M/S DR. B. G. MEMORIAL TRUST,KOLKATA vs. CIT(EXEMPTIONS), KOLKATA, KOLKATA

The facts and circumstances under which order u/s 12AA(3) of the Act was passed by CIT(Exemptions) , Kolkata are as follows :- The Assessee is a Trust created under an instrument of trust dated 01.03.2013. The assessee was granted registration u/s 12A of the Act on 17.07.2003. The main objects for which the trust was created was relief to the poor, education, medical relief and advancement of any other object of general public utility.

There was a survey u/s 133A of the Act conducted on 4.12.2015 in the case of one M/s. Quadeye Securities Pvt. Ltd., by the Investigation Wing, Kolkata. In the course of the survey statement of Shri Dinesh Kumar Agrawal, Director of M/s. Quadeye Securities Pvt. Ltd was recorded. In the said statement he had stated that he had given donation of Rs.50,00,000/- to the assessee in lieu of cash given by the assessee. It was

The respondent herein on receipt of the aforesaid information issued show cause notice dated 18.12.2015 u/s 12AA(3) of the Act for cancellation of registration already granted to the assessed. The action was proposed on the ground that the activities of the assessee were not genuine and therefore the trust does not deserve continuance of registration u/s 12A of the Act.

In reply to the aforesaid show cause notice the assessee vide letter dated 26.12.2015 submitted that even in the assessments completed for A.Y.2012-13 the donations in question received by the assessee were accepted as genuine by the AO. The assessee maintained that the donation received by M/s. Quadeye Securities Pvt. Ltd was genuine. The assessee demanded a copy of the statement of Shri Dinesh Kumar Agrawal, Director of M/s. Quadeye Securities Pvt. Ltd. When this letter was handed over to the respondent the respondent directed the managing trustee of the assessee one Mr. Gautam Ghosh to appear before the respondent on 13.01.2016. A copy of the statement of Shri Dinesh Kumar Agrawal, director of M/s. Quadeye Securities Pvt. Ltd was also given to the assessee and it was informed to the assessee that no further time will be given.

On 09.01.2016 the assessee gave another reply to the respondent wherein the assessee drew the attention of the respondent to question no.21 of the statement of Shri Dinesh Kumar Agrawal in which he had stated that the entry for donation in favour of the assessee was arranged by Shri Pradip Agarwal, CA and Shri Ajay Agarwal, CA. The assessee submitted that they do not know any such person as is referred to in the statement of Shri.Dinesh Kumar Agrawal. The assessee demanded an opportunity of cross examination of Shri Dinesh Kumar Agrawal, Shri Pradip Agarwal and Shri Ajay 2

The respondent CIT(Exemptions) issued another show cause notice dated 12.01.2016 in which he again called upon the managing trustee of the assessee to personally attend before him on 1.2.2016 along with the documentary evidences in support of the claim made by the assessee on 01.02.2016. None appeared on behalf of the assessee before the AO. The respondent issued another show cause notice on 02.02.2016 in which he again called upon the managing trustee to appear before him for examination on 15.02.2016. In this show cause notice the respondent CIT(Exemptions) also took the stand that the assessee was merely providing support to facilitate distance learning programme of Alagappa University, Tamil Nadu and doing so cannot amount to imparting education as defined u/s 2(15) of the Act. The assessee in reply to the aforesaid show cause notice addressed another letter dated 12.02.2016 in which the assessee reiterated its stand as was taken in its letter dated 09.01.2016.

In the given circumstances the respondent proceeded to pass an order u/s 12AA(3) of the Act cancelling the registration granted to the assessee u/s 12A of the Act. The respondent in this order referred to the statement of Shri Dinesh Kumar Agrawal, director of M/s. Quadeye Securities Pvt., Ltd.. The relevant portion of the statement is as follows :- “Q.18 Please furnish details of donation made to various Charitable trust/organization during F.Y. 2009-10 to 2014-15. Ans. Sir, the details of donation made by M/s. Quadeye Securities Pvt., Ltd & Quadeye Trading are as under :- Details of donation paid by Quadeye Securities Private Limited Sl. Name of Trust Donation paid during the F.Y. Total No. 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10 1. Vidyya Jyothi 100,00,00 - 52,00,000 - - - 152,00,00 Trust 0.00 .00 0.00 3

Goldfield - 100,00,00 - - - - 100,00,00 Siksha Sansthan 0.00 0.00 3. School of - - 50.00,000 50,00,000 - - 100,00,00 Human Genetics .00 .00 0.00 & Population Health 4. Batanagar - - - 100,00,00 - - 100,00 Education & 0.00 ,000.00 Research 5. Singhvi - 42,00,000 52,00,000 - - - 94,00,000 Charitable Trust .00 .00 .00 6. Agarwal Pragati - 20,00,000 10,00,000 45,00,000 - - 75,00,000 Trust .00 .00 .00 .00 7. B.G.Memorial - - - 50,00,000 - - 50,00,000 Trust .00 .00 8. Sandipani - - - 20,00,000 20,00,000 - 40,00,000 Charitable Trust .00 .00 .00 9. Smt. Katori - - 30,00,000 - - - 30,00,000 Devi garg .00 .00 Siksha Samity 10. Dinodia - - - 25,00,000 - - 25,00,000 Educational .00 .00 Society 11. Dhoot - - - - 25,00,000 - 25,00,000 Foundation .00 .00 12. Society For - - - - 25,00,000 - 25,00,000 Welfare .00 .00 Handicap persons 13. Pushpa Devi - - - - - 21,00,000 21,00,000 Bansal .00 .00 Charitable Trust 14. Ballaram - - 20,00,000 - - - 20,00,000 Hanuman das .00 .00 Charitable trust 15. Badhit Bal - - - 4,00,000. 2,50,000. - 6,50,000. Vikas Kendra 00 00 00 16,. St.Anthony - - - 3,00,000. - - 3,00,000. Public 00 00 Charitable Trust 17. Dhyana - - - - 1,00,000. - 1,00,000. Mandiram Trust 00 00 Total 100,00,00 162,00,00 214,00,00 297,00,00 73,50,000 21,00,000 867,50,00 0.00 0.00 00.00 0.00 .00 .00 0

The C.I.T. on the basis of the aforesaid statement came to the conclusion that the Assesee had pumped in unaccounted money through bogus corpus donation claimed u/s 11(1)(d) of the Act. The respondent also held that the assessee was pumping in cash through corpus donation and investing the same in fixed deposits and arranging interest income. The respondenet CIT(Exemptions) thereafter came to the conclusion that he was satisfied that the activities of the trust are not genuine and that the activities are not being carried out in accordance with the declared objects. The respondent accordingly concluded as follows :- “6.2. Based on the facts and circumstantial evidences as discussed in Para 1 to 5, it can be informed :- a)Society/Trust has grossly misused the provision of section 12AA and 80%(5)(vi). b) They have violated the objects of the society as converting cash in cheque is beyond the objects. c) The activity of converting unaccounted cash available with trustee through corpus donation is illegal, ingenuine and immoral. d) Donation received is not voluntary, merely an accommodation entry and fictitious. Therefore, the claim of exemption u/s.l l (1) [d) was not absolutely enable. e) Activities of the society are not genuine as well as not being carried out in accordance with its objects. f) Even ingenuine and illegal activities carried on by assesssee thorough money laundering do not come within the conceptual framework of charity vis-a-vis activity of general public utility envisaged the Income Tax Act as laid down in Section- 2( 15). g) They have always avoided to come forward to file details of donations, Balance Sheet and Income & Expenditure Account. h) Even they did not avail cross-examination and were well determined that they will not attend any proceedings. They failed to proof genuineness of transactions. i) 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 6

The ld. Counsel for the assessee submitted that u/s 12AA(3) of the Act registration already granted u/s 12A of the Act can be cancelled only on the ground that the activities of the trust are not genuine or are not being carried out in accordance with the objects of the trust. According to him mere allegation that the assessee was receiving bogus donations cannot be the basis to cancel the registration u/s 12AA(3) of the Act. He drew our attention to question no.26 of the deponents of Shri Dinesh Kumar Agrawal, director of M/s. Quadeye Securities Private Limited and submitted that according to the answer one Mr.Pradip Agarwal, CA and Shri Ajay Agarwal, CA had arranged bogus donations to various trust. According to him the revenue has not chosen to examine the persons who were stated to have arranged bogus donations and therefore the statement of Shri Dinesh Kumar Agrawal is not corroborated by any extrinsic evidences. He pointed out that in the assessment completed u/s 143(3) of the Act for A.Y.2012-13 the AO has not drawn any adverse inference in so far as this donation received from M/s.Quadeye Securities Private Limited. The ld. Counsel drew our attention to the decision of the ITAT, Lucknow Bench in the case of M/s. Fateh Chand Charitable Trust vs CIT(Exemptions) vide ITA NO.792/Lkw/2015 order dated 18.03.2016 wherein on identical facts the Tribunal held that cancellation of registration u/s 12AA(3) of the Act was not valid. He brought to our notice the facts in the aforesaid case which were as follows :- “On the basis of the report of the Id. Commissioner of Income Tax (Exemptions), Kolkata vide letter dated 28.10.2015, in which it was mentioned that bogus donations were 7

The Tribunal while quashing the order u/s 12AA(3) of the Act held as follows :-

Our attention was also drawn to the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. M/s.Islamic Academy of Education in ITA NO.805/2008 order dated 9th September, 2014. In the aforesaid case the facts were that a search was conducted in the residential premises of the 3 of the trustees of a charitable institution. In the course of such search evidence was found regarding collection of fees for admission much higher than recorded in the books of accounts of the institution. On the basis of the aforesaid finding registration u/s 12AA(3) of the Act was cancelled. The Tribunal had set aside the order u/s 12AA(3) of the Act and on further appeal by the revenue the Hon’ble Karnataka High Court has held as follows :- “8. In the instant case, the material on record shows that the Trust has established educational institution and imparting medical education. Every year, students are 8

The ld. Counsel drew our attention to the decision of the Hon’ble Supreme Court in the case of M/s. Queen’s Educational Society vs CIT in Civil No.5167 of 2008 order dated 16.03.2015 wherein the Hon’ble Supreme Court took a view that so long as the funds were applied for charitable purpose exemption cannot be denied to a trust. The ld. Counsel further submitted that at best the donation in question could be treated as anonymous donation u/s 115BBC of the Act but registration u/s 12AA(3) of the Act cannot be cancelled.

The ld. DR submitted that accepting bogus donations would be clearly a case where the activities of the trust could said to be that of money laundering and doing so would only mean that the activities of the trust are not genuine or are not carried out in accordance with the objects of the trust and therefore there is every justification for cancellation of the registration. With regard to the complaint of lack of opportunity of cross examination, the ld. DR submitted that the assessee did not appear before the respondent despite several directions and unless the assessee appears and complies with the direction of the respondent it was not possible for the respondent to give opportunity for cross examination. It was argued by him that the conduct of the assessee in avoiding appearance before the respondent clearly justifies cancellation of registration. 9

With regard to the activities of the trust not being carried out in accordance with the objects of the Trust, the ld.DR brought to our notice the fact that the assessment was completed for A.Y.2012-13 in the case of the Assessee by the AO by order dated 25.03.2015 passed u/s 143(3) of the Act. At that time the AO had no opportunity to go into this question regarding activities of the trust being genuine or not as survey u/s 133A of the Act in the case of M/s. Quadeye Securities Pvt. Ltd took place much later i.e. on 04.12.2015. He pointed out that even in the said order the assessee was not granted exemption u/s 11 of the Act.

We have given very careful consideration to the rival submissions. From the statement of Shri Dinesh Kumar Agarwal of M/s. Quadeye Securities Pvt. Ltd it appears that there is prima facie ground to believe that the donation of Rs.50,00,000/- given by M/s. Quadeye Securities Pvt. Ltd was not genuine. Based on this statement alone it cannot be conclusive said that the donation in question was bogus. When the statement of Shri Dinesh Kumar Agarwal was confronted to the assessee and when the assessee was asked to appear before the respondent, the assesee chose to avoid appearing before the respondent. This conduct of the assessee was not justified. It is no doubt true that the statement of Shri Dinesh Kumar Agarwal without being subjected to cross examination by the Asessee and further corroborated by evidence of the persons who are stated to have arranged for bogus gifts cannot be believed in toto. Nevertheless the fact remains that there are grounds to believe that the donations received by the assessee had to be decided with regard to is genuineness. The fact that opportunity of cross examination of Shri Dinesh Kumar Agrawal and the person who are alleged to have arranged the bogus gifts was not afforded to the assessee cannot be the basis to quash the order u/s 12AA(3) of the Act. As rightly contended by the ld. DR if it is found that the Assessee was accepting bogus donations, then that fact can only lead to an inference that the activities of the trust are not genuine or are not carried out in 10

The assessee will present himself before the respondent and if the respondent desires he is at liberty to issue summons u/s.131 of the Act. If after such inquiry by the respondent and if the respondent so desires proceed further u/s.12AA(3) of the Act, he shall afford the right of cross examination of Shri Dinesh Kumar Agrawal. If the respondent so desires he shall also examine Shri Pradip Agarwal and Shri Ajay Agarwal and afford right of cross examination to the assessee. If the respondent after such exercise still desires to cancel the registration then he shall afford opportunity to the assessee of being heard and decide the issue in accordance with law. For statistical purposes the appeal of the assessee is treated as allowed. The case laws cited by the ld. Counsel for the assessee before us are not considered at this stage as in our opinion the truth or otherwise of the statement of Shri Dinesh Kumar Agrawal is very material for ascertaining the true position with regard to the genuineness of the donation/gift. Even otherwise the facts of the case of the Assessee and that of the case laws cited by the learned counsel for the Assessee are distinguishable. In the case of Fatechand Charitable Trust (supra), in the statement recorded of the Donor the name of that Assessee was not mentioned as a person to whom bogus donations were given, whereas in the present case the Director of Qudeyes Securties Pvt.Ltd., in his statement has clearly mentioned the name of the Assessee as a recipient of bogus donations in lieu of cash. The decision in the case of Isalmic Academy of Education (supra), the facts of the case were that there was misappropriation of funds by the Trustee of the trust and it was found that otherwise the trust was carrying on charitable activities. In the present case, the facts are that there are allegations against the trust that it was receiving bogus gifts in lieu of cash. The decision rendered in the case of Queens Educational Society is on the question of application of the test of predominant nature of the objects of the trust 11

In the result the appeal of the assessee is allowed for statistical purposes.