2025 (5) TMI 1696 - AT - Income Tax

Rejecting the application for grant of registration u/s 12A and also provisional registration granted u/s 12AB - HELD THAT - It is an admitted fact that upon noticing certain discrepancies the CIT(Exemption) issued a notice to the assessee to make some further compliance. We find the assessee filed adjournment application which was also granted but thereafter the assessee remained silent for which the CIT(Exemption) decided the issue against the assessee since he was unable to draw a proper conclusion about the genuineness of the activities of the assessee trust and compliance of any other law for the time being in force by the trust / institution as are material for the purpose of achieving its objects. Thus we deem it proper to restore the issue to the file of the CIT(E) with a direction to grant one final opportunity to the assessee to substantiate its case by filing the requisite details before him. 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 the rejection of the application for grant of registration under section 12A of the Income Tax Act, 1961, and cancellation of provisional registration granted under section 12AB, was justified on the grounds of non-compliance and discrepancies noticed by the CIT (Exemption).
• Whether the assessee was afforded sufficient opportunity of being heard and to submit necessary details before the CIT (Exemption) before passing the impugned order.
• Whether the provisional registration granted under section 12AB could be cancelled without allowing the assessee a final opportunity to explain and substantiate its case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for Rejection of Registration Application and Cancellation of Provisional Registration

Relevant Legal Framework and Precedents: Section 12A of the Income Tax Act provides for registration of trusts or institutions to avail exemption benefits. Section 12AB governs the grant and cancellation of provisional registration. Rule 17A(2) of the Income Tax Rules mandates compliance and verification of genuineness of activities and adherence to other applicable laws. The CIT (Exemption) is empowered to verify the genuineness of activities and compliance before granting or cancelling registration.

Court's Interpretation and Reasoning: The CIT (Exemption) issued multiple notices to the assessee to verify genuineness and compliance. Despite repeated opportunities, the assessee failed to satisfactorily respond to discrepancies noticed. The CIT (Exemption) concluded that in absence of adequate explanation, it was unable to draw a satisfactory conclusion about the genuineness of the activities and compliance with applicable laws.

Key Evidence and Findings: The assessee filed the application on 30.09.2023 and responded to initial notices by submitting information. However, after an adjournment was granted till 15.02.2024, the assessee did not respond further. The CIT (Exemption) found discrepancies unaddressed and no explanation was furnished despite show cause notice dated 25.01.2024.

Application of Law to Facts: The CIT (Exemption) relied on section 12AB(1)(b)(i) and Rule 17A(2) to assess compliance and genuineness. The failure to respond to notices and non-compliance justified rejection and cancellation under the statutory scheme.

Treatment of Competing Arguments: The assessee contended that submissions were made and sufficient opportunity was not granted. The CIT (Exemption) took the view that ample opportunities were given, including extension of time, but the assessee remained silent thereafter.

Conclusions: The Tribunal recognized the CIT (Exemption)'s concerns but noted the assessee's claim of willingness to explain the case if granted a further opportunity.

Issue 2: Sufficiency of Opportunity Granted to the Assessee

Relevant Legal Framework and Precedents: Principles of natural justice require that before adverse orders are passed, the affected party must be given a fair opportunity to be heard. This is especially important in matters involving registration and cancellation under tax laws.

Court's Interpretation and Reasoning: The Tribunal observed that although the CIT (Exemption) issued multiple notices and granted an adjournment till 15.02.2024, the assessee did not respond thereafter. However, the assessee's counsel submitted that a final opportunity to explain would enable the assessee to substantiate its case properly.

Key Evidence and Findings: The record shows notices dated 08.12.2023, 21.12.2023, and 25.01.2024, with the last show cause notice requesting explanation by 01.02.2024. The assessee requested adjournment which was granted till 15.02.2024. No further submissions were made.

Application of Law to Facts: The Tribunal balanced the CIT (Exemption)'s duty to ensure compliance with the assessee's right to be heard. Given the importance of registration for the assessee's activities, the Tribunal found it appropriate in the interest of justice to restore the matter for a final opportunity.

Treatment of Competing Arguments: The Department argued that sufficient opportunities were already provided and the assessee's failure to respond justified rejection. The Tribunal acknowledged this but emphasized the need for a final chance to avoid miscarriage of justice.

Conclusions: The Tribunal directed the CIT (Exemption) to grant one final opportunity to the assessee to file requisite details and appear for hearing. The assessee was cautioned against seeking further adjournments.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Since, the assessee has not furnished any explanation to the discrepancies communicated to it, it is presumed that the assessee has nothing to say in the matter."

However, balancing the facts and submissions, the Tribunal stated:

"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 CIT(Exemption) with a direction to grant one final opportunity to the assessee to substantiate its case by filing the requisite details before him. The Ld. CIT(Exemption) shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee."

Core principles established include:

• The necessity of compliance with procedural requirements under sections 12A and 12AB and related rules for registration and provisional registration of trusts.
• The importance of genuineness of activities and compliance with other laws as material for registration.
• The requirement to afford adequate opportunity of hearing before rejecting registration applications or cancelling provisional registration.
• The Tribunal's power to condone delay and restore matters for fresh consideration in the interest of justice.

Final determinations on each issue:

• The rejection of the registration application and cancellation of provisional registration was prima facie justified due to non-compliance and unexplained discrepancies.
• However, the assessee was not afforded a final opportunity to explain the case before passing the impugned order.
• The appeal was allowed for statistical purposes with directions to the CIT (Exemption) to grant one final hearing opportunity and decide the matter afresh in accordance with law.