Section 12AB & 80G IT Act | Single Opportunity for Compliance Violates Natural Justice : ITAT Ahmedabad

The Income Tax Appellate Tribunal (ITAT), Ahmedabad, has underscored the importance of natural justice in registration proceedings under Section 12AB and Section 80G(5) of the Income Tax Act. The Tribunal set aside orders denying registration to a trust, holding that rejection based solely on procedural non-compliance, without affording adequate opportunity to the assessee, is arbitrary and unsustainable. The matter has been remanded for fresh adjudication, marking a critical precedent on the scope of procedural fairness in tax registration disputes.

Background & Facts

The Dispute

The appellant, Shri Mewada Suthar Seva Samaj, a trust registered under the Income Tax Act, filed applications in Form No. 10AB seeking registration under Section 12AB and approval under Section 80G(5)(iii) of the Act. The Commissioner of Income Tax (Exemption), Ahmedabad (Ld. CIT(E)), issued a single opportunity of hearing for both applications but rejected them ex-parte on 09.03.2026, citing non-submission of requisite documents. The provisional registration previously granted under Section 12AB was also cancelled.

Key Facts

• The trust filed applications for registration under Section 12AB and Section 80G(5)(iii) of the Act.
• Ld. CIT(E) issued a single opportunity of hearing on 19.03.2026 for the Section 80G application and an unspecified date for the Section 12AB application.
• The trust failed to respond to the notice, leading to ex-parte rejection of both applications on 09.03.2026.
• The rejection order did not examine the genuineness of the trust’s activities or its compliance with statutory objects.
• The trust had earlier held valid registration under Section 12A, granted after due verification.

Procedural History

• Application filed: Form No. 10AB for Section 12AB and Section 80G(5) registration (dates not specified).
• Opportunity of hearing: Single opportunity granted by Ld. CIT(E) (date for Section 12AB not specified; 19.03.2026 for Section 80G).
• Rejection order: 09.03.2026 - Both applications rejected ex-parte.
• Appeal filed: ITA Nos. 1420 & 1421/Ahd/2026 before ITAT Ahmedabad.
• Hearing date: 09.06.2026.
• Order pronounced: 12.06.2026 - Appeals allowed for statistical purposes; matter remanded.

The Parties' Positions

For the Appellant (Trust)

The trust contended that:

• The rejection violated principles of natural justice, as it was passed without granting an adequate and effective opportunity of being heard.
• The rejection was arbitrary, based solely on technical non-compliance without examining existing records or prior registration.
• Ld. CIT(E) failed to appreciate that the trust already held valid registration under Section 12A, granted after due verification.
• There was no adverse finding on the genuineness of the trust’s activities or their compliance with the trust’s objects.
• The scope of Section 12AB is limited to examining:
  • The objects of the trust, and
  • The genuineness of its activities. The rejection without such examination was ultra vires the statutory framework.
• The order was mechanical, passed without application of mind or independent verification.
• The consequences of rejection (including potential liability under Section 115TD) were disproportionate and unjustified.

For the Respondent (Revenue)

The Ld. CIT-DR supported the orders passed by Ld. CIT(E) but did not object to remanding the matter for fresh adjudication.

Relief Sought

The appellant prayed for:

• Restoration of registration under Section 12A and approval under Section 80G, or
• Remand of the matter to Ld. CIT(E) for fresh consideration with adequate opportunity.

The Legal Issue

The central question before the ITAT was whether rejection of registration under Section 12AB and Section 80G(5) of the Income Tax Act, based solely on procedural non-compliance without affording the assessee an adequate opportunity of being heard or examining the genuineness of the trust’s activities, violates principles of natural justice and is arbitrary and unsustainable.

Arguments Presented

For the Appellant

1. Violation of Natural Justice: The rejection was passed ex-parte without granting the trust a fair opportunity to present its case, thereby violating principles of natural justice.
2. Arbitrary Rejection: The rejection was based solely on non-filing of documents, without examining the trust’s existing records or its prior registration under Section 12A.
3. No Adverse Finding on Genuineness: Ld. CIT(E) failed to establish that the trust’s activities were non-genuine or not in accordance with its objects.
4. Ultra Vires Scope of Section 12AB: The rejection exceeded the limited scope of Section 12AB, which only permits examination of the objects of the trust and the genuineness of its activities.
5. Mechanical Order: The impugned order was passed without application of mind or independent verification of the trust’s claims.
6. Disproportionate Consequences: The rejection could trigger adverse consequences under Section 115TD, which were excessive and unjustified given the lack of substantive findings.

For the Respondent

The Ld. CIT-DR supported the Ld. CIT(E)’s orders but did not oppose remanding the matter for fresh adjudication.

The Court's Analysis

The ITAT carefully examined the facts of the case and the material on record, noting the following key observations:

1. Inadequate Opportunity: The Ld. CIT(E) granted only a single opportunity of hearing to the trust, which was insufficient to establish procedural fairness. The rejection was passed ex-parte without ensuring the trust had a realistic chance to comply with the requirements.

2. Procedural Non-Compliance vs. Substantive Genuineness: The Tribunal emphasized that while procedural non-compliance (such as non-filing of documents) can be a ground for rejection, it cannot be the sole basis for denying registration. The statutory framework under Section 12AB and Section 80G(5) mandates an examination of:

   • The objects of the trust, and
   • The genuineness of its activities. The Ld. CIT(E) failed to conduct this substantive examination, rendering the rejection arbitrary.

3. Prior Registration Under Section 12A: The Tribunal noted that the trust had earlier been granted registration under Section 12A after due verification. This prior registration was not considered by Ld. CIT(E), which further underscored the lack of application of mind in the impugned order.

4. Violation of Natural Justice: The ITAT held that the ex-parte rejection without affording the trust an adequate opportunity to be heard violated principles of natural justice. The Tribunal relied on the well-established legal principle that no order adversely affecting a party can be passed without giving them a fair hearing.

5. Remand as a Remedy: Given that the rejection was primarily due to want of supporting documentary evidence and not on substantive grounds, the ITAT deemed it appropriate to remand the matter for fresh adjudication. The Tribunal directed that the trust be granted another opportunity to furnish all relevant documents and explanations, and that Ld. CIT(E) pass a speaking order after affording the trust adequate opportunity of being heard.

"Considering the facts and circumstances of the case and keeping in view that the rejection has been made primarily for want of supporting documentary evidence and only one opportunity of hearing given to the Assessee Trust, we are of the considered view that one more opportunity deserves to be granted to the Assessee Trust to place all relevant material before the Ld. CIT(E). Therefore, in the interest of substantial justice and without expressing any opinion on the merits of the claim of the assessee, we deem it appropriate to set aside the impugned orders and restore the matter to the file of the Ld. CIT(E) for fresh adjudication."

The Verdict

The ITAT allowed the appeals for statistical purposes, setting aside the impugned orders dated 09.03.2026 passed by Ld. CIT(E). The matter was restored to the file of Ld. CIT(E) for de novo consideration. The Tribunal directed:

• The trust shall furnish all documents, explanations, and evidences as may be called for by Ld. CIT(E).
• The trust shall fully cooperate in the registration proceedings.
• Ld. CIT(E) shall afford the trust adequate opportunity of being heard.
• Ld. CIT(E) shall pass a speaking order in accordance with law.

What This Means For Similar Cases

Natural Justice Is Non-Negotiable in Registration Proceedings

• Adequate Opportunity Is Mandatory: Authorities cannot reject registration applications under Section 12AB or Section 80G(5) based solely on procedural non-compliance without affording the assessee multiple opportunities to rectify deficiencies. A single opportunity is insufficient to establish fairness.
• Ex-Parte Orders Are Vulnerable: Orders passed without adequate opportunity of hearing are liable to be set aside, as they violate principles of natural justice. Practitioners should challenge such orders on the ground that they are arbitrary and unsustainable.

Substantive Examination Prevails Over Procedural Lapses

• Genuineness of Activities Must Be Assessed: Rejection under Section 12AB or Section 80G(5) cannot be based solely on non-filing of documents. The authority must examine:
  • Whether the objects of the trust are compliant with the Act, and
  • Whether the activities of the trust are genuine and in accordance with its objects.
• Prior Registration Is Relevant: If the trust has earlier held valid registration under Section 12A, this should be considered as prima facie evidence of its genuineness. Authorities cannot ignore prior verification.

Remand Is a Viable Remedy for Procedural Deficiencies

• Remand for Fresh Adjudication: Where rejection is based on procedural lapses rather than substantive non-compliance, tribunals are likely to remand the matter for fresh consideration. Practitioners should argue for remand where:
  • The assessee was not given adequate opportunity, or
  • The order lacks application of mind or reasoned findings.
• Speaking Order Requirement: Authorities must pass speaking orders that address all contentions raised by the assessee. Orders that are mechanical or non-reasoned are liable to be set aside.

Consequences of Rejection Are Severe

• Section 115TD Liability: Rejection of registration can trigger adverse tax consequences under Section 115TD, including taxation of accreted income. Practitioners must highlight the disproportionate impact of rejection where no adverse findings on genuineness exist.