2024 (8) TMI 370 - HC - Income Tax

Validity of reassessment proceedings - delayed digital submission of Form 10 - importance of due disclosure as opposed to adherence to the mere procedural requirements of the digital filing of a form - Applicability of Section 11(2) - Form 10 having not been submitted within the time prescribed u/s 139 (1) and the petitioner having failed to obtain condonation of delay on account of a belated filing of Form 10 - whether digital submission of Form 10 was merely a procedural requirement? - HELD THAT - We note that Section 11 (2) speaks of a statement in the prescribed form (which in this case is Form 10) being furnished to the AO. The change in the prescribed manner under Section 11 (2) (a) for the submission of Form 10 and which moved to a digital filing was introduced for the first time by virtue of the 2015 Act and the 2016 Amendment Rules. As was noticed by us hereinbefore, prior to those amendments, all that Section 11 (2) (a) required was for the assessee to apprise the AO, by a notice in writing, of the purposes for which the income was sought to be accumulated and the mode of its investment or deposit in accordance with Section 11(5). The requirement of Form 10 being furnished electronically was undisputedly introduced for the first time by way of the 2016 Amendment Rules. There thus clearly appears to exist plausible cause for the petitioner having been unable to effect an online filing. More fundamentally, we note that the action for reassessment is not founded on income liable to tax having escaped assessment. The respondents also do not question the acceptance of the accumulations in terms of Section 11 (2) in the assessment order dated 01 December 2018. The entire action for reassessment is founded solely on Form 10 having been submitted after 17 October 2016 and which was the due date in terms of Section 139 (1). 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. 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 vs. Nagpur Hotel Owners Assn. 2000 (12) TMI 99 - SUPREME COURT held 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. We, accordingly, allow the instant writ petition and quash the impugned order u/s 148A (d) and the consequent initiation of reassessment proceedings through notice u/s 148 - Assessee appeal allowed.

Summary

Issues Involved:

1. Validity of reassessment action initiated due to late submission of Form 10.
2. Procedural requirement of digital filing of Form 10.
3. Impact of CBDT Circular No. 7/2018 on delayed digital filing.
4. Acceptance of accumulations under Section 11(2) in the original assessment.
5. Relevance of technicalities versus substantive compliance in tax law.

Detailed Analysis:

1. Validity of reassessment action initiated due to late submission of Form 10:

The writ petitioner, a company registered under Section 8 of the Companies Act, 2013, and holding a valid registration under Section 12-AA of the Income Tax Act, 1961, challenges the reassessment action initiated by the respondents for AY 2016-17. The reassessment was initiated because the petitioner failed to upload and digitally file Form 10 on or before the due date prescribed under Section 139 of the Act. The respondents argue that the petitioner did not obtain condonation of delay for the late filing of Form 10, thus failing to comply with Section 13(9)(i) of the Act.

2. Procedural requirement of digital filing of Form 10:

Form 10 must be submitted electronically as mandated by Rule 17(3) of the Income Tax Rules, 1962. The petitioner contends that the digital submission of Form 10 is a procedural requirement and that the form was submitted before the completion of the assessment proceedings, albeit after the due date. The court notes that the requirement for digital filing was introduced for the first time by the 2016 Amendment Rules, which came into effect from 01 April 2016.

3. Impact of CBDT Circular No. 7/2018 on delayed digital filing:

The CBDT Circular No. 7/2018 acknowledges the functionality issues faced by assessees in digitally submitting Form 10 for AY 2016-17. The Circular obliges assessing authorities to examine whether the assessee was prevented by reasonable cause from electronically filing Form 10. The court finds that the respondents' assertion of "flawless filing" of Form 10 is belied by the issuance of the CBDT Circular itself, which took note of the grievances regarding the non-functionality of the digital submission facility.

4. Acceptance of accumulations under Section 11(2) in the original assessment:

The court observes that the accumulations under Section 11(2) were duly accepted in the original assessment order dated 01 December 2018. The reassessment action is not based on income liable to tax having escaped assessment but solely on the delayed digital filing of Form 10. The court emphasizes that an action for reassessment must be based on the formation of an opinion that income chargeable to tax has escaped assessment, which is not satisfied in this case.

5. Relevance of technicalities versus substantive compliance in tax law:

The court refers to the Supreme Court's judgment in Commissioner of Income-tax vs. Nagpur Hotel Owners' Assn. and the Division Bench of the Delhi High Court in Commissioner of Income-tax vs. Contimeters Electricals P. Ltd., which underline the importance of due disclosure over mere procedural requirements. The Gujarat High Court's decision in Association of Indian Panelboard Manufacturer vs. Deputy Commissioner of Income-tax further supports the view that electronic submission of forms is procedural and not a mandatory condition of substantive law.

Conclusion:

The court allows the writ petition, quashes 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. The court concludes that the delayed digital filing of Form 10 does not justify the reassessment action, emphasizing the importance of substantive compliance over procedural technicalities.