ITAT Pune Clarifies Time Limit for Utilisation of Accumulation under Section 11(3) and Deletes CPC Adjustment
1. Background of the Dispute
The Pune Bench of the Income Tax Appellate Tribunal, in the case of Navalmal Firodia Memorial Hospital Trust Vs ITO (ITAT Pune), has given an important ruling on the time limit for utilisation of accumulated income under Section 11(2) and the deeming provisions of Section 11(3) of the Income Tax Act 1961, particularly in the context of the amendment brought in by the Finance Act 2022 and the scope of adjustments permissible under Section 143(1) by CPC.
The assessee in this case is a public charitable hospital trust registered with the Charity Commissioner, Pune, and also enjoying registration under Section 12A of the Income Tax Act 1961. For Assessment Year (AY) 2023-24, it filed its return on 29.11.2023 declaring Nil income after claiming exemption under Section 11.
The Centralized Processing Centre (CPC) processed the return under Section 143(1) and made an adjustment of Rs. 6,00,000, treating it as deemed income under Section 11(3) read with Section 115BBI, on the ground that the assessee had not utilised the accumulation within the prescribed period. This resulted in determination of total taxable income of Rs. 6,00,000.
The key issues before the Tribunal were:
- Whether accumulation made in AY 2017-18 (Financial Year 2016-17) could legally be utilised up to the 6th year (i.e. 5 years plus one immediately following year) as per the law then in force.
- Whether the amendment made by Finance Act 2022 to
Section 11(3)restricting the period of utilisation could be applied retrospectively to earlier accumulations. - Whether CPC was justified in making an adjustment under
Section 143(1)on a debatable legal question.
2. Facts Relevant to the Accumulation and Utilisation
2.1 Accumulation in AY 2017-18
- The assessee had accumulated Rs. 6,00,000 out of the income of AY 2017-18 (Financial Year 2016-17).
- As the entire income could not be applied towards charitable objects during that year, the balance was accumulated and set apart in accordance with
Section 11(2). - A proper statement in the prescribed Form was furnished specifying the purpose and period of accumulation, satisfying
Section 11(2)(a)conditions as applicable at that time.
2.2 CPC’s View and Adjustment
CPC took the position that the accumulated sum of Rs. 6,00,000 was required to be utilised on or before 31.03.2022, taking only a five-year window into account.
On this premise, CPC concluded:
- The assessee failed to apply the accumulated amount by 31.03.2022.
- Consequently, the amount was deemed to be income under
Section 11(3)for AY 2023-24 and liable to tax, also invokingSection 115BBI.
An intimation under Section 143(1) dated 02.12.2024 was issued accordingly.
2.3 Order of the CIT(A)
The assessee challenged the CPC adjustment before the CIT(A) (Addl./JCIT(A)-5, Delhi).
Key pleas taken included:
- For accumulations made in Financial Year 2016-17 (AY 2017-18), the law then in force allowed utilisation within five years plus one additional year, i.e. up to 31.03.2023.
- The Finance Act 2022 amendment to
Section 11(3)applied prospectively from 01.04.2023 (AY 2023-24 onwards) and could not govern earlier accumulations. - Even assuming retrospective operation (without conceding), the proper year of taxation, if any, would be AY 2022-23 and not AY 2023-24.
- Adjustments under
Section 143(1)cannot be made on debatable or controversial legal issues. - A binding decision of the jurisdictional Pune Bench in Yeshwantrao Chavan Maharashtra Open University vs. CIT, Exemption [2025] 175 taxmann.com 988 was cited but not dealt with by the
CIT(A).
Despite these submissions, the CIT(A) upheld CPC’s action and dismissed the appeal.
3. Assessee’s Arguments before ITAT Pune
The Ld. Authorised Representative (AR) for the assessee advanced the following key arguments: