2025 (6) TMI 1523 - AT - Income Tax

Rejecting renewal of permanent registration u/s 12AB and/ or 80G(5) - revenue submits that assessee was require to apply for regular approval of fund or for registration of trust strictly in accordance the procedure prescribed in this statute and the rules framed thereunder otherwise it will become chaotic position for consideration of such application HELD THAT - We find merit in the submissions of the ld AR of the assessee that the grounds of appeal in his appeal is squarely covered by the decision of this Tribunal 2025 (2) TMI 1200 - ITAT SURAT held that assessee-trust had been granted provisional registration which was valid till assessment year 2026-27 and assessee and applied for final registration before expiry of said period but Commissioner rejected same on ground that application of assessee was premature since there was no bar to move an application before period of six months from expiry of provisional registration matter was to be remanded back for consideration of application on merits. Pune Bench of Tribunal in Avileen Education Foundation 2025 (1) TMI 1168 - ITAT PUNE also held that where issue of grant of registration u/s 12A(1)(ac)(iii) has already been remanded back for de novo adjudication it would be appropriate to remit issue of grant of approval u/s 80G(5) as well being consequential for de novo adjudication. Thus appeal is allowed for statistical purpose. CIT(E) is also directed to consider the plea of ld AR of the assessee for allowing registration under section 12A/12AB or approval of funds u/s 80G(5) from the date of respective application and to pass order in accordance with law. Appeals of the assessee are allowed for statistical purposes.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this group of appeals include:

(a) Whether the Commissioner of Income-Tax (Exemption) [CIT(E)] had jurisdiction under section 12AB(1)(b)(ii)(B) of the Income Tax Act, 1961 (the Act) to reject applications for fresh or renewal of permanent registration under section 12AB, when the assessee already held valid registration;

(b) Whether the CIT(E) erred in rejecting such applications without issuing a Show Cause Notice (SCN) or providing a reasonable opportunity of hearing, thereby violating the principle of audi alteram partem;

(c) Whether the CIT(E) had jurisdiction under the Third Proviso Clause (b) sub-clause (B)(II) below section 80G(5) of the Act to reject applications for renewal of approval under section 80G(5) when the assessee already held valid approval;

(d) Whether the rejection of applications under section 80G(5) was legally valid in the absence of issuance of SCN or opportunity of hearing;

(e) Whether the applications filed prematurely or before expiry of the existing registration/approval are maintainable or liable to be rejected as non-maintainable;

(f) The procedural correctness and legality of the orders passed by CIT(E) in Form 10AD rejecting the applications under sections 12AB and 80G(5); and

(g) The entitlement of the assessee to registration or approval from the date of application pending fresh consideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (e): Jurisdiction of CIT(E) to reject applications for registration under section 12AB and maintainability of premature applications

The relevant legal framework involves section 12AB of the Income Tax Act, which governs the registration of charitable or religious trusts for exemption purposes. The procedural requirements include filing applications in prescribed forms (Form 10AB) and the authority of the CIT(E) to grant or reject such registrations.

Precedents cited include decisions by coordinate benches of the Tribunal, notably Susamskar Foundation vs. CIT(E), where it was held that an application for final registration filed before expiry of provisional registration cannot be rejected on the ground of prematurity or non-maintainability. The Tribunal emphasized that there is no statutory bar to filing an application before six months from expiry of provisional registration.

The Court interpreted that the CIT(E) erred in assuming jurisdiction to reject the application as non-maintainable merely because the assessee held valid registration or approval. The rejection on such grounds was found to be a misconstruction of the law and perverse.

Key evidence included the fact that the assessee held valid registration granted in Form 10AC for the relevant assessment years and had filed applications for renewal or fresh registration within the validity period.

The law was applied to facts by holding that the CIT(E) was obliged to consider the application on merits rather than rejecting it on technical or procedural grounds of maintainability. The Tribunal found the CIT(E)'s action to be arbitrary and prejudicial.

Competing arguments by the revenue emphasized the need for strict adherence to procedural requirements to avoid chaotic processing of applications. However, the Tribunal rejected this argument in light of the binding precedents and principles of natural justice.

The conclusion was that the CIT(E) lacked jurisdiction to reject the applications on the ground of prematurity or non-maintainability and was required to consider the applications de novo.

Issue (b) & (d): Failure to issue Show Cause Notice and violation of audi alteram partem

The principle of audi alteram partem (right to be heard) is a fundamental tenet of administrative law and is applicable in tax proceedings involving rejection of applications for registration or approval under the Act.

The Tribunal noted that the CIT(E) rejected applications without issuing SCN or granting reasonable opportunity of hearing to the assessee, which was a violation of the rule of natural justice.

Relevant legal provisions include the procedural safeguards implicit in section 12AB and section 80G(5), and the general principles of fair hearing under administrative law.

The Court found the CIT(E)'s orders to be in excess of jurisdiction and irrational due to non-compliance with these principles.

The assessee's contention that they were denied opportunity to make submissions or furnish evidence was accepted. The revenue's argument that procedural strictness was necessary was found insufficient to override the fundamental right to be heard.

The conclusion was that the orders rejecting applications without SCN or hearing were illegal, invalid, and liable to be quashed.

Issue (c): Jurisdiction to reject renewal applications under section 80G(5)

Section 80G(5) deals with approval of funds for charitable purposes, allowing donors to claim deductions. The renewal of such approvals is governed by procedural provisions and the CIT(E)'s authority.

The Tribunal followed the principle of consistency and precedent that where an application for renewal of approval is filed during the subsistence of existing approval, the CIT(E) cannot reject it on the ground of prematurity or non-maintainability.

The Tribunal referred to the Pune Bench decision in Avileen Education Foundation vs. CIT(E), which held that issues relating to registration and approval are interconnected and ought to be adjudicated together on merits.

The Court reasoned that the CIT(E)'s rejection of renewal applications under section 80G(5) without proper consideration and opportunity of hearing was without jurisdiction and bad in law.

The conclusion was that the CIT(E) must consider renewal applications de novo and grant approval if the conditions are satisfied.

Issue (f): Legality of orders passed in Form 10AD rejecting applications

The orders in Form 10AD passed by the CIT(E) were challenged as being perverse, arbitrary, and without jurisdiction.

The Tribunal analyzed the correctness of such orders in light of procedural fairness, jurisdictional limits, and statutory provisions.

The Court found that the CIT(E) misread the provisions and made misconceptual inferences leading to rejection of applications without proper jurisdiction.

The Tribunal held that such orders were liable to be quashed and set aside, and the matter remanded for fresh consideration.

Issue (g): Entitlement to registration or approval from date of application pending fresh consideration

The assessee prayed for directions to allow registration or approval from the date of respective application to avoid loss of benefits during pendency.

The Tribunal, following the principle of consistency and fairness, directed the CIT(E) to consider this plea and pass orders in accordance with law.

This ensures that the assessee's rights are protected pending final adjudication.

3. SIGNIFICANT HOLDINGS

The Tribunal, relying on its earlier decision dated 13.02.2025, held:

"We find that in all cases, the respective application of assessee-trust either for regular registration under Section 12A/12AB or approval of fund under section 80G(5)(iii) of the Act were rejected by ld. CIT(E) by taking view that assessee has already holding valid registration or approval and that such application is not maintainable. We find that Co-ordinate Bench of Tribunal in Susamskar Foundation vs. CIT(E) on identical facts, held that assessee-trust had been granted provisional registration which was valid till assessment year 2026-27 and assessee applied for final registration before expiry of said period but Commissioner rejected same on ground that application of assessee was premature, since there was no bar to move an application before period of six months from expiry of provisional registration, matter was to be remanded back for consideration of application on merits."

Further, "before deciding the application afresh, the ld. CIT(E) shall grant reasonable and fair opportunity of hearing to the assessee and further to allow to make further submission to prove the objects of assessee-trust and its activities. The assessee is also directed to file/furnish any other necessary information, if so desired."

The Tribunal established the core principles that:

- Applications for registration or approval under sections 12AB and 80G(5) cannot be rejected on the ground of prematurity or non-maintainability where valid registration or approval subsists;

- The CIT(E) must provide reasonable opportunity of hearing and issue SCN before rejecting such applications;

- Orders rejecting applications without jurisdiction and violating audi alteram partem are liable to be quashed;

- Applications must be considered de novo on merits in accordance with law;

- The assessee is entitled to registration or approval from the date of application pending final decision.

Accordingly, the Tribunal allowed all the appeals for statistical purposes and restored the matters to the file of CIT(E) for fresh adjudication in accordance with law and consistent with the directions above.

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