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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Shri Waseem Ahmed, AM]
Per Shri A.T.Varkey, JM
This is an appeal preferred by the assessee against the order passed by the CIT(E) u/s. 12AA(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) dated 05.08.2016 withdrawing the registration earlier granted u/s. 12A of the Act. The following grounds of appeal have been raised by the assessee: “1. For that on the facts and in the circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in invoking the provisions of section 12AA(3) and cancelling the registration granted u/s 12A of the Income Tax Act, 1961 with effect from 01.04.2011. 2. For that on the facts and in the circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in holding that the activities of the Trust are not genuine and not being carried out in accordance with the objects of the Trust. 3. For that on the facts and in the circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in holding that the Trust has violated the objects of the Trust and alleging that the Trust was involved in converting unaccounted cash into cheque through bogus donation which is not voluntary and merely accommodation entry and fictitious.
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For that on the facts and in the circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in holding that the Trust has grossly misused the provisions of section 12A of the Income Tax Act, 1961 and in alleging that the Trustees of the Trust never came forward to state the true state of affairs and in further alleging that the Trustees have shown their unwillingness to assist in an investigation to unveil the truth behind a forgery. 5. For that on the facts and in the circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in completely ignoring and overlooking the submissions made by the Trust and instead relying on letters / complaints filed before various authorities by the Donor i. e. M/s. Society for Welfare of the Handicapped Persons, Durgapur without bringing on record any material to show that the authorities concerned had drawn any adverse inferences against the appellant Trust or Trustees thereof. 6. For that on the facts and in the circumstances of the case, the order passed by Commissioner of Income Tax (Exemptions) u/s 12AA(3) be cancelled and the registration granted u/s 12AA dated 07.03.2001 be restored.” 2. The brief facts of the case are that the assessee Society was established under the Indenture of Trust dated 01.09.2000 and was granted registration by the DIT(E)u/s. 12A of the Act on 07.03.2001. The assessee was also granted certificates u/s. 80G by the authorities from time to time. Since the assessee was carrying out its activities for fulfillment of the objects for which it was constituted i.e. the assessee was carrying out charitable activities the exemption u/s. 11of the Act was allowed consistantly by the department. On 03.03.2016 the Ld CIT (Exm) Kolkata issued a notice u/s. 12AA(3) of the Act informing the assessee his intention to cancel the registration and the hearing was fixed on 01.04.2016 wherein the show cause notice of the CIT(E) reads as follows:
“During examination of bank accounts of M/s. Society for Welfare of the Handicapped Persons, Durgapur, if transpired that you had received Rs. 70,00,000/- as donation through RTGS from the above mentioned society during the F. Y. 2011-12. It is also revealed from records that you have received bogus donation of Rs.70,00,000/- from M/s. Society for Welfare of The Handicapped Persons in the F.Y. 2011-12. It is evident that by accepting bogus donation, you have indulged in money laundering which is illegal, not genuine and not at par with the objects of the trust/society. In view of the above you are requested to explain why the registration u/s 12A/12AA will not get cancelled by invoking the provision of Section 12AA(3) of the I T Act, 1961. You are requested to furnish the following documents - a) Income & Expenditure Ale and Balance Sheet for the assessment years 2011-12 to 2015-16.
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b) Certificate u/s 12A /12AA, u/s 80G and any other registration certificate granted by the Income Tax authorities. c) List of corpus/non-corpus donations received by you along with their PAN, name and address from 01.04.2009 to 31.03.2015. d) List of corpus/non-corpus donations paid by you along with their PAN, name and address from 01.04.2009 to 31.03.2015.” 3. Pursuant to the show cause notice, supra, hearings were conducted on various dates and ultimately the impugned order was passed on 05.08.2016 wherein the Ld CIT(E) made following observations:
“The subject matter of this proceeding is not directly related with deduction u/s 35(1), but a connecting link to indulge such operation through making donation to an institution having registration u/s 12AA and 80G for instant benefit of application of money collected through cheque and maintaining the source of cash. The assessee has been found to be involved in receipt of Rs. 70,00,000/- through RTGS from the forged bank account. The organizations engaged in charitable activities have to collect donations from persons as a source of fund, which is not as easy as donating sum to a sign board for availing the benefit of 80G, but there needs a benevolent and earnest attempt to explain its functionaries through convincing approach. The assessee, in this case found to be in receipt of huge money towards donation from a bank account, which in turn established to be not maintained by the management of the society making such contribution and the copy of letter produced by the assessee has only signified a false signature in the name of the President, which further confirmed by the statement of the President about the false Bank account through which transaction occurred in the case of the assessee. (B) It was further examined regarding the involvement of the assessee in the transactions - a) The bank statement in the name of M/ s. Society for Welfare of The Handicapped Persons Prince Anwar Shah Road, Kolkata from which it was found that the assessee trust has received two donations as under:- Date Amount 02.04.2011 Rs.50,00,000/ - 28.04.2011 Rs.20,00,000/ - Total Rs.70,00,000/- (copy of relevant bank statement at Annexe-O) b) The letters submitted by M/s. Society for Welfare of the Handicapped Persons, Durgapur through their President addressed to- i) ACIT, Circle-II, Durgapur (Annexe-I) ii) OC, Durgapur Police Station (Annexe-II) iii) Manager, Axis Bank, Prince Anwar Shah Road, Kolkata (Annexe-Ill)
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iv) Chairman, Axis Bank (Annexe-IV) v) FIR at Durgapur P.S. (Annexe-V)
in all of which it has repeatedly mentioned that fraudulent bank account in the name of the society has been opened by unauthorized person. In this bank account contributions to the tune of several crores of rupees have been received u/s 35 (i)/(ii). The contribution received was either cash withdrawn through second layer society or paid as bogus donation to the needy society who are ready to pay cash for donation received. The second layer organization in this case is Society for Rural & Urban Development, Kolkata Community Rural Orient Service Society, Hyderabad. c) The assessee trust has received bogus donation in lieu of cash not from M/s. Society for Welfare of the Handicapped Persons, Durgapur but from many other societies and companies who were indulging the practice of providing accommodation entries for donation. Some of such societies and companies are as under - Name Mundakayam Medical Trust Hospital Society, Kerala 1,00,00,000 - Do- 1,00,00,000 UNO Metals Ltd 50,00,000 AKG Finvest Ltd 50,00,000
d) The use of such donation received in lieu of cash is donation to group trusts/societies, i.e. Harmony Foundation, Noble Charitable Trust, RPG Educational Trust, all at 11, Camac Street, Kolkata. Maximum amount spent on account of charity is inter-trust donations. Rebuttal of replies of assessee trust In the replies, the assessee contended that the receipt of donation was not anonymous and produced PAN card of the President of the Society, Sri Dhruba Chakraborty and a letter declaring such intention to make donation to the assessee. On examination, it is found that the signature of the President in that letter was not genuine. The assessee obviously contested that it was not responsibility on their part to verify the genuineness of the signature of the President, they only restricted themselves in collecting documents like PAN card as supporting document towards identity of the Society contributing such donation. However, the assessee did not highlight the fact that for such huge receipt, there was no need to even approach the management of the society. It is also surprising that the assessee has deliberately shown its stand not to even appear at the hearing after getting repeated opportunities. Instead, it has opted for getting the documents in support of the forgery and wanted to cross examine the President of the society. Such copy of documents have already been provided to the assessee vide this office letter dated 20.07.2016, but the same documents were not found to be sufficient to make comment on the fraudulent activities. The assessee trust, in its letter dated 29.07.2016 demanded certain documents in connection with the investigation undergone by several wings and wanted to cross examine the President of the society. However, such requirements can only find justification when the assessee can offer its diligence in supporting several authorities in finding the real truth behind the curtain. The assessee has confined himself in making arguments without offering its presence in either of hearings, which is a part of investigation conducted by the Income Tax Department apart from the investigation conducted by several wings. Thereby the assessee has deliberately avoided such
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investigation carried out by the department by confining to the stand that such donation was accepted through crossed bank cheques and utilized for charitable activities. His act confirms the attitude of the assessee towards such fraudulent transactions which is not based on only genuineness to defend since the basis of formation of such transaction was initiated with fraudulent bank account through which the assessee was in receipt of the cheques. The modus operandi followed by the fraudulent person maintaining parallel financial activities in the name of the society just to materialize his greed and lush of making easy money by whatsoever activities depriving an organization with fund for performing charitable activities by making arrangement of inflow or outflow of fund from the false bank account towards donation and refund of the same after keeping a handsome percentage on the transaction money. As far as the assessee is concerned, the alleged modus operandi followed by the fraudulent person of receiving contributions through cheques and refund the same through cash and vice versa can never by the objective of the Trust and thereby clearly violated the provisions of section 12AA(3) of the Income Tax Act, 1961 beyond its objects.” 4. With the aforesaid observations, the Ld. CIT(E) was of the opinion that as per the provisions of sec. 12AA(3) of the Act, he has the authority to cancel the registration granted to a Trust if, in his opinion, activities of the trust were not genuine or he was satisfied that the activities of the trust were not carried out in accordance with the declared objects. According to Ld CIT(E), he was of the opinion that the activities of the assessee were neither genuine nor carried out in accordance with the objects. So, he concluded that the assessee was found fault on both the counts and accordingly, he passed the impugned order withdrawing the registration after recording the following observation in para 8.1, 8.2 and 8.3 of the impugned order:
“8.1. The intention of the legislature to grant registration u/s 12AA and 80G, to give the benefit u/s 11 to encourage medical relief to the poor and needy persons, promote education among masses and support to the poor section of the society. But time and again these provisions have been issued for personal need and for benefit of trustees/members of the trusts and societies. The act of misuse sometimes discovers itself so wide that it may confuse the true purpose and objectives for allowing such benefit in the Act. 8.2. Looking at the volume and depth of the illegal activities performed and indulged by the society to use the provisions of the I T Act providing support and encouragement to the organizations for doing the benevolent activities, assessee trust not only opened the pandora 's box defying the sole benevolent purpose of provisions as per the I T. Act, but also challenged the cause of the constitutional provisions by maintaining certain well- needed objectives as per the Act and performing the reverse in reality.
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8.3. Based on the facts and circumstantial evidences as discussed in, it can be inferred - a) They have violated the objects of the trust by converting unaccounted cash into cheque through bogus donation. It has never been objects of the trust to convert unaccounted cash of trustees through the route of bogus donation and bring back in trust in cheque. b) Charity received through bogus donation is not voluntary, merely an accommodation entry and fictitious. c) Society/Trust has grossly misused the provision of Section 12A. The trustees never came forward to state true state of affairs, through whom the transactions were carried out, to whom they were in contact in society for alleged donations. Avoiding the proceedings was the only solution available to trustees. d) Activities of the trust are not genuine as well as not being carried out in accordance with its declared objects. Assessee's case is covered within the both limb of Section 12AA(3). e) Even non-genuine and illegal activities carried on by assessee through money laundering do not come within the conceptual framework of charity vis-a-vis activity of general public utility envisaged by the Income Tax Act as laid down in Section 2(15) of the Income Tax Act, 1961. j) The assessee was not only involved in practicing money laundering by accepting cheques for unaccounted cash of trustees, but also has shown its unwillingness to assist in an investigation to unveil the truth behind a forgery.” 5. Aggrieved by the aforesaid order passed by the Ld. CIT(E) withdrawing the registration granted u/s. 12A of the Act, the assessee has preferred this appeal before us praying for cancelling the order and restoring the registration back to it.
From the grounds of appeal, we find that there are several grounds raised by the assessee. Before us, the Ld. AR assailed the order of the Ld. CIT(E) on the ground that the order was an arbitrary exercise of power u/s. 12AA(3) of the Act, even though the assessee’s activities were genuine and were carried out in accordance with the objects set out in the Trust deed. According to the Ld. AR, the impugned order is bad in law since there was breach of principle of natural justice. According to him, the Ld. CIT(E) did not conduct any proper enquiries and the basis of withdrawal of registration was made on unsubstantiated and unproven allegations made by third party. The Ld. AR took our attention to the show cause notice on 14.03.2016 wherein the allegation against the assessee was that it accepted bogus donation of Rs.70 lacs from Society for
7 ITA No.1815/Kol/2016 Golden Sand Trust, AY: Welfare of the Handicapped Persons, Durgapur (SFWHP in short). It was pointed out by the Ld. AR that in the show cause notice furnished to the assessee, the Ld CIT(E) made reference to four issues which had no connection in whatsoever manner with the allegation of the bogus donation received from SFWHP. The Ld. AR argued that in the show cause notice though the Ld CIT(E) had alleged that the assessee had received bogus donation, however he did not bother to disclose the assessee the basis of his making allegation and did not reveal whether he was in possession of any incriminating information, documents or reports of any investigating agency. It was brought to our notice that the documents requisitioned vide the show cause notice were furnished by the assessee on 11.04.2016 and the case was refixed for 10.06.2016. By letters dated 14.06.2016 and 22.06.2016 the Ld CIT(E) rescheduled the hearings by issuing letters but none of these letters/notices Ld CIT(E) did not provide the assessee with documents/evidence of any incriminating nature which even prima facie showed that the donations received from SFWHP were bogus. The Ld. AR drew our attention to the notice dated 22.06.2016 wherein the Ld. CIT(E) asked the assessee to provide list of all trustees from its inception for examining the genuineness of the donation received by it. In response, the Ld. AR submitted that it was beyond its comprehension as to how the list of trustees holding office since inception would establish genuineness of the donations. It was pointed out by the Ld. AR that vide letter dated 08.07.2016 the assessee requested the Ld CIT(E) to provide documentary evidence available with him, if any, on the basis of which the allegation was made that donations received from SFWHP were bogus. In response, the Ld CIT(E) by his letter date 20.07.2016 supplied the assessee with copies of the letters written by one Shri Dhruba Chakraborty, President of SFWHP to ACIT, Durgapur, Axis Bank and Police authorities in Durgapur complaining about fraud committed on the said society (SFWHP) by some unknown persons by opening parallel account with Axis Bank, Kolkata and misappropriating the donations collected in its names. Relying on the allegations contained in the correspondence which were addressed to the various authorities by SFWHP, the Ld CIT(E) claimed that the donations received were in lieu of cash and assessee’s name
8 ITA No.1815/Kol/2016 Golden Sand Trust, AY: appeared in the Axis Bank statement. The Ld CIT(E), therefore, required the assessee to produce the managing trustee along with the reply for verifying the assessee’s transaction with the SFWHP and compliance was required on 01.08.2016. In response, the assessee vide its letter dated 29.07.2016 submitted that SFWHP had filed complaints with various authorities such as police, I. T. Department, Axis Bank etc. since January 2011 alleging that some unknown persons had opened and operated a Bank account in its name and the donations collected through that account were misappropriated by withdrawing cash. Sri Dhruba Chakraborty claiming himself to be the President of the Society had required these authorities to investigate the matter and ensure that the monies deposited in Axis Bank account were paid back to the Society and that the criminal complaint lodged was thoroughly investigsted by the economic offence wing of Bengal Police and no proceedings were taken against the assessee till date.
Further the Ld. AR drew our attention to the complaint filed by the President with the authorities and submitted that from a perusal of the complaint to all the authorities there was no mention about the assessee’s name or role in the entire allegation. It was pointed out by the Ld. AR that when there was no whisper about any wrong doing or fraud committed by the assessee in the complaint filed by the President of the Society, the AO wondered as to how the Ld CIT(E) could draw any adverse inference against the assessee. It was also submitted before us that based on the allegation made by the President of the Society the investigations were carried out by the Economic Office Wing (EOW) (CID of West Bengal Police) and the assessee in its letter dated 29.07.2016 informed the Ld CIT(E) that the investigations were carried out in the year 2013 and in December 2013 on behalf of the assessee trust, Mr. L. K. Chandelia had appeared before the Investigation Officer and the original correspondence from the donor in respect of payment of donation was seized by the police. In the course of the deposition made before the Investigation Officer, it was explained that the discussions with the donor were conducted by Mr. Anil Sanganeria who was the erstwhile trustee of the trust and one of the authorized signatory of the
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bank account of the assessee trust. It was brought to the knowledge of the Ld CIT(E) that the said trustee Mr. Sanganeria has passed away in August, 2013 and after his demise the assessee trust and the surviving trustees informed the Ld CIT(E) their helplessness in explaining the exact modalities followed by the assessee trust at the time of acceptance of the donation from SFWHP. It was brought to the knowledge of the Ld CIT(E) that the EOW questioned the trustee about the utilisation of the donated funds and it was explained to the satisfaction of the investigation officer with proof that the donations received from SFWHP was utilized only for meeting its charitable objects. After the trustee’s statement was recorded by EOW in December, 2013, no criminal charges were framed nor any penal action was instituted by EOW against the assessee trust or its trustees on the basis of complaints lodged by SFWHP. The Ld AR, therefore, vehemently argued that when the EOW had already conducted investigation and enquiry in 2013 but did not find any substance in the charges leveled against the assessee till 2016, the Ld CIT(E) based only on the letters written by SFWHP could not withdraw the registration granted to it by passing order u/s. 12AA(3) of the Act. The Ld. AR urged that since the complaints lodged by the SFWHP including FIR were criminal in nature, before drawing adverse inference it was necessary for the Ld CIT(E) to provide the assessee report of the Investigating Authority which indicted the assessee of committing financial irregularity or fraud. In the aforesaid background, the assessee requested the Ld CIT(E) to furnish specific information and grant opportunity of examining the persons set out in its letter. The relevant part of the assessee’s letter dated 29.07.2016 is reproduced below:
“From the tone & tenor of the complaint lodged by the Society it is quiet apparent that the offences alleged in the complaint are criminal in nature and they do not confine to tax proceedings alone. In fact we are aware that EOW, Kolkata Police as also CID, West Bengal Police were involved in the matter and had carried out criminal investigation in the matter. Since based on the criminal complaints lodged by the Society you are proposing to invoke provisions of Section 12AA(3) of the Act, it is necessary that we are provided with the investigation report of the EOW, Kolkata Police as also CID, West Bengal Police. Unless and until their findings are brought on record and copy of the report is provided t us, it will not be possible to furnish our appropriate replies in the matter. In view of the foregoing submissions therefore, we request you to kindly provide us the following:
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Name of the person who allegedly committed the fraud and opened and operated the Bank account at AXIS Bank, Prince Anwar Shah Road, Kolkata. 2. Statement if any, recorded by the Income tax authorities from such person who had allegedly committed the fraud and opened and operated the Bank Account at Axis Bank, P.A. Shah Road, Kolkata. 3. Opportunity of cross examining the person mentioned in Sl. No. (2) above. 4. Statement if any, recorded by the Income tax authorities from Shri Dhruba Chakraborty, President, Society for Welfare of the Handicapped Persons. 5. Opportunity of cross examining the person mentioned in Sl. No. (4) above. 6. Statement if any, recorded by the Income tax authorities from the Chairman, Axis Bank in connection with the complaint filed by the Society for Welfare of the Handicapped Persons. 7. Opportunity of cross examining the person mentioned in Sl. No. (6) above. 8. Statement if any, recorded by the Income tax authorities from the Branch Manager, Axis Bank, Prince Anwar Shah Road, Kolkata in connection with the complaint filed by the Society for Welfare of the Handicapped Persons. 9. Opportunity of cross examining the person mentioned in Sl. No. (8) above. 10. Copy of any report/findings of the Axis Bank conducted based on complaint of Society for Welfare of the Handicapped Persons. 11. Copy of the report/findings of the investigation carried out by the EOW, Kolkata Police based on the complaint of Society for Welfare of the Handicapped Persons. 12. Copy of any report/findings of the investigation carried out by the CID, West Bengal Police based on complaint of Society for Welfare of the Handicapped Persons. We hope that considering the facts stated hereinabove, your Honour will very kindly accede to the request made hereinabove. On receipt of the relevant information we shall provide our reply to queries raised by your goodself. In the meantime the present proceedings u/ s 12AA(3) may kindly be kept in abeyance till the above mentioned details are brought on record.” 8. The Ld AR brought to our notice that despite giving the aforesaid letter specifically requisitioned for incriminating documents, if any, or to allow the assessee to cross examine the persons named therein, the Ld CIT(E) proceeded to pass the impugned order alleging that assessee indulged in converting unaccounted cash of the trustees into cheque through bogus donations and the donations received were fictitious. According to Ld. AR, though in the impugned order the Ld CIT(E) claims to
11 ITA No.1815/Kol/2016 Golden Sand Trust, AY: have given adequate opportunity to the assessee, but, the assessee failed to bring any evidence to establish that the donations received were not bogus according to Ld AR is factually incorrect. However, according to the Ld. AR, the Ld CIT(E) failed to give proper opportunity to the assessee to rebut the Ld CIT’s allegations and the conclusion drawn by the Ld CIT(E) is without gathering any tangible evidence. It was pointed out that the Ld CIT(E) did not bring any report from any Investigating Authority indicting the assessee of committing financial irregularity or committing fraud. The Ld. AR brought to our notice that though the Ld CIT(E) initiated proceedings u/s. 12AA(3) in March, 2016, however, only on 20.07.2016, the Ld CIT(E) for the first time provided copies of the letters written by SFWHP to authorities about some fraud committed against it. It was pointed out by the Ld. AR that there was no whisper about any fraud or criminal act/omission committed by the assessee trust. However, on the basis of these letters alone the Ld CIT(E) had issued the show cause notice for withdrawing the registration granted u/s. 12A of the Act. It was brought to the knowledge of the Ld CIT(E) that based on the aforesaid complaint of the SFWHP the EOW has conducted enquiries and no adverse actions were taken on the basis of such enquiry. The Ld. AR pointed out that despite request for the investigation report and opportunity to cross examine the President of SFWHP, the Ld CIT(E) in undue hurry passed the impugned order. It was pointed out by the Ld. AR that on 20.07.2016 for the first time the Ld CIT(E) gave a copy of the complaint made by SFWHP against the commission of fraud against it by some unknown persons and the fact that the impugned order was passed on 05.08.2016 which clearly showed that the assessee has not been given proper opportunity to defend its case before the Ld. CIT(E) and that too without giving an opportunity to the assessee to cross examine the complainant President of the SFWHP which action of the Ld CIT(E) is in brazen violation of the natural justice and therefore, the order passed by the Ld CIT(E) is bad in law.
Further, the Ld. AR drew our attention to the complaint made by Sri Dhruba Chakraborty to various authorities and took us to the FIR lodged by SFWHP for offence committed on 12.01.2011. As per the said FIR, value of the property involved
12 ITA No.1815/Kol/2016 Golden Sand Trust, AY: in the complaint was only Rs. 34 lacs whereas donation received to the assessee were to the tune of Rs. 70 lacs. The Ld. AR vehemently argued that even though FIR was lodged in July, 2011 till passing of the impugned order in August, 2016 the police authorities had not found any definite evidence/proof that fraud was actually committed against SFWHP and the assessee had any role in it. It was also pointed out by the Ld. AR that the FIR was filed with reference to an alleged offence committed in January, 2011 whereas the donations were received by assessee in the month of April, 2011 which proved that FIR annexed to the Ld CIT(E)’s order had no connection what so ever with the assessee’s transaction and, therefore, could not be used in evidence for drawing adverse inference against the assessee.
The Ld. AR took our attention to the para 5(B) of the impugned order wherein the Ld CIT(E) observed that the contributions received by SFWHP were either withdrawn in cash through second layer societies or paid as bogus donations to the needy societies who were ready to pay cash for donations received. The Ld CIT(E) particularly stated that the second layer organization in this case was Society for Rural and Urban Development, Kolkata Community Rural Orient Service Society, Hyderabad. Referring to Ld CIT's finding the Ld. AR submitted that there was apparent contradiction in Para-5(B) and the finding recorded in the earlier para of Ld CIT(E)’s order and documents annexed with the impugned order. The Ld. AR submitted that in Para-5(B) the Ld CIT(E) held that the donations were paid to the assessee through second layer society namely, Society for Rural and Urban Development, Kolkata Community Rural Orient Service Society, Hyderabad. As per the Bank statement annexed with the Ld CIT's order it however appeared that the donation to the assessee trust was debited in the Axis Bank Account which was in the name of SFWHP. In other words, according to the Ld. AR, the donation was received by the assessee directly from the Axis Bank Account standing in the name of SFWHP and not from Society for Rural and Urban Development, Kolkata Community Rural Orient Service Society, Hyderabad as alleged in Para-5(B). The Ld. AR further submitted that no where in the show cause notice issued the Ld CIT(E) had made any reference to these
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societies and as per the show cause notice issued by the Ld CIT(E) it referred only to donations received by the assessee directly from SFWHP.
Reference to Para-5(C) of the impugned order, the Ld. AR submitted that the Ld CIT(E) recorded one more contradictory finding wherein the Ld CIT(E) observed as under:
“The assessee trust has received bogus donation in lieu of cash not from M/s. Society for Welfare of The Handicapped Persons, Durgapur but from many other societies and companies who were indulging the practice of providing accommodation entries for donation. Some of such societies and companies are as under – Name Amount Mundakayam Medical Trust Hospital Society, Kerala 1,00,00,000 - Do- 1,00,00,000 UNO Metals Ltd 50,00,000 AKG Finvest Ltd 50,00,000
The Ld. AR submitted that Ld CIT(E)'s finding in Para-5(C) was contrary to show cause notice and discussion which preceded Para-5(C). The Ld. AR pointed out that the proceedings against the assessee were initiated by the Ld CIT(E) on the ground that the donation of Rs.70 Lacs, received from Society for Welfare of the Handicapped persons was bogus. However in Para-5(C), the Ld CIT(E) categorically observed that the bogus donation was not received by the assessee from SFWHP but from other societies and companies whose names were set out in Para-5(C) above. Thus, according to the Ld. AR the Ld CIT(E)’s finding was thus, contrary to the show cause notice issued in March, 2016, wherein the Ld CIT(E) has never alleged that the donations received from M/s. Mundakayam Medical Trust Hospital Society, Kerala, UNO Metals Ltd & AKG Finvest Ltd were bogus. It was argued by the Ld. AR that during the proceedings not even a shred of evidence or material which was in his possession was given to the assessee which could prove that the donations received from the said three parties were bogus. It was pointed out by the Ld. AR that neither in the impugned order nor in the show cause notice the Ld CIT(E) disclosed any document or information on the basis of which he reached the conclusion that the
14 ITA No.1815/Kol/2016 Golden Sand Trust, AY: donation received from these parties were bogus nor the assessee was afforded opportunity of rebutting the Ld CIT(E)'s allegation that donations received from 3 parties were bogus. Thus, the Ld. AR submitted that without any incriminating materials or evidence the conclusions drawn by the Ld CIT(E) suffers for want of any proof and also bad in law for the simple fact that any adverse material against the assessee were not given to the assessee and proper opportunity to cross examine third party information, if any in the hands of the Ld CIT(E) vitiates the order.
The Ld. AR submitted that sec. 12AA(3) of the Act permitted the CIT(E) to pass an order cancelling registration of a trust only when he satisfied that the activities of a Charitable trust are not genuine or they are not carried out in accordance with the objects of the trust. It is only when either of the two specific conditions are satisfied, the CIT(E) can cancel the registration granted u/s. 12A of the Act and not otherwise. The Ld. AR submitted that the assessee regularly received donations which was granted in its books of account and reflected in its tax returns. Income derived from the properties held in trust was always applied for charitable purpose. Drawing attention to the annual accounts of the Trust for FY 2011-12 the Ld. AR submitted that during the relevant year assessee received corpus donation of Rs.1062 lacs and earned interest income of Rs.59.59 lacs. There against the amount applied for charity in the form of donations paid was Rs.815.75 lacs. In the subsequent Financial Year, the assessee's income from interest was Rs. 59.70 Lacs whereas income applied for charity as donation was Rs.67.18 Lacs. In the F.Y. 2013-14, the assessee received corpus donations of Rs.33 Lacs and interest income of Rs.16.70 Lacs whereas the assessee applied Rs.525.88 Lacs towards charity through donation. In F.Y.2014-15, the assessee’s interest income was Rs.16.54 Lacs whereas income applied for charity as donation was Rs.18.97 Lacs. The Ld. AR drew our attention to the fact that in response to initial show cause notice, the assessee has submitted before the Ld CIT(E) copies of its annual accounts for 5 years & as also the list of donations received and paid since 2009. Referring to these facts the Ld. AR submitted that the assessee consistently applied its income and receipts for charitable purposes and the CIT(E) did not bring on
15 ITA No.1815/Kol/2016 Golden Sand Trust, AY: record any evidence or material which proved that the income of the Trust was utilized or applied for any non-charitable purpose. It was pointed out by the Ld. AR that even the donation of Rs. 70 Lacs received from SFWHP in April 2011 was utilized in paying donations to other charitable organizations which amounted to application of income for charitable purpose. The Ld. AR submitted that the specific aspect of utilization of donation received from SFWHP was enquired into by EOW as well. The Ld. AR submitted that the activities of the trust were genuine and these were conducted in accordance with the objects of the trust and the amount was used for the charitable purpose. He, therefore, submitted that none of the two conditions prescribed for attracting Section 12AA(3) were fulfilled and, therefore, the Ld CIT(E) was unjustified in passing the impugned order cancelling the registration granted earlier. The Ld.AR further submitted that except enclosing copy of the FIR and copies of the complain letters of Shri Dhruba Chakraborty to the various authorities the Ld CIT(E) did not bring on record any clinching evidence which established beyond doubt the Ld CIT's charge that assessee trust was used as a conduit for laundering unaccounted monies of the trustees. He submitted that the law required the assessee to ensure that the donations received were not anonymous. The assessee had maintained records as required by the Act which established identities of the donors. Ld. AR submitted that the assessee trust was not required to maintain any additional evidence to certify the source of donation in the hands of the Donor. The Ld. AR, therefore, submitted that on the basis of unsubstantiated allegations against the Trustees, registration u/s 12A of the Act could not be cancelled. In support of his submissions, the Ld. AR relied on the decisions of Karnataka High Court in the case of CIT Vs Islamic Academy of Education (54 Taxmann.com 255), CIT Vs. Karnataka Lingayat Education Society (59 Taxmann.com 255), decision of the Kerala High Court in the case of Sri Anjaneya Medical Trust Vs CIT (382 ITR 399) and Fateh Chand Charitable Trust Vs CIT (Exm) Lucknow (ITA No.792/LKW/2015 dated 18.3.2016.
On the other hand, the Ld. DR vehemently opposed the plea of the Ld. AR and relied on the decision of the Ld CIT(E) and urged before the bench not to interfere in
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the order of the Ld CIT(E). It was pointed out that based on the allegations and complaint filed by President of SFWHP an F.I.R was lodged. He submitted that the Ld CIT had granted adequate opportunity for establishing assessee’s case that the donation received from SWFHP was genuine but the assessee had failed. He further submitted that the Ld CIT in his order brought on record salient features of the modus operandi adopted for conversion of uncounted money in the form of donations received. He argued that unaccounted money of the trustees was converted into legitimate source of fund when the assessee disclosed in its books donations received in lieu of cash. He submitted that the object of the trust could never be conversion of the Trustee’s unaccounted wealth. He therefore submitted that the order of the Ld CIT deserved to be upheld.
We have considered the rival submissions of the parties and carefully perused the impugned order and examined the legal provisions and the judicial decisions relied upon by the parties during their submissions. In the present case the appellant was registered u/s 12A of the Act as a charitable trust by the DIT (Exm) on 07.03.2001. The assessments we note thereafter were completed on the footing that the appellant was pursuing charitable objects and income of the trust was applied for charitable purposes. We note from a perusal of the Objectives of the trust are reproduced as under:
(a)To assist, finance, support, found, establish and maintain any trust, society or institution meant for relief of the poor, advancement of education, medical relief or advancement of any other object of general public utility.
(b) To open, found, establish or finance, assist, grant aid and contribute to the establishment or maintenance of medical schools, medical colleges, research centres, hospitals, clinics, nursing homes, maternity homes, child health care centres, charitable dispensaries and/or institutions for the reception and treatment of persons suffering from illness or mental defectiveness or for the reception and treatment of persons during convalescence or of persons requiring medical attention or rehabilitation.
(c) To open, found, establish, assist, finance, promote, collaborate; support, maintain and manage schools, colleges, universities, technical institutions, polytechnic, libraries, reading
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rooms, laboratories, vocational institutes, hostels, boarding houses and other bodies and institutions of all description devoted to the cause of providing education.
(d) To establish, maintain, manage and run workshops or training centres, hobby centres and the like to enable students to get training while studying in technical, commercial or other forms of education.
(e) To grant fees, stipends, scholarships, studentships, prizes, books and other allowances, concessions or aid to deserving students for prosecuting studies, training or research.
(f)To print, publish, sell, distribute books, magazines, journals, bulletins, periodicals and encourage studies in various fields
(g) To establish maintain and/or give grants or contribute to the maintenance of orphanages, Nari Ashrams, Widow Ashrams and to render help to the widows, destitutes, lunatics, old and invalid persons.
(h) To start maintain and assist in relief measures in those areas which are or become subjected to natural calamities such as famine, epidemics, fire, flood, draught, earthquake, landslide etc.
(i) To renovate or repair or make donations for the renovation or repair of any temple, mosque, gurudwara, church or other place as is notified to be the historic archaeological or artistic importance or to be a place of public worship of renown throughout any State or States.
(j) To assist, support, and provide monetary help to any individual in distress, poor for their medical treatment, advancement of education and for advancement of any other object of general public utility.
(k) To render famine relief to the people.
(I) To arrange for free water supply to the people.
(m) To build, establish and/or promote the establishment of and/or maintain and/or grant aid in cash and/or kind to rest houses, dharmasalas, musafirkhanas, temples, places of worship, etc. which would be open and accessible to the public in general irrespective of caste, creed or religion and such other similar institutions for the benefit of general public at places where such institutions may be necessary and useful.
The funds and the income of the Trust shall be solely utilized for the achievement of the objects and no portion of it shall be utilized for payment to Trustees by way of profit, interest, dividend etc. The Trustees shall not be entitled to receive any remuneration as Trustees but may reimburse themselves of all expenses actually incurred by them in connection with the Trust or their duties relating thereto.
It is expressly declared that no part of the Trust property or its income shall be applied for any purpose which is not a public charitable or public religious purpose in law and nothing
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herein shall be construed to authorize the Trustees to utilize the trust assets or its income for any non-charitable purpose. All the powers and provisions hereof shall be construed as being subject to the restriction and limitation herein contained.
Based on the aforesaid objectives, the assessee was granted section 12A and 80 G registration and continued to be assessed as a charitable organization consistently by the Revenue. However, it appears from the show cause notice (SCN) issued by the Ld CIT dated 3.3.2016 that some information was received by him as per which donation of Rs.70 Lacs received by the appellant during F.Y. 2011-12 from Society for Welfare of the Handicapped Persons, Durgapur(SFWHP) was bogus. In the Ld CIT’s opinion the appellant indulged in money laundering activity which did not constitute legitimate charitable activity nor such activity was in accordance with the objects of the trust and for which proceedings u/s 12AA(3) were initiated. A bare perusal of the SCN showed that although the Ld CIT alleged that donation of Rs.70 Lacs received from SFWHP was bogus, the Ld CIT did not disclose in the notice the basis for forming such opinion. The Ld CIT did not provide the assessee with any document or report of any investigating agency for his coming to conclusion that donation received was bogus, necessitating initiation of proceedings u/s 12AA(3). We further note that the documents which the Ld CIT requisitioned in his SCN were general in nature. In SCN dated 3.3.2016 CIT had required the assessee to furnish copies of the Annual accounts for 5 years, registration certificates u/s 12A, 80G issued earlier, details of all donations received and donations paid during the period 1.4.2009 to 31.03.2015. These documents apparently did not have any connection, rather it proves the genuineness of its activities and Ld CIT could not point out any infirmity after perusal of all documents. We further find that even though the Ld CIT issued 2 more notices, no documents or information in support of his allegation were furnished to the appellent.
It was only at the express request of the appellant that the Ld CIT on 20th July 2016 provided the appellant for the first time with copies of the
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letters written in the year 2011(i.e, of an allegation after 5 years) which President of SFWHP had addressed to various authorities alleging fraudulent act against the society (SFWHP) and not against the appellant. In response the appellant furnished its rebuttal vide letter dated 29.07.2016. Even though the appellant’s rebuttal was received on 2.8.2016, in the impugned order the Ld CIT did neither refer to the assessee’s submissions nor dealt with them objectively. Although in the impugned order the Ld CIT stressed on the fact that assessee was given adequate opportunity of hearing; we find that the facts on record prove it otherwise. Although the SCN was issued in March 2016, the Ld CIT provided copies of the correspondence of SFWHP with the authorities which formed the basis for CIT’s action; only in the 3rd week of July 2016. Till then assessee was never provided with any documents in Ld CIT’s possession on the basis of which he had initiated the proceedings u/s 12AA(3). We further find that though the assessee furnished its reply dated 29.07.2016 the Ld CIT neither acknowledged its content nor dealt with the submissions though he acknowledged its receipt. We find that the conclusions in Ld CIT’s order were based only on the un substantiated allegations and complaints contained in the letters of Dr. Dhruba Chakraborty, addressed to authorities such as Durgapur Police, Chairman Axis Bank, ACIT, Durgapur etc, which also is not against the assessee/appellant. We however note that no material was disclosed by the Ld CIT in the impugned order which showed that before drawing adverse inference against the appellant the Ld CIT had personally examined the complainant/President of SFWHP or the Ld CIT had personally enquired into actual state of affairs. We further find that although the letters written by SFWHP to authorities were used in evidence against the appellant, the Ld CIT did not permit or allow the assessee an opportunity to examine Dr. Chakraborty in person even though his letters formed the sole basis for the Ld CIT to draw inference against the appellant. We find that although the assessee’s letter requesting the Ld CIT to give opportunity of examining President of SFWHP was received by him on 2ndAugust 2016, the Ld CIT
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proceeded to pass the impugned order in utmost haste on 5th August 2016 and that too without giving opportunity of examining Dr. Chakraborty. The foregoing facts and sequence of events therefore lend credence to the Ld AR’s submission that the impugned order was passed in breach of principles of natural justice and without conducting proper enquiry and giving adequate opportunity to the assessee.
In the impugned order we note that the Ld CIT speaks about modern techniques used in conducting investigation against the assessee which proved that an organized activity was conducted through which unaccounted money of the trustees was laundered in the form of issue cheques from the Bank A/c with Axis Bank, Kolkata opened in the name of SFWHP. Although the Ld CIT referred to the investigation carried out with the use of modern techniques his order is conspicuously silent about the identity of the Investigating Agency or as to who conducted such enquiry or investigation. His order is also conspicuously silent as to when and by whom the investigation report was furnished and what was its content. We take note that in assessee’s letter dated 29.07.2016 it had specifically requested the Ld CIT to provide the information or details of the enquiry report if any in his possession. In the impugned order however there is no mention of any authority or investigating agency who prepared any such report indicting the appellant of committing financial irregularity or resorting to money laundering activity. We further take note that in the impugned order the Ld CIT recorded a specific finding that by accepting the donation from SFWHP the Trustees of the appellant laundered their unaccounted monies. However, Ld CIT did not spell out the specific document; evidence, information or material on the basis of which his categorical finding was recorded. It should be remembered that before the Ld CIT recorded a serious finding of money laundering by the trustees or by the assessee on their behalf, it was incumbent upon the Ld CIT to have disclosed atleast in the order the material or evidence gathered on the basis of which such finding was
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recorded. We however find that save and except discussing in general terms the modus operandi involved in money laundering activity; the Ld CIT did not bring on record specific facts, material, evidence or documents which substantiated Ld CIT’s conclusion that the money received by the assessee from Axis Bank A/c standing in the name of SFWHP actually belonged to the trustees but received as donation. Even at the time of hearing of the appeal, the Ld.CIT DR was not able to throw any light as to any evidence/material on the strength of which the impugned action has been taken against the assessee and could not adduce any material to impute serious allegation of money laundering against the trustees and failed to substantiate before us the Ld CIT’s said finding that the donations received by the appellant from SFWHP actually represented unaccounted income of the trustee which was laundered in the form of donation. For the reasons discussed in the foregoing therefore we are unable to sustain the Ld CIT’s finding that the donation of Rs.70 Lacs received in April 2011 represented unaccounted income of the trustees.
We also take note that apparently there were many other inconsistencies and contradictions in the impugned order of the Ld CIT. In Para-5B of the order the Ld CIT stated that the contributions received and deposited in Axis Bank were either withdrawn in cash through second layer society or paid as bogus donation in lieu of the cash received. However, we note that the entries in the Bank statement of the appellant as well as Axis Bank statement showed that the donation was directly received by the assessee from Axis Bank. However, we wonder as to how the Ld CIT in Para- 5B stated that the donation was received by the assessee through second layer organization being Society for Rural and Urban Development, Kolkata Community Rural Orient Service Society, Hyderabad. We take note that neither in SCN of March 2016 nor in the impugned order the Ld CIT disclosed any material in support of this finding, which is per-se wrong. Save and except recording a finding about use of second layer organization which
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is contrary to transactional documents, the Ld CIT did not bring on record any material/evidence substantiating his finding. We therefore find force in the Ld ARs submissions that the Ld CIT had recorded factually incorrect finding which contradicted his SCN issued in March 2016.
We note that the Ld CIT made another contradictory finding in Para-5C observing that bogus donation was not received by the assessee from SFWHP but from other societies and companies indulging in the practice of providing accommodation entries. In Para-5C the Ld CIT identified 3 specific entities viz. Mundakayam Medical Trust Hospital Society Kerala, UNO Metals Ltd and AKG Finvest Ltd from whom sums of Rs.200 Lacs, Rs.50 Lacs and Rs.50 Lacs were received respectively. We however find that in none of the notices issued prior to passing of the impugned order, the assessee was put to notice by the Ld CIT that he had in his possession any information, evidence, or material as per which donations received from these parties could be termed as not genuine. Neither in the SCN nor in the impugned order the Ld CIT disclosed any material, leave alone any tangible material or cogent evidence on the basis of which he reached the conclusion that the donations received from 3 parties were accommodation entries and not genuine donations. We take note of the fact that no opportunity of hearing was granted before the Ld CIT recorded adverse finding about donations received from 3 parties. Moreover we find that in Para-5C the Ld CIT has forsaken his original allegation and strangely held that the bogus donation was not received from SFWHP but from 3 other parties. And in respect of these 3 parties, no material what so ever was given to the appellant assesse to rebut or was even put to notice by the Ld CIT and so the impugned finding of the Ld CIT that the donations received from 3 parties were accommodation entries and not genuine donations is per-se fragile in the eyes of law for violation of natural justice and is unfair on the face of it and has caused serious prejudice to the appellent. We therefore find that the Ld CIT’s order is besetted with self contradictions and the Ld CIT did not disclose the basis on which such
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contrary and contradictory findings were recorded. A reading of the Ld CIT’s order in totality therefore gives an impression to us that the impugned order was passed not only in haste but without proper application of mind and conclusions in the impugned order were pre-determined and based on surmises and conjectures.
In the instant case, the Ld CIT cancelled the registration of the Trust u/s 12A, in exercise of powers conferred u/s 12AA(3) of the Act. The powers given by the Parliament to the Ld CIT are extraordinary and therefore the authority exercising the power should not therefore exercise it lightly and on mere presumptions or pretext. The registration can be cancelled u/s 12AA(3) if and only if the Ld CIT is satisfied that the activities of the trust are not genuine or activities are not carried out in accordance with objects of the trust. Cancellation is permissible even if either of the one condition is fulfilled. Satisfaction of the Ld CIT contemplated in Sec.12AA(3) must be objective and should be founded on some irrefutable and tangible evidence. Simply based on the complaints/allegations lodged by a third party about alleged wrong doing committed by some known/unknown person, the Ld CIT ought not to have canceled the registration by passing an order u/s 12AA(3). In the impugned order the Ld CIT recorded a very serious finding that the appellant trust violated objects of the Trust by converting unaccounted cash of the Trustees through bogus donations. We however find that no cogent material or tangible evidence in support of this finding was brought on record by the Ld CIT. Except enclosing copies of the complaint letters written by Dr. Dhruba Chakraborty, President of SFWHP Durgapur to various authorities and annexing copy of his FIR filed in July 2011 the Ld CIT did not bring on record any clinching material which can persuade us to uphold his conclusion that the donations received by the appellant in April 2011 were in fact bogus or that unaccounted moneys belonging to the trustees were laundered in the form of donations and got credited in the assessee’s bank a/c.
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Except making unverified allegation of laundering of money belonging to the trustees through the Bank A/c of SFWHP, the Ld CIT did not bring on record any clinching evidence which proved beyond reasonable doubt the conclusions recorded against the appellant in the impugned order. We also note that although the Ld CIT enclosed copies of the correspondence which Dr. Dhruba Chakraborty had with various authorities, no material was disclosed in the impugned order which indicated that the President of SFWHP was examined by the Ld CIT himself before adverse conclusions were drawn. No material is reflected in the impugned order which even suggested that the CIT himself had conducted any worthwhile enquiry or investigation by examining the persons concerned to ascertain all relevant facts. In the complaints lodged by SFWPH it was alleged that some person had opened parallel account with Axis Bank Kolkata in the name of the Society and donations collected in its name were withdrawn in cash and misappropriated. We however find that the appellant had received the donations by cheque and the amount was accounted in the assessee’s books and therefore it could not be said without any adverse material that the assessee was a party to misappropriation by withdrawing cash from the Bank A/c. In various letters written to authorities, President of SFWHP never accused the appellant of committing fraud or financial impropriety. Appellant had submitted before the Ld CIT that the complaint lodged by SFWHP with W. Bengal Police was acted upon and enquiry was conducted by EOW against the assessee in December 2013. We take note of the fact that an enquiry was conducted by EOW of police 3 years prior to passing of the impugned order, however it has not been brought to our notice the fate of the enquiry. The appellant brought to the notice of Ld CIT that pursuant to the very same complaint/allegation an enquiry was conducted by EOW of police 3 years and that neither any charge-sheet was filed nor any legal proceedings were instituted against the appellant on the basis of enquiry conducted by EOW. This fact that is no charge sheet or any legal proceeding initiated
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against the appellant finds no mention in the impugned order. Before terming the trustees as money launders, atleast the Ld CIT ought to have found out what happened to the enquiry by EOW which got triggered on the very basis on which the Ld CIT issued the SCN. In the circumstances, before the conclusion of money laundering or financial irregularity was drawn it was the bounden duty of the Ld CIT to ascertain the true and correct facts from the relevant investigating agency because the Ld CIT ultimately passed the impugned order on the basis of criminal complaints and the FIR lodged by the President of SFWHP with the police authorities. However without bringing on record the outcome of the enquiry or investigation report, holding the assessee guilty of financial irregularity or fraud is not correct and is unfair. The Ld CIT on the basis of complaints lodged alone came to conclusion that the assessee had indulged in laundering of unaccounted moneys belonging to the trustees. Since the donations were received through Axis Bank A/c, before drawing adverse inference it was incumbent on the Ld CIT to examine bank officials since serious allegation of opening of a fictitious Bank A/c was levelled against the bank. Nowhere from the impugned order it however appeared that any official of Axis Bank was examined by the Ld CIT before passing the impugned order. Since the Ld CIT himself did not examine any of the persons concerned in respect to the allegation, he also did thought it necessary to grant any opportunity examine these persons by the assessee before passing the impugned order. On the basis of material which appeared from the impugned order we are therefore of the considered view that before recording adverse conclusions in various clauses of Para 8.3 the Ld CIT did not bring on record sufficient tangible and cogent material which established his charge that the activities of the trust involved money laundering or that the unaccounted money belonging to the trustees was brought into assessee’s books in the form of donations. We also find force in the AR’s submissions that opportunity of examining the persons connected with assessee’s transactions in question was never given and yet the
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allegation of such persons were used for drawing adverse inferences against the appellant, which vitiates the order.
As said earlier, the registration of a charitable trust can be cancelled by the Commissioner u/s 12AA(3) only if the activities of the trust are not genuine or that the activities are not carried out in accordance with the objects of the trust. In the present case assessee was registered u/s 12A by the DIT (Exm) on being satisfied that objects of the trust were charitable. In the SCN dated 3.3.2016 the Ld CIT had required the assessee to furnish copies of the Audited A/cs for the period 2010-11 to2014-15 and also complete list of donations received and paid during the period 1.4.2009 to 31.3.2015. In response the assessee had furnished such documents along with Certificates in Form-10B. Copies of these documents were also furnished before us in Paper book. We find from these documents that the income derived by the assessee during this period was applied for charitable purposes. We also note that even though the appellant had furnished the relevant details, Ld CIT did not point out any specific instance where it could be held that income or donation received was not used for charitable purpose. Even at the time of hearing the Ld. CIT DR with reference to audit reports furnished in the Paper book did not point out any specific instance in any year which would show that the activities of the trust were carried out for non-charitable purposes so as to persuade us to hold that activities of the trust were not genuine. We also find that other than the allegation that trust accepted bogus donation through Axis Bank A/c standing in the name of SFWHP the Ld CIT did not establish any other instance where it can be said that the activity of the Trust was not genuine or that activity was not carried out as per the objects of the trust. We have discussed in the foregoing our reasons for holding that on the basis of material gathered by the Ld CIT or disclosed by him in the impugned order it cannot be held that the assessee trust had indulged in money laundering activity or that the assessee was guilty of accepting unaccounted moneys of the trustees in the form of bogus
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donations. In our considered opinion therefore none of the 2 conditions required to be satisfied for invocation of Sec. 12AA(3) were attracted in the present case so as to warrant cancellation of registration.
The reliance placed by the Ld AR on the decision of the Karnataka High Court in the case of CIT Vs Islamic Academy of Education (54 Taxman.com 255)in the facts of the present case is found to be relevant. In the case before the High Court; the assessee trust was granted registration since main object as per the Trust Deed was imparting education by establishing Educational Institutions. Registration granted to the trust u/s 12A was cancelled by the CIT on finding that the Trust had invested in shares of a limited company in which Trustees were Directors and the Trust was also paying rent deposit. It was also found in the course of search that fees actually collected were higher than the fees recorded in the regular books. On these facts the CIT cancelled the registration by passing an order u/s 12AA(3) on being satisfied that the activity of the trust was not genuine or that activity was not carried out in accordance with objects of the trust. After considering material found in the course of search, provisions of Sec. 12AA(3), Circular No.5 of 2005 issued by CBDT, the Hon’ble Karnataka High Court held that the registration could not be cancelled by the CIT. In the opinion of the Hon’ble High Court it was not in dispute that the trust had established Educational Institution which was imparting medical education to the students. The income and the properties of the trust were used and applied for charitable purposes only. The Court therefore held that it could not be said that the trust was not genuine. The Court also held that since the educational institution was actually imparting the education it could not be said that the activities were not carried out in accordance with objects of the trust. The Court held that when both the conditions were satisfied then the registration granted u/s 12A cannot be cancelled merely on the ground that trustees had misappropriated funds of the trust. In the opinion of the High Court misappropriation of funds by the trustees cannot be the ground for
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cancelling the registration when the activities of the trust were charitable in nature and the activities were conducted in accordance with the objects of the trust. The same view was again taken by the Karnataka High Court in the case of CIT Vs Karnataka Lingayat Education Society (supra) where the trustees were found to be receiving Capitation Fees for admission of students for medical course.
Similar view was taken by the Co-Ordinate Bench of the ITAT at Lucknow in the case of Fateh Chand Charitable Trust - ITA No. 792/LKW/2015 dated 18.3.2016. In this case the facts involved were pari- materia with the facts of the appellant’s case. In that case also the CIT had alleged that the donation received by the charitable trust from another institution registered as scientific research institution was not a genuine donation but it was an accommodation entry provided in lieu of cash. The Tribunal relying on various judicial decisions held that the registration could not be cancelled as the conditions prescribed in Sec. 12AA(3) were not fulfilled since the donations received were applied for charitable purposes only. The Tribunal also took note of the fact that for concluding that the assessee received bogus donations the CIT had relied on the statement of the trustee of the donor trust but in the said statement the trustee of the Donor had never made reference to the assessee as a beneficiary of bogus donation and no opportunity of examining Trustee of the donor was provided before passing the order.
We note that in a recent case the Coordinate Bench of this tribunal in ITA Nos. 931 to 933/Kol/2016 in the case of Jha Educational Trust Vs. CIT(E) pronounced on 17.03.2017 wherein a similar facts in which the Ld. CIT(E) cancelled the registration granted u/s. 12A of the Act on the ground that the assessee is engaged in the money laundering activities. However, the Coordinate Bench after taking note of the facts and circumstances of the case and taking note of the Hon’ble Punjab & Haryana High Court judgment
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in CIT Vs. Apeejay Education Society reported in 59 Taxman.com 1021 and Hon’ble Allahabad High Court decision in the case of CIT Vs. Redrose School 2 CTR 394 (All) and taking note of the CBDT Instruction No. 1132 dated 05.01.1978 wherein it was clarified that the payment of a sum by one charitable trust to another for utilization by the donee towards its charitable object its proper application of income for a charitable purpose was pleased to cancel the order passed by the Ld. CIT(E).
Applying ratio laid down in these judgments to the facts of the present case we find that the activities of the assessee trust were only for charitable purposes. In the impugned order no case is established by the Ld CIT that activities of the trust were not genuine or that activities conducted were not in accordance with the objects of the trust. The only allegation against the appellant is that donation of Rs.70 Lacs which the assessee received in April 2011 from SFWHP was bogus. In support of this allegation the Ld CIT relied only on the complaints lodged by Dr. Dhruba Chakraborty with authorities. We however find that nowhere in the complaints filed the complainant had made allegations against the appellant. Even after the enquiry was conducted by EOW of West Bengal Police in relation to the donation received from SFWHP no penal proceedings have been instituted against the appellant nor the Ld CIT referred to any report if any of the investigating agency who had enquired into the complaint of SFWHP, indicting the appellant of committing any wrong doing. We also find that Dr. Chakraborty was never examined by the Ld CIT nor opportunity of examining him was provided to the appellant so the order of the Ld CIT is bad in law. Recently, vide order published on 16 November 2015, the Hon’ble Supreme Court in Andaman Timbers vs CCE, held that failure to give the assesse the right to cross- examine witnesses whose statements are relied upon results in breach of Natural Justice and it is a serious flaw which renders the order a Nullity. In these circumstances; based on unverified and unproven allegations and complaints it cannot be held that appellant’s act of receiving
30 ITA No.1815/Kol/2016 Golden Sand Trust, AY: donation through banking channel was malafide or not genuine. We also find that the donations received from SFWHP were actually utilized for charitable purpose and therefore we find that the activities of the assessee were conducted in accordance with the objects of the trust. For the reasons set out in the foregoing therefore we hold that the Ld CIT was not justified in cancelling the registration in exercise of powers u/s 12AA(3). We accordingly cancel the Ld CIT’s order dated 05.08.2016 passed u/s 12AA(3) and restore the registration u/s 12A of the Act to the assessee Trust with effect from F.Y. 2011-12.
In the result, appeal of assessee is allowed.
Order is pronounced in the open court on 31.03.2017. Sd/- Sd/- (Waseem Ahmed) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 31st March, 2017 Jd.(Sr.P.S.) Copy of the order forwarded to:
Appellant – Golden Sand Trust, 7/6, Burdwan Road, Alipore, Kolkata-27 Respondent –CIT(Exemption), Kolkata. 2 3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,
Asstt. Registrar.