Mansukhbhai Kanjibhai Sakariya Vs PCIT (ITAT Rajkot)
Interest on Enhanced Compensation is Part of Compensation, Not Taxable u/s 56- ITAT Rajkot Quashes PCIT’s 263 Order
Assessee, an individual, filed return declaring income of Rs. 10.26 lakh. He had received 25% share of enhanced compensation including interest u/s 28 of the Land Acquisition Act aggregating Rs. 2.69 crore on compulsory acquisition of ancestral agricultural land. AO completed reassessment u/s 147 r.w.s. 144B on 28.03.2022 accepting returned income, after examining submissions & relying on Gujarat High Court ruling in Movaliya Bhikhubhai Balabhai. AO held that interest u/s 28 forms part of compensation for acquisition of agricultural land, which being rural agricultural land, is not a capital asset u/s 2(14).
PCIT, however, held that AO failed to add Rs. 23.70 lakh being Assessee’s share of interest, which according to him was taxable u/s 56(2)(viii) as income from other sources. Relying on Punjab & Haryana High Court ruling in Manjeet Singh (HUF), PCIT set aside assessment as erroneous & prejudicial to Revenue & directed AO to pass fresh assessment.
Before Tribunal, Assessee argued that AO had already made detailed inquiries u/s 142(1) & considered binding Gujarat High Court ruling in Movaliya Bhikhubhai Balabhai v. ITO (388 ITR 343) holding that interest u/s 28 is part of compensation. It was pointed out that entire interest had already been taxed substantively & protectively in hands of his co-owner brother Babubhai K. Sakariya, hence any further addition in his case would lead to double taxation. Assessee also relied on Supreme Court rulings in Ghanshyam (HUF) & Union of India v. Hari Singh, where it was held that interest u/s 28 is accretion to compensation & not taxable separately u/s 56.
