ARBOR CHARITABLE FOUNDATION,KHAMMAM V. ITO., EXEMPTION WARD-1(3), HYDERABAD

ITA 1217/HYD/2024

AI Insights

The case involves M/s. Arbor Charitable Foundation, which appealed against the cancellation of its registration under Section 12AB of the Income Tax Act, 1961, by the Commissioner of Income Tax (Exemptions). The cancellation was based on various allegations including adverse assessments, initiation of penalty proceedings, high cash transactions, closure of bank accounts, and alleged involvement in religious activities. The Tribunal found that the cancellation was based on incomplete facts and unverified allegations, and thus remanded the matter for a fresh examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 315601 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2012-2013
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.BALAKRISHNA
• Assessee Lawyers: S.RAMA RAO
• Keywords: Set aside; Principle of natural justice; Cancellation of registration
• Section: 271(1)(c); 12A

Judgement Text

" आआआआ आआआआआआ आआआआआआ, आआआआआआआआ आआआ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad शशशश शशशश शशश शशश, शशशशशशशशश शशश शशशश शशशशशशश शशशशशशश, शशशश शशशशश शश शशशशश श BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /ITA No.1217/Hyd/2024 (निर्धारण वर्ा/Assessment Year:2012-13) M/s. Arbor Charitable Foundation, Khammam. PAN:AAGCA7070D Vs. Income Tax Officer (Exemptions), Ward-1(3), Hyderabad. (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri S. Rama Rao, Advocate रधजस् व द्वधरध/Revenue by: Shri B. Bala Krishna, CIT-DR सुिवधई की तधरीख/Date of hearing: 06/05/2025 घोर्णध की तधरीख/Pronouncement: 16/05/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by M/s. Arbor Charitable Foundation (“the assessee”) against the order dated 23.09.2024 passed by the learned Commissioner of Income Tax (Exemptions), Hyderabad (“Ld. CIT(E)”) under section 12AB(4) of the Income Tax Act, 1961 (“the Act”), cancelling the registration granted to the assessee under section 12AB of the Act. 2. The assessee has raised the following grounds of appeal : ITA No.1217/Hyd/2024 2 3. Brief facts of the case are that, the assessee is a company incorporated under section 25 of the Companies Act, 1956 on 28.12.2007. The assessee was granted registration under section 12A of the Act on 02.07.2009. Pursuant to the amendments introduced by the Finance Act, 2020, the assessee re-applied for registration as per the transitional requirements, and was accordingly granted registration under section 12AB of the Act for the period from A.Y. 2022–23 to A.Y. 2026–27. The Ld. CIT(E), however, vide order dated ITA No.1217/Hyd/2024 3 23.09.2024, proceeded to cancel the registration w.e.f. 24.09.2021, on the basis of certain violations under section 12AB(4). 3. Aggrieved with the cancellation order of the Ld. CIT(E), the assessee is in appeal before us. The learned Authorised Representative (“Ld. AR”) invited our attention to para nos. 3.2 to 6 of the cancellation order and submitted that the registration was cancelled primarily on the basis of the following allegations: a) that adverse assessments had been made by the learned Assessing Officer (Ld. AO”) for A.Ys. 2012-13 to 2015-16; b) that penalty proceedings under Section 271(1)(c) and 271(1)(b) had been initiated for A.Ys. 2013-14, 2014-15, and 2015-16; c) that during financial year 2015-16, nearly 90% of the transactions of the assessee were carried out in cash; d) that the assessee had closed three bank accounts with Indian Overseas Bank; e) that the assessee was allegedly engaged in religious activities and owned two church buildings along with some other properties. 3.1 With regards to the allegation of Ld. CIT(E) relating to the assessments and penalties, the Ld. AR submitted that the assessment for A.Y. 2012-13 is currently pending before the learned Commissioner of Income Tax (Appeals) and has not attained finality. For A.Ys. 2013-14 to 2015-16, this Tribunal has already remanded the matter back to the Ld. AO for fresh adjudication. Hence, ITA No.1217/Hyd/2024 4 reliance on such incomplete proceedings for cancellation of registration is premature and contrary to law. 3.2 Regarding cash transactions 90%, it was submitted that the assessee is engaged in micro-financing activities targeted at economically weaker sections and small borrowers, who predominantly deal in cash. Therefore, the cash nature of transactions is inherent to the nature of the charitable activities carried out by the assessee and should not be viewed adversely without establishing misuse or diversion of funds. 3.3 Regarding closure of bank accounts, the Ld. AR submitted that the assessee had multiple bank accounts and due to declining activities, three of its accounts with Indian Overseas Bank were closed. However, the assessee continued to maintain active accounts with other banks, which fact has not been denied by the revenue. 3.4 Regarding church buildings and other properties, the Ld. AR clarified that the observation made by the Ld. CIT(E) regarding the assessee’s owning two church buildings is wholly incorrect. The said properties do not belong to the assessee at all. In fact, the assessee had categorically denied ownership of such properties during the proceedings before the Ld. CIT(E). Despite this, the Ld. CIT(E) proceeded to allege, without evidence, that the assessee was involved in ITA No.1217/Hyd/2024 5 religious activities. It was also alleged by the Ld. CIT(E) that in addition to the church buildings, other immovable properties were owned by the assessee; however, the assessee has consistently denied such ownership and has submitted that no such properties stand in its name. The recording of facts by the Ld. CIT(E) in this regard is, therefore, misleading and factually erroneous. 3.5 It was finally submitted by the Ld. AR that the cancellation of registration is based on reasons that are either under adjudication or not properly verified, and that the order deserves to be set aside and the matter may be remanded for fresh adjudication on the basis of correct and complete facts. 4. Per contra, the learned Departmental Representative (“Ld. DR”) supported the action of the Ld. CIT(E) and reiterated the findings recorded in the cancellation order. The Ld. DR submitted that the assessments and penalty proceedings initiated by the Ld. AO revealed material irregularities, including cash transactions and unverifiable income declarations, which cast serious doubt on the genuineness of the activities carried out by the assessee. The closure of multiple bank accounts and the heavy reliance on cash transactions raised further suspicion regarding the traceability of financial transactions. The ownership or association with church properties and other real estate assets suggested involvement in religious rather than charitable activities, which is inconsistent with the objects of the assessee. Accordingly, the Ld. DR, ITA No.1217/Hyd/2024 6 supported the impugned cancellation order and prayed for dismissal of the appeal. 5. We have heard the rival contentions and also gone through the records in the light of submissions made by either side. The central issue before us for adjudication is whether the cancellation of registration under Section 12AB of the Act by the Ld. CIT(E) is legally sustainable on the facts and in the circumstances of the case. In this regards, we observed that, the cancellation of registration was based largely on events which are either (a) still pending adjudication, or (b) are factually contested and not conclusively established. 5.1 We found that, the assessments for A.Ys. 2012-13 to 2015-16, which are cited as one of the principal reasons for cancellation, are either under appeal before the CIT(A) or have been set aside by this Tribunal to the file of the AO for fresh examination. These proceedings have not reached finality, and no adverse findings have been sustained against the assessee. Reliance on such unsettled proceedings to cancel registration is not proper in law. 5.2 We also found that, the nature of cash transactions was explained to be due to the assessee’s engagement in small-scale micro-finance activities targeted at poor and marginalised borrowers. This explanation appears ITA No.1217/Hyd/2024 7 plausible and has not been controverted by the Revenue with any evidence showing misuse or personal benefit derived by the trustees or office-bearers. 5.3 We also found that, the closure of certain bank accounts cannot, in itself, be a ground for cancellation unless it is shown that the closure was done to suppress financial activities or hide income. The existence of other operational bank accounts has not been disputed. 5.4 Further, as regards the ownership of two church buildings and other alleged properties, we found that, the assessee had categorically denied ownership of such properties before the Ld. CIT(E). The Ld. CIT(E), however, failed to verify the ownership details from independent sources such as land records or registration documents. In our view, cancellation of registration cannot be based on presumptions or allegations that are not supported by verified documentary evidence. 5.5 In light of the above, we are of the considered opinion that the cancellation of registration is based on incomplete facts, unverified allegations, and premature reliance on pending proceedings. Accordingly, keeping in view the principle of natural justice, we deem it appropriate to set aside the impugned order and remand the matter back to the Ld. CIT(E) with a direction to re-examine the grounds for cancellation in light of the fresh assessment ITA No.1217/Hyd/2024 8 proceedings; consider the pending appeal for AY 2012–13 and the status of ownership of alleged religious properties and pass a fresh speaking order after affording adequate opportunity of hearing to the assessee. The assessee is also directed to co-operate fully and furnish all requisite evidence to facilitate a proper determination. 6. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open Court on 16th May, 2025. Sd/- Sd/- (VIJAY PAL RAO) (MADHUSUDAN SAWDIA) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad. Dated: 16.05.2025. * Reddy gp Copy of the Order forwarded to : 1. M/s. Arbor Charitable Foundation, Karunagiri Khammam, Seetharampuram BO, Agraharam, Khammam-507003 2. ITO (Exemptions), Ward 1(3), Hyderabad. 3. Pr.CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard file. BY ORDER, "