Trust Registration Denial Remanded: Assessee Granted Opportunity to Submit Additional Evidence on Loans, Expenses, and Charitable Activities.

Issue:

Whether the Commissioner (Exemption) was justified in denying registration to an assessee-trust under Section 12A based on alleged irregularities concerning borrowed loans, discrepancies in expense details, and insufficient evidence of charitable activities, or if the matter should be remanded to allow the assessee to present additional evidence and explanations.

Facts:

The assessee-trust applied for registration under Section 12A of the Income-tax Act.
The Commissioner (Exemption) rejected the application on three grounds:
1. The assessee had borrowed loans without the prior approval of the Charity Commissioner.
2. Details of expenses furnished by the assessee showed the name of a different trust/institution.
3. The assessee failed to submit documentary evidence (bills, vouchers, details of free/concessional services) to support its charitable activities.
The assessee countered these objections:
1. Loans were taken from members and their relatives, and the Charity Commissioner had not objected, implying acceptance/approval.
2. The “different trust/institution” mentioned in expense documents actually belonged to the assessee-trust, making the claim genuine.
3. The supporting documentary evidence for charitable activities could not be furnished earlier because these details were never specifically called for by the Commissioner (Exemption).
The assessee filed additional evidence during the appeal and requested its admission, arguing that these documents were crucial to the core issues.

Decision:

The court held that the additional evidence filed by the assessee went to the root of the matter and should be considered by the Commissioner (Exemption). Therefore, the matter was remanded back to the Commissioner (Exemption) with a direction to:

Grant an opportunity to the assessee to substantiate its case by filing requisite details/explanations to the satisfaction of the Commissioner.
Admit the additional evidence furnished by the assessee in support of its claim.
Adjudicate the issue afresh on merits, as per facts and law.

Key Takeaways:

Importance of Opportunity of Hearing and Natural Justice: This judgment emphasizes the fundamental principle of natural justice, requiring that an assessee be given a proper and adequate opportunity to present their case, especially when their tax-exempt status as a charitable trust is at stake.
Admissibility of Additional Evidence: Courts are inclined to admit additional evidence at the appellate stage if it “goes to the root of the matter” and is essential for a just decision, particularly if the assessee demonstrates that the documents were not requested or could not be furnished earlier.
Genuineness of Activities: The burden lies on the trust to prove the genuineness of its charitable activities and compliance with legal requirements. However, the tax authorities must also provide a fair chance for such proof to be adduced.
Loans from Members/Relatives: The ruling suggests that loans taken from members or relatives by a charitable trust, if genuinely utilized for charitable purposes and not objected to by relevant authorities (like the Charity Commissioner, if applicable), may not be a standalone reason for denying registration under Section 12A, provided proper accounting and transparency are maintained.
Inter-entity Transactions: If a charitable trust has multiple units or related entities, clarity on financial transactions and documentation is crucial to avoid misinterpretations by tax authorities. However, genuine transactions between related entities serving the same charitable objectives should be duly considered.
Remand for Re-adjudication: When a rejection order is found to be based on incomplete information or an insufficient opportunity given to the assessee, the matter is typically remanded back to the original authority for a fresh decision after considering all relevant facts and evidence.

IN THE ITAT PUNE BENCH ‘A’

Mahaveer (I) Foundation Trust

Commissioner of Income-tax (Exemption)

R.K. PANDA, Vice President
and Ms. Astha Chandra, Judicial Member

IT Appeal No.1981 (PUNE) of 2024

MAY 20, 2025

Rajiv Thakkar for the Appellant. Amol Khairnar, CIT-DR for the Respondent.

ORDER

Ms. Astha Chandra, Judicial Member.- This appeal filed by the assessee is directed against the order dated 22.07.2024 of the Ld. CIT(Exemption), Pune rejecting the application for grant of registration u/s 12A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. Facts of the case, in brief, are that the assessee filed an application in Form No.10AB on 29.01.2024 for registration of the trust under clause (iii) of section 12A(1)(ac) of the Act. With a view to verify the genuineness of the activities of the assessee and compliance to requirements of any other law for the time being in force by the trust / institution as are material for the purpose of achieving its objects, a notice was issued through ITBA portal on 29.03.2024 requesting the assessee to upload certain information / clarification listed therein, seeking compliance by 15.04.2024. On verification of the details submitted by the assessee in response to the said notice and the documents submitted along with the application, the Ld. CIT(Exemption) noted certain discrepancies for which he issued another notice was issued on 11.07.2024 to obtain clarification on those issues. The assessee was show caused to explain as to why the application for grant of registration u/s 12A should not be rejected and why the registration granted earlier u/s 12AB should not be cancelled in the event of failure to comply by the due date i.e. 18.07.2024. The assessee filed its response raising its contentions which were not accepted by the Ld. CIT (Exemption) for the reasons reproduced below:

“5. It has been contended by the assessee that the.

“The trust borrowed unsecured loans in FY 2019-2020. These loans were availed to make good routine operational expenses of the trust during relevant period. At the time of availing loans trust did not obtain due approval from office of Charity Commissioner due to Carona-19 pandemic started in March 20. This activity was started from first week of March 20. The Charity Commissioner Office was not working at that time. Had we have not raised these funds, it was difficult to keep on services when they were essential during crucial period. Despite the absence of formal permission under Section 36A, the loan was exclusively applied for routine expenses to carry out charitable activities. This does not provide any personal benefit or favor to the trustees or any other individual associated with the trust”

5.1. The assessee’s contention is not accepted. In this regard, provision of sec. 36A(3) of the Maharashtra Public Trust Act, 1950 is reproduced for ready reference:

“36A(3) No trustee shall borrow moneys (whether by way of mortgage or otherwise) for the purpose of or on behalf of the trust of which he is a trustee, except with the previous sanction of the Charity Commissioner, and subject to such conditions and limitations as may be imposed by him in the interest or protection of the trust.

[Provided that, the Charity Commissioner or the Joint Charity Commissioner, as the case may be, shall decide the application for borrowing money from the Bank or Financial Institution forthwith and preferably within a period of fifteen days, if the Bank or the Financial Institution has provisionally sanctioned the loan.].”

Section 36A(3) of the BPT Act, 1950 provides that ” no trustee shall borrow moneys (whether by way of mortgage or otherwise) for the purpose of or on behalf of the trust of which he is a trustee, except with the previous sanction of the Charity Commissioner, and subject to such conditions and limitations as may be imposed by him in the interest or protection of the trust. Thus, said provision mandates the trust to obtain previous sanction from Charity Commissioner in respect of any loan, whether by way of mortgage or otherwise. The assessee has, however, failed to comply with this statutory requirement. As per the provisions of sec. 12AB(1) of the Income-tax Act, 1961, the Commissioner shall satisfy himself about, among other things, ‘the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects. The assessee has failed to satisfy said requirement as well.

(i)

Also, the assessee trust has failed to produce any bills vouchers of activities conducted towards charity by the trust. In fact, the financial statements shows that the trust has made its entire expenditure/expenses on establishments rather than on charitable objects

(ii)

The assessee was specifically asked to submit details of free services/ beneficiaries/concessional rates given to patients from the financially weaker sector along with evidence. However, the assessee failed to submit the same.

(iii)

In connection with activities the assessee has submitted few Photographs but fail to prove any charitable activities.

2.1 The Ld. CIT (Exemption) therefore concluded that the activities of the assessee trust are conducted on commercial basis and are not charitable in nature. Being dissatisfied by the charitable nature and genuineness of the activities of the trust, the Ld. CIT (Exemption) rejected the application filed by the assessee for grant of registration u/s 12A of the Act and also cancelled the provisional registration granted earlier u/s 12AB of the Act by observing as under:

“7. Considering the above facts discussed in the show notice and discrepancies noticed and also that the assessee has not complied with the provisions of section 12AB(1)(b)(i) of the Income Tax Act, 1961 as well as the provisions of Rule 17A(2) of Income Tax Rules, 1962 in spite giving sufficient opportunities, the undersigned is unable to draw any satisfactory conclusion about the genuineness of activities of the assessee and compliance of requirements of any other law for the time being in force by the assessee as are material for the purpose of achieving its objects.

8. In view of the above, the application filed by the assessee is hereby rejected and the provisional registration granted on 28/05/2021 under section 12AB read with section 12A(1)(ac) (vi) of the Income Tax Act, 1961 is hereby cancelled.”

3. Aggrieved with such order of Ld. CIT (Exemption), the assessee is in appeal before the Tribunal by raising the following grounds of appeal:

“1. On facts and circumstances prevailing in the case and as per provisions and scheme of the Act it be held that the Ld. Commissioner of income Tax-(Exemption) has erred in rejecting the registration granted under section 12AB of the Act. The order so passed by the Ld. Commissioner of income Tax-(Exemption) is improper, unjustified and contrary to the provisions of the Act and be treated as null and void. The Appellant be granted just and proper relief in this respect.

2. Without prejudice to above ground, the Ld. Commissioner of income Tax- (Exemption) had erred in withdrawing provisional registration granted on 28th May 2021. The Appellant prays for restoration of provisional registration order dated 28th May 2021, for the period for which it was granted.

3. The Appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at the time of hearing.

4. The Appellant prays leave to adduce such further evidence to substantiate its case, as the occasion may demand.”

4. The Ld. Counsel for the assessee at the outset submitted that the application filed for grant of registration u/s 12A of the Act was rejected by the Ld. CIT (Exemption) on mainly on the grounds that – (i) the assessee has borrowed loan without the prior approval of the Charity Commissioner; (ii) details of expenses furnished by the assessee shows the name of some different trust/ institution and (iii) the assessee failed to submit documentary evidences in support of the charitable activities carried out by the assessee such as bills, vouchers, details of free/ concessional services offered to the beneficiaries etc. To counter the above observations of the Ld. CIT (Exemption), the Ld. AR submitted the loans have been taken by the assessee from its members and their relatives and the Ld. Charity Commissioner has not raised any objection thereto till date which indirectly implies that the said loans stands accepted/ approved the Ld. Charity Commissioner. So far as the name of the different trust/institution, Mahavir Diagnostic Center on the supporting documents for claim of expenses etc. is concerned, he submitted that Mahavir Diagnostic Center belongs to the assessee trust and hence the claim is genuine. Regarding the failure to furnish supporting documentary evidences for charitable activities conducted by the trust, the Ld. AR submitted that the assessee is able to substantiate its claim with relevant documentary evidence, however, these documents/ details could not be furnished earlier before the Ld. CIT (Exemption) as these were never called for. The Ld AR filed additional evidence before us praying to admit the same on the ground that these documents go to the root of the issue involved in the present appeal. The Ld. AR therefore urged that in the interest of justice, the assessee should be given an opportunity to substantiate its case before the Ld. CIT (Exemption) by filing all the relevant details/ additional evidence for deciding the issue afresh. He accordingly submitted that the matter may be restored to the file of the Ld. CIT (Exemption).

5. The Ld. DR, on the other hand, strongly objected to the arguments advanced by the Ld. AR and supported the order of the Ld. CIT (Exemption).

6. We have heard the rival arguments made by both the sides, perused the order of the Ld. CIT (Exemption) and the paper book(s) including the additional evidence filed by the Ld. AR on behalf of the assessee. It is an admitted fact that the Ld. CIT (Exemption) rejected the application for grant of registration u/s 12A of the Act for the reasons already reproduced in preceding paragraph(s). It is the submission of the Ld. Counsel for the assessee that given an opportunity the assessee is in a position to explain and substantiate its case by filing all the relevant details before the Ld. CIT (Exemption), for which additional evidence(s) have been filed before us. We find some force in the arguments furnished by the Ld. AR that the additional evidence filed by the assessee goes to the root of the matter and these documents should be considered by the Ld. CIT (Exemption) for deciding the impugned issue. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Ld. CIT (Exemption) with a direction to grant an opportunity to the assessee to substantiate its case by filing the requisite details/ explanation to his satisfaction and admit the additional evidence furnished by the assessee in support of its claim and thereafter adjudicate the issue afresh on merits as per fact and law. The assessee is also hereby directed to submit any further details/ information/ documents as may be called for by the Ld. CIT (Exemption) on the appointed date without seeking any adjournment under any pretext, failing which the Ld. CIT (Exemption) is at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

7. In the result, the appeal filed by the assessee is allowed for statistical purposes.