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Facts
The assessee received interest income of Rs. 61,55,950/- on enhanced compensation for compulsory acquisition of agricultural land. This income was claimed as exempt under Section 10(37) of the Income Tax Act, 1961. The Assessing Officer (AO) accepted this claim and allowed the interest income to be exempt.
Held
The Principal Commissioner of Income Tax (PCIT) initiated proceedings under Section 263 of the Act, considering the AO's order erroneous and prejudicial to the revenue. The PCIT held that the interest income was taxable under Section 56(2)(viii) read with Sections 57(iv) and 145A(b) of the Act, as per amended provisions effective from 2010-11. The Tribunal noted that the initial proposal for Section 263 proceedings lacked specific grounds and relied on the PCIT's understanding of the issue.
Key Issues
Whether the interest received on enhanced compensation for compulsory acquisition of agricultural land is taxable under Section 56(2)(viii) r.w.s 57(iv) and Section 145A(b) of the Income Tax Act, 1961. Whether the revisionary order passed by the PCIT under Section 263 of the Act was validly invoked.
Sections Cited
10(37), 263, 56(2)(viii), 57(iv), 145A(b), 143(3), 143(3A), 143(3B)
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Income Tax Appellate Tribunal, “B” BENCH, DELHI
Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL
This appeal is preferred by the Assessee against the order dated 01.03.2024 of the Ld. Principal Commissioner of Income Tax (PCIT)
P a g e | Sh. Charat Singh (AY: 2018-19) (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN & Order No: ITBA/REV/F/REV5/2023-24/1061861185(1)arising out of the order dated 06.04.2021u/s 143(3) r.w.s. 143(3A) & 143(3B)of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the Income Tax Department, National e-Assessment Center for AY: 2018-19.
Heard and perused the record and we find that primarily assessee challenges the impugned order u/s 263 of the Act on the basis that Principal Commissioner of Income Tax application without applying his mind and without taking into consideration the assessment record merely on proposal of the Assessing Officer has invoked the powers u/s 263 of the Act and reliance is placed on the decision in the case of Joginder Kumar & Sons HUF Vs. PCIT in dated 27.11.2025; Indian City Properties Limited Vs. PCIT in dated 23.12.2025; Anil Kumar Anthony Krishna Murthy Vs. PCIT in ITA No. 915/Bang/2024 dated 09.10.2025 & Morpheus Developers Private Limited Vs. PCIT in ITA No. 1754/D/2023 dated 20.08.2025, to contend exercise of powers u/s 263 of P a g e | Sh. Charat Singh (AY: 2018-19) the Act on the basis of proposal of assessing officer is not valid exercise of jurisdiction.
The Ld. DR at the same time submitted that there is no bar in invoking the provision of Section 263 of the Act on the basis of any proposal of Assessing Officer as it is merely an information.
We find that the issue involved in the present case is primarily about taxability of the interest received on enhanced compensation of compulsory acquisition of agricultural land received u/s 28 of Land Acquisition Act, 1894 of the Act which was allowed by the Assessing Officer and which ld. PCIT in the impugned order has found to be finding erroneous in so far as it is prejudicial to the interest of revenue holding that same is liable for taxation and income u/s 56(2)(viii) r.w.s 57(iv) and Section 145A(b) of the Act.
As we go through the material relied by the ld. Counsel for the assessee at page 213-214 assessee has provided a copy of proposal for action u/s 263 of the Act made by Income Tax Officer Ward, Sirsa and as for convenience we reproduce the same:
P a g e | Sh. Charat Singh (AY: 2018-19)
P a g e | Sh. Charat Singh (AY: 2018-19)
P a g e | Sh. Charat Singh (AY: 2018-19) 6. Now as we go through the show cause notice the issue u/s 263 of the Act which is reproduced in para 2 of the impugned order we find at the outset that there is no mention of the proposal being received from Assessing Officer and ld. PCIT has mentioned that it is on the basis of his understanding of the issue he has found the impugned order to be erroneous in so far as it is prejudicial to the interest of revenue and for that purpose he has mentioned that the assessment order has not been passed in accordance with decision of Hon’ble jurisdictional Punjab & Haryana High Court. As we take into consideration the proposal which is reproduced above we find that AO had also mentioned that AO assessed the income of the assessee by not following the judicial rulings/judgments given by the Hon’ble jurisdictional High Court. However, no specific decision was referred to in the proposal to cause show cause notice which was issued to the assessee u/s 263 of the Act. The Ld. PCIT mentioned that the impugned Assessment Order is prejudicial to the interest in terms of clause (d) of Explanation 2 to Section 263 of the Act.
That issue being a pure question of law and not examination of facts or evidences from the assessment record, the proposal, was merely information and the basis of assumption of jurisdiction and it cannot be said that some facts or evidences brought on record in the proposal are based on audit or P a g e | Sh. Charat Singh (AY: 2018-19) discovered by assessing officer and same alone was the basis of assumption of jurisdiction u.s 263 of the Act. The decision relied by ld. AR are thus distinguishable as in those cases the facts cited by audit or AO alone were redrawn in the notice u/s 263 of the Act.
A co-ordinate bench in (Assessment Year:
2017-18) Subhash Chand Dhingra and others vide order dated 07.02.23 has considered similar issue and held that for not following jurisdictional high court decision of Hon’ble Punjab Haryana High Court the assessment concluded by assessing officer of jurisdiction of Haryana, leads to assessment order being prejudicial to interest of revenue. Relevant para 36 is reproduced; “36. There is no doubt to the legal proposition, as cited by Ld Counsel of appellant, that the assessment order need not be disclosing all the facts and reasoning for accepting the claim. But when the question is of taking a call on the basis of judicial pronouncements qua the issues, then to the mind of this Bench, there should be very categorical reasoning reflected in the assessment order that for what good reasons a particular view is accepted to benefit or deny the claim. The absence of same can very well be taken to be a case to assume there was no enquiry. The questions of fact may not require much reasoning and can be collated and correlated by reading the notice and replies, but how a legal controversy is dealt with by Ld. AO, needs to be P a g e | Sh. Charat Singh (AY: 2018-19) exhibited and reflected in the form of reasons recorded in the assessment order. That not being done, the Ld. Revisional Authority was right to conclude that Ld. AO has not taken into consideration the relevant and prevalent principles of law as laid by Jurisdictional High Court in favour of Revenue. Assessment in the absence of such reasoning is certainly erroneous and prejudicial to the interest of the Revenue.”
Thus grounds have no substance and the appeal is dismissed.
Order pronounced in the open court on 21.01.2026
Sd/- Sd/- (Manish Agarwal) (Anubhav Sharma) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated 21.01.2026 Rohit, Sr. PS