2019 (2) TMI 181 - SC - Income Tax

Cancellation of Registration u/s 12AA - charitable activity - bogus donation - Held that - In the proceedings initiated for the cancellation of registration mainly it was the case of the assessee that proceedings for cancellation were initiated only on the ex-parte statement of the representative of the donor without giving any opportunity to the assessee. Though a survey was also conducted on the assessee but nothing adverse was found during such survey to support the case of the appellant to cancel the registration. Also brought to our notice the various provisions of the Act but at the same time in support of the arguments that all donations are not exempted but having regard to the reasons recorded in the impugned order it is not necessary for us to delve deep at this stage. From the perusal of the order passed by the High Court it is clear that the High Court has allowed the Writ Petition mainly on one ground namely that one bogus donation would not establish that the activities of the trust are not genuine. A reason assigned by the High Court is erroneous and runs contrary to the plain language of Section 12AA(3). In view of the serious allegations made against the respondent trust it is a matter for consideration of the issue after giving opportunity as pleaded by the respondent but the High Court has committed error in entertaining the appeal against the remand order passed by the appellate- authority and in quashing the order of cancellation of registration. We are of the view that the order impugned is liable to be set aside and the same is accordingly hereby quashed and set aside.

Summary

Issues:
Cancellation of registration of a trust under Section 12AA of the Income Tax Act, 1961 based on allegations of money laundering through bogus donations.

Analysis:
The civil appeal was filed by the Commissioner of Income tax (Exemptions), Kolkata, challenging the High Court of Calcutta's order dated 18.09.2017 in I.T.A No.7 of 2017. The respondent, a registered trust under Section 12AA of the Income Tax Act, was accused of receiving a bogus donation of ?37,00,000 in cash, leading to the initiation of proceedings for cancellation of registration. The primary authority canceled the trust's registration under Section 12AA(3) of the Act, citing activities of money laundering and violation of trust objectives through bogus donations and commission payments to agents.

The respondent appealed the cancellation order to the Income Tax Appellate Tribunal, which remanded the matter to the primary authority for fresh consideration, emphasizing the need to provide an opportunity for cross-examination of the donor's representative. Subsequently, the High Court of Calcutta allowed the appeal, quashing the cancellation order, stating that a single bogus donation does not necessarily prove the trust's activities are not genuine, and multiple such transactions would be required for such a conclusion.

The Supreme Court, upon hearing both parties, found the High Court's reasoning erroneous and contrary to Section 12AA(3) of the Act. The Court emphasized the serious allegations of money laundering against the trust and set aside the High Court's order, directing the Commissioner of Income Tax (Exemptions), Kolkata to reconsider the matter on its own merit, without being influenced by previous decisions.

In conclusion, the Supreme Court allowed the appeal, quashed the High Court's order, and directed a fresh consideration of the issues by the Commissioner of Income Tax (Exemptions), Kolkata, without expressing any opinion on the merits of the case.