Local authority exemption under section 10(20) cannot be denied for a return claim when entitlement is otherwise proved.

A local authority's exemption under section 10(20) could not be denied merely because the original return wrongly claimed a deduction under section 57 instead of the exemption. The Tribunal noted that the assessee had been accepted as a local authority in earlier and later years, the exemption had been allowed in regular assessments for other years, and the relevant audited accounts and supporting details were before the Assessing Officer. The requirement of a revised return could not defeat substantive entitlement established on the record, so the addition was deleted.

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Issues: Whether a local authority was entitled to exemption under section 10(20) of the Income-tax Act, 1961, and whether the addition could be sustained merely because the original return wrongly claimed deduction under section 57 instead of the exemption.

Analysis: The assessee was accepted as a local authority in earlier and subsequent assessment years, and the record showed that the same exemption had been allowed in regular assessments for other years. The Tribunal found that the claim in the return was a mistake, but the assessee had placed the relevant material before the Assessing Officer, including audited accounts and supporting details of receipts and expenditure. The denial of exemption by the lower authorities rested on the view that a fresh claim could be made only through a revised return, but the Tribunal held that this approach could not override the substantive entitlement established on the facts.

Conclusion: The assessee was held entitled to exemption under section 10(20), and the addition of Rs. 56,32,62,698 was directed to be deleted.

Final Conclusion: The appeal succeeded and the assessment addition based on denial of the local authority exemption was set aside.

Ratio Decidendi: A substantive exemption available to a local authority cannot be denied merely because the original return contained an erroneous claim, where entitlement is otherwise established and supported by the record.

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