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Judgment
PER SATBEER SINGH GODARA, JM
This Revenue’s appeal for assessment year, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2025-26/1080481998(1), dated 09.09.2025 involving proceedings under section 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Heard both the parties. Case file perused.
We notice at the outset during the course of hearing that the Revenue’s sole substantive ground raised in the instant appeal is directed against learned CIT(A)’s lower appellate discussion reversing assessment findings assessing the assessee’s land acquisition compensation received from the Haryana Urban Development Authority “HUDA” amounting to Rs.4,22,86,362/- as its taxable income; reading as under:
“5.Discussion and appellate decision: I have considered the facts of the case and have also gone through the observations made by the assessing officer and the submission made by the appellant. The ground-wise decision is as under:-
(i)Grounds No.1 to 3:-From the submissions made by the appellant, it is evident that the collaboration agreements executed with Orris Infrastructure Pvt. Ltd. (hereinafter referred as OIPL) were duly registered and stamped, reflecting a genuine commercial transaction between two independent entities. There is nothing on record to suggest that these agreements were a sham or a colourable device. The transfer of rights, titles, interests, and benefits, including the right to receive any additional compensation, was clearly and irrevocably assigned to OIPL under the terms of the registered agreements.
The compensation amount received from HUDA was in the name of the appellant only due to procedural reasons namely, the original appeal filed by the appellant and the fact that HUDA’s records still reflected the appellant as the landowner. However, the beneficial ownership of such compensation had already passed to OIPL. This position is supported by the fact that the compensation amount was transferred in full to OIPL and was offered to tax as business income by OIPL in its own returns of income. Therefore, the income has already been subjected to tax in the hands of the rightful recipient. Taxing the same amount again in the hands of the Appellant would result in double taxation, which is not permissible under the law. Further, there is no loss to the Revenue, as the tax rate applicable to both entities is the same, making the transaction entirely tax neutral. Further, the appellant had removed the concerned land from its stock-in-trade in A.Y. 2011-12 and had not claimed any rights, ownership, or income arising from it thereafter. This accounting treatment aligns with the legal and factual position that the land and any related benefits no longer belonged to the Appellant. It is a settled legal principle that income accrues to the person who has a vested right to receive it. In Commissioner of Income-tax Vs. Shoorji Vallabhdas and Co., [1962] reported in 46 ITR 144 (SC) it was held as follows:-
“Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a ‘hypothetical income’, which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.”
More precisely, the Hon’ble Supreme Court in the Shoorji Vallabhdas & Co. (supra) held that mere receipt of income is not sufficient to assess it unless the recipient has the legal right to retain it.
Considering the above facts, legal principles and the absence of any revenue loss, I am of the considered opinion that the addition of Rs.4,22,86,632/- made by the A.O. is unjustified and hence the same is deleted.
(ii)Ground No.4:-In its submission, the Appellant stated that it entered into a registered collaboration agreement dated 26.11.2007 with DLF Retail Developers Ltd. (hereinafter referred as DLF), receiving Rs.89,70,000/- as a Security Deposit, reflected under current liabilities in its audited accounts. As per the agreement, interest at 12% p.a. on 75% of the deposit was payable to DLF. Following DLF’s breach, a termination notice dated 14.05.2014 was issued. Until termination, the appellant was contractually liable to pay interest, which was duly paid after TDS deduction. However, the A.O. disallowed the interest payment of Rs.10,20,510/-, treating it as not allowable under the Income-tax Act.
I have carefully perused all the details submitted by the appellant. The Security Deposit was received for genuine business purposes under a valid agreement and was correctly shown as a liability in the Appellant’s financials. Interest was paid at agreed terms before termination of the agreement, making it an obligatory business expense. As the payment was made wholly and exclusively for business purposes, it qualifies for deduction u/s.37(1) of the Income-tax Act, 1961. TDS was also duly deducted, confirming the transaction's authenticity. Therefore, the disallowance of Rs.10,20,510/- by the A.O. is unjustified. The appeal is accordingly allowed and the said addition stands deleted.
(iii)Ground No.5 is general in nature and no specific adjudication is required.
6.In the result, appeal is allowed.”
We now advert to the basic relevant facts. There is hardly any issue between the parties that the assessee company/respondent herein; was having stock-in-trade of various lands in question situated in the twin villages, namely, Hayatpur and Badha, tehsil and district Gurgaon. The same formed subject matter of land acquisition proceedings undertaken by the state administration at the instance of “HUDA”. There is further no quarrel that the assessee had undisputedly received the impugned compensation, which in turn, was transferred to M/s. Orris Infrastructure Pvt. Ltd. “OIPL” in the relevant previous year. It is in this factual backdrop that the learned Assessing Officer initiated the impugned proceedings against the assessee so as to assess the same in the reopening herein. This followed his assessment order passed on 14.12.2018 making the impugned addition which stands deleted in the CIT(A)’s above extracted detailed discussion.
It is in this factual backdrop that there arises the first and foremost most important issue of taxability of impugned land acquisition compensation in the assessee’s hands. Learned counsel’s first and foremost argument is that given the fact that M/s. OIPL already stands assessed qua the same, it indeed amounts to double addition only which is not sustainable in law. We invited her attention to (1996) 218 ITR 239 (SC) ITO Vs. Ch. Atchaiah, settling the issue that only the “right” person alone ought to be taxed with respect to the particular income; reading as under:
“In our opinion, the contention urged by Dr. Gauri Shanker merits acceptance. We are of the opinion that under the present Act, the Income Tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By "right person", we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression "wrong person" is obviously used as the opposite of the expression "right person". Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact which course is more beneficial to the Revenue. In our opinion, the language of the relevant provisions of the present Act is quite clear and unambiguous. Section 183 shows that where the Parliament intended to provide an option, it provided so expressly. Where a person is taxed wrongfully, he is no doubt entitled to be relieved of it in accordance with law* but that is a different matter altogether. The person lawfully liable to be taxed can claim no immunity because the Assessing Officer [Income Tax Officer] has taxed the said income in the hands of another person contrary to law. We may proceed to elaborate.”
Learned counsel further seeks to buttress the point that once the assessee had entered into the corresponding development agreement with M/s. OIPL (right from FY 2007-08); it is not entitled to be taxed for the impugned compensation amount once all its rights and liabilities therein ceased to continue any more. She refers to pages 24 to 36 having compiled the very agreement followed by addendum thereto as well as collaboration dated 26.02.2010; respectively. The next question which arises for our apt adjudication herein is as to whether the aforesaid agreement could be held as having taken away the assessee’s right or title in the aforesaid lands or not. Our answer to the same is against the assessee and department’s favour. We wish to make it clear here that even post facto the lands acquisition proceedings; the assessee has continued to act as the rightful title holder of its lands whilst claiming both compensation as well as enhancement all along under the provisions of the Land Acquisition Act, 1894. We further deem it appropriate to refer to section 5A therein that any person “interested” in any land forming subject matter of acquisition is also entitled to raise its objections. The same is followed by issuance of notice to such interested persons under section 91, power to require and enforce the making of statements as to names and interests under section 10; enquiry and award by the Collector under section 11, service of notice in reference proceedings under section 18 onwards to be initiated at the behest of such interested persons, apportionment of compensation under section 29 and 30 as well as section 53 therein that all proceedings under this law are covered by the Code of Civil Procedure, 1908. Our purpose of quoting all these provisions of the land acquisition law is that we duly sought the assessee’s response as to whether any of its petition or reference or objections filed before the competent authority(ies) had ever highlighted or claimed the diversion of title in M/s. OIPL or not. We further wish to emphasize here that both these entities are group companies only. No clear-cut reply has come from its side before us to the contrary. We thus are of the considered view that once the assessee has all along claimed itself as the sole rightful owner in land acquisition proceedings, it could not turn back and denying its taxability of the compensation amount received to the tune of Rs.4,22,86,632/- in very terms.
Learned counsel’s next submission is that the Assessing Officer had erred in law and on facts in making section 68 unexplained cash credits addition than that of business income which has been rightly deleted in the CIT(A)’s order. A perusal of the assessment discussion in para 3 indicates that the Assessing Officer had treated the land acquisition compensation amount derived from the state government authorities as business income only; and, therefore, the mere wrongful incorporation of section 68 is more a typographical mistake in these facts and circumstances.
Learned counsel’s last contention in light of the Assessing Officer’s reopening reasons at pages 327 to 329 is that section 148/147 proceedings had been set into motion in its case based on the findings in AY: 2015-16 which have gone against the department in the CIT(A)’s order. A perusal of the reopening reasons indicates that the Assessing Officer had discussed the entire factual position at length than having placed its sole reliance on AY 2015-16 proceedings. We thus observe that the mere fact of the assessee having succeeded in AY 2015-16 would not change the outcome herein so far as the validity of the impugned reopening is concerned.
Learned counsel lastly submits that we ought to accept the assessee’s stand of having transferred the impugned compensation sum to “OIPL” since the same was not taxable in its hands. We are of the considered view that merely by transferring a particular receipt in a third party’s favour would not itself absolve the assessee from getting assessed for the same under the provision of the Act going by their lordships’ aforesaid landmark decision. We thus conclude in this factual backdrop that the land acquisition compensation amounting to Rs. 4,22,86,632/- deserves to be taxed in the assessee’s hands only. Learned CIT(A)’s impugned lower appellate findings are hereby reversed therefore.
No other ground or argument has been pressed.
This Revenue’s appeal is allowed in above terms.