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Facts
The assessee, Pokharna Educational Trust, appealed against the CIT(Exemption)'s rejection of its applications for registration under Section 12A and approval under Section 80G of the Income Tax Act. The CIT(E) rejected the applications, citing non-compliance with Section 2(n)(iv) of the Right to Education Act, concerns about the genuineness of activities, a perceived profit motive, and issues related to a 30-year land lease agreement. The provisional registration under Section 12AB was also cancelled.
Held
The Tribunal noted that a previous order remanding the matter to the CIT(E) was still pending and the assessee submitted new additional evidence. Considering these factors and the interest of justice, the Tribunal decided to restore both the 12A registration and 80G approval issues back to the CIT(Exemption) for fresh adjudication. The CIT(E) was directed to provide the assessee with a due opportunity of being heard and to decide the issues afresh according to facts and law.
Key Issues
Whether the CIT(Exemption) was justified in rejecting the trust's applications for Section 12A registration and Section 80G approval, and cancelling provisional 12AB registration, based on non-compliance with the RTE Act, profit motive, and lease agreement terms, or if the matter should be remanded for fresh adjudication considering new evidence.
Sections Cited
12A, 12A(1)(ac), 12AB, 80G, 80G(5)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE
The above two appeals filed by the assessee are directed against the separate orders dated 31.12.2024 of the CIT(Exemption), Pune rejecting the application for grant of registration u/s 12A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and approval u/s 80G of the Act. For the sake of convenience, both these appeals were heard together and are being disposed of by this common order.
Facts of the case in brief, are that the assessee filed an application in Form No.10AB on 27.06.2024 for registration of the trust under clause (iii) of section 12A(1)(ac) of the Act. 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 by the trust / institution as are material for the purpose of achieving its objects, a notice was issued through ITBA portal on 26.07.2024 requesting the assessee to upload certain information / clarification. The Ld. CIT(E), on verification of the details filed by the assessee noticed certain discrepancies for which he issued another notice to the assessee on 25.11.2024 duly communicating the discrepancies. The assessee responded to the same notice and submitted its reply. However, the Ld. CIT(E) noticed that the case of the assessee is covered by clause (iv) of section 2(n) of the Right to Education Act which the assessee has failed to comply in not granting admission to the students from the financially weaker section of the society. Further, in spite of giving sufficient opportunities, the assessee could not satisfy the Ld. CIT(E) regarding the genuineness of the activities of the assessee trust and compliance to requirements of any other law for the time being in force which are material for the purpose of achieving its objects. He, therefore, rejected the application for grant of registration u/s 12A of the Act and also cancelled the provisional registration granted earlier u/s 12AB of the Act. Since the application for registration u/s 12A of the Act was rejected and the provisional registration granted earlier was also cancelled, the Ld. CIT(E) rejected the application for grant of approval u/s 80G of the Act.
3. Aggrieved with such order of the Ld. CIT(E), the assessee is in appeal before the Tribunal by raising the following grounds:
The following grounds are taken without prejudice to each other - On facts and in law
1. That the order of rejection for recognition of trust u/s 12A(1)(ac)(iii) passed by the learned CIT(Exemption) is bad in law on account of following reasons: a) By drawing the inference that trust is carrying out its activities with profit motive and has a commercial element in its activities and also not for a charitable purpose. b) By holding that period of lease of the land for 30 years and absence of certain clauses such as further renewal, reimbursement of cost if lease is not renewed are important without pointing out how it is going to affect on the educational activities carried out by the appellant trust. c) Not providing sufficient opportunity before drawing adverse inference against the appellant trust while rejecting application for registration u/s 12A(1)(ac)(iii) and hence, it is clear violation of principles of natural justice.
2. That the learned CIT (Exemption), Pune, erred in law and on facts in rejecting the application of the Appellant in Form 10AB for registration under Section 12A(1)(ac) (iii) of the Income Tax Act, 1961, and in cancelling the provisional approval under Section 12A(1)(ac)(iii), without properly appreciating the genuine charitable activities carried out by the Appellant trust.
3. That the learned CIT (Exemption), Pune, erred in holding that the Appellant trust's activities were not genuine and were driven by a profit motive, without providing sufficient evidence or adequately considering the submissions and documents furnished by the Appellant.
4. That the learned CIT (Exemption), Pune, failed to consider that the surplus generated by the trust was duly applied for the charitable purposes of the trust and for the creation of funds such as the School Building Fund, Education & Research Fund, and Sports Equipment Utility Fund, which are consistent with the objectives of the trust.
5. That the learned CIT (Exemption), Pune, wrongly concluded that the Appellant had not complied with Rule 17A(2)(g) of the Income Tax Rules, 1962, despite the Appellant providing audited accounts for FY 2018-19, 2019-20, and 2020-21, as required.
6. That the learned CIT (Exemption), Pune, erred in interpreting the absence of compliance with the Right to Education Act, 2009 (RTE Act) as a failure to fulfill the conditions under Section 12A(1)(ac)(iii), even though the Appellant is an unaided school and the RTE Act's financial aid provisions are inapplicable.
7. That the learned CIT (Exemption), Pune, erred in relying on the lease agreement as a ground to question the legal and financial security of the Appellant, despite the absence of any legal requirement under the Act to include specific provisions related to lease extensions or construction cost reimbursements. The Appellant prays that:
1. 1. The rejection order under Section 12A(1)(ac)(iii) and the cancellation of provisional approval under Section 12A(1)(ac) (iii) be set aside.
2. The application for registration under Section 12A(1)(ac)(iii) and approval under Section 12A(1)(ac)(vi) be allowed in the interest of justice.
3. Any other relief deemed fit by the Hon'ble Tribunal may kindly be granted.
The following grounds are taken without prejudice to each other- On facts and in law
1. That the order of rejection for recognition of trust u/s 80G(5) passed by the learned CIT(Exemption) is bad in law on account of following reasons: a) As same has been passed without serving the order of rejection for registration u/s 12AA of the Act. b) By drawing the inference that trust is carrying out its activities with profit motive and has a commercial element in its activities and also not for a charitable purpose. c) By holding that period of lease of the land for 30 years and absence of certain clauses such as further renewal, reimbursement of cost if lease is not renewed are important without pointing out how it is going to affect on the educational activities carried out by the appellant trust. d) Not providing sufficient opportunity before drawing adverse inference against the appellant trust while rejecting application for registration u/s 80G(5) and hence, it is clear violation of principles of natural justice.
2. That the learned CIT (Exemption), Pune, erred in law and on facts in rejecting the application of the Appellant in Form 10AB for registration under Section 80G(5) of the Income Tax Act, 1961, and in cancelling the provisional approval under Section 80G(5), without properly appreciating the genuine charitable activities carried out by the Appellant trust.
3. That the learned CIT (Exemption), Pune, erred in holding that the Appellant trust's activities were not genuine and were driven by a profit motive, without providing sufficient evidence or adequately considering the submissions and documents furnished by the Appellant.
4. That the learned CIT (Exemption), Pune, failed to consider that the surplus generated by the trust was duly applied for the charitable purposes of the trust and for the creation of funds such as the School Building Fund, Education & Research Fund, and Sports Equipment Utility Fund, which are consistent with the objectives of the trust. 5. That the learned CIT (Exemption), Pune, wrongly concluded that the Appellant had not complied with Rule 17A(2)(g) of the Income Tax Rules, 1962, despite the Appellant providing audited accounts for FY 2018-19, 2019-20, and 2020-21, as required. 6. That the learned CIT (Exemption), Pune, erred in interpreting the absence of compliance with the Right to Education Act, 2009 (RTE Act) as a failure to fulfill the conditions under Section 80G(5), even though the Appellant is an unaided school and the RTE Act's financial aid provisions are inapplicable. 7. That the learned CIT (Exemption), Pune, erred in relying on the lease agreement as a ground to question the legal and financial security of the Appellant, despite the absence of any legal requirement under the Act to include specific provisions related to lease extensions or construction cost reimbursements. 8. That the learned CIT (Exemption), Pune, incorrectly held that the Appellant was not eligible for approval under Section 80G(5) on the basis that the Appellant did not hold a regular registration under Section 12AB, without appreciating the pending procedural issues and compliance steps undertaken by the Appellant as the rejection order for registration u/s 12AB has not yet issued. The Appellant prays that:
1. 1. The rejection order under Section 80G(5) and the cancellation of provisional approval under Section 80G(5) be set aside.
2. The application for registration under Section 80G(5) and approval under Section 80G(5) be allowed in the interest of justice.
3. Any other relief deemed fit by the Hon'ble Tribunal may kindly be granted.
The Ld. Counsel for the assessee at the outset submitted that the assessee had filed an appeal against the order of the Ld. CIT(E) rejecting the application for grant of registration u/s 12A of the Act which was remitted back by the Tribunal to the file of the Ld. CIT(E). In the meantime, on the basis of CBDT Circular, the assessee filed another appeal before the Tribunal. He submitted that since the order of the Tribunal setting aside the issue to the file of the Ld. CIT(E) is still pending before him, therefore, this matter may also be restored to his file.
The Ld. Counsel for the assessee also filed certain additional evidences and filed an application for admission of the same under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 which read as under: “1. Details of Additional Evidence Being Submitted The following document which were not produced before the lower authorities during the trust registration proceedings, are now being submitted as additional evidence to present the status of the appellant: Sr. No. of Paper Particulars Page no. of the Paper Book Book Index 6 School Registration 258-266 Certificates 7 Financials F.Y. 2021-22 to 267-343 2023-24 2. Justification for Admission of Additional Evidence: The appellant respectfully submits that there was a reasonable cause for the non- submission of these documents before the lower authorities. The omission was neither intentional nor meant to withhold relevant facts but occurred due to the following reasons: The document at sr.no. 6 i.e. School Registration Certificates were not specifically called for during the registration proceedings.
The appellant was under a bona fide belief that the information already on record was sufficient for adjudication. These documents are crucial to establish the true nature of the appellant trust. Since these documents directly impact the adjudication of the issues under appeal, their non-consideration would cause undue hardship to the appellant and result in a failure of justice.
The appellant places reliance on the following judicial pronouncements, which support the admission of additional evidence when it is essential for rendering justice: Smt. Prabhavati S. Shah v. CIT [231 ITR 1 (Bom)] The Hon'ble Bombay High Court held that if certain documents are necessary for determining the true state of affairs, the first appellate authority should have admitted them even without a specific request. Keshav Mills Co. Ltd. v. CIT [56 ITR 365 (SC)] - The Hon'ble Supreme Court ruled that an appellate authority does not exceed its jurisdiction by admitting additional evidence if it is necessary for complete and effective adjudication. Dwarka Prasad v. ITO [63 ITD 1 (Patna) (TM)] - It was held that additional evidence should be admitted when it is crucial for rendering substantial justice.
4. Prayer: In view of the above, the appellant respectfully prays that Your Honour may kindly: Allow the admission of the additional evidence listed above under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. Consider these documents while adjudicating the present appeal, in the interest of justice and fair play. In view of above, we request Your Honour to kindly admit the above documents as additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 and oblige.”
He accordingly submitted that the matter may be restored to the file of the Ld. CIT(E).
The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(E).
We have heard the rival arguments made by both the sides, perused the order of the CIT(E) and the paper book filed on behalf of the assessee. We find since the order of the Tribunal setting aside the issue to the file of the Ld. CIT(E) is still pending and the assessee filed another appeal before the Tribunal on the basis of extension of due date for filing of Form 10A/10AB vide CBDT Circular No.7/2024, dated 25.04.2024, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Ld. CIT(E) with a direction to decide the issue afresh along with earlier order of the Tribunal setting aside the issue to his file. Needless to say, the Ld. CIT(E) is directed to adjudicate the issue as per fact and law after providing due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee in are accordingly allowed for statistical purposes.
Since the issue relating to the grant of registration u/s 12A of the Act is being restored to the file of the Ld. CIT(E) for fresh adjudication, therefore, the issue relating to grant of approval u/s 80G of the Act is also being restored to his file since the same was rejected due to non-availability of registration u/s 12A of the Act. The grounds raised by the assessee in are accordingly allowed for statistical purposes.
In the result, both the appeals filed by the assessee are allowed for statistical purposes.
Order pronounced in the open Court on 27th March, 2025.
Sd/- Sd/- (VINAY BHAMORE) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 27th March, 2025 GCVSR आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपीलार्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘B’ Bench, Pune 5. गार्ड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune
S.No. Details Date Initials Designation 1 Draft dictated on 24.03.2025 Sr. PS/PS 2 Draft placed before author 26.03.2025 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to the Head 9 Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order