Rejecting application for registration u/s 12AB without confronting society with inspector’s report was violation of the principle of natural justice – ITAT
In a recent judgment, ITAT Amritsar has held that when inspector’s report was never confronted to the assessee society before rejecting the application for registration u/s 12AB of the Act, it was clearly violation of the principle of natural justice.
ABCAUS Case Law Citation:
4726 (2025) (08) abcaus.in ITAT
In the instant case, the appellant assessee had challenged the order passed by the Commissioner of Income Tax (Exemption) rejecting the application for approval u/s 80G(5) of the Income Tax Act, 1961 (the Act).
The applicant in the year 2024 filed an application in Form No. 10AB seeking approval under 80G(5)(iii) of the Act’. The CIT(E) noted that application revealed that the applicant was a society which was created in 2016. The CIT(E) in order to appraise the activities and whether the same were in sync with the stated objects accorded an opportunity to the assessee to furnish documents/clarifications as mentioned in the letter issued in this regard.
Upon examination, the CIT(E) noted that the society got registration u/s 12AB onin 2021 from CPC directly and hence, the activities being carried out by the Society could not be verified. The CIT(E) further noted that the Society was stated to be doing a number of charitable activities as per its MOA and that the objects of the Society were very generalized.
The CIE(E) further noted that the financials showed payment of School Fees and the same was reflected in the bank statement too but no details such as fee receipts or other documentary evidences from the schools or photographs were filed by the applicant in support of the expenditure claimed in the Income & Expenditure Statement. Trustees and their family members were contributing the donations which went towards making FDRs.
As the internet search in the public domain did not reveal anything about the Society, in order to verify the genuineness of said activities, the Income Tax Officer (Exemptions), was deputed to carry out discreet enquiries, who submitted his report.
As per the report submitted by the ITO (Exemption), he deputed an income tax inspector who visited the premises mentioned in the address of the society and found that there was no signboard announcing the name of the society on any part of the building. There was no indication or sign of any other activity being carried out relating to the said society at the premises was noticed. At the premises, only other business shops were running at the ground floor of the building and the upper floor appeared to be residential part. The sign board of the shops bear the names of the members of the society.
In view of the above report, the CIT(E) noted that it was clear that the society exists only on paper and no actual work was being carried out by it and the members were running shops and the formation of Society was just an exercise to divert profits from the existing medical setup to a tax free entity under the garb of charity.
In view of these facts, the application filed by the applicant for registration u/s 12AB of the Act was rejected by the CIT(E).
The assessee challenged the order of the CIT(E) before Tribunal and contended that the CIT(E) was not justified to arbitrarily hold that the society exists only on papers and no actual work is being carried out by it. It was also contended that the order was against law and facts on the file in so far as to reject / cancel the registration us 12AB of the Act, particularly as the application was in respect of approval u/s 80G and not for registration u/s 12AB of the Act.
It was further argued by the assessee that the rejection was based on invalid discreet enquiries and without opportunity to the appellant to respond and clarify. The assessee relied upon the judgment of Hon’ble Punjab & Haryana High Court wherein, it was held that merely on one inspection, if the person is not found to be available at his place of office, a presumption cannot be drawn that the firm is not functional, more so when there have been transactions and the firm has been regularly filing its returns.
The Tribunal observed that the report of the ITO was based upon the Inspector’s report, who was stated to have visited the premises of the assessee and was stated to be attached with the ITO’s report but the same was not reproduced in the order of the CIT(E).
Further, the Tribunal noted that perusal of the order of the CIT(E), showed that the said ITO’s report and the Inspector’s report was never confronted to the assessee before rejecting the application for registration u/s 12AB of the Act, which was clearly against the principle of natural justice. Therefore, the order rejecting the application cannot be sustained.
Accordingly, the Tribunal and set-aside the order of the CIT(E) to and restored it back to his file with a direction to make available copy of the ITO’s report along with the attached Inspector’s report to the assessee and thereafter decide the matter afresh after giving reasonable opportunity of being heard to the assessee.
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