2018 (10) TMI 1984 - AT - Income Tax

Revision u/s 263 - interest income representing 50% of the enhanced compensation - whether interest received on enhanced compensation was held to be in the nature of compensation and not interest which is taxable under the head income from other sources under section 56? - HELD THAT - As decided in Satbir Others Vs. ITO 2018 (7) TMI 1163 - ITAT CHANDIGARH core issue of taxing of interest received on enhanced compensation stands adjudicatedin accordance with the decisions of case of Ghanshyam HUF 2009 (7) TMI 12 - SUPREME COURT and treated as part of compensation exempt from tax, we hereby hold that the order passed by the Assessing Officer cannot be held to be erroneous so far as it is prejudicial to the interests of revenue. The order passed by the Ld. PCIT under section 263 is therefore quashed. Appeal of assessee allowed.

Summary

Issues Involved:
1. Jurisdiction and statutory preconditions under Section 263 of the Income Tax Act.
2. Taxability of interest on enhanced compensation under Section 28 of the Land Acquisition Act.
3. Application of Explanation 2(d) of Section 263 of the Income Tax Act.
4. Directions to add interest income under Section 56(2)(vii) read with Section 57(iv) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction and Statutory Preconditions under Section 263 of the Income Tax Act:
The assessee argued that the Principal Commissioner of Income Tax (Pr. CIT) did not satisfy the statutory preconditions for invoking Section 263, making the order without jurisdiction. The assessee contended that once the Assessing Officer (AO) had examined the facts and accepted the claim after thorough inquiries, the assessment order could not be deemed erroneous merely because the Pr. CIT had a different opinion. The Tribunal observed that the AO had indeed examined the facts and allowed the claim based on existing legal precedents, including the Supreme Court's judgment in the case of Ghanshyam HUF. Thus, the invocation of Section 263 by the Pr. CIT was found to be without proper jurisdiction.

2. Taxability of Interest on Enhanced Compensation under Section 28 of the Land Acquisition Act:
The core issue was whether the interest received on enhanced compensation under Section 28 of the Land Acquisition Act should be treated as part of the compensation or as income from other sources. The Pr. CIT directed the AO to add the interest income to the taxable income of the assessee, relying on the judgment of the Punjab and Haryana High Court in the case of Manjit Singh (HUF) and subsequent dismissal of the SLP by the Supreme Court. The Tribunal, however, referred to the Supreme Court's decisions in Ghanshyam HUF and Govindbhai Mamaiya, which held that interest under Section 28 is an accretion to the value of the land and forms part of the enhanced compensation. Consequently, it should not be taxed as income from other sources.

3. Application of Explanation 2(d) of Section 263 of the Income Tax Act:
The Pr. CIT invoked Explanation 2(d) of Section 263, asserting that the AO's order was erroneous and prejudicial to the interest of the revenue as it was not in accordance with the provisions of the Income Tax Act and judicial decisions. The Tribunal noted that the AO's order was based on the Supreme Court's judgment in Ghanshyam HUF, which was binding and constituted the law of the land. Therefore, the AO's order was neither erroneous nor prejudicial to the interest of the revenue, making the application of Explanation 2(d) by the Pr. CIT inappropriate.

4. Directions to Add Interest Income under Section 56(2)(vii) read with Section 57(iv) of the Income Tax Act:
The Pr. CIT directed the AO to add the interest income received on enhanced compensation under Section 28 of the Land Acquisition Act as income from other sources, invoking Section 56(2)(vii) read with Section 57(iv). The Tribunal found that the interest under Section 28 is part of the enhanced compensation and should not be taxed separately as income from other sources. This view was supported by multiple Supreme Court judgments, including Ghanshyam HUF and Chet Ram (HUF). The Tribunal held that the AO's original assessment order was correct and did not require revision under Section 263.

Conclusion:
The Tribunal quashed the order passed by the Pr. CIT under Section 263, holding that the AO's assessment order was not erroneous or prejudicial to the interest of the revenue. The interest on enhanced compensation under Section 28 of the Land Acquisition Act is part of the compensation and not taxable as income from other sources. All the appeals by the assessee were allowed.