Rejection of Section 80G Approval Without Verifying Incidental Religious Expenditure Threshold Remanded for Fresh Examination

ORDER

Paresh M Joshi, Judicial Member. – This is an Appeal filed by the Assessee under section 253 of the income tax Act 1961, [hereinafter referred to as the Act for the sake of brevity] before this tribunal as & by way of a second appeal .The Assessee is aggrieved by the order bearing No:-ITBA/EXM/F/EXM 45/2024-25/1075254671(1) dated 29.03.2025 passed by the Ld. CIT (E), which is hereinafter referred to as the “Impugned order”.

2. Factual Matrix

2.1 That on 29.08.2024 the assessee filed form no. 10 AB for the first time for seeking approval u/s 80G (5)(iv)(B) of the act [PB pages 1 to 10]. The said application was however rejected by the Ld. CIT (E) by the Impugned Order. The relevant extracts of the “Impugned Order” of the Ld. CIT (E) is reproduced below:-

2.2 That the assessee being aggrieved by the Impugned Order of the Ld. CIT (E) has preferred the instant appeal before this tribunal and has raised the following grounds of appeal in the form no. 36 against the “Impugned Order” which are as under:-

1. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Exemptions), Bhopal erred in rejecting the application made by the appellant under sub-clause (B) of clause (iv) of the first proviso to sub-section (5) of section 80G of the Income-tax Act is unlawful as the same has been passed by him beyond the time of six month (i.e. upto 28-02-2025) allowed under the provisions of the said section.

2. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Exemptions), Bhopal erred in concluding that the object no. 1, 2& 3 as mentioned in the trust deed are of religious nature.

3. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Exemptions), Bhopal erred in not properly appreciating the provisions contained under subsection (5B) to Section 80G of the I.T. Act which resulted in rejection of application of registration of appellant trust u/s 80G(5)(ii) of the I.T. Act.

4.On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Exemptions), Bhopal erred in rejecting the application made by the appellant under subclause (B) of clause (iv) of the first proviso to sub-section (5) of section 80G of the Income-tax Act, the contention of the Ld. CIT Exemption Bhopal that none of the objects of the appellant should have been religious in nature is wrong, when, the provisions contained in Section 80G(5B) allowed incurring of expenditure of religious nature to the appellant upto five percent of its total income for the previous year and this is not possible unless some of its objects had tenets of religious nature.

5. on the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Exemptions), Bhopal erred in rejecting the application of the appellant for grant of approval u/s 80G (5), was not justified in arbitrarily alleging that the appellant Society is expressed to be for the benefit of a particular religious community or caste, when, he himself granted registration u/s 12AB (1)(b) to the appellant Society after being fully satisfied that it was not expressed to be for the benefit of any particular religious community or caste.

6. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Exemptions), Bhopal erred in rejecting the application made by the appellant for grant of approval u/s 80G (5) by relying on the decision in the case of Upper Ganges Sugar Mills Ltd v. Commissioner of Income-tax [1997]  5 (SC), when, this decision, being very old, did not take into account the effect of relief provided to a charitable institution or fund by the Finance Act, 1999 by inserting sub-section (5B) in Section 80G with an over-riding effect over Section 80G(5)(ii) and Explanation 3 to the said section.

7.On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Exemptions), Bhopal erred in rejecting the application made by the appellant for grant of approval u/s 80G(5) of the Income-tax Act without properly considering the submissions made to him by the appellant in response to his notices, which adequately refuted his contentions and also provided necessary clarifications regarding the activities and expenditure actually incurred, within the permissible ceiling of 5% of the total income for the year, by the appellant Trust in the preceding years.

8. On the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Exemptions), Bhopal erred in rejecting the application made by the appellant under subclause (B) of clause (iv) of the first proviso to sub-section (5) of section 80G of the Income-tax Act is unwarranted and unsustainable in law, when, the appellant ‘Trust meets the criteria prescribed for grant of approval under Section 80G (5) of the Income-tax Act.

9. That the appropriate order for granting justice and relief be passed.

10. That the appellant craves leave to add, amend, alter, delete all or to modify any of above grounds and to pursue any other or further grounds as may be required.

3.1 The hearing in the matter took place before this Tribunal on 10.06.2026 when the Ld. AR for & on behalf of the Assessee appeared before us & interalia contended that the “Impugned Order” is bad in law, illegal & not Proper. It is also in the violation of the principles of natural justice. It therefore deserves to be set aside. The Ld. AR has placed on the record of this tribunal a paper book containing pages 1 to 259. A synopsis containing 6 pages. An “arguments” containing 13 pages. The Ld. AR then contended that the assessee in the form 10 AB filed on 31.08.2024 (PB page 1 to 10) had in column no.- 2 had claimed the section 80 G (5)(iv)(B). The nature of activity in column no.-3 was stated as “religious cum charitable”. The assessee is society registered with registrar of firms and societies MP, with incorporation no: – 03/27/03/08636/05 dated 18/08/2003 [PB page 37]. The object of the society is religious, relief of poor, education, medical relief and advancement of any other objects. The Ld. AR submitted that the benefit of 80G (5)(iv)(B) was rejected by the “Impugned Order”. 12A regd however is effective. It was contended that 5% of application towards religious activities are permissible. Out of 5% roughly about 1% is towards Pooja Expenses. The assessee society however was not heard in an effective and reasonable manner before the Impugned Order was passed by the Ld. CIT (E). The Ld. AR then invited our attention to the fact that the religious expenses done by the assessee society was of Rs. 8960/- which was expended as “Mandir poojan expenses”. Pilgrims and refreshment expenses were Rs. 52,579.00 only which too was meagre. In this regard our attention was invited to PB page 42 which was income & expenditure account for the year ending 31.03.2023. The Ld. AR then invited our attention to PB page 62 and basis that contended that the percentage of religious expenses for 2021-22 was 4.37%, for 2022-23 it was 1.85% and for 2023-24 it was 2.36% which were all below 5% [chart of percentage of religious activities expenses incurred with respect to total income] [page 62 of PAPER BOOK]. In the sum and substance it was submitted that the religious activities were carried out by the assessee are incidental and ancillary to main object and the amount expended is less than 5%. Per contra the Ld. DR appearing for and on the behalf of the revenue contended that only charitable purpose is required to be considered in law. Charitable cum religious activities and religious activities are not allowed for 80G (5)(iv)(B). The “Impugned Order” is therefore correctly passed and that the “Impugned Order” should be upheld. The hearing was over and closed.

4.1 We have to decide the legality, validity and proprietary of the “impugned order” basis records of the case & the rival submission canvassed before us.

4.2 We have carefully perused the records of the case and have heard the submissions.

4.3 We basis records of the case & after hearing & further upon examining the rival contentions of the Ld. AR & the Ld. DR canvassed before us, are of the considered opinion that the “Impugned Order” in the given facts and circumstances deserves to be set aside as there in no analysis is done by the Ld. CIT (E) about the nature of religious activities and amount expended for same during last three years as is demonstrated before us basis PB page 62. While it is true that only the society or body or trust established solely for purpose of charitable purpose is required to be granted registration for section 80G (iv)(B) but that ipso facto does not mean in law that such body or society or trust is prohibited to do any religious activities as and by way incidental and ancillary work in order to achieve purpose of charitable nature. If assessee has advanced contentions that they too are carrying out religious activities as and by way of incidental and ancillary object then there such contentions are required to be appreciated and considered sympathetically by carrying out due diligence and some prelim any inquiry in order to ascertain the gravity and nature and the purpose of such activities. It is required to be tested basis such an inquiry and/or from the reports of the field officers whether such activities are incidental and ancillary to the main objects or not. However upon inquiry etc. If it is found basis material that such incidental and ancillary objects of religious activities are dominant over the charitable purpose then the authorities would be well within their rights to deny the registration. The amount expended on such activities of incidental and ancillary nature i.e. religious activities up to 5% of application of income would be one of the yard stick. Be that as it may without going into the merits of the case we set aside the Impugned Order as and by way of remand with direction to the Ld. CIT (E) to re-examine the above issue without being influenced by our observation and to re look the entire affairs, objects and purpose of assessee once again and then to pass a fresh and speaking order which should be a reasoned one. The Ld. CIT (E) is directed to give personal hearing to the assessee and assessee is directed to participate in such hearing as we notice that there is nothing in the Impugned Order with regard to opportunity of personal hearing being afforded to the assessee before the Impugned Order was passed. The assessee is directed to explain each and every charitable purpose with tangible material/ evidences worth credence to establish charitable nature of their society and so also other incidental and ancillary objects i.e. religious activities.

4.4 In the premises laid down by us we set aside the Impugned Order and direct the Ld. CIT (E) to decide the assessee application in form no. 10AB on merits on De novo basis, by passing a speaking and a well-reasoned order including on religious activities being carried out by the assessee basis material on record.

5.1 In the result the “Impugned Order” is set aside as and by way of remand back to the file of Ld. CIT (E) with directions as aforesaid.

5.2 The appeal of Assessee allowed for statistical purpose.