In a noteworthy ruling that stresses professional accountability and procedural diligence, the Pune Bench of the Income Tax Appellate Tribunal (ITAT) recently restored the Section 12A registration application of a charitable trust. At the same time, the Tribunal imposed a cost of ₹2,500 on the Chartered Accountant (CA) involved, holding him responsible for negligence in ensuring compliance with statutory notices.

Case Summary: Godavari Shikshan Mandal v. CIT(E)

The assessee in the case, Godavari Shikshan Mandal, had filed an application for registration under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961, on April 2, 2024. This registration is essential for charitable trusts to avail of income tax exemptions.

During the review process, the Commissioner of Income Tax (Exemption) [CIT(E)] identified discrepancies in the trust’s documents and issued multiple notices, seeking additional compliance and clarification. However, the trust failed to respond within the stipulated time.

Owing to this non-compliance, the CIT(E) rejected the application and cancelled the provisional registration granted earlier.

Appeal to the ITAT

Challenging the rejection, the trust filed an appeal before the ITAT, contending that the failure to respond was not deliberate but a result of professional lapses on the part of their appointed Chartered Accountant.

Upon reviewing the submissions and facts, the ITAT observed that the trust had entrusted its CA with the responsibility to respond to statutory communications. The CA’s failure to act promptly and professionally led to the rejection of the registration.

Tribunal’s Verdict

Taking a balanced view, the ITAT allowed the appeal and restored the trust’s 12A registration application, granting the assessee an opportunity to submit the required documents before the CIT(E). However, to underline the importance of accountability, it imposed a ₹2,500 cost on the CA, to be deposited into the Central Government account.

This ruling reiterates that while taxpayers should not suffer due to their professional advisors’ mistakes, professionals must uphold a high standard of responsibility.

FAQs

Q1. What is Section 12A registration?
Section 12A registration allows charitable or religious trusts to claim exemption from income tax on income applied for charitable purposes.

Q2. Why was the trust’s registration cancelled initially?
The trust failed to respond to repeated compliance notices issued by the CIT(E), leading to the cancellation of its provisional registration.

Q3. What was the ITAT’s final decision?
The ITAT restored the registration application and allowed the trust to resubmit the necessary documents. It also imposed a cost of ₹2,500 on the CA for negligence.

Q4. What does this mean for other trusts and professionals?
Trusts must ensure timely compliance, and professionals like CAs must act diligently. Courts and tribunals can penalize professionals for negligence that affects client interests.

Conclusion

The ITAT’s decision in the Godavari Shikshan Mandal case serves as a critical reminder of the dual importance of procedural compliance and professional accountability. While the Tribunal protected the trust’s right to fair hearing and tax exemption, it also emphasized that Chartered Accountants and tax professionals bear a duty of care. A small lapse can have far-reaching consequences—not just for clients but for professionals themselves.

Trusts, NGOs, and other exempt entities must work closely with experienced and attentive advisors to avoid such pitfalls and safeguard their tax benefits.

📅 Published on: April 29, 2025
📍Author: CA Madhur Aggarwal