Compensation from Goa Government for cancellation of plot is capital receipt

PCIT Vs Pawa Infrastructure (P) Ltd (Delhi High Court)

Delhi High Court held that compensation received from Government of Goa on cancellation of plot is capital receipt and hence not taxable.

Facts- After perusing the assessment order, PCIT held it to be erroneous and concluded there was underassessment of income of the Assessee and consequently, issued a Show Cause Notice (‘SCN’) dated 29th January, 2018, u/s. 263 of the Act, directing the Assessee to show cause as to why an order may not be passed against it.

The PCIT, after considering the Assessee’s reply, passed its order dated 27th March, 2018, setting aside the assessment order passed by the AO by holding it to be erroneous and prejudicial to the interest of Revenue and further directed the AO to pass a fresh assessment order, with a direction to bear in mind that the Assessee had wrongly treated the property in question as its Capital Asset and that the claim of indexation cost of the property cannot be allowed.

The Assessee being aggrieved by the PCIT’s order dated 27th March, 2018, filed an appeal before the ITAT, wherein the ITAT vide its impugned order dated 5th January, 2022, allowed the Assessee’s appeal by holding that the compensation received for cancellation of the plot to be in the nature of a capital receipt and not a revenue receipt.

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