The Surat bench of the Income Tax Appellate Tribunal ( ITAT ) held in a recent case that substantial justice should be prioritised over procedural technicalities. The appellant-assessee Medical College Development Society (MCDS) filed an appeal against the order of the Commissioner of Income Tax (Exemption) [CIT(E)] passed under section 80G(5) of the Income Tax Act 1961, rejecting the application for approval of funds dated 27.05.2023.
The Authorized representative for the assessee submits that the order was passed by the CIT(E) on 27.05.2023, and this appeal was filed before the tribunal on 29.03.2024. A defect memo wаs issued fоr thе delаy, аnd thе аssessee аррlied fоr condonаtion, supportеd by аn аffidаvit from Dr. Rаgini Vermа, а prоfessоr аt thе trust’s medicаl college. The application was denied by CIT(E) because it was past due, claiming it should have been submitted by September 30, 2022, as per the circular N0.8/2022 of the Central Board of Direct Taxes (CBDT). After that, on November 28, 2023, the assessee submitted a rectification request under Section 154, claiming that the initial application for clearance was timely and asking for the apparent error to be fixed.
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Тhe AR submitted thаt thе trust, set uр by thе Stаte Government tо providе medicаl educаtiоn, hаs а vаlid registrаtion under sеction 12AB of the Act. Тhe аppeаl wаs delаyed due tо thе belief thаt thе trust’s аpplicаtion fоr provisionаl аpprovаl under sеction 80G(5) wаs within thе time limit, аs thе provisionаl аpprovаl wаs grаnted fоr thе yeаrs 2021-22 tо 2023-24.Тhe AR аrgued thаt when technicаlities аnd justiсe аre in conflict, substаntiаl justiсe shоuld be prioritizеd.
The trust applied for section 80G registration on May 24, 2023, which was timely because it was submitted before the 2023–2024 assessment year deadline. The AR reaffirmed that the section 80G application for permission was still valid and was to be approved. The AR also argued that the assessee pursued a rectification application under Section 154 after the initial rejection; therefore, the delay was neither intentional nor negligent, as they had resorted to alternative remedies to rectify such procedural lapses.
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The Departmental Representative of the Revenue maintained that the CIT(E)’s rejection of the application was correct as it was filed beyond the extended deadline of September 30, 2022, as per Circular No 8/2022. The DR submitted that this made the application unmaintainable. The DR also submitted that MCDS delayed filing the rectification applications under section 154 and the appeal before the ITAT. The DR argued that compliance with statutory timelines is mandatory as such deadlines are put in place for specific legislative purposes, and the non-compliance of such deadlines will be a setback for such purposes. The Revenue also held that Circular No.7/2024 of the CBDT, which extended the filing deadline to June 30 2024, will not apply retrospectively to cases already in adjudication on matters regarding earlier deadlines.
After hearing both sides, the Tribunal observed that Section 80G(5) provisions allowed the application to be filed within the required Six-Month period before the expiry of provisional approval. The Medical College Development Society’s provisional approval was valid until the end of the 2023-24 Assessment Years, and therefore, filing for regular approval by September 30/2023 was permitted. The tribunal held the application to be timely and not barred by the CBDT circular. The Tribunal also observed that MCDS had taken steps to rectify the delay under Section 154 in good faith.
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The Tribunal also held that Circular No.7/2024, issued after the rejection of MCDS’s application and extending the deadline for such filings to June 30, 2024, applied to this instant case as the major objective of such circular was to foster fairness and justice.
The Tribunal observed that MCDS was a government-affiliated trust that conducted regular charitable activities and had fulfilled all conditions necessary for approval under Section 80G(5) of the Act. The tribunal held that substantial justice should be weighed over procedural technicalities. Rejecting their application on procedural grounds alone would overpower the principles of justice and equity.
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The two-member bench, consisting of Pawan Singh, the Judicial Member, and Bijayananda Pruseth, the Accountant Member, approved MCDS under Section 80G(5), enabling them to continue to have their tax-exemption status. The tribunal asserted the need to balance procedural compliance and the law’s objective of promoting public welfare.
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