RAJPAL,JHAJJAR vs. INCOME TAX OFFICER, NATIONAL FACELESS ASSESSMENT UNIT

6. 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 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. 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.

8. 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.

11. 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 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.

12. 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.

Order pronounced in open court on 27.11.2025.