2025 (9) TMI 361 - AT - Income Tax

Rejection of 80G(5)(iii) approval improper for curable Form 10AB mistake; second proviso requires satisfaction on genuineness

IIT Ropar Technology Business Incubator Foundation Versus The CIT (Exemptions), Chandigarh

IIT Ropar Technology Business Incubator Foundation Versus The CIT (Exemptions), Chandigarh - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether an application in Form No.10AB for approval under section 80G(5)(iii) is maintainable where the applicant earlier received a provisional approval granted on the basis of an application that erroneously cited an incorrect sub-clause? 2. Whether provisional approval granted despite an applicant's mistake in selecting the correct sub-clause can be treated as valid, and whether the Commissioner (Exemptions) may reject the final approval application on that sole ground. 3. Whether the power of the Principal Commissioner/Commissioner under the second proviso to section 80G(5) to reject an application or cancel an approval is confined to dissatisfaction as to (A) genuineness of activities and (B) fulfilment of conditions in clauses (i)-(v), and does not extend to rejecting for curable technical mistakes. 4. Whether the Departmental officer has a duty under the Board's administrative guidance to assist and point out curable errors in an application so as to enable the applicant to seek appropriate relief. 5. What is the appropriate remedial direction where an applicant has committed a bona fide clerical error in selecting the sub-clause, provisional registration was nonetheless issued, and the applicant subsequently applied for final approval within prescribed timelines? ISSUE-WISE DETAILED ANALYSIS - Issue 1: Maintainability of Form No.10AB after provisional approval granted on erroneous sub-clause Legal framework: Section 80G(5) and its first and second provisos (as amended) prescribe the categories, timelines and procedure for grant of approval; clause (iii) of the first proviso relates to applications where the institution has been provisionally approved and requires application within specified time; sub-clause (B) of clause (iv) relates to institutions which have commenced activities and have not availed specified exemptions for prior years. Precedent treatment: The Tribunal relied on a coordinate Bench decision holding that an application filed in time but mentioning an incorrect section cannot be a ground for rejection and directed grant of appropriate approval treating the application under the correct provision. Interpretation and reasoning: Where provisional approval had in fact been granted (certificate issued) despite the applicant citing an incorrect sub-clause, and the applicant filed the consequential application for final approval within the statutory window, the application in Form No.10AB was held maintainable. The Tribunal reasoned that the correctness of the technical select-box in the form cannot defeat substantive eligibility when the Commissioner has already issued provisional registration and when conditions of genuineness and fulfilment of statutory conditions are otherwise satisfied. Ratio vs. Obiter: Ratio - an application in Form No.10AB is maintainable notwithstanding an earlier clerical error in selection of a sub-clause where provisional approval issued and substantive conditions are met. Obiter - incidental remarks on timelines extended by administrative circulars. Conclusion: The Form No.10AB application seeking final approval was maintainable and should not have been rejected solely due to the earlier incorrect sub-clause selection. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Validity of provisional approval issued despite erroneous sub-clause and whether rejection can be based solely on that error Legal framework: Provisional approval is contemplated by the second proviso and the subsequent proviso to be granted in prescribed circumstances; the validity of an order granting approval ordinarily depends on whether the preconditions for exercise of power were met and whether the issuing authority acted within statutory scope. Precedent treatment: Coordinate Bench precedent treated provisional registration issued despite wrong form selection as a valid act which should not be nullified where substantive requirements are satisfied. Interpretation and reasoning: The Tribunal observed that the provisional registration certificate had been issued by the Department; once the Department exercised its power to grant provisional approval it would be inequitable and legally unsustainable to declare that approval void solely because the applicant had inadvertently chosen an incorrect sub-clause in the form. The Commissioner's rejection on that sole ground was impermissible when the statutory criteria for cancellation (dissatisfaction about genuineness or fulfillment of conditions) were not invoked or established. Ratio vs. Obiter: Ratio - provisional approval issued by the Department should be treated as valid where it was actually granted and substantive conditions for approval are otherwise met; rejection solely for the technical mistake in selecting a sub-clause is not a permissible ground. Obiter - discussion of hypothetical scenarios if substantive conditions were not met. Conclusion: The provisional approval dated 12.02.2024 was to be treated as valid and could not be annulled merely because the applicant had cited an incorrect sub-clause in its application form. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Scope of the Commissioner's power under the second proviso to reject/cancel - limited to genuineness and fulfilment of conditions Legal framework: The second proviso to section 80G(5) empowers the Principal Commissioner/Commissioner, on receipt of an application under the first proviso, to call for documents and, after satisfaction about (A) genuineness of activities and (B) fulfilment of conditions in clauses (i)-(v), either grant approval for five years or reject/cancel where not so satisfied; procedural safeguards include reasonable opportunity of being heard where relevant. Precedent treatment: The Tribunal followed a coordinate Bench holding that rejection/cancellation under the proviso is confined to dissatisfaction on the two specified heads and cannot be extended to other technical or curable infirmities. Interpretation and reasoning: The statutory language confines the grounds for rejection/cancellation under the proviso to matters of genuineness and statutory conditions. Administrative or clerical mistakes in the application do not fall within these statutory grounds. Where the Commissioner does not show dissatisfaction under item (A) or (B), rejecting an application for such a curable defect is contrary to the statutory scheme. Ratio vs. Obiter: Ratio - the Commissioner's power to reject or cancel under the second proviso is confined to dissatisfaction as to genuineness and compliance with clauses (i)-(v); it does not encompass rejection for curable technical errors. Obiter - procedural duties arising from circular guidance. Conclusion: The rejection of the final approval application on the sole ground of an earlier clerical error was outside the statutory scope of the second proviso and therefore unsustainable. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Duty of departmental officers to assist taxpayers and rectify curable defects Legal framework: Administrative guidance in the Board Circular emphasises officers' duty to assist taxpayers to claim reliefs and to draw attention to refunds or reliefs apparently due, and to advise on procedure; such guidance informs exercise of powers though it is not a legislative norm. Precedent treatment: The Tribunal cited the Board Circular to support the proposition that officers must not take advantage of taxpayer's ignorance and should assist in rectifying curable mistakes. Interpretation and reasoning: Given that provisional registration had been granted despite the incorrect sub-clause, the Commissioner should have informed the applicant of the curable defect and given opportunity to rectify instead of rejecting the application. The Circular's principle that officers should assist taxpayers reinforces the statutory requirement that rejection under the proviso be grounded only in specified statutory dissatisfaction. Ratio vs. Obiter: Obiter as to the weight of administrative guidance in shaping departmental conduct; however, it underpins the operative direction to the Commissioner to permit rectification and to apply statutory provisions substantively. Conclusion: Departmental officers have a duty to assist and should have allowed rectification of the curable mistake rather than reject the application; this supports treating the provisional registration as valid and allowing the final approval process to proceed on substantive merits. ISSUE-WISE DETAILED ANALYSIS - Issue 5: Appropriate remedial direction where bona fide clerical error occurred and provisional approval was granted Legal framework: Tribunal's remedial powers permit setting aside administrative orders and directing the authority to pass appropriate orders consistent with law and facts; statutory scheme allows approvals to operate from specific assessment years depending on the proviso under which application is considered. Precedent treatment: The coordinate Bench directed that where an in-time application contained an incorrect sub-clause but substantive eligibility existed, the application be treated as if made under the correct sub-clause and approval granted accordingly. Interpretation and reasoning: The Tribunal directed the Commissioner to treat the provisional registration as valid and to consider the Form No.10AB filed on 18.03.2024 as if made under sub-clause (B) of clause (iv) (i.e., the correct sub-clause), after satisfying himself on genuineness and statutory conditions under subclause (a). The relief was framed so as to secure the substantive entitlement of the applicant while preserving the Commissioner's statutory duty to verify genuineness and compliance. Ratio vs. Obiter: Ratio - where provisional approval exists and substantive criteria are met, the Tribunal may direct the authority to treat an application as if filed under the correct provision and to grant approval accordingly after required satisfaction; rejection for mere technical error is impermissible. Obiter - hypothetical reliefs in variant scenarios. Conclusion: The proper remedial course is to validate the provisional registration and to direct the Commissioner to grant approval from the date of the consequential application, subject to satisfaction on genuineness and fulfilment of statutory conditions; accordingly the appeal was allowed and the Commissioner directed to act consistently with these principles.