TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1747
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (ii)The Id. PCIT erred on facts as also in law in passing order u/s. 263 of the Act, against the principles of natural justice, without providing reasonable opportunity of being heard. (iii)The Id. PCIT erred on facts as also in law in passing order u/s. 263 of the Act, without considering the submission dated 05.03.2024 made against the notice u/s. 263 of the Act. (iv)The Id. PCIT erred on facts as also in law in passing order u/s. 263 of the Act, in respect of an invalid assessment order dated 28.03.2022 passed u/s 147 r.w.s 144B of the I.T. Act. (v)The Id. PCIT erred on facts as also in law in passing order, invoking clause (a) of Explanation 2 to sec. 263 of the Act, as the assessment order u/s 147 r.w.s 144B of the IT. Act dated 28.03.2022 was passed, after conducting necessary & diligent enquiries and conscious application of mind & deliberation to the material on record. (vi)The Ld. PCIT erred in law and on fact in arriving at a conclusion to the effect that the assessment order passed by the assessing officer was erroneous as well as prejudicial to the interest of the revenue on the ground that interest awarded on enhanced compen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on protective basis) being 50% of total interest received on enhanced compensation on acquisition of agricultural land has been made in the case of one of the co- owner (i.e. Shri Babubhai Kanjibhai Sakaria) of the ancestral agricultural land acquired by Land Acquisition Officer. Therefore, addition of Rs.23,70,282/- being 50% of interest of Rs.47,40,565/- being 25% of total interest on enhance compensation on acquisition of agricultural land was required to be added in the total income of the assessee on substantive basis. However, the assessing officer has not made any addition in this regards. The Assessing Officer, in the assessment order, failed to make addition of Rs. 23,70,282/- (25% share of total addition of Rs. 94,81,129/- made in the case of Babubhai Kanjibhai Sakariya, brother of the assessee). Therefore, the assessment order passed by the assessing officer u/s 147 r.w.s. 144B of the Income tax Act, 1961 on 28.03.2022, is erroneous and prejudicial to the interest of the revenue. 4. Considering above such facts, notice u/s 263 of the Income-tax Act, 1961, was issued by ld.PCIT, on 29.02.2023 and duly served upon the assessee.The ld. PCIT stated in the notice that asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ld.Pr.CIT, the assessee submitted its reply before the ld.Pr.CIT, which is reproduced in his revision order vide page No.5 and 6. Before the ld. Pr. CIT, the assessee submitted that reassessment order itself is not valid, therefore, subsequent order passed by the ld.Pr.CIT by exercising the revisionary jurisdiction is also bad in law. 6. The assessee also submitted before ld. PCIT that during the assessment proceedings, the assessing officer has conducted sufficient inquiry in respect of the issue raised by the ld. Pr. CIT. The assessee also submitted before the ld.Pr.CIT that the Government has acquired the land on account of compulsory acquisition and the subject land was belonged to two co-parceners, who were owners of the land, which was acquired by the Government. However, the Government has paid entire Shri Sanjay Punglia, ld.CIT-DR, that is, Shri Babubhai K. Sakariya. The interest on compensation was also paid to the Shri BabubhaiK. Sakariya, which in turn had been divided amongst the co-owners as per their shares. The assessee also submitted before the ld.Pr.CIT that the interest received on enhanced compensation is not taxable under section 56(2)(viii) of the Act, as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....substantive basis. However, the assessing officer has not made any addition in this regards, therefore, order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue and hence learned PCIT directed the assessing officer to pass a fresh assessment order after making necessary enquiries. 8. Aggrieve by the order of the ld.Pr.CIT, the assessee is in appeal before us. 9. Shri Rajendra Singhal, Learned Counsel for the assessee submitted that during the assessment proceedings, the assessing officer had conducted adequate inquiry by issuing notice under section 142(1) of the Act, which is placed at Paper Book Page no.18-19, which is reproduced below: "2. In order to examine the issue of claim of substantial undisclosed Interest received on enhanced compensation paid for compulsory acquisition of agricultural land of Rs. 1,89,62,2587- you are requested to furnish the following details/documents: * Brief note on the nature of business carried on by the assessee during the previous year. * Detailed computation of income. * You are requested to explain if the Interest received on enhanced compensation has been offer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of 47,37,762/- in my capital account being agri. Land-survo Dam- interest and not offered to tax the interest received on enhanced compensation under the head 'income from other sources' as per the section 56(2) (viii) r.w.s. 145B(1) of the I.T. Act, 1961. Reasons for not offering the interest received on enhanced compensation under the head 'income from other sources' as per the section 56(2) (viii) r.w.s. 145B(1) of the I.T. Act, 1961 are under: In respect of receipt of Rs. 1,89,51,049/- towards interest u/s 28 of Land Acquisition Act, 1894 on Enhanced Compensation on compulsory acquisition of rural agricultural land by government, I would like to clarify that the land so acquired by government was originally owned by my father Late Shri Kanjibhal Kababhai. And we four co-owners (4) namely Smt. Ujiben Kanjibhai Sakariya, Shri Jerambhai Kanjibhai Sakariya, Shri Mansukhbhai Kanjibhai Sakariya, myself and Babubhai Kanjibhai Sakariya were possessing the same in capacity of his legal heirs and each having share of 25% and therefore my share in interest so received will be of Rs.47,37,762/-. Due to wrongly quoting of only PAN of Shri Babubha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection, I would like to state that interest as stipulated under the provisions of section 56(2)(viii) of the Income Tax Act, 1961, is interest other than interest u/s.28 of the Land Acquisition Act, 1894. In my case interest of Rs.47,37,762/- received is on enhanced compensation, the same forms part of compensation/consideration. Taking the ratio laid down of the High Court of Gujarat in the case of Movaliya Bhikhubhai Balabhai v. ITO wherein it was held that Interest on compensation/enhanced compensation under section 28 of the Land Acquisition Act, 1894 forms part of compensation/consideration and not interest as contemplated u/s. 56(2)(viii) of the Income Tax Act, 1961, interest of Rs.47,37,762/- will also not be chargeable to tax under the head income from other sources. The aforesaid interest of Rs.47,37,762/- is credited to my capital account on 23-07- 2015. For your kind reference, I enclose herewith copy of my capital account for the year under consideration as Annexure-D. I have offered total income of Rs.4,47,370/- under the head income from other sources which includes income as mentioned. The computation of income is enclosed herewith for your....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otice under section 142(1) of the Act, and inresponse to the notice under section 142(1) of the Act, the assessee has submitted detailed reply during the assessment proceedings. Not only that the assessing officer has examined the documents and details, however, assessing officer also examined the Land Acquisition Act and as per the judgment of the Hon'ble jurisdictional High Court of Gujarat in the case of Movaliya Bhikhubhai Balabhai (supra), assessing officer also examined that the land enhanced compensation and interest thereon, is a part of the compensation. The ld. Counsel also submitted that the Explanation-2 to section 263 is not applicable to the assessee under consideration. 12. On the other hand, the ld. CIT-DR for the Revenue submitted that if the compensation is received, then, it is taxable under section 28 of the Act. However, in the assessee's case, the assessee has received interest, on compensation, which is not a compensation, and therefore, it is clearly assessable under the head "income from other sources" and this inquiry was not conducted by the assessing officer. Besides, the entire compensation and interest, have been taxed in the hands of one co-owner, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecord are that the petitioner's agricultural lands came to be acquired under the provisions of the Act of 1894 for the public purpose of the Ozat-2 Irrigation Scheme. The award passed by the Collector came to be challenged by the petitioner before the learned Principal Senior Civil Judge, Junagadh (hereinafter referred to as the "Reference Court"), who by an order dated 20th March, 2011 award additional compensation of Rs. 5,01,846/- in favour of the petitioner together with other statutory benefits. Pursuant to such award, the second respondent calculated the amount payable to the petitioner and in terms of the statement showing the amount of compensation to be deposited in the court, computed an amount of Rs.20,74,157/- as payable to the petitioner by way of interest under section 28 of the Act of 1894. In support of such statement, the second respondent has also issued a communication dated 12th October, 2015 certifying that the interest shown in Columns No. 13 and 14 indicates the interest under section 28 of the Act of 1894. It may be noted that Column No. 15 is comprised of the total amount of interest under Columns No. 13 and 14 of the above statement. Undisputedly, ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the court includes the additional compensation awarded under section 23(1-A) and the solatium under section 23(2) of the said Act. This award of interest is not mandatory but is left to the discretion of the court. It was further held that section 28 is applicable only in respect of the excess amount which is determined by the court after a reference undersection 18 of the 1894 Act. Section 28 does not apply to cases of undue delay in making award for compensation. The court observed that interest is different from compensation. However, interest paid on the excess amount under section 28 of the 1894 Act depends upon a claim made by a person whose land is acquired whereas interest under section 34 is for the delay in making payment. This vital difference needs to be kept in mind in deciding the 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 under section 28 is a part of the enhanced value of the land which is not the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 28 of the Act of 1894 is an accretion to compensation and forms part of the compensation and, therefore, exigible to tax under section 45(5) of the Act. Such decision was, therefore, rendered in favour of the revenue. 8. The above referred decision in the case of Ghanshyam (HUF) (supra) came to be followed by the Supreme Court in the case of CIT v. Govindbhai Mamaiya [2014] 52 taxmann.com 270/367 ITR 498/[2015] 229 Taxman 138, wherein the court after referring to the above decision in the case of Ghanshyam (HUF) (supra) held that it is clear that whereas interest under section 34 of the Act of 1894 is not treated as a part of income subject to tax, the interest earned under section 28, which is on enhanced compensation, is treated as an accretion to the value and, therefore, part of the enhanced compensation or consideration making it exigible to tax under section 45(5) of the Income Tax Act. 9. Thus, the Supreme Court in the case of Ghanshyam (HUF) (supra) has held that the interest under section 28 of the Act of 1894 unlike interest under section 34 is an accretion to the value and hence, it is a part of the enhanced compensation or consideration which is n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt in the case of Ghanshyam (HUF) (supra), the interest received under section 28 of the Act of 1894 would not fall within the ambit of the expression "interest" as envisaged under section 145A(b) of the I.T. Act, inasmuch as, the Supreme Court in the above decision has held that interest under section 28 of the Act of 1894 is not in the nature of interest but is an accretion to the compensation and, therefore, forms part of the compensation. At this stage it may be aptto quote the following part of the decision of the Supreme Court in Ghanshyam (HUF)'s case (supra): "54. Section 45(5) read as a whole [including clause (c)] not only deals with reworking as urged on behalf of the assessee but also with the change in the full value of the consideration (computation)and since the enhanced compensation/consideration (including interest under Section 28 of the 1894 Act) becomes payable/paid under the 1894 Act at different stages, the receipt of such enhanced compensation/consideration is to be taxed in the year of receipt subject to adjustment, if any, under Section 155(16) of the 1961 Act, later on. Hence, the year in which enhanced compensation is received is the year of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 46.1 The existing provisions of Income Tax Act, 1961, provide that income chargeable under the head" Profits and gains of business or profession" or "Income from other sources", shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further the Hon'ble Supreme Court in the case of Smt. Rama Bai v. CIT (1990) 84 CTR (SC) 164 :(1990) 181 ITR 400 (SC) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. 46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it was received, irrespective of the method of accounting followed by the assessee. 46.3 Further, clause (viii) is inserted in sub-section (2) of the section 56 so as to provide that income byway of interest received on compensation or enhanced compensation referred to in clause (b) of section 145A shall be assessed as "income from other sources" in the year in whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n held that interest under section 28 unlike interest under section 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. This court is in agreement with the view adopted by the Punjab and Haryana High Court in Jagmal Singh's case (supra), which has been extensively referred to in paragraph 4.1 above. The decision of the Delhi High Court in Sharda Kochhar's case (supra), having been rendered in the context of a different controversy would have no applicability to the facts of the present case. 13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes the character of compensation, it does not fall within the ambit of the expression "interest" as contemplated in section 145A of the I.T. Act. The first respondent - Income Tax Officer was, therefore, not justified in refusing to grant a certificate under section 197 of the I.T. Act to the petitioner for non-deduction of tax at source, in as much as, the petitioner is not liable to pay any tax under the head "income from other sources" on the interest paid to it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ereon, in the hands of other co-owner, would be tantamount to double taxation. Therefore, the order passed by the assessing officer is sustainable in the eyes of law. 15. We note that the assessee had filed return of income, declaring total income of Rs. 10,26,350/-. The assessee is earning share in profit, interest and remuneration from a partnership firm, Parmeshwar Impex, capital gain and income from other sources. Besides during the year, assessee received 25% share in enhanced compensation, totalling to Rs. 2,69,41,878/-, on compulsory acquisition of ancestral agricultural land of his family. The above compensation of Rs. 2,69,41,878/- was inclusive of interest of Rs. 1,89,62,258/-, granted u/s. 28 of the Land Acquisition Act. 1884 (the LA Act).As submitted by ld Counsel for the assessee that the enhanced compensation, was received in respect of their ancestral agricultural land, which is fully satisfying the prescribed conditions to be an agricultural land in terms of section 2(14)(iii) of the Act, and thereby the land is not a capital asset. The Collector had made payment of entire enhanced compensation with interest to his brother Shri Babubhai K Sakariya. An assessment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing upon the binding law as settled by the Hon'ble Supreme Court, Jurisdictional Gujarat High Court and the Jurisdictional Bench of the Hon'ble ITAT (supra). The assessing officer has taken a plausible view, duly supported by the law settled by the Judicial pronouncements, holding that the interest awarded as per section 28 of the Act, is part of full value of consideration received on compulsory acquisition of agricultural land, hence, the provisions of section 56(2)(viii) r.w.s. 145B of the Act are not applicable. Hence, the order is neither erroneous as provided in Explanation 2 to section 263 of the Income-tax Act, nor the order is prejudice to interest of the Revenue. 17. We note that the sole reason, as coming out from the order u/s. 263 of the Act is that the assessment should have been made, relying upon order of the Hon'ble Punjab and Haryana High Court in the case of Manjeet Singh (HUF) Karta Manjeet Singh vs. Union of India (CWP No. 15506 of 2013) (65 Taxman.com 160)(2016) on 29/01/2016. We note that the Hon'ble Principal Senior Civil Court has directed to pay the interest u/s. 28 of the land acquisition (LA) Act along with enhanced compensation and so....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court is not binding on the Authorities, falling under jurisdiction of the Hon'ble Gujarat High Court. Therefore, assessing officer was right in following the judgement of the jurisdictional High Court of Gujarat in the case of Movaliya Bhikhubhai Balabhai (supra). Therefore, we note that the Hon'ble Supreme Court has laid down law through judgment in case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83, wherein it was held as under: "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 with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law." Our view is further fortified from the judgement of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Indo German Fabs in IT Appeal No. 248 of 2012, dated 24-12-2014, where in, it was held as follows: "Section 263 of the Act confers power to examine an assessment order so as to ascertain whether it is erroneous....