Suresh Kumar Vs ITO (ITAT Chandigarh)
ITAT Chandigarh Quashes Reopening on Land Acquisition Compensation: Interest u/s 28 Treated as Part of Compensation, Not Taxable as Income from Other Sources
The Chandigarh Bench of the ITAT allowed the assessee’s appeal for AY 2015-16 and quashed the reassessment initiated under section 147, holding that the Assessing Officer had no valid “reason to believe” that income had escaped assessment. The reopening was based on the receipt of enhanced compensation and interest under section 28 of the Land Acquisition Act, 1894, which the AO sought to tax as income.
While rejecting the assessee’s technical challenge to sanction under section 151 (holding that the approval stating “Satisfied it is a fit case” was valid in light of later judicial precedents), the Tribunal examined the issue on merits and found that the AO had fundamentally misapplied the law. Relying extensively on the Supreme Court judgment in CIT v. Ghanshyam (HUF), the Tribunal reiterated that interest awarded under section 28 of the Land Acquisition Act is an accretion to the value of land and forms part of enhanced compensation, unlike interest under section 34 which is for delay in payment. Such interest cannot be assessed as “income from other sources.”
The Tribunal further held that enhanced compensation (including section 28 interest) is taxable, if at all, only as capital gains in the year of receipt under section 45(5), and in the case of compulsory acquisition of agricultural land, exemption under section 10(37) applies where statutory conditions are fulfilled. Since the AO proceeded on an incorrect understanding of law and treated section 28 interest as taxable income, there was no tangible material to justify reopening. Consequently, the reassessment proceedings were held to be without jurisdiction and were quashed, rendering the addition of ₹2.06 crore unsustainable.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
