DCIT (Exemption) Vs Ishan Educational Research Society (ITAT Delhi)
Injunction Protects Charity Funds: ITAT Quashes Reopening and Upholds Set-off of Excess Application
The Delhi Bench of the Income Tax Appellate Tribunal dismissed the Revenue’s appeal and allowed the assessee’s cross-objection, holding that unutilised accumulated funds of a charitable society cannot be taxed when non-utilisation is due to circumstances beyond the assessee’s control and when set-off of earlier years’ excess application is available.
In this case, the assessee–society had accumulated funds in AY 2009-10 for construction of hostel facilities. Part of the amount remained unutilised within five years due to an injunction order of the Delhi High Court arising from disputes with the property vendor. The Assessing Officer reopened AY 2015-16 under section 147 and sought to tax the unutilised amount of ₹2.09 crore by invoking the proviso to section 10(23C).
The Tribunal noted that the CIT(A) had correctly appreciated the fact that the assessee was legally restrained by a court order from utilising the funds and that such non-utilisation could not be treated as a default. Further, following the binding decision of the Delhi High Court in Subros Educational Society (affirmed by the Supreme Court), the Tribunal held that excess application of income of earlier years can be set off against income of subsequent years, leaving no taxable income for AY 2015-16.
Once such set-off was permissible, the Tribunal held that no income had escaped assessment, rendering the very assumption of jurisdiction under section 147 invalid. Accordingly, the reopening itself was held to be unsustainable.
The Tribunal thus upheld deletion of the addition, dismissed the Revenue’s appeal, and allowed the assessee’s cross-objection on the jurisdictional issue, leaving other grounds open
FULL TEXT OF THE ORDER OF ITAT DELHI
