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Facts
The assessee, a charitable educational society, applied for regular registration under section 12AB. The CIT(E) rejected the application and cancelled provisional registration based on an inspector's report, alleging no banner/board, forced closure of admissions due to government ban, shabby premises, and failure to produce accounts. The assessee argued the rejection violated principles of natural justice as the inspector's report was not provided.
Held
The Tribunal held that the impugned order was passed in violation of the principles of natural justice because the inspection and verification reports were not furnished to the assessee. The Tribunal found merit in the assessee's grievance regarding the non-disclosure of adversarial material.
Key Issues
Whether the cancellation of registration under Section 12AB and rejection of application for regular registration was valid without providing the inspector's report and adequate opportunity to the assessee, thus violating principles of natural justice.
Sections Cited
12A, 12AB, 253
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI PARESH M JOSHI
aggrieved by the order bearing No:-
ITBA/EXM/F/EXM45/2024-25/1065872187(1) dated 20.06.2024 passed by the Ld. CIT(E) which is hereinafter referred to as the “Impugned order”.
Page 1 of 19 2.1 That the assessee is a charitable educational society, registered under the societies registration Act vide registration no.02/42/01/11150/07 and was granted registration under section 12A of the Income Tax Act in the year 2011, which continued uninterrupted for several years.
2.2 That the assessee society is engaged in the charitable educational activities mainly running a nursing education institution duly approved by the competent state authorities.
2.3 That pursuant to the amendment in the income Tax Act, 1961, the assessee applied for regular registration u/s 12AB in the form no.10AB within the prescribed time.
2.4 However during the pendency of the aforesaid application, the state government of M.P. imposed a complete ban on the nursing admission for the academic years 2023-24 uniformly to all the nursing institution across the state.
2.5 That the Ld. CIT(E) before adjudjing the issue of registration however directed a physical verification which Page 2 of 19 during the vacation period (June 2024) in the absence of secretary or authorised office bears, of the assessee.
2.6 Basis solely on an inspector’s report, which was never provided to the assessee society the Ld. CIT(E) passed the “Impugned Order” rejecting the application u/s 12AB and cancellling the provisional registration earlier granted under section 12AB. That the assessee is now aggrieved by the impugned order & hence the appeal before this Tribunal.
2.7 The core reasons for the rejection of application of the assessee filed in the form 10AB for the grant of the registration u/s 12AB of the Act which was rejected by the impugned order & so also the provisional registration/approval u/s 12AB in the form 10AC vide URN No.AAATE3194KE20206 dated 27/05/2021 granted by CPC, was also cancelled by virtue of section 12AB(1)(b)(ii)(B) of the Act, are as under which we reproduce as below:-
The assessee has applied in Form 10AB for registration u/s 12AB under the new provision of Income Tax Act, 1961. Consequently, opportunity letters were issued to the assessee and various documents/details were called for, to process the said application and to verify the objects and activities of the assessee.
2. In response to the notices, assessee has submitted his reply with relevant documents which were placed on record. On perusal of documents, it is noticed that the assessee has clairned activities of running a nursing college.
3. To verify the activities of the assessee, directions for physical verification was issued to ITO(E), Gwalior on 12.06.2024 to submit the physical verification report regarding registration u/s 12AB of the IT Act. The ITO (E), Gwalior has submitted the physical verification report of Inspector on 19.06.2024.
5. On perusal of reply of the assessee and physical verification report of the Income Tax Inspector, the following points are noticed:
The Inspector visited at the address of society for physical verification but no banner or Board of the society was found there, though accountant Shri Ram Gopal Singh was present there.
The society is forced to close its admission from 2023-24 since NOC for the renewal of the same has not been granted by the MP Govt.
3. As per the report, at the premise of nursing college no proper sitting arrangements were found and there was not adequate space for students. In addition to that labs and experiment room are found shabby and full of dirt and non functional.
4. It is also noticed that space allotted to the society by lease agreement with secretary of society is partly occupied by the private firm namely Engineer combine (A Related Party) which is engaged in CCTV/telecom business.
5. Further, no charitable activities could be verified.
The society failed to produce book of accounts at the time of verification.
Considering the facts of the case, the application of the assessee filed in. Form 10AB for grant of registration u/s 12AB of the Act is hereby rejected and the provisional registration/approval u/s 12AB in Form 10AC vide URN No.
Page 4 of 19 A.Y.2024-25 AAATE3194KE20206 dated 27.05.2021 granted by CPC is also hereby cancelled as per the provisions of section 12AB(1)(b)(ii)(B) of the Act.”
2.8 The Assessee being Aggrieved by the “Impugned Order” has preferred the instant second appeal before this Tribunal and has raised the following grounds of appeal in the form No. 36 against the “Impugned Order” which are as under:-
“1. That on the facts and circumstances of the Case and in law & in any view of the matter, the Ld. CIT (E) has erred in not granting the Registration u/s 12AB of the Income Tax Act 1961, by rejecting the application u/s 12AB of the Income Tax act 1961.
2. That, on the facts and circumstances of the case and in law and in any view of the matter, the Ld. CIT (E) has erred in rejecting the application u/s 12AB of the Income Tax Act, 1961 seeking registration u/s 12AB of the Income Tax Act, 1961 merely based on report of Income Tax Inspector without giving reasonable and proper opportunity of hearing.
3. That, the applicant craves leave to add, amend, alter and/or modify before and/or at the time of hearing.”
Record of Hearing 3.1 The hearing in the matter took place before this Tribunal on 26.03.2026 when the Ld. AR for & on behalf of the Assessee appeared before us & interalia contented that the “Impugned Order” is bad in law, illegal & not Proper. It is passed in the violation of the principles of natural justice. It therefore deserves to be set aside. The Ld. AR for the on Page 5 of 19 Tribunal groundwise submissions [two pages] on the behalf of the assessee which is reproduced by us as below:-
Page 6 of 19 3.2 The Ld. AR has also placed on the record of this Tribunal a written submission [A three pages documents with 3 Page 7 of 19 us as below: Page 8 of 19 Page 9 of 19
Page 10 of 19 a paper book containing pages 1 to 139 in support of the assessee’s case.
3.4 Basis above documents & paper’s it was contended by the ld. AR that the “Impugned order” of the Ld. CIT(E) is totally bad in law & deserves to be set aside. The Ld. AR then read out para 4, 4.1, 4.2, 4.3, 4.4, 4.5 of the “Impugned Order”. Our attention was then invited to P.B. pages 139 basis which it was submitted that by letter on 23.11.2011 CIT(Gwalior) MP had acknowledged the assessee application dated NIL in the form 10A which was received in office on 06.05.2011. That the application was entered at sr.
No.03/05 in the register of the applications u/s 12AA(a) & that the registration u/s 12AA is granted to the assessee w.e.f. 01/04/2011. The Ld. AR also fairly clarified that in the said letter it was stated that certificate does not entitle the society automatically to the exemption of income u/s 11 & 12 & that the assessing officer shall be free to decide such claim of exemption of income of the assessee society u/s 11 & 12 of the Act after satisfying that the Page 11 of 19 fulfilled by the assessee society. In so far as present/current situation is concerned now the assessee society has no government affiliation. Our attention was drawn to the paper book page 23 which was a news paper clipping dated 22.06.2023 of “Danik Bhaskar” wherein it was stated that in the M.P. nursing college’s there are irregularities in the admission & that the “M.P. medical Science University” has taken a decision to declare academic year 2023-24 as “zero year” though the MP state Government has not yet taken a decision in this regard. In the said newspaper clipping it is further stated that “MP nursing registration council” has received information that few institutions without recognition's are giving illegal admission & that the council has issued a warning that for academic year 2023-24 no recognition process has been triggered yet. Students have been warned not to get confused as admissions now happening are illegal.
Further as per the “Indian nursing council” orders /directions admission would take place basis “common
Page 12 of 19 Council’s administrator Dr. Yogesh Sharma has said that colleges before getting recognition are doing admission hence they have been told that unless & until the recognition is not granted to them they will not grant any admission & students also will not take admission. Hence warning has been issued in this regard. In brief Ld. AR submitted that presently no admission are allowed it was submitted that for A.Y.2025-26 ITR, CoI, form 3CA, form 3CD, independent auditor’s report balance sheet, income & exp A/c notes to A/c, receipt & payment a/c etc. are all at pages 24 to 63 of the P.B. Basis above it was contended that the receipts are less but expenses are met out. Our attention was then invited to page 69 of PB which was a consolidated income & expenditure account for the year ended 31.03.2024 where nursing fee was Rs.20,97,500.00 expenses are listed out therein. It was submitted that the assessee society is filling RoI periodically. It was also stated that the assessee society premises are huge & in this regard attention was invited to Page 13 of 19 149 of lease deed too.
3.5 Per contra Ld. DR appearing for & on behalf of the revenue submitted that the department of Income Tax has rightly verified the registered premises & upon verification no activity was found. The inspection report of the inspector is correct. No genuine activity is found. With regard to closure of activity due to current embargo w.e.f Academic year 2023-24 on wards till resumption it was submitted that if in future or at later stage activities of the assessee society, kicks starts again then the assessee society can seek registration & same may be granted after following due process of law. But at this stage neither the academic session is there, nor any recognition by the competent authorities which fact is even admitted by the Ld. AR during hearing held today. The Ld. DR submitted that in the absence of any activity, recognition & academic year in force by law as contended by Ld. AR no useful purpose would be met even if the matter is remanded back. The reliance was Page 14 of 19 which speaks of no charitable activities could be verified & failure to produce books of accounts. The Ld. AR rejoined that even the provisional registration is cancelled by the impugned order & the Ld. AO has made a demand to which the Ld. DR responded that the assessment & consequent demands are not part of the present proceedings.
The hearing was closed.
Observations Findings & conclusions 4.1 We have to decide the legality, validity and proprietary of the “impugned order” basis records of the case & the rival submission canvassed before us.
4.2 We have carefully perused the records of the case and have heard the submissions.
4.3 We basis records of the case & after hearing & upon examining the rival contentions of the Ld. AR & the Ld. DR canvassed before us, are of the considered opinion that the “Impugned Order” has been passed in the violation of the principles of natural justice in as much as the inspection &
Page 15 of 19 of the impugned order was not furnished to the assessee society, the Ld. AR has made a grievance of it in the ground no.-2 & that we find merits in the same, we hold that it was incumbent upon the Ld. CIT(E) to have disclosed to the assessee all adversarial material against the assessee including the ITO(E)
Gwalior & inspector’s report which was pursuant to the Ld. CIT(E) letter dated 12.06.2024 for the physical verification of assessee.
In so far the premise of the assessee society are concerned & the facilities which are housed in the premises in the paper book we find the photographs are enclosed & in so far as activities are concerned the books of accounts are placed on record for A.Y.2025-26 & of previous years/earlier years. These material were not before the ld. CIT(E) obviously as nothing adversarial was provided to the assessee/society. The assessee society before us has prayed for the remand of the matter back to the file of the Ld. CIT(E) with a direction to supply the Inspector’s Report, grant an opportunity of hearing & to decide the matter afresh in accordance with the law. We find in the given facts the assess’s society prayer’s are justifiable & accordingly we set aside the Page 16 of 19 to the Ld. CIT(E):-
(i) disclose copy of letter written to ITO(E) Gwalior dated 12.06.2024 (ii) disclose ITO(E) Gwalior report so submitted on physical verification to the CIT(E).
(iii) disclose the inspector’s report (iv) Inquire in to the “charitable nature” of the activities of the assessee society along with main objects & any incidental & ancillary object having nexus with the main object of charitable nature.
(v) requisition necessary state government orders on ban on admission w.e.f academic year 2023-24.
(vi) Requisition orders of M.P. Medical Science University if any (vii) requisition orders of M.P. nursing registration council if any (viii) requisition orders of Indian nursing council.
(ix) activities of society be verified vis-a-vis objects of charitable purpose (x) Any other matter related & incidental to the inquiry & due verification.
Page 17 of 19 set up their defences against proposed cancellation of registration /provisional registration.
(xii) However nothing prevents the Ld. CIT(E) to carry out discreet inquiry & verification.
4.4 In the premises drawn by us the Impugned order is set aside as & by way of remand back to the file of CIT(E) with directions as aforesaid simultaneously we direct the assessee to furnish all the information, material, documents, evidences with regard to their eligibility u/s 12AB. In brief we desire full & prompt compliance by the assessee. The assessee to assist department in obtaining necessary official orders of authorities mentioned above so that time is saved & denovo, adjudication as ordered is speedily disposed off basis law. The Ld. CIT(E) is directed to address the concern of the assessee by passing a speaking & reasoned order while adjudicating & adjudging the case on merits on all aspects of registration.
5 Order
Page 18 of 19 way of remand back to the file of the Ld. CIT(E) on De novo basis.
5.2. The appeal of the assessee is allowed for statistical purpose.
Pronounced in open court on 10.04.2026.