Krishnakan Sharma Vs ITO (ITAT Mumbai)
In a significant ruling for urban re-development projects, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has declared “hardship compensation” received by flat owners from developers as a capital receipt, thereby exempting it from income tax. The decision, pronounced on April 4, 2025, in the case of Krishnakan Sharma versus the Income Tax Officer (ITO), consolidates the tax position on such payments, which are common in Mumbai’s extensive re-development landscape.
The appeal by Krishnakan Sharma challenged an order from the National Faceless Appeal Centre, Delhi (CIT(A)), which had upheld the Assessing Officer’s (AO) decision to treat the hardship compensation as taxable income for the assessment years 2011-12 and 2012-13.
Procedural Hurdle and Condonation of Delay
At the outset, the ITAT addressed a procedural delay in filing the appeals. Krishnakan Sharma’s legal team submitted an affidavit explaining the delay, which the Tribunal, after careful consideration, decided to condone. Citing the established principle from the Hon’ble Supreme Court in Land Acquisition Collector Vs. Mst. Katiji & Ors., [1987] AIR 1353 (SC), the ITAT emphasized that “where substantial justice is pitted against technicalities of non-deliberate delay, then in that eventuality substantial justice is to be preferred.” The Tribunal deemed the assessee’s explanation justifiable and liberally construed the term “sufficient cause,” allowing the appeals to be heard on their merits.
