The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has set aside an order of the Commissioner of Income Tax (Exemptions) [CIT(E)] rejecting the application of Dawoodi Bohra Jamat for regular registration under Section 12AB of the Income Tax Act and cancelling its provisional registration and held that before denying registration with serious civil consequences, the tax authorities must provide the trust with a fair, effective, and meaningful opportunity to explain its case.
The Bench of Amit Shukla (Judicial Member) and Arun Khodpia (Accountant Member) acknowledged that the CIT(E) is legally empowered to examine the objects of the trust, the genuineness of its activities, and statutory compliance while deciding an application under Section 12AB.
The assessee, Dawoodi Bohra Jamat, is a religious trust constituted in 1953 and registered under the Maharashtra Public Trusts Act. It had been granted provisional registration under Section 12AB with effect from May 27, 2021. Upon the expiry of the provisional registration, the trust filed Form No. 10AB on June 4, 2024, seeking regular registration under Section 12AB.
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During the processing of the application, the CIT(E) issued multiple notices seeking information regarding the trust’s objectives, activities, beneficiaries, and compliance with statutory requirements. A detailed show cause notice dated November 23, 2024, highlighted various deficiencies and called upon the trust to explain why its application should not be rejected. Eventually, by an order dated December 10, 2024, the CIT(E) rejected the application and simultaneously cancelled the provisional registration already granted to the trust.
The Commissioner found that the trust had failed to establish the genuineness of its charitable and religious activities.
According to the order, the trust did not furnish a proper description of activities actually undertaken; dates and places where such activities were carried out; details of beneficiaries and the manner of their identification; and supporting documentary evidence such as bills, invoices, vouchers, photographs, newspaper reports, or other credible material substantiating the activities.
The CIT(E) also observed that the trust’s objects appeared, prima facie, to be intended for the benefit of a particular religious community rather than the public at large. Since the alleged deficiencies remained unexplained, the Commissioner concluded that the statutory satisfaction required under Section 12AB regarding the genuineness of activities could not be recorded.
Although no one appeared on behalf of the assessee during the Tribunal hearing, the ITAT examined the statement of facts accompanying the appeal.
The trust contended that the crucial show cause notice dated November 23, 2024, had been sent to the email address of its former manager, who was no longer associated with the trust. Consequently, the trustees never became aware of the notice and were deprived of the opportunity to furnish explanations and supporting documents.
The assessee further stated that it possessed all the necessary records relating to its activities, beneficiaries, and supporting evidence, but could not produce them because the notice had never come to the knowledge of the trustees.
However, the Tribunal emphasized that the satisfaction required under the provision must be arrived at only after providing the applicant with a real and meaningful opportunity to respond to the allegations contained in the show cause notice.
The Bench observed that rejection of registration under Section 12AB carries serious civil consequences because it directly affects a trust’s entitlement to claim exemption under the Income Tax Act. Therefore, strict adherence to the principles of natural justice is indispensable before passing an adverse order.
Considering the trust’s explanation that the show cause notice had been sent to the email address of a former manager rather than the trustees, the Tribunal held that the matter deserved reconsideration.
The Bench noted that both the genuineness of the trust’s activities and the interpretation of its objects required detailed factual examination after considering the documents and explanations that the assessee intended to produce.
Accordingly, the Tribunal set aside the impugned order and restored the matter to the file of the CIT(E) for fresh adjudication in accordance with law.
The Tribunal directed the Commissioner to examine all documentary evidence and explanations furnished by the trust; consider both the objects of the trust and the genuineness of its activities in accordance with law; and pass a reasoned (speaking) order after granting an adequate and effective opportunity of hearing.
The Tribunal also directed the assessee to fully cooperate during the fresh proceedings and furnish all documents and evidence sought by the tax authorities without seeking unnecessary adjournments.
Allowing the appeal for statistical purposes, the Mumbai ITAT remanded the matter to the CIT(E) for fresh consideration, reaffirming that compliance with the principles of natural justice is an essential prerequisite before rejecting a trust’s application for registration under Section 12AB of the Income Tax Act.
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