2025 (7) TMI 874 - AT - Income Tax

Denial of approval u/s 80G - application for provisional registration in Form 10A was submitted under an incorrect clause - Effect of typographical mistake - HELD THAT - The application was rejected only on the ground that there is a mistake in section mentioned in the application as 80G(5)(i) instead of 80G(5)(iv). It is also apparent from the record that the assessee was also not given defect memo or show-cause notice for rectifying the mistake in the application. Therefore rejection of the application on this technical ground without giving an opportunity to the assessee to rectify this typographical mistake in the application is not justified. Accordingly the impugned order of the CIT (E) is set aside and the matter is remanded to the record of the CIT (E) for reconsideration of the application on merits. The assessee is also directed to rectify the mistake in mentioning the wrong section in the application. Appeal filed by the assessee is allowed for statistical purposes.

Summary

The core legal questions considered in this appeal revolve around the rejection of the assessee's application for approval under Section 80G of the Income Tax Act, 1961. Specifically, the issues include:

• Whether the rejection of the application by the Commissioner of Income Tax (Exemption) (CIT(E)) was justified on the ground of a technical error in the application form, namely citing clause 80G(5)(i) instead of 80G(5)(iv).
• Whether the CIT(E) erred in not providing the assessee an opportunity to rectify the alleged mistake before rejecting the application.
• Whether the provisional registration granted under Section 80G prior to the impugned order and the genuineness of the charitable activities undertaken by the assessee were properly considered by the CIT(E).
• Whether the rejection was sustainable despite the assessee's compliance with notices and submission of requisite documents.

Issue-wise detailed analysis:

1. Validity of rejection based on incorrect clause mentioned in Form 10A (80G(5)(i) vs 80G(5)(iv)):

The legal framework governing registration under Section 80G requires the applicant to submit Form 10A specifying the correct clause under which registration is sought. The CIT(E) rejected the application solely on the ground that the assessee selected clause 80G(5)(i) instead of the appropriate clause 80G(5)(iv). This rejection was premised on the view that the application was "infructuous" due to this error.

Precedents emphasize that procedural errors or technical defects in applications should not lead to outright rejection without affording the applicant an opportunity to rectify such defects, especially when the substantive eligibility is not in question. The Court noted that the CIT(E) did not issue any defect memo or show-cause notice pointing out the error before passing the impugned order.

The Tribunal interpreted the law to require procedural fairness, holding that rejection on a purely technical ground without an opportunity to cure the defect is unjustified. The Tribunal applied this principle to the facts, observing that the assessee's error was typographical and did not affect the genuineness or eligibility for registration.

The assessee had complied with notices and furnished all necessary information, reinforcing that the rejection was not on substantive grounds. The Tribunal found the CIT(E)'s approach to be procedurally improper and contrary to principles of natural justice.

2. Consideration of provisional registration and genuineness of charitable activities:

The assessee had provisional registration under Section 80G valid up to assessment year 2025-26, and registration under Section 12A was also in place. The CIT(E) failed to consider these facts, as well as the absence of any doubt raised on the genuineness of the charitable activities undertaken by the assessee.

The Tribunal emphasized that the existence of prior provisional registration and the bona fide nature of activities should weigh heavily in the decision-making process. The rejection on a procedural ground ignored these substantive factors, which are critical to the grant of registration under Section 80G.

The Tribunal highlighted that the activities were resumed in 2023 after a period of inactivity, and the assessee had submitted a fresh application accordingly. This context was not adequately taken into account by the CIT(E).

3. Procedural fairness and opportunity to rectify:

The Tribunal underscored that the CIT(E) did not provide the assessee with an opportunity to rectify the alleged mistake in the application form. The principles of natural justice require that before rejecting an application on a procedural ground, the applicant should be given a chance to correct the defect.

The Tribunal found that the CIT(E)'s failure to issue a defect notice or show-cause notice amounted to denial of opportunity and was contrary to established legal norms. This procedural lapse rendered the rejection unsustainable.

4. Application of law to facts and treatment of competing arguments:

The Tribunal balanced the competing submissions: the assessee's contention that the rejection was on a technical ground without merit consideration and the Revenue's acceptance that the matter could be remanded for fresh consideration. The Tribunal agreed with the assessee's arguments that the application should be considered on merits after rectification of the technical defect.

The Tribunal's application of law to facts led to the conclusion that the impugned order was liable to be set aside and remanded for fresh consideration in accordance with law and after affording the assessee an opportunity to rectify the mistake.

Significant holdings:

The Tribunal held: "Rejection of the application on this technical ground without giving an opportunity to the assessee to rectify this typographical mistake in the application is not justified."

It established the core principle that procedural defects in applications for registration under Section 80G should not lead to outright rejection without affording the applicant a chance to cure the defect, particularly when the substantive eligibility is not disputed.

The Tribunal also held that the genuineness of charitable activities and prior provisional registration are significant factors that must be considered before rejecting an application.

Accordingly, the Tribunal set aside the impugned order and remanded the matter to the CIT(E) for reconsideration on merits, directing the assessee to rectify the incorrect clause mentioned in the application.

The final determination was that the appeal was allowed for statistical purposes, and the application for approval under Section 80G was to be decided afresh after rectification of the procedural defect and on merits.