Calcutta High Court
Commissioner Of Income Tax ... vs Sanskriti Sagar on 26 April, 2022
ITAT NO. 46 OF 2018
IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
SPECIAL JURISDICTION (INCOME TAX)
ORIGINAL SIDE
RESERVED ON: 12.04.2022
DELIVERED ON: 26.04.2022
CORAM:
THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE HIRANMAY BHATTACHARYYA
ITAT/46/2018
IA NO: GA/1/2018 (OLD NO. GA/631/2018)
COMMISSIONER OF INCOME TAX (EXEMPTION), KOLKATA
VERSUS
SANSKRITI SAGAR
Appearance:-
Mr. Vipul Kundalia, Adv.
Mr. Anurag Roy, Adv.
.....For the Appellant.
Mr. Ashim Choudhury, Adv.
Mr. Soham Sen, Adv.
.....For the Respondent.
Page 1 of 10
ITAT NO. 46 OF 2018
JUDGMENT
(Judgment of the Court was delivered by T.S.SIVAGNANAM, J.)
1. This appeal filed by the revenue under Section 260 A of the Income Tax
Act 1961(the Act for brevity), is directed against the order dated 15.09.2017
passed by the Income Tax Appellate Tribunal, "C" Bench, Kolkata (Tribunal),
in ITA No. 96/Kol/2017 for the assessment year 2011-12. The revenue has
raised the following substantial questions of law for consideration:-
1) "Whether on the facts and circumstances of the case and in
law, the Learned Tribunal is right in quashing the order for
cancellation of registration under Section 12AA(3) of the
Income Tax Act, 1961 based on money laundering activities
carried out by the assessee trust with Herbicure Health Care
Bio Herbal Research Foundation ignoring that such activities
have been established in other similar basis"?
2) "Whether on the facts and circumstances of the case and in
law, the Learned Tribunal is perverse in law in holding that
there is no allegations in the order of the Commissioner of
Income Tax (Exemption), that the activities of the trust are not
genuine or that activities are not carried out in accordance
with the Commissioner of Income Tax (Exemption) has
already given a finding that the activities of the trust are non-
genuine"?
2. We have heard Mr. Vipul Kundalia, Learned Senior Standing Counsel
for the appellant assisted by Mr. Anurag Roy, Learned Advocate and Mr.
Ashim Chowdhury and Mr. Soham Sen, Learned Advocates for the
respondent.
3. The respondent assessee is a society registered under Section 12A of
the Act, such registration having been granted on 20.02.1989. Survey
ITAT NO. 46 OF 2018
operation under Section 133A of the Act was conducted on M/s. Herbicure
Health Care Bio-Herbal Research Foundation (Herbicure) and during the
course of survey, it came to light that Herbicure was engaged in money
laundering and providing accommodation entries to different individuals
and organizations, by way of accepting donations and returning the same to
the donors through web of financial transactions after retaining the
commission and by accepting money by cash or through web of financial
transaction and giving donations after retaining the commission. A sworn
statement was recorded from the founder Director of Herbicure. By relying
upon the said sworn statement and certain answers given by the Director of
Herbicure, the Commissioner of Income Tax, (Exemptions), Kolkata [CIT(E)]
was of the opinion that from the records in the financial year 2010-2011,
the assessee received donations amounting to Rs. 85,000/- from Herbicure,
which led to issuance of show cause notice dated 02.12.2015 calling upon
the assessee to show cause as to why the registration granted under Section
12A should not be withdrawn/cancelled under Section 12AA(3) of the Act for
alleged fake activities and indulging in money laundering. The respondent
assessee by reply dated 21.12.2015 stated that the donations of Rs.
85,000/- from Herbicure was received by cheque, it was credited to their
bank account and it was applied for the objects of the trust. Further it was
stated that the activities of the trust and application of income to the
charities are genuine and they are in accordance with the objects of the
trust. The assessee emphatically denied the allegations that they have made
payment in cash to Herbicure. After receipt of the reply, the CIT(E) by order
dated 06.01.2017 cancelled the registration granted to the assessee under
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Section 12A of the Act. Aggrieved by such order, the assessee preferred
appeal before the Tribunal, contending that the cancellation of the
registration by order dated 06.01.2017 with retrospective effect from
01.04.2010 is bad in law; the reasons given by the CIT(E) for cancellation of
the registration are contrary to law and on facts. Further it was contended
that the registration was cancelled without examining the genuineness of
the activities of the assessee and without any evidence whatsoever, the CIT
erred in holding that the activities of the assessee are not being carried out
in accordance with the objects of the assessee. Further it was contended
that the CIT(E) erred in cancelling the registration even though the
genuineness of the donations was confirmed by herbicure subsequently.
Further it was contended that the CIT(E) cancelled the registration without
affording an opportunity to the assessee to cross examine the Director of
Herbicure and therefore the order is in violation of the principles of natural
justice. Further, the CIT(E) failed to record any satisfaction with regard to
the conditions prescribed in Section 12AA (3) of the Act and therefore
exceeded its jurisdiction. Further the CIT ignored the fact that there is no
iota of evidence that the activities of the assessees are not genuine and the
cancellation of the registration based upon a non-verified statement of the
third party is illegal. Retrospective cancellation of the registration with effect
from 01.04.2010 is not provided under the provisions of the Act. The
tribunal considered the contentions raised by the assessee, examined the
entire facts, took note of the statement recorded from the Director of
Herbicure, kept in mind the parameters to be fulfilled under Section 12AA
(3) of the Act and found that the donations received by the assessee from
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Herbicure for a sum of Rs. 85,000/- was duly accounted for in the profit and
loss account as Corpus Donation and there was no evidence on record to
show that cash was paid by the assessee which in turn reached the hands of
the Herbicure which was returned in the form of donation to the assessee
after retaining the commission. The tribunal also analysed the answers
given by the Director of Herbicure to various questions which were posed to
him when the statement was recorded from him and found that there is
absolutely no evidence to show any connection between the brokers and the
assessee and there was nothing to indicate that the assessee indulged in
money laundering. The assessee placed reliance on the decision of the
Kolkata Tribunal in Shri Mayapur Dham Pilgrim and Visitors Trust,
Nadia Versus Commissioner of Income Tax (Exemption), Kolkata in ITA
No. 1165/Kol/2016 dated 03.05.2017. The tribunal after taking note of the
decisions observed that the facts in the case of Shri Mayapur Dham
Pilgrim and Visitors Trust was also identical but observed that the facts of
the assessee's case stand on a much better footing than the case of the
assessee in Shri Mayapur. Further the tribunal held that there is neither
any allegation in the order passed by the CIT nor any findings that any of
the conditions as stipulated under Section 12AA (3) of the Act were attracted
and consequently the cancellation of the registration was held to be bad in
law and accordingly quashed. Aggrieved by such order, the revenue is before
us by way of this appeal.
4. The Learned Senior Standing Counsel for the appellant would
vehemently contend that the tribunal committed an error in quashing the
order passed by the CIT(E) which was taking note of the fact money
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laundering was being carried out by the assessee trust with Herbicure and
this fact was not properly taken note of by the tribunal. Further the tribunal
ignored the findings rendered by the CIT that the activities of the assessee
are not genuine. It is further submitted that the case has to be viewed in its
entirety and the nexus has been established which will go to show that the
assessee was indeed engaged in money laundering and the order of the
Commissioner cancelling the registration was fully justified. The Learned
Senior Standing Counsel placed reliance on the decision of the Hon'ble
Supreme Court in Commissioner of Income Tax (Exemptions), Kolkata
Versus Batanagar Education and Research Trust 1. We have heard the
Learned Advocates appearing for the respondents on the above submissions.
5. In order to invoke the power under Section 12 AA (3) of the Act a
statutory duty has been cast upon the CIT(E) to examine as to whether the
activities of the Trust or Institution are not genuine or are not being carried
out in accordance with the objects of the Trust or Institution. Thus, we are
required to see as to whether any finding of fact has been recorded by the
CIT(E) on these two aspects which are primordial for the exercise of power
under Section 12AA(3) of the Act. As noted above, the show-cause notice
proposing cancellation was solely based upon a statement recorded from the
Director of Herbicure. The CIT(E) in its order has quoted the various
questions posed to the said Director and the answers given by him.
Thereafter, the CIT(E) proceeds to state that the assessee has received Rs.
85,000/- as donation from Herbicure and Herbicure was involved in money
laundering and therefore, the assessee was directed to show cause as to
(2021) 9 SCC 439
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why their registration should not be cancelled as they were also engaged in
money laundering. The assessee submitted his reply denying the allegations
and stating as to how the donation was received by cheque and was credited
in the bank account of the assessee and the donation was applied for the
objects of the assessee. Further, the assessee categorically stated that their
activities are in accordance with the objects of the Trust and are genuine. In
spite of such reply having been given by the assessee, we find that the
CIT(E) has not considered the reply, nor brought on record anything to
show that the activities of the assessee are not genuine or the activities are
not being carried out in accordance with the objects of the Trust. In fact,
the order passed by the CIT(E) narrates certain facts about Herbicure,
extracts Section 12AA(3) of the Act and holds that the activities of the
assessee are not genuine and are not being carried out in accordance with
the objects of the society and, therefore, the registration has been cancelled.
Mere use of the words and sentences as contained in Section 12AA(3) of the
Act, would not be sufficient. The CIT(E) has to record a finding on fact as to
how the activities of the assessee are not genuine and how the activities of
the assessee are not being carried out in accordance with the objects of the
Trust. In the absence of any such factual conclusion, we find that the
Tribunal was right in setting aside the order of cancellation. In fact, the
Tribunal after elaborately going through the facts, taking note of the
answers given by the Director of Herbicure to the various questions posed to
him found that there is nothing on record to indicate that the assessee was
in contact with the brokers, nor there was any evidence brought on record to
show that the assessee was engaged in money laundering as it may be a
ITAT NO. 46 OF 2018
case of the department that Herbicure was indulging in money laundering.
That by itself would not be sufficient to hold that the assessee was also
indulging in money laundering in the absence of any evidence to connect the
assessee with the money laundering activities of Herbicure. Thus, after
examining the facts, the Tribunal found that there is no evidence to show
that the two conditions required to be fulfilled under Section 12AA(3) of the
Act, stand attracted warranting cancellation of the registration. Thus, in the
absence of any incriminating material to connect the assessee with the
money laundering activities of the third party, there was absolutely no
justification for cancellation of the registration granted in favour of the
assessee that too with retrospective effect. The decision in Batanagar
Educational Research Trust is clearly distinguishable on facts as in the
said case the Hon'ble Supreme Court took note of the answers given to
various questions posed to the managing trustee of the Batanagar Trust. It
was held that the Trust therein misused the status enjoyed by them by
virtue of registration under Section 12AA(3) of the Act. Further, there was
material to indicate that the assessee therein received donation by way of
cheques out of which certain money was brought back or returned to the
donors in cash and on facts it was established by the revenue that they were
all bogus donations. As pointed out above, there is no iota of evidence
brought on record by the CIT(E) to connect the assessee with the money
laundering activities of Herbicure. Furthermore, there is no specific
reference to the assessee in the answers given by the Director of Herbicure
to the various questions posed to him during the course of the survey
operations. Precisely, for such reason the Tribunal has recorded that there
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is no evidence to conclude that the assessee was also engaged in money
laundering activities. A bare perusal of the order passed By the CIT(E) dated
06.01.2017 will clearly show that the cancellation is solely based upon the
money laundering activities of Herbicure. The CIT(E) did not consider the
explanation offered by the assessee as to how the donation was received
by cheque and it was credited to the bank account of the assessee and the
donation was applied to the objects of the assessee in Trust, were recorded
any factual finding on the submissions made by the assessee. Thus, the
order passed by the CIT(E) was wholly unsustainable. If the CIT(E) proposed
to rely upon the statement of a third party to form an opinion that the
assessee is also involved in money laundering activities, the basic principle
of natural justice would require that the entire documents based on which
the CIT(E) formed such prima facie opinion, should have been made
available to the assessee and if third party statement is to be relied on then
the third party should have been made available for a cross-examination by
the assessee. In fact, a specific ground was canvassed by the assessee by
contending that no opportunity of cross-examination was allowed to them
and therefore, the order was in violation of the principle of natural justice.
The contention advanced by the assessee was perfectly right and justified
and the Tribunal after taking note of the entire facts has found that there is
no iota of evidence against the assessee to justify the allegation of money
laundering. Therefore, in our considered view, the Tribunal rightly set aside
the order of the CIT(E) and allowed the appeal filed by the assessee. We find
no ground to interfere with the said order. Accordingly, the appeal is
ITAT NO. 46 OF 2018
dismissed and the substantial questions of law are answered against the
revenue.
(T.S. SIVAGNANAM, J)
I agree
(HIRANMAY BHATTACHARYYA, J)
(P.A.- PRAMITA/SACHIN)
