Citing Wrong Exemption Provision in ITR Cannot Defeat Legitimate Claim Under Section 10(26AAB): ITAT Lucknow

Background and Overview

A significant ruling has emerged from the Income Tax Appellate Tribunal, Lucknow Bench, in the matter of Krishi Utpadan Mandi Vs ITO (ITAT Lucknow), concerning Assessment Year 2019-20. The central issue revolved around whether a statutory Agriculture Produce Market Committee could be denied its rightful exemption under Section 10(26AAB) of the Income Tax Act, 1961 solely on the ground that it had inadvertently cited a different exemption provision in its original return of income.

The Tribunal's decision carries considerable weight for statutory bodies functioning as agricultural produce market committees across India, particularly those operating under state legislation such as the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964, who may have committed similar procedural lapses while filing their returns.

The assessee — Krishi Utpadan Mandi Samiti — is a statutory body established under the Uttar Pradesh Krishi Utpadan Mandi Adhiniyam, 1964. The express purpose of its constitution is to regulate the marketing of agricultural produce within its designated jurisdiction. This statutory character and the nature of its regulatory function are directly relevant to its eligibility for exemption under Section 10(26AAB) of the Income Tax Act, 1961.

Key Point: The assessee's status as an Agriculture Produce Market Committee constituted under a state enactment for regulating agricultural marketing is the foundation of the entire exemption claim. This fact was not disputed by the Revenue at any stage of the proceedings.

Sequence of Events: From Return Filing to Tribunal

1. Filing of Return for A.Y. 2019-20

The assessee filed its return of income for Assessment Year 2019-20 on 31-10-2019. However, while claiming its income as exempt, it inadvertently referenced Section 10(23C) — a provision applicable to educational institutions, hospitals, and certain funds — instead of the correct provision, Section 10(26AAB), which specifically governs exemption for agriculture produce market committees.

2. Intimation Under Section 143(1) and Tax Demand

The return was processed under Section 143(1) by the Centralised Processing Centre (CPC). Since the assessee did not satisfy the eligibility conditions prescribed under Section 10(23C), the exemption was denied. Consequently, a tax demand of Rs. 4,89,73,685/- was raised against the assessee.

3. Rectification Application Under Section 154

Recognising the error, the assessee filed a rectification application under Section 154 of the Income Tax Act, 1961 on 08-12-2022, clarifying that its income was actually exempt under Section 10(26AAB) and requesting correction of the mistake. The Assessing Officer declined to grant the relief sought.

4. Appeal Before CIT(A) — Dismissed

The assessee appealed to the Commissioner of Income Tax (Appeals). The Ld. CIT(A), vide order dated 23-01-2026, dismissed the appeal. The reasoning adopted was that since the assessee had claimed exemption under Section 10(23C) in its original return, and had not filed a revised return substituting the correct provision, no relief could be granted. The CIT(A) held that there was no error on the part of the CPC in denying the exemption and that the assessee had an opportunity to file a revised return, which it did not utilise.

Grounds Raised Before the Tribunal

Before the ITAT, the assessee raised multiple grounds challenging the CIT(A)'s order: