ACIT Vs Karunya Educational And Research Trust (ITAT Chennai)
The Income Tax Appellate Tribunal (ITAT), Chennai, dismissed the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for Assessment Year 2022-23 concerning disallowance of software maintenance and development expenses claimed by the assessee trust.
The assessee, a trust operating under the name “Karunya Educational and Research Trust,” had filed its return declaring nil income. During scrutiny proceedings, the Assessing Officer (AO) examined payments amounting to Rs.2.20 crore claimed as software maintenance expenses. The AO alleged that the assessee diverted donations and fee collections to related foreign entities without actual business activity or services being rendered. According to the AO, agreements between the assessee, M/s True Friends Management Support Service Pvt. Ltd. (TFMSS), and M/s PW Data Solutions (PWDS), UK, were structured to move trust funds outside India under the guise of software development expenses.
The AO concluded that the transactions were sham arrangements supported only by paper agreements without real software development or maintenance work being performed. Consequently, the AO disallowed the expenditure and added the amount to the assessee’s income under Section 143(3) of the Income Tax Act, 1961.
Before the CIT(A), the assessee relied on an earlier ITAT order dated 07.07.2025 in its own case for Assessment Years 2017-18 to 2021-22. In that order, the Tribunal had held that software development and maintenance charges paid for “EduServe” and “PeopleServe” software were genuine. The CIT(A), finding the facts for AY 2022-23 identical to earlier years, directed deletion of the disallowance.
