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2022 (3) TMI 1010 - AT - Income TaxExempted capital gain wrongly shown in the belated return as taxable - Revision of ITR on allowed being belated return - Capital gain from the compensation received pursuant to compulsory acquisition of land - assessee s land which is residential has been acquired by the Bihar State Govt. for development of National High Way by virtue of notification dated 7.5.2014 of Govt. of India - whether the action of the CPC in accepting the tax returned by the assessee dated 07.02.2017 (belatedly filed on 2.2.2017) declaring total income wherein the assessee had inadvertently shown the capital gain from the compensation received pursuant to compulsory acquisition of its land is legally sustainable or not? - HELD THAT - We have carefully gone through the Section 96 as well as Section 46 of the RFCTLARR Act and we find that the assessee s case does not fall in the ken of Section 46 of RFCTLARR Act; and therefore the compensation received by the assessee to the tune is exempt as per Section 96 of the RFCTLARR Act even though the land in question is residential and since it is exempt from tax it and consequently need not have to be included in the total income of the assessee. We note that inadvertently the assessee had filed the return of income declaring this amount as capital gain. So the CPC while processing the ROI filed by the assessee accepted the capital gain offered by the assessee. However we note that the Ld. CIT(A) while passing the impugned order against the action of CPC has not considered the claim of the assessee that it has inadvertently reflected the same as capital gain in ROI and the whole amount it received as compensation was exempt from tax as per Section 96 of the RFCTLARR Act as well as the CBDT Circular. We do not countenance such an action of the Ld. CIT(A). We note that the Ld. CIT(A) denied the claim to the assessee by misdirecting himself that assessee s claim u/s. 10(37) of the Act cannot be allowed because the land acquired of assessee was not agricultural land so has sustained the taxation on it. We note that just because the assessee inadvertently or by ignorance has shown the exempt income as exigible to tax the AO/CPC ought not to have treated the same as taxable income and thereby taxed the exempt income because Article 265 of the Constitution title reads Taxes not to be imposed saved by authority of law and the Article reads No tax shall be levied or collected except by authority of law . Here in this case the Parliament has exempted this compensation (for acquiring land) from taxation as per Section 96 of RFCTLARR Act. So the CPC/AO ought not to have taxed the same at the first place. Thus we hold that the capital gain shown by the assessee in its original ROI need not to be taxed being exempt. - Decided in favour of assessee.
Issues Involved:
1. Whether the compensation received from compulsory acquisition of land is exempt from income tax under Section 96 of the RFCTLARR Act. 2. Whether the CPC's action in taxing the compensation received as capital gain is legally sustainable. 3. Whether the revised return filed by the assessee, which was selected for scrutiny, should be accepted. 4. Whether the CIT(A) erred in dismissing the assessee's appeal by misinterpreting the applicability of Section 10(37) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Exemption of Compensation from Income Tax: The core issue revolves around whether the compensation received by the assessee from the compulsory acquisition of land by the State Government is exempt from income tax under Section 96 of the RFCTLARR Act. The assessee argued that the compensation received was exempt as per the RFCTLARR Act and CBDT Circular No. 36/2016. The Tribunal noted that the land was acquired after the RFCTLARR Act came into force on 1.1.2014 and that Section 96 explicitly exempts such compensation from income tax. The Tribunal emphasized that the compensation received by the assessee, amounting to ?1,26,58,595/-, is exempt under Section 96 of the RFCTLARR Act, irrespective of the land being residential and not agricultural. 2. CPC's Action in Taxing the Compensation: The Tribunal scrutinized the CPC's action in taxing the compensation as capital gain, which was inadvertently declared by the assessee in the original return. The Tribunal highlighted that the CIT(A) failed to consider the assessee's claim that the compensation was exempt under Section 96 of the RFCTLARR Act and the CBDT Circular. The Tribunal referenced the judgment of the Kerala High Court in Raghavan Nair vs. ACIT, which held that the assessing officer must refrain from taxing exempt income, even if it was mistakenly declared as taxable by the assessee. Consequently, the Tribunal concluded that the CPC's action in taxing the exempt compensation was erroneous. 3. Validity of the Revised Return: The Tribunal examined the validity of the revised return filed by the assessee, which was selected for scrutiny under CASS. The AO had rejected the revised return on the grounds that the original return was filed belatedly and thus could not be revised under Section 139(5) of the Income Tax Act. However, the Tribunal found that the AO and the CIT(A) misdirected themselves by focusing on the procedural aspects rather than the substantive claim of exemption under the RFCTLARR Act. The Tribunal held that the revised return should be accepted, as the compensation received was exempt from tax. 4. CIT(A)'s Misinterpretation of Section 10(37): The Tribunal noted that the CIT(A) erred in dismissing the assessee's appeal by misinterpreting the applicability of Section 10(37) of the Income Tax Act. The CIT(A) had denied the exemption on the grounds that the land was not agricultural. However, the Tribunal clarified that the assessee's claim was based on Section 96 of the RFCTLARR Act, not Section 10(37). The Tribunal emphasized that the CIT(A) should have considered the RFCTLARR Act and the CBDT Circular, which provide a broader exemption for compensation received from compulsory acquisition of land. Conclusion: The Tribunal allowed the appeal (ITA No. 28/Pat/2020) by upholding the assessee's claim that the compensation received was exempt under Section 96 of the RFCTLARR Act and the CBDT Circular. It dismissed the other appeal (ITA No. 27/Pat/2020) as academic, given the resolution of the primary issue. The Tribunal pronounced the order in the open court on 31st January 2022, emphasizing the importance of adhering to the legal provisions and ensuring that exempt income is not taxed.
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