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 that Rs. 1,50,00,000 Swachh Bharat Fund was correctly routed through income-expenditure account, rejecting AO's addition. For R&R Disaster Relief funds, the tribunal affirmed that the assessee, being CSR arm of THDCIL, held funds in fiduciary capacity as nodal agency for PSUs/departments. Since funds couldn't be used for trust's own objectives and had to be returned to contributing agencies, direct transfer to balance sheet was proper. No additions were warranted as assessee merely facilitated fund distribution to designated state agencies.

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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 Fund

The 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 Fund

The 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 Conversion

The 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.

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