CMR EDUCATIONAL SOCIETY,HYDERABAD vs. DCIT., CENTRAL CIRCLE-2(1), HYDERABAD

Facts

CMR Educational Society, an educational institution, had its registration under Section 12AA of the Income Tax Act, 1961, cancelled by the Principal Commissioner of Income Tax (Central) for Assessment Years 2019-20 and 2022-23. This action followed a search and seizure operation which allegedly revealed collection of capitation fees, diversion of funds to trustees, and non-maintenance of proper books of accounts, purportedly indicating violations under Section 12AB(4). The assessee argued that the alleged excess fees were for hostel charges, declared by individual trustees, and that assessments were protective.

Held

The Income Tax Appellate Tribunal (ITAT) found that the PCIT (Central)'s order was based on suspicion and surmises, lacking concrete evidence of specified violations under Section 12AB(4). It highlighted that cash found during the search was assessed protectively in individual hands, implying uncertainty of ownership, and that no conclusive proof of capitation fee collection or fund diversion by the society was established. The Tribunal affirmed that the society's educational activities were genuine and in line with its objects, and that mere suspicion could not justify cancellation of registration.

Key Issues

1. Whether the Principal Commissioner of Income Tax (Central) validly cancelled the society's registration under Section 12AB(4)(ii) of the Income Tax Act, 1961, based on alleged collection of capitation fees, diversion of funds, and non-genuine activities. 2. Whether the findings of fact regarding fund diversion and collection of capitation fees were supported by conclusive evidence or merely based on suspicion and surmises.