2017 (9) TMI 1943 - AT - Income Tax

Exemption u/s 11 - cancelling the registration of the appellant u/s 12AA(3) - assessee had received a corpus donation - genuineness of the donations given by HHBHRF - HELD THAT - There is no evidence whatsoever brought on record to show that the cash was paid by the assessee which in turn reached the hands of HHBHRF which was returned in the form of donation to the assessee after retaining the commission. As already observed that the answer to question no.22 given by Shri Swapan Ranjan Dasgupta referred to donations given in the financial year 2011-12 as bogus donations. With regard to the donations received/given prior to 31.03.2011 there is no reference to such donations given or received by HHBHRF being in the nature of bogus donations. The assessee had received the donation from HHBHRF on 03.03.2011. It is therefore not possible to place reliance on the statement recorded at the time of survey and come to a conclusion that the assessee has been indulging in money laundering. In answer to question no.23 Shri Swapan Ranjan Dasgupta founder director of HHBHRF has made reference to certain middle men who are engaged in money laundering using HHBHRF as a medium for money laundering. There is no evidence brought on record to show any connection between those brokers and the assessee. In the absence of such corroborative evidence it is not possible to come to any conclusion that the assessee indulged in money laundering and that the donation received by the assessee from HHBHRF was a bogus donation. As the grounds for cancellation for registration u/s 12AA(3) of the Act 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. 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.

Summary

Issues Involved
1. Legality of the cancellation of the appellant's registration under Section 12AA(3) of the Income Tax Act, 1961.
2. Examination of the reasons provided by the CIT(E) for the cancellation.
3. Analysis of the genuineness of the appellant's activities.
4. Examination of the Corpus Donation of Rs. 85,000 received from Herbicure Healthcare Bio-Herbal Research Foundation (HHBHRF).
5. Violation of principles of natural justice due to lack of opportunity for cross-examination.
6. Lack of specific information regarding the genuineness of the corpus donation.
7. Satisfaction of conditions prescribed in Section 12AA(3) for cancellation.
8. Retrospective effect of the cancellation from 1.4.2010.

Detailed Analysis

1. Legality of the Cancellation of Registration:
The appellant contended that the order dated 6.1.2017 by the CIT(E) cancelling the registration under Section 12AA(3) with effect from 1.4.2010 is bad in law and on facts. The Tribunal found that the CIT(E) did not provide sufficient evidence to justify the cancellation, and the order was based on unverified statements.

2. Reasons for Cancellation:
The CIT(E) cited the survey operation on HHBHRF and the alleged money laundering activities as the reasons for cancellation. However, the Tribunal noted that the statement of HHBHRF’s director did not incriminate the appellant and referred to periods after the donation was received by the appellant. The Tribunal concluded that the reasons given by the CIT(E) were not substantiated by concrete evidence.

3. Genuineness of Appellant's Activities:
The CIT(E) claimed that the appellant’s activities were not genuine and not in accordance with its objects. The Tribunal found no evidence to support this claim. The appellant had been carrying out charitable activities, and there was no proof that the activities were not genuine or deviated from the trust's objectives.

4. Examination of the Corpus Donation:
The CIT(E) alleged that the Rs. 85,000 donation from HHBHRF was an accommodation entry. However, the Tribunal noted that the donation was received through a cheque and duly accounted for. There was no evidence that the appellant engaged in money laundering or that the donation was bogus.

5. Violation of Natural Justice:
The appellant argued that the cancellation was done without providing an opportunity for cross-examination of HHBHRF’s director, violating principles of natural justice. The Tribunal agreed, stating that the appellant should have been given a chance to cross-examine the director to refute the allegations.

6. Lack of Specific Information on Genuineness:
The CIT(E) failed to provide specific information regarding the genuineness of the corpus donation. The Tribunal emphasized that mere suspicion or unverified statements could not form the basis for cancellation of registration.

7. Satisfaction of Conditions in Section 12AA(3):
The Tribunal highlighted that for cancellation under Section 12AA(3), it must be shown that the trust’s activities are not genuine or not in accordance with its objects. The CIT(E) did not provide any evidence to satisfy these conditions. Therefore, the cancellation was deemed unjustified.

8. Retrospective Effect of Cancellation:
The Tribunal found that the retrospective cancellation from 1.4.2010 was not supported by the provisions of the Act. The cancellation should not have been applied retrospectively without clear evidence of wrongdoing during that period.

Conclusion
The Tribunal concluded that the CIT(E) did not have sufficient grounds or evidence to cancel the appellant's registration under Section 12AA. The cancellation order was quashed, and the appeal of the assessee was allowed. The Tribunal emphasized the importance of concrete evidence and adherence to principles of natural justice in such matters.