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Facts
Mesodini Foundation, a society created in 2016, applied for approval under Section 80G(5) of the Income Tax Act. The CIT(E) rejected the application based on an Inspector's report which stated that the society existed only on paper, conducted no discernible charitable activities at its stated premises, and appeared to be diverting profits from private clinics under the guise of charity. The report noted only a 'Sood Eye Care Centre' and 'Sood Care & Implant Centre' at the address.
Held
The Tribunal held that the CIT(E)'s rejection of the 80G(5) application, based on the ITO's and Inspector's reports, without confronting the assessee with these adverse reports, violated the principle of natural justice. The order was set aside and the matter remanded back to the CIT(E) with directions to provide the assessee with the reports and a fresh opportunity of being heard before deciding the matter again.
Key Issues
Whether rejecting an application for 80G(5) approval without confronting the assessee with adverse inspection reports violates the principles of natural justice and if such rejection is sustainable.
Sections Cited
80G(5), 80G(5)(iii), 12AB, 12AA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AMRITSAR BENCH, ‘DB’: AMRITSAR
Before: SHRI UDAYAN DAS GUPTA & SHRI BRAJESH KUMAR SINGH
Date of Hearing 29.05.2025 Date of Pronouncement 26.08.2025 ORDER PER BRAJESH KUMAR SINGH, AM,
This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Exemption), Chandigarh (hereinafter referred to ‘ld. CIT(A)’) dated 27.09.2024 rejecting the application for approval u/s 80G(5) of the Act.
The applicant had filed an application in Form No.10AB on 19.03.2024 seeking approval under 80G(5)(iii) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’). The Ld. CIT(E) noted that application revealed that the applicant is a society which was created on 20.05.2016. The Ld. CIT(E) in order to appraise the activities and whether the same were in sync with the requested that the following documents/clarifications as mentioned in the letter dated 12.08.2024 be provided by 23.08.2024. Upon examination, the Ld. CIT(E) noted that the society got registration u/s 12AB on 28.05.2021 from CPC directly and hence, the activities being carried out by the Society could not be verified. The Ld. CIT(E) further noted that the Society was stated to be doing a number of charitable activities as per its MOA and that the objects of the Society were very generalized. The Ld. CIE(E) further noted that the financials showed payment of School Fees and the same was reflected in the bank statement too but no details such as fee receipts or other documentary evidences from the schools or photographs were filed by the applicant in support of the expenditure claimed in the Income & Expenditure Statement. It was found by the Ld. CIT(E) that trustees and their family members were contributing the donations which went towards making FDRs. Further, the Ld. CIT(E) noted that internet search in the public domain did not reveal anything about the Society and in order to verify the genuineness of said activities, the Income Tax Officer (Exemptions), Jalandhar was deputed to carry out discreet enquiries, who has submitted the following report on 17.09.2024:
"It is submitted that an Inspector of this office was deputed to visit the premises of Mesodini Foundation at the given address of Sood Eye Care Centre, Mission Compound, Opp. CNI Church, Jalandhar to make discreet enquiries and submit factual report on the activities of the foundation. The Inspector vide her report dated 12.09.2024 reported that she had visited the premises at Sood Eye Care Centre, Mission Compound, Opp. CNI Church, Jalandhar at about 10 AM on 12.09.2024. It was observed that there was no signboard announcing the name of 'Mesodini Foundation' on any part of the building. No indication or sign of any other activity being carried out relating to the said foundation at the premises was noticed. At the premises, only Eye Care Clinic and Dental Clinic under the name & style of 'Sood Eye Care Centre' and 'Sood Care & Implant Centre' was running at the ground floor of the building and the upper floor appeared to be residential part. The sign board of the clinic bears the names of Dr. Romesh Sood and Dr. Saurabh Sood which are the members of the society 'Mesodini Foundation' as per the ITR for A. Y. 2023-24. A photograph of the premises and copy of the report of Inspector is attached for kind perusal."
2.1. In view of the above report, the Ld. CIT(E) noted that it was clear that the society exists only on paper and no actual work was being carried out by it and the members were running clinics and the formation of Society was just an exercise to divert profits from the existing medical setup to a tax free entity under the garb of charity. In view of these facts, the application filed by the applicant for registration u/s 12AB of the Act on 19.03.2024 was rejected by the Ld. CIT(E). The Ld. CIT(E) further held that consequent lack of registration will apply from this A.Y. 2022-23 onwards and also supersede any registration granted u/s 12AB or 12AA of the Act by any authority at early time.
Aggrieved with the said order of the ld. CIE(E), the assessee is in appeal before us by raising the following grounds of appeal:-
1) That the order of the learned CIT(E), Chandigarh is bad in law and against facts of the case. 2) That order passed is against law and facts on the file in as much as the Ld. Commissioner of Income Tax (Exemptions), Chandigarh was not justified to arbitrarily hold that the society exists only on papers and no actual work is being carried out by it. 3) That order u/s 80G of the Income-tax Act. 1961 is against law and facts on the file in as much as the rejection of application for approval is without application of mind 4) That order passed by the Ld. Commissioner of Income Tax, (Exemptions), Chandigarh is against law and facts on the file in so far as to reject / cancel the registration us 12AB of the Act and that too from assessment year 2022-23, particularly as the application was in respect of approval u/s 80G and not for registration u/s 12AB. 5) That order passed by the Ld. Commissioner of Income Tax, (Exemptions), Chandigarh is against law and facts on the file in as much as the same is based on invalid discreet enquiries and without opportunity to the appellant to respond and clarify.
At the time of hearing before us, the Ld. AR supported the grounds of appeal and submitted that Income Tax Officer’s (hereinafter referred as ‘ITO’) report on the basis of which the ld. CIE(E) concluded that the society existed only on paper and no actual work was being done carried out by it, was not never confronted to the assessee before the adverse view was taken and the application filed by the assessee for registration u/s 12AB of the Act on 19.03.2024 was rejected. The ld. AR further submitted that the same was based on invalid discreet enquiries and without opportunity to the appellant to respond and clarify. In this regard, the ld. AR also relied upon the judgment of Hon’ble Punjab & Haryana High Court in the case of Cylos Consulting Private Limited vs Union Territory of Chandigarh & Ors. in CWP No.12739-2024 dated 17.12.2024 (placed a page no.67 to 70 of the paper book), wherein, it was held that merely on one inspection, if the person is not found to be available at his place of office, a presumption cannot be drawn that the firm is not functional, more so when there have been transactions and the firm has been regularly filing its returns.
The ld. CIT-DR supported the order of the authorities below.
We have heard both the parties and perused the material available on record. In this case, as noted above, the application of the assessee was rejected on the basis of ITO’s report dated 17.09.2024, (which was based on an Inspector’s report) in which it was stated that there was no indication or sign of any other activity being carried out relating to the said foundation at the premises stated to be belonging to the assessee. Moreover, the report of the ITO is based upon the Inspector’s report, who is stated to have visited the premises of the assessee and is stated to be attached with the ITO’s report but the same is not reproduced in the order of the Ld. CIT(E). Therefore, the contents of the said Inspector’s report is not there on the record. Further, on the perusal of the order of the ld. CIT(E), it is seen that the said ITO’s report and the Inspector’s report was never confronted to the assessee before rejecting the application for registration u/s 12AB of the Act, which is clearly against the principle of natural justice. Therefore, the order of the ld. CIT(E) in rejecting the said application cannot be sustained and the same is set-aside to the file of the ld. CIT(E) with a direction to make available copy of the ITO’s report dated 17.09.2024 along with the attached Inspector’s report to the assessee within a month from the date of the receipt of the order and thereafter decide the matter afresh after giving to file any submission/evidence in support of its appeal.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced as per Rule 34(4) of the ITAT Rules, 1963 on 26th August, 2025.