2021 (1) TMI 887 - AT - Income Tax

Addition u/s 69 - unexplained investment - contention of the ld. AR is that the assessee s property situated in Ranasinghpet, BVK Iyengar Road, Bangalore was acquired by the Special Land Acquisition Officer SLAO for Bengaluru Metro and the assessee received a sum as a compensation from the authorities and assessee disclosed this amount as a sale consideration while declaring long term capital gain from the said acquisition of the property and offered the same for taxation - HELD THAT - The source of payment of ₹ 34.50 lakhs is out of compensation received towards acquisition of property by BMRCL and this was duly disclosed by the assessee. These receipts and payments were duly reflected in the ICICI Bank s Current A/c No.6251050390981, OTC Road, Bangalore 560 002. As such, it cannot be considered as unexplained investment by the assessee. Accordingly, we delete the addition made by the AO and sustained by the CIT(Appeals) u/s. 69 of the Act. This ground of the assessee is allowed. Addition of capital gain ignoring the fact that the compensation was received by Metro Railway authorities - When the name of BMRCL was mentioned in Form 26AS showing the details of TDS on payment for acquisition of said property, it cannot be doubted that BMRCL has not acquired the said property. In our opinion, the compensation received by the assessee from BMRCL is exempt from tax in view of CBDT Circular No.36/2016 dated 25.10.2016. Accordingly, the compensation received by the assessee on acquisition of the property by BMRCL is not liable for capital gain. This ground of the assessee is allowed.

Summary

Issues:
1. Addition under section 69 of the Income Tax Act, 1961.
2. Addition of capital gain without considering compensation received by Metro Railway authorities.

Issue 1: Addition under section 69 of the Income Tax Act, 1961:
The appeal involved a dispute regarding the addition of ?26,50,000 under section 69 of the Income Tax Act, 1961. The appellant contested that the amount was sourced from legitimate income for the purchase of a property and should not be considered unexplained investment. The Assessing Officer (AO) contended that the funds were not utilized from the available capital, leading to the addition under section 69. The CIT(Appeals) upheld the addition. However, the ITAT Bangalore ruled in favor of the appellant, stating that the funds were sourced from compensation received for property acquisition, duly disclosed by the appellant, and hence not an unexplained investment. The addition made by the AO was deleted.

Issue 2: Addition of capital gain without considering compensation received by Metro Railway authorities:
The second issue revolved around the addition of capital gain amounting to ?42,87,532 without acknowledging the compensation received by Metro Railway authorities for property acquisition. The appellant received ?1,24,48,356 as compensation, and after deductions, the long-term capital gain was ?3,63,244. The AO calculated a higher capital gain, which the appellant argued against, citing a CBDT Circular exempting such compensation from taxation. The ITAT Bangalore noted that the compensation received from Metro Railway authorities was duly reflected in the appellant's records and considered for TDS credit. The tribunal ruled in favor of the appellant, stating that the compensation received was exempt from tax as per the CBDT Circular, and hence the higher capital gain addition was unjustified. The appeal by the assessee was allowed.

In conclusion, the ITAT Bangalore provided detailed analyses for each issue, ultimately ruling in favor of the appellant in both instances. The judgment emphasized the importance of considering the source of funds and applicable exemptions in determining tax liabilities, ensuring a fair and just application of tax laws.