Registration under Section 12AB cannot be denied by questioning financial prudence: ITAT Delhi in “Seth PannaLal Charitable Trust Vs CIT (Exemptions)”

The Delhi Bench of the Income Tax Appellate Tribunal in the case of Seth PannaLal Charitable Trust Vs CIT (Exemptions) has delivered a significant ruling on the scope of enquiry permissible at the registration stage under Section 12AB of the Income Tax Act 1961.

The Tribunal held that while considering an application in Form 10AB for grant or continuation of registration, the authority is required to confine its examination to:

  • The charitable nature of the stated objects, and
  • The prima facie genuineness of activities

and not to venture into a deep or forensic investigation of utilisation of funds, financial prudence, or possible irregularities, which properly belong to assessment proceedings.

The ITAT accordingly set aside the order of the Commissioner of Income-tax (Exemptions), Chandigarh (“CIT(E)”/Competent Authority), who had rejected Form 10AB and simultaneously “superseded” an earlier Section 12AB registration, and directed that approval be granted with all consequential benefits.

Background of the Trust and Its Objects

The assessee, Seth PannaLal Charitable Trust, was constituted on 15.10.2019. The Trust applied for registration under Section 12AB by filing Form 10AB on 30.09.2023.

Along with its application (earlier through Form 10A), the Trust furnished a note on its proposed activities. The objects, as recorded, included (among others):

  • Providing free food to poor and needy persons and running free homes/dharamshalas and hostels
  • Funding fees, books, equipment, freeships and scholarships for deserving students
  • Assisting poor persons in marriage
  • Conducting seminars, workshops and special coaching or training programmes
  • Supporting laboratory set-up for educational purposes
  • Making donations to other public charitable trusts/institutions involved in relief to the poor, animal welfare and social causes
  • Establishing and operating schools and colleges
  • Running nutrition and health services
  • Implementing nutrition assistance schemes including school lunch/food programmes and supplements for needy women
  • Testing diets from a nutritional perspective
  • Providing medicines and healthcare, including preventive medical services and dental care, to poor patients
  • Assisting hospitals in creating facilities such as Blood Banks, Eye Banks, Burn Centres, etc., for poor beneficiaries
  • Running outdoor dispensaries and mobile medical services
  • Conducting or supporting primary healthcare education
  • Setting up hospitals or nursing homes, especially for women and children
  • Supporting the handicapped
  • Providing financial and social support during natural calamities
  • Rendering financial aid to the poor and disadvantaged
  • Promoting moral education, charity and general welfare
  • Advancing objects of general public utility by seminars, disaster support, and other social assistance activities

The objects clearly fell within charitable purposes as contemplated under Section 2(15) of the Income Tax Act 1961.

Enquiry by CIT(E) and Material Considered

The Competent Authority issued a detailed questionnaire. The assessee filed a reply dated 20.11.2024 and produced supporting records, including ledgers and donation details. The CIT(E) particularly noted donation payment slips reflecting contributions to various organisations such as:

  • Kanya Gurukul Shiksha Samiti Karnal – Rs. 11,000/- (01.07.2021)
  • Shree Jairam Ashram Haridwar – Rs. 21,000/- (29.03.2022)
  • Shree Gitakunj Amar Ashram Trust Kurukshetra – Rs. 21,000/- (30.03.2022), Rs. 2,51,000/- (29.03.2023), Rs. 2,51,000/- (22.08.2023), Rs. 2,51,000/- (23.03.2024)
  • Shree Thanaram Annkshetra Haridwar – Rs. 1,51,000/- (28.03.2023)
  • Shantivan Gopal Gaushala Taraori Karnal – Rs. 5,00,000/- (24.03.2023 and 17.03.2024)
  • Shree Radhakrishan Dham Haridwar – Rs. 1,51,000/- (30.03.2024)

The CIT(E) also analysed the Trust’s ledger accounts and noticed a series of transactions involving:

  • Donations from and loans to Shiv Shakti Inter Globe Exports Pvt. Ltd., a company in which the Trust’s Chairman, Sh. Ramesh Chand Gupta, is a Director
  • Loans to Shanti Van Gopal Gaushalla
  • Temporary loans from the Chairman himself
  • Purchase of rice from Shiv Shakti Inter Globe Exports Pvt. Ltd.
  • Placement of surplus funds in fixed deposits (FDRs)

On the basis of the pattern of these transactions, the Competent Authority formed doubts about the genuineness of activities and the manner in which funds were being deployed.

Adverse Observations of the Competent Authority

Alleged deficiencies in evidence and donation pattern

The CIT(E) recorded that: