2008 (5) TMI 445 - AT - Income Tax

Unjustified denial of tax exemption overturned due to violation of natural justice principles.

The Tribunal held that the refusal to grant exemption under section 80G(5)(vi) of the Income-tax Act was unjustified as the DIT(E) relied on untested ... Deductions Issues Involved:1. Refusal to grant exemption u/s 80G(5)(vi) of the Income-tax Act, 1961.2. Compliance with procedural requirements and principles of natural justice.3. Validity of reliance on untested statements from the Investigation Wing.Summary:Issue 1: Refusal to Grant Exemption u/s 80G(5)(vi)The assessee, a registered society engaged in imparting higher and professional education, appealed against the order of the Commissioner of Income-tax (Exemption) [DIT(E)], Delhi, dated 4-5-2006, which refused to grant exemption u/s 80G(5)(vi) of the Income-tax Act, 1961. The DIT(E) based the refusal on findings from the Investigation Wing that certain donors were accommodation entry providers, thus deeming the donations received by the assessee as not genuine.Issue 2: Compliance with Procedural Requirements and Principles of Natural JusticeThe assessee contended that all required documents were submitted as per Rule 11AA of the Income-tax Rules, 1962, and that there was no change in the objectives or activities of the society since its previous registration and exemption. The assessee argued that the DIT(E) relied on the Investigation Wing's inquiry without giving the assessee an opportunity to cross-examine the donors or confront the veracity of the statements, violating the principles of natural justice and the proviso to sub-rule (5) of Rule 11AA.Issue 3: Validity of Reliance on Untested StatementsThe Tribunal noted that the DIT(E) used information from the Investigation Wing without giving the assessee a chance to cross-examine the donors, which goes against the legal requirements and principles of natural justice. Citing precedents from the Supreme Court and High Courts, the Tribunal emphasized that any evidence or statement used against the assessee without an opportunity for cross-examination is inadmissible. The Tribunal found that the DIT(E) did not provide a valid reason for rejecting the application, especially since the assessee had complied with all procedural requirements and there was no change in the society's objectives or activities.Conclusion:The Tribunal concluded that the DIT(E) was not justified in refusing the continuation of registration u/s 80G(5)(vi) and allowed the appeal of the assessee. The Tribunal did not accept additional evidence as it was not produced before the DIT(E), but this did not affect the decision to grant the exemption. The appeal was allowed, and the refusal of the exemption was overturned.