Facts of the Case

The assessee, a registered educational and charitable society, reported substantial gross receipts during the relevant assessment year. After incurring revenue expenditure and capital spending, the society accumulated a portion of its income for specified purposes under Section 11(2) of the Income-tax Act, 1961.

During assessment proceedings, the Assessing Officer observed that:

·         Form No. 10 (required for accumulation under Section 11(2)) was not furnished, and

·         The assessee failed to establish that the accumulated funds were invested in prescribed modes under Section 11(5).

Issues Involved

1.      Whether accumulation of income under Section 11(2) is allowable without furnishing Form No. 10.

2.      Whether exemption can be denied solely due to non-production of documentary evidence.

3.      Whether verification of compliance under Section 11(5) regarding investment of accumulated funds is necessary before denying exemption.

Petitioner’s Arguments (Assessee)

·         It is an educational society whose income has historically been treated as exempt.

·         Form No. 10 had been filed within the prescribed time, but supporting records could not be produced due to loss of documentation.

·         The society had subsequently been granted exemption under Section 10(23C)(vi), reinforcing its charitable character.

·         The matter deserved reconsideration in light of its status and past treatment.

Respondent’s Arguments (Revenue)

·         Eligibility for exemption is distinct from compliance with statutory conditions.

·         Mandatory procedural requirements for accumulation under Section 11(2), including filing Form No. 10, were not fulfilled.

·         There was no evidence that the accumulated funds were invested in approved modes under Section 11(5).

·         Therefore, the addition made by the Assessing Officer was justified.

Court Order / Findings (ITAT Allahabad)

The Tribunal held that compliance with statutory conditions governing accumulation of income by charitable institutions must be verified before granting exemption.

However, considering the submissions made by the assessee and the possibility that compliance may exist but was not properly examined, the Tribunal deemed it appropriate to restore the matter to the Assessing Officer for fresh verification.

·         The addition was not finally sustained or deleted.

·         The case was remanded for examination of whether Form No. 10 was filed and whether investments complied with Section 11(5).

The Tribunal emphasized that exemption cannot be granted automatically without verifying statutory compliance.

 Important Clarification

·         Procedural compliance (such as filing Form No. 10) is a statutory requirement for accumulation of income under Section 11(2).

·         Mere charitable status does not automatically entitle an institution to exemption.

·         At the same time, exemption should not be denied without providing an opportunity to substantiate compliance.

Link to download the order –

https://itat.gov.in/public/files/upload/1545220221-HINDI-336(TAX).pdf

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