2025 (6) TMI 56 - AT - Income Tax

Tax Registration Appeals Succeed: Section 12A Proviso Enables Delay Condonation and Requires Fair Hearing for Applicants

The Tribunal allowed appeals challenging the rejection of tax registration applications. It found the CIT (Exemption) erred by not considering the new ... Rejection of registration u/s 12A and approval u/s 80G being barred by limitation - assessee has submitted that due to the mis-communication between the assessee foundation and the Tax Consultant at Delhi, the application for condonation of delay could not be filed before the CIT (Exemption) - HELD THAT:- We find that before rejecting the application, CIT (Exemption) no show- cause notice was issued to the assessee about this deficiency of delay in filing the applications. Thus, it is apparent that the assessee was not given an opportunity of hearing before rejecting the application on the ground of limitation. Vide Finance Act, 2024, a proviso is inserted w.e.f. 1/10/2024 to section 12A after the insertion of this proviso, CIT/CIT while considering the application for registration u/s 12A and approval u/s 80G is empowered to condone the delay, if there is a reasonable cause for such delay in filing the application. CIT (Exemption) while passing the impugned order has not considered the above proviso inserted by Finance Act, 2024 w.e.f. 1/10/2024. Now the assessee has filed the affidavit to explain the cause of delay which is required to be considered at the level of the learned CIT (Exemption) - Appeal filed by the assessee is allowed for statistical purposes. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this matter are:Whether the delay in filing the applications for registration under section 12A and approval under section 80G of the Income Tax Act, 1961, can be condoned by the Principal Commissioner or Commissioner in light of the proviso inserted to section 12A by the Finance Act, 2024, effective from 1/10/2024.Whether the learned CIT (Exemption) was justified in rejecting the applications for registration and approval solely on the ground of delay without considering the reasonable cause for delay or providing an opportunity of hearing to the assessee.Whether the matter should be remanded back to the CIT (Exemption) for reconsideration of the condonation of delay and subsequent decision on the merits of the applications.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Condonation of Delay under the Proviso to Section 12A of the Income Tax Act, 1961Relevant Legal Framework and Precedents: Section 12A of the Income Tax Act, 1961, deals with the registration of charitable or religious trusts and institutions. The Finance Act, 2024 inserted a proviso to section 12A effective from 1/10/2024, which empowers the Principal Commissioner or Commissioner to condone delay in filing the application beyond the prescribed time limit if there is a reasonable cause for such delay. The proviso states: 'Provided that where the application is filed beyond the time allowed (in sub clauses (i) to (v), the Principal Commissioner or Commissioner may, if he considers that there is a reasonable cause for delay in filing the application, condone such delay and such application shall be deemed to have been filed within time.'Court's Interpretation and Reasoning: The Tribunal noted that the CIT (Exemption) passed the impugned orders on 29/01/2025, which is after the insertion of the proviso. However, the CIT (Exemption) rejected the applications without considering this proviso or the possibility of condoning the delay. The Tribunal emphasized that the proviso confers discretionary power to condone delay if reasonable cause is shown, and this discretion must be exercised after considering the explanations offered by the applicant.Key Evidence and Findings: The assessee submitted an affidavit explaining the cause of delay-specifically, a mis-communication between the assessee foundation and its Tax Consultant located at different places. The delay was quantified as 10 days for registration under section 12A and 13 days for approval under section 80G. The assessee also filed an application for condonation of delay along with the affidavit.Application of Law to Facts: The Tribunal found that the explanation offered by the assessee constituted a reasonable cause for delay within the meaning of the proviso to section 12A. The Tribunal observed that the CIT (Exemption) did not consider this explanation or provide the assessee an opportunity to be heard on this issue, which is contrary to principles of natural justice.Treatment of Competing Arguments: The Revenue contended that no application for condonation of delay was filed before the CIT (Exemption) and that the delay was not explained. The Tribunal disagreed, noting that the assessee did file an application for condonation and an affidavit explaining the delay, albeit after the impugned order. Moreover, the Tribunal found that the CIT (Exemption) did not issue any show-cause notice or opportunity to the assessee to explain the delay before rejecting the applications.Conclusions: The Tribunal concluded that the CIT (Exemption) ought to have considered the proviso to section 12A and the explanation for delay before rejecting the applications. The failure to do so warranted remand for reconsideration.Issue 2: Rejection of Applications Without Opportunity of HearingRelevant Legal Framework and Precedents: The principles of natural justice require that a party be given a reasonable opportunity to explain or defend itself before adverse orders are passed, especially when rejection is based on procedural grounds such as delay.Court's Interpretation and Reasoning: The Tribunal observed that the CIT (Exemption) rejected the applications on limitation grounds without issuing any show-cause notice or hearing the assessee regarding the delay. This omission was considered a procedural lapse.Key Evidence and Findings: The record showed no notice or opportunity given to the assessee to explain the delay prior to rejection.Application of Law to Facts: The Tribunal held that the failure to provide an opportunity of hearing before rejection was contrary to the principles of natural justice and warranted reconsideration.Treatment of Competing Arguments: The Revenue did not contest the absence of opportunity but relied on the limitation ground. The Tribunal emphasized that procedural fairness must be observed notwithstanding the limitation issue.Conclusions: The Tribunal directed that the assessee be given an appropriate opportunity of hearing before any fresh order is passed.Issue 3: Remand for Reconsideration on Merits after Condonation of DelayRelevant Legal Framework and Precedents: The discretionary power to condone delay is to be exercised judiciously, and upon condonation, the application must be decided on merits. The statutory scheme contemplates that registration under section 12A and approval under section 80G be granted if conditions are satisfied.Court's Interpretation and Reasoning: Since the CIT (Exemption) did not consider the proviso or the explanation for delay, and did not provide hearing, the Tribunal found it appropriate to remit the matter for fresh consideration both on the question of condonation and on the merits of the applications.Key Evidence and Findings: The Tribunal relied on the affidavit explaining the delay and the statutory provisions allowing condonation.Application of Law to Facts: The Tribunal ordered that the CIT (Exemption) reconsider the applications after condoning the delay (if reasonable cause is found) and decide on the merits, ensuring the assessee is heard.Treatment of Competing Arguments: The Revenue's objection to condonation and merit consideration was overruled in light of the statutory proviso and procedural fairness.Conclusions: The appeals were allowed for statistical purposes, and the matter was remanded for fresh consideration in accordance with law and principles of natural justice.3. SIGNIFICANT HOLDINGSThe Tribunal held that:'After the insertion of this proviso, the Pr. CIT/CIT while considering the application for registration u/s 12A and approval u/s 80G of the I.T. Act, 1961 is empowered to condone the delay, if there is a reasonable cause for such delay in filing the application.''The learned CIT (Exemption) while passing the impugned order has not considered the above proviso inserted by Finance Act, 2024 w.e.f. 1/10/2024.''The assessee was not given an opportunity of hearing before rejecting the application on the ground of limitation.''In the facts and circumstances of the case and in the interest of justice, both the matters regarding registration u/s 12A and approval u/s 80G of the I.T. Act, 1961 are remanded to the record of the learned CIT (Exemption) for considering the condonation of delay on the basis of the reasons explained by the assessee. Needless to say, the assessee shall be given an appropriate opportunity of hearing before passing the fresh orders.'Core principles established include the mandatory consideration of the proviso to section 12A inserted by the Finance Act, 2024, the discretionary power of the CIT to condone delay for reasonable cause, and the requirement of adherence to natural justice by providing an opportunity of hearing before rejecting applications on limitation grounds.Final determinations were that the impugned orders rejecting the applications solely on limitation grounds without considering the proviso or providing hearing were set aside, and the matter was remanded for fresh adjudication consistent with the statutory provisions and procedural fairness.