ITAT Deletes Rs. 90.70 Crore Adjustment Made u/s 11(3), Holds Amendment Prospective and Utilization Within Permissible Timeframe [Read Order]

The Pune Bench of the Income Tax Appellate Tribunal (ITAT), set aside an adjustment of Rs. 90.70 crore made by the Central Processing Centre (CPC) under Section 11(3) of the Income Tax Act, 1961, by noting that the amendment to Section 11(3), which reduced the utilization period for accumulated funds from five years plus one additional year to just five years, is prospective and not applicable to accumulations made before the assessment year 2023-24.

In this case, the appeal was filed by the assessee, Yashwantrao Chavan Maharashtra Open University (YCMOU), against the order passed by the Joint Commissioner of Income Tax (Appeals) [JCIT(A)] for the assessment year 2023-24.

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The case revolved around YCMOU, a state-funded educational institution, which had accumulated Rs. 90.70 crore during the financial year 2016-17 (assessment year 2017-18). Under the law prevailing at the time, the university was required to utilize the accumulated funds within five years or by the end of the immediately following year, i.e., by March 31, 2023. The university claimed it had fully utilized the amount by March 31, 2023, within the permissible six-year window. However, the CPC, while processing the return for AY 2023-24, treated the unutilized amount as deemed income and raised a demand of Rs. 26.36 crore. The Additional/JCIT(A) upheld the CPC's action, prompting the university to appeal before the ITAT.

The ITAT, after examining the provisions of Section 11(3) as they stood during the accumulation period, noted that the law allowed utilization within five years or the subsequent year. It emphasized that the amendment introduced by the Finance Act, 2022, which removed the additional year and restricted the period to five years, was prospective and applicable only to accumulations from AY 2023-24 onwards.

The ITAT, by relying on its earlier decision in M/s. Phulchand Gulabchand Charitable Trust vs. ITO vide ITA No.794/Bang/2019, in which it was that the utilization period includes the year immediately following the five-year accumulation period.

The Tribunal noted that since YCMOU had utilized the funds within the permissible six-year window, the adjustment by the CPC was unjustified. It directed the deletion of the Rs. 90.70 crore adjustment and allowed the university's appeal.

The bench noted that the amendment to section 11(3) of the Act is to be applied prospectively. The bench concluded that the JCIT(A) erred in upholding the adjustment of Rs. 90.70 crore and set aside the impugned order.

The ITAT, comprising Vinay Bhamore (Judicial Member) and R.K. Panda (Vice President), allowed the assessee’s appeal.

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