2024 (12) TMI 1577 - AT - Income Tax

Rejecting the application for registration u/s 12AA/AB - due to inadvertent error the application was filed under clause (vi) of section 12A(1)(ac) HELD THAT - We find that admittedly the assessee trust was required to file application under clause (iii) of section 12A(1)(ac) of the IT Act but due to inadvertent error the application was filed under clause (vi) of section 12A(1)(ac) of the IT Act and for this reason alone Ld. CIT Exemption Pune rejected its application for registration. As relying of Raj Krishan Jain Charitable Trust 2024 (6) TMI 1400 - ITAT DELHI we find force in the arguments of Ld. Counsel of the assessee that Ld. CIT Exemption Pune erred in dismissing the application for registration merely on a technical ground and accordingly we deem it proper to set-aside the order passed by CIT Exemption Pune and direct him to treat the application already filed by the assessee as under clause (iii) of section 12A(1)(ac) of the IT Act instead of under clause (vi) of section 12A(1)(ac) and decide the same as per fact and law after providing reasonable opportunity of hearing to the assessee. Appeal filed by the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether an application for registration under section 12A(1)(ac) of the Income Tax Act, filed under an incorrect clause due to inadvertent or typographical error, can be treated as having been filed under the correct clause by the assessing authority.
• Whether the rejection of the application for registration solely on the ground of filing under an incorrect clause of section 12A(1)(ac) is justified.
• Whether the assessing officer (Ld. CIT, Exemption) has the jurisdiction or discretion to allow correction of such a technical defect in the application for registration under section 12AA/AB of the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Correctability of filing an application under an incorrect clause of section 12A(1)(ac) due to inadvertent error

Relevant legal framework and precedents: Section 12A(1)(ac) of the Income Tax Act prescribes various clauses under which a trust or institution may apply for registration to claim exemption. The application for registration is to be filed under the relevant clause applicable to the nature and objects of the trust. The procedural requirement is that the application must be filed correctly to enable proper scrutiny.

Precedents relied upon include decisions of coordinate Benches of the Tribunal, notably:

• Shree Swaminarayan Gadi Trust vs. CIT, where an identical issue arose and the Tribunal allowed correction of the clause under which the application was filed.
• Raj Krishan Jain Charitable Trust, where the Tribunal held that a technical or typographical error in filing under the wrong clause of section 12A(1)(ac) is curable and the application should be considered as filed under the correct clause.

Court's interpretation and reasoning: The Tribunal recognized that the assessee trust had inadvertently filed the application under clause (vi) instead of clause (iii) of section 12A(1)(ac). It was noted that the assessee was genuine and had been approved since 1996, indicating no mala fide intent or attempt to mislead. The Tribunal emphasized that the rejection was solely on the basis of the technical mistake in mentioning the wrong clause code.

The Tribunal relied on the principle that procedural defects which are technical and do not affect the substantive rights or cause prejudice should be allowed to be rectified. The Tribunal observed that the assessing officer is empowered to consider amended applications or allow corrections to such defects in the interest of justice.

Key evidence and findings: The assessee had filed the application without professional assistance, leading to the typographical error. The assessee had also submitted a request to treat the application as filed under the correct clause. The Tribunal also noted that the assessee had complied with notices and was willing to produce supporting documents.

Application of law to facts: Applying the principle of curability of technical defects and the precedents, the Tribunal found that the rejection by Ld. CIT, Exemption, Pune was not justified. The error was inadvertent and did not go to the root of the matter.

Treatment of competing arguments: The Revenue contended that once the application was filed under a particular clause, it cannot be treated as filed under another clause, and hence the rejection was justified. The Tribunal, however, distinguished this rigid approach by relying on coordinate Bench decisions that allowed correction of such errors.

Conclusions: The Tribunal concluded that the application filed under the wrong clause due to inadvertent error is a curable defect and the application should be treated as filed under the correct clause (iii) of section 12A(1)(ac).

Issue 2: Legitimacy of rejecting the application solely on the ground of incorrect clause

Relevant legal framework and precedents: The Income Tax Act and associated procedural rules require that applications for registration be scrutinized for genuineness and compliance. However, the law also recognizes the principle of substantial justice and allows correction of procedural errors that do not prejudice any party.

Court's interpretation and reasoning: The Tribunal held that rejecting the application solely on the ground that it was filed under an incorrect clause, without considering the genuineness of the trust or the possibility of rectification, was an error. The Tribunal emphasized that the assessing authority should have allowed the assessee to correct the mistake or treat the application as filed under the correct clause.

Key evidence and findings: The assessee's bona fide conduct, prior approval since 1996, prompt compliance with notices, and willingness to rectify the error were significant factors supporting the Tribunal's view.

Application of law to facts: The rejection order did not consider the possibility of correction and was based on a narrow interpretation of procedural requirements. The Tribunal found this approach inconsistent with principles of natural justice and equity.

Treatment of competing arguments: The Revenue's argument for strict adherence to procedural codes was rejected in light of the principle that procedural errors which do not affect substantive rights should be curable.

Conclusions: The Tribunal held that the rejection was unjustified and set aside the order.

Issue 3: Jurisdiction and discretion of the assessing authority to allow correction of technical defects in registration applications

Relevant legal framework and precedents: The Income Tax Act does not explicitly prohibit correction of errors in applications for registration under section 12AA/AB. Judicial precedents have recognized the power of the assessing authority to allow amendments or corrections to ensure that genuine applicants are not prejudiced by technical mistakes.

Court's interpretation and reasoning: The Tribunal observed that the assessing authority has the discretion to accept amended applications or treat the application as filed under the correct provision, especially where the error is technical and inadvertent.

Key evidence and findings: The assessee had submitted a request for correction and was willing to comply with further requirements. The Tribunal found no statutory bar to allowing such correction.

Application of law to facts: The Tribunal directed the assessing authority to consider the application as filed under the correct clause and provide reasonable opportunity of hearing before passing a fresh order.

Treatment of competing arguments: The Revenue's insistence on strict procedural compliance was outweighed by the principle of substantial justice and the absence of any prejudice to the Revenue.

Conclusions: The Tribunal held that the assessing authority should exercise its discretion to allow correction and reconsider the application on merits.

3. SIGNIFICANT HOLDINGS

The Tribunal succinctly stated: "The typographical error deserves to be corrected. Accordingly, the appeal deserves to be allowed and impugned order dated 15.03.2024 of Ld. CIT (E) is liable to be set aside."

Core principles established include:

• Technical or typographical errors in the filing of applications under section 12A(1)(ac) are curable defects.
• The assessing authority has jurisdiction and discretion to allow correction of such errors and consider the application under the correct clause.
• Rejection of an application for registration solely on the ground of incorrect clause code, without considering correction or genuineness, is unjustified.
• Natural justice and principles of equity require that the assessee be given reasonable opportunity to rectify procedural defects and produce supporting evidence.

The final determination was to set aside the rejection order and remit the matter back to the assessing authority for fresh adjudication after treating the application as filed under clause (iii) of section 12A(1)(ac), providing the assessee reasonable opportunity to be heard and produce evidence.