2024 (11) TMI 1493 - AT - Income Tax

Erroneous Form 10AB section code led to wrongful rejection under s.80G(5); remit for hearing and final approval.

Rambha Charitable Trust Versus CIT (Exemptions)

ITAT held that the assessee inadvertently selected the wrong section code on Form 10AB and that CIT(E) wrongly treated the application as filed under ... Rejection of application for final registration u/s 80G(5) - AR submitted that the assessee while filing Form for final registration in Form 10AB has inadvertently mentioned the wrong section as subclause (B) of clause (iv) of first proviso to subsection (5) of section 80G instead of section clause (iii) of first proviso to subsection (5) of section 80G - HELD THAT:- CIT(E) has treated the application as one filed under sub-clause (B) of clause (iv) of first proviso to subsection (5) of section 80G and accordingly rejected the application for not fulfilling the stipulated conditions prescribed for filing application for approval in Form 10AB. From the perusal of forms filed and the facts of the case, in our considered view, there is merit in claim of the ld AR that the assessee has selected the wrong section code inadvertently while filing the application for final registration in Form 10AB. Assessee did not have the opportunity of being heard before CIT(E) due to incorrect course of action advised, and that otherwise the assessee might have explained the facts before the CIT(E) to avoid rejection. As relying on North Eastern Social Research Centre 2024 (7) TMI 890 - ITAT KOLKATA] we remit the issue back to CIT(E) with a direction to grant final approval to the assessee under Clause (iii) to First Proviso to section 80G(5) of the Act, if the assessee is otherwise found eligible. We also direct the CIT(E) to decide the application of the assessee for final approval as quickly as possible before the expiry of the provisional approval granted in order to enable the assessee to have the benefit of section 80G without any break. Appeal of the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether an application for final registration under section 80G(5) can be rejected where the applicant mistakenly selected an incorrect sub-clause code in Form 10AB (sub-clause (iv)(B) instead of clause (iii) of the first proviso to section 80G(5)) and, if so, whether the error is curable or requires remand for fresh consideration. 2. Whether rejection of the Form 10AB application without affording a meaningful opportunity to explain the alleged mis-classification constitutes a procedural infirmity warranting interference. 3. Whether, upon establishment of an inadvertent coding error and absence of proper hearing, the matter should be remitted to the Commissioner (Exemptions) to decide eligibility for final approval under clause (iii) to the first proviso to section 80G(5), and whether the benefit of 80G should be treated as continuous where provisional approval existed. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of rejection where incorrect sub-clause was selected in Form 10AB Legal framework: The first proviso to section 80G(5) prescribes different timelines and conditions for applications for approval under sub-clauses (i)-(iv), including clause (iii) (provisional approval - application at least six months prior to expiry or within six months of commencement) and clause (iv)(B) (where activities have commenced at any time after commencement of such activities). The prescribed form for final registration is Form 10AB and requires correct selection of the relevant code. Precedent treatment: The Tribunal referred to a coordinate-bench decision (North Eastern Social Research Centre) holding that where facts demonstrate an inadvertent selection of an incorrect sub-clause code, and the substantive eligibility aligns with a different proviso clause, the matter may be remitted to the revenue for consideration under the correctly applicable clause. Interpretation and reasoning: The Tribunal examined the application history: the assessee had obtained provisional registration under clause (iv)(B) and later filed Form 10AB for final approval but again selected sub-clause (iv)(B) instead of clause (iii). The Tribunal found on the face of the forms and related facts that the selection was inadvertent and that the substantive facts aligned with clause (iii) (application for final approval following provisional approval). Given this congruence between factual position and the requirements of clause (iii), rejection solely on the basis of an incorrect code in the form was held to be unsustainable. Ratio vs. Obiter: Ratio - where an application for final approval has been filed under an incorrect sub-clause code but facts demonstrate eligibility under another proviso clause, rejection on the literal basis of the code is not warranted; the application should be considered on its substantive merits or remitted for such consideration. Obiter - incidental remarks on form filing practices and administrative advice given to applicants. Conclusion: The Tribunal concluded the rejection for selecting the wrong sub-clause code was flawed; the error was inadvertent and curable, and the application should be considered under the correct clause (iii) if otherwise eligible. Issue 2: Procedural fairness - failure to afford opportunity to explain before rejecting Form 10AB Legal framework: Principles of natural justice and statutory procedure require that an applicant be given a reasonable opportunity to explain material facts before an adverse order is passed; statutory forms and assessment of eligibility under exemption provisions must be read with an obligation of fair hearing where factual misunderstandings or clerical errors are alleged. Precedent treatment: The Tribunal relied on the coordinate-bench approach that procedural irregularity (denial of opportunity to explain an inadvertent mistake) justifies remand to the authority to consider the application afresh after hearing the applicant. Interpretation and reasoning: The Tribunal observed that the assessee did not get an opportunity to explain the coding error before the Commissioner (Exemptions). The record showed that an incorrect course of action was advised during interactions with the CIT(E)'s staff and that notices issued referenced other proceedings, causing confusion and preventing effective explanation. This lack of hearing materially affected the outcome because the alleged non-compliance (selection of sub-clause (iv)(B)) could have been clarified and rectified, avoiding rejection. Ratio vs. Obiter: Ratio - where rejection is based on a rectifiable clerical/formal error and the applicant has been denied opportunity to explain, the order must be set aside/remitted to permit the authority to hear and decide on merits. Obiter - comments on the specific administrative advice recorded in the file. Conclusion: The Tribunal held that the procedural lapse (no opportunity to explain) was significant and remedial; interference was warranted and remand appropriate for fresh consideration after giving the applicant a chance to be heard. Issue 3: Remedy - remand, direction to decide under clause (iii), and continuity of 80G benefit Legal framework: Where provisional approval exists, clause (iii) requires application for final approval at least six months prior to expiry of provisional approval or within six months of commencement. The authority has power to grant final approval if statutory conditions are satisfied. Questions of continuity of exemption benefits between legislative amendment effective dates and grant of provisional/final approvals arise on facts and policy of avoiding penal consequences of technical errors. Precedent treatment: The Tribunal followed the coordinate bench decision cited, which remitted similar matters for consideration under the correct clause and directed the revenue to decide expeditiously and to treat benefit continuity where appropriate. Interpretation and reasoning: Given the assessee's earlier provisional registration and the factual alignment with clause (iii), the Tribunal remitted the matter to the CIT(E) with directions: (a) to consider the application for final approval under clause (iii) if the assessee is otherwise eligible; (b) to decide expeditiously (before expiry of provisional approval); and (c) if final approval is granted, to deem that benefit under section 80G (as available prior to the 2020 amendment) continued without break for the period between 31/03/2021 and the grant of provisional approval, so that technical errors in form filling do not deprive the assessee of otherwise available benefits. Ratio vs. Obiter: Ratio - where inadvertent form miscoding and procedural denial are established, remand with directions to decide under the correctly applicable proviso clause is appropriate; the authority should act expeditiously and may recognize continuity of benefit where provisional approval existed and denial would result solely from technical/formal errors. Obiter - broader equitable principles regarding administrative confusion and guidance failures. Conclusion: The Tribunal remitted the application to the Commissioner (Exemptions) to decide final approval under clause (iii) of the first proviso to section 80G(5) if eligibility is shown, directed expedited disposal before provisional approval expiry, and directed deemed continuity of benefit where final approval is granted to protect against losses arising from the technical/formal error. The remedy adopted is declaratory and procedural, not an immediate grant of final approval on the Tribunal record.