2025 (6) TMI 54 - AT - Income Tax

Rejecting the assessee s applications for registration u/s 12A and for grant of approval under section 80G(5) - HELD THAT - We note that the ld. CIT (Exemption) had rejected the applications of the assessee for registrations by passing orders ex-parte qua the assessee. The submission of the A.R. was that no notice of hearing sent by the Office of the CIT(E) had been received by the applicant-assessee and therefore no compliance could be made before the ld. CIT(E). Under these facts we feel that one more opportunity should be given to the assessee to explain its case before the ld. CIT (E) as the assessee has not been given proper and sufficient opportunity before disposing of the application for registration under section 12A of the Act and grant of approval under section 80G(5) - Appeals of the assessee stand allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

• Whether the rejection of the applications for registration under section 12A(1)(ac)(iii) and approval under section 80G(5)(iv) of the Income Tax Act, 1961, by the Commissioner of Income Tax (Exemption) [CIT(E)] was justified, particularly when the orders were passed ex-parte without hearing the assessee;
• Whether the assessee was afforded a reasonable opportunity of being heard before the CIT(E) in accordance with principles of natural justice;
• Whether the delay in filing the appeals before the Tribunal should be condoned, given the explanation provided by the assessee;
• Whether the CIT(E) erred in rejecting the applications on grounds of noncompliance without adjudicating on the merits based on facts and materials on record;
• Whether the matter should be restored to the file of the CIT(E) for fresh consideration after affording the assessee an opportunity to be heard and to provide necessary clarifications or material.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of rejection of applications under sections 12A and 80G(5) by CIT(E) via ex-parte orders

Relevant Legal Framework and Precedents: Section 12A of the Income Tax Act governs the registration of charitable trusts and institutions, which is a prerequisite for exemption under the Act. Section 80G(5) deals with the approval of donations made to such entities for tax deduction purposes. The principles of natural justice require that before adverse orders are passed, the affected party must be given a reasonable opportunity to present its case. The CIT(E) is mandated to consider applications for registration or approval on merits after due inquiry.

Court's Interpretation and Reasoning: The Tribunal noted that the CIT(E) had rejected the applications ex-parte, i.e., without hearing the assessee. The assessee contended that it had not received any notice of hearing from the CIT(E) and therefore could not comply or present its case. The Tribunal emphasized that passing orders without affording an opportunity to be heard violates the principles of natural justice and is not sustainable.

Key Evidence and Findings: The assessee submitted that the notices of hearing were not received. No evidence was presented by the CIT(E) to rebut this claim. The Tribunal found that the rejection was based on noncompliance but without any adjudication on the merits, which was an error.

Application of Law to Facts: Since the assessee was not given a proper hearing, the ex-parte rejection was improper. The Tribunal held that the CIT(E) must consider the applications afresh after providing a reasonable opportunity to the assessee to submit clarifications and documents.

Treatment of Competing Arguments: The CIT(DR) opposed granting another opportunity, but the Tribunal prioritized adherence to natural justice over procedural finality.

Conclusions: The ex-parte orders passed by the CIT(E) were set aside, and the matter was remanded for fresh consideration after affording the assessee a proper hearing.

Issue 2: Condonation of delay in filing appeals before the Tribunal

Relevant Legal Framework: The Income Tax Appellate Tribunal Rules permit condonation of delay if sufficient cause is shown. The explanation must demonstrate that the delay was not deliberate and was beyond the appellant's control.

Court's Interpretation and Reasoning: The assessee filed an affidavit explaining that the delay of 20 days in filing the appeals was due to inadvertent mixing up of the appeal memo file with other case files by a staff member of the counsel. The Tribunal found the explanation plausible and not indicative of mala fide or deliberate delay.

Key Evidence and Findings: The affidavit of the staff member, along with the timely payment of the appeal fee and preparation of grounds of appeal, supported the claim of inadvertent delay.

Application of Law to Facts: The Tribunal applied the principle of liberality in condoning delays where no prejudice is caused and where the delay is unintentional.

Treatment of Competing Arguments: The CIT(DR) raised no objection to condonation.

Conclusions: The delay in filing the appeals was condoned, and the appeals were admitted for hearing on merits.

Issue 3: Whether the CIT(E) erred in rejecting applications without findings on merits

Relevant Legal Framework: The CIT(E) is required to examine the applications for registration and approval on the basis of facts and materials submitted by the applicant. The rejection must be supported by reasons and findings.

Court's Interpretation and Reasoning: The Tribunal observed that the CIT(E) rejected the applications solely on grounds of noncompliance without any examination of the substantive merits or the charitable activities carried out by the assessee.

Key Evidence and Findings: The assessee's activities included running Old Age Shelters and Ghaushala, which fall within the ambit of charitable purposes under section 2(15) of the Act.

Application of Law to Facts: The Tribunal found that the CIT(E) failed to consider the factual matrix and merits of the case, which was a procedural irregularity.

Treatment of Competing Arguments: The CIT(DR) did not provide any substantive defense on merits but relied on procedural noncompliance.

Conclusions: The Tribunal held that the CIT(E) must decide the applications on merits after affording opportunity to the assessee.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"We feel that one more opportunity should be given to the assessee to explain its case before the ld. CIT (E), as the assessee has not been given proper and sufficient opportunity before disposing of the application for registration under section 12A of the Act and grant of approval under section 80G(5) of the Act by the ld. CIT (E)."

"We, therefore, set aside the orders of the ld. CIT (E) and restore both the matters to his file with the direction to consider the application of the assessee for registration under section 12A of the Act and grant of approval under section 80G(5) of the Act after giving proper and sufficient opportunity of being heard to the assessee."

Core principles established include:

• The necessity of affording a reasonable opportunity of hearing before passing adverse orders under sections 12A and 80G(5) of the Income Tax Act;
• The impermissibility of ex-parte rejection of applications without adjudication on merits;
• The Tribunal's power to condone delay in filing appeals where sufficient cause is shown;
• The importance of procedural fairness and adherence to principles of natural justice in tax exemption and approval proceedings.

Final determinations on each issue were that the delay in filing appeals was condoned; the ex-parte orders rejecting registration and approval applications were set aside; and the matters were remanded to the CIT(E) for fresh consideration after affording the assessee a proper hearing and opportunity to submit necessary clarifications or material.