2018 (6) TMI 161 - AT - Income Tax

Additions made u/s 11(3)(c) - accumulation of income / funds - whether the unutilized amount transferred from capital fund to income and expenditure account is deemed income - Held that - As per section 11(3) assessee was to utilize the fund within the period of 5 years or or in the next year immediately following the expiry of the specified period - here the fund was utilized by the assessee for the specified purpose in the previous year immediately following the expiry of the year upto which the fund was accumulated, therefore assessee was entitled for claiming the deduction u/s 11 - Decided in favor of assessee.

Issues Involved:
1. Justification of CIT(A) in deleting the addition of ?45,00,000/- as deemed income.
2. Compliance with the utilization period of accumulated income by the assessee.
3. Whether the CIT(A) should have upheld the AO's order.
4. Prayer for setting aside the CIT(A) order and reinstating the AO's order.

Issue-wise Detailed Analysis:

1. Justification of CIT(A) in Deleting the Addition of ?45,00,000/- as Deemed Income:
The Revenue contested that the CIT(A) erred in deleting the addition of ?45,00,000/- made by the AO under Section 11(3)(c) of the Income Tax Act, 1961. The assessee, a trust engaged in educational activities, had accumulated ?45,00,000/- in A.Y. 2003-04 under Section 11(2) for a period of five years, which ended on 31-03-2008. The AO considered this amount as deemed income since it was utilized in the subsequent financial year (F.Y. 2008-09) instead of within the specified period. However, the CIT(A) held that the utilization in the immediate next financial year was permissible under Section 11(3)(c) and deleted the addition, concluding that the AO was not justified in treating ?45,00,000/- as deemed income.

2. Compliance with the Utilization Period of Accumulated Income by the Assessee:
The AO argued that the accumulated fund should have been utilized by 31-03-2008, and failing to do so, it should be treated as deemed income. The assessee contended that Section 11(3)(c) allows utilization in the year immediately following the expiry of the specified period. The CIT(A) agreed with the assessee, stating that the fund was indeed utilized for the specified purposes in A.Y. 2009-10, the year immediately following the expiry of the five-year period, thus complying with the provisions of Section 11(3)(c).

3. Whether the CIT(A) Should Have Upheld the AO's Order:
The Revenue argued that the CIT(A) should have upheld the AO's order, which treated the ?45,00,000/- as deemed income. The CIT(A), however, found that the AO's interpretation of the provisions was incorrect. The CIT(A) noted that the assessee had utilized the accumulated funds for the specified purposes in the immediate next financial year, which is permissible under Section 11(3)(c). Therefore, the CIT(A) concluded that the AO's addition was unjustified and deleted it.

4. Prayer for Setting Aside the CIT(A) Order and Reinstating the AO's Order:
The Revenue prayed for setting aside the CIT(A) order and reinstating the AO's order. However, the Tribunal, after hearing the rival contentions and reviewing the materials on record, agreed with the CIT(A) that the utilization of the accumulated funds in the immediate next financial year was in accordance with Section 11(3)(c). The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, confirming that the assessee's utilization of the accumulated funds in the immediate next financial year was in compliance with Section 11(3)(c) of the Act. Thus, the addition of ?45,00,000/- as deemed income was rightly deleted by the CIT(A). The Revenue's appeal was dismissed.

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