Mallikarjunaiah Adveeshaiah Hullukunte Vs ACIT (ITAT Bangalore)
Compulsory Acquisition Compensation – CBDT Circular 36/2016 Ignored – ITAT Restores Exemption Claim on Land Acquisition
Assessee had received ₹9.23 crore from Government of Karnataka towards acquisition of hotel land & building. He declared long-term capital gain of ₹1.65 crore after claiming deduction u/s 54D of ₹3.18 crore & further deduction of ₹1 crore towards construction of new property. AO disallowed the construction cost citing non-compliance with CGAS deposit requirement & non-completion of construction within 3 years. CIT(A) not only confirmed this view but also dismissed Assessee’s contention that compensation itself was exempt under RFCTLARR Act, 2013 & CBDT Circular 36/2016.
Before Tribunal, Assessee argued that compensation arising from compulsory acquisition under RFCTLARR Act is fully exempt, a position settled by CBDT Circular 36/2016 & multiple judicial precedents including Karnataka High Court in Vellara Francis Thomas (2024), Andhra Pradesh High Court in C. Nanda Kumar (2017), Kerala High Court in Viswanathan M. (2020), & ITAT Bangalore in Raghu Belagodu (HUF) (2024). It was submitted that proof of acquisition under RFCTLARR Act had already been filed on 08.08.2023, but NFAC ignored it.
Tribunal observed that both AO & CIT(A) failed to properly examine the exemption claim under RFCTLARR Act. NFAC, despite holding several hearings, summarily rejected the claim for want of proof without verifying documents placed on record. Tribunal held that in such cases, a fresh factual verification of acquisition proceedings, applicability of RFCTLARR Act,& impact of CBDT Circular 36/2016 was essential. It also directed reconsideration of Assessee’s alternative claim of deduction u/s 54D, which had been disallowed on procedural grounds.
