The Income Tax Appellate Tribunal, Mumbai, has clarified that delay in filing Form 10AB for regularization of provisional registration under Section 12AB of the Income-tax Act, 1961, is not fatal if the assessee demonstrates reasonable cause. The Tribunal emphasized that statutory provisions governing charitable institutions must be interpreted with a benevolent intent, and procedural lapses may be excused where substantive compliance is achieved.
Background & Facts
The Dispute
The appellant, Areion Foundation, a non-profit company registered under Section 8 of the Companies Act, 2013 on 20.10.2020, sought registration under Sections 12AB and 80G of the Income-tax Act, 1961, to claim tax exemptions for its charitable activities. It was granted provisional registration under Section 12AB via order dated 27.05.2021, valid from Assessment Year 2021-22 to 2023-24. The appellant was required to file Form 10AB for regularization of this provisional registration within six months of commencing activities, i.e., by 27.11.2021.
Key Facts
- The appellant filed Form 10AB on 22.09.2025, over 45 months after the prescribed deadline.
- The Commissioner of Income Tax (Exemption) rejected the application on two grounds: (i) delay in filing Form 10AB, and (ii) alleged violation of Section 11 due to an object clause in the Memorandum of Association (MoA) permitting application of funds outside India.
- A show cause notice dated 13.12.2025 was issued and responded to by the appellant.
- The MoA originally contained a clause permitting application of funds outside India for charitable purposes, though no such application had ever occurred.
- On 03.01.2026, the appellant amended its MoA to remove the clause permitting foreign fund application, and submitted the revised MoA before the Tribunal.
- The appellant cited two reasons for delay: (a) the COVID-19 pandemic during 2021, and (b) search and seizure operations by the Income-tax Department against ACAIPL Investment and Financial Services Pvt. Ltd. and other entities in the Areion Group, which led to prolonged assessments and appellate proceedings concluding only in March 2026.
Procedural History
- 20.10.2020: Areion Foundation incorporated under Section 8 of the Companies Act, 2013.
- 27.05.2021: Provisional registration granted under Section 12AB via Form 10AC, valid for AY 2021-22 to 2023-24.
- 22.09.2025: Form 10AB filed for regularization of provisional registration.
- 25.12.2025: CIT(E) rejected Form 10AB on grounds of delay and alleged violation of Section 11.
- 27.04.2026: Hearing before ITAT Mumbai.
- 30.04.2026: Judgment pronounced by ITAT Mumbai.
The Parties' Positions
For the Appellant
- The delay in filing Form 10AB was due to extraordinary circumstances: pandemic disruptions and ongoing litigation arising from search and seizure operations.
- The objection regarding foreign fund application was purely theoretical; no such funds were ever utilized abroad.
- The MoA was amended on 03.01.2026 to remove the objectionable clause, thereby curing the defect.
- Relied on Circular No. 7 of 2024 issued by CBDT, which extended timelines for compliance, and the newly inserted proviso to Section 12A(1)(ac) by the Finance (2) Act, 2024, empowering PCIT/CIT(A) to condone delay for reasonable cause.
For the Respondent
- The application for regularization under Section 12AB was filed 45 months after the statutory deadline, rendering it non-maintainable.
- The object clause in the MoA, even if unutilized, constituted a statutory disqualification under Explanation to Section 12AB(4).
- No application for condonation of delay was made before CIT(E), and the Tribunal cannot entertain it for the first time.
Relief Sought
The appellant sought: (i) setting aside of the CIT(E) order dated 25.12.2025 rejecting Form 10AB; (ii) restoration of provisional registration under Section 12AB; (iii) consequential approval under Section 80G; and (iv) remittal of the matter for fresh adjudication with opportunity to be heard.
The Legal Issue
Can the delay in filing Form 10AB for regularization under Section 12AB be condoned under the newly inserted proviso to Section 12A(1)(ac) of the Income-tax Act, 1961, and does the mere inclusion of an object clause permitting application of funds outside India in the MoA constitute a disqualification under Section 12AB(4), even in the absence of actual foreign fund application?
Arguments Presented
For the Appellant
The appellant relied on the proviso to Section 12A(1)(ac), inserted by the Finance (2) Act, 2024 with effect from 01.10.2024, which empowers the PCIT/CIT(A) to condone delay in filing Form 10AB if reasonable cause is shown. It submitted that the pandemic and ongoing tax litigation constituted valid reasons for delay. Further, it argued that the object clause in the MoA was not operative and had been amended before the Tribunal’s hearing, thereby removing the ground of rejection. It cited CIT v. Shri Ram Trust and CIT v. Sankalp Charitable Trust to support the principle that literal interpretation of object clauses without regard to actual conduct is contrary to the benevolent purpose of charitable exemptions.
For the Respondent
The respondent contended that the statutory deadline under Section 12AB is mandatory and non-negotiable. It argued that the Finance (2) Act, 2024, being prospective, could not apply to an application filed in September 2025 for a registration period ending in 2023-24. It further maintained that the presence of the objectionable clause in the MoA, regardless of actual use, rendered the entity ineligible under Explanation to Section 12AB(4), and that the Tribunal could not entertain a belated amendment for the first time.
The Court's Analysis
The Tribunal examined the statutory framework governing provisional and regular registration under Sections 12AB and 12A. It noted that the Finance (2) Act, 2024, introduced a crucial change: a proviso to Section 12A(1)(ac) empowering PCIT/CIT(A) to condone delay in filing Form 10AB if reasonable cause is established. The Tribunal held that this provision, though enacted after the filing of Form 10AB, was procedural in nature and applicable to pending applications.
"The insertion of the proviso to Section 12A(1)(ac) is a remedial provision intended to prevent hardship to genuine charitable institutions due to inadvertent delays. It reflects legislative intent to adopt a pragmatic approach, not a rigid one."
The Tribunal further observed that the objection regarding foreign fund application was based on a theoretical possibility, not actual conduct. The appellant had not utilized any funds abroad, and had proactively amended its MoA on 03.01.2026 to remove the objectionable clause. The Tribunal held that the CIT(E) had not considered this amendment, which was placed before it for the first time during the appeal.
The Tribunal emphasized that charitable institutions are governed by public trust principles, and strict adherence to procedural timelines must be balanced against substantive compliance. It held that the CIT(E) had erred in rejecting the application without considering the possibility of condonation under the new proviso, and without evaluating the amended MoA.
The Verdict
The appeals were allowed for statistical purposes. The Tribunal set aside the CIT(E) order dated 25.12.2025 and remitted both matters - registration under Section 12AB and consequential approval under Section 80G - to the file of the CIT(E) for de novo adjudication. The CIT(E) was directed to consider the application for condonation of delay under the proviso to Section 12A(1)(ac), and to evaluate the amended MoA submitted on 03.01.2026. The appellant was granted a reasonable opportunity to be heard and directed to attend all future hearings without seeking adjournments unless compelled by extraordinary circumstances.
What This Means For Similar Cases
Condonation of Delay Is Now Statutorily Recognized
- Practitioners must now argue for condonation of delay in filing Form 10AB under the proviso to Section 12A(1)(ac), even if the delay occurred before the amendment’s effective date (01.10.2024), provided the application was pending.
- Reasonable cause includes pandemic disruptions, ongoing litigation, or administrative delays beyond the assessee’s control.
- Applications previously rejected solely on delay grounds may be revived through fresh applications for condonation.
Object Clause Amendments Can Cure Disqualification
- Mere inclusion of an object clause permitting foreign fund application does not automatically disqualify an entity under Section 12AB(4) if no such funds were ever utilized.
- Timely amendment of the MoA to remove objectionable clauses before final adjudication can cure the defect and must be considered by the authority.
- Authorities cannot reject applications on speculative grounds; actual conduct and subsequent rectification must be evaluated.
Procedural Fairness Trumps Technicality in Charitable Exemptions
- The Tribunal reaffirmed that exemptions under Sections 12AB and 80G are granted for public benefit and must be interpreted liberally.
- Denial of registration on purely procedural grounds without opportunity to cure defects violates principles of natural justice.
- Authorities must provide a meaningful opportunity to rectify deficiencies before rejecting applications.
