2020 (10) TMI 881 - AT - Income Tax

Scope of Limited scrutiny - Addition on account of cash borrowings from agriculturists and interest received on compensation in respect of agricultural land - assessee is an agriculturist - Assessee treated the interest on compensation as additional compensation and shown as exempt income in his return of income - Assessee contended that the interest on an enhanced compensation granted under section 28 of the Land Acquisition Act is accretion to the value of land acquired and therefore, are non-taxable; and that the assessee being an illiterate and not conversant with the grievances of the Tax Law did not realise the implications in receiving the loan in cash - First contention of the assessee is that although the case was selected for limited scrutiny under CASS but the Ld AO did not concentrate only on the reasons for which case was selected for limited scrutiny but went on asking more more improved reasons without taking prior approval from the competent authorities HELD THAT - Any consideration of the details relating to the income from other sources is beyond the scope of this limited scrutiny, inasmuch as the reason for a limited scrutiny includes low income from other sources as compared to large value fixed deposits. This reason takes into its fold the scrutiny of the income from other sources including the receipt of interest on enhanced compensation under section 28 of the Land Acquisition Act. AO did not step out the scope of enquiry in this matter. Addition of the interest on enhanced compensation received for acquisition of the agricultural property - In the case of Hari Singh 2017 (11) TMI 923 - SUPREME COURT while dealing with the similar question under identical set of facts under section 194LA of the Act, Hon ble Court set aside the matter to the file of the AO to examine the facts of the case and to apply the law as contained in the Income-tax Act. Hon ble Supreme Court specifically directs that in case the learned AO finds that the compensation was received in respect of the agricultural land, the tax deposited with the Income-tax Department shall be refunded to the assessee. Hon ble Supreme Court gave the above direction after noticing the decision in the case of Ghanshyam 2009 (7) TMI 12 - SUPREME COURT It does not admit of any doubt as to the nature of amount by way of interest u/s 28 of the Land Acquisition Act in the hands of the assessee or the applicability of the Income-tax Act to such amount. We therefore, do not find any reason to sustain the addition on this score in the absence of any dispute as to whether the interest received was under section 28 of the Land Acquisition Act. Such an addition cannot be sustained and the same is directed to be deleted. Addition when the assessee produced the bank statements of the creditors - It is an admitted fact that no bank statement of the assessee was produced before the authorities to demonstrate the fact of repayment. Ld. AR now seeks an opportunity of producing such material for the determination of just tax liability of the assessee. There was no opportunity for the authorities below to consider this fact of the repayment of loan through banking channels. Assessee now deserves to produce the bank statements to establish such a fact. In the circumstances, having regard to the plea that the assessee, only because of their ignorance as to the implications under the Income Tax Act, obtained the cash loans, we are of the considered opinion that this issue needs to be set-aside to the file of the learned AO for verification of said fact in the light of the material to be produced by the assessee to prove the fact of repayment. Set aside the findings of the authorities below on this aspect of addition of ₹ 85 Lacs and remand the issue to the file of the learned Assessing Officer for fresh consideration

Summary

Issues:
1. Addition of cash borrowings from agriculturists and interest received on compensation.
2. Taxability of interest received under section 28 of the Land Acquisition Act.
3. Validity of the addition of cash borrowings from agriculturists.
4. Jurisdiction of Assessing Officer in limited scrutiny cases.

Issue 1: Addition of Cash Borrowings and Interest Received on Compensation:
The appellant challenged the addition of &8377; 85 Lacs for cash borrowings and &8377; 47,32,420/- as interest received on compensation. The appellant claimed the interest on compensation was exempt as additional compensation. The Assessing Officer made the additions under section 144 of the Income Tax Act, 1961. The CIT(A) confirmed the additions, stating the interest received was taxable under other sources. The appellant's contention was based on the nature of interest under the Land Acquisition Act and lack of awareness regarding tax implications of cash borrowings.

Issue 2: Taxability of Interest under Section 28 of the Land Acquisition Act:
The CIT(A) questioned whether interest under section 28 of the Land Acquisition Act was taxable. The appellant cited court cases but the CIT(A) noted the amendment to section 145-A (b) of the Act and the decision of the Punjab and Haryana High Court. The ITAT held that interest under section 28 is taxable as capital gain, following Supreme Court rulings. The ITAT directed deletion of the addition of interest received under section 28.

Issue 3: Validity of Addition of Cash Borrowings:
Regarding the addition of &8377; 85 Lacs for cash borrowings, the CIT(A) rejected the appellant's claims due to lack of necessity for cash loans from individuals with bank accounts. The ITAT observed the lack of explanation for cash loans and the absence of immediate need for borrowing. The ITAT remanded the issue to the Assessing Officer for verification of loan repayment through banking channels based on material to be produced by the appellant.

Issue 4: Jurisdiction of Assessing Officer in Limited Scrutiny Cases:
The appellant argued the Assessing Officer exceeded the limited scrutiny scope by considering income from other sources, including interest on enhanced compensation. The ITAT held that the Assessing Officer did not step out of the limited scrutiny scope as the reason for scrutiny included low income from other sources. The ITAT upheld the Assessing Officer's enquiry into the interest on enhanced compensation.

In conclusion, the ITAT allowed the appeal in part, directing the deletion of the addition related to interest under section 28 of the Land Acquisition Act. The issue of cash borrowings was remanded to the Assessing Officer for further verification. The ITAT clarified the jurisdiction of the Assessing Officer in limited scrutiny cases, upholding the enquiry into interest on enhanced compensation.