After a search the PCIT (Central) has cancelled my society's registration under s.12AB(4) for a 'specified violation', relying on loose sheets and statements. Does he have to prove one of the listed violations, or is a general finding of misuse enough?
He has to prove one of the listed violations. Section 12AB(4) as amended by the Finance Act 2022 is not a general power to withdraw registration: cancellation can follow only on the occurrence of one or more of the 'specified violations' defined in the Explanation to that sub-section, and the onus of establishing that occurrence lies on the Department. Suspicion, however strong, will not do.
Decided by the ITAT (Vijay Pal Rao, Vice President and Manjunatha G, Accountant Member) on 2025-10-10, reported as I.T.A. No. 870/Hyd/2025 (ITAT Hyderabad, 'A' Bench); Assessment Year 2022-23. It bears on section 12AB, section 12AB(4), section 12AB(5), section 12AA, section 132, section 132(4), section 133(6), section 143(3), section 11, section 12, section 13, section 13(1) of the Income Tax Act 1961, in Charitable Trusts & Exemption, Capital Gains Exemptions and Search, Survey & Block Assessment matters.
This is the central structural point about the post-1 April 2022 cancellation power and it is routinely lost sight of in post-search cancellation orders, which are still drafted in the language of the old s.12AA(3) 'activities not genuine' test. The Tribunal spells out the difference: up to 31 March 2022 the Commissioner cancelled on being satisfied the activities were not genuine or not being carried out in accordance with the objects; from 1 April 2022 he must identify an occurrence of a specified violation from the closed list in the Explanation — clauses (a) to (g), covering application other than for the objects, non-incidental business or absent separate books, application for private religious purposes, application for a particular religious community or caste, activity not genuine or not in accordance with the conditions of registration, non-compliance with another law where the order or decree holding so has not been disputed or has attained finality, and an incomplete or false application. Two further points earn their keep. First, where the Department alleges breach of a capitation-fee statute, clause (f) requires an order, direction or decree under that statute which is undisputed or final; a tax officer's own finding is not a substitute. Second, where the same receipts have been assessed substantively in the hands of trustees and protectively elsewhere, the Assessing Officer's own uncertainty about ownership destroys the claim that trust funds were diverted. Eight companion orders were passed on the same day on the same reasoning for other societies of the same group, so the point is being applied, not merely stated.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The society was formed on 22 October 2009 under the Andhra Pradesh Societies Registration Act 2001 with objects of imparting education, and runs CMR Engineering College, approved by the Government of Andhra Pradesh, JNTU Hyderabad and AICTE. It is part of the Malla Reddy Group of Institutions. It was registered under s.12AA by order of the Director of Income Tax (Exemptions) dated 21 December 2011, renewed from time to time, and obtained provisional registration in Form No. 10AC by order dated 5 April 2022 for AYs 2022-23 to 2026-27. It filed returns under s.139(1) and audit reports in Form 10B within time for all years. A search under s.132 was conducted in the Malla Reddy Group on 22 November 2022, including the society's premises, and loose sheets, admission application forms, daily statements and excel sheets were seized. From these the Department concluded that fee had been collected in excess of the government-prescribed fee, in the nature of donation or capitation fee, and that the excess cash was never brought into the society's books; unaccounted cash of Rs 16.64 crore was found at premises of trustees and relatives. In statements under s.132(4) the trustees denied collecting capitation fee, explaining that the fee was collected as a package including hostel fee, that the hostel business was run by the trustees in their individual capacity and the hostel receipts were declared in their individual returns. The Assessing Officer made a reference under the second proviso to s.143(3). The PCIT (Central), Hyderabad issued a show-cause notice under s.12AB(4)(i) dated 25 September 2024 alleging two specified violations, and by order dated 21 March 2025 under s.12AB(4)(ii) cancelled the s.12AA registration for AY 2022-23 invoking clauses (a) and (e) of the Explanation. The cash found had by then been assessed substantively in the hands of one trustee and protectively in the hands of the individuals at whose premises it was found. Students had confirmed in response to s.133(6) notices that they paid only hostel fees and no donation or capitation fee. The search of 22 November 2022 falls in the s.153A/s.153C period (1 June 2003 to 31 August 2024); block assessment under s.158BA to s.158BI was revived only for searches initiated on or after 1 September 2024. Nothing in this registration appeal turns on which regime applied.
The appeal was allowed and the cancellation order dated 21 March 2025 was set aside and quashed, and the s.12AA/12AB registration of the society restored. Cancellation under s.12AB(4) can be made only upon the occurrence of one or more of the specified violations defined in the Explanation to that sub-section; the onus of proving the facts calling for cancellation is on the Department; and where the findings rest on suspicion, surmise and conjecture without material establishing such an occurrence, the order is unsustainable in law (paras 20, 24, 26, 27, 28, and the operative direction at paras 40, 42 and 45).
The Tribunal set out s.12AB(4) and the Explanation defining 'specified violation' and contrasted the position before and after the Finance Act 2022: up to 31 March 2022 cancellation followed on satisfaction that activities were not genuine or were not being carried out in accordance with the objects, whereas only after the amendment was 'specified violation' defined, so that from 1 April 2022 cancellation under s.12AB(4)(ii) can be made only on the occurrence of one or more specified violations, and in their absence the Principal Commissioner has no power to cancel at all; he must reach an objective satisfaction that such a violation has occurred (para 20). It observed that the Commissioner's approach to registration must differ from the Assessing Officer's approach to computing income, that breaches of the conditions in ss.11 and 12 are dealt with in assessment, and that s.13(1) presupposes the operation of ss.11 and 12 and so arises at the stage of computing total income, not at the stage of registration (para 21). On the first alleged violation, the admission forms did show package amounts exceeding government limits without clear bifurcation, but this had been explained in the s.132(4) statements, and the conclusion that capitation fee had been collected and applied outside the objects rested on suspicion and surmise without evidence of diversion (para 23). On the alleged breach of the Telangana Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act 1983, the students' confirmations under s.133(6) stood unrebutted, and there was no complaint by any parent and no order of any authority imposing a penalty, so the allegation was an attempt to bring the case within 'specified violation' (para 24). On the seized cash, the Assessing Officer had assessed it substantively in one trustee's hands and protectively in others', which on the principle in Lalji Haridas v. ITO showed that he was himself uncertain of ownership; that uncertainty defeated any finding that the society's funds had been applied otherwise than for its objects (para 25). The onus of proving the existence of factors calling for cancellation lay on the Department and had not been discharged; the society continued to run its colleges with its approvals intact; even a breach of trust by trustees for personal benefit would not warrant cancellation so long as the society carried on its activities in accordance with its main objects; and suspicion however strong cannot take the place of evidence (para 26, citing ACIT v. Sai Society, Kamla Town Trust, Umacharan Shaw & Bros, Daulat Ram Rawatmull and Omar Salay Mohamed Sait). The finding that no proper books were maintained was rejected because returns under s.139(1) with audit reports in Form 10B had been filed for all years and earlier scrutiny assessments had drawn no adverse inference (para 27).
mere suspicion of certain violations, including, specified violations cannot be a reason for cancellation of registration of a trust under Section 12AB(4) of the Income Tax Act, 1961.
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Handle my notice → Ask a CA on WhatsAppHe has to prove one of the listed violations. Section 12AB(4) as amended by the Finance Act 2022 is not a general power to withdraw registration: cancellation can follow only on the occurrence of one or more of the 'specified violations' defined in the Explanation to that sub-section, and the onus of establishing that occurrence lies on the Department. Suspicion, however strong, will not do. This was decided by the ITAT (Vijay Pal Rao, Vice President and Manjunatha G, Accountant Member) and bears on section 12AB, section 12AB(4), section 12AB(5), section 12AA, section 132, section 132(4), section 133(6), section 143(3), section 11, section 12, section 13, section 13(1) of the Income Tax Act 1961. It is reported as I.T.A. No. 870/Hyd/2025 (ITAT Hyderabad, 'A' Bench); Assessment Year 2022-23. This is the central structural point about the post-1 April 2022 cancellation power and it is routinely lost sight of in post-search cancellation orders, which are still drafted in the language of the old s.12AA(3) 'activities not genuine' test. The Tribunal spells out the difference: up to 31 March 2022 the Commissioner cancelled on being satisfied the activities were not genuine or not being carried out in accordance with the objects; from 1 April 2022 he must identify an occurrence of a specified violation from the closed list in the Explanation — clauses (a) to (g), covering application other than for the objects, non-incidental business or absent separate books, application for private religious purposes, application for a particular religious community or caste, activity not genuine or not in accordance with the conditions of registration, non-compliance with another law where the order or decree holding so has not been disputed or has attained finality, and an incomplete or false application. Two further points earn their keep. First, where the Department alleges breach of a capitation-fee statute, clause (f) requires an order, direction or decree under that statute which is undisputed or final; a tax officer's own finding is not a substitute. Second, where the same receipts have been assessed substantively in the hands of trustees and protectively elsewhere, the Assessing Officer's own uncertainty about ownership destroys the claim that trust funds were diverted. Eight companion orders were passed on the same day on the same reasoning for other societies of the same group, so the point is being applied, not merely stated. If it applies to you, the first step is this: Read the show-cause notice and the cancellation order side by side and identify which lettered clause of the Explanation to s.12AB(4) is being invoked. If the order does not name one, take that as the first ground — there is no residual power to cancel outside the list.
The society was formed on 22 October 2009 under the Andhra Pradesh Societies Registration Act 2001 with objects of imparting education, and runs CMR Engineering College, approved by the Government of Andhra Pradesh, JNTU Hyderabad and AICTE. It is part of the Malla Reddy Group of Institutions. It was registered under s.12AA by order of the Director of Income Tax (Exemptions) dated 21 December 2011, renewed from time to time, and obtained provisional registration in Form No. 10AC by order dated 5 April 2022 for AYs 2022-23 to 2026-27. It filed returns under s.139(1) and audit reports in Form 10B within time for all years. A search under s.132 was conducted in the Malla Reddy Group on 22 November 2022, including the society's premises, and loose sheets, admission application forms, daily statements and excel sheets were seized. From these the Department concluded that fee had been collected in excess of the government-prescribed fee, in the nature of donation or capitation fee, and that the excess cash was never brought into the society's books; unaccounted cash of Rs 16.64 crore was found at premises of trustees and relatives. In statements under s.132(4) the trustees denied collecting capitation fee, explaining that the fee was collected as a package including hostel fee, that the hostel business was run by the trustees in their individual capacity and the hostel receipts were declared in their individual returns. The Assessing Officer made a reference under the second proviso to s.143(3). The PCIT (Central), Hyderabad issued a show-cause notice under s.12AB(4)(i) dated 25 September 2024 alleging two specified violations, and by order dated 21 March 2025 under s.12AB(4)(ii) cancelled the s.12AA registration for AY 2022-23 invoking clauses (a) and (e) of the Explanation. The cash found had by then been assessed substantively in the hands of one trustee and protectively in the hands of the individuals at whose premises it was found. Students had confirmed in response to s.133(6) notices that they paid only hostel fees and no donation or capitation fee. The search of 22 November 2022 falls in the s.153A/s.153C period (1 June 2003 to 31 August 2024); block assessment under s.158BA to s.158BI was revived only for searches initiated on or after 1 September 2024. Nothing in this registration appeal turns on which regime applied. The matter was decided on 2025-10-10 by the ITAT (Vijay Pal Rao, Vice President and Manjunatha G, Accountant Member). On those facts the ITAT held as follows. The appeal was allowed and the cancellation order dated 21 March 2025 was set aside and quashed, and the s.12AA/12AB registration of the society restored. Cancellation under s.12AB(4) can be made only upon the occurrence of one or more of the specified violations defined in the Explanation to that sub-section; the onus of proving the facts calling for cancellation is on the Department; and where the findings rest on suspicion, surmise and conjecture without material establishing such an occurrence, the order is unsustainable in law (paras 20, 24, 26, 27, 28, and the operative direction at paras 40, 42 and 45).
The Tribunal set out s.12AB(4) and the Explanation defining 'specified violation' and contrasted the position before and after the Finance Act 2022: up to 31 March 2022 cancellation followed on satisfaction that activities were not genuine or were not being carried out in accordance with the objects, whereas only after the amendment was 'specified violation' defined, so that from 1 April 2022 cancellation under s.12AB(4)(ii) can be made only on the occurrence of one or more specified violations, and in their absence the Principal Commissioner has no power to cancel at all; he must reach an objective satisfaction that such a violation has occurred (para 20). It observed that the Commissioner's approach to registration must differ from the Assessing Officer's approach to computing income, that breaches of the conditions in ss.11 and 12 are dealt with in assessment, and that s.13(1) presupposes the operation of ss.11 and 12 and so arises at the stage of computing total income, not at the stage of registration (para 21). On the first alleged violation, the admission forms did show package amounts exceeding government limits without clear bifurcation, but this had been explained in the s.132(4) statements, and the conclusion that capitation fee had been collected and applied outside the objects rested on suspicion and surmise without evidence of diversion (para 23). On the alleged breach of the Telangana Educational Institutions (Regulation of Admission and Prohibition of Capitation Fee) Act 1983, the students' confirmations under s.133(6) stood unrebutted, and there was no complaint by any parent and no order of any authority imposing a penalty, so the allegation was an attempt to bring the case within 'specified violation' (para 24). On the seized cash, the Assessing Officer had assessed it substantively in one trustee's hands and protectively in others', which on the principle in Lalji Haridas v. ITO showed that he was himself uncertain of ownership; that uncertainty defeated any finding that the society's funds had been applied otherwise than for its objects (para 25). The onus of proving the existence of factors calling for cancellation lay on the Department and had not been discharged; the society continued to run its colleges with its approvals intact; even a breach of trust by trustees for personal benefit would not warrant cancellation so long as the society carried on its activities in accordance with its main objects; and suspicion however strong cannot take the place of evidence (para 26, citing ACIT v. Sai Society, Kamla Town Trust, Umacharan Shaw & Bros, Daulat Ram Rawatmull and Omar Salay Mohamed Sait). The finding that no proper books were maintained was rejected because returns under s.139(1) with audit reports in Form 10B had been filed for all years and earlier scrutiny assessments had drawn no adverse inference (para 27). In the words reproduced by the source cited on this page: "mere suspicion of certain violations, including, specified violations cannot be a reason for cancellation of registration of a trust under Section 12AB(4) of the Income Tax Act, 1961." The decision followed or applied Lalji Haridas v. ITO [1961] 43 ITR 387 (SC) — applied on substantive and protective assessment; Umacharan Shaw & Bros v. CIT (1959) 37 ITR 271 (SC) — applied, suspicion cannot take the place of evidence; CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) — applied on onus; Omar Salay Mohamed Sait v. CIT (1959) 37 ITR 151 (SC) — applied; ACIT v. Sai Society, ITA No. 1857/2022 (ITAT Hyderabad) — followed; CIT v. Kamla Town Trust (SC) — relied upon (citation as printed in the order: [1996] 217 ITR 699).
It was decided by the ITAT on 2025-10-10 and is reported as I.T.A. No. 870/Hyd/2025 (ITAT Hyderabad, 'A' Bench); Assessment Year 2022-23. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 12AB, section 12AB(4), section 12AB(5), section 12AA, section 132, section 132(4), section 133(6), section 143(3), section 11, section 12, section 13, section 13(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was allowed and the cancellation order dated 21 March 2025 was set aside and quashed, and the s.12AA/12AB registration of the society restored. Cancellation under s.12AB(4) can be made only upon the occurrence of one or more of the specified violations defined in the Explanation to that sub-section; the onus of proving the facts calling for cancellation is on the Department; and where the findings rest on suspicion, surmise and conjecture without material establishing such an occurrence, the order is unsustainable in law (paras 20, 24, 26, 27, 28, and the operative direction at paras 40, 42 and 45). It arises in Charitable Trusts & Exemption, Capital Gains Exemptions and Search, Survey & Block Assessment matters, on section 12AB, section 12AB(4), section 12AB(5), section 12AA, section 132, section 132(4), section 133(6), section 143(3), section 11, section 12, section 13, section 13(1) of the Income Tax Act 1961, and was decided by Vijay Pal Rao, Vice President and Manjunatha G, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where clause (f) is invoked for breach of another law, ask for the order, direction or decree of the competent authority under that law, and check whether it is undisputed or has attained finality. Here there was no complaint, no order and no penalty under the Telangana capitation-fee Act, and the allegation collapsed. Put the Department to proof. The onus of establishing the facts calling for cancellation is on the Department, not on the institution to disprove them. If the same amounts have been assessed substantively in a trustee's hands and protectively elsewhere, produce those assessment orders: the protective assessment is itself an admission that ownership is uncertain, and it cuts against any finding that trust funds were applied outside the objects. Put on record the continuing regulatory approvals (university, AICTE, state government), the returns filed under s.139(1) and the audit reports filed within time — these were what defeated the finding that no proper books were maintained. Check the time limit in s.12AB(5) for passing the cancellation order and plead it separately if it is breached; it was not in issue here, so this order says nothing about it.
Validity check could not be completed. Validity check could not be completed. No appeal to the High Court, and no decision doubting this order, was searched for or located. An exact-phrase retrieval of the operative sentence returned nine orders of the same Hyderabad bench — this order and eight companions, all recorded on indiankanoon under 25 August 2025, for CMR Engineering Educational Society, CMR Technical Education Society, CMR Educational Society, Maruthi Educational Society, Chandramma Educational Society, Marri Educational Society, K M R Educational Society, M.G.R. Educational Society and Malla Reddy Educational Society; the reasoning is therefore common to a batch of companion appeals from the same search, and only the CMR Engineering order was read. Correction to the regime statement elsewhere in this entry: the s.153A and s.153C regime does not run to 31 August 2024 — s.153A(1) by its closing limb stops at a search initiated on or before 31 March 2021, and s.153C is excluded by its sub-section (3) from a search initiated on or after 1 April 2021 — so the search of 22 November 2022 fell neither in that regime nor in the revived Chapter XIV-B, but in the window governed, by force of s.152(3), by ss.147 to 151 as they stood immediately before the Finance (No. 2) Act 2024. Nothing this entry decides turns on which regime applied. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two date points. indiankanoon lists this order under 25 August 2025, which is the date of conclusion of hearing printed on the order; the date of pronouncement printed on the order is 10 October 2025 and that is the date used here. Both retrievals of the header gave the same two dates. Second, and more important for a reader: the statutory text the Tribunal reproduces in para 18 is not internally consistent. What is set out as sub-sections (4) and (5) of s.12AB is the PRE-Finance Act 2022 wording (the 'activities are not genuine' formulation), to which the post-Finance Act 2022 Explanation defining 'specified violation' has then been appended. The Tribunal itself notes the difference in para 20 and applies the amended provision, and the order under challenge was passed under s.12AB(4)(ii), a clause that exists only in the amended provision. Do not lift the statutory text from para 18 as a statement of the current section. Third, the order was retrieved in three portions because the full text exceeds a single fetch. The disposal was subsequently recovered by fragment retrieval: at para 40 the Tribunal holds the PCIT's order 'illegal and cannot be upheld' and quashes the order passed under s.12AB(4)(ii), restoring the registration of the society; para 42 repeats that direction; and para 45 reads 'In the result, the appeal filed by the assessee is allowed.' The order runs to at least paragraph 45. Note that a full-text search of this document for 'In the result' also returns paragraphs 11.12 and 11.13, which belong to a judgment quoted inside this order and not to this Bench. Fourth, the Tribunal cites 'CIT vs. Kamla Town Trust [1996] 217 ITR 699 (SC)'; the Supreme Court decision of that name in the library is dated 16 November 1995 and the citation given in the order was not checked. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed and the cancellation order dated 21 March 2025 was set aside and quashed, and the s.12AA/12AB registration of the society restored. Cancellation under s.12AB(4) can be made only upon the occurrence of one or more of the specified violations defined in the Explanation to that sub-section; the onus of proving the facts calling for cancellation is on the Department; and where the findings rest on suspicion, surmise and conjecture without material establishing such an occurrence, the order is unsustainable in law (paras 20, 24, 26, 27, 28, and the operative direction at paras 40, 42 and 45).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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