2022 (9) TMI 722 - AT - Income Tax

ITAT directs AO to allow accumulation of deemed income under Section 11(3)

The ITAT held that adjustments under Section 143(1) cannot be made for debatable claims, directing the AO to allow the assessee's accumulation of deemed ... Adjustment in the intimation specified u/s 143(1) - debatable issues - Assessment of trust - Deemed income u/s 11(3) - assessee is public charitable trust and duly registered under Section 12A - HELD THAT:- In the present case, the assessee has accumulated a sum representing the deemed income under Section 11(3) of the Act, in pursuance to the provisions of Section 11(2) of the Act. The first question arises whether the assessee can again accumulate the deemed income under the provisions of Section 11(3) of the Act in the manner as provided under Section 11(2) of the Act. Assuming the answer stands in negative, the next question arises whether such adjustment/denial of accumulation of the deemed income, can be made in the intimation generated under Section 143(1) of the Act. Undoubtedly, the scope of adjustments under the provisions of Section 143(1) of the Act is limited to the extent of the items as described above. In the case of CIT vs. Natwarlal Chowdhury Trust [1989 (8) TMI 19 - CALCUTTA HIGH COURT] held that the assessee is entitled to accumulate 15% of the total income which is inclusive of the deemed income specified under Section 11 (3) of the Act. Thus, from the above judgment, it is transpired that the assessee can claim the benefit of accumulation even on the deemed income specified under the provisions of Section 11(3) of the Act. However, the Ld. CIT-A in his order has not pointed out any distinguishing features in the case on hand viz-a-viz in the judgment of Hon’ble Calcutta High Court as discussed above. Thus the issues which are of debatable nature cannot be made subject to adjustment in the intimation specified under Section 143(1) of the Act. Accordingly, we set aside the finding of the Ld. CIT-A and direct the AO to allow the claim of the assessee. Issues Involved:1. Whether the adjustment made by the AO in the intimation issued under Section 143(1) of the Act is sustainable.2. Whether the assessee is eligible to accumulate its deemed income specified under section 11(3) of the Act in the manner provided under Section 11(1)/11(2) of the Act.Issue-wise Detailed Analysis:1. Adjustment under Section 143(1):The assessee, a public charitable trust registered under Section 12A, filed its return of income at NIL after claiming exemption under Section 11 of the Act, including a deemed income of Rs. 17,00,000 under Section 11(3). The Centralized Processing Center (CPC) denied this exemption in the intimation generated under Section 143(1), raising a demand of Rs. 3,50,200.The CIT(A) confirmed the AO's order, stating that the computation was strictly as per the prescribed format and existing provisions of law. The CIT(A) referenced Circular No. 29 and Circular 5P, which clarified that deemed income under Section 11(3) is not eligible for exemption under Section 11(1). The CIT(A) distinguished this from the Calcutta High Court's decision, which allowed such exemption, arguing that the court's decision did not consider these circulars.Upon appeal, the ITAT noted that the scope of adjustments under Section 143(1) is limited to arithmetic errors or incorrect claims apparent from the return. The ITAT referenced the Calcutta High Court's decision in CIT vs. Natwarlal Chowdhury Trust, which allowed accumulation of deemed income under Section 11(3). The ITAT emphasized that the CIT(A) did not identify any distinguishing features from this precedent.The ITAT further cited the Pune Tribunal's decision in CIT vs. Aurangabad Holiday Resorts Pvt. Ltd., which held that decisions of non-jurisdictional High Courts are applicable unless contradicted by a jurisdictional High Court. The ITAT also referenced CBDT Instruction No. 1814/1989, which prohibits disallowing claims based on High Court decisions, even if contrary views exist.Conclusion on Adjustment:The ITAT concluded that the claim to accumulate deemed income under Section 11(3) is debatable and cannot be classified as an incorrect claim. Therefore, such adjustments cannot be made under Section 143(1). The ITAT set aside the CIT(A)'s order and directed the AO to allow the assessee's claim, rendering the adjustment unsustainable.2. Eligibility to Accumulate Deemed Income:Given the favorable decision on the first issue, the ITAT did not find it necessary to adjudicate the second issue. The question of whether the deemed income under Section 11(3) can be accumulated under Sections 11(1) and 11(2) was left open, as the primary issue's resolution rendered further analysis unnecessary.Application to Subsequent Year:For the Assessment Year 2015-16, the ITAT noted that the issues were identical to those of the previous year. Therefore, the findings for A.Y. 2014-15 were applied, and the appeal for A.Y. 2015-16 was also allowed.Combined Result:Both appeals filed by the assessee for A.Y. 2014-15 and A.Y. 2015-16 were allowed. The ITAT pronounced the order on 14/09/2022 at Ahmedabad.