2025 (4) TMI 851 - AT - Income Tax

Denial of grant of registration u/s 12A and approval u/s 80G - assessee s failure to respond to a notice seeking clarification on discrepancies in the initial application - HELD THAT - Considering submission of assessee that due to the mistake of the employee of the trust those details could not be filed and that given an opportunity the assessee is in a position to substantiate its case by filing the requisite details before the CIT(E) to his satisfaction. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue to the file of the CIT(Exemption) with a direction to grant one final opportunity to the assessee to substantiate its case by filing the requisite details to his satisfaction and decide the issue as per fact and law. The grounds raised by the assessee are accordingly allowed for statistical purposes.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

1. Whether the rejection of the application for registration under Section 12A of the Income Tax Act, 1961, by the Commissioner of Income Tax (Exemption) [CIT(E)] was justified.

2. Whether the rejection of the application for approval under Section 80G of the Income Tax Act, 1961, by the CIT(E) was justified.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Rejection of Registration under Section 12A

- Relevant Legal Framework and Precedents: Section 12A of the Income Tax Act, 1961, pertains to the registration of trusts or institutions seeking exemption from income tax. The registration is contingent upon the trust's activities being genuine and compliant with applicable laws.

- Court's Interpretation and Reasoning: The Tribunal noted the procedural history where the assessee initially filed an application for registration, to which the CIT(E) responded by requesting additional information to verify the genuineness of the trust's activities. The CIT(E) identified discrepancies in the information provided and issued a subsequent notice. The assessee failed to respond to this second notice, leading to the rejection of the application and cancellation of provisional registration.

- Key Evidence and Findings: The Tribunal acknowledged the assessee's claim that the failure to respond was due to an inadvertent error by an employee. The Tribunal found merit in the argument that the assessee should be given another opportunity to present the necessary documentation.

- Application of Law to Facts: The Tribunal applied principles of natural justice, emphasizing the importance of allowing the assessee an opportunity to rectify the procedural lapse and substantiate its claims.

- Treatment of Competing Arguments: The Department Representative supported the CIT(E)'s decision, emphasizing the lack of compliance by the assessee. However, the Tribunal balanced this with the need for fairness, given the procedural oversight claimed by the assessee.

- Conclusions: The Tribunal decided to remand the matter back to the CIT(E), directing that the assessee be given a final opportunity to provide the requisite information and that the CIT(E) should make a fresh determination based on the facts and applicable law.

Issue 2: Rejection of Approval under Section 80G

- Relevant Legal Framework and Precedents: Section 80G of the Income Tax Act, 1961, provides for deductions for donations to certain funds, charitable institutions, etc., contingent upon the institution being approved under the section.

- Court's Interpretation and Reasoning: The Tribunal observed that the CIT(E) rejected the application for approval under Section 80G due to the lack of registration under Section 12A or approval under Section 10(23C), and the assessee's failure to respond to the show cause notice.

- Key Evidence and Findings: The Tribunal considered the interrelated nature of the Section 12A registration and Section 80G approval, noting that the resolution of the former could impact the latter.

- Application of Law to Facts: The Tribunal applied a similar rationale as with the Section 12A issue, emphasizing the need for procedural fairness and the opportunity for the assessee to address the deficiencies noted by the CIT(E).

- Treatment of Competing Arguments: The Tribunal acknowledged the Department's position but prioritized the need for a comprehensive review, given the potential rectification of issues related to the Section 12A registration.

- Conclusions: The Tribunal remanded the issue of Section 80G approval back to the CIT(E) for reconsideration, contingent upon the fresh adjudication of the Section 12A registration.

SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal stated, "Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the CIT(Exemption) with a direction to grant one final opportunity to the assessee to substantiate its case by filing the requisite details to his satisfaction and decide the issue as per fact and law."

- Core Principles Established: The judgment underscores the principle of natural justice, emphasizing the necessity of providing parties a fair opportunity to present their case, especially in instances of procedural lapses that can be rectified.

- Final Determinations on Each Issue: Both issues were remanded to the CIT(E) for fresh consideration, with explicit instructions to allow the assessee an opportunity to address the deficiencies noted in the initial proceedings.