2024 (11) TMI 1457 - AT - Income Tax

Wrong section code selection cannot deny registration renewal under section 12AA when claim is rightful

Late Tilokchand Kuche Shikshan Versus CIT (Exemption), Pune

ITAT Pune allowed assessee's appeal against CIT(E)'s rejection of registration application under section 12AA. The assessee had selected wrong section ... Rejection of application for registration u/s 12AA - selection of wrong section code by the assessee pertaining to renewal of regular registration as filed u/s 12A(1)(ac)(ii) instead of section 12A(1)(ac)(iii) - HELD THAT:- We are of the opinion that the ld. CIT(E) ought to have given an opportunity to the assessee to rectify the defect. Wrong selection of section code/clause would not disentitle the assessee to its rightful claim. Selection of wrong clause by the assessee cannot be treated as fatal to the proceedings initiated after the filing of the application. We therefore in the interest of natural justice being fair to both the parties deem it appropriate to grant one more opportunity to the assessee society, setting aside the impugned order to the file of CIT(E). CIT(E) shall give an opportunity to the assessee to file the correct application and then decide the case on merits denovo after granting reasonable and proper opportunity to the assessee.Appeal of the assessee is allowed for statistical purposes. The core legal questions considered in this appeal relate primarily to the validity and procedural propriety of the rejection of the assessee's application for registration under section 12AA of the Income Tax Act, specifically:1. Whether the rejection of the application on the ground of incorrect section code selection in Form No. 10AB (filing under clause (ii) of section 12A(1)(ac) instead of clause (iii)) was justified, and whether such a clerical or inadvertent mistake should be fatal to the application.2. Whether the assessee was denied a fair opportunity to present its case and submit documents, particularly in light of the alleged non-receipt of notices sent by the Commissioner of Income Tax (Exemption) via email.3. The applicability of CBDT Circular No. 7/2024 dated 25/04/2024, which provides that applications pending in Form No. 10AB before issuance of the circular should be treated as valid, and whether the assessee's application fell under this provision.4. Ancillary issues regarding the procedural fairness and the power of the Commissioner of Income Tax (Exemption) to allow rectification or amendment of Form No. 10AB after submission.Issue 1: Incorrect Section Code Selection in Form No. 10ABThe relevant legal framework involves section 12A(1)(ac) of the Income Tax Act, which provides for different clauses under which registration applications can be made: clause (ii) pertains to renewal of regular registration, while clause (iii) pertains to provisional registration.Precedent was cited from a Coordinate Bench decision wherein a similar inadvertent mistake in selecting the incorrect clause in Form No. 10AB was held not to be fatal to the application. The Tribunal in that case observed that the Commissioner of Income Tax (Exemption) has no power to amend or rectify Form 10AB, but the mistake was inadvertent and could be corrected by allowing the assessee to file the correct application or by the registry correcting the record. The Tribunal directed that the application be considered on merits after such correction and the assessee be granted an opportunity of hearing.In applying this precedent, the Court noted that the assessee had selected the wrong section code inadvertently and that the Commissioner's outright rejection of the application on this ground without allowing rectification was not appropriate. The Court emphasized that the wrong selection of the section code should not disentitle the assessee from its rightful claim, especially when the error was clerical and the substantive information was provided.The Court concluded that in the interest of natural justice, the assessee should be granted an opportunity to rectify the defect and the application should be considered on merits thereafter.Issue 2: Alleged Non-Receipt of Notices and Denial of Opportunity to Present CaseThe assessee contended that notices sent by the Commissioner of Income Tax (Exemption) to their email ID were not received, resulting in non-compliance with notices and inability to present their case or submit documents. This raised the question of whether the assessee was denied a fair opportunity, violating fundamental principles of natural justice.The Court acknowledged the importance of the right to be heard and the necessity of providing a fair opportunity to the assessee before rejecting the application. It observed that the rejection was made without granting the assessee a hearing or opportunity to submit the required information, which was a procedural lapse.While the Court did not explicitly find fault with the mode of communication (email), it underscored the need for the Commissioner to ensure that the assessee is given a reasonable opportunity to comply and present their case. The Court directed that on remand, the assessee should be given such an opportunity before any final order is passed.Issue 3: Applicability of CBDT Circular No. 7/2024The CBDT Circular No. 7/2024 dated 25/04/2024 instructs that applications pending in Form No. 10AB before the issuance of the circular should be treated as valid and considered accordingly. The assessee argued that since their application was filed before the extended deadline, it should be deemed valid and processed.The Court took note of this circular and agreed that the application was filed within the prescribed time and should not be summarily rejected. The circular supports the view that procedural irregularities, especially those arising from inadvertent errors, should be remedied rather than used as a ground for outright rejection.Issue 4: Power to Amend or Rectify Form No. 10AB and Procedural FairnessThe question arose whether the Commissioner of Income Tax (Exemption) has the authority to allow rectification or amendment of the application form after submission. The precedent from the Coordinate Bench indicated that although the Commissioner may not have explicit power to amend the form, the registry or the appellate authority can direct correction or allow the assessee to submit a corrected application.The Court held that in the interest of justice and fairness, the assessee should be allowed to rectify the mistake in the section code selection. The Court emphasized the principle that procedural errors that do not affect the substantive rights or the genuineness of the application should not result in dismissal without hearing.The Court also cautioned the assessee to be vigilant in complying with notices and to avoid unnecessary adjournments unless justified by reasonable cause, reinforcing the importance of procedural discipline.Significant Holdings'The wrong selection of section code/clause would not disentitle the assessee to its rightful claim. Selection of wrong clause by the assessee cannot be treated as fatal to the proceedings initiated after the filing of the application.''In the interest of natural justice being fair to both the parties, we deem it appropriate to grant one more opportunity to the assessee society, setting aside the impugned order to the file of ld. CIT(E). The ld.CIT(E) shall give an opportunity to the assessee to file the correct application and then decide the case on merits denovo after granting reasonable and proper opportunity to the assessee.''The Commissioner of Income Tax (Exemption) should ensure that before passing any order, the assessee is granted opportunity of hearing and allowed to submit all necessary documents and information.'The Court's final determination was to allow the appeal for statistical purposes, set aside the order of rejection, and remit the matter back to the Commissioner of Income Tax (Exemption) for fresh consideration on merits after providing the assessee an opportunity to rectify the clerical error and present its case. The assessee was directed to comply diligently with notices and avoid unwarranted adjournments.