M/s. Million Sparks Foundation vs Income Tax Officer

“3.

As those provisions stand today and post the amendments which came to be introduced in the Act and the Income Tax Rules, 1962³, Form 10 is liable to be submitted electronically by virtue of Rule 17(3) thereof.

4.

From the facts which have remained uncontroverted it would transpire that the petitioner had duly submitted both Forms 10 and 10B before the Assessing Officer⁴ prior to the completion of assessment proceedings albeit after the last date for the furnishing of a return in terms of Section 139(1). The accumulations under Section 11(2) were also duly accepted in the order of assessment which ultimately came to be framed on 01 December 2018.

5.

The reassessment action, however, is premised on Form 10 having not been submitted within the time prescribed under Section 139(1) and the petitioner having failed to obtain condonation of delay on account of a belated filing of Form 10.

……..

13.

It becomes necessary to note that prior to the said provision coming to be recast by virtue of the amendments introduced by Finance Act, 2015⁸, clause (a) of Section 11(2) read as under:-

"(a)

such person specifies, by notice in writing given to the Assessing Officer in the prescribed manner, the purpose for which the income is being accumulated or set apart and the period for which the income is to be accumulated or set apart, which shall in no case exceed ten years;"

14.

The requirement of Form 10 being digitally filed appears to have been introduced for the first time by virtue of Rule 17 as it came to exist on the statute book pursuant to the Income-tax (1st Amendment) Rules, 2016⁹ and which came into effect from 01 April 2016. Rule 17(3) as introduced then has remained unchanged thereafter.

……….

28.

In our considered opinion, an action for reassessment would have to be based on the formation of an opinion that income chargeable to tax has escaped assessment. That primordial condition would clearly not be satisfied on the mere allegation of a delayed digital filing of Form 10.

29.

Quite apart from the above, we also bear in mind the underlying intent of Section 11(2) and the submission of Form 10 in connection therewith which were aspects succinctly explained by the Supreme Court in Commissioner of Income-tax v. Nagpur Hotel Owners' Assn. (2001) 2 SCC 128/[2001] 114 Taxman 255/247 ITR 201 (SC) . The Bench of three learned judges in Nagpur Hotel Owners' Assn. (supra) rendered the following pertinent observations:-

"6.

It is abundantly clear from the wordings of sub-section (2) of Section 11 that it is mandatory for the person claiming the benefit of Section 11 to intimate to the assessing authority the particulars required, under Rule 17 in Form 10 of the Act. If during the assessment proceedings the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation arises from Section 11 and is subject to the conditions specified therein. Therefore, it is necessary that the assessing authority must have this information at the time he completes the assessment. In the absence of any such information, it will not be possible for the assessing authority to give the assessee the benefit of such exclusion and once the assessment is so completed, in our opinion, it would be futile to find fault with the assessing authority for having included such income in the assessable income of the assessee. Therefore, even assuming that there is no valid limitation prescribed under the Act and the Rules even then, in our opinion, it is reasonable to presume that the intimation required under Section 11 has to be furnished before the assessing authority completes the assessment concerned because such requirement is mandatory and without the particulars of this income the assessing authority cannot entertain the claim of the assessee under Section 11 of the Act, therefore, compliance with the requirement of the Act will have to be any time before the assessment proceedings. Further, any claim for giving the benefit of Section 11 on the basis of information supplied subsequent to the completion of assessment would mean that the assessment order will have to be reopened. In our opinion, the Act does not contemplate such reopening of the assessment. In the case in hand it is evident from the records of the case that the respondent did not furnish the required information till after the assessments for the relevant years were completed. In the light of the above, we are of the opinion that the stand of the Revenue that the High Court erred in answering the first question in favour of the assessee is correct, and we reverse that finding and answer the said question in the negative and against the assessee. In view of our answer to the first question, we agree with Mr Varma that it is not necessary to answer the second question on the facts of this case.

7.

In view of the above findings of ours, the second question referred will not arise for consideration. Accordingly these appeals are allowed."

30.

Of equal significance is the judgment rendered by a Division Bench of our Court in Commissioner of Income-tax v. Contimeters Electricals (P.) Ltd. 2008 SCC Online Delhi 1458/[2009] 178 Taxman 422/317 ITR 249 (Delhi) and where the Court had observed:-

"8.

In view of this long line of decisions of various High Courts in considering the provisions of section 80J(6A) which are similar to the provisions of section 80-IA(7), we feel that the Tribunal has arrived at the correct conclusion that the requirement of filing the audit report along with the return is not mandatory but directory and that if the audit report is filed at any time before the framing of the assessment, the requirement of section 80-IA(7) would be met."

31.

While we are conscious that the judgments in Nagpur Hotel Owners' Assn. as well as Contimeters Electricals P. Ltd. were rendered prior to the promulgation of the 2015 Act and the 2016 Amendment Rules, the said decisions clearly underline the importance of due disclosure as opposed to adherence to the mere procedural requirements of the digital filing of a form.

32.

We further note that a Division Bench of the Gujarat High Court has in its decision rendered after the insertion of the 2015 Act and the 2016 Amendment Rules in Association of Indian Panelboard Manufacturer v. Deputy Commissioner of Income-tax 2023 : GUJHC : 27028-DB/[2023] 157 taxmann.com 550 clearly held that the electronic submission of Form 10B is essentially a matter of procedure as opposed to being a mandatory condition which may be recognized to form part of substantive law. We deem it apposite to extract the following passages from that decision:-

"5.4

Recollecting the relevant dates, the income was filed on 31.8.2018. On 15.3.2019 Form 10B was filed electronically. On 7.12.2019 intimation under Section 143(1) of the Act was given to the appellant that the exemptions were denied, while processing the return of income on the ground that alongwith the return of income Form 10B was not filed.

5.5

It is to be observed in the present case that the Form D- the audit report, though was not filed with the return of income, the same was available with the Assessing Officer when he processed the return of income under Section 143(1) of the Act. The conditions for claiming exemption under Section 11 was satisfied. Although the requirement of furnishing report was mandatory, filing thereof is a procedural aspect. Even though the Form 10B was filed at a later stage, when it was part of the record of the Assessing Officer in course of the processing of the return of income, the Assessing Officer could not have denied the exemption claimed by the assessee under Sections 11(1) and 11(2) on the ground that the audit report was not filed.

5.6

The tribunal further committed an error in appreciating the import of Section 119 2(b) of the Act inasmuch as the application contemplated thereunder is only additional remedy for the assessee which could not be said to be compulsorily resorted to by the assessee. The circular No.7/18 dated 20.12.2018 issued under Section 119 of the Act could not be, therefore said to have taken away the appellate remedy.

5.7

The tribunal misdirected itself in yet another way when it observed that The Finance Act, 2015 with effect from 1.4.2016, that is from assessment year 2016-17 changed the legal position. There is no such change which could be said to have altered the legal position. The only change is with regard to compulsory filing of audit report in Form 10B in electronically form which is made mandatory under Rule 12 (2) of the Income Tax Rules, 1962 but there is no change with regard to the substantive law about filing of audit report as stated above.

6.

The moot aspect thus centres around to the requirement of the availability of the audit report when the assessment was undertaken by the Assessing Officer even though the same may not have been filed along with the return of income. Filing of audit report is held to be substantive requirement but not the mode and stage of filing, which is procedural. Once the audit report in Form 12B is filed to be available with the Assessing Officer, before assessment proceedings take place, the requirement of law is satisfied. In that view, the Income Tax Tribunal was not justified in dismissing the appeal of the assessee.

6.1

The appellant assessee has to be held to be eligible and entitled to exemptions under Section 11(1) and 11(2) of the Act and the alleged ground of non-filing of audit report alongwith return of income which was at the best procedural omission, could never to an impediment in law in claiming the exemption.

6.2

Accordingly the substantial questions of law have to be decided in favor of the appellant.

7.

They are accordingly decided. The appeal is allowed."

33.

Though rendered in the context of Form 10B, in our considered opinion, the legal position as enunciated in the aforesaid judgment would equally apply to the submission of Form 10.

34.

We, accordingly, allow the instant writ petition and quash the impugned order under Section 148A (d) dated 31 March 2023 and the consequent initiation of reassessment proceedings through notice under Section 148 of the Act of even date.”

“10.

We have heard the learned Counsel for the parties. From the record, we find that the delay has been explained by the Petitioner on the basis that Assessment Year 2018-19 was the first year after the amendment brought in by the Finance Act, 2015, with effect from 1st April 2016, when the Petitioner had accumulated the income under Section 11(2) of the Act. It bonafide believed that the said Form could be filed during the assessment proceedings, which is also shown by the fact that the notice under Section 143(2) selecting the said Return of Income for scrutiny, was issued on 22nd September 2019, and the said Form has been electronically filed on 25th September 2019. This fact relating to the accumulation of income formed part of the Return of Income filed on 22nd October 2018. It has been duly supported by a resolution passed by the Petitioner's Board of Directors and an Audit report in Form No. 10B given by its statutory Auditor. Therefore, this was not a new claim raised for the first time by filing Form No. 10 on 25th September 2019, but represented a claim which was always made and stood duly supported by documents which existed from a point of time before the due date for filing of the Return of Income. Further, the substantive requirements to be fulfilled while claiming the benefit of Section 11(2) of the Act viz., investment of the accumulated amount in accordance with Section 11(5) and its application towards its objects within the stipulated time, also stood fulfilled. In such circumstances, we are of the opinion that a liberal view needs to be taken and, hence, the delay in filing Form No. 10 for the year under consideration needs to be condoned.”