2016 (4) TMI 1119 - AT - Income Tax

Registration u/s 12AA denied - Held that - Undisputedly the assessee has taken receipt of donation as part of its income and the same was applied for charitable purposes and these facts are borne out from the consolidated balance sheet of the assessee available at page 8 of the compilation of the assessee. The Revenue has not made out a case that the donation received by the assessee was not taken as part of income and was applied for non-charitable purposes. The allegation of the Revenue is only that the donation was received by the assessee on making payment in cash to M/s Herbicure Health Care Bio Herbal Research Foundation but to substantiate this claim no evidence was brought on record by the Revenue. It was simply an oral assertion and moreover the assessee was not afforded any opportunity to cross-examine the witness whose statement was relied on by the ld. Commissioner of Income Tax (Exemptions) for cancellation of registration under section 12AA of the Act earlier granted to the assessee. Even assuming for the sake of argument that if the assessee has received donation on making payment in cash and it may be his own money which was introduced in the trust through circuitous means but it was applied for charitable purposes therefore it cannot be added under section 68 of the Act. Thus even on merit we do not find any force in the allegations raised by the Revenue. The ld. Commissioner of Income Tax (Exemptions) has cancelled the registration under section 12AA of the Act on the basis of conjunctures and surmises as he has observed in his order that the assessee might have been charging capitation fee from the parents of the students but in this regard no evidence was brought on record. It is also obvious from the record that the ld. Commissioner of Income Tax (Exemptions) has passed an order on the same day when the assessee has furnished detailed explanation in writing and even without verifying the same. - Decided in favour of assessee.

Issues Involved:
1. Legality and factual correctness of the cancellation of registration under section 12AA of the Income Tax Act, 1961.
2. Allegations of the trust receiving voluntary donations in exchange for cash and charging capitation fees.
3. Violation of principles of natural justice by not confronting the assessee with evidence or allowing cross-examination.
4. Opportunity to show cause not provided to the assessee.

Issue-wise Detailed Analysis:

1. Legality and Factual Correctness of the Cancellation of Registration:
The appeal concerns the cancellation of the assessee's registration under section 12AA of the Income Tax Act, 1961. The registration was initially granted to the trust for charitable purposes, specifically for education and medical aid. The Commissioner of Income Tax (Exemptions) cancelled the registration based on a report alleging that the trust received bogus donations in exchange for cash. The Tribunal found that the cancellation was based on conjectures and surmises without substantial evidence. The Tribunal noted that the assessee had denied the allegations and provided a detailed reply, which the Commissioner did not adequately consider.

2. Allegations of Receiving Voluntary Donations in Exchange for Cash and Charging Capitation Fees:
The Commissioner alleged that the trust received a donation of ?1 crore from M/s Herbicure Health Care Bio Herbal Research Foundation in exchange for cash and charged capitation fees from students. The assessee denied these allegations, stating that the donation was received by cheque and was confirmed by the donor. The Tribunal observed that there was no evidence to substantiate the claim that the donation was received in exchange for cash. Furthermore, the Tribunal noted that even if the donation was considered unexplained, it was applied for charitable purposes, and thus, section 68 of the Act would not apply.

3. Violation of Principles of Natural Justice:
The Tribunal found that the principles of natural justice were violated as the assessee was not confronted with the evidence or allowed to cross-examine the witness whose statement was relied upon for the cancellation. The Tribunal emphasized that any evidence collected at the back of the assessee cannot be used adversely unless it is confronted to the assessee and the assessee is allowed to cross-examine the witness. The Tribunal cited several judicial pronouncements, including the Hon'ble Apex Court's decision in Andaman Timber Industries vs. Commissioner of Central Excise, which held that denial of cross-examination is a serious flaw that makes the order nullity.

4. Opportunity to Show Cause Not Provided:
The Tribunal noted that the Commissioner issued the show cause notice on 13.11.2015, and the hearing was adjourned to 27.11.2015. On the same day, the Commissioner passed the order cancelling the registration without providing a meaningful opportunity to the assessee to show cause. The Tribunal found that the assessee was not given sufficient time to respond to the allegations, and the order was passed hastily without considering the detailed reply and documents submitted by the assessee.

Conclusion:
The Tribunal set aside the order of the Commissioner of Income Tax (Exemptions) cancelling the registration under section 12AA of the Act, finding that the cancellation was based on unsubstantiated allegations, violation of principles of natural justice, and lack of meaningful opportunity to the assessee to show cause. The appeal of the assessee was allowed.

← Previous Next →