2007 (11) TMI 348 - AT - Income Tax

Tribunal Upholds Tax Exemption for Society, Cites Lack of Evidence and Denial of Cross-Examination as Key Issues.

Assistant Commissioner Of Income-Tax. Versus Geetanjali Education Society.

The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision to grant the assessee society exemption under Section 11 of the Income Tax ... Claimed exemption u/s 11 - Addition made u/s 68 of the Act - Genuineness of the donations - Alleged Fake Donations - No opportunity of cross-examination - HELD THAT:- We are in agreement With the observations of learned CIT(A) when he says that exemption under s. 11 cannot be denied to the assessee on the basis of fake donations. The impugned claim of exemption can only be denied if (i) the activities of the trust are not genuine and (ii) its activities are not being carried out in accordance with the objects of the trust. Admittedly, no finding has been given by learned AO in this regard. He has not touched these ingredients, which are sine qua non for grant of impugned exemption. It is also a fact that registration granted under s. 12AA of the Act has not been withdrawn by CIT. None of the allegations contained in the assessment order for asst. yr. 2004-05 under consideration relates to the activities carried on by the society. Rather, the activities of the society are being carried out as per rules, stand confirmed from the evidences. It is a clear case that the AO did not make any enquiry in respect of the donations received from the trusts, companies and celebrities and other donors, which were received by account payee cheques/drafts. These donors are existing asses sees and have claimed deduction u/s 80G of the Act for the donation made to the assessee. Merely by recording statements of few persons on the back of the assessee, without producing them for cross-examination, the entire donations cannot be treated as bogus and as unexplained money of the society. The IT authorities cannot be allowed to take advantage of their own inaction to the prejudice of the assessee, in respect of the allegation that the assessee society has received donations from various trusts, well known companies and certain celebrities. The society has been working for the purpose of attaining its objects by carrying out various activities in the field of education. Therefore, there is nothing wrong to make donations to assessee society keeping in mind the charitable activity by it. Therefore, we confirm the impugned finding and dismiss the ground raised by the Revenue. As a result, the appeal of the Revenue is dismissed. As we have already observed while deciding the appeal of the Revenue that not providing the opportunity of cross-examination is a serious lacuna and not technical lapse an un scrutinised statement is not a statement at all and cannot be used against a person who was not given an opportunity to cross-examine the deponent in this case no such opportunity was given. Therefore, we amend the observations so made by the learned CIT(A) and allow this ground of cross-objection. In the result, the appeal of the Revenue is dismissed and the cross-objection is allowed. Issues Involved:1. Eligibility for exemption under Section 11 of the Income Tax Act.2. Genuineness of donations received by the assessee society.3. Application of principles of natural justice regarding cross-examination of donors.Issue-wise Detailed Analysis:1. Eligibility for Exemption under Section 11 of the Income Tax Act:The assessee, a public educational society registered under the Rajasthan Societies Act, 1958, and Section 12AA of the Income Tax Act, 1961, claimed exemption under Section 11 for charitable purposes. The Assessing Officer (AO) denied this exemption, suspecting the genuineness of the donations received. However, the CIT(A) accepted the exemption claim, stating that the exemption could not be denied based on fake donations unless the activities of the trust were not genuine or not carried out according to its objects. The Tribunal agreed with the CIT(A), emphasizing that as long as the society remains registered under Section 12AA and applies its income for charitable purposes, it cannot be denied exemption under Section 11.2. Genuineness of Donations Received by the Assessee Society:The AO suspected the genuineness of donations due to irregularities such as donations in cash, donations from various trusts and companies, and numerous donations from a single bank on the same day. The AO conducted inquiries and concluded that the donations were not genuine, leading to the rejection of the exemption claim. However, the CIT(A) and the Tribunal found that the AO did not provide sufficient evidence to prove the donations were bogus. The Tribunal noted that the AO did not doubt the genuineness of the society's activities or its adherence to its objectives. The Tribunal also referenced prior judgments, stating that the strict proof required under Section 68 of the Act does not apply to donations received by a charitable trust.3. Application of Principles of Natural Justice Regarding Cross-examination of Donors:The AO relied on statements from some donors obtained through inquiries but did not provide the assessee society an opportunity to cross-examine these donors. The CIT(A) and the Tribunal found this to be a serious lapse, emphasizing that statements not subjected to cross-examination cannot be used against the assessee. The Tribunal cited various judgments supporting the principle that denying cross-examination violates natural justice. Consequently, the Tribunal amended the CIT(A)'s observation, recognizing the lack of cross-examination as a significant issue and not merely a technical lapse.Conclusion:The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s decision to grant exemption under Section 11 to the assessee society. The Tribunal also allowed the assessee's cross-objection, acknowledging the importance of cross-examination in ensuring fair proceedings. The judgment underscores the necessity of adhering to principles of natural justice and the specific requirements for denying exemptions under the Income Tax Act.