2022 (10) TMI 1188 - AT - Income Tax

Addition u/s 56 (2)(viii) - interest on enhanced compensation for acquisition of agricultural land by Government under Land Acquisition Act - denial of exemption from tax under section 10(37) - HELD THAT - As the land of the assessee was acquired under the old Land Acquisition Act, but, the intention of the legislature is also clear as per the said Circular wherein the compensation received by the assessee u/s 96 of the RFCTLAAR Act has to be held as exempt from levy of income-tax. Therefore, the grievance of the assessee may kindly be allowed. CIT(A) was not correct in upholding the assessment order wherein the AO has granted part relief to the assessee u/s 57(iv) of the Act and not applying the provisions of section 10(37) of the Act on the interest received by the assessee on enhanced compensation. Therefore, the orders of the authorities below are set aside being not sustainable and not in accordance with the provisions of the Act. AO is directed to allow deduction u/s 10(37) of the Act to the assessee on the entire amount of interest received on enhanced compensation u/s 28 of the Act. Decided in favour of assessee.

Issues Involved:
1. Whether the Commissioner of Income Tax (Appeals) erred in upholding the assessment made by the Assessing Officer.
2. Whether the addition of Rs. 41,22,768/- under section 56(2)(viii) of the Income Tax Act on account of interest on enhanced compensation was justified.
3. Whether the interest received on enhanced compensation for the acquisition of agricultural land by the government is exempt from tax under section 10(37) of the Income Tax Act.
4. Whether the impugned order was based on assumptions and surmises and is legally erroneous.
5. Whether the impugned order violated principles of natural justice and judicial pronouncements by not providing a reasonable opportunity to the appellant.

Detailed Analysis:

1. Error in Upholding the Assessment:
The appellant contended that the Commissioner of Income Tax (Appeals) erred both factually and legally in upholding the assessment made by the Assessing Officer. The appellant argued that the order was passed without properly considering the submissions and relied on mere surmises and conjectures, which is against the law. The Tribunal found that the CIT(A) did not correctly apply the provisions of section 10(37) of the Income Tax Act and upheld the assessment incorrectly.

2. Addition Under Section 56(2)(viii):
The appellant challenged the addition of Rs. 41,22,768/- under section 56(2)(viii) of the Income Tax Act, arguing that the interest on enhanced compensation is part of the compensation and should not be treated as income from other sources. The appellant relied on the Supreme Court's judgment in CIT vs. Ghanshyam (HUF), which held that interest under section 28 of the Land Acquisition Act is part of the enhanced compensation and is exempt under section 10(37) of the Income Tax Act. The Tribunal agreed with this view and found that the addition under section 56(2)(viii) was not justified.

3. Exemption Under Section 10(37):
The appellant argued that the interest received on enhanced compensation for the acquisition of agricultural land by the government is exempt from tax under section 10(37) of the Income Tax Act. The Tribunal referred to several judgments, including those of the Supreme Court and various High Courts, which supported the view that interest under section 28 of the Land Acquisition Act is part of the enhanced compensation and is exempt from tax. The Tribunal concluded that the interest received by the appellant on enhanced compensation should be exempt under section 10(37).

4. Impugned Order Based on Assumptions and Surmises:
The appellant argued that the impugned order was not based on the facts of the case but on assumptions and surmises, making it legally erroneous. The Tribunal found that the CIT(A) did not correctly interpret the relevant legal provisions and judicial precedents, leading to an erroneous order. The Tribunal set aside the order, holding it unsustainable and not in accordance with the law.

5. Violation of Principles of Natural Justice:
The appellant contended that the impugned order violated principles of natural justice as no reasonable opportunity was given before passing the order. The Tribunal did not specifically address this issue in detail but focused on the substantive legal issues, ultimately deciding in favor of the appellant based on the merits of the case.

Conclusion:
The Tribunal allowed the appeal filed by the appellant, holding that the interest received on enhanced compensation under section 28 of the Land Acquisition Act is part of the compensation and exempt from tax under section 10(37) of the Income Tax Act. The orders of the CIT(A) and the Assessing Officer were set aside, and the AO was directed to allow the deduction under section 10(37) on the entire amount of interest received on enhanced compensation. The appeal was pronounced in the open court on 14.10.2022.

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