RE-ASSESSMENT ON THE FAILURE TO UPLOAD AND DIGITALLY FILE FORM 10

[Mr. M. GOVINDARAJAN]

Accumulation of income

Section 11 (2) of the Income Tax Act, 1961 (‘Act’ for short) provides that if an entity engaged in charitable or religious purposes be desirous of seeking a waiver of taxation on 85% of the income and which income is not applied or deemed to have not been applied for purposes envisaged therein, it must furnish a statement in Form 10 to the Assessing Officer disclosing the purpose for which the income is being accumulated or set apart and the details of the money being invested or deposited in the forms or modes specified in sub-section (5) thereof.  The said period does not exceed 5 years.In computing the period of 5 years the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded. The provision further postulates that the said statement should be furnished at least 2 months prior to the date specified in Section 139 (1). These amounts shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter.

The requirement of Form 10 being digitally was introduced for the first time by virtue of Rule 17 as it came to exist on the statute book pursuant to the Income-tax (1st Amendment) Rules, 2016 and which came into effect from 01.04.2016.

Issue

The issue to be discussed in this article is as to whether the Department may initiate re-assessment proceedings against the assessee which is a trust for the reason that the same has not filed Form 10 digitally in reference with a decided case law.

Case law

In THE ASSOCIATED CHAMBERS OF COMMERCE AND INDUSTRY OF INDIA VERSUS DEPUTY COMMISSIONER OF INCOME TAX & ORS. - 2024 (8) TMI 370 - DELHI HIGH COURT the petitioner is a Section 8 company registered under Companies Act, 2013.  The petitioner also registered under Section 12AA of Act.

The petitioner submitted the return for the AY 2016-17 on 01.10.2016. A notice under Section 143(2) was issued to the petitioner on 10.07.2017. The Deputy Commissioner also issued notices to the petitioner under Section 142(1) of the Act along with questionnaires, on 01.05.2018 and 15.09.2018.  The petitioner filed replies to the said notices on 15.10.2018 and 26.11.2018 respectively.  The petitioner submitted Forms 10 and 10B with the Department before the completion of the assessment proceedings.  The Assessing Officer completed the assessment on 01.12.2018.  The Assessing Officer also accepted the accumulations under Section 11(2) of the Act.

The Department initiated re-assessment proceedings against the petitioner on the ground that the petitioner failedto upload and digitally file Form 10 on or before the due date prescribed under Section 139 of the Act and the petitioner having failed to obtain condonation of delay on account of a belated filing of Form 10.

Again, a show cause notice was issued by the Department on 10.03.2023.  In the reassessment the Department assessed the income at Rs.7.13 crores against NIL income.  The Department denied the benefit of accumulation under Section 11(2) of the Act claimed by the petitioner trust during the year under consideration.  The Department found that the assessee has accumulated Rs. 2 crores under section 11(2) of the Act for improvement, development and acquisition of the Chamber as mentioned in Form 10 which was filed by the petitioner on 05.10.2018.  In the show cause notice the Department indicated why the amount of Rs.1.96 crore may not be disallowed.

The petitioner filed the reply on 24.03.2024 objecting the re-assessment by the Department.  The petitioner contended that Section 11 and Section 13 of the Act were amended by the Finance Act, 2015 with effect from 01.04.2016 relevant to AY 2016 – 17.  The Income Tax Rules were also amended.  According to this amendment furnishing the Form 10 electronically was made mandatorily.  The petitioner contended that that this being a new facility and late filing of Form 10 was not intentional. The Assessing Officer rejected the objections raised by the petitioner and passed the impugned order.  The Assessing Officer that the amount Rs.1.96 crores are escaped amount which is chargeable to tax under the Act.  The Assessing Officer issued this order with the approval of the Principal Chief Commissioner of Income Tax (Exemptions), New Delhi.

The petitioner filed the present writ petition before the High Court challenging the impugned order.  The petitioner submitted the following before the High Court-

• The petitioner having submitted Form 10 electronically on 05.10.2018which is prior to the completion of the original assessment was undisputed, the Department was clearly unjustified in seeking to reopen a completed assessment based on a mere technicality of the said form having not been digitally uploaded within the stipulated time period.
•  The Circular is itself evidence of the functionality issues which were faced by various assessees in digitally submitting Form 10 for AY 2016-17 and which ultimately led to the CBDT providing that a belated submission of those forms may be duly accepted, subject to sufficient cause being shown.
• The accumulations in accordance with the mandate of Section 11 (2) had also been duly accepted in the ultimate order of assessment which came to be framed on 01.12.2018 and viewed in that light the Department would be wholly unjustified in proceeding on the premise that income liable to tax had escaped assessment.

The Department submitted the following before the High Cour-

• Section 11 (2) (c) as well as Rule 17, in unequivocal terms, place assessees under an obligation to furnish Form 10 before the expiry of the time allowed for furnishing a return under Section 139.
• In light of the evident failure on the part of the petitioner to file Form 10 at least two months prior to the due date specified under Section 139 (1), there was sufficient ground to invoke Section 148 of the Act.
• The total filing count of Form 10 between 01.10.2016 to 31.10.2016 is 3687. Therefore, the allegation of non-availability of the functionality to upload the forms on the portal is baseless.

The High Court considered the submissions of the parties.  The High Court observed that the Circular itself acknowledged and took note of the grievances which were raised with respect to the non-functionality of the facility for digital submission of forms leading to a delayed e-filing of Form 10. The CBDT also appears to have taken a sympathetic view bearing in mind the fact that the requirement of digital filing had come to be introduced and become applicable for the first time in AY 2016-17. It was in that backdrop that the CBDT had hoped that assessing authorities would approach the issue bearing in mind reasonable cause being established by individual assessees in case of a delayed digital submission of Form 10.

The High Court next considered the submissions of the Department that 3687 digital submissions of Form 10 in the month of October 2016.  Further details with respect to how that number would be representative or proof of a broad or universal functionality of the filing portal when compared with the body of assessees seeking to accumulate income under Section 11 (2) of the Act was not been provided to the High Court.  The High Court further observed that an exponential increase in the number of tax filings and with the total number being pegged at 28.2 million.  The number of 3687 thus clearly fails to inspire any confidence.

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.  In the opinion of the High Court 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.

The High Court allowed the instant writ petition and quashed 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.