TaxTMI 
TaxTMI 
2025 (1) TMI 869
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Income Tax (Investigation) [DDIT (Inv.)], Ahmedabad, that the assessee had received cash of Rs. 4,32,36,000/- during the Financial Year (FY) 2011-12 relevant to AY 2012-13. This income had not been reported in any return of income. Based on this credible information, the AO formed the belief that income chargeable to tax had escaped assessment. Consequently, the AO reopened the assessment under section 147 of the Act and issued a notice under section 148 of the Act on 28/03/2019. In response to the notice under section 148, the assessee filed his return of income on 22/05/2019, declaring total income of Rs. 1,40,764/-. The assessee also claimed exemption of Rs. 6,22,38,075/- under section 10(37) of the Act on account of compensation received for the compulsory acquisition of agricultural land situated at Survey Nos. 56/1 and 56/2, Dholakuva, Gandhinagar. The brief facts relating to land and its dispute are summarized below form the order of AO - 2.1. Shri Abhraji Ataji Thakor, Shri Baldevji Ataji Thakor, and Shri Ambaji Ataji Thakor (Thakor Brothers) were in possession of agricultural land situated at Survey Nos. 56/1 and 56/2, Dholakuva, Gandhinagar. These properties were ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing solatium and interest, amounted to Rs. 10,06,95,355/- paid by cheque dated 07/12/2005, and Rs. 4,86,64,822/- by cheque dated 10/01/2006. The total compensation deposited with the Principal Senior Civil Judge, Gandhinagar, was Rs. 14,93,60,177/-. The Detail are tabulated as below: L.R.C. No. 1 06/04 36/04 Total Survey No. 2 56/1 56/2 Area in Sq. M. 3 11,020 9,004 Add. Amount Awarded by Court (Rs. 3385 per Sq. M.) 4 3,73,29,780 3,04,78,540 6,78,08,320 Solatium 30% 5 1,11,98,934 91,43,562 2,03,42,496 12% Interest (15/04/2002 to 31/10/2003, 18.5 months) 6 69,06,009 56,38,530 1,25,44,539 Total Amount (Add + Solatium + Interest) 7 5,54,34,723 4,52,60,632 10,06,95,355 9% Interest (18/04/2002 to 17/04/2003) 8 49,89,125 40,73,457 90,62,582 15% Interest (18/04/2003 to 17/04/2005, 2 Years) 9 1,66,30,416 1,35,78,189 3,02,08,605 15% Interest (227 days, 18/04/2005 to 30/11/2005) 10 51,71,376 42,22,259 93,93,635 Total of Interest (9% + 15% + 15%) 11 2,67,90,917 2,18,73,905 4,86,64,822 Total Amount (Column 7 + 11) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....art of the compensation fixed deposits and requested the assessee to explain why the said amount of Rs. 7,11,37,986/- should not be added to the assessee's total income as taxable interest. The assessee was called upon to furnish their reply or explanation in this regard before the proposed addition was finalized. 2.5. In response to the show-cause notice dated 24/12/2019, the assessee, Shri Ranjitsinh Narsinh Vaghela, submitted a detailed reply on 25/12/2019. The assessee contended that the interest received or receivable on compensation amounts is not chargeable to tax as it forms an integral part of the compensation awarded by the Hon'ble Civil Court. In support of this contention, the assessee referred to the following: * Tribunal Decision in Urvi Chirag Sheth (ITA No. 630/Ahd/16; 70 taxmann.com 33): In this case, the Ahmedabad Tribunal held that interest received on compensation in a motor accident claim is part of the compensation itself and, hence, is not taxable as "income from other sources." * Gujarat High Court Decision in the case of Movaliya Bhikhubhai Balabhai v. ITO (Special Civil Application No. 17944 of 2015): The Hon'ble Gujarat Hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....liant due to delayed filing. 3. The assessee preferred an appeal before CIT(A) who passed an order dismissing the appeal. The CIT(A) observed that the reopening under Section 148 was valid as the Assessing Officer (AO) obtained the necessary approval from the Principal Commissioner of Income Tax (PCIT) and had reason to believe that an income of Rs. 4,32,36,000/- had escaped assessment. Hence, the CIT(A) dismissed the objection as the reopening was as per law. The CIT(A) held that the AO's failure to propose the specific addition in the initial reasons recorded did not invalidate the proceedings. The addition related to FD interest of Rs. 7,11,37,986/- emerged from facts disclosed during the reassessment. The CIT(A) further observed that the amounts deposited by the Civil Court were kept in fixed deposits (FDs) to earn interest until the dispute over ownership of land was resolved. The CIT(A) concluded that the interest earned on the FDs is distinct from the compensation awarded and constitutes "income from other sources" under Section 56 of the Act. The CIT(A) referred to the provisions of Section 10(37), which exempts capital gains arising from the compulsory acquisition o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essee had received an amount of Rs. 21 crores (approx.) in cash. The same was stated to be in the nature of compensation received for compulsory acquisition of land by the Government. It was a dispute relating to the ownership of land to whom the compensation was due between three co-owners as one party and the assessee the to the dispute. That the compensation primarily was of the amount of Rs. 14 crores odd, which, pending settlement of the dispute, the Principal Civil Judge had deposited in a FD, in a bank account. That subsequent to settlement of the dispute, interest of Rs. 7 crores accrued on it; thus, a total amount of Rs. 21 crores became payable on the land acquired by the Government to the owner of the land. It was pointed out that this amount of Rs. 21 crores was paid by cheque by the Principal Civil Judge to the three co-owners to in turn pay the amount in cash to the assessee who, it was stated, was decided to be the true owner the course of hearing, it was pointed out to the ld. Counsel for the assessee that if the assessee was found to be the true owner of the land, then why was the amount of compensation paid by the Principal Civil Judge to the three other co-owners....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provisions, and judicial precedents. As per the legal framework the Reassessment can be initiated if the AO has "reason to believe" that income chargeable to tax has escaped assessment. When reassessment is initiated after four years from the end of the relevant assessment year, it must be demonstrated that the assessee failed to disclose fully and truly all material facts necessary for assessment. As per the settled principles of law, the reassessment must be based on the reasons recorded for reopening, but additions that flow naturally from the inquiry related to the recorded reasons can be made. We note that since the assessee did not file a return of income, the AO had no information about the substantial receipts during the year. The AO's belief that income chargeable to tax had escaped assessment was based on credible information from the investigation. We find that the failure to file a return amount to non-disclosure of material facts necessary for assessment. As per settled law, even if the AO obtains information from external sources, the reassessment proceedings remain valid if they are based on new facts that the assessee failed to disclose. We also observe that whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r changed. The DR also pointed out that the dispute was relating to the ownership of the land and that has no relation with the amount of compensation. The compensation awarded by the court already included the interest component due to delay in payment and therefore the amount of compensation, including interest due to delay, kept in the FDs by the Court was distributed by the court holds the character of interest and not compensation. 8.2. While going through the orders of AO and CIT(A) we noted that the total compensation was paid to the original landowner by the court and the original landlord withdrew the cash and paid to the assessee. It was also observed that the distribution of amount of compensation totalling to Rs. 14,93,60,177/- as paid by the Court to the parties are not coming out properly and are not getting reconciled with the orders of both AO and CIT(A). Therefore, the hearing seeking clarification was fixed on 03-01-2025 which was adjourned to 10-01-2025. During the clarification hearing the AR agreed that the reconciliation is not coming out from the order of AO properly however the assessee can prepare the reconciliation and present the same. In our considera....