Retrospective Amendment Inapplicable: ITAT Allows ₹2.32 Lakh Deduction for Trust’s Accumulated Fund Utilisation [Read Order]
The Tribunal ruled that a retrospective amendment to Section 11(3) of the Income Tax Act, 1961, cannot curtail the additional one-year period originally available for utilizing accumulated funds.
Retrospective - Amendment - Taxscan
Retrospective - Amendment - Taxscan
The Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) and deleted the adjustment made by the Central Processing Centre (CPC), held that the retrospective amendment to Section 11(3) of the Income Tax Act, 1961, was inapplicable.
Krishnanagar Vaishnsamaj (assessee), a trust eligible for deductions under Section 11 of the Income Tax Act, filed income tax return for the Assessment Year (AY) 2023-24, declaring an income of Rs. 5,38,200.
The trust had accumulated Rs. 4,60,000 in the Financial Year (FY) 2016-17 under Section 11(2), which required utilization within five years. In its return, the assessee reported utilizing Rs. 2,32,073 of these funds in FY 2022-23, with the remaining Rs. 2,27,927 offered for tax.
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The CPC, while processing the return, disallowed the deduction of Rs. 2,32,073, citing that the utilization occurred beyond the five-year period due to an amendment in Section 11(3)(c) by the Finance Act, 2022 which was effective from 01.04.2023, which removed the additional one-year period for utilizing accumulated funds.
Aggrieved, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], but the CIT(A) dismissed the appeal, upholding the CPC’s adjustment. Aggrieved by the CIT(A)’s order, the assessee appealed to the ITAT.
The counsel for the assessee argued that the amendment could not retrospectively remove the additional one-year period (until 31.03.2023) originally available for utilizing funds accumulated in FY 2016-17. The Counsel contended that applying the amendment would create an impossible situation, leaving no time to utilize the funds, invoking the doctrine of impossibility.
The two-member bench, comprising T.R. SenthilKumar (Judicial Member) and Narendra Prasad Sinha (Accountant Member), observed that the assessee had utilized Rs. 2,32,073 in FY 2022-23, within the extended period allowed under the unamended Section 11(3)(c) of the Income Tax Act.
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The Tribunal observed that the five-year period for the FY 2016-17 accumulation ended on 31.03.2022, with an additional year until 31.03.2023. It held that the amendment’s retrospective application would lead to an unfair and absurd outcome, as it would eliminate the additional year without giving the assessee reasonable time to comply.
The Tribunal ruled that legal provisions should be interpreted with practicality and reasonableness by citing the doctrine of impossibility. It also rules that the assessee utilized the funds within the originally stipulated period and therefore the CPC’s adjustment was incorrect.
The Tribunal deleted the adjustment of Rs. 2,32,073 made by the CPC. The appeal of the assessee was allowed.
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