2024 (1) TMI 1132 - AT - Income Tax

ITAT restores appeal on taxability of unutilized accumulated funds under section 11(2) and 11(3) provisions

The ITAT Delhi restored an appeal to CIT(A) regarding taxability of unutilized accumulated funds under section 11(2) as income under section 11(3). The AO ... Taxability of unutilized accumulated funds under section 11(2) as on 01.04.2008, as income under section 11(3) on the ground that the appellant did not claim exemption under section 11 of the Act during the year under consideration - Pursuant to the order u/s 263 AO reframed the assessment order and held that the assessee is not eligible for exemption u/ss 11/12 of the Act under the Principles of Mutuality and unutilized amount accumulated u/s 11(2) of the Act in the preceding years ceased to be for the objects of the assessee and is taxable u/s 11(3) of the Act - CIT(A) dismissed the appeal of the assessee holding that the directions of the DIT(E) have attained finality. HELD THAT:- We have carefully perused the order of the Hon'ble High Court of Delhi [2018 (3) TMI 2025 - DELHI HIGH COURT] preferred by the assessee against the order of this Tribunal [2017 (1) TMI 1826 - ITAT DELHI] by which the Tribunal dismissed the appeal of the assessee preferred against the order of the DIT(E) u/s 263 of the Act wherein as clarified that the ITAT should consider the substantive merits of the appeal with respect to the assessee's taxability of amounts under Section 11(3) of the Act without in any manner holding adversely against it, for the withdrawal of the previous appeal (which was concerned only with the question of assumption of taxability under Section The appeal is disposed of in the above terms. It can be seen from the above findings of the Hon'ble High Court [supra] that the contention of the assessee has to be considered within the provisions of section 11(3) of the Act. Therefore, in the interest of justice and fair play and in line with the directions of the Hon'ble High Court of Delhi [supra], we restore this appeal to the file of the ld. CIT(A). The ld. CIT(A) is directed to decide the appeal afresh considering the claim of the assessee in light of provisions of section 11(2) and 11(3) of the Act after affording reasonable and adequate opportunity of being heard to the assessee. Appeal of the assessee allowed for statistical purposes. Issues Involved:The issues involved in the judgment are:1. Upholding of assessment order under section 143(3) read with section 263 of the Income-tax Act, 1961.2. Treatment of unutilized accumulated funds under section 11(2) of the Act.3. Taxability of accumulated funds under section 11(3) of the Act.Issue 1: Upholding of assessment order under section 143(3) read with section 263 of the Income-tax Act, 1961:The appellant challenged the order of the ld. CIT(A) upholding the action of the assessing officer in completing assessment under section 143(3) read with section 263 of the Act. The appellant contended that the CIT(A) erred in upholding the assessment at a certain income level. The Tribunal noted that the appellant did not press additional grounds raised and dismissed them. The Tribunal examined the factual matrix and observed that the CIT(A) dismissed the appeal based on the directions of the DIT(E) which were considered final.Issue 2: Treatment of unutilized accumulated funds under section 11(2) of the Act:The DIT(E) had directed that unutilized accumulated funds under section 11(2) of the Act were taxable under section 11(3) as the appellant had ceased to be involved in charitable activities. The DIT(E) set aside the assessment for de novo examination by the Assessing Officer. The Tribunal noted that the DIT(E) gave a definite finding in the matter, and the assessing officer proceeded to tax the unutilized accumulated balance based on these directions. The Tribunal referred to a case law to emphasize that issues decided by higher authorities attain finality unless appealed against.Issue 3: Taxability of accumulated funds under section 11(3) of the Act:The appellant's appeal was rejected by the ld. CIT(A) based on the directions of the DIT(E) regarding the taxability of unutilized accumulated funds under section 11(2) of the Act. The Hon'ble High Court's order clarified that the ITAT should consider the substantive merits of the appeal regarding the taxability of amounts under section 11(3) without adversely affecting the appellant for withdrawing the previous appeal. The Tribunal, in line with the High Court's directions, restored the appeal to the file of the ld. CIT(A) for a fresh decision considering the claim of the assessee in light of the relevant provisions of the Act.In conclusion, the Tribunal allowed the appeal for statistical purposes and directed the ld. CIT(A) to reconsider the appeal in light of the provisions of the Act after affording the appellant a reasonable opportunity to be heard.