2025 (2) TMI 162 - AT - Income Tax

Rejection of registration u/s 80G - filing of application under wrong provisions of the Act - Whether wrong selection of clause while filing an application for grant of registration u/s 80G is a genuine clerical and inadvertent mistake? HELD THAT - Taking an action against the assessee without confronting it about the reasons for such rejection place the present case in a category wherein the principle of natural justice have been violated as the assessee was not afforded with reasonable opportunities of being heard to submit its contentions in defense to the basis of rejection of application before saddling it with the order of rejection. Considering such facts and circumstances of the instant case in order to provide a fair opportunity of being heard and to represent its case in a judicious manner the matter needs to be revisited by the Ld. CIT(E) after affording reasonable and adequate opportunity of being heard to the assessee. Order of CIT(E) passed u/s 80G is set aside and the matter is restored back to the file of Ld. CIT(E).

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the Commissioner of Income Tax (Exemptions) erred in rejecting the application for registration under Section 80G(5) of the Income Tax Act, 1961, based on the incorrect application of sub-clause (iv)(B) of the first proviso to Section 80G(5).

2. Whether the rejection of the application was made without due consideration of the merits of the trust's activities and compliance with statutory obligations, thereby violating principles of natural justice.

3. Whether the application was wrongly filed under the incorrect provisions, and if so, whether this error is a curable defect that should not result in outright rejection.

ISSUE-WISE DETAILED ANALYSIS

1. Erroneous Interpretation of Provisions:

The appellant argued that the Commissioner of Income Tax (Exemptions) incorrectly applied sub-clause (iv)(B) of the first proviso to Section 80G(5), which does not disqualify a trust already claiming exemptions under Sections 11, 12, or 10(23C). The Tribunal examined whether the rejection was based on a misinterpretation of the statutory framework. The relevant legal framework involves the provisions of Section 80G(5), which are intended to assess the charitable nature of the trust and its compliance with conditions for registration.

The Tribunal noted that the rejection was based on the technicality that the application was filed under the wrong sub-clause. However, it considered the appellant's argument that this was a clerical error and should be treated as a curable defect.

2. Failure to Consider Relevant Facts:

The appellant contended that the rejection was made without examining the merits of the trust's activities or its financial compliance, which undermined the trust's right to a fair hearing. The Tribunal considered whether the Commissioner failed to evaluate the substantive compliance of the trust with statutory obligations, including filings under Section 12AB.

The Tribunal found that the Commissioner did not address the merits of the case, focusing solely on the technical error in the application. This approach was deemed arbitrary, as it did not provide the trust an opportunity to present its case fully.

3. Non-Consideration of Statutory Requirements:

The appellant maintained that it had complied with all statutory requirements, with no contravention of Sections 12M(3) or 12AB. The Tribunal assessed whether the trust's activities were consistent with its charitable objectives as defined under Section 2(15) of the Income-tax Act.

The Tribunal acknowledged that the trust had been operational for charitable purposes and had complied with statutory obligations, supporting the argument that the application should not have been rejected on technical grounds alone.

4. Violation of Natural Justice:

The appellant argued that the rejection violated principles of natural justice, as the Commissioner did not adequately address the responses and documentation submitted during the proceedings. The Tribunal examined whether the trust was denied a fair opportunity to present its case.

The Tribunal found that the Commissioner did not provide the trust with a reasonable opportunity to address the technical error, thereby violating natural justice principles. The trust was not given a chance to rebut the reasons for rejection before the decision was made.

SIGNIFICANT HOLDINGS

The Tribunal concluded that the rejection of the application was based on a technical error, which should have been treated as a curable defect. The Tribunal emphasized the importance of adhering to principles of natural justice by allowing the trust a fair opportunity to present its case.

The Tribunal set aside the order of the Commissioner of Income Tax (Exemptions) and remanded the matter for fresh adjudication, granting the trust an opportunity to address the technical error and present its case on the merits. The Tribunal emphasized that the Commissioner should provide a reasonable and adequate opportunity for the trust to be heard.

The Tribunal's decision underscores the principle that procedural errors should not overshadow substantive compliance with statutory requirements, particularly when they can be rectified without prejudice to the parties involved.