2017 (5) TMI 1486 - AT - Income Tax

Withdrawing/cancelling the registration granted to the assessee u/s 12A - grounds for cancellation for registration u/s 12AA(3) is that the activities of the trust should not be genuine or the activities of the trust are not being carried out in accordance with the objects of the trust - Held that - There is no material brought on record to come to a conclusion that the assessee was part of the scheme of money laundering and that the Donation received by the assessee from SHG&PH was also part of such scheme of money laundering. The assessee is a charitable Trust and receives donations from donors and has utilized the Donations for charitable purpose. In the given facts and circumstances it cannot be concluded that the assessee is not carrying out its objects or that the assessee s activities are not genuine. There is neither an allegation in the impugned order nor finding that any of the aforesaid conditions exist in the case of the assessee. We therefore are of the view that the cancellation of registration granted to the assessee u/s 12A of the Act cannot be sustained and the impugned order is hereby quashed. The appeal of the assessee is accordingly allowed. - Decided in favour of assessee.

Issues Involved:
1. Validity of the cancellation of registration granted under Section 12A of the Income Tax Act, 1961.
2. Allegation of the trust receiving bogus donations and involvement in money laundering activities.
3. Adherence to principles of natural justice, specifically the right to cross-examine witnesses.

Detailed Analysis:

1. Validity of the Cancellation of Registration Granted under Section 12A:

The Assessee, a charitable trust, had its registration under Section 12A of the Income Tax Act, 1961, canceled by the CIT (Exemptions), Kolkata, based on allegations that the trust's activities were not genuine and were not carried out in accordance with its objects. The Tribunal noted that the Assessee had been carrying out activities such as maintaining guest houses for pilgrims, constructing roads and gardens, providing medical camps, and distributing food and clothes to the poor, which were charitable in nature.

The Tribunal observed that the CIT(E) relied on statements from officials of SHG and PH, who alleged that SHG and PH were involved in providing bogus donation entries. However, these statements did not specifically implicate the Assessee in any wrongdoing. The Assessee had duly reflected the donations received in its books of accounts and utilized them for charitable purposes. Thus, the Tribunal concluded that the cancellation of registration was not justified as the activities of the trust were genuine and carried out in accordance with its objects.

2. Allegation of the Trust Receiving Bogus Donations and Involvement in Money Laundering Activities:

The CIT(E) alleged that the Assessee received a bogus donation of Rs. 18 lakhs from SHG and PH, which was involved in providing accommodation entries for donations. The CIT(E) based this conclusion on statements from SHG and PH officials, who claimed that donations were returned to donors after retaining a commission.

The Tribunal found that these allegations were based on surmises and conjectures without concrete evidence. The Assessee had denied any involvement in money laundering activities and had provided documentation showing the receipt and utilization of donations for charitable purposes. The Tribunal emphasized that there was no material evidence to prove that the Assessee had returned the donation amount to SHG and PH or was part of any money laundering scheme.

3. Adherence to Principles of Natural Justice, Specifically the Right to Cross-Examine Witnesses:

The Tribunal highlighted that the CIT(E) did not provide the Assessee with an opportunity to cross-examine the officials of SHG and PH, whose statements were used as the basis for canceling the registration. The Tribunal referred to the Supreme Court's decision in Andaman Timber Industries vs. CCE, which held that reliance on statements without allowing cross-examination violates principles of natural justice and renders the order a nullity.

The Tribunal noted that the CIT(E) failed to confront the Assessee with the letters and statements from SHG and PH officials and did not allow cross-examination, which was a serious flaw in the proceedings. Consequently, the Tribunal held that the cancellation of registration was not sustainable.

Conclusion:

The Tribunal quashed the order of the CIT(E) canceling the registration granted to the Assessee under Section 12A of the Income Tax Act, 1961. The Tribunal concluded that the Assessee's activities were genuine and carried out in accordance with its objects. Additionally, the Tribunal emphasized the importance of adhering to principles of natural justice, specifically the right to cross-examine witnesses, which was not afforded to the Assessee in this case. The appeal by the Assessee was allowed.

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