Charitable trust’s registration cancellation due to incorrect application section is set aside and remanded for fresh adjudication, as the Commissioner failed to issue a show-cause notice for the discrepancy.
Issue:
Whether the Commissioner (Exemption) can cancel the application for regularization of registration of a charitable trust solely on the procedural ground that the assessee applied under an incorrect provision of Section 12A(1)(ac), without issuing a show-cause notice to highlight this discrepancy or providing a reasonable opportunity of being heard on this specific issue.
Facts:
- The assessee trust was established for various charitable activities, including educational, social, cultural, economic, and medical relief to the poor and downtrodden.
- The assessee had initially obtained provisional registration under Section 12A.
- Subsequently, it claimed exemption by filing ITR-7.
- The assessee then applied for regularization of its provisional registration by filing Form 10AB.
- The Commissioner (Exemption) found that the application was erroneous because the assessee had applied under Section 12A(1)(ac)(vi)(B), which was deemed not applicable to the assessee’s case.
- Accordingly, the registration application was cancelled solely on this procedural ground.
- It was noted that the assessee had inadvertently applied under the incorrect provision, Section 12A(1)(ac)(vi)(B), whereas the correct provision applicable to its case was Section 12A(1)(ac)(iii).
- Crucially, despite this error, no show-cause notice was issued by the Commissioner (Exemption) to the assessee highlighting this discrepancy in the application form.
- The application was rejected solely on this procedural ground, without adjudicating any substantive issue regarding the trust’s charitable activities or providing a show-cause notice in respect of this specific procedural error.
Decision:
The court held in favor of the assessee. It ruled that since a reasonable opportunity of being heard was denied to the assessee, the matter was to be remanded back to the Commissioner (Exemption). The Commissioner was directed to treat the application already filed by the assessee as one made under clause (iii) of Section 12A(1)(ac) instead of clause (vi) and to adjudicate the same afresh in accordance with law after providing a reasonable opportunity of being heard.
Key Takeaways:
- Principles of Natural Justice: The judgment strongly emphasizes the fundamental principle of natural justice, “audi alteram partem” (hear the other side). Before rejecting an application on a specific ground, especially a procedural one that can be rectified, the authority must provide the applicant with notice of the discrepancy and an opportunity to explain or correct it.
- Procedural Error vs. Substantive Non-Compliance: The Commissioner rejected the application based on a procedural error in quoting the correct subsection of Section 12A. However, such errors, especially when they are inadvertent, should not lead to outright rejection without giving a chance for rectification, particularly when the trust’s underlying charitable objects are not in dispute.
- Duty of Commissioner (Exemption): The Commissioner, being the quasi-judicial authority, has a duty to guide the applicant in such cases, especially when the error is apparent and could be easily rectified. Issuing a show-cause notice for the specific discrepancy (wrong clause in Form 10AB) is essential.
- Remand for Fresh Adjudication: The appropriate remedy for such a denial of natural justice is to set aside the order and remand the matter. The direction to treat the application under the correct clause (12A(1)(ac)(iii)) is a practical measure to avoid further delays and technicalities.
- Opportunity for Hearing on Merits: The remand ensures that the Commissioner will now consider the application on its substantive merits (i.e., whether the trust’s activities and objects align with charitable purposes for registration), rather than rejecting it on a mere procedural technicality without hearing the assessee.
- Importance of Section 12A Registration: Registration under Section 12A is crucial for a trust to claim income tax exemption. Rejection on procedural grounds without notice can have severe financial implications.
- Section 80G Context: While the immediate issue is 12A registration, obtaining 12A registration is a prerequisite for subsequent 80G approval (allowing donors to claim deductions), highlighting the cascading importance of this procedural step.
IN THE ITAT MUMBAI BENCH ‘G’
Zarina Foundation
v.
Commissioner of Income-tax (Exemption)
ANIKESH BANERJEE, Judicial Member
and Miss Padmavathy S. , Accountant Member
and Miss Padmavathy S. , Accountant Member
IT Appeal Nos. 6276 and 6277 (Mum.) of 2024
[Assessment year 2024-25]
[Assessment year 2024-25]
MAY 21, 2025
Jigar Mehta, CA Mahendra Bishnoi, CIT DR for the Respondent.
ORDER
Anikesh Banerjee, Judicial Member.- Both the appeals of the assessee were filed against the order of the Learned Commissioner of Income-tax (Exemption), Mumbai [for brevity, ‘Ld.CIT(E)] passed under sections 12A & 80G(5) of the Act, date of both the orders is 27/09/2024.
2. Considering the facts and issue in the present appeals were heard together. ITA No.6277/Mum/2024 is taken as the lead case.
The ground raised by the assessee in this appeal are as follows: –
“1. (a). The order passed u/s. 12AB of the Act is invalid, non-est and bad in law.
| (b). | The Ld. CIT(Exemptions) erred in law and facts in rejecting the application u’s 10AB without granting the adequate opportunity of being heard and merely on technical glitch. |
2. All the above grounds are independent and without prejudice to each other.
3. The Appellant craves leave to add, amend, delete and modify the above grounds of appeal.”
2. Briefly stated, the facts are that the assessee is a charitable trust to develop, establish, promote, facilitate, promotion, improvement of educational, social, cultural, economic and medical relief to the poor and downtrodden and advancement of any other charitable and developmental objects of general public utility and community welfare as also to promote social welfare activities intended for the general welfare of the public such as welfare of the destitute, family women, children and the handicapped and assistance in case of unemployment, old age, sickness, disablement and other cases of deserving needs. The assessee has obtained the provisional registration on 22/06/2022 valid for the A.Ys 2023-24to 2025-26 and subsequently claimed exemption by filing ITR-7 for A.Y. 2023-24 i.e. before applying for regularisation of registration in Form 10AB of the Act. Finally, the assessee applied for regularization of registration on 10AB, but the Ld.CIT(E) found that the application is erroneous as the assessee applied under section 12A(1)(ac)((vi)(B) of the Act which is not at all applicable for the assessee. The said registration application was cancelled by an order dated 27/09/2024. In consequence, another application was filed under section 80G(5) due to non acceptance of application under section 12A, the registration application for 80G(5) was duly cancelled. Being aggrieved on the impugned order, the assessee filed an appeal before us.
3. The Ld.AR argued and filed a paper book containing pages 1 to 81, which is kept on the record. The Ld.AR stated the date-wise instance of the assessee’s application, which is tabulated as under:-
| Sr.No. | Issue | Date |
| 1. | Trust incorporated | 29/04/2022 |
| 2. | Activity started | 16/09/2022 |
| 3. | Provisional registration granted | 22/06/2022 |
| 4. | First Application filed for permanent regn. | 13/03/2023 |
| 5. | First Application rejected | 25/09/2023 |
| 6. | Second Application filed for permanent regn. | 20/03/2024 |
| 7. | Second Application rejected | 27/09/2024 |
The Ld.AR stated that the assessee previously filed an application, but discrepancy found in the trust deed by the Ld.CIT(E). Accordingly, the petition was duly rejected. Finally, the assessee amended the specific provision in the trust deed and filed second application on 20/03/2024. The assessee tried to file this application by perusing section 12A(1)(ac)(iii) of the Act, but in the on-line system, the said section was not accepted. Considering this, the assessee informed the income-tax authority and finally a letter was issued to the CPC, Bengaluru, related to error caused in application for the registration. The copy of letters are duly annexed in APB pages 76-81. But no assistance or reply was received from revenue’s side. Due to restriction of time limit, as per section 12(A)(1)(ac)(iii) of the Act, the assessee filed the application by mentioning the wrong section. He further mentioned that in none of the show cause noticesissued by the Ld.CIT(E), it was revealed that the assessee applied under a wrong section in the application form. Finally, when the order was received, the assessee found that the said application was rejected due to quotingthe wrong section. So, the Ld.AR prayed for restoring the matter to the file of the Ld.CIT(E) for accepting the application, as applied for by the assessee.
4. The Ld.DR argued and only relied on the order of the revenue authorities.
5. We have heard the rival submissions and perused the documents available on record. Upon consideration, we find that the assessee inadvertently applied for regularization of registration under the incorrect provision, namely Section 12A(1)(ac)(vii)(B) of the Act, whereas the correct provision applicable to the assessee’s case is Section 12A(1)(ac)(iii) of the Act. Despite this error, no showcause notice was issued by the Ld. CIT(E) highlighting the discrepancy in the application.It is observed that the assessee was in a position to correctly quote the applicable section while submitting the application; however, due to technical constraints in the online portal, the correct section could not be selected. The application was ultimately rejected by the Ld. CIT(E) solely on this procedural ground, without adjudicating any substantive issue or issuing a show-cause notice to the assessee in respect thereof. This, in our considered opinion, renders the rejection order unsustainable in law, as it suffers from a violation of the principles of natural justice.
The Ld. DR could not produce any show-cause notice issued by the Ld. CIT(E) for the said error. Furthermore, the letter submitted by the assessee to the CPC highlighting the technical difficulty was not addressed. Thus, it is evident that reasonable opportunity of being heard was denied to the assessee.
The Ld. AR placed reliance on the decisions of the Co-ordinate Bench of the ITAT, Pune Bench, in the cases of Torna Rajgad Parisar Samajonnati Nyas v. CIT (Pune – Trib.) and Deodhar Education and Vocational Academy v. CIT (Pune – Trib.), as well as the decision of the Co-ordinate Bench of the ITAT, Surat Bench in Swaminarayan Gadi Trust v. CIT(E)ITD 666 (Surat-Trib.).Respectfully following the above precedents, and considering the totality of facts and in the interest of justice, we consider it appropriate to remand the matter to the file of the Ld. CIT(E) with a direction to treat the application already filed by the assessee as one made under clause (iii) of Section 12A(1)(ac) of the Act, instead of clause (vi), and to adjudicate the same afresh in accordance with law after providing a reasonable opportunity of being heard.
The assessee is also directed to comply with any notices issued by the Ld. CIT(E) in this regard and to furnish all necessary supporting documents/evidence with due diligence in support of its application for registration.
Accordingly, the grounds raised in the appeal by the assessee are allowed.
6. Insofar as the application under Section 80G(5) of the Act is concerned, the decision on the application under Section 12A shall apply mutatis mutandis to this issue as well. Hence, ITA No. 6276/Mum/2024 is also remanded to the file of the Ld. CIT(E) with similar directions as stated above.
7. In the result, appeals of the assessee bearing ITA No.6276 & 6277/Mum/2024 are allowed.