TMI Blog2025 (1) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... edings were validly initiated as the interest income as added by the AO arose from the compensation-related inquiry. The failure of the assessee to file a return and disclose material facts justified the initiation of proceedings beyond four years. Appeal challenging the validity of the reassessment proceedings are dismissed. Exemption u/s 10(37) - interest accrued on the fixed deposits maintained by the Principal Civil Judge formed part of the compensation awarded for the compulsory acquisition of agricultural land or not? - We note that the orders of the AO and CIT(A) do not clearly explain the distribution of the total compensation and its reconciliation with the amounts withdrawn and distributed among the parties involved. The flow of funds particularly the cash withdrawn by the original landowner and the manner in which it was handed over to the assessee requires detailed verification. The question of the taxability of the amounts in the hands of the ultimate recipient must also be examined to ensure the correct determination of taxable income. Given the complexities and the need for proper verification of the reconciliation submitted by the assessee, we are of the view that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 6,22,38,075/- under section 10(37) of the Act on account of compensation received for the compulsory acquisition of agricultural land situated at Survey Nos. 56/1 and 56/2, Dholakuva, Gandhinagar. The brief facts relating to land and its dispute are summarized below form the order of AO 2.1. Shri Abhraji Ataji Thakor, Shri Baldevji Ataji Thakor, and Shri Ambaji Ataji Thakor (Thakor Brothers) were in possession of agricultural land situated at Survey Nos. 56/1 and 56/2, Dholakuva, Gandhinagar. These properties were inherited from their forefathers and used for agricultural purposes. The land was compulsorily acquired by the Government of Gujarat for the purpose of capital assets. The owners of the land were made to believe that after the acquisition, they would be granted compensation. However, as the compensation was not forthcoming, they filed a legal suit before the Hon ble High Court to obtain compensation for the land acquired by the Government of Gujarat. For filing this legal petition before the Hon ble High Court, Shri Abhraji Ataji Thakor, Shri Baldevji Ataji Thakor, and Shri Ambaji Ataji Thakor executed a Power of Attorney (POA) in favour of Shri Narsinh Shivsinh V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9% Interest (18/04/2002 to 17/04/2003) 8 49,89,125 40,73,457 90,62,582 15% Interest (18/04/2003 to 17/04/2005, 2 Years) 9 1,66,30,416 1,35,78,189 3,02,08,605 15% Interest (227 days, 18/04/2005 to 30/11/2005) 10 51,71,376 42,22,259 93,93,635 Total of Interest (9% + 15% + 15%) 11 2,67,90,917 2,18,73,905 4,86,64,822 Total Amount (Column 7 + 11) 12 8,22,25,640 6,71,34,537 14,93,60,177 2.2. The ownership dispute between the Thakor Brothers and Shri Ranjitsinh Narsinh Vaghela resulted in the compensation amount being deposited with the Principal Senior Civil Judge, Gandhinagar who in turn kept the amount in two fixed deposits of Rs. 8,22,25,640/- and Rs. 6,71,34,537/- on 19-09-2011. Later the court resolved the dispute and distributed the amounts kept in fixed deposits along with accrued interest among the parties. The amounts distributed by the court are: Amount Kept in FDs Rs. 8,22,25,640 6,71,34,537 14,93,60,177 Redemption Value of FDs Rs. 12,62,82,922 9,70,16,199 22,32,99,121 Interest Accrued and Received Rs. 4,40,57,282 2,98,81,662 7,39,38,944 2.3. The AO issued a show cause notice to the assessee, referring to the compensation received and the related interest component, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Movaliya Bhikhubhai Balabhai v. ITO (Special Civil Application No. 17944 of 2015): The Hon'ble Gujarat High Court held that interest on compensation awarded for land acquisition forms part of the compensation and is not subject to Tax Deducted at Source (TDS). Circular from Revenue Department of Gujarat State: The assessee furnished a copy of the circular issued by the Gujarat Revenue Department, which directed that no TDS should be deducted on interest paid on compensation as it forms a part of the compensation. 2.6. The assessee argued that the Fixed Deposits (FDs) in question were maintained in the name of the Hon'ble Civil Court and not directly by the assessee. The interest accrued was not a personal earning but was received by the assessee as part of the overall compensation after the conclusion of the court proceedings. The assessee cited Explanation to Section 10(37) of the Act to assert that the expression compensation or consideration includes any compensation or enhanced consideration awarded by any court, tribunal, or authority and stated that the interest awarded on delayed payment of compensation should be treated as part of the compensation ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of Section 10(37), which exempts capital gains arising from the compulsory acquisition of agricultural land, including any compensation or consideration enhanced by courts. However, the CIT(A) held that the interest on FDs made by the Civil Court does not qualify as compensation or enhanced consideration under the section's Explanation. The CIT(A) noted that the provisions of Sections 28 and 34 of the Land Acquisition Act, 1894, only apply to statutory interest paid on delayed compensation, not to interest earned on FDs. 4. Aggrieved by the order of CIT(A), the assessee is in appeal before us with following grounds of appeal: 1. In the facts and circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming initiation of re-assessment proceedings beyond the period of four years from the end of the assessment year. 2. On the facts and circumstances of the case as well on the subject, the learned CIT(A) has erred in confirming the action of Assessing Officer in continuing reassessment proceedings even when he has neither proposed any addition in show cause notice nor made any addition on the grounds stated in reasons recorded for re-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he three other co-owners when ideally it should have been paid directly to the assessee. Neither the ld. Counsel for the assessee nor the ld. DR had any clue or idea about the reason for doing so. This fact is very pertinent for determining the true nature of the amount received by the assessee in cash, since his contention is that the amount received by way of compensation and the interest accrued thereon also acquired the colour of compensation and hence If the amount the nature of compensation, then ideally the Principal Civil Judge should have given it, in the first place, directly to the correct owner identified. Therefore, this fact needs to be clarified before proceeding with the adjudication of the taxability of the interest portion of the amount received by the assessee in cash. Adjourned to 30th October, 2024 with the direction to both the parties to clarify the fact noted by us above. 4.2. First we deal with the grounds challenging the re-opening of the assessment u/s 147 5. During the course of hearing before us on 03-12-2024, the Authorized Representative (AR) of the assessee stated that the as per the reasons recorded for initiating the proceedings u/s 147 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that while the reasons for reopening referred to Rs. 4,32,36,000/-, the inquiry revealed that Rs. 7,11,37,986/- was interest income accrued on FDs created from the compensation amount. Since this discovery was directly linked to the reassessment inquiry, the addition was incidental to the primary reason and not a new issue unrelated to the recorded reasons. We are guided by the principle that the AO has the jurisdiction to reassess not only the income mentioned in the reasons recorded but also related components that emerge during the course of inquiry. We hold that the reassessment proceedings were validly initiated as the interest income of Rs. 7,11,37,986/- as added by the AO arose from the compensation-related inquiry. The failure of the assessee to file a return and disclose material facts justified the initiation of proceedings beyond four years. 7.1. Accordingly, both Ground Nos. 1 and 2 of appeal challenging the validity of the reassessment proceedings are dismissed. On the Grounds relating to Merits (Ground Nos. 3 and 4): 8. During the course of hearing before us, the AR explained the facts and circumstances and placed on records the copy of order of Revenue Department, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion such reconciliation provided by the assessee will have to be verified by the AO and commented upon therefore it will be fit to remand the matter back to the AO for fresh assessment after taking into consideration the reconciliation as provided by the assessee. The AR did not object to the same and stated that a specific direction may be given to the AO that if the interest is treated as taxable under Section 56, a deduction of 50% of the interest should be allowed under Section 57(iv) of the Act. 8.3. The DR placed on record the assessment order of the one of the original land owner Shri Baldevbhai Thakor (PAN: AKOPT 4919 K) who claimed exemption u/s 10(37) and interest received on fixed deposits amounting to Rs. 2,87,25,665/- was added as income from other sources u/s. 56 on protective basis. The DR stated that both the parties have claimed exemption u/s 10(37) of the Act, therefore it is important to reconcile the amounts and decide the nature of income in respective hands. 9. We have carefully considered the submissions of both the AR of the assessee and the DR, as well as the relevant records and orders of the AO and the CIT(A). The AR contended that the interest accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X
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