Charitable exemption denied where funds were routed through the assessee's account in a coordinated pass-through arrangement

Exemption under sections 11 and 12 was denied where search material showed that the assessee's bank account and related documents were used in a coordinated routing of funds with FIIT JEE Group. The Tribunal found that the assessee was a participant in the arrangement, had allowed funds to move through its account and then be shown as application of income for charitable purposes, and could not shift the tax consequence entirely to the other group by describing itself as a mere conduit. The addition sustained by the Assessing Officer and the Commissioner (Appeals) was therefore upheld.

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Issues: Whether the assessee was entitled to exemption under sections 11 and 12 of the Income-tax Act, 1961, and whether the addition sustained on the basis that the assessee functioned as a pass-through entity in a structured transaction routed through its bank account was justified.

Analysis: The assessment arose from search material showing that the assessee's bank account and related documents were used in a coordinated arrangement with FIIT JEE Group. The record showed that funds moved through the assessee's account and were later claimed as application of income for charitable purposes, while the assessee also sought to characterise itself as a mere conduit. The Tribunal found that the assessee had allowed itself to be used in the arrangement and had routed funds in a manner designed to claim exemption, and it rejected the plea that taxation should be shifted entirely to the other group. The Tribunal held that the cited pass-through reasoning did not assist the assessee on the facts, because the assessee remained a participant in the transaction and could not avoid the tax consequence arising from the use of its own account and claimed charitable status.

Conclusion: The denial of exemption and the addition sustained by the Assessing Officer and the Commissioner of Income Tax (Appeals) were upheld; the issue was decided against the assessee and in favour of the Revenue.

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