Pace Buildcon Private Limited Vs Ward- 19 (3) (ITAT Delhi)
Rural Agricultural Land, Enhanced Compensation &; Stock-in-Trade – ITAT Orders Fresh Look at Taxability u/s 2(14) &; 56 as Crucial Land Records Were Ignored
Summary:
The Delhi ITAT dealt with an interesting controversy concerning taxation of enhanced compensation received on compulsory acquisition of rural agricultural land & profit arising from sale of such land. The assessee contended that the land was rural agricultural land falling outside the definition of “capital asset” u/s 2(14) & that the authorities had proceeded to tax substantial amounts without properly considering Government certificates, revenue records, sale deeds & other evidence. Finding merit in the grievance regarding violation of natural justice, the ITAT restored the entire matter to the AO for fresh consideration.
The twin additions
The first controversy related to ₹37,64,978 received as enhanced compensation on compulsory acquisition of agricultural land by the Government of Haryana.
The assessee challenged its taxation by contending that the land compulsorily acquired was rural agricultural land & therefore not a capital asset u/s 2(14). Consequently, according to the assessee, no capital gains arose & the compensation/enhanced compensation itself fell outside the charging provisions.
Interestingly, the assessee also specifically contended that it had never claimed exemption u/s 10(37). Its case was more fundamental—the receipt was not taxable in the first place because the underlying rural agricultural land was outside the definition of capital asset.
