The correct option is
D Formation of reduction bodies
A. Water is constantly circulated in canal system as it enters through ostia and leaves through osculum.
B. Since there is a continuous flow of water because of canal system, gaseous exchange takes place between cells of sponges and the flowing water.
C. Sponges are holozoic organisms and do not have a digestive system. The food particles are directly ingested with the help of choanocytes present in the flagellated chambers of canal system.
D. Reduction bodies are not associated with canal system. They are formed when a sponge disintegrates under adverse conditions, leaving behind small rounded balls called reduction bodies. When conditions become favourable, reduction bodies grow into sponge.
Hence, formation of reduction bodies is not connected with canal system.
So, the correct answer is 'Formation of reduction bodies'.