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2019 (9) TMI 145 - AT - Income TaxDenying deduction u/s 11(2) - failure to file Form No. 10 being notice to the AO of accumulation of income - Exemption u/s. 11(1)(a) on account of application of its income for religious purpose - accumulation of income for purchase of property for temple, dharmshala etc..- HELD THAT - We have seen that Hon ble Supreme Court has held in Nagpur Hotel Owners Association 2000 (12) TMI 99 - SUPREME COURT that it will be sufficient compliance of law, if Form No. 10 is filed at any stage prior to completion of assessment proceedings by the AO. The law as declared by Hon ble Supreme Court in the above case shall hold the field till amendments were brought in the 1961 Act itself by Parliament which are substantive amendments in the 1961 Act - there will be substantial compliance if the said Form No. 10 is filed by the assessee before the AO before completion of assessment proceedings, The assessee did filed Form No. 10 in physical mode on 21.12.2016 before the AO during the course of assessment proceedings which culminated into an assessment order dated 28.12.2016 passed by the AO u/s 143(3) of the 1961 Act. The assessee also filed Resolution dated 10.02.2014 of the Board of Trustee authorising accumulation of income to the tune of ₹ 6.50 crores for purchase of property for temple, dharmshala etc. Thus, the assessee did substantial compliance of requirements of filing form no. 10 with the AO before the culmination of assessment proceedings. There was an amendment in proviso to Rule 12(2) of the 1962 Rules which provided Form No. 10 to be filed electronically w.e.f. 01.04.2014. This is the first year for compliance of said amended Rule to file Form No. 10 electronically. The assessee however defied proviso to Rule 12(2) of the 1962 Rules as it did not file Form No. 10 electronically before the conclusion of the assessment proceedings by the AO. The assessee however later on 07.11.2017 e-filed Form No. 10 electronically. The said Form No. 10 filed electronically along with Resolution dated 10.02.2014 of the Board of Trustee authorising accumulation of income to the tune of ₹ 6.50 crores for purchase of property for temple, dharmshala etc. were duly filed before learned CIT(A) before the culmination of first appellate proceedings vide appellate order dated 08.02.2019. As observed that the assessee has stated that it is due to oversight that it skipped its attention that from this assessment year onwards i.e. with effect from 01.04.2014 , there was an amendment in proviso to Rule 12(2) requiring it to file Form No. 10 electronically which amendment was applicable from 01.04.2014. Further, it is claimed that Rule 17 was not amended simultaneously when aforesaid amendment in proviso to Rule 12(2) of the 1962 Rules took place. We have also observed that CBDT vide its circular number 7 of 2018 has taken a liberal view in condoning delays in electronic filing of Form No. 10 albeit it is for ay 2016-17. We are presently concerned with ay 2014-15 . CBDT circular no. 7 of 2018 dated 20.12.2018(F.No. 197/55/2018-ITA-I) wherein CBDT has relaxed the provisions relating to filing of form no. 10 electronically for AY 2016-17 There is no dispute between rival parties as to the genuineness of the deduction claimed by the assessee u/s 11(2). It is also undisputed that purpose of accumulation of income u/s 11(2) of ₹ 6.50 crores was to purchase property for furtherance of activities and objects of the assessee. It is also undisputed that the assessee invested said accumulation of income in one of the modes prescribed u/s. 11(5) of the 1961 Act by taking FDR s with banks. It is also undisputed that the assessee did purchase property in immediately succeeding financial year for ₹ 16.50 crores and the aforesaid accumulation of income of ₹ 6.50 crores u/s 11(2) stood applied in immediately succeeding year for the purposes of the objects and activities of the assessee trust - the assessee is entitled for deduction u/s 11(2) of the 1961 Act to the tune of ₹ 6.50 crores towards accumulation of income for purchase of property for temple, dharmshala etc.. We have also observed that the assessee rightly relied upon judicial precedents which are mentioned in preceding para s of this order. The assessee succeeds on ground number 1 raised by it in memo of appeal filed by it with tribunal which stand allowed Disallowance of expenses which are stated to be incurred against earmarked donations received by the assessee - HELD THAT - Claim made by the assessee that these expenses and donations were not routed through Profit and Loss Account but were directly reflected in Balance Sheet, we are of the considered view that this matter is factual and requires verification by the AO and hence in the interest of justice and fairness to both the rival parties, the matter need to be set aside and restored to the file of the AO for fresh adjudication after due verification and enquiry as the AO may deem fit. Needless to say that the AO shall grant proper and adequate opportunity of being heard to the assessee in denovo assessment proceedings . The AO shall admit all relevant evidences and explanations submitted by the assessee in its defence in denovo proceedings. The ground number 3 is allowed for statistical purposes. We order accordingly.
Issues Involved:
1. Denial of deduction under Section 11(2) of ?6,50,00,000. 2. Exemption for deemed application of income under Explanation to Section 11(1). 3. Restriction of exemption under Section 11(1)(a) from ?91,86,875 to ?24,79,348. Detailed Analysis: Issue 1: Denial of deduction under Section 11(2) of ?6,50,00,000 The core issue revolves around the denial of deduction under Section 11(2) of the Income-tax Act, 1961, amounting to ?6,50,00,000 due to the non-filing of Form No. 10 electronically within the stipulated time. The assessee, a religious trust, filed its return of income for the assessment year 2014-15 on 25.03.2015, declaring a total income of ?1,94,770. During the assessment proceedings, the AO observed that the assessee had claimed a deduction under Section 11(2) but had not filed Form No. 10 electronically. The AO disallowed the deduction on the grounds that the form was not filed before the due date specified under Section 139(1). The assessee contended that it had filed Form No. 10 physically before the AO on 21.12.2016, prior to the completion of the assessment proceedings on 28.12.2016. The CIT(A) upheld the AO's decision, emphasizing the necessity of filing the audit report and Form No. 10 electronically as per the statutory provisions. The Tribunal examined the relevant statutory provisions and amendments, noting that the requirement to file Form No. 10 electronically was introduced w.e.f. 01.04.2014. The Tribunal referred to the Supreme Court's decision in CIT v. Nagpur Hotel Owners Association, which held that substantial compliance is achieved if Form No. 10 is filed before the completion of the assessment proceedings. The Tribunal acknowledged that the assessee had filed Form No. 10 physically before the AO during the assessment proceedings and later electronically during the appellate proceedings. Given the genuine nature of the trust's activities and the utilization of the accumulated income for purchasing property for religious purposes, the Tribunal allowed the deduction under Section 11(2). Issue 2: Exemption for deemed application of income under Explanation to Section 11(1) The assessee raised an alternative ground, seeking exemption for the deemed application of income under Explanation to Section 11(1) concerning the income of ?6,50,00,000 applied for religious purposes in the subsequent year. However, since the Tribunal allowed the deduction under Section 11(2), this ground became infructuous and was dismissed. Issue 3: Restriction of exemption under Section 11(1)(a) from ?91,86,875 to ?24,79,348 The assessee claimed an exemption under Section 11(1)(a) amounting to ?91,86,875 for the application of income for religious purposes. The AO allowed only ?24,79,348, disallowing ?67,07,527 without providing reasons. The assessee argued that the disallowed expenses were incurred against earmarked donations, which were not routed through the Profit and Loss Account but directly reflected in the Balance Sheet. The Tribunal observed that the issue required factual verification and remanded the matter to the AO for fresh adjudication. The AO was directed to verify the expenses and donations and provide the assessee with an opportunity to present relevant evidence and explanations. Conclusion: The Tribunal allowed the deduction under Section 11(2) for ?6,50,00,000, dismissed the alternative ground as infructuous, and remanded the issue of disallowed expenses under Section 11(1)(a) for fresh adjudication. The appeal was partly allowed.
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