AO is not empowered to comment on the correctness of the certificate granted u/s 12A : Del HC
In a recent decision Hon’ble Delhi High Court held that:
“Whilst there can be quarrel with the ITAT’s generalization that the Director of Income Tax (DIT), in order to hold that the exemption certificate u/s 12A has to be revoked, is to base himself or herself on material & cogent reasoning, at the same time, the circumstances in this case are such that the assessee ought to have displayed more vigilance. The AO in the present case noticed that after the donation of the institution to the assessee on 26.05.2002 a significant portion of income i.e. fee collection etc., was donated to the RKSCT. Now, when the notice was issued u/s 12A by the DIT, the assessee was under a duty to furnish particulars & satisfy the authority as to how & why the amounts made over to Ram Krishan & Sons Charitable Trust from its earnings through its charitable activities were either not a device, or were permissible under its trust. Given the significance of the amounts involved i.e. Rs. 2.74 crores and Rs. 60 Lacs in AY 2004-05 and Rs. 4,43,37,505/- crores in AY 2003-04, the assessee was certainely expected to give an explanation better than the one it argued that the AO’s reasoning was not supported by law as he was not the authority to doubt such expenditure. The obligation required of a charitable trust enjoying the benefit of tax exemption u/s 12A is clearly categorical in that it has applied for registration u/s 80G(5) towards its charitable activities. In these circumstances the DIT (Exemption) was certainly within her rights to insist on a proper explanation which in the circumstances of the case, the assessee failed to provide – perhaps more as a result of its mistake on his mis-apprehension that the entire basis for the revocation proceedings or the AO’s opinion for AY 2003-04 and 2004-05. Once the notice u/s 12A proposing revocation was issued in the independent nature of the proceedings has to be satisfied. The assessee was under an obligation to provide such material to satisfy that the donation fulfilled the objective & were of charitable nature and as such rendered any proposed action for revocation unwarranted.
For the above reason, this Court is of the opinion that the impugned order of the ITAT cannot be sustained and set aside. At the same time we are of the opinion that the DIT’s order also has to be set aside. The matter is remitted to the DIT (Exemption) for fresh examination after consideration of such material as the assessee may choose to place on record within the next 4 weeks.”
For complete text of judgement, click here RAM KISHAN KULWANT RAI CHARITABLE TRUST