Porwal Yuvak Sang Kota Vs ITO ( ITAT Jaipur)
Once Registration Rejection Falls, ₹70.42 Lakh Addition Cannot Stand Unexamined: Jaipur ITAT Restores Trust’s Exemption Claim
SEO Title: ITAT Remands Charitable Trust’s Exemption Claim After 12AB Rejection Set Aside
SEO Description: Jaipur ITAT remands charitable trust’s exemption claim after 12AB rejection was set aside, directing fresh examination of documents by CIT(A).
Summary:
The assessee, Porwal Yuvak Sang Kota, was a charitable society claiming exemption of its income u/s 11 & 12. For AY 2023-24, it disclosed receipts or donations aggregating to ₹70,42,140 & showed an equivalent amount as application of income towards its charitable activities. Accordingly, it claimed that no taxable surplus arose.
During scrutiny proceedings, the AO noticed that the assessee’s application for registration u/s 12AB had been rejected by the CIT(E) through an order dated 30 March 2024. Treating the assessee as an unregistered entity, the AO denied exemption u/s 11 & 12, assessed the entire gross receipts of ₹70,42,140 as income from other sources, & framed the assessment u/s 143(3) r.w.s. 144B.
The assessee challenged the assessment before the CIT(A). However, the CIT(A) confirmed the addition essentially on the ground that the assessee did not possess a valid registration u/s 12AB & was consequently ineligible for exemption u/s 11. Aggrieved by the confirmation of the addition, the assessee approached the Tribunal.
Issues before the Tribunal
The principal issue was whether the denial of exemption & taxation of the entire receipts could survive when the order rejecting the assessee’s registration u/s 12AB had subsequently been set aside by the Tribunal.
The assessee also challenged the action of the AO in treating the entire gross receipts as taxable income without allowing corresponding revenue expenditure or application of income. It further contended that the assessment was contrary to the principles of natural justice & that the AO had wrongly treated it as an AOP while simultaneously applying provisions relevant to a charitable trust.
Assessee’s submissions
The assessee submitted that the very foundation of the assessment had ceased to exist. The CIT(A) had confirmed the addition merely because the CIT(E) had rejected its registration u/s 12AB. However, the Tribunal, through an earlier order dated 20 December 2024, had already set aside the rejection of registration & restored the registration matter for fresh consideration.
Therefore, the assessee could no longer be treated as conclusively ineligible for exemption u/s 11 & 12. Its exemption claim had to be reconsidered depending upon the final result of the restored registration proceedings.
The assessee also placed extensive documentary material on record, including bank statements, income & expenditure accounts, ledgers, balance sheet, computation of total income, constitution documents, Form 10B, Form 10BB & photographs of charitable activities or events. It contended that these documents demonstrated the nature of its activities & application of the entire receipts for charitable purposes.
Alternatively, the assessee argued that even if exemption u/s 11 & 12 was denied, the entire gross receipts could not automatically be taxed without permitting deduction of genuine expenditure incurred for earning or applying those receipts. If it was assessed as an AOP, only its real income or surplus could be brought to tax, subject to the applicable provisions.
Revenue’s position
The Revenue supported the orders of the lower authorities. Since the assessee’s registration u/s 12AB had been rejected when the scrutiny assessment was completed, the AO was justified in denying exemption u/s 11 & assessing the receipts as income from other sources.
The CIT(A) had also proceeded on the same factual position prevailing before him. The Revenue therefore sought to sustain the addition of ₹70,42,140.
Tribunal’s findings & legal reasoning
The Tribunal examined its earlier order dated 20 December 2024 relating to the assessee’s registration. It found that the order rejecting registration u/s 12AB had been set aside for fresh adjudication. Consequently, the factual premise on which the CIT(A) had confirmed the quantum addition no longer remained final.
The CIT(A) had decided the assessee’s exemption claim solely on the basis that registration u/s 12AB had been rejected. Once that rejection order was set aside, the conclusion that the assessee was definitively unregistered & ineligible for exemption became unsustainable without fresh examination.
The Tribunal also noted that the assessee had produced numerous documents relevant to its charitable status, receipts & application of income. These documents required proper examination by the first appellate authority. The CIT(A) was required to consider the assessee’s bank accounts, financial statements, audit reports in Form 10B & Form 10BB, constitutional documents & evidence of charitable activities before deciding whether the exemption was admissible.
Accordingly, the Tribunal did not itself decide whether exemption u/s 11 & 12 should ultimately be granted. It restored the entire matter to the CIT(A) with a direction to re-examine the documents & decide the appeal afresh on merits. The assessee’s appeal was therefore allowed for statistical purposes.
Practical implications
The decision confirms that when a quantum addition is founded entirely upon rejection of registration u/s 12AB, the subsequent setting aside of that rejection requires the exemption claim to be revisited afresh. An appellate authority cannot continue to rely upon an order that has lost its finality.
However, the ruling does not automatically grant registration or exemption. The assessee must still establish the charitable nature of its objects, genuineness of activities, compliance with statutory conditions & actual application of income.
The case also highlights that denial of exemption does not necessarily justify taxation of gross receipts without examining related expenditure. Where exemption ultimately fails, computation under the normal provisions may still require determination of real taxable income rather than mechanical taxation of every receipt.
The ruling thus protects the assessee from an addition based on a superseded registration order, while leaving the merits open for comprehensive examination by the CIT(A).
Cases Discussed
- Porwal Yuvak Sang Kota Vs. CIT(E) — Tribunal order dated 20.12.2024 referred to for setting aside the rejection of registration u/s 12AB and restoration of the registration matter for fresh consideration.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
The Appellant, Porwal Yuvak Sang Kota (hereinafter referred to as the ‘assessee’) by filing the present appeal, sought to set aside the impugned order dated 22.08.205 passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] qua the assessment order for Assessment year 2023-24 on the grounds inter-alia that:-
“1. The impugned order u/s 143(3) rws 144B of the I.T. Act, 1961 dated 26.02.2025 as well as the notice and proceedings are illegal, bad in law, barred by limitation, without jurisdiction, without approval/satisfaction from the proper or competent authority, against the principle of natural justice and various other reasons or and further contrary to the real facts of the case hence the same may kindly be quashed.
1.1 The Ld. CIT(A) has grossly erred in law as well as on the facts of the case in passing the Exparty assessment order without providing the adequate and reasonable opportunity of being heard in gross breach of law, hence the order may kindly be quashed and entire addition liable to be deleted.
2. Rs.70,42,140/-: The Id. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the addition of Rs. 70,42,140/- made by the ld. AO u/s 56(2)(x), the Id. AO and CIT(A) also erred in disallowing the entire expenses or revenue expenses of i.e grossly erred in taking the entire gross receipts of Rs. 70,42,140/- as income or receipts in place of deficit or surplus and not allowed the exemption u/s 11 and 12. Hence the addition/ disallowance so made by the AO and confirmed by the Id. CIT(A) is being totally contrary to the provisions of law and facts on the record and hence same may kindly be deleted in full.
3. The Id. AO has grossly erred in law as well as on the facts of the case in not allowing the exemption u/s 11 and 12, also erred on the facts that at the year end31.03.2023 there was no rejection order rather registered provisionally, hence retrospective effect given is invalid, illegal void-ab-inito. Hence the exemption/claim u/s 11 and 12 so denied by the AO is being totally contrary to the provisions of law and facts on the record and hence same may kindly be directed to allow the same and addition be deleted in full.
3.1 Alternatively and without prejudice to above the Id. AO has grossly erred in law as well as on the facts of the case in treating the assessee as an AOP in place of trust, however if the AO has treated the assessee as an AOP then there is no question of making the addition of Rs.70,42,140/- by applying the provision section u/s 11 and 12. Hence either exemption/claim u/s 11 and 12 so denied by the AO is allowed if not allowed then the disallowance may kindly be deleted in full being an AOP and not applicable provisions of section 11 and 12 and hence additions may kindly be addition be deleted in full.
4. The ld. AO has grossly erred in law as well as on the facts of the case in charging interest u/s 234A, 234B and 234C. The appellant totally denies it liability of charging of any such interest. The interest, so charged, being contrary to the provisions of law and facts, may kindly be deleted in full.
5. The appellant prays your honour indulgences to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing.”
2. Briefly stated, facts necessary for adjudication and consideration of the issues at hand are: During scrutiny assessment, the assessee society’s registration u/s 12AB of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) has been rejected by the Ld. CIT(E) vide order dated 30.03.2024. Thereafter during scrutiny assessment the AO noticed that assessee has received income/donation of Rs. 70,42,140/- and has shown application of income amounting to Rs. 70,42,140/- and claimed exemption u/s 11 of the Act. Since, assessee’s registration u/s 12 has already been rejected, the AO proceeded to make addition of Rs. 70,42,140/- being the income from other sources and thereby framed assessment u/s 143(3) r.w.s. 144B of the Act.
3. Assessee carried the matter before the Ld. CIT(A), who has confirmed the addition. Feeling aggrieved with the impugned order passed by the Ld. CIT(A), assessee has come up before the Tribunal by way of filing the present appeal.
4. We have heard Ld. ARs for the appellant and Ld. DR for the Revenue and perused the record available on file.
5. Ld. AR for the assessee has contended that the impugned order dated 30.03.2024vide which assessee trust’s registration u/s 12AB of the Act was cancelled, has since been set aside by the Tribunal vide order dated 20.12.2024 available at page 74 to 81 of the paper book.
6. We have perused the order passed by Tribunal, (supra) vide which registration of the assessee trust vide which registration of the assessee u/s 12AB of the Act was rejected, has since been set aside to be decided afresh by the Ld. CIT(A). Since, Ld. CIT(A) has decided the issue raised in the appeal before him, merely on the ground that the assessee trust is not entitled for exemption u/s 11 being not registered u/s 12AB of the Act, which fact got controverted from the order passed by Tribunal order (supra) by the Tribunal.
7. The assessee has also placed on record copies of the documents viz; copy of bank account statements, copy of income & expenditure A/c and ledger for F.Y. 2020-21 and 2021-22, copy of balance sheet and income & expenditure A/c of F.Y. 2021-22, copy of computation of total income for A.Y. 2023-24, copy of constitution of the trust, copy of Form No. 10B filed dated 30.09.2023, copy of Form No. 10BB dated 29.10.2023 filed copy of photographs of various works/event done by the trust and copy of Tribunal order in case of Porwal Yuvak Sang Kota vs. CIT(E). All these documents are required to be reexamined by the Ld. CIT(A) to decide the issue on merits.
8. So in these circumstances, Ld. CIT(A) is required to decide the appeal on merit in light of the documents brought on record by the assessee trust.
9. Resultantly, the appeal filed by the assessee trust is allowed for statistical purposes to be send back to Ld. CIT(A) to decide afresh.
Order pronounced in the open court on 25-08-2026
