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Non filing of Form 10 within the prescribed time u/s 11(2) 

Exemptions are provided to Charitable & Religious Trusts

1) Unconditionally, u/s 11(1) of the Act to the extent it does not exceed 15% of the income from such property;

2) Conditionally, u/s 11(2) of the Act, without any upper limit on fulfillment of the conditions prescribed in section 11(2).

The Act has prescribed the following conditions u/s 11(2):

1) The assessee furnishes a statement in the prescribed form i.e. Form No.10 and in the prescribed manner ie. only online, to the Assessing Officer, stating 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 five years;

2) The said Form No. 10 must be furnished on or before the due date specified under sub-section (1) of section 139for furnishing the return of income for the previous year

3) The money so accumulated or set apart u/s 11(2) is invested or deposited in the forms or modes specified in Section 11(5);

Thus, if the form No 10 is not submitted on or before the due date specified under Section 139(1) for furnishing the return of income for the previous year then, the exemption will be denied ipso facto.

Whether this exemption will be lost forever or are there any other legal provisions which fortify this exemption?

Well, the provisions of section 11(2) are very clear that exemption will not be granted if Form No. 10 is not submitted within the time prescribed under section 139(1). However, the judiciary has rescued many Charitable or Religious Trust from the draconian effect of this provision by timely intervening in the issue and clarifying the actual applicability of this provision and declaration of law through its Orders.

Charitable Trusts - Requirement of Form No 10 for Exemption us 11(2)- Whether Mandatory Or Directory

Supreme Court:- Nagpur Hotel Owners Association [2001] 247 ITR 201 Dec 2000

a) In the above case the SC has stated that Chapter III of the Act consists of sections 10 to 13A which enumerate various types of income which do not form part of total income for the purpose of levy of tax. From section 11(2) it is abundantly clear from the wording 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 17A in Form No. 10 of the Rules. 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 subjected to the conditions specified therein.

b) 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, the intimation required under section 11(2) has to be furnished before the assessing authority completes the concerned assessment 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.

c) 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 re-opening 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. The exemption u/s 11(2) therefore has to be disallowed.

In the above order, the SC has stated that the intimation required under section 11(2) has to be furnished before the assessing authority completes the concerned assessment, but adds that the compliance with the requirement of the Act will have to be any time before or during completion of the assessment proceedings.

Therefore what is of utmost importance in the above SC order is the meaning of the assessment proceedings i.e. when does the assessment proceedings start and when do they complete.

Assessment Proceedings : generally start with the filing of the ROI. By filing the return of income, the assessee sets in motion the machinery of assessment proceedings. However, where no ROI is filed then the department sets it in motion by issue of a notice under different sections of the Act.  If the assessee does  not prefer any appeal before CIT(A) then also the assessment proceedings remain open till the time prescribed for reopening of the assessment u/s 147 or u/s sec 263 or for rectification u/s 154. If all these time limits have expired then the assessment proceedings come to an end.

The following case laws enlighten various situation wherein the assessment proceedings are deemed to remain open.

Gujarat High Court- Oct 2012)   Even at the stage of appeal, the assessment proceedings could be said to be pending and as such, the details could be furnished even at the stage of appeal.

Madras High Court – August 2016    Appeal proceedings are a continuation of the assessment proceedings and that therefore, the appellate authority can himself enter into the arena of assessment, either by pursuing further investigation or causing further investigation to be done.

Supreme Court 1964  : The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do. It is, no doubt, true, as has been urged by the learned counsel for the Revenue, that the power of the AAC is plenary and co-extensive with that of the ITO.

Madras High Court  August 2016:  While considering the scope and powers of the appellate authority, under the Income Tax Act, 1961, courts have consistently held that the power of the first appellate authority are coterminous with that of the Assessing Officer and that the appellate authority can do what the Assessing Officer ought to have done and also direct the latter to do what he has failed. Appeal is also continuation of original proceedings and unless some fetters are placed upon the powers of the appellate authority by express words, the appellate authority can exercise all the powers as that of the original authority.

Madras High Court in Arulmurugan and Co. [1982] 51 STC 381: Basically, an appeal does not differ from an assessment. Just as is the case with any other appeal under our legal system, an appeal is only a rehearing or a retrial.  In the absence of any statutory inhibitions or restrictions, an appellate authority has precisely the same powers, exercisable or in the same manner and to the same extent, as the assessing authority has, in the first instance.

The power of the appellate authority concerning an assessment under appeal is no different, and not less wide, than the power of the assessing authority to make the assessment in the first instance.

Whatever discretion that is conferred on the assessing authority for purposes of assessment must be deemed to have been conferred on the appellate authority. It goes without saying that an appellate authority is engaged in precisely the same task under the fiscal statute as that of the assessing authority and is possessed of the same powers as those of the assessing authority.

The appellate authority functions, in the very image of the assessing authority. Appellate proceedings are often truly described as an extension of the assessment proceedings, or as a continuation of the assessment proceedings and therefore,  the appellate authority can exercise all the powers as that of the original authority.

The appellate authority can itself enter the arena of assessment, either by pursuing further investigation or causing further investigation to be done. These are special and exceptional attributes of the jurisdiction of a tax appellate authority. These attributes underline the truth that the appellate authority is no different, functionally and substantially, from the assessing authority itself.”

An appellate authority under the taxing enactments sits in appeal, only in a manner of speaking. What it does, functionally, is only to adjust the assessment of the appellant in accordance with the facts on the record and in accordance with the law laid down by the Legislature. An appeal is a continuation of the process of assessment, and an assessment is but another name for adjustment of the tax liability to accord with the taxable event in the particular taxpayer’s case.

These are special and exceptional attributes of the jurisdiction of a tax appellate authority. These attributes underline the truth that the appellate authority is no different, functionally and substantially, from the assessing authority itself.

Can Form No. 10 be submitted during the appellate proceedings Before the CIT(A) 

Here also generally, exemption u/s 11(2) is not granted in view of the Supreme Court Order in the case of Nagpur Hotel Owners Association (247 ITR 201).  However, exceptions have also  been found in this case,  by the use of the words “assessment proceedings.”

Does the CIT (A) has powers to accept Form No. 10 during the course of appellate proceedings.

The power exercisable by the Income-tax Officer is not clothed with any finality, and, in reviewing the order of the Income-tax Officer, the Appellate Assistant Commissioner can exercise the same powers which the Income-tax Officer could himself exercise.

An study of the following case laws will make it clear that the CITA can accept Form 10 even during the appellate proceedings against assessment order of the AO.

Supreme Court- September 4, 1990[1991] 187 ITR 688 (SC), Jute Corporation Of India Limited. The CITA is vested with wide powers under section 251(1)(a) of the Act while hearing an appeal against the order of assessment made by the AO. The amplitude of the power includes power to modify the assessment done by the AO. In the absence of any statutory provision, the general principle relating to the amplitude of the appellate authority’s power being coterminous with that of the initial authority is normally applicable.

Even otherwise, an appellate authority while hearing the appeal against the order of a subordinate authority, has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter.

While considering the scope and powers of the appellate authority, under the Income Tax Act, 1961, courts have consistently held that the power of the first appellate authority are coterminous with that of the Assessing Officer and that the appellate authority can do what the Assessing Officer ought to have done and also direct the latter to do what he has failed. Appeal is also continuation of original proceedings and unless some fetters are placed upon the powers of the appellate authority by express words, the appellate authority can exercise all the powers as that of the original authority.

Narrondas Manordass v. CIT [1957] 31 ITR 909 (Bom) :- CITA has been constituted a revising authority against the decisions of the Income-tax Officer; a revising authority not in the narrow sense of revision what is the subject matter of the appeal, not in the sense of revising those matter about which the assessee makes a grievance, but a revising authority in the sense that once the appeal is before him he can revise not only the ultimate computation arrived at by the Income-tax Officer but he can revise every process which led to the ultimate computation or assessment. In other words, what he can revise is not merely the ultimate amount which is liable to tax, but he is entitled to revise the various decisions given by the Income-tax Officer in the course of the assessment and also the various incomes or deductions which came in for consideration of the Income-tax Officer.

Subbhalakshmi Ammal [1981] 47 STC 269:- Once an appeal against the assessment order is before the Appellate Assistant Commissioner, he can examine the correctness not only of the ultimate computation of tax arrived at by the Income Tax Officer, he can also revise every process which led to the ultimate computation of tax and completion of the assessment. In other words, what he can revise is not merely the ultimate conclusion recorded by the assessing authority as to the quantum of the liability of the assessee to tax, but he is entitled to examine the correctness of every ground stated or decision reached by the Sales Tax Officer in the course of making such assessment.”

The power of the appellate authority concerning an assessment under appeal is no different, and not less wide, than the power of the assessing authority to make the assessment in the first instance. Besides, such power as the appellate authority is empowered to exercise in relation to an assessment under appeal, has got to be exercised only in the same manner and subject to the same conditions, if any, which govern the exercise of the power of assessment by the assessing authority in the first instance.

It follows, therefore, that whatever discretion is conferred on the assessing authority for purposes of assessment must so be regarded, as a matter of statutory construction, to have been conferred on the appellate authority even without the concerned statutory provision expressly naming the appellate authority in that behalf.

It goes without saying that an appellate authority, engaged as it is in precisely the same task under the fiscal statute as that of the assessing authority must also be possessed to like powers as those of the assessing authority. It is implicit in the very nature of the appellate jurisdiction, as well as the purposes for which that jurisdiction is created by the statute, that the appellate authority will have to function, in the very image of the assessing authority. Appellate proceedings are often truly described as an extension of the assessment proceedings, or as a continuation of the assessment proceedings. 

Madras High Court: Shri Chandraprabhuji Maharaj  26 July, 2019:-  The Apex Court in  Nagpur Hotel Owners Association (247 ITR 201) has held that in the said decision, it was pointed out that it is necessary that the Assessing Officer must have information as required under Rule 17 by furnishing Form No.10 and this information should be available with the Assessing Officer at the time when he completes the assessment failing which the benefit of such exclusion can’t be granted. However, the Apex Court further stated that the compliance of the requirement of the Act will have to be any time before the assessment proceedings are completed

Thus, when the assessee was entitled to a statutory benefit, it would be incumbent upon the concerned authority to examine the admissibility of the benefit than to foreclose the assessee on technicalities.

Sakal Relief Fund (295 CTR 561) Bom:  it was held that even if the Form No.10 is filed during the re-assessment proceedings, the benefit of accumulation under Section 11(2) of the Act is available.

AKS Alloys Pvt Ltd (18 Taxmann 25 Mad):-  It was held that for claiming deduction under Section 80-IB, audit report in Form 10CCB can be filed before the assessment is completed, if the same has not been filed along with the return of income. This decision was affirmed by the Honorable Supreme Court in G.M.Knitting Industries Pvt Ltd., 376 ITR 456. Though the case arose out of non-filing of audit report in Form 10CCB to claim deduction under Section 80-IB of the Act, the ratio laid down in the decision squarely applies to the case on hand.

Bombay High Court [2015] 378 ITR 103 (Bom):  The appellate proceedings before the Commissioner of Income Tax are a continuation of the assessment and, therefore, late filing of these documents would not disable the assessee from benefits of section 11. If the assessee was required to file Form 10 and other documents before the completion of the assessment and in this case there is only a technical plea raised by the Revenue, then, that should not take away a benefit accruing to the assessee in law.

Gujarat High Court  December 22, 2020:  We may also refer to the decision of this Court in Gujarat Oil and Allied Industries Limited [ Sep. 1992  wherein it is held that the provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income but produced the same before the completion of the assessment.

This Court took the view that the benefit of exemption should not be denied merely on account of delay in furnishing the same and it is permissible for the assessee to produce the audit report at a later stage either before the Income Tax Officer or before the appellate authority by assigning sufficient cause.

R. Seshammal Madras High Court (187 of 237 ITR): This is hardly the manner in which the State is expected to deal with the citizens, who in their anxiety to comply with all the requirements of the Act pay monies as advance tax to the State, even though the monies were not actually required to be paid by them and there after seek refund of the monies so paid by mistake after the proceedings under the Act are dropped by the authorities concerned. The State is not entitled to plead the hyper technical plea of limitation in such a situation to avoid return of the amounts.

Gujarat High Court (1993) 201 ITR 325:  In this case it was held that the provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income but produced the same before the completion of the assessment.

Gujarat High Court October 2012   The assessment proceedings cannot be said to be complete and are pending till the appeal is heard and disposed of by the Tribunal and accordingly held that the Tribunal was justified in considering a new ground by the assessee claiming benefit under section 11 during the course of the appeal

It was submitted that the court had considered the decision of the Supreme Court in the case of C.I.T. vs. Nagpur Hotel Owners’ Association (supra) and had held that the Apex Court had stated that the details have to be furnished before completion of the assessment proceedings and any information supplied subsequent to the completion of assessment cannot be taken into consideration. It was pointed out that in the facts of the said case, the court had held that even at the stage of appeal, the assessment proceedings could be said to be pending and as such, the details could be furnished even at the stage of appeal.

Delhi High Court [2005] 278 ITR 260 :-  The Supreme Court in the case of Commissioner of Income Tax V. Nagpur Hotel Owners Association (247 ITR 201) considered the question of whether the prescription of Form 10 for the purpose of accumulation under section 11(2) was mandatory or directory. The conclusion was that the requirement of filing Form 10 at the time of assessment was only directory and it would suffice if the same were filed even thereafter so long as relevant information in support of the claim of accumulation was furnished by the assessee even at the time of assessment

Madras High Court  2020 (3):-   That apart, as long as the entitlement of the assessee regarding setting-apart of the accumulated profit is not doubted, no addition can be made on the pretext that Form No.10 was filed belatedly.

Income Tax Appellate Tribunal – Mumbai 14 July, 2017-:      If the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes.

Bombay High Court 349 ITR 336 (Bom) June 21, 2012

Admissibility of claim of deduction not made in the original return and not supported by a revised return –  Held that:- Even assuming that the AO is not entitled to grant a deduction on the basis of a letter requesting an amendment to the return filed, the appellate authorities are entitled to consider the claim and to adjudicate the same – The declaration of law is clear that the power of the Appellate Assistant Commissioner is coterminous with that of the Income Tax Officer, if that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer.

Thus, the principle emerging from the aforenoted pronouncements of the Supreme Court is, that the first appellate authority is vested with very wide powers under section 251(1)(a) of the Act and once an assessment order is brought before the authority, his competence is not restricted to examining only those aspects of the assessment about which the assessee makes a grievance and ranges over the whole assessment

A perusal of section 251(1) competence of CITA  is not restricted to dealing with the subject-matter of appeal, he may examine all matters covered by the assessment order and correct the assessment in respect of all such matters even to the prejudice of the assessee and may remand the case to the Income-tax Officer for inquiring into items which were not the subject-matter of appeal

Bombay High Court;  [1983] 141 ITR 326,    In appeal, therefore, the competence of the AAC ranges over the whole assessment proceedings which are thrown open, as they were before the ITO, without any restrictions on him to consider only those matters raised before him in appeal by the assessee. His jurisdiction was, therefore, not confined to the subject matter of the appeal but extended to the subject-matter of assessment.

Jammu And Kashmir High Court ;August 9, 1999 [2001] 248 ITR 333  An appeal is a continuation of the process of assessment, and an assessment is but another name for adjustment of the tax liability to accord with the taxable event in the particular taxpayer’s case.

Bombay High Court – April 3, 2017:   It is in the context of the finding of the Apex Court in Nagpur Hotel Owners’ Association, that it is observed that Form 10 has to be filed before completion of Assessment Proceedings. In fact, the Delhi High Court in the case of Association of Corporation and Apex Societies of Handlooms has also relied upon and so understood the decisions of the Apex Court in Nagpur Hotel Owners’ Association

Bombay High Court  [2015] 378 ITR 103 (Bom):–  The appellate proceedings before the Commissioner of Income Tax are a continuation of the assessment and, therefore, late filing of these documents would not disable the assessee from benefits of section 11.

Gujarat High Court 22-12-20    We may also refer to the decision of this Court in CIT v. Gujarat Oil and Allied Industries Limited wherein it is held that the provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income but produced the same before the completion of the assessment.

Karnataka High Court  [2017] 394 ITR 236    If the matter is considered in light of the decision in the case of Mayur Foundation Gujarat High Court  and is considered that the appeal is a continuous proceeding, it cannot be said that the CIT (Appeals) had no authority to accept Revised Form No.10 nor can it be said that Revised Form No.10 could not at all be considered for allowing the claim made under Section 11(2) of the Act. That apart, as long as the entitlement of the assessee regarding setting-apart of the accumulated profit is not doubted, no addition can be made on the pretext that Form No.10 was filed belatedly.

Rajasthan High Court  January 7, 2019    In the case of Anjuman Moinia Fakharia, reported in (1994) 208 ITR 568 (Raj) this Court has held as under :-

From the circular issued by the Department dated June 3, 1980 and the judgment of the apex court referred to above, it can be considered that the requirement to prescribe the time-limit is only directory and not mandatory. Non-compliance within the stipulated time should not disentitle an assessee from the exemption to which he is otherwise entitled.

The Income Tax Officer has rejected the claim of the assessee only on the ground that the notice for accumulation under Section 11(2) is beyond time. The Appellate Assistant Commissioner has examined this matter and has observed that the Income Tax Officer has not doubted the correctness of the resolution or the accounts of the trust and for that purpose the Income Tax Officer was directed to verify the assessee’s claim and allow the exemption in respect of accumulations as claimed by the assessee.

Thus, from a study of the above decisions of the Supreme Court and various High courts, it can be concluded as under: 

1) Basically, an appeal does not differ from an assessment. Just as is the case with any other appeal under our legal system, an appeal is only a rehearing or a retrial. In the absence of any statutory inhibitions or restrictions, an appellate authority has precisely the same powers, exercisable or in the same manner and to the same extent, as the assessing authority has, in the first instance.

2) CITA has been constituted a revising authority against the decisions of the Income-tax Officer

3) Appeal proceedings are a continuation of the assessment proceedings and that therefore, the appellate authority can himself enter into the arena of assessment, either by pursuing further investigation or causing further investigation to be done. 

4) The scope of CITA’ s power is coterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do

5) Even at the stage of appeal, the assessment proceedings could be said to be pending and as such, the details (Form 10) could be furnished even at the stage of appeal.

6) As long as the entitlement of the assessee regarding setting-apart of the accumulated profit is not doubted, no addition can be made on the pretext that Form No.10 was filed belatedly.

7) Provision regarding furnishing of audit report in Form 10B ( and for that matter Form No.10 also) with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. 

8) Form No. 10 can also be submitted during the appellate proceedings before the CITA

THE END

This write up is strictly for personal use and also for academic purposes only. The Author  incurs no liability for any statement of error or omissions in this write up. No part of this write up can be copied and distributed except with the permission on the author in writing.

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One Comment

  1. ca renuka.kolli says:

    form 10 filed ay 20-21 for a period of 5 years upto a an amount of 10cr but that particular year no accumulation is made and next year ay 21-22 excess amount of 5 cr ,can i file new form 10 or is it sufficient of last year form 10

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