CIT(E) Rejects S. 12AB Claim Citing Related Party Transactions Without Considering Society's Replies: ITAT Remands Matter for Proper Hearing [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) remanded the matter concerning the rejection of a society’s application for registration under Section 12AB of the Income Tax Act, 1961 citing the Commissioner of Income Tax (Exemptions) [CIT(E)] did not consider the replies and directed a proper hearing to reassess the matter.

The Confederation of Bahadurgarh Industries, the assessee is a society established on 07.12.2021, filed its application for registration on 01.09.2023, accompanied by financial statements, bank records, a memorandum of association, and evidence of its activities. The society was to promote industrial development in the Jhajjar region.

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The CIT(E) observed discrepancies in the application. The CIT(E) observed that the society’s office address was the same as A.K. Mittal & Associates, a firm owned by one of its members, and huge payments to related parties, including software expenses to 30 Days Technologies Pvt. Ltd. and rent to A.K. Mittal & Associates.

The CIT(E) further observed a large expense on furniture, packaging materials, and advertisements, which lacked relevance to the society’s stated objectives, and membership fees and subscriptions forming the society’s primary receipts, suggesting its activities were service-oriented rather than charitable or promotional.

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The CIT(E) ruled that the society’s activities were not in line with Section 12AB of the Income Tax Act, 1961 requirements and rejected the registration effective from Financial year 2023-24 nullifying any prior registrations.

On appeal before the ITAT, the society argued that its voluminous submissions, including proof of activities and financial documentation, were not considered by the CIT(E). The society requested another opportunity to clarify and substantiate its case.

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The two-member bench comprising Shamim Yahya (Accountant Member) and Vimal Kumar (Judicial Member) considered the arguments from both parties. The tribunal observed that the CIT(E) did not provide any consideration to the evidence submitted by the society.

The tribunal explained the need for a fair reassessment and directed the CIT(E) to re-examine the application ruling that society is given sufficient opportunities to address the issues raised. The tribunal remanded the case to the CIT(E) for fresh adjudication and allowed the appeal for statistical purposes.

To Read the full text of the Order CLICK HERE

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