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2017 (9) TMI 1976 - AT - Income TaxExemption u/s 11 - cancelling the registration of the Appellant assessee trust u/s 12AA(3) on illegal/money laundering activities carried on by the assessee - bogus donation was ascertained on the basis of the statement recorded u/s. 131 of the Act of the Director of the company - HELD THAT - There is no evidence brought on record to show any connection between those brokers and the assessee. In the absence of such corroborative evidence, it is not possible to come to any conclusion that the assessee indulged in money laundering and that the donation received by it was a bogus donation. In fact on identical facts this Tribunal in the case of Sri Mayapur Dham Pilgrim and Visitors Trust 2017 (5) TMI 1486 - ITAT KOLKATA came to the conclusion that cancellation of registration u/s 12AA of the Act cannot be sustained. Cancellation of registration granted to the assessee u/s 12A of the Act cannot be sustained and the impugned order is hereby quashed. The appeal of the assessee is accordingly allowed. Donation to assessee is bogus then the amount of bogus donation will not be eligible for exemptions u/s 11 - The registration certificate issued u/s 12AA of the Act cannot be cancelled as long as the objects of the trust are within the provisions of law. The objects/ byelaws of the trust are placed on pages 1 to 12 of the paper book and on the basis of same objects the assessee was given registration certificate u/s 12AA of the Act. While holding so, we find support guidance from the judgment of Hon ble High Court of Punjab Haryana in the case of CIT Vs. Apeejay Education Society 2015 (4) TMI 303 - PUNJAB HARYANA HIGH COURT In the instant case the assessee is a charitable trust duly constituted as Charitable Trust under a Deed of Trust as a Public Charitable Trust for imparting education which is a Charitable Purpose u/s. 2(15) of the Income Tax Act. The trust duly applied for registration u/s. 12AA of the IT Act before the Director of Income Tax (Exemption) in conformity with rule 17A and submitted Form No. 10A together with other requisite documents. The Director of Income Tax (Exemption) after verification of documents and after being satisfied about the object of the trust and genuineness of its activities granted registration effective from 11.09.1979 vide order No. T-81/WB.VII of 1979-80 dated 11.09.1979 CIT(Exemption) before granting the registration certificate shall conduct necessary enquiries as he thinks fit in order to satisfy himself about the genuineness of activities of the trust. Once the ld CIT(Ex) is satisfied with the genuineness of the activities then he will grant the registration certificate. In the instant case before us, we find that the activities of the trust have not been doubted except the donation received by the assessee from two parties. Thus in our view at the most the exemption u/s 11 of the Act will be denied to such donation. Thus, in such circumstances the registration u/s 12A of the Act cannot be cancelled. We find that the activities of the trust in relation to its education activities have not been doubted and on the basis of same activities registration u/s 12AA of the Act was awarded to the assessee. Simply the assessee has received donation from some parties which are involved in the bogus transactions cannot be the basis for the denial of the registration certificates as discussed above. Appeal of assessee allowed.
Issues Involved:
1. Jurisdiction and legality of the order cancelling the registration of the assessee trust under section 12AA(3) of the Income Tax Act, 1961. 2. Allegations regarding the genuineness of the activities of the assessee trust. 3. Acceptance of bogus donations from M/s School of Human Genetics and Population Health and M/s Quadeye Securities Pvt Ltd. 4. Misutilization of trust funds for non-charitable activities. 5. Denial of opportunity for cross-examination of third-party statements. 6. Impact of withdrawal of approval under section 35(1)(ii) of the Income Tax Act, 1961 from M/s School of Human Genetics and Population Health. Detailed Analysis: 1. Jurisdiction and Legality of the Order: The assessee argued that the order dated 22.12.2016 by the Commissioner of Income Tax (Exemptions), Kolkata, cancelling the registration under section 12AA(3) was without jurisdiction, illegal, invalid, and unreasonable. The Tribunal examined the procedural aspects and found that the cancellation was based on allegations of illegal activities, which required a thorough examination, including the opportunity for cross-examination. 2. Allegations Regarding Genuineness of Activities: The Commissioner alleged that the activities of the assessee trust were not genuine and not carried out according to its objectives. The Tribunal noted that the assessee was engaged in providing education, a fact supported by substantial evidence, including the trust's long-standing registration and continuous educational activities. 3. Acceptance of Bogus Donations: The Commissioner based the cancellation on findings that the assessee trust received bogus donations of ?68.50 lakhs from M/s School of Human Genetics and Population Health and ?20 lakhs from M/s Quadeye Securities Pvt Ltd. The Tribunal scrutinized these transactions and found that the donations were received through banking channels, and there was no direct evidence linking the trust to money laundering activities. The Tribunal also highlighted that the Director of Quadeye Securities Pvt Ltd had given contradictory statements, which weakened the case against the assessee. 4. Misutilization of Trust Funds: The Commissioner alleged that the trust funds were misutilized and routed for non-charitable activities. The Tribunal found no concrete evidence supporting this claim. The assessee provided detailed accounts showing the utilization of donations for educational purposes, including significant additions to fixed assets. 5. Denial of Opportunity for Cross-Examination: The assessee argued that the cancellation order was based on statements from third parties without providing an opportunity for cross-examination. The Tribunal emphasized the principle of natural justice, stating that the right to cross-examine is fundamental. The Tribunal cited relevant case laws, including the Supreme Court's judgment in State of Kerala Vs. K.T. Shaduli Yusuff, underscoring the necessity of cross-examination to establish the credibility of statements used as evidence. 6. Impact of Withdrawal of Approval: The Commissioner noted that the approval under section 35(1)(ii) of the Income Tax Act for M/s School of Human Genetics and Population Health was withdrawn, implying that donations from this entity were suspect. The Tribunal clarified that the withdrawal of approval did not automatically render all transactions with the entity as bogus, especially in the absence of direct evidence against the assessee trust. Conclusion: The Tribunal concluded that the cancellation of the registration under section 12AA(3) was not justified. The assessee's activities were genuine and aligned with its objectives. The lack of opportunity for cross-examination and the absence of direct evidence against the trust were significant procedural lapses. The Tribunal allowed the appeal, quashing the cancellation order and reinstating the registration of the assessee trust.
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