2018 (2) TMI 1080 - AT - Income Tax

Registration granted u/s. 12A cancelled - proof of charitable activities - assessee received donation in lieu of cash from M/s. Herbicure - Held that - Registration granted u/s. 12AA of the Act cannot be cancelled without infraction of law as contemplated u/s. 12AA(3) of the Act. As per the requirement of section 12AA(3) of the Act, the Ld. CIT(E) has to be satisfied that the activities of the trust or institution are ingenuine or are not being carried out in accordance with the object of the trust or institution. When the assessee is carrying out the object of the trust for which it was created and has applied the donation it received from M/s. Herbicure for the objects for which it has been created, the assessee Trust cannot be termed to be ingenuine or cannot be held to be not carrying out its activity in accordance with the object of the trust. Therefore, we set aside the order of the Ld. CIT(E) and allow the appeal of the assessee.

Issues Involved:
1. Cancellation of registration granted under section 12A of the Income-tax Act, 1961.
2. Allegations of money laundering and ingenuine activities by the assessee Trust.
3. Evidentiary value of statements recorded during survey operations under section 133A.
4. Application of donations received for charitable purposes.
5. Violation of principles of natural justice.

Detailed Analysis:

1. Cancellation of registration granted under section 12A of the Income-tax Act, 1961:
The primary issue revolves around the cancellation of the registration granted to the assessee Trust under section 12A of the Income-tax Act, 1961. The Ld. CIT(E) cancelled the registration w.e.f. 01.04.2010, citing that the Trust was involved in money laundering activities. The Trust, established in 1981, had received its registration under section 12AA on 14.07.2010. The Ld. CIT(E) based his decision on the survey operation conducted at M/s. Herbicure Healthcare Bio-Herbal Research Foundation, where the founder-director admitted to accepting donations and returning them after retaining a commission.

2. Allegations of money laundering and ingenuine activities by the assessee Trust:
The Ld. CIT(E) alleged that the Trust was involved in money laundering, based on the statement of Shri Swapan Ranjan Dasgupta, founder-director of M/s. Herbicure, recorded during a survey. The statement indicated that donations were accepted and returned in cash after retaining a commission. The Trust received a donation of ?2.90 lakhs from M/s. Herbicure in AY 2011-12, which led to the notice for cancellation of registration. The Trust denied these allegations and provided documentation showing the application of the donation for its objectives.

3. Evidentiary value of statements recorded during survey operations under section 133A:
The Tribunal noted that the statement of Shri Swapan Ranjan Dasgupta, recorded during the survey under section 133A, cannot be the sole basis for the cancellation of registration. The Supreme Court in S. Kader Khan Sons (2013) 352 ITR 480 (SC) held that statements recorded under section 133A do not have evidentiary value as they are not recorded under oath. Therefore, the statement alone cannot substantiate the allegations against the Trust.

4. Application of donations received for charitable purposes:
The Trust provided evidence that the donation of ?2.90 lakhs received from M/s. Herbicure was applied for its charitable objectives. The Tribunal observed that even if the donation were to be treated as unexplained income under section 68, no addition could be made as the Trust had applied the entire amount for its charitable purposes. This position is supported by the Hon'ble Allahabad High Court in CIT Vs. Uttaranchal Welfare Trust 42 taxman.com 361, which held that section 68 does not apply where donations are disclosed as income and applied for charitable purposes.

5. Violation of principles of natural justice:
The Tribunal highlighted that the Trust was not given an opportunity to cross-examine Shri Swapan Ranjan Dasgupta and Shri Kishan Bhawasingka, whose statements were the basis for the cancellation of registration. The Supreme Court in Andaman Timber Industries Vs. Commissioner of Central Excise 62 Taxman.com 3 held that denying cross-examination is a violation of natural justice, rendering the order null and void. Consequently, the Tribunal found the cancellation of registration legally unsustainable due to this procedural flaw.

Conclusion:
The Tribunal set aside the order of the Ld. CIT(E) and allowed the appeal of the assessee Trust, reinstating its registration under section 12A of the Income-tax Act, 1961. The Tribunal emphasized that the Trust's activities were genuine and aligned with its objectives, and the sole reliance on the statement recorded during the survey was insufficient for the cancellation of registration. The appeal was allowed, and the order was pronounced in the open court on 05.02.2018.

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