Revenue cannot reject Section 80G(5)(iii) final approval due to technical errors during provisional registration period

ITAT Kolkata allowed the appeal where revenue rejected final approval under section 80G(5)(iii) claiming the assessee had commenced activities prior to provisional registration and the application period had expired. Following the precedent in Tomorrow's Foundation case, the tribunal directed CIT(Exemption) to grant provisional approval if the assessee is otherwise eligible and decide the final approval application within two months. The tribunal ruled that if final approval is granted, section 80G benefits will be deemed continuous without break, and the assessee will not be deprived of benefits during the gap period due to technical errors and confusion in interpreting relevant provisions.

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Issues Involved:
1. Rejection of the application for final approval under section 80G(5)(iii) of the Income Tax Act.
2. Interpretation of the provisions and deadlines under section 80G(5) of the Income Tax Act.

Summary:

Issue 1: Rejection of the application for final approval under section 80G(5)(iii) of the Income Tax Act

The assessee's appeal was against the order dated 22.11.2023 by the Commissioner of Income Tax (Exemption), Kolkata, rejecting their application for final approval under section 80G(5)(iii) of the Income Tax Act. The assessee had been registered under section 80G(5) since 2008. Following the Amendment Act of 2020, which required re-application for approval under Clause (i) of the First Proviso to section 80G(5), the assessee applied for provisional approval under Clause (iv) instead. The CIT (Exemption) denied the final approval, citing that the application was not made within the prescribed time limits and was filed after the extended date of 30.09.2022.

Issue 2: Interpretation of the provisions and deadlines under section 80G(5) of the Income Tax Act

The Tribunal noted that the issue was covered by the decision in "Tomorrow's Foundation vs. CIT(Exemption)" and other related cases. The relevant provisions of section 80G(5) were discussed, emphasizing that institutions already approved before the amendment had to re-apply under Clause (i) and those applying for the first time could apply under Clause (iv). The Tribunal observed that the CIT (Exemption) misconstrued the CBDT Circulars regarding the extension of dates for final applications. The Circulars applied only to institutions making applications for renewal without a time break and not to those applying for fresh provisional registration.

The Tribunal held that the application for final registration cannot be rejected on the ground that the institution had already commenced its activities before the provisional registration. The date of commencement should be counted from the activity undertaken after the grant of provisional registration. The Tribunal restored the matter to the CIT (Exemption) for a fresh decision and directed that the application for final approval be decided within two months.

Conclusion:

The appeal was allowed for statistical purposes, directing the CIT (Exemption) to grant provisional approval and decide the application for final approval expeditiously. If granted, the approval under section 80G would be deemed continuous without any break, covering the period from 31/03/2021 to 28/05/2021, despite technical errors in the application process.

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