2017 (12) TMI 909 - AT - Income Tax

Registration granted u/s. 12A cancelled - assessee received donation in lieu of cash from M/s. Herbicure - sworn statement of Shri Swapan Ranjan Dasgupta recorded during survey relied upon - Held that - As no material which is legally sustainable has been brought on record, therefore, the sole material which is sworn statement of Shri Swapan Ranjan Dasgupta recorded during survey cannot be the sole material as held by Hon ble Supreme Court in Kader Khan, (2013 (6) TMI 305 - SUPREME COURT ) and moreover, we note that this statement of Shri Swapan Ranjan Dasgupta has not been tested by cross examination cannot be the basis for the impugned action of the Ld. CIT(E) and, therefore, the assessee society which is carrying out philanthropic activities is a charitable organization. So its registration granted u/s. 12A of the Act cannot be cancelled without infraction of law as contemplated u/s. 12AA(3) of the Act. As per the requirement of section 12AA(3) of the Act, the Ld. CIT(E) has to be satisfied that the activities of the trust or institution are ingenuine or are not being carried out in accordance with the object of the trust or institution. When the assessee is carrying out the object of the trust for which it was created and has applied the donation it received from M/s. Herbicure for the objects for which it has been created, the assessee society cannot be termed to be ingenuine or cannot be held to be not carrying out its activity in accordance with the object of the trust. Therefore, we set aside the order of the Ld. CIT(E) and allow the appeal of the assessee.

Summary

Issues Involved:
1. Cancellation of registration under Section 12A of the Income-tax Act, 1961.
2. Allegations of money laundering and ingenuine activities.
3. Denial of cross-examination of key witnesses.
4. Application of Section 68 of the Income-tax Act.
5. Utilization of donations for charitable purposes.

Issue-wise Detailed Analysis:

1. Cancellation of registration under Section 12A of the Income-tax Act, 1961:
The appeal concerns the cancellation of the assessee society's registration under Section 12A by the CIT(E), effective from 01.04.2010. The assessee society, established in 1965 and registered under Section 12A since 1973, was also enjoying exemption under Section 80G(5)(vi). The CIT(E) cancelled the registration based on a survey conducted under Section 133A at the premises of M/s. Herbicure Healthcare Bio-Herbal Research Foundation, where it was alleged that the assessee society was involved in money laundering activities.

2. Allegations of money laundering and ingenuine activities:
The CIT(E) relied on the statement of Shri Swapan Ranjan Dasgupta, founder Director of M/s. Herbicure, who admitted to accepting donations on behalf of M/s. Herbicure and returning the same to the donor after retaining a commission. The CIT(E) concluded that the assessee society was involved in money laundering based on a donation of ?50 lacs received from M/s. Herbicure in AY 2011-12. The assessee society denied these allegations, stating that the donation was used for purchasing a building and was not a bogus donation.

3. Denial of cross-examination of key witnesses:
The assessee society requested to cross-examine Shri Swapan Ranjan Dasgupta and Shri Kishen Bhawshingka, as the entire case rested on their statements. The CIT(E) denied this request, citing various judgments. The Tribunal found this denial to be a violation of natural justice. The Supreme Court in the case of Andaman Timber Industries held that not allowing cross-examination of witnesses whose statements are the basis of an order is a serious flaw, rendering the order nullity.

4. Application of Section 68 of the Income-tax Act:
The Tribunal noted that even if the donation of ?50 lacs was to be treated as unexplained under Section 68, no addition could be made since the assessee applied the entire amount for its charitable objectives. The Allahabad High Court in CIT Vs. Uttaranchal Welfare Society held that Section 68 does not apply where donations are disclosed as income and applied for charitable purposes.

5. Utilization of donations for charitable purposes:
The assessee society demonstrated that the donation from M/s. Herbicure was used for purchasing a property, aligning with its charitable objectives. The Tribunal emphasized that the assessee's activities were genuine and in accordance with its objectives. The CIT(E)'s reliance solely on the statement recorded during the survey, which lacks evidentiary value as per the Supreme Court's ruling in S. Kader Khan Sons, was insufficient to cancel the registration.

Conclusion:
The Tribunal concluded that the assessee society's registration under Section 12A could not be cancelled based on the untested statement of Shri Swapan Ranjan Dasgupta. The assessee's activities were found to be genuine and in accordance with its charitable objectives. The appeal of the assessee was allowed, and the order of the CIT(E) was set aside.

Order Pronouncement:
The appeal was allowed, and the order was pronounced in the open court on 06.09.2017.