Supreme Court overturns High Court decision on trust's registration cancellation due to money laundering allegations

The Supreme Court set aside the High Court's decision to quash the cancellation of a trust's registration under Section 12AA of the Income Tax Act due to allegations of money laundering through bogus donations. The Court emphasized the seriousness of the money laundering accusations and directed the Commissioner of Income Tax (Exemptions), Kolkata to reconsider the matter independently. The appeal was allowed, and the case was remanded for fresh consideration without expressing any opinion on the case's merits.

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Issues:
Cancellation of registration of a trust under Section 12AA of the Income Tax Act, 1961 based on allegations of money laundering through bogus donations.

Analysis:
The civil appeal was filed by the Commissioner of Income tax (Exemptions), Kolkata, challenging the High Court of Calcutta's order dated 18.09.2017 in I.T.A No.7 of 2017. The respondent, a registered trust under Section 12AA of the Income Tax Act, was accused of receiving a bogus donation of Rs. 37,00,000 in cash, leading to the initiation of proceedings for cancellation of registration. The primary authority canceled the trust's registration under Section 12AA(3) of the Act, citing activities of money laundering and violation of trust objectives through bogus donations and commission payments to agents.

The respondent appealed the cancellation order to the Income Tax Appellate Tribunal, which remanded the matter to the primary authority for fresh consideration, emphasizing the need to provide an opportunity for cross-examination of the donor's representative. Subsequently, the High Court of Calcutta allowed the appeal, quashing the cancellation order, stating that a single bogus donation does not necessarily prove the trust's activities are not genuine, and multiple such transactions would be required for such a conclusion.

The Supreme Court, upon hearing both parties, found the High Court's reasoning erroneous and contrary to Section 12AA(3) of the Act. The Court emphasized the serious allegations of money laundering against the trust and set aside the High Court's order, directing the Commissioner of Income Tax (Exemptions), Kolkata to reconsider the matter on its own merit, without being influenced by previous decisions.

In conclusion, the Supreme Court allowed the appeal, quashed the High Court's order, and directed a fresh consideration of the issues by the Commissioner of Income Tax (Exemptions), Kolkata, without expressing any opinion on the merits of the case.

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