What did the Tribunal hold?

The Tribunal held that the grants were 'tied up grants' received for specific purposes and did not form part of the assessee's income. The tax authorities erred in treating them as revenue receipts.

The assessee, a trust involved in rural development, received grants from the Government of India. The tax authorities treated these grants as taxable revenue receipts, arguing the assessee failed to establish their capital nature.

What were the issues?

The primary issue was whether grants received by the assessee from the Government of India were capital receipts or revenue receipts taxable as income.

Which sections of the Income-tax Act were involved?

Section 143(3), Section 250, Section 254

Gramin Vikas Sanshodhan Va… vs ITO | s.143(3), 250 | ITAT Nagpur 2026

Income Tax Appellate Tribunal, NAGPUR BENCH :: NAGPUR

Before: SHRI ANUBHAV SHARMA & SHRI KHETTRA MOHAN ROY

For Appellant: Shri Rajesh Loya, CA

For Respondent: Shri Surjit Kumar Saha, Sr.DR

Hearing: 12.06.2026Pronounced: 15.06.2026

PER ANUBHAV SHARMA, JM

These appeals filed by the same assessee are directed against the separate orders of National Faceless Appeal Centre, Delhi, (for short, “CIT(A)”), all dated 13/06/2025 passed under section 250 of the Income Tax Act, 1961 (for short, “Act”) which are emanating from the different

ITA Nos. 520-522/NAG/2025 (Gramin Vikas Sanshodhan Va Prashikshan Sanstha) assessment orders all dated 27.12.2016 passed u/s. 143(3) r.w.s. 254 of the Act by the ITO, Ward-2(3), Nagpur for the Assessment Years (AY) 2006-07 to 2008-09 respectively.

These appeals were heard together and accordingly, adjudicated by this common order. The issue involved in these appeals is the taxability of grants received by the assessee from Government of India which the Ld. Tax Authorities have considered to be taxable as the assessee allegedly failed to establish by evidences that the grants are part of the grants received bearing the character of capital receipts on the basis of purpose test which recognized by judicial precedents in the case of CIT vs. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 397 and Sahney Steel & Press Works Ltd. vs. CIT [1997] 228 ITR 253 .

2.1 Learned DR has, though, vehemently relied the impugned orders and submitted that the assessee has failed to establish the nature of grants and also at 2

ITA Nos. 520-522/NAG/2025 (Gramin Vikas Sanshodhan Va Prashikshan Sanstha) discriminately accounted the same, there is no error in the impugned orders.

We find from the material on record and the submissions that the assessee is a trust with primary activity of facilitating the agricultural and rural development, cattle breeding and dairy development, crafts, vocational training, medical and educational services to poor. Assessment orders were passed in the year 2010 and the same were subject to appeal before the Ld. CIT(A) and before this Tribunal; and vide ITA No. 62/NAG/2014, dated 04/09/2015, the Coordinate Bench considered the issue with regard to the issues involved and had set aside the matter to the files of Ld. AO to consider the issue of taxation of assessee’s income in the light to directions given by the Bench in its order dated 04.09.2015 (supra).

We find from the order dated 04.09.2015 (supra), the Coordinate Bench has made a very categoric observation that the accounting entries are not determinative of the 3

ITA Nos. 520-522/NAG/2025 (Gramin Vikas Sanshodhan Va Prashikshan Sanstha) actual nature of the transaction and thereby, dismissed the plea of the department. That the assessee should be given liberty to recasts its accounts. That the Bench has also observed that the income which is exempt cannot be subject to tax because of mistake or error on the part of the assessee, in offering the same for taxation. Thus, the Bench had observed that there cannot be any dispute to the proposition that Government grants should be taxed as per their nature and the accounting standards/ guidelines issued in this regard.

Now, when the matter was taken up by the Ld. AO afresh in the light of the order dated 04.09.2015 (supra), Ld. AO observed “So far as the grant received from the Government is concerned, with the absence of any evidence produced to the contrary, the same is being treated as a revenue receipt and is therefore liable to be taxed” Further, Ld. AO has disallowed the capital expenditure out of this grant, which stands sustained partly by the Ld. CIT(A).

ITA Nos. 520-522/NAG/2025 (Gramin Vikas Sanshodhan Va Prashikshan Sanstha) 6. Learned counsel for the assessee has drawn our attention to the evidences and the submissions of the assessee as part of the paper book at page Nos. 26-29, there is a reply dated 16.12.2016 along with annexures which was filed before the Ld. Ld. AO, then at page Nos. 35-39, there is a copy of reply dated 20.12.2016 along with Annexures, at page No. 40-42 is a copy of reply dated 21.12.2016 along with Annexures and at page No. 43, there is a reply filed before the Ld. AO dated 23.12.2016.

Now when we consider the submissions as filed and the Annexures, we find that assessee was in receipt of the grants in respect of Special Project under Swaranjayanti Gram Swarozgar Yojna (SGSY) and Director, SGSY has disbursed funds to Pay & Accounts Officer, Ministry of Rural Development, Krishi Bhavan, New Delhi with a direction that these funds will be released to Project Director, DRDA, Nagpur and the same shall be grants-in- aid to be utilized for the purpose for which it has been sanctioned and shall not be diverted for any other purpose.

ITA Nos. 520-522/NAG/2025 (Gramin Vikas Sanshodhan Va Prashikshan Sanstha) The letter shows that there has to be a State Government contribution of 1/3rd share. This letter mentions that the expenditure shall be debited in a particular head which indicate the same is plan expenditure. At Page No. 32, a copy of letter dated 16.05.2006 is placed wherein assessee has informed the Project Director, DRDA, Nagpur about the utilization of Rs. 1.28 crores as per SGSY. At page No. 33 there is a utilization certificate as required to be given under the scheme.

Now, these documents being there available with the Ld.AO, same have been completely left out of consideration and these documents categorically establish that the grants were received for specific purpose and did not form part of the assessee’s corpus or its income. These were tied up grants for specified purpose received as part of expenditure of Government of India. The expenditure of these grants have been duly verified by the assessee to be completely in accordance with the SGSY.

ITA Nos. 520-522/NAG/2025 (Gramin Vikas Sanshodhan Va Prashikshan Sanstha) 9. Thus, we are of the considered view that Ld. CIT(A) has fallen in error in concluding that the assessee had failed to establish the purpose test. We are of the considered view, Ld. Tax Authorities have failed to appreciate the nature of grant and its consequent utilization by the assessee as per the terms of grant. We, thus, find substance in the contention of the learned counsel for the assessee that since the “tied up grants” cannot be treated as income of the assessee, Ld.Tax Authorities have erred in making the additions and for aforesaid principle, we sustain the reliance of learned counsel for the assessee on the decision of Hyderabad Bench in the case of Nirmal Agricultural Society vs. ITO [1999] 71 ITR 152 (Hyd) and DDIT vs. Centre for World Solidarity in ITA No. 1443/HYD/2014 dated 29.04.2016 along with C.O.No. 58/HYD/2014 order dated 24.09.2016 wherein the ratio laid down in the case of Nirmal Agricultural Society (supra) has been followed.

ITA Nos. 520-522/NAG/2025 (Gramin Vikas Sanshodhan Va Prashikshan Sanstha) 10. In the light of aforesaid discussion, the corresponding grounds in the appeals are sustained and the appeals are allowed. Ld. AO shall recompute the income as per aforesaid determination of the issues.

11.

In the result, all the appeals filed by the assessee stand allowed.

Order pronounced in open Court on 15.06.2026

sd/- sd/- ANUBHAV SHARMA KHETTRA MOHAN ROY ACCOUNTANT MEMBER JUDICIAL MEMBER

Nagpur: Dated: 15/06/2026 vr/- Copy to: 1. The Assessee 2. The Revenue 3. The Pr.CIT concerned. 4. The DR, ITAT, Nagpur 5. Guard file. By order Vukkem Digitally signed by Vukkem Rambabu Rambabu Date: 2026.06.16 17:50:29 +05'30' Senior Private Secretary ITAT, Nagpur 8

GRAMIN VIKAS SANSHODHAN VA PRASHIKSHAN SANSTHA,NAGPUR vs. INCOME TAX OFFICER, WARD-2(3), NAGPUR

What did the Tribunal hold?

What were the facts?

What were the issues?

Which sections of the Income-tax Act were involved?

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