ITAT Surat Allows Condonation of 178-Day Delay in Section 80G(5) Application: Matter Sent Back to CIT(E)

Background and Context

The decision in N J Charitable Foundation Vs CIT (Exemption) (ITAT Surat) examines whether a delayed application for approval under Section 80G(5) of the Income Tax Act, 1961 can be condoned where the assessee acted under a bona fide understanding of the law.

The assessee, N J Charitable Foundation, is a charitable trust created on 04.10.2021. It had:

  • Already secured registration under Section 12AB of the Income Tax Act; and
  • Obtained provisional approval under Section 80G(5) on 12.02.2023.

Subsequently, the assessee submitted an application for regular approval under Section 80G(5) on 27.03.2023 by filing Form 10AB. This application was rejected by the Commissioner of Income Tax (Exemptions), Ahmedabad [CIT(E)], which led to the appeal before the Income Tax Appellate Tribunal, Surat Bench.

The crux of the dispute revolved around:

  1. When the charitable activities of the trust actually commenced, and
  2. Whether the delay in filing Form 10AB could be condoned in view of a bona fide belief about the limitation period.

Order Challenged Before ITAT

The assessee appealed against the order passed by the CIT(E) under Section 80G(5) rejecting the application for approval.

The grounds raised essentially contended that:

  • The CIT(E) had wrongly refused approval under clause (iii) of the first proviso to Section 80G(5); and
  • The assessee reserved its right to modify, add, or delete grounds at a later stage.

The ITAT heard both sides and examined the material placed on record, including financial statements and correspondence exchanged during the proceedings before the CIT(E).

Facts Considered by the CIT(E)

Provisional and Regular Approval Timeline

  • Trust established: 04.10.2021
  • Registration under Section 12AB: already in place
  • Provisional Section 80G(5) approval granted: 12.02.2023
  • Application in Form 10AB for regular Section 80G(5) approval filed: 27.03.2023

Show Cause Notice and Stand of CIT(E)

The CIT(E) issued a show cause notice (dated 03.08.2023) in which it was highlighted that, in terms of the statutory requirement, an application in Form 10AB for approval under Section 80G(5) must be filed:

  • Either six months before the expiry of the provisional approval; or
  • Within six months from the commencement of charitable activities,
  • Whichever event occurs earlier.

In response, the assessee explained that its substantive charitable activities began only on 27.09.2022, when it started admitting students for computer education courses. The assessee produced admission forms of the beneficiaries/students as evidence of the commencement of its educational programme.

However, the CIT(E) took a different view based on the assessee’s financial statements for:

  • Financial Year 2021-22, and
  • Financial Year 2022-23.

Upon examination of these accounts, the CIT(E) noticed that:

  • The assessee had received corpus donations on 26.03.2022; and
  • It had donated ₹2 lakh to Shri Ram Mandir Charitable Trust on 31.03.2022.

On this basis, the CIT(E) concluded that the charitable activities of the assessee had effectively commenced on 31.03.2022, when it made a donation in furtherance of its stated objects.

Accordingly, the CIT(E) inferred that:

  • The assessee was required to file Form 10AB on or before 30.09.2022 (i.e., within six months from 31.03.2022).
  • Since the application was filed only on 27.03.2023, it was treated as time-barred and rejected.

Assessee’s Contentions Before ITAT

On Date of Commencement of Activities

The authorised representative of the assessee argued before the Tribunal that: