2024 (1) TMI 655 - AT - Income Tax

Trust's fiduciary role in CSR fund distribution upheld, no taxable additions for Swachh Bharat and disaster relief funds

The ITAT Delhi upheld CIT(A)'s decision regarding a trust's assessment for construction of public toilets under Swachh Bharat Abhiyan. The tribunal held ... Assessment of trust - construction of Public Toilets under the Central Government Scheme “Swach Bharat Abhiyan' - Additions against the Swach Bharat Fund directly transferred to the Balance sheet without taking it into Income & expenditure account of the assessee - HELD THAT:- As correctly decided by CIT(A) this fund is for the society to be used for its aims and objectives. The amount that the society receives from the various PSUs and departments for the rebuilding of the State of Uttarakhand are not part of its aim and objectives and merely holder of the funds. Returning to the issue of Rs. 1,50,00,000/- of Swachh Bharat Abhiyan Fund, as examined the accounts of the assessee. This is even submitted to the AO. There is no doubt that this sum has been routed through the income & expenditure account, therefore, this point made by the AO does not have any legs to stand on. The AO has not pointed out any other deficiency and therefore, this addition must be deleted. R & R Disaster Relief - The assessee is CSR arm of THDCIL and holds these funds as liability. It cannot use these funds for its own aims and objectives. The ld. CIT(A) held that the AO does not appear to have appreciated this point and made this addition stating that these funds should have been transferred to the income & expenditure account and accounts should have been maintained separately. Since, the assessee is not allowed to use these funds for its own aims and objectives, it is not reasonable to expect it to route through its income & expenditure account. This is a peculiar fact which needs to be appreciated in the context in which the assessee has handled these funds. Therefore, the assessee's action of taking this amount directly to its balance sheet is correct. CIT(A) further held that the assessee has to return these funds to the agency/PSU/Department who have contributed to the funds. The letters from the Chairman DVC and minutes of meetings for implementing reconstruction and rehabilitation (R&R) efforts by PSUs that shows clearly that the assessee merely holds these funds on behalf of these participating agencies and can spend these funds only as per the mandate provided to it. It was held that the assessee does not even spend these funds on its own but passed it to the designated state agency who will inturn spend these funds. As gone through the various correspondences of the Power Finance Corporation, REC, NDMA, NTPC and the assessee being nominated as the nodal agency to facilitate the implementation of R&R projects - we hold that the assessee is not the owner of the funds but holding the same in fiduciary capacity, hence, no addition is called for on this account. The order of the ld. CIT(A) on this issue is affirmed. Issues Involved:1. Deletion of addition of Rs. 1,50,00,000/- related to Swach Bharat Fund.2. Deletion of addition of Rs. 3,31,57,338/- related to R & R Disaster Relief Fund.3. Legal grounds of appeal regarding jurisdiction, notice issuance, case transfer, and scrutiny conversion.Summary:Issue 1: Deletion of Addition of Rs. 1,50,00,000/- related to Swach Bharat FundThe Revenue contested the deletion of Rs. 1,50,00,000/- by the CIT(A), arguing that the fund was not included in the income & expenditure account but directly transferred to the balance sheet. The assessee argued that the fund was accumulated under section 11(2) of the Income Tax Act, 1961, and was earmarked for public toilet construction under the Swach Bharat Abhiyan. The CIT(A) found that the sum was duly routed through the income & expenditure account, and thus, the addition by the AO was unwarranted. The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.Issue 2: Deletion of Addition of Rs. 3,31,57,338/- related to R & R Disaster Relief FundThe Revenue challenged the deletion of Rs. 3,31,57,338/- by the CIT(A), which was related to disaster relief funds received from various PSUs for the rehabilitation of Uttarakhand. The assessee maintained that it was merely a facilitator, holding the funds in a fiduciary capacity and not using them for its own objectives. The CIT(A) agreed, noting that the funds were to be returned to the contributing PSUs if unspent. The ITAT reviewed the correspondences and meetings, concluding that the assessee was not the owner of the funds but held them in a fiduciary capacity. Therefore, the addition was not justified, and the CIT(A)'s order was affirmed.Issue 3: Legal Grounds of Appeal Regarding Jurisdiction, Notice Issuance, Case Transfer, and Scrutiny ConversionThe assessee raised legal grounds challenging the jurisdiction of the I.T.O.-1(4)(2), Rishikesh, the validity of notices issued under section 143(2), the transfer of the case without a show cause or order under section 127, and the conversion from limited to complete scrutiny. Since the main appeals were dismissed, the cross-objection of the assessee was deemed infructuous and dismissed.Conclusion:The ITAT dismissed the Revenue's appeal and upheld the CIT(A)'s decision to delete the additions related to the Swach Bharat Fund and the R & R Disaster Relief Fund. The assessee's cross-objection was dismissed as infructuous.Order Pronounced in the Open Court on 11/01/2024.