NFAC Ignored Supreme Court Order in Charitable Trust Appeal
The Patna High Court has pulled up the National Faceless Appeal Centre (NFAC) for dismissing a charitable trust’s income tax appeal without following a binding Supreme Court precedent. The Court not only quashed the NFAC’s order but also imposed a cost of ₹10,000 on the Income Tax Department for this blatant disregard of judicial discipline.
This case brings into sharp focus the duty of tax authorities to follow binding judicial precedents, especially when the apex court has ruled on the matter.
Background of the Case
- The petitioner, a charitable trust, had applied for registration under Section 12AA of the Income Tax Act.
- The trust appealed this rejection before the NFAC.
- The NFAC dismissed the appeal without applying the Supreme Court ruling in ‘Ananda Social and Educational Trust v. CIT’ (2020) 20 SCC 514, which had clarified the criteria for granting 12AA registration.
Key Issues Identified
- Non-consideration of Apex Court Precedent
The Supreme Court in Ananda Trust held that at the stage of registration under Section 12AA, only the genuineness of objectives and activities needs to be tested, not actual income or application. - Failure of Natural Justice
The NFAC gave a generic rejection without proper reasoning or reference to the SC’s interpretation of law. - Judicial Overreach Avoided, Accountability Upheld
The Patna HC clarified that while it doesn’t interfere in merits of the case at this stage, the administrative disregard of binding judgments cannot be allowed.
What the Patna High Court Ruled
- NFAC’s order was set aside.
- Directed fresh consideration strictly in light of the Supreme Court ruling.
Legal Takeaways for Taxpayers and Professionals
- SC decisions are binding under Article 141 of the Constitution.
- NFAC must apply settled legal principles, even in faceless mode.
- Charitable trusts need not show full-fledged activity at the 12AA stage – only intent and genuineness.
Expert View: Why This Case Matters
“This isn’t just about one trust’s appeal. It’s about preserving taxpayer confidence in faceless systems. Technology shouldn’t dilute legal standards. NFACs must be trained better to handle precedents,” says Advocate Ramesh R, tax counsel and NGO advisor.
Common Mistake: Misunderstanding 12AA Registration Requirements
It’s a myth that a trust must be fully operational or have audited financials before applying for 12AA registration. As per Ananda Trust:
- Registration is not based on actual income or expenditure
- Only the objects and initial activities are verified
Actionable Tip for Charitable Trusts
When applying for 12AA:
✅ Clearly define charitable objects
✅ Submit registration documents and PAN
✅ File for registration within time limits under Section 12A(1)(ac)
✅ Cite the Ananda Trust judgment in your application to avoid arbitrary rejections
Internal Link
Also read: Latest ITR Filing Due Date Extension for AY 2025-26
External Link
Read Supreme Court judgment: Ananda Social and Educational Trust v. CIT (2020)
Summary
NFAC dismissed a charitable trust’s appeal without following Supreme Court precedent. Patna HC quashed the order and fined the Income Tax Department ₹10,000 for ignoring legal standards.
FAQs
Q1. Is Supreme Court judgment binding on NFAC?
Yes. Under Article 141 of the Constitution, Supreme Court rulings are binding on all courts and authorities, including NFAC.
Q2. What is required for 12AA registration?
Only the genuineness of the trust’s objectives and initial activities is tested. No need to show actual charitable activity or income at this stage.
Q3. Can I challenge a faceless appeal order?
Yes. If NFAC ignores legal precedents or provides non-speaking orders, affected parties can file a writ petition in High Court.
Final Word
This ruling is a reminder that faceless doesn’t mean lawless. NFAC must uphold legal discipline. If you’ve received an arbitrary order, consult experts at Efiletax. We assist in drafting appeals, citing binding precedents, and navigating the faceless system effectively.