Career Point University Hamirpur Vs CIT (ITAT Chandigarh)
Chandigarh ITAT: 12AB Registration Cannot Be Denied on Mere Suspicion of Related-Party Transactions Without Proper Factual Verification
The Chandigarh ITAT set aside the order of the CIT (Exemptions) rejecting the assessee-university’s application for registration under Section 12A(1)(ac)(ii), holding that registration cannot be denied on the basis of factual discrepancies and mere suspicion regarding related-party borrowings without first undertaking a proper factual verification. The matter was restored to the CIT(E) for de novo adjudication.
The CIT(E) had rejected the application primarily on two grounds. First, he computed unsecured loans of ₹29.68 lakh as on 31.03.2025, whereas the assessee’s financial statements reflected nil unsecured loans. Secondly, he held that the assessee had borrowed funds from a related concern at 10.5% interest, which allegedly indicated possible diversion of charitable funds and an arrangement not consistent with the principles governing charitable institutions.
The Tribunal found that the alleged discrepancy in unsecured loans was purely factual, observing that the difference apparently arose because the CIT(E) omitted to consider changes in current liabilities, a reconciliation which the assessee claimed it could satisfactorily explain.
On the issue of interest paid to the related party, the Tribunal held that mere payment of interest at 10.5% could not, by itself, justify denial of registration. Before concluding that the rate was excessive or indicative of diversion of funds, the CIT(E) was required to compare the interest with prevailing market rates, keeping in view that unsecured borrowings generally carry higher rates than secured loans, which are backed by security and may also involve separate processing charges.
Accordingly, the Tribunal set aside the rejection order and restored the application to the file of the CIT(E) for fresh adjudication after proper factual verification, directing the assessee to substantiate its case with the necessary evidence. The appeal was allowed for statistical purposes
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
