2025 (9) TMI 24 - AT - Income Tax

Section 12A(1)(ac)(iii) and 12AB(1)(b) don't bar earlier regular registration where provisional exists; application to be reconsidered

MAA Sharda Kothari Foundation Versus Commissioner of Income Tax (Exemption), Ahmedabad

MAA Sharda Kothari Foundation Versus Commissioner of Income Tax (Exemption), Ahmedabad - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an application for regular registration under section 12AB(1)(b) filed during the currency of provisional registration but before commencement of activities is maintainable, when provisional registration was earlier granted under clause (vi) of section 12A(1)(ac). 2. Whether rejection of such an application as 'premature' and 'non-maintainable' solely on the ground that activities had not commenced at the time of filing is sustainable where the trust subsequently commences activities and places audited evidence (Form 10BB and ITR) before the authority or Tribunal. 3. Whether, in the circumstances where an application was rejected as premature and the applicant subsequently commences activity but faces technical difficulties in refiling, the appropriate relief is to set aside the rejection and remit the matter for fresh adjudication on merits. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Maintainability of application for regular registration filed during provisional registration prior to commencement of activities Legal framework: Section 12A(1)(ac)(iii) prescribes that where provisional registration under section 12AB has been granted, application for final/regular registration must be made either within six months of commencement of activities or at least six months prior to expiry of the provisional registration (whichever is earlier). Section 12AB(1)(b) governs grant of registration. Precedent treatment: A Coordinate Bench decision (referred to in the judgment) was followed which held there is no bar to filing an application for final registration at the earliest possible time once provisional registration is in place; the statutory phrase prescribes an outer time limit rather than a prohibition on earlier filing. Interpretation and reasoning: The provision specifies an outer deadline (whichever earlier event occurs) but does not imply a prohibition on filing earlier than those benchmarks. The statutory scheme contemplates provisional registration followed by final registration and expects applicants to approach for final registration at the earliest event permitting it. Treating an application as non-maintainable merely because activities had not yet commenced would read an impermissible restriction into the statutory wording. Ratio vs. Obiter: Ratio - The provision prescribes an outer limit and does not preclude earlier filing of application for regular registration during the subsistence of provisional registration. Obiter - Observations on administrative expectations that applicants should file at the earliest opportunity. Conclusion: An application for regular registration filed during the period of provisional registration is maintainable even if, at the precise time of filing, activities have not yet commenced; the statutory scheme does not bar such early filing. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of rejection as 'premature' where activities later commenced and audited evidence is produced Legal framework: Authorities vested with powers under section 12AB(1)(b) are required to consider applications for registration on merits, including inquiries into genuineness of activities where necessary. Procedural fairness and adjudication on merits are inherent to the scheme. Precedent treatment: The Coordinate Bench decision was followed to the effect that rejection as premature should not be automatic where final registration applications are filed within the period of provisional registration and where material may later demonstrate commencement of activities. Interpretation and reasoning: Rejection merely on procedural grounds without adjudicating the merits or affording opportunity to consider post-filing evidence (such as audited Form 10BB and ITR evidencing commencement) frustrates legislative intent. Where the applicant subsequently commences activities and places uncontroverted audited evidence before the Tribunal, the impugned rejection lacks substantive basis. Further, the authority retained powers to call for further clarification or to conduct inquiry but chose to dispose the application as non-maintainable, thereby precluding merits adjudication. Ratio vs. Obiter: Ratio - Sole rejection as 'premature' in the absence of any adverse finding on genuineness, where activities have subsequently commenced and evidence is available, is not sustainable; the matter must be decided on merits. Obiter - Commentary that authorities should, where appropriate, issue fresh notices or conduct inquiries rather than summarily rejecting applications as premature. Conclusion: Where activities commence after filing and credible audited evidence is produced, rejection on the ground of prematurity without consideration of such evidence is unsustainable; the application must be adjudicated on merits. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Appropriate remedy where application was rejected and subsequent refiling was impeded by technical difficulties Legal framework: Principles of substantial justice permit remedying procedural unfairness where delays or inability to comply are caused by bona fide reasons (including technical impediments), and where the department/DR does not claim prejudice. Precedent treatment: The Tribunal followed the coordinate bench approach to set aside summary rejections and remit for fresh consideration; condonation of delay was granted where sufficient cause (procedural/technical difficulties and absence of mala fide) was shown. Interpretation and reasoning: The assessee demonstrated commencement of activities through audited Form 10BB and filed ITR; credible evidence of technical portal errors prevented timely refiling. The Departmental Representative raised no objection to condonation/restoration. The Tribunal exercised discretion to condone delay and to set aside the impugned order, directing fresh adjudication to enable consideration of documentary evidence and merits. This approach preserves the substantive rights of the trust and aligns with the remedial purpose of the registration scheme. Ratio vs. Obiter: Ratio - Where procedural/technical impediments prevent refiling and the applicant subsequently furnishes evidence of commencement, the appropriate remedy is to condone delay if sufficient cause is shown and to remit the matter for fresh consideration. Obiter - Suggestion that authorities should use available powers to inquire into genuineness rather than summary disposal. Conclusion: Condonation of delay and remittal for fresh decision on merits is the appropriate remedy where bona fide technical difficulties prevented refiling and the applicant has produced uncontroverted evidence of commencement of activities. OVERALL CONCLUSION The Tribunal set aside the order rejecting the application as premature and non-maintainable, held that early filing during provisional registration is permissible, found that rejection without merits adjudication was unsustainable where activities were subsequently commenced and evidenced by audited returns, condoned procedural delay for bona fide reasons, and remitted the matter to the authority to decide the application afresh on merits after considering Form 10BB, ITR and other relevant materials. The Tribunal followed and applied the reasoning of a Coordinate Bench decision on identical issues.