ST. ANTHONYS CHURCH,MUMBAI vs. ITO WARD 2(3), MUMBAI

B. On the facts and circumstances of the case and in law the CPC failed to appreciate that: i) No addition can be made u/s 143(1) unless there is some clerical or technical discrepancies in the return. ii) CPC processed the return with making the addition of accumulated fund utilized during the year. iii) No reason for adjustment u/s. 115BBI of the Act was brought on record by the CPC. iv) The issue concerning such adjustment u/s. 115BBI of the Act is highly debatable in nature, and, consequently, no adjustment in this regard could have been made by the A.O. in an intimation u/s. 143 (1) of the Act. v) In this case, the amount disallowed is a disallowance that cannot be made without assessment proceedings u/s 143(3) of the Act.

C. The appellant, therefore, prays that the disallowance made u/s 143(1) of the Act is bad at law and shall be deleted.”

Assessee filed its return of income on 23.11.2023, reporting total income at Rs.1,22,70,430/- after claiming exemptions u/s.11 and 12.

2.1. For the financial year 2016-17, assessee had accumulated funds of Rs.83,50,000/- u/s.11(2) which were intended to be utilised within the prescribed period. These accumulated funds were subsequently utilised during financial year 2022-23 for an amount of Rs.15,79,570/- for the purposes in accordance with the objectives of the trust. Assessee filed Form 10 to this effect which allowed the utilisation of Rs.15,79,570/-. For the unspent accumulation of Rs.67,70,430/- out of Rs.83,50,000/-, assessee paid the due taxes u/s.11(3) in the return so filed.

2.2. Details regarding accumulation or setting apart of amount as required u/s.11(2)(a) is tabulated below, as reported in Form 10: Sl. Year of Date of filing Amount Period Amount Amount Amount No. accumul Form 10 accumulate for applied remaining deemed to be ation d which upto the for income within accum end of the appreciatio the meaning of ulated previous n the /set year Explanation 4 apart to the third proviso to clause (23) of section 10/sub- section (3) of section 11 2016-17 24-Oct-2017 83,50,000 5 15,79,570 67,70,430 67,70,430 2017-18 27-Oct-2018 55,00,000 5 0 55,00,000 55,00,000 2018-19 02-Oct-2019 82,15,000 5 0 82,15,000 0 2019-20 12-Jan-2021 55,00,000 5 0 55,00,000 0 2020-21 12-Mar-2022 96,00,000 5 0 96,00,000 0

2021-22 03-Sep-2022 62,50,000 5 0 62,50,000 0 St. Anthony’s Church AY 2023-24 3. Assessee filed its return which allowed to enter the utilisation of Rs.15,79,570/- which in fact was part of the accumulation made in the financial year 2016-17. Subsequently, return of the assessee was processed u/s.143(1) for which intimation was issued dated 02.12.2024, whereby this utilisation was denied raising a demand of Rs.7,11,150/-. The reason for this disallowance was that the prescribed period had expired.

3.1. According to the assessee, this utilisation was made in the time frame allowed u/s.11(2) and 11(3) which was for bonafide charitable purposes, fulfilling the conditions as prescribed. Assessee moved an appeal before the ld. CIT(A) and claimed that at the time of accumulation in financial year 2016-17, the law was that if any amount is accumulated u/s.11(2) and if the same is not utilised within the period of five years, then it shall be deemed to be the income of the previous year immediately following the expiry of the period of five years.

3.2. Factual position on the issue involved in the present appeal is that total accumulated income of Rs.15,79,570/- had remained unutilised at the end of 5th financial year i.e., 2021-22. However, the same was utilised in financial year 2022-23, being the 6th financial year from the financial year of accumulation, as per the condition of section 11(1)(c) which existed prior to the amendment.

3.3. Though the accumulated unutilised income of Rs.15,79,570/- as at the end of 5th financial year was spent in the 6th financial year i.e., FY 2022-23, the dispute raised is in the context of doctrine of fairness in relation to the amendment introduced by the Finance Bill, 2022 which received the assent of Hon'ble President of India on 30.03.2022.

As per section 1(2)(a) of the Finance Act 2022, the sections of the Act from section 2 to 85 came into force on the 1st day of April 2022. Thus, according to the assessee, the law was made effective from Assessment Year 2023-24 and as the law at the time of accumulation was for 5+1 years, the assessee claims that said accumulation cannot be disallowed, retrospectively. Assessee placed on record the difference in the position of law before the amendment and after the amendment brought in by the Finance Act, 2022 which is reproduced below.

Provision before amendment, i.e., Provision after amendment applicable from provision applicable up to the Asst. Year the Asst. Year 2023-24 2022-23 Any income referred to in sub section (2) Any income referred to in sub -section (2) which is not utilized for the purpose for which which is not utilized for the purpose for which it is so accumulated or set apart during the it is so accumulated or set apart during the period referred to in clause (a) of that sub- period referred to in clause (a) of that sub- section or in the year immediately following section or in the year immediately following the expiry thereof shall be deemed to be the the expiry thereof (Deleted) shall be deemed income of such person of the year the to be the income of such person of year being previous being last previous year of of the the last previous year of the period, for which period, for which the income is accumulated the period income is accumulated or set apart or set apart but not utilised for the purpose but not utilised for the purpose for which it is for which it accumulated or set apart under so accumulated or set apart under clause (c) clause (c)

3.4. From the above, assessee submitted that Finance Act, 2022 amended section 11(3) to bring to tax by effectively removing the one extra year available to spend and the same section came in force from 01.04.2023 i.e., Assessment Year 2023-24. There were two amendments in Finance Act, 2022 which restricted the utilization up to 5 years. Section 11(3)(c) specifically allowed one more year. The words “or in the year immediately following the expiry thereof” were deleted.

St. Anthony’s Church AY 2023-24 Thus, section 11(3)(c) along with the text at the end of the section allowed the utilization of the accumulated funds for 6 years before the amendment. According to the assessee, this is a prospective amendment made with regard to use of accumulated funds and thus, making the additions of 2 years in 1 year is not the intent of the legislature. Assessee claims that it acted in accordance with the law as it stood at the time of accumulation with a legitimate expectation of being permitted to utilize the accumulation within 5 years i.e. by 31.03.2023. Any retrospective interpretation adversely affects this illegitimate expectation and violates the principles of natural justice. This amendment puts the assessee in an impossible situation wherein the amendment is made by Finance Act, 2022 because of which assessee is required to utilize the funds on or before 31.03.2022 and is against the principles of natural justice.

3.5. In the alternate, assessee also submitted that even if the amendment is deemed as retrospective, the unutilized amount has to be taxed in the 5th year itself, i.e. Assessment Year 2022-23. Accordingly, the addition made in the impugned assessment year i.e. Assessment Year 2023-24 is bad in law and is therefore, ought to be deleted. Thus, submissions of the assessee are two-fold. First, it acted based on the conditions which existed in the year of accumulation and the amended law is to be applied prospectively for the accumulation which are made post amendment and secondly, the issue being a debatable one, CPC has no power to make such an adjustment while processing the return u/s.143(1).

4.1. According to ld. CIT DR, in the previous year relevant to Assessment Year 2017-18, assessee could not utilize 85% of its receipts for charitable activities and therefore, accumulated the funds falling short by 85% as per the provisions of section 11(2) of the Act, to be utilized in future years. As per the provisions of section 11(2)(a) of the Act, assessee was required to utilize the funds so accumulated within the next five years i.e. till the year relevant to Assessment Year 2023- 24. But the assessee failed to utilize it in the present year and therefore, it was deemed to be income as per the provisions of section 11(3) of the Act in the present year. Moreover, tax was charged as per the provisions of section 115BBI of the Act on such deemed income.

(d) is credited or paid to any trust or institution registered under section 12AA for section 12AB] or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (230) of section 10 [shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or credited or paid or, as the case may be, of the previous year immediately following the expiry of the period aforesaid]” [emphasis supplied by us by bold and underline] 5.1. From the above, it is noted that the words “or in the year immediately following the expiry thereof” was omitted by the Finance Act 2022 with effect from 01.04.2023 applicable for assessment year 2023- 24 onward. It is an admitted fact that when the assessee accumulated an amount of Rs.83,50,000/- during the financial year 2016-17, it was required to utilize the same within a period of 5 years from the end of the relevant assessment year or in the year immediately following the expiry thereof. In other words, assessee was required to utilize the same before the end of the 6th year i.e., financial year 2022-23. Assessee in the instant case, undisputedly, has utilized the amount of Rs.15,79,570/- before 31.03.2023 and for the balance amount of Rs.67,70,430/- has paid due taxes thereon.

5.2. 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 St. Anthony’s Church AY 2023-24 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.

Order is pronounced in the open court on 28 August, 2025