Section 80-IA(7) Requirement Deems Fulfilled When Audit Report Filed At Any Time Before Framing Of Assessment: Delhi High Court

The Delhi High Court has held that the assessee to be eligible and entitled to exemptions under Section 11(1) and 11(2) of the Income Tax Act and the alleged ground of non-filing of audit report along with return of income, which was at the best procedural omission, could never be an impediment in law in claiming the exemption.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that the electronic submission of Form 10B is essentially a matter of procedure as opposed to being a mandatory condition that may be recognized to form part of substantive law.

The petitioner/assessee is a company registered under Section 8 of the Companies Act, 2013 and additionally holds a valid registration referable to Section 12-AA of the Income Tax Act, 1961. The assessee has challenged the reassessment action initiated by the respondents pertaining to Assessment Year 2016-17.

The department has initiated reassessment proceedings against the petitioner on account of a failure to upload and digitally file Form 10 on or before the due date prescribed under Section 139 of the Income Tax Act. Forms 10 and 10B owe their genesis to Sections 11(2) and 12-AA of the Act. The filing of Form 10 is mandated in terms of the requirement placed by Section 11(2) and where an entity engaged in charitable or religious purposes has not applied 85 percent of the income referred to in Section 11(1) towards those purposes and has chosen to accumulate it for utilization subsequently.

The petitioner had duly submitted both Forms 10 and 10B before the Assessing Officer prior to the completion of assessment proceedings after the last date for the furnishing of a return in terms of Section 139(1). The accumulations under Section 11(2) were also duly accepted in the order of assessment, which ultimately came to be framed on 01 December 2018.

The reassessment action, however, is premised on Form 10 having not been submitted within the time prescribed under Section 139(1) and the petitioner having failed to obtain condonation of delay on account of a belated filing of Form 10.

The petitioner contended that since the requisite forms had been duly submitted before the AO, the proposed reassessment action is rendered wholly arbitrary as the digital submission of Form 10 was merely a procedural requirement. The functionality issues that the assessee faced in uploading Form 10 on the online portal were also acknowledged by the Central Board of Direct Taxes in its Circular No. 7/2018, dated 20 December 2018. In acknowledgement of the constraints, the Circular itself obliged the assessing authorities to examine whether the assessee was prevented by reasonable cause from electronically filing Form 10.

The petitioner contended that although it was unable to electronically upload Form 10 within the time stipulated under Section 11(2), the e-filing of the form was completed on October 5, 2018, and it had also filed the same before the AO along with its reply dated October 15, 2018. The assessment proceeding under Section 143 was ultimately completed, and an order of assessment was drawn on December 1, 2018. The accumulation of income under Section 11(2) came to be duly accepted by the AO.

The department contended that both 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.

The court held that an action for reassessment would have to be based on the formation of an opinion that income chargeable to tax has escaped assessment. The primordial condition would clearly not be satisfied by the mere allegation of a delayed digital filing of Form 10.

Counsel For Petitioner: Rohit Jain

Counsel For Respondent: Shlok Chandra

Case Title: The Associated Chambers Of Commerce And Industry Of India Versus Deputy Commissioner Of Income Tax & Ors.

Citation: 2024 LiveLaw (Del) 879

Case No.: W.P.(C) 10520/2023 & CM APPL. 40791/2023 (Stay)

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