JHA EDUCATIONAL TRUST,KOLKATA vs. CIT(EXEMPTIONS), KOLKATA, KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

These are three appeals filed by the assessee is against the order u/s 12AA(3) & 12AA(4)/80G(5)(vi)/10(23C)(vi) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 10.03.2016 & 14.03.2016 of Commissioner of Income Tax (Exemptions)-, Kolkata. Shri J.P. Khaitan and Shri Manoj Kataraka, Ld. Advocate appeared on behalf of assessee and Shri Niraj Kumar, Ld Departmental Representative represented on behalf of Revenue. 2. All the appeals are heard together and are being disposed of by way of consolidate order.

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 2 First we take up ITA No.931/Kol/2016. 3. The grounds raised by the assessee per its appeal are as under:- “(A) For that the order withdrawing/cancelling registration under section 12A was passed in gross violation of the principles of natural justice, without disclosing the materials relied upon, without affording opportunity to controvert and/or deal with the same including by way of cross-examination and without taking into consideration the submissions of the assessee made, inter alia, on March 3,2016 and March 7, 2016. (B) For that the CIT erred in withdrawing/cancelling the assessee's registration under section 12A and that too with retrospective effect from April 1, 2006. (C) For that the CIT erred in holding that- (i) any donation made by the assessee was bogus, fictitious, accommodation entry or for money laundering or that the assessee received back any cash; (ii) the assessee resorted to any modus operandi or transacted through any entry operator or mediator or siphoned off trust money; (iii) trustees of the assessee received cash or benefitted from the donations; (iv) section 13(1) or section 13(2) was applicable; (v) the assessee misused the provisions ofsections12AA and 80G(5)(vi); (vi) no charitable work was done by the assessee by giving donations; (vii) the activities of the assessee were not genuine or were not carried out in accordance with or were contrary to its objects; and his purported findings invoking sub-sections (3) and (4) of section 12AA and withdrawing/cancelling the registration under section 12A are wholly arbitrary, erroneous, unreasonable and perverse. (D) For that further and in any event and without prejudice to the aforesaid, the CIT had no power and/or jurisdiction to withdraw/cancel the registration with retrospective effect from April 1, 2006. (E) For that the order appealed against is otherwise erroneous on facts and/or in law.”

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 3 5. The facts in brief are that the assessee in the present case is a trust and having registration u/s 12A and 80G and 10(23C)(vi) of the Act. The registration u/s 12A of the Act was granted to the assessee on the 11th April 2002 vide No. DIT(E)/8E/437/2001-02 and 80G certificate was renewed on 23.09.2011 vide DIT(E)/2896/8E/43/2001-02 and it was also granted approval under section 10(23C)(vi) of the Act vide No. CCIT-III/Kol/10(23C)(vi)/13-14/246 dated 16.01.2014. 5.1 The assessee-trust was established with the objects of public & charitable purposes. The assessee was also running school under the name & style of ‘Calcutta Public School’ in Kolkata & Ranchi. 6. The background of the case is that a survey operation was conducted u/s 133A of the Act on 03.09.2015 in the case of a trust namely Batanagar Education and Research Trust (for short BERT). The statement of the managing trustee i.e. Sri Rabindranath Lahiri of BERT was recorded. The relevant extract of the statement is reproduced below:- “Q. 11. Please confirm the authenticity of the above mentioned Corpus Donation. Ans. A major part of the donations that were claimed exemption u/s. 11(1)(d) were not genuine. The donations received in FYs. 2008-09, 2009-10 and 2010-11 were genuine Corpus Donation received either from the Trustees or persons who were close to the Trustees or persons who were close to the Trustees. In FY 2011-12 and 2012-13 a part of the donation were genuine like the earlier years. However, a major part of the donations received in these two FYs viz. 2011-12 and 2012-13 shown as Corpus Donation, were in the nature of accommodation entries to facilitate two things:- a) To procure Loans from the Bank we had to show substantial amount of Capital Reserve in our Balance Sheet. b) We required funds for the expansion of our college. The fees received from the students along with genuine donations from the Trustees and their contracts were not sufficient to run the institution. Q. 12 Why are you saying that a major part of the donations received were not genuine? Ans. In those cases, which I admit accommodation entries, a part of the donation received was returned back to the donors through intermediaries. Q. 13. Who were the intermediaries and what were the modes of returning the money? Ans. We were instructed to transfer funds through TGS to the following seven [7] persons:- 1. Santwana Syndicate,

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 4 2. P.C. Sales Corporation 3. Kalyani Enterprises, 4. Riya Enterprises, 5. Laxmi Narayan Traders 6. Hanuman Traders 7. Rani Sati Trade cum Pvt. Limited. These payments were booked as capital expenditure under the head Building. Q. 14. In response to the earlier question you have stated that you were “Instructed”. Who gave you the instruction? Ans. I can remember only one name right now that is Shri Gulab Pincha, Mob. No.9831015157. he was the key person for providing a large apart of bogus donation received which was immediately returned back to the different parties in the guise of payments towards capital expenditure in building. We do not know any details in respect of the donors on behalf of whom Shri Gulab Pincha acted as a middle man. Shri Pincha provided us with the details of the donors, cheque of the donations, letters of corpus donations etc. he also provided us with the names and bank a/c. details of the seven (7) persons, mentioned in Answer 13 to whom money has to be returned back through RTGS. He also collected the money receipts 80G certifications on behalf of the donors. Q. 19. The Ledger copy for the period from 01.04.2014 to 04.09.2014 in respect of “General Fund” of your trust having details of the donors is being showing to you to identify the bogus donations along with bogus donors. Ans. After going through the list of the donors appeared in such ledger, it is understood that the Donors whose names are written in capital letters under the sub- head “Donation-13”, “Donation-I” and “Donation-II having total amount of Rs.6,03,07,550/- is bogus and out of which rs.5,96,28,973/- was returned back through RTGS to the above mentioned seven (7) persons following the instructions of the mediators.” It was observed that the name of the assessee was reflecting in the list of bogus donors as provided by the Managing trustee of the BERT in his statement. As per the statement, the assessee-trust has given donation of Rs. 5 Lacs in the AY 2012-13 to BERT through the banking channel. But subsequently the cash was paid back to the assessee through the medium of certain outsiders. In view of above the ld CIT(Exemption) issued show cause notice for seeking the explanation on the above stated facts. The assessee was also handed over the copy of statement of managing trustee of BERT and called the assessee for cross examination dated 3.3.2016 but nobody appeared on that date. However, the assessee in

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 5 compliance thereto denied to be indulged in money laundering activities as alleged against it.

6.1 Besides the above clarification, the ld. CIT(Exemption) has also called other information in the relation to the activities carried on by the assessee in the earlier assessments years. The ld. CIT(Exemption) from the details submitted by the assessee also observed that the assessee has given donation to various other trusts/ societies as detailed under :- Sl.No Name & address Amount 06-07 1 Centre for advance studies in Engineering AK- 4,00,000 11, Arra kasha Road, near Chand palace Hotel, Paharganj, New Delhi-55 2 Vidyapati Smarak Manch 511, Rabindra Sarani, 25,000 Kolkata-700 005 07-08 1. Indian Centre for Advancement of Research & 5,00,000 Education 4, B.B.D.Bag (East) Stephen House, 5th Floor, Room No.87, Kolkata-1 2 Seth Pokhar Mal Education Society Rukmani 5,00,000 Devi Public School, CD Block, Pitam Pura, New Delhi-110034 3 Lord Krishna Education Trust KE-81, Kavi 5,00,000 Nagar, Ghaziabad 4 -do- 5,00,000 09-10 1 Vidyapati Smarak Manch 511, Rabindra Sarani, 25,000 Kolkata-005 2 Monad Educational Society 66, Shankar Vihar, 5,00,000 Delhi-110092 3 -do- 5,00,000 4 Global Cultural and Education Foundation 103, 10,00,000 Engineers Enclave, Pitampura, New Delhi- 110034 5 Disha Education Society Disha Tower, New 10,00,000 Shanti Nagar, Raipur-492007 10-11 1 Disha Education Society, Disha Tower, New 5,00,000

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 6 Shanti Nagar, Raipur-492007 2 Sabita Devi Education Trust, 1050/1, Survey 5,00,000 Park, Kolkta-700075, (WB) 3 Sandipani Charitable Trust, Taparia Estate, 5,00,000 Airport Road, Lalghata, Bhopal (MP) 4 Seacom Marine College, No11, Kendua Main 5,00,000 Road, Baishnabghata, Garia, Kolkata-700 084 5 Baidehi Seba Manch, 2A/3, Ghosh Bagan Lane, 10,000 P.O. Cossipure, Kolkata-700002(WB) 11-12 1 Batanagar Education and Research Trust, 1/1/1, 5,00,000 Jodhpur Park, Kolkata-700068 (WB) 12-13 1 Dr. B.G. Memorial Trust,6/1, Sarat Chatter 8,00,000 Avenue, Kolkata-700 029 (WB) 2 Savitri Education Foundation, 124, Hans Bhawan,Bahadur Shah Zafar Marg, New Delhi- 6,00,000 110002 13-14 1 MRS Educational Trust, 39-A, Armenian 1,00,000 Street, Ground Floor, Kolkata-700 001 (WB) 14-15 1 Tata Medical Centre Trust, 1, Biship Lefroy 11,000 Road, Kolkata-700 020 (WB)

The ld. CIT(Exemption) also called the assessee for the clarification of the credentials of trusts/ societies to which the donation were paid vide order sheet entry dated 22.2.2016. However, the managing trustee of the assessee trust failed to provide the necessary details as desired. The questions & answers with the managing trustee with the assessee trust are reproduced below:- “Q.1 You have paid Rs.8 lakh to M/s B.G. Memorial Trust. How do you know them? What are their activities? Ans. I do not know name of managing trustee. I do not know name of school. I do not know personally. I do not know their activities. I do not remember why I paid Rs.8 lakh. I have not seen school. I do not know their whereabouts. Q.2 Similarly Savitri Education Trust? Ans. Same answer as above in earlier question. Q.3. Do you know Disha Educational Society, Sandipani Charitable Trust, Seacom Marine College, MRS Educational Trust? What are their activities?

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 7 Ans. My answer is same as in Q.1.” 6.2 From the above, the ld. CIT(Exemption) opined that the assessee is engaged in the money laundering activities. It was also observed that the trust to which the donation was given, their registration certificate u/s 12A of the Act were either cancelled or they were issued show cause notices for the cancellation of the registration certificate under section 12A of the Act. In view of above the ld. CIT(Exemption) has cancelled the registration certificate granted u/s 12A of the Act by observing as under :- “10. Conclusion:- 10.1 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 misused 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 trust purpose and objectives for allowing such benefit in the Act, rather it evaluates the purpose of the Act for the benefit of individual persons having motive to earn loose and easy money deviating from the concept of benefit of enduring mass. 10.2 Looking at the volume and depth of thee illegal activities performed and indulged by the trust to use the provisions of the IT 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 IT 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. 10.3 Based on the facts and circumstantial evidences as discussed in para 1 to 9, it can be inferred:- ‘a) Assessee trust has paid a sum of Rs.5,00,000/- as bogus donation to M/s Batanagar Education & Research Trust and received back in cash. Apart from this, other bogus donations of Rs.1,04,00,000/- have been paid to other trusts/societies stationed in and out of Kolkata and received back in cash in lieu of such donations paid in preceding and succeeding years. Assessee was in the habit of siphoning off trust profit through the route of bogus donations. b) Trustees of the Trust have been benefited out of the cash so received. There was continuous effort starting from 01.04.2006 (AY 2006-07) to pay bogus donations and claim as expenses in the income & expenditure account. No charitable work has been done byte he assessee by way of paying bogus donations, except pocketing cash for trustees. c) They have violated the objects of the trust by converting cheque paid through donation and received in cash. These bogus donations were paid towards the activities of trust which never happened and found to be on paper.

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 8 d) Charity in the guise made through paid donation is not voluntary, merely an accommodation entry and fictitious. e) Society/Trust has grossly misused the provision of Section 12AA and 80G(5)(vi). f) 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). g) Even ingenuine and illegal activities carried on by assessee through money laundering do not come within the conceptual framework of charity vis-à-vis activity of general public utility envisaged by the Income Tax Act as laid down in Section 2(15). 10. Keeping in view the above, provisions of section 12AA(3) and 12AA(4) are invoked and registration granted u/s.12A is withdrawn/cancelled w.e.f. 01.04.2006 from the starting of financial year, in which the Trust was found to be involved in money laundering through payment of bogus donation, ingenuine activities and not carrying out activities as per object of the trust.” Being aggrieved by the order of ld CIT(Exemption) the assessee came in appeal before us. 7. Before us Ld. AR of the assessee filed a paper book which is running from pages 1 to 426 and submitted that:- 1. The show cause notice was issued for the cancellation of registration granted under section 12A/ 12AA of the Act by invoking the provisions of section 12AA(3) of the Act vide No. CIT(E)/Kol/12AA/2015-16/3595 on 3.12.2015. But the ld CIT(Exemption) has cancelled the registration vide its order dated 10.03.2016 by invoking the provisions of section 12AA(3) and 12AA(4) of the Act. The assessee has made the submission in the response to the show cause notice issued on dated 3.12.2015 considering the provisions of section 12AA(3) of the Act. Therefore the action of the ld CIT (Exemption) u/s 12AA(4) of the Act is not within the provisions of law and against the principle of natural Justice. 2. The ld. AR further submitted that the name of the assessee is not appearing in the list of the persons to whom the amount of donation was returned by BERT in the form of booking of bogus capital expenditure under the head building.

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 9 3. The person acting as conduit between the assessee and BERT has not mentioned the name of the assessee for returning the amount of donation to the assessee. 4. The Ld. AR has also submitted the request letter from BERT for the donation which is placed on page 19 of the paper book along with the necessary details of the donee such as donation receipt, 80G certificate. 5. There is no evidence that the amount of donation made by the assessee has come back to the assessee or its associate concern in any form. 6. The learned AR also submitted that the date for cross examination of the statement of the managing trustee of BERT was fixed dated 3-3-2016 and the learned CIT(exemption) has given a finding that nobody from the side of the assessee appeared on the appointed date. The finding of the learned CIT exemption is not correct as the learned Counsel for the assessee Shri Somnath Ghosh and Managing Trustee Shri Bhogendra Jha of the assessee trust attended the office of the learned CIT (exemptions). The learned AR in this connection has relied on the certified copy of the attendance register which is maintained at the income tax office the act and copy is placed on pages 131 to 135 of the paper book. The ld. AR has also produced the copy of the affidavit of the managing trustee in support of his claim which is placed on pages 173 to 179 of the paper book. Similarly the copy of the affidavit of the counsel for the assessee was also submitted which is placed on record in the file. On the other hand the ld. DR submitted that the attendance registers maintained at the income tax office cannot be the decisive factors to decide whether the managing trustee and the counsel for the assessee attended the hearing dated 3.3.2016. A very specific query was posed to the managing trustee of the assessee trust about the details of the trust/ societies to which the donation has been paid by it but the managing trustee could not make any satisfactory reply to the learned CIT(exemptions) The ld. DR vehemently supported the order of the ld. CIT (Exemption).

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 10 of registration certificate issued u/s 12A/12AA of the Act on the ground that the assessee was involved in providing the bogus donation to the various trust and societies. This fact of bogus transactions in the form of donation was revealed on the basis of the statement of the managing trustee recorded in the course of survey u/s 133A of the Act on BERT. The managing trustee of be BERT admitted that it has received bogus donation through a person namely Shri Gulab Pincha. Thus the ld. CIT(Exemption) cancelled the registration certificate issued u/s 12A of the Act.

However on the perusal of the statement given by the managing trustee of the BERT we find that he admitted that the major bogus donation was received from various trust/ societies but the ld CIT(Exemption) has not provided any list in its order where the name of the assessee trust is reflecting. We also find as per the statement of managing trustee of BERT that the bogus donation was received from the various trusts/ societies through Shri Gulab Pincha and he has not provided the names of the donors. Similarly, the bogus donation received was shown as incurred for the capital expenditure by issuing cheques in the name of several persons. The names of these persons were very much disclosed by the managing trustee of BERT but the name of the donors was not anywhere shown in the recorded statement.

8.1 In view of above, we find that there is no whisper about the name of the assessee that it has given bogus donation and the same has come back to the assessee in the form of cash through the channel of some persons. Admittedly, the assessee has given donation to BERT for Rs. 5 lacs. The same was treated as bogus donation on the basis of the statement of the managing trustee of BERT but we find that the statement of the managing trustee is not reflecting the name of the assessee rather it is saying that major donation received was bogus. The major donation does not mean hundred percent donation rather it refers major part of the donation. Now the question arises whether the name of the assessee is under the category of major donation. It is a question of fact which has to be ascertained from the available evidences. There is no evidence available on record suggesting the name of the assessee in the list of bogus donors. As per the order of ld CIT (Exemption) Shri Gulab Pincha was acting as the conduit in arranging the bogus donation but no statement was recorded of Shri Gulab

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 11 Pincha by issuing notice u/s 131 of the Act. In our considered opinion, the statement Shri Gulab Pincha was very much important to unveil the facts of the bogus donation but the ld CIT (Exemptions) has miserably failed to do so. It is also important to note that the Revenue failed to prove with supporting evidence that the money has come back to the assessee.

Without prejudice to the above even assuming that the donation to BERT is bogus then the amount of bogus donation will not be eligible for exemptions u/s 11 of the Act. Under such circumstances, the registration certificate issued u/s 12A of the Act cannot be cancelled as long as the objects of the trust are within the provisions of law. The objects/ byelaws of the trust are placed on pages 264 to 283 of the paper book and on the basis of same objects the assessee was given registration certificate u/s 12A and 80G and 10(23C) of the Act. While holding so, we find support & guidance from the judgment of Hon’ble High Court of Punjab & Haryana in the case of CIT Vs. Apeejay Education Society reported in 59 taxmann.com 102 wherein it was held as under :

“Under Section 12AA of the Act, the Commissioner, at the relevant time in the year 1999 had called for all documents and information from the respondent-assessee to satisfy himself about the genuineness of the activities of the institution and after making enquires had passed the order registering the said institution and giving it the benefit under Section 12A of the Act, which made the institution eligible for exemption from the provisions of Sections 11 and 12 of the Act. Under Section 12AA(3) of the Act, the Commissioner was to be satisfied about the activities of the said institution and if they were not genuine and the same were not being carried out in accordance with the objects of the institution he could pass the order cancelling the registration. It cannot be disputed that the respondent-assessee is engaged in carrying out its objects and the genuineness of the same has never been doubted. The allegation is regarding the alleged supply of the installation of the software and whether the same was done by M/s. WSL or not. Merely because Sh. Sanjay D. Sonawani had given a statement, the Commissioner as such is not justified in cancelling the registration granted on 13.05.1999 w.e.f. the assessment year 2004-05. The assessee had placed various materials before the Tribunal to show that software modules purchased were installed between 2004 to 2011 and the assessee had incurred as much as 91.71% of the receipts for the assessment year 2004-05. Accordingly, keeping in view the peculiar facts and circumstances as noticed above, High Court are of the opinion that the Commissioner of Income Tax was not justified in passing the impugned order for withdrawing the exemption as admittedly, the respondent-assessee is carrying out educational activities by running a large number of educational institutions all over the country and, therefore, the questions of law sought to be raised do not arise.”

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 12 The facts of the above case are similar to the instant case before us. In the instant case the assessee is a charitable trust duly constituted a Charitable Trust duly constituted under a Deed of Trust as a Public Charitable Trust for imparting education which is a “Charitable Purpose” u/s. 2(15) of the Income Tax Act. The trust duly applied for registration u/s. 12A of the IT Act of the Jha Educational Trust before the Director of Income Tax (Exemption) in conformity with rule 17A and submitted Form No. 10A together with other requisite documents. The Director of Income Tax (Exemption) after verification of documents and after being satisfied about the object of the trust and genuineness of its activities granted registration effective from 01.04.2001 vide order No. DIT(E)/T-3/8E/437/2CCI-02 dated 11.04.2002. A copy of the said registration is enclosed on pages 4-6 of the paper book. The Commissioner of Income Tax (Exemption) granted approval under section 80G, initially from 26.03.2002 to 31.03.2005 and then for assessment year 2006-07 to assessment year 2008-09. Further, on 23.09.2011 it was extended in perpetuity. A copy of the certificate granting approval under section 80G is enclosed on pages 6Â to 6C of the paper book. It was also observed that no donation whatsoever has been received by Jha Trust (in short) till date. Jha Trust is running schools in two campus since last several years. One is primary and junior High School on VIP Road, Baguiati, Kolkata-159 and another is secondary (ICSE) and Higher Secondary (ISC) School at Aswini Nagar, Baguiati, Kolkata-159. The school is affiliated with Council for the Indian School Certificate Examinations New Delhi (ICSE-X and ISC-XII). The trust has started another school near Ranchi which is situated in remote area mainly with the object of imparting education to general and tribal poor students and providing free tuition and/or charging concessional rate of tuition fees to a large number of students in deserving cases. The school is operational since April 2015. The Roll strength of students at present is about 3000 in all the schools taken together. At present, more than 200 staff members are involved in the school including teaching and non- teaching staff. Apart from staff several other persons are dependent on schools for their livelihood as they are associated with related activities of school such as canteen, transportation etc., the Higher secondary school is imparting good education. The pass result is between 97% to 100% at class X and Class XII levels with highest score

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 13 touching as high as 98%. Further, every year more than 40 students score more than 90% and many meritorious students have come out from this school who have gone for further higher studies in engineering, medical and other professional degrees. Every year a school magazine “Dawn” is published by the students and teachers. Trust also publishes quarterly News bulletins for the benefit of students. A sample copy was also filed during the course of hearing for the purpose of the record. In other co-curricular activities also may students have represented at State and National level. The vision of the trust is to impart education where the need is more and as such the schools are being opened in rural areas. Last year, it has acquired land at Rahiki, in Madhubani District of Bihar and it plans to start construction in the next year. However on perusal of the order of the ld. CIT(Exemption) has no where highlighted the above activities of the assessee and no defect has also been reported. Therefore, it can safely be concluded that all the activities are the genuine activities. It is also important to note that the assessment for the AY 2012-13 was carried out u/s 143(3) of the Act and the donation given by the assessee was duly accepted.

It is also observed that the donation given by the assessee over the several years are negligible to the gross receipts of the trust as detailed under:-

F Y Gross receipt Donation Donation as % of gross receipt 2010-11 42,296,282 2,010,000 5% 2011-12 46,450,797 500,000 1% 2012-13 51,353,957 1,400,000 3% 2013-14 60,157,202 1,000,000 2% 2014-15 67,355,336 11,000 0%

8.2 Similarly, we also rely in the judgment of Hon’ble High Court of Karnataka in the case of CIT Vs. Islamic Academy of Education reported in 59 taxmann.com 102 wherein it was held as under:-

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 14 “If trustees were misappropriating funds and were maintaining false accounts, it was open to authorities to deny benefit under Section 11 of the Income Tax Act, but that could not be ground for cancelation of registration itself.” Applying the above ratio laid down by the Hon’ble High Court of Karnataka in the case of Islamic Academy of Education (Supra), it can be concluded that even the donation to BERT is proved to be bogus then also the registration u/s 12A of the Act cannot be cancelled but the said amount of donation will not be eligible for exemption u/s 11 of the Act.

The provisions of section 12A of the Act prescribe conditions for registration of trust and make obligatory to the trust or the institution to seek registration under section 12AA of the Act, if such trust or institution intends to have the benefit of the provisions of section 11 and 12 of the Act. These provisions thus make it clear that if the trust or the institution is not registered under section 12AA of the Act, it would not be able to claim any exemption or exclusion of its income from the total income of the previous year, even if such income is otherwise liable to be excluded under any of the clauses of section 11 of the Act. Thus, in a case where registration is refused, the trust or the institution would not be allowed to claim any such exemption or exclusion of its income from the total income of the previous year. The Income-tax Act through section 12A has made it obligatory for charitable trusts and institutions to get themselves registered with the income-tax authorities failing which the benefit of exemption from income-tax would be denied. The requirement of registration being procedural is prescribed under section 12AA of the Act which reads as under:-

“Procedure for registration. 12AA. (1) The [***] [Principal Commissioner of] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) [or clause (aa) of sub-section (1)] of section 12A, shall- (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution,

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 15 and a copy of such order shall be sent to the applicant;”

From the above provisions, it is clear that the ld CIT(Exemption) before granting the registration certificate shall conduct necessary enquiries as he thinks fit in order to satisfy himself about the genuineness of activities of the trust. Once the ld CIT(Exemption) is satisfied with the genuineness of the activities then he will grant the registration certificate. In the instant case before us, we find that the activities of the trust have not been doubted except the donation given by the assessee to BERT. Thus in our view at the most the exemption u/s 11 of the Act will be denied to such donation. Thus, in such circumstances the registration u/s 12A of the Act cannot be cancelled. In this regard, we rely in the principles laid down by the Hon’ble Allahabad High Court in the case of CIT Vs. Red Rose School (2007) 212 CTR 394 (All). The relevant extract of the judgment is extracted below :

“A reading of provisions of sub-cls. (a) and (b) of s. 12AA makes it clear that the CIT has to satisfy himself about the genuineness of the activities of the trust or institution and also about the objects of the trust or the institution. On being satisfied about the genuineness of the activities of the trust or the institution and also about its objects, the CIT would either grant the certificate or would reject the prayer. In order to satisfy himself about the genuineness of the activities of the trust or the institution, he can call for such documents or information from the trust or the institution, as he thinks necessary and he is also empowered to make such enquiries as he may deem necessary in this behalf. The objects of the trust can be had from the bye-laws or the deed of trust, as the case may be and unless, of course, the objects of the trust apparently make out that they were not in consonance with the public policy or that they were not the objects of any charitable purpose, registration cannot be refused accordingly on this ground. In regard to the genuineness of the activities of the trust or the institution, whose objects do not run contrary to public policy and are, in fact, related to charitable purposes, the CIT is again empowered to make enquiries as he thinks fit. In case the activities are not genuine and they are not being carried out in accordance with the objects of the trust/society or the institution, of course, the registration can again be refused. But on mere presumptions and on surmises that income derived by the trust or the institution is being misused or that there is some apprehension that the same would not be used in the proper manner and for the purposes relating to any charitable purpose, rejection cannot be made. Sec. 12AA, which lays down the procedure for registration, does not speak anywhere that the CIT, while considering the application for registration, shall also see that the income derived by the trust or the institution is either not being spent for charitable purpose or such institution is earning profit. The language used in the section only requires that activities of the trust or the institution must be genuine, which accordingly would mean, they are in consonance with the objects of the trust/institution, and are not mere camouflage but are real, pure and sincere, nor against the proposed objects.

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 16 The profit earning or misuse of the income derived by charitable institution from its charitable activities, may be a ground for refusing exemption only with respect to that part of the income but cannot be taken to be a synonym to the genuineness of the activities of the trust or the institution. It is significant to mention that registration under s. 12AA does not necessarily entitle the assessee to get the income excluded from the income of the previous year for the purpose of determination of tax liability but it only entitles the assessee to claim such exemption, which otherwise could not be claimed in the absence of registration. The enquiry by the CIT shall remain restricted to the examination, as to whether the assessee, who has moved the application for registration under s. 12A, is actually in the activities which are genuine. Genuineness of the activities of the trust or the institution has to be seen, keeping in mind the objects thereof, which necessarily means that the CIT shall satisfy himself about the fact that the activities are genuine and in consonance with the objects of the trust or the institution. In other words, if establishing and running a school is the object of the society, as given in its bye-laws, it has to be satisfied that the society has established the school, where education is being imparted as per rules and the factum of establishment and running school is a genuine activity. The enquiry regarding genuineness of the activities cannot be stretched beyond this. Sufficient safeguards having been given in ss. 11, 12 and 13 for assessing the income which has not been applied to the purpose of the trust or the institution, the intention of the law maker and the scope and purport of the provision is apparent while considering the question of registration.” In view of above precedent, we find that the activities of the trust in relation to its education activities have not been doubted and on the basis of same activities various registrations u/s 12A, 80G and 10(23C) were awarded to the assessee. Simply the assessee has given donation to a trust which is involved in the bogus transactions cannot be the basis for the denial of the registration certificates as discussed above.

8.3 It is also important to note that the assessee has been giving donation in every year which has been duly accepted by the Revenue as evidenced from the details submitted which is placed on pages 23 of the paper book. The amount of donation given by the assessee trust over the several years to the other trust is very much charitable activities. In this connection the CBDT has issued instruction No. 1132 date 05.01.1978 wherein it was clarified that the payment of a sum by one Charitable Trust to another for utilization by the donee-trust towards its charitable objects is proper application of income for a charitable purpose. We also find that the notice for the cancellation of the registration certificate was issued u/s 12AA(3) of the Act as evident from the notice placed on page 12 of the paper book. However, Ld. CIT(Exemption) has also invoked the provisions of section

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 17 12AA(4) of the Act for cancelling the registration certificate which in our considered view against the principal of natural justice. The ld. CIT(E) before invoking the provisions of Section 12AA(4) should have issued the show cause notice. Therefore, we find that the proper opportunity to the assessee has not been furnished.

8.4 We also find that ld. AR has given the detailed profile of the assessee and its activities which are placed in its Annual Magazine with the name ‘Dawn’. The transaction for the donation was made through banking channel and the department failed to bring anything on record that the donation given by the assessee has come back to it in the form of the cash. At the most, in our considered view, the Revenue could have brought the amount of donation to the tax.

In the instant case Shree Gulab Pincha (SGP for short) Mob. No.9831015157 was acting as conduit in providing a large amount of bogus donation received which was immediately returned back to the different parties in the guise of payments towards capital expenditure in building. However, no statement was SGP was recorded by the Revenue authorities by issuing any notice/summon u/s 133(6) / 131 of the Act. The managing trustee of BERT has accepted in his statement that SGP was involved in the aforesaid bogus donation transaction. Therefore, it was necessary for the Revenue Authorities to cross examine SGP to establish / ascertain how the money has returned back to the assessee-trust. In the instant case, the managing trustee of BERT has highlighted the name of 7 intermediaries used for returning the money of the donation and the name of the assessee trust is not appearing in that list. Similarly, the managing trustee of BERT has not mentioned the name of the assessee that the bogus donation was received. The managing trustee of BERT has mentioned very vaguely that major part of the donation was bogus without bringing the name of the donors on record. But he mentioned the name of SGP as the middle man for arranging such bogus donation. Thus in our considered view, the statement of SGP was necessary for establishing the fact that how the money has returned to assessee and whether the money was actually returned to the assessee-trust. As the statement of the SGP has not been recorded, the question of confronting the same to the assessee does not arise. As per question no. 14

ITA No.931-933/Kol/2016 Jha Educational Trust Vs. CIT (Ex) Kol. Page 18 of the statement of the managing trustee of BERT, it is clear that SGP was the only party to arrange all the bogus donations but his statement is missing which was crucial to unveil the chain of bogus donation.

In view of above, we have no hesitation in reversing the order of ld. CIT(E) and accordingly the appeal of the assessee is allowed. Now coming to the other appeals of the assessee in ITA 932/Kol/2016 and 933/Kol/2016 9. At the outset, we find that we have already adjudicated the issue raised by assessee in ITA No. 931/Kol/2016 in its favour. Following the same principles, we allow both the appeals of the assessee.