Dear friends, as we all know Charitable Institutes/ NGO are the integral part of our society for the well being of poor and needy section of the Society. There contribution for the welfare of society cannot be ignored. The same, we have witnessed during the 2020 lockdown. These NGO has supported lower section of our society by providing food, medicine and other necessary things during 2020 Pandemic. These NGO’s are dependent on donations received from different donors and donors are trying to donate to that NGO, to whom if they donate get 80G deductions from their taxable Income.
To involve more and more NGO’s in the main stream and to smooth the registration process U/s Section 12A and 80G, the Income tax department has introduced Provisional and Permanent registration concept for both Section 12A and 80G registration few years back. Earlier getting registration under these sections are very difficult but now after the introduction of provisional and permanent registration concept more and more NGO’s get involved in these registration process and get provisional registration and start receiving funds from there donors but when they approach the Income tax department for permanent registration then the main problem starts. In this blog, we will discuss about a real case study of NGO, which is in huge trouble after registered U/s 12A and 80G of the Income Tax Act, 1961.
An old trust is working for the welfare of society using the funds received from trustees and nearby donors and everything is going fine. After the introduction of new registration scheme U/s 12A and 80G, the trust applied for provisional registration and got the same. The provisional registration application is approved in the month of January 2021 and trust received good amount of donation from its donors and trust spent all the donations received for the welfare of society and filed his ITR, audit report well before the due date. Meanwhile trust has applied for final registration under both sections and submits all the required details with the Commissioner (Exemption) to convert their provisional registration into final registration. However, final registration application under both sections is rejected by the Commissioner (Exemption) on the ground that, trust activities are very general in nature and application is not approved. Later, trust tried to file re-registration application; however, the same cannot be done due to technical error at the income tax portal.
Later, case is selected for Scrutiny assessment U/s 143(2) of the income tax act, 1961. Now, all required documents as demanded by officer are produced before the due date but the officer does not considered these documents and passed order U/s 143(3) of the Income tax act, 1961 by taxing Gross Donations and create a demand of lakhs and also penalty proceedings are initiated for concealment of income.
Author’s Note: From above, it is clear that, unless and until a NGO receive approval from Commissioner (Exemption) in the form of Final registration under both section, it is very risky to receive donation and claim exemptions under above sections.
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Disclaimer: This article is for the purpose of information and shall not be treated as solicitation in any manner and for any other purpose whatsoever. It shall not be used as legal opinion and not to be used for rendering any professional advice. The author will not be held responsible for any lose, if occur after using above information. Kindly consult your professionals before taking any action. This article is written on the basis of author’s personal experience and provision applicable as on date of writing of this article. Adequate attention has been given to avoid any clerical/arithmetical error, however; if it still persists kindly intimate us to avoid such error for the benefits of others readers. The Author “CA Shiv Kumar Sharma” can be reached at Mobile/WhatsApp–9911303737.
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