Summary: In the case of Associated Chambers of Commerce And Industry of India Vs Deputy Commissioner of Income Tax & Ors. , the Delhi High Court quashed the reopening of tax assessment for FY 2016-17. The petitioner, a Section 8 company registered under Section 12AA of the Income Tax Act, had electronically submitted Form 10 and Form 10B to the Assessing Officer before the assessment completion, although after the Section 139 deadline. Despite the Assessing Officer accepting the accumulation under Section 11(2) in the final assessment order, reassessment proceedings were initiated due to the late submission. The court found this action unjustified, especially in light of CBDT Circular No. 7/2018, which acknowledged difficulties with the new e-filing system and permitted belated submissions with valid reasons. The court emphasized that reassessment should be based on income escaping assessment, not merely on procedural delays. The writ petition was allowed, and the reassessment notice under Section 148 was quashed, reinforcing the principle that technical delays should not override substantive compliance in tax assessments.
1. The writ petitioner is a Section 8 company and registered under section 12AA of the Income Tax Act, 1961 who challenges the reopening of tax assessment for FY 2016-17.
2. The tax authorities have started reassessment proceedings against the petitioner because they failed to submit Form 10 by the deadline set under Section 139 of the Income Tax Act. Forms 10 and 10B are required by Sections 11(2) and 12-AA of the Act. Filing Form 10 is necessary when an organization involved in charitable or religious activities has not used 85% of its income for those purposes, as mentioned in Section 11(1). Instead, the organization has decided to save that income for future use.
3. As the law currently stands, after amendments to the Income Tax Act and Rules, Form 10 must be submitted electronically under Rule 17(3).
4. The petitioner submitted Forms 10 and 10B to the Assessing Officer before the assessment was completed, though after the Section 139(1) deadline. The accumulations under Section 11(2) were accepted in the final assessment order dated December 1, 2018.
5. The reassessment is based on Form 10 being filed late and the petitioner not getting approval for the delay.
6. The petitioners argue that the reassessment action is arbitrary because they had submitted the required forms before the Assessing Officer (AO). They assert that the digital submission of Form 10 was only a procedural formality and that any issues with uploading Form 10 on the online portal were recognized by the Central Board of Direct Taxes in Circular No. 7/2018. This Circular required assessing authorities to consider if the assessee faced reasonable difficulties in electronically filing Form 10.
7. The writ petitioner argues that if the Assessing Officer had properly reviewed the disclosures under Section 11(2), there would be no reason to start the contested proceedings.
8. For the challenge raised, it’s important to note that after the petitioner submitted their return on October 1, 2016, a Section 143(2) notice was issued on July 10, 2017. Additionally, notices under Section 142(1) with questionnaires were sent on May 1, 2018, and September 15, 2018. The petitioner responded to these notices on October 15, 2018, and November 26, 2018..
9. The writ petitioner, despite missing the deadline for electronically uploading Form 10 under Section 11(2), completed e-filing on October 5, 2018, and submitted it along with their reply on October 15, 2018. The assessment was completed, and an order was issued on December 1, 2018. The Assessing Officer accepted the income accumulation under Section 11(2) as reflected in the assessment order.
10. On March 10, 2023, a Show Cause Notice under Section 148A(b) was issued. It stated that the petitioner’s return for the year, initially filed with NIL income, was later assessed at ₹7,12,75,688 on December 1, 2018. The audit revealed an accumulation of ₹2,00,00,000 under Section 11(2) for which only ₹1,96,60,814 was claimed. Since Form 10 was filed late, beyond the due date of October 17, 2016, without obtaining a delay condonation, the petitioner failed to comply with Section 13(9)(i). Consequently, the claim for accumulation under Section 11(2) was denied, and ₹1,96,60,814 was proposed to be added to the total income.
11. The petitioner responded to the Show Cause Notice on March 20 and 24, 2024, disputing the reassessment. The Assessing Officer, in the order under Section 148A(d), rejected these objections. They concluded that the late filing of Form 10 on October 5, 2018, was not excused by the petitioner’s claim that the digital process was new and unclear. The AO noted that no application for condonation of delay was filed, and emphasized that under Section 13(9) (introduced by the Finance Act 2015), timely submission of Form 10 was mandatory. Consequently, the case was deemed fit for reassessment, as income of ₹1,96,60,814 for AY 2016-17 had escaped assessment.
12. Under Section 11(2), an entity seeking to avoid taxation on 85% of its income, which is not used for charitable purposes, must submit a statement to the Assessing Officer. This statement should detail the purpose for accumulating the income and the investment methods used, and must be provided at least two months before the due date for filing the income tax return. The accumulated income must be invested in specified forms or modes and can be accumulated for up to five years, excluding any period affected by court orders.
13. Before the 2015 Finance Act amendments, Section 11(2)(a) required that a person specify in writing to the Assessing Officer the purpose and period (up to ten years) for which the income was being accumulated or set apart.
14. The requirement to file Form 10 digitally was introduced by Rule 17, effective from April 1, 2016, under the Income-tax (1st Amendment) Rules, 2016. This rule has not changed since its introduction.
15. Rule 17, introduced by the Income-tax (1st Amendment) Rules, 2016, mandates that from April 1, 2016, the option under Section 11(1) be filed in Form No. 9A, and the statement under Section 10(23C) or Section 11(2) be filed in Form No. 10, both electronically with a digital signature or electronic verification code. The Principal Director General of Income-tax (Systems) oversees the procedure, data standards, and security for these electronic filings
16. The CBDT issued a Circular recognizing representations about the new e-filing requirements effective from April 1, 2016. The representations requested the CBDT to condone delays in e-filing Form 10, citing the Board’s powers under Section 119(2)(b) of the Act.
17. The CBDT Circular No. 7/2018, dated December 20, 2018, addressed delays in e-filing Form 10 and Form 9A for AY 2016-17, the first year of e-filing. It authorized Commissioners of Income-tax to accept belated submissions if the assessee was prevented by reasonable cause from filing on time. The Circular required Commissioners to verify the reasons for the delay and ensure that accumulated amounts were invested as specified in Section 11(5).
18. Mr. Jain, the petitioner’s counsel, argued that since Form 10 was submitted electronically on October 5, 2018, before the original assessment was completed, reopening the assessment on the grounds of a technical delay in e-filing was unjustified.
19. The counsel argued that the CBDT Circular acknowledged the digital submission issues for Form 10 for AY 2016-17 and allowed belated submissions with a valid cause. Since the accumulation under Section 11(2) was accepted in the December 1, 2018, assessment order, reopening the assessment on the basis of a technical delay is unjustified.
20. Mr. Chandra, representing the respondents, argued that Section 11(2)(c) and Rule 17 clearly require Form 10 to be filed before the return due date under Section 139. Given the petitioner’s failure to file Form 10 at least two months before this deadline, he contended there was sufficient grounds to invoke Section 148 of the Act.
21. Mr. Chandra highlighted that according to Paragraph 16 of the counter affidavit, the CPC clarified via mail on December 27, 2023, that Form 10 was available for e-filing for AY 2016-17. The CPC’s database showed that the form was filed without issues between October 1 and October 31, 2016. Thus, the claim of non-availability of the e-filing facility was deemed baseless.
22. The respondents assert that Form 10 could be filed flawlessly online and cite 3,687 filings between October 1 and October 31, 2016, arguing that the claim of non-availability of the e-filing facility is baseless. The court must determine the validity of these opposing claims.
23. The respondents’ reliance on Paragraph 16 of the counter affidavit is contradicted by the CBDT Circular, which acknowledged issues with digital filing and allowed for delayed submissions due to the new e-filing requirement for AY 2016-17. The CBDT had anticipated assessing authorities would consider reasonable causes for such delays.
24. The respondents’ reference to 3,687 Form 10 submissions in October 2016 lacks context and does not prove the portal’s functionality given the overall tax filings that year totaled 28.2 million. This number does not sufficiently reflect the portal’s performance across all assessees.
25. Section 11(2) requires Form 10 to be “furnished” to the AO. The digital filing requirement for Form 10 was introduced for the first time by the 2015 Act and 2016 Amendment Rules.
26. Before the 2016 Amendment Rules, Section 11(2)(a) only required a written notice to the AO about income accumulation and investment. The digital filing requirement for Form 10 was introduced by the 2016 Amendment Rules, which explains the petitioner’s difficulty in online filing.
27. The reassessment action is based solely on the late submission of Form 10, not on any income escaping assessment or questioning the acceptance of accumulations as per Section 11(2) in the December 2018 assessment order.
28. Reassessment must be based on income escaping assessment, not just on the delay in digital filing of Form 10.
29. The Supreme Court in Nagpur Hotel Owners’ Assn. emphasized that for claiming benefits under Section 11, required information must be provided before the assessment is completed. Filing Form 10 after the assessment is not sufficient for such claims.
30. In Contimeters Electricals P. Ltd., the Court ruled that filing an audit report before assessment, rather than with the return, satisfies the requirements under similar provisions to Section 80-IA(7).
31. While Nagpur Hotel Owners’ Assn. and Contimeters Electricals P. Ltd. were decided before the 2015 Act and 2016 Amendment Rules, they emphasize the importance of substantive disclosure over strict procedural compliance in digital filing.
32. In Association of Indian Panelboard Manufacturer vs. Deputy Commissioner of Income-tax, the Gujarat High Court held that electronic submission of Form 10B is procedural rather than substantive. Despite a delayed submission, the exemption under Sections 11(1) and 11(2) was upheld because the report was available to the Assessing Officer before assessment. The court emphasized that procedural compliance does not override substantive requirements.
33. The legal position in Association of Indian Panelboard Manufacturer vs. Deputy Commissioner of Income-tax, which deemed the electronic submission of Form 10B as procedural, applies similarly to Form 10.
34. The writ petition is allowed, and the order under Section 148A(d) dated 31 March 2023 and the subsequent reassessment notice under Section 148 are quashed.
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