3RZW ENVIRONMENT FOUNDATION ,GURUGRAM V. CIT EXEMPTIONS, CHANDIGARH

ITA 1133/CHANDI/2025

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The case involves the 3RZW Environment Foundation, which appealed against the decision of the CIT (Exemptions), Chandigarh, rejecting its application for registration under Section 12AB of the Income Tax Act, 1961. The CIT (Exemptions) had found the application inadequate in establishing the genuineness of the foundation's activities and compliance with its stated charitable objects. The Tribunal noted several critical observations that required further factual verification, particularly concerning the financial activities and the distinction between the foundation and its parent company. The Tribunal emphasized the need for a thorough examination of the activities and financials to determine the genuineness of the charitable purposes claimed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 787182 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 02-09-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL
• Assessee Lawyers: SHIV SHANKAR RAO CHALLA; DIRECTOR VIRTUAL MODE
• Keywords: Set aside; Additional evidence; Principle of natural justice; Charitable institution
• Section: 12A; 12

Judgement Text

"आयकर अपीलीय अिधकरण,चǷीगढ़ Ɋायपीठ “बी” , चǷीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: HYBRID MODE ŵी लिलत क ुमार, Ɋाियक सद˟ एवं ŵी मनोज क ुमार अŤवाल, लेखा सद˟ BEFORE: SHRI. LALIET KUMAR, JM & SHRI. MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No. 1133/Chd/ 2025 िनधाŊरण वषŊ / Assessment Year : 2025-26 3RZW ENVIRONMENT FOUNDATION 328 Eros Corporate Park, Sector-2, IMT, Manesar, Gurgaon, Haryana- 122052 बनाम The CIT Exemptions Chandigarh ˕ायी लेखा सं./PAN NO: AABCZ5990L अपीलाथŎ/Appellant ŮȑथŎ/Respondent िनधाŊįरती की ओर से/Assessee by : Shri Shiv Shankar Rao Challa, Director (Virtual Mode) राजˢ की ओर से/ Revenue by : Shri Rajat Kumar Kureel, CIT, DR सुनवाई की तारीख/Date of Hearing : 18/11/2025 उदघोषणा की तारीख/Date of Pronouncement : 19/11/2025 आदेश/Order PER LALIET KUMAR, J.M: This appeal has been filed by the assessee against the order passed by the Ld. CIT (Exemptions), Chandigarh, dt. 10/07/2025, rejecting the application for registration under Section 12AB of the Income Tax Act, 1961, in Form 10AB. 2. In the present appeal the sole ground raised by the assessee read as under: “1. That the CIT Exemptions erred in rejection of application of trust in form 10AB read with section 12A in a incorrect manner against the principals of law . 2) That the denial of registration for the charitable purpose is in violation of section 12 A of the income tax act.” 3. Briefly, the facts of the case are that The assessee, 3RZW Environment Foundation, filed an application for registration u/s 12A(1)(ac)(vi) through Form 10AB on 23.01.2025. During scrutiny, the Ld. CIT (Exemptions) found that the documents submitted were inadequate to establish the genuineness of Printed from counselvise.com 2 activities and compliance with stated charitable objects. A detailed questionnaire/show-cause notice was issued on 27.02.2025, seeking multiple documents such as MoA, commencement of activities, bank statements, charitable expenditure details, annual accounts, and proof of compliance with Section 2(15) and Section 13 of the Act. 4. Against the order of the Ld. CIT(E) the assessee preferred an appeal before the Tribunal. 5. The assessee furnished replies and supporting documents; however, the CIT (Exemptions) observed that the submissions were incomplete and unsatisfactory. It was further noted that despite incorporation on 25.09.2020, there was allegedly no substantial or structured charitable activity. On examination of financial statements, it was observed that expenses primarily consisted of salary, audit fees, legal expenses, and other administrative charges, with no clear charitable expenditure reflected in the Profit & Loss Account. 6. The Department also noted payments to directors and CEO, allegedly falling under persons covered u/s 13(3) of the Act. The CIT (Exemptions) held that such payments indicated violation of Section 13, that the activities were not genuine, and further, that certain project-related evidence could not be reliably attributed to the assessee. Based on these observations, the application for registration u/s 12AB was rejected. 7. We have carefully considered the submissions advanced by the assessee, the material placed on record, and the detailed findings recorded by the Ld. CIT (Exemptions) in the impugned order. The assessee is a company incorporated with the stated objects of carrying out environmental protection, sustainability initiatives, waste-management awareness programmes, community sensitisation on climate impact, and other allied charitable objects. In support of these objects, the assessee has filed Printed from counselvise.com 3 photographs, project completion reports, and sustainability reports for FY 2022-23 and 2023-24, asserting that genuine charitable environmental activities were undertaken. However, a perusal of the CIT(E)’s order indicates that specific critical observations require further factual verification, particularly because the CIT(E) recorded that: (i) No expenditure towards charitable/environmental activity was reflected in the financial statements for FY 2022-23 and 2023-24, where the only expenses were employee cost, audit fee, legal expenses, and taxes; (ii) Substantial payments, including salaries, secretarial expenses, and digital-marketing expenses, were made to persons covered u/s 13(3), namely the Directors and the CEO; (iii) There were unexplained discrepancies between payments reflected in bank statements and financial statements; (iv) The assessee allegedly failed to demarcate its activities from those of its parent company, 3R Zero Waste Pvt. Ltd., giving rise to doubt whether the activities shown in photos/reports truly pertained to the assessee; and (v) Project photos submitted were considered non-attributable with certainty to the assessee. These findings, which strike at the core of genuineness of activities, require fresh and deeper verification, especially when the assessee claims that the activities undertaken—such as plastic-waste awareness campaigns, plantation drives, recycling sensitisation, training workshops, and sustainability programmes—are ongoing and fall squarely within the ambit of “charitable purpose” under the head protection of environment, which is expressly recognized in section 2(15). Printed from counselvise.com 4 7.1 It is a settled principle of natural justice that before rejecting an application for registration under section 12AB, the authority must grant a meaningful, effective, and adequate opportunity to the applicant to substantiate: a) the genuineness and scale of its environmental and sustainability activities; b) the financial trail supporting such activities; c) justification and supporting documentation for payments to employees and related parties; and d) evidentiary proof of project execution, including activity-wise reports, photographs, invoices, attendance sheets, third-party confirmations, CSR collaborations, or any other relevant record. 7.2 In the overall circumstances, and bearing in mind the nature of allegations recorded by the Ld. CIT(E) as well as the charitable purpose claimed by the assessee in the field of environmental protection, we deem it just and proper to set aside the impugned order. The matter is restored to the file of the Ld. CIT (Exemptions) with a direction to examine the assessee’s application afresh, after granting due and adequate opportunity to: • furnish documentary evidence of environmental/CSR/sustainability activities actually carried out; • reconcile financial statements with project expenditure; • substantiate payments made to directors/employees/CEO with supporting documentation; • demonstrate the distinction between the activities of the assessee and its parent company; and • submit any additional evidence necessary to establish genuineness and adherence to charitable objects.  Needless to say, at the stage of registration under section 12AB, it is not permissible for the CIT(Exemptions) to examine or adjudicate alleged violations of section 13 of the Act. The law is well-settled that at this preliminary stage, the authority is required only to verify: (a) whether the objects are charitable in nature; and (b) whether the activities, to the extent they exist, are genuine. Printed from counselvise.com 5  Questions of alleged benefit to specified persons, application of income, or violation of section 13(1)(c)/13(3) are matters of assessment, not grounds for denial of registration. This important jurisdictional limitation appears to have been overlooked by the Ld. CIT(E), who has relied heavily on payments to directors/CEO, which—even if examined—can only be tested in regular assessment proceedings and cannot, by themselves, justify rejection of registration. 7.3 The assessee is directed to extend full cooperation and place on record all relevant documents, and the Ld. CIT(E) shall thereafter pass a speaking, reasoned order, strictly in accordance with law. 7.4 In view of the above, the appeal is allowed for statistical purposes and the matter is restored to the file of the Ld. CIT(Exemptions) for fresh adjudication in accordance with law. 8. In the result, appeal of the Assessee is allowed for statistical purposes. Order pronounced in the open Court on 19/11/2025 Sd/- Sd/- मनोज क ुमार अŤवाल लिलत क ुमार (MANOJ KUMAR AGGARWAL) (LALIET KUMAR) लेखा सद˟/ ACCOUNTANT MEMBER Ɋाियक सद˟ /JUDICIAL MEMBER AG आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to : 1. अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar Printed from counselvise.com "