IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘DB’: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI AVDHESH KUMAR MISHRA, ACCOUNTANT MEMBER ITA No.95 & 96/DDN/2023, A.Y. 2017-18 & 2018-19 Mussorie Dehradun Dy. Commissioner of Development Authority, Income Tax, Circle-1(1)(1), Transport Nagar, Vs. Aayakar Bhawan, 13A, Saharanpur Road, Subhash Road, Dehradun Dehradun, Uttarakhand PAN: AAAAM4651Q (Appellant) (Respondent)

Appellant by Sh. Saurabh Gupta, CA Respondent by Sh. A. S. Rana, Sr. DR Date of Hearing 11/02/2025 Date of Pronouncement 21/02/2025 ORDER PER AVDHESH KUMAR MISHRA, AM These appeals of the Assessment Year (hereinafter, the ‘AY’) 2017-18 and 2018-19 filed by the assessee contain similar facts and issues. Therefore, these appeals were heard together and are being disposed off by this common order.

2. These appeals filed by the assessee are directed against orders dated 26.10.2023 passed by the Commissioner of Income Tax (Appeals), NFAC, New Delhi [hereinafter, the ‘CIT(A)’].

3. The common ground raised in these appeals are that whether the CIT(A) is justified in rejecting the claim of the assessee that surplus in Infrastructure Fund is not taxable as income in the hands of the assessee applying the principle of diversion of income by overriding title. One more ground taken in the AY 2018-19 is in respect of disallowance under section 43Brws 36(1)(va) of the Income Tax Act, 1961 (hereinafter, the ‘Act’).

4. The relevant facts giving rise to these appeals are that the assessee, a corporate body (UP Urban Planning and Development Act, 1975), engaged in the business of promoting and securing the development of Mussoorie and Dehradun Urban Area by developing for housing scheme, constructing roads, drains, beautification, etc., filed its Income Tax Returns (hereinafter, the ‘ITR’) of AY 2017-18 and 2018-19 on 31.10.2017 and 30.10.2018 declaring income of Rs.97,26,470/- and NIL respectively. These cases were picked up for scrutiny. During the course of assessment proceedings, the Assessing officer (hereinafter, the ‘AO’) noticed that the assessee was authorized to collect and retain fee & charges for fulfilling its object. The development charges included in fee & charges collected by the assessee had been kept in a separate account; namely, Infrastructure Fund. The incoming & outgoing transactions from the Development Charges werenot routed through the Income & Expenditure Account. In other words, the net effect of incomings & outgoings (surplus/loss) from the Infrastructure Fund appeared directly in the Balance Sheet. The AO, holding that the Development Charges, being revenue receipts, were nothing but similar to the ‘fee & charges’ routed through Income & Expenditure Account. Undisputedly, the Development Charges had not been separately collected by the assessee. It had been collected along with “fee & charges”; therefore, the AO held that the same accounting treatment was required to be given for entire incomings & outgoings from the “aggregate fee & charges”. The AO further held that incomings & outgoings from the “aggregate fee & charges” which also included Development Charges kept in the Infrastructure Fund Account, was of revenue in nature and thus, the same was taxable as per the accounting principle (accrual method) followed by the assessee. Accordingly, the AO taxed the surplus of Rs.9,77,48,765/- and Rs.8,02,20,075/- of the Development Charges in the AY 2017-18 and 2018-19 respectively. Besides, the above, the AO, in the AY 2018-19, also made the disallowance of Rs.28,080/- under section 43B r.w.s. 36(1)(va) of the Act. Aggrieved, the assessee filed appeals before the CIT(A) but did not succeed. Hence, it appealed before the Tribunal. Now, we have been tasked to decide this appeal.

5. Before us, the Ld. AR submitted that the State Government, vide GO No.152/9-A-1-1998 dated 15.01.1998, authorized the appellant assessee to have an Infrastructure Fund with specified purpose of the infrastructural