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Facts
The assessee, Municipal Council Dongargarh, a local body, did not file its ITR. The AO initiated reassessment proceedings under Section 148, adding Rs. 3,57,12,724 as unexplained investment in time deposits and Rs. 42,83,870 as interest income, taxing it under Section 115BBE. The CIT(A) upheld these additions.
Held
The tribunal noted that for subsequent assessment years (2019-20 and 2020-21), the Revenue itself had dropped similar proceedings, recognizing the assessee as an 'Urban Local Body' eligible for exemption under Section 10(20). Therefore, the tribunal set aside the impugned order, deleted the assessed income, and allowed the appeal.
Key Issues
The key legal issue was whether the Municipal Council Dongargarh, as an Urban Local Body, was eligible for income tax exemption under Section 10(20) of the Income Tax Act, 1961, for the assessment year 2018-19.
Sections Cited
Section 10(20), Section 69, Section 115BBE, Section 139(1), Section 148, Section 148A(d), Section 250
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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY, JM & SHRI AVDHESH KUMAR MISHRA, AM
O R D E R
Per Avdhesh Kumar Mishra, AM:
This appeal for Assessment Year (‘AY’) 2018-19 filed by the assessee is directed against the order dated 26.08.2025 of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [‘CIT(A)’] passed under section 250 of the Income Tax Act, 1961 (‘Act’).
The assessee has raised following grounds of appeal: - “1. That under the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming addition of a sum of Rs.3,57,12,724/- for the money deposited in bank holding the same to be unexplained investment in terms of section 69 read with 1. Municipal Council Dongargarh vs. ITI, Ward-1/Rajnandgaon section 115BBE of the Income Tax Act, 1961. The addition is unjustified and need to be deleted.
2. That under the facts and in the circumstances of the case, the Ld.CIT(A) erred in confirming addition of a sum of Rs.42,83,870/- for the interest received from State Bank of India and Chhattisgarh State Power Distribution Company Limited in terms of section 69 read with section 115BBE of the Income Tax Act, 1961. The addition is unjustified and need to be deleted.
The assessee craves leave to add, alter, amend or withdraw any ground or grounds of appeal before or at the time of hearing.”
3. The relevant facts giving rise to this appeal are that the assessee, a local body, got its PAN mistakenly allotted in the status of Partnership Firm, is a non- filer of its Income Tax Return (‘ITR’) within prescribed time limit provided under section 139(1) of the Act. The Ld. Assessing Officer (‘AO’), based on the information available with him that the assessee, a non-filer of ITR had made an investment of Rs.3,57,12,724/- in Time Deposits and had interest income of Rs.42,83,870/- during the relevant year, initiated the proceedings under section 148 of the Act after recording the reasons thereof. During the re-opened assessment proceedings, the assessee failed to ensure any compliance though many opportunities of being heard as detailed on Page No. 2 of the assessment order. Therefore, the Ld. AO concluded the assessment by taxing the investment of Rs.3,57,12,724/- in Time Deposit as un-explained investment and interest of Rs.42,83,870/- as income under the head other sources. The taxes on the assessed income of Rs.3,99,96,590/- was charged to tax under section 115BBE of the Act. Aggrieved with said assessment order, the assessee filed an appeal before the Ld. CIT(A), who dismissed the appeal as under:
2 Municipal Council Dongargarh vs. ITI, Ward-1/Rajnandgaon 3 Municipal Council Dongargarh vs. ITI, Ward-1/Rajnandgaon 4 Municipal Council Dongargarh vs. ITI, Ward-1/Rajnandgaon
At the outset, Ms. Swati Khandelwal, CA, learned Authorized Representative of the assessee drew our attention to the fact that the Ld. AO vide orders dated 19.03.2023 and 23.03.2024 passed under section 148A(d) of the Act with the approval of the Ld. Principal Commissioner of Income Tax dropped the proceedings of AYs 2019-20 and 2020-21 respectively. The relevant part of the order dated 23.03.2024 passed under section 148A(d) of the Act for AY 2020-21 reads as under: “5.1 Reference is further drawn on Chapter Ill of the Income Tax Act, 1961: "Incomes Which Do Not Form Part of Total Income". As per the provisions defined under sub-section (20) of section 10 of the Income Tax Act which reads as under: The income of a local authority is chargeable under the head "Income from house property", "Capital Gains" or Income from Other Sources" or a business carried on by it which accrues or arises from the supply of a commodity or service being water or electricity within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area" - For the purpose of this clause the term 'Local Authority' has been defined as under: 1. Panchayat as referred to in clause (d) of Article 243 of the Constitution; or 2. Municipality as referred to in clause (e) of Article 243P of the Constitution; or 3. Municipal Committee and District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund; or 4. Cantonment Board as defined in Section 3 of the Cantonments Act, 1924 (2 of 1924) 1924) 5 Municipal Council Dongargarh vs. ITI, Ward-1/Rajnandgaon
6. In view the discussion held in the foregoing paras and the provisions of law as laid down under section 10(20) of the Income Tax Act, the "Municipal Council, Dongargarh" being covered under the definition of a local authority, its income is treated as exempt. Therefore, this case is not found to be a fit case to be proposed for reopening under the provisions of section 148 of the Income Tax Act.
7. In view of the discussion made in above paras, the income of the assessee i.e., "Municipal Council, Dongargarh" to the extent of Rs. 1,05,52,029/- for F.Y. 2019-20 relevant to A.Y. 2020-21 is treated as exempt under section 10(20) of the Income Tax Act.. Therefore, the case of the assessee is Not found to be a fit for issuance of notice u/s 148 of the Act for A.Y. 2020-21. Since, in this case, less than 3 years have elapsed from the end of the relevant assessment year i.e. A.Y. 2020-21, therefore, this order u/s 148A(d) of the Act is being passed after taking necessary approval from the Specified Authority under section 151(i) of the Act i.e. the Hon'ble Principal Commissioner of Income Tax-1, Raipur within limitation date 31.03.2024.”
4.1 In view of orders dated 19.03.2023 and 23.03.2024 passed under section 148A(d) of the Act wherein the similar proceedings initiated in subsequent years were dropped with the approval of the Ld. Principal Commissioner of Income Tax; the Ld. AR prayed for allowing the appeal of the assessee treating it as an “Urban Local Body” as the assessee was registered as an “Urban Local Body” on 25.02.1941, whose income was eligible for exemption under section 10(20) of the Act. She further puts emphasis on the provisions of section 10(20) of the Act and the findings of the Ld. AO in subsequent years on similar set of facts. She prayed for allowing of appeal by deleting the entire assessed income.
6 Municipal Council Dongargarh vs. ITI, Ward-1/Rajnandgaon
On the other hand, Shri Yogesh Kumar Sharma, Ld. CIT-DR appeared in agreement with the submissions/contentions/arguments of the Ld. AR for allowing the appeal as the assesse was a local body.
We have heard both parties at length and have perused the materials available on record. We have taken note of the orders dated 19.03.2023 and 23.03.2024 passed under section 148A(d) of the Act with the approval of the Ld. Principal Commissioner of Income Tax dropping the proceedings of AYs 2019-20 and 2020-21 respectively. In view of the fact that when the Revenue has held that the assessee is a “Urban Local Body” eligible for exemption under section 10(20) of the Act in subsequent years, we do find merit in the submissions/contentions/ arguments of the Ld. AR. We therefore, hold that the assesse is a “Urban Local Body” eligible for exemption under section 10(20) of the Act. We therefore, set aside the impugned order and delete the income assessed by the Ld. AO and upheld by the Ld. CIT(A). The assessee gets consequential relief.
In the result, the appeal of the assessee is allowed as above.
Order pronounced in the open court on 06/02/2026. (PARTHA SARATHI CHAUDHURY) (AVDHESH KUMAR MISHRA) "ाियक सद" / JUDICIAL MEMBER लेखा सद" / ACCOUNTANT MEMBER रायपुर / Raipur; िदनांक Dated 06/02/2026 HKS, PS 7 Municipal Council Dongargarh vs. ITI, Ward-1/Rajnandgaon