SH. DEV RAJ KATARIA,PANIPAT vs. DCIT, PANIPAT

Date of hearing: 08.08.2016 Date of Pronouncement: ORDER

PER BEENA A. PILLAI, JM:

1. On the facts and circumstances of the case, order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] !s bad both in the eye of law and on facts.

2 (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the appellant that the reassessment proceedings initiated by the AO are against the statutory provisions of the law and hence liable to be quashed.

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3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the appellant that in the absence of any new information post-filing return, the AO cannot reopen the assessment.

5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in considering the return filed for earlier assessment years before AO as additional evidences under Rule 46A.

6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting to take into consideration the revised returns filed for earlier assessment years which clearly demonstrate that the interest income has been duly accounted for in the year to which it pertains and hence the addition made in the year under consideration is unsustainable.

7(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in holding that the entire amount of the interest of Rs.13,91,426/- pertains to the year under consideration ignoring the material facts available on record that this interest pertains to the period from 2th September, 1985 to 15th February, 2002. ii) That in this regard the learned CIT(A) has erred in wrongly drawing inference on the basis of the TDS certificate issued by the Acquisition Officer.

Asstt. Year Period Rate of Amount of interest interest 1986-1987 186 days (27.09.85 to 9% 26,606.02 31.03.1986) 1987-1988 179 days(01.04.86 to 9% 25,608.16 26.09.86) 186 days(27.09.86 to 15% 44,347.26 31.03.87) 1988-89 14 full years 15% 87,023.66x14 to2001-02 =12,18,331.24 2002-03 321 days (01.04.01 15% 76,534.40

4 I.T.A.No.270/Del/2014 to 15.02.02) Total 13,91,427.08 2.2 It has been submitted that the assessee had disclosed the entire income of enhanced interest received for the relevant Assessment Years by filing revised return, the details of which are as under: Asstt. Income already Addl. Total Date of Year assessed Income in income as revised revised per revised return rerun return 2003- No interest Pertains To this 04 year 2002- 3,88,030/- (u/s 76,534/- 4,64,564/- 30.09.2004 03 143(1) dt 14.12.03 2001- 3,46,550/- (u/s 87,024/- 4,33,574/- 30.09.2004 02 143(1) dt.24.12.2003 2000- 3,29,760/- (u/s 87,024/- 4,16,784/- 30.09.2004. 01 154 on 24.12.03)

2.3 For the year under consideration, the assessee had claimed the TDS deducted on the enhanced compensation received in the return of income filed. The Assessing Officer initiated proceedings u/s 148, alleging that interest on enhanced compensation amounting to Rs.13,91,427/- received by the assessee from Land Acquisition Officer in November, 2003 has escaped assessment. 2.4 The assessee contended before the Ld. A.O. that he had already revised its return of income for the earlier years by spreading over the interest as per the judgment of Hon'ble Punjab & Haryana High Court in the case of 5 I.T.A.No.270/Del/2014 Tuhiram Vs Land Acquisition Collector and others reported in 199 ITR 490 (being the Jurisdictional High Court in case of the assessee). 2.5 The reason for the issuance of notice u/s 148 of the I.T. Act, 1961 as recorded by the Assessing Officer is as under: “Reasons for Issue of Notice u/s 148 of the Income tax Act. 1961:

The assessee filed return of income on 30/9/2004, declaring an income of Rs.4,20,760/-. The assessee derived income from· business, house property and interest income. The return was processed u/s 143(1) dated 17/6/2005 and a refund of Rs.1,27,953/- was issued on 4/7/2005. Later on, on examination of the return, it is seen that during the year under consideration, the assessee has received interest on enhanced compensation amounting to Rs.13,91,426/- from Land Acquisition Officer in; Nov. 2003 on which TDS of Rs.1,41,825/- was deducted. As per provisions of Income Tax Act, interest on enhanced compensation is taxable, but the assessee had not added the same while computing the taxable income for the. asstt. year 2004-5.

I have, therefore, reason to believe that income chargeable to tax amounting to Rs.13,91,426/- has escaped assessment for the A Y 2004-05 in terms of section 147 of the Income-tax Act."

4. Aggrieved by the order of the Ld. A.O., the assessee preferred an appeal before Ld. CIT(A). Before Ld. CIT(A), the assessee relied upon various Hon'ble Supreme Court and Hon'ble High Court decisions stating that interest that has accrued to the assessee when compensation amount due to him had not been paid in each of the relevant year, had to be spread over to the years between the date of acquisition and the date of actual payment. Ld. CIT(A) upheld the observations made by the Ld. A.O. Further, Ld. CIT(A) upheld the reassessment proceedings to be valid following the ratio laid down by Hon'ble Punjab & Haryana High Court in the case of Punjab Tractors Ltd. VSs ACIT reported in 245 ITR 242. 4.1 Aggrieved by the order of Ld. CIT(A), assessee is in appeal before us.

7 I.T.A.No.270/Del/2014 whose land has been acquired, whereas interest u/s 34 is for delay in making the payment, for which compensation amount is determined. Ld. A.R. submitted that admittedly, the alleged interest received is the payment of interest u/s 34 of the Land Acquisition Act 1894. Ld. A.R. submitted that the assessee revised its return for earlier years when the payment was received. He submitted that the enhanced interest received does not pertain to the financial year relevant to Assessment Year under consideration. It pertained to the period from effective date of compensation to the actual date of decision of the Court. He referred to and relied upon the decision of Hon'ble Jurisdictional High Court in the case of Tuhiram Vs Land Acquisition Collector and others (supra), wherein the Hon'ble Punjab & Haryana High Court had mandatorily required the spread over of income on year to year basis and to pay the tax accordingly. In these circumstances, it has been submitted by the Ld. A.R. that the assessee could not file his return reflecting the total interest income in the year of its receipt as it actually relates to various previous Assessment Years. 5.2 Ld. A.R. also submitted that the law relating to TDS, does not restrict the assessee for claiming the tax deduced on such interest received during the financial year relevant to the Assessment Year under consideration even though the interest income was spread over in the earlier Assessment Years. He vehemently emphasized on the fact

8 I.T.A.No.270/Del/2014 that the assessee had not concealed any income, as he had voluntarily revised his return of income for the relevant Assessment Year along with earlier Assessment Years. It has been submitted that the reopening is not valid as the assessee has not filed any inaccurate particulars of its income and the assessee was under bona fide belief that the ratio laid down by Hon'ble Jurisdictional High Court in the case of Tuhiram Vs Land Acquisition Collector and Others (supra) being applicable. 5.3 On the contrary, Ld. D.R. relied upon the decision of authorities below.

9 I.T.A.No.270/Del/2014 “4.03. This issue has been dealt with by the Hon'ble Punjab & Haryana High Court in the case' of Punjab Tractors Ltd., Vs. ACIT, 254 ITR 242 P&H . 'The Hon'ble Court in this case observed that so long as the ingredients of section 147 are fulfilled, the, AO is free to initiate reassessment proceedings and failure to take steps u/s 143(2) will not render the AO powerless to initiate the reassessment proceedings. The Hon'ble Court further observed as under:-

"In our view, the intimation under section 143(1) operates as an order of assessment unless the authority proceeds to give notice under section 143(2) and passes an order under section 143(3). Furthermore, if the competent authority has reason to believe that income had escaped assessment while issuing intimation under section 143(1), it can proceed under section 148. The absence of order under section 143(3) is no bar and finally the Hon'ble Court in this case concluded as under:-

"It is not necessary for reopening' under section 147 that assessment should have been finalized under section 143(3) once the assessment for the relevant year was admittedly completed vide an intimation under section 143(1) the notice under section 147/148 issued to the petitioner was not vitiated merely for the reason that notice under section 143(2) had not been issued to it."

4.04 The Hon'ble Punjab& Haryana High Court further considered this issue in the case of Ramesh Chander Singla Vs. CIT(A) 2 ANR (2011) 330 ITR 28S (P&H) . The catch note from that decision is reproduced be1ow:-

"The assessee, a Development Officer of the LIC claimed deduction on incentive bonus and additional conveyance allowance received by him. The return of the assessee was processed

10 I.T.A.No.270/Del/2014 under section 143(1) of the Income Tax Act, 1961, thereby, benefit of deduction was taken by the assessee. Later, the Assessing Officer held that the assessee was to be governed by the head of "Salary" and that he could get deduction by treating income under the head of 'Business Income" and accordingly proceedings for reassessment were initiated and the two amounts were disallowed and added back to the assessee's salary income. The reassessment was upheld by the Commissioner (Appeals) and the Tribunal. On further' appeal:

Held, dismissing the appeal, that issuance of notice under section 147 of the Act 'could not be challenged on the ground that the original assessment was not made under section j 43(3) of the Act."

4.05 Reference is also made to the decision of the Patna High Court In the case of Deepak Kumar Poddar and others Vs. Union of India and others, 224 ITR 95 (Patna). The Head note from that decision is reproduced below:-

“Reassessment-Notice-Proceedings pursuant to Notice under section 143(2) pending- Notice for reasseesment-Permissible- Explanation 2(b) to section 147 can apply to scrutiny cases- In co me- Tax Act, 1961 s. 147, Explanation 2(b). " 4.06 In view of the factual and legal position disclosed above, it is noted that the action of the AO of issue of notice u/s 148 of the Act after processing the return u/s 143(1) is as per law. Since assessment u/s 143(3) in this case was not made, prima facie satisfaction of the AO of escapement of income is sufficient to issue notice u/ s 148 of the Act. In this regard, reference is D3ade to the 'decision of the Hon'ble supreme court in the case of ACIT, Vs. Rajesh Jhaveri,

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Stock Brokers (P) ltd, 291 ITR 500 (Se). The Head note from that decision is reproduced below:- “Reassessment-Intimation-Provision for initiating reassessment applies only one of two conditions to be complied with-Only reason to believe that Income chargeable to tax has escaped Assessment- "Reason. to Believe" formation of belief within subjective satisfaction of Assessing Officer-- Principle relating to "Change of Opinion" not applicable-Income-Tax Act, 1961, ss. 143(1)(a),(3), 147.

Income escaping assessment-Intimation-claim of' assessee for bad debts-Notice for reassessment on basis that conditions for allowance were not fulfilled- Valid-Within jurisdiction of Assessing Officer-Income-Tax Act, 1961; ss, 36(1)(vii), (2), 1.43(1 )(a), 147, 148."

4.07 In view of the factual and legal position discussed above, the plea of the appellant is not tenable and in view of the decision of the Hon'ble Jurisdictional Punjab & Haryana High Court on the issue; the issue of notice u/s 148 'of the Act by the AO is held as per law and grounds' no. 1 & of appeal are as such dismissed.”

6.3 We do not find any infirmity in the findings of Ld. CIT(A). Respectfully following the ratio laid down in the decisions above, we dismiss these grounds raised by assessee. 6.4 The issue raised under Ground No.4 to 8 argued before us is regarding taxability of a sum of Rs.13,91,472/- received by the assessee in the year relevant to the assessment year under consideration, which admittedly pertains to more than fifteen earlier

12 I.T.A.No.270/Del/2014 years as discussed above. The assessee revised his returns for the three years and offered the amount of interest relating to those years to tax. The remaining amount relating to the earlier years was not offered as the time limit for revising the returns or rectifying the assessments had already expired. The AO took a stand that the entire amount is chargeable to tax in the year of receipt. The Hon’ble Supreme Court in Rama Bai VS CIT (1990) 181 ITR 400 (SC) has held that Interest on enhanced compensation awarded under the Land Acquisition Act accrues year after year and not on the date of granting enhanced compensation. In view of this articulation of law by the Hon'ble Apex court, there can be no question of charging the entire amount of interest to tax in the year of receipt as has been done by the authorities below. 6.5 It is further observed that the legislature in its wisdom has made certain changes qua the taxability of such interest income in the relevant provisions by the Finance (No.2) Act, 2009 coming into force w.e.f. 1.4.2010. Now section 145A(b) has been amended to provide that such interest on enhanced compensation shall be deemed to be income of the year of receipt; section 56(2) (viii) has been amended to treat such interest as 'Income from other sources' ; and section 57(2)(iv) has been amended to provide for deduction towards expenses @ 50% of such interest. Since these provisions have come into force w.e.f.

13 I.T.A.No.270/Del/2014 1.4.2010, the same cannot be applied retrospectively to the earlier years. We are dealing with the A.Y. 2004-05, which will, thus, be governed by the ratio of the judgment in the case of Rama Bai (supra). It is, therefore, held that the ld. CIT(A) was not justified in charging to tax the amount of interest received in the year, which obviously did not relate to the year in question. 6.6 There is one more connected issue, being the credit claimed by the assessee for the amount of tax deducted at source on such interest income against some other income offered for taxation for the year under consideration. At this juncture, it is pertinent to note the mandate of section 199(1) as applicable for the relevant assessment year, which provides that:

Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government, shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or depositor or owner of property or of unit- holder or the shareholder, as the case may be, and credit shall be given to him for the amount so deducted on the production of the certificate furnished under section 203 in the assessment, made under this Act for the assessment year for which such income is assessable.

14 I.T.A.No.270/Del/2014 6.7. A careful perusal of the provision indicates that the credit for TDS can be allowed only for the assessment year for which the corresponding income is offered for taxation. There can be no question of allowing credit for the TDS in the assessment of a year for which the matching income is not offered for taxation. In other words, both the income and credit for TDS go hand in hand and cannot be disassociated from each other. As the amount of interest on which tax has been withheld is not chargeable to tax in the instant year, the assessee cannot equally be allowed credit for TDS on such interest income against other income. When confronted with this position, the ld. AR contended that since the AO allowed credit for such TDS, the Tribunal cannot disallow the same.

6.8. We are not convinced with the submission. The patent reason for not disallowing credit for such TDS by the AO is that he charged to tax the entire interest income in the year in question and impliedly following the prescription of section 199, allowed the credit for TDS. As the interest income is held to be not chargeable to tax in the year under consideration, the assessee cannot be allowed to avail credit for TDS on such interest income against tax on his other income. To sum up, the interest income of Rs.Rs.13,91,472/ - is not chargeable to tax and further no credit for TDS of Rs.l,41,825 on such interest can be allowed in the instant year.

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