2025 (6) TMI 1202 - AT - Income Tax

Rejecting applications filed for registration u/s 12A and approval u/s 80G(5) - HELD THAT - We find that the CIT(E) has issued only one notice on 13.09.2024 and 27.09.2024 respectively and proceeded to decide the appeal on the basis of the details available on record. AR submitted that all details are available with the appellant and one more opportunity may be granted to the appellant to plead its case on merit. Considering the above facts we are of the view that the principles of natural justice have not been adhered to the instant case. It is settled law that principles of natural justice require that the affected party is granted sufficient opportunity of being heard to present his case. Therefore without delving much into the merits of the case in the interest of justice we restore the matter back to the file of CIT(E) for de novo adjudication. Appeals filed by the assessee are allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in these appeals are:

• Whether the Commissioner of Income-tax (Exemption) was justified in rejecting the application for registration under section 12A of the Income-tax Act, 1961.
• Whether the Commissioner of Income-tax (Exemption) was justified in rejecting the application for approval under section 80G(5) of the Income-tax Act, 1961.
• Whether the principles of natural justice were followed by the Commissioner of Income-tax (Exemption) in the process of rejecting the applications under sections 12A and 80G(5).
• Whether the appellants were denied sufficient opportunity to present their case before the Commissioner of Income-tax (Exemption), thereby affecting the validity of the rejection orders.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy of rejection of application for registration under section 12A

Relevant legal framework and precedents: Section 12A of the Income-tax Act, 1961 governs the registration of charitable or religious trusts and institutions for exemption from income tax. The registration process requires the Commissioner of Income-tax (Exemption) to examine the application and satisfy himself that the entity meets the conditions prescribed under the Act. Precedents emphasize that the Commissioner must provide a reasonable opportunity of hearing before rejecting an application to comply with principles of natural justice.

Court's interpretation and reasoning: The Tribunal observed that the Commissioner issued only a single notice dated 13.09.2024 before rejecting the application. The rejection was based solely on the record available without affording the appellant a proper opportunity to present detailed submissions or clarifications. The Tribunal relied on settled legal principles that require adherence to natural justice, mandating that the affected party be given sufficient opportunity to be heard.

Key evidence and findings: The appellant submitted that all necessary details and documents were ready and that only one notice was issued before rejection. The Tribunal noted the absence of multiple or detailed communications that would have allowed the appellant to respond effectively.

Application of law to facts: Applying the principles of natural justice, the Tribunal concluded that the Commissioner's action of rejecting the application without affording adequate hearing was procedurally flawed. The Tribunal emphasized that the merits of the case should be considered only after proper opportunity is given.

Treatment of competing arguments: While the Departmental Representative requested the Tribunal to decide the applications on merits, the Tribunal prioritized procedural fairness over immediate adjudication of substantive issues.

Conclusion: The Tribunal held that the rejection of the application under section 12A was not sustainable due to violation of natural justice and directed the matter to be remanded for de novo consideration after affording reasonable opportunity to the appellant.

Issue 2: Legitimacy of rejection of application for approval under section 80G(5)

Relevant legal framework and precedents: Section 80G(5) provides for approval of donations to charitable trusts for tax deduction purposes. Approval under this section is contingent upon satisfying conditions prescribed by the Act and requires the Commissioner to examine the application carefully. The principles of natural justice apply equally to approval proceedings.

Court's interpretation and reasoning: The Tribunal noted that the rejection of the application under section 80G(5) was similarly based on a single notice dated 27.09.2024, without providing the appellant an adequate chance to present its case or submit requisite documents. The Tribunal reiterated the settled legal position that the affected party must be heard before adverse orders are passed.

Key evidence and findings: The appellant's Authorized Representative contended readiness to furnish all details and requested an opportunity to be heard on merits. The Tribunal found no evidence of sufficient opportunity being granted.

Application of law to facts: The Tribunal applied the same reasoning as in Issue 1, concluding that the rejection under section 80G(5) was procedurally improper due to non-compliance with natural justice.

Treatment of competing arguments: Despite the Departmental Representative's submission to decide on merits, the Tribunal emphasized procedural propriety and the necessity of hearing the appellant.

Conclusion: The Tribunal directed the matter to be restored to the Commissioner for fresh adjudication after affording adequate opportunity to the appellant to present submissions and documents.

Issue 3: Compliance with principles of natural justice

Relevant legal framework and precedents: The principles of natural justice are foundational to administrative and quasi-judicial proceedings, requiring that no person should be condemned unheard (audi alteram partem). This principle mandates that the affected party must be given adequate notice and opportunity to present their case before adverse decisions are taken.

Court's interpretation and reasoning: The Tribunal found that the Commissioner's issuance of only one notice in each case, followed by summary rejection, violated the principles of natural justice. The Tribunal emphasized that such procedural lapses render the orders invalid irrespective of the substantive merits.

Key evidence and findings: The appellant's submissions highlighted the lack of opportunity to respond to queries or furnish clarifications. The Tribunal relied on these facts to underscore the procedural deficiency.

Application of law to facts: The Tribunal held that the principles of natural justice were not adhered to, necessitating restoration of the matter for fresh consideration with proper hearing.

Treatment of competing arguments: The Departmental Representative's request for final adjudication was declined in favor of ensuring procedural fairness.

Conclusion: The Tribunal concluded that the procedural infirmity warranted quashing of the rejection orders and remand for de novo adjudication.

3. SIGNIFICANT HOLDINGS

The Tribunal succinctly stated: "It is settled law that principles of natural justice require that the affected party is granted sufficient opportunity of being heard to present his case."

The core principles established include:

• Rejection of applications under sections 12A and 80G(5) without affording adequate opportunity to the applicant violates principles of natural justice.
• Adverse orders passed on the basis of limited or single notices without considering submissions or clarifications are procedurally unsustainable.
• In such circumstances, the matter must be remanded to the Commissioner for de novo consideration after providing reasonable opportunity of hearing.

Final determinations on each issue were that the rejection orders under section 12A and section 80G(5) were set aside, and the appeals were allowed for statistical purposes with directions to the Commissioner of Income-tax (Exemption) to pass speaking orders after proper hearing and consideration of submissions and documents furnished by the appellant.