ITAT Delhi Restores G.D. Education Society’s Registration Under Section 12AB

1. Background of the Dispute

G.D. Education Society, a Society registered under the Societies Registration Act, 1860, has been engaged in running educational institutions and pursuing its dominant object of imparting education, a recognized charitable purpose under Section 2(15) of the Income Tax Act 1961. The Society manages three educational institutions in Noida:

  • Billabong High International School, Noida
  • Kangaroo Kids School, Noida
  • Sanchetna, Noida

The Society was originally granted registration under Section 12A/12AA vide order dated 06.02.1989 by the Commissioner of Income Tax, Meerut. Subsequently, under the restructured regime, it was granted registration under Section 12AB by order dated 24.09.2021, valid for Assessment Years (AYs) 2022-23 to 2026-27.

On 11.07.2023, a search and seizure operation under Section 132 was conducted in the case of PPC Group Companies, pursuant to which a consequential search was also carried out in the case of G.D. Education Society. The assessee consistently maintained that no material was unearthed during the search which cast any doubt on the genuineness of its primary activity of running educational institutions.

Despite this, the Principal Commissioner of Income Tax (PCIT) invoked Section 12AB(4) and issued a show cause notice dated 24.12.2024 proposing cancellation of registration. Thereafter, by order dated 26.06.2025, the PCIT:

  • Cancelled registration granted under Section 12A/12AA and Section 12AB
  • Gave the cancellation retrospective effect from AY 2018-19 onwards

The cancellation was premised on allegations that the Society had:

  • Paid bogus salaries which were allegedly siphoned to persons covered under Section 13(3)
  • Diverted funds through advances and property-related transactions in favour of trustees and related parties
  • Collected unaccounted cash from sports and other ancillary activities
  • Incurred bogus construction and maintenance expenses

The assessee carried the matter in appeal to the ITAT Delhi, challenging both the jurisdiction and the merits of the PCIT’s order.

2. Grounds Raised Before the Tribunal

The assessee filed detailed grounds of appeal, subsequently distilled into concise grounds as directed by the Co-ordinate Bench. Broadly, the challenge was twofold:

The assessee contended that:

  1. The order dated 26.06.2025 passed under Section 12AB(4)(ii) cancelling registration is without jurisdiction, illegal, and contrary to the Act.
  2. The PCIT lacked authority to pass an order under Section 12AB(4)(ii) in the manner done.
  3. Section 12AB(4) was inserted by the Finance Act 2022 and applies prospectively from AY 2023-24. Its use to cancel registration for AYs 2018-19 to 2022-23 amounts to impermissible retrospective application.
  4. The reference under the second proviso to Section 143(3) read with Section 12AB(4)(b) was invalid since no satisfaction was properly recorded by the Assessing Officer (AO) and, in any event, that proviso is also prospective.
  5. The show cause notice was vague, did not clearly specify the exact clause of the Explanation to Section 12AB(4) allegedly violated, and therefore violated principles of natural justice.

2.2 Substantive/merits-based challenges

On facts, the assessee assailed the PCIT’s conclusions under multiple heads:

  1. Advances for residential property for senior staff
  2. Alleged bogus salary payments
  3. Cash receipts from incidental/sports activities
  4. Alleged bogus construction and maintenance expenses
  5. General findings that the activities of the Society were not genuine

The assessee argued that none of these allegations demonstrated that:

  • Its core educational activities were non-genuine, or
  • Its activities were carried out contrary to its objects

which are the only valid bases for cancellation of registration under the relevant regime.

3. Statutory Framework Considered by the Tribunal

To adjudicate the controversy, the Tribunal examined the interplay between three critical provisions:

  • Section 12AB(4) – governing cancellation of registration and defining “specified violations”
  • Section 13 – dealing with situations where exemption under Section 11 and Section 12 is denied, especially on account of benefit to specified persons
  • Section 115BBI – providing a special tax rate on certain “specified income” of charitable institutions

3.1 Section 12AB(4) – cancellation of registration and “specified violations”

The Tribunal reproduced and examined Section 12AB(4) and its Explanation in detail. Key aspects are:

  • Cancellation is triggered only when the PCIT:

    • notices “specified violations” (Section 12AB(4)(a)), or
    • receives a reference from the AO (Section 12AB(4)(b)), or
    • selects the case under risk management strategy (Section 12AB(4)(c))

  • The PCIT must then:

    1. Call for documents/information and conduct necessary enquiries
    2. If satisfied about one or more specified violations, pass an order in writing cancelling registration for the relevant and subsequent years
    3. Otherwise, pass an order refusing to cancel registration

The Explanation to Section 12AB(4) defines “specified violation”.