2016 (11) TMI 1466 - AT - Income Tax

Cancelling the Registration certificate granted u/s 12A - providing providing bogus donation - name of the assessee was reflecting in the list of bogus donors as provided by the Managing trustee of the BERT in his statement - activities of the assessee are not in accordance with the objects for which it was established - Held that - We find that the investment was made by the assessee trust within the mode as specified. The ld. AR has produced the list of investments for the years ending 31.3.2012, 31.3.2013, 31.3.2014, 31.3.2015 which were not questioned in any of the income tax proceedings and it can be inferred that these were accepted as investment within the specified mode. The ld. DR has also not brought anything contrary to the arguments of ld. AR. Therefore, this cannot be reasons for cancelling the registration certificate u/s 12A of the Act. Besides the above we also find that the ld. CIT(E) has not given any finding that the investment has been made assessee in contravention to the provisions of Section 11(5) of the Act. Merely the money invested in the modes specified u/s 11(5) of the Act and trust carrying no charitable activity cannot be a ground for the cancellation of registration. the assessee has been giving donation in every year which has been duly accepted by the Revenue as evidenced from the income & expenditure account of the assessee of the financial statements which are placed on pages 91 to 130 of the paper book. The amount of donation given by the assessee trust over the several years to the other trust is very much charitable activities. There is also no adverse remark in the audit report about the investment made by the assessee. We also find that the notice for the cancellation of the registration certificate was issued under section 12AA(3). However, Ld. CIT(E) has also invoked the provisions of section 12AA(4) of the Act for cancelling the registration certificate which in our considered view against the principal of natural justice. The ld. CIT(E) before invoking the provisions of Section 12AA(4) should have issued the show cause notice. Therefore, we find that the proper opportunity to the assessee has not been furnished. We also find that the lower authority should have issued summon u/s 131 of the Act for the cross examination but from the facts we find that the no such summon has been issued. We also find that assessee has given the detailed profile of the donee along with the correspondence. The transaction for the donation was made through banking channel and the department failed to bring anything on record that the donation given by the assessee has come back to it in the form of the cash. - As per question no. 14 of the statement of the managing trustee of BERT, it is clear that SGP was the only party to arrange all the bogus donations but his statement is missing which was crucial to crack the chain of bogus donation - Decided in favour of assessee.

Summary

Issues Involved:
1. Cancellation of Registration under Section 12AA(3) and 12AA(4) of the Income Tax Act, 1961.
2. Alleged Violation of Section 12AA(3) and 12AA(4).
3. Alleged Involvement in Money Laundering and Bogus Donations.
4. Denial of Cross-Examination Rights.
5. Retrospective Cancellation of Registration.
6. Compliance with Investment Regulations under Section 11(5).

Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3) and 12AA(4):
The appeal by the assessee challenges the cancellation of its registration under Section 12AA(3) and 12AA(4) of the Income Tax Act, 1961, by the Commissioner of Income Tax (Exemptions), Kolkata. The registration was initially granted on May 14, 1985, and renewed on October 17, 2011. The trust was established for charitable purposes including relief to the poor, medical relief, and education.

2. Alleged Violation of Section 12AA(3) and 12AA(4):
The Commissioner of Income Tax (Exemptions) initiated proceedings based on a survey conducted on Batanagar Education and Research Trust (BERT). The managing trustee of BERT admitted that a major part of the donations received were not genuine and were returned to donors through intermediaries. The assessee was identified as one of the bogus donors, having donated ?20 lakhs to BERT, which was allegedly returned in cash through intermediaries.

3. Alleged Involvement in Money Laundering and Bogus Donations:
The Commissioner observed that the trust was involved in money laundering through bogus donations and was not carrying out activities as per its objects. The Commissioner highlighted that the trust's corpus funds were primarily invested in shares, mutual funds, and fixed deposits, rather than being utilized for charitable activities. The Commissioner concluded that the trust's activities were not genuine and were not in accordance with its declared objects.

4. Denial of Cross-Examination Rights:
The assessee argued that it was not given an opportunity to cross-examine the managing trustee of BERT or the intermediaries. Despite repeated requests, the cross-examination was not facilitated, which the assessee claimed was against the principles of natural justice. The Commissioner’s order incorrectly stated that the assessee did not avail the opportunity for cross-examination.

5. Retrospective Cancellation of Registration:
The assessee contended that the Commissioner had no power to cancel the registration retrospectively under Section 12AA(3). The assessee cited several judicial precedents, including the Allahabad High Court’s decision in OXFORD ACADEMY FOR CAREER DEVELOPMENT vs. CHIEF COMMISSIONER OF INCOME TAX & ORS, which held that Section 12AA(3) does not apply retrospectively. The Commissioner’s order was challenged for invoking Section 12AA(4) without prior notice, which was against the principles of natural justice.

6. Compliance with Investment Regulations under Section 11(5):
The assessee argued that its investments were made in compliance with Section 11(5) of the Act and provided audited accounts to support this claim. The Commissioner did not find any contravention of Section 11(5) in the investments made by the trust. The assessee’s activities included making donations, which were accepted by the Revenue in previous assessments, indicating compliance with charitable purposes.

Conclusion:
The Tribunal found that the Commissioner’s order was based on conjectures and surmises without sufficient evidence. The Tribunal noted that the assessee’s investments were within the specified modes under Section 11(5) and that the Commissioner failed to establish that the donation was returned to the assessee. The Tribunal held that the cancellation of registration was not justified, especially without providing an opportunity for cross-examination. The Tribunal set aside the Commissioner’s order and allowed the assessee’s appeal.

Order:
The appeal by the assessee is allowed, and the order of the Commissioner of Income Tax (Exemptions) is set aside. The registration under Section 12A is restored.