the society have not been doubted by the learned CIT(E). The rejection of registration has been founded principally upon the financial transactions undertaken by the assessee,

During the course of hearing before us, the assessee has produced several documents including the One Time Settlement sanctioned by Punjab National Bank, correspondence exchanged with the Bank, notices issued under the provisions of the SARFAESI Act, documents evidencing that the Bank had initiated recovery proceedings against the institution and documents indicating that the Chairman, Co-Chairman and other persons associated with the management arranged substantial funds from their personal resources for enabling the institution to settle the outstanding liabilities of the Bank. Admittedly, these documents were not available before the learned CIT(E) while passing the impugned order.

A prima facie examination of these documents indicates that they have a direct bearing on the findings recorded by the learned CIT(E). If the institution was actually facing proceedings under the SARFAESI Act and the specified persons infused their personal funds solely to save the educational institution from attachment and sale of its assets and to facilitate the One Time Settlement with Punjab National Bank, these facts deserve proper examination before any 9 964/Chd/2026 adverse inference regarding the genuineness of the activities of the assessee is drawn. However, for the reasons best known to the assessee, these documents were not filed before the Ld. CIT( E).

We also find substance in the submission of the learned AR that if the society itself has not diverted any part of its corpus funds and, on the contrary, the Chairman, Co-Chairman and other specified persons have contributed their own personal funds for protecting the institution and ensuring continuation of its educational activities, such conduct, by itself, cannot constitute a valid ground for denial of registration under section 12AB. Rather, such financial support, if verified, may indicate that the contributors acted only to preserve the charitable institution from financial collapse.

Similarly, the learned AR has specifically submitted before us that the amounts advanced by the specified persons were interest- free and that no interest was either paid or payable to them. This factual assertion is significant because one of the considerations that influenced the learned CIT(E) when rejecting the application was the increase in interest expenditure. Whether any interest was actually payable to the specified persons and whether any benefit accrued to them are issues that require proper factual verification by the learned CIT(E) after examining the books of account and supporting documents.

Since the aforesaid documents admittedly were not before the learned CIT(E), we are of the considered opinion that the matter requires fresh examination at the level of the learned CIT(E). It would not be appropriate for this Tribunal to undertake verification of these documents for the first time in appellate proceedings.

Accordingly, in the interest of substantial justice, we set aside the impugned order and restore the matter to the file of the learned Commissioner of Income Tax (Exemptions), Chandigarh. The assessee shall furnish before the learned CIT(E) all the documents now relied upon before us including the One Time Settlement documents, correspondence with Punjab National Bank, notices issued under the SARFAESI Act, documents relating to the financial assistance extended by the Chairman, Co-Chairman and other specified persons, confirmations, bank statements, fund-flow statements, books of account and any other supporting evidence.

The learned CIT(E) shall objectively examine the aforesaid material and verify whether the funds introduced by the specified persons were actually utilised for settlement of the institutional liabilities, whether the advances were interest-free as claimed by the assessee, whether any personal benefit accrued to any specified person and whether there existed any financial irregularity in the conduct of the affairs of the assessee-society. If, upon such 11 964/Chd/2026 verification, it is found that the specified persons merely infused their personal funds to enable the society to liquidate its outstanding liabilities and to save the educational institution from coercive proceedings under the SARFAESI Act without deriving any undue benefit, the same shall be duly taken into consideration while deciding the application under section 12AB.

The learned CIT(E) shall afford adequate opportunity of hearing to the assessee, permit it to file all relevant documentary evidence and thereafter pass a fresh, reasoned and speaking order in accordance with law.

We clarify that we have not expressed any opinion on the merits of the controversy and all the issues are left open to be adjudicated independently by the learned CIT(E).

Accordingly, the impugned order is set aside and the matter is restored to the file of the learned Commissioner of Income Tax (Exemptions), Chandigarh for fresh adjudication in accordance with law.

In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 02.07.2026 (MANOJ KUMAR AGGARWAL ) JUDICIAL MEMBER

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