Greenwood Trust, registered under section 10(23C) (iv) as a charitable educational trust, is undergoing assessment under section 143(3). The Assessing Officer discovers that the trust has diverted a significant portion o

As per the second proviso to Section 143(3) of the Income Tax Act, if an educational institution is exempt under Section 10(23C) (iv) has committed a "specified violation," the Assessing Officer (AO) must refer the case to the Principal Commissioner or Commissioner for withdrawal of its approval or registration. One key "specified violation" under Section 10(23C) occurs when the income of the institution is used for purposes other than its stated objectives. The AO cannot finalize the assessment (i.e., determine the institution's taxable income or loss) without considering the order of the Principal Commissioner or Commissioner regarding the cancellation of approval. If the Principal Commissioner or Commissioner cancels the institution's approval, the AO can assess its income without granting the tax exemption under Section 10(23C). If the Greenwood Trust, is institution approved under Section 10(23C) (iv) but has been found to misuse its income by diverting a significant portion of its income for purposes other than charitable activities, thereby violating the conditions for exemption u/s 10(23C) (iv). The AO may refer the matter to the Principal Commissioner or Commissioner. If they decide to cancel its approval, the AO can assess its income without allowing the exemption u/s 10 and treat it as a regular taxable entity.