2012 (3) TMI 566 - AT - Income Tax

Summary

Issues Involved:
1. Cancellation of registration u/s 12AA(3) of the Income Tax Act, 1961.
2. Allegation of non-genuine charitable activities.
3. Allegation of appropriation of benefits by the Trust's Governing Body.
4. Principles of natural justice and opportunity to explain.

Summary:

Issue 1: Cancellation of registration u/s 12AA(3) of the Income Tax Act, 1961
The appeal challenges the order by CIT (Central), Ludhiana, dated 31st January 2008, canceling the Trust's registration u/s 12AA(1)(b)(i). The CIT's decision was based on findings from a search conducted on 7th September 2005, which revealed unexplained assets and incriminating documents. The CIT concluded that the Trust's activities were not aligned with its charitable objectives and initiated proceedings u/s 12AA(3), resulting in the cancellation of the registration.

Issue 2: Allegation of non-genuine charitable activities
The CIT found that the Trust made cash payments to doctors outside the books of account, totaling Rs. 45,66,372/-. Statements from the Trust's accountant and principal confirmed these payments. However, these statements were later retracted, and affidavits were filed denying the cash payments. The Tribunal, in its order dated 30th October 2009, upheld the deletion of the addition made by the CIT(A), stating that the retracted statements and affidavits from doctors negated the evidence of unexplained expenditure.

Issue 3: Allegation of appropriation of benefits by the Trust's Governing Body
The CIT noted discrepancies in the cash found during the search, with actual cash being significantly less than recorded in the books. This led to the conclusion that the Trust's trustees were manipulating accounts for personal gain. However, the Tribunal found that the excess cash was accounted for in the Trust's audited accounts and tax returns, and no adverse inference was drawn by the Assessing Officer. The Tribunal confirmed the deletion of additions made in the hands of the trustees, supporting the Trust's claim that the cash belonged to it.

Issue 4: Principles of natural justice and opportunity to explain
The assessee argued that the CIT's conclusions were drawn without proper application of mind and solely based on the Assessing Officer's findings for A.Y. 2006-07. The Tribunal noted that the CIT, after canceling the registration, granted a new registration on 23rd May 2008, acknowledging the genuineness of the Trust's activities. This contradiction supported the assessee's claim that the cancellation was unjustified.

Conclusion:
The Tribunal found that the reasons for canceling the registration did not hold, as the Tribunal had already upheld the deletion of the additions. The CIT's subsequent order granting registration further validated the Trust's genuine charitable activities. Therefore, the Tribunal quashed the CIT's order canceling the registration and allowed the appeal filed by the assessee. The order was pronounced in the open court on 23.03.2012.