2017 (11) TMI 1586 - AT - Income Tax

Cancelling the registration u/s. 12AAA(3) - objectives of the assessee-trust - proof of charitable activities - receipt of donations - Held 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. We also find that the ld. CIT(Ex) has cancelled the registration on the ground of non-genuineness of transaction though the same was routed through banking channel. Thus in our considered view the genuineness of the transaction cannot be doubted in the aforesaid facts & circumstances. See CIT Vs. Green Infra Limited 2017 (4) TMI 185 - BOMBAY HIGH COURT . We are also in disagreement with the finding of ld. CIT(Ex) that the QSP gave its accounted money through bank to the assessee and received the same in cash from the assessee and subsequently the cash was offered to tax under IDS. It is because why a prudent man will convert the accounted money into unaccounted form and thereafter he will offer the same to tax under IDS. There is no documentary evidence available in support of the above finding of the ld. CIT(Ex) which is based on his surmise & conjuncture. - Decided in favour of assessee.

Issues Involved:
1. Legitimacy of the cancellation of the registration under Section 12AA(3) of the Income Tax Act, 1961.
2. Adherence to the principles of natural justice and the right to cross-examination.
3. Genuineness and application of donations received by the trust.
4. Compliance with the objects of the trust and the genuineness of its activities.

Detailed Analysis:

1. Legitimacy of the Cancellation of Registration under Section 12AA(3) of the Income Tax Act, 1961:
The primary issue raised by the assessee was the erroneous cancellation of the registration certificate under Section 12AA(3) by the Commissioner of Income Tax (Exemptions) [CIT(Ex)]. The assessee contended that the cancellation was arbitrary, illegal, and not in accordance with the law. The CIT(Ex) based the cancellation on the grounds that the trust was not engaged in genuine charitable activities, primarily relying on a statement from Shri Dinesh Kumar Agarwal, recorded during a survey under Section 133A, which alleged that the donations received were accommodation entries.

2. Adherence to the Principles of Natural Justice and the Right to Cross-Examination:
The assessee argued that the CIT(Ex) failed to follow the directions of the Hon'ble ITAT, which mandated the cross-examination of Shri Dinesh Kumar Agarwal and other relevant individuals. The CIT(Ex) provided the statement of Shri Dinesh Kumar Agarwal to the assessee but did not facilitate the cross-examination, which is a crucial aspect of natural justice. The CIT(Ex) contended that cross-examination was not mandatory, citing various judgments, but the ITAT emphasized that the absence of cross-examination rendered the order invalid, referencing the Supreme Court's decision in Andaman Timber Industries vs. Commissioner of Central Excise.

3. Genuineness and Application of Donations Received by the Trust:
The CIT(Ex) observed that the trust received substantial corpus donations, which were largely parked in fixed deposits rather than being utilized for charitable activities. The CIT(Ex) inferred that the trust was involved in converting cash into cheques, which was deemed illegal. The trust's activities were scrutinized, and it was found that the trust had an agreement with Alagappa University for running a distance learning program, but it lacked discretion over key aspects such as program offerings, regulations, syllabi, and fees. The trust's primary activities were administrative, with income from the university and corpus donations. The CIT(Ex) concluded that the trust's activities were not genuine and were not carried out in accordance with its objects.

4. Compliance with the Objects of the Trust and the Genuineness of its Activities:
The ITAT noted that the CIT(Ex) accepted the existence and creditworthiness of the donor but questioned the genuineness of the transactions. The ITAT highlighted that the statement recorded under Section 133A had no evidentiary value, as per the Supreme Court's ruling in S. Khader Khan Son. The ITAT also observed that there was no evidence linking the trust to any illegal activities or money laundering. The ITAT emphasized that the trust's registration under Section 12AA should not be canceled based on presumptions and surmises. The ITAT referred to various judgments, including CIT Vs. Apeejay Education Society and CIT Vs. Islamic Academy of Education, to support the view that the registration should not be canceled if the trust's activities are genuine and in accordance with its objects.

Conclusion:
The ITAT concluded that the cancellation of the registration under Section 12AA(3) was not justified, as the principles of natural justice were violated due to the lack of cross-examination. The ITAT also found that the trust's activities were genuine and in line with its objects, and the donations received could not be deemed bogus without concrete evidence. The appeal of the assessee was allowed, and the order of the CIT(Ex) was quashed. The ITAT emphasized that even if the donations were found to be bogus, the registration under Section 12AA could not be canceled, but the exemption under Section 11 could be denied for such donations.

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