Cancellation of 12AB registration quashed for lack of specific Show Cause Notice; Matter remanded

Issue

Whether the Commissioner of Income Tax (Exemption) [CIT(E)] can validly cancel a charitable trust’s registration under Section 12AB(4) without issuing a specific Show Cause Notice (SCN) detailing the allegations, and without considering the detailed written submissions filed by the assessee.

Facts

Assessee Profile: A public charitable trust registered under the Public Charity Law since 1952 and registered under Section 12A of the IT Act since 1974.
Current Status: The trust had obtained regular registration under the new regime [Section 12A(1)(ac)(i)] for the period AY 2022-23 to 2026-27.
Trigger Event: The trust applied for approval under Section 80G(5)(iii), which was rejected by the authorities.
The Cancellation: Following the 80G rejection, the CIT(E) proceeded to cancel the main registration of the trust under Section 12AB(4).
Reasoning: The CIT(E) observed that the trust’s activities were not in accordance with its objects and that the genuineness of its activities was not fully established.
Procedural Flaw: The assessee contended that no specific SCN was issued confronting them with these specific grounds before the cancellation. Furthermore, the extensive details and written submissions filed by the trust explaining its activities were apparently ignored in the final order.

Decision

Violation of Natural Justice: The Tribunal/Court held that the proceedings were vitiated by a breach of the principles of natural justice.
Requirement of Specific Notice: Before taking the drastic step of cancelling a long-standing registration, the authority is legally bound to issue a specific notice pointing out the exact violations or discrepancies so the assessee can defend itself.
Non-Consideration of Reply: The Court noted that the CIT(E) failed to consider the elaborate written submissions filed by the assessee. Passing an order without addressing the defense arguments renders the order unsustainable.
Ruling: The impugned order of cancellation was set aside. The matter was restored (remanded) to the file of the CIT(E) for fresh consideration. The CIT(E) was directed to grant an adequate and reasonable opportunity of being heard to the assessee before taking any decision.

Key Takeaways

SCN Must Be Specific: A general notice is not enough for cancellation. The Show Cause Notice must specifically allege which “specified violation” (under Explanation to Section 12AB(4)) the trust has committed (e.g., applying income for non-charitable purposes, violating Section 13, etc.).

Speaking Order: Adjudicating authorities must pass a “speaking order” that discusses the assessee’s submissions. Ignoring the taxpayer’s defense is a valid ground for getting the order quashed in appeal.

80G vs 12AB: Rejection of 80G approval often alerts the department to scrutinize the 12AB registration. However, the standards for both are distinct, and a rejection of one does not automatically justify the cancellation of the other without independent verification.

IN THE ITAT SURAT BENCH

Shri Surati Modh Ganchi Gnati jilla Nanpura Panch

Commissioner of Income-tax(Exemption)

MS SUCHITRA RAGHUNATH KAMBLE, Judicial Member
and BIJAYANANDA PRUSETH, Accountant Member

IT Appeal No.761 (SRT) of 2025
[Assessment year 2025-26]

NOVEMBER 4, 2025

Akshay M. Modi, CA for the Appellant. Ravinder Sindhu, CIT-DR for the Respondent.

ORDER

Bijayananda Pruseth, Accountant Member.- This appeal emanates from the order dated 30.06.2025 passed by the Commissioner of Income-tax (Exemption), Ahmedabad [in short “the CIT(E)”], wherein CIT(E) cancelled the assessee’s registration u/s 12AB of the Income-tax Act (in short ‘the Act’).

2. The grounds of appeal raised by the assessee are as under:

“(1) On the facts and in the circumstances of the case as well in law, the CIT (Exemption) erred in cancelling the registration of u/s 12AB of the Act on baseless and incorrect presumptions and without considering the material on records available with the department and hence, order of cancellation of registration u/s 12AB of the Act passed by CIT(E) is without jurisdiction, bad in law, perverse, prejudicial, arbitrary, unwarranted of facts and material on records, illegal and invalid, is liable to be quashed or annulled in toto.

(2) On the facts and in the circumstances of the case as well in law, the learned CIT (Exemptions) has grievously failed to provide proper, lawful and meaningful opportunity of being heard and hence, ex-facie in violation of the principals of natural justice and also to the relevant provisions under the law, and therefore, the order of CIT(E) is irrational, unfair, and prejudicial and hence, it is liable to be struck down.

(3) Your appellant further reserves it’s rights to add, alter, amend or modify any of the aforesaid grounds before or at the time of hearing of the appeal.”

3. The brief facts of the case are that the assessee-trust was registered before the Assistant Charity Commissioner, Surat on 26.09.1952 with registration No. A/4/Surat. The assessee trust filed an application for registration u/s 12A(a) of the Act and was subsequently granted registration on 03.10.1974. The applicant has obtained a regular registration from CPC by making an application in Form 10A u/s 12A(1)(ac)(i) of the Act on 23.09.2021 from AY 2022-23 to 2026-27. The assessee trust had taken benefit of Circular No. 7/2024 and made application u/s 80G(5)(iii) of the Act on 06.03.2024, which was decided on merit and a rejection order was passed on 27.09.2024. The ld. CIT(E) observed that the activities carried out by the applicant were not found to be in accordance with the object and the questions of genuineness is not fully established. The ld. CIT(E) did not accept the reply of the applicant on certain grounds, which is reproduced at pages 6 to 8 of the order. The appellant submitted that the appeal filed before the ITAT against the 80G rejection was decided in favour of the applicant and, hence, 12A cancellation proceedings should be dropped. The ld. CIT(E) held that the pendency of appeal or decision does not bar proceedings u/s 12AB(4) of the Act. The grounds of rejection under 80G are distinct from registration u/s 12A of the Act. The appellant had failed to demonstrate genuineness of activities and alignment with its stated objects, as required u/s 12AB of the Act. He also held that no stay has been granted by the ITAT and hence, administrative action under the law remains valid and justified. Therefore, he held that there is clear violation of clause e(i) of Explanation to subsection (4) of section 12AB of the Act and, accordingly, he cancelled the registration.

4. Aggrieved by the order of ld. CIT(E), the assessee-trust filed appeal before this Tribunal. The learned Authorized Representative (ld. AR) submitted a paper book containing various details including the order of ITAT setting aside the order of CIT(E) to his file to consider application for approval of the fund u/s 80G(5) of the Act, if the assessee has fulfilled the requisite conditions of approval of funds. The appeal of the assessee was allowed for statistical purpose. Copy of the ITAT order is enclosed at pages 32 to 37 of the paper book. The ld. AR has also enclosed the income and expenditure statement for the year ending 31.03.2023 and submitted that there was no expenditure of religious nature. He submitted that apart from the rent, taxes and cesses, the only other expenditure was Rs.64,526/-towards relief of the poor and mess/tiffin services. He further submitted that the ld. CIT(E) has not considered the detailed written submission filed on 24.10.2024, which is at pages 19 to 27 of the paper book. He submitted that the order was passed without considering the merit of the case. Therefore, the order passed by Id. CIT(E) is clearly violative of the principles of natural justice and accordingly, the matter may be set aside to the file of ld. CIT(E) in the interests of justice. The ld. AR also submitted that the appellant is ready to file all the details apart from the submissions, which have already been made before the ld. CIT(E) to decide the case on merit. He also submitted that the issue regarding approval of 80G(5) of the Act has been set aside to the file of the ld. CIT(E) and this issue may also be set aside for fresh consideration.

5. On the other hand, the learned Commissioner of Income-tax – Departmental Representative (ld. CIT-DR) for the revenue supported the order of ld. CIT(E). He, however, did not have any objection if the matter is restored to the file of ld. CIT(E).

6. We have heard both parties and perused the materials available on record. We have also carefully perused the order of the ITAT wherein appeal of the assessee trust was allowed for statistical purpose on the issue of approval u/s 80G(5) of the Act. The ITAT has held that there is no finding of ld. CIT(E) as to whether any amount was spent for religious purposes in the last three financial years. We also find that no specific show cause notice was issued by the ld. CIT(E) before cancelling the registration earlier granted to the assessee. Be that as it may, the assessee had filed elaborate details along with written submission, which does not seem to have been considered by the ld. CIT(E) before cancelling the registration. It is settled law that principles of natural justice requires that the affected party is granted sufficient opportunity of being heard to plead its case. Therefore, without delving into the merits of the case, the order of ld. CIT(E) is set aside and the matter is restored to his file for fresh consideration after granting adequate and reasonable opportunity of being heard to the appellant. The appellant is also directed to furnish all required details in addition to the details already furnished, as may be called for by the ld. CIT(E).

7. In the result, appeal of the assessee is allowed for statistical purposes.