High Court erred in holding that one bogus donation would not establish that activities of trust not genuine – Supreme Court
ABCAUS Case Law Citation:
ABCAUS 2765 (2019) (02) SC
The Commissioner of Income tax (Exemptions) was aggrieved by the Order passed by the High Court in quashing the cancellation of Registration u/s 12AA
The respondent was a registered Trust under Section 12AA of the Income Tax Act, 1961, (the Act) and also approved under Section 80G(5)(vi) of the Act.
The trust was created with an avowed object of public and charitable purposes, namely, medical relief, education, any other causes of public utility etc. The trust was running an Engineering College.
A survey was conducted under Section 133A of the Act, in the premises of a School by the Investigation Wing during which bogus donation entry to the said trust was found.
The Revenue alleged that donor did not actually donate such amount but such entry was shown by receiving the amount in cash from the respondent trust, by retaining commission.
In view of such allegation, the CIT(E) initiated the proceedings for cancellation of registration and issued a show-cause notice to the trust.
The CIT(E) after considering the replies, recorded the activities of the trust were neither genuine nor as per the objects of the trust. It was further alleged that the donation entry 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.
Accordingly the CIT(E), in exercise of power under Section 12AA(3) of the Act, has cancelled the registration of the trust.
The Tribunal observed that opportunity to cross-examine the representative, has held that an opportunity of cross-examination the donor was not given to the respondent. The order was set aside and issue was remanded the matter for fresh consideration.
Not satisfied with the order of the Tribunal, the trust has filed an appeal before the High Court.
By the impugned order, the High Court allowed the appeal and quashed the order of cancellation of registration. The High Court held that while it was 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 was allegedly bogus, would not establish that the activities of the trust were not genuine and not being carried out in accordance with the objects of the trust.
It was 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.
The Hon’ble Supreme Court observed that the High Court had 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.
The Hon’ble Supreme Court opined that the reason assigned by the High Court was 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 was a matter for consideration of the issue, after giving opportunity as pleaded by the respondent but the High Court committed error in entertaining the appeal against the remand order passed by the Appellate Tribunal and in quashing the order of cancellation of registration.
The Hon’ble Supreme Court quashed and set aside the order of the High Court. However, it was clarified that it is open to the CIT (Exemptions) to consider all the issues on its own merit, uninfluenced by the observations made by the appellate authority, the High Court or in the order by their Lordships.