Income Tax Revision Against Charitable Trust Over Rs. 6 Crore Utilisation of Accumulated Funds Quashed: Bombay High Court

The Bombay High Court has dismissed an appeal filed by the Income Tax Department and upheld the Income Tax Appellate Tribunal’s (ITAT) decision quashing revision proceedings initiated under Section 263 of the Income Tax Act against Impact Foundation (India), a charitable institution registered under Section 12AA of the Act. The bench of Justice G. S. Kulkarni and Justice Aarti Sathe held that once the Assessing Officer (AO) had conducted enquiries and taken a plausible view, the Commissioner of Income Tax (Exemptions) could not invoke revisionary powers merely because a different view was possible. The case arose from Assessment Year (AY) 2017-18. Impact Foundation (India), a non-profit organisation engaged in programmes relating to education, health and livelihoods for women and children, had filed its return declaring nil income while claiming exemption under Sections 11 and 12AA of the Income Tax Act. During scrutiny assessment proceedings, the AO issued notices under Sections 143(2) and 142(1), sought various details and ultimately passed an assessment order under Section 143(3) accepting the returned income at nil. Subsequently, the Commissioner of Income Tax (Exemptions), Mumbai initiated proceedings under Section 263 on the ground that the AO had failed to verify the utilisation of ₹6 crore claimed by the assessee out of an accumulated amount of ₹14.51 crore that had been set apart under Section 11(2) in an earlier assessment year. According to the Commissioner, the assessee had not furnished documentary evidence supporting such utilisation during the assessment proceedings, and the AO had accepted the claim without adequate verification. The assessee responded by submitting detailed explanations and supporting documents. It explained that the ₹6 crore had been utilised for specific charitable purposes, including urban and rural sanitation projects and programmes aimed at strengthening civil society organisations and enhancing the management capacities of NGOs. A detailed break-up of the expenditure was furnished before the Commissioner. Despite these submissions, the Commissioner invoked Explanation 2 to Section 263 and set aside the assessment order. The Commissioner directed the AO to obtain complete details of the utilisation of ₹6 crore, examine supporting evidence, verify whether the expenditure was in accordance with the objects of the foundation, and conduct third-party verifications. On appeal, the ITAT found that the AO had in fact conducted enquiries regarding the accumulation and utilisation of funds. The Tribunal noted that the assessee had furnished details of accumulated income under Section 11(2), copies of Form 10, board resolutions and utilisation details through letters filed during the assessment proceedings. Therefore, the case was not one of “lack of enquiry” but, at most, one where the Commissioner believed further enquiry should have been conducted. The ITAT held that such a difference in opinion could not justify revision under Section 263 unless the Commissioner independently established that the AO’s view was erroneous and unsustainable in law. The Tribunal further observed that before exercising revisionary jurisdiction, the Commissioner was required to conduct his own verification and record a finding showing how the assessment order was erroneous. Merely directing the AO to make further enquiries amounted to initiating a fishing and roving investigation, which is impermissible under Section 263. Since the Commissioner had not undertaken any independent enquiry demonstrating violation of Section 11(3), the revision order could not be sustained. Affirming the Tribunal’s findings, the Bombay High Court held that the AO had examined the relevant details furnished by the assessee, including the utilisation of accumulated funds, before passing the assessment order. The Court observed that the Commissioner sought revision only because he felt that additional details could have been called for, which was insufficient to invoke Section 263. It reiterated that where the AO has applied his mind and adopted a plausible view after enquiry, revisionary jurisdiction cannot be exercised merely because the Commissioner prefers another view. The High Court also emphasized that Section 263 cannot be used to initiate fresh or de novo enquiries in completed assessments. For the Commissioner to exercise revisionary powers, there must be material demonstrating that the assessment order is both erroneous and prejudicial to the interests of the Revenue. The Court found that these twin conditions, laid down by the Supreme Court in Malabar Industrial Co. Ltd. v. CIT, were not satisfied in the present case. Another significant aspect considered by the Court was the invocation of Explanation 2 to Section 263. The Court accepted the assessee’s contention that the show-cause notice had not informed the assessee that Explanation 2 would be relied upon. Following the Supreme Court’s decision in Principal Commissioner of Income Tax v. Shreeji Prints Pvt. Ltd., the Court held that invoking Explanation 2 without specifically confronting the assessee and providing an opportunity to respond was unsustainable in law. The Court also relied on earlier precedents, including Gabriel India Ltd., Nagesh Knitwears (P.) Ltd., and Nirav Mody, reiterating that Section 263 can be invoked in cases of lack of enquiry but not merely because the Commissioner believes the enquiry conducted by the AO was inadequate. Where the AO has examined the issue and reached a reasonable conclusion, the Commissioner cannot substitute his own opinion through revisionary proceedings. The Bombay High Court dismissed the Revenue’s appeal and upheld the ITAT’s order quashing the revision proceedings under Section 263, thereby granting relief to Impact Foundation (India). Case Details Case Title: Commissioner of Income Tax (Exemptions), Mumbai Versus Impact Foundation (India) Citation: JURISHOUR-1458-HC-2026(BOM) Case No.: Income Tax Appeal No. 126 Of 2024 Date: 04/05/2026 Counsel For Petitioner: Pritish Chatterjee Counsel For Respondent: Dharmesh Shah Click Here To Read Order Read More: RBI Cancels Certificate of Registration of 54 NBFCs

Income Tax Revision Against Charitable Trust Over Rs. 6 Crore Utilisation of Accumulated Funds Quashed: Bombay High Court

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