UTTAR PRADESH WATER SUPPLY AND SANITATION MISSION,LUCKNOW vs. ACIT(EXEMPTION) CIRCLE, LUCKNOW

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ITA 360/LKW/2024Status: DisposedITAT Lucknow28 November 2025AY 2017-1831 pages
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What did the Tribunal hold?

The Tribunal, after considering the submissions and materials on record, including the break-up cum reconciliation of fund utilization submitted by the assessee, the Supreme Court decision in Additional Commissioner of Income-tax vs. A.L.N. Rao Charitable Trust, and CBDT Circular No. 7/2018, found that the combined effect of these submissions required detailed factual verification. The Tribunal observed that these aspects had not been given combined consideration by the Assessing Officer or the CIT(A). Therefore, the Tribunal set aside the impugned appellate order of the CIT(A) and restored all matters of dispute regarding the various additions made in the assessment order back to the file of the Assessing Officer. The Assessing Officer is directed to pass a de novo assessment order after considering all relevant materials, including those submitted by the assessee, and after providing a reasonable opportunity to the assessee. All grounds of appeal in both appeals, except ground-1 in the assessee's concise grounds, are treated as disposed of in accordance with these directions. The Tribunal noted that the materials on record were insufficient for a conclusive decision.

What were the facts?

The assessee, Uttar Pradesh Water Supply And Sanitation Mission, and the Revenue have filed cross-appeals for Assessment Year 2017-18 against the order of the Commissioner of Income Tax (Appeals) dated March 29, 2024. The assessee's appeal challenges the validity of the notice under Section 143(2) and the confirmation of additions totaling Rs. 2,69,23,00,312/-. These additions comprise Rs. 1,56,49,34,776/- (alleged surplus over income) and Rs. 1,12,73,65,536/- (unutilised grant). The assessee also disputes the denial of exemption under Section 11. The Revenue's appeal is not detailed in the provided text, but it is implied to be against the CIT(A)'s order. The Tribunal notes that certain aspects require detailed factual verification.

What were the issues?

1. Whether the notice under Section 143(2) dated August 9, 2018, issued by the Income Tax Officer-2(5), Lucknow, based on CASS methodology, is valid, considering the assessee's challenge to its validity based on the relevant provisions of law for the assessment year under appeal and the alleged misinterpretation by the CIT(A) regarding the challenge to the Assessing Officer's jurisdiction and the basis of scrutiny selection. (Section 143(2)) 2. Whether the addition of Rs. 1,56,49,34,776/-, confirmed by the CIT(A) as surplus over income, is factually incorrect, and whether the actual surplus of Rs. 7,11,97,650/- reflected in the income and expenditure account, or the surplus below 15% of gross receipts, is eligible for exemption under Section 11(1)(a). (Section 11(1)(a)) 3. Whether the addition of Rs. 1,12,73,65,536/- (unutilised grant) confirmed by the CIT(A) is erroneous, as the assessee claims it did not claim unutilised amounts as application of income, and whether this amount has resulted in double addition. (Section 11) 4. Whether the denial of exemption under Section 11 of the Act is justified on the grounds of belated filing of Form 10B and pending condonation application, or whether Form 10B was filed within the stipulated time, making the denial erroneous. (Section 11) Assessee's Contentions: - The notice under Section 143(2) is invalid as it was not based on the AO's opinion and the CIT(A) misread the grounds of appeal. - The addition of Rs. 1,56,49,34,776/- is factually incorrect; the actual surplus is Rs. 7,11,97,650/-, which is exempt under Section 11(1)(a) as it is within 15% of gross receipts. - The addition of Rs. 1,12,73,65,536/- is erroneous as it represents unutilised funds not claimed as application of income, and its addition leads to double taxation. - Exemption under Section 11 was wrongly denied; Form 10B was filed within time, and reliance on Circular No. 07/2018 and the ITAT decision is misplaced. - The AO's denial of exemption based on non-furnishing of Form 10 was erroneous, as the assessee applied more than 85% of its income. Revenue's Contentions: - The Revenue relies on the assessment order and the impugned appellate order of the CIT(A). No specific arguments are detailed for the Revenue.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 11(1)(a),Section 11

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Income Tax Appellate Tribunal, LUCKNOW BENCH A, LUCKNOW

Before: SHRI KUL BHARAT & SHRI ANADEE NATH MISSHRA

For Appellant: Shri P. K. Kapoor, C. A

Heard together (2 matters)

I.T.A. No.360/Lkw/2024
I.T.A. No.288/Lkw/2024

Read from the judgment's own cause title. This page is filed under one of them.

(A) These are the cross appeals filed by the assessee and Revenue for the assessment year 2017-18 against the impugned appellate order dated 29/03/2024 (DIN & Order No.ITBA/NFAC/S/250/2023-24/1063656488(1)

& 288/Lkw/2024 Assessment Year:2017-18 2 learned Commissioner of Income Tax (Appeals) [“CIT(A)” for short]. The original grounds taken in assessee’s appeal are as under:

& 288/Lkw/2024 Assessment Year:2017-18 3 & 288/Lkw/2024 Assessment Year:2017-18 4 & 288/Lkw/2024 Assessment Year:2017-18 5 & 288/Lkw/2024 Assessment Year:2017-18 6 (A.1.1) Subsequently, the assessee filed concise grounds of appeal in substitution of the original grounds of appeal. Concise grounds of appeal are as under:

& 288/Lkw/2024 Assessment Year:2017-18 7 & 288/Lkw/2024 Assessment Year:2017-18 8 (A.1.2) In the aforesaid concise grounds of appeal, ground -1 of appeal was not pressed by learned A.R. for the assessee; at the time of hearing. Accordingly, this ground of appeal is dismissed as not pressed.

(Revenue’s appeal) A.Y.2017-18 Grounds of appeal are as under:

& 288/Lkw/2024 Assessment Year:2017-18 9 (B) In this case assessment order dated 30/12/2019 was passed under section 143(3) of the I.T. Act whereby the assessee’s total income was determined at Rs.6,98,01,31,350/- as against the returned income of nil. In the aforesaid assessment order, an addition of Rs.2,69,23,00,312/- was made on account of surplus of income over expenditure in income & expenditure account. A further addition of Rs.3,34,64,76,831/- was made by the Assessing Officer on account of unutilized balance lying with implementing agency. Moreover, an addition of Rs.94,13,54,207/- was made on account of funds in transit. The relevant portion of the assessment order is reproduced as under:

& 288/Lkw/2024 Assessment Year:2017-18 10 & 288/Lkw/2024 Assessment Year:2017-18 11 & 288/Lkw/2024 Assessment Year:2017-18 12 & 288/Lkw/2024 Assessment Year:2017-18 13 & 288/Lkw/2024 Assessment Year:2017-18 14 & 288/Lkw/2024 Assessment Year:2017-18 15 (B.1) The assessee’s appeal was partly allowed by the learned CIT(A) in impugned appellate order dated 29/03/2024. The learned CIT(A) confirmed the aforesaid addition of Rs.94,13,54,207/-. However, the aforesaid additions of Rs.3,34,64,76,831/- and Rs.2,69,23,00,312/- were deleted. The relevant portion of the order of learned CIT(A) is as under:

& 288/Lkw/2024 Assessment Year:2017-18 16 & 288/Lkw/2024 Assessment Year:2017-18 17 & 288/Lkw/2024 Assessment Year:2017-18 18 & 288/Lkw/2024 Assessment Year:2017-18 19 & 288/Lkw/2024 Assessment Year:2017-18 20 & 288/Lkw/2024 Assessment Year:2017-18 21 & 288/Lkw/2024 Assessment Year:2017-18 22 & 288/Lkw/2024 Assessment Year:2017-18 23 & 288/Lkw/2024 Assessment Year:2017-18 24 & 288/Lkw/2024 Assessment Year:2017-18 25 (B.1.1) In the course of appellate proceedings in Income Tax Appellate Tribunal, the following documents were furnished from the assessee’s side:

& 288/Lkw/2024 Assessment Year:2017-18 26 & 288/Lkw/2024 Assessment Year:2017-18 27 & 288/Lkw/2024 Assessment Year:2017-18 28 & 288/Lkw/2024 Assessment Year:2017-18 29 Copy of Hon'ble Supreme Court decision in the case of Additional Commissioner of Income-tax vs. A.L.N. Rao Charitable Trust [1995] 83 Taxman 252 (SC) was also furnished from the assessee’s side.

(B.1.2) In addition, a break-up cum reconciliation of total utilization of fund during the year was also submitted from the assessee’s side, which is reproduced below:

(C) At the time of hearing, the learned A.R. for the assessee placed reliance on the aforesaid documents referred to in foregoing paragraphs (B.1.1) and (B.1.2) of this order. Moreover, he also relied on the impugned appellate order of learned CIT(A) in respect of appeal filed by Revenue. He also placed reliance on CBDT Circular No. 7/2018; dated 20/12/2018. He contended that even if the aforesaid amount of Rs.94,13,54,207/- is treated as assessee’s income; the excess of income over expenditure would still be within the permissible limit of 15%. The learned CIT, D.R. placed reliance on the assessment order. He also placed reliance on the impugned appellate order of learned CIT(A) in respect of appeal filed by the assessee.

& 288/Lkw/2024 Assessment Year:2017-18 30 (D) We have heard both sides. We have perused materials on record. We have given our keen consideration to the break-up cum com reconciliation referred to in foregoing paragraph (B.1.2) of this order filed from the assessee’s side. Further we have also respectfully considered the aforesaid order of Hon'ble Supreme Court referred to in foregoing paragraph (B.1.1) of this order reported at Additional Commissioner of Income-tax vs. A.L.N. Rao Charitable Trust [1995] 83 Taxman 252 (SC). Moreover, we have also considered the CBDT Circular No. 7/2018 in F.No. 197/55/2018-I. T. Act-1; dated 20/12/2018 and the submissions made by learned A.R. for the assessee at the time of hearing to the effect that even if the aforesaid amount of Rs.94,13,54,207/- is treated as assessee’s income, even then the excess of income over expenditure would fall within the permissible limit of 15%. We are of the view that combined effect of these submissions require detailed factual verification. We find from the order of the Assessing Officer as well as the learned CIT(A) that these aspects have not been given combined consideration by them in their respective orders. We are also of the view that these aspects need proper factual verification at the level of the Assessing Officer. The materials on record are insufficient to take a conclusive decision on these aspects of the case. In view of the foregoing, we set aside the impugned appellate order of learned CIT(A) and restore all the matters of dispute regarding various additions made in the assessment order, back to the file of the Assessing Officer with the direction to pass de novo assessment order after taking all relevant materials including the aforesaid materials into consideration, and after providing reasonable opportunity to the assessee. All the grounds of appeal in both appeals, & 288/Lkw/2024 Assessment Year:2017-18 31 except ground-1 in concise grounds of appeal of assessee, are treated as disposed of in accordance with aforesaid directions.

(E) In the result, both appeals are partly allowed.

(Order pronounced in the open court on 28/11/2025)

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