2024 (11) TMI 1461 - AT - Income Tax

Revision u/s 263 - Interest received u/s 28 of Land Acquisition Act - contention of the Assessee has been wrongly accepted by the AO and the interest received u/s 28 of the Land Acquisition Act was wrongly allowed as exempt u/s 10(37) of the Income Tax Act whereas it was chargeable to tax under the head Income from other sources - HELD THAT - As assessment proceedings initiated u/s 147/148 of the Act the A.O. has already examined the issue of interest received by the Assessee on the enhanced compensation under the Land Acquisition Act. Therefore it is not a case wherein the AO failed to conduct enquiry rather it is the case where the Assessing Officer has conducted an enquiry and adopted one of the two views which was plausible view. The question would be as to whether in such circumstances the power u/s 263 of the Act would be invoked by the PCIT or not? . The above said question is no longer res integra and the said issue is well settled in several decisions. See Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT phrase prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. Even in the present case whether the receipt of interest related to the additional compensation granted under Land Acquisition Act 1894 is a part of exempt u/s 10 (37) of the Act or not is a debatable issue therefore we are of the considered opinion that the impugned order of the PCIT is found to be erroneous accordingly order impugned of the Ld. PCIT is hereby quashed. Appeal filed by the Assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 of the Income Tax Act, 1961, setting aside the assessment order passed by the Assessing Officer (AO) was valid and within jurisdiction.

(b) Whether the assessment order passed by the AO was erroneous and prejudicial to the interest of the Revenue as required cumulatively under section 263 of the Act.

(c) Whether the receipt of interest on compensation/enhanced compensation under section 28 of the Land Acquisition Act is taxable or exempt under section 10(37) of the Income Tax Act.

(d) Whether the PCIT was justified in invoking explanation 2(d) of section 263 of the Act to revise the assessment order.

(e) Whether the judicial precedents relied upon by the AO in accepting the exemption claim were correctly applied and whether the rejection of Special Leave Petition (SLP) by the Supreme Court without a speaking order could be treated as conclusive.

(f) Whether the issue of taxability of interest under the Land Acquisition Act is a debatable issue, thereby ousting the revisional jurisdiction under section 263 of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Validity of PCIT's Order under Section 263 and Whether the Assessment Order was Erroneous and Prejudicial to Revenue

The legal framework governing revision under section 263 mandates that the PCIT can revise an assessment order only if it is both erroneous and prejudicial to the interest of the Revenue. The Tribunal examined the twin conditions cumulatively.

The AO had reopened the assessment under section 148 after noticing receipt of interest on compensation under the Land Acquisition Act. The AO considered the assessee's submissions supported by judicial precedents and accepted the claim that the interest received was exempt under section 10(37). The PCIT, however, set aside the assessment order, holding it erroneous and prejudicial to Revenue.

The Tribunal relied on the Supreme Court decision in Malabar Industrial Co. Ltd. vs. CIT, which clarified that "every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue." The Court emphasized that where two views are possible and the AO adopts a plausible view, the order cannot be regarded as erroneous prejudicial to Revenue unless the view is unsustainable in law.

Applying this principle, the Tribunal held that the AO had conducted a full enquiry and adopted one of the plausible views. Therefore, the PCIT's order was not justified in revising the assessment under section 263.

Issue (c): Taxability of Interest Received under Section 28 of the Land Acquisition Act

The key question was whether the interest received on enhanced compensation under the Land Acquisition Act is taxable or exempt. The assessee contended it was exempt under section 10(37), which exempts compensation on compulsory acquisition of agricultural land.

The AO accepted this contention relying on several judicial precedents, including:

• CIT vs. Ghanshyam HUF (2009)
• CIT vs. Govindbhai Mamaiya (2014)
• State of Punjab vs. Amarjit Singh (2011)
• Other Supreme Court decisions on similar issues

The Department argued that these precedents were rendered before the introduction of sections 56(2)(viii), 57(iv), and 145A(b) by the Finance Act 2009 effective from 01/04/2010, which changed the tax treatment. They contended the interest should be taxable under "Income from Other Sources."

The Tribunal observed that this issue was debatable, with two plausible views. The AO's acceptance of the exemption claim was a reasonable exercise of discretion supported by judicial decisions. Hence, the AO's view was sustainable in law.

Issue (d): Invocation of Explanation 2(d) of Section 263

Explanation 2(d) to section 263 relates to situations where the AO has failed to make inquiries or verify facts fully. The PCIT invoked this explanation to set aside the assessment order.

The Tribunal noted that the AO had indeed conducted a thorough enquiry, issued notices under section 148 and 142(1), considered the assessee's submissions and judicial precedents, and passed the order accordingly. Therefore, invoking explanation 2(d) was unwarranted.

Issue (e): Reliance on Punjab & Haryana High Court Judgment and the Effect of SLP Rejection

The PCIT relied on the Punjab & Haryana High Court judgment in Mahender Pal Narang vs. CBDT, noting that the Supreme Court had rejected the SLP against it. The assessee argued that the rejection of SLP without a speaking order cannot be treated as the Supreme Court's confirmation of the High Court's decision.

The Tribunal acknowledged this settled legal position that a non-speaking order rejecting SLP does not constitute binding precedent. Hence, the PCIT's reliance on this ground was misplaced.

Issue (f): Whether the Taxability Issue is Debatable and Revisional Jurisdiction is Ousted

The Tribunal emphasized that where the AO adopts one of two plausible views after due enquiry, the issue is debatable and the revisional jurisdiction under section 263 should not be exercised. The Tribunal cited the Supreme Court's recent affirmation in Pr. CIT vs. Canara Bank Securities Ltd. that the Commissioner cannot interfere with a plausible view taken by the AO on a debatable issue.

The Tribunal held that the taxability of interest under the Land Acquisition Act is such a debatable issue and the AO's order was a plausible view. Therefore, the PCIT's revision order was not sustainable.

3. SIGNIFICANT HOLDINGS

"The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law." (Malabar Industrial Co. Ltd. vs. CIT)

"Where the Assessing Officer has conducted an enquiry and adopted one of the two views which was a plausible view, the revisional power under section 263 cannot be exercised merely because the Commissioner has a different opinion."

"Rejection of Special Leave Petition by the Supreme Court without a speaking order cannot be treated as confirmation of the High Court's decision."

"The taxability of interest received under section 28 of the Land Acquisition Act as exempt under section 10(37) of the Income Tax Act is a debatable issue on which two views are possible."

Final determinations:

• The PCIT's order under section 263 was without jurisdiction, bad in law, and void-ab-initio.
• The assessment order passed by the AO was neither erroneous nor prejudicial to the interest of Revenue.
• The AO's acceptance of exemption under section 10(37) for interest received on enhanced compensation under the Land Acquisition Act was a plausible view supported by judicial precedents.
• The revisional jurisdiction under section 263 could not be invoked merely because the PCIT had a different opinion.
• The appeal filed by the assessee was allowed, and the PCIT's revision order was quashed.