2024 (6) TMI 1509 - AT - Income Tax

Rejection of 80G(5) application treated as technical error due to procedural change; Form 10AB treated as clause (i) filing

Loyola Charitable Society C/o Subash Agarwal & Associates, Advocates Versus CIT (Exemption), Kolkata

ITAT allowed the appeal, holding the rejection of the 80G(5) application was a technical error arising from procedural change where an already-registered ... Rejection of the application u/s 80G(5) - applied for approval under wrong clause - as assessee is existing trust with prior registration, mistakenly applied under clause (iv) (new trusts) and/or clause (iii) instead of clause (i) of the first proviso to section 80G(5) - HELD THAT:- Since it was a technical error due to change in the procedure, therefore, the same is liable to be corrected. Respectfully following the decisions of Shree Ram Chandra Saraf Seva Nidhi [2024 (3) TMI 1492 - ITAT KOLKATA] AND Friends of Kolkata [2024 (4) TMI 1317 - ITAT KOLKATA] we allow the appeal and direct the Ld. CIT(E) to consider the application filed by the assessee in Form 10AB as being filed in the relevant prescribed Form which is required for making application for the institutions which are already registered on 01.04.2021 subject to the verification that approval u/s. 80G(5) was granted prior to 01.04.2021 as well and if it is so, the application filed by the assessee will be treated as filed under clause (i) of the first proviso to sec. 80G(5) of the Act. Appeal of the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether the application for final approval under section 80G(5) filed in Form No.10AB could be rejected as time-barred where the applicant, an existing trust with prior registration, mistakenly applied under clause (iv) (new trusts) and/or clause (iii) instead of clause (i) of the first proviso to section 80G(5). 2. Whether the technical mis-classification of the sub-clause in the application (i.e., use of Form 10AC/10AB under the incorrect clause) precludes consideration of the application on merits, or whether it may be treated as an application under the correct clause (i) for existing institutions registered before 01.04.2021. 3. Whether the provisional registration issued under section 80G(5) can be cancelled where the final application is rejected on the ground of procedural/technical non-compliance. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Time-bar/limitation and applicability of CBDT extensions Legal framework: Section 80G(5) read with the first proviso prescribes different clauses and corresponding time-limits and forms for applying for final approval; Rule 17A prescribes Form No.10AB/10AC for applications. CBDT circulars had issued extensions to the dates for filing applications after amendment of provisions. Precedent treatment: The Tribunal examined Coordinate Bench decisions addressing the interaction between statutory time-limits and CBDT circulars; one Coordinate Bench held limitations could not be condoned by CCIT in a different statutory context, while other Coordinate Benches recognized practical difficulty and treated misfiled forms as technical errors to be cured. Interpretation and reasoning: The Tribunal noted that the Ld. CIT(E) concluded the extended due date applicable to the assessee was 30.09.2022 and that filing on 30.09.2023 was beyond the prescribed date. However, the Tribunal found that, on the facts, both the provisional approval application and the subsequent Form 10AB were filed within the extended timelines relevant to the correct statutory provision applicable to existing registrants. The Tribunal emphasized that the decisive question is which clause of the proviso applied to the applicant (existing vs. new institution), since the applicable extended due date derives from that classification. Ratio vs. Obiter: Ratio - limitation analysis depends on correct classification under the proviso; misclassification that leads to perceived delay must be examined in light of the applicable clause. Obiter - comments on the CBDT circulars' applicability in other contexts. Conclusion: The Tribunal held that the time-bar issue was linked to the technical misapplication of the specific clause; once the correct clause is identified and the application treated accordingly, the filing fell within the permitted time under the extant circulars and statutory scheme as applied to existing registrants. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Technical mis-classification of clause and treatment of application Legal framework: First proviso to section 80G(5) differentiates between institutions existing on 01.04.2021 (clause (i)) and new institutions (clause (iii)/(iv)), with specific procedural requirements and timelines. Rule 17A and Forms 10AB/10AC embody the procedural mechanism for applications. Precedent treatment: Coordinate Benches of the Tribunal have, in similar fact situations, treated incorrect specification of sub-clause as a technical error arising from complexity of newly inserted provisions and have directed the CIT(E) to treat such applications as made under the correct clause (i) when the institution was registered prior to the appointed date. Interpretation and reasoning: The Tribunal found that the assessee was an existing trust with registration under earlier provisions (registration under section 12AA and later 12AB) and had been granted provisional registration under 80G(5). The mistake in selecting clause (iv) and in filing Form No.10AB under clause (iii) was characterized as a technical error attributable to complexity of changed law and oversight by the trust's accountant. The Tribunal considered that rejection on this procedural ground without seeking clarification or allowing rectification would be unduly harsh and contrary to the purpose of the scheme, where the substance (existing status and fulfillment of conditions) was satisfied. Ratio vs. Obiter: Ratio - where an institution registered prior to the appointed date has mistakenly applied under the clause for new institutions, the application may be treated as having been filed under clause (i) and should be decided on merits; such technical errors do not justify outright rejection. Obiter - observations about administrative difficulties faced by taxpayers and even officers in implementing newly amended provisions. Conclusion: Following coordinate decisions, the Tribunal held that the mis-classification amounted to a technical error and directed the CIT(E) to treat the application as filed under clause (i) of the first proviso to section 80G(5), subject to verification that approval under section 80G(5) was indeed granted prior to 01.04.2021; the matter was remitted for decision on merits. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Cancellation of provisional registration where application rejected on procedural ground Legal framework: Provisional registration under section 80G(5)(iv) is provided for new applicants; cancellation of provisional certificates is permissible where statutory conditions for final approval are not met or the application is not maintainable. Precedent treatment: Coordinate Bench orders considered that cancellation relying solely on procedural misfiling without substantive inquiry is impermissible where the institution qualifies as an existing registrant and fulfills material conditions. Interpretation and reasoning: The Tribunal observed that provisional approval was granted under clause (iv) because the assessee had mistakenly applied as a new trust. Given the finding that the trust was an existing registrant and that both applications were effectively within the time when construed under clause (i), cancellation of the provisional certificate on technical grounds was inappropriate without adjudication on substantive compliance. The Tribunal directed reconsideration rather than upholding cancellation. Ratio vs. Obiter: Ratio - provisional registration granted due to a misfiled application should not be cancelled mechanically where the substantive entitlement exists and the misfiling is technical; administrative action should be corrective rather than punitive. Obiter - practical guidance that CIT(E) should call for clarification when misclassification is apparent. Conclusion: The Tribunal set aside cancellation to the extent it rested on procedural misclassification and directed the CIT(E) to re-examine and decide the application on merits treating it as filed under clause (i), and to do so within two months of receipt of the Tribunal's order. DISPOSITION / ORDER (Legal Conclusion) The appeal was allowed; the application filed in Form No.10AB is to be treated as filed under clause (i) of the first proviso to section 80G(5) for institutions already registered as on 01.04.2021 (subject to verification that approval under section 80G(5) was granted prior to that date). The matter is remitted to the CIT(E) for decision on merits in accordance with law within two months. The Tribunal followed Coordinate Bench decisions holding misclassification to be a curable technical error and directed corrective adjudication rather than rejection and cancellation on that ground alone.