2024 (2) TMI 748 - AT - Income Tax

PCIT's Section 263 revision quashed for Land Acquisition Act interest taxability under Section 28

Gulshan Kumar, M/s. Gulshan Variety Store Versus Pr. CIT Rohtak.

The ITAT Delhi quashed the PCIT's revision order under section 263 regarding taxability of interest under section 28 of Land Acquisition Act. The tribunal ... Revision u/s 263 - taxability of interest under section 28 of Land Acquisition Act - ‘no enquiry’ or ‘lack of enquiry’ - as per CIT AO had completed the assessment without carrying out necessary and proper enquiry which he ought to have carried out in respect of the treatment of interest received on compensation or enhanced compensation - HELD THAT:- In the light of evidence available on records, it cannot be alleged as done by the Ld. PCIT that it is a case of ‘no enquiry’ or ‘lack of enquiry’. No doubt that the Ld. AO did not discuss elaborately in the assessment order but that alone cannot make the order erroneous as held in CIT vs. Sunbeam Auto Ltd [2009 (9) TMI 633 - DELHI HIGH COURT] and Ganpat Ram Bisnoi [2005 (8) TMI 106 - RAJASTHAN HIGH COURT] An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous as held in Malabar Industrial Co. Ltd.[2000 (2) TMI 10 - SUPREME COURT] None of these elements exist in the case at hand. The opinion of the Ld. PCIT that the Ld. AO should have passed the assessment in accordance with the amended law and binding decision in Mahender Pal Narang’s case [2020 (3) TMI 1115 - PUNJAB AND HARYANA HIGH COURT] overlooking the decision of Hon’ble Supreme Court in Ghanshyam’s HUF’s [2009 (7) TMI 12 - SUPREME COURT] case is not sustainable. Reliance by the Ld. PCIT on the decision in Mahender Pal Narang’s case is misplaced. During assessment proceedings in response to notice under section 143(2) and 142(1) of the Act, with reference to specific query on receipt of interest under section 28 of Land Acquisition Act, the assessee explained that interest received under section 28 of the Land Acquisition Act has been held to be part of compensation by Apex Court in the case of CIT vs. Ghanshyam HUF [2009 (7) TMI 12 - SUPREME COURT], the same being exempt under section 10(37) of the Act has not been included in the total income of the assessee while filing return of income. The Ld. AO accepted the explanation of the assessee. Since the order of the Ld. AO is based on the decision of the Hon’ble Supreme Court in Ghanshyam HUF (supra) on the issue of taxability of interest received by the assessee under section 28 of Land Acquisition Act, it can at best be said to be a debatable issue on which two views are possible and the Ld. AO accepts one of the views. In this view of the matter too, the Ld. PCIT cannot assume revisional jurisdiction as held by the Hon’ble Delhi High Court in CIT vs. Hindustan Coca Cola Beverages P Ltd. [2011 (1) TMI 138 - DELHI HIGH COURT] Thus we hold that the order of the Ld. PCIT is not sustainable. Decided in favour of assessee. Issues Involved:1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.2. Validity of initiation of proceedings under Section 263 based on the proposal of the Assessing Officer (AO).3. Validity of unsigned show cause notice.4. Examination of whether the AO's assessment was erroneous and prejudicial to the interest of revenue.5. Applicability of Section 56(2)(viii) and the taxability of interest on enhanced compensation.Summary:Jurisdiction of the PCIT under Section 263:The assessee contested the jurisdiction of the PCIT, arguing that the order dated 21.03.2023 under Section 263 was made without satisfying statutory preconditions and thus was without jurisdiction. The Tribunal examined whether the PCIT had the authority to revise the AO's order and found that the PCIT's assumption of revisionary power was not justified as the AO had conducted necessary inquiries.Validity of Initiation of Proceedings under Section 263:The assessee argued that the initiation of proceedings under Section 263 based on the proposal of the successor AO was void-ab-initio. The Tribunal noted that the PCIT should not have initiated proceedings solely based on the AO's proposal and found the initiation of proceedings to be void.Validity of Unsigned Show Cause Notice:The assessee pointed out that the show cause notice issued by the PCIT was unsigned, rendering it void. The Tribunal considered this argument but focused more on the substantive issues of the case.Examination of AO's Assessment:The PCIT held that the AO's order was erroneous and prejudicial to the interest of revenue as it failed to properly tax the interest on enhanced compensation. The Tribunal, however, found that the AO had conducted adequate inquiries and accepted the assessee's explanation that the interest received under Section 28 of the Land Acquisition Act was exempt under Section 10(37) of the Income Tax Act, supported by the Supreme Court's decision in CIT vs. Ghanshyam HUF.Applicability of Section 56(2)(viii) and Taxability of Interest:The PCIT argued that the interest on enhanced compensation should be taxed as 'income from other sources' under Section 56(2)(viii), following the amendments by the Finance Act, 2009. The Tribunal, however, noted that the Supreme Court's decision in Ghanshyam HUF, which treated such interest as part of compensation and thus exempt, was still applicable. The Tribunal found that the PCIT's reliance on the Punjab & Haryana High Court's decision in Mahender Pal Narang's case was misplaced, as it did not overrule the Supreme Court's decision.Conclusion:The Tribunal concluded that the order of the AO was not erroneous or prejudicial to the interest of revenue. It held that the PCIT's order under Section 263 was not sustainable and allowed the appeal of the assessee, quashing the impugned order of the PCIT. The appeal was allowed, and the order pronounced on 13th February 2024.