2018 (3) TMI 1507 - AT - Income Tax

Cancelling Registration u/s 12AA(3) - proof of charitable activities - Held that - Assessee has been carrying out scientific research activities as per its objects. The donation received by the assessee have been used for the scientific research purpose only. There is no legal admissible evidence on record against the assessee that assessee received any donation from any company as alleged in the report of the Investigation Wing. No evidence of any unaccounted cash transactions conducted by the assessee were found. No evidence on record to show that assessee received or paid any commission for indulging in any unaccounted money. Therefore, cancellation of registration in the matter is merely on presumption only. In the case of Sharda Educational Trust v. CIT 2013 (5) TMI 832 - ITAT AGRA it was held that in the absence of any examination of any student and their parents about payment of any money/capitation fees to the assessee trust and there being no corroborative evidence to prove receipt of any such amount, registration of assessee trust, could not be cancelled on the basis of paper seized during search. The Tribunal set aside the cancellation of registration and restored the registration. - We restore the registration under section 12AA in favour of the assessee.

Issues Involved:
1. Cancellation of Registration under Section 12AA(3) of the Income Tax Act, 1961.
2. Allegations of Misappropriation and Bogus Donations.
3. Violation of Principles of Natural Justice.
4. Evidence and Confrontation of Information.

Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3):
The primary issue in this case is the cancellation of the assessee's registration under Section 12AA(3) of the Income Tax Act, 1961. The CIT(E) cancelled the registration on the grounds that the assessee was not involved in any charitable activities and was misusing the provisions to deal in unaccounted money. The cancellation was effective from 01.04.2010.

2. Allegations of Misappropriation and Bogus Donations:
The CIT(E) based the cancellation on information received from the Investigation Wing, Kolkata, which indicated that the assessee was involved in re-donating funds to shell/bogus institutions after deducting a commission, thus laundering money. The report suggested that the assessee received hefty donations, primarily unaccounted money, which were then re-donated to other institutions.

3. Violation of Principles of Natural Justice:
The assessee argued that the order was passed in gross violation of the principles of natural justice. The show cause notice was issued on 13.02.2017 for compliance on 28.02.2017, providing insufficient time for the assessee to respond. The assessee also claimed that they had applied for an adjournment, which was not considered. Moreover, the information received from the Investigation Wing was not supplied or confronted to the assessee, which is a violation of the principles of natural justice.

4. Evidence and Confrontation of Information:
The Tribunal noted that the CIT(E) did not provide any evidence or material received from the Investigation Wing to the assessee for their comments. The Tribunal emphasized that any material collected at the back of the assessee cannot be used as evidence against them unless it is confronted to the assessee. The Tribunal relied on the decision of the Hon'ble Supreme Court in the case of Kishin Chand Chellaram v. CIT, which states that evidence collected behind the back of the assessee cannot be used against them without confrontation.

Tribunal's Findings:
1. Lack of Evidence: The Tribunal found that there was no legal admissible evidence on record against the assessee to prove that they received any donation from the companies mentioned in the Investigation Wing's report or that they were involved in any unaccounted cash transactions.

2. Violation of Natural Justice: The Tribunal held that the CIT(E) acted in haste and passed the order without providing sufficient time for compliance and without confronting the material to the assessee. This was a violation of the principles of natural justice.

3. Scientific Research Activities: The assessee provided detailed material to show that they were carrying out scientific research activities as per their objects. The donations received were used for scientific research purposes, and this was supported by audited accounts and other documentary evidence.

4. Precedent Cases: The Tribunal referred to similar cases, such as Fateh Chand Charitable Trust v. CIT (Exemptions), where the cancellation of registration was set aside due to the lack of confrontation of evidence and violation of natural justice.

Conclusion:
The Tribunal set aside the impugned order dated 28.02.2017 and restored the registration under Section 12AA of the Income Tax Act in favor of the assessee. The appeal of the assessee was allowed, and the Tribunal emphasized the importance of adhering to the principles of natural justice and providing sufficient evidence before taking such actions.

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