Seth PannaLal Charitable Trust Vs CIT (Exemptions) (ITAT Delhi)
The ITAT Delhi set aside the order of the CIT(E) rejecting Form 10AB and cancelling registration u/s 12AB, holding that the authority had clearly travelled beyond the permissible scope of enquiry at the registration stage.
The Tribunal emphasised that at the stage of grant/continuation of registration, the enquiry is confined to objects of the trust and prima facie genuineness of activities, and not to a microscopic examination of fund utilisation or alleged financial impropriety, which is the domain of assessment proceedings.
The CIT(E) had rejected registration mainly on the ground that donations were largely made in March, amounts were in fixed denominations, loans were advanced to related entities, donations were made to other trusts (including unregistered ones), and that documentary evidences like photographs were not furnished. The ITAT categorically held that none of these factors, by themselves, justify denial of registration.
The Tribunal noted that:
- Making donations in March after ascertaining surplus is a normal practice;
- Fixed donation denominations cannot automatically lead to an inference of circular or sham transactions;
- Donations to other charitable trusts are permissible and are even recognised by CBDT Instruction No. 1132 dated 05.01.1978;
- Temporary loans to other trusts or receipt of loans from trustees are not prohibited under law;
- Purchase of goods from a related concern is not illegal in the absence of over-pricing or undue benefit;
- Parking surplus funds in FDs is a prudent financial decision and not a ground for rejection.
Importantly, the ITAT held that even assuming any financial irregularity or benefit to related parties, the same could at best be examined during assessment, and cannot be a basis to reject registration altogether.
Further, the Tribunal found serious fault with the CIT(E) in “superseding” an existing 12AB registration without following the mandatory procedure u/s 12AB(4) and without recording any “specified violation”, rendering the action wholly unsustainable in law.
Accordingly, the impugned order was quashed and the CIT(E) was directed to grant approval of Form 10AB with all consequential benefits
FULL TEXT OF THE ORDER OF ITAT DELHI
