2019 (1) TMI 1544 - AT - Income Tax

Tribunal overturns Tax Commissioner's order, rules in favor of Land Acquisition Act compensation.

The Tribunal set aside the Principal Commissioner of Income Tax's order under Section 263, ruling that the Assessing Officer's order correctly treated ... Revision u/s 263 - Taxability of interest received u/s 28 of the Land Acquisition Act - CIT held that the assessment order passed by the AO u/s 143(3) of the Act, having failed to add 50% of the interest income as per the provisions of Section 56(2)(viii), 57(iv) and 145A(b) of the Act under the head 'income from other sources' ,and having not properly examined the facts of the case and accepted the version of the assessee without due examination of the issue of interest on enhanced compensation, was erroneous - HELD THAT:- In view of the categorical affirmation of the proposition laid down by the apex court in the case of Ghanshyam HUF [2009 (7) TMI 12 - SUPREME COURT] in its latest decision in the case of Hari singh [2017 (11) TMI 923 - SUPREME COURT] we hold that there is no error in the order of the AO treating the interest received by them u/s 28 of the LAA,1894,as compensation following the proposition laid down by the apex court in Ghanshyam HUF(supra).The order passed by the Ld.Pr.CIT u/s 263 is therefore set aside. - Decided in favour of assessee. Issues Involved:1. Jurisdiction and statutory preconditions for invoking Section 263 of the Income Tax Act, 1961.2. Validity of the Principal Commissioner of Income Tax’s (Pr. CIT) order based on different interpretations of taxability of interest under Section 28 of the Land Acquisition Act, 1894.3. Applicability of judgments from higher courts regarding the nature of interest received under Section 28 of the Land Acquisition Act.4. Procedural fairness in invoking Explanation 2(d) of Section 263 of the Income Tax Act.5. Direction to add interest income to the assessed income under Section 56(2)(vii) read with Section 57(iv) of the Income Tax Act.Detailed Analysis:1. Jurisdiction and Statutory Preconditions for Invoking Section 263:The assessee contended that the Pr. CIT’s order dated 26.02.2018 under Section 263(1) of the Income Tax Act was without jurisdiction as it did not satisfy the statutory preconditions. The assessee argued that the Assessing Officer (AO) had already examined the facts and made all possible inquiries, thus the assessment order could not be regarded as erroneous or prejudicial to the interest of revenue merely because the Pr. CIT had a different opinion. The Tribunal found merit in the assessee's contention, emphasizing that the AO’s order was not erroneous as it followed the proposition laid down by the Supreme Court in the case of Ghanshyam, HUF.2. Validity of the Pr. CIT’s Order Based on Different Interpretations:The Pr. CIT had noted that the interest received under Section 28 of the Land Acquisition Act was taxable as 'income from other sources' based on the Punjab & Haryana High Court’s judgment in Manjit Singh’s case. However, the assessee argued that the Supreme Court’s decision in Ghanshyam, HUF, which treated such interest as part of enhanced compensation, was the prevailing law. The Tribunal agreed with the assessee, highlighting that the Supreme Court had reiterated its stance in the case of Union of India & Ors. vs. Hari Singh & Ors., thereby affirming that interest under Section 28 of the Land Acquisition Act is in the nature of enhanced compensation.3. Applicability of Judgments from Higher Courts:The Tribunal noted that the Pr. CIT had relied on the Punjab & Haryana High Court’s decision, which was contradicted by the Supreme Court’s subsequent affirmation in Hari Singh’s case. The Tribunal emphasized that the Supreme Court’s decision is the law of the land and must be followed, thus the AO’s order was not erroneous in treating the interest as compensation.4. Procedural Fairness in Invoking Explanation 2(d) of Section 263:The assessee argued that the Pr. CIT’s order under Section 263, invoking Explanation 2(d), was made without granting an opportunity to the assessee regarding the application of the explanation, thus vitiating the order. The Tribunal found that the procedural fairness was compromised, further supporting the assessee’s position.5. Direction to Add Interest Income to the Assessed Income:The Pr. CIT directed the AO to add 50% of the interest income to the assessed income under Section 56(2)(vii) read with Section 57(iv). The assessee contended that this direction was erroneous as it overlooked the Supreme Court’s judgments. The Tribunal agreed, pointing out that the Pr. CIT’s reliance on the High Court’s judgment was misplaced given the Supreme Court’s clear stance on the matter.Conclusion:The Tribunal set aside the Pr. CIT’s order under Section 263, holding that there was no error in the AO’s order treating the interest received under Section 28 of the Land Acquisition Act as compensation. The appeals of the assessee were allowed, and the decision applied mutatis mutandis to all other appeals, resulting in all appeals being allowed. The order was pronounced in the Open Court on 11th January 2019.