Denial of 12AB/80G Registration Remanded Due to Lack of Proper Hearing on Trustee Loans

Issue:

Whether the Commissioner (Exemptions) was justified in rejecting the application for registration under Section 12AB and approval under Section 80G(5) of the Income-tax Act, 1961, solely on the ground that the assessee-trust had not received sanction from the Charity Commissioner for loans taken from a trustee, especially when a proper opportunity of hearing was not afforded to the assessee.

Facts:

The assessee-trust, engaged in family welfare and medical relief activities, applied for registration under Section 12AB and approval under Section 80G(5) of the Income-tax Act, 1961. The Commissioner (Exemptions) rejected both applications, primarily citing that the trust had not obtained the necessary sanction from the Charity Commissioner for loans taken from a trustee during the year. The assessee contended that the unsecured loan taken from the trustee was merely a temporary loan. It was noted that a proper opportunity of hearing was not given to the assessee-trust to furnish clarification regarding the loan issue.

Decision:

Yes, the matter was remitted back to the Commissioner (Exemptions) for deciding the application afresh. The court held that a proper opportunity of hearing was not afforded to the assessee-trust for furnishing any clarification on the issue of the loan taken by it.

Key Takeaways:

Principle of Natural Justice: The case strongly emphasizes the fundamental principle of natural justice, specifically the right to a fair hearing. Before denying registration or approval, tax authorities must provide the applicant with adequate opportunity to present their case, furnish explanations, and provide any necessary clarifications or documents.
Opportunity to Clarify Loan Issues: When issues regarding loans taken from trustees or other related parties arise, especially in the context of charitable trusts, the assessee must be given a chance to explain the nature of the loan (e.g., temporary, repayment terms, compliance with other regulations) and provide relevant documentation, such as sanction from the Charity Commissioner if applicable.
Remand for Fresh Adjudication: When a proper opportunity of hearing is denied, the appellate authorities typically remand the case back to the original authority for a fresh adjudication, ensuring that the assessee gets a fair chance to be heard and the decision is made after considering all relevant facts and explanations.
Compliance with Charity Commissioner’s Sanction: While the lack of Charity Commissioner’s sanction for loans from trustees can be a valid concern, it needs to be properly examined after giving the trust an opportunity to explain its position and demonstrate compliance or the reasons for non-compliance.

IN THE ITAT PUNE BENCH ‘B’

Snehbandh Foundation

Commissioner of Income-tax (Exemption)

Dr. Manish Borad, Accountant Member
and Ms. Astha Chandra, Judicial Member

IT Appeal Nos.2500 and 2501 (PUN) of 2024

MAY 2, 2025

C.H. Naniwadekar for the Appellant. Ajay Kumar Keshari for the Respondent.

ORDER

Dr. Manish Borad, Accountant Member.- The captioned appeals at the instance of assessee as per the grounds of appeal raised in the instant appeals ITA Nos.2500 and 2501/PUN/2024 are against the rejection of applications for regular registration u/s.12AB(1)((b)(ii) and approval u/s.80G(5) of the Act respectively framed by ld.CIT(E) evenly dated 30.09.2024.

2. At the outset, Ld. Counsel for the appellant requested for affording one more opportunity to file the requisite details so as to prove the genuineness of the activities carried out by the appellant and also to file the details regarding sanction of the Charity Commissioner in respect of loans taken from the trustee Mrs. Neena Pandurana Joshi. Reference was also made to the decision of Coordinate Bench, Nagpur in the case of Prerana Samajik Sanskrutik Bahuddeshiya Shikshan Sanstha v. CIT(E) [IT Appeal No.376 (Nag) of 2023, dated 9-7-2024] in support of the contention that if the appellant works for a noble cause then small borrowings made as a temporary arrangement which are not availed from banks or financial institutions does not violate any provisions of Maharashtra Public Trust Act, 1960 or any provisions of Income-tax Act, 1961.

3. On the other hand, ld. Departmental Representative supported the impugned orders passed by the authorities.

4. We have heard the rival contentions and perused the record placed before us. We notice that the appellant is a Public Trust located at Sangli with the object to formulate plan, promote, undertake, expand follow up on family welfare and medical relief including running of operating clinics/hospitals, healing and care centres etc. Appellant trust applied for regular registration u/s.12A r.w.s.12AB of the Act on Form No.10AB on 25.03.2024 and also applied for approval u/s.80G(5) of the Act on the same date. However, ld.CIT(E) rejected both the applications on being not satisfied with the genuineness of the activities of the appellant trust and also for not having the sanction of the Charity Commissioner for the loans taken from the trustee during the year. We also notice that proper opportunity of hearing was not afforded to the appellant for furnishing any clarification on the issue of loan taken by it. It has been argued by the ld. Counsel for the appellant that unsecured loan is taken from the trustee of the appellant trust and is a temporary loan and placing reliance on the decision of Coordinate Bench in the case of Prerana Samajik Sanskrutik Bahuddeshiya Shikshan Sanstha (supra) it is claimed that the appellant’s application u/s.12AB should not have been rejected merely for not receiving the sanction of the Charity Commissioner for the temporary loan taken during the year.

5. We therefore considering the facts and circumstances of the case deem it proper to remit the issue of regular registration u/s.12AB as well as approval u/s.80G(5) of the Act for denovo adjudication by ld.CIT(E) who shall afford reasonable opportunity to the appellant to prove the genuineness of the activities and ld.CIT(E) shall also deal with the issue on temporary loan taken from the trustee in light of the decision of Coordinate Bench in the case of Prerana Samajik Sanskrutik Bahuddeshiya Shikshan Sanstha (supra) and decide in accordance with law. Effective grounds raised by the appellant in both the appeals are allowed for statistical purposes.

6. In the result, both the appeals of the appellant are allowed for statistical purposes.