2024 (2) TMI 661 - AT - Income Tax

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

M/s Guru Ghasidas Vishwavidyalaya Versus Commissioner of Income Tax (E), REAC, Bhopal (MP)

ITAT Raipur upheld CIT(E)'s rejection of university's application for registration under sections 12AB and 80G(5) based on CAG-reported deficiencies ... Rejection of application filed in form no. 10AB for grant of registration u/s 12AB and 80G(5) - CIT(E) thoroughly discussed various discrepancies reported by the CAG to the assessee university for the FY 2021-22 wherein it is specifically observed that the loans, advances and deposits are without prior sanction of MoE/UGC HELD THAT:- Assessee university was found in default in terms of certain deficiencies and non-compliances as reported by CAG, which were examined by the Ld. CIT(E) and has culminated the order of rejection by recording her dissatisfaction under the provisions of section 12AB(1)(b)(ii)(B), however Ld. CIT(E) have not doubted or commented adverse about the objects, nature of activities and genuineness of the activities and also have not commented as to how the non-compliances /deficiencies noted are material for the purpose of achieving the objects of the assessee university which is necessary as mandated under the provisions of section 12AB(1)(b)(i)(B), still Ld. CIT(E) has valid reasons for her dissatisfaction on the basis of reported deficiencies and non-compliances on the part of assessee which may adversely affect the objects, therefore, the impugned order of cancellation cannot be squarely suffering with error of law and thus, the request of assessee to struck down the same cannot be accepted. Since the material effect of deficiencies and non-compliances on the accomplishment of objects of the assessee are not specifically brought on record by the Ld. CIT(E), therefore, in the interest of justice, for the sake of verification and clarification regarding effect of the deficiencies and non-compliance towards the achievement of the objects of the assessee university, we find it appropriate to restore the issues raised back to the Ld. CIT(E), to revisit the application of the assessee for grant of registration u/s 12AB - Assessee appeal partly allowed by way of remand. 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 12ABThe 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.