Reopening quashed as Form No. 10 have limited space to fill reasons of accumulation of income u/s 11(2) and resolution was provided.
In a recent judgment, Bombay High Court has quashed reopening order holding that the contents of Form No. 10 have limited space to fill reasons of accumulation of income under section 11(2) of the Income Tax Act, 1961 and therefore the Form also requires details of resolution passed by the Trust.
ABCAUS Case Law Citation:
4845 (2025) (11) abcaus.in HC
In the instant case, the Petitioner Trust had challenged the Notices issued under Section 148A(b), the order passed under Section 148A(d) and the Notice issued under Section 148 of the Income Tax Act, 1961 (the Act).
The Petitioner assessee was a charitable Trust registered under section 12A of the Act. It filed its Return of Income for the relevant Assessment Year claiming exemption under section 11 of the Act. The Petitioner also filed Form No. 10, under Section 11(2) of the Act regarding accumulation of income.
The Petitioner’s case was selected for complete scrutiny on grounds of accumulation of income. The Petitioner complied with queries regarding accumulation of income and inter alia provided copy of the resolution of Trustees for each accumulation under section 11(2) for last ten years and the utilisation as per the format provided in the notice.
Subsequently NFAC passed the Assessment Order under Section 143(3) accepting the accumulation made.
However, after three years, the Income Tax Department issued a notice to the Petitioner under Section 148A (b) of the Act stating that the assessee had not specified the reason for utilization of accumulated income u/s 11(2) in Form No. 10.
The Petitioner replied stating that Form No. 10 has extremely limited space to report on the detailed proposed utilisation of accumulation of income and as such only a short summation can be stated. The full details can only be in the accompanying resolution.
However, the objections of the Petitioner were rejected and the Assessing Officer (AO) referred to the audit objections on the issue that the Petitioner in Form No. 10 had not mentioned the particular purpose for which the income was being accumulated.
The AO held that Resolution of Trustees submitted by the Petitioner was passed well beyond the due date for filing the return of income and Form 10 and the resolution was passed to cover up the issue for the purpose of accumulation after the case was selected for scrutiny.
As a result, notice under section 148 of the Act was issued to the assessee.
The Hon’ble High Court noted that core requirements of section 11(2) of the Act for claiming the benefit of accumulation of income along with corresponding Rule 17 which prescribed Form No. 10.
The Hon’ble High Court noted that Form 10 was filed by stating that the Petitioner had accumulated or set apart the income for the purpose, more particularly, mentioned in the limited space provided in Form 10, which was filed electronically, as prescribed by the Rule. The Petitioner had also mentioned the date of Resolution by which the income is accumulated or set apart. Form 10 is a Form provided to the Petitioner by the Rules, and the Petitioner has merely filled in the details. The purpose as required by the Section is also clearly stated in Form 10 by the Petitioner.
The Hon’ble High Court further observed that when the NFAC passed the assessment order, all the details and material particulars which are required to be furnished by virtue of the provisions of Section 11(2) of the Act were provided by the Petitioner.
The Hon’ble High Court noted that the reasons stated in the impugned notices and the impugned order were factually wrong. The Petitioner in Form 10 had specifically stated the particular purpose for which the income was accumulated to meet the requirements of Section 11(2) of the Act. Additionally, the Petitioner had also provided a copy of the Resolution, which was already mentioned in Form 10 filed by the Petitioner.
The Hon’ble High Court opined that it was not the fault of the Petitioner that a more specific purpose could not be mentioned in Form 10 due to the limited space provided therein. The Petitioner had repeatedly pointed out this practical difficulty in its reply to the notice issued. Therefore, the reasons given by AO that there was no compliance with Section 11(2) of the Act was factually wrong. The purpose stated by the Petitioner in Form 10 for accumulating or setting apart the income of the Petitioner in Form 10 was more than sufficient, and was as contemplated by Section 11(2) read with Rule 17 of the Act. Additionally, a copy of the Resolution was also given. The AO clearly erred in reading the copy of the Resolution. The findings that the Resolution was passed beyond the due date for filing the return was factually wrong.
The Hon’ble High Court opined that it is the Revenue that provides the format and the contents of Form No. 10. The only way by which Form 10 can only be filled in and submitted is electronically. There is no scope for the assessee to make any changes in the Form. If that is the only way to comply, the assessee cannot be faulted for noncompliance.
The Hon’ble High Court held that looking at the format and the contents of Form 10, in which the Assessee is required to fill in the details, clearly shows that limited space in the Form is contemplated, and therefore the contents of the Form also require the Assessee to give details of the resolution passed by the Assessee Trust.
The Hon’ble High Court further opined that the plain language of Section 11(2) is unambiguous and mandatory. Once the requirements of the Section are fulfilled, then the mandatory provisions, ‘such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of income’, triggers, and therefore the assessees, after fulfilling the requirements of section 11(2), as a matter of right become entitled for the benefit of Section 11(2) of the Act. Once the assessees fulfill the requirements and conditions, the Assessing Officer has no discretion to reject and disallow the Assessees claim for accumulation or setting apart the income under Section 11(2) of the Act.
The Hon’ble High Court further observed that it is settled law that the proceedings under Section 148 of the Act cannot be initiated to review the earlier stand adopted by the Assessing Officer. The Assessing Officer cannot initiate reassessment proceedings to have a re-look or re-examine the documents that were filed and considered by him in the original assessment proceedings.
The Hon’ble High Court held that the order initiating the re-assessment had been based not only on a change of mind but also on the nonapplication of the mind.
Accordingly, the Hon’ble High Court quashed and set aside the impugned show cause notices and orders.
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