OUR LADY OF REMEDY CHURCH ,MUMBAI vs. ITO EXE WARD 2(2), MUMBAI

At the outset, we find that the present appeal has been filed with a delay of 242 days, as reported by the Registry. The assessee has filed a petition seeking condonation of the delay, supported by a duly sworn affidavit of Shri George Severino Fernandes, Trustee of the assessee trust.

In the affidavit, it has been stated that the assessee had preferred an appeal before the learned CIT(A) against the intimation issued under section 143(1) of the Act. The said appeal came to be dismissed by the learned CIT(A) vide order dated 24.04.2025. It has been explained that the deponent, not being conversant with the procedural intricacies of income-tax litigation, forwarded the appellate order to the Chartered Accountant with the bona fide belief that the matter, including the filing of a further appeal before the Tribunal, would be appropriately attended to by the professional consultant.

It has further been stated that, owing to an inadvertent communication gap and oversight, the deponent did not follow up the matter with the Chartered Accountant. Upon subsequent enquiry, he learnt that no action had been taken for filing the appeal before the Tribunal. Immediately thereafter, the assessee took steps to pursue the remedy and filed the present appeal. It 3 Our Lady of Remedy Church has, therefore, been pleaded that the delay was neither deliberate nor intentional but occurred on account of a bona fide misunderstanding and failure of communication with the professional consultant.

During the course of hearing, the learned Departmental Representative (DR) opposed the prayer for condonation of delay. He submitted that the explanation furnished by the assessee does not constitute sufficient cause within the meaning of law.

We have considered the rival submissions and carefully perused the petition and the affidavit filed by the assessee. Undoubtedly, a litigant is expected to exercise due diligence in pursuing the statutory remedy. At the same time, the expression “sufficient cause” is required to receive a pragmatic and justice- oriented construction. The explanation has to be examined in the context of the surrounding circumstances, the conduct of the party and whether the delay is deliberate, mala fide or part of a dilatory strategy. In the present case, the explanation furnished by the assessee is supported by an affidavit of its Trustee. The assessee has specifically explained that the order of the learned CIT(A) was entrusted to the Chartered Accountant for taking necessary further action and that the omission to file the appeal arose from a communication gap and a bona fide belief that the professional consultant would attend to the matter. There is no material brought on record by the Revenue to controvert the averments made in the affidavit or to establish that the explanation is false, concocted or lacking in bona fides. Further,

The objection of the learned Departmental Representative that the assessee ought to have exercised greater vigilance is not without substance. However, mere negligence or lapse in follow- up, in the absence of mala fides or deliberate inaction, cannot be viewed in isolation so as to shut out the statutory remedy, particularly when the assessee has approached the Tribunal upon becoming aware of the omission. The cause shown, when considered cumulatively, constitutes a reasonable explanation for the delay.

In view of the above facts and circumstances, and having regard to the settled principle that substantial justice should not ordinarily be defeated on account of a technical lapse where the explanation is bona fide, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period. Accordingly, notwithstanding the objection raised by the learned Departmental Representative, the delay of 242 days is condoned and the appeal is admitted for adjudication on merits. Facts of the Case

The assessee is a resident public charitable trust registered under section 12A of the Act. It filed its return of income in Form ITR-7 on 29.11.2023, declaring total income of Rs.50,42,812/-, after claiming exemption under section 11 of the Act. The return

The material on record shows that, during the financial year 2016-17 relevant to the assessment year 2017-18, the assessee had accumulated an amount of Rs.40,00,000/- under section 11(2) of the Act. According to the assessee, out of the said accumulation, an amount of Rs.25,65,113/- had been utilised up to the financial year 2021-22 and the balance amount of Rs.14,34,887/- was utilised during the financial year 2022-23 for purposes in accordance with the objects of the trust. In the return for the year under consideration, the assessee claimed application of the accumulated income of Rs.14,34,887/- pertaining to the financial year 2016-17 and disclosed the same in Schedule-I of the return. The assessee also claimed that the said amount had been applied towards capital expenditure and was reported in Schedule-A of the return.

Since the return was processed through the computerized mechanism prescribed under section 143(1), no separate assessment proceedings or oral submissions were made before the Assessing Officer or the CPC. The claim of the assessee before the CPC was reflected through the particulars furnished in the 6 Our Lady of Remedy Church return of income and the accompanying schedules and audit report. While processing the return, the CPC did not accept the assessee’s claim in respect of the aforesaid amount of Rs.14,34,887/- and included the same in the computation of specified income chargeable to tax under section 115BBI. Consequently, the income chargeable under section 115BBI was computed at Rs.64,77,699/-, as against Rs.50,42,812/- reported by the assessee, resulting in the determination of total income at Rs.64,77,700/- and the consequential demand of Rs.7,81,570/-.

Aggrieved by the aforesaid adjustment, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee submitted that the amount of Rs.40,00,000/- had been accumulated under section 11(2) during the financial year 2016-17 and that the balance amount of Rs.14,34,887/- was validly utilised during the financial year 2022-23. It was contended that, under section 11(3), as it stood at the time when the accumulation was made, the accumulated income could be utilised during the prescribed period of five years or in the year immediately following the expiry of that period. According to the assessee, the period of five years expired on 31.03.2022 and, therefore, the amount could validly be utilised during the immediately succeeding financial year 2022-23. 13. The assessee further contended that the amendment brought about by the Finance Act, 2022, whereby the words “or in the year immediately following the expiry thereof” were omitted from section 11(3)(c), was prospective in operation and could not 7 Our Lady of Remedy Church be applied to accumulations made in the financial year 2016-17. It was submitted that the assessee had acted in accordance with the law prevailing at the time of accumulation and was entitled to utilise the accumulated amount during the sixth year. The assessee further submitted that applying the amended provision to an earlier accumulation would create an impossible situation, since the Finance Act, 2022 received the assent of the President on 30.03.2022, leaving virtually no time to utilise the amount by 31.03.2022. 14. The assessee also contended that the income-tax return utility itself permitted reporting of utilisation during the financial year 2022-23 of the amount accumulated in the financial year 2016-17. It was submitted that the CPC had not pointed out any arithmetical error or mismatch in the return or the audit report and had not assigned any reason for treating Rs.14,34,887/- as income chargeable under section 115BBI. It was therefore contended that the question regarding the applicable period for utilisation involved a debatable issue of law which could not have been adjusted while processing the return under section 143(1) of the Act.

In support of its submissions before the learned CIT(A), the assessee placed reliance, inter alia, upon the decisions in CIT v. Vatika Township Pvt. Ltd. reported in 367 ITR 466 (SC) and CIT v. Rajasthan and Gujarati Charitable Foundation reported in 402 ITR 441 (SC), and contended that a substantive amendment imposing an additional burden could not be applied retrospectively and 8 Our Lady of Remedy Church that exemption should not be denied merely on account of a procedural lapse where the income had, in fact, been applied for charitable purposes.

The learned CIT(A), after considering the submissions and examining the documents placed on record, noticed that Form No.10B for the assessment year 2017-18 reflected an amount of Rs.40,00,000/- as having been accumulated under section 11(2). The learned CIT(A) further observed that Form No.10B for the assessment year 2022-23 did not contain any reference to the unutilised amount of Rs.14,34,887/- pertaining to the assessment year 2017-18, which the assessee claimed to have carried forward for utilisation during the assessment year 2023-

The learned CIT(A) also noticed that, in Form No.10BB for the assessment year 2023-24, the assessee had reported an amount of Rs.20,72,075/- as application of income out of income accumulated under section 11(2) during an earlier previous year, but had not furnished the assessment year to which such accumulation related. On the other hand, in Schedule-I of the return for the assessment year 2023-24, the assessee reported utilisation of Rs.14,34,887/- as relating to the accumulation made in the assessment year 2017-18. The learned CIT(A) further observed that, though the assessee claimed that Rs.14,34,887/- out of the original accumulation of Rs.40,00,000/- had been utilised during the year under consideration, it had not substantiated whether the balance amount of Rs.25,65,113/-

On the merits of the claim, the learned CIT(A) did not accept the assessee’s interpretation of the unamended section 11(3). According to the learned CIT(A), the expression “the previous year immediately following the expiry of the period aforesaid” meant that, where the accumulated amount was not utilised within the five-year period ending on 31.03.2022, the same became taxable in the financial year 2022-23 relevant to the assessment year 2023-24. The learned CIT(A), therefore, held that the amount was required to be utilised by 31.03.2022 and that its subsequent utilisation during the financial year 2022-23 did not entitle the assessee to exemption.

The learned CIT(A) consequently held that the assessee had furnished inconsistent data in the statutory forms and the return of income and that the CPC was justified in not allowing the amount of Rs.14,34,887/- in accordance with sections 11(2) and 11(3) of the Act. The adjustment made in the intimation under section 143(1) was accordingly upheld and the appeal of the assessee was dismissed.

Aggrieved by the order of the learned CIT(A), the assessee is in appeal before us and has raised the following grounds: Ground I

During the course of hearing before us, the learned Authorised Representative (AR) reiterated the submissions advanced before the lower authorities. He submitted that the amount of Rs.14,34,887/- represented application, during the financial year 2022-23, of the income accumulated under section 11(2) in the financial year 2016-17. According to him, under section 11(3), as it stood at the time of accumulation, the assessee was entitled to utilise the accumulated income within the prescribed period of five years or in the year immediately following the expiry thereof. Since the amount had been utilised on or before 31.03.2023 for the objects of the trust, no addition was warranted.

The learned AR further submitted that the issue involved interpretation of section 11(3) and was, in any event, debatable in nature. Therefore, such an adjustment could not have been made while processing the return under section 143(1) of the Act. In support of these submissions, he relied upon the decisions of the Coordinate Benches in Yashwantrao Chavan Maharashtra

Per contra, the learned DR relied upon the orders of the lower authorities.

We have heard the rival submissions and perused the material available on record, including the intimation issued under section 143(1) of the Act, the order of the learned CIT(A), the statutory forms and the judicial precedents relied upon by the learned AR. The short controversy before us is whether the amount of Rs.14,34,887/-, forming part of the income accumulated by the assessee under section 11(2) during the financial year 2016-17, and stated to have been applied during the financial year 2022-23, could be treated as deemed income chargeable under section 115BBI for the assessment year 2023-

The undisputed position is that the original accumulation was made during the financial year 2016-17, relevant to the assessment year 2017-18. At the time when such accumulation was made, section 11(3)(c) provided that the accumulated income could be utilised for the specified purpose during the period referred to in section 11(2)(a) “or in the year immediately following the expiry thereof”. The aforesaid words were omitted by the 13 Our Lady of Remedy Church Finance Act, 2022 with effect from 01.04.2023. The issue, therefore, is whether such omission could operate so as to curtail the period available in respect of an accumulation validly made under the earlier statutory regime.

An identical issue came up for consideration before the Co- ordinate Bench in Yashwantrao Chavan Maharashtra Open University v. CIT (Exemption), ITA No.505/PUN/2025, order dated 23.06.2025. The relevant finding recorded in paragraph 21 reads as under:

The same issue was thereafter considered by the Co- ordinate Bench in St. Anthony’s Church v. ITO (Exemption), ITA No.3011/Mum/2025, order dated 28.08.2025. The relevant findings in paragraphs 5.1 and 5.2 are reproduced below:

In the given set of facts and the provisions of the Act including the amendment brought into section 11(3), it is noted that the amendment so brought is held to be prospective in nature. It is also a factual position that when the provisions at the relevant time prescribed the utilization of the amount within a period of 5 years or in the year immediately following the prescribed period of 5 years, the assessee has in fact applied the accumulated surplus funds to the extent of Rs.15,79,570/-which is not in dispute, before 31.03.2023. Even otherwise, it is worth noting a fact that 5-year period ended on 31.03.2022 and therefore, the unutilized amount could have been brought to tax in the Assessment Year 2022-23 and not in Assessment Year 2023-24. Thus, in our considered view, the addition made by the ld. Assessing Officer in the course of processing of return u/s. 143(1) and sustained in the first appellate stage is deleted. Accordingly, grounds raised by the assessee in this respect are allowed.”

Likewise, in Roman Catholic Church of St. Paul v. ITO (Exemption), ITA No.3396/Mum/2025, order dated 28.08.2025, the Coordinate Bench, on materially identical facts, held in paragraph 5.1 as follows:

On a careful consideration of the aforesaid decisions, we find that the issue arising in the present appeal is squarely covered in favour of the assessee. In each of the above cases, the accumulation had been made during the financial year 2016-17 and the accumulated amount was applied during the financial year 2022-23. The Coordinate Benches have consistently held that the statutory conditions governing an accumulation are those which prevailed at the time when the accumulation was made. Under the then prevailing provisions, the accumulated income could be utilised during the prescribed period of five years or in the year immediately following the expiry thereof. The omission of the words permitting utilisation in the immediately following year has been held to be prospective and incapable of curtailing the period already available in respect of an earlier accumulation.

In the present case also, the assessee has stated that the amount of Rs.14,34,887/- out of the accumulation made during

The learned CIT(A), while sustaining the adjustment, also referred to certain differences in the figures reported in Form No.10B, Form No.10BB and Schedule-I of the return. In our considered view, such observations do not support the adjustment made under section 143(1). The adjustment by the CPC was not founded upon any mismatch between the statutory forms and the return, nor was any such reason communicated in the intimation. The learned CIT(A) could not sustain a summary adjustment on a new factual basis which itself required reconciliation and examination of supporting records. Any issue requiring verification of the utilisation of the accumulated income or reconciliation of the statutory forms is beyond the limited scope of an adjustment under section 143(1), particularly when the legal entitlement to utilise the accumulation during the immediately succeeding year is supported by the decisions referred to above.

Further, the interpretation of the pre-amended and amended provisions of section 11(3), the prospective operation of 17 Our Lady of Remedy Church the amendment and the period available for utilisation were, at the minimum, debatable questions of law. A claim which requires examination of two possible legal interpretations cannot be disallowed by way of a prima facie adjustment under section 143(1) of the Act.

Respectfully following the decisions of the Coordinate Benches, we hold that the income accumulated by the assessee during the financial year 2016-17 was eligible to be utilised during the financial year 2022-23, being the year immediately following the expiry of the prescribed five-year period.

Accordingly, the adjustment of Rs.14,34,887/- made by the CPC under section 143(1) and brought to tax under section 115BBI of the Act is unsustainable. We, therefore, set aside the order of the learned CIT(A) on this issue and direct the Assessing Officer/CPC to delete the adjustment of Rs.14,34,887/- together with the consequential tax and interest. The grounds raised by the assessee are allowed.

In the result, the appeal filed by the assessee is allowed. Order pronounced on 24/07/2026 as per Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963. (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER Mumbai, Dated 24/07/2026 Dhananjay, Sr.PS