2025 (1) TMI 1587 - AT - Income Tax

Erroneous provision choice not fatal; provisional registration must be converted to final registration and registration granted

ITAT Nagpur (AT) allowed the appeal, holding that the rejection of registration based on an erroneous choice of provision was not an incurable defect and ... Rejecting grant of registration u/s 12AB - application was made erroneously under a non-applicable provision which is an incurable defect - HELD THAT:- It is crystal clear that nowhere the genuineness of objects, activities or non– compliance of any law, material to objects achievement of objects has been painted out by the learned CIT(E). The grounds for rejection are ring fenced and the learned CIT(E) does not have any authority to over step the same. There is no error in claiming exemption under section 11 and 12 of the Act when the trust was armed with provisional registration. Moreover, taxability or otherwise of the income of the assessee would have to be separately considered as per provision of the Act. Quoting a wrong provision if at all so, cannot be held to be fatal to militate against the well–deserved beneficial provision to be extended. Thus, the assessee is entitled to final registration. Accordingly, we set aside the impugned order passed by the learned CIT(E) and direct the authorities below to grant registration keeping in mind the aforesaid findings. Accordingly, all the grounds raised by the assessee are allowed. ISSUES: Whether the rejection of application for registration under section 12AB of the Income-tax Act, 1961, without properly appreciating the facts and documents submitted, was justified.Whether the cancellation of provisional registration without giving proper opportunity of hearing and despite reasonable cause for delay in filing reply violates principles of natural justice.Whether the ground that genuineness of activities could not be ascertained, despite submission of detailed activity reports and audited statements, justifies rejection of registration under section 12AB.Whether the observation that compliance with other applicable laws could not be satisfactorily concluded, despite submission of annual FCRA returns and undertakings, is a valid ground for rejection under section 12AB.Whether registration under section 12AB can be rejected on the basis that activities had commenced prior to the application and deduction under section 11 was claimed for a previous year before the application, thereby making the trust ineligible under section 12A(1)(ac)(vi)(B).Whether claiming exemption under sections 11 and 12 during the period of provisional registration affects eligibility for final registration under section 12AB.Whether rejection of registration without assigning good reasons and without proper opportunity violates the spirit of section 12 of the Income-tax Act and principles of natural justice. RULINGS / HOLDINGS: The rejection of registration under section 12AB without proper appreciation of facts and documents was not justified, especially where no authority was shown to question genuineness or compliance with laws; thus, the assessee is entitled to final registration.The cancellation of provisional registration without giving proper opportunity of hearing, despite reasonable cause for non-filing of reply, is against principles of natural justice and unjustified.The ground that genuineness of activities could not be ascertained is without basis when detailed activity reports and audited financial statements were duly submitted and available on the e-portal.The rejection based on inability to draw satisfactory conclusion about compliance of other laws is invalid where annual FCRA returns and undertakings regarding compliance were submitted and available on record.Application under section 12A(1)(ac)(vi)(B) is not maintainable where activities have already commenced and income has been excluded under section 11 for a previous year ending before the date of application; thus, the application filed under this provision was rightly rejected.Claiming exemption under sections 11 and 12 during provisional registration is lawful and does not disqualify the trust from obtaining final registration under section 12AB.Rejection of registration without assigning good reasons and without proper opportunity is bad in law and against the spirit of section 12 of the Income-tax Act. RATIONALE: The court applied the provisions of section 12AB and section 12A(1)(ac)(vi)(B) of the Income-tax Act, 1961, interpreting the eligibility criteria for registration and the effect of prior commencement of activities and claims under section 11.The court emphasized adherence to principles of natural justice, requiring proper opportunity of hearing before cancellation or rejection of registration.The court held that the learned Commissioner of Income Tax (Exemption) was confined to the grounds specified in the show cause notice and could not reject registration on extraneous or unsubstantiated grounds such as genuineness or compliance with other laws without evidence.The court recognized that claiming exemption under sections 11 and 12 during provisional registration is permissible and does not negate entitlement to final registration.There was no dissent or doctrinal shift; the decision reinforced established principles regarding procedural fairness and statutory interpretation of registration provisions under the Income-tax Act.