2019 (6) TMI 707 - AT - Income Tax

Tribunal overturns cancellation of registration under Income-tax Act, citing lack of evidence and violation of natural justice.

M/s Urmila Devi Charitable Trust Versus Commissioner of Income Tax (Exemptions), Uttar Pradesh

The Tribunal ruled in favor of the appellant, finding that the cancellation of registration under Section 12AA of the Income-tax Act, 1961, by the ... Registration u/s 12AA - charitable activity or not? - cancellation of the registration retrospectively - assessee had received the donation in lieu of cash from M/s Herbicure Healthcare Bio-Herbal Research Foundation (hereinafter referred to as HHBRF) of Kolkata - whether appellant being a trust exists solely for educational, medical aid and other charitable purposes and not for the purpose of profit? - HELD THAT:- We are of the opinion that the decision of Hon’ble Apex Court in the case of M/s Andaman Timber Industries [2015 (10) TMI 442 - SUPREME COURT] would be squarely applicable and, respectfully following the same, we hold that the material collected behind the back of the assessee cannot be utilized against the assessee unless the copy of the same is supplied to the assessee and he is given an opportunity to rebut the same. The statement of office bearers of HHBRF cannot be utilized against the assessee because neither the copy of the statement was supplied to the assessee nor the assessee was allowed an opportunity to cross-examine such person whose statement is being sought to be relied upon by the CIT(Exemptions). Once these two documents are ignored, there remains no material for the Department to hold that the assessee received the donation from HHBRF in lieu of cash. The CIT(Exemption)’s finding, that the assessee was not carrying out activities in accordance with the objects of the society and no genuine activities are being carried out by the society, is solely based upon the allegation that the assessee received the donation of ₹ 85 lakhs in lieu of cash. As we have already stated, there is no basis for the Department to hold that the assessee received the donation of ₹ 85 lakhs from HHBRF in lieu of cash. Further, merely because the genuineness of one donation in one year is doubted, it cannot be a ground to draw the inference that the activities of the assessee society are not being carried out in accordance with the objects of the society or that no genuine activities are being carried out by the assessee. a conclusion cannot be drawn that the activities of the society are not being carried out in accordance with the objects of the society or that no genuine activity is being carried out by the assessee merely because the genuineness of one donation in one year is doubted. Case of Agra Development Authority [2018 (2) TMI 756 - ALLAHABAD HIGH COURT] correctly relied upon to support assessee's contention that Section 12AA(3) does not authorize the Commissioner to cancel charitable registration with retrospective effect. As pointed out that the show cause notice was given in this case by the CIT on 25th January, 2016 while the CIT cancelled the registration from 1st April, 2010, which is not permissible - Decided in favour of assessee Issues Involved:1. Legality of the cancellation of registration under Section 12AA of the Income-tax Act, 1961.2. Validity of the reasons provided for the cancellation, including allegations of receiving donations in exchange for cash.3. Adherence to principles of natural justice and procedural fairness.4. Retrospective application of the cancellation order.Detailed Analysis:1. Legality of the Cancellation of Registration under Section 12AA:The primary issue is whether the cancellation of the appellant's registration under Section 12AA of the Income-tax Act, 1961, by the Commissioner of Income Tax (Exemptions) [CIT(Exemptions)], was lawful. The appellant argued that the cancellation was based on unverified allegations and without providing an opportunity to refute the evidence against them. The Tribunal emphasized that the CIT(Exemptions) can cancel registration only if the trust's activities are not genuine or not in accordance with its objects.2. Validity of the Reasons Provided for the Cancellation:The CIT(Exemptions) cancelled the registration based on the allegation that the appellant received a donation of Rs. 85 lakhs from M/s Herbicure Healthcare Bio-Herbal Research Foundation (HHBRF) in exchange for cash. This allegation was supported by a report from CIT(Exemptions), Kolkata, and statements from the Director of HHBRF. However, the appellant was not provided with these materials or allowed to cross-examine the concerned individuals. The Tribunal noted that evidence collected behind the appellant's back cannot be used against them unless they are given a chance to rebut it. The Tribunal found that the CIT(Exemptions) relied on presumptions and did not provide specific instances of activities outside the trust's objects.3. Adherence to Principles of Natural Justice and Procedural Fairness:The appellant contended that they were not given a meaningful opportunity to defend themselves, as they were not provided with the evidence or allowed to cross-examine witnesses. The Tribunal referenced the Supreme Court's decision in M/s Andaman Timber Industries Vs. Commissioner of Central Excise, Kolkata-II, which held that not allowing cross-examination of witnesses whose statements were used against the appellant violates principles of natural justice. The Tribunal concluded that the CIT(Exemptions) failed to adhere to these principles by not providing the appellant with the necessary materials or opportunities to cross-examine.4. Retrospective Application of the Cancellation Order:The appellant argued that the cancellation of registration with retrospective effect from April 1, 2010, was contrary to the law. The Tribunal agreed, citing the jurisdictional High Court's decision in ACIT Vs. Agra Development Authority, which held that the Commissioner cannot cancel registration retrospectively unless there is evidence of fraud, collusion, or misrepresentation. The Tribunal found that the CIT(Exemptions) acted beyond their authority by cancelling the registration retrospectively without such evidence.Conclusion:The Tribunal concluded that the CIT(Exemptions) did not follow due process and violated principles of natural justice by not providing the appellant with the necessary evidence or opportunities to cross-examine witnesses. The Tribunal also held that the retrospective cancellation of registration was unlawful. Consequently, the Tribunal cancelled the CIT(Exemptions)'s order dated April 22, 2016, and allowed the appellant's appeal.