GRG TRUST,COIMBATORE vs. DCIT, EXEMPTIONS,, COIMBATORE

आयकर अपीलीय अधिकरण, ‘ए’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI श्री जॉजज जॉजज के, उपाध्यक्ष एवं श्री एस.आर.रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.3110/Chny/2025 ननिाारण वर्ा / Assessment Year: 2015-16 GRG Trust The Deputy Commissioner of Avinashi Road, Peelamedu vs. Income-tax (Exemption) Coimbatore – 641 004 Coimbatore. (प्रत्यर्थी/Respondent) [PAN: AAATG2076N] (अपीलार्थी/Appellant) अपीलार्थी की ओर से/Appellant by : Shri. R.Vijayaraghavan, Advocate प्रत्यर्थी की ओर से/Respondent by : Shri. A.T.Krishnamoorthy, Addl.CIT सुनवाई की तारीख/Date of Hearing : 04.03.2026 घोर्णा की तारीख/Date of Pronouncement : 01.06.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM :

The present appeal is filed by the assessee against the order dated 04.09.2025 passed by the learned Commissioner of Income Tax, Appeal, ADDL/JCIT(A)-6, Delhi, (hereinafter referred to as “ld.CIT(A)”), dismissing the appeal filed by the assessee against the assessment order dated 27.12.2017 passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”), pertaining to Assessment Year (A.Y.) 2015-16.

:-2-: ITA. No: 3110/Chny/2025 2. The grounds of appeal raised by the assessee are as under:

“ (1) The learned CIT(A), National Faceless Appeal Centre, Delhi has erred in coming to the conclusion that the appellant did not comply with the provisions of law, is erroneous and unsustainable in the facts and circumstances of the case. (2) The learned CIT(A) ought to have appreciated that the appellant exercised the option under clause (2) of the Explanation to sub-section (1) of Section 11 of the I.T.Act, 1961 for the previous year relevant to the assessment year 2015- 16. (3) The learned CIT(A) ought to have appreciated that the Form No.9A prescribed for exercising option under clause (2) of the Explanation to sub- section (1) of Section 11 of the I.T.Act, 1961 is applicable only with effect from the Asst. Year 2016-17. (4) The learned CIT(A) ought to have appreciated that the option exercised has been mentioned in the Summary of Total Income and the relevant column of ITR has been filled up properly amounts to exercising of option in writing. (5) The learned CIT(A) ought to have appreciated that the appellant did not exercise the option to accumulate the Income and spend the same in the subsequent years u/s 11(2) of the I.T.Act, 1961. 6) The learned CIT(A) ought to have appreciated that for accumulation of Income u/s 11(2) of the Act, the appellant is required to file Form No. 10 before the due date for filing of Return of Income. (7) The learned CIT(A) ought to have appreciated that the amount exercised under clause (2) of the Explanation to sub-section (1) of Section 11 of the I.T.Act, 1961 has been spent in the subsequent year and therefore, ought not to have disallowed the same while completing the assessment for the A.Y. 2015-16. (8) The order of the learned CIT(A), NFAC, Delhi and the AO are not in accordance with law and denial of benefit to the appellant is unsustainable in the facts and circumstances of the case. (9) For these and other additional grounds of the appeal that may be adduced at the time of hearing, the order of the learned CIT(A), National Faceless Appeal Centre, Delhi is opposed to law and unsustainable in the facts and circumstances of the case.”

:-3-: ITA. No: 3110/Chny/2025 raised. The assessee had exercised the option available to him u/s.11(1) – Explanation 2(ii)(b) of the Act, for treating the amount of Rs.3,40,00,000/-, as deemed to be income, applied to charitable purposes, during the previous year relevant to the assessment year, in question. “11. (1) …….. Explanation.—For the purposes of clauses (a) and (b),— (1) ……………. (2) if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust, or, as the case may be, held under trust in part, by any amount— (i) for the reason that the whole or any part of the income has not been received during that year, or (ii) for any other reason, then— (a) ……………………. (b) in the case referred to in sub-clause (ii), so much of the income applied to such purposes in India during the previous year immediately following the previous year in which the income was derived as does not exceed the said amount, may, at the option of the person in receipt of the income such option to be exercised in writing before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income, be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes during the year in which it is actually applied.” 4. The AO required the assessee to give the reason for exercising the option and whether the option was exercised before the AO within the time allowed. The assessee by his letter dated 19.12.2017 has given the reasons as under.

“The substantial portion of the amount has been received during the last quarter of the relevant year. The amount was earmarked for the purpose of the meeting the capital expenditure in the following year. The trust is running Educational Institutions in 4 or 5 different places and provides Education to students from LKG to Post Graduation. The construction additional class rooms for running the schools and colleges and major repairs to existing infrastructure can be carried out in

:-4-: ITA. No: 3110/Chny/2025 Educational Institutions only during vacation period in months of April to June. The trust has spent more than Rs.350 lakhs during the period from 0104.2015 to 30.09.2015 for construction of building and providing other infrastructure which also include the advance paid to various contractors. In addition to that expenditure has been incurred for acquisition of other fixed assets at the Institutions as well, as per the statement enclosed. We enclose herewith the breakup for amount spent during the period 01.04.2015 to 30.09.2015 from the books of account of trust and institutions.”

“11. The assessee's case is covered by sub clause (ii) to explanation 2. It is not the case of the assessee that the income was not received during the year. It is a case where the income could not be applied for any other reasons. The reason that substantial portion received during the last quarter is not correct in the case of assessee. On the perusal of records it is seen that the assessee has received during the last quarter against total receipts of Rs.29,18,53,871/-. Further, a sum of Rs.1,37,78,252/- has been shown as a proportion of GRG Hostel collections. Hence, the assessee's reason for non-application does not seem to be sufficient reason which prevented the assessee trust from utilising it. 12. Further, the income has been accumulated for the purpose of construction of additional rooms or building. For construction of additional rooms or building the assessee has to set a part the amount required under section 11(2). For this purpose the assessee has to file Form-10 before the Assessing Officer before the time allowed. The Form-10 has to indicate the amount set apart and the purpose. It is seen that the assessee has not filed Form-10 either. 13. Hence the assessee's action in accumulating u/s 11(1) is not allowable. Hence the deemed accumulation of Rs.3,40,00,000/- is disallowed.” 6. On appeal, the first Appellate Authority in the order dated 04.09.2025 dismissed the appeal holding as under:

“6.4 I have carefully considered the facts of the case, the assessment order, the written submission of the appellant, and the provisions of the Act. On perusal, the following issues arise for determination: whether the appellant validly exercised the option of deemed application u/s 11(1) Explanation 1(ii)(b), and if not, whether the AO was justified in disallowing the claim. 6.5 It is not in dispute that the appellant applied a sum of Rs.24,32,77,334/- during the year against 85% of receipts of Rs.24,80,75,790/-, leaving a shortfall of Rs.47,98,456/-. The appellant sought to bridge this shortfall by claiming Rs.3.40 crores as deemed application under Explanation 1(ii)(b). The AO noted that no

:-5-: ITA. No: 3110/Chny/2025 Form 10 was filed before the due date u/s 139(1). The AO, therefore, held that the claim was invalid and added the shortfall to income. 6.6 The appellant’s primary contention that filing of Form 10 was not required and that exercise of option in writing sufficed, cannot be accepted. The statute, as it stood, read with Rule 17 of the Income Tax Rules, requires that such option be exercised in the prescribed manner, namely by filing of Form 9A (for deemed application under Explanation 1(ii)(b)) and Form 10 (for accumulation under section 11(2)) by electronic filing mandatory before the expiry of the time allowed under subsection (1) of section 139 of the Act, for furnishing the return of income. Even prior thereto, courts have held that filing the prescribed form is sine qua non. The Hon’ble Supreme Court in CIT v. Nagpur Hotel Owners’ Association (247 ITR 201) categorically held that the requirement of filing Form 10 before completion of assessment is mandatory. Relevant extract is reproduced below: “It is abundantly clear from the wordings of sub-section (2) of Section 11 that it is mandatory for the person claiming the benefit of Section 11 to intimate to the assessing authority the particulars required, under Rule 17 in Form No.10 of the Act. If during the assessment proceedings the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation arises from Section 11 and is subjected to the conditions specified therein. Therefore, it is necessary that the assessing authority must have this information at the time he completes the assessment. In the absence of any such information, it will not be possible for the assessing authority to give the assessee the benefit of such exclusion and once the assessment is so completed, in our opinion, it would be futile to find fault with the assessing authority for having included such income in the assessable income of the assessee.” The rationale is that unless the AO is informed of the precise amount and purpose of accumulation or deemed application through prescribed form, he cannot verify and allow exemption. Therefore, the contention that AO had no authority to question sufficiency of reasons is misconceived. The AO is not questioning subjective satisfaction but is pointing out absence of statutory compliance. 6.7 The appellant’s argument that section 11(2) is not applicable and hence Form 10 is not required also fails. The AO has rightly observed that the trust in substance sought to accumulate income for capital purposes, which squarely falls under section 11(2).The submission that the AO cannot deny exemption merely for want of form is contrary to law laid down by the Hon’ble Supreme Court. 6.8 The appellant’s reliance on the plea that the amount was in fact spent in the following year is also of no avail. Actual spending later cannot cure failure of compliance with statutory requirement. The condition precedent is filing the prescribed form before due date. Several Courts rulings have reiterated that filing Form 10 within due time is mandatory. Unless this condition is fulfilled, subsequent spending cannot entitle the assessee to retrospective benefit.”

:-6-: ITA. No: 3110/Chny/2025 7. Aggrieved by the order of the ld.CIT(A) preferred an appeal before us. The ld.AR for the assessee submitted that both the lower authorities have not appreciated the claim of the assessee and hence applied the wrong provisions of the Act which are not applicable to the AY in appeal. It is the claim of the ld.AR that they had applied Explanation 2(ii)(b) to sec 11(1) contains two options (i) The Assessee can carry forward income representing the shortfall in application of 85% of income in the relevant previous year, for the permitted period of 5 years to be applied subsequently or(ii) if 85% of income cannot be applied for any reason, the assessee can apply the same within 6 months of the immediate subsequent previous year. For the Assessment year under appeal, there was no requirement for filing any form intimating the carry forward. Rule 17 of IT Rules dealing with carry forward of the surplus of income which requires to be applied, reads as under for the AY under appeal:

:-7-: ITA. No: 3110/Chny/2025 permits an Assessee, if he is not able to spend 85% of income within the previous year for any reason and the provisions do not require the reason should be satisfactory to the AO. Further in the same order, while the AO rejects accumulation u/s.11(2) of the Act (though not claimed) on the ground that Form 10 has not been filed but not on the ground that the reason stated is not satisfactory. The ld.CIT(A) has also observed at Para 6.6. that “The AO is not questioning subjective satisfaction but is pointing out absence of statutory compliance.” Viz. filing of Form 10.

“It is abundantly clear from the wordings of sub-section (2) of Section 11 that it is mandatory for the person claiming the benefit of Section 11 to intimate to the assessing authority the particulars required, under Rule 17 in Form No.10 of the Act. If during the assessment proceedings the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation arises from Section 11 and is subjected to the conditions specified therein. Therefore, it is necessary that the assessing authority must have this information at the time he completes the assessment. In the absence of any such information, it will not be possible for the assessing authority to give the assessee the benefit of such exclusion and once the assessment is so completed, in our opinion, it would be futile to find fault with the assessing authority for having included such income in the assessable income of the assessee.”

:-8-: ITA. No: 3110/Chny/2025

:-9-: ITA. No: 3110/Chny/2025 6 months from the end of the previous year and which stands satisfied. Hence filing the option in Form 10 does not arise. Even the requirement of filing of option to accumulate in Form 10 became applicable only from A.Y.2016-17. According to ld.AR, once the AO’s rejection of assessee’s petition for applying the shortfall in application in year under appeal within the next 6 months cannot be rejected as unreasonable (as ld.CIT(A) himself has accepted), the rejection of assessee’s claim for failure to file Form 9A/10 does not arise in the AY under appeal and hence the orders of the lower authorities require to be set aside and assessee’s claim allowed.

:-10-: ITA. No: 3110/Chny/2025 substantial receipts were received towards the end of the year and that the funds were earmarked for construction of educational infrastructure and other capital expenditure which could practically be undertaken only during the vacation period. The assessee further furnished details demonstrating that more than Rs.3.50 crores had in fact been spent during the period from 01.04.2015 to 30.09.2015 towards charitable objects and infrastructure development.

:-11-: ITA. No: 3110/Chny/2025 18. The record clearly demonstrates that the assessee never invoked section 11(2) nor sought accumulation of income for the extended period contemplated therein. The claim of the assessee was exclusively under Explanation 2(ii)(b) to section 11(1). Therefore, the insistence by the AO and the ld.CIT(A) upon compliance with section 11(2) and filing of Form No.10 is legally misconceived and proceeds on an erroneous understanding of the statutory scheme. We further find considerable merit in the contention of the assessee that for A.Y.2015-16, the law merely required the option to be exercised in writing before the due date prescribed u/s.139(1) of the Act. The requirement of exercising such option in the prescribed form and manner through Form No.9A was introduced subsequently and became operative from A.Y.2016-17 onwards. The provisions applicable to a particular assessment year cannot be enlarged by importing procedural requirements introduced in a later year unless the amendment is expressly retrospective. No such retrospective operation has been provided in the present case.

:-12-: ITA. No: 3110/Chny/2025 Revenue, actually reinforces the proposition that the AO must have the relevant information before him while framing the assessment. That condition stands fulfilled in the present case.

:-13-: ITA. No: 3110/Chny/2025 24. In the result, the appeal of the assessee is allowed.

Order pronounced in the court on 01st June, 2026 at Chennai. Sd/- Sd/- (जॉजा जॉजा के) (एस. आर. रघुनार्था) (GEORGE GEORGE K) (S. R. RAGHUNATHA) उपाध्यक्ष /VICE PRESIDENT लेखा सिस्य/ACCOUNTANT MEMBER

चेन्नई/Chennai, दिनांक/Dated, the 01st June, 2026. आिेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभागीय प्रनतननधि/DR 5. गार्ा फाईल/GF DEVADAS Digitally signed by DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.06.08 14:22:14 +05'30'