2023 (5) TMI 59 - AT - Income Tax

Builder compensation for alternate accommodation during redevelopment treated as capital receipt, not taxable as income

Ajay Parasmal Kothari Versus Income Tax Officer –30 (1) (1) Bandra Kurla Complex Bandra (E), Mumbai

ITAT Mumbai held that amounts received from the builder as compensation for alternate accommodation during redevelopment are capital receipts. Although ... Characterization of receipt - receipts from the builder for alternate accommodation - receipt shown as a capital accounts receipt from the builders - AO rejected the submissions of the assessee and held that it is not a capital receipt and clearly a revenue receipt in the form of alternate accommodation rent provided by the builder for development of his residences - also assessee has not utilized any amount of its receipt for his alternate accommodation, he treated the above amount as income of the assessee and taxed under the head “income from other sources”. HELD THAT:- It is fact on record that assessee has received from the builder for alternate accommodation. However, assessee has not utilized these funds for any accommodation. However, he adjusted and lived with his parents. It clearly indicates that even though assessee has not utilized the rent received for his accommodation, however, he has faced hardship by vacating the flat for redevelopment and also adjusted himself during the period. As relying on case of Smt Delilah Raj Mansukhani [2021 (3) TMI 252 - ITAT MUMBAI] we also hold that the above receipt of compensation for hardship is in the nature of capital receipt. Accordingly, the addition made by the Assessing Officer is deleted. Ground raised by the assessee is allowed. Issues Involved:1. Condonation of Delay2. Taxability of Compensation Received for Alternate AccommodationCondonation of Delay:The assessee filed an appeal with a delay of 1566 days, which was supported by an affidavit explaining the delay. The affidavit cited reliance on incorrect advice from the previous Chartered Accountant and subsequent realization of the error upon consulting a new CA. The Department objected to the condonation but did not file any counter-affidavit. The Tribunal referred to the precedent set in the case of M/s. Midas Polymer Compounds Pvt. Ltd., v. ACIT, where a delay of 2819 days was condoned based on substantial justice principles. The Tribunal emphasized that substantial justice should be preferred over technical considerations and noted that the delay was not deliberate. Consequently, the Tribunal condoned the delay, allowing the appeal to be heard on its merits.Taxability of Compensation Received for Alternate Accommodation:The assessee received Rs. 3,73,191/- from a builder as compensation for alternate accommodation due to redevelopment of his property. The Assessing Officer treated this amount as 'income from other sources,' rejecting the assessee's claim that it was a capital receipt. The CIT(A) upheld the AO's decision, distinguishing it from the case of Kushal K. Bangia v. ITO, which the assessee had cited.Upon appeal, the Tribunal considered a similar case, Smt Delilah Raj Mansukhani v. ITO, where compensation for displacement due to redevelopment was deemed a capital receipt. The Tribunal held that such compensation is typically for hardship faced due to displacement and should not be taxed as revenue receipt. Following this precedent, the Tribunal concluded that the compensation received by the assessee was a capital receipt and directed the AO to delete the addition. Thus, the appeal was allowed in favor of the assessee.