Flat Allotment as Nuisance Compensation Is Capital Receipt, Not Taxable

Mohammed Fakhre Alam Shaikh Vs Assessing Officer (ITAT Mumbai)

In the case Mohammed Fakhre Alam Shaikh vs. Assessing Officer, the Income Tax Appellate Tribunal (ITAT), Mumbai, overturned the orders of the lower authorities and ruled in favour of the assessee for the assessment year 2016–17. The appeal challenged the additions made under Section 56(2)(vii)(b) of the Income Tax Act, 1961, and the denial of deduction under Section 54F, concerning a flat worth ₹2.59 crore received by the assessee from a builder as part of a court settlement. Also Read: Construction Inconvenience compensation is Capital Receipt: ITAT Mumbai

The assessee, an individual, had filed a return declaring ₹11.04 lakhs. However, based on AIR information, the Assessing Officer (AO) discovered a property transaction worth ₹2.59 crore, which the assessee had not disclosed. Upon inquiry, the assessee explained that he had occupied land in Tardeo, Mumbai, which was later developed by Neel Kamal Realtors and Builders Pvt. Ltd. As part of the redevelopment, he surrendered his rights and was allotted a flat in “Orchid Enclave.” The AO, however, deemed the occupation illegal and treated the value of the flat as income under Section 56(2)(vii)(b), denying the assessee’s claim for exemption under Section 54F.