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Judgment
PER BRAJESH KUMAR SINGH, AM,
This appeal by the assessee is directed against the order dated 20.08.2025 of National Faceless Appeal Centre (NFAC) [hereinafter referred to as the ‘Ld. CIT(A)] arising out of the Assessment Order dated 16.03.2024 passed under section 143(3) r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as the ‘the Act’) by the Assessment Unit, Income Tax Department (hereinafter referred to as the AO) pertaining to Assessment Year (A.Y.) 2022-23.
Ground no. 1 of the appeal is general in nature and requires no separate adjudication.
Brief facts of the case: The assessee Market Committee Taraori is a Local authority in status. The assessee had filed its ITR for A.Y. 2022-23 on 30.09.2022 declaring Total income at Rs. Nil/-. The return of income was processed u/s.143 (1) on 14.10.2022. Subsequently, the case was selected for scrutiny under CASS for the following reasons:
Substantial increase in capital in a year
High Liabilities as compared to low income/receipt
In the return of income filed for A.Y. 2022-23, under schedule Exempt income assessee had claimed Rs. 6,13,02,436/- as exempt income as under:
On perusal of the return, the AO noted that the assessee had not mentioned under what section, the amount mentioned of Rs. 6,13,62,436/- was claimed to be exempt and also how the amount was arrived at. On perusal of the e-filing portal, it was noticed by the AO that assessee had not uploaded the audit report u/s 12 A (1)(b) of the Act, and further the balance sheet and the income and expenditure statement alongwith the schedules were not been filed by the assessee for the A.Y.2022-23, without which assessee's claim could not be verified.
During the course of assessment proceedings, the assessee was asked to furnish the details of current liabilities of Rs. 6,36,40,439/- and evidence in support of claim of exempt income of Rs. 6,13,02,436/-. The relevant query of the AO vide notice u/s 142(1) of the Act dated 14.07.2023 is reproduced as under:
“ 4. In the return of income filed for A.Y. 2022-23, the assessee has admitted the current liabilities at Rs. 6,36,40,439/-. In this regard you are requested to furnish the details as under:
S. No. Name and Amount Email Id of Confirmation Relationship PAN of the the creditor and ledger creditor copy from the creditor
5.In the return of income, you have admitted total of exempt income at Rs. 6,13,02,436/-However, assessee has not given the details of the exempt income in any other row. Hence you are requested to furnish the entire details with evidence thereon for the receipt and also how the same is exempt as per the income tax Act.
In reply the assessee submitted a reply as under:
“With due respect it is submitted that the market committee taraori is established by the STATE GOVT OF HARYANA UNDER PUNJAB AGRICULTURE MARKET PRODUCE ACT 1961 for improved regulation in marketing of agricultural produce, development of efficient marketing system, promotion of agri-processing and agricultural export and the establishment and proper administration of markets for agricultural produce in notified area. Copy of notification is enclosed here with for your kind perusal.
Sir all the income of market committee is exempt us 10(26)(AAB) of income tax act 1961.
It is submitted that market committee is a local authority and established by the Govt of Haryana vide its notification 1985 copy enclosed.
It is submitted that market committee are governed by the PUNJAB AGRICULTRUAL MARKET PRODUCE ACT 1961 (amended time to time).
Sir market committee is cover under the section 10(26)(AAB) all the income is exempt please accept my Income Tax Return & obliged.”
The AO, on perusal of the reply, noted that the assessee submitted that all its income from the Market Committee was exempt under section 10(26)(AAB) of the Act. However, the AO noted that the assessee did not furnish the details of creditors as admitted in the return of income. Further, in respect of the exempt income claimed by the assessee amounting to Rs. 6,13,02,436/-, the AO noted that the assessee had not uploaded the audit report under section 12A(1)(b) of the Act. The AO also observed that the assessee did not submit its balance sheet and income of expenditure statement along with schedules; therefore, the assessee’s claim could not be verified. A show cause notice dated 31.01.2024 was again issued to the assessee, and according to the AO, there was no compliance with the same. Accordingly, the AO added a sum of Rs. 6,36,40,439/- under section 68 of the Act and disallowed the claim of exempt income amounting to Rs. 6,13,02,436/-.
Aggrieved by the said order, the assessee filed an appeal before the Ld. CIT(A), wherein the explanation regarding the above addition/disallowance was stated in the grounds of appeal, which are reproduced as under:
“ -1. With reference to the sundry creditors amounting to Rs. 6,36,40,439, SIR SUNDRY CREDITORS FOR THE YEAR UNDER CONSIDERATION I.E. FINANCIAL YEAR 2021-22 INCLUDES:-PARTICULARS AMOUNT DUE TO PLOT HOLDER 57032000 SECURITY 1664950 CONTRIBUTION PAYABLE TO HSAMB 4901738/-. Market Committees liabilities majorly includes amount due to plot holder. Sir market committee is also develops mandi& sell shops in the auction and advances for such sale is accepted by the market committees and same is shown in the balance sheet. At the time of the auction, 10 percent of Bid value deposited by the bidder. Then after this auction, allotment of shops is made by HSAMB and shops allotment is issued to the successful bidder Amount received from the successful bidder before allotment is made is shown under the current liability. Sir copy of the balance sheet for the year under consideration i.e. F.Y. 2021-22 has been attached for your kind perusal.
1.With reference to the amount of Rs. 6,13,02,436/-claimed in schedule exempt income, it is submitted that market committee is engaged in collection of fees on sale of agriculture produce in notified area at the prescribed rate by the government, out of which 30% share of proceeds belongs to H.S.A.M.B. and remaining 70% share belongs to respective Market Committee. Sir these is the main source of income of Market Committee and as mentioned earlier all the income is exempt from the Income Tax Act, 1961 u/s 10(26) (AAB). As per Section 10(26AAB) of the Income Tax Act, any income of an APMC or a board, which is constituted under any law for the purpose of regulating the marketing of agricultural produce, shall not be included in its total income Sir copy of the notification and balance sheet for the year under consideration i.e. F.Y.2021-22 has been attached for your kind perusal.”
The Ld. CIT(A), in para 6.4.6 of the order, deleted the addition of Rs. 6,13,02,436/- and allowed Ground Nos. 2 to 5 raised by the assessee. However, the said amount of Rs. 6,13,02,437/- was confirmed by the Ld. CIT(A) in respect of Ground No. 3, holding that the assessee could not submit the source of the difference in the capital account amounting to Rs. 6,13,02,437/-, i.e., the difference of capital amount of Rs. 1,31,76,01,808/- minus Rs. 1,25,62,99,372/- as on 31.03.2021. The relevant discussion of the Ld. CIT(A) in para nos. 6.4.6 and 6.5.3 is reproduced as under:
“ 6.4.6 As the appellant, Market Committee Taraori is established by the State Govt. of Haryana Under Punjab Agriculture Market Produce Act, 1961 for improved regulation in marketing of agricultural produce, development of efficient marketing system, promotion of agri-processing and agricultural export and the establishment and proper administration of markets for agricultural produce in notified area. Appellant has provided the copy of Notification dated 13/03/1996 issued by Haryana Government Agriculture Department. Therefore, the appellant is entitled for exemption u/s 10(26AAB), hence addition made on account of disallowance of exempt income claimed of Rs.6,13,02,436/- is deleted and Ground No. 2 & 5 of appeal raised by appellant are allowed.
6.5.3I have considered the submission made by the appellant, assessment order and all materials available on record. The claim of the appellant that he has not shown opening balance in R.O.I. is acceptable being there is no column in ITR, but the appellant has not filed audit report u/s 12AA(1b) of the Income Tax Act for A.Y. 2022-23 on the Income Tax Portal. Therefore, balance sheet and audit report submitted by the appellant during appellate proceedings are not open for verification. However, on perusal of balance sheet of A.Y. 2021-22, it is noticed that closing balance of capital as on 31.03.2021 is at Rs125,62,99,371.95/-. Therefore, the submission of the appellant regarding opening balance as on 01.04.2021 of capital at Rs125,62,99,371.95/- is acceptable. However, vide questionnaire issued during appellant proceedings dated 03.07.2025, the appellant was asked to furnish the source of difference of capital amount i.e. Rs.6,13,02,437/-(Rs. 131,76,01,808 Rs. 125,62,99,372/-) along with documentary evidence. But the appellant has not submitted any reply/documentary evidence for source of capital addition of Rs.6,13,02,437/-, therefore, addition on account of unexplained money u/s 69A is restricted to Rs.6,13,02,437/- in place of Rs.131,76,01,808/-. Hence, Ground No. 3 of appeal raised by appellant is partly allowed.”
(emphasis supplied by us)
In this regard, the query dated 03.07.2025 of the Ld. CIT(A) and the observation of the Ld. CIT(A) are reproduced as under:
Query dated 03.07.2025 of the Ld. CIT(A)
“ On perusal of assessment order u/s 143(3) passed on 16.03.2024, it is noticed that you have shown zero capital while filing return of income for A.Y. 2021-22 while during appellate proceedings, you have stated that opening balance was Rs., 125,62,99,371.95/- and you have added only surplus amount of income in the opening balance.
In this regard, you are requested to provide the reason why the opening balance of capital Rs., 125,62,99,371.95/- was not shown while filing return of income for A.Y. 2021-22. Also provide the source of difference amount i.e. Rs.6,13,02,437/-(Rs. 131,76,01,808 - Rs. 125,62,99,372/-) along with documentary evidence."
Observation of the Ld. CIT(A)
6.5.2In this regard, appellant submitted that there is specifically no column to show the opening of capital fund in the ITR Form rather only closing amount of capital fund is shown which is Rs.131,76,01,808/- in ITR Form.”
Aggrieved with the said addition of Rs. 6,13,02,437/- , the assessee is in appeal before us, on the following ground of appeal:
“2)That the Ld. Assessing Officer has erred in making an addition of ₹6,13,02,436/-on account of the amount credited to the Corpus Fund during the Assessment Year 2022-23. The Ld. CIT(A) has further erred in not appreciating the fact that only the income earned during the current year was transferred to the General Reserve, which represents the accumulation of exempt income. The authorities below have thus wrongly treated the said amount as taxable, despite there being no dispute that the income earned is exempt under section 10(26)(AAB) of the Income Tax Act, 1961 (which was inserted by the Finance Act, 2008, with effect from April 1, 2009, and applies to the assessment year 2009-10 and subsequent years), which is illegal, unjustified and against the natural law of justice & Id. CIT(A) erred in confirming the same. It is deserves to be quashed.”
At the time of hearing before us, the Ld. AR submitted that the Ld. CIT(A) failed to appreciate the fact that only the income earned during the current year was transferred to the General Reserve, which represents the accumulation of exempt income and the authorities below have thus wrongly treated the said amount as taxable, despite there being no dispute that the income earned by the assessee was exempt under section 10(26)(AAB) of the Income Tax Act, 1961.
On the other hand, the Ld. Sr. DR supported the orders of the authorities below.
We have heard both the parties and perused the material available on record. In this case, the assessee is a local authority under the Government of Haryana, and its income is exempt under section 10(26)(AAB) of the Act. The assessee also submitted that only the income earned during the current year was transferred to the General Reserve, which represents the accumulation of exempt income and was therefore not taxable. This claim of the assessee requires verification. Since the income of the assessee is exempt under section 10(26)(AAB) of the Act, the claim of the assessee is justified. However, since the matter requires factual verification, the issue is restored to the file of the AO for verification and de novo assessment of this issue in accordance with law. Accordingly, Ground No. 2 of the appeal is allowed for statistical purposes.
Regarding the addition of Rs. 6,36,40,439/- under section 68 of the Act, the Ld. CIT(A) dismissed the appeal of the assessee on the ground that the details of the sundry creditors, as called for, were not furnished. The relevant extract of the order of the Ld. CIT(A) is reproduced as under:
“6.6The appellant in its Ground No. 4of appeal assailed the A.O. for making addition of Rs. 6,36,40,439 u/s 68 of the Act on account of unexplained money. In this regard, A.O. found during assessment proceedings that the appellant had claimed high liabilities to the tune of Rs.6,36,40,439/- during the year under consideration. The appellant was asked to provide Name and PAN of the creditor, Amount involved, Email Id of the creditor, confirmation and ledger copy of the creditor and relationship with appellant. However, the appellant failed to provide the same. Hence, in the absence of submission, A.O. passed order u/s 143(3) thereby making an addition of Rs.6,36,40,439/- u/s 68 of the Act on account of unexplained money.
Aggrieved with the said order, the assessee is in appeal before us on the following ground of appeal:
“3)That the Ld. Assessing Officer has erred in not appreciating the Facts relating to the Credit Balance of Rs. 6,36,40,439.00/- and has added the said amount to the total income. The Ld. AO failed to consider that the sundry creditors mainly. comprise amounts payable to plot holders, security deposits payable, and contributions payable to HSAMB, which also include Opening Balances carried Forward from Earlier Years.
The Opening Balances as on 01/04/2024 under Various Heads include :-
Contribution Payable to HSAMB Board - Rs 44,24,919.00
Security - Rs. 13,54,950.00
Amount Due to Plot Holder - Rs. 5,70,32,000.00
Therefore, the addition made on this account is unjustified, arbitrary and contrary to the facts of the case.
At the time of hearing, the Ld. Sr. AR submitted that the Ld. CIT(A) did not properly appreciate the submissions made by the assessee. The Ld. AR further submitted that, since the income of the assessee was exempt, the details as called for by the AO like Name, PAN, and email IDs of the creditors, who were farmers or related to agricultural activities were not maintained in that manner, by the assessee. The Ld. AR further submitted that the matter may be set aside to the file of the AO, and the assessee will submit the necessary details maintained, along with the names and addresses of the parties to whom such amounts were payable.
On the other hand, the Ld. Sr. DR supported the orders of the authorities below
We have heard both the parties and perused the material available on record. The assessee had explained the details regarding sundry creditors before the Ld. CIT(A) as under:
“4.With reference to the point no. 4, It is submitted that:
SIR SUNDRY CREDITORS FOR THE YEAR UNDER CONSIDERATION LE FINANCIAL YEAR 2021-22 INCLUDES:-
Particulars Amount Amount due to Plot Holder 57032000/- Security 1664950/- Contribution Payable to HSAMB 4901738/- Market Committee's liabilities majorly includes amount due to plot holder.
Sir market committee is also develops mandi& sell shops in the auction and advances for such sale is accepted by the market committees and same is shown in the balance sheet till the allotment of the shop & there after there are two option either pay inn six equal installments including interest amount or pay in lump sum.
At the time of the auction, 10% of Bid value deposited by the bidder. Then after this auction, allotment of shops is made by H.S.A.M.B. and shops allotment is issued to the successful bidder. Amount received from the successful bidder before allotment is made is shown under the current liability and after successful allotment amount received shown as income in income and expenditure account as income from market committee property and amount due is shown as sundry debtor in the balance sheet.
Sir copy of the balance sheet for the year under consideration i.e. F.Y. 2021-22 has been attached for your kind perusal.”
As noted above, the assessee is an entity established by the State Government of Haryana under the Agricultural Market Produce Act, 1961, and its income is exempt under section 10(26)(AAB) of the Act. However, since the complete details as called for by the AO were not furnished by the assessee, this issue is set aside to the file of the AO and the AO is directed to provide an opportunity to the assessee to furnish the necessary details and thereafter pass an order in accordance with law. Accordingly, Ground No. 3 of the appeal is allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes.