2011 (12) TMI 360 - HC - Income Tax

Chief CIT Jodhpur denying approval under s. 10(23C)(vi) - On the ground that the petitioner violated the basic mandate of s. 10(23C)(vi) of the Act - While the power of learned Chief CIT to arrive at such findings after properly and duly allowing the opportunity of hearing and supplying the adverse material to the petitioner-trust is not in doubt but at the same time withholding the adverse material from the petitioner-assessee not allowing him the chance of rebuttal and then relying on the same material for denying the approval under s. 10(23C) of the Act cannot be sustained - Decided in favor of the assessee by way of remand to CCIT

Issues:
1. Denial of approval under section 10(23C)(vi) of the Income Tax Act, 1961.
2. Allegations of violation of principles of natural justice and denial of proper hearing.
3. Dispute regarding the charitable status of the petitioner-trust.
4. Failure to provide adverse material to the petitioner for rebuttal.
5. Justification for denial of approval under section 10(23C) based on allegations of profit motive.

Analysis:

1. The petitioner, an assessee under the Income Tax Act, 1961, challenged the order denying approval under section 10(23C)(vi) on the grounds of violating the mandate of the Act. The petitioner contended that they were not given a fair hearing and the approval was denied without allowing them to refute the adverse material collected during a survey. The court acknowledged the importance of principles of natural justice and found the denial of approval lacking in meeting these principles. The matter was remanded back to the Chief CIT for a fresh decision, emphasizing the need for proper hearing and allowing the petitioner to rebut the allegations.

2. The petitioner raised concerns about the lack of opportunity to respond to the allegations and the failure to provide the adverse material used against them. The court noted that withholding such material and then relying on it to deny approval under section 10(23C) was not in line with principles of natural justice. The court emphasized the importance of providing a fair chance for the assessee to present their case and rebut any adverse material, ultimately leading to the decision to set aside the impugned order and restore the matter for a fresh decision.

3. The dispute also involved the charitable status of the petitioner-trust under section 12A of the Act. While the Departmental authorities initially denied registration based on a survey under section 133A, the Tribunal later allowed the appeal, highlighting the conflicting decisions within the case. The court did not delve deeply into this issue but acknowledged its relevance in the overall context of the case.

4. The issue of failure to provide adverse material for rebuttal was a significant point of contention. The petitioner argued that without being supplied with the material used against them, they were unable to effectively respond to the allegations. The court agreed that denying the petitioner the opportunity to address the adverse material was a violation of natural justice principles, reinforcing the need for a fair and transparent hearing process.

5. The Revenue contended that the petitioner-trust did not qualify as an educational institution for the purposes of section 10(23C) due to alleged profit motives and questionable financial transactions. The court noted the Revenue's arguments but emphasized the procedural aspect of providing the petitioner with the necessary material to counter these allegations. The court's decision to remand the matter back for a fresh decision underscored the importance of adhering to due process and principles of natural justice in such cases.

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