2017 (9) TMI 1972 - AT - Income Tax

Exemption u/s 11 - cancellation of registration u/s 12AA(3) 12AA(4) - CIT(E) observed that the assessee had indulged in the practice of money laundering through payment of bogus donations - these facts were confirmed in a survey operation conducted u/s 133A of the Act on 3.9.2015 in the case of M/s Batanagar Education Research Trust wherein a statement of Sri Rabindranath Lahiri Vice Chairman and Trustee was recorded during the survey operation - HELD THAT - We are in agreement with the arguments of the ld AR that there is no need to cross-examine Sri Rabindranath Lahiri by the assessee as no adverse statements / contents were reflected against the assessee in the said statement. In fact there is not even a whisper about the assessee society or its office bearers in any manner whatsoever in the entire statement of Sri Rabindranath Lahiri. Hence the ld CIT(E) deciding against the assessee on the ground that the assessee society had not availed the opportunity of cross-examination is of no relevance for invoking the provisions of section 12AA(3) of the Act. CIT(E) had made a bald allegation that the assessee society was involved in money laundering by receiving cash from various other trusts in lieu of donations paid to them by cheques. This allegation is not proven by any material evidence brought on record and is completely without any basis. It could be seen from the statement reproduced supra that Sri Rabindranath Lahiri had in fact deposed that certain corpus donations received by Batanagar Education Research Trust were bogus. But the assessee had not given any corpus donations to the said trust. Infact it had given only revenue donations to the said trust. It is well settled that the person making the allegation has to prove with material evidences that the allegation leveled against any other person is true and correct. In the instant case except making a bald allegation no evidences in any manner whatsoever had been brought on record . We find that the assessee trust had been unnecessarily impleaded by the ld CIT(E) in the entire episode without any basis. Moreover we find that when the ld CIT(E) examined the President of the assessee society Mr Mukul Agarwal no questions were posed on him about the transactions with Batanagar Education Research Trust. This is evident from the copies of order sheet entries filed by the ld AR. All the details called for by the ld CIT(E) from Mr Mukul Agarwal about the other three trusts were duly filed in writing by him vide letter dated 15.2.2016 which we find had been ignored by the ld CIT(E) in the order of cancellation of registration. Accordingly we hold that there is no case made out by the ld CIT(E) for invoking powers of cancellation of registration u/s 12AA(3) and 12AA(4) of the Act Thus we hold that the ld CIT(E) ought not to have invoked the provisions of section 12AA(3) and 12AA(4) of the Act for cancellation of registration to the assessee society. Accordingly the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Cancellation of registration under Section 12AA(3) and 12AA(4) of the Income Tax Act.
2. Allegations of money laundering through bogus donations.
3. Violation of principles of natural justice.
4. Retrospective effect of the cancellation of registration.

Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3) and 12AA(4) of the Income Tax Act:
The appeal concerns the cancellation of registration under Sections 12AA(3) and 12AA(4) of the Income Tax Act by the Commissioner of Income Tax (Exemptions) [CIT(E)]. The assessee, a society registered under the West Bengal Societies Registration Act, 1961, and an educational institution, had its registration canceled based on allegations of indulging in money laundering through bogus donations.

2. Allegations of Money Laundering through Bogus Donations:
The CIT(E) alleged that the assessee was involved in money laundering by making bogus donations to Batanagar Education & Research Trust, which were returned in cash. This conclusion was drawn from a statement by Sri Rabindranath Lahiri, Vice Chairman and Trustee of Batanagar Education & Research Trust, recorded during a survey operation. The CIT(E) claimed that the assessee had paid donations amounting to ?25,00,000 in AY 2012-13 and ?1,25,00,000 in AY 2013-14, which were allegedly returned in cash.

3. Violation of Principles of Natural Justice:
The assessee argued that the cancellation of registration was in gross violation of the principles of natural justice. The CIT(E) did not provide adequate opportunity for the assessee to controvert the materials relied upon, including cross-examination of the witness. The assessee denied receiving any cash in lieu of donations and requested the cross-examination of Sri Rabindranath Lahiri, which was not adequately facilitated by the CIT(E).

4. Retrospective Effect of the Cancellation of Registration:
The CIT(E) canceled the registration with retrospective effect from April 1, 2011. The assessee contended that the CIT(E) had no power to withdraw/cancel the registration retrospectively, especially when the provisions of Section 12AA(4) were introduced only from October 1, 2014.

Tribunal's Findings:

On Allegations of Bogus Donations:
The Tribunal found that the CIT(E) had made bald allegations without substantial evidence. The statement of Sri Rabindranath Lahiri did not specifically mention the assessee or its office bearers. The donations made by the assessee were not corpus donations, and the alleged period of bogus donations did not coincide with the period when the assessee made donations to Batanagar Education & Research Trust.

On Violation of Principles of Natural Justice:
The Tribunal agreed with the assessee that the principles of natural justice were violated. The assessee was not given a fair opportunity to cross-examine the witness, and no adverse statements were made against the assessee in the recorded statement of Sri Rabindranath Lahiri.

On Retrospective Cancellation:
The Tribunal noted that there is no provision in the Act for the retrospective withdrawal of registration under Section 12AA. The CIT(E)'s action of canceling the registration with retrospective effect was deemed inappropriate.

Conclusion:
The Tribunal concluded that the CIT(E) had no valid grounds to invoke the provisions of Section 12AA(3) and 12AA(4) to cancel the registration of the assessee society. The appeal of the assessee was allowed, and the cancellation of registration was set aside.

Order:
The appeal of the assessee is allowed. The Tribunal directed that the registration under Section 12A should not be canceled based on the grounds presented by the CIT(E). The order was pronounced on September 6, 2017.