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

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 held that the rejection based on alleged fee understatement without providing material and a chance for rebuttal was unjust. The appeal was allowed, granting the assessee-society registration.

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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.

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