2022 (2) TMI 883 - HC - Income Tax

Exemption u/s 11 - cancellation of registration granted u/s 12A - money laundering activities conducted by the assessee trust with school of Human Genetics and Population Health and such activities has been established in other instances - Tribunal quashing the order of cancellation of registration - HELD THAT - The initial allegation in the show cause notice is that donation was received by the assessee and the same was returned in cash to the organisation - in the order of adjudication passed by the CIT(E) the allegation was totally different in the sense that the assessee paid cash to receive donation from the organisation. Even assuming that the name of the assessee trust figures in the list of donations given by the organisation, that by itself would not establish the allegation that the assessee was engaged in money laundering activities - CIT(E) has used the expression money laundering without noting the serious implications which flow from use of such expression. On a perusal of Section 3 of the Prevention of Money Laundering Act, 2002 assuming that such activity was being done by a person, it is rather doubtful to bring it under the definition of money laundering . Apart from that, the CIT(E) in paragraph 6.1 of the order dated 17th March, 2016 mentioned that the Treasurer and Secretary of the organisation were permitted to be cross-examined but the assessee trust did not avail the opportunity but merely filed their declaration on 13th January, 2016. The correctness of this finding was considered by the Tribunal and on going through the order-sheet maintained by the CIT(E) it was found that such finding was factually incorrect. As documents which were the basis for concluding that the registration granted in favour of the assessee should be cancelled were not furnished to the assessee. Therefore, the CIT(E) having committed a fundamental error cannot be granted for one more opportunity. Therefore, the tribunal was right in rejecting the prayer for remanding the proceedings and we are also of the view that the question of granting a further opportunity to the CIT(E) on the facts of the case on hand does not arise. Thus, for all the above reasons, we find no grounds to interfere with the order passed by the tribunal. - Decided against revenue.

Summary

Issues Involved:
1. Justification of the Tribunal in quashing the order of cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961.
2. Justification of the Tribunal in quashing the order of the Commissioner of Income Tax (Exemption) based on perceived procedural lapses.
3. Justification of the Tribunal's decision to quash the order instead of setting it aside for fresh adjudication.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal in quashing the order of cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961:

The Tribunal quashed the order of the Commissioner of Income Tax (Exemption) (CIT(E)) which had cancelled the registration of the assessee trust under Section 12AA(3). The CIT(E) alleged that the assessee was involved in money laundering activities by accepting donations and returning them through a web of financial transactions. However, the Tribunal found that the CIT(E) rendered a different finding from the allegation in the show cause notice, which initially accused the assessee of accepting bogus donations and returning the money in cash. The Tribunal noted that there was no material evidence to support the CIT(E)'s conclusion, and the statements relied upon by the CIT(E) did not mention the assessee trust specifically. The Tribunal also highlighted that the CIT(E) did not present the Treasurer and Secretary of the donor organization for cross-examination, which was a procedural lapse.

2. Justification of the Tribunal in quashing the order of the Commissioner of Income Tax (Exemption) based on perceived procedural lapses:

The Tribunal found procedural lapses in the CIT(E)'s order, including the failure to provide the assessee with copies of two letters that were allegedly imputed against them and the failure to present the Treasurer and Secretary of the donor organization for cross-examination. The Tribunal determined that these lapses violated the principles of natural justice. Additionally, the Tribunal noted that the CIT(E) did not doubt the genuineness of the assessee's activities or allege that the activities were not in accordance with the trust's objects. The Tribunal concluded that without such findings, the cancellation of registration under Section 12AA(3) was unjustified.

3. Justification of the Tribunal's decision to quash the order instead of setting it aside for fresh adjudication:

The Tribunal rejected the revenue's request to remand the case to the CIT(E) for fresh consideration. The Tribunal cited the Supreme Court's decisions in Kishinchand Chellaram v. Commissioner of Income-Tax and Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II, which emphasized that documents not furnished to the assessee and the failure to provide an opportunity for cross-examination cannot be grounds for remanding the case. The Tribunal found that the CIT(E) had committed fundamental errors that could not be rectified by granting another opportunity. The Tribunal also noted that the revenue could not be heard to request another opportunity to correct these defects, as this procedure is unknown to law.

Conclusion:

The High Court upheld the Tribunal's decision to quash the CIT(E)'s order cancelling the registration of the assessee trust. The Court found no grounds to interfere with the Tribunal's order, as the CIT(E) had committed procedural lapses and there was no material evidence to support the allegations against the assessee. The appeal was dismissed, and the substantial questions of law were answered against the revenue.