2022 (3) TMI 159 - HC - Income Tax

Exemption u/s 11 - cancellation of registration under Section 12AA(3) based on money laundering activities carried out by the assessee trust - Tribunal quashing the order for cancellation of registration AND holding that there is no allegations in the order of the Commissioner of Income Tax (Exemption), that the activities of the trust are not genuine or that activities are not carried out in accordance with the object of the trust - HELD THAT - Tribunal found that there is no evidence on record to show any connection between the assessee and the brokers and in the absence of any evidence it is not possible to come to any conclusion that the assessee indulged in money laundering and the donation as received by them was a bogus donation. The tribunal also noted that the facts of the assessee s case were identical to that of the case in Sri Mayapur Dham Pilgrim and Visitors Trust - tribunal noted that the CIT(E) did not dispute the fact that the assessee was running an educational institution in the State of Haryana imparting education to 2993 students and during the year 2013-14 they have received donation of ₹ 7,71,02,000/- from 172 parties which were placed in the form of paper book before the tribunal. Further, the tribunal held that CIT(E) has not doubted the genuineness of the other donations except for two parties. With regard to the genuineness of the activities of the assessee, the tribunal noted that the assessee was catering to the need for high quality English medium school for around 100 villages at Bahal and they have ventured into the field technical education for establishing an engineering college apart from running fully free school since 2010 where under privileged students of the society are imparted free education. That apart, the tribunal also noted that the CIT(E) has not doubted the charitable activities done by the assessee trust either to be not genuine or not being carried on in accordance with the objects for which the trust was formed. - Decided against revenue.

Summary

Issues:
1. Cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961 based on money laundering activities.
2. Allegations of non-genuine activities by the trust and violation of principles of natural justice.

Analysis:
1. The appeal was filed against the order canceling the registration of the trust under Section 12AA(3) of the Income Tax Act, 1961 due to alleged money laundering activities. The investigation department accused the trust of engaging in money laundering through donation transactions. However, the tribunal found a violation of natural justice as the trust was not granted the opportunity for cross-examination, which was crucial for the case. The tribunal also highlighted that statements made without the opportunity for cross-examination have no evidentiary value, citing relevant legal precedents. Moreover, the tribunal found no concrete evidence linking the trust to money laundering activities, emphasizing the importance of evidence in such cases.

2. The allegations of the trust's non-genuine activities were based on the withdrawal of approval by the Commissioner of Income Tax (Exemption) and accusations of not operating in line with the trust's objectives. The tribunal noted that the trust was involved in educational and charitable activities, catering to the educational needs of underprivileged students. It highlighted the trust's genuine charitable endeavors, including running a free school and an engineering college. The tribunal compared the case with similar precedents and emphasized that the trust's activities were in line with its objectives. The tribunal also pointed out that the Commissioner did not dispute the trust's educational initiatives and the genuineness of most donations received by the trust. Ultimately, the tribunal ruled in favor of the trust, dismissing the revenue's appeal and affirming the tribunal's decision, concluding that the trust's activities were genuine and aligned with its charitable objectives.

In conclusion, the High Court of Calcutta upheld the tribunal's decision, emphasizing the importance of evidence, principles of natural justice, and the genuine charitable activities of the trust in resolving the issues raised in the appeal.