2025 (4) TMI 983 - AT - Income Tax

Rejecting the application for approval u/s 80G - HELD THAT - It is an admitted fact that on the basis of submissions made by the assessee the CIT(E) noticed certain discrepancies for which he issued notices to the assessee on various dates. Although the assessee has clarified certain issues however the last notice issued by the CIT(E) was not properly complied with and the documents were not submitted to the satisfaction of the CIT(E) for which he rejected the application filed for approval of deduction u/s 80G. It is the submission of assessee that given an opportunity the assessee is in a position to substantiate its case by filing the requisite details. 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 Ld. CIT(E) with a direction to grant one more 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. Assessee is also hereby directed to submit the details as called for by the Ld. CIT(E) on the appointed date without seeking any adjournment under any pretext failing which the CIT(E) is at liberty to pass appropriate order as per law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the assessee trust was entitled to approval under sub clause (B) of clause (iv) of the first proviso to sub-section (5) of section 80G of the Income Tax Act, 1961, given that the assessee had already claimed exemption under section 11 for previous years?

(b) Whether the assessee had furnished sufficient and satisfactory evidence to establish the genuineness of its activities and compliance with the conditions laid down in clauses (i) to (v) of section 80G(5) of the Act?

(c) Whether the rejection of the application for approval under section 80G by the Commissioner of Income Tax (Exemption) was justified in light of the facts and law, particularly considering principles of natural justice and the opportunity of hearing provided to the assessee?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Eligibility for approval under sub clause (B) of clause (iv) of first proviso to section 80G(5)

Relevant legal framework and precedents: The relevant provision is sub clause (B) of clause (iv) of the first proviso to sub-section (5) of section 80G of the Income Tax Act, 1961. This provision applies to trusts or institutions whose activities have commenced and whose income or part thereof has not been excluded from total income under sub-clauses of clause (23C) of section 10 or sections 11 or 12 for any previous year ending on or before the date of the application.

Court's interpretation and reasoning: The Tribunal examined the statutory language and noted that the proviso applies only where no income has been excluded under the specified provisions for any previous year ending on or before the application date. The assessee had claimed exemption under section 11 for the previous years 2020-21, 2021-22, and 2022-23, with substantial amounts applied to charitable purposes.

Application of law to facts: Since the assessee's activities had commenced prior to the application and income had already been excluded under section 11 for previous years, the Tribunal concurred with the Commissioner's view that the assessee was not eligible to file an application under this specific proviso to section 80G(5).

Conclusions: The Tribunal upheld the legal position that the assessee could not claim approval under the said proviso due to prior income exclusions under section 11.

Issue (b): Sufficiency and genuineness of evidence submitted by the assessee

Relevant legal framework and precedents: Section 80G(5) requires fulfillment of conditions (i) to (v), including genuineness of activities and proper documentation to prove charitable purposes. The Commissioner is empowered to verify these conditions and reject applications where evidence is insufficient or unsatisfactory.

Court's interpretation and reasoning: The Commissioner issued multiple notices to the assessee seeking clarifications and supporting documents, including intent letters for corpus donations, justification of large work-in-progress assets, and explanations for advance fees received. Despite partial responses, the assessee failed to provide complete and satisfactory evidence, especially regarding the huge work-in-progress and advance fees.

Key evidence and findings: The Commissioner noted absence of intent letters, incomplete documentation for work-in-progress, and inadequate justification for advance fees of Rs. 1.90 crores. The only partial evidence was a completion certificate for partial school construction, which was insufficient to establish genuineness.

Treatment of competing arguments: The assessee contended that it had submitted requisite details and sought an opportunity to provide further clarifications. The Commissioner found the submissions inadequate and rejected the application after providing multiple opportunities.

Conclusions: The Tribunal recognized the Commissioner's concerns about insufficient evidence but balanced this with the assessee's request for an additional opportunity. It directed the Commissioner to grant one more chance to the assessee to file the required documents and decide the matter on merits.

Issue (c): Validity of rejection order and adherence to principles of natural justice

Relevant legal framework and precedents: Principles of natural justice require that an assessee be given a reasonable opportunity to present its case before adverse orders are passed. The Commissioner must conduct proper inquiries and allow the assessee to respond to all queries.

Court's interpretation and reasoning: The assessee argued that the rejection order was passed without sufficient time to file replies to all notices and without making further inquiries, thereby violating natural justice.

Application of law to facts: The Tribunal found that although multiple notices were issued and some responses were filed, the last notice was not complied with. However, the Tribunal considered the assessee's submission that it was willing to provide the requisite details if given another opportunity.

Conclusions: The Tribunal concluded that in the interest of justice, the assessee should be granted one more opportunity to submit the necessary documents. It directed the Commissioner to hear the assessee and decide the matter afresh, warning the assessee against seeking adjournments.

3. SIGNIFICANT HOLDINGS

"Since, the assessee didn't furnish sought details, in the absence of such documents/details, the justification of impugned activity could not be derived. Reasonable opportunities have already been provided, to the assessee to submit the relevant documents in its support. Thus, the assessee has failed to justify the genuineness of the claimed activities."

"In respect to the above discrepancies, the undersigned is unable to draw any satisfactory conclusion about the genuineness of activities of the assessee and fulfilment of conditions laid down in clause (i) to (v) of section 80G(5) of the Act."

"Considering the above, and since the assessee's activities were already commenced at the time of filing the present application and it has claimed deduction under section 11 for previous year before the date of the present application, the assessee trust is not eligible to file application under clause (B) of (iv) first proviso to sub-section (5) of section 80G of the Income-tax Act, 1961."

"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 Ld. CIT(E) with a direction to grant one more 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 include the strict interpretation of eligibility criteria under section 80G(5) proviso, the necessity of furnishing complete and satisfactory evidence to prove genuineness of charitable activities, and the requirement to adhere to principles of natural justice by providing adequate opportunity before rejecting applications.

Final determinations on each issue were:

(i) The assessee was not eligible to apply under the specific proviso of section 80G(5) due to prior income exclusions under section 11.

(ii) The assessee had not sufficiently established the genuineness of activities due to incomplete documentation.

(iii) The rejection order was set aside for statistical purposes, and the matter was remanded with directions to allow the assessee one final opportunity to submit evidence and for the Commissioner to decide afresh in accordance with law and facts.

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