2025 (5) TMI 104 - AT - Income Tax

Denial the claim of exemption u/s 80G as well as 12AA of the Act on account of non-compliance by the assessee - HELD THAT - As in the interest of justice it was considered imperative that the assessee may be granted another opportunity to file its submission in response to the notice issued by the Ld. CIT (Exemption) for justifying the genuineness of the activities and claim of approval. Hence both the orders of the CIT (Exemption) are set aside and the matter is remanded to him for deciding both the applications afresh after granting an opportunity of being heard to the assessee and seeking the reply from the assessee in respect of the queries raised and in accordance with law. Appeals filed by the assessee are allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals are:

(a) Whether the assessee was provided adequate opportunity by the Commissioner of Income Tax (Exemption) [CIT (Exemption)] to submit necessary documents and respond to queries related to registration under Section 80G(5) of the Income Tax Act, 1961;

(b) Whether the assessee was provided adequate opportunity by the CIT (Exemption) to submit necessary documents and respond to queries related to registration under Section 12A(1)(ac)(iii) of the Income Tax Act, 1961;

(c) Whether the assessee complied with the procedural and substantive requirements for registration under Sections 80G(5) and 12A(1)(ac)(iii) based on the documentation and evidence available;

(d) Whether the denial of registration under Sections 80G and 12AA was justified on grounds of non-compliance and lack of adequate opportunity to the assessee;

(e) Whether the assessee's social and charitable activities satisfy the conditions for registration under the relevant sections of the Income Tax Act;

(f) Whether the assessee should be granted an opportunity of personal hearing and allowed to submit supporting documents to substantiate its claims for registration under Sections 80G and 12AA.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Adequacy of Opportunity Provided by CIT (Exemption) for Submission of Documents under Sections 80G(5) and 12A(1)(ac)(iii)

Relevant Legal Framework and Precedents: The principles of natural justice mandate that a person affected by an adverse order must be given a fair opportunity to present their case before such order is passed. Registration under Sections 80G and 12AA is a quasi-judicial exercise requiring adherence to procedural fairness, including granting reasonable time and opportunity to submit documents and clarify doubts.

Court's Interpretation and Reasoning: The Tribunal noted the assessee's contention that the limited timeframe and procedural constraints imposed by the CIT (Exemption) prevented the submission of all necessary documents. The assessee also highlighted difficulties in obtaining legal assistance within the stipulated period, which further impeded compliance.

Key Evidence and Findings: The assessee asserted that despite diligent efforts, it could not procure professional guidance timely and was thus unable to meet the deadline. The Tribunal observed that the CIT (Exemption) had denied registration primarily on grounds of non-compliance without granting an adequate opportunity to the assessee to respond or rectify deficiencies.

Application of Law to Facts: The Tribunal emphasized that denial of registration without providing sufficient opportunity to the assessee to present its case and submit supporting documents contravenes principles of natural justice and statutory requirements.

Treatment of Competing Arguments: While the Department maintained that the orders of the CIT (Exemption) were justified due to non-compliance, the Tribunal found that procedural fairness necessitated reconsideration after affording the assessee a proper hearing.

Conclusions: The Tribunal concluded that the assessee was not provided adequate opportunity to comply with procedural requirements and submit necessary documents for registration under Sections 80G(5) and 12A(1)(ac)(iii).

Issue (c) & (e): Compliance with Substantive and Procedural Requirements for Registration under Sections 80G(5) and 12A(1)(ac)(iii) and Validity of Social and Charitable Activities

Relevant Legal Framework and Precedents: Sections 80G and 12AA of the Income Tax Act provide for registration of charitable entities that fulfill prescribed conditions, including genuine engagement in social and charitable activities, maintenance of accounts, and adherence to statutory requirements. The eligibility criteria under Section 80G(5) and Section 12A(1)(ac)(iii) require demonstration of bona fide charitable objectives and activities.

Court's Interpretation and Reasoning: The assessee claimed that all requisite documents evidencing compliance with the statutory criteria were now available and ready for submission. It asserted continuous engagement in social and charitable activities aligned with its stated objectives, benefiting the public and fulfilling the conditions for registration.

Key Evidence and Findings: The Tribunal noted the assessee's assurance regarding availability of documents and consistent charitable work since inception. However, as the CIT (Exemption) had not considered these submissions due to procedural constraints, the Tribunal found it necessary to permit fresh consideration.

Application of Law to Facts: The Tribunal held that the substantive eligibility of the assessee for registration under Sections 80G and 12AA could not be conclusively determined without examining the documents and hearing the assessee's explanations.

Treatment of Competing Arguments: The Department's contention of non-compliance was countered by the assessee's assertion of compliance and readiness to submit evidence. The Tribunal prioritized procedural fairness and thorough examination over summary denial.

Conclusions: The Tribunal found that the assessee's claim of compliance and charitable activity warranted fresh evaluation after allowing submission of documents and hearing.

Issue (d) & (f): Justification for Denial of Registration and Request for Personal Hearing

Relevant Legal Framework and Precedents: Denial of registration under Sections 80G and 12AA must be based on valid grounds after giving the applicant a reasonable opportunity to be heard, including personal hearing and submission of documents. The Income Tax Appellate Tribunal Rules and principles of natural justice govern the procedure.

Court's Interpretation and Reasoning: The Tribunal observed that the CIT (Exemption) had denied registration without providing the assessee a personal hearing or adequate opportunity to clarify and submit documents. The Tribunal emphasized the importance of hearing and full opportunity before such adverse orders.

Key Evidence and Findings: The assessee's repeated requests for personal hearing and submission of documents were not granted by the CIT (Exemption). The Tribunal considered this procedural lapse significant enough to warrant setting aside the orders.

Application of Law to Facts: The Tribunal applied the principles of natural justice and statutory procedural requirements to hold that the assessee must be granted a personal hearing and opportunity to submit documents before final decision on registration.

Treatment of Competing Arguments: The Department's reliance on non-compliance was insufficient to override the procedural fairness owed to the assessee. The Tribunal prioritized adherence to due process.

Conclusions: The Tribunal directed that the CIT (Exemption) must grant the assessee an opportunity of personal hearing and consider all submissions afresh in accordance with law.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt: "...in the interest of justice, it was considered imperative that the assessee may be granted another opportunity to file its submission in response to the notice issued by the Ld. CIT (Exemption) for justifying the genuineness of the activities and claim of approval. Hence, both the orders of the Ld. CIT (Exemption) are set aside and the matter is remanded to him for deciding both the applications afresh after granting an opportunity of being heard to the assessee and seeking the reply from the assessee in respect of the queries raised and in accordance with law."

Core principles established include:

- The necessity of affording adequate opportunity, including personal hearing, before denying registration under Sections 80G and 12AA of the Income Tax Act;

- The requirement that procedural fairness and principles of natural justice be strictly followed in quasi-judicial proceedings relating to charitable registrations;

- The importance of allowing the assessee to submit all relevant documents and clarify compliance before final adverse orders;

- The Tribunal's power to set aside orders and remand matters for fresh consideration in case of procedural lapses.

Final determinations on each issue are:

(i) The assessee was not provided adequate opportunity by the CIT (Exemption) to submit documents and respond to queries under Sections 80G(5) and 12A(1)(ac)(iii);

(ii) The assessee's claim of compliance with substantive criteria and ongoing charitable activities could not be conclusively rejected without fresh consideration;

(iii) The denial of registration without personal hearing and opportunity to submit documents was procedurally improper;

(iv) The orders of the CIT (Exemption) are set aside, and the matter remanded for fresh adjudication after granting the assessee an opportunity of hearing and submission of documents;

(v) Both appeals are allowed for statistical purposes, reflecting procedural rectification rather than substantive acceptance or rejection.