2025 (6) TMI 630 - AT - Income Tax

Assessee gets fresh opportunity to substantiate Section 12A registration application after CIT rejection

ITAT PUNE restored the matter to CIT(E) for fresh consideration of the assessee's application for registration under section 12A(1)(ac)(iii). The CIT(E) ... Rejecting the application for final registration u/s 12A - due to non-compliance to the second notice issued by CIT(E) asking for certain details, he rejected the assessee’s application for grant of registration and also cancelled the provisional registration granted earlier HELD THAT:- Considering submission of assessee that given an opportunity, the assessee is in a position to substantiate its case by filing all the relevant details before the Ld. CIT(E), we are of the view that it would be judicially expedient and in the interest of justice and fair play if the matter is restored back to the file of CIT(E) to consider the assessee’s application for registration u/s 12A(1)(ac)(iii) of the Act afresh and decide the matter on merits, in accordance with facts and law after allowing one more opportunity of being heard to the assessee and present its case. The assessee shall provide the requisite support in terms of submitting the relevant details/documentary evidence as may be required/ called upon on the appointed date without seeking any adjournment. Appeal of assessee is treated as allowed for statistical purposes. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:(a) Whether the principle of natural justice was violated by the Commissioner of Income Tax (Exemption) ('CIT(E)') in rejecting the application for registration under section 12A(1)(ac)(iii) of the Income Tax Act, 1961 ('the Act') without affording adequate opportunity to the assessee to present its case.(b) Whether the CIT(E) erred in rejecting the application for final registration under section 12AB of the Act on the ground of non-submission of satisfactory evidence regarding the genuineness of the activities of the assessee trust and compliance with other applicable laws, despite the assessee's submissions and annexures filed in support.(c) Whether the CIT(E) was justified in cancelling the provisional registration granted earlier under section 12AB read with section 12A(1)(ac)(vi) of the Act, based on the alleged discrepancies and failure to comply with notices issued under section 12AB(1)(b)(i) and Rule 17A(2) of the Income Tax Rules, 1962.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Violation of Principle of Natural JusticeRelevant legal framework and precedents: The principle of natural justice mandates that no order adversely affecting a party should be passed without giving that party a fair opportunity to be heard. Section 12AB and Rule 17A(2) require the CIT(E) to verify the genuineness of activities of the applicant trust and compliance with other laws before granting registration. The procedural fairness in such administrative decisions is a well-established principle in tax jurisprudence.Court's interpretation and reasoning: The Tribunal noted that the CIT(E) issued two notices to the assessee through the ITBA portal, seeking clarifications and additional information on various aspects including commencement of activities, compliance with other laws, identity proofs of trustees, list of donors, and details of activities carried out. The assessee was given a deadline to respond but failed to submit explanations or avail the opportunity of personal hearing.However, the assessee contended that the opportunity to respond was inadequate, with only a short time span of one week to address the discrepancies noted in the second notice. The Tribunal observed that the CIT(E) rejected the application and cancelled provisional registration based on non-compliance without providing a further opportunity to explain or present evidence.Key evidence and findings: The record showed that the assessee had filed submissions and annexures including details of donations and activities, but the CIT(E) found discrepancies relating to the genuineness of donations and beneficiaries. The assessee did not respond to the show cause notice dated 12.09.2024 or seek a hearing.Application of law to facts: The Tribunal held that while the CIT(E) had issued notices and sought clarifications, the rejection of the application without affording a meaningful opportunity to present the case violated the principle of natural justice. The short time frame and absence of a hearing opportunity were inadequate for the assessee to address the concerns.Treatment of competing arguments: The Department conceded that the assessee should be given another opportunity to present its case. The Tribunal accepted the submissions of the assessee's representative that the matter should be remanded for fresh consideration after affording a proper hearing.Conclusions: The Tribunal concluded that the CIT(E) erred in rejecting the application without affording adequate opportunity to the assessee, thereby violating natural justice.Issue (b): Rejection of Registration on Grounds of Non-Compliance and DiscrepanciesRelevant legal framework and precedents: Section 12AB of the Act empowers the CIT(E) to grant or reject registration of charitable trusts after verifying genuineness of activities and compliance with applicable laws. The applicant must furnish credible evidence such as acknowledgment letters, details of beneficiaries, and proof that the activities are in line with the objects of the trust deed.Court's interpretation and reasoning: The CIT(E) observed that the financial statements disclosed donations of Rs 3.32 lakhs and Rs 20.06 lakhs in two financial years, but the details of recipients or beneficiaries were not clear. The CIT(E) found the evidence insufficient to satisfy the genuineness of activities or that the donations were made to entities with similar objects.Key evidence and findings: The assessee had submitted annexures including details of donations (Annexure 10) and descriptions of activities with photographs (Annexure 12). However, the CIT(E) considered these insufficient and raised show cause notices. The assessee did not respond to the second notice, leading to rejection.Application of law to facts: The Tribunal recognized that the CIT(E) is entitled to reject registration if the applicant fails to provide credible and satisfactory evidence. However, since the assessee was willing and able to provide further details if given an opportunity, the Tribunal found the rejection premature.Treatment of competing arguments: The assessee argued that the reasons for rejection were already addressed in the submissions on record. The Department did not dispute the existence of submissions but emphasized non-compliance with the notice. The Tribunal found merit in the assessee's contention that the CIT(E) did not adequately consider the submissions before rejecting the application.Conclusions: The Tribunal held that the CIT(E) erred in rejecting the application without properly appreciating the submissions and annexures filed by the assessee, particularly in the absence of any response opportunity on the second notice.Issue (c): Cancellation of Provisional RegistrationRelevant legal framework and precedents: Provisional registration granted under section 12AB read with section 12A(1)(ac)(vi) is subject to confirmation upon verification of compliance. Failure to comply with notices or furnish satisfactory evidence can lead to cancellation.Court's interpretation and reasoning: The CIT(E) cancelled the provisional registration on the ground that the assessee failed to comply with the show cause notice and did not provide satisfactory evidence regarding the genuineness of activities and compliance with other laws.Key evidence and findings: The assessee did not respond to the second notice or the show cause notice threatening cancellation. The CIT(E) found itself unable to draw a satisfactory conclusion about the genuineness of activities.Application of law to facts: The Tribunal noted that cancellation of provisional registration is a serious consequence and requires adherence to principles of natural justice. Since the assessee was not given a fair opportunity to respond, the cancellation was premature.Treatment of competing arguments: The Department supported cancellation due to non-compliance, but the Tribunal emphasized the need for a fresh opportunity to be given to the assessee before such drastic step.Conclusions: The Tribunal directed that the provisional registration cancellation be set aside and the matter remanded for fresh consideration after affording an opportunity to the assessee.3. SIGNIFICANT HOLDINGSThe Tribunal made the following crucial legal determinations:'Considering the totality of the facts and in the circumstances of the assessee's case, we are of the view that it would be judicially expedient and in the interest of justice and fair play if the matter is restored back to the file of Ld. CIT(E) to consider the assessee's application for registration u/s 12A(1)(ac)(iii) of the Act afresh and decide the matter on merits, in accordance with facts and law after allowing one more opportunity of being heard to the assessee and present its case.'Core principles established include:The principle of natural justice requires that an applicant be given adequate opportunity to respond to notices and discrepancies before adverse orders such as rejection of registration or cancellation of provisional registration are passed.The CIT(E) must properly consider and appreciate submissions and evidentiary material filed by the applicant before rejecting registration under section 12AB.Failure to respond to notices may justify rejection or cancellation, but only after ensuring that the applicant was afforded a reasonable opportunity to comply.Where procedural lapses occur, the appropriate remedy is to remit the matter for fresh consideration rather than uphold the rejection or cancellation outright.Final determinations on each issue were that the CIT(E) erred in rejecting the application and cancelling provisional registration without affording adequate opportunity and without properly appreciating the submissions on record. The appeal was allowed for statistical purposes, and the matter was remanded for fresh adjudication in accordance with law and after affording a fair hearing to the assessee.