Section 12AA(3) cancellation depends on factual genuineness and conformity with objects; incomplete record justified remand.

Cancellation of registration under section 12AA(3) depends on a factual finding that the assessee's activities are either not genuine or not carried out in accordance with its objects. On the record, the source and character of interest income and rent receipts could not be conclusively linked to statutory functions or shown to be separate commercial exploitation of assets. Because the necessary factual correlation was not established and the material was incomplete, the controversy could not be finally decided on merits. The matter was therefore restored for fresh adjudication on the limited factual requirements of section 12AA(3), after giving the assessee an opportunity of hearing.

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Issues: Whether the cancellation of registration under section 12AA(3) was sustainable on the facts, and whether the matter required restoration for factual examination of the assessee's interest and rent receipts vis-a -vis its objects.

Analysis: The basis for invoking section 12AA(3) depended on a factual finding whether the assessee's activities were not genuine or were not being carried out in accordance with its objects. The material on record did not permit a clear finding whether the interest income and rent receipts arose in the course of the authority's statutory functions and were incidental to its development objects, or whether they reflected separate commercial exploitation of assets. Since the assessee had not established the necessary factual correlation with its principal statutory activities, and the record was insufficient for a conclusive determination either way, the controversy could not be finally decided on merits at this stage.

Conclusion: The matter was restored to the Director of Income Tax (Exemptions) for fresh adjudication limited to the factual requirements of section 12AA(3), after giving the assessee a reasonable opportunity of hearing.

Final Conclusion: The appeal succeeded to the extent of remand, and the substantive legality of cancellation of registration was left open for reconsideration on facts.

Ratio Decidendi: Where the applicability of section 12AA(3) turns on unresolved factual questions as to genuineness and conformity with objects, the matter may be remanded for a speaking determination rather than decided conclusively on an incomplete record.

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