2014 (11) TMI 408 - AT - Income Tax

Rejection of Form No. 10 in course of reassessment proceeding - Whether the Form No. 10 filed by assessee is not filed during reassessment proceeding Held that - Assessee itself in the return of income has computed the excess income accumulated/set apart and AO has allowed exemption to assessee while completing the original assessment after examining the same - exemption claimed by assessee, in fact, was allowed by AO and it was never pointed by AO to assessee that due to non filing of Form No. 10 assessee s claim of exemption will not be accepted - when the assessment was reopened for disallowing assessee s claim of exemption u/s 11 in respect of excess income accumulated/set apart for non-furnishing of Form No. 10, assessee became aware of it and furnished Form No. 10 before AO in course of reassessment proceeding - assessment was not reopened on the basis of information subsequently filed by assessee claiming benefit of section 11 after completion of original assessment. Assessee has claimed accumulation/setting apart excess income in the return of income filed originally and AO also accepted such claim of assessee while completing the original assessment - AO never raised the issue of non-filing of Form No. 10 nor he rejected assessee s claim of exemption u/s 11 in respect of accumulated income - Therefore, there was no occasion for assessee earlier to file Form No. 10 - when assessment was reopened for assessing escaped income on account of non furnishing of Form No. 10, it can be said that furnishing of Form No. 10 is relatable to escaped income sought to be assessed - Accumulation/setting apart of excess income is already disclosed/shown by assessee in the return of income originally filed and was also examined and allowed by AO while completing the assessment. Neither it is a fresh claim made by assessee which was not before AO during the original assessment nor it is a claim rejected by AO during original assessment, and reagitated by assessee during the assessment proceeding - assessee did not furnish form No. 10 along with the return of income, but, were furnished during proceeding initiated u/s 147 of the Act- Following the decision in ASSOCIATION OF CORPORATION & APEX SOCIETIES OF HANDLOOMS Versus ASSISTANT DIRECTOR OF INCOME TAX 2013 (1) TMI 317 - DELHI HIGH COURT - the AO is directed to accept Form No. 10 filed by assessee and allow the benefit in terms of section 11(2) read with Rule 17 Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of Form No. 10 by the Assessing Officer (AO) during reassessment proceedings.
2. Whether Form No. 10 can be filed during reassessment proceedings.
3. Set-off of excess income over expenditure against earlier years' expenditure.

Detailed Analysis:

Issue 1: Rejection of Form No. 10 by the AO during reassessment proceedings

The assessee, a society registered under section 12A of the Income Tax Act, filed its return for the assessment year 2007-08 declaring 'nil' income after claiming exemption under section 11. The return was initially processed under section 143(1) and subsequently scrutinized, leading to an assessment under section 143(3) accepting the returned income. The AO later noticed that the assessee had accumulated Rs. 98,76,511 over the mandatory 15% of gross receipts without filing Form No. 10 as required under section 11(2). Consequently, the AO issued a notice under section 148 for reassessment and rejected the Form No. 10 submitted by the assessee during the reassessment proceedings, citing that it was filed beyond the prescribed period and not before the completion of the original assessment under section 143(3).

Issue 2: Whether Form No. 10 can be filed during reassessment proceedings

The CIT(A) upheld the AO's decision, referencing the Supreme Court's decision in CIT Vs. Nagpur Hotels Owners Association, which mandates that the particulars required under Rule 17 in Form No. 10 must be furnished before the completion of the assessment. The CIT(A) also cited the Supreme Court's decision in CIT Vs. Sun Engineering Works, emphasizing that reassessment proceedings under section 147 are for the benefit of the revenue, not the assessee. The assessee argued that as per section 2(8), assessment includes reassessment, and hence, Form No. 10 could be filed during reassessment proceedings. The assessee relied on the Delhi High Court's decision in Association of Corporation and Apex Societies of Handlooms Vs. ADIT, which allowed the filing of Form No. 10 during reassessment proceedings.

The Tribunal considered the submissions and noted that the AO had accepted the assessee's claim of exemption under section 11 in the original assessment without raising the issue of non-filing of Form No. 10. The Tribunal distinguished the facts of the present case from the Nagpur Hotels Owners Association case, where Form No. 10 was submitted after the completion of the assessment. The Tribunal concluded that since the assessment was reopened for assessing escaped income due to non-furnishing of Form No. 10, the assessee was entitled to file Form No. 10 during the reassessment proceedings. The Tribunal also referred to the Delhi High Court's decision, which supported the assessee's contention. Therefore, the Tribunal directed the AO to accept Form No. 10 and allow the benefit under section 11(2) read with Rule 17.

Issue 3: Set-off of excess income over expenditure against earlier years' expenditure

The assessee raised an alternative contention that the excess income over expenditure in the impugned assessment year should be set off against the expenditure incurred in excess of 85% in earlier years. However, in view of the Tribunal's decision on the second issue, this ground was deemed of mere academic interest and was not adjudicated.

Conclusion:

The appeal of the assessee was partly allowed, with the Tribunal directing the AO to accept Form No. 10 filed during the reassessment proceedings and allow the benefit under section 11(2).

Pronounced in the open court on 12th November, 2014.