Loading judgment…
Facts
The assessee, a charitable society, set apart Rs. 95,00,000/- for charitable purposes and filed Form 10 within the due date. The funds were held in a bank account as of March 31, 2018, and subsequently invested in fixed deposits shortly after the financial year-end.
Held
The Tribunal held that the assessee had substantially complied with the conditions for accumulation of income under Section 11(2) read with Section 11(5) of the Act. The disallowance solely on procedural grounds of the investment being made a few days after the financial year-end was unjustified.
Key Issues
Whether the disallowance of accumulated income is justified when the investment was made shortly after the financial year-end, despite substantial compliance with other conditions for exemption.
Sections Cited
143(3), 11(2), 11(5), 234A, 234B, 234C, 139(1), 12AA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: DR. M.L. MEENA, AM & DR. S. SEETHALAKSHMI, JM vk;dj vihy la-@ITA. No. 582/JPR/2025
PER DR. S. SEETHALAKSHMI, J.M. This appeal is directed against the order dated 18.02.2025 passed by the Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, confirming the assessment order passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for assessment year 2018–19. 2. The assessee has raised the following grounds: “1. The impugned additions and disallowances made in the order u/s 143(3) dated 26.02.2021 are bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted.
Rajasthan Ophthalmological Society, Jaipur. .
2. The CIT(A)/NFAC erred in law as well as on the facts of the case in confirming the disallowance made by the AO of Rs.95,00,000/- accumulated and set apart for application towards charitable purposes u/s 11(2) of the Act and in erroneously adding the same to the returned income. The disallowance so made and confirmed being contrary to the provisions of law and facts, may kindly be deleted in full.
3. The ld. AO erred in law as well as on the facts of the case in charging interest u/s 234A, 234B & 234C of the Act. The appellant totally denies its liability of charging of any such interest. The interest, so charged, being contrary to the provisions of law and facts, kindly be deleted in full.
4. The appellant prays your honour to add, amend or alter any of the grounds of the appeal on or before the date of hearing.”
The brief facts of the case are that the appellant is a society registered under the Rajasthan Societies Registration Act, 1958 and enjoys registration under section 12AA of the Act. It is engaged in carrying out charitable activities in the field of ophthalmology, including public awareness camps, educational initiatives, and professional training programmes for eye specialists.
1. The appellant filed its original return of income on 01.09.2018 declaring NIL income, and a revised return on 26.10.2018, also at NIL income. The return was processed, and the case was selected for limited scrutiny under CASS for the issue of “accumulation of income by trust.”
4. During the assessment proceedings, the appellant submitted that a sum of Rs. 95,00,000/- was set apart for application towards charitable purposes, and Form 10 was duly filed electronically on 01.09.2018, i.e., within the time permitted u/s 139(1). The said amount was lying in the Rajasthan Ophthalmological Society, Jaipur. . appellant’s account with Oriental Bank of Commerce (a Scheduled Bank) as on 31.03.2018, and was subsequently invested in fixed deposit receipts on 07.04.2018 and 09.04.2018 with the same bank. 4.1 The Assessing Officer disallowed the claim for accumulation under section 11(2), observing that the investment in prescribed modes under section 11(5) was not made during the relevant financial year. He therefore added Rs. 95,00,000/- to the total income of the appellant. The CIT(A)/NFAC confirmed the addition holding that the provisions of section 11(2) read with section 11(5) were not complied with in the year under appeal.
5. Being aggrieved by the AO the assessee preferred an appeal before the ld. CIT(A) and the findings are reproduced as under:- “9.1 Finding & Decision: In this case remand report was called for from the Assessing Officer enclosing the copy of bank account, financial statement and copy of resolution and Form 10 to examine the veracity of the claim of the appellant to allow whether the accumulation of income by the appellant is in accordance with the provisions of the Act. Assessing Officer reported that the appellant did not fulfil the condition to claim the benefit of accumulation under Sec. 11(2) of the Act for the following reasons: (i) The resolution ought to have been passed and placed on record by the appellant before the due date for filing the return of income. (ii) the appellant submitted that Form 10 was filed well within the due date for filing the return of income (iii) Whether accumulated income was invested in the modes prescribed under Sec. 11(5) during the previous year relevant to Asst Year under consideration. It is pointed out that the accumulated funds were invested in the modes prescribed under Sec.11(5) i.e., in Oriental Bank of Commerce which is a Scheduled Bank. But the investment was not made within the end of the previous year and it was made on 07.04.2018. Since the accumulation of Rajasthan Ophthalmological Society, Jaipur. . income was not invested before the end of the previous year, the Assessing Officer's action in disallowing the claim of Rs.95,00,000 towards application of income is upheld. Since the accumulated funds invested in the prescribed mode are to be utilised for the purpose for which it is accumulated within next five years, the date of investment is crucial to determine the succeeding five years to exhaust the funds. Since the investment of funds is made in the next financial year, even though the fund was lying in the bank account as on 31.03.2018, the appellant failed to fulfil the condition to invest the amount in the mode prescribed under Sec.11(5) during the relevant year under consideration.
In view of the above position of law and factual matrix, even though investment is made, there is no relaxation to allow the claim in the year under consideration and accordingly addition made under Sec. 11(2) is upheld. In the result, the appeal is "Dismissed".
The ld. Authorised Representative submitted that the entire amount was kept in a Scheduled Bank account as on 31.03.2018, that there was no diversion or misapplication of the accumulated income, and that the subsequent investment in fixed deposits with the same bank satisfies the requirements of section 11(5). It was further submitted that the amendment brought in section 11(2)(c), requiring filing of Form 10 two months before the due date of return, is applicable from A.Y. 2023–24 and cannot be applied retrospectively. 6.1 Reliance was placed on judicial precedents including DIT (Exemption) v. Agrim Charan Foundation and the judgment of the Hon’ble Supreme Court in CIT v. Nagpur Hotel Owners’ Association, wherein it was held that procedural lapses should not defeat substantive otherwise satisfied.
6.2 Written submission submitted by the assessee are reproduced here under:
Submission: 1. Requirement of S. 11 of the Act completely met: The only allegation made by the AO in his assessment order is that the investment/deposit of accumulated funds were not made as per the conditions specified in in S. 11(5) of the Act. A bare reading of the provisions of S.11(2) r.w.s 11(5) of the Act, for the relevant assessment year under consideration, suggests that it mainly imposes two conditions: “S.11(2) Where eighty-five per cent of the income referred to in clause (a) or clause (b) of sub-section (1) read with the Explanation to that sub-section is not applied, or is not deemed to have been applied, to charitable or religious purposes in India during the previous year but is accumulated or set apart, either in whole or in part, for application to such purposes in India, such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of the income, provided the following conditions are complied with, namely:— [(a) such person furnishes a statement in the prescribed form and in the prescribed manner to the Assessing Officer, stating the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed five years; (b) the money so accumulated or set apart is invested or deposited in the forms or modes specified in sub-section (5); (c) the statement referred to in clause (a) is furnished on or before the due date specified under sub-section (1) of section 139 for furnishing the return of income for the previous year:
It can be clearly seen from the provision that the only two conditions prescribed are: 1. A Statement i.e. Form 10B as per Rule 17 of the Income-tax Rules; 1962, should be furnished within the time limit mentioned in the S. 11(2)(c) (i.e. on or before the furnishing the return of income u/s 139(1) of the Act).
Rajasthan Ophthalmological Society, Jaipur. .
2. The money so accumulated or set apart is invested or deposited in the forms or modes specified in S. 11(5) of the Act (without any stipulation of investing before the due date u/s 139 with the P.Y) In the present case, the appellant has duly complied with both these conditions. Form No. 10 was filed electronically on 01.09.2018, which was well within the due date prescribed u/s 139(1) of the Act for A.Y. 2018-19. Further, the amount of ₹95,00,000/- so accumulated was maintained in the appellant’s bank account with Oriental Bank of Commerce—a Scheduled Bank within the meaning of Section 11(5)(iii)—as on 31.03.2018 (i.e within the previous year only) and was subsequently transferred into multiple fixed deposits on 07.04.2018 and 09.04.2018. The mere fact that the administrative action of converting funds into fixed deposits occurred a few days after the end of the financial year does not vitiate compliance with S. 11(5) of the Act, especially when the funds remained parked with a Scheduled Bank throughout and were never diverted. Thus, when both substantive requirements of Section 11(2) read with S. 11(5) of the Act stand fully satisfied, the denial of exemption solely on the ground of timing of deposit particularly when such funds were never misapplied (used for other purposes than for trust) would certainly defeat the object and spirit of the statute. The addition so made is therefore wholly unjustified and liable to be deleted in full.
2. Accumulated amount duly earmarked and deposited in prescribed mode: The appellant accumulated ₹95,00,000/- during the year under consideration. As on 31.03.2018, the said sum was maintained in the appellant’s bank account No. 06722011012820 held with Oriental Bank of Commerce, a Scheduled Bank as defined u/s 11(5)(iii) of the Act. The closing balance as on 31.03.2018 stood at ₹1,36,62,237.36, which is also mentioned in the audited financial statements of the assessee. Subsequently, the said amount was converted into the following Fixed Deposit Receipts (FDRs) with the same bank: S. No. Date FDR No. Amount (₹) 1 07-04-2018 TDR0312206 5,00,000 2 07-04-2018 TDR0312202 2,50,000 3 07-04-2018 TDR0312209 2,50,000 4 09-04-2018 TDR0312214 2,50,000 Rajasthan Ophthalmological Society, Jaipur. . S. No. Date FDR No. Amount (₹) 5 07-04-2018 TDR0312204 10,00,000 6 07-04-2018 TDR0312208 5,00,000 7 07-04-2018 TDR0312205 40,00,000 8 07-04-2018 TDR0312203 20,00,000 9 09-04-2018 TDR0312215 2,50,000 Total 95,00,000 The investment thus made falls squarely within the prescribed mode u/s 11(5) of the Act, and the statutory condition stands satisfied in full.
3. Funds were available with the Scheduled Bank before 31.03.2018 The FDRs were created shortly after the close of the financial year; however, the funds were already held in a Scheduled Bank account on 31.03.2018. There is no dispute on this factual position. The Act does not require that accumulation must be converted into FDRs before year-end. The object of the provision is to ensure security and earmarking of charitable funds, which stands fulfilled in this case.
The resolution was passed, Form No. 10 was filed on 01.09.2018 (within the due date u/s 139(1) of the Act, and the deposit was made into the prescribed mode promptly within the stipulated time. Alternatively, mere transfer of fund within the same bank cannot defeat the exemption (when the funds were never diverted and always retained for the intended purpose).
Substantial compliance—no malafide—exemption cannot be denied: The Hon’ble Courts have consistently held that minor technical lapses (though not in this case yet assuming so), cannot defeat genuine claims for exemption by charitable institutions. Reliance is placed on: DIT (Exemption) v. Agrim Charan Foundation (Del.), (2001) 119 Taxman 0569 CIT v. Nagpur Hotel Owners Association (SC) [2001] 114 Taxman 255 (SC) In the present case, the deposit was bona fide, timely, and in the approved mode. The amount was fully utilized for the declared charitable purpose within the permissible five-year period. No malafide or diversion has been alleged. Hence, denial of exemption is wholly unwarranted.
Timely filing of Form No. 10 – Objection in remand report is misplaced: Form No. 10 was filed on 01.09.2018, well within the due date u/s 139(1) for A.Y. 2018-19.
Rajasthan Ophthalmological Society, Jaipur. . The AO in the remand report erroneously applies the amended clause (c) of Section 11(2) requiring filing “two months prior to the due date,” which came into effect only from A.Y. 2023-24. The same has no application to the year under appeal. Otherwise also he could not make out a new case now in this remand report.
6. Evidence already on record – Improper appreciation by authorities: The appellant submitted all relevant documents during the assessment proceedings, including: Audited accounts and Form 10B, (PB 3-4) Bank statements, (PB 5-8) Form No. 10 with resolution, Clarificatory letters dated 16.08.2020 and 25.01.2021. Despite this, exemption was denied without finding any defect or misutilization. The CIT(A), while admitting that deposit was in a prescribed mode, still upheld the disallowance solely on a technical objection—an approach contrary to law and equity.
Thus, when the substantive requirements of S. 11 of the Act stand fully satisfied, the denial of exemption is entirely unjustified. The addition so made is therefore wholly unjustified and liable to be deleted in full.
The above submissions have been made based on the instructions and the information provided of/by the client.”
Per contra, Ld. DR relied on the reasoning given in the orders of the lower authorities and submitted following written submissions:- “This synopsis is being respectfully submitted on behalf of the Revenue in the matter of the appeal preferred by Rajasthan Ophthalmological Society, Jaipur against the order of the Ld. CIT(A), NFAC, Delhi dated 18.02.2025 for AY 2018-19.
Brief Background: - The assessee is a charitable society registered under Section 12AA of the Income Tax Act, 1961 and filed its return of income on 01.09.2018 declaring NIL income. The case was selected for scrutiny under the CASS for the issue of "Accumulation of Income by Trust." - The assessee claimed exemption of ₹95,00,000/- under Section 11(2), claiming it had set apart this amount for charitable purposes.
Rajasthan Ophthalmological Society, Jaipur. . -However, the AO disallowed this claim and added the amount of 195,00,000/- to the returned income, citing failure to comply with Section 11(2) r.w.s. 11(5).
Grounds of Revenue's Case: -The assessee did not invest the accumulated amount within the financial year (ending 31.03.2018) as required under Section 11(2) r.w.s. 11(5). The FDRs were made on 07.04.2018 and 09.04.2018, i.e., after the end of the relevant year. -Though the assessee filed Form 10 on 01.09.2018, it failed to submit the requisite resolution prior to filing the return, violating clause (c) of Section 11(2). - The investment made after the financial year does not qualify for exemption under Section 11(2).
3. Legal Provisions Involved: -Section 11(2): Permits accumulation of income for specific purposes subject to investment in modes specified under Section 11(5). - Section 11(5): Mandates investment of such accumulated income in scheduled bank deposits before the end of the relevant financial year. - Rule 17 r.w.s. 11(2) (c): Requires Form No. 10 and governing body resolution before the due date of return filing.
4. Findings of CIT(A): -CIT(A) dismissed the appeal holding that: - The investment of ₹95,00,000/- was not made before 31.03.2018. -Though the funds were available in the bank account, the actual investment in FDRs was done on 07.04.2018. -The condition of timely investment as per Section 11(5) was not fulfilled. -Accordingly, the benefit of Section 11(2) was rightly denied.
5. Revenue's Submission: - The finding of the Ld. CIT(A) is in accordance with law and supported by facts. -No exemption under Section 11(2) can be granted unless all three conditions under clause (a), (b), and (c) of Section 11(2) are satisfied together with investment as per Section 11(5) within the relevant financial year. - The assessee's failure to comply with time-bound statutory conditions is fatal to the claim. PRAYER: In view of the above facts and legal position, it is respectfully prayed that the appeal of the assessee be dismissed and the order of the Ld. CIT(A) confirming the disallowance of ₹95,00,000/- under Section 11(2) be upheld.”
Rajasthan Ophthalmological Society, Jaipur. .
We have carefully considered the rival contentions and gone through the records. It is not in dispute that the appellant had set apart Rs. 95,00,000/- for charitable purposes, and Form 10 was filed within the prescribed time, further the assessee has complied with the conditions laid down in Section 11(2) of the Act as well as rightly deposited the amount in Schedule Bank as per Section 11(5)(iii) of the Act. This amount was lying in the appellant’s bank account with a Scheduled Bank as on 31.03.2018. Thereafter, the same was invested in fixed deposit receipts with the same bank on 07.04.2018 and 09.04.2018. There is no allegation of misapplication of funds or deviation from the objects of the trust. Section 11(5) prescribes the modes of investment for accumulated income. The mere fact that the investment in fixed deposit was made a few days after the end of the financial year, despite the funds being securely parked in a Scheduled Bank throughout, cannot be a valid ground for denial of exemption. The requirements of section 11(2) and 11(5) must be interpreted harmoniously and with a view to promote the object of the legislation. In our considered view, the appellant has substantially complied with all the conditions required for accumulation under section 11(2) of the Act, and the disallowance of Rs. 95,00,000/- solely on procedural grounds is unjustified.