2022 (4) TMI 1317 - AT - Income Tax

Deduction u/s 10(37) - assessee received enhanced compensation - HELD THAT - Section 10(37) of the Act provides for exemption when there is compulsory acquisition of agricultural land which is located in an urban area. One of the conditions for application of 10(37) is that the land should have been used for agricultural purposes 2 years immediately preceding the date of transfer. The assessee was unable to substantiate the use of the land for agricultural purpose that was compulsorily acquired and, in the circumstances, we are of the view that the deduction under section 10(37) of the Act was rightly refused by the Revenue authorities. Deduction u/s 54 - There is no dispute that the assessee purchased new property but the deduction under section 54 of the Act is available only when the long-term capital gain is available from the transfer of any residential house. According to the AO, the assessee did not establish there was residential house which was compulsorily acquired by BMRCL. Besides the above, the Revenue authorities also took the view that under section 45(5)(b) of the Act, additional compensation / enhanced compensation is taxable in the year in which the same is received by an assessee. According to the Revenue authorities, deduction under section 54 of the Act cannot be claimed on enhanced compensation and such deduction can be claimed only when capital gain arises out of original compensation received by an assessee. In our opinion, this reason given by the Revenue authorities is not acceptable because section 45(5)(b) of the Act only mentions that enhanced compensation is chargeable to tax in the year in which the same is received by the assessee and the taxability is under the head capital gains . Once an income is assessed under the head capital gains , the assessee is entitled to claim as a consequence any deduction that is permissible in law while computing capital gain. Therefore, this reason given by the Revenue authorities in our view is not acceptable. Whether there existed a residential house in the property that was compulsorily acquired by the BMRCL? - We find that the RTC at page 74A of the assessee s Paper Book clearly shows existence of a house. The BBMP has issued a khata and that clearly shows that the land of 7 guntas or 8164 sq.ft. acquired by the BMRCL included 800 sq.ft. of built-up area RCC. As we have already said this has been described as house in the RTC. It is just clear from the evidence on record that there was a house that was in existence on the property that was acquired and therefore the assessee is entitled for deduction under section 54 of the Act. We, however, find that none of these document evidence was filed by the assessee before the lower authorities. We also find that the CIT(A) has not given any categoric finding with regard to claim of the assessee for deduction under section 54 of the Act. In these circumstances, we are of the view that the issue has to be set aside to the AO for examination of the claim of the assessee under section 54 in the light of the evidence that has been filed before the Tribunal. We are of the view that the additional evidence filed by the assessee and the Paper Book filed before the Tribunal are all necessary and required for the purpose of proper adjudication of the issue involved in the appeal and hence they are admitted as additional evidence. The issue is remanded to the AO for consideration afresh after affording the assessee opportunity of being heard. Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Deduction under section 10(37) of the Income Tax Act.
3. Deduction under section 54 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed by the assessee with a delay of 1065 days against the order dated 30.11.2017 of CIT(A), Bengaluru, for the Assessment Year 2013-14. The appeal should have been filed within 60 days from the receipt of the order. The assessee contended that the impugned order was not received and only became aware of it after downloading it from the Department’s web portal. The delay was attributed to the death of the initial Chartered Accountant (CA) handling the case and subsequent confusion and mismanagement by the new representatives. The Tribunal observed that the assessee, being an aged agriculturist, could not be expected to be conversant with legal and tax compliance. The Tribunal, considering the principles laid down by the Hon'ble Supreme Court in the case of Mst. Katiji, emphasized that substantial justice should prevail over technical considerations and condoned the delay in filing the appeal.

2. Deduction under Section 10(37) of the Income Tax Act:
The assessee claimed deduction under section 10(37) for the enhanced compensation received due to the compulsory acquisition of agricultural land by Bangalore Metro Rail Corporation Ltd. (BMRCL). Section 10(37) provides exemption for compulsory acquisition of agricultural land in urban areas, provided the land was used for agricultural purposes for two years preceding the transfer. The assessee failed to substantiate the agricultural use of the land, leading to the denial of the deduction by the Revenue authorities. The Tribunal upheld this decision, agreeing that the deduction under section 10(37) was rightly refused due to the lack of evidence supporting the agricultural use of the land.

3. Deduction under Section 54 of the Income Tax Act:
The assessee also claimed deduction under section 54 for the purchase of new property. Section 54 allows deduction when long-term capital gain arises from the transfer of a residential house. The Revenue authorities denied the deduction, stating that the assessee did not establish the existence of a residential house on the acquired property and that deduction under section 54 cannot be claimed on enhanced compensation. The Tribunal disagreed with the latter reasoning, stating that once income is assessed under "capital gains," the assessee is entitled to claim any permissible deduction. The Tribunal found evidence (RTC and BBMP khata) indicating the existence of a residential house on the property. However, since these documents were not presented before the lower authorities, the Tribunal remanded the issue back to the AO for fresh examination, allowing the additional evidence submitted by the assessee.

Conclusion:
The appeal was allowed for statistical purposes, with the delay in filing condoned and the issue of deduction under section 54 remanded to the AO for fresh consideration based on additional evidence. The deduction under section 10(37) was upheld as rightly refused by the Revenue authorities.