2025 (6) TMI 146 - AT - Income Tax

ITAT allows appeal against revision order under Section 263 involving Land Acquisition Act interest taxation dispute

The ITAT Delhi allowed the assessee's appeal against the PCIT's revision order u/s 263. The PCIT had contended that the AO failed to consider the ... Revision u/s 263 - as per CIT AO failed to consider the decision of Jurisdictional High Court in the case of Mahendra Pal Narang [2020 (3) TMI 1115 - PUNJAB AND HARYANA HIGH COURT] on the taxability of interest on additional compensation received by the assessee under the Land Acquisition Act - HELD THAT:- Since the AO completed the assessment taking note of the replies filed by the assessee, and the decision of Ghanshyam (HUF) and Union of India Vs. Hari Singh & Others [2009 (7) TMI 12 - SUPREME COURT] Since the assessment order of the AO is based on these decisions on the issue of taxability of interest received by the assessee u/s 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. Assessing Officer accepted one of the views. In the circumstances, the Ld. PCIT cannot assume revisional jurisdiction as held in the case of CIT Vs. Hindustan Coca Cola Beverages Pvt. Ltd. [2011 (1) TMI 138 - DELHI HIGH COURT] Thus, order passed by the Ld. PCIT u/s 263 is not sustainable. Assessee appeal allowed. The core legal questions considered in this judgment revolve around the validity and correctness of the revisionary order passed under section 263 of the Income Tax Act, specifically:1. Whether the assessment order passed by the Assessing Officer (AO) under section 143(3) for the assessment year 2018-19 was erroneous and prejudicial to the interests of the Revenue for not considering the decision of the Jurisdictional High Court in the case of Mahendra Pal Narang regarding the taxability of interest on additional compensation received under the Land Acquisition Act.2. Whether the interest received under section 28 of the Land Acquisition Act on enhanced compensation is exempt under section 10(37) of the Income Tax Act.3. Whether the AO conducted adequate enquiry before accepting the exemption claim under section 10(37), and if the power of revision under section 263 can be exercised when the AO has taken a plausible view on a debatable issue.4. The applicability and binding nature of various judicial precedents, including decisions of the Hon'ble Supreme Court and High Courts, on the issue of taxability of interest on compensation under the Land Acquisition Act, particularly the decisions in Ghanshyam Dass HUF, Union of India Vs. Hari Singh & Others, and Mahendra Pal Narang Vs. CBDT.Issue-wise Detailed AnalysisIssue 1: Validity of Revisionary Order under Section 263Legal Framework and Precedents: Section 263 empowers the Commissioner to revise an assessment order if it is found to be erroneous and prejudicial to the interests of the Revenue. The Supreme Court in Malabar Industrial Co. Ltd. vs. CIT held that not every loss of revenue amounts to an erroneous order prejudicial to Revenue; if the AO adopts one of two plausible views, the revisionary power cannot be invoked. The Delhi High Court in CIT vs. Hindustan Coca-Cola Beverages Pvt. Ltd. reiterated that revision cannot be exercised merely because the Commissioner disagrees with the AO's view.Court's Interpretation and Reasoning: The Tribunal found that the AO had conducted necessary enquiries by issuing multiple notices under section 142(1) and had considered the assessee's submissions and judicial precedents before completing the assessment. The AO took a plausible view accepting the exemption claim under section 10(37). The Tribunal relied on coordinate Bench decisions (e.g., Shri Rishi Batra vs. PCIT, Jai Singh Karwal vs. PCIT) which held that where the AO has taken a plausible view on a debatable issue after enquiry, the Commissioner cannot invoke section 263.Application of Law to Facts: The AO issued repeated notices seeking details regarding compensation and interest received, and the assessee furnished detailed replies citing binding Supreme Court decisions. The AO accepted the exemption claim accordingly. The revisional order by PCIT was based on the failure to consider the Mahendra Pal Narang decision, but the Tribunal found that the AO had indeed considered relevant precedents and conducted enquiry.Treatment of Competing Arguments: The Revenue argued that the AO failed to consider the binding decision of the Jurisdictional High Court in Mahendra Pal Narang and thus the order was erroneous. The Tribunal distinguished this decision on facts and held that the Mahendra Pal Narang decision was rendered in peculiar facts and did not overrule the Supreme Court's decisions in Ghanshyam Dass HUF and Hari Singh. The Tribunal also noted that the dismissal of Special Leave Petition in Mahendra Pal Narang does not constitute binding precedent.Conclusion: The Tribunal concluded that the revisionary order under section 263 was not sustainable as the AO had taken a plausible view on a debatable issue after due enquiry. The revisional jurisdiction was wrongly invoked.Issue 2: Taxability of Interest under Section 28 of the Land Acquisition Act and Exemption under Section 10(37)Legal Framework and Precedents: Section 10(37) exempts certain compensation received under the Land Acquisition Act. The Supreme Court in Ghanshyam Dass HUF (315 ITR 1) held that interest under section 28 of the Land Acquisition Act forms part of the compensation and is exempt under section 10(37). The Union of India Vs. Hari Singh & Others affirmed this view. The Finance Act 2009 introduced amendments (sections 56(2)(viii), 57(iv), 145A) relating to taxation of interest income, but these amendments were intended to address the taxability of interest on arrears and not to override the Ghanshyam Dass decision.Court's Interpretation and Reasoning: The Tribunal analyzed the nature of interest under section 28 versus section 34 of the Land Acquisition Act. Interest under section 28 is part of enhanced compensation and thus capital receipt exempt under section 10(37), whereas interest under section 34 is for delay in payment and taxable as income. The Tribunal also referred to CBDT Circular No. 5/2010 clarifying that amendments were aimed at mitigating hardship in taxing arrears of interest and did not intend to change the character of interest under section 28.Application of Law to Facts: The assessee received interest under section 28 and claimed exemption under section 10(37). The AO accepted this claim based on binding Supreme Court precedents. The revisional authority's reliance on the Mahendra Pal Narang decision was found misplaced as that decision did not consider the Hari Singh judgment and was rendered on different facts.Treatment of Competing Arguments: The Revenue contended that the interest should be taxable under amended provisions and that the AO erred in exempting it. The Tribunal rejected this, emphasizing the binding Supreme Court rulings and legislative intent behind amendments.Conclusion: Interest under section 28 of the Land Acquisition Act is exempt under section 10(37) of the Income Tax Act. The AO's acceptance of this exemption was legally sound.Issue 3: Adequacy of Enquiry by AO and Exercise of Revisional JurisdictionLegal Framework and Precedents: The Supreme Court in Malabar Industrial Co. Ltd. held that the AO's order is not erroneous merely because the Commissioner disagrees with it, especially where the AO has made enquiries and taken a plausible view. The Delhi High Court in CIT vs. Sunbeam Auto Ltd. held that the AO need not give detailed reasons for each item; the presence of some enquiry suffices.Court's Interpretation and Reasoning: The Tribunal found that the AO issued multiple notices under sections 142(1) and 143(2), sought detailed information, and considered the assessee's replies and judicial precedents before completing the assessment. The AO's order showed application of mind and enquiry.Application of Law to Facts: The AO's assessment order was not a case of no enquiry or lack of enquiry. The revisional order under section 263 was thus not justified.Treatment of Competing Arguments: The Revenue argued that the AO failed to consider binding decisions and hence the order was erroneous. The Tribunal rejected this, holding that the AO's enquiry was adequate and the view taken was plausible.Conclusion: The revisional jurisdiction under section 263 cannot be exercised where the AO has conducted enquiry and taken a plausible view on a debatable issue.Issue 4: Binding Nature and Application of Judicial PrecedentsLegal Framework and Precedents: The Supreme Court's decisions in Ghanshyam Dass HUF and Union of India Vs. Hari Singh & Others are binding on the issue of taxability of interest under section 28 of the Land Acquisition Act. The dismissal of SLP in Mahendra Pal Narang does not confer binding precedent status on that decision. The Tribunal also relied on various coordinate Bench decisions supporting the assessee's view.Court's Interpretation and Reasoning: The Tribunal distinguished the Mahendra Pal Narang decision on facts and held that the AO's reliance on the Supreme Court decisions was correct. The Tribunal emphasized that the legislative amendments did not overrule Ghanshyam Dass HUF.Application of Law to Facts: The AO's acceptance of exemption based on binding Supreme Court precedents was upheld. The revisional authority's reliance on Mahendra Pal Narang was found to be misplaced.Treatment of Competing Arguments: The Revenue's reliance on Mahendra Pal Narang was countered by demonstrating that the decision was fact-specific and not binding, and that the Supreme Court's decisions remained authoritative.Conclusion: The AO's application of binding Supreme Court precedents was proper, and the revisional order based on a non-binding decision was unsustainable.Significant Holdings'The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law.''The AO has conducted enquiry and adopted one of the two views which was plausible. The question would be as to whether in such circumstances, the power under section 263 of the Act would be invoked by the PCIT or notRs. The said issue is well settled in several decisions.''Interest under section 28 of the Land Acquisition Act is part of the amount of compensation and is exempt under section 10(37) of the Income Tax Act. The amendments introduced by the Finance Act 2009 were to mitigate hardship in taxing arrears of interest and did not change the character of interest under section 28.''The dismissal of Special Leave Petition at the threshold without detailed reasons does not constitute any declaration of law or a binding precedent.''The revisional jurisdiction under section 263 cannot be exercised merely because the Commissioner has a different opinion from the AO when the AO has taken a plausible view after enquiry on a debatable issue.'Final determinations included quashing the revisionary order passed under section 263, setting aside consequential assessment orders, and allowing the appeals filed by the assessee. The Tribunal held that the AO's acceptance of exemption under section 10(37) based on binding Supreme Court precedents was legally sound and that the revisional order was unsustainable in law.