SHRI KRISHNANAGAR VAISHN vs. AMAJ,BHAVNAGARVS.THE ITO (EXEMPTION), BHAVNAGAR

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

This appeal is filed by the assessee against the order of National
Faceless Appeal Centre (NFAC) [hereinafter referred as ‘CIT(A)’] dated
29.03.2025 for the Assessment Year (A.Y.) 2023-24 in the proceeding under Section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2023-24 on 09.10.2023 declaring income of Rs.5,38,930/-. The assessee is a Trust eligible for deduction under Section 11 of the Act. The assessee had accumulated an amount of Shri Krishnanagar Vaishnvsamaj vs. ITO
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Rs.4,60,000/- in the Financial Year 2016-17 which was required to be utilised within a period of five years as provided under Section 11(2) of the Act. In the return of income for the A.Y. 2023-24, the assessee had shown utilisation of Rs.2,32,073/- out of the funds accumulated during the Financial Year (F.Y.) 2016-17 and the balance unutilised amount of Rs.2,27,927/- was offered for tax. The CPC while processing the return for the A.Y. 2023-24 had communicated an error in respect of the utilised amount of Rs.2,32,073/-. As per the communication of the CPC, the income accumulated under Section 11(2) of the Act during the F.Y. 2016-
17 was required to be utilised on or before 31.03.2022 (within 5 years).
Since the amount of Rs.2,32,073/- was utilised by the assessee beyond the period of five years, the same was held as not eligible for deduction.
Accordingly, adjustment of Rs.2,32,073/- was made while processing the return under Section 143(1) of the Act.
3. Aggrieved with the adjustment made while processing the return, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
4. Now, the assessee is in second appeal before us. The following grounds have been taken in this appeal: -
“1. The learned CIT(Appeals) has erred in fact and in law by refusing to delete the addition u/s.115BBI made by the AO reg. disallowance of the utilisation of Rs.2,32,073/- for the specified purpose in FY 2002-23 out of the income accumulated under Section 11(2) in FY 2016-17
2. 2.1
The ld. CIT-Appeals has overlooked the fact that the amendment in Section 11(3)(c) omitting the words “or in the year immediately following the expiry thereof” is substantive in nature which affects the legally conferred rights of the assessee and is not intended to be retrospectively effective, and our claim for utilization made in FY 2022-23 is justified and within the law.
2.2. The ld. CIT-A has wrongly held that the amendment in section 11(3)(c) made by Finance Act 2022 w.e.f.1-4-2023 in curtailing one year from the period of utilization of accumulation of income u/s.11(2) does not create a new obligation but merely strengthens the time limit for an existing obligation with an intent to ensure strict compliance with the time limit.
3. The ld. CTT-A erred in holding that the original provision U/s.11(2) r.w.s
11(3) mandated utilization within five years and additional one year was provided as a mere grace period which was only a concession and not a right.
4
The ld. CIT-A has completely overlooked our submission that the amended provision u/s.11(3)(c) was not in existence upto the end of FY
2021-22 and so it was impossible for the assessee to utilize the amount accumulated in FY 2016-17 by 31 March 2022 so as to avoid the rigors of Sec.11(3) and Sec.115BBI. Thus, the legal maxim lex non cogit ad impossibillia is squarely applicable in the present case.
5. The id. CIT-A has erred in law and in facts in rejecting our ground that even if taxable, the unutilized accumulation can be taxed only in AY
2022-23 as per sec.11(3)(iii) and not AY 2023-24 and has erroneously applied Sec.11(3)(i) and 11(1B) which have no relevance to the facts of the case.
6. The ld. CIT-A has ignored our plea that denying the opportunity to utilize the accumulated income would defeat the charitable objectives and harm the functioning of the trust, which is contrary to the intent of the Act, particularly Section 11. 7. The appellant craves leave to add, amend, alter, and vary any or all of the above submissions.
8. For these and other grounds which may be urged at the time of hearing, the appeal may be allowed, and justice may be rendered by deleting the addition of Rs.2,32,973 from the taxable income.”

Further, the assessee also had additional one year i.e. F.Y. 2022-23 for the utilization of the accumulated fund. Accordingly, the assessee had utilised the accumulated fund of Rs.2,32,073/- in the additional year i.e. in F.Y. 2022-23 and had claimed the deduction in the return for A.Y. 2023-
24. According to the Ld. AR, the amendment made in Section 11(3)(c) of the Act by withdrawing the additional one-year period for utilising the accumulated fund was not intended for the funds accumulated in the earlier years. He explained that originally when the assessee had time period till 31.03.2023 for utilisation of accumulated funds, the said time period could not have been suddenly curtailed by one year without allowing any opportunity to the assessee to exhaust the unutilised funds.
He submitted that such interpretation of the amendment would make it impossible for the assessee to utilise the accumulated funds.
6. Per contra, Smt. Mamta Singh, Ld. Sr. DR submitted that the amendment made to Section 11(3) of the Act was applicable from A.Y.
2023-24 and accordingly the adjustment made by CPC was correct. She strongly supported the order for the ld. CIT(A).
7. We have considered the rival submissions. In the present case, the assessee had accumulated fund of Rs.4,60,000/- in the F.Y. 2016-17. As per provisions of Section 11(2) of the Act, a trust is required to apply 85%
of income during any previous year to charitable or religious purposes.
However, if it is not able to apply 85% of its income during the previous year, it is allowed to accumulate such income for the period of five years.
In this regard, it is relevant to reproduce the Section 11(3) of the Act at relevant point of time which is as under:-
(3) Any income referred to in sub-section (2) which—
(a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub- section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section 72[or in the year immediately following the expiry thereof]*,
(d) is credited or paid to any trust or institution registered under section 12AA 73[or 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 (23C) of section 10,
74[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].
72 Words "or in the year immediately following the expiry thereof" shall be omtt. by the Act No. 6 of 2022, w.e.f. 1-4-2023. 7.1
As per the sub-clause (c) of Section 11(3), the accumulated amount shall be deemed to be the income of the assessee if it was not utilised within the period of five years as mentioned in Section 11(2)(a) of the Act, or “in the year immediately following the expiry thereof”. Thus, the assessee had time limit of five years and one additional year to utilise the accumulated funds. Since the funds were accumulated in this case in the F.Y. 2016-17, the extended time period for utilisation of fund was till the end of the F.Y. 2022-23. In the present case, the assessee had utilised funds to the extent of Rs.2,32,073/- in the additional one-year period and accordingly claimed the deduction in the return for A.Y. 2023-24. Shri Krishnanagar Vaishnvsamaj vs. ITO
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(3)
CIT

(4)
CIT(A)

(5)
Departmental Representative

(6)
Guard File

By order