2025 (7) TMI 32 - AT - Income Tax

Rejection of application for registration u/s 80G - as per AO no substantial charitable activity being carried out by assessee - HELD THAT - There is no dispute that the assessee was already granted registration u/s 12AB of the Act and thereby the objects of the assessee trust have been considered as charitable in nature as well as the activities of the assessee was also considered as genuine for achieving the objects of the assessee trust. While passing the impugned order CIT (E) has stated that no substantial charitable activities are being carried out by the assessee trust. These reasons given by the CIT (E) are cryptic and non-speaking as nothing has been discussed about the record filed by the assessee showing the activities carried out as well as the record filed by the assessee at the time of seeking registration u/s 12AB of the Act. Once the assessee has reponded to the notices issued by the learned CIT (E) which is also not disputed in the impugned order then a factual finding ought to have been given by considering the relevant facts and record available before the learned CIT (E). Thus we have came across identical orders passed by the learned CIT (E) in other cases while deciding the application for registration u/s 12AB as well as approval u/s 80G of the I.T. Act 1961 in a stereotype manner giving the reasons in verbatum leading to the inference that there is no application of mind on the part of the learned CIT (E) while passing the impugned order. Accordingly CIT (E) is set aside and the matter is remanded to the record of the learned CIT (E) for reconsideration of the application of the assessee for approval u/s 80G(5) - Appeal filed by the assessee is allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal (AT) in the present appeal are:

(a) Whether the rejection of the application for approval under section 80G(5) of the Income Tax Act, 1961 by the learned Commissioner of Income Tax (Exemption) [CIT (E)] was justified, particularly when the assessee had already been granted registration under section 12AB of the Act.

(b) Whether the learned CIT (E) erred in holding that no substantial charitable activities were being carried out by the assessee, despite the assessee's submission of relevant details and documents evidencing such activities.

(c) Whether the rejection of the application without providing an opportunity for further hearing or consideration of additional information was legally sustainable.

(d) The relationship and distinction between registration under section 12AB and approval under section 80G(5), and whether the former automatically entitles the assessee to the latter.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (d): Validity of rejection of approval under section 80G(5) despite registration under section 12AB

The legal framework distinguishes between registration under section 12AB and approval under section 80G(5) of the Income Tax Act. Section 12AB registration recognizes an entity as a charitable trust or institution, allowing exemption of its income, whereas section 80G approval permits donors to claim deductions for donations made to such entities. The two are related but distinct approvals, each requiring satisfaction of separate statutory conditions.

The learned Departmental Representative (DR) rightly contended that registration under section 12AB does not ipso facto entitle the assessee to approval under section 80G(5). The competent authority must be satisfied that the assessee has carried out charitable activities as mandated under section 80G.

The Court acknowledged this distinction and noted that the assessee had been granted registration under section 12AB on 17th February 2024, confirming that the objects and activities of the assessee were charitable and genuine. However, the approval under section 80G(5) was provisionally granted earlier and the subsequent application for regular approval was rejected by the CIT (E).

The Court emphasized that while the statutory requirements for section 80G approval are more stringent, the prior grant of registration under section 12AB is a relevant factor indicating the genuineness of the assessee's charitable activities. Therefore, the rejection of approval under section 80G(5) without adequate consideration of the earlier registration and submitted documents was problematic.

Issue (b): Whether the learned CIT (E) erred in holding no substantial charitable activities were carried out

The learned CIT (E) rejected the application on the ground that "no substantial charitable activities are being carried out by the assessee trust," as recorded in para 3 of the impugned order. This finding was challenged by the assessee on the basis that all relevant details and documents evidencing charitable activities had been submitted in response to notices issued by the CIT (E).

The Court scrutinized the impugned order and found the reasons given by the CIT (E) to be cryptic, non-speaking, and lacking any detailed discussion of the records filed by the assessee. The order did not address the evidence submitted by the assessee nor did it analyze the activities carried out as per the documents on record.

The Court noted that the CIT (E) had already granted registration under section 12AB after considering the genuineness of the assessee's activities, which was not disputed. The failure to consider the same record and submissions in the section 80G approval application indicated a lack of application of mind.

Furthermore, the Court observed a pattern of similar non-speaking and stereotyped orders passed by the CIT (E) in other cases, suggesting a mechanical approach without proper evaluation of facts. This was held to be legally impermissible as every order must be reasoned and based on relevant material.

Issue (c): Whether the rejection without providing further hearing was sustainable

The assessee contended that the CIT (E) ought to have provided another hearing after submission of the requested information and documents before rejecting the application. The Court agreed that procedural fairness requires that when an assessee submits additional information in response to notices, the authority must consider the same and provide an opportunity to be heard before passing an adverse order.

The impugned order did not indicate any further hearing or detailed consideration of the submissions made by the assessee. This procedural lapse was held to be contrary to principles of natural justice and the statutory scheme.

Application of law to facts and treatment of competing arguments

The Court balanced the submissions of the learned AR and the learned DR, recognizing the legal distinction between sections 12AB and 80G(5) but also underscoring the relevance of the prior registration under section 12AB as an indicator of genuine charitable activities.

The Court found that the CIT (E) failed to apply its mind to the facts and evidence submitted by the assessee and instead passed a cryptic order rejecting the application. The learned DR's reliance on the statutory requirement for approval under section 80G was accepted in principle but was found to have been applied in a flawed manner in the present case.

The Court remanded the matter to the learned CIT (E) for fresh consideration of the application for approval under section 80G(5), directing that the relevant records and submissions of the assessee be duly considered and that further information be called for if necessary, with an opportunity of hearing provided before passing a reasoned order.

3. SIGNIFICANT HOLDINGS

The Court held that:

"The reasons given by the learned CIT (E) are cryptic and non-speaking as nothing has been discussed about the record filed by the assessee showing the activities carried out as well as the record filed by the assessee at the time of seeking registration u/s 12AB of the Act."

"Once the assessee has responded to the notices issued by the learned CIT (E) which is also not disputed in the impugned order, then a factual finding ought to have been given by considering the relevant facts and record available before the learned CIT (E)."

"We have come across identical orders passed by the learned CIT (E) in other cases while deciding the application for registration u/s 12AB as well as approval u/s 80G of the I.T. Act, 1961 in a stereotype manner giving the reasons in verbatim leading to the inference that there is no application of mind on the part of the learned CIT (E) while passing the impugned order."

Core principles established include:

(i) Registration under section 12AB and approval under section 80G(5) are distinct but related; prior registration under 12AB is a relevant factor indicating genuineness of charitable activities for 80G approval.

(ii) The authority must consider all relevant submissions and evidence filed by the assessee before rejecting an application under section 80G(5).

(iii) Orders rejecting such applications must be speaking and reasoned, reflecting application of mind and consideration of facts on record.

(iv) Procedural fairness requires that an assessee be given an opportunity of hearing and to file further information before adverse orders are passed.

Final determination:

The impugned order rejecting the application for approval under section 80G(5) was set aside and the matter remanded to the learned CIT (E) for fresh consideration after due application of mind, consideration of all relevant records and submissions, and providing an opportunity of hearing to the assessee.