2025 (4) TMI 652 - AT - Income Tax

Rejecting the application for grant of registration u/s 12A and approval u/s 80G - HELD THAT - It is the submission of the Ld. Counsel for the assessee that due to the mistake on the part of the employee of the trust in not communicating the notice the assessee could not respond to the second notice. It is also his submission 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. Thus we deem it proper to restore the issue to the file of the Ld. CIT(Exemption) with a direction to grant one final opportunity to the assessee to substantiate its case by filing the requisite details. Appeals filed by the assessee are allowed for statistical purposes.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

Whether the rejection of the application for registration under section 12A of the Income Tax Act, 1961 by the CIT(Exemption) was justified.
Whether the denial of approval under section 80G of the Income Tax Act, 1961 was appropriate following the rejection of registration under section 12A.

ISSUE-WISE DETAILED ANALYSIS

1. Rejection of Registration under Section 12A

Relevant Legal Framework and Precedents: Section 12A of the Income Tax Act, 1961 provides for the registration of trusts or institutions to avail tax exemptions. The registration is contingent upon the genuineness of the activities of the trust and compliance with applicable laws.
Court's Interpretation and Reasoning: The Tribunal noted that the CIT(Exemption) had issued a notice to the assessee to clarify discrepancies found in the initial submissions. The assessee failed to respond to this second notice, leading to the rejection of the application for registration.
Key Evidence and Findings: The CIT(Exemption) observed discrepancies in the submissions and, due to the lack of response from the assessee, presumed non-compliance with section 12AB(1)(b)(i) of the Act and Rule 17A(2) of the Income Tax Rules, 1962.
Application of Law to Facts: The Tribunal considered the assessee's failure to respond to the notice as a procedural lapse rather than a substantive one. The Tribunal emphasized the need for the assessee to be given an opportunity to present its case fully.
Treatment of Competing Arguments: The assessee argued that the failure to respond was due to an employee's mistake and sought another opportunity to provide the necessary details. The Department opposed this, maintaining that the rejection was justified due to non-compliance.
Conclusions: The Tribunal decided to remand the case back to the CIT(Exemption) to allow the assessee a final opportunity to substantiate its case by providing the requisite details.

2. Denial of Approval under Section 80G

Relevant Legal Framework and Precedents: Section 80G of the Income Tax Act, 1961 provides for deductions on donations to certain funds, charitable institutions, etc. Approval under this section is contingent upon the entity being registered under section 12A.
Court's Interpretation and Reasoning: The denial of approval under section 80G was directly linked to the rejection of registration under section 12A. Since the latter was not granted, the former could not be approved.
Key Evidence and Findings: The Tribunal did not find any independent grounds for denying section 80G approval apart from the section 12A registration issue.
Application of Law to Facts: The Tribunal's decision to remand the section 12A issue inherently affected the section 80G approval, as the latter is dependent on the former.
Treatment of Competing Arguments: The Tribunal did not address separate arguments regarding section 80G, as its resolution was contingent upon the outcome of the section 12A issue.
Conclusions: The Tribunal allowed the appeal for statistical purposes, indicating that the outcome of the section 12A reconsideration would determine the section 80G approval.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "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(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 Tribunal emphasized the importance of procedural fairness and the opportunity for parties to fully present their case, especially when procedural lapses are alleged.
Final Determinations on Each Issue: The Tribunal decided to remand the matter to the CIT(Exemption) to allow the assessee an opportunity to address the discrepancies and provide the necessary details to justify registration under section 12A. Consequently, the decision on section 80G approval was also deferred pending the outcome of the section 12A reconsideration.