2018 (11) TMI 271 - HC - Income Tax

Registration to the assessee u/s 12AA - ITAT allowed registration without considering the observation of the CIT - expenses incurred by the trust are not in consonance with the objects of the trust - non-speaking order passed by the tribunal - Held that - A perusal of the order, Annexure A-2 shows that it is neither speaking nor gives any cogent reasons for granting registration to the appellant under Section 12AA of the Act. The Tribunal while allowing the appeal of the assessee had noticed that the CIT(E) refused registration without disclosing the complete contents of the report and without confronting the same to the assessee. Further, we find that the CIT(E) as well as the Tribunal had not passed the reasoned speaking order which is the mandate. The orders passed by the CIT(E) and Tribunal do not satisfy the requirements of being a reasoned order as enunciated by the Apex Court in M/s Kranti Associates Pvt. Ltd s case 2010 (9) TMI 886 - SUPREME COURT OF INDIA and is passed in violation of the principles of natural justice as per law laid down by the Supreme Court in V.K. Awasthy s case (2005 (3) TMI 476 - SUPREME COURT OF INDIA) as noticed hereinabove. Accordingly, the appeal is allowed

Summary

Issues:
1. Appeal filed by revenue under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
2. Questions of law regarding expenses incurred by the trust, reliance on judgments, registration under Section 12AA, and the direction to grant registration.
3. Compliance with principles of natural justice and the requirement for a reasoned order.

Analysis:

Issue 1: Appeal under Section 260A
The appeal was filed by the revenue against the order of the Income Tax Appellate Tribunal, which directed the Commissioner of Income Tax (Exemption) to grant registration to the assessee trust under Section 12AA of the Income Tax Act, 1961.

Issue 2: Questions of Law
The substantial questions of law raised in the appeal included considerations of the expenses incurred by the trust, reliance on specific judgments, the timing of the registration application under Section 12AA, and the direction given by the Tribunal to grant registration without confronting the results of the inquiries to the applicant.

Issue 3: Compliance with Principles of Natural Justice
The High Court found that the orders passed by the Commissioner of Income Tax (Exemption) and the Tribunal did not meet the requirements of a reasoned order as mandated by the Supreme Court. The Court emphasized the importance of recording reasons to ensure fairness, transparency, and accountability in decision-making processes. It was noted that the failure to provide a speaking order violated the principles of natural justice, specifically the audi alteram partem rule.

In conclusion, the High Court allowed the appeal, quashed the previous orders, and remitted the matter to the Commissioner of Income Tax (Exemption) to pass a fresh speaking order after providing the assessee with an opportunity of hearing in accordance with the law. The judgment highlighted the significance of reasoned orders and adherence to principles of natural justice in administrative and quasi-judicial decisions.