2025 (5) TMI 1867 - AT - Income Tax

Rejecting the application for grant of registration u/s 12A - wrong section code used by the assessee in Form 10AB - HELD THAT - It is the submission of the assessee that given an opportunity the assessee is in a position to substantiate its case by filing all the relevant details before the CIT(E). Considering all we deem it proper to restore the issue to the file of the Ld. CIT(E) 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. 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 registration under section 12A(1)(ac)(vi)-ITEM(B) of the Income Tax Act, 1961, on the ground of non-compliance with notices issued by the Commissioner of Income Tax (Exemptions) [CIT(E)] was justified.

- Whether the alleged use of a wrong section code in Form No. 10AB, filed by the assessee for registration, constitutes a fatal defect warranting rejection of the application.

- Whether an opportunity to rectify the error and submit relevant details should be granted to the assessee before rejecting the registration application and cancelling provisional registration under section 12AB.

- The applicability and interpretation of procedural requirements under sections 12A, 12AB, and 10AB of the Income Tax Act, 1961, particularly regarding the genuineness of activities of the trust and compliance with other laws.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for rejection of registration application due to non-compliance with notices issued under section 12AB(1)(b)(i)

Relevant legal framework and precedents: Section 12A of the Income Tax Act provides for registration of charitable trusts, which is essential for availing exemption under the Act. Section 12AB prescribes the procedure for grant, cancellation, and rejection of registration. Section 12AB(1)(b)(i) empowers the CIT(E) to call for information and documents necessary to verify the genuineness of the activities of the trust and compliance with other applicable laws.

Court's interpretation and reasoning: The CIT(E) issued notices seeking information such as bills, vouchers, invoices, and photographs to verify the genuineness of charitable activities. The assessee failed to respond adequately to these notices despite being granted adjournments and opportunities to comply. The CIT(E) concluded that in the absence of such compliance, it was impossible to verify the genuineness of the trust's activities or its adherence to relevant laws.

Key evidence and findings: The assessee submitted incomplete or no responses to the notices issued. The CIT(E) observed discrepancies and issued a show cause notice, which remained unanswered. The provisional registration granted earlier under section 12AB was also cancelled due to this non-compliance.

Application of law to facts: The CIT(E) relied on section 12AB(1)(b)(i) to require necessary information to verify the trust's activities. The assessee's failure to furnish such information justified rejection of the registration application and cancellation of provisional registration.

Treatment of competing arguments: The assessee argued that the rejection was based on a hyper-technical ground of wrong section code usage in Form 10AB and sought an opportunity to rectify and substantiate its case. However, the CIT(E) emphasized non-compliance with substantive information requests rather than mere procedural errors.

Conclusions: The Tribunal acknowledged the importance of compliance with information requests under section 12AB(1)(b)(i) for verifying genuineness. However, considering the totality of facts, the Tribunal found merit in allowing the assessee a final opportunity to submit the requisite details before a conclusive order.

Issue 2: Effect of wrong section code used in Form No. 10AB on the validity of registration application

Relevant legal framework and precedents: Form 10AB is prescribed for applying for registration under section 12A/12AB. The correctness of the section code is procedural but important for processing the application. Judicial precedents cited include decisions from the Pune Bench and Delhi Tribunal, which held that inadvertent or mistaken use of wrong section codes in Form 10AB is not fatal to the application and should not lead to outright rejection.

Court's interpretation and reasoning: The Tribunal noted the assessee's contention that the wrong section code was used inadvertently and that this should not result in denial of registration. The Tribunal referred to precedents where similar mistakes were condoned, emphasizing the principle that procedural errors should not defeat substantive rights, especially where the assessee is willing to comply and substantiate its case.

Key evidence and findings: The assessee had applied for registration and was previously registered under section 12A since 2017, with provisional registration under section 12AB granted in 2021. The only procedural error was the incorrect section code in the application form.

Application of law to facts: The Tribunal applied the principle of substantial compliance and the precedents that procedural mistakes such as wrong section codes in Form 10AB do not warrant rejection if the application is otherwise genuine and the assessee is ready to furnish required details.

Treatment of competing arguments: The Department relied on the CIT(E)'s order supporting rejection, but the Tribunal favored the assessee's plea for an opportunity to correct the error and submit details.

Conclusions: The Tribunal held that the wrong section code used inadvertently is not a fatal defect and directed that the matter be restored to the CIT(E) for fresh consideration after allowing the assessee to submit all relevant details.

Issue 3: Appropriate remedy and procedural fairness in case of rejection of registration application

Relevant legal framework and precedents: Principles of natural justice and procedural fairness require that the assessee be given an adequate opportunity to present its case before adverse orders are passed. The Income Tax Act and various judicial pronouncements emphasize the need for fair hearing and opportunity to rectify procedural defects.

Court's interpretation and reasoning: The Tribunal observed that the assessee was earlier registered and had provisional registration, indicating a prima facie acceptance of its genuineness. The rejection was based partly on procedural non-compliance and partly on failure to respond to notices. The Tribunal found that in the interest of justice, the assessee should be granted one final opportunity to submit the requisite documents and details.

Key evidence and findings: The assessee had sought adjournments and had the opportunity to comply but failed to do so fully. However, there was no indication of mala fide or deliberate suppression.

Application of law to facts: The Tribunal balanced the need for compliance with procedural requirements against the assessee's right to be heard and correct inadvertent errors. It directed restoration of the matter to the CIT(E) with clear instructions to grant a final opportunity and to decide the matter on merits.

Treatment of competing arguments: The Department supported the rejection, emphasizing the assessee's non-compliance. The Tribunal, however, prioritized procedural fairness and justice over strict procedural technicalities.

Conclusions: The Tribunal ordered restoration of the matter to the CIT(E) with directions to grant a final opportunity to the assessee to submit details and to decide the issue in accordance with law and facts, warning against further adjournments.

3. SIGNIFICANT HOLDINGS

- "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." (CIT(E) observation)

- "The information / details were called for under the provisions of section 12AB(1)(b)(i) of the Income Tax Act, 1961. These are the basic details required to ascertain the overall nature of the activities of the assessee and are directly relevant to the present proceedings." (CIT(E) observation)

- The Tribunal held that "the mistake in wrong selection code in e-filing of Form 10AB is not fatal denying the registration of a charitable trust," relying on precedents from Pune and Delhi Benches.

- The Tribunal emphasized the principle of procedural fairness: "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(E) 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."

- The Tribunal directed that "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(E) is at liberty to pass appropriate order as per law."

- The appeal was allowed for statistical purposes, indicating that the matter was remanded for fresh consideration rather than a final acceptance or rejection of registration.