Tribunal restores registration & recognition under Income-tax Act emphasizing natural justice

The Tribunal allowed both appeals of the assessee, setting aside the orders of the Commissioner of Income-tax (Exemptions) and restoring the registration under section 12AA and the recognition under section 80G(5) of the Income-tax Act. The Tribunal emphasized the importance of natural justice, noting that evidence collected without allowing the assessee to cross-examine witnesses cannot be used adversely. The decision was pronounced on July 26, 2017.

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Issues Involved:
1. Cancellation of registration under section 12AA(3) of the Income-tax Act.
2. Derecognition under section 80G(5)(vi) of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Cancellation of registration under section 12AA(3) of the Income-tax Act:

The primary grievance of the assessee was against the cancellation of its registration under section 12AA(3) of the Act with effect from April 1, 2014. The learned counsel for the assessee argued that the issue had already been decided in favor of the assessee in similar cases by the same Tribunal, such as Fateh Chand Charitable Trust v. CIT (Exemptions) and Bhagwat Saran Educational Trust v. CIT (Exemptions). The Departmental representative did not dispute the facts and did not present any contrary decisions.

The Tribunal examined the facts and noted that the Commissioner of Income-tax (Exemptions) had issued a notice based on information received from the Commissioner of Income-tax (Exemptions), Kolkata, alleging that the assessee had received a donation of Rs. 1 crore through cheque after making a cash payment of the same amount to M/s. Herbicure Health Care Bio Herbal Research Foundation. The assessee denied these allegations and requested any authentic material to substantiate the claims, which was not provided. The Tribunal found that the Commissioner of Income-tax (Exemptions) had not given the assessee an opportunity to cross-examine the witness or make further comments before passing the cancellation order.

The Tribunal emphasized the principle that evidence collected at the back of the assessee cannot be used adversely unless confronted and cross-examined. It cited the Supreme Court decision in Andaman Timber Industries v. CCE, which held that not allowing cross-examination of witnesses whose statements form the basis of an adverse order is a violation of natural justice.

The Tribunal also considered that even if the donation was received as alleged, it was applied for charitable purposes, and thus, section 68 of the Act could not be invoked. The Tribunal concluded that the cancellation of registration was based on conjectures and surmises without proper verification and thus set aside the order of the Commissioner of Income-tax (Exemptions), restoring the registration granted to the assessee.

2. Derecognition under section 80G(5)(vi) of the Income-tax Act:

The assessee also contested the cancellation of recognition under section 80G(5)(vi) of the Act. The Commissioner of Income-tax (Exemptions) had cancelled this recognition on the grounds that the trust was making clear profits and had already had its registration under section 12AA cancelled. The Tribunal noted that since it had already quashed the cancellation of registration under section 12AA, the basis for cancelling recognition under section 80G(5) no longer existed.

The Tribunal reviewed the conditions for approval under section 80G(5) and found that the Commissioner of Income-tax (Exemptions) had not provided any findings that the assessee violated these conditions, except for the now-invalidated cancellation of section 12AA registration. The Tribunal cited the Delhi High Court decision in Director of Income-tax v. Neel Gagan Charitable Trust, which held that exemption under section 80G could not be denied where no violation was established.

Consequently, the Tribunal quashed the order of the Commissioner of Income-tax (Exemptions) and restored the recognition granted to the assessee under section 80G(5) with effect from April 1, 2010.

Conclusion:

In conclusion, both appeals of the assessee were allowed. The Tribunal set aside the orders of the Commissioner of Income-tax (Exemptions), restoring the registration under section 12AA and the recognition under section 80G(5) of the Income-tax Act. The order was pronounced in the open court on July 26, 2017.

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