2016 (8) TMI 862 - AT - Income Tax

Continuance of registration under section 12A denied - as per revenue the activities of the assessee were not genuine - Held that - From the statement of Shri Dinesh Kumar Agarwal of M/s. Quadeye Securities Pvt. Ltd. it appears that there is prima facie ground to believe that the donation of ₹ 50,00,000 given by M/s. Quadeye Securities Pvt. Ltd was not genuine. Based on this statement alone it cannot be conclusively said that the donation in question was bogus. When the statement of Shri Dinesh Kumar Agarwal was confronted to the assessee and when the assessee was asked to appear before the respondent, the assessee chose to avoid appearing before the respondent. This conduct of the assessee was not justified. It is no doubt true that the statement of Shri Dinesh Kumar Agarwal without being subjected to cross-examination by the assessee and further corroborated by evidence of the persons who are stated to have arranged for bogus gifts cannot be believed in toto. Nevertheless the fact remains that there are grounds to believe that the donations received by the assessee had to be decided with regard to its genuineness. The fact that opportunity of cross-examination of Shri Dinesh Kumar Agrawal and the person who are alleged to have arranged the bogus gifts was not afforded to the assessee cannot be the basis to quash the order under section 12AA(3) of the Act. As rightly contended by the learned Departmental representative if it is found that the assessee was accepting bogus donations, then that fact can only lead to an inference that the activities of the trust are not genuine or are not carried out in accordance with the objects of the trust. We, therefore, are of the view that it would be proper in the interest of justice to set aside the order of the respondent and remand the issue of cancellation of registration to the respondent for fresh consideration. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Cancellation of registration under section 12AA(3) of the Income-tax Act, 1961.
2. Allegation of receiving bogus donations.
3. Opportunity for cross-examination.
4. Genuineness of the trust's activities.

Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3) of the Income-tax Act, 1961:
The appeal concerns the cancellation of the assessee's registration under section 12AA(3) of the Income-tax Act, 1961, by the Commissioner of Income-tax (Exemptions), Kolkata. The Commissioner concluded that the trust's activities were not genuine and were not being carried out in accordance with its declared objects, leading to the cancellation of the registration.

2. Allegation of Receiving Bogus Donations:
The cancellation was based on a survey conducted under section 133A of the Act, where a statement from the director of M/s. Quadeye Securities Pvt. Ltd. indicated that the company had given a donation of ?50,00,000 to the assessee in exchange for cash. The director admitted that these donations were prearranged and bogus, orchestrated by two chartered accountants, Mr. Pradip Agarwal and Mr. Ajay Agarwal.

3. Opportunity for Cross-Examination:
The assessee requested the opportunity to cross-examine the individuals mentioned in the director's statement. However, despite multiple show-cause notices and opportunities provided by the Commissioner, the assessee failed to appear. The Tribunal noted that the lack of cross-examination could not be the sole basis for quashing the cancellation order, but it emphasized the need for a fair opportunity for cross-examination to ascertain the truth of the statements.

4. Genuineness of the Trust's Activities:
The Tribunal highlighted that the mere allegation of receiving bogus donations cannot conclusively establish that the trust's activities are not genuine. It was noted that the assessee's activities, such as running educational institutions, were charitable in nature. The Tribunal referred to similar cases where the cancellation of registration was deemed invalid due to lack of concrete evidence and proper opportunity for the assessee to defend itself.

Conclusion:
The Tribunal set aside the order of the Commissioner and remanded the issue for fresh consideration. The Tribunal directed that the assessee should present itself before the Commissioner, who may issue summons under section 131 of the Act if necessary. The Commissioner should afford the assessee the right to cross-examine the relevant individuals and, after such inquiry, decide whether to proceed with the cancellation of registration. The appeal was allowed for statistical purposes, emphasizing the importance of a fair and thorough examination of the facts before arriving at a conclusion.