2025 (7) TMI 1297 - AT - Income Tax

Rejection of the application of the assessee trust for regular registration u/s 12AB - As per revenue the trust was not engaged in any substantial charitable activity as per its objects therefore held that the genuineness of the charitable activities being carried out by the trust has not been satisfactorily established HELD THAT - It is seen from the tabular chart about the case history of this case that the reply submitted by the assessee was not considered by the CIT(E) before rejecting the said application. Moreover no show-cause notice was issued by the CIT(E) prior to the rejection of the application. Further the assessee has submitted once again the necessary details regarding its charitable activities as listed out above and also relied upon case laws which held that the registration u/s 12A should not be rejected merely because the trust has not yet under taken substantial activities or because the balance-sheet is in the earlier stages of establishment. The assessee in its written submission also stated that in the case of D.Y. Patil Education Society 2011 (9) TMI 1022 - ITAT PUNE had noted that the genuineness of the trust activities can only be evaluated over time and the initial phase should not be a barrier to registration. Therefore in the given facts of the case and in the interest of justice we set aside the order of the ld. CIT(E) and restore back the matter to his file for passing a fresh order - Appeal of the assessee is allowed for statistical purposes.

Summary

ISSUES:

Whether the rejection of the application for regular registration under Section 12AB of the Income Tax Act, 1961, on the ground of lack of substantial charitable activities and genuineness is justified.Whether the rejection of the application for approval under Section 80G of the Income Tax Act, 1961, consequent to the rejection under Section 12AB, is valid.Whether the failure to issue a show-cause notice prior to rejection of the registration application violates principles of natural justice.Whether a newly established trust can be denied registration under Section 12AB solely based on limited financial activity or an initial balance sheet reflecting early-stage operations.Whether the appeal filed within 60 days from the date of signing of the rejection order complies with statutory timelines under the Income Tax Act.

RULINGS / HOLDINGS:

The rejection of the application for registration under Section 12AB was not upheld as the "genuineness of the charitable activities being carried out by the trust has not been satisfactorily established" was found to be based on incomplete consideration of the trust's activities and financial position during its formative stage.The rejection of the application for approval under Section 80G was held to be consequential upon the rejection under Section 12AB and was therefore set aside pending fresh adjudication.The failure to issue a show-cause notice before rejecting the application was held to be a violation of the principles of natural justice, as no reasonable opportunity of being heard was afforded.It was held that registration under Section 12AB should not be rejected merely because the trust has not yet undertaken substantial activities or due to the initial balance sheet reflecting limited financial transactions, consistent with precedents that "the genuineness of the trust activities can only be evaluated over time."The appeal was held to be filed within the prescribed period, considering the signing date of the rejection order as the operative date for limitation, thus complying with statutory timelines.

RATIONALE:

The Court applied the statutory provisions of Sections 12AB and 80G of the Income Tax Act, 1961, and Rules framed thereunder, emphasizing the requirement of "reasonable opportunity of being heard" before rejection of registration applications.Precedents from various High Courts and Tribunals were relied upon, including rulings that a newly formed trust should be allowed a reasonable period to demonstrate charitable activities and that rejection solely on the basis of early-stage balance sheets or limited financial activity is not justified.The Court noted the importance of adherence to the principles of natural justice, holding that the absence of a show-cause notice before rejection was a procedural irregularity warranting remand for fresh adjudication.The Court recognized that the initial financial statements of a newly established trust do not necessarily reflect the substance of its charitable objectives or activities, requiring a holistic and temporal evaluation rather than a snapshot assessment.Accordingly, the matter was remanded to the Commissioner of Income Tax (Exemption) for fresh consideration after affording the trust a reasonable opportunity to submit evidence and clarifications in support of its application for registration under Section 12AB and consequent approval under Section 80G.