2025 (5) TMI 681 - AT - Income Tax

Rejection of registration u/s 12AB - renewal of provisional registration rejected on the ground that the renewal application was made under wrong provision i.e. Section 12A(1)(ac)(ii) which was applicable to charitable organization already holding regular registration and seeking renewal of the same - grievance of the Assessee is that the Assessee was not put to notice about the defect in the application and the order rejecting application was passed without giving any opportunity to the Assessee - HELD THAT - Since the Assessee was not confronted with defect in the application the Assessee was not able to explain before CIT(E) that an unintentional mistake had occurred while filing the application. We find merit in the aforesaid contention advanced on behalf of the Assessee. We deem it appropriate to grant another opportunity to the Assessee to set out a case for renewal of registration in terms of Section 12A(1)(ac)(iii) of the Act. Accordingly we set aside the Order dated 21/11/2024 passed by the Learned CIT(E) and restore the application filed by the Assessee to its original number. Appeal preferred by the Assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the application for renewal of registration under Section 12AB of the Income Tax Act, 1961, filed by the Assessee in Form No.10AB, was correctly rejected by the Commissioner of Income Tax (Exemption) on the ground that it was filed under an incorrect provision, namely Section 12A(1)(ac)(ii) instead of Section 12A(1)(ac)(iii)?

- Whether the Assessee was denied natural justice by not being given an opportunity to rectify the alleged defect in the application before rejection?

- Whether the application filed by the Assessee should be treated as an application under the correct provision or the Assessee should be granted an opportunity to rectify the application?

- Whether the second appeal filed by the Assessee is maintainable or is a duplicate appeal liable to be dismissed?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of rejection of renewal application under Section 12AB due to incorrect provision cited

Relevant legal framework and precedents: The relevant statutory provisions are Section 12AB and Section 12A(1)(ac) of the Income Tax Act, 1961. Section 12AB prescribes the procedure for registration of trusts or institutions seeking exemption. Sub-clause (iii) of Section 12A(1)(ac) applies to trusts provisionally registered under Section 12AB and mandates filing of application for renewal at least six months prior to expiry of provisional registration or within six months of commencement of activities, whichever is earlier. Sub-clause (ii) applies to trusts already holding regular registration for five years and seeking renewal.

Court's interpretation and reasoning: The Tribunal noted that the Assessee was granted provisional registration under Section 12AB valid for three years. The application for renewal was filed in Form 10AB, but cited Section 12A(1)(ac)(ii), which is applicable only to trusts holding regular registration seeking renewal. The CIT(E) rejected the application on this ground, holding that the Assessee did not qualify to apply under Section 12A(1)(ac)(ii) since it held only provisional registration.

The Tribunal examined the facts and found that the Assessee had intended to apply under Section 12A(1)(ac)(iii), but inadvertently mentioned the incorrect provision. The Tribunal emphasized that the Assessee was not given any opportunity to explain or rectify this defect before rejection, which was contrary to principles of natural justice.

Key evidence and findings: The Assessee's submissions and accompanying documents demonstrated that the application was intended for renewal of provisional registration under the correct provision. The absence of opportunity to clarify or amend the application was a critical defect in the process.

Application of law to facts: The Tribunal held that the rejection based solely on the incorrect provision cited was not justified without giving the Assessee an opportunity to rectify or explain. The Tribunal set aside the CIT(E) order and restored the application to its original number.

Treatment of competing arguments: The Departmental Representative contended that rejection was justified since the application was under the wrong provision. The Tribunal found merit in the Assessee's contention that the error was inadvertent and that principles of natural justice required an opportunity to be granted before rejection.

Conclusions: The Tribunal directed the CIT(E) to either treat the application as filed under Section 12A(1)(ac)(iii) or to grant the Assessee an opportunity to file a rectified application. The CIT(E) was to decide the application on merits after allowing submissions and evidence. All rights and contentions of the Assessee were kept open.

Issue 2: Maintainability of the second appeal filed by the Assessee

Relevant legal framework: Procedural rules governing appeals before the Tribunal and the principle against multiplicity of proceedings.

Court's interpretation and reasoning: The Assessee's Authorized Representative admitted that the second appeal was a duplicate filed inadvertently to remove registry defects. The Departmental Representative raised no objection to dismissal.

Key evidence and findings: The statement of the Assessee's Authorized Representative that the appeal was duplicate and not pressed was accepted.

Application of law to facts: The Tribunal dismissed the duplicate appeal as not pressed, relying on the admission and absence of objection.

Treatment of competing arguments: None relevant as the Departmental Representative did not object.

Conclusions: The duplicate appeal was dismissed accordingly.

3. SIGNIFICANT HOLDINGS

"We find merit in the aforesaid contention advanced on behalf of the Assessee. Taking into consideration overall facts and circumstances of the present case, we deem it appropriate to grant another opportunity to the Assessee to set out a case for renewal of registration in terms of Section 12A(1)(ac)(iii) of the Act."

"Accordingly, we set aside the Order, dated 21/11/2024, passed by the Learned CIT(E) and restore the application filed by the Assessee to its original number. The Learned CIT(E) is directed to either treat the application filed by the Assessee as application filed under Section 12A(1)(ac)(iii) of the Act or grant opportunity to the Assessee to file rectified application."

"It is clarified that the Learned CIT(E) would be at liberty to decide upon the merits of the application as per law after granting the Assessee an opportunity to make submission and file documents/details in support of the application. All rights and contentions of the Assessee are left open."

Core principles established include the necessity of granting an opportunity to rectify or explain inadvertent errors in statutory applications before rejection, especially where such errors do not go to the root of eligibility but are procedural defects. The judgment reinforces the principle of natural justice in administrative proceedings under the Income Tax Act.

Final determinations:

- The rejection of the renewal application solely on the ground of citing an incorrect provision without affording opportunity to rectify was set aside.

- The Assessee's application was restored and the CIT(E) was directed to consider it on merits after allowing opportunity for rectification and submissions.

- The duplicate appeal was dismissed as not pressed.