2017 (7) TMI 1246 - AT - Income Tax

Cancelling the registration granted u/s 12AA - assessee has received donation on making payment in cash - reason for cancelling the recognition granted u/s 80G(5) was that the registration granted u/s 12AA to the assessee has already been cancelled u/s 12AA(3)- Held that - For the sake of argument, that if the assessee has received donation on making payment in cash and it may be his own money which was introduced in the trust through circuitous means but it was applied for charitable purposes, therefore, it cannot be added under section 68 of the Act. Thus, even on the merits, we do not find any force in the allegations raised by the Revenue. CIT(Exemptions) has cancelled the registration u/s 12AA on the basis of conjectures and surmises, as he has observed in his order that the assessee might have been charging capitation fee from the parents of the students, but in this regard no evidence was brought on record. It is also obvious from the record that the CIT(Exemptions) has passed an order on the same day when the assessee has furnished detailed explanation in writing and even without verifying the same. Therefore, we find no merit in the order of CIT(Exemptions). See Fateh Chand Charitable Trust 2016 (4) TMI 1119 - ITAT LUCKNOW - Decided in favour of assessee.

Issues Involved:
1. Cancellation of registration under section 12AA(3) of the Income-tax Act.
2. Derecognition under section 80G(5)(vi) of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Cancellation of registration under section 12AA(3) of the Income-tax Act:

The primary grievance of the assessee was against the cancellation of its registration under section 12AA(3) of the Act with effect from April 1, 2014. The learned counsel for the assessee argued that the issue had already been decided in favor of the assessee in similar cases by the same Tribunal, such as Fateh Chand Charitable Trust v. CIT (Exemptions) and Bhagwat Saran Educational Trust v. CIT (Exemptions). The Departmental representative did not dispute the facts and did not present any contrary decisions.

The Tribunal examined the facts and noted that the Commissioner of Income-tax (Exemptions) had issued a notice based on information received from the Commissioner of Income-tax (Exemptions), Kolkata, alleging that the assessee had received a donation of ?1 crore through cheque after making a cash payment of the same amount to M/s. Herbicure Health Care Bio Herbal Research Foundation. The assessee denied these allegations and requested any authentic material to substantiate the claims, which was not provided. The Tribunal found that the Commissioner of Income-tax (Exemptions) had not given the assessee an opportunity to cross-examine the witness or make further comments before passing the cancellation order.

The Tribunal emphasized the principle that evidence collected at the back of the assessee cannot be used adversely unless confronted and cross-examined. It cited the Supreme Court decision in Andaman Timber Industries v. CCE, which held that not allowing cross-examination of witnesses whose statements form the basis of an adverse order is a violation of natural justice.

The Tribunal also considered that even if the donation was received as alleged, it was applied for charitable purposes, and thus, section 68 of the Act could not be invoked. The Tribunal concluded that the cancellation of registration was based on conjectures and surmises without proper verification and thus set aside the order of the Commissioner of Income-tax (Exemptions), restoring the registration granted to the assessee.

2. Derecognition under section 80G(5)(vi) of the Income-tax Act:

The assessee also contested the cancellation of recognition under section 80G(5)(vi) of the Act. The Commissioner of Income-tax (Exemptions) had cancelled this recognition on the grounds that the trust was making clear profits and had already had its registration under section 12AA cancelled. The Tribunal noted that since it had already quashed the cancellation of registration under section 12AA, the basis for cancelling recognition under section 80G(5) no longer existed.

The Tribunal reviewed the conditions for approval under section 80G(5) and found that the Commissioner of Income-tax (Exemptions) had not provided any findings that the assessee violated these conditions, except for the now-invalidated cancellation of section 12AA registration. The Tribunal cited the Delhi High Court decision in Director of Income-tax v. Neel Gagan Charitable Trust, which held that exemption under section 80G could not be denied where no violation was established.

Consequently, the Tribunal quashed the order of the Commissioner of Income-tax (Exemptions) and restored the recognition granted to the assessee under section 80G(5) with effect from April 1, 2010.

Conclusion:

In conclusion, both appeals of the assessee were allowed. The Tribunal set aside the orders of the Commissioner of Income-tax (Exemptions), restoring the registration under section 12AA and the recognition under section 80G(5) of the Income-tax Act. The order was pronounced in the open court on July 26, 2017.

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