2022 (9) TMI 1411 - HC - Income Tax

Exemption u/s 11 - cancellation of registration u/s 12AA(3) based on money laundering activities carried out by the assessee with Herbicure Health Care Bio Herbal Research Foundation - whether the CIT (Exemption) CIT(E) was justified in cancelling the registration granted in favour of the respondent society that too with retrospective effect? - tribunal has allowed the appeal filed by the respondent taking note of the fact that the opportunity to cross-examine the persons who were in charge of the company which had extended a donation of Rs.50 lacs to the assessee was fatal - HELD THAT - On facts the tribunal found that the amount of Rs.50 lacs was being utilised for purchase of property and therefore even though the receipt of donation has to be treated as unexplained receipt of the assessee as per Section 68 the addition cannot be made because the assessee itself has applied the entire receipt for the objects of the assessee society. Further the learned tribunal after taking note of the various decisions of the High Court on facts found that the assessee has shown the donation as corpus fund and had applied the same by advance money to the land and building which was shown in the balance-sheet as at 31.3.2011 which was placed before the tribunal in the form of a paper book. Tribunal also found that the application of the said fund was admittedly for a charitable purpose in tune with the objects of the assessee society. Tribunal noted that the revenue did not dispute the fact that the donations received by the respondent were not applied for charitable purposes. On the grounds mentioned in the order the tribunal came to the conclusion that the activities of the assessee society cannot be terminated to be ingenuine or it cannot be held that the their activities are not in accordance with the objects of the assessee trust. Revenue placed reliance on the decision of Batanagar Education and Research Trust 2021 (8) TMI 139 - SUPREME COURT On going through the said decision we find that the same is factually distinguishable as in the said case the Hon ble Supreme Court brought out the answers which were culled out from the managing trustee of the said trust. A questionnaire had been given by the department. In the case on hand the tribunal has noted that in spite of specific request made by the assessee for cross-examination of two persons namely Sri Swapan Ranjan Dasgupta and Sri Kishen Bhawshingka which was rejected on the ground that the assessee society has indulged in ingenuine activities. In fact substantial part of the order passed by the learned tribunal has been devoted on the correctness of denial to afford an opportunity to cross-examine those two persons. Thus we find that the tribunal has considered the factual position and granted relief to the assessee - Appeal dismissed.

Summary

Issues Involved:
1. Cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961 based on money laundering activities.
2. Quashing of the order on the basis of perceived procedural lapses.
3. Allegations of non-genuine activities of the trust by the Commissioner of Income Tax (Exemption).

Issue 1: Cancellation of registration under Section 12AA(3) based on money laundering activities:
The appeal questioned whether the Tribunal was right in quashing the cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961 due to money laundering activities by the assessee. The Tribunal found that the donation received by the assessee was utilized for purchasing property, and even though the receipt of donation was treated as unexplained under Section 68, the addition could not be made as the donation was applied for the objects of the society. The Tribunal also noted that the donation was shown as corpus fund and used for a charitable purpose, in line with the society's objectives. Additionally, it was observed that the revenue did not contest that the donations were not applied for charitable purposes. Consequently, the Tribunal concluded that the activities of the society were genuine and aligned with its objectives.

Issue 2: Quashing of the order based on procedural lapses:
The second issue raised was whether the Tribunal was correct in quashing the order due to perceived procedural lapses, ignoring the truthfulness of the facts. The Tribunal highlighted that the denial of the opportunity to cross-examine two individuals crucial to the case was a significant factor in their decision. Despite the assessee's request for cross-examination being rejected on the grounds of alleged ingenuine activities, the Tribunal emphasized the importance of affording this opportunity. The Tribunal's decision was based on a thorough consideration of the factual circumstances, leading to the grant of relief to the assessee.

Issue 3: Allegations of non-genuine activities by the Commissioner of Income Tax (Exemption):
The final issue revolved around the Commissioner of Income Tax (Exemption) alleging that the activities of the trust were non-genuine. The Tribunal examined the facts and found that the trust had applied the donations for charitable purposes, as reflected in the balance-sheet and supported by documentary evidence. The Tribunal also noted that the revenue did not dispute the charitable application of the donations. By analyzing the facts and legal precedents, the Tribunal concluded that the activities of the trust were genuine and aligned with its stated objectives. The Tribunal's decision was based on a comprehensive evaluation of the evidence presented and the legal principles involved.

In conclusion, the High Court dismissed the appeal filed by the revenue, upholding the Tribunal's decision and answering the substantial questions against the revenue. The judgment emphasized the importance of factual considerations, procedural fairness, and alignment of activities with the objectives of the trust in determining the validity of the cancellation of registration under Section 12AA(3) of the Income Tax Act, 1961.