Verification Process of Income Tax benefit claims by Trusts, Societies begins when the ITR are filed: Govt [Read Lok Sabha Answer]

The Finance Ministry while answering the unstarred questions stated that the verification Process of Income Tax benefit claims by Trusts, Societies begins when the ITR is filed.

The questions raised were the current mechanism for verification of tax benefit claims by Trusts/Societies under Section 12A, 80G and 10(23(c), etc of Income Tax Act; whether it is a fact that “Provisional Registrations” are granted to these trusts without any verification by the IT department; if so, under which provision of the Income Tax Act are these provisional registrations being granted; the steps being taken to prevent Trusts from making fake and fraudulent claims to get the provisional registration; and whether this helps in money laundering and if so, the total number of such cases found so far.

The process of verification of the tax benefit claims by the Trusts and Societies under section 12A, 80G, and 10(23C) of the Income-tax Act, 1961, begins when the Income Tax Returns (ITR) are filed by Trusts / Societies.

While filing the ITR electronically, it is mandatory for the trustor institution claiming exemption to file audit reports electronically in prescribed forms (10B, 10BB, etc.) one month prior to the due date of filing of return of income. The CPC while processing cases u/s 143(1) checks the statutory compliance before allowing the claim of exemption.

Further, scenarios have been included in the Computer Aided Scrutiny Selection (CASS) for the selection of cases for scrutiny. CASS is a centralized system for the selection of cases of scrutiny based on information in ITR, IT forms, TDS/TCS, data as reported by third parties, data received from various other agencies.

During the course of scrutiny assessments, verification of the tax benefit claims by the Trusts / Societies is undertaken by the Assessing Officer, and the claim is allowed only in fit cases.

Further to the above, while granting re-registration, the Principal Commissioner or Commissioner of Income-tax has been granted powers to call for any documents or information or make inquiries to, inter-alia, verify the genuineness of activities of such trust or institution.

All the trusts or institutions which are granted provisional registration under clause (23C) of section 10, section 12AB, and section 80G the Act are required to seek registration at least six months prior to the expiry of the period of provisional registration or approval or within six months of commencement of its activities, whichever is earlier, under clause (iii) of the first proviso of clause (23C) of section 10 or sub-clause( iii) of clause (ac) of sub-section (1) of section 12A or under clause (iii) of the first proviso to sub-section (5) of section 80G as the case may be. Thus, provisionally registered or approved trusts and institutions are required to apply for re-registration within 6 months of commencement of activities.

While granting re-registration in such cases, the Principal Commissioner or Commissioner has been granted powers to call for any documents or information or make inquiries to, inter-alia, verify the genuineness of activities of such trust or institution.

The procedure for granting provisional registration or approval under clause (23C) of section 10, section 12AB, and 80G respectively has been notified in the Official Gazette vide Notification No 19/2021 bearing GSR 212 (E) dated 26.03.2021 which, inter-alia, provided for a common application form 10A for entities seeking provisional registration or approval. 

The said notification provides that if, at any point of time, it is noticed that Form No. 10A has not been duly filled in by not providing, fully or partly, or by providing false or incorrect information or documents required to be provided while making an application for seeking provisional registration or approval under clause (23C) of section 10, section 12A, or section 80G, the Principal Commissioner or Commissioner, after giving an opportunity of being heard, may cancel the approval granted for provisional registration.

Hence as is evident from the above, requisite checks and balances have already been provided in the procedure in order to prevent trusts and institutions from making fake and fraudulent claims to get the provisional registration.

To Read the full text of the Lok Sabha Answers CLICK HERE

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