The order of the Bench was delivered by
SUNIL KUMAR YADAV:-This appeal is preferred by the assessee against the order of the ld. Commissioner of Income Tax (Exemptions) cancelling the registration earlier granted to the assessee under section 12AA of the Income Tax Act, 1961 (hereinafter called in short “the Act"). The grounds raised in this appeal are as under:-
1. The order dated 27.11.2015 passed by the Ld. Commissioner of Income-tax (Exemptions) cancelling registration of the appellant u/s 12AA of the Income-tax Act, 1961 w.e.f. 01.04.2010 is bad in law and on facts.
2. (i) That the reasons given for cancellation of registration u/s 12AA(3) of the Act are contrary to law and facts since the appellant being a trust exists solely for educational, medical aid purposes and not for the purpose of profit.
(ii) The Ld. CIT (Exemptions) has erred in challenging the genuineness of the activities of the trust by stating that the said activities are not being carried out in accordance of the object of the trust.
3. (i) The Ld. Commissioner of Income-tax (Exemptions) has erred in cancelling the registration of the applicant on the ground that applicant has received voluntary donation in exchange of cash and was not justified in stating without any basis that the applicant is making clear profits and that too charging huge capitation fee from students or their parents.
(ii) The Ld. CIT (Exemptions) has erred in cancelling the registration of the trust on the ground of unverifiable donation of Rs. 1 crore without confronting the assessee with the evidence he purportedly had and hence ignoring the principles of natural justice.
(iii) That the Ld. Commissioner of Income-tax (Exemptions) was not justified in cancelling the registration without providing the opportunity of cross examination to the appellant.
4. The Ld. Commissioner of Income-tax (Exemptions) was not justified in cancelling the registration without giving any meaningful opportunity to the appellant to show cause.
2. The facts in brief borne out from the record are that 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 (hereinafter called in short “the Act") as charitable institution by the ld. Commissioner of Income Tax, Meerut vide his order dated 20.10.1992. Consequently, its income has been exempted under section 11 of the Act from its inception till date, until its withdrawal w.e.f. 2010-11. On the basis of the report of the ld. Commissioner of Income Tax (Exemptions), Kolkata vide letter dated 28.10.2015, in which it was mentioned that bogus donations were received in lieu of cash by the assessee from M/s Herbicure Health Care Bio Herbal Research Foundation of Kolkata in assessment year 2011-12 and having relied upon the statement of Shri. Swapan Ranjan Das Gupta, the founder Director of M/s Herbicure Health Care Bio Herbal Research Foundation, the ld. Commissioner of Income Tax (Exemptions) issued shown cause notice for cancellation of registration under section 12AA(3) of the Act to the assessee on 13.11.2015 for compliance on 24.11.2015. On 24.11.2015, the assessee sought adjournment to 27.11.2015 and detailed reply was filed on 27.11.2015 stating therein 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.
3. The assessee, however, denied the factum of payment of cash to M/s Herbicure Health Care Bio Herbal Research Foundation, Kolkata in lieu of donation of the cheque made by M/s Herbicure Health Care Bio Herbal Research Foundation. The report of the ld. Commissioner of Income Tax (Exemptions), Kolkata along with statement of M/s Herbicure Health Care Bio Herbal Research Foundation was shown to the assessee on 27.11.2015. The assessee emphatically denied the allegations made by the Revenue with regard to the receipt of donation of Rs. 1 crore on payment in cash to M/s Herbicure Health Care Bio Herbal Research Foundation. However, it was stated on behalf of the assessee that in case any authentic material is available with the ld. Commissioner of Income Tax (Exemptions) to throw some light on this issue, the same may be given to the assessee so that specific reply on the same could be submitted on it. Being not convinced with the explanations of the assessee, the ld. Commissioner of Income Tax (Exemptions) has cancelled the registration under section 12A of the Act having observed that the assessee is running a Medical College with 150 seats for MBBS being filled up every year and apparently, the assessee is generating huge amount of cash by charging the capitation fees from the parents of the students and this cash has been used to obtain or manage the donation from M/s Herbicure Health Care Bio Herbal Research Foundation by way of cheque after paying commission to M/s Herbicure Health Care Bio Herbal Research Foundation.
4. Aggrieved, the assessee has preferred an appeal before the Tribunal with the submission that as per audited accounts and computation of income for financial year 2010-11, the assessee-trust incurred expenditure to the tune of Rs. 32,18,98,751/- (including capital expenditure as against income amounting to Rs. 30,26,58,393/-, resulting into excess of expenditure over income and thereby carry forward of losses). The assessment for assessment year 2011-12 was completed under section 143(3) of the Act and during the course of assessment proceedings, the applicant-trust has 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 has accepted the aforesaid contention and has treated it as income while completing the assessment. Before the ld. Commissioner of Income Tax (Exemptions), the assessee has furnished all the relevant information and written submissions on 27.11.2015 and the ld. Commissioner of Income Tax (Exemptions) has passed an order cancelling the registration on the very same day even without looking to the written submissions and documents placed on record.
5. The ld. counsel for the assessee has further contended that the ld. Commissioner of Income Tax (Exemptions) did not confront the report of the ld. Commissioner of Income Tax (Exemptions), Kolkata with respect to M/s Herbicure Health Care Bio Herbal Research Foundation 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. Commissioner of Income Tax (Exemptions) has 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 has been violated. The ld. counsel for the assessee has invited our attention to the letter submitted by the assessee, which is appearing at pages 19 to 25 of the compilation of the assessee, before the ld. Commissioner of Income Tax on 27.11.2015, in which in para 8 the assessee has specifically pointed out the ld. Commissioner of Income Tax (Exemptions) that till date no evidence to the contrary has 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. Further, the assessee has stated that in case there is any authentic material is available with him, which could throw some light on this issue, the same may be given to the assessee so that specific reply on the same could be submitted on it. Despite this specific affirmation, the ld. Commissioner of Income Tax has passed an order on the very same day i.e. 27.11.2015 and cancelled the registration earlier granted under section 12AA of the Act.
6. The ld. counsel for the assessee has further contended that the assessee has placed the objects of the society before the ld. Commissioner of Income Tax (Exemptions) and no defect has been pointed out by him therein. It was further urged that even if this amount is treated to be unexplained receipts in the hands of the assessee, addition under section 68 of the Act is not called for, as it was applied for charitable purposes to achieve the objects of the assessee. In support of these contentions, the ld. counsel for the assessee has placed reliance upon the judgment of the Hon’ble Allahabad High Court in the case of CIT vs. Chhadami Lal Jain Trust, 106 ITR 179. Reliance was also placed upon the judgment of Hon’ble Apex Court in the case of CIT vs. Suraj City Gymkhana, 300 ITR 214 in support of his contention that after registration further probe into the objects is not permissible. Reliance was also placed on the judgment of Hon’ble Jharkhand High Court in the case of CIT vs. Karimia Trust, 302 ITR 57 wherein it was held that even the breach of the conditions of the trust deed, if committed by the assessee, would not disentitle the assessee from getting the benefit which it had been granted earlier being a charitable trust.
7. The ld. counsel for the assessee has also placed reliance upon the judgment of the Hon’ble Apex Court in thecase of Andaman Timber Industries vs. Commissioner of Central Excise, 62 taxmann.com 3 wherein it has been held that where an addition is based merely on facts and evidence of a third party, the same cannot be used if the right to cross examine is not allowed to the assessee. It was also held by the Hon’ble Apex Court that in such a situation, the entire assessment has to be quashed as denial of cross examination is a serious flaw which makes the order nullity.
8. Reliance was also placed upon the judgment of the Hon’ble Delhi High court in the case of CIT vs. SMC Share Brokers Ltd., 159 Taxman 306 wherein it was held that statement cannot be relied upon or no weight given to it unless it is tested under cross examination. Our attention was also invited to the judgment of the Hon’ble Allahabad High Court in the case of CIT vs. Smt. Laxmi Mehrotra, 41 taxman.com 427, in which it is held that assessment proceedings initiated mechanically on the basis of information supplied by the Investigation Wing deserves to be quashed. Similar view was also expressed by the Hon’ble High Court of Delhi in the case of Sarthak Securities Co. (P) Ltd. Vs. Income Tax Officer, 195 Taxman 262.
9. The ld. counsel for the assessee has further contended that even in the case of illegal income if it is applied for the charitable purposes, the registration under section 12AA of the Act cannot be cancelled. In support of this proposition, the ld. counsel for the assessee has placed reliance upon the order of Chennai Bench of the Tribunal in the case of Padanilam Welfare Trust vs. DCIT, 10 ITR 479. Similarly, Hyderabad Bench of the Tribunal in the case of ACIT vs. V. B. Srinivas Rao, 37 CCH 237 has held that if there is no evidence to show that capitation fee alleged to have been collected was applied either for or any interested person, registration under section 12A of the Act cannot be denied.
10. Besides, reliance was also placed upon the following judgment:-
1) Scientific Educational Advancement Society vs. Union of India and Another (P&H), CWP No.2052 of 2009.
11. Reliance was also placed upon the order of the Tribunal in the case of Income Tax Officer vs. M/s Saraswati Educational Charitable Trust in I.T.A. No. 776/LKW/2014, in which it was held that once the donations received was taken as income of the assessee which was applied for charitable purposes, the provisions of section 68 of the Act cannot be invoked.
12. The ld. D.R., on the other hand, has placed reliance upon the order of the ld. Commissioner of Income Tax (Exemptions).
13. Having carefully examined the order of the ld. Commissioner of Income Tax (Exemptions) in the light of the rival submissions, we find that on receipt of certain information from the ld. Commissioner of Income Tax (Exemptions), Kolkata; ld. Commissioner of Income Tax (Exemptions) has issued notice under section 12AA(3) of the Act to the assessee on 13.11.2015 for compliance on 24.11.2015. On 24.11.2015 the assessee sought adjournment and hearing was adjourned to 27.11.2015. On 27.11.2015 the assessee has filed a detailed reply to the charges leveled against it in show cause notice. The assessee emphatically denied the allegations leveled against the assessee that it has received a donation of Rs. 1 crore through cheque after making payment of the same in cash to M/s Herbicure Health Care Bio Herbal Research Foundation. The reply filed by the assessee is available at pages 19 to 25 of the compilation of the assessee running into 7 pages and in para 8 of it, the assessee has specifically asked the ld. Commissioner of Income Tax that in case there is any authentic material available with him which could throw some light on this issue, the same may be given to the assessee so that specific reply on the same could be submitted on it, besides denying the allegations leveled against him. For the sake of reference, we extract para 8 as under:-
8. That your goodself has, in your notice dated 13/11/2015, alleged that the assessee has received a donation of Rs. 1,00,00,000/- from M/s Herbicure Health Care Bio Herbal Research Foundation in the A/Y 2011-12 by paying an amount of Rs. 1,00,00,000/- in cash to M/s Herbicure Health Care Bio Herbal Research Foundation itself. This allegation is totally untrue as nothing of this sort has been written or mentioned in the confirmation, given by M/s Herbicure Health Care Bio Herbal Research Foundation.
Till date no evidence to the contrary has been made available to the assessee which could substantiate your honour's allegation that the amount of Rs. 1,00,00,000/- was paid by the assessee in cash to the donor in exchange of donation received by cheque. However, in case, there is any authentic material available with your honour which could throw some light on this issue, the same may be given to the assessee so that a specific reply on the same could be submitted on it.”
14. It is also evident from record that the report received from the ld. Commissioner of Income Tax (Exemptions), Kolkata and the statement of Shri. Swapan Ranjan Das Gupta, Director of M/s Herbicure Health Care Bio Herbal Research Foundation was simply shown to the assessee on 27.11.2015, but no opportunity was afforded to the assessee either to cross-examine the said witness or to make any further comments in this regard and the ld. Commissioner of Income Tax (Exemptions) has passed an order on the very same day cancelling the registration earlier granted to the assessee. No doubt, the ld. Commissioner of Income Tax (Exemptions) is empowered to cancel the registration as per provisions of section 12AA(3), where the Principle CIT is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be. 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.
15. 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.
16. Our attention was also invited to various judicial pronouncements in this regard and 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.
17. 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.
18. Similarly in the case of Director of Income Tax vs. Hans Raj Samarak Society, 35 taxmann.com 642, their Lordships of the Hon’ble Delhi High Court has held that provisions of section 68 of the Act could not be applied as donation had already been shown by the assessee as income.
19. Similar views were also expressed by the Chennai Bench of the Tribunal in the case of Padanilam Welfare Trust vs. DCIT (supra) in which it was held that merely because capitation fee was collected by the assessee-trust from students, the same would not constitute the violation of the provisions of granting registration under section 12AA of the Act where there was no valid allegation against the assessee that the income of the trust has not been applied for educational activities.
20. Similar view was also expressed by the Hyderabad Bench of the Tribunal in the case of ACIT vs. V. B. Srinivas Rao (supra).
21. 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 relevant observations of the Tribunal are extracted hereunder for the sake of reference:-
“8.Though the Revenue has taken a plea that for anonymous donation, provisions of section 115BBC of the Act can be invoked but in the instant case where the assessee has filed various documents to prove the identity of the donors, these donations cannot be called to be anonymous. So far as applicability of provisions of section 68 of the Act is concerned, it has been held by various High Courts including the jurisdictional High Court that once 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. Since we do not find any infirmity in the order of the ld. CIT(A), we confirm the same as he has adjudicated the issue in the light of various judicial pronouncements. Accordingly we confirm his order.”
22. Undisputedly, the assessee has taken receipt of donation as part of its income and the same was applied for charitable purposes and these facts are borne out from the consolidated balance sheet of the assessee available at page 8 of the compilation of the assessee. 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. Therefore, we find no merit in the order of the ld. Commissioner of Income Tax (Exemptions). Accordingly, we set aside the order of ld. Commissioner of Income Tax (Exemptions).
23. In the result, appeal of the assessee stands allowed.