Assessee gets final opportunity to substantiate 80G approval application after failing to respond to show cause notice

ITAT PUNE allowed the assessee's appeal for statistical purposes regarding an application for 80G approval. The assessee had failed to respond to a show cause notice and filed the application under the wrong section. The Tribunal found that a coordinate bench had previously remanded a related matter concerning the assessee's 12A registration application back to CIT(E) for fresh consideration. Given the similar facts and consequential nature of the 80G application, ITAT restored the matter to CIT(E) with directions to grant one final opportunity to the assessee to substantiate its case and decide afresh per fact and law.

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The core legal questions considered in this appeal revolve around the validity and procedural correctness of the rejection of the assessee's application for approval under section 80G(5)(iv)(B) of the Income Tax Act, 1961. Specifically, the issues include:

(i) Whether the application filed under sub clause (B) of (iv) of the first proviso to sub-section (5) of section 80G was correctly maintainable given the assessee's claim of deduction under section 11 and the applicability of section 12A(1)(ac)(vi)(B).

(ii) Whether the assessee complied with the procedural requirements and conditions under section 80G(5) and related provisions, including furnishing requisite information and supporting documents in response to notices issued by the Commissioner of Income Tax (Exemptions) ("CIT(E)").

(iii) Whether the rejection of the application by the CIT(E) on grounds of wrong section code used in Form 10AB and non-submission of clarifications was justified.

(iv) The scope and effect of non-compliance with show cause notices issued electronically and the opportunity of hearing in the context of approval under section 80G.

(v) The interplay between the application for approval under section 80G and the registration under section 12A(1)(ac), and the consequences of pending or rejected registration application on the 80G approval.

Issue-wise Detailed Analysis

Issue 1: Applicability of Section 80G(5)(iv)(B) and Section 12A(1)(ac)(vi)(B) to the Assessee's Case

The legal framework mandates that for approval under section 80G(5), the applicant must fulfill conditions specified in clauses (i) to (v) of sub-section (5), and the application must be filed under the correct sub-clause corresponding to the nature of the trust and its activities. The CIT(E) noted that the assessee's financial statements showed a claim of deduction under section 11, indicating that provisions of section 12A(1)(ac)(vi)(B) and section 80G(5)(iv)(B) were not applicable. This was a critical observation because the application was filed under a sub-clause not relevant to the assessee's status.

The Tribunal acknowledged the error in the section code used in Form 10AB. However, it also noted that the assessee had filed an appeal against the rejection of the registration under section 12A(1)(ac), which was pending before a co-ordinate bench. This pending appeal pertained to the correctness of the registration under the appropriate section, which directly impacted the validity of the 80G approval application.

The Court's reasoning emphasized that the rejection on the ground of wrong section code was a hyper-technical issue, and the Tribunal considered it appropriate to allow the assessee an opportunity to rectify and substantiate the application under the correct provisions.

Issue 2: Compliance with Procedural Requirements and Furnishing of Information

The CIT(E) issued notices through the ITBA portal seeking detailed information including commencement date of activities, religious objects, business undertakings, donor lists, compliance with relevant laws, and tangible proof of charitable activities such as bills, vouchers, photographs, and ledger accounts of donations. The assessee failed to provide point-wise replies or furnish the requested documents within the stipulated timelines.

Section 12AB(1)(b)(i) and Rule 17A(2)(k)/11AA(2)(h) of the Income Tax Rules require the applicant to submit a note on activities and evidence of actual charitable activities carried out. The CIT(E) found that the absence of such material prevented any satisfactory conclusion about the genuineness of the assessee's activities.

The Tribunal observed that the assessee's non-compliance appeared to be inadvertent and attributed to lack of awareness about the online notices. The assessee's counsel submitted willingness to comply and furnish the requisite details if given an opportunity. The Tribunal found merit in this submission, highlighting the importance of procedural fairness and the right to be heard before adverse orders are passed.

Issue 3: Validity of Rejection on Grounds of Non-Compliance and Wrong Section Code

The CIT(E) rejected the application on two primary grounds: the application was filed under an incorrect section code, and the assessee failed to comply with the show cause notice by not submitting clarifications or attending the hearing.

The Tribunal noted that while the assessee admittedly filed under the wrong section code, the rejection on this technical ground without affording a final opportunity to rectify was excessive. Furthermore, the Tribunal emphasized that non-compliance with notices issued electronically must be viewed in the context of whether the assessee had actual knowledge and opportunity to respond.

The Tribunal relied on the principle that the assessee should be given one final chance to substantiate its application and comply with procedural requirements before rejection is confirmed. It also referred to a recent order of a co-ordinate bench setting aside the rejection of the registration application under section 12A, which was consequentially linked to the 80G approval.

Issue 4: Interrelation Between Section 12A Registration and Section 80G Approval

The legal framework establishes that approval under section 80G is contingent upon registration under section 12A(1)(ac). The Tribunal recognized that the assessee's application for registration under section 12A was under consideration and that the rejection of the 80G approval application was premature and consequential upon the pending registration matter.

The Tribunal accordingly directed that the matter be restored to the CIT(E) for fresh adjudication after the registration under section 12A is decided, thereby ensuring that the 80G approval application is considered on its merits and in proper procedural context.

Conclusions on Issues

The Tribunal concluded that the rejection of the application under section 80G(5)(iv)(B) was not justified solely on the ground of wrong section code and non-compliance with notices, especially given the pending registration under section 12A and the assessee's willingness to comply. It held that the assessee must be given a final opportunity to submit the required information and documents and that the CIT(E) should decide the application afresh in accordance with law and facts.

Significant Holdings

The Tribunal held: "We deem it fit and proper and in the interest of justice, to restore the impugned issue in the present appeal being consequential and having similar set of facts to the file of the Ld. CIT(E) with a direction to grant one final opportunity to the assessee to substantiate its case by filing the requisite details to his satisfaction and decide the issue afresh as per fact and law."

It further directed: "The assessee is also hereby directed to remain vigilant in receiving and accessing the notice(s) of hearing and submit the details as called for by the Ld. CIT(E) on the appointed date without seeking any adjournment under any pretext unless required for the sufficient cause, failing which the Ld. CIT(E) shall be at liberty to pass appropriate order as per law."

The core principles established include the necessity of procedural fairness and the right to be heard before rejection of applications under sections 12A and 80G, the permissibility of rectifying technical errors such as incorrect section codes, and the interdependence of registration under section 12A and approval under section 80G.

Ultimately, the Tribunal allowed the appeal for statistical purposes, remanding the matter for fresh consideration consistent with the directions given.

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