2025 (1) TMI 1051 - AT - Income Tax

Rejection of application for registration of trust u/s 12AB and 80G - CIT(E) dismissed the assessee s applications on the ground that supporting documents were not provided - assessee submitted that there was no requisition of supporting documents hence assessee could not provide the same thus prayed an opportunity may be granted to the assessee to provide the necessary documents and submissions before the CIT (E) in the interest of justice - HELD THAT - As DR did not have any serious objection to the proposition made by assessee we deem it fit and proper to remit back the issues in both the appeals to the file of the Ld. CIT (Exemption) Lucknow with the directions to decide the same afresh - Assessee s appeals are allowed for statistical purposes.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

Whether the order issued under section 12AB(1)(b)(ii)(B) of the Income Tax Act was arbitrary and bad in law, warranting it to be set aside.
Whether the order issued under the second proviso to clause (ii)(b)(B) of section 80G(5) of the Income Tax Act was arbitrary and bad in law, warranting it to be set aside.
Whether the CIT (Exemption) erred in not appreciating the facts on record while deciding the genuineness of the activities of the assessee.
Whether the CIT (Exemption) failed to appreciate that employee-related expenditure was incurred to aid and further the charitable objects of the assessee.
Whether the CIT (Exemption) violated principles of natural justice by not providing adequate opportunity for the assessee to be heard and by passing a non-speaking order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Arbitrariness of the Order under Section 12AB(1)(b)(ii)(B)

Relevant legal framework and precedents: Section 12AB of the Income Tax Act pertains to the registration of trusts and institutions. The provision requires the CIT (Exemption) to assess the genuineness of the activities of the trust.
Court's interpretation and reasoning: The tribunal noted that the CIT (Exemption) dismissed the application due to a lack of supporting documents, although no specific requisition for such documents was made.
Key evidence and findings: The assessee argued that they complied with all requisitions made by the CIT (Exemption) and that no additional documentation was requested.
Application of law to facts: The tribunal found that the lack of a specific request for documents could justify the assessee's failure to provide them.
Treatment of competing arguments: The tribunal considered the arguments of both parties and found merit in the assessee's claim of procedural oversight.
Conclusions: The tribunal decided to remit the issue back to the CIT (Exemption) for a fresh decision, ensuring the assessee is given adequate opportunity to present its case.

Issue 2: Arbitrariness of the Order under Section 80G(5)

Relevant legal framework and precedents: Section 80G(5) deals with the approval of institutions for donations to be eligible for tax deductions. The provision requires an assessment of the institution's activities.
Court's interpretation and reasoning: Similar to the first issue, the tribunal noted procedural lapses in the CIT (Exemption)'s handling of the application.
Key evidence and findings: The tribunal found that the assessee was not given adequate opportunity to provide necessary documentation.
Application of law to facts: The tribunal held that the CIT (Exemption) should have ensured all necessary documents were requested before dismissing the application.
Treatment of competing arguments: The tribunal acknowledged the procedural errors and sided with the assessee's argument for a fair hearing.
Conclusions: The tribunal remitted the issue back for reconsideration, emphasizing the need for a speaking order and adequate opportunity for the assessee to be heard.

Issue 3: Genuineness of Activities and Employee Expenditure

Relevant legal framework and precedents: The assessment of the genuineness of activities is crucial under both sections 12AB and 80G for registration and approval.
Court's interpretation and reasoning: The tribunal found that the CIT (Exemption) did not adequately consider the purpose of employee-related expenditures in furthering charitable objectives.
Key evidence and findings: The tribunal noted the assessee's consistent claim that employees were not ultimate beneficiaries but facilitators of charitable activities.
Application of law to facts: The tribunal emphasized the need to assess expenditures in the context of the organization's charitable objectives.
Treatment of competing arguments: The tribunal found that the CIT (Exemption) failed to consider the broader context of the expenditures.
Conclusions: The tribunal instructed the CIT (Exemption) to reassess the applications with a focus on the genuineness of activities and the role of employee expenditures.

Issue 4: Principles of Natural Justice

Relevant legal framework and precedents: Principles of natural justice require that parties be given a fair opportunity to present their case.
Court's interpretation and reasoning: The tribunal highlighted the importance of a speaking order and adequate opportunity for the assessee to be heard.
Key evidence and findings: The tribunal found that the CIT (Exemption) did not provide sufficient opportunity for the assessee to present its case.
Application of law to facts: The tribunal emphasized that procedural fairness was not adhered to, warranting a remand.
Treatment of competing arguments: The tribunal sided with the assessee's argument for a fair hearing.
Conclusions: The tribunal directed the CIT (Exemption) to ensure compliance with principles of natural justice in the reassessment.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The tribunal stated, "In view of the aforesaid facts and circumstances of the case and in the interest of justice, we deem it fit and proper to remit back the issues in both the appeals to the file of the Ld. CIT (Exemption), Lucknow with the directions to decide the same, afresh, after giving adequate opportunity of being heard to the assessee, by passing a speaking orders."
Core principles established: The judgment reinforced the importance of procedural fairness, the need for adequate opportunity to present evidence, and the requirement for speaking orders in administrative decisions.
Final determinations on each issue: Both appeals were allowed for statistical purposes, with directions for the CIT (Exemption) to reassess the applications, ensuring compliance with procedural and substantive legal standards.

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