TaxTMI 
TaxTMI 
2026 (7) TMI 339
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....rroneous and unsustainable in the facts and circumstances of the case. (2) The learned CIT(A) ought to have appreciated that the appellant exercised the option under clause (2) of the Explanation to sub-section (1) of Section 11 of the I.T. Act, 1961 for the previous year relevant to the assessment year 2015-16. (3) The learned CIT(A) ought to have appreciated that the Form No.9A prescribed for exercising option under clause (2) of the Explanation to sub-section (1) of Section 11 of the I.T. Act, 1961 is applicable only with effect from the Asst. Year 2016-17. (4) The learned CIT(A) ought to have appreciated that the option exercised has been mentioned in the Summary of Total Income and the relevant column of ITR has been filled up properly amounts to exercising of option in writing. (5) The learned CIT(A) ought to have appreciated that the appellant did not exercise the option to accumulate the Income and spend the same in the subsequent years u/s. 11(2) of the I.T. Act, 1961. 6) The learned CIT(A) ought to have appreciated that for accumulation of Income u/s. 11(2) of the Act, the appellant is required to file Form No. 10 before the du....
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.... be exercised in writing before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income, be deemed to be income applied to such purposes during the previous year in which the income was derived; and the income so deemed to have been applied shall not be taken into account in calculating the amount of income applied to such purposes during the year in which it is actually applied." 4. The AO required the assessee to give the reason for exercising the option and whether the option was exercised before the AO within the time allowed. The assessee by his letter dated 19.12.2017 has given the reasons as under. "The substantial portion of the amount has been received during the last quarter of the relevant year. The amount was earmarked for the purpose of the meeting the capital expenditure in the following year. The trust is running Educational Institutions in 4 or 5 different places and provides Education to students from LKG to Post Graduation. The construction additional class rooms for running the schools and colleges and major repairs to existing infrastructure can be carried out in Educational Institutions only d....
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.... option of deemed application u/s. 11(1) Explanation 1(ii)(b), and if not, whether the AO was justified in disallowing the claim. 6.5 It is not in dispute that the appellant applied a sum of Rs. 24,32,77,334/-during the year against 85% of receipts of Rs. 24,80,75,790/-, leaving a shortfall of Rs. 47,98,456/-. The appellant sought to bridge this shortfall by claiming Rs. 3.40 crores as deemed application under Explanation 1(ii)(b). The AO noted that no Form 10 was filed before the due date u/s. 139(1). The AO, therefore, held that the claim was invalid and added the shortfall to income. 6.6 The appellant's primary contention that filing of Form 10 was not required and that exercise of option in writing sufficed, cannot be accepted. The statute, as it stood, read with Rule 17 of the Income Tax Rules, requires that such option be exercised in the prescribed manner, namely by filing of Form 9A (for deemed application under Explanation 1(ii)(b)) and Form 10 (for accumulation under section 11(2)) by electronic filing mandatory before the expiry of the time allowed under subsection (1) of section 139 of the Act, for furnishing the return of income. Even prior thereto, c....
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....t is filing the prescribed form before due date. Several Courts rulings have reiterated that filing Form 10 within due time is mandatory. Unless this condition is fulfilled, subsequent spending cannot entitle the assessee to retrospective benefit." 7. Aggrieved by the order of the ld.CIT(A) preferred an appeal before us. The ld.AR for the assessee submitted that both the lower authorities have not appreciated the claim of the assessee and hence applied the wrong provisions of the Act which are not applicable to the AY in appeal. It is the claim of the ld.AR that they had applied Explanation 2(ii)(b) to sec 11(1) contains two options (i) The Assessee can carry forward income representing the shortfall in application of 85% of income in the relevant previous year, for the permitted period of 5 years to be applied subsequently or(ii) if 85% of income cannot be applied for any reason, the assessee can apply the same within 6 months of the immediate subsequent previous year. For the Assessment year under appeal, there was no requirement for filing any form intimating the carry forward. Rule 17 of IT Rules dealing with carry forward of the surplus of income which requires to be applie....
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....(b) to sec 11(1) of the Act. 10. As the reason for postponing the application to the succeeding 6 months cannot be held as unreasonable, the same has to be accepted and assessee's claim of deemed application under explanation 2(ii)(b) of section 11(1) of the Act should be accepted. As the AO was informed prior to the completion of assessment, the provisions are sufficiently complied with in view of the ratio of the decision of the Apex Court in the case of CIT v. Nagpur Hotel Owners' Association (247 ITR 201) held as below: "It is abundantly clear from the wordings of sub-section (2) of Section 11 that it is mandatory for the person claiming the benefit of Section 11 to intimate to the assessing authority the particulars required, under Rule 17 in Form No.10 of the Act. If during the assessment proceedings the Assessing Officer does not have the necessary information, question of excluding such income from assessment does not arise at all. As a matter of fact, this benefit of excluding this particular part of the income from the net of taxation arises from Section 11 and is subjected to the conditions specified therein. Therefore, it is necessary that the assessing auth....
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....the case of the assessee that the shortfall was not claimed to be accumulated and spent over a period of 5 years, but the claim was under the other option to spend it within the next 6 months from the end of the previous year and which stands satisfied. Hence filing the option in Form 10 does not arise. Even the requirement of filing of option to accumulate in Form 10 became applicable only from A.Y.2016-17. According to ld.AR, once the AO's rejection of assessee's petition for applying the shortfall in application in year under appeal within the next 6 months cannot be rejected as unreasonable (as ld.CIT(A) himself has accepted), the rejection of assessee's claim for failure to file Form 9A/10 does not arise in the AY under appeal and hence the orders of the lower authorities require to be set aside and assessee's claim allowed. 13. Per contra, the ld.DR supported the orders of the authorities and submitted that, it is apparent from the records that the assessee had not filed the prescribed form to carry forward the unspent amount in excess of 15% of the gross collections of the assessee for the impugned A.Y.2015-16. Therefore, the ld.DR prayed for confirming the orders of t....
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....a period extending beyond the year of receipt, subject to fulfilment of prescribed conditions including filing of Form No.10. On the other hand, Explanation 2(ii)(b) to section 11(1), as applicable to the A.Y. 2015-16, provided a separate statutory mechanism whereby income not applied during the relevant year for any reason could, at the option of the assessee exercised in writing before the due date prescribed u/s. 139(1) of the Act, be deemed to have been applied if the same was actually applied during the immediately succeeding previous year. 18. The record clearly demonstrates that the assessee never invoked section 11(2) nor sought accumulation of income for the extended period contemplated therein. The claim of the assessee was exclusively under Explanation 2(ii)(b) to section 11(1). Therefore, the insistence by the AO and the ld.CIT(A) upon compliance with section 11(2) and filing of Form No.10 is legally misconceived and proceeds on an erroneous understanding of the statutory scheme. We further find considerable merit in the contention of the assessee that for A.Y.2015-16, the law merely required the option to be exercised in writing before the due date prescribed u/s. 1....