ITAT Ahmedabad: Unutilised Section 11(2) Accumulation Taxable; Fresh Claim Amounts to Double Deduction

April 1, 2026 : The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that income accumulated by a charitable entity under Section 11(2) of the Income Tax Act, 1961, which remains unutilised within the prescribed five-year period, becomes taxable in the year of expiry. The Tribunal further ruled that claiming exemption again on such accumulated income amounts to impermissible double deduction.

The ruling came in the case of Deputy Commissioner of Income Tax (Exemptions) v. State Examination Board, where the Tribunal allowed the Revenue’s appeal and restored the addition of ₹3.32 crore made by the Assessing Officer for Assessment Year 2017–18.

The dispute arose from an amount of ₹5.60 crore accumulated by the assessee in Assessment Year 2012–13 under Section 11(2). Out of this, ₹3.32 crore was claimed as application of income in AY 2017–18. The Assessing Officer held that since the entire accumulated amount had already been claimed as exempt in the year of accumulation, the subsequent claim constituted double deduction.

The Tribunal examined the Form 10B for AY 2012–13 and noted that the assessee had indeed claimed exemption on the full accumulated amount of ₹5.60 crore and invested it in specified modes, including fixed deposits, in compliance with statutory requirements (as reflected on pages 2–3 of the order).

Rejecting the assessee’s contention that ₹3.32 crore had been applied during the relevant year, the Tribunal recorded two key findings. First, there was no evidence to rebut that exemption had already been claimed in AY 2012–13. Second, the financial statements showed that the amount was not actually utilised during the year. The consolidated income and expenditure account (reproduced on page 4) indicated that current-year income was sufficient to meet expenses, while the disputed amount remained unspent and was carried forward in reserves (as further analysed on page 6).

The Tribunal emphasized that the closing balance of general reserves included the unutilised ₹3.32 crore, demonstrating that it had not been applied for charitable purposes during the year.

Referring to Section 11(3), the Bench held that accumulated income not utilised within the specified period is deemed to be income of the year in which the period expires. Since the amount remained unutilised up to AY 2017–18, being the last year of the five-year window, it was liable to tax in that year (as discussed on page 7 of the order).

Accordingly, the Tribunal concluded that the ₹3.32 crore “needed to be added to the income of the assessee” and set aside the order of the Commissioner of Income Tax (Appeals), restoring the addition made by the Assessing Officer.

Coram: Sanjay Garg (Judicial Member) and Annapurna Gupta (Accountant Member)
Case No.: ITA No. 1505/Ahd/2025 (AY 2017–18)