University registration under sections 12AB and 80G(5) rejected due to CAG deficiencies but remanded for proper impact assessment

ITAT Raipur upheld CIT(E)'s rejection of university's application for registration under sections 12AB and 80G(5) based on CAG-reported deficiencies including unauthorized loans, advances and deposits without MoE/UGC sanction. However, since CIT(E) failed to specifically establish how these non-compliances materially affected the university's objects as required under section 12AB(1)(b)(i)(B), the matter was remanded to CIT(E) for fresh consideration and verification of the deficiencies' impact on achieving the university's objectives. Appeal partly allowed through remand.

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Issues Involved:
1. Rejection of application for registration under section 12AB.
2. Rejection of application for registration under section 80G(5).

Summary:

Issue 1: Rejection of application for registration under section 12AB

The assessee's appeal against the rejection of registration under section 12AB was based on several grounds, including the assertion that the assessee is directly exempt under section 10(23C)(iiiab) due to substantial government funding. The CIT(E) rejected the application citing various deficiencies noted in the CAG audit report, such as outstanding advances, non-offering of interest income, temporary utilization of corpus funds, and incorrect accounting treatments. The CIT(E) relied on the Supreme Court decision in New Noble Educational Society v. CCIT [2022] 143 taxmann.com 276, emphasizing the need to ascertain the genuineness of the activities and compliance with other laws.

The Tribunal observed that the CIT(E) focused on the deficiencies reported by the CAG rather than the charitable nature of the objects and activities of the assessee. The Tribunal noted that while the CIT(E) was correct in identifying deficiencies, the impact of these deficiencies on the achievement of the assessee's charitable objects was not specifically addressed. Consequently, the Tribunal set aside the order and remanded the matter to the CIT(E) for reconsideration, emphasizing the need to evaluate the material effect of the deficiencies on the accomplishment of the assessee's objects.

Issue 2: Rejection of application for registration under section 80G(5)

The grounds for appeal against the rejection of registration under section 80G(5) were similar to those for section 12AB. The CIT(E) rejected the application based on the same deficiencies noted in the CAG audit report. The Tribunal, applying the same reasoning as in the section 12AB issue, set aside the order and remanded the matter to the CIT(E) for reconsideration, directing the CIT(E) to evaluate the impact of the deficiencies on the achievement of the assessee's charitable objects.

Conclusion:

The Tribunal partly allowed both appeals, remanding the matters to the CIT(E) for reconsideration in light of the observations made, and directed the CIT(E) to provide the assessee with a reasonable opportunity of being heard. The Tribunal emphasized the need for the CIT(E) to evaluate the material effect of the deficiencies on the accomplishment of the assessee's charitable objects.

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