A show-cause notice must be issued before rejecting an application for registration under section 12AB.

Issue: Whether the rejection of a trust’s application for registration under Section 12AB of the Income-tax Act, 1961, is valid when the order is cryptic, vague, and passed without issuing a show-cause notice, thereby violating the principles of natural justice.

Facts:

The assessee-trust filed an application for registration under Section 12AB.
The Commissioner (Exemption) rejected the application cryptically and vaguely, stating that the trust did not conclusively prove the genuineness of its activities.
The Commissioner also noted the absence of documents to determine if the trust was genuinely carrying out activities as per its objects.
No show-cause notice was issued to the assessee before the rejection order was passed.

Decision:

The court held that the rejection order violated the principles of natural justice.
The matter was remanded back to the Commissioner (Exemption) for re-examination.
The Commissioner was directed to examine the genuineness of the trust’s activities in consonance with its objects.
The Commissioner was also directed to grant a reasonable opportunity of being heard to the assessee.

Key Takeaways:

This case emphasizes the importance of adhering to the principles of natural justice in administrative proceedings.
A vague and cryptic order without a show-cause notice is considered a violation of natural justice.
The adjudicating authority must provide a reasonable opportunity of being heard to the assessee.
This decision ensures that trust registration applications are considered fairly and transparently.
The need to issue a show cause notice is paramount to ensure that the assessee has an opportunity to put forward their case.

IN THE ITAT DELHI BENCH ‘F’

Ram Phool Hooda Charitable Trust

CIT (Exemption)

Vikas Awasthy, Judicial Member
and Dr. Mitha Lal Meena, Accountant Member

IT Appeal No.1744, 1745, 4162 and 4166 (Del.) of 2024

JANUARY 17, 2025

Gautam Jain, Ankit Jain, Drona Negi and Manuj Sabharwal, Advs. for the Appellant. Ms. Suman Malik, CIT DR for the Respondent.

ORDER

Meetha Lal Meena, Accountant Member.- These appeals filed by the assessee are directed against the separate order of the Commissioner of Income Tax (Exemption), Chandigarh and Commissioner of Income-Tax, Delhi [hereinafter referred to as “CIT(E)”], challenging therein rejection of registration under Section 12AA of the Income Tax Act, 1961 [hereinafter referred as ‘the Act’] and also not granting approval under Section 80G(5) of the Act read with Rule 11AA of the Income Tax Rules, 1962. Since, common issues on identical facts were heard today in these appeals and hence these appeals are adjudicated together by this consolidated order for the sake of convenience.

2. At the time of hearing, learned counsel appearing for the assessee submitted facts from ITA No.1744/Del/2024 that the Ld. CIT(Exemption) rejected this application for registration under Section 12A and approval under Section 80G(5) of the Act without granting sufficient opportunity of being heard which tantamount to violation of principles of natural justice. Learned counsel also contended that the impugned order passed by the Ld. CIT(Exemption) is not based on correct appreciation of facts in the light of the provisions of law.

3. The learned AR further submitted that the assessee has complied to the notices issued by the Ld. CIT(Exemption). However, Ld. CIT(Exemption) has not issued any show-cause-notice, before taking adverse view against the assessee while rejecting the application filed for registration under Section 12AA of the Act in violation of provisions of section 12AB(1)(b)(ii)[(B)] (ii) of the Act.

4. Learned AR for the assessee argued that the Ld. CIT(Exemption) has rejected the application for registration filed by the applicant trust summarily that ‘Trust do not conclusively prove the genuineness of the activities of the Trust, in absence of such documents, it could not be determined whether the applicant is genuinely carrying out activities as per its objects’ without rebutting the submissions of the assessee. The Learned AR referred to the procedure for fresh registration is as under:

“12AB. (1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall,-

(a)

where the application is made under sub-clause (i) of the said clause, pass an order in writing registering the trust or institution for a period of five years;

(b)

where the application is made under sub-clause (ii) or sub- clause (iii) or sub-clause (iv) or sub-clause (v) 66[or item (B) of sub-clause (vi)] of the said clause,-

(i)

call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about-

(A)

the genuineness of activities of the trust or institution; and

(B)

the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects;

(ii)

after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item

(A)

and compliance of the requirements under item (B), of sub-clause (i),

(A)

pass an order in writing registering the trust or institution for a period of five years; or

67[(B) if he is not so satisfied, pass an order in writing,-

(I)

in a case referred to in sub-clause (“) or sub-clause (iii) or sub- clause (v) of clause (ac) of sub-section (1) of section 12A rejecting such application and also cancelling its registration;

(II)

in a case referred to in sub-clause (iv) or in item (B) of sub-clause (vi) of subsection (1) of section 12A, rejecting such application, after affording a reasonable opportunity of being heard;]”

5. In support of his claim, ld. AR placed reliance on the following judgments:

Mujanl BCU Cenre of Innovation and Entrepreneurship v. CIT(E) (P & H High Court) reported in0 560 (Punjab & Haryana);

ii.

(SC) Ananda Social & Educational Trust v. CIT;

6. Ld. Counsel further pleaded before us that there is no dispute regarding the charitable trust and there was no adverse finding given by the CIT(E) with regard to the charitable objects of the trust as per trust deed. He requested that the matter may be restored back to the file of the Ld. CIT(E) to examine the issue of grant of registration under Section 12AB and approval under Section 80G(5) afresh after granting due and reasonable opportunity of being heard.

7. Learned DR on the other hand, has relied upon the impugned order passed of the Ld. CIT(E).

8. We have heard the rival arguments and perused the material available on record. Admittedly, the assessee has filed reply dated 15.01.2024 along with an Affidavit before the Ld. CIT(E) at pages 36 to 42 and besides this, an adjournment application on the previous dates of hearing was filed well within time of the date of hearing.

9. From the record, we find that the CIT(E) has rejected the application under Section 12AB of the Act cryptically and vaguely that ‘Trust do not conclusively prove the genuineness of the activities of the Trust. In absence of such documents, it could not be determined whether the applicant is genuinely carrying out activities as per its objects’ which is factually incorrect. It is also noted that the Ld. CIT(E) has not issued any show-cause-notice before passing the order of rejection of assessee’s application which is in violation of the principles of natural justice as per settled law. The Learned Departmental Representative for the Revenue could not controvert the factual position brought on record by the assessee’s learned counsel.

10. Considering the facts in totality, we deem it fit and proper to remand the matter back to the Ld. CIT(E) regarding grant of registration under Section 12AB of the Act to the file of the Ld. CIT(E) with the directions to examine the issues of genuineness of the activities of the trust in consonance to the objects of the assessee’s trust. The Ld. CIT(E) is directed to grant reasonable opportunity of being heard to the assessee and consider the submissions filed on record and may be filed during the course of proceeding. No doubt, the assessee shall co-operate in the proceedings before ld. CIT(E) in compliance to quarries raised, if any. Thus, the impugned order is set aside and restored to the file of the Ld. CIT(E) to decide the matter de novo as per law.

11. All other appeals i.e. ITA No.1745/Del/24, ITA No.4162/Del/2024 and ITA No.4166/Del/2024 are also decided on the same pattern to grant reasonable opportunity of being heard to the assessee and to consider the submissions filed on record and may be filed during the assessment proceeding afresh. Thus, all these impugned orders are set aside and restored to the file of the Ld. CIT(E) to adjudicate the matter de novo as per law.

12. In the result, all the appeals of the assessee are allowed for statistical purpose.