2024 (12) TMI 25 - AT - Income Tax

Trust wins appeal after registration rejection overturned for violating natural justice principles under section 12AB

The ITAT Raipur allowed the assessee's appeals against CIT(E)'s rejection of registration under section 12AB and cancellation of provisional registration. ... Rejecting the application for registration u/s 12AB and cancelling provisional registration granted u/s 12AB - undertakings of the assessee are not fall within the ambit of charitable activities - zero income and expenditure during the relevant year in assessee’s books which has been taken up as the cause for rejection of the assessee’s request - HELD THAT:- It was essential for the CIT(E) to look into the activities and objectives of the trust, that the subject trust is established for public charitable activities and such activities are genuine in nature. CIT(E), eventually have powers to examine, inquire and verify the records of the assessee, so as to record his specific finding / satisfaction qua the assessee’s eligibility for grant of registration. In present case, we note that the ld. CIT(E) had not come up with any clarity in his order as to how the activities of the assessee trust does not fall within the scope of charitable purpose. Allegation that assessee could not prove any charitable activity or the source of funds are not verifiable was not confronted to the assessee, whereas the assessee should have been afforded with the opportunity to place its submissions / evidence / contentions to rebut to such perceptions. Such action was against the principle of natural justice. As following case of Chhattisgarh Urology Society [2018 (2) TMI 1156 - CHHATTISGARH HIGH COURT] we observe that the Ld. CIT(E) was under the abounded duty to look into, for his satisfaction about the Objects of the trust, the genuineness of the activities and compliances under any other law and to pass an appropriate speaking order. Appeals assailing the issue therein has to be restored back to the file of the CIT(E) to reconsidering the applications of the assessee in form 10AB for grant of registration u/s 12AB and 80G(5) of the Act. Appeals of the assessee are allowed for statistical purpose. Issues:Application for registration u/s 12AB and 80G(5) of the Income Tax Act rejected by CIT(E) without proper consideration of documents and response submitted by the assessee. Allegations of inability to prove charitable activities and unverifiable source of funds. Lack of specific comments on the establishment of the society for charitable purposes. Violation of principles of natural justice.Analysis:The appeals were filed by a charitable trust against the rejection of its application for registration u/s 12AB and 80G(5) of the Income Tax Act by the Commissioner of Income Tax (Exemption). The grounds of appeal raised common issues related to the rejection of the application and the subsequent cancellation of provisional registration. The trust contended that the rejection was unjustified and lacked proper consideration of the trust's charitable activities and compliance with legal requirements.The trust had submitted necessary details and responses to the CIT(E) but they were not deemed satisfactory. The CIT(E) rejected the application without providing clear reasons for how the trust's activities did not qualify as charitable. The trust argued that it had submitted documents showing zero income and expenditure due to donations for the construction of a building, which were not considered as income. The trust also highlighted its charitable activities, focusing on education for deaf and dumb children.The trust's representative argued that the CIT(E) failed to assess the trust's objectives and activities properly and did not provide an opportunity for the trust to address the allegations against it. The CIT-DR supported the CIT(E)'s decision. However, the ITAT found that the rejection lacked clarity and violated principles of natural justice. Citing a judicial pronouncement, the ITAT concluded that the CIT(E) should have evaluated the trust's objectives, activities, and compliance with the law before making a decision.Consequently, the ITAT allowed the appeals and directed the CIT(E) to reconsider the trust's application for registration u/s 12AB and 80G(5) of the Act. The trust was to be given a fair opportunity to present its case in the reconsideration process, ensuring compliance with principles of natural justice.