Income Tax Officer, New Delhi vs Sita Devi Malhotra Charitable Trust

PER MANISH AGARWAL, AM:

Both the cross appeals are filed by the assessee and the Revenue against the order of Ld. CIT(A), National Faceless Appeal Centre, Delhi [“Ld. CIT(A)”] dated 29.09.2025 in Appeal No. NFAC/2017-18/10022106 passed by the NFAC against the assessment order u/s 143(3) r.w.s 143(3A) & 143(3B) of the Income Tax dated 17.03.2021 for Assessment Year 2018-19. The assessee further filed Cross Objection for the same assessment year.

The grounds of appeal taken in both the appeals as well as cross objections are related to the issue of addition made on account of brought forward accumulation of income holding the same as remained unutilized beyond the period of five years, thus, both the cross appeals and cross objection of the assessee are taken together for consideration.

The grounds of appeal taken by the Revenue are with respect to the deletion of addition of Rs.3,56,30,512/- out of total addition of Rs.5,88,00,000/- made by the AO towards unutilized accumulated funds brought forward from Financial Year 2011-12 and 2012-13 whereas assessee in its appeal as well as through Cross Objections has challenged the confirmation of the addition of Rs. 2,31,69,488/-which was upheld by the Ld. CIT(A).

Briefly stated the facts are that assessee is a charitable trust duly registered u/s 12A and 80G of the Act. The assessee trust carried on charitable activities of primary healthcare, primary education, livelihood, safe drinking water etc. as has been authorized by its objects described in the trust deed. During the year under appeal, assessee trust has claimed application of funds to the extent of Rs. 2,31,69,488/- being utilized out of total accumulation 3.25 crores remained unutilized in Asst. Year 2013-14. The AO observed that assessee has accumulated Rs.2,63,00,000/- in Financial Year 2011-12 and Rs.3,25,00,000/- in Financial Year 2012-13 which remained unutilized and were carried over for a period of five years. However, the said funds were not utilized nor any specific purpose was defined when they were set apart, therefore, the AO has made addition of Rs.5,88,00,000/-being remained unutilized after the expiry of statutory time period of five years.

Aggrieved by the said order, assessee filed appeal before the Ld. CIT(A), who vide impugned order dated 29.09.2025 has deleted the addition of Rs. 3,56,30,512/-by holding that the amount to this extent had already been utilized in preceding assessment years and the remaining funds of Rs.2,31,69,488/- claimed utilized during the year was held as not utilized which are forming part of the funds of Rs. 3,25,00,000/- accumulated and set apart in Assessment Year 2013-14.

Aggrieved by the said order, both the parties are in appeal before the Tribunal and further assessee has filed Cross Objections which is in support of the relief granted by the Ld. CIT(A) and challenging the addition sustained.

Before us, the Ld. AR for the assessee submitted that the assessee trust has accumulated total funds of Rs.5,88,00,000/- in Financial Year 2011-12 (Rs. 2,63,00,000) and in FY 2012-13 (Rs. 3,25,00,000/-) in terms of the provisions of section 11(2) of the Act. The assessee claimed that the entire funds so accumulated and set apart have been utilized for the purpose of achievements of the objects of the trust and, therefore, the same should be allowed as utilized in terms of section 11(3) of the Act. The Ld. AR submits that the AO has alleged that no specific purpose was stated when the funds were set apart nor they were applied for any specific purpose, however, as pe the ld. AR, both the AO and ld. CIT(A) has failed to appreciate the fact that out of the entire accumulated funds of Rs.5,88,00,000/-, a sum of Rs. 3,56,30,512/- were already utilized for the purpose of the attainment of the objects of the trust in preceding assessment years and a chart is placed before us in the written submissions at page 2. As per the same, yearwise utilization is tabulated as under:

The Ld. AR submits that all the funds accumulated at Rs.5,88,00,000/- in FYrs. 2011-12 and 2012-13 were utilized, for the achievement of charitable objects of the assessee trust within the statutory period of five years as allowed u/s 11(3) of the Act, therefore, the addition sustained by Ld. CIT(A) deserves to be deleted. Ld. AR further submits that there was no allegation of the AO or ld. CIT(A) that the funds were utilized not for the purpose as defined in the objects of the assessee trust and since they were utilized in accordance with the objects of the assessee trust, same deserves to be allowed as claimed. He placed reliance on the judgments of Hon’ble Jurisdictional High Court in the case of Bharat Krishak Samaj vs. DDIT reported [2008] 299 ITR 406 (Delhi) and certain other judgments which are as under:

 CIT(E) vs. Bachasanwasi Shri Akshar Purshottam Public Charitable Trust [2019] 105 taxmann.com 97 (SC)

 CIT(E) vs. Gokula Education Foundation [2017] 77 taxmann.com 38 (Karnataka)

 DIT (E) vs. Daulat Ram Education Society [2005] 278 ITR 260  Bharat Krishak Samaj v. DDIT(E), ITA No.831/Del/2022, order dated 30.08.2007-to the same effect.

 CIT v. Birla Janhit Trust [1999] 208 ITR 372 (Cal).

Alternatively, Ld. AR submits that the AO has made entire addition in Financial Year 2017-18 relevant to Assessment Year 2018-19 i.e., the year under appeal however, these funds were accumulated in Assessment Year 2012-13 & 2013-14 and therefore, the default, if any, committed by the assessee was for those year when the funds were accumulated and thus the addition for the same should have been made in the respective assessment when they were so accumulated. He prayed accordingly.

On the other hand, the Ld. CIT-DR vehemently supported the order of the AO and submits that the assessee had failed to specify the purpose for which the funds were set apart nor they were utilized for any specific purpose thus it is the violation of section 11(2) and (3) of the Act. Ld. CIT DR further submits that assessee simply claimed that the funds have been utilized for the purpose of the objects of the assessee trust. As per ld. CIT DR, it was the obligation on the assessee to explain the mode and manner of utilization of funds on the purpose for which they were accumulated. In absence of such details, the lower authorities has rightly made the additions which deserve to be upheld. He prayed accordingly.

Heard the parties and perused the materials available on record. In the instant case, the solitary issue before us is whether the assessee has utilized the funds accumulated and set apart in Financial Years 2011-12 and 2012-13 which were in excess of the 85% for the gross revenue of the respective year. It is observed that though the assessee has not specified any specific purpose for which such funds were accumulated and set apart, however since they were applied for the charitable activities as per objects of the trust and such utilization was allowed in immediately preceding years, as tabulated above, and no doubts were raised about the utilization of such accumulation, therefore, we find no error in the order of Ld. CIT(A) in deleting the addition to the extent of Rs.3,56,30,512/- being already utilized up to preceding assessment year and was not claimed as claimed in the year under appeal. Accordingly, the appeal of the Revenue is hereby dismissed.

Now coming to the assessee’s appeal and the Cross Objections relating to the confirmation of the addition of Rs.2,31,69,488/- which was claimed as utilized in the year under appeal.

During the course of hearing, we have gone through the page 105 of PB which contained the details of application of income during Financial Year 2017-18 i.e. AY 2018-19. For the sake of convenience, the same is reproduced herein below:

In the aforesaid table, assessee claimed total application of funds which comprises of expenses debited in Income & Expenditure Account of 6,46,30,287/-and addition in fixed asset of 1,78,885/- The assessee further claimed that it had made donation to outsiders trusts or society of Rs. 3,89,82,055/- and in house donation of Rs. 1,53,69,313/- and the total income excluding capital gain was of Rs.1,48,95,844/-. When we examined the return of income filed, from the perusal of “Schedule ER” placed at page 97 of PB, it is observed that assessee has claimed expenses to the tune of Rs. 4,14,60,800/- (including the donations to outsider societies of Rs. 3,89,92,055/-) were utilized for charitable or religious purpose in India or for the objects of the trust out of income derived during the previous year. Further a sum of Rs.2,31,69,488/- was claimed as applied out of the surplus accumulated from earlier years which includes Rs. 1,53,69,313/- being in-house donations. Further the assessee has declared income of Rs. 1,48,95,844/-. From the perusal of the financial statements submitted before us i.e. Income & Expenditure Account and Balance Sheet, it is observed that total expenditure excluding the charitable donations, was of Rs.1,07,79,448/- which further include the depreciation of Rs. 2,48,217/-, though the assessee has claimed depreciation however, depreciation was claimed. It appears that the assessee trust has claimed the utilization out of the accumulated funds towards the donations given to outside societies / trust which is contrary to the Explanation to section 11(2) of the Act which reads as under:

As observed above, the assessee in its return of income filed, had tried to make out a case that the donations to otusiders were made out of the income of the previous year and the day to day expenses incurred and funds sent for inhouse activities was meet out from the accumulated funds and claimed utilized u/s 11(3) of the Act. This approach of the assessee is patently incorrect. The income of the year under appeal should be first to meet out the daily expenses and if the same falls short, only than it can be set off against the accumulated funds. Thus, we are not in agreement with the claim of the assessee that the accumulated funds were utilized for inhouse donations and to meeting out the day to day expenses incurred for the purpose of the object of the trust and current years income was utilized for making donations to outside trusts/ society. This appears to be an attempt to camouflage the failure to utilize the funds accumulated and set apart within the statutory period of Five years. The coordinate bench of Delhi Tribunal in the case of Sahachari Foundation, New Delhi Vs. ITO in ITA No. 534/Del/2023 has held that the donations to other trusts is not eligible as utilization of accumulated funds. The relevant observations of the bench are reproduced as under:

As observed above, the assessee has made donations to ‘Adharshila, ISKON, ISHA Foundation, EKAL etc.’ which is not permissible u/s 11(2) of the Act to be made out of the accumulated funds of previous years and the assessee in order to avoid this aspect, has incorrectly claimed that the same were given out of the current years income and the day to day expenses and other charitable activities of the assessee trust were meet out from the accumulated funds. Therefore, the assessee has violated the provisions of section 11(2) of the Act.

The alternate claim of the assessee that addition, if any, should be made in the year of accumulation is the contrary to specific provisions of section 11(3) of the Act which provides that the income which was not utilized within a period of five years is deemed to be the income of such person of the year which is the last previous year from the year to which the income is accumulated. Thus, this claim of the assessee cannot be accepted.

Under these circumstances, in our opinion, assessee has failed to utilize the balance amount of Rs. 2,3169,488/- out of the unutilized accumulated funds brought forward from AY 2013-14 and the statutory time period of five years has since been expired, the order of ld. CIT(A) sustaining the addition to this extent is hereby confirmed. Accordingly, all the grounds of appeal of the assessee and Cross objections No. 3 to 5 are dismissed.

In the result, the appeal filed by the assessee and revenue are dismissed and the C.O. of the assessee is partly allowed.