Tax Exemption Denied u/s 12AB Due to Lack of Proof of Charitable Activities: ITAT Orders Fresh Review [Read Order]

The Dehradun Bench of Income Tax Appellate Tribunal (ITAT), has set aside the rejection of a tax exemption registration under Section 12AB of the Income Tax Act, 1961, and directed a fresh hearing. 

The assessee Uttarakhand Civil Aviation development Authority is an entity engaged in developing tourism infrastructure, constructing helipads, and conducting emergency rescue operations in Uttarakhand. The organization had previously applied for registration under Section 12A, which was rejected in 2016 by the Commissioner of Income Tax (Exemptions) [CIT(E)]. However, in 2018, the ITAT Lucknow Bench ruled in favor of the assessee, directing the CIT(E) to grant the registration.

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Later, the organization applied for registration under Section 12AB in 2022, which was again denied by the CIT(E), stating doubts over the genuineness of its charitable activities. The rejection was based on the assessee’s failure to respond to specific queries from the department. 

Aggrieved by this, the organization filed an appeal before the ITAT where the authorized representative for the assessee argued that the ITAT had already ruled in 2018 that the organization’s activities were charitable in nature and aligned with public utility services. This previous ruling was binding and should have been considered by the CIT(E) before rejecting the Section 12AB application.

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The AR further asserted that the organization was engaged in infrastructure development for tourism, construction of helipads, and disaster relief operations, which are essential public utility functions that qualify as charitable activities under the Income-tax Act. It was asserted that the rejection was based solely on failure to respond to queries, rather than an actual evaluation of its charitable work. The CIT(E) had not assessed whether the organization continued to meet the legal criteria for tax exemption.

The department representative (DR) argued that the organization did not provide required clarifications or documents when the CIT(E)called for additional details. This lack of response cast doubt on the genuineness of its charitable activities. The burden was on the assessee to establish its charitable status, and simply relying on the 2018 ITAT ruling was insufficient. The CIT(E) needed fresh confirmation that the entity’s operations had not changed. The DR further asserted that since the organization was formed by a government order, its nature of operations might have changed  over time, which necessitates a fresh scrutiny before granting tax exemption under Section 12AB. The DR states that The CIT(E) had valid reasons to deny the application, as there was no response from the assessee, creating doubts about transparency and eligibility.

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The tribunal examined the arguments put forth by both parties and asserted that the 2018 ITAT ruling had already determined the organization’s activities as charitable, yet the CIT(E) ignored this while rejecting the Section 12AB application. The Tribunal observed that the rejection was not based on an assessment of the organization’s actual activities but was solely due to non-response to queries. The ITAT held that such a rejection was unjustified.

The tribunal noted that the assessee must be given a fair opportunity to present its case before being denied tax benefits. The CIT(E)’s failure to engage meaningfully with the assessee amounted to a violation of procedural fairness. 

The ITAT bench, comprising Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member), set aside the CIT(E)’s rejection order and directed the CIT(E) to conduct a fresh hearing and provide a fair opportunity to the assessee to present its case and respond to queries.

To Read the full text of the Order CLICK HERE

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