The Delhi High Court has ruled that an assessee is eligible for exemptions under Sections 11(1) and 11(2) of the Income Tax Act, and a procedural omission like not filing the audit report with the return of income cannot legally impede claiming the exemption.
The 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, challenged the reassessment for the 2016-17 Assessment Year.
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The reassessment proceedings were initiated due to the petitioner’s failure to upload Form 10 before the deadline under Section 139. Forms 10 and 10B are required by Sections 11(2) and 12-AA, respectively. Form 10 is necessary if an entity engaged in charitable or religious purposes has not applied 85% of its income under Section 11(1) and opts to accumulate it for future use.
The petitioner submitted both Forms 10 and 10B before the Assessing Officer before the assessment was completed. However, reassessment was based on Form 10 not being submitted within the time prescribed by Section 139(1) and the failure to obtain a delay condonation.
The petitioner argued that since the forms were submitted to the AO, the reassessment was arbitrary, as the digital submission of Form 10 was merely procedural. The Central Board of Direct Taxes acknowledged issues with the online portal in Circular No. 7/2018, and the circular required assessing authorities to consider if the delay was due to reasonable cause.
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The petitioner also argued that the form was eventually e-filed on October 5, 2018, and submitted to the AO with a reply on October 15, 2018. The assessment was completed on December 1, 2018, and the income accumulation under Section 11(2) was accepted.
The department argued that Section 11(2)(c) and Rule 17 require Form 10 to be filed before the deadline for returns under Section 139. The failure to do so provided grounds for invoking Section 148.
The High Court Division Bench of Justices Yashwant Varma and Ravinder Dudeja noted that the electronic submission of Form 10B is a procedural requirement rather than a mandatory condition within substantive law.
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The Delhi High Court thus held that reassessment requires a belief that income chargeable to tax has escaped assessment, which cannot be based solely on the delayed digital filing of Form 10.
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