2023 (10) TMI 1035 - AT - Income Tax

Land acquisition compensation qualifies for section 96 exemption when not under Fourth Schedule enactments

ITAT Raipur allowed the appeal regarding revision under section 263 concerning taxability of capital gains from compulsory land acquisition. The tribunal ... Revision u/s 263 - taxability of capital gain arising on compulsory acquisition of land of appellant - award of the compensation to the assessee was under RFCTLARR Act - HELD THAT:- On perusal of the Response of assessee wherein the assessee has submitted an exhaustive response explaining all the possible point of view those could possibly have involved pertaining to the query of Ld. PCIT to satisfy him that the award of the compensation to the assessee was under RFCTLARR Act, and there was no nexus with any of the enactments as prescribed under Fourth Schedule of the RFCTLARR Act, and accordingly, the exemption available under section 96 of the RFCTLARR Act, cannot be denied. PCIT apart from putting the liability on the shoulder of the assessee to substantiate it otherwise, was unable to surface any cogent information/evidence to prove that the acquisition of land of the assessee is connected and acquired under any of the enactments prescribed under Fourth Schedule of the RFCTLARR Act, accordingly, the contentions raised by the Ld. AR, are found to be justifiable, having material substance, which constitutes that the acquisition of land in the case of assessee was under RFCTLARR Act, and is not covered by any of the enactments as prescribed under Fourth Schedule of the RFCTLARR Act, which is further substantiated by the department itself, when the same issue in the case of co-owner of the land Mr. Mahendra Lodha, who has received 1/3 share of the impugned compensation a/w the assessee, which is disputed in the present case, wherein the exemption from income tax has been allowed, without any adverse inference, considering that the receipt of compensation was exempt u/s 96 of RFCTLARR Act. We are of the considered opinion that the order of the Ld. AO, though found to be erroneous but could not be established by any supporting material that the same is also prejudicial to the interest of revenue. The prejudice from the order of Ld. AO was only an anticipation / presumption of the Ld. PCIT, which can not be the basis for initiation of proceedings u/s 263, therefore, the same is not sustainable in the eyes of law. Much less, when the same issue in the case of Co-owner, who had shared the compensation with the assessee, has already been decided in favour of the assessee by the revenue, stating that income tax shall not be levied on any award agreement made under the Act except as provided under section 46 of the Act, the compensation receipt was exempt under section 96 of the RFCTLARR Act, 2013. Consequently, grounds raised in the present appeal by the assessee are allowed. Issues Involved:1. Legality of invoking Section 263 by the Principal Commissioner of Income Tax (PCIT).2. Taxability of capital gain arising from compulsory acquisition of land.Summary of Judgment:1. Legality of Invoking Section 263:The appellant challenged the invocation of Section 263 by the PCIT, arguing that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The PCIT had identified discrepancies in the assessment order, such as the failure to verify unsecured loans and the sources of deposits in the assessee's bank account. The PCIT also questioned the genuineness of transactions with certain companies and proposed additions under Sections 41(1) and 68 of the Act. The Tribunal found that the PCIT's concerns were justified as the Assessing Officer (AO) failed to conduct necessary enquiries. However, the Tribunal noted that the PCIT did not adequately demonstrate how the AO's order was prejudicial to the interest of the Revenue. The Tribunal concluded that the PCIT's anticipation of prejudice was not sufficient for invoking Section 263.2. Taxability of Capital Gain:The PCIT set aside the AO's order regarding the taxability of capital gain arising from the compulsory acquisition of land, arguing that the AO did not properly verify the applicability of Section 96 of the RFCTLARR Act, 2013. The Tribunal examined the evidence provided by the assessee, including notices and awards under the RFCTLARR Act, and found that the acquisition was not covered by any enactments listed in the Fourth Schedule of the RFCTLARR Act. The Tribunal also noted that the same issue had been decided in favor of the assessee's co-owner, who received a share of the compensation. Consequently, the Tribunal held that the compensation received by the assessee was exempt under Section 96 of the RFCTLARR Act.Conclusion:The Tribunal allowed the appeal, concluding that while the AO's order was erroneous, it was not demonstrated to be prejudicial to the interest of the Revenue. The compensation received by the assessee was deemed exempt under Section 96 of the RFCTLARR Act, 2013.