TaxTMI 
TaxTMI 
2017 (6) TMI 1119
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Trust are not genuine and not being carried out in accordance with the objects of the Trust. 3. For that on the facts and in the circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in holding that the Trust has violated the objects of the Trust and alleging that the Trust was involved in converting unaccounted cash into cheque through bogus donation which is not voluntary and merely accommodation entry and fictitious. 4. For that on the facts and in the circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in holding that the Trust has grossly misused the provisions of section 12A of the Income Tax Act, 1961 and in alleging that the Trustees of the Trust never came forward to state the true state of affairs and in further alleging that the Trustees have shown their unwillingness to assist in an investigation to unveil the truth behind a forgery. 5. For that on the facts and in the circumstances of the case, the Commissioner of Income Tax (Exemptions) erred in completely ignoring and overlooking the submissions made by the Trust and instead relying on letters / complaints filed before various authoriti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and address from 01.04.2009 to 31.03.2015. d) List of corpus/non-corpus donations paid by you along with their PAN, name and address from 01.04.2009 to 31.03.2015." 3. Pursuant to the show cause notice, supra, hearings were conducted on various dates and ultimately the impugned order was passed on 05.08.2016 wherein the Ld CIT(E) made following observations: "The subject matter of this proceeding is not directly related with deduction u/s 35(1), but a connecting link to indulge such operation through making donation to an institution having registration u/s 12AA and 80G for instant benefit of application of money collected through cheque and maintaining the source of cash. The assessee has been found to be involved in receipt of Rs. 70,00,000/- through RTGS from the forged bank account. The organizations engaged in charitable activities have to collect donations from persons as a source of fund, which is not as easy as donating sum to a sign board for availing the benefit of 80G, but there needs a benevolent and earnest attempt to explain its functionaries through convincing approach. The assessee, in this case found to be in receipt of huge money to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of such donation received in lieu of cash is donation to group trusts/societies, i.e. Harmony Foundation, Noble Charitable Trust, RPG Educational Trust, all at 11, Camac Street, Kolkata. Maximum amount spent on account of charity is inter-trust donations. Rebuttal of replies of assessee trust In the replies, the assessee contended that the receipt of donation was not anonymous and produced PAN card of the President of the Society, Sri Dhruba Chakraborty and a letter declaring such intention to make donation to the assessee. On examination, it is found that the signature of the President in that letter was not genuine. The assessee obviously contested that it was not responsibility on their part to verify the genuineness of the signature of the President, they only restricted themselves in collecting documents like PAN card as supporting document towards identity of the Society contributing such donation. However, the assessee did not highlight the fact that for such huge receipt, there was no need to even approach the management of the society. It is also surprising that the assessee has deliberately shown its stand not to even appear at the hearing after gettin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovisions of sec. 12AA(3) of the Act, he has the authority to cancel the registration granted to a Trust if, in his opinion, activities of the trust were not genuine or he was satisfied that the activities of the trust were not carried out in accordance with the declared objects. According to Ld CIT(E), he was of the opinion that the activities of the assessee were neither genuine nor carried out in accordance with the objects. So, he concluded that the assessee was found fault on both the counts and accordingly, he passed the impugned order withdrawing the registration after recording the following observation in para 8.1, 8.2 and 8.3 of the impugned order: "8.1. The intention of the legislature to grant registration u/s 12AA and 80G, to give the benefit u/s 11 to encourage medical relief to the poor and needy persons, promote education among masses and support to the poor section of the society. But time and again these provisions have been issued for personal need and for benefit of trustees/members of the trusts and societies. The act of misuse sometimes discovers itself so wide that it may confuse the true purpose and objectives for allowing such benefit in the Act. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee. Before us, the Ld. AR assailed the order of the Ld. CIT(E) on the ground that the order was an arbitrary exercise of power u/s. 12AA(3) of the Act, even though the assessee's activities were genuine and were carried out in accordance with the objects set out in the Trust deed. According to the Ld. AR, the impugned order is bad in law since there was breach of principle of natural justice. According to him, the Ld. CIT(E) did not conduct any proper enquiries and the basis of withdrawal of registration was made on unsubstantiated and unproven allegations made by third party. The Ld. AR took our attention to the show cause notice on 14.03.2016 wherein the allegation against the assessee was that it accepted bogus donation of Rs. 70 lacs from Society for Welfare of the Handicapped Persons, Durgapur (SFWHP in short). It was pointed out by the Ld. AR that in the show cause notice furnished to the assessee, the Ld CIT(E) made reference to four issues which had no connection in whatsoever manner with the allegation of the bogus donation received from SFWHP. The Ld. AR argued that in the show cause notice though the Ld CIT(E) had alleged that the assessee had received bogus donatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... since January 2011 alleging that some unknown persons had opened and operated a Bank account in its name and the donations collected through that account were misappropriated by withdrawing cash. Sri Dhruba Chakraborty claiming himself to be the President of the Society had required these authorities to investigate the matter and ensure that the monies deposited in Axis Bank account were paid back to the Society and that the criminal complaint lodged was thoroughly investigsted by the economic offence wing of Bengal Police and no proceedings were taken against the assessee till date. 7. Further the Ld. AR drew our attention to the complaint filed by the President with the authorities and submitted that from a perusal of the complaint to all the authorities there was no mention about the assessee's name or role in the entire allegation. It was pointed out by the Ld. AR that when there was no whisper about any wrong doing or fraud committed by the assessee in the complaint filed by the President of the Society, the AO wondered as to how the Ld CIT(E) could draw any adverse inference against the assessee. It was also submitted before us that based on the allegation made by the Pre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant opportunity of examining the persons set out in its letter. The relevant part of the assessee's letter dated 29.07.2016 is reproduced below: "From the tone & tenor of the complaint lodged by the Society it is quiet apparent that the offences alleged in the complaint are criminal in nature and they do not confine to tax proceedings alone. In fact we are aware that EOW, Kolkata Police as also CID, West Bengal Police were involved in the matter and had carried out criminal investigation in the matter. Since based on the criminal complaints lodged by the Society you are proposing to invoke provisions of Section 12AA(3) of the Act, it is necessary that we are provided with the investigation report of the EOW, Kolkata Police as also CID, West Bengal Police. Unless and until their findings are brought on record and copy of the report is provided t us, it will not be possible to furnish our appropriate replies in the matter. In view of the foregoing submissions therefore, we request you to kindly provide us the following: 1. Name of the person who allegedly committed the fraud and opened and operated the Bank account at AXIS Bank, Prince Anwar Shah Road, Kolkata. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... According to Ld. AR, though in the impugned order the Ld CIT(E) claims to have given adequate opportunity to the assessee, but, the assessee failed to bring any evidence to establish that the donations received were not bogus according to Ld AR is factually incorrect. However, according to the Ld. AR, the Ld CIT(E) failed to give proper opportunity to the assessee to rebut the Ld CIT's allegations and the conclusion drawn by the Ld CIT(E) is without gathering any tangible evidence. It was pointed out that the Ld CIT(E) did not bring any report from any Investigating Authority indicting the assessee of committing financial irregularity or committing fraud. The Ld. AR brought to our notice that though the Ld CIT(E) initiated proceedings u/s. 12AA(3) in March, 2016, however, only on 20.07.2016, the Ld CIT(E) for the first time provided copies of the letters written by SFWHP to authorities about some fraud committed against it. It was pointed out by the Ld. AR that there was no whisper about any fraud or criminal act/omission committed by the assessee trust. However, on the basis of these letters alone the Ld CIT(E) had issued the show cause notice for withdrawing the registration gr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Ld CIT(E) particularly stated that the second layer organization in this case was Society for Rural and Urban Development, Kolkata Community Rural Orient Service Society, Hyderabad. Referring to Ld CIT's finding the Ld. AR submitted that there was apparent contradiction in Para-5(B) and the finding recorded in the earlier para of Ld CIT(E)'s order and documents annexed with the impugned order. The Ld. AR submitted that in Para-5(B) the Ld CIT(E) held that the donations were paid to the assessee through second layer society namely, Society for Rural and Urban Development, Kolkata Community Rural Orient Service Society, Hyderabad. As per the Bank statement annexed with the Ld CIT's order it however appeared that the donation to the assessee trust was debited in the Axis Bank Account which was in the name of SFWHP. In other words, according to the Ld. AR, the donation was received by the assessee directly from the Axis Bank Account standing in the name of SFWHP and not from Society for Rural and Urban Development, Kolkata Community Rural Orient Service Society, Hyderabad as alleged in Para-5(B). The Ld. AR further submitted that no where in the show cause notice issued the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nating materials or evidence the conclusions drawn by the Ld CIT(E) suffers for want of any proof and also bad in law for the simple fact that any adverse material against the assessee were not given to the assessee and proper opportunity to cross examine third party information, if any in the hands of the Ld CIT(E) vitiates the order. 13. The Ld. AR submitted that sec. 12AA(3) of the Act permitted the CIT(E) to pass an order cancelling registration of a trust only when he satisfied that the activities of a Charitable trust are not genuine or they are not carried out in accordance with the objects of the trust. It is only when either of the two specific conditions are satisfied, the CIT(E) can cancel the registration granted u/s. 12A of the Act and not otherwise. The Ld. AR submitted that the assessee regularly received donations which was granted in its books of account and reflected in its tax returns. Income derived from the properties held in trust was always applied for charitable purpose. Drawing attention to the annual accounts of the Trust for FY 2011-12 the Ld. AR submitted that during the relevant year assessee received corpus donation of Rs. 1062 lacs and earned inter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. The assessee had maintained records as required by the Act which established identities of the donors. Ld. AR submitted that the assessee trust was not required to maintain any additional evidence to certify the source of donation in the hands of the Donor. The Ld. AR, therefore, submitted that on the basis of unsubstantiated allegations against the Trustees, registration u/s 12A of the Act could not be cancelled. In support of his submissions, the Ld. AR relied on the decisions of Karnataka High Court in the case of CIT Vs Islamic Academy of Education (54 Taxmann.com 255), CIT Vs. Karnataka Lingayat Education Society (59 Taxmann.com 255), decision of the Kerala High Court in the case of Sri Anjaneya Medical Trust Vs CIT (382 ITR 399) and Fateh Chand Charitable Trust Vs CIT (Exm) Lucknow (ITA No.792/LKW/2015 dated 18.3.2016. 14. On the other hand, the Ld. DR vehemently opposed the plea of the Ld. AR and relied on the decision of the Ld CIT(E) and urged before the bench not to interfere in the order of the Ld CIT(E). It was pointed out that based on the allegations and complaint filed by President of SFWHP an F.I.R was lodged. He submitted that the Ld CIT had granted adequate ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... maintain, manage and run workshops or training centres, hobby centres and the like to enable students to get training while studying in technical, commercial or other forms of education. (e) To grant fees, stipends, scholarships, studentships, prizes, books and other allowances, concessions or aid to deserving students for prosecuting studies, training or research. (f)To print, publish, sell, distribute books, magazines, journals, bulletins, periodicals and encourage studies in various fields (g) To establish maintain and/or give grants or contribute to the maintenance of orphanages, Nari Ashrams, Widow Ashrams and to render help to the widows, destitutes, lunatics, old and invalid persons. (h) To start maintain and assist in relief measures in those areas which are or become subjected to natural calamities such as famine, epidemics, fire, flood, draught, earthquake, landslide etc. (i) To renovate or repair or make donations for the renovation or repair of any temple, mosque, gurudwara, church or other place as is notified to be the historic archaeological or artistic importance or to be a place of public worship of renown throughout an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... showed that although the Ld CIT alleged that donation of Rs. 70 Lacs received from SFWHP was bogus, the Ld CIT did not disclose in the notice the basis for forming such opinion. The Ld CIT did not provide the assessee with any document or report of any investigating agency for his coming to conclusion that donation received was bogus, necessitating initiation of proceedings u/s 12AA(3). We further note that the documents which the Ld CIT requisitioned in his SCN were general in nature. In SCN dated 3.3.2016 CIT had required the assessee to furnish copies of the Annual accounts for 5 years, registration certificates u/s 12A, 80G issued earlier, details of all donations received and donations paid during the period 1.4.2009 to 31.03.2015. These documents apparently did not have any connection, rather it proves the genuineness of its activities and Ld CIT could not point out any infirmity after perusal of all documents. We further find that even though the Ld CIT issued 2 more notices, no documents or information in support of his allegation were furnished to the appellent. 19. It was only at the express request of the appellant that the Ld CIT on 20th July 2016 provided the appel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....out giving opportunity of examining Dr. Chakraborty. The foregoing facts and sequence of events therefore lend credence to the Ld AR's submission that the impugned order was passed in breach of principles of natural justice and without conducting proper enquiry and giving adequate opportunity to the assessee. 20. In the impugned order we note that the Ld CIT speaks about modern techniques used in conducting investigation against the assessee which proved that an organized activity was conducted through which unaccounted money of the trustees was laundered in the form of issue cheques from the Bank A/c with Axis Bank, Kolkata opened in the name of SFWHP. Although the Ld CIT referred to the investigation carried out with the use of modern techniques his order is conspicuously silent about the identity of the Investigating Agency or as to who conducted such enquiry or investigation. His order is also conspicuously silent as to when and by whom the investigation report was furnished and what was its content. We take note that in assessee's letter dated 29.07.2016 it had specifically requested the Ld CIT to provide the information or details of the enquiry report if any in his posses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of the appellant as well as Axis Bank statement showed that the donation was directly received by the assessee from Axis Bank. However, we wonder as to how the Ld CIT in Para- 5B stated that the donation was received by the assessee through second layer organization being Society for Rural and Urban Development, Kolkata Community Rural Orient Service Society, Hyderabad. We take note that neither in SCN of March 2016 nor in the impugned order the Ld CIT disclosed any material in support of this finding, which is per-se wrong. Save and except recording a finding about use of second layer organization which is contrary to transactional documents, the Ld CIT did not bring on record any material/evidence substantiating his finding. We therefore find force in the Ld ARs submissions that the Ld CIT had recorded factually incorrect finding which contradicted his SCN issued in March 2016. 22. We note that the Ld CIT made another contradictory finding in Para-5C observing that bogus donation was not received by the assessee from SFWHP but from other societies and companies indulging in the practice of providing accommodation entries. In Para-5C the Ld CIT identified 3 specific entities....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ivities of the trust are not genuine or activities are not carried out in accordance with objects of the trust. Cancellation is permissible even if either of the one condition is fulfilled. Satisfaction of the Ld CIT contemplated in Sec.12AA(3) must be objective and should be founded on some irrefutable and tangible evidence. Simply based on the complaints/allegations lodged by a third party about alleged wrong doing committed by some known/unknown person, the Ld CIT ought not to have canceled the registration by passing an order u/s 12AA(3). In the impugned order the Ld CIT recorded a very serious finding that the appellant trust violated objects of the Trust by converting unaccounted cash of the Trustees through bogus donations. We however find that no cogent material or tangible evidence in support of this finding was brought on record by the Ld CIT. Except enclosing copies of the complaint letters written by Dr. Dhruba Chakraborty, President of SFWHP Durgapur to various authorities and annexing copy of his FIR filed in July 2011 the Ld CIT did not bring on record any clinching material which can persuade us to uphold his conclusion that the donations received by the appellant i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ugned order. Before terming the trustees as money launders, atleast the Ld CIT ought to have found out what happened to the enquiry by EOW which got triggered on the very basis on which the Ld CIT issued the SCN. In the circumstances, before the conclusion of money laundering or financial irregularity was drawn it was the bounden duty of the Ld CIT to ascertain the true and correct facts from the relevant investigating agency because the Ld CIT ultimately passed the impugned order on the basis of criminal complaints and the FIR lodged by the President of SFWHP with the police authorities. However without bringing on record the outcome of the enquiry or investigation report, holding the assessee guilty of financial irregularity or fraud is not correct and is unfair. The Ld CIT on the basis of complaints lodged alone came to conclusion that the assessee had indulged in laundering of unaccounted moneys belonging to the trustees. Since the donations were received through Axis Bank A/c, before drawing adverse inference it was incumbent on the Ld CIT to examine bank officials since serious allegation of opening of a fictitious Bank A/c was levelled against the bank. Nowhere from the impu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es of the trust were carried out for non-charitable purposes so as to persuade us to hold that activities of the trust were not genuine. We also find that other than the allegation that trust accepted bogus donation through Axis Bank A/c standing in the name of SFWHP the Ld CIT did not establish any other instance where it can be said that the activity of the Trust was not genuine or that activity was not carried out as per the objects of the trust. We have discussed in the foregoing our reasons for holding that on the basis of material gathered by the Ld CIT or disclosed by him in the impugned order it cannot be held that the assessee trust had indulged in money laundering activity or that the assessee was guilty of accepting unaccounted moneys of the trustees in the form of bogus donations. In our considered opinion therefore none of the 2 conditions required to be satisfied for invocation of Sec. 12AA(3) were attracted in the present case so as to warrant cancellation of registration. 26. The reliance placed by the Ld AR on the decision of the Karnataka High Court in the case of CIT Vs Islamic Academy of Education (54 Taxman.com 255)in the facts of the present case is found t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase the facts involved were parimateria with the facts of the appellant's case. In that case also the CIT had alleged that the donation received by the charitable trust from another institution registered as scientific research institution was not a genuine donation but it was an accommodation entry provided in lieu of cash. The Tribunal relying on various judicial decisions held that the registration could not be cancelled as the conditions prescribed in Sec. 12AA(3) were not fulfilled since the donations received were applied for charitable purposes only. The Tribunal also took note of the fact that for concluding that the assessee received bogus donations the CIT had relied on the statement of the trustee of the donor trust but in the said statement the trustee of the Donor had never made reference to the assessee as a beneficiary of bogus donation and no opportunity of examining Trustee of the donor was provided before passing the order. 28. We note that in a recent case the Coordinate Bench of this tribunal in ITA Nos. 931 to 933/Kol/2016 in the case of Jha Educational Trust Vs. CIT(E) pronounced on 17.03.2017 wherein a similar facts in which the Ld. CIT(E) cancelled the re....