80G approval rejection set aside where annual accounts were not examined under Rule 11AA(2)(g)

Approval under section 80G(5) was rejected on the basis that one trust object was religious in nature, but the authority did not examine the preceding three years' annual accounts or other relevant material required by Rule 11AA(2)(g) to assess the nature of expenditure and any breach of the religious-expenditure limit. The matter therefore required reconsideration on a fuller record, with reasonable opportunity of hearing to the assessee. The rejection order was set aside and the application was restored for fresh adjudication; the appeal was allowed for statistical purposes.

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Issues: Whether rejection of approval under section 80G(5) of the Income-tax Act, 1961 was sustainable when the authority relied on one object of the trust as religious in nature without examining the annual accounts and relevant material required under Rule 11AA(2)(g) of the Income-tax Rules, 1962.

Analysis: The application for approval was rejected on the ground that one of the objects of the assessee-trust was religious in nature. The record showed that the authority had not examined the annual accounts of the preceding three years as contemplated by Rule 11AA(2)(g), which is relevant for ascertaining the nature of expenditure and whether any religious expenditure exceeded the permissible limit. Since the assessee also had not effectively responded to the later show-cause notice, the matter required reconsideration on a fuller record, with an opportunity of hearing to the assessee.

Conclusion: The rejection order was set aside and the matter was restored to the authority for fresh adjudication after granting reasonable opportunity to the assessee; the appeal was allowed for statistical purposes.

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