2025 (5) TMI 2117 - AT - Income Tax

Rejection of the application for grant of approval u/s 80G - HELD THAT - As admitted fact that the CIT(E) has granted permanent registration to the assessee u/s 12AB(1)(b) of the Act which is after rejection of the application for grant of approval u/s 80G. It is the submission of assessee that given an opportunity the assessee is in a position to substantiate its case by filing the requisite details. We deem it proper to restore the issue to the file of CIT(E) with a direction to grant one more 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 learned CIT (Exemption) had jurisdiction to reject the application for approval under section 80G(5) of the Income Tax Act, 1961, specifically under sub clause (B) of (iv) of the first proviso to sub-section (5) of section 80G.
• Whether the rejection of the application for approval under section 80G(5) was justified on the basis of the assessee's failure to respond to notices pointing out discrepancies in the application.
• Whether the provisions of section 80G(5)(iv)(B) are applicable to the assessee, given that the assessee had claimed deduction under section 11 in its financial statements and Income Tax Returns (ITRs).
• Whether the grant of permanent registration under section 12AB(1)(b) after rejection of the 80G approval application affects the validity of the rejection order and the procedure to be followed subsequently.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of the CIT (Exemption) to reject the application under section 80G(5)

Relevant legal framework and precedents: Section 80G(5) of the Income Tax Act, 1961, governs the approval of donations to certain funds or charitable institutions for claiming deduction. The first proviso to sub-section (5) specifies conditions and procedures for approval, including sub clause (B) of (iv), which relates to specific categories of trusts or institutions. The third proviso Clause (b) Sub Clause (B)(II) outlines the powers of the CIT (Exemption) to reject or cancel such approvals if conditions are not met.

Court's interpretation and reasoning: The assessee contended that the CIT (Exemption) erred in assuming jurisdiction to reject the application, alleging that the order was passed on misconceived inferences and misreading of the law, rendering the rejection order non-maintainable and without jurisdiction. The Tribunal examined the procedural history and the statutory provisions and found that the CIT (Exemption) had issued proper notices and provided opportunities to the assessee to clarify discrepancies before passing the order of rejection.

Key evidence and findings: The record showed that the CIT (Exemption) issued notices through the ITBA portal and email, requesting information and clarifications. The assessee failed to respond to the second notice pointing out discrepancies. The CIT (Exemption) also provided a show cause notice specifying the consequences of non-compliance.

Application of law to facts: Given the statutory mandate and procedural compliance by the CIT (Exemption), the Tribunal held that the jurisdiction to reject the application was validly exercised. The rejection was based on the assessee's failure to comply with notices and furnish required information, which is a condition precedent for approval under section 80G(5).

Treatment of competing arguments: While the assessee argued lack of jurisdiction and procedural impropriety, the Tribunal emphasized the statutory framework and the procedural fairness observed by the CIT (Exemption). The assessee's non-response to notices was a critical factor supporting the rejection.

Conclusion: The CIT (Exemption) had jurisdiction to reject the application under section 80G(5), and the rejection order was not invalid on jurisdictional grounds.

Issue 2: Justification for rejection based on non-response to notices and discrepancies

Relevant legal framework and precedents: Approval under section 80G(5) requires verification of genuineness of activities and fulfillment of prescribed conditions (clauses (i) to (v) of section 80G(5)). The procedure includes issuance of notices to clarify discrepancies and an opportunity of hearing before rejection.

Court's interpretation and reasoning: The CIT (Exemption) found discrepancies in the documents submitted by the assessee and issued a show cause notice. The assessee did not respond to the notice by the due date. The CIT (Exemption) interpreted the non-response as an admission of inability or unwillingness to clarify the discrepancies.

Key evidence and findings: Notices were served through the official portal and email, with clear deadlines. The assessee did not furnish any explanation or additional evidence despite reminders. The financial statements and ITRs indicated that the assessee claimed deduction under section 11, which affected the applicability of section 80G(5)(iv)(B).

Application of law to facts: The statutory conditions require the assessee to demonstrate compliance and genuineness of activities. Failure to respond to notices and clarify discrepancies justifies rejection under the law. The Tribunal found that the CIT (Exemption) acted within the legal framework and did not err in rejecting the application on these grounds.

Treatment of competing arguments: The assessee did not contest the facts of non-response but argued for reconsideration in light of subsequent registration under section 12AB. The Tribunal noted this but upheld the initial rejection as legally valid.

Conclusion: The rejection was justified due to the assessee's failure to respond to notices and clarify discrepancies, which is a statutory requirement for approval under section 80G(5).

Issue 3: Applicability of section 80G(5)(iv)(B) given the claim of deduction under section 11

Relevant legal framework and precedents: Section 80G(5)(iv)(B) excludes certain trusts or institutions that claim deduction under section 11 from approval under 80G(5). The proviso clarifies the interplay between these sections.

Court's interpretation and reasoning: The CIT (Exemption) observed that the assessee's financial statements and ITRs showed claims of deduction under section 11, which by law excludes the applicability of section 80G(5)(iv)(B). Consequently, the CIT (Exemption) was not satisfied that the assessee fulfilled the conditions under section 80G(5).

Key evidence and findings: The assessee's financial records and tax returns were examined and confirmed the claim under section 11.

Application of law to facts: Since the assessee claimed deduction under section 11, the provisions of section 80G(5)(iv)(B) were not applicable, leading to rejection of the 80G approval application.

Treatment of competing arguments: The assessee did not dispute the factual position but sought reconsideration based on subsequent registration under section 12AB.

Conclusion: The Tribunal upheld the CIT (Exemption)'s finding that section 80G(5)(iv)(B) was not applicable due to the claim under section 11, thereby justifying the rejection.

Issue 4: Effect of grant of permanent registration under section 12AB(1)(b) after rejection of 80G approval application

Relevant legal framework and precedents: Section 12AB provides for registration of charitable trusts or institutions for claiming exemption under the Income Tax Act. The grant of registration under section 12AB is independent but related to approvals under section 80G.

Court's interpretation and reasoning: The Tribunal noted that the CIT (Exemption) granted permanent registration under section 12AB(1)(b) after rejecting the 80G approval application. The assessee argued that since registration was granted, the issue of 80G approval should be reconsidered. The Tribunal considered the interest of justice and the assessee's submission that it could substantiate its case if given an opportunity.

Key evidence and findings: The registration certificate under section 12AB dated 18.11.2024 was on record. The rejection of 80G approval was dated 13.09.2024, preceding the registration.

Application of law to facts: The Tribunal held that the grant of registration under section 12AB post rejection of 80G approval application warranted a fresh consideration of the 80G approval application. The assessee was directed to be given one more opportunity to file requisite details and substantiate its claim.

Treatment of competing arguments: The Revenue did not object to restoration of the matter for fresh consideration. The Tribunal balanced procedural fairness and statutory compliance by directing reconsideration without prejudice to the legal provisions.

Conclusion: The matter was restored to the file of the CIT (Exemption) with directions to grant one more opportunity to the assessee to substantiate its case for 80G approval in light of the registration under section 12AB.

3. SIGNIFICANT HOLDINGS

"The assessee was specifically informed that in the event of failure to comply by the due date, the application shall be liable to be rejected and the approval shall also be liable to be cancelled."

"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."

"As per financial the statements and ITRs furnished by the assessee, it is seen that the trust has claimed deduction u/s 11. Therefore, said provisions of sec. 80G(5)(iv)(B) of the Act are not applicable in the assessee's