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Facts
The Revenue appealed against the CIT(A)'s decision to delete additions made by the AO, which included compensation and interest on compulsory land acquisition, and unexplained cash credit. The assessee argued that the interest received was part of enhanced compensation and thus exempt under Section 10(37) of the Income Tax Act.
Held
The Tribunal held that the interest received on compulsory acquisition of land under Section 28 of the Land Acquisition Act is part of enhanced compensation and is exempt from tax under Section 10(37) of the Income Tax Act, following the Supreme Court's decision in Ghanshyam HUF. The addition on account of unexplained cash credit was also found to be part of the land acquisition compensation.
Key Issues
Whether interest received on compulsory land acquisition compensation is taxable or exempt, and whether unexplained cash credits were part of the compensation.
Sections Cited
147, 144, 10(37), 56(2)(viii), 263, 28, 34, 45(5), 145A, 145B, 57(iv), 143(1), 264, 68, 270A
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Income Tax Appellate Tribunal, DELHI BENCH: ‘B’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI S. RIFAUR RAHMAN
Assessment Year: 2017-18 Vs. Income Tax Officer, Chaman, H. No. 437, Sector-9, Ward-1(1), Faridabad, Haryana Faridabad PAN: BFAPD6698P (Appellant) (Respondent) Assessee by Sh. Gaurav, Adv. Department by Sh. Rajesh Kumar Dhanesta, Sr. DR Date of hearing 25.06.2025 Date of pronouncement 25.06.2025 ORDER
PER SATBEER SINGH GODARA, JM
This Revenue’s appeal C.O. No. 103/Del/2024 for assessment year 2017- 18, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2023-24/1063696810(1), dated 30.03.2024, involving proceedings under section 147 r.w.s. 144 of the Income- tax Act, 1961 (hereinafter referred to as ‘the Act’). Heard both the parties. Case files perused.
This Revenue’s appeal 1. "Whether, on the facts and circumstances of the case and law, the Ld.CIT (A) erred in deleting the addition of Rs. 1,08,31,527/-, being amount of compensation (as per Form D), received on compulsory land acquisition; by treating it as exempt from capital gain by invoking provisions of Sec 10(37) even when assessee failed to establish that land under transfer was agricultural land and whether conditions stipulated in 10(37) are met or not? 2. "Whether, on the facts and circumstances of the case and law, the Ld.CIT (A) erred in deleting the addition of Rs. 1,28,06,342/, being amount of interest on compensation (as per Form D), received on compulsory land acquisition, by erroneously relying upon decision of the hon'ble Supreme Court in the case of Ghanshyam (HUF) VSCIT (2009) despite the fact that w.e.f01.10.2010, such interest is taxable as per provisions of Sec 56(2)(viii)? 3 "Whether, on the facts and circumstances of the case and law, the Ld.CIT (A) erred in deleting the addition of Rs. 9,53,608/, being unexplained credit, even when assessee failed to explain the source and nature of such receipt and merely passed it of as a transfer entry? 4 "Whether, on the facts and circumstances of the case and law, the Ld.CIT (A) erred in admitting additional evidence, even when assessee failed to meet the requirements of Rule 46A of the LT Rules? 5 "Whether, on the facts and circumstances of the case and law, the Ld.CIT (A) erred in disposing the appeal without allowing adequate time for remand proceedings u/s 250(4), of the IT Act and thereby denying revenue the opportunity to review additional evidence?
We next note with the able assistance coming from both the parties that the learned CIT(A)/NFAC have reversed the Assessing Officer’s action inter alia treating the assessee’s interest on land acquisition compensation and cash credit entries in her bank account made in the assessment order dated 11th March, 2022 as not sustainable; as follows:
“8.2. Carefully considered the submission of the appellant in view of the impugned assessment order. Also perused and considered the details and documents uploaded by the appellant on ITBA portal during the appellant proceedings. Went through the case laws referred to and relied upon by the appellant and the Id. AO. 8.3. The Id. AO has made an addition of Rs. 2,66,50,843/- treating entire amount credited in the bank account of the appellant as her income of the Financial Year under reference. During the appellate proceedings the appellant has provided breakup of this amount which shows that she received Rs. 2,23,57,235/- in her bank account on 30.04.2016. This amount includes enhance compensation of Rs. 95,50,853/- for compulsory acquisition of the agriculture land owned by the appellant and interest of Rs. 1,28,06,342/-(after deduction TDS at Rs. 12,80,634/-) on enhanced compensation. This amount of Rs. 2,23,57,235/- was transferred through cheque to the bank account of the appellant by the Dist. Revenue Officer cum Land Acquisition Collector, Faridabad. It is evident from the bank statement furnished by the appellant that Rs. 33,00,000/- was transferred to the appellant's account on 30.09.2016 which was reversed back next day on 10.01.2016. Similarly, Rs. 9,53,608/- was Transferred from appellant 's PNB bank A/c no. 0778009300025809 on 21.10.2016. The appellant has deposited Rs. 40,000/- in cash on 31.03.2017. 8.3.1. During the appellate proceedings the appellant has furnished Copy of Form-D mentioning details of amount of compensation, cheque number and other relevant details including interest amount. The above Form D was issued by the District Revenue Officer cum Land Acquisition Collector, Faridabad in compliance to the order of hon'ble High Court, dt. 03.09.2014 for execution petition dt. 28.04.2016 filed by the appellant and others. As per the provision of section 10(37) of the Income Tax Act 1961, compensation / enhanced compensation received by an individual in lieu of compulsory acquisition of agricultural land by the government is exempt from income tax. Therefore, I am of the considered view that the amount of Rs. 95,50,853/-received by the appellant on account of enhanced compensation is exempt from tax. Similarly, transfer entries of Rs. 33,00,000/- and Rs. 9,53,608/- cannot be treated as taxable income of the appellant for the 3 | P a g e
Financial Year under reference. The submission of the appellant that she had deposited cash of Rs. 40,000/- in her bank account out of petty savings and previous withdrawal is also acceptable. Accordingly, here the appellant got relief of Rs. 1,38,44,501/- (i.e. Rs. 2,66,50,843-Rs.1,28,06,342) out of addition of Rs. 2,66,50,843/- made by the Id. AO on account money credited in the appellant's bank accounts during the financial year under reference. 8.3.2. The above-discussed addition of Rs. 2,66,50,843/- includes Rs. 1,28,06,342/-being interest paid to the appellant on account of enhanced compensation. As per Form D issued by the District Revenue Officer cum Land Acquisition Collector, Faridabad, the appellant was paid interest of Rs. 1,28,06,342/- against which TDS @ 10% at Rs. 12,80,634/- was deducted. However, a copy of Form 26 AS uploaded by the appellant shows that the District Revenue Officer cum Land Acquisition Collector, Faridabad paid only Rs. 1,21,79,856/- and made TDS thereon at Rs. 12,17,985/-. The bank statement of the appellant shows credit of Rs. 2,23,57,235/- received through cheque from the District Revenue Officer cum Land Acquisition Collector, Faridabad. The appellant has claimed that in view of several judicial pronouncements of different high courts including the Supreme Court the amount of interest received by the appellant is also exempt from income tax u/s 10(37) of the Income Tax, Act. The appellant has also uploaded the details and documents asked for vide enquiry letter u/s 250(4) dated 17.03.2024. The appellant has vehemently contended against the addition made by the Id. AO. The relevant part of the appellant's written submission on the issue under reference is reproduce as under: “…………………… 2.3 Further, interest income amounting to Rs. 1,22,27,108/- which was reflected in 26AS includes interest income amounting to Rs. 1,21,79,856/-which has been received on account of enhanced compensation u/s 28 of Land Acquisition Act, 1894. 2.4 In this regard, it is reiterated that the interest income amounting to Rs. 1,21,79,856/- received u/s 28 of Land Acquisition Act, 1894 on enhanced compensation which takes color of enhance compensation only and is exempt by virtue of section 10(37) of the Act. In this regard, it is well settled proposition that interest received u/s 28 of the Land Acquisition Act par take the colour of enhance compensation and would be exempt as per the provision of the Act. 2.5 On the very identical issue, reliance is placed on the decision of Hon'ble Apex court in the case of Ghanshyam (HUF) -vs- CIT [182 Taxman 368 (2009)] wherein it was held that "Section 28 of the 1894 Act applies only in respect of the excess amount determined by the Court after reference under section 18 of the 1894 Act. It depends upon the claim, unlike interest under section 34 which depends on undue delay in making the award. It is true that "interest" is not compensation. It is equally true that section 45(5) of the 1961 Act, refers to compensation. But as discussed herein above, we have 4 | P a g e to go by the provisions of the 1894 Act, which awards "interest" both as an accretion in the value of the lands acquired and interest for undue delay. Interest under section 28 unlike interest undersection 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. Copy of the order is attached as Annexure-19 [Kindly refer page nos. 105 to 123 of Paper Book]. 2.6. Reliance is also placed is on the decision of Jurisdictional ITAT in the case of Baldev Singh -vs.- ITO [2019] 104 taxmann.com 99 (Delhi - Trib.) wherein it has been held that: "We have gone through the orders of the authorities below in the light of the arguments on either side and the decisions of the Hon'ble Apex Court cited above. In the case of Ghanshyam Dass (supra), the Hon'ble Supreme Court held in unequivocal terms that the additional amount u/s 23(1A), solatium under section 23(2) and interest on excess compensation u/s 28 of the Land Acquisition Act form part of enhanced compensation u/s 45(5)(b) and, therefore, is subject to tax u/s 45(5) in the year of receipt. No contrary view is taken by the Supreme Court in the subsequent judgments and as on the date, law is fairly settled that the amount of interest received u/s 28 of the land Acquisition Act is in the nature of capital gain. In the case of Hari Singh (supra) while dealing with the similar question under identical set of facts while setting aside the matter to the file of the AO to examine the facts of the case and to apply the law as contained in the Income-tax Act, Hon'ble Supreme Court specifically directs that in case the learned AO finds that the compensation was received in respect of the agricultural land, the tax deposited with the Income-tax Department shall be refunded to the assessee. Hon'ble Supreme Court gave the above direction after noticing the decision in the case of Ghanshyam Dass (supra)". "Where assessee's agricultural land was acquired by Government, enhanced compensation including interest received would be eligible for exemption. Therefore, TDS amount that was deducted on account of enhanced compensation was to be refunded." 2.7. Further, reliance is placed on the decision of Chandigarh ITAT in the case of Smt. Chawli Devi -vs- ITO, Punchkula [ITA No. 63 & 64/Chd/2020] wherein held that, "Therefore, in view of the same, the proposition laid down in Ghanshyam, HUF (supra) remains and which having been laid down by the Hon'ble Apex Court is the law of the land and has to be followed by all lower authorities. In view of the above, we hold that the interest received by the assessee during the impugned year on the compulsory acquisition of its land u/s 28 of the Land Acquisition Act, is in the nature of compensation and not interest which is taxable under the head income from other sources u/s 56 of the Act as held by the authorities below. The compensation being exempt u/s 10(37) of the 5 | P a g e
Act is not disputed. In view of the same the order passed by the CIT(Appeals) upholding the addition made by the AO on account of interest on enhanced compensation is, not sustainable. The ratio of the order laid down vide order dt. 09/07/2018 in a group of cases in to 1437/CHD/2016 would apply mutatis mutandis to the core issue of taxability of interest received on enhanced compensation." The Ld. DR did not bring to our notice any case law contrary to the findings of the Coordinate Bench in the cases referred above to substantiate the contention of the revenue. In our considered view, the findings of the Ld. CIT(A) are based on the ratio laid down by the Hon'ble Supreme Court in the case of Ganshyam HUF (supra) and the decisions of the Coordinate Benches discussed above. We therefore, do not find any reason to interfere with the findings of the Ld. CIT (A). Hence, respectfully following the decisions of the coordinate Benches, discussed above, we uphold the order passed by the Ld. CIT(A) and dismiss the appeal of the Revenue." 2.8. Reliance is placed on the decision of Jurisdictional ITAT in the case of Girish Kumar-vsITO, [ITA No. 5084/DEL/2019] wherein held that, "While determining as to whether the compensation paid was for agricultural land or not, the AOs will keep in mind the provisions of section 28 of the Land Acquisition Act and the law laid down by this court in commissioner of Income Tax, Faridabad V. Ghanshyam (HUF) (2009 (8) SCC 412) in order to ascertain whether the interest given under the said provisions amounts to In our considered opinion, the Ld.CIT(A) has committed no error and there is no infirmity in allowing the Appeal of the assessee. We are also of the view that the judgment rendered in the case of Ghanshyam HUF and Hari Singh (Supra) of the Hon'ble Supreme Court are applicable to the present case having binding effect over the High Court Judgments relied by the Revenue. Therefore, the Grounds of Appeal of the Revenue are dismissed. 2.9. Similar view was taken in the following judgements: (i) Jurisdictional ITAT in the case of Opinder Singh Virk Pravesh Kumar Sharma -vsITO, Kamal (104 taxmann.com 270 (2019)). (ii) Hon'ble Bangalore ITAT in the case of Sangappa S. Kudarikannur - vs-ITO, Bagalkot [96 taxmann.com 541 (2018)]. 2.10 From the perusal of the above, it can be said that the interest amount of Rs. 1,28,06,342/- awarded under section 28 of the Land Acquisition Act, 1894 on enhanced compensation is exempt under section 10(37) of the Act and hence not liable to tax during the year under consideration. 8.4. Carefully considered the submission of the appellant in view of the impugned assessment order. Also perused and considered the details and documents uploaded by the appellant on ITBA portal during the appellant 6 | P a g e proceedings. Went through the case laws referred to and relied upon by the appellant. A perusal of documents filed by the appellant, it is noticed that the appellant had filed a writ petition before hon'ble Chandigarh High Court demanding enhancement in compensation against compulsory acquirement of her agricultural land by the government. Hon'ble high court passed an order dt. 03.09.2014 in favor of the appellant. In compliance to the said order the District Revenue Officer cum Land Acquisition Collector, Faridabad issued the said Form D vide which the appellant received enhanced compensation along with interest thereon. In view of the decision of hon'ble apex court in the case of Ghanshyam (HUF) -vs- CIT [182 Taxman 368 (2009)] and other judicial pronouncement of different high courts and ITATs referred to by the appellant, vide enquiry letter u/s 205(4) of the Income Tax Act, dt. 17.03.2024, the appellant was asked to furnish documentary evidences demonstrating that the amount of Rs. 1,28,06,342/- was actually received u/s 28 of the Land Acquisition Act, 1895. In response, vide written submission dt. 26.03.2024, the appellant uploaded a letter dt. 13.12.2023, issued by the District Revenue Officer cum Land Acquisition Collector, Faridabad who confirmed that the appellant was paid enhanced compensation of Rs. 2,36,37,869/- which includes interest of Rs. 1,28,06,342/- and these enhanced compensation and interest thereon was paid u/s 28 of the Land Acquisition Act, 1894. In view of the facts of the case and respectfully relying on the decision of the hon'ble Supreme Court in the case of Ghanshyam (HUF) -vs- CIT (supra), I am of the considered opinion that the entire amount of Rs. 2,36,37,869/- (i.e. Enhanced Compensation Rs. 95,50,853/-+ Interest thereon Rs. 1,28,06,342/-) is exempt from income tax under provision of section 10(37) of the Income Tax Act, 1961. 8.5. In view of the discussion in forgoing para no. 8.3.1., 8.3.2. and 8.4 above, Id. AO is directed to delete the addition of Rs. 2,66,50,843/-. Accordingly, ground no. 6 of the appeal is allowed.
9. In ground no. 7 of the appeal, the appellant has challenged the addition made by the AO on account of interest amounting to Rs. 1,24,85,492/- received by her during the financial year under reference. With reference to the above ground of appeal, I carefully perused the assessment order passed by the Id. AO. The relevant part of the assessment order is reproduced as under: "Interest Income During the year the assessee received total interest of Rs. 1,24,85,492/- from various sources. Out of the above amount assessee has received major interest from District Revenue Office amounting to Rs. 1,21,79,856/- on which TDS was deducted and the was received from PMB Bank. The assessee has neither disclosed interest received in ITR during the year under consideration not filed by explanation. In view of the above facts and circumstances, the FAO has no option left but to complete the assessment on the basis of the material available on record. From the above discussion, it is clear that the 7 | P a g e
assesse has not disclosed the interest of Rs. 1,24,85,492/- in her ITR. Hence the same amount i.e. Rs. 1,24,85,492/- is added in the total income of the assessee, Penalty u/s 270A is initiated separately for mis- representation of facts.
(Addition: Rs. 1,24,85,492/-)"
9.1. During the appellate proceedings, the appellant has uploaded detailed written submission against the additions made by the Ld. AO, along with certain details and documents. The relevant part of the appellant's written submission on the issue under reference is reproduced as under:
"2.0 In this regard, the below table clarifying the credit entries in respect of interest received duly reflected in the PNB bank accounts of the appellant during the year under consideration annexed hereunder: Sl. Date Credit amount Bank Account No. Remarks No. 1. 05.06.2016 552/- 7405000100027617 Saving interest account 2. 05.09.2016 558/- -do- Saving interest account 3. 04.12.2016 557/- -do- Saving interest account 4. 05.03.2017 556/- -do- Saving interest account 5. 05.06.2016 80,528/- 0778000100319806 Saving interest account 6. 05.06.2016 1,27,524/- -do- Saving interest account 7. 05.09.2016 42,576/- -do- Saving interest account 8. 04.12.2016 5,533/- -do- Saving interest account 2,58,384/-
2.1 Further, the below table clarifying the interest amount reflected in the 26AS of the appellant during the year under consideration annexed hereunder:
2.2. In respect of above tables, it is to be submitted that amount of Rs.2,58,384/- received during the year under consideration pertains to interest on saving accounts, which can be duly verified from the statements of aforesaid bank accounts. The copy of bank statement
8 | P a g e Account No. 7405000100027617 is enclosed as Annexure-18 [Kindly refer page no. 104 of Paper Book] and copy of bank statement Account No.0778000100319806 is already enclosed as Annexure-14. 9.2 Carefully considered the submission of the appellant in view of the impugned assessment order. Also perused and considered the details and documents uploaded by the appellant on ITBA portal during the appellant proceedings. A perusal of Form 26AS shows that the Interest amounting to Rs. 1,21,79,856/- was paid to the appellant by Dist. Revenue Officer Cum Land Acquisition Officer who made TDS of Rs. 12,17,985/- against the payment. However, as per "Form D' he had paid interest of Rs. 1,28,06,342/- and made TDS thereon at Rs. 12,80,634/-. As per discussion in para no. 8.3.1., 8.3.2. and 8.4 above, the amount of Interest of Rs. 1,28,06,342/- which includes Rs. 1,21,79,856/-(reflected in form 26AS) has been paid to the appellant u/s 28 of the Land Acquisition Act, 1894, thus, exempt from income tax. From the facts of the case it is clear that the Id. AO has made double addition to the extent of Rs. 1,21,79,856/- on account of interest received by the appellant from the Dist. Revenue Officer Cum Land Acquisition Officer, Faridabad. Therefore, learned AO is directed to delete the above addition to the extent of Rs. 1,21,79,856./- out of total addition of Rs. 1,24,85,492/-. Regarding balance amount of interest of Rs. 3,05,636/- (i.e. Rs. 1,24,85,492 Rs. 1,21,79,856), the appellant could not provide any satisfactory explanation, therefore, the above addition to the extent of Rs. 3,05,636/- is confirmed and upheld. Accordingly, the ground no. 7 of the appeal is partly allowed.
10. During the appellate proceedings the appellant has raised an additional ground of appeal and requested to allow credit of TDS made on account of interest paid to her by the Dist. Revenue Officer Cum Land Acquisition Officer, Faridabad and by different banks wherein she had her bank acounts. The appellant has submitted as under: "2.1 The appellant is an illiterate agriculturalist having aged of 59 years and not well versed with the provisions of the Act. The appellant did not file her Income Tax return for the year under consideration since she was under impression that as she is an agriculturist a, and does not require to file return of income. Further, appellant came to know about reassessment proceedings only when her bank account was frozen/ attached by the Income Tax Department. 2.2 As the appellant could not filed return of income as re-assessment proceedings took place ex-parte, a return of income was filed by the appellant on 15-01-2024 before Jurisdictional AO as well as before your goodself. In the said return, the appellant has shown income of Rs.2,95,640/- and TDS credit of Rs. 12,22,710/-was claimed as refund as there is no tax liability. TDS amount is duly appearing in the Form 26AS. 2.3 In view of above fact, the appellant most humbly requests your goodself to kindly allow claim of credit of TDS amounting to Rs.
12,22,710/-in computing total income under normal provisions of the Act. 5.1. At the cost of repetition, is further stated that TDS amounting to Rs. 12,17,986/- was deducted on the interest on enhanced compensation received by the appellant. The same is reflecting in Form 26AS. Copy of said Form is attached as Annexure-5. Since interest on enhanced compensation, by virtue of section 28 of the Land Acquisition Act was exempt from tax u/s 10(37) of the Act, therefore no tax liability on such ground rises. Hence, in view of the above, TDS needs to be refunded to the appellant as per the provision of the Act as the appellant does not have any taxable income and TDS has been deducted. 5.2. Reliance in this regard is placed on the dictum of Hon'ble Jurisdictional ITAT in the case of Shri Baldev Singh -vs- ITO in 2015 where the Hon'ble ITAT following the ratio laid down by the Hon'ble Supreme Court in the case of Ghanshyam (supra), directed the Id. AO to refund the TDS amount that was deducted on account of the enhanced compensation. 5.3. Hence, in view of the above, it is hereby requested that the amount of TDS deducted may kindly be refunded to the appellant." 10.1. Carefully considered the submission of the appellant in view of the impugned assessment order. Also perused and considered the details and documents uploaded by the appellant on ITBA portal during the appellant proceedings. Went through the case laws referred to and relied upon by the appellant. It is a fact that the appellant did not file her return of income within prescribed time limit. However, her income has been assessed by the learned AO by passing ex-parte order u/s 147 r.พ.ร. 144 r.w.s. 144B of the Income Tax, Act. Therefore, the denial of credit of the prepaid taxes would not be justified. 10.2. A perusal of Form No. 26AS furnished by the appellant shows that the appellant has credit of Rs. 12,22,710/- on account of TDS made against payments of interest to her during the financial year under reference. As per Form No. 26AS a major part of TDS deducted by the Dist. Revenue Officer Cum Land Acquisition Officer, Faridabad who paid interest on compensation to the appellant. As per discussion in the foregoing paras such deduction of TDS was wrongly done on the payment of interest to the appellant as the said interest was paid u/s 28 of the Land Acquisition Act, 1894 which is exempt from the income tax. In view of the facts of the case, I am of the considered opinion that the claim for the credit of TDS by the appellant is justified, thus, the same deserves to be allowed. Therefore, Id. AO is directed to give the credit of the prepaid taxes being TDS made against interest income of the appellant. Accordingly, additional ground of appeal , raised by the appellant during the appellant proceedings, is allowed. 11. In result, the appeal of the appellant is partly allowed.” 10 | P a g e
4. It is in this factual backdrop that the Revenue has come in the appeal before the tribunal inter alia seeking to reverse the lower appellate findings deleting land acquisition compensation addition and unexplained cash credit entries as per its above substantive grounds raised in the instant appeal.
We have given our thoughtful consideration to the department’s and the assessee’s vehement submissions reiterating their respective stands. Coming to the first and foremost issue of taxability of the assessee’s interest income on land acquisition compensation under section 28 of the of Land Acquisition Act, 1894, we note that this tribunal’s recent coordinate bench’s order in Pawan Kumar Vs. PCIT (2024) 159 taxmann.com 61 (Del.- Trib.) has distinguished the said case law as under:
3. Briefly stated, the assessee is an individual. He filed his return for AY 2018-19 on 29.08.2018 declaring income of Rs. 6,35,470/-. His return was processed under section 143(1)(a) on 28.06.2019. His case was selected for complete scrutiny assessment under the e-assessment Scheme, 2019 on two issues, namely refund claim and winning from Lottery/crossword puzzle/horse races. The Ld. Assessing Officer ( AO") served notice under section 143(2) upon the assessee on 22.09.2019 followed by issue of notice under section 142(1) of the Act on 23.11.2020. The Ld. AO completed the assessment on 22.01.2021 under section 143(3) r.w. section 143(3A) and 143(3B) of the Act on income returned with the observation that on aforesaid two issues no addition is made.
In exercise of his powers vested in him under section 263 of the Act, the Ld. PCIT held the impugned order of the Ld. AO as erroneous and prejudicial to the interest of Revenue. According to Ld. PCIT, the Ld. AO should have taken into consideration, the binding decision of Hon'ble Jurisdictional High Court i.e. Hon'ble 11 | P a g e Punjab & Haryana High Court dated 19.02.2020 in the case of Mahender Pal Narang vs. CBDT (2020) 423 ITR 13 (P&H) wherein the Hon'ble High Court has dealt with the controversy arising from the judgment of Hon'ble Supreme Court in the case of CIT vs. Ghanshyam HUF dated 16th July, 2009 relating to the taxability of interest received on compensation or enhanced compensation and also the amendments/provisions of section 56(2)(viii) introduced through Finance Act, 2009 effective from 01.04.2010 on the above issue, which the Ld. AO failed to do. The Ld. PCIT pointed out that the SLP filed against the order of the decision (supra) of the Hon'ble P&H High Court has been dismissed by the Hon'ble Supreme Court vide its order dated 4th March, 2021 in Mahender Pal Narang vs. CBDT (2021) 279 Taxman 74 (SC). He, therefore, set aside the impugned assessment order with a direction to pass an order afresh after making requisite enquiries and proper verification with regard to taxability of interest on enhanced compensation.
5. Aggrieved, the assessee is in appeal before the Tribunal and all the grounds relate thereto.
The Ld. AR submitted that the assessment order was neither erroneous nor prejudicial to the interest of Revenue because (i) the Ld. AO has passed the order after making proper enquiries during assessment proceedings; (ii) the Ld. PCIT has exercised the jurisdiction under section 263 merely based on audit objection, which is not permissible and (iii) the Ld. AO has validly held that interest under section 28 of Land Acquisition Act, 1894 granted by the court is an integral part of enhanced compensation and exempt under section 10(37) of the Act in case of the assessee. 6.1 Elaborating the above contentions, the Ld. AR pointed out that in notice under section 142(1) of the Act dated 23.11.2020 (copy at Paper Book page 1-2), the Ld. AO required the assessee to furnish documentary evidence in support of claim that the amount of Rs. 6,86,17,767/- is received under section 28 of the Land Acquisition Act. The assessee responded vide letter (copy at pages 3-58 of Paper Book) that the assessee received enhanced compensation on compulsory acquisition of his agricultural land by Haryana Govt. of Rs. 6,86,17,767/- which included interest under section 28 of Land Acquisition Act of Rs. 3,97,56,460/- which was part of enhanced compensation as held by the Hon'ble Supreme Court in CIT vs. Ghanshyam HUF (2009) 315 ITR 1 (SC). It was claimed that the assessee was entitled to exemption under section 10(37) of the Act. The explanation of the assessee was accepted by the Ld. AO who passed the impugned assessment order dated 22.01.2021 without making any addition. The assessment was completed after carrying out proper enquiries which he ought to have carried out in respect of the enhanced compensation received by the assessee. It is not a case of 'lack of enquiry'. Merely because in his order the Ld. AO did not make elaborate discussion but was satisfied with the explanation of the assessee, the order could not be held to be erroneous. In support the decisions of Hon'ble Delhi High Court in CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del) and decision of 12 | P a g e
Hon'ble Rajasthan High Court in CIT vs. Ganpat Ram Bisnoi 296 ITR 292 (Raj.) were cited. 6.2 The Ld. AR invited our attention to Audit Memo at pages 399- 402 of Paper Book in the case of the assessee wherein ITO (Audit) Hisar raised an audit objection observing that interest under section 28 of Land Acquisition Act of Rs. 3,97,56,460/- was chargeable to tax under section 56(2)(viii) of the Act and also referred to the decisions in the cases of Shri Manjeet Singh HUF v. UOI & Others in CWP No. 15506 of 2013; Shri Puneet Singh vs. CIT (2019) 110 taxman.com 116 and Shri Mahendra Pal Narang vs. CBDT in CWP No. 17971 of 2019. The Ld. AR contended that the order of the Ld. PCIT is merely based on the audit objection without applying his independent mind and without considering the subsequent decisions of Hon'ble Supreme Court in the cases of (i) CIT vs. Govindbhai Mamaiya (2014) 52 taxmann.com 270 (SC) ; (ii) UOI vs. Hari Singh (2018) 91 taxmann.com 20 (SC); and (iii) ITO, TDS v. Muktanangiri Maheshgiri in Civil Appeal No. 18475 of 20I7 dated 10.11.2017, wherein the ratio of decision of CIT vs. Ghanshyam (HUF) (2009) 181 Taxman 368 (SC) has been affirmed. The Ld. AR cited decisions wherein assumption of jurisdiction under section 263 on the basis of audit objection by the Audit wing of the Department has been held to be invalid. 6.3 The Ld. AR explained that the enhanced compensation awarded by the appellate authority/court to an assessee on acquisition of capital asset is chargeable to tax as capital gain in the year of receipt as per section 45(5) of the Act. However, in the case of an individual or HUF such capital gain from compulsory acquisition of agricultural land being capital asset is exempt from tax under section 10(37) of the Act. 6.4 The Ld. AR pointed out the distinction between interest awarded under section 34 and interest paid on excess compensation under section 28 of Land Acquisition Act. Whereas interest under section 34 is payable for delay in making payment after taking possession of the acquired land, interest under section 28 is awarded for accretion in the value of land and is therefore part of enhanced compensation. 6.5 In Ghanshyam's case (supra), the Hon'ble Supreme Court held that interest under section 28, unlike interest under section 34 is an accretion to the value and hence it is a part of enhanced compensation or consideration which is not the case under section 34 of the 1894 Act. 6.6 As to the alleged non-consideration of the decision of Hon'ble P & H High Court in Mahender Pal Narang's case (supra) by the Ld. AO, it is submitted that the Hon'ble Supreme Court dismissed the SLP of the assessee filed against the said decision of Hon'ble P & H High Court in limine and it is a settled law that the dismissal of SLP in limine does not amount to affirmation of the view taken by the High Court. Unless the judgment of the High Court is affirmed, at least, with short reasoning, the same would not amount to binding precedent.
13 | P a g e 6.7 The Ld. AR elaborated that the insertion of section 145A, section 145B, section 56(2)(viii) and section 57(iv) by the Finance (No.2) Act, 2009 w.e.f. 01.04.2010 does not change the character of interest under section 28 of the Land Acquisition Act granted by the court from 'capital receipt' forming part of enhanced compensation as envisaged in section 45(5) of the Act to 'revenue receipt' chargeable to tax as income from other sources. The view taken by the Ld. AO that interest under section 28 of Land Acquisition Act received by the assessee is exempt under section 10(37) of the Act is not contrary to law. His assessment order is, therefore, not erroneous and not liable to be revised under section 263 of the Act.
The Ld. CIT-DR supported the order of the Ld. PCIT. He placed on record a copy of the decision of Hon'ble Punjab & Haryana High Court in Mahender Pal Narang v. CBDT reported in (2020) 423 ITR 13 (P&H) wherein the Hon'ble High Court held that interest received on compensation or enhanced compensation under Land Acquisition Act, 1894 is to be treated as 'income from other sources' and not under the head 'capital gains'. The Ld. CIT- DR drew our attention to para 9 and 10 of the decision (supra).
We have given our careful thought to the rival submissions and perused the records. The facts are not in dispute. The assessee received interest of Rs. 3,97,56,460/- on enhanced compensation from HUDA after the compulsory acquisition of his agricultural land on which TDS amounting to Rs. 39,75,646/- @ 10% was also deducted. The assessee claimed the said interest as exempt. On perusal of case records, the Ld. PCIT gathered that the Ld. AO had completed the assessment without carrying out necessary and proper enquiry which should have been made regarding applicable judgments on the taxability of interest on enhanced compensation. The Hon'ble Punjab & Haryana High Court has given the finding that interest received on compensation or enhanced compensation will be taxed as per amended provisions introduced through Finance (No.2) Act, 2009 w.e.f. 01.04.2010 and the judgment of the Hon'ble Supreme Court in the case of CIT vs. Ghanshyam HUF would not come to the rescue of the assessee. The Ld. PCIT therefore required the assessee to show cause as to why an appropriate order under section 263 of the Act be not passed. In response the assessee submitted that the amount received under section 28 of Land Acquisition Act is exempt from tax relying on the decision of Delhi Bench of the Tribunal in the case of Shri Puneet Singh, Karnal vs. ACIT pronounced on 08.12.2022 for AY 2011-12 wherein placing reliance upon the decision of Hon'ble Supreme Court in the case of Ghanshyam HUF (supra) decided in favour of the assessee. The submission of the assessee was not acceptable to the Ld. PCIT in view of the decision of Hon'ble P&H High Court in Mahender Pal Narang vs,. CBDT and dismissal of SLP filed against it by the Hon'ble Supreme Court. He, therefore, set aside the assessment order and directed the Ld. AO to pass an order afresh.
As to the issue of lack of necessary and proper enquiry during assessment proceeding, the Ld. AR demonstrated that in response to notice under section 142(1) of the Act issued by the Ld. AO the assessee submitted that interest of Rs. 3,97,56,460/- 14 | P a g e received by the assessee formed part of enhanced compensation as held by the Hon'ble Supreme Court in Ghanshyam HUF's case (supra) which the assessee claimed as exempt under section 10(37) of the Act. Pages 1 to 61 of the Paper Book refer. In our opinion, in the light of evidence available on records, it cannot be alleged as done by the Ld. PCIT that it is a case of 'no enquiry' or 'lack of enquiry'. No doubt that the Ld. AO did not discuss elaborately in the assessment order but that alone cannot make the order erroneous as held by the Hon'ble Delhi High Court in Sunbeam Auto Ltd.'s case (supra) and Hon'ble Rajasthan High Court in Ganpat Ram Bisnoi's case (supra). An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous as held by the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 (SC). None of these elements exist in the case at hand.
Perusal of the order of the Ld. PCIT shows that he assumed the revisionary power under section 263 of the Act mainly on the ground that the Ld. AO passed the order not in accordance with the binding decision of Hon'ble P & H High Court in Mahender Pal Narang's case (supra) against which SLP stands dismissed by the Hon'ble Supreme Court. This is not so. During assessment proceedings in response to notice under section 143(2) and 142(1) of the Act, with reference to specific query on receipt of interest under section 28 of Land Acquisition Act, the assessee explained vide letter at pages 3-5 of Paper Book that interest received under section 28 of the Land Acquisition Act has been held to be part of compensation by Apex Court in the case of CIT vs. Ghanshyam HUF reported as (2009) 315 ITR 1, the same being exempt under section 10(37) of the Act has not been included in the total income of the assessee while filing return of income. The Ld. AO accepted the explanation of the assessee.
The issue of amended provisions of section 56(2)(viii) by the Finance Act, 2009 and the decision of Hon'ble P & H High Court in Mahender Pal Narang's case was raised by the Ld. PCIT in notice under section 263 on the basis of audit objection (copy of audit memo of ITO Hisar at pages 399-402 of Paper Book). Before the Ld. PCIT the assessee explained that the amended provisions were not in connection with the decision of Hon'ble Supreme Court in Ghanshyam HUF's case but to make simple the taxation of interest income as earlier it was taxable on accrual/cash basis on the basis of accounting principles as held by the decision of Hon'ble Supreme Court in Rama Bai vs. CIT (1990) 181 ITR 400. It was also explained that insertion of section 145A, 145B, 56(2)(viii) and 57(iv) by the Finance (No.2) Act, 2009 did not change the character of interest under section 28 of the Land Acquisition Act from 'capital receipt' forming part of enhanced compensation as envisaged in section 45(5) of the Act to 'revenue receipt' chargeable to tax as 'income from other sources'. It was also explained to the Ld. PCIT that after analysing the provisions of section 28 and 34 of Land Acquisition Act the Hon'ble Supreme Court held in the case of Ghanshyam HUF that interest is different from compensation. However, interest paid on the excess amount under section 28 depends upon a claim by a person whose land is acquired whereas interest under section 34 is for delay in making payment. This vital difference needs to be 15 | P a g e kept in mind in deciding this matter. Interest under section 28 is part of the amount of compensation whereas interest under section 34 is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under section 34. It is thus evident that the view taken by the Ld. AO that interest under section 28 of Land Acquisition Act received by the assessee is exempt under section 10(37) of the Act is not contrary to law.
We notice that in CBDT Circular No. 5, dated 03.06.2010 reported in (2010) 324 ITR (St.) 293, it is stated that the Hon'ble Supreme Court in the case of Rama Bai Vs. CIT (supra) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. With a view to mitigate the hardship section 145A has been substituted and clause (viii) in sub- section (2) of section 56 has been inserted by the Finance (No.2) Act, 2009 so as to provide that the interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A shall be assessed as income from other sources in the year in which it is received. It is thus evident that the amended provisions of section 56(2)(viii) of the Act r.w. section 145A were brought on the statute to nullify the effect of Hon'ble Supreme Court's ruling in the case of Rama Bai and not Ghanshyam HUF. Moreover, it is brought to our notice by the Ld. AR that the decision in Ghanshyam HUF was pronounced in July, 2016 and the Finance Bill proposing amendment to section 56 was laid in February 2016. So the intention of the legislature could never be the overruling of the ratio laid down in Ghanshyam HUF case. The issue in Rama Bai case involved the taxability in the year of receipt. The facts and questions for determination in Rama Bai's case were different from those of Ghanshyam HUF's case. The position in Ghanshyam HUF'a case has been affirmed by the Hon'ble Supreme Court in Hari Singh's case. Further, the Ld. AR submitted before us that SLP filed by the Revenue in Hari Singh's case has been withdrawn by the Revenue meaning thereby that now the issue has attained certainty.
We have gone through the decision of the Hon'ble P & H High Court in the case of Mahender Pal Narang (supra). In that case the land of the assessee was acquired in AY 2007-08 and 2008- 09. The enhanced compensation was received on 21.03.2016. In his return filed for AY 2016- 17 he treated the interest received under section 28 of the 1894 Act as income from other sources and claimed deduction for 50% as per section 57(iv) of the 1961 Act. The return was processed under section 143(1) of the Act. An application under section 264 was made claiming that by mistake the assessee treated the interest income as income from other sources whereas the same is part of enhanced compensation. The revisional authority rejected the application under section 264 on 30.1.2019. It was in this factual matrix that the assessee filed writ petition before the Hon'ble P & H High Court. The question for consideration was "whether after the insertion of section 56(2)(viii) and 57(iv) of the Act w.e.f. 01.04.2010, can the assessee claim that interest received under section 28 of the Land Acquisition Act, 1894 will partake the character of the 16 | P a g e compensation and would fall under the head "capital gain" and not "income from other sources" ? It was argued by the assessee that there is no amendment in section 10(37) and by insertion of sections 56(2)(viii) and 57(iv), the nature of interest under section 28 of the 1894 Act will remain that of compensation and decisions of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) and the decision of Hon'ble Gujrat High Court in Movaliya Bhikhubhai Balabhai vs. ITO TDS (2016) 388 ITR 343 were relied upon.
It may be mentioned that the Hon'ble Supreme Court has affirmed its view taken in Ghanshyam HUF's case and the decision of Gujrat High Court in Movaliya's case in its decision in the case of UOI vs. Hari Singh (2018) 91 taxmann.com 20 (SC). The decision of the Hon'ble Supreme Court in Hari Singh's case (supra) was not brought to the notice of Hon'ble P & H High Court while rendering decision in Mahender Pal Narang's case (supra). Hon'ble P&H High Court has thus rendered the decision in Mahender Pal Narang's case in its peculiar facts and circumstances. Accordingly, the opinion of the Ld. PCIT that the Ld. AO should have passed the assessment in accordance with the amended law and binding decision in Mahender Pal Narang's case (supra) overlooking the decision of Hon'ble Supreme Court in Ghanshyam's HUF's case is not sustainable. Reliance of the Ld. CIT-DR on the decision in Mahender Pal Narang's case is misplaced. Needless to emphasis that in V.M. Salgaocar and Bros Pvt. Ltd. vs. CIT 243 ITR 383 (SC), the Hon'ble Supreme Court has held that an order dismissing the SLP at the threshold without detailed reasons does not constitute any declaration of law or a binding precedent. Therefore, overemphasising the fact of dismissal of SLP in limine by the Hon'ble Supreme Court in Mahender Pal's case by the Revenue is not of any legal assistance to it.
Record reveals that the order of the Ld. PCIT was prompted solely by the audit objection. Hon'ble P & H High Court has held in CIT vs. Sohana Woollen Mills (2008) 296 ITR 238 (P&H) that mere audit objection cannot lead to an inference that the order of the Ld. AO is erroneous or prejudicial to the interest of the Revenue.
Since the order of the Ld. AO is based on the decision of the Hon'ble Supreme Court in Ghanshyam HUF (supra) on the issue of taxability of interest received by the assessee under section 28 of Land Acquisition Act, it can at best be said to be a debatable issue on which two views are possible and the Ld. AO accepts one of the views. In this view of the matter too, the Ld. PCIT cannot assume revisional jurisdiction as held by the Hon'ble Delhi High Court in CIT vs. Hindustan Coca Cola Beverages P Ltd. (2011) 331 ITR 192 (Del.) 17. Accordingly, on the facts and in the circumstances of the case as set out above, we hold that the order of the Ld. PCIT is not sustainable. Accordingly, we allow the appeal of the assessee and quash the impugned order of the Ld. PCIT.
In the result, appeal of the assessee is allowed.” 17 | P a g e
6. We adopt the above extracted detailed reasoning mutatis mutandis to uphold the CIT(A)’s lower appellate findings holding the assessee’s impugned interest component on land acquisition compensation as not taxable. The Revenue’s instant former twin substantive grounds stand rejected therefore.