Failure to Confirm Authenticity of Activities and Compliance with Relevant Laws: ITAT Remands matter to Consider Registration of Trust u/s 12 AA of Income Tax Act [Read Order]

The Pune bench of the Income Tax Appellate Tribunal (ITAT) remanded the matter for consideration of the registration of the trust under Section 12AA of the Income Tax Act, 1961, due to the failure to confirm the authenticity of activities and compliance with relevant laws.

The issue to be decided was whether rejected the registration to the assessee-trust under Section 12AB of the Income Tax Act, 1961, by the CIT (E)

The Commissioner of Income Tax (Exemption) noted that specific information had been requested from the assessee to verify the authenticity of the objectives of the trust and to assess the legitimacy of its charitable endeavors. The aim was also to ensure adherence to prevailing legal statutes while pursuing the charitable goals of the trust. The assessee was afforded opportunities by the tax authority to furnish corroborative evidence demonstrating the aforementioned objectives and the charitable activities undertaken by the trust.

The CIT (E) noted the absence of satisfactory explanations supported by documentary evidence from the taxpayer regarding the origin and nature of cash deposits, as well as the rationale behind cash withdrawals from bank accounts and the subsequent utilization of these funds.

The CIT (E) concluded that the assessee has failed to substantiate the authenticity of its activities and its compliance with relevant legal provisions essential for the fulfillment of its objectives. Thus, the application submitted by the assessee was rejected.

The bench observed that this case revolved around the application for the registration of a trust submitted by the assessee. However, due to insufficient supporting evidence, the Department rejected the application. It was crucial to understand that the provisions for trust registration under Section 12AA of the Income Tax Act, 1961, and the granting of exemptions under Section 80G of the Income Tax Act, 1961, were rooted in the Directive Principles of State Policy outlined in the Indian Constitution.

The Government of India endeavored to ensure the welfare of all members of society, and hence, registration for public charitable trusts was provided to ensure that benefits flowed to the entire society. Through these charitable trusts, various philanthropic activities benefited the society at large, aligning with the objectives of the Government of India to fulfill the Directive Principles of State Policy. These provisions not only facilitated trust registration but also promoted socio-economic welfare in society.

Moreover, it was imperative to recognize that Income Tax laws were designed for the welfare of society rather than being punitive in nature. Therefore, in the interest of justice and taking into account the aforementioned considerations.

 The bench believed that the assessee should have been given one final opportunity to submit relevant details before the competent authority CIT(E)) and present their case on merit. Ultimately, the power rested with the CIT(E) to either grant or reject the application concerning the issue at hand. However, this decision should have been made after a thorough examination and verification of all documentary evidence provided by the applicant

The two member bench of the tribunal comprising R.S. Syal ( Vice President ) and Partha Sarathi Choudhari ( Judicial member) overturned the decision of the CIT(E) and referred the matter back to their office with the aforementioned directive. The CIT (E) was instructed to re-adjudicate the matter in accordance with the law, adhering to the principles of natural justice. The grounds of appeal of the assessee were allowed for statistical purposes.

In the result, appeal of the assessee stands allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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