2022 (10) TMI 411 - AT - Income Tax

Tribunal overturns rejection of society's registration under Section 12AA, citing lack of evidence and due process

Sunrise Shikshan Sansthan Versus C.I.T. (Exemptions), Jaipur.

The Tribunal set aside the CIT(Exemptions)'s order rejecting the assessee-society's registration under Section 12AA of the Income Tax Act. The Tribunal ... Exemption u/s 11 - registration u/s 12AA rejected - assessee society is registered under the Rajasthan Societies Registration Act, 1958 and running a school - CIT(E) raised an issue that, on enquiry, it is seen that the assessee is showing lower tuition fee and not disclosing bus fee in the books of account - HELD THAT:- Material collected behind the back of assessee could not be utilized against assessee unless the copy of the same was supplied to the assessee and he was given an opportunity to rebut the same. The assessee furnished full explanation to the query raised. No opportunity was provided to the assessee for cross-examination. Such material cannot be used against the assessee unless he is supplied the copy of such material and is allowed an opportunity to rebut the same. Similarly, any statement recorded behind the back of the assessee cannot be used against him unless the assessee is supplied the copy of the statement and is allowed an opportunity to cross-examine. As per record, no documentary evidence of field enquiry was provided to the assesseesociety. Even it is not clear from the record as to whether such enquiry was made from parents or minor students. No statements were recorded in writing of any of the witnesses and no opportunity of cross examination was provided. In this regard, we rely upon the decision in the case of Kishinchand Chellaram [1980 (9) TMI 3 - SUPREME COURT] wherein the Hon'ble Supreme Court has held that any material not confronted to assessee would not constitute as 'admissible evidence'. An institute though registered u/s 12AA, would still be taxed on the income which has not been applied in accordance with section 11 or in respect of which section 13 comes into play. Thus, the registration U/s 12AA is only fait accompli to the objects of the institution. The activities of an institution though genuine at the time of grant of registration may not remain so during its life span and the registration granted to it cannot be ‘life time guarantee’ that it would remain so, that is why the law prescribes procedure for withdrawal of registration once granted. Considering the totality of the facts, circumstances and legal position, we are of the view that the application submitted by the assessee-society is in consonance with the procedural requirement prescribed in this regard. From the constitution and other documents of the assessee-society which were filed before the Ld. CIT(E), the objects of the society could be ascertained. Even during the pendency of appeal before us, the assessee-society has submitted affidavits as well as balance sheets and these affidavits are in the shape of confirmations coupled with Aadhar Card of the respective persons wherein they have denied the allegations leveled upon the assessee-society. Copies of the said documents were given to the opposite party but the said documents were not rebutted by leading any evidence. Thus, in that eventuality, we also draw inference that the allegations upon the assessee could not be proved by the Revenue and thus from the same and from factual activity of running school, it is evident that the objects of the society are charitable in nature and are in tune with section 2(15) of the Act and, therefore, the order of the CIT (E) rejecting the application u/s 12AA of the Act is set aside and we allow the appeal of the assessee. Issues Involved:1. Legality of the order passed by the CIT(Exemptions), Jaipur.2. Rejection of the assessee-society's registration under Section 12AA of the Income Tax Act.3. Observations recorded by the CIT(Exemptions) contrary to the facts.4. Opportunity for the petitioner to raise additional or alternative grounds.Detailed Analysis:1. Legality of the Order Passed by the CIT(Exemptions), Jaipur:The assessee challenged the CIT(Exemptions)'s order, arguing it was 'bad in law and bad on facts.' The Tribunal noted that the CIT(Exemptions) did not provide the assessee with the material collected during the enquiry, violating the principles of natural justice. The Tribunal emphasized that any material not confronted to the assessee would not constitute as 'admissible evidence' (Kishinchand Chellaram 125 ITR 713 SC).2. Rejection of the Assessee-Society's Registration under Section 12AA:The Tribunal observed that the CIT(Exemptions) rejected the registration application based on an enquiry that alleged lower tuition fees and non-disclosure of bus fees. The assessee contended that all receipts were properly accounted for and that the enquiry's findings were based on presumptions and surmises. The Tribunal highlighted that the CIT(Exemptions) should only examine whether the application meets the requirements of Section 12A and whether the trust's objects are charitable, not the application of income at this stage (CIT vs. Red Rose School, 163 Taxman 19 (All)).3. Observations Recorded by the CIT(Exemptions) Contrary to Facts:The Tribunal found that the CIT(Exemptions) relied on material collected behind the assessee's back without providing an opportunity for cross-examination. The Tribunal reiterated that such material could not be used against the assessee unless they were given a chance to rebut it (M/s Andaman Timber Industries vs. Commissioner of Central Excise, Kolkata-II -281 CTR 241). The Tribunal also noted that the assessee's activities were in line with its charitable objects, and the school's operations were monitored by government agencies, with accounts duly audited.4. Opportunity for the Petitioner to Raise Additional or Alternative Grounds:The Tribunal allowed the assessee to raise any additional or alternative grounds during the hearing. The Tribunal emphasized that the CIT(Exemptions) should have provided complete evidence to the assessee and granted an opportunity for cross-examination, aligning with the principles of natural justice.Conclusion:The Tribunal concluded that the CIT(Exemptions) should not have rejected the registration application based on the alleged understatement of fees without providing the assessee with the material and an opportunity for rebuttal. The Tribunal set aside the order of the CIT(Exemptions) and allowed the appeal, granting the assessee-society registration under Section 12AA of the Income Tax Act.Order:The appeal of the assessee was allowed, and the order was pronounced on 31st January 2022.