CIT(E) Rejects Trust’s Registration Regularisation Filed Under Incorrect Provision due to Portal Issue Without SCN: ITAT remands Case [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, remanded the case of a charitable trust, back to the Commissioner of Income Tax (Exemptions) [CIT(E)] after holding that the rejection of the trust’s registration application, solely on the basis of quoting an incorrect provision due to technical limitations in the online portal, and without issuing a show cause notice, was unsustainable in law.

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The trust had applied for regularisation of registration under Section 12A of the Income Tax Act, 1961, using Form 10AB. However, due to a glitch in the income tax e-filing portal, it was unable to select the correct applicable clause under Section 12A(1)(ac)(iii), and was instead forced to file under an incorrect Section 12A(1)(ac)(vi)(B).

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Despite the trust’s prior communication to the CPC, Bengaluru, regarding this technical issue, no corrective assistance was provided. Eventually, the CIT(E) rejected the application by order dated 27.09.2024, citing the wrong provision as the sole ground.

The trust argued that no show cause notice (SCN) was ever issued highlighting the alleged procedural error, and that the rejection was passed without affording it any opportunity to be heard, violating the principles of natural justice.

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The ITAT found merit in the trust’s contention and observed that the error was procedural, not substantive, and had occurred due to constraints beyond the assessee’s control.

The bench stated that when no SCN is issued and the assessee is not informed of the specific deficiency in its application, an outright rejection is legally flawed. It also noted that the trust had already amended its trust deed to rectify earlier objections and had taken due steps to comply with the requirements.

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The two member bench of Ms. Padmavathy S. (Accountant member) and Anikesh Banerjee (Judicial member) held that procedural irregularities, particularly when caused by system constraints, should not defeat substantive claims.

Accordingly, the tribunal directed the CIT(E) to treat the trust’s application as filed under the correct provision Section 12A(1)(ac)(iii) and to re-adjudicate the matter afresh after giving the trust a fair opportunity of being heard. The Tribunal also remanded the related appeal under Section 80G(5) of Income tax act for reconsideration on similar lines.

To Read the full text of the Order CLICK HERE

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