Sh. Mahender Malik vs Income Tax Officer

“3.

Briefly stated, the assessee is an individual. He filed his return for AY 2018 -19 on 29.08.2018 declaring income of Rs. 6,35,470/ -. His return was processed under section 143(1)(a) on 28.06.2019. His case was selected for complete scrutiny assessment u nder the e-assessment Scheme, 2019 on two issues, namely refund claim and winning from Lottery/crossword puzzle/horse races. The Ld. Assessing Officer ("AO") served notice under section 143(2) upon the assessee on 22.09.2019 followed by issue of notice und er section 142(1) of the Act on 23.11.2020. The Ld. AO completed the assessment on 22.01.2021 under section 143(3) r.w. sec tion 143(3A) and 143(3B) of the Act on income returned with the observation th at on aforesaid two issues no addition is made.

4.

In exercise of his powers vested in him under section 263 of the Act, the Ld. PCIT held the impugned order of the Ld. AO as erroneous and prejudicial to the interest of Revenue. According to Ld. PCIT, the Ld. AO should have taken into consideration, the binding decision of Hon'ble Jurisdic tional High Court i.e. Hon'ble Punjab & Haryan a High Court dated 19.02.2020 in the case of Mahender Pal Narang vs. CBDT (2020) 423 ITR 13 (P&H) wherein the Hon'ble High Court has deal t with the controversy arising from the judgmen t of Hon'ble Supreme Court in the c ase of CIT vs. Ghanshyam HUF dated 16 th J uly, 2009 relating to the taxability of in teres t received on compensation or enhanced compensation and also the amendments/provisions of section 56(2)(viii) in troduced t hrough Fin ance Act, 2009 effective from 01.04.2010 on the above issue, which the Ld. AO f ailed to do. The Ld. PCIT poin ted out that the SLP filed ag ains t the order of the decision (supra) of the Hon'ble P&H High Court has been dismissed by the Hon'ble Supr eme Court vide its order dated 4th March, 2021 in Mahender Pal Narang vs. CBDT (2021) 279 T axm an 74 (SC). He, therefore, set aside the impug ned assessment order with a direc tion to pass an order afresh af ter making requisite enquiries and proper verif ication with reg ard to taxability of in terest on enhanced compensation.

5.

Aggrieved, the assessee is in appeal before the Tribunal and all the grounds relate there to.

6.

The Ld. AR submitted th at the assessment order was neither erroneous nor prejudicial to the in teres t of Revenue because (i) the Ld. AO has p assed the order af ter making proper enquiries during assessment proceedings; (ii) the Ld. PCIT has exercised the jurisdiction under section 263 merely based on audit objection, which is not permissible and (iii) the Ld. AO has validly held that interest under section 28 of Land Acquisition Act, 1894 gran ted by the court is an in tegral part of enhanced compensation an d exempt under section 10(37) of the Act in case of the assessee.

6.1

Elaborating the above contentions, the Ld. AR pointed out that in no tice under section 142(1) of the Act dated 23.11.2020 (copy at P aper Book page 1 -2), the Ld. AO required the assessee to furnish documentary evidence in support of claim that the amoun t of Rs. 6,86,17,767/ - is received under section 28 of the Land Acquisition Act. The assessee responded vide letter (copy at pages 3 -58 of Paper Book) th at the assessee received enhanced compensation on compulsory acquisition of his agricul tural land by Ha ryana Govt. of Rs. 6,86,17,767/ - which included interest under section 28 of Lan d Acquisition Ac t of Rs. 3,97,56,460/ -which was par t of enhanced compensation as held by the Hon'ble Supreme Court in CIT vs. Ghanshyam HUF (2009) 315 ITR 1 (SC). It was claim ed th at the assessee was entitled to exemption under section 10(37) of the Act. The explan ation of the assessee was accepted by the Ld. AO who passed the impugned assessment order dated 22.01.2021 without making any addition. The assessment was completed af ter carrying out proper enquiries which he ought to h ave carried out in respec t of the enhanced compensation received by the assessee. It is not a case of 'lack of enquiry'. Merely because in his order the Ld. AO did not make elaborate discussion but was satisf ied with the explanation of the assessee, the order could not be held to be erroneous. In support the decisions of Hon'ble Delhi High Court in CIT vs. Sunbeam Au to Ltd. (2011) 332 ITR 167 (Del) and decision of Hon'ble Rajasth an High Court in CIT vs. Ganpat Ram Bisnoi 296 ITR 292 (Raj.) were cited.

6.2

The Ld. AR invited our atten tion to Audit Memo at pag es 399-402 of Paper Book in the case of the assessee wherein ITO (Audit) Hisar raised an audit objection observing that in teres t under section 28 of Land Acquisition Act of Rs. 3,97,56,460/ - was chargeable to tax under section 56(2)(viii) of the Act and also referred to the decisions in the cases of Shri Manjeet Singh HUF v. UOI & Others in CWP No. 15506 of 2013; Shri Punee t Singh vs. CIT (2019) 110 taxman.com 116 and Shri Mahendra Pal Nar ang vs. CBDT in CWP No. 17971 of 2019. T he Ld. AR contended that the order of the Ld. PC IT is merely based on the audit objec tion without applying his independent mind and withou t considering the subsequent decisions of Hon'ble Supreme Court in the cases of (i) CIT vs. Govindbhai Mamaiya (2014) 52 taxmann.com 270 (SC) ; (ii) UOI vs. Hari Singh (2018) 91 taxmann.com 20 (SC); and (iii) ITO, TDS v. Muktan angiri Maheshgiri in Civil Appeal No. 18475 of 20I7 d ated 10.11.2017, wherein the ratio of decision of CIT vs. Ghanshyam (HUF) (2009) 181 Taxman 36 8 (SC) has been affirmed. The Ld. AR cited decisions wherein assump tion of jurisdic tion under section 263 on the basis of audit objection by the Audit wing of the Depar tment has been held to be invalid.

6.3

The Ld. AR explained that the enhanced compensation awarded by the ap pellate au thority/court to an assessee on acquisition of capital asset is chargeable to tax as capital g ain in the year of receip t as per section 45(5) of the Act. However, in the cas e of an individual or HUF such capital g ain from compulsory acquisition of ag ricul tural land being capital asset is exempt from tax under section 10(37) of the Act.

6.4

The Ld. AR pointed out the distinction between interest awarded under section 34 and interest paid on excess compensation under section 28 of Land Acquisition Act. Whereas in terest under section 34 is payable for delay in making paymen t af ter taking po ssession of the acq uired land, in teres t under section 28 is awarded for accretion in the value of land and is therefore part of enhanced compensation.

6.5

In Gh anshyam's case (supra), the Hon'ble Supreme Cour t held that interest under section 28, unlike interest under section 34 is an accretion to the value and hence it is a part of enhanced compensation or consideration which is no t the case under sec tion 34 of the 1894 Ac t.

6.6

As to the alleg ed non -consideration of the decision of Hon'ble P & H Hig h Court in Mahender Pal Narang 's case (supra) by the Ld. AO, it is submitted that the Hon'ble Supreme Court dismissed the SLP of the assessee filed ag ains t the said decision of Hon 'ble P & H High Court in limine and it is a settled law that the dismissal of SLP in limine does not amount to affirm ation of the view taken by the High Court. Unless the judgmen t of the High Court is affirmed, at least, with short re asoning, the same would not amoun t to binding precedent.

6.7

The Ld. AR elaborated th at the insertion of section 145A, section 145B, section 56(2)(viii) and section 57(iv) by the Fin ance (No.2) Act, 2009 w.e.f. 01.04.2010 does not chang e the charac ter of interest under section 28 of the Land Acquisition Act gran ted by the cour t from 'capital receipt' forming part of enhanced compens ation as envisaged in section 45(5) of the Act to 'revenue receip t' chargeable to tax as income from other sources. The view taken by the Ld. AO th at interest under section 28 of Land Acquisition Act received by the assessee is exempt under section 10(37) of the Ac t is not contr ary to law. His assessment order is, therefore, not erroneous and not liable to be revised under section 263 of the Act.

7.

The Ld. CIT -DR supported the order of the Ld. PCIT. He placed on record a copy of the decision of Hon'ble Punjab & Haryan a High Court in Mahender Pal Narang v. CBDT reported in (2020) 423 ITR 13 (P&H) wherein the Hon'ble High Court held that interest re ceived on compensation or enhanced compensation under Land Acquisition Ac t, 1894 is to be treated as 'income from other sources' and no t under the head 'capital g ains'. The Ld. CIT -DR drew our attention to p ara 9 and 10 of the decision (supra).

8.

We have given our careful thought to the rival submissions and perused the records. The f acts are not in dispute. The assessee received interest of Rs. 3,97,56,460/ - on enhanced compensation from HUDA af ter the compulsory acquisition of his agricul tural land on which TDS amoun ting to Rs. 39,75,646/ - @ 10% was also deducted. The assessee claimed the said interest as exemp t. On perusal of c ase records, the Ld. PCIT g athered that the Ld. AO had completed the assessment without carrying out necessary and pro per enquiry which should have been made reg arding applicable judgments on the taxab ility of in teres t on enhanced compensation. The Hon'ble Punjab & Haryana High Court h as g iven the finding th at in teres t received on compensation or enhanced compens ation wil l be taxed as per amended provisions introduced through Finance (No.2) Act, 2009 w.e.f. 01.04.2010 and the judgment of the Hon'ble Supreme Court in the case of CIT vs. Ghanshyam HUF would not come to the rescue of the assessee. The Ld. PC IT therefore required the assessee to show cause as to why an appropriate order under section 263 of the Ac t be no t passed. In response the assessee submitted th at the amount received under section 28 of Land Acq uisition Act is exempt from tax relying on the decision of Del hi Bench of the Tribunal in the case of Shri Puneet Singh, Karnal vs. ACIT pronounced on 08.12.2022 for AY 2011 -12 wherein placing reliance upon the decision of Hon'ble Supreme Court in the case of Ghanshyam HUF (supra) decided in f avour of the assessee. The submission of the assessee was not accep table to the Ld. PCIT in view of the decision of Hon'ble P&H High Court in Mahender Pal Narang vs,. CBDT and dismissal of SLP filed ag ainst it by the Hon'ble Supreme Court. He, therefore, set aside the assessment order and direc ted the Ld. AO to pass an order afresh.

9.

As to the issue of lack of necessary and proper enquiry during assessment proceeding, the Ld. AR demonstrate d th at in response to notice under section 142(1) of the Act issued by the Ld. AO the assessee submitted that in terest of Rs. 3,97,56,460/ - received by the assessee formed par t of enhanced compensation as held by the Hon'ble Supreme Court in Ghanshyam HUF's c ase (supra) which the assessee claimed as exempt under section 10(37) of the Ac t. P ages 1 to 61 of the Paper Book refer. In our opinion, in th e light of evidence available on records, it c annot be alleged as done by the Ld. PCIT that it is a case of 'no enquiry' or 'lack of enquiry'. No doubt that the Ld. AO did not discuss elaborately in the assessment order but that alone cannot make the order erroneous as held by the Hon'ble Delhi High Court in Sunbeam Auto L td.'s case (supra) and Hon'ble Rajasth an High Court in Ganpat Ram Bisnoi's case (supra). An incorrec t assumption of f ac ts or an incorrect applic ation of law will satisfy the requirement of the order being erroneous as held by the Hon'ble Supreme Court in Malab ar Industrial Co. L td. vs. CIT 243 ITR 83 (SC). None of these elements exist in the case at h and.

10.

Perusal of the order of the Ld. PCIT shows that he assumed the revisionary power under section 263 of the Act mainly on the ground that the Ld. AO passed the order not in accordance with the binding decision of Hon'ble P & H High Court in Mahender Pal Narang 's case (supra) ag ainst which SLP stands dismissed by the Hon'ble Supreme Court. This is not so. During assessment proceedings in response to notice under section 143(2) and 142(1) of the Ac t, with reference to specific query on receipt of interest u nder section 28 of Land Acquisition Act, the assessee explained vide letter at pages 3 -5 of Paper Book th at interest received under section 28 of the Land Acquisition Act has been held to be par t of compensation by Apex Court in the case of CIT vs. Ghanshy am HUF reported as (2009) 315 ITR 1, the same being exempt under section 10(37) of the Act has not been included in the to tal income of the assessee while filing return of income. The Ld. AO accep ted the explanation of the assessee.

11.

The issue of amended provisions of section 56(2)(viii) by the Finance Ac t, 2009 and the decision of Hon'ble P & H High Court in Mahender Pal Nar ang's case was raised by the Ld. PCIT in no tice under section 263 on the basis of audit objection (copy of audit memo of ITO Hisar at pages 399 -402 of Paper Book). Before the Ld. PCIT the assessee explained th at the amended provisions were not in connection with the decision of Hon'ble Supreme Court in Ghanshyam HUF's case but to make simple the taxation of inte rest income as earlier it was taxable on accrual/cash basis on the basis of accoun ting principles as held by the decision of Hon'ble Supreme Court in Rama Bai vs. CIT (1990) 181 ITR 400. It was also explained that insertion of section 145A, 145B, 56(2)(viii) and 57(iv) by the Finance (No.2) Act, 2009 did not change the char acter of interes t under section 28 of the Land Acquisition Act from 'capital receipt' forming part of enhanced compensation as envisaged in section 45(5) of the Act to 'revenue receip t' c hargeable to tax as 'income from other sources'. It was also explained to the Ld. PCIT that af ter analysing the provisions of section 28 and 34 of Land Acquisition Ac t the Hon'ble Supreme Court held in the c ase of Ghanshyam HUF that in terest is different f rom compensation. However, interest paid on the excess amount under section 28 depends upon a claim by a person whose land is acquired whereas in terest under section 34 is f or delay in making payment. This vital difference needs to be kept in mind in decid ing this matter. Interest under section 28 is par t of the amount of compensation whereas interest under section 34 is only for delay in making paymen t af ter the compensation amoun t is determined. Interest under section 28 is a part of enhanced value of the land which is not the case in th e matter of payment of in terest under section 34. It is thus evident that the view taken by the Ld. AO that interest under section 28 of Land Acquisition Act received by the assessee is exempt under section 10(37) of the Ac t is no t contrary to law.

12.

We notice that in CBDT Circular No. 5, dated 03.06.2010 reported in (2010) 324 ITR (St.) 293, it is stated that the Hon'ble Supreme Court in the case of Rama Bai Vs. CIT (supra) has held th at arrears of interest compu ted on delayed or enhanced compensa tion shall be tax able on accrual basis. This has c aused undue hardship to the taxpayers. With a view to mitig ate the hardship section 145A h as been substituted and clause (viii) in sub - sec tion (2) of section 56 has been inserted by the Finance (No.2) Act, 2009 so as to provide that the interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A shall be assessed as income from other sources in the year in which it is received. It is th us evident th at the amended provisions of section 56(2)(viii) of the Act r.w. section 145A were brought on the statu te to nullify the effect of Hon'ble Supreme Court's ruling in the case of Rama Bai and no t Ghanshy am HUF. Moreover, it is brought to our notice by the Ld. AR that the decision in Ghanshyam HUF was pronounc ed in July, 2016 and the Fin ance Bill proposing amendmen t to section 56 was laid in February 2016. So the inten tion of the legislature could never be the overruling of the ratio laid down in Ghanshyam HUF case. The issue in Rama Bai case involved the tax ability in the year of receipt. The fac ts and questions for determin ation in Rama Bai's c ase were different from those of Ghanshyam HUF's case. The position in Ghanshy am HUF'a case has been affirmed by the Hon'ble Supreme Court in Hari Singh's case. Further, the Ld. AR submitted before us that SLP filed by the Revenue in Hari Singh's case has been withdrawn by the Revenue meaning thereby that now the issue has attained certainty.

13.

We have gone through the decision of the Hon'ble P & H High Court in the case of Mahender Pal Nar ang (supra). In th at c ase the land of the assessee was acquired in AY 2007 -08 and 2008-09. The enhanced compensation was received on 21.03.2016. In his return f iled for AY 2016 - 17 he treated the interest received under section 28 of the 1894 Act as income from other sources and claimed deduction for 50% as per section 57(iv) of the 1961 Ac t. The return was processed under section 143(1) of the Act. An appli c ation under section 264 was m ade claiming th at by mistake the assessee tre ated the interest income as income from other sources whereas the same is par t of enhanced compensation. The revisional au thority rejected the applic ation under sec tion 264 on 30.1.2019. It was in this f actual m atrix that the assessee filed writ petition before the Hon'ble P & H High Court. The question for consideration was "whe ther af ter the insertion of section 56(2)(viii) and 57(iv) of the Ac t w.e.f. 01.04.2010, can the assessee claim that interest received under section 28 of the Land Acquisition Act, 1894 will partake the character of the compensation and would fall under the head "capital g ain" and not "income from other sources" ? It was argued by the assessee th at there is no amendmen t in section 10(37) and by insertion of sections 56(2)(viii) and 57(iv), the nature of in terest under section 28 of the 1894 Act will remain that of compensation and decisions of the Hon'ble Supreme Court in the case of Ghanshyam (HUF) and the dec ision of Hon'ble Gujrat High Court in Movaliya Bhikhubhai Balabhai vs. ITO TDS (2016) 388 ITR 343 were relied upon.

14.

It may be mentioned that the Hon'ble Supreme Court has affirmed its view taken in Ghanshyam HUF's case and the decision of Gujrat High Court in Movaliya's case in its decision in the case of UOI vs. Hari Singh (2018) 91 taxmann.com 20 (SC). The decision of the Hon'ble Supreme Court in Hari Singh's case (supra) was no t brough t to the notice of Hon'ble P & H High Court while rendering decision in Mahender P al Narang 's cas e (supra). Hon'ble P&H High Court has thus rendered the decision in Mahender Pal Narang's case in its peculiar f ac ts and circumstances. Accordingly, the opinion of the Ld. PCIT that the Ld. AO should have passed the assessment in accordance with the amended law an d binding decision in Mahender Pal Narang's case (supra) overlooking the decision of Hon'ble Supreme Court in Ghanshyam's HUF's case is not sustainable. Reliance of the Ld. CIT -DR on the decision in Mahender Pal Narang 's case is misplaced. Needless to emphasis that in V.M. Salg aoc ar and Bros Pvt. Ltd. vs. CIT 243 ITR 383 (SC), the Hon'ble Supreme Court has held that an order dismissing the SLP at the threshold withou t detailed reasons does not cons titu te any declaration of law or a binding precedent. Therefore, overemphasising the f act of dismissal of SLP in limine by the Hon'ble Supreme Court in Mahender Pal's case by the Revenue is not of any leg al assistance to it.

15.

Record reveals th at the order of the Ld. PC IT was prompted solely by the audit objec tion. Hon'ble P & H High Court has held in CIT vs. Sohana Woollen Mills (2008) 296 ITR 238 (P&H) that mere audit objec tion cannot lead to an inference that the order of the Ld. AO is erroneous or prejudicial to the interest of the Revenue.

16.

Since the order of the Ld. AO is based on the decision of the Hon'ble Supreme Court in Ghanshyam HUF (supra) on the issue of tax ability of in terest received by the assessee under section 28 of Land Acquisition Act, it can at best be said to be a debata ble issue on which two views are possible and the Ld. AO accepts one of the views. In this view of the matter too, the Ld. PC IT c annot assume revisional jurisdic tion as held by the Hon'ble Delhi High Court in C IT vs. Hindustan Coca Cola Beverages P Ltd. (2 011) 331 ITR 192 (Del.)

17.

Accordingly, on the f acts and in the circums tances of the case as set out above, we hold that the order of the Ld. PCIT is not sustainable. Accordingly, we allow the appeal of the assessee and quash the impugned order of the Ld. PC IT.

18.

In the result, appeal of the assessee is allowed.”