ITAT: Accumulated Income Not Used Within 5 Years Becomes Taxable

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has ruled in favour of the Income Tax Department by setting aside CIT(A)’s order allowing the claim of Rs 3.32 crores.

The respondent assessee, the State Examination Board, had claimed an exemption of Rs 5.60 crore on account of accumulation in AY 2012-13. In AY 2017‑18, the assessee again claimed Rs 3.32 crore, saying that it had applied Rs 3.32 crore for charitable purposes.

The AO noted that Rs 3.32 crore out of the accumulated amount was a double deduction claimed by the assessee again in A.Y. 2017-18. However, CIT(A) held that the assessee’s claim of Rs 3.32 crore was correct.

The ITAT agreed with the tax department, noting that the Board had already claimed exemption of Rs 5.60 crore in 2012-13. Claiming Rs 3.32 crore again in 2017-18 was not allowed.

The amount was credited to the consolidated income and expenditure account by the assessee. It was observed that the said amount was not even used by the assessee and was being carried forward in the closing balance of the general reserve of the Board.

The tribunal also cited Section 11(3) of the Income Tax Act, which clarifies that if accumulated funds are not used within 5 years, they become taxable. As this amount remained unused, it was treated as income in 2017-18.

As a result, the tribunal set aside the CIT(A)’s order of allowing the exemption of Rs 3.32 crores claimed by the assessee. The tribunal allowed the appeal of the revenue.