URMILA DEVI CHARITABLE TRUST,NEW DELHI vs. CIT(E), LUCKNOW

The assessee has raised the following grounds of appeal :-

(i) That the reasons given for cancellation of registration u/s 12AA(3) of the Act are contrary to law and facts since the appellant being a trust exists solely for

(i) The ld. Commissioner of Income-tax (Exemptions) has erred in cancelling the registration of the applicant on the ground that applicant has received voluntary donation in exchange of cash and was not justified in stating without any basis that the applicant is not doing any charity but it is making clear profits.

The Ld. Commissioner of Income-tax (Exemptions) was not justified in cancelling the registration without giving any meaningful opportunity to the appellant to show cause.

The appellant craves leave to add, amend or modify any ground before or at the time of hearing of the appeal.”

At the time of hearing before us, the learned counsel for the assessee argued at length which can be summarized as below.

That learned CIT(Exemptions) cancelled the registration granted under Section 12AA(3) on the allegation that the assessee had received the donation of `85 lakhs in lieu of cash from M/s Herbicure Healthcare Bio-Herbal Research Foundation (hereinafter referred to as HHBRF) of Kolkata during the assessment year 2011-12. The above

Learned counsel further stated that as per Section 12AA(3), where a trust has been granted registration, it can be revoked by this Section only when the Commissioner is satisfied that the activities of such trust or institution are not genuine or not being carried out in accordance with the objects of the trust or the institution. That in this case, none of these two conditions is satisfied. Learned CIT(Exemptions) first made an allegation that assessee has received donation of `85 lakhs by paying cash to HHBRF and then based upon the said allegation, further presumed that the assessee trust is carrying out some business outside the books and therefore, the activities of the assessee are not being carried out in accordance with the objects of the society. He stated that the entire order of learned CIT is based upon presumptions and suspicion without giving any specific finding or any specific instance where the assessee carried out any activity which is outside the purview of the trust or the institution.

Learned counsel further argued that learned CIT(Exemptions) issued notice for cancellation of registration on 25th January, 2016 but the registration was cancelled with retrospective effect from 1st April, 2010. This act of the Assessing Officer is contrary to the decision of Hon'ble Jurisdictional High Court in the case of ACIT Vs. Agra Development Authority – [2018] 407 ITR 562 (Allahabad). He, therefore, stated that the order of the CIT passed under Section 12AA(3) may be cancelled.

Learned CIT-DR, on the other hand, relied upon the order of learned CIT(Exemptions) and he stated that the CIT, after considering the evidences on record with him, has arrived at the conclusion that the assessee was earning income outside the books. Obviously, such income could have been earned from the activity which is not as per the object of the trust. Therefore, learned CIT(Exemptions) was fully justified in withdrawing the exemption granted to the assessee. He has also relied upon the decision of Hon’ble Apex Court in the case of ITO Vs. M. Pirai Choodi – [2011] 334 ITR 262 (SC). In addition to above, learned CIT-DR also filed written submissions, which read as under :-

As mentioned in para 2 of order u/s 12AA, vide letter dated 12.10.2015, M/s Herbicure Health Care Bio Herbal Research Foundation admitted that as per directions of brokers they received cash in lieu of donations given by cheque.

As mentioned in para 3 of order u/s 12AA, in response to question no 22, Sh. Swapan Ranjan Das Gupta, founder of M/s Herbicure Health Care Bio Herbal Research Foundation admitted that through Mr. Kishan Bhawasingka,

The above evidences clearly prove that activities of the trust are not genuine since it had received donation of Rs.85,00,000/- from M/s Herbicure Health Care Bio Herbal Research Foundation.

Despite being given adequate opportunity, assessee has not been able to refute the above evidences. Hence, cancellation of registration is perfectly justified.

UP Distillers Association vs CIT (2017-TIOL-2253-HC-DEL-IT) (copy enclosed) Where Hon'ble Delhi High Court held that registration granted to a trust can be cancelled u/s 12AA(3), by relying upon the statement of concerned person recorded u/s 132(4).

UP Distillers Association vs CIT (2018-TIOL-138-SC-IT)(copy enclosed) Where Hon'ble Supreme Court dismissed SLP of the assessee holding that registration granted to a trust can be cancelled u/s 12AA(3), by relying upon the statement of concerned person recorded u/s 132(4).

Scientific Educational Advancement Society Vs Union of India [2009] 179 Taxman 155 (Punjab & Haryana)/[2010] 323 ITR 84 (Punjab & Haryana)(copy enclosed).

M/s Joginpally BR Educational Society Vs CIT ITA No.585/Hyd/2012 (copy enclosed).”

We have carefully considered the arguments of both the sides and perused the material placed before us. Section 12AA of the Act reads as under :-

From a plain reading of the above Section, it is evident that the Principal Commissioner or Commissioner registers the trust or institution under sub-section (1) and he has been given the power under sub-section (3) to cancel the registration granted under sub- section (1). However, under sub-section (3), he can cancel the registration granted under sub-section (1) only when he is satisfied –

In the case under appeal before us, the CIT has cancelled the registration granted under Section 12AA(1) on the alleged ground that the trust had received the donation of `85 lakhs from HHBRF in lieu of cash. The above finding of the CIT(Exemptions) is based upon the report received from CIT(Exemptions), Kolkata. On the basis of above, the CIT(Exemptions), Lucknow has held that the activities of the society cannot be said to be carried out in accordance with the objects of the society. At the same time, he further drew the inference that no genuine activities are being carried out by the assessee. The learned counsel for the assessee has stated before us that the assessee has repeatedly requested for the supply of any material in the possession of the Department on the basis of which the allegation has been made against the assessee. However, no such material was supplied to the assessee. Therefore, no adverse inference can be drawn against the assessee in this regard. Learned DR, on the other hand, stated that the exact charge against the assessee i.e., it has received a donation from HHBRF in lieu of cash has been mentioned in the show cause notice itself. We find that in the order under Section 12AA(3), the CIT(Exemptions) has reproduced the assessee’s written submission from page 3 to 6 of his order. Paragraph 7 & 8 of such letter read as under :-

Since, no information has been received by the assessee on the above request from your honor’s office, this reply to the show cause notice under reference may kindly be considered as an interim reply only. It is again requested that the impugned information/documents may kindly be supplied to the assessee at the earliest so that a final reply can be filed.”

Thus, the assessee made a specific request for the supply of material on the basis of which the allegation of receiving the donation in lieu of cash is levied against the assessee. The assessee has also requested for supply of the copy of the statement, if any, recorded by the Revenue of any person in this regard. He has also requested for allowing an opportunity of cross examination of the concerned person whose statement is recorded. The CIT has considered the assessee’s written submission at pages 6 & 7 of his order. However, in the CIT’s finding, it is nowhere mentioned that the material which is being used against the assessee has been supplied to him. In paragraph 9, the CIT has considered and relied upon the report of CIT(Exemptions), Kolkata. For ready reference, the same is reproduced below :-

Similarly, in paragraph 13, which reads as under, he has relied upon the statement on oath and the letter signed by HHBRF :-

However, in the order of the CIT(Exemptions), it is nowhere mentioned whether the letter of CIT(Exemptions), Kolkata, letter of HHBRF and the copy of the statement referred in paragraph 13 was supplied to the assessee, much less the cross-examination of the person whose statement is being relied upon. It is settled law that any material collected behind the back of the assessee cannot be used against him unless he is supplied the copy of such material and is allowed an opportunity to rebut the same. Similarly, any statement recorded behind the back of the assessee cannot be used against him unless the assessee is supplied the copy of the statement and is allowed an opportunity to cross-examine. We find that under identical situation, Hon’ble Apex Court in the case of M/s Andaman Timber Industries (supra) held the order of the adjudicating authority which was based upon the statement of two witnesses relied upon by the adjudicating authority without allowing the cross-examination to the assessee. The relevant finding of the said decision reads as under :-

We find that the facts of the assessee’s case are identical. In this case also, the assessee before the CIT(Exemptions) requested for supply of the material, if any, which is proposed to be utilized against the assessee. He also requested for the cross-examination of the person whose statement is being relied upon by the Revenue. The CIT(Exemptions) has mentioned the request of the assessee in his order which has already been reproduced by us above. However, he adjudicated the matter relying upon the same material without supplying the copy to the assessee and also the said statement without allowing cross-examination to the assessee. As was pleaded before the Tribunal in the case of M/s Andaman Timber Industries (supra), in this case before us also, it is pleaded that the cross- examination of such witness was not essential because he is the person from whom the assessee received the donation and therefore, he is the witness of the assessee and not of the Revenue. We find that in the aforesaid case before the Hon’ble Apex Court, the Tribunal had accepted the request of the Revenue which was deprecated by the Hon’ble Apex Court. Hon’ble Apex Court came to the conclusion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action. Identical is the situation in the appeal before us. If the material collected behind the back of the assessee and the statement recorded behind the back of the assessee is discredited or ignored, there was no material with the Department on the basis of which it could justify its action. Therefore, in our opinion, the above decision of Hon’ble Apex Court would be squarely applicable.

Learned DR has also relied upon the decision of Hon'ble Jurisdictional High Court in the case of UP Distillers Association (supra) and has also pointed out that the SLP filed by the assessee against the above decision was dismissed by the Hon’ble Apex Court. From a perusal of the above decision, we find that the facts in the aforesaid case were altogether different. In the aforesaid case, there was search and seizure operation on the assessee i.e., UP Distillers Association and during the course of such search, the material was found as well as statement of Shri R.K. Miglani was recorded under Section 132(4). Thus, the facts in the aforesaid case were altogether different. In the case of the assessee, there is no search but the Department is relying upon some letter claimed to have been received from CIT(Exemptions) and the statement of some office bearers of HHBRF. Learned DR has also relied upon the decision of Hon’ble Punjab & Haryana High Court in the case of Scientific Educational Advancement Society (supra). We find that the facts in the above case were also altogether different. In the aforesaid case, a piece of land belonging to the assessee society was sold to a private builder. The builder built flats on the said land. Subsequently, the assessee society purchased two farm houses constructed by the same builder. The Chairman of the assessee society alongwith his family members used to visit farm houses on weekend and no permission from any prescribed authority had been obtained for operating any educational institution on the property purchased. The Chief Commissioner, therefore, took a view that there was nothing on record to show that the assessee society intended to carry out any educational activities on the land purchased and accordingly rejected the assessee’s claim seeking exemption under Section 10(23C). Thus, clearly, the facts of the assessee’s case are altogether different than the facts before the Hon’ble Punjab & Haryana High Court in the aforementioned case.

In view of the above, we are of the opinion that the decision of Hon’ble Apex Court in the case of M/s Andaman Timber Industries (supra) would be squarely applicable and, respectfully following the same, we hold that the material collected behind the back of the assessee cannot be utilized against the assessee unless the copy of the same is supplied to the assessee and he is given an opportunity to rebut the same. Similarly, the statement of office bearers of HHBRF cannot be utilized against the assessee because neither the copy of the statement was supplied to the assessee nor the assessee was allowed an opportunity to cross-examine such person whose statement is being sought to be relied upon by the CIT(Exemptions). Once these two documents are ignored, there remains no material for the Department to hold that the assessee received the donation from HHBRF in lieu of cash. The CIT(Exemption)’s finding, that the assessee was not carrying out activities in accordance with the objects of the society and no genuine activities are being carried out by the society, is solely based upon the allegation that the assessee received the donation of `85 lakhs in lieu of cash. As we have already stated, there is no basis for the Department to hold that the assessee received the donation of `85 lakhs from HHBRF in lieu of cash. Further, merely because the genuineness of one donation in one year is doubted, it cannot be a ground to draw the inference that the activities of the assessee society are not being carried out in accordance with the objects of the society or that no genuine activities are being carried out by the assessee. That if the genuineness of a donation in one year is doubted, the addition, if any, can be made in the assessment of the relevant assessment year in accordance with law. However, that, by itself, would not be sufficient to withdraw the registration under Section 12AA(3). If the genuineness of a donation is doubted, at the most, it can be a ground to examine deep into the activities of the society so as to ascertain whether the activities of the society are

Learned counsel for the assessee has also relied upon the decision of Hon'ble Jurisdictional High Court in the case of Agra Development Authority (supra) to support his contention that Section 12AA(3) does not authorize the Commissioner to cancel charitable registration with retrospective effect. He pointed out that the show cause notice was given in this case by the CIT on 25th January, 2016 while the CIT cancelled the registration from 1st April, 2010, which is not permissible in view of the decision of Hon'ble Jurisdictional High Court in the case of Agra Development Authority (supra). We find the contention of the learned counsel to be justified. In the aforementioned case, Hon'ble Jurisdictional High Court in paragraph 51 & 52 held as under :-

Therefore, we are of the view that the cancellation of the assessee’s registration under Section 12-A of the Act, if at all, could be done only prospectively and not retrospectively as had been done by the Commissioner in this case. Thus, question no.1 is answered in the negative that is in favour of the assessee and against the revenue.”

In view of the above, we, respectfully following the decision of Hon’ble Apex Court in the case of M/s Andaman Timber Industries (supra) as well as of Hon'ble Jurisdictional High Court in the case of Agra Development Authority (supra), cancel the order passed under Section 12AA(3) dated 22nd April, 2016 cancelling the registration with effect from 1st April, 2010.

In the result, the appeal of the assessee is allowed. Decision pronounced in the open Court on 13th June, 2019.