Appeal upheld: Society wins against registration cancellation due to unsubstantiated money laundering allegations

The Tribunal allowed the appeal of the society against the cancellation of its registration under Section 12AA(3) and 12AA(4) of the Income Tax Act. The Tribunal found that the allegations of money laundering through bogus donations were not substantiated, the principles of natural justice were violated, and the retrospective cancellation of registration was inappropriate. The cancellation was set aside, and the society's registration was upheld under Section 12A.

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Issues Involved:
1. Cancellation of registration under Section 12AA(3) and 12AA(4) of the Income Tax Act.
2. Allegations of money laundering through bogus donations.
3. Violation of principles of natural justice.
4. Retrospective effect of the cancellation of registration.

Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3) and 12AA(4) of the Income Tax Act:
The appeal concerns the cancellation of registration under Sections 12AA(3) and 12AA(4) of the Income Tax Act by the Commissioner of Income Tax (Exemptions) [CIT(E)]. The assessee, a society registered under the West Bengal Societies Registration Act, 1961, and an educational institution, had its registration canceled based on allegations of indulging in money laundering through bogus donations.

2. Allegations of Money Laundering through Bogus Donations:
The CIT(E) alleged that the assessee was involved in money laundering by making bogus donations to Batanagar Education & Research Trust, which were returned in cash. This conclusion was drawn from a statement by Sri Rabindranath Lahiri, Vice Chairman and Trustee of Batanagar Education & Research Trust, recorded during a survey operation. The CIT(E) claimed that the assessee had paid donations amounting to Rs. 25,00,000 in AY 2012-13 and Rs. 1,25,00,000 in AY 2013-14, which were allegedly returned in cash.

3. Violation of Principles of Natural Justice:
The assessee argued that the cancellation of registration was in gross violation of the principles of natural justice. The CIT(E) did not provide adequate opportunity for the assessee to controvert the materials relied upon, including cross-examination of the witness. The assessee denied receiving any cash in lieu of donations and requested the cross-examination of Sri Rabindranath Lahiri, which was not adequately facilitated by the CIT(E).

4. Retrospective Effect of the Cancellation of Registration:
The CIT(E) canceled the registration with retrospective effect from April 1, 2011. The assessee contended that the CIT(E) had no power to withdraw/cancel the registration retrospectively, especially when the provisions of Section 12AA(4) were introduced only from October 1, 2014.

Tribunal's Findings:

On Allegations of Bogus Donations:
The Tribunal found that the CIT(E) had made bald allegations without substantial evidence. The statement of Sri Rabindranath Lahiri did not specifically mention the assessee or its office bearers. The donations made by the assessee were not corpus donations, and the alleged period of bogus donations did not coincide with the period when the assessee made donations to Batanagar Education & Research Trust.

On Violation of Principles of Natural Justice:
The Tribunal agreed with the assessee that the principles of natural justice were violated. The assessee was not given a fair opportunity to cross-examine the witness, and no adverse statements were made against the assessee in the recorded statement of Sri Rabindranath Lahiri.

On Retrospective Cancellation:
The Tribunal noted that there is no provision in the Act for the retrospective withdrawal of registration under Section 12AA. The CIT(E)'s action of canceling the registration with retrospective effect was deemed inappropriate.

Conclusion:
The Tribunal concluded that the CIT(E) had no valid grounds to invoke the provisions of Section 12AA(3) and 12AA(4) to cancel the registration of the assessee society. The appeal of the assessee was allowed, and the cancellation of registration was set aside.

Order:
The appeal of the assessee is allowed. The Tribunal directed that the registration under Section 12A should not be canceled based on the grounds presented by the CIT(E). The order was pronounced on September 6, 2017.

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