1. Leave granted.
2. This civil appeal is filed by the appellant, i.e.,
the Commissioner of Income tax (Exemptions), Kolkata,
aggrieved by the Order dated 18.09.2017 passed by the High
Court of Calcutta in I.T.A No.7 of 2017.
3. The respondent herein, M/s. Jagannath Gupta Family
Trust, is a registered Trust under Section 12AA of the
Income Tax Act, 1961, (for short ‘the Act’) and also
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approved under Section 80G(5)(vi) of the Act vide
proceedings dated 16.08.2010. The trust was created with an
avowed object of public and charitable purposes, namely,
medical relief, education, any other causes of public
utility etc. It is stated that the respondent-trust is
running an Engineering College.
4. A survey was conducted under Section 133A of the Act,
in the premises of School of Human Genetics and Population
Health (SHGPH), Kolkata by the Investigation Wing on
27.01.2014. It appears, during the said survey the
appellant has noticed a donation entry of Rs.37,00,000/-
(Rupees Thirty-Seven Lacs) in two tranches in the months of
February and March, 2013. It is the allegation of the
appellant that such donation given to the respondent-trust
is bogus and sham. It is the case of the appellant that the
donor did not actually donate such amount, such entry was
shown by receiving the amount in cash from the respondent,
by retaining commission.
5. In view of such allegation, the appellant herein has
initiated the proceedings for cancellation of registration
and issued a show-cause notice to the respondent
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on 04.12.2015. The respondent has replied to the same and
contested the proceedings. The main plank of the defence
was that the procedure adopted by the appellant was
contrary to the principles of natural justice. It was also
the case of the respondent, that though a statement of the
representative of the donor was recorded and on the said
basis proceedings were initiated for cancellation of
registration, but the respondent was not given any
opportunity, to cross examine such representative.
6. After receipt of the explanation to the show-cause
notice, alleging that the activities of the respondenttrust are neither genuine nor as per the objects of the
trust, further alleging that the transaction in question
was only a money laundering, therefore, receipt of donation
in lieu of cash was never the object of the trust and as
such it is to be treated as ingenuine and illegal activity.
It is also held that such activities are carried out by the
respondent-assessee not only in one year but in several
years.
7. By recording the aforesaid findings, the primary
authority, by order dated 15.03.2016, in exercise of power
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under Section 12AA(3) of the Act, has cancelled the
registration of the respondent-trust. The inference drawn
and as mentioned in paragraphs 7.3 and 8 of the order reads
as under:
“7.3 Based on the facts and circumstantial
evidences as discussed in Para 1 to 6, it can
be inferred:
a)The assessee trust had allegedly received
huge sum over a period of seven years starting
from A.Y. 2009-10 to A.Y. 2015-16 in the garb
of corpus/non-corpus donation. In reality the
donors were returned back the money in cash.
This was done through web of financial
transactions. All evidences show that through
these alleged donations the assessee trust
actively helped in pumping unaccounted money of
its group concerns into the trust and
simultaneously also allowing individual donors
to claim benefit u/s.80G on such alleged
donation.
b) Further, the assessee trust has paid
commission to the agents to lure prospective
students to take admission in its college. This
is not disallowed as per AICTE rules.
Therefore, in this respect also the assessee
trust has violated the law of the land.
c) By doing these things the assessee trust has
participated actively in ingenuine activities
and also acted beyond the stated objectives of
the trust.
d) They have violated the objects of the trust
by channelizing unaccounted cash through bogus
donations.
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e) Donations received whether corpus or noncorpus are not voluntary, merely accommodation
entries and fictitious.
f) Society/Trust has grossly misused the
provision of Section 12AA and 80G(5)(vi). These
approvals were not for cash channelizing
through donations.
g) Activities of the trust are not genuine as
well as not being carried out in accordance
with its declared objects, Assessee’s case is
covered within the both limbs of Section
12AA(3).
h) Even ingenuine and illegal activities
carried on by assessee through money laundering
do not come within the conceptual framework of
charity vis-a-vis activity of general public
utility envisaged by the Income Tax Act as laid
down in Section-2(15).
8. Keeping in view the above, provision of
Section 12AA(3) is invoked and registration
granted u/s 12AA is withdrawn/cancelled w.e.f
01.04.2008 from the starting of financial year,
when the society was found to be involved in
money laundering through receipt of bogus
donation, ingenuine activities and not carrying
out activities as per object of the trust.”
8. Aggrieved by the order of cancellation dated
15.03.2016, the respondent-assessee has filed an appeal
before the Income Tax Appellate Tribunal, at Kolkata ‘B’
Bench in Income Tax Appeal No.597/KOL/2016. The appellate
authority, by recording a finding that, though the
statement of the donor was made basis for initiating
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proceedings for cancellation of registration of the
respondent-trust, but the respondent was not given an
opportunity to cross-examine the representative, has held
that an opportunity of cross-examination of the
representative of the donor is to be given to the
respondent. By recording the aforesaid finding, the
appellate-authority has set aside the order dated
15.03.2016 and remanded the matter for fresh consideration
by primary authority.
9. Aggrieved by the order of the appellate authority
dated 10.04.2017, the respondent-assessee has filed an
appeal, i.e., Income Tax Appeal No. 7 of 2017 before the
High Court of Calcutta. By the impugned order, the High
Court has allowed the appeal by order dated 18.09.2017 and
quashed the order of cancellation of registration. The
High Court has held that while it is possible that a
particular donation may be bogus or fictitious and, the
assessee may be assessed to tax therefor and other steps
can be taken but the single donation which is allegedly
bogus, would not establish that the activities of the
trust are not genuine and not being carried out in
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accordance with the objects of the trust. It is also held
that if there are multiple bogus transactions of similar
kind, it may lead to reasonable assessment for the
Competent Authority to hold that the trust is engaged in
such activities which can be said to be not genuine or not
in conformity with the objects of the trust.
10. In this appeal, we have heard Mr. S.A. Haseeb,
learned counsel for the appellant and Mr. N.K. Poddar,
learned Senior counsel for the respondent.
11. It is contended by the learned counsel for the
appellant that there is a serious allegation against the
respondent-assessee in indulging in money laundering. It
is submitted that the alleged donation from School of
Human Genetics and Population Health (SHGPH) is
absolutely bogus and it is clear from the evidence
gathered during the survey that the said donation is made
by collecting the amount in cash from the respondentassessee. It is submitted that in view of the allegations
made by the respondent-assessee that it was not given the
opportunity to cross-examine the representative of the
donor whose statement was relied upon in cancellation
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proceedings, only to give an opportunity, the appellate
tribunal has remanded the matter to the primary
authority. Inspite of such an order passed by the
appellate tribunal, the respondent has further filed an
appeal before the High Court and the High Court has set
aside the order of cancellation only on the ground that
one bogus donation would establish that the activities of
the trust are not genuine and the finding recorded by the
High Court is erroneous and the High Court has committed
error in recording such a finding which will run contrary
to the plain language of Section 12AA(3) of the Act. It
is submitted by learned counsel that the said revolving
transaction of money through donor is nothing but money
laundering which will run contrary to the objects of the
trust.
12. On the other hand, it is contended by learned senior
counsel for the respondent-assessee that merely based on
the survey conducted in the office of the donor,
proceedings are initiated for cancellation of
registration. It is contended that though there was a
survey conducted on the respondent-assessee, but nothing
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adverse was found during such survey. It is submitted,
based on the ex-parte statement of the representative of
the donor, proceedings were initiated and order
cancelling the registration was passed. Further, it is
contended that reasons, as assigned by the High Court,
are valid and there are no grounds to interfere with such
an order passed by the High Court. Learned counsel has
also brought to our notice the various relevant
provisions in the Income Tax Act, 1961, pleading that
every donation is not exempted and the respondentassessee has used all the donations for the purpose of
promoting the objects of the trust.
13. Having heard the learned counsel for the parties, we
have perused the order passed by the Commissioner of
Income Tax (Exemptions), Kolkata; the appellate-authority
and the order impugned in this appeal. In the proceedings
initiated for the cancellation of registration, mainly it
was the case of the respondent-assessee that proceedings
for cancellation were initiated only on the ex-parte
statement of the representative of the donor, without
giving any opportunity to the assessee. It is further
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submitted that though a survey was also conducted on the
respondent-assessee, but nothing adverse was found during
such survey to support the case of the appellant, to
cancel the registration. Learned counsel also brought to
our notice the various provisions of the Act but, at the
same time, in support of the arguments that all donations
are not exempted, but having regard to the reasons
recorded in the impugned order, it is not necessary for
us to delve deep at this stage. From the perusal of the
order passed by the High Court, it is clear that the High
Court has allowed the Writ Petition mainly on one ground,
namely, that one bogus donation would not establish that
the activities of the trust are not genuine.
14. We are of the view that such a reason assigned by
the High Court is erroneous and runs contrary to the
plain language of Section 12AA(3) of the Act. In view of
the serious allegations made against the respondent
trust, it is a matter for consideration of the issue,
after giving opportunity as pleaded by the respondent but
the High Court has committed error in entertaining the
appeal against the remand order passed by the appellate10
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authority, and in quashing the order of cancellation of
registration.
15. For the aforesaid reasons, we are of the view that
the order impugned is liable to be set aside and the same
is, accordingly, hereby quashed and set aside. However,
it is made clear that we have not expressed any opinion
on merits, and it is open to the Commissioner of Income
Tax (Exemptions), Kolkata to consider all the issues on
its own merit, uninfluenced by the observations made by
the appellate authority, the High Court or in this order
by this Court.
16. This appeal is allowed, with directions as indicated
above, with no order as to costs.
…………………J.
[R. Banumathi]
…………………J.
[R. Subhash Reddy]
New Delhi
February 01, 2019.