CHURCH OF OUR LADY OF NAZARETH,THANE vs. INCOME TAX OFFICER, EXEMPTION WARD THANE, THANE

PER PAWAN SINGH, JUDICIAL MEMBER:

Raipur dated 04.09.2025for Assessment Year (A.Y.) 2023-24. The assessee has

raised following grounds of appeal:

“I. DENIAL OF DEDUCTION FOR UTILISATION UNDER SECTION 11(3) OF THE ACT OF THE SURPLUS ACCUMULATED UNDER SECTION 11(2) OF THE ACT IN EARLIER YEARS-RS. 11,00,000/-

On the facts and circumstances of the case and in law,

1.1. The learned Addl/Joint Commissioner of Income Tax (Appeals) (hereinafter referred to as the CIT (Appeals)] erred in confirming the denial of deduction under Section 11(3) of the Act claimed by the Appellant for utilization of surplus accumulated under Section 11(2) of the Act in earlier years by the Central Processing Centre, Bengaluru (hereinafter referred to as the Assessing Officer) for a sum of Rs. 11,00,000/-

Church of Our Lady of Nazareth ITA No. 6856/M/2025 (AY: 2023-24)

1.2. The learned CIT (Appeals) erred in upholding the denial of deduction under Section 11(3) of the Act for a sum of Rs. 11,00,000/- being the amount applied/utilised on specified objects in the Financial Year ("FY") 2022-23 (Assessment Year ["AY"] 2023-24) out of accumulation of surplus under Section 11(2) of the Act during the FY 2016-17 (AY 2017-18).

1.3. The learned CIT (Appeals) and the learned Assessing Officer failed to appreciate the implications of the amendment made by the Finance Act, 2022 requiring utilization of the accumulated surplus in the 5th year from the year of accumulation. It is submitted that deduction for such utilization in the sixth year from the year of accumulation is permissible for AY 2023-24 and deduction claimed by the Appellant

. The learned Addl Joint Commissioner of Income Tax (Appeals) ought to have considered that the Return of Income in Schedule I allowed the accumulation of FY 16-17 to be utilized in FY 22-23 and only the unutilized amount left thereafter, be taxed u/s 11(3) of the Act.

1.5. The learned CIT (Appeals) erred in upholding the taxation of the said amount under Section 115BBI of the Act.

1.6. The learned Assessing Officer and the learned CIT(Appeals) failed to appreciate and consider the submissions made and explanation offered by the Appellant in justification of its claim for deduction.

1.7. Without prejudice to the above, in case application of income of Rs. 11,00,000/- is not allowed against accumulation of income u/s. 11(2) of the Act for AY 2017-18, then the amount so applied be treated as allowed against current income and to that extent accumulation applied under section 11(2) for AY 2023-24 be reduced.

The Appellant prays that the learned assessing Officer may kindly be directed to allow the deduction for utilization made by the Appellant during the FY 2022-23 (AY 2023-24) of the surplus accumulated in AY 2017-18 as the denial thereof is unwarranted, unjustified and unsustainable.

II. DENIAL OF DEDUCTION UNDER SECTION 143(1) OF THE ACT:

2.1. The learned CIT (Appeals) erred in upholding the denial of deduction resorted to by the learned Assessing Officer through an adjustment to the total income while processing the return of income under section 143(1) of the Act.

Church of Our Lady of Nazareth ITA No. 6856/M/2025 (AY: 2023-24) 2.2. It is submitted that the issue involves a highly debatable question of law that cannot be settled by way of an adjustment under Section 143(1)(a) of the Act.

It is submitted that the adjustment has been made in gross violation of principles of natural justice and also the provisions of Section 143 (1) of the Act which mandatorily require issue of a show cause notice and affording an opportunity of being heard to the Appellant.

The Appellant hereby craves the leave to add to, alter, amend and/or amplify the above grounds of appeal as and when the need arises.”

ld. Authorised Representative (AR) of the assessee submits that though the

assessee has raised multiple grounds of appeal, however short dispute in the

present appeal is the utilisation of accumulation surplus in 5th year from the year

of accumulation. Deduction of such utilisation in 6th year from the year of

accumulation is permissible in A.Y. 2023-24 and the substantial issue raised by is

squarely covered by the decision of Mumbai Tribunal in Shri Dadar Digamber Jain

in ITA No. 2446/M/2025 dated 15.07.2025. There is no other dispute on fact.

the revenue supported the order of AO and ld. CIT(A). The ld. Sr. DR also

furnished his short written submission vide submission dated 24.03.2026. The ld.

Sr. DR for the revenue in its submission submitted that by way of Finance Act of

2022, the provision of section 11(3) got substantial changes, wherein the period

for which the amounts were allowed to be set apart or accumulated under

section 11(2) of the Act was changed from till the year immediately succeeding

the last year of accumulation period to till the last year of accumulation period

itself. The said amendment became effective from 01.042023 i.e. Assessment 3

Church of Our Lady of Nazareth ITA No. 6856/M/2025 (AY: 2023-24) Year 2023-24 and the impugned disallowance also has been made in respect of

the AY 2023-24 only. However, in the present case, the impugned amount was

set aside in F.Y. 2016-17 which relates to A.Y. 2017-18, the application of

amended provision, if allowed would amounts to retrospective application. The

amendment by way of Finance Act introduced in section 11(3) is not

retrospective. The retrospective amendment which is quite frequent in contesting

to the Income Tax Act, whenever legislature wanted to exclude its application on

party existing right, such exceptions are provided through so-called grand

fathering provision. There is no retrospective application for accumulation. To

support his submission, the, the ld. Sr. DR relied upon the following decision:  Vineeta Sharma vs Rakesh Sharma & Ors. Reported in AIR 2020 Supreme Court 3717 (SC).  Darshan Singh vs Rampal Singh & Ors. (Civil Appeal No. 248 of 1974 dtd. 20.11.1990.

through the orders of lower authorities carefully. We find that Central Processing

Centre (CPC), Bangaluru while processing the return of income for A.Y. 2023-24

issued intimation dated 02.12.2024. The CPC assessed the total income of

assessee at Rs. 11,47,850/- against the taxable income of Rs. 47,850/- by

considering the balance unspent surplus as on 01.04.2022, accumulated under

section 11(2) and F.Y. 2016-17 i.e. A.Y. 2017-18 and treated it deemed income

under section 11(3) and thereby recomputed total income by adding Rs.

11.00lacs to the total income of the assessee. Before ld. CIT(A), the assessee in

its submission submitted that Rs. 11.00 lacs accumulated under section 11(2) in

Church of Our Lady of Nazareth ITA No. 6856/M/2025 (AY: 2023-24) A.Y. 2017-18 was validly utilised in F.Y. 2022-23 being 6th year permitted under

the law as on stood prior to amendment by Finance Act, 2022 and that CPC

erred in treating this accumulation as taxable under section 11(3). And in

alternative it was submitted that if amended law is applied then such addition

ought to have been made in A.Y. 2022-23 and not in A.Y. 2023-24. The ld. CIT(A)

not accepted the submission of assessee by taking view that law has been

amended to restrict the period of utilisation to 5th year and the option of

application in the 6th year nolonger exist. Therefore, appellant cannot claim to be

covered by earlier provision which at ceased to exist.

ordinate bench of Mumbai Tribunal in Dadar Digamber Jain vs CIT(E) (supra) by

referring various other decisions of co-ordinate benches held that amendment to

section 11(3)(c) was introduced from A.Y. 2023-24 the same cannot be applied

for accumulation made in earlier years as the Finance Act, 2022 has not been

enacted this amendment retrospectively and is prospective in nature and the

omission of words “or in the year immediately following the expiry thereof” in

section 11(3)(c) is applicable for the accumulations made from A.Y. 2023-24 and

not for the earlier years. It was also held that nothing has been brought on

record as to whether the Revenue has challenged the said decisions(relied by

Tribunal) and thus, the same also supports the case of the assessee. Hence, we

find that grounds of appeal raised by assessee is squarely covered by the

decision of co-ordinate bench in Shri Dadar Digamber Jain vs CIT(E) (supra). The

Church of Our Lady of Nazareth ITA No. 6856/M/2025 (AY: 2023-24) ratio of various decisions relied by ld. Sr. DR for the Revenue is not applicable on

the facts of the case. In the result, grounds of appeal of assessee are allowed.

Order was pronounced in the open Court on 11/05/2026.

/- S S/- /- jjjSd/- Sd/- GIRISH AGRAWAL PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 11/05/2026 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file.

By Order

Assistant Registrar / DDO ITAT, Mumbai