THE BARANAGAR JUTE FACTORY PLC,KOLKATA vs. PRINCIPAL CIT - 1, KOLKATA , KOLKATA

Facts in brief are that the assessment was framed u/s 143(3) of the Act vide order dt. 31/03/2016. The ld. Pr. CIT, upon perusal of the assessment records, observed that the Assessing Officer has not examined the four issues which were discussed by the ld. Pr. CIT in the revisionary order which are extracted below:- “2. On a perusal of the assessment record of the assessee, it was observed as under: Assessment Year: 2013-14 The Baranagar Jute Factory PLC 2 (i) During F.Y.2012-13(A.Y.2013-14), the assessee received an additional sum comprising of compensation for value of land of Rs. 56,99,12,543/- and interest thereon amounting to Rs.47,66,44,977/- vide award dated 13.09.2012 treating compensation as well as the entire interest income under the head Long Term Capital gain. The interest received of Rs.47,66,44,977/- on delay payment of compensation of Rs.56,99,12,543/ for compulsory land acquisition during the year has been treated under the head income from LTCG instead of income from business or income from other sources as per provision of sec. 145A(b) of the IT Act, 1961. The same was allowed in the assessment which has resulted in underassessment of business income by an identical amount with consequent potential tax effect of Rs. 15,46,47,463/- (ii) LTCG of Rs.91,97,43,881/- was available to be set off till A.Y.2013-14 but the assessee company was allowed set off of LTCL of Rs.102,98,41,167/- of A.Y.2006- 07 thereby resulting in excess set off of LTCL of Rs. 11,00,97,286/- with consequent tax effect of Rs. 2,37,92,336/-. (iii) An additional interest of Rs.4,94,32,713/- included in the compensation amount of Rs.52,04,79,830/- received over and above the original interest received during A.Y. 2006-07 is required to be treated as business income was determined 12 during A.Y. 2006-07 as per sec.56(viii) of the Act. But the same was not treated either as business income or income from other sources in A.Y.2013-14 which has also resulted in underassessment of business income by an identical amount with consequent potential tax effect of Rs. 1,60,38,444/-. (iv) That an amount of Rs. 23,33,357/- though disallowed in course of assessment but inadvertently escaped addition during computation. Again deduction on account of "Bad Debt Written Off" though claimed by the assessee company of Rs.3,63,43,711/- but during computation deduction was allowed of Rs.3,66,67,920/- thereby inadvertently allowed excess deduction of Rs.3,24,209/-.

The ld. Pr. CIT in para 2 (i) observed that the assessee has received a additional compensation of Rs.56,99,12,543/- and interest thereon amounting to Rs.47,66,44,977/- vide award dated 13/09/2012 and returned the same as income under the head long term capital gain. According to the ld. Pr. CIT, since the amount of Rs.47,66,44,977/- is received as interest on delayed payment of compensation, the same has to be treated as Assessment Year: 2013-14 The Baranagar Jute Factory PLC 3 income from other sources in terms of Section 145A(b) of the Act, which has resulted in under assessment of the business income by an identical amount with consequent potential tax effect of Rs.15,46,47,463/-.

Similarly, in para 2 (iii), the ld. Pr. CIT noted that assessee has received additional interest of Rs.4,94,32,713/- which was included in compensation received over and above the original interest received during the Assessment Year 2006-07, which is required to be treated as income from business or other sources but the same has not been done which has resulted in underassessment of income leading to potential tax effect of Rs.1,60,38,444/-. The ld. Pr. CIT has also held the assessment order to be bad insofar as it was prejudicial to the interest of the revenue on the issues which were stated in paras 2 (ii) and 2 (iv) above. Thereafter he issued showcause notice u/s 263 of the Act to the assesse as to why the assessment order should not be revised and finally set aside the assessment framed by the Assessing Officer by directing the Assessing Officer to frame the assessment afresh after providing reasonable opportunity to the assessee.

The ld. A/R vehemently submitted before us that the ld. Pr. CIT has wrongly exercised the revisionary juri iction so far as the issue raised in para 2 (i) & 2(iii) are concerned, due to which the assessment framed by the Assessing Officer cannot be said be erroneous. The ld. A/R contended that the order passed u/s 263 of the Act may kindly be modified to the extent the same relates to the issues as stated in para 2 (i) and 2 (iii) of the revisionary order. In defense, the ld. A/R relied on the judgment of the Hon’ble Juri ictional High Court of Calcutta in the case of CIT vs. Polar Fan Industries Ltd. reported in 197 ITR 718 (Calcutta). Assessment Year: 2013-14 The Baranagar Jute Factory PLC 4

The ld. A/R stated that the issues raised in para 2 (i) of the revisionary order relates to the taxability of enhanced compensation of Rs.47,63,44,577/- (and not Rs.47,66,44,977/-). The ld. A/R contended that the interest received on enhanced compensation on compulsory acquisition of land under the National Highways Authority of India Act, 1936 (NHAI Act), has rightly been treated as long term capital gains and such an inference drawn by the ld. Pr. CIT that interest was on delayed payment of compensation has to be treated as income under the head income from business or income from other source as per provisions of Section 145A(b) of the Act, is not correct.

The ld. A/R submitted that nature of interest on enhanced compensation of land partook the character of long term capital gain and not income from other sources as has been held by the Hon’ble Supreme The ld. A/R further placed reliance on the following decisions:- i. CIT vs. Ghanshyam (HUF) [182 Taxman 368 (SC)] ii. Sahebrao Kishanrao More [ITA No. 1805/PUN/2017] (Pune Bench) iii. Pranav Saran vs. ACIT [ITA No. 499/Delhi/2021] (Delhi Bench) iv. ITO vs. Prabhayya Basayya Saragachari [ITA No. 858/Bang/2018]

The ld. A/R also contended that where two views are possible on a particular issue and the Assessing Officer has taken one of the two possible Assessment Year: 2013-14 The Baranagar Jute Factory PLC 5 views then the Assessing Officer’s order cannot be treated as erroneous order if the ld. Pr. CIT holds a different view. In defense of the arguments the ld. A/R relied on the decision the Hon’ble Supreme Court in the case of CIT v. Max India Ltd (2007) 295 ITR 282(SC). The ld. A/R also relied on the decision Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), to corroborate his contentions that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. The ld. A/R finally submitted that in view of the above decisions and facts of the case, the revisionary juri iction exercised by the ld. Pr. CIT, may kindly be modified so far as the issues discussed by the ld. Pr. CIT in para 2 (i) and 2 (iii) of the revisionary order are concerned.

The ld. D/R on the other hand heavily relied on the order passed by the ld. Pr. CIT passed u/s 263 by submitted that the interest on enhanced compensation received is not taxable as income from long term but as income from other sources. The ld. D/R also drew our attention to the fact that by treating the interest under the head capital term capital gain, the assessee seeks to set off the huge brought forward losses and, therefore, it is a sham transactions intended and initiated for the purpose of evading the tax liability and for availing the benefit of set off of losses against the said amount. Had the income been assessed under the head income from other sources which is the true character of the income, the said provisions for set off of losses against the said amount would not have been available to the assessee. Assessment Year: 2013-14 The Baranagar Jute Factory PLC 6

The ld. D/R in defense of his arguments relied on the decision of the Hon’ble Punjab & Haryana High Court in the case of Mahender Pal Narang v. Central Board of Direct Taxes, New Delhi reported in [2020] 120 taxmann.com 400 (Punjab & Haryana) wherein it has been held that interest received on enhanced compensation of compulsory land acquisition under the Land Acquisition Act, has to be treated as not under the head capital gain. The ld. D/R also pointed out that the decision relied upon by the ld. A/R in the case of CIT vs. Ghanshyam (HUF) (supra), has been distinguished by the hon’ble Punjab and Haryana High court in the decision as discussed above.

In the rebuttal, the ld. A/R submitted that the issue of brought forward losses from the earlier years has been settled prior to the initiation of the assessment proceedings and has attained finality and, therefore, the ld. D/R cannot be allowed to raise argue this issue as it has attained finality. So far as the decision on the issue is referred to by the ld. D/R which is certainly in favour of the revenue wherein the Hon’ble Punjab & Haryana High Court has held that interest received on compensation under the Land Acquisition Act, 1894, has to be treated as income not under the head capital gains wherein the decision in the case of CIT vs. Ghanshyam (HUF) (supra) has been distinguished. The ld. A/R submitted that if there are two interpretation of law are possible on the same issue, then the one construction which is favorable to the assessee has to be followed and in defense of contentions he relied on the decision of CIT Vs vegetable Products Ltd (1973) 88 ITR 192(SC).

After hearing rival contentions, we observe that during the year, the assessee has received additional compensation of Rs.56,99,12,543/- and Assessment Year: 2013-14 The Baranagar Jute Factory PLC 7 interest thereon amounting to Rs.47,66,44,977/- vide award dated 13/09/2012 and the assesse has treated the said compensation as well as interest thereon as part of the compensation and returned the same as income under the head long term capital gains which has been accepted by the Assessing Officer in the assessment framed u/s 143(3) of the Act dt. 31/03/2016. The ld. Pr. CIT observed from the assessment records that the Assessing Officer has incorrectly allowed the interest to be treated as part of the compensation and has erroneously assessed the same under the head long term capital gain whereas as a matter of fact, the interest allowed to be part of the compensation by the Assessing Officer arbitrarily, has to be treated as income from other sources and to that extent, the order passed by the Assessing Officer was erroneous insofar as it was prejudicial to the interest of the revenue on the three other counts, namely,:- i. Assessee set of long term capital loss of Rs.102,98,41,167/- with consequent tax effect of Rs.2,37,92,336/-. ii. Additional interest of Rs.4,94,32,713/- included in the compensation is required to be treated as business income or income from other sources. iii. Bad debt written off to the tune of Rs.3,63,43,711/- was allowed as Rs.3,66,67,920/- thereby allowing excess deduction of Rs.3,24,209/-. According to the assessee, the order of the ld. Pr. CIT is wrong and invalid so far as the exercise of juri iction relates to issue no. 1 & 3 i.e., interest on additional compensation or enhanced compensation.

It is also pertinent to note that the amount of compensation awarded by the arbitrator vide award dt. 13/09/2012 has been deposited with the Assessment Year: 2013-14 The Baranagar Jute Factory PLC 8