Utilisation of accumulated surplus under section 11(3): amendment applies prospectively from AY 2023-24, prior sixth-year use upheld

Amendment to section 11(3) introduced by Finance Act 2022 operates prospectively, with the five-year limit on application of accumulated income applying only from AY 2023-24; utilisation of accumulation in the sixth year under the pre-amendment regime is therefore permissible, and an assessment addition imposed by the CPC on that basis was deleted, resulting in allowance of the appeal. Reliance was placed on earlier decisions holding substantive amendments lacking explicit retrospective intent apply prospectively, supporting deletion of the impugned addition and vindicating pre-amendment utilisation rights.

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Issues: (i) Whether deduction under section 11(3) of the Income-tax Act, 1961 is allowable for utilisation in FY 2022-23 of surplus accumulated under section 11(2) in earlier years despite the amendment made by the Finance Act, 2022; (ii) Whether the addition/adjustment made by the Central Processing Centre under section 143(1) of the Income-tax Act, 1961 to tax such utilisation was permissible.

Issue (i): Whether the amended proviso to section 11(3) introduced by the Finance Act, 2022 applies retrospectively to disallow utilisation in the sixth year or applies prospectively with the five-year limitation from year of accumulation.

Analysis: The Tribunal analysed coordinate bench decisions and held that the Finance Act, 2022 amendment is substantive and is not intended to operate retrospectively. The Tribunal applied precedent that substantive amendments operate prospectively unless legislature expressly provides otherwise. On facts, the utilisation claimed in FY 2022-23 of surplus accumulated earlier fell within the pre-amendment regime and thus could not be denied by applying the amended five-year restriction retrospectively.

Conclusion: Deduction under section 11(3) for the utilisation claimed is allowable; the amendment of Finance Act, 2022 does not retrospectively displace the claim. This conclusion is in favour of the assessee.

Issue (ii): Whether the adjustment made by the Central Processing Centre under section 143(1) to tax the utilisation was valid in law.

Analysis: The Tribunal examined the nature of the claim and the use of assessment processing adjustments. It noted that the issue involved a debatable question of law and that the amended provision could not be invoked retrospectively via processing under section 143(1). The coordinate decisions relied upon support that such additions under section 143(1) could not be sustained in the circumstances.

Conclusion: The addition/adjustment made under section 143(1) is not sustainable and is deleted. This conclusion is in favour of the assessee.

Final Conclusion: The appeal is allowed and the addition made by the Central Processing Centre under section 143(1) and confirmed on appeal is deleted; the assessee's claim for deduction under section 11(3) is upheld.

Ratio Decidendi: A substantive amendment to a provision of law operates prospectively from the stated effective assessment year and cannot be applied retrospectively to deny an assessee's claim arising under the unamended law; consequently, utilisation of accumulated income under section 11(2) claimed in FY 2022-23 cannot be disallowed by invoking the Finance Act, 2022 amendment via section 143(1) processing.

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