In a recent order, ITAT Lucknow has quashed an order cancelling registration u/s 12AA of a charitable trust based on oral statement related to bogus donation entries in lieu of cash without any evidence giving opportunity to cross-examine the witness.
Case Details:
INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “A”, LUCKNOW
ITA No.792/LKW/2015 Assessment Year:2011-12
M/s Fateh Chand Charitable Trust vs. CIT (Exemptions)
Date of Order/Judgment: 18/03/2016
Brief Facts of the Case:
The assessee-trust was formed on 26.10.1980 to impart education in medical, dental, paramedical sciences, etc. and also running a hospital for providing medical aid beside other charitable objects. The assessee-trust was granted registration under section 12A of the Income Tax Act, 1961 (“the Act”) as charitable institution. in 1992.
However, the said registration u/s 12A and the income tax exempted u/s 11 was withdrawn by CIT (Exemption) Meerut w.e.f. 2010-11 on the basis of the report of the Commissioner of Income Tax (Exemptions), Kolkata mentioning that the assessee trust received bogus donations in lieu of cash from M/s Herbicure Health Care Bio Herbal Research Foundation of Kolkata in assessment year 2011-12.
Relying on the information and the statement of Shri. Swapan Ranjan Das Gupta, the founder Director of M/s Herbicure Health Care Bio Herbal Research Foundation, CIT (Exemptions) Meerut issued shown cause notice to the assessee trust for cancellation of registration under section 12AA(3). The assessee in his reply stated that cheque for Rs.1 crore drawn on ICICI Bank, Minto Park Branch, Kokata was received by the assessee on 10.3.2011 from M/s Herbicure Health Care Bio Herbal Research Foundation, Kolkata. However it emphatically denied the allegations made by the Revenue with regard to the receipt of donation of Rs.1 crore on payment in cash stating that in case any authentic material was available with the CIT Exemptions) to throw some light on this issue, the same might be given to the assessee so that specific reply on the same could be submitted. Being not convinced with the explanations of the assessee, the Commissioner of Income Tax (Exemptions) cancelled the registration under section 12A.
Contentions of the assessee trust:
Aggrieved, the assessee has preferred an appeal before the Tribunal and stated that the assessment for assessment year 2011-12 was completed under section 143(3) and during the course of assessment proceedings, the applicant-trust had submitted copy of confirmation from the donor i.e. M/s Herbicure Health Care Bio Herbal Research Foundation wherein they have accepted and confirmed having given donation of Rs.1 crore to the trust. The PAN card and other details of M/s Herbicure Health Care Bio Herbal Research Foundation were filed before the Assessing Officer during the course of assessment proceedings. After conducting enquiries and applying his mind and being satisfied with the explanations furnished on behalf of the trust, the Assessing Officer had accepted the aforesaid contention and had treated it as income while completing the assessment.
It further contended that CIT Exemptions) did not confront the report of the CIT (Exemptions), Kolkata and statement of Shri. Swapan Ranjan Das Gupta, founder Director of M/s Herbicure Health Care Bio Herbal Research Foundation to the assessee. The assessee was also not allowed to make his detailed submission in this regard, as the ld. CIT (Exemptions) had shown this to the assessee on 27.11.2015 and has also passed an order for cancellation of registration on the very same day. Therefore, meaningful opportunity was not afforded to the assessee, failing which the principle of natural justice had been violated. In fact the assessee also submitted a letter to CIT on 27.11.2015 specifically pointing out that till date no evidence to the contrary had been made available to the assessee which could substantiate their allegation that the amount of Rs.1 crore was paid by the assessee in cash to the donor in exchange of donation received by cheque.
Excerpts from Judgment:
But in the instant case ld. Commissioner of Income Tax (Exemptions) has simply received information from the ld. Commissioner of Income Tax (Exemptions), Kolkata that M/s Herbicure Health Care Bio Herbal Research Foundation was engaged in giving donations on receipt of cash through brokers, but nowhere it has been stated that M/s Herbicure Health Care Bio Herbal Research Foundation has paid donation to the assessee on receipt of cash of the equal amount through brokers. Similar statement of Shri. Swapan Ranjan Das Gupta was also made, but in that statement also there was no reference of the assessee. The ld. Commissioner of Income Tax (Exemptions) has simply shown this information to the assessee on 27.11.2015, but did not offer any further opportunity to make his comments in this regard. The assessee has emphatically denied the charges leveled against it in its reply filed on 27.11.2015 that if the ld. Commissioner of Income Tax (Exemptions) has received any authentic material in this regard, the same may be provided to the assessee so that the assessee can make a proper reply. But without affording any further opportunity to the assessee, the ld. Commissioner of Income Tax has passed an order of cancellation on the very same day.
It is settled position of law that any evidence collected at the back of the assessee cannot be used adversely unless and until it is confronted to the assessee and the assessee is allowed to cross examine the witness, if any.
in the case of Andaman Timber Industries vs. Commissioner of Central Excise, 62 taxmann.com 3, their Lordships of the Hon’ble Apex Court has categorically held that not allowing the assessee to cross-examine the witness by the adjudicating authority, though the statement of those witnesses were made basis of the impugned order, is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely effected. Their Lordships have, however, held that it is to be borne in mind that the order of the ld. Commissioner of Income Tax was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statement and wanted to cross-examine, the adjudicating authority did not grant this opportunity to the assessee. The Hon’ble Apex Court accordingly held that in the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action.
We have also examined the arguments of the assessee that even if receipt of donation is to be treated as unexplained receipt under section 68 of the Act, the addition of the same cannot be made because the assessee itself has applied the entire receipts for the objects of the assessee-trust. In support of this proposition, our attention was invited to the judgment of the Hon’ble jurisdictional High Court in the case of CIT vs. Uttaranchal Welfare Society, 42 taxmann.com 361, in which their Lordships have held that section 68 of the Act has no application where assessee had disclosed donations as its income. While relying on this proposition of law, their Lordships have followed the view taken by Hon’ble Delhi High Court in the case of DIT (Exemptions) vs. Keshav Social & Charitable Foundation, 278 ITR 152 and the judgment of the Hon’ble Apex court in the case of S.RM.M.CT.M. Tiruppani Trust vs. CIT, 230 ITR 636, in which it was held that section 68 of the Act has no application in such cases where the assessee has disclosed donations as its income.
A reference was also made to the order of the Lucknow Bench of the Tribunal in the case of Income Tax Officer vs. Sarswati Educational Charitable Trust in I.T.A. No. 776/LKW/2014 in which it was held that if the donation received was taken as income of the assessee which was applied for charitable purposes, provisions of section 68 of the Act cannot be invoked.
The Revenue has not made out a case that the donation received by the assessee was not taken as part of income and was applied for non charitable purposes. The allegation of the Revenue is only that the donation was received by the assessee on making payment in cash to M/s Herbicure Health Care Bio Herbal Research Foundation, but to substantiate this claim, no evidence was brought on record by the Revenue. It was simply an oral assertion and moreover the assessee was not afforded any opportunity to cross-examine the witness, whose statement was relied on by the ld. Commissioner of Income Tax (Exemptions) for cancellation of registration under section 12AA of the Act earlier granted to the assessee. Even assuming, for the sake of argument, that if the assessee has received donation on making payment in cash and it may be his own money which was introduced in the trust through circuitous means, but it was applied for charitable purposes, therefore, it cannot be added under section 68 of the Act. Thus, even on merit, we do not find any force in the allegations raised by the Revenue. The ld. Commissioner of Income Tax (Exemptions) has cancelled the registration under section 12AA of the Act on the basis of conjunctures and surmises, as he has observed in his order that the assessee might have been charging capitation fee from the parents of the students, but in this regard no evidence was brought on record. It is also obvious from the record that the ld. Commissioner of Income Tax (Exemptions) has passed an order on the same day when the assessee has furnished detailed explanation in writing and even without verifying the same.