Dehradun ITAT Sets Aside 12AB Tax Exemption Rejection, Orders New Hearing

The Dehradun Bench of the 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 ordered a fresh hearing.

The Uttarakhand Civil Aviation Development Authority is a taxpayer engaged in developing tourism infrastructure, constructing helipads, and conducting emergency rescue operations in Uttarakhand.

Previously, the organization applied for registration under section 12A, which was denied in 2016 by the Commissioner of Income Tax (Exemptions) [CIT(E)]. However, in 2018, the Lucknow Bench of the Income Tax Appellate Tribunal (ITAT) ruled in favour of the taxpayer, instructing the CIT(E) to grant the registration.

Subsequently, the organization applied for registration u/s 12AB in 2022, which was again refused by the CIT(E), citing doubts about the genuineness of its charitable activities. On the taxpayer’s failure to answer specific queries from the department, the rejection was grounded.

The organization, dissatisfied with this, submitted a plea before the ITAT, where the authorized representative for the taxpayer claimed that the ITAT had previously held in 2018 that the activities of the organization were charitable and aligned with the public utility services. The same earlier ruling was binding and must have been regarded via the CIT(E) before rejecting the application of section 12AB.

AP, the organization, was in infrastructure development for tourism, construction of helipads, and disaster relief operations, which were necessary public utility operations that entities as charitable activities under the Income Tax Act.

It was claimed that the rejection was grounded only on the failure to answer the queries instead of an actual computation of its charitable work. It was not computed by CIT(E) whether the organization continued to fulfil the statute criteria for tax exemption.

It was claimed by the department representative (DR) that the organization did not furnish the needed clarifications or documents when the CIT(E) asked for the other information.

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The absence of reply renders doubt on the genuineness of its charitable activities. The burden was on the taxpayer to prove its charitable status, and simply laying on the 2018 ITAT ruling was not enough. CIT(E) requires fresh confirmation that the operations entity has not been revised.

The DR claims that as the organization was made via a government order, its nature of functions may have modified with time, which requires fresh scrutiny granting tax exemption u/s 12AB.

It was cited by DR that the CIT(E) had valid reasons to refuse the application since no reply was there from the taxpayer, which forms doubts about the transparency and eligibility.

It was analyzed by the tribunal that the claims put forth by both parties and the claims that the 2018 ITAT judgment has determined the activities of organizations as charitable, till now the CIT(E) overlooked the same while rejecting the section 12AB application.

It was noted by the tribunal that the rejection was not grounded on an assessment of the organization’s actual activities, though it was only due to not replying to the queries. It was ruled by the ITAT that the same rejection was not explained.

It was marked by the tribunal that the taxpayer should be provided a fair chance to present its case before being refused tax advantages. The failure of CIT(E) to engage meaningfully with the taxpayer directed to a breach of procedural fairness.

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The Dehradun ITAT bench, including Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member), set aside the CIT(E)’s rejection order and asked the CIT(E) to conduct a fresh hearing and furnish a fair opportunity to the taxpayer to present its case and answer queries.