AI Drafter 
TaxTMI 
TaxTMI 
2018 (10) TMI 1984
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....lead case wherein Assessee has raised the following grounds: 1 That order dated 26.2.2018 u/s 263(1) of the Act by learned Principal Commissioner of Income Tax, Hisar has been made without satisfying the statutory preconditions contained in the Act and is therefore without jurisdiction and thus, deserves to be quashed as such. 1.1 That the learned Pr. Commissioner of Income Tax has failed to appreciate that once the learned Assessing Officer on examination of the facts on record and after making all possible enquiries had accepted claim of the appellant then such an order of assessment could not be regarded as erroneous in as much as prejudicial to the interest of revenue merely because the learned Principal Commissioner of Income Tax had a different opinion and that too, without having established in any manner that, view adopted by the learned Assessing Officer was an impossible view. 1.2 That various adverse findings and observations made by the learned Pr. Commissioner of Income Tax in order are based on fundamental misconception of facts and law, arbitrary and unjustified and therefore untenable. 1.3 That the finding that "assessment order h....
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....ppellant be allowed. 3. The order of the Ld. Pr. CIT passed under section 263 giving the facts of the case amendment in the Section 56, case laws relied on, and the rationale of the decision is reproduced below: Return declaring an income of Rs. 4,66,040/- plus agri. Income at Rs. 2,00,000/was filed by assessee on 29.03.2014 for the Assessment Year 2013-14. Apart from it, assessee has also shown the exempt income of Rs. 1,61,14,384/- in Schedule El of the Income-tax return (enhanced compensation of Rs. 85,54,074/- and interest thereon at Rs. 75,60,310/-). and claimed exemption at Rs. 75,60,310/- u/s 10(37) of the Income-tax Act, 1961. The assessment proceedings u/s 143(3) of the Act were finalized by the AO vide order dated 24.11.2015 assessing total income on returned income. 2. Assessment record for the above mentioned assessment year was called upon and examined. During the year, certain land belonging to the assessee was acquired by the Land Acquisition Officer, HUDA and compensation, enhanced compensation and interest thereon were awarded in lieu thereof by the HUDA/various courts. As a result, assessee received interest on enhanced compensation amounting ....
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....me is, therefore, required to be modified/cancelled u/s 263 of the Act. Therefore, show cause notice was issued to the assesseee on 01.02.2018 as to why an appropriate order under section 263(1) should not be passed. 3. In response thereto, Sh. S.K. Jain, CA and AR of the assessee appeared and filed written submission as under :- 3.1 That assessee has furnished return of income on 29.03.2014 declaring an income of Rs. 4,66,040/- and agriculture income of Rs. 2,00,000/- for the instant year. That perusal of the return of income would show that assessee has duly disclosed that, he has received exempt income of Rs. 1,61,14,384/- in schedule El (Exempt Income) of the Income tax return, which comprises of enhanced compensation of Rs. 85,54,0747-on compulsory acquisition of agricultural land and interest thereon amounting to Rs. 75,60,310/-on it. 3.2 Thereafter during the assessment proceedings u/s 143(3) of the Act, in response to the query of learned Assessing Officer, assessee furnished reply where in detail regarding enhanced compensation on compulsory acquisition of agriculture land has been submitted before learned Assessing Officer. 3.3 That on ....
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....ocation of section 263 of the Act is not tenable. It is submitted that in support of the above submission assessee seeks to place reliance on following judgements: i) 2 taxmann.com 260 (Del.) CIT vs. Suresh Paul Bansal ii) 287ITR 286 (Del) CIT vs. Vikram Aditya and Associated iii) ITA 170/2017 (Del) CIT vs. Prudent Advisory Services (P) Ltd. 7 That in the impugned notice it has been alleged that element of interest awarded by the Court on enhanced compensation u/s 28 of the Land Acquisition Act, 1894 falls for taxation u/s 56 of the Income Tax Act, 1961 as "Income from Other Sources" 7.1 It is submitted that aforesaid allegation is based on the judgement of Hon'ble Punjab and Haryana High Court in its judgement dated 10.01.2014 in the case of Manjeet Singh (HUF) Karta Manjeet Singh Vs. Union of India and Others, CWP No. 15006 of 2013. It is submitted that aforesaid judgement has been distinguished by Hon'ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai vs. Income-tax Officer-TDS-1-Surat, dated 31.3.2016 reported in 388 ITR 343 (Guj). 7.2 That, assessee also seeks to rely on the following judgements: ....
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.... 8.2 In view of the aforesaid it is thus submitted that claim of the assessee is in accordance with law. 4. I have carefully considered the submission of the AR of the assessee. The AR of the assessee relied heavily on the decision of Hon'ble Apex High Court in the case of Ghanshyam HUF (Supra) dated 16.07.2009. In this context, subsequent to the above decision, the following 3 (three) amended provisions of Income Tax Act, 1961 were introduced by the Finance Act, 2009 w.e.f. 01.04.2010 :- 1. Clause (viii) of sub-section 2 of Section 56: "Income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A." 2. Clause (iv) Section 57: "In the case of income of nature referred to in clause (viii) of sub section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section." 3. Clause (b) of section-145A: "Interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received.....
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....tly, what requires to be noticed is that the entire consideration and analysis in that decision was with reference to the question whether solatium, additional amount and interest are part of 'enhanced compensation' for the purposes of Section 45(5) (b) of the Income Tax Act, 1961. The observations therein should be understood in the context of the provisions of the Income Tax Act. For example the decision also holds that interest payable under Section 28 of the Act is 'enhanced compensation' for the purposes of Section 45(5) (b) of Income Tax Act, which if taken as the interpretation with reference to the Land Acquisition Act, 1894, will be contrary to the Constitution bench decision in Sunder (supra). We may also note that the decision clearly holds that additional amount is awardable only against the market value and not solatium: 'It is clear from reading of Sections 23(1 A), 23(2) as also Section 28 of the 1894 Act that additional benefits are available on the market value of the acquire lands under Section 23(1A) and 23(2) whereas Section 28 is available in respect of the entire compensation.' 9. In view of the above, the appeal is al....
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....ble to tax. The amendment is only to bring within its tax net, income received from the transaction covered under the definition of interest. It would mean that the interest received as income on the delayed payment of the compensation determined under Section 28 or 31 of the Acquisition Act is a taxable event." (ii) Hon'ble Apex Court in its three judge bench in the case of Dr. Sham Lai Narula (supra) held : Therefore, the interest awarded under s. 28 of the Act, just like under s. 34 thereof, cannot be a compensation or damages for the loss of the right to retain possession but only compensation payable by the State for keeping back the amount payable to the owner." 7. In view of the authoritative pronouncements of the Apex Court in the case of Dr. Shamlal Narula vs. CIT (Supra), Bikram Singh vs. Land Acquisition Collector, (Supra), Sunder vs. Union of India (Supra) and State of Punjab vs. Amarjit Singh (Supra), Hon'ble Punjab & Haryana High Court in Manjet Singh (Supra)held that the benefit of two Judges Bench's decisionin the case of Ghanshyam (HUF) cannot be derived by the assessee u/s 28 of the Land Acquisition Act and held that the elem....
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....he purposes of the Act. 14. Another three Judges bench of the Apex Court in Bikram Singh vs. Land Acquisition Collector, (1997) 224 ITR 551 following Dr. Shamlal Narula's case (supra) and taking into consideration definition of "interestln Section 2(28A) of the Act had recorded that interest under Section 28 of the 1894 Act was a revenue receipt and is taxable. It was held as under:- "The controversy is no longer res integra. This question was considered elaborately by this Court in Dr. Shamlal Narula vs.Commissioner of Income-tax, Jammu [51 ITR 151]. Therein, K. Subba Rao, J., as he then was, considered the earlier case law on the concept of "interest" laid down by the Privy Council and all other cases and had held at page 158 as under: "In a case where title passes to the State, the statutory interest provided thereafter can only be regarded either as representing the profit which the owner of the land might have made if he had the use of the money or the loss he suffered because he had not that use. In no sense of the term can it be described as damages or compensation for the owner's right to retain possession, for he has no right to retain po....
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....1 of the Acquisition Act is a taxable event." 15. Now, we advert to the judgment of the Apex Court in Ghanshyam (HUF)'s case (supra) on the basis of which learned counsel for the assessee had sought reconsideration of judgment of this Court in CIT v.Bir Singh, ITA No. 209 of 2004 decided on 27.10.2010 where Division Bench of this Court has held that element of interest awarded by the court on enhanced amount of compensation under Section 28 of the 1894 Act falls for taxation under Section 56 as 'income from other sources' in the year of receipt. 16. The reliance was placed upon following observations in Ghanshyam (HUF)'s case (supra):- "To sum up, interest is different from compensation. However, interest paid on the excess amount under Section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under Section 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest....
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....ra) case was followed, for the reason of which the above judgements would be of no advantage on the issue of taxability of interest on enhanced compensation as held by Hon'ble Punjab & Haryana High Court in Naresh Kumar Jain & others (Supra) as under:- "9. In view of the above and also the amendments made by the Finance (No. 2) Act, 2009 w.e.f. 1.4.2010 noticed hereinbefore, no advantage can be derived by the petitioners from the judgment in Ghanshyam's case (supra). 10.Similarly, the judgment in Govindbhai Mamaiya's case (supra) relied upon the by the learned counsel would be of no help to the petitioners as in the said case, the judgment in Ghanshyam's case (supra) was followed. 11. Examining the issue of taxability of interest under Section 28 of the Act, in Commissioner of Income Tax v. Bir Singh (HUF), ITA No.209 of 2004 decided on 27.10.2010, it was held by the Division Bench of this Court that the interest awarded by court on enhanced compensation under Section 28 of the Act was chargeable to tax as income from other sources in the year of receipt. Division Bench of this Court again in Commissioner of Income Tax, Panchkula v. Prem S....
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....d, it shall be treated to be cash system of accountancy. In the present case, the interest received by the petitioner was on account of delay in making the payment of enhanced compensation and, therefore, would fall under Section 28 of the 1894 Act. Such payment could not par-take the character of compensation for acquisition of agricultural land and, thus, was not exempt under the Act. Once that was so, the tax at source had been rightly deducted by the payer." 14. In view of the above, the tax at source has been rightly deducted and the petitioners can claim the refund, if any, admissible to them by filing the income tax returns in accordance with law." 10. As against the provisions of Section 56(2)(viii) read with Section 57 (iv) and Section 145A(b) and the judicial position as discussed above, the assessment order passed by the AO u/s 143(3) of the Income Tax Act, 1961 failed to add the interest income of Rs. 37,80,155/- being 50% of the total interest income of Rs.75,60.310/-under the head of "Income from other sources". 11. In this context Explanation 2 of the Section 263 of the IT. Act, 1961 inserted by the Finance Act, 2015 w.e.f. 01/06/2015 repro....
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....sal was sent for revision u/s 263 of the Income Tax Act, 1961. Although the proposal was received from the AO, the notice u/s 263(1) was issued by the undersigned after examining the record and after being satisfied that the assessment order u/s 143(3) passed by the AO is prima facie erroneous in so far as it is prejudicial to the interest of revenue and it is a fit case to issue notice u/s 263. There is no provision under the Income Tax Act, 1961 which prohibits initiation of proceedings u/s 263 on the basis of proposal from the AO. There is also no provision under the Income Tax Act, 1961 that prohibits action u/s 263 after dropping the proceedings u/s 147 of the Income Tax Act, 1961. In this context, it is not material whether AO could have proceeded to complete the assessment u/s 143(3)/147 instead of dropping the proceedings. As proceedings u/s 147 were dropped and escapement of income could not be brought to tax by the AO by recourse to action u/s 147, therefore, proposal for action u/s 263 was sent by the AO. The action u/s 263 is called for, not because of lack of enquiry but because the assessment order was not passed in accordance with the provisions of the Income Tax Act....
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.... Finance (No.2) Act, 2009 as clause (viii) in sub section2 of section 56, clause (iv) in Section 57 and Clause(b) in Section 145A inserted w.e.f 01/04/2010. iv. Tried to differentiate the Apex Court judgment in the case of Ghanshyam (HUF) with reference to Section 28 and 34. v. Relied on pronouncement of Apex Court in the case of Shyam Lal Narula Vs. CIT, Bikram Singh Vs. Land Acquisition Collector(LAC), Rama Bhai Vs. CIT, K.S. Krishna Rao Vs. CIT vi. Explanation 2 of Section 263 of Income Tax Act,1961. This similar issue has been dealt in number of cases by this Tribunal after following the developments over the period of time. The various cases are as under: 5. The Tribunal after considering all the case laws mentioned above by the Ld. Pr. CIT and also by the AR before the Ld. Pr. CIT has held that the interest received on enhanced compensation was held to be in the nature of compensation and not interest which is taxable under the head income from other sources under section 56 of the Income Tax Act,1961. The relevant part of the order in the case of Satbir & Others Vs. ITO, Ward-1, Jind in ITA No. 1429/CHD/2016 dt. 09/07/2018 is as under: ....
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....whether the interest awarded u/s 28 of the Land Acquisition Act on enhanced compensation is to be treated as part of the enhanced compensation and will not be taxable separately as interest income under the Head 'income from other sources'? 14. We find that both these issues are covered by the aforesaid decision of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) (supra) holding the same to be in the nature of compensation itself. The Court also dealt with the other aspect namely, the year of tax and answered this question by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which it is received. The said findings given in the case of Ghanshyam (HUF) (supra) have been reiterated by the Hon'ble Supreme Court in the case of Govindbhai Mamaiya (supra) observing as under: "In so far as the second question is concerned, that is also covered by another judgment of this Court in Commissioner of Income Tax, Faridabad vs. Ghanshyam (HUF) reported in (2009) 8 SCC 412, 6 albeit, in favour of the Revenue. In that case, the court drew distinction between the "interest" earned under Section 28 of the Land Acquisition....
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....rest on enhanced compensation under Section 28 of 1894 Act is taxable, the Court dealt with the other aspect namely, the year of tax and answered this question by holding that it has to be tested on receipt basis, which means it would be taxed in the year in which it is received. It would mean that converse position i.e. spread over of this interest on accrual basis is not permissible." 15. The Ld. counsel for assessee has further brought our attention the latest decision of the Hon'ble Supreme Court in the case of CIT Vs. Chet Ram (HUF) dated 12.9.2017 in Civil Appeal No.13053/2017 wherein also the Hon'ble Supreme Court has again reiterated the proposition laid down in the case of Ghanshyam (HUF) (supra), which we find has been further reiterated in the case of Union of India vs. Hari Singh & others in Civil Appeal No. 1504 of 2017 dated 15.9.2017, as under: "(2) While determining as to whether the compensation paid was for agricultural land or not, the Assessing Officer(s) will keep in mind the provisions of Section 28 of the Land Acquisition Act and the law laid down by this Court in 'Commissioner of Income Tax, Faridabad v. Ghanshyam (HUF)' [20....
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....YANA HIGH COURT i) 321 ITR 251 dated 11.01.2010 Risal Singh v. Union of India ii) C.R. No. 7953 of 213 dated 21.12.2013 HUDA v. Mandir Nar Singh Puri and others iii) CR No. 3236/2014 dated 08.05.2014 Ajay Kumar v. State of Haryana and others iv) CR No. 2509/2012 dated 29.11.2013 Haryana State Industrial Development Corporation Ltd. vs. Savitri and another v) CR No. 6784/2016 dated 04.04.2018 The New India Assurance Co. Ltd. v. Savitri Devi and another vi) ITA No. 160/2015 dated 14.07.2015 CIT v. Vaibhav Choudhary vii) ITA No. 437/2014 dated 14.07.2015 CIT v. Nishant Choudhary DELHI HIGH COURT i) 86 taxmann.com 121 dated 11.09.2017 Surjit Kumar Chetal v. CIT GUJRAT HIGH COURT i) 388 ITR 343 dated 31.03.2016 Mc aliya Bhikhubhai Balabhai v. ITO INCOME TAX APPELLATE TRIBUNAL Chandigarh Bench i) ITA No. 405/Chd/2013 dated 02.08.2013 ITO v. Pawan Giri in ii) ITA No. 313/Chd/2015 dated 02.02.2016 Baldev Singh v. ITO iii) ITA No. 564/Chd/2014 dated 07.02.2018 ITO v. Sh. Nachhattar Singh iv) ITA No. 1413to 1415/Chd/2016 dated 09.07.2018 Sh. Satbir Singh & others v. ITO Delhi Bench i) ITA No 473/D/2015 dated 20.07.2018 R....