Trust wins appeal against 80G(5) registration rejection due to natural justice violation in inspection process

ITAT Raipur allowed the assessee trust's appeal partly, setting aside CIT(E)'s rejection of 80G(5) registration. The trust was denied registration for allegedly benefiting specific religious communities and violating FCRA provisions based on inspector's report suggesting religious conversion activities. ITAT held that name discrepancies were inadvertent mistakes corrected before application. Crucially, ITAT found violation of natural justice principles as adverse findings from inspector's report were not confronted to the assessee for explanation. Matter remanded to CIT(E) for fresh consideration after providing proper opportunity to the assessee.

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Issues Involved:
1. Rejection of registration application under section 80G(5) of the Income Tax Act, 1961.
2. Allegations of providing benefits to a particular religion, caste, or community.
3. Allegations of religious conversion and dubious activities.
4. Discrepancy in the name of the trust.
5. Violation of Foreign Contribution (Regulation) Act (FCRA) provisions.
6. Non-confrontation of findings and reports to the assessee.

Summary of Judgment:

1. Rejection of registration application under section 80G(5):
The appeal was filed against the order of the Ld. CIT(E), Bhopal, dated 14.12.2022, which rejected the application for registration under section 80G(5) of the Income Tax Act, 1961. The rejection was based on multiple grounds including the involvement of the trust in activities benefiting a particular religion and alleged violations of FCRA provisions.

2. Allegations of providing benefits to a particular religion, caste, or community:
The Ld. CIT(E) rejected the application on the grounds that the trust is located inside a church campus, implying it provides benefits to the Christian community. The assessee contended that the location within the church campus was due to the availability of rent-free premises and did not imply any religious bias.

3. Allegations of religious conversion and dubious activities:
The Ld. CIT(E) relied on an inspector's report alleging that the trust was involved in converting illiterate and economically weaker sections to Christianity. The assessee argued that these allegations were baseless and unsupported by documentary evidence. The inspector's report was not provided to the assessee for cross-verification, violating the principles of natural justice.

4. Discrepancy in the name of the trust:
The Ld. CIT(E) noted discrepancies in the name of the trust across various documents. The assessee explained that the name difference was due to clerical errors and steps had been taken to correct the PAN data. The tribunal found these discrepancies to be inadvertent mistakes and not a basis for rejection.

5. Violation of Foreign Contribution (Regulation) Act (FCRA) provisions:
The Ld. CIT(E) also cited violations of FCRA provisions as a reason for rejection. The assessee clarified that the amount received from Caritas India was a reimbursement of expenses and not a donation, and any clerical mistakes in accounting were unintentional.

6. Non-confrontation of findings and reports to the assessee:
The tribunal noted that the inspector's report and other findings were not confronted to the assessee, which is against the principles of natural justice. The tribunal emphasized that any adverse inference drawn from such reports must be communicated to the assessee for explanation.

Conclusion:
The tribunal found that the rejection of the application was partly based on unsubstantiated allegations and procedural lapses. It restored the matter back to the Ld. CIT(E) for reconsideration, directing that all adverse findings be communicated to the assessee for explanation. The appeal was partly allowed, and the case was remanded for fresh adjudication with a direction to provide a reasonable opportunity of being heard to the assessee.

Order pronounced in the open court on 07/03/2024.

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