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2025 (6) TMI 816 - AT - Income TaxRejection of approval u/s 12AB and section 80G - delayed filing or selection of wrong section code - HELD THAT - The application under section 12AB was rejected by the CIT(E) by invoking clause (vi)(B) of section 12A(1)(ac) holding that the assessee was not eligible to apply under that clause because it had already claimed exemption in its ITRs for financial years 2021 22 and 2022 23. However we find that the CIT(E) did not conclusively examine whether such exemption was actually claimed under section 11 12 or clause (23C) of section 10 which is a sine qua non for attracting the bar under clause (vi)(B). The finding is inferential and not supported by any verification of the nature of exemption claimed in the respective years. The mere reflection of income under the head exempt in the ITR without a finding on the legal source of exemption is insufficient to invoke a statutory bar of such consequence. Moreover the assessee had already obtained provisional registration and had applied in continuity for regularisation. There is no allegation of any misstatement suppression or misuse of exemption provisions. The application for approval u/s 80G though filed simultaneously was rejected without any separate adjudication. CIT(E) summarily disposed of the 80G application along with the 12AB rejection without recording any satisfaction or finding in terms of section 80G(5). The record does not show that any specific notice was issued in respect of the 80G application or that the CIT(E) examined compliance with the relevant statutory conditions. In our view such mechanical and consequential rejection of the 80G application is contrary to law as approval under section 80G is an independent statutory function requiring separate satisfaction of eligibility parameters. Subsequent filing of Form 10AB on 15.06.2024 under the impression that CBDT Circular No. 07/2024 dated 25.04.2024 permitted a fresh application where earlier applications had been rejected or marked defective - The second set of applications filed by the assessee was not in the nature of an independent claim but was a remedial measure taken in good faith to address the procedural rejection of the first application. Once it is found that the earlier order dated 10.07.2024 rejecting the first application u/s 12AB was based on an unverified assumption and without adequate opportunity and the 80G rejection was nonspeaking the only proper course is to restore those matters to the CIT(E) for fresh adjudication. Consequently the second set of applications and the appeals arising therefrom become infructuous. Grievance of the assessee that the CIT(E) granted only one opportunity before disposing of the applications and that the procedural compliance was neither clarified nor supported through further inquiries. Given that the assessee is a non-profit entity engaged in rural and tribal welfare with limited resources the burden of strict procedural default ought not to defeat the substantive right to seek registration and approval under the law. We accordingly find merit in the plea for restoration.
The core legal questions considered by the Appellate Tribunal relate primarily to the rejection of applications for registration and approval under sections 12AB and 80G of the Income-tax Act, 1961. Specifically, the issues are:
1. Whether the rejection of the assessee's application for registration under section 12AB was justified, particularly considering the invocation of clause (vi)(B) of section 12A(1)(ac) based on claimed exemptions in prior years. 2. Whether the application for approval under section 80G(5) was properly adjudicated independently or was impermissibly rejected consequentially without due examination. 3. Whether the assessee was accorded sufficient opportunity to comply with procedural requirements and furnish necessary details before rejection, thereby engaging principles of natural justice. 4. Whether the second set of applications filed by the assessee, following rejection of the first, was maintainable under the provisions of CBDT Circular No. 07/2024 dated 25.04.2024, or whether such applications were barred. 5. Whether the delay in filing appeals against the rejection orders was liable to be condoned in light of the assessee's bona fide belief in the remedial provisions of the Circular and the nature of the assessee as a charitable entity. Issue 1: Justification for Rejection under Section 12AB invoking Clause (vi)(B) of Section 12A(1)(ac) The legal framework requires that for an application for registration under section 12AB to be rejected under clause (vi)(B) of section 12A(1)(ac), the assessee must have claimed exemption in the Income Tax Returns under section 11, 12, or clause (23C) of section 10 prior to registration. The bar applies if such exemption was claimed without registration, making the application non-maintainable. The Court noted that the CIT(E) rejected the application under this clause primarily on the ground that the assessee had claimed exemption amounts of Rs. 85,30,550 and Rs. 2,11,82,097 for the financial years 2021-22 and 2022-23 respectively. However, the CIT(E) failed to conclusively determine whether these exemptions were claimed under the relevant statutory provisions (section 11, 12, or 10(23C)) that would trigger the bar under clause (vi)(B). The rejection was based on an inferential and unverified assumption without examining the legal nature of the claimed exemption. The Tribunal emphasized that mere reflection of exempt income in the ITRs, without a finding on the legal basis of exemption, is insufficient to invoke the statutory bar. Furthermore, the assessee had provisional registration granted earlier and had applied for regular registration in continuity. There was no allegation or evidence of misstatement, suppression, or misuse of exemption provisions. Accordingly, the Court found the rejection on this ground to be procedurally and substantively flawed. Issue 2: Independent Adjudication of Section 80G Approval Application Section 80G approval is a distinct statutory function requiring separate satisfaction of eligibility conditions under section 80G(5). The Tribunal observed that the CIT(E) rejected the 80G applications merely consequential to the rejection under section 12AB without any independent examination or recording of satisfaction under section 80G(5). No specific notice was issued, nor were any findings recorded on whether the assessee complied with the statutory requirements for 80G approval. The mechanical and non-speaking rejection was held to be contrary to law and unsustainable. Issue 3: Sufficiency of Opportunity and Principles of Natural Justice The assessee contended that only one opportunity was granted to furnish requisite details, which was insufficient and violated principles of natural justice. The CIT(E) did not allow the assessee to cure procedural defects, particularly regarding the activity report and other documentation. The Tribunal recognized the assessee's status as a non-profit charitable organization with limited administrative resources and held that strict procedural defaults should not defeat substantive rights. The lack of adequate opportunity and failure to clarify or support procedural compliance was a significant procedural impropriety. Issue 4: Maintainability of Second Set of Applications under CBDT Circular No. 07/2024 The assessee filed a second set of applications under section 12AB and 80G, relying on CBDT Circular No. 07/2024 dated 25.04.2024, which purportedly permitted fresh applications in cases of delayed filing or selection of wrong section codes. The CIT(E) rejected these applications on the ground that the earlier rejection was on merits, not due to technical defects, and thus the Circular's provisions did not apply. Consequently, the second applications were held non-maintainable. The Tribunal held that the second applications were not independent claims but remedial measures taken in good faith to address procedural rejections of the first applications. Since the first set of orders suffered from procedural and legal infirmities, the second applications' rejection was rendered infructuous. The proper course was to restore the first applications for fresh adjudication, making the second applications unnecessary. Issue 5: Condonation of Delay in Filing Appeals The appeals against the CIT(E) orders dated 10.07.2024 and 15.07.2024 were filed with delays of 156 and 151 days respectively, beyond the statutory 60-day period. The assessee explained the delay as a bona fide error arising from a mistaken but genuine belief, based on the CBDT Circular, that fresh applications could be filed instead of immediate appeals. The delay was supported by an affidavit and was not deliberate or contumacious. The Tribunal found the explanation sufficient under section 253(5) of the Act, condoned the delay in the interest of substantial justice, and noted the charitable nature of the assessee's activities. Conclusions and Application of Law to Facts The Tribunal concluded that the CIT(E)'s rejection of the first set of applications under section 12AB was based on an unverified and inferential application of clause (vi)(B), lacking conclusive findings on the nature of exemption claimed. The rejection of the section 80G applications was mechanical and non-speaking, lacking independent adjudication. The assessee was not afforded adequate opportunity to comply with procedural requirements, violating principles of natural justice. The second set of applications filed pursuant to the CBDT Circular were not maintainable as independent claims but were remedial attempts to cure procedural defects. Since the first set of applications were improperly rejected, the second applications became infructuous. In view of these findings, the Tribunal set aside the orders dated 10.07.2024 and 15.07.2024 and restored the matters to the CIT(E) for fresh consideration in accordance with law after affording due opportunity to the assessee. The appeals arising from the second set of applications were dismissed as infructuous. Significant Holdings and Core Principles Established "The mere reflection of income under the head 'exempt' in the ITR without a finding on the legal source of exemption is insufficient to invoke a statutory bar of such consequence." "Approval under section 80G is an independent statutory function requiring separate satisfaction of eligibility parameters; mechanical and consequential rejection without independent examination is contrary to law." "Strict procedural defaults ought not to defeat the substantive right of a charitable entity to seek registration and approval under the law, particularly when adequate opportunity to comply was not afforded." "Delay in filing appeals can be condoned where the delay is occasioned by bona fide error based on official Circulars and without mala fide intent, especially in the context of charitable organizations with limited resources." Final determinations:
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