2025 (5) TMI 1667 - AT - Income Tax

Denial of grant of registration u/s 12A and approval u/s 80G - HELD THAT - It is an admitted fact that the assessee did not respond to the second notice issued by the CIT(Exemption) in which he has asked for certain details on account of certain discrepancies found from the submissions made by the assessee earlier for which he rejected the application filed by the assessee for grant of registration u/s 12A of the Act and also cancelled the provisional registration granted earlier u/s 12AB. Since the application for grant of registration u/s 12A of the Act was rejected and the provisional registration granted earlier was cancelled he rejected the application for approval u/s 80G of the Act. The adjournment application filed by the assessee has not been considered by the Ld. CIT(Exemption). It is the submission of tassessee that given an opportunity the assessee is in a position to substantiate its case by filing the requisite details before the Ld. CIT(E) to his satisfaction. Thus we deem it proper to restore the issue(s) 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(s) afresh as per fact and law.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals are:

(a) Whether the rejection of the application for registration under section 12A of the Income Tax Act, 1961, and cancellation of the provisional registration under section 12AB by the CIT(Exemption) was justified, particularly in light of the assessee's alleged non-compliance with notices and failure to provide clarifications on discrepancies.

(b) Whether the denial of approval under section 80G of the Income Tax Act, 1961, was legally sustainable, given that it was premised on the cancellation of registration under section 12A.

(c) Whether the principles of natural justice were violated by the CIT(Exemption) in rejecting the applications without considering the assessee's request for adjournment and by blocking the portal, allegedly preventing the assessee from submitting required documents.

(d) Whether the actions of the CIT(Exemption) in disposing of the applications before the expiry of the limitation period constituted undue haste and procedural impropriety.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of rejection of registration under section 12A and cancellation of provisional registration under section 12AB

The relevant legal framework includes section 12A(1)(ac) and section 12AB of the Income Tax Act, 1961, which govern the registration and provisional registration of trusts/institutions for exemption purposes. Rule 17A(2) of the Income Tax Rules, 1962, prescribes procedural requirements, including furnishing information and clarifications to the tax authorities.

The CIT(Exemption) issued notices to the assessee through the ITBA portal seeking clarifications on discrepancies found in earlier submissions. Despite multiple opportunities, including a show cause notice with an opportunity of hearing, the assessee failed to respond to the second notice by the due date. The CIT(Exemption) observed that the assessee's silence implied no explanation to the discrepancies and concluded that the genuineness of the assessee's activities and compliance with applicable laws could not be satisfactorily established.

The Tribunal noted the undisputed fact that the assessee did not furnish any explanation to the second notice and did not avail the opportunity of being heard. The CIT(Exemption) relied on the provisions of section 12AB(1)(b)(i) and Rule 17A(2) to justify rejection and cancellation. The Tribunal, however, also considered the assessee's contention that an adjournment application was filed on 15.10.2024 and that an attempt to submit responses on 18.10.2024 was frustrated due to the blocking of the portal by the CIT(Exemption).

Balancing the facts, the Tribunal found merit in the assessee's plea for an opportunity to substantiate its case and directed restoration of the matter to the CIT(Exemption) for a fresh decision after allowing the assessee to file requisite details. The Tribunal emphasized that the assessee must comply without seeking further adjournments, failing which the CIT(Exemption) may pass orders as per law.

Issue (b): Legality of denial of approval under section 80G based on cancellation of registration under section 12A

Section 80G of the Income Tax Act provides for approval of donations made to certain funds or institutions for deduction purposes. Approval under section 80G is contingent upon valid registration under section 12A or 12AB.

The CIT(Exemption) rejected the application for approval under section 80G on the ground that the registration under section 12A was cancelled. The assessee challenged this rejection, arguing that since the cancellation of registration was under dispute before the Tribunal, the rejection of approval under section 80G was unsustainable.

The Tribunal acknowledged that the approval under section 80G is dependent on the registration status under section 12A. Given that the issue of registration cancellation was being restored for reconsideration, the Tribunal also restored the issue relating to approval under section 80G for fresh consideration by the CIT(Exemption) after the assessee files the required information.

Issue (c): Alleged violation of natural justice principles and procedural fairness

The assessee contended that the CIT(Exemption) acted in undue haste by disposing of the applications before the limitation period expired and denied natural justice by not considering the adjournment application filed on 15.10.2024. Further, the assessee alleged that the submission portal was blocked, preventing timely filing of clarifications on 18.10.2024.

The Tribunal observed that the CIT(Exemption) had issued notices and provided opportunities for compliance, including a show cause notice with a hearing opportunity. However, the adjournment application was not considered, and the portal was blocked, which the assessee claimed hindered submission of documents.

In light of these facts, the Tribunal found that the principles of natural justice required that the assessee be given one final opportunity to file the requisite details. The Tribunal's direction to restore the matter and allow the assessee to substantiate its case reflects a recognition of procedural fairness and the need to avoid premature rejection without full opportunity to be heard.

Issue (d): Allegation of undue haste and premature disposal

The assessee argued that the CIT(Exemption) disposed of the applications on 22.10.2024, although the limitation period extended until 31.12.2024, implying undue haste.

The Tribunal noted this contention but did not find it sufficient to invalidate the proceedings outright. Instead, the Tribunal's order to restore the matter and permit fresh consideration implicitly addresses concerns of procedural propriety and ensures that the assessee's case is adjudicated on merits within the prescribed time frame.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue(s) 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(s) afresh as per fact and law. The 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 Ld. CIT(Exemption) is at liberty to pass appropriate order(s) as per law."

This establishes the core principle that rejection of registration and approval applications under the Income Tax Act must be preceded by adequate opportunity to the applicant to respond to discrepancies and notices, ensuring compliance with natural justice.

Further, the Tribunal confirmed that approval under section 80G is inherently dependent on valid registration under section 12A, and any challenge to registration status necessarily impacts approval status.

Finally, the Tribunal emphasized strict adherence to procedural timelines and cautioned against seeking adjournments to ensure expeditious disposal of such applications.

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