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Facts
The assessee's application for registration under section 12A was rejected by the CIT(E) for failing to comply with various requirements, including providing audited accounts and permission for loans from trustees under the Maharashtra Public Trusts Act. The assessee contended that they were not given sufficient time to comply.
Held
The Tribunal set aside the order of the CIT(E) and restored the matter to the CIT(E)'s file for fresh adjudication. The Tribunal directed the CIT(E) to decide the application afresh after giving the assessee an opportunity to be heard and submit all necessary documents.
Key Issues
Whether the CIT(E) erred in rejecting the registration application without providing sufficient opportunity and considering all submissions, and whether the loan transaction with trustees violated any provision requiring prior permission.
Sections Cited
12A, 12A(1)(ac), 36A
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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
आदेश / ORDER
PER ASTHA CHANDRA, JM :
The appeal filed by the assessee is directed against the order dated 27.03.2024 of the Ld. Commissioner of Income Tax (Exemption), Pune [“CIT(E)”] whereby he rejected the application of the assessee filed before him on 24.09.2023 in Form No. 10AB under clause (iii) of section 12A(1)(ac) of the Income Tax Act, 1961 (the “Act”).
The assessee has raised the following grounds of appeal : “1) The learned CIT (Exemption) Pune erred in law and on facts in not granting registration u/s 12A of ITA, 1961, and rejecting the Application for the same. 2) The Ld. CIT Exemption Pune is not considering the submission made on 24/09/2023 and further submission on 06/03/2024 reply given to notice dated 28/02/2024 which has been explained about the loan permission of section 36A the trust taken temporary Anamat from them in the case of emergency only. Further the anamat taken for education purposes to fulfill the pre-condition for getting school permission submit security in the form of a Fixed Deposit to the bank not considered. 3) The application was filed on 24/09/23, The Notice for hearing was given on 28/02/2024 for compliance on or before 06/03/2024. Thus the learned CIT (Exemption) Pune given very short notice to complaice of queries raised in the notice. Hence the learned CIT (Exemption) Pune erred in law and on facts in not granting sufficient opportunity to the appellant to submit the details/information thereby violating the principles of natural justice.
4) The appellant contends that learned CIT(E) ought to have decided the matters on merits i.e., on the tests of bona fide objects, genuine educational activity, etc. instead of the hyper-technical aspect of section/sub-section opted during the filing of application vide form 10AB for registration u/s 12A of ITA, 1961. 5) The appellant craves leave before Hon'ble ITAT to add, alter, clarify, explain, modify, or delete any of the grounds of appeal, set aside, and to seek any just and fair relief.”
3. Briefly stated, the facts of the case are that on receipt of the assessee’s application filed in Form No. 10AB u/s 12A(1)(ac)(iii) of the Act along with annexures thereto, with a view to verify the genuineness of the activities of the assessee and compliance to requirements of any other law for the time being in force, the Ld. CIT(E) issued notice on 10.11.2023 through ITBA portal which was duly served on the assessee requesting the assessee to upload certain information/clarification contained therein by 27.11.2023. As the assessee failed to respond, another notice was issued on 18.12.2023 seeking compliance by 26.12.2023. On verification of the details filed by the assessee in response to the said notice, the Ld. CIT(E) observed various discrepancies which were communicated to the assessee vide show cause notice dated 28.02.2024 seeking compliance by 06.03.2024. The said discrepancies pointed out by the Ld. CIT(E) are reproduced below : “2.2 "(i) As per the provisions of Rule 17A(2)(g) of the Income Tax Rules, 1962, the application in Form No.10AB shall be accompanied by the self certified copies of annual accounts relating to earlier three years or since inception, whichever is later. Thus, the annual accounts, at least for F.Y. 2019-20, 2020-21 and 2021-22 were required to be submitted along with the application itself. However, it is seen that you have furnished the annual accounts for F.Y. 2019-20, 2020-21 only. Thus, you have failed to comply with the provisions of Rule 17A(2)(g) of the Income Tax Rules, 1962. Furnish copies of FYs 2021-22 and 2022-23. (ii) Trust has raised loans. Nature/ purpose of the same and its utilisation for each of the institution / project along with copy of permission under section 36A of the Maharashtra Public Trust Act, 1950 from the Charity Commissioner has not been furnished. (iii) Trust is engaged in education activity. However, following information/ documents called for vide earlier notice has not been furnished: (1) Details of various institutes / schools / colleges run by the trust with granted/non-granted status. (ii) Copies of affiliation certificates. (iii) Details of institute wise fee structure, admission policy in respect of each of the institute. If grants are received, copies of grant sanction letter for each of such institute. (iv) Institute-wise Income & Expenditure and Receipt & Payment account for the last 3 years.
(v) Complete Financial statements for the last 3 years with all Schedules/Annexures. (vi) Copies of Audit report for the last 3 years. (vii) Details of admissions given to students from financially weaker sections of the society with evidence and RTE norms followed with evidence. (viii) Institute wise ise details of ownership of land and building for with evidence. If rented, copy of rent agreement and proof of ownership of the owner. (ix) Furnish details as to whether the land is owned by the persons covered u/s 13(3) of the Act. (x) Institute wise details of immovable properties and building constructions appearing in balance sheet. (xi) Detailed list of salary payments to teaching and non-teaching staff along with TDS made, PF deducted, Profession Tax Deducted and copies of TDS returns & Profession Tax Returns filed for the last 3 years. (xii) Year-wise details of addition to building fund and other funds with evidence of its source."
3.1 The assessee filed its reply to the above show cause notice, however, the contentions of the assessee were not found to be acceptable by the Ld. CIT(E) and he proceeded to pass the impugned order rejecting the application of the assessee and also cancelling the provisional registration granted earlier by observing as under : “3. The assessee furnished the compliance to the said notice. As noticed from the financial statements, the assessee has raised considerable loans which stood at Rs. 20.55 Lakhs as on 31/03/2023. The assessee was requested to furnish the copy of permission from the Charity Commissioner under the provisions of section 36A of the Maharashtra Public Trusts Act, 1950. The assessee has contended that loan from trustee was taken on emergency basis and as per section 36A of the Maharashtra Public Trust Act, 1950, trust need to take permission when it gives loan to trustee whereas in the assessee trust's case, trustee has given loan.
The contention of the trust is dule considered. However, the same is not acceptable. In this regard, provision of sec. 36A(3) is reproduced for ready reference: "36A(3) No trustee shall borrow moneys (whether by way of mortgage or otherwise) for the purpose of or on behalf of the trust of which he is a trustee, except with the previous sanction of the Charity Commissioner, and subject to such conditions and limitations as may be imposed by him in the interest or protection of the trust. [Provided that, the Charity Commissioner or the Joint Charity Commissioner, as the case may be, shall decide the application for borrowing money from the Bank or Financial Institution forthwith and preferably within a period of fifteen days, if the Bank or the Financial Institution has provisionally sanctioned the loan.]." It thus, appears that the assessee has mis-interpreted the said provision and has contended that such permission is required if the trustee avails loan from trust property for his/her personal use. Section 36A(3) of the BPT Act, 1950 provides that "no trustee shall borrow moneys (whether by way of mortgage or otherwise) for the purpose of or on behalf of the trust of which he is a trustee, except with the previous sanction of the Charity Commissioner, and subject to such conditions and limitations as may be imposed by him in the interest or protection of the trust." Thus, said provision mandates the trust to obtain previous sanction from Charity Commissioner in respect of any loan. The assessee has, however, failed to comply with this statutory requirement.
In view of the above, the undersigned is not satisfied about the genuineness of activities of the assessee and compliance of requirements of any other law for the time being in force by the assessee as are material for the purpose of achieving its objects.
6. In view of the above, the application filed by the assessee is hereby rejected and the provisional registration granted on 08/02/2022 under section 12AB read with section 12A(1)(ac) (vi) of the Income Tax Act, 1961 is hereby cancelled.”
4. Dissatisfied, the assessee is in appeal before the Tribunal and all the grounds of appeal relate thereto.
5. The Ld. AR submitted that the Ld. CIT(E) has rejected the assessee’s application u/s 12A of the Act mainly on account of loan taken by the assessee trust from its trustees without taking permission from the charity commissioner under the provisions of section 36A of the Maharashtra Public Trusts Act, 1950. She contended that the Ld. CIT(E) has not granted sufficient time to the assessee to file its reply to the query raised vide show cause notice dated 28.02.2024. Further, the Ld. CIT(E) has not considered the assessee’s submission(s) wherein the loan transaction has been explained by the assessee and therefore prayed that in the interest of justice, the assessee may be provided with an opportunity to explain and substantiate its case before the Ld. CIT(E) by filing all the requisite details/ documents to his satisfaction and requested that the matter may be restored back to his file for fresh adjudication on merits.
The Ld. DR, on the other hand, supported the order of the Ld. CIT(E). He submitted that the Ld. CIT(E) has rightly rejected the assessee’s application considering the submission of the assessee therefore his order should be upheld.
We have heard the heard the Ld. Representatives of the parties and perused the material available on record. The Ld. CIT(E) has rejected the assessee’s application and also cancelled the provisional registration granted earlier for the reasons reproduced in the preceding paragraph. Before us, the ld. AR has taken a plea that the assessee was given very short notice to file its compliance to the queries raised by the Ld. CIT(E) which is in violation of principle of natural justice and that some of the submissions of the assessee in the impugned query on loan transactions have not been considered by the Ld. CIT(E). The Ld. AR has requested for setting aside the matter to the file of the Ld. CIT(E) for fresh adjudication on merits after affording an opportunity of hearing to the assessee to explain and substantiate its case. Considering the totality of the facts and in the circumstances of the case, we deem it fit and proper, in the interest of justice, to set aside the impugned order of the Ld. CIT(E) and restore the matter to his file with a direction to decide the assessee’s application for registration u/s 12A of the Act afresh on merits as per fact and law after affording one more opportunity of hearing to the assessee. The assessee is also hereby directed to make its submissions before the Ld. CIT(E) on the appointed date without seeking any adjournment under any pretext unless required for the sufficient cause, failing which the Ld. CIT(E) shall be at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds of appeal raised by the assessee are accordingly allowed for statistical purposes.
In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.
Order pronounced in the open court on 16th December, 2025.