The Income Tax Appellate Tribunal (ITAT), Rajkot Bench, has underscored the fundamental principle of natural justice in proceedings under Section 12AB of the Income Tax Act. In two parallel appeals, the Tribunal set aside orders of the Commissioner of Income Tax (Exemption) denying registration to trusts on grounds of inadequate opportunity for compliance. The judgment reaffirms that statutory authorities must provide reasonable opportunities for assessees to substantiate their claims, particularly in registration proceedings where procedural fairness is paramount.
Background & Facts
The Dispute
The appeals involve two trusts, Rogi Kalyan Samiti Bagasara and Rogi Kalyan Samiti Rajula, both of which sought registration under Section 12AB of the Income Tax Act, 1961. Registration under this provision grants tax exemptions to trusts engaged in charitable or religious activities, subject to compliance with statutory requirements. Both trusts filed applications in Form No. 10AB, the prescribed form for registration under the Act.
Key Facts
Rogi Kalyan Samiti Bagasara (ITA No. 593/Rjt/2026)
- The trust filed an application for registration under Section 12AB on an unspecified date.
- The Commissioner of Income Tax (Exemption) [CIT(E)] issued a notice on 21.02.2026, calling for details to verify the genuineness of the trust's activities and their alignment with its objects.
- The trustees failed to comply with the notice, citing difficulties in accessing the email account and lack of familiarity with online procedural requirements.
- The CIT(E) rejected the application vide order dated 08.03.2026, also cancelling the provisional registration previously granted.
Rogi Kalyan Samiti Rajula (ITA No. 594/Rjt/2026)
- The trust filed a similar application for registration under Section 12AB.
- The CIT(E) provided a single opportunity for hearing on 29.11.2025 but received no compliance from the trust.
- The CIT(E) rejected the application vide order dated 07.03.2026.
Procedural History
- Unspecified Date: Both trusts filed applications for registration under Section 12AB in Form No. 10AB.
- 21.02.2026: CIT(E) issued notice to Rogi Kalyan Samiti Bagasara for compliance.
- 29.11.2025: CIT(E) provided a hearing opportunity to Rogi Kalyan Samiti Rajula.
- 07.03.2026: CIT(E) rejected the application of Rogi Kalyan Samiti Rajula.
- 08.03.2026: CIT(E) rejected the application of Rogi Kalyan Samiti Bagasara and cancelled its provisional registration.
- Unspecified Date: Both trusts filed appeals before the ITAT Rajkot Bench.
- 20.05.2026: Hearing conducted before the ITAT Rajkot Bench.
- 12.06.2026: Judgment pronounced, setting aside the CIT(E) orders and remanding the matters for fresh consideration.
Relief Sought
Both appellants sought:
- Setting aside of the CIT(E) orders dated 07.03.2026 and 08.03.2026.
- Grant of registration under Section 12AB of the Act.
- Another opportunity to comply with the CIT(E)'s requirements and produce necessary documents.
The Legal Issue
The central question before the ITAT was whether the CIT(E) violated the principle of natural justice by rejecting the trusts' applications for registration under Section 12AB after providing only a single opportunity for compliance, particularly when the assessees demonstrated difficulties in adhering to procedural requirements.
Arguments Presented
For the Appellant
Shri Kalpesh Doshi, the learned Authorised Representative (AR) for both trusts, contended:
- The CIT(E) provided only one opportunity for compliance (on 21.02.2026 for Bagasara and 29.11.2025 for Rajula), which was insufficient to satisfy the requirements of natural justice.
- The trustees were not regular in accessing the email account through which the notice was sent, and they lacked familiarity with online procedural requirements.
- The rejection of the applications without affording another opportunity to comply was arbitrary and unjust.
- The AR requested that the matters be remanded to the CIT(E) for another opportunity to be heard.
For the Respondent
Shri Sanjay Punglia, the learned Commissioner of Income Tax-Departmental Representative (CIT-DR), did not oppose the request for remand. He submitted that the CIT(E) could consider the matter afresh if another opportunity were granted to the assessees.
The Court's Analysis
The ITAT examined the procedural history and the principles governing natural justice in administrative proceedings. The Tribunal observed:
"The interest of natural justice cannot be served by rejecting the application by allowing only one opportunity."
The Tribunal emphasized that Section 12AB registration proceedings are not merely administrative but quasi-judicial in nature, requiring adherence to principles of fairness and equity. The CIT(E), as a statutory authority, must ensure that assessees are given a reasonable opportunity to present their case, particularly when they demonstrate genuine difficulties in compliance.
The ITAT relied on the well-established legal principle that natural justice demands more than a single opportunity for compliance, especially in cases where assessees may face practical challenges in adhering to procedural requirements. The Tribunal noted that the trusts' inability to comply was not willful but stemmed from a lack of familiarity with online procedures and difficulties in accessing communication channels.
The Tribunal also distinguished this case from scenarios where assessees deliberately evade compliance. Here, the trusts had expressed their willingness to comply but required another opportunity to do so. The ITAT held that denying such an opportunity would amount to a denial of justice, particularly when the stakes involved the grant of tax-exempt status under Section 12AB.
The Verdict
The ITAT allowed both appeals for statistical purposes and set aside the orders of the CIT(E) dated 07.03.2026 and 08.03.2026. The Tribunal remanded the matters to the file of the CIT(E) with the following directions:
- The CIT(E) shall provide another opportunity of being heard to both trusts.
- The trusts shall comply with the CIT(E)'s requirements and produce all necessary documents and evidence.
- The CIT(E) shall reconsider the applications for registration under Section 12AB in accordance with the principles of natural justice.
What This Means For Similar Cases
Natural Justice Requires Adequate Opportunity
This judgment reinforces the principle that statutory authorities must provide more than a single opportunity for compliance in quasi-judicial proceedings, particularly when assessees demonstrate genuine difficulties. Practitioners should:
- Argue for remand in cases where the assessee's non-compliance is not willful but stems from procedural unfamiliarity or technical challenges.
- Highlight the quasi-judicial nature of Section 12AB proceedings, which necessitates adherence to principles of fairness.
Procedural Fairness in Registration Proceedings
- Section 12AB registration is not a mere formality but a substantive right that impacts an entity's tax-exempt status. Authorities must ensure that assessees are given a fair chance to substantiate their claims.
- The judgment serves as a precedent for challenging orders passed without adequate opportunity, even in cases where the assessee's initial compliance was lacking.
Practical Takeaways for Trusts and Practitioners
- Documentary Compliance: Trusts must ensure that all communications from the tax authorities are promptly addressed. Maintaining records of notices and responses is critical.
- Legal Representation: Engaging legal representatives familiar with online procedural requirements can prevent inadvertent non-compliance.
- Remand Strategy: Where non-compliance is not willful, practitioners should seek remand to the lower authority for another opportunity, citing this judgment as precedent.
