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Facts
The assessee, Child Desire Foundation, filed appeals against the orders of the CIT(Exemptions) rejecting its application for registration under Section 12AB and approval under Section 80G of the Income Tax Act. The CIT's main objections were related to substantial employee benefit expenses and major medical expenses, which were deemed unjustifiable and not properly documented.
Held
The Tribunal held that the CIT erred in rejecting the registration solely based on the quantum of employee expenses without providing an opportunity to justify them. The Tribunal also noted that justification of expenditure is typically considered during assessment proceedings, not at the registration stage. However, regarding medical expenses, the Tribunal remitted the issue to the CIT for verification of details concerning beneficiaries and distribution.
Key Issues
Whether the CIT was justified in rejecting the application for registration under Section 12AB and approval under Section 80G based on the perceived unjustifiable expenses without providing the assessee an opportunity to explain?
Sections Cited
12AB, 80G
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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI KESHAV DUBEY
These appeals at the instance of the assessee are directed against the order of ld. CIT(Exemptions) both dated 30.12.2024 vide DIN & Notice No. ITBA/EXM/F/EXM45/2024-25/1071702451(1) rejecting the registration u/s 12AB of the Income Tax Act (in short “The Act) and vide DIN & Notice No. ITBA/EXM/F/F/EXM45/2024- 25/1071702563(1) rejecting approval u/s 80G of the Act.
The brief facts of the case are that the assessee is a Trust registered vide Trust deed dated 4.3.2020 under registration no.BNS-IV-929-2019-20 followed by an amendment to the trust deed on 13.10.2023 to correct certain objectives & to include some more objects in the trust deed. The assessee trust had obtained registration u/s 12AB(1)(b) of the Act vide order in form 10AD dated 13.11.2023 for a period of assessment year 2021-22 to 2025- 26. Thereafter, the assessee trust applied for renewal of the existing registration by filing form 10AB on 18.10.2024.
3.1 The ld. CIT (Exemptions), Bangalore after receipt of the application had called for a report from the jurisdictional assessing officer (JAO) who had not recommended the case for renewal based on partial submission made before the JAO. Further, the ld. CIT (E) clubbed the hearing with the hearing for assessee’s application for approval u/s 80G of the Act. During the course of hearing, it is observed by the ld. CIT (E) from the financial statement submitted that the assessee had made major payments towards employee & 160/Bang/2025 Child Desire Foundation, Bangalore Page 3 of 15 benefit expenses, rent and purchase of groceries, book, medicine and cloths in the last three assessment years 2022-23, 2023-24 & 2024-25. On going through the bank statement and other details submitted, the ld. CIT(E) found that substantial amount is being spent towards employee benefit expenses and the quantum does not appear justifiable against the total receipts of donations received by the trust for the last 3 assessment years.
3.2 Further, after perusing the bills/invoices submitted towards the major medical expenses to Apollo Pharmacy and Vasumathi Ayurvedic Pharmacy, the ld. CIT(E) found that quantities mentioned in these bills/invoices do not appear to be for distribution purposes among public at large. Further, the ld. CIT(E) is of the view that no details were submitted as to who are the beneficiaries and how are they identified. Lastly, the ld. CIT(E) observed that despite a major quantum of expenses towards the medical expenses, it does not find a place in the list of activities conducted/project detail submitted by the assessee.
3.3 Accordingly, ld. CIT(E) held that as the assessee is required to submit necessary documents to prove the genuineness of the activities of the trust and also the compliance of such requirements of any other law as are material for the purpose of achieving its object, the assessee has not complied with the law as required in sub-clause (A) of clause (i) of section 12AB(1) of the Act and accordingly the application in form 10AB dated 18.10.2024 filed for registration u/s 12AB of the Act was rejected and consequently the registration was cancelled.
Aggrieved by the order of ld. CIT(E) rejecting the registration the assessee has preferred an appeal before this Tribunal. The assessee has also filed paper book containing therein the copy of & 160/Bang/2025 Child Desire Foundation, Bangalore Page 4 of 15 the trust deed, trust brochure, trust object-wise and area-wise data, salary expenses and related annexures, etc. to support its claim.
Before us, the ld. A.R. of the assessee vehemently submitted that the employee benefit expenses are incurred for the purpose of the object of the Trust and are paid to the project heads, fund raising professionals and project implementers. Further the ld. CIT(E) could not pointed out any bogus or illegitimate payment of Employee benefit expenses except by saying that the quantum did not appear justifiable against receipts.
5.1 Further, with regard to major medical expenses, the ld. A.R. submitted that the medicines unlike any other goods cannot be distributed to general public at large. The assessee trust purchased the medicines for the under privileged people based on the requirement and as prescribed by the doctors. Further, AR of the assessee submitted that the ld. CIT(E) had never asked for any details regarding the beneficiaries and accordingly, requested to allow the appeal of the assessee.
The ld. D.R. on the other hand, vehemently supported the order of ld. CIT(E) and submitted that the employee benefit expenses did not justify against the total receipts of donation received by the trust for the last 3 assessment years. Further, despite a major quantum of expenses incurred towards the medical expenses but it did not find a place in the list of activities conducted/project details and therefore, ld. CIT(E) has rightly held that the assessee has not complied with the law and accordingly rightly cancelled the registration.
We have heard the rival submissions and perused the materials available on record. On going through the order of ld. & 160/Bang/2025 Child Desire Foundation, Bangalore Page 5 of 15 CIT(E), we take a note of the fact that the ld. CIT (E) herself in her Order has observed that the assessee Trust had made major payment towards employee benefit expenses, rent, purchase of books, groceries, medicines and cloths during last 3 AYs 2022-23, 2023-24 & 2024-25. Further before us, the assessee had also produced the details of Saree distribution, Grocery distribution, Shoes Distribution, Medicine distribution as well as education assistance given to various students. The ld. CIT(E) has not pointed out any of these expenditures/application to be not genuine or unauthentic. Further, it is not the case of the revenue that no documents have been produced by the assessee. The ld. CIT(E) has rejected the application in form 10AB dated 10.11.2024 and cancelled the registration on the grounds detailed below:
Substantial amount spent towards employee benefit expenses - i. Substantial amount being spent towards employee benefit expenses the quantum of which does not appear justifiable against the total receipts of donations.
Major medical expenses - i. The quantities mentioned in the bills/invoices towards the medical expenses do not appear to be for distribution purposes among public at large. ii. No details were submitted as to who are the beneficiaries and how they are identified. iii. Despite a major quantum of medical expenses, it does not find a place in the list of activity conducted/project details.
7.1 Before proceeding further, it is apposite to refer the trust deed dated 4.3.2020, the objects of the trust are as follows:
7.2 On going through the above objects of the trust we also take a note of the fact that the ld. CIT(E) did not dispute any of the objects not to be charitable in nature. All her objection however, revolves around on the application by the assessee trust towards the employee benefit expenses, major medical expenses and justifiability of incurring these expenditure. We are of the considered opinion that justification of expenditure whether excessive or not would fall for consideration at the time of assessment proceedings and it is not relevant factor to reject the registration u/s 12AB of the Act. We also agree with the contention of the AR of the assessee that the ld. CIT(E) could not pointed out any bogus or illegal payment of Employee benefit expenses except by saying that the quantum did not appear justifiable against receipts. Further, we are of the considered opinion that section 12AB of the Act empowers the ld. CIT(E) upon receipt of an & 160/Bang/2025 Child Desire Foundation, Bangalore Page 12 of 15 application for registration of the trust to call for such documents or information or make such inquiries as may be necessary in order to satisfy herself about – a) the genuineness of the activities of the trust or institution and b) the compliance of such requirement of any other law for the time being in force by the trust as are material for the purpose of achieving its objects.
7.3 In the present case, the ld. CIT(E) has not pointed out any ingenuineness of the activity of the trust in accordance with the object as enumerated in the trust deed and also failed to demonstrate how the requirement of the compliance of any other law which are material for the purpose of achieving the object are not met. Before us, ld. A.R. of the assessee vehemently submitted that employee benefit expenses includes salary to project heads and project workers, salary related to admin. staff as well as general staff welfare which were paid for achieving the object of the Trust. Before us, the assessee trust have also produced details of employee benefit expenses incurred for last 3 assessment years along with the ledger copies of the salary, accounting charges, staff welfare placed at page 73 to 87 of the paper book and on going through the same, we find that the amount has been incurred exclusively to meet the objective of the trust and we do not find any ingenuineness. We are of the considered opinion that the ld. CIT(E) cannot steps into the shoes of the assessee & determine how much expenses to be incurred. Further, with regard to the major medical expenses paid to Apollo Pharmacy and Vasumathi Ayurvedic Pharmacy, we agree with the contention of the assessee that the medicines cannot be distributed to general public at large unlike general goods & merchandise. Further, before us, the ld. AR of the & 160/Bang/2025 Child Desire Foundation, Bangalore Page 13 of 15 assessee submitted that the purchase of medicines were only for the under privileged people based on the requirement and the prescription of the doctors. We also find that the object of providing the medical support/help is also one of the object clause of the trust deed as reproduced above. Before us, the assessee has produced the trust’s object-wise and area-wise activity report in which the name and address of the beneficiaries are submitted along with the other activities. The ld. CIT (E), however observed that the assessee has not submitted the details of beneficiaries and how they are identified. Further, it seems that the details of activities conducted towards the Project – Medicine Distribution has not been submitted before ld. CIT (E). This being so, we are remitting this issue to the file of ld. CIT (E) to verify these details produced before us in accordance with law and grant the registration accordingly. wherein the assessee has raised following grounds of appeal:
10. On going through the order of ld. CIT(E), we find that the grounds for rejection approval u/s 80G of the Act are same as enumerated in 12AB of the Act. Further, the ld. CIT (E) clubbed the hearing for approval u/s 80G of the Act with the hearing for assessee’s application for registration u/s 12AB of the Act. Since we partly allowed the appeal of the assessee for verifying the details of Project – Medicine Distribution along with the activity report, we accordingly mutatis mutandis remit this appeal also for the limited purposes of verification of the same.
In the result, the appeal of the assessee in is also partly allowed for statistical purposes.
In the combined result, both the appeals filed by the assessee are partly allowed for statistical purposes. Order pronounced in the open court on 30th May, 2025 Sd/- Sd/- (Laxmi Prasad Sahu) (Keshav Dubey) Accountant Member Judicial Member Bangalore, Dated 30th May, 2025. VG/SPS & 160/Bang/2025 Child Desire Foundation, Bangalore Page 15 of 15 Copy to: