Facts of the Case

The assessee, Mangal Jivan Trust, a charitable trust located at Sedrana, District Patan, filed its return of income for Assessment Year 2023-24 declaring Nil income after claiming exemption under Sections 11 and 12 of the Income-tax Act. The trust held a valid registration under Section 12A for the relevant period.

The assessment was reopened and completed under Section 147, wherein the Assessing Officer denied exemption under Sections 11 and 12 and assessed income at ₹18,23,367. The denial was based on non-furnishing of information relating to payments towards fixed assets and payments to specified persons.

On appeal, the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi confirmed the assessment order. The appeal was dismissed for non-prosecution as the assessee did not respond to notices issued during appellate proceedings.

Issues Involved

Whether exemption under Sections 11 and 12 could be denied to a trust holding valid registration under Section 12A without granting an opportunity of hearing, whether non-furnishing of certain details justified denial of exemption of the entire income, and whether the matter required restoration for fresh adjudication.

Petitioner’s Arguments

The assessee submitted that it is a small charitable trust located in a remote village with limited resources and that the trustees were unaware of technical income-tax procedures. It was argued that exemption was denied and confirmed without hearing the assessee at any stage. The assessee contended that it held a valid registration under Section 12A and had applied the entire income for charitable purposes in accordance with its objects. It was pleaded that the assessee was in a position to substantiate its claim if an opportunity was granted.

Respondent’s Arguments

The Revenue fairly conceded that the disallowance was made without hearing the assessee. However, it was argued that the assessee failed to cooperate during both assessment and appellate proceedings and therefore did not deserve a second opportunity.

Court Order / Findings

The ITAT Ahmedabad observed that the assessment was framed and exemption under Sections 11 and 12 was denied without hearing the assessee at all, a fact not disputed by the Revenue. The Tribunal noted that the Assessing Officer himself recorded that the assessee held a valid registration under Section 12A and was eligible to claim exemption to the extent income was applied for charitable purposes.

The Tribunal held that denial of exemption of the entire income merely due to non-furnishing of certain details, without granting an opportunity of hearing, was not in accordance with law. At the same time, the Tribunal took note of the casual approach of the assessee in not responding during assessment and appellate proceedings.

Balancing the principles of natural justice with procedural discipline, the Tribunal set aside the orders of the lower authorities and restored the matter to the file of the Assessing Officer for fresh adjudication after granting opportunity of hearing. A cost of ₹2,000 was imposed on the assessee, payable to the Prime Minister’s National Relief Fund, as a condition precedent for reconsideration.

Important Clarification

The Tribunal clarified that a charitable trust holding valid registration under Section 12A cannot be denied exemption under Sections 11 and 12 without proper examination of application of income and without affording an opportunity of hearing. Procedural lapses by the assessee may be addressed by imposing cost, but substantive rights cannot be denied without due process.

Final Outcome

The appeal filed by the assessee was allowed for statistical purposes. The assessment order denying exemption under Sections 11 and 12 was set aside, and the matter was restored to the file of the Assessing Officer for fresh adjudication, subject to payment of cost of ₹2,000 by the assessee to the Prime Minister’s National Relief Fund.

 

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