Specific notice required if CIT(Exemption) intends to travel beyond three years expenditure as prescribed in Rule 11AA(g) – ITAT
In a recent judgment, the ITAT Surat held that if CIT(Exemption) intends to travel beyond three years expenditure as prescribed in Rule 11AA(g), he should have issued specific show cause notice to the assessee
ABCAUS Case Law Citation:
4403 (2025) (02) abcaus.in ITAT
In the instant case, the appellant assessee had challenged order passed by the Commissioner of Income-tax (Exemptions) in rejecting approval of fund under section 80G(5) of the Income Tax Act, 1961 (the Act).
The appellant assessee was a “trust” created in the pre-Independence era in 1937. The assessee-trust was registered with Charitable Commissioner. The assessee was having valid registration under section 12A/12AB of the Act. In view of new provisions inserted by Finance Act, 2020, the assessee-trust filed application for registration of trust under section 12(a) of the Act and after due consideration assessee was allowed registration under section 12AB, which was valid upto five assessment years ending 2026-27.
The assessee applied for approval of trust u/s 80G of the Act in a prescribed form 10AD vide application along with application the assessee furnished required details. The CIT(E) issued show cause notice. In the show cause notice, the CIT(E) required expenditure related with the religious purpose incurred for last three financial years. In reply, assessee furnished all required details assessee also stated that activities of assessee-trust are in consonance with object of the trust. The assessee also furnished photograph showing the genuineness of such activities. The assessee stated that assessee-trust registered under section 12A from 1974 copy of registration was furnished. The CIT(E) after considering the submission of assessee held that earlier application of approval was rejected wherein it was noted that assessee incurred religious expenditure over and above the prescribed limit of 5% as define in Section 80G(5B) in two financial years.
The CIT(E) on the basis of aforesaid observation held that assessee was not established for charitable purpose nor its activities are genuine and rejected application under section 80G(5) of the Act.
Before the Tribunal, the assessee submitted that object and activities were duly verified and accepted while allowing registration under section 12A/12AB of the Act. While considering the application for approval, the CIT(E) was to require if the condition prescribed under Rule 11AA(2)(g) are fulfilled or not. AS per clauses (g) of sub-rule (2) of 11AA, the CIT(E) cannot go beyond the accounts of three preceding years.
The assessee furnished account of all three preceding years wherein there was no such violation. The assessee had not spent any amount for religious purpose in last three financial years. Thus, the order passed by CIT(E) was not in consonance with prescribed under Rule-11AA.
The Tribunal noted that there was no dispute that the assessee was having registration under section 12A/AB of the Act. For allowing approval of the fund, registration of assessee-trust under section 12A/AB is the primary condition. While considering the application for approval, the CIT(E) had to satisfy himself if the condition prescribed under Rule 11AA(2)(g) are fulfilled or not. As per clause (g) of sub-rule (2) of 11AA, the CIT(E) has to examines if there is any violation or the assessee has spent any amount for religious purpose in last three financial years. There is no such finding of CIT(E) about such violation of Rule 11AA(2)(g).
The Tribunal further observed that on perusal of expenditure account, which is part of audit report filed before Charity Commissioner, we find that the assessee-trust had not incurred any expenses for religious purpose in last three financial year. There was no dispute that assessee-trust was an old trust and having provisional approval upto assessment year 2023-24. The assessee was already allowed registration under section 12A/AB.
The Tribunal opined that the scope of inquiry of trust by the CIT(E) for approval of the institution is to be confined only to the finding out whether prescribed conditions are fulfilled. Such conditions are primarily fulfilled by the assessee. If the CIT(E) intends to travel beyond three years expenditure as prescribed in Rule 11AA(g) he should have issued specific show cause notice to the assessee, which admittedly, was not issued. So far as other observation of CIT(E) that on occasion, similar application of assessee was rejected, the Tribunal found that even for such grounds no specific show cause notice was issued to the assessee. Moreover, the assessee had applied afresh for approval and there is no legal bar in making fresh application for approval of funds, if the assessee subsequently fulfilled requisite condition of approval of funds.
The Tribunal restored the matter back to the file of the CIT(E) to allow approval under section 80G(5) to the assessee, if the assessee fulfilled all other conditions.
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