2021 (2) TMI 466 - AT - Income Tax

Exemption u/s 11 - cancellation of registration u/s 12AA - donations received from various concerns - HELD THAT - As regards the alleged donations received from various concerns mentioned in the impugned order, we are satisfied with the identity of the alleged donors, genuineness of the transaction of giving donation to the assessee trust since most of the alleged donors are either charitable trusts or known to the Directors/ Promoters and the transactions being carried out through banking channel and we are also satisfied with the creditworthiness of the alleged donors as they have sufficient financial strength to provide the donation to the assessee trust. As regards the alleged irregularity in education process noted by CBI the matter is still subjudice with the court and the order of Regulatory Authority namely Admission Fee Regulatory Committee stand stayed by the Hon'ble jurisdictional High Court vide stay order dated 23.7.2015 which is effective till date. The alleged irregularity is for one of the year in only one of the college run by the trust amongst other hospitals and colleges which are undisputedly providing charitable services in the field of medical and education. The issue of irregularity in admission process is not part of the show cause notice dated 6.12.2018 issued to the assessee in connection with the cancellation of registration u/s 12AA(3) of the Act which shows that assessee was not granted reasonable opportunity of being heard on this issue which in itself makes the proceedings bad in law. The issues raised in the show cause notice dated 6.12.2018 issued by Ld. PCIT are not relevant for cancellation of registration u/s 12AA(3) of the Act. Such types of issues can be examined by the Assessing Officer during the course of regular assessment proceedings wherein on the basis of his examination/ investigation necessary view as permissible in law can be taken if violation of Section 11 and Section 13 of the Act by the assessee are observed. Ld. PCIT can only cancel the registration u/s 12AA(3) of the Act if it is found that the activities of the society/trust are either not genuine or are not being carried out in accordance with its object provided in bye laws. Nothing on record has been brought before us by way of an independent enquiry by Ld. PCIT thereby collecting necessary evidence which can show that the activities of the assessee society are either not genuine or are not being carried out as per the objects of the society which were filed before the registering authority at the time of granting registration u/s 12AA of the Act. It is therefore established that the activities carried out by the appellant assessee society by way of running hospitals and medical colleges for the benefit of public at large and for the students are for charitable purposes only as provided in Section 2(15) of the Act. The impugned order of Ld. PCIT cancelling the assessee s registration granted u/s 12AA(1) of the Act deserves to be quashed - Decided in favour of assessee.

Summary

Issues Involved:
1. Cancellation of registration under Section 12AA of the Income Tax Act.
2. Genuineness of donations received by the assessee.
3. Alleged irregularity in the admission process at Chirayu Medical College.
4. Compliance with the principles of natural justice.

Detailed Analysis:

1. Cancellation of Registration under Section 12AA of the Income Tax Act:
The primary issue revolves around whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking Section 12AA(3) of the Income Tax Act to cancel the registration of the assessee society granted under Section 12AA, effective from 1.4.2011. The PCIT's decision was based on two main observations: alleged irregularity in the admission process at Chirayu Medical College and doubts about the genuineness and creditworthiness of donations received by the society.

2. Genuineness of Donations Received by the Assessee:
The PCIT questioned the genuineness of donations amounting to ?14,25,90,000 received from various entities, citing that some donors had shown very nominal income in their returns, which raised doubts about their creditworthiness. The assessee provided detailed submissions, including confirmation letters, resolutions, and other relevant documents to prove the identity, genuineness, and creditworthiness of the donors. These documents were also found during the search operation and were part of the seized material. The Tribunal observed that the assessee had discharged its burden under Section 68 of the Act by providing sufficient evidence to prove the genuineness of the donations and the creditworthiness of the donors.

3. Alleged Irregularity in the Admission Process at Chirayu Medical College:
The PCIT referred to a CBI charge sheet alleging irregularities in the admission process at Chirayu Medical College. However, this issue was not mentioned in the show cause notice issued to the assessee, thereby violating the principles of natural justice. The Tribunal noted that the matter was sub judice and the order of the Admission and Fee Regulatory Committee (AFRC) imposing a fine was stayed by the Hon'ble High Court of Madhya Pradesh. The Tribunal held that the PCIT's reliance on the CBI charge sheet without providing an opportunity to the assessee to defend itself was unjustifiable.

4. Compliance with the Principles of Natural Justice:
The Tribunal observed that the PCIT did not adhere to the principles of natural justice as the issue of irregularity in the admission process was not part of the show cause notice. The Tribunal emphasized that any order traveling beyond the bounds of the notice is impermissible and without jurisdiction. The Tribunal further noted that the PCIT did not make any independent enquiry or collect any evidence to prove that the activities of the assessee society were not genuine or were not being carried out in accordance with its objects.

Conclusion:
The Tribunal concluded that the PCIT was not justified in canceling the registration under Section 12AA of the Act. The Tribunal quashed the impugned order of the PCIT and directed the revenue authorities to restore the registration granted to the assessee society under Section 12AA of the Act with effect from 1.4.2011. The appeal of the assessee was allowed in full.