Tara Vati vs Assessment Unit

“3.

Brief ly stated, the assessee is an individual. He f iled his return f or 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 f or complete scrutiny assessment under th e e-assessment Scheme, 2019 on two issues, namely refund claim and winning f rom Lottery/crossword puzzle/horse races. T he Ld. Assessing Off icer ("AO") served notice under section 143(2) upon the assessee on 22.09.2019 followed by issue of notice under section 142(1) of the Act on 23.11.2020. T he Ld. AO completed the assessmen t on 22.01.2021 under sec tion 143(3) r.w. section 143(3A) and 143(3B) of the Ac t on income returned with the observation that on af oresaid 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 in to consideration, the binding decision of Hon'ble Jurisdictional High Court i.e. Hon'ble Punjab & Haryana High Court dated 19.02.2020 in the case of Mahender Pal Narang vs. CBDT (2020) 423 IT R 13 (P&H) wherein the Hon'ble High Court has deal t with the controversy arising f rom the judgment of Hon'ble Supreme Court in the case of CIT vs. Ghanshyam HUF dated 16th July, 2009 relating to the taxability of interest received on compensation or enhanced compensation and also the amendments/provisions of section 56(2)(viii) in troduced through Finance Act, 2009 eff ective f rom 01.04.2010 on the above issue, wh ich the Ld. AO f ailed to do. T he Ld. PCIT pointed out that the SLP f iled against the order of the decision (supra) of the Hon'ble P&H High Court has been dismissed by the Hon'ble Supreme Court vide its order dated 4th March, 2021 in Mahender Pal Narang vs. CBDT (2021) 279 Taxman 74 (SC). He, theref ore, set aside the impugned assessment order with a direction to pass an order afresh af ter making requisite enquiries and proper verif ication with regard to taxability of interest on enhanced compensation.

5.

Aggrieved, the assessee is in appeal bef ore the T ribunal and all the grounds relate thereto.

6.

T he Ld. AR submitted that the assessment order was neither erroneous nor prejudicial to the interest of Revenue because (i) the Ld. AO has passed 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 in terest under section 28 of Land Acquisition Act, 1894 gran ted by the court is an integral part of enhanced compensation and exempt under section 10(37) of the Act in case of the assessee.

6.1

Elaborating the above contentions, the Ld. AR poin ted out that in notice under section 142(1) of the Act dated 23.11.2020 (copy at Paper Book page 1-2), the Ld. AO required the assessee to furnish documentary evidence in support of claim that the amount of Rs. 6,86,17,767/- is received under section 28 of the Land Acquisition Ac t. The assessee responded vide letter (copy at pages 3-58 of Paper Book) that the assessee received enhanced compensation on compulsory acquisition of his agricul tural land by Haryana Govt. of Rs. 6,86,17,767/-wh ich included interest under section 28 of Land Acquisition Act of Rs. 3,97,56,460/- which was part of enhanced compensation as held by the Hon'ble Supreme Court in CIT vs. Ghanshyam HUF (2009) 315 ITR 1 (SC). It was claimed that the assessee was entitl ed to exemption under section 10(37) of the Ac t. The explanation 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 wh ich he ough t to have carried ou t in respect 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 bu t 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 Auto Ltd. (2011) 332 ITR 167 (Del) and decision of Hon'ble Rajasthan High Cour t in CIT vs. Ganpat Ram Bisnoi 296 IT R 292 (Raj.) were cited.

6.2

T he Ld. AR invited our attention to Audit Memo at pages 399-402 of Paper Book in the case of the assessee wherein IT O (Audit) Hisar raised an audit objection observing that interest under section 28 of Land Acquisition Ac t of Rs. 3,97,56,460/- was chargeable to tax under section 56(2)(viii) of the Act and also ref erred to the decisions in the cases of Shri Manjeet Singh HUF v. UOI & Others in CWP No. 15506 of 2013; Shri Puneet Singh vs. C IT (2019) 110 taxman.com 116 and Shri Mahendra Pal Narang vs. CBDT in CWP No. 17971 of 2019. The Ld. AR con tended that the order of the Ld. PCIT is merely based on the audit objection wi thou t applying his independent mind and without considering the subsequen t 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) IT O, T DS v. Muktanangiri Maheshgiri in Civil Appeal No. 18475 of 20 I7 dated 10.11.2017, wherein the ratio of decision of CIT vs. Ghanshyam (HUF) (2009) 181 T axman 368 (SC) has been aff irmed. T he Ld. AR cited decisions wherein assumption of jurisdiction under sec tion 263 on the basis of audit objection by the Audit wing of the Department has been held to be invalid.

7.

T he Ld. CIT -DR supported the order of the Ld. PCIT . He placed on record a copy of the decision of Hon'ble Punjab & Haryana High Court in Mahender Pal Narang v. CBDT reported in (2020) 423 IT R 13 (P&H) wherein the Hon'ble High Court held that interest received on compensation or enhanced compensation under Land Acquisition Act, 1894 is to be tr eated as 'income f rom other sources' and no t under the head 'capital gains'. T he Ld. CIT-DR dre w our attention to para 9 and 10 of the decision (supra).

8.

We have given our caref ul thought to the rival submissions and perused the records. The f acts are not in dispu te. T he assessee received interest of Rs. 3,97,56,460/- on enhanced compensation f rom HUDA af ter the compulsory acquisition of his agricultural land on wh ich T DS amounting to Rs. 39,75,646/- @ 10% was also deduc ted. T he assessee claime d the said interest as exempt. On perusal of case records, the Ld. PCIT gathered that the Ld. AO had completed the assessment without carrying out necessary and proper enquiry which should have been made regarding applicable judgments on the taxability of interest on enhanced compensation. T he Hon'ble Punjab & Haryana High Court has given the f inding that interest received on compensation or enhanced compensation will 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. T he Ld. PCIT theref ore required the assessee to sho w cause as to wh y an appropriate order under section 263 of the Act be not passed. In response the assessee submitted that the amount received under sec tion 28 of Land Acquisition Act is exempt f rom tax relying on the decision of Delhi Bench of the T ribunal in the case of Shri Puneet Singh, Karnal vs. ACIT pronounced on 08.12.2022 f or 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. T he submission of the assessee was not acceptable 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 f iled against it by the Hon'ble Supreme Court. He, theref ore, set aside the assessmen t order and directed the Ld. AO to pass an order af resh.

9.

As to the issue of lack of necessary and proper enquiry during assessment proceeding, the Ld. AR demonstrated that in response to notice under section 142(1) of the Act issued by the Ld. AO the assessee submitted that interest of Rs. 3,97,56,460/- received by the assessee f ormed part of enhanced compensation as held by the Hon'ble Supreme Cour t in Ghanshyam HUF's case (supra) which the assessee claimed as exempt under section 10(37) of the Act. Pages 1 to 61 of the Paper Book ref er. In our opinion, in the light of evidence available on records, it cannot be alleged as done by the Ld. PC IT 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 Au to Ltd.'s case (supra) and Hon'ble Rajasthan High Court in Ganpat Ram Bisnoi's case (supra). An incorrect assumption of f acts or an incorrect application of law will satisf y the requiremen t of the order being erroneous as held by the Hon'ble Supreme Court in Malabar Industrial Co. Ltd. vs. CIT 243 IT R 83 (SC). None of these elements exist in the case at hand.

10.

Perusal of the order of the Ld. PC IT sho ws that he assumed the revisionary power under section 263 of the Act mainly on th e ground that th e Ld. AO passed the order no t in accordance with the binding decision of Hon'ble P & H High Court in Mahender Pal Narang's case (supra) against wh ich SLP stands dismissed by the Hon'ble Supreme Court. T his is not so. During assessment proceedings in response to notice under section 143(2) and 142(1) of the Act, with ref erence to specif ic query on receipt of interest under section 28 of Land Acquisition Act, the assessee explained vide letter at pages 3-5 of Paper Book that interest received under section 28 of the Land Acquisition Act has been held to be part of compensation by Apex Court in the case of CIT vs. Ghanshyam HUF reported as (2009) 315 IT R 1, the same being exempt under sec tion 10(37) of the Act has not been included in the total income of the assessee wh ile f iling return of income. T he Ld. AO accepted the explanation of the assessee.

11.

T he issue of amended provisions of section 56(2)(viii) by the Finance Act, 2009 and the decision of Hon'ble P & H High Court in Mahender Pal Narang's case was raised by the Ld. PC IT in notice under section 263 on the basis of audit objection (copy of audit memo of IT O Hisar at pages 399-402 of Paper Book). Before the Ld. PC IT the assessee explained that the amended provisions were not in connection with the decision of Hon'ble Supreme Court in Ghanshyam HUF's case but to make simpl e the taxation of interest income as earlier it was taxable on accrual/cash basis on the basis of accounting principles as held by the decision of Hon'ble Supreme Court in Rama Bai vs. CIT (1990) 181 IT R 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 character of interest under section 28 of the Land Acquisition Act f rom 'capital receipt' f orming part of enhanced compensation as envisaged in section 45(5) of the Act to 'revenue receipt' chargeable 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 Act the Hon'ble Supreme Court held in the case of Ghanshyam HUF that interest is differen t from compensation. Ho wever, 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 makin g payment. T his vital diff erence needs to be kept in mind in deciding this matter. In terest under section 28 is part of the amount of compensation wh ereas interest under section 34 is only for delay in making payment af ter the compensation amount is determined. In terest under sec tion 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under section 34. It is thus evident that the view taken by the Ld. AO tha t interest under section 28 of Land Acquisition Act received by the assessee is exempt under sec tion 10(37) of the Act is not contrary to la w.

12.

We notice that in CBDT Circular No. 5, dated 03.06.2010 reported in (2010) 324 IT R (St.) 293, it is stated that the Hon'ble Supreme Court in the case of Rama Bai Vs. CIT (supra) 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. With a vie w to mitigate the hardship section 145A has been substitu ted and clause (viii) in sub- section (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 ref erred to in clause (b) of section 145A shall be assessed as income f rom other sources in the year in which it is received. It is thus eviden t that the amended provisio ns of section 56(2)(viii) of the Act r. w. section 145A wer e brought on the statu te to nullif y the effect of Hon'ble Supreme Court's ruling in the case of Rama Bai and not Ghanshyam HUF. Moreover, it is brought to our notice by the Ld. AR that the decision in Ghanshyam HUF was pronounced in July, 2016 and the Finance Bill proposing amendment to section 56 was laid in February 2016. So the intention of the legislature could never be the overruling of the ratio laid down in Ghanshyam HUF case. T he issue in Rama Bai case involved the taxability in the year of receipt. T he facts and questions f or determination in Rama Bai's case were diff erent f rom those of Ghanshyam HUF's case. T he position in Ghanshyam HUF'a case has been aff irmed by the Hon'ble Supreme Court in Hari Singh's case. Further, the Ld. AR submitted bef ore us that SLP f iled by the Revenue in Hari Singh's case has been withdrawn by the Revenue meaning thereby that now the issue has attained certain ty.

13.

We have gone through the decision of the Hon'ble P & H High Court in the case of Mahender Pal Narang (supra). In that case the land of the assessee was acquired in AY 2007-08 and 2008-09. The enhanced compensation wa s received on 21.03.2016. In his return f iled f or AY 2016- 17 he treated the interest received under section 28 of the 1894 Ac t as income f rom other sources and claimed deduction f or 50% as per section 57(iv) of the 1961 Act. T he return was processed under section 143(1) of the Act. An application under section 264 was made claiming that by mistake the assessee treated the interest income as income f rom other sources whereas the same is part of enhanced compensation. The revisional authority rejected the application under section 264 on 30.1.2019. It was in this f actual matrix that the assessee f iled writ petition bef ore the Hon'ble P & H High Court. T he question f or consideration was "whether 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 in terest received under section 28 of the Land Acquisition Act, 1894 will partake the character of the compensation and would f all under the head "capital gain" and not "income f rom other sources" ? It was argued by the assessee that there is no amendment in section 10(37) and by insertion of sections 56(2)(viii) and 57(iv), the nature of interest 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 decision of Hon'ble Gujrat High Court in Movaliya Bhikhubhai Balabhai vs. IT O T DS (2016) 388 IT R 343 were relied upon.

14.

It may be mentioned that the Hon'ble Supreme Court has aff irmed 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). T he decision of the Hon'ble Supreme Court in Hari Singh's case (supra) was not brought to the notice of Hon'ble P & H High Court wh ile rendering decision in Mahender Pal Narang's case (supra). Hon'ble P&H High Court has thus rendered the decision in Mahender Pal Narang's case in its peculiar f acts and circumstances. Accordingly, the opinion of the Ld. PCIT that the Ld. AO should have passed the assessment in accordance with the amended la w and 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. C IT -DR on the decision in Mahender Pal Narang's case is misplaced. Needless to emphasis that in V.M. Salgaocar and Bros Pvt. Ltd. vs. CIT 243 IT R 383 (SC), the Hon'ble Supreme Court has held that an order dismissing the SLP at the threshold without detailed reasons does not constitu te any declaration of la w or a binding precedent. T heref ore, 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 legal assistance to it.

15.

Record reveals that the order of the Ld. PCIT was prompted solely by the audit objection. Hon'ble P & H High Court has held in CIT vs. Sohana Woollen Mills (2008) 296 IT R 238 (P&H) that mere audit objection cannot lead to an inf erence that the order of the Ld. AO is erroneous or prejudicial to the in terest 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 taxability of interest received by the assessee under sec tion 28 of Land Acquisition Act, it can at best be said to be a debatable issue on wh ich two vie ws are possible and the Ld. AO accepts one of the views. In this view of the matter too, the Ld. PCIT cannot assume revisional jurisdiction as held by the Hon'ble Delhi High Court in CIT vs. Hindustan Coca Cola Beverages P Ltd. (2011) 331 IT R 192 (Del.)

17.

Accordingly, on the f acts and in the circumstances of the case as set out above, we hold that the order of the Ld. PCIT is not sustainable. Accordingly, we allo w the appeal of the assessee and quash the impugned order of the Ld. PCIT .

18.

In the resul t, appeal of the assessee is allo wed.”