2022 (10) TMI 453 - AT - Income Tax

Revision u/s 263 by CIT - Exclusion of agricultural income while computing the book profit under the provisions of section 115JB - Treatment to compensation received on account of compulsory acquisition of land - case was selected under complete scrutiny through CASS which included claim of large exempt income as one of the grounds for selection - HELD THAT - AO based on the submission placed on record taken a plausible view on the calculation exempt income and thereby the computation of tax under section 115JB - Whereas the ld. Pr. CIT considered that the same has not been seen by the AO in light of the observations made by him in the proceedings before him. It is not disputed that the assessee is holding agricultural land and accordingly received the agricultural income which is also not disputed by the revenue in the proceedings. AO also raised the issue about the exempt income and the assessee has submitted all relevant proof in relation to compensation in question and has after considering the submission and evidence placed on record, the ld. AO taken plausible view which is not controverted that why the view taken by the ld. AO is not correct view, considering the compensation received by the assessee company as the agriculture income and also exempt. DR merely argued that section 10(1) exclude only agriculture income and it does not include compensation but he has not referred the definition of section 2(14)(iii) of the Act which exclude the agriculture land as a capital asset and these facts is also not disputed that the assessee is having land which is agriculture land when the ld. AO and ld. PCIT accepted that the assessee earns agriculture income the compensation received on account of compulsory acquisition of land why cannot be considered as part of agriculture income. He has not pointed out any provision of the law to support their views so as to show that the same is required to be excluded while computing the book profit u/s. 115JB of the Act. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT 2000 (2) TMI 10 - SUPREME COURT Thus, when it is very much evident and clear from the record that compensation that the assessee has received is on account of agriculture land on which the agriculture income is already considered and therefore, the action of the assessee and thereby the ld. AO is in accordance with provision of the Act and there is no mistake apparent on record on account of exclusion of the same while computing the book profit under the provisions of section 115JB of the Act. These views are fortified by the Cochin Bench and in fact decisions relied upon by the ld. AR of the assessee. Being consistent with that order of M/s. The Nilgiri Tea Estate Limited 2014 (6) TMI 774 - ITAT COCHIN we hold that the order passed by the ld. PCIT u/s. 263 is neither erroneous and not prejudicial to the interest of the Revenue and therefore, the same is required to be quashed. Appeal of assessee allowed.

Issues Involved:
1. Validity of the order under Section 263 of the Income Tax Act.
2. Adequacy of opportunity provided to the appellant.
3. Examination of the nature of the land under acquisition.
4. Assessment of the compensation received on compulsory acquisition of land.
5. Applicability of Section 115JB for computing book profit.

Detailed Analysis:

1. Validity of the order under Section 263 of the Income Tax Act:
The appellant challenged the order passed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263, arguing it was contrary to the facts and evidence on record. It was contended that the Pr. CIT's order was erroneous and prejudicial to the interest of the Revenue. The Tribunal noted that the Assessing Officer (AO) had already examined the details and accepted the returned income after scrutiny, which included the compensation received for agricultural land. The Tribunal found that the AO had taken a plausible view, and the Pr. CIT's disagreement with this view did not render the AO's order erroneous or prejudicial to the Revenue.

2. Adequacy of opportunity provided to the appellant:
The appellant argued that the Pr. CIT did not provide adequate opportunity to present its case, violating the principles of natural justice. The Tribunal observed that the Pr. CIT issued a show-cause notice and another notice, which the appellant's counsel could not attend due to personal obligations. The Tribunal concluded that the Pr. CIT proceeded without affording adequate opportunity, which was against the principles of law, and thus the order deserved to be quashed.

3. Examination of the nature of the land under acquisition:
The Pr. CIT questioned whether the land under compulsory acquisition was agricultural land in terms of Section 2(14)(iii) of the Act. The appellant provided evidence, including a Tehsildar's certificate, confirming that the land was agricultural and situated 20 km away from municipal limits. The Tribunal noted that the AO had examined these details and accepted the compensation as exempt income. The Tribunal found no error in the AO's assessment regarding the nature of the land.

4. Assessment of the compensation received on compulsory acquisition of land:
The Pr. CIT argued that the compensation received on compulsory acquisition of land was not exempt under Section 10(37) as it applied only to individuals and Hindu Undivided Families (HUFs), not companies. The appellant contended that the land was rural agricultural land, not a capital asset, and thus the compensation was not taxable. The Tribunal agreed with the appellant, stating that the compensation for rural agricultural land was exempt and should not be included in the book profit under Section 115JB.

5. Applicability of Section 115JB for computing book profit:
The Pr. CIT held that the compensation received on compulsory acquisition of land should be included in the book profit under Section 115JB. The appellant argued that since the compensation was exempt under normal provisions, it should also be excluded from the book profit computation. The Tribunal supported the appellant's view, citing various judicial pronouncements, including decisions from ITAT benches in similar cases. The Tribunal concluded that the AO's exclusion of the compensation from the book profit was correct and that the Pr. CIT's order was neither erroneous nor prejudicial to the Revenue.

Conclusion:
The Tribunal quashed the order passed by the Pr. CIT under Section 263, holding that the AO's assessment was neither erroneous nor prejudicial to the interest of the Revenue. The appeal filed by the assessee was allowed.

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