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TMI Blog2016 (11) TMI 1466X X X X Extracts X X X X X X X X Extracts X X X X ..... in the modes specified u/s 11(5) of the Act and trust carrying no charitable activity cannot be a ground for the cancellation of registration. the assessee has been giving donation in every year which has been duly accepted by the Revenue as evidenced from the income & expenditure account of the assessee of the financial statements which are placed on pages 91 to 130 of the paper book. The amount of donation given by the assessee trust over the several years to the other trust is very much charitable activities. There is also no adverse remark in the audit report about the investment made by the assessee. We also find that the notice for the cancellation of the registration certificate was issued under section 12AA(3). However, Ld. CIT(E) has also invoked the provisions of section 12AA(4) of the Act for cancelling the registration certificate which in our considered view against the principal of natural justice. The ld. CIT(E) before invoking the provisions of Section 12AA(4) should have issued the show cause notice. Therefore, we find that the proper opportunity to the assessee has not been furnished. We also find that the lower authority should have issued summon u/s 131 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with law. 5. For that the Ld. CIT (Exemption) erred in relying on the statement of Sri Rabindranath Lahiri Managing Trustee of Batanagar Education and Research Trust, when such statement itself was not admissible as evidence and further in spite of specific requests made, the said Sri Rabindranath Lahiri and the intermediaries were not produced for cross examination. In fact the Ld. CIT was not correct in observing that the assessee did not avail cross examination when no such cross examination was ever offered nor the parties to be cross examined were summoned for cross examination. 6. For that the Ld. CIT (Exemption) was not correct in observing that the assessee was allowed opportunity to cross examine when no such cross examination was allowed and there was o evidence to support the observation that the assessee s advocate was not prepared to come forward for cross examination. In fact even after the said date the assessee continuously requested for cross examination of all the parties but the Commissioner of Income Tax never responded to the said request. 7. For that the Ld. CIT (Exemption) erred in cancelling the registration u/s. 12AA(3) 12AA(4) withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed u/s 133A of the Act on 03.09.2015 in the case of trust namely Batanagar Education and Research Trust (for short BERT). The statement of the managing trustee i.e. Sri Rabindranath Lahiri of BERT was recorded. The relevant extract of the statement is reproduced below:- Q. 11. Please confirm the authenticity of the above mentioned Corpus Donation. Ans. A major part of the donations that were claimed exemption u/s. 11(1)(d) were not genuine. The donations received in FYs. 2008-09, 2009-10 and 2010-11 were genuine Corpus Donation received either from the Trustees or persons who were close to the Trustees or persons who were close to the Trustees. In FY 2011-12 and 2012-13 a part of the donation were genuine like the earlier years. However, a major part of the donations received in these two FYs viz. 2011-12 and 2012-13 shown as Corpus Donation, were in the nature of accommodation entries to facilitate two things:- a) To procure Loans from the Bank we had to show substantial amount of Capital Reserve in our Balance Sheet. b) We required funds for the expansion of our college. The fees received from the students along with genuine donations from the Trustees and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided by the Managing trustee of the BERT in his statement. As per the statement, the assessee trust has given donation of ₹ 20 Lacs in the AY 2012-13 to BERT through the banking Channel. But subsequently the cash was paid back to the assessee through the medium of certain outsiders. 5. On gathering the above information, the ld CIT(Exemption) has also called the other information in the relation to the activities carried on by the assessee in the last 5 AYs which depict as below:- Corpus donations and its applications:- A) Corpus donations AY 11-12 AY 12-13 AY 13-14 AY 14-15 AY 15-16 a) corpus donations (during year) 0.90 cr. 1.48 cr. 0.21 cr. 6.81 cr. 3.33 cr. b) corpus donations (upto) 2.89 cr. 4.37 cr. 4.59 cr. 11.41cr. 14.74 cr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in shares and mutual funds, fixed deposits etc. Accordingly the learned CIT observed that the trust is not doing any activity for its main objects but has diverted its activities in the trading of share, mutual funds, bonds and earning income in the form of dividend interest etc. The ld CIT has given several opportunities to the assessee to file the reply in contradiction of the statement and come forward for cross examination with the managing trustee of BERT but no positive response was received from the assessee. In view of above, the ld CIT observed the following facts and cancelled the registration certificate by observing as under:- a) Assessee trust has paid a sum of ₹ 20,00,000/- as bogus donation to M/s Batanagar Education Research Trust and received in cash. b) Trustees of the Trust have been benefitted out of the cash so received. c) They have violated the objects of the trust as covering cheque paid through donation and received in cash. d) Charity done through paid donation is not voluntary, merely an accommodation entry and fictitious. e) Moreover, trust was found to be doing business in shares, MFs, bonds, Main source f the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The ld. AR further submitted that the investments have been made by the assessee in all assessment years beginning from assessment year 2011-12 to assessment year 2015-16 within the provisions of sections 13(1)(d) and 11(5)(xii) of the Act. The ld. AR in support of his claim has drawn our attention on pages 91 to 130 of the paper book where the audited accounts with audit report are placed. The ld. AR has submitted the audited accounts for the assessment year 2011-12 along with the audit report separately which are placed on record. 3. The ld. AR also submitted that the ld CIT(Exemption) has no power to cancel the registration granted under section 12A/12AA of the Act retrospectively as per the provisions of section 12AA(3) of the Act. In this connection the learned AR has relied in the judgment of Hon ble High Court of Allahabad in the case of OXFORD ACADEMY FOR CAREER DEVELOPMENT vs. CHIEF COMMISSIONER OF INCOME TAX ORS, 315 ITR 382. The relevant extract of the judgment reads as under : Sec. 12AA(3) was incorporated in the Act w.e.f. 1st Oct., 2004 and not applicable retrospectively; registration granted to assessee on 1st April, 1999 could not therefore be cancelled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Jurisdictional High Court has held as under:- The law is now well-settled that the assessee is entitled to rely upon the certificate granted by the prescribed authority under s. 35CCA to the institution or association to which it had donated a sum of money for claiming deduction under that section which was valid and subsisting at the time the donation was made. The retrospective withdrawal and/or cancellation of the certificate will have no effect upon the assessee who has acted upon it when it was valid and operative. In the premises, there is no escapement of income of the assessee as a result of the allowance of deduction under s. 35CCA in the previous year relevant to the assessment year under consideration. The impugned notice of the ITO issued under s. 48 is, therefore, quashed and set aside State of Maharashtra vs. Suresh Trading Co. (198) 109STC 439 (SC) applied. The ld. AR further submitted that the name of the assessee is not appearing in the list of the persons to whom the amount of donation was returned by BERT in the form of booking of bogus capital expenditure under the head building. The person acting as conduit between the assessee and B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 11(5)(xii) of the Act. At this juncture it is important to reproduce the provisions of Rule 17C of Income Tax Rules 1962 for making the investment as per the provisions of section 11(5)(xii) of the Act which reads as under : [Forms or modes of investment or deposits by a charitable or religious trust or institution 17C. The forms and modes of investment or deposits under clause (xii) of subsection (5) of section 11 shall be the following, namely (i) Investment in the unit issued under any scheme of the mutual fund referred to in clause (23D) of section 10 of the Income-tax Act, 1961; 68 [***] (ii) Any transfer of deposits to the Public Account of India;] 69 [(iii) deposits made with an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both;] 70 [(iv) investment by way of acquiring equity shares of a depository as defined in clause (e) of sub-section (1) of section 2 71 of the Depositories Act, 1996 (22 of 1996);] 72 [(v) investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments of ld. AR. Therefore, this cannot be reasons for cancelling the registration certificate u/s 12A of the Act. Besides the above we also find that the ld. CIT(E) has not given any finding that the investment has been made assessee in contravention to the provisions of Section 11(5) of the Act. Merely the money invested in the modes specified u/s 11(5) of the Act and trust carrying no charitable activity cannot be a ground for the cancellation of registration. However we find that the assessee has been giving donation in every year which has been duly accepted by the Revenue as evidenced from the income expenditure account of the assessee of the financial statements which are placed on pages 91 to 130 of the paper book. The amount of donation given by the assessee trust over the several years to the other trust is very much charitable activities. There is also no adverse remark in the audit report about the investment made by the assessee, which is placed on pages 101 to 103 and 109 to 111 of the paper book. We also find that the notice for the cancellation of the registration certificate was issued under section 12AA(3) of the Act as evident from the notice placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust are not being carried out in accordance with the objects of the Trust. When the aforesaid two conditions are fully satisfied, on the ground that the trustees are misappropriating the funds of the Trust the registration of the Trust cannot be cancelled. If the trustees are misappropriating the funds, if they are maintaining false accounts, it is open to the authorities to deny the benefit under section 11 of the Income Tax Act, but that is not a ground for cancelation of registration itself. That is precisely what the Tribunal has held. Therefore, the substantial question of law is answered in favour of the assessee and against the revenue. There is no merit in this appeal. We also find support and guidance from the order of Hon ble ITAT Lucknow, in the case of Fateh Chand Charitable Trust versus CIT (Exemptions) in ITA No.792/LKW/2015 order dated 18.03.2016 where it was held as under : 22. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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