A legislative amendment must not create impossible scenarios for legal compliance, particularly in tax utilization timelines under charitable trust provisions.

ORDER

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

This appeal is filed by the assessee against the order of National Faceless Appeal Centre (NFAC) [hereinafter referred as ‘CIT(A)’] dated 29.03.2025 for the Assessment Year (A.Y.) 2023-24 in the proceeding under Section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).

2. The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2023-24 on 09.10.2023 declaring income of Rs.5,38,930/-. The assessee is a Trust eligible for deduction under Section 11 of the Act. The assessee had accumulated an amount of Rs.4,60,000/- in the Financial Year 2016-17 which was required to be utilised within a period of five years as provided under Section 11 (2) of the Act. In the return of income for the A.Y. 2023-24, the assessee had shown utilisation of Rs.2,32,073/- out of the funds accumulated during the Financial Year (F.Y.) 2016-17 and the balance unutilised amount of Rs.2,27,927/- was offered for tax. The CPC while processing the return for the A.Y. 2023-24 had communicated an error in respect of the utilised amount of Rs.2,32,073/-. As per the communication of the CPC, the income accumulated under Section 11 (2) of the Act during the F.Y. 2016- 17 was required to be utilised on or before 31.03.2022 (within 5 years). Since the amount of Rs.2,32,073/- was utilised by the assessee beyond the period of five years, the same was held as not eligible for deduction. Accordingly, adjustment of Rs.2,32,073/- was made while processing the return under Section 143(1) of the Act.

3. Aggrieved with the adjustment made while processing the return, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.

4. Now, the assessee is in second appeal before us. The following grounds have been taken in this appeal: -

“1. The learned CIT(Appeals) has erred in fact and in law by refusing to delete the addition u/s.115BBI made by the AO reg. disallowance of the utilisation of Rs.2,32,073/- for the specified purpose in FY 2002-23 out of the income accumulated under Section 11 (2) in FY 2016-17

2. 2.1 The ld. CIT-Appeals has overlooked the fact that the amendment in Section 11 (3)(c) omitting the words “or in the year immediately following the expiry thereof” is substantive in nature which affects the legally conferred rights of the assessee and is not intended to be retrospectively effective, and our claim for utilization made in FY 2022-23 is justified and within the law.

2.2. The ld. CIT-A has wrongly held that the amendment in section 11(3)(c) made by Finance Act 2022 w.e.f.1-4-2023 in curtailing one year from the period of utilization of accumulation of income u/s.11(2) does not create a new obligation but merely strengthens the time limit for an existing obligation with an intent to ensure strict compliance with the time limit.

3. The ld. CTT-A erred in holding that the original provision U/s.11(2) r.w.s 11(3) mandated utilization within five years and additional one year was provided as a mere grace period which was only a concession and not a right.

4 The ld. CIT-A has completely overlooked our submission that the amended provision u/s.11(3)(c) was not in existence upto the end of FY 2021-22 and so it was impossible for the assessee to utilize the amount accumulated in FY 2016-17 by 31 March 2022 so as to avoid the rigors of Sec.11(3) and Sec.115BBI. Thus, the legal maxim lex non cogit ad impossibillia is squarely applicable in the present case.

5. The id. CIT-A has erred in law and in facts in rejecting our groun