Cancellation of registration under Section 12AA on account of bogus donation

The Supreme Court has reinstated the cancellation of a trust's registration under Section 12AA of the Income Tax Act. This followed observations during a survey that the trust might not be operating according to its stated objectives. The trust argued it wasn't obligated to verify donation sources, but the court found evidence suggesting a tendency to return donations in cash, leading to the restoration of the Commissioner's cancellation order.

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4451 OF 2021

COMMISSIONER OF INCOME
TAX (EXEMPTIONS), KOLKATA

APPELLANT(S)

VERSUS

BATANAGAR EDUCATION
AND RESEARCH TRUST

RESPONDENT(S)
J U D G M E N T
Uday Umesh Lalit, J.

1. This appeal challenges the judgment and order dated 09-10-2018 passed by the High Court at Calcutta in ITA No.116 of 2018 setting aside (i) the order dated 25.02.2016 passed by Commissioner of Income Tax (Exemption) (“CIT” for short) canceling registration of the respondent Trust (“Trust”, for short) under Section 12AA of the Income Tax Act, 1961 (“the Act” for short); and (ii) the order dated 13.09.2017 passed by the Income Tax Appellate Tribunal (“the Tribunal”, for short) dismissing appeals arising therefrom.

2. In a survey conducted on an entity named School of Human Genetics and Population Health, Kolkata under Section 133A of the Act, it was prima facie observed that the Trust was not carrying out its activities in accordance with the objects of the Trust. A show cause notice was, therefore, issued by the CIT on 04.12.2015.

3.It was submitted on behalf of Trust that it had received donations from various donors and the Trust was under no obligation to verify the source of the funds of the donor or whether those funds were acquired by performance of any unlawful activity. It was further submitted that the funds were applied for the purposes of trust and that there was no evidence to suggest that those funds were applied for any illegal or immoral purposes or that the Trust was a namesake and some other activities were being carried out.

4.In this appeal, we have heard Mr. N. Venkataraman, learned ASG in support of the appeal and Mr. Rana Mukherjee, learned Senior Advocate for the Trust.
It is submitted by the learned ASG that the answers given to the questionnaire clearly show a definite tendency on part of the Trust to return in cash, the donation it received from several entities.
Mr. Mukherjee, learned Senior Advocate appearing for the Trust submitted that the conclusions drawn by the High Court were quite correct and did not call for any interference.

5. The High Court completely erred in entertaining the appeal under Section 260A of the Act. It did not even attempt to deal with the answers to the questions as aforesaid and whether the conclusions drawn by the CIT and the Tribunal were in any way incorrect or invalid.
In our view, this appeal, therefore, deserves to be allowed.

Setting aside the judgment and order presently under challenge, we allow this appeal and restore the order passed by the CIT and the Tribunal. No costs.

Please find attached the enclosed file for the full judgement