Ex-Gratia Exemption Under Section 10(10B) Rejection

Ex-Gratia Exemption Under Section 10(10B) Rejection of Form 10AB for Selecting Incorrect Section 12A Clause Is Curable Procedural Defect

Issue

Whether the rejection of a trust’s Form No. 10AB registration application solely due to selecting an incorrect clause under Section 12A constitutes a curable procedural defect when the underlying substance and purpose of the application are clear from the record.

Facts

Registration Application: The assessee-trust submitted Form No. 10AB seeking regular registration under Section 12AB of the Income-tax Act, 1961, read with Rule 17A of the Income-tax Rules, 1962.
Procedural Rejection: The Commissioner of Income-tax (Exemptions) [CIT(E)] rejected the application on the sole ground that the trust had selected an incorrect clause/sub-clause under Section 12A.
Clear Record: The nature, substance, and underlying purpose of the trust’s application were evident and never in doubt based on the material available on record.
Remand Request: The trust sought to treat the error as a technical/procedural flaw so that the application could be evaluated on its actual merits under the correct statutory provision.

Decision

Procedural Defect: The error of selecting an incorrect clause under Section 12A was held to be a minor, procedural, and curable defect rather than a fatal flaw [Para 19].
Substance Over Form: Since the true intent and nature of the application were evident from the record, the CIT(E) ought not to have rejected the registration on purely hyper-technical grounds [Para 21].
Remanded for Re-examination: The CIT(E) was directed to treat Form No. 10AB as an application submitted under the correct clause of Section 12A and decide the matter afresh on its merits after providing a fair hearing [Para 23].

Key Takeaways

Substance Over Technicalities: Application errors that do not obscure the true purpose or nature of a filing are treated as procedural irregularities, not substantive grounds for outright rejection.
Curable Nature of Form 10AB Errors: Selecting an erroneous clause in digital registration forms under Section 12AB/Section 12A can be rectified and does not invalidate the trust’s application.
Duty of Revenue Authorities: Tax authorities are expected to consider the intent and underlying record rather than taking a hyper-technical approach to procedural missteps.
Remand for Merits: When an order is set aside due to a procedural defect, the matter is remanded to the CIT(E) to adjudicate on the actual merits under the appropriate statutory provision.

IN THE ITAT MUMBAI BENCH ‘B’

Lodha Park Jain Sangh

Income-tax Officer (C)^*

SAKTIJIT DEY, Vice President
and MAKARAND VASANT MAHADEOKAR, Accountant Member

IT Appeal No. 4679 (Mum) OF 2026
[Assessment year 2026-27]

JUNE 30, 2026

Bhavesh Jain, Ld. AR for the Applicant. Yogesh Kamat, Ld. DR for the Respondent.

ORDER

Makarand Vasant Mahadeokar, Accountant Member. – This appeal by the assessee is directed against the order dated 25.03.2026 passed by the learned Commissioner of Income Tax (Exemptions), Mumbai, [hereinafter referred to as “the learned CIT(E)”], in Form No. 10AD, under section 12AB(1)(b)(ii) of the Income-tax Act, 1961[hereinafter referred to as “the Act”], whereby the application filed by the assessee in Form No. 10AB seeking registration under section 12AB of the Act was rejected.

2. The assessee has raised the following grounds of appeal:

1. Invalid rejection on technical ground

The Ld. CIT (Exemptions) erred in rejecting the application merely on the ground that it was filed under an incorrect clause of Section 12A(1)(ac)(ii) which is ought to be filed under section 12(A)(1)(ac)(iii) of the Act, without considering the substance of the application.

2. Failure to consider substantive compliance

The Ld. CIT (Exemptions) failed to appreciate that the Appellant had:

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Filed complete documentation as required under Rule 17A

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Responded to all notices within time

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Established the genuineness of its activities

3. Procedural lapse should not defeat substantive right

The Ld. CIT (Exemptions) erred in law by rejecting the application for a procedural/technical defect, ignoring settled legal principles that procedural lapses should not defeat substantive rights.

4. No opportunity to rectify defect

The Ld. CIT (Exemptions) failed to provide an opportunity to the Appellant to:

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Correct the section/clause under which the application was filed, or

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File a revised/corrected application

This is in violation of principles of natural justice.

5. Non-speaking and mechanical order

The impugned order is non-speaking and mechanical as:

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It does not examine the objects or activities of the trust

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It does not record any dissatisfaction regarding genuineness

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It rejects the application solely on technical grounds

6. Contrary to intent of Section 12AB

The rejection defeats the intent of Section 12AB, which is to examine:

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Objects of the trust

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Genuineness of activities rather than dismiss applications on technicalities.

7. Liberty granted but relief denied

Though the Ld. CIT (Exemptions) stated that the Appellant is at liberty to pursue remedies, the rejection causes undue hardship and multiplicity of proceedings.

8. General Ground

The above grounds of appeal are without prejudice to one another and the appellant craves leave to add, alter, amend, delete or modify any one of the above grounds of appeal.

3. The relevant facts emerging from the impugned order are that the assessee filed an application in Form No. 10AB on 30.09.2025 seeking registration under section 12AB of the Act. The learned CIT(E), on verification of the application, initially found that the application was not complete and that all the documents required to accompany the application had not been furnished. Accordingly, a notice dated 01.02.2026 was issued to the assessee requiring it to furnish the complete set of documents prescribed under Rule 17A(2) of the Income-tax Rules, 1962.

4. In response to the said notice, the assessee furnished its reply dated 10.02.2026 along with the relevant details and documents. The assessee also states that a supplementary submission dated 14.02.2026 was furnished, enclosing, inter alia, proof of expenditure.

5. Upon examining the submissions, documents accompanying Form No. 10AB and the data available on the ITBA/CPC portal, the learned CIT(E) noticed that the assessee had earlier been granted provisional registration in Form No. 10AC dated 13.03.2025. The said provisional registration was valid for a period of three years, namely, from A.Y. 2025-26 to A.Y. 2027-28.

6. The learned CIT(E) observed that, since the assessee was provisionally registered under section 12AB of the Act, the application for regular registration was required to be filed under section 12A(1)(ac)(iii) of the Act. However, in Form No. 10AB, the assessee had selected section 12A(1)(ac)(ii) of the Act, which, according to the learned CIT(E), applied to a trust or institution already possessing regular registration and seeking renewal thereof.

7. The learned CIT(E), therefore, held that the assessee, being provisionally registered for three years, did not qualify to make an application under section 12A(1)(ac)(ii) of the Act. The application was consequently held to be not maintainable on the ground that it had been filed under the wrong section or clause. The learned CIT(E) rejected the application, while observing that the assessee was at liberty to pursue the remedies available under the statute, without prejudice.

8. Before us, the learned Authorised Representative (AR) for the assessee submitted that the assessee is a religious trust carrying on religious activities in accordance with its objects and had already been granted provisional registration in Form No. 10AC dated 13.03.2025, valid from A.Y. 2025-26 to A.Y. 2027-28.

9. The learned Authorised Representative submitted that the assessee filed Form No. 10AB on 30.09.2025 for obtaining regular registration under section 12AB of the Act. It was submitted that the selection of section 12A(1)(ac)(ii), instead of section 12A(1)(ac)(iii), in the electronic application was an inadvertent and technical error. According to him, the nature and substance of the application were evident from the fact that the assessee held provisional registration and was seeking regular registration.

10. The learned AR further submitted that the assessee duly complied with the notice dated 01.02.2026 by filing its reply dated 10.02.2026 and furnishing all the documents and details required under Rule 17A(2). A supplementary submission dated 14.02.2026 was also filed along with proof of expenditure. It was contended that no deficiency was thereafter pointed out in the objects of the assessee, the genuineness of its activities or the documents furnished by it.

11. The learned AR contended that the application was rejected solely on account of selection of an incorrect clause in Form No. 10AB. No specific opportunity was afforded to the assessee either to correct the clause selected in the application or to file a revised or corrected application. It was submitted that a procedural or technical error ought not to result in denial of consideration of the application on merits, particularly when the assessee had substantially complied with the statutory requirements and had furnished the requisite documents.

12. The learned Authorised Representative submitted that the learned CIT(E) did not examine the objects of the assessee or the genuineness of its activities and did not record any adverse satisfaction on these aspects. The impugned order was, therefore, stated to be confined to a technical defect in the application. He accordingly prayed that the impugned order be set aside and the matter be restored to the file of the learned CIT(E) with a direction to permit the assessee to correct the relevant clause or file a corrected application and thereafter decide the application afresh on merits.

13. The learned Departmental Representative relied upon the findings recorded in the impugned order. He submitted that the assessee had filed the application under section 12A(1)(ac)(ii), though the application ought to have been filed under section 12A(1)(ac)(iii) of the Act. He, however, did not raise any objection to the matter being restored to the file of the learned CIT(E) for fresh adjudication in accordance with law.

14. We have considered the rival submissions and perused the material placed on record. The limited controversy before us is whether the assessee’s application in Form No. 10AB could have been rejected solely because, while filing the application electronically, the assessee selected section 12A(1)(ac)(ii) of the Income-tax Act, 1961, instead of section 12A(1)(ac)(iii) of the Act.

15. It is an undisputed fact that the assessee was granted provisional registration in Form No. 10AC dated 13.03.2025, valid from A.Y. 2025-26 to A.Y. 2027-28. The assessee thereafter filed Form No. 10AB on 30.09.2025 seeking regular registration under section 12AB of the Act. The learned CIT(E), upon examining the application and the material available on the ITBA/CPC portal, correctly noticed that an institution holding provisional registration was required to make the application under section 12A(1)(ac)(iii) of the Act. The application was, however, rejected by the learned CIT(E) vide order dated 25.03.2026 passed under section 12AB(1)(b)(ii) of the Act solely because the assessee had selected section 12A(1)(ac)(ii) in Form No. 10AB.

16. The impugned order does not record any adverse finding regarding the objects of the assessee, the genuineness of its activities or the documents furnished by it. The application was not rejected on account of failure to satisfy any substantive condition prescribed for registration under section 12AB of the Act. The rejection was confined entirely to the selection of an incorrect statutory clause in the electronic form.

17. At this stage, it would be relevant to take note of CBDT Circular No. 7/2024 dated 25.04.2024, issued in exercise of the powers conferred under section 119 of the Act. Paragraph 4.1 of the said Circular reads as under:

“4.1 Further, in cases where any trust, institution or fund has already made an application in Form No. 10AB, and where the Principal Commissioner or Commissioner has passed an order rejecting such application, on or before the issuance of this Circular, solely on account of the fact that the application was furnished after the due date or that the application has been furnished under the wrong section code, it may furnish a fresh application in Form No. 10AB within the extended time provided in paragraph 3(ii) i.e. 30.06.2024.”

18. We are conscious that the aforesaid Circular was issued in the context of applications filed within the extended transitional period and that the assessee’s application in the present case was filed subsequently on 30.09.2025. Therefore, the time-specific relaxation provided in the Circular may not, in terms, govern the present application. Nevertheless, the principle and intent underlying the Circular are of direct relevance. The Board itself has recognised that selection of a wrong section code in Form No. 10AB is a procedural defect which ought not to result in the permanent rejection of an otherwise maintainable application. The Circular thus manifests the administrative policy that a technical error in selecting the section code should be permitted to be corrected and that the application should thereafter be examined on its merits.

19. In the present case, the nature of the application was never in doubt. The learned CIT(E) was in possession of the provisional registration in Form No. 10AC dated 13.03.2025 and was fully aware that the assessee was seeking conversion of its provisional registration into regular registration. The correct statutory provision applicable to such an application was ascertainable from the records available before him. The incorrect selection of section 12A(1)(ac)(ii), instead of section 12A(1)(ac)(iii), did not alter either the identity of the applicant, the nature of the relief sought or the statutory jurisdiction of the learned CIT(E) to examine the application under section 12AB of the Act.

20. The opportunity afforded through notice dated 01.02.2026 was for furnishing the documents prescribed under Rule 17A(2) of the Income-tax Rules, 1962. The record does not indicate that the assessee was specifically called upon to rectify the section code or was informed that the application would be rejected as non-maintainable for selection of the wrong clause. The assessee was thus not afforded an effective opportunity to cure the very defect which ultimately formed the sole basis of rejection.

21. Procedural requirements are intended to facilitate the determination of substantive rights and not to defeat them. Where the substance and purpose of the application are apparent from the record and the defect consists merely in selection of an incorrect clause in an electronic form, rejection of the application at the threshold, without permitting correction, would result in denial of adjudication on merits on account of a curable technical lapse.

22. The learned Departmental Representative has relied upon the impugned order. He has, however, fairly raised no objection to restoration of the matter to the file of the learned CIT(E). Having regard to the undisputed facts, the nature of the defect and the legislative and administrative approach reflected in CBDT Circular No. 7/2024 dated 25.04.2024, we are of the considered view that the application ought to be considered under the statutory provision properly applicable to it rather than requiring the assessee to undergo a fresh round of proceedings merely for correction of the section code.

23. We accordingly set aside the order dated 25.03.2026 passed by the learned CIT(E) under section 12AB(1)(b)(ii) of the Act. The learned CIT(E) is directed to treat the assessee’s Form No. 10AB filed on 30.09.2025 as an application made under section 12A(1)(ac)(iii) of the Act, while preserving the original date of filing thereof. The learned CIT(E) shall thereafter examine the objects of the assessee, the genuineness of its activities, the compliance with the requirements of Rule 17A and all other relevant statutory conditions, and decide the application afresh under section 12AB(1)(b) of the Act in accordance with law.

24. The learned CIT(E) shall afford a reasonable opportunity of being heard to the assessee and shall pass a reasoned and speaking order. We make it clear that we have not expressed any opinion on the merits of the assessee’s entitlement to registration, and all substantive issues are left open for adjudication by the learned CIT(E).

25. In view of the above directions, the grounds raised by the assessee are treated as allowed for statistical purposes.

26. Consequently, the appeal filed by the assessee is allowed for statistical purposes.