The Tribunal adjudicating on the identical issue, has held that if form No. 10 is filed during the continuation of the assessment proceedings that should have been taken into consideration by the Assessing Officer. That non filing of the Form No. 10 within stipulated period may be an irregularity but not illegality, if the assessee cures the defect during assessment proceedings, the assessee is entitled to the benefit of accumulation as provided u/s 11(2) of the I.T. Act.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal has been preferred by the assessee against the order dated 31.01.2020 of the Commissioner of Income Tax (Appeals)-2, Chandigarh [hereinafter referred to as ‘CIT(A)’].
The assessee in this appeal has taken following grounds of appeal:-
1. That on the facts, circumstances and legal position of the case, the Worthy CIT(A) in Appeal No. 10567/2/18-19has erred in passing that order in contravention of the provisions of S. 250(6) of the Income Tax Act, 1961.
2. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO wherein he erroneously treated IDC & IAC receipts amounting to Rs. 228.10 crores as income of the assessee ignoring the fact that the assessee is only entitled to only 1% of the receipts and the balance money belongs to the State Government which is highly unjustified and uncalled for.
3. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO wherein he erred in treating Rs. 98.14 crores on account of interest income from FDRs as income of the assessee even when the said interest was not income of the assessee.
4. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO in not allowing the accumulation u/s 11(2) of the act.
5. That on law, facts and circumstances of the case, the Worthy CIT(A) has erred in confirming the action of Ld. AO wherein he did not condone the delay in filing Form 10 electronically even when the delay was with reasonable cause.
6. That the appellant craves leave for any addition, deletion or amendment in the grounds of appeal on or before the disposal of the same.
3. The Ld. Counsel for the assessee, at the outset, has submitted that the appeals of the assessee for earlier assessment years 2009-10, 201415 and 2013-14 have been decided by the Tribunal vide order common dated 31.7.2020. He has further submitted that the facts of the year under consideration are exactly similar to that of the facts of the assessee’s appeal for assessment year 2014-15, ITA No. 645/Chd/2018, decided vide common order dated 31.7.2020 (supra). He has further pointed out that except ground Nos. 4 & 5 of the appeal, all the other grounds (ground No.1 to 3) stand covered against the assessee, whereas, ground Nos. 4 & 5 of the appeal are covered in favour of the assessee by the aforesaid order of the Tribunal for assessment year 2014-15 dated 31.7.2020. The Tribunal adjudicating on the identical issue, as taken vide ground Nos. 4 & 5, has held that if form No. 10 is filed during the continuation of the assessment proceedings that should have been taken into consideration by the Assessing Officer. That non filing of the Form No. 10 within stipulated period may be an irregularity but not illegality, if the assessee cures the defect during assessment proceedings, the assessee is entitled to the benefit of accumulation as provided u/s 11(2) of the I.T. Act. The relevant part of the Order of the Tribunal for the sake of ready reference is reproduced as under:-
“We shall now take up the appeal for A.Y 2014-15 wherein the grounds raised are as under:
“ITA No. 645/Chd/18 A.Y 2014-15
“1. That the Ld. CIT(A) has erred in law and facts of the case in upholding IDC & IAC receipts amounting to Rs. 596.70 crores as income of the appellant ignoring that the appellant is entitled to only 1% of the receipts and the balance money belongs to state government which is highly unjustified and uncalled for.
2. That the ld. CIT(A) has erred in law and facts of the case in upholding interest income from FDR’s amounting to Rs. 163.21 Crores as income of the appellant which is highly unjustified and uncalled for.
3. That under the facts and circumstances of the case, the CIT(A) has erred in not allowing the accumulation u/s 11(2) of the Income Tax Act which is highly unjustified & uncalled for.
4. That the appellant craves the leave to add, amend or modify any ground of appeal on or before the disposal of the same.”
13. Taking up first the issue of taxability of IDC& IAC receipts and interest on FDR’s created therefrom in the hands of the assessee raised in Ground No. 1 & 2 respectively, the arguments ,it was common ground between both the parties was identical as in earlier years appeal dealt with us above, with the assessee contending that the fund belonged to the state while the Revenue contending that it was a distinct and separate entity.
In the impugned year, we find that the facts differ with the earlier years since, by virtue of a notification dated 05-04-13, amendments were made to the HDRUA Act,1975,vesting the Fund to a Board.This Board ,we have noted from the amendments made,was created as an entity distinct and separate from the State. This is evident from section 3AA of the HDRUA Act stating in clear terms the constitution of the Board on its incorporation as a body corporate having perpetual succession and common seal and power to acquire,hold and dispose off property and to contract and sue or be sued in its own name.Even the constitution of the Board, provided for in the said section, reflected that it was distinct from the State, by clearly showing that not all members were to be representative of the State and some members could be nominated by the State Government . The relevant provisions of the HDRUA Act stating so are reproduced hereunder for clarity:
(7) The Fund shall be collected and managed by the Director and passed on for the purpose of its further utilisation to the Board to be constituted by the Government for this purpose.
3AA. Establishment and constitution of Board.—(1) The State Government shall, by notification in the Official Gazette, establish a Board consisting of the following members, namely:-
(1) The Chief Minister of Haryana. Chairman
(ii) The Chief Secretary to Government of Haryana Vice-Chairman
(iii) The Principal Secretary to Government of Haryana, Member Finance Department
(iv) The Principal Secretary to Government of Haryana, Member Irrigation Department
(v) The Principal Secretary to Government of Haryana, Member Power Department
(vi) The Principal Secretary to Government of Haryana, Member PWD (B&R) Department
(vii) The Principal Secretary to Government of Haryana, Member Town & Country Planning Department
(viii) The Principal Secretary to Government of Haryana, Member Transport Department
(ix) The Director General, Town & Country Planning Member Department, Haryana.
(x) The Chief Administrator, Haryana Infrastructure Member Secretary Development Board
(xi) Any other person(s) to be nominated by the Government Special Invitee
(2) The Board shall have perpetual succession and a common seal with power to acquire, hold and dispose off property and to contract, and may by the said name sue or be sued.
The Board being separate and distinct from the State is further established by the provisions of section 4 of the HDRUA Act ,enabling and empowering the Board to possess its own property & assets , have its own fund augmented by borrowing money ,enter into contracts and undertake various activities on its own account. The relevant provision are as under:
(4) In order to carry out its functions consistent with the provisions of this Act, the Board shall have the powers to do all or any of the following, namely:-
(i) acquire, hold, develop or construct such property, both movable and immovable, as the Board may deem necessary for the performance of any of its activities related to the development of infrastructure sectors or infrastructure projects;
(ii) advise or recommend to the Government acquisition of land under the Land Acquisition Act, 1894 for the purposes of infrastructure projects;
(iii) lease, sell, exchange, or otherwise make allotments of the property referred to in clause (i) to concessionaire and to modify or rescind allotments, including the right and power to evict the allottees concerned on breach of any of the terms or conditions of such allotment;
(iv) borrow and raise money in such manner as the Board may think fit and to secure the repayment of any money borrowed, raised or owing by mortgage, charge, standard security, lien or other security upon the whole or any part of the Board’s property or assets (whether present or future), and also by a similar mortgage, charge, standard security, lien or security to secure and guarantee the performance by the Board of any obligation or liability, it may have undertaken or which may become binding on it;
(v) constitute a professional multi-disciplinary Project Management Team and one or more Advisory Committee or Committees or Sectoral Sub-Committee or Project Implementation Sub-Committee, or engage suitable service providers or advisors or consultants to advise the Board for the efficient discharge of its functions;
(vi) enter into and perform all such contracts as it may think necessary or pedient for performing any of its functions; and
(vii) do such other things and perform such other acts as it may think necessary or expedient for the proper conduct of its functions and for carrying into effect the purposes of creation of the Board, as contained in this Act.
What conclusively emerges from the above is that the Board was a distinct and separate entity from the State and its income and property could not be regarded as that of the State Government.
14. Having said so ,the question now arises whether the Board was merely a nodal agency of the State ,in which circumstance the receipts in the Fund of IDC charges would not be Revenue receipts of the Fund/Board.A nodal agency of the government ,as is common knowledge,is that which is deputed merely for execution/implementation or supervision or combination of all above, for a particular scheme or project initiated by the government. It only channelizes the Funds of the Government in pre determined projects/schemes of the Government.Neither the collection of funds nor its usage is within the control of the nodal agency which acts only on behalf of the government for the said purposes ,collecting funds levied by the government and using it as determined and directed by the government.
15. In the facts of the present case we find that the Board was not merely implementing/supervising and channelizing funds to specific schemes and projects of infrastructure developed by the government, but was in fact the apex body responsible for planning and development of the infrastructure projects including those involving private participation and funding, and their implementation. All aspects relating to developing and implementing infrastructure projects alongwith private sector, beginning with identifying such projects and thereafter ensuring its implementation by promoting private participation, identifying technology initiatives to be taken,formulating policies to identify risks ,identifying bottlenecks ,formulating policies for the sector, identifying and recommending concessions to be offered to the participants, determining the level and structuring of investments of the Government in the projects, creating an SUV for implementing a project , all were in the domain of the functions of the Board. The administration of the Fund was only one of the manifold functions of the Board.This is clearly brought out by subsection (2) of section 3AA of the HDRUA Act,1975 as under:
3AC. Functions and Powers of Board.—(1) The Board shall be the apex body for overall planning and development of infrastructure sector and infrastructure projects for the benefit of State of Haryana, subject to the limitations specified in sub-section (3).
(2) The Board shall- (i) act as a nodal agency to co-ordinate all efforts of the Government regarding the development and implementation of infrastructure sectors and infrastructure projects for the benefit of State of Haryana, involving private participation and funding from sources other than those provided by State budget and shall,-
(a) identify infrastructure projects for private participation;
(b) promote competitiveness and progressively involve private participation while ensuring fair deal to the end-users;
(c) identify and promote technology initiatives in urban development and infrastructure development sector for improving efficiency in the system;
(d) identify bottlenecks in the infrastructure sectors and recommend to the Government policy initiatives to rectify the same;
(e) select, prioritise and determine sequencing of infrastructure projects;
(f) formulate clear and transparent policies related to the infrastructure sectors so as to ensure that project risks are clearly identified and allocated between the stakeholders; and
(g) identify the sectoral concessions to be offered to concessionaires to attract private participation and secure availability of viable infrastructure facilities to the consumers;
Provided that where participation is sought by any person by participating in disinvestment process, the provisions of this Act shall not apply: Provided further that any authority or body, constituted to implement such disinvestment, may seek assistance from the Board;
(ii) prepare internally or through external consultants or service providers engaged for the purpose, all necessary documents including the bid or tender documents, draft contracts including the various contractual arrangements and incentives to be offered by the Government;
(iii) assist public infrastructure agencies and concessionaires in obtaining statutory and other approvals;
(iv) recommend the grant of concessions to a public infrastructure agency in accordance with the provisions of this Act, the rules and the bye-laws made there under;
(v) assist in determining the level and structuring of investments of the Government and public bodies into infrastructure projects with private participation including holding the investment or part thereof; (vi) create a special purpose vehicle for implementation of any infrastructure project in co-ordination with the Government or public infrastructure agencies; and
(vii) administer the Fund and projects under this Act.
(3) The Board shall not play any role in the infrastructure projects undertaken by the Government exclusively through its budgetary provisions.
The Statement of Objects and Reasons for the amendment made to section 3A and introduction of section3AA to the HDRUA Act,1975, also clearly bring out this fact of the Board being created as a dedicated agency for the development of infrastructure projects in the State alongwith private participation , in its own right and not merely as a nodal agency of the State, as under:
NOTES Statement of Objects and Reasons-The Section 3A of the Act 8 of 1975 provides for creation of a Fund from the receipts on account of Infrastructure Development Charges (IDC) and Infrastructure Augmentation Charges (IAC). The said Fund vests with the Director General, Town and Country Planning Haryana, and is presently administered by a High Powered Committee constituted for the purpose for investment on major infrastructure projects and for the purpose of stimulating socio-economic growth for the benefit of State of Haryana. Owing to the increasing complexities involved in such infrastructure projects and in order to leverage the Fund available for structuring and implementation of larger infrastructure projects in PublicPrivate-Partnership, the Government has decided for setting up of Haryana Infrastructure Development Board (hereinafter referred as the Board) as a dedicated agency for encouraging private sector investment in infrastructure projects across all sectors through innovative development and financial structuring of infrastructure projects for implementation in PublicPrivate-Partnership mode, viz., Build-Operate-Transfer, Build-Own-Operate-Transfer, Joint Venture Agreement, concessionaire agreement, equity participation by State, subsidy support, incentivisation in form of tax exemptions, Viability Gap funding, Grant of Government guarantee, etc. The Section 3AA is accordingly proposed to be introduced for the constitution of Board. The sub-section 7 of section 3A is also proposed for amendment to enable transfer of amount collected under the Fund by the Director to the Board. The Preamble of the Act is also proposed for appropriate amendment to reflect the said intent and purpose. The Board is likely to evolve as a ‘multi-disciplinary Techno-Legal-Financial Institution for Promotion of Infrastructure Development in the State’ under the Haryana Development and Regulation of Urban Areas Act, 1975, with professionals drawn from Administration, Engineering, Town Planning, Legal and Finance cadres. Enabling provision for appointment of officers and employees for the Board has accordingly been made in Section 3AB. The Powers and Functions of the Board has been detailed under Section 3AC. Provision enabling the formulation of bye-laws by the Board for efficient administration of the Board has been provided under Section 3AD and the Government has been empowered under Section 3AE to issue directions to the Board for carrying out provisions of the Act. The Section 24 is also proposed for amendment to add enabling provisions for notification of Rules for prescribing various procedures to be adopted for efficient administration of the Board. Hence this BILL66 *
The Board thus, we hold, is not a mere nodal agency of the State.
16. The case laws relied on by the Ld. Counsel for the assessee supporting its contention that it was a mere nodal agency of the State are all distinguishable on facts where funds were found to have been created for specific projects to be executed on behalf of the government with the assessee having no control over of its utilization. In the case of Delhi State Industrial Development(supra) the Funds were found transferred to the assessee by the Delhi administration for a specific project of development of Narela Industrial Complex . The Honble court found that the assessee was only required to execute the project for the Delhi administration. Accordingly it was held that the fund belonged to the Delhi administration and not the assessee who was only a nodal agency of the Delhi administration for the project. Similarly in the case of Karnataka Urban Infrastructure Development & Finance Corporation (supra) the assessee was found to be have been created for a specific scheme for development of a megacity and a fund created for the purpose. In this backdrop of facts the Hon’ble Court held the assessee to be a mere nodal agency for executing a specific project and the Fund therefore not taxable in its hands.In the case of Saharanpur Development authority ,(supra) the Fund was found to have been received by the assessee from the Government of Uttar Pradesh to be utilized as per the directions of a High Powered Committee. The assessee was found to have no control over the utilization of the Funds and accordingly was held to be a mere nodal agency of the Government.
17. We therefore hold that the Fund vested in the Board which was an entity distinct and separate from the State and was also not a nodal agency of the State.In view of the same the receipts of IDC and interest on FDR’s created from the IDC receipts are liable to tax under the Act. Ground No 1 & 2, agitating addition made on account of the same respectively ,are therefore dismissed.
19. Ground No 3 is against the non allowance of benefit of accumulation of income as per section 11(2) of the Act. Briefly put ,the AO, after holding the IDC and IAC ( Infrastructure Augmentation Charges) receipts taxable as Revenue receipts of the assessee ,as opposed to capital receipts shown by the assessee, and after allowing Revenue and capital application of the same ,found that there was shortfall in application of 85% of the income of the assessee ,as stipulated by law for the purpose of claiming exemption of income from taxation u/s 11 of the Act. The shortfall was found to be Rs.3,82,08,83,403/-.He further found the assessee ineligible for the benefit of excluding from the total income, the income accumulated for future utilization ,as provided by section 11(2) of the Act ,on finding that it had failed to fufil the conditions provided in the section and the relevant Rule 17 of the Income Tax Rules,1962, for availing the benefit, of filing notice of accumulation in prescribed Form No.10 electronically by the due date of filing return of income u/s 139(1) of the Act. Accordingly he denied the benefit of accumulation of the shortfall of Rs.382 Crs and subjected the same to tax. This was contested by the assessee before the Ld.CIT(A) who upheld the order of the AO in this regard.
20. The issue therefore is whether the denial of benefit of accumulation u/s 11(2) of the Act was justified in the facts and circumstances of the case.
21. The Ld. Counsel for the assessee has argued that the mandate for filing notice of accumulation in Form No.10 before the due date of filing return of income was brought on the statute only on 01-04-2016 and hence not applicable for the impugned year, i.e A.Y 2014-15 . That there were judicial decisions holding that filing the requisite form during assessment proceedings was sufficient compliance with section 11(2) of the Act. That the assessee having filed electronically form No.10 during assessment proceedings on 29-12-2016 ,the denial of benefit of accumulation was not as per law .The written submissions in this regard filed before us are as under:
ISSUE (AY2013-14 & 2014-15) Accumulation of Income u/s 11(2) SUBMISSION
In view of the aforesaid judgments, it is clear that where the assessee has furnished Form 10 before the completion of the assessment, the same has to be considered. The assessee has furnished the Form 10 manually as well as electronically before the completion of the assessment. Therefore we request that the same be considered.
22. The Revenue on the other hand has relied heavily on the findings of the Ld.CIT(A) pointing out therefrom that the Rules relating to filing of Form No.10,i.e Rule 17 of the Income Tax Rules,1962,provided for the filing of the form before the due date of filing of return of income. That this limitation was introduced in the statute in section 11(2) w.e.f 01-04-2016. Therefore the contention of the assessee that for the impugned year there was no limitation for filing of form no.10 was incorrect. That in any case there were gross inconsistencies in the figures of amount accumulated reported in the audit report filed in form No.10B and that reported in Form No.10. Ld.DR pointed out that while the audit report reflected Rs.20,32,87,909/- as accumulated fund,form No.10 filed during assessment proceedings showed accumulation of Rs.382,08,83,404/- That no plausible explanation was given of the difference except for stating that the figure in the audit report was of the auditors while in form 10 it was that of the governing council of the assessee fund. That the figure in Form No.10 was therefore not reliable. It has also been contended that the assesee did not specify the purpose of accumulation of Rs.20 Crs reported in audit report filed in Form 10B,which is mandatory for claiming benefit of accumulation and therefore also the benefit has been rightly denied by the Ld.CIT(A) .Our attention was drawn to the findings of the Ld.CIT(A) at para 10.3.11 of the order as under:
“10.03.11 The details of accumulation shown in the Form 10 filed during assessment proceedings were not in conformity with the figures mentioned in Original Audit Report which clearly indicate that the details put forth by the appellant in the Form No 10 were reliable and the correct picture was not put up before the assessing officer as required for claiming exemption u/s 11 of the Act. More importantly the Audit Report in farm 10B filed electronically had mentioned accumulation u/s 11(2) of Rs. 20,32,87,909/-but no such details were furnished by the assessee during assessment proceeding. The cases relied upon by the appellant are distinguishable on facts from the facts in the case of the appellant. In the case of the appellant, it is not only not furnishing of form 10 within time but also that the information given in the audit report in Form 10B regarding accumulation etc. were not in conformity with the details in the balance sheet. In Form 10, the assessee is under obligation to put forth the details of accumulation, the purpose for accumulation etc. before the assessing officer which has not been done in this case. The appellant has failed to satisfy the conditions prescribed under section 11(2) read with rule 17 of the IT Rules , 1962 and no specific objects for which benefit of accumulation has been sought has been mentioned. And therefore, A.O has rightly disallowed the benefits claimed u/s 11(2) of the Act. Assessing Officer has given detailed findings in the assessment order, the same are upheld. Grounds of appeal no 3 is therefore dismissed.
Brief submissions in writing were also filed before us which are reproduced hereunder:
Issue 5: (a) Denial of benefits of exemption u/s 11 by disallowing the claim of accumulation of income u/s 11(2) of the Act. (Ground 3 of AY 2014-15 and Ground 1 of AY 13-14)
(b) Non acceptance of form No 10 submitted during asst. proceedings (Ground 2 of AY2013-14)
Reliance is place on the CIT(A) order for A.Y 2014-15 at para 10 pages 26 to 36 and para 5 pages 3 to 7 of CIT(A) order for A. Y 2013-14 where the various discrepancies in the documents submitted by the assessee and the issue of non filing of Form 10 has been discussed in detail along with reliance on various judicial pronouncements. In addition, reliance is also placed on the judgments at Sr No 6,7,8,9 of the case law compilation which are applicable to the facts of the present case and in favour of the Revenue.
23. We have heard both the parties. One of the reason for denying benefit of accumulation of income to the assessee u/s 11(2) of the Act, we find, is the non-filing of notice of accumulation in prescribed Form No.10 ,before the due date of filing of return of income . Clearly the section does not mandate such a limitation but it is the Rules which prescribe so .That the assessee had filed the prescribed form during assessment proceedings is not denied. In identical facts and circumstances ,the coordinate Bench of the ITAT has held in a number of decisions that the assessee can file Form No.10 at any time during assessment proceedings and which has to be considered for granting benefit u/s 11(2) of the Act and the non filing of the same is a mere irregularity and technical lapse which needs to be condoned.The ITAT has categorically held so in the following case laws aptly relied upon by the Ld.Counsel for the assessee:
In view of the same, we hold, that the denial of benefit of accumulation for delayed filing of Form No.10 is not as per law.”
4. At this stage, the Ld. DR has submitted that the case laws relied upon by the Tribunal in respect of ground Nos. 4 & 5 regarding the late filing of the form No.10 are not applicable because these case laws relates to the amendment carried out prior to 2016, whereas, as per the Rule 17 of the Income tax Rules, 1962 read with section 11(2) of the Income Tax Act w.e.f. 1.4.2016, the assessee to claim benefit of accumulation is required to file the form No.10 on or before the due date as specified u/s 139(1) of the Act for furnishing of return of income.
5. However, the Ld. Authorised Representative of the assessee has invited our attention to the relevant para Nos. 22 & 23 of the order dated 31.7.2020 (supra) to submit that the aforesaid contention has already been considered by the Tribunal and the issue has been decided in favour of the assessee in the light of various case laws. We find force in the above contention of the Ld. AR. In view of this, all the issues are covered by the order of the Tribunal in the own case of the assessee for assessment year 2014-15. Respectfully following the said decision and for the sake of consistency, ground Nos. 4 & 5 of the appeal are decided in favour of the assessee, whereas, ground Nos. 1 to 3 are decided in favour of the Revenue.
In the result, the appeal of the assessee stands partly allowed. Order pronounced on 24.08.2020