ITAT allows appeal against rejection of charitable registration under Section 12AB and 80G approval

The ITAT Indore allowed the assessee's appeal and set aside the CIT(E)'s rejection of registration u/s 12AB and approval u/s 80G(5). The tribunal found that previous registration cancellation had been restored by another ITAT order, making the assessee's activities genuine. The grounds for rejection - non-payment of bank loans, TDS defaults, delayed PF/ESIC payments, non-provision for retirement benefits per AS-15, and non-payment of GST on rental income - were held insufficient. The tribunal ruled these did not constitute non-compliance with laws governing the assessee's charitable objects, and GST exemption applied to entities registered u/s 12AA. Registration and approval were directed to be granted.

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Issues Involved:
1. Legality of the order dated 07.03.2023 passed under sections 12AB(1)(b) and 80G(5)(ix) of the Income Tax Act.
2. Rejection of the application for registration under section 12A(1)(ac)(iii).
3. Rejection of the application for approval under section 80G(5)(ix).
4. Alleged violations of GST Law, Non-payment of TDS, Non-provisioning of interest on bank loan, and delayed payment of PF/ESIC.

Detailed Analysis:

1. Legality of the Order Dated 07.03.2023:
The appeals challenge the composite order dated 07.03.2023 by the Commissioner of Income Tax (Exemption) [CIT(E)], which rejected the application for registration under section 12A and approval under section 80G(5). The appellant argued that the order was "illegal and void-ab-initio."

2. Rejection of the Application for Registration Under Section 12A(1)(ac)(iii):
The appellant society was initially granted registration under section 12A on 07.03.2003, which was canceled on 14.11.2018. However, this Tribunal set aside the cancellation order on 08.06.2023, restoring the registration under section 12AA and approval under section 80G. Despite this, the CIT(E) denied regular registration under the amended provisions of section 12A.

The CIT(E) cited various reasons for rejection, including:
- Previous involvement in money laundering.
- Violations related to non-payment of loans, shortfall in TDS, delayed PF & ESIC payments, and non-payment of GST on rental receipts.
- Non-compliance with Accounting Standard 15 (AS-15) for retirement benefits.

The Tribunal found that these objections did not constitute violations of any provisions of law relevant to the activities of the appellant society. The Tribunal emphasized that non-payment of loans and interest is a contractual obligation and not a statutory violation. The Tribunal also noted that the appellant was exempt from GST registration per Notification No. 12/2017 and that the short deduction of TDS and delayed PF & ESIC payments had been rectified in subsequent years.

3. Rejection of the Application for Approval Under Section 80G(5)(ix):
The CIT(E) also rejected the application for approval under section 80G(5)(ix) on similar grounds as those for section 12A. The Tribunal reiterated its findings that these objections were not material violations affecting the charitable activities of the appellant society.

4. Alleged Violations:
- GST Law: The appellant argued that it was exempt from GST registration under Notification No. 12/2017. The Tribunal agreed, stating that the appellant was not required to pay GST or register under GST.
- Non-payment of TDS: The Tribunal noted that any shortfall in TDS was rectified in subsequent years and did not constitute a violation of law affecting the appellant's activities.
- Non-provisioning of Interest on Bank Loan: The Tribunal found that non-payment of loans and interest was a contractual issue and not a statutory violation.
- Delayed Payment of PF/ESIC: The Tribunal acknowledged that while there were delays in PF & ESIC payments for one financial year, there were no outstanding payments in subsequent years. This did not amount to a violation affecting the appellant's charitable activities.

Conclusion:
The Tribunal set aside the impugned order of the CIT(E) and directed the CIT(E) to grant registration under section 12AB and approval under section 80G(5). The Tribunal found that the objections raised by the CIT(E) were not material violations affecting the charitable activities of the appellant society. The appeals were allowed, and the order was pronounced in the open court on 22.11.2023.

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