2025 (5) TMI 2133 - AT - Income Tax

Addition on account of interest received u/s 28 of the Land Acquisition Act 1894 on the enhanced compensation received towards compulsory acquisition of agricultural land - as submitted on behalf of the assessee that he received interest on enhanced compensation u/s 34 of the Land Acquisition Act, 1894 HELD THAT - On consideration of the material placed on record and the legal position we are of the view that the nature of the interest and rival contention requires factual verification. We accordingly deem fit to restore this issue to the file of the AO for proper verification of the facts and re-computation in accordance with law. Hence this ground is allowed in above terms for statistical purpose. Deduction claimed u/s 80GGB towards political contributions - On perusal of the provisions of Section 80GGB of the Act and the amendments to Section 182 of the Companies Act 2013 we find merit in the submission of the assessee. In view of the above and to meet the ends of justice we restore this issue to the file of the Ld. AO for purpose of verification of the political contribution made and thereafter to recompute/recalculate the allowable deduction u/s 80GGB of the Act in accordance with prevailing law. Restore the issue to the file of the Ld. Assessing Officer for appropriate verification and re-computation of income.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal include:

(a) Whether the disallowance and addition of enhanced compensation received on compulsory acquisition of agricultural land, made under section 143(1) of the Income Tax Act, was justified, particularly when the assessee claimed the amount as exempt income but it was erroneously classified under other heads of income.

(b) Whether the enhanced compensation amounting to Rs. 2,54,64,942/- should be treated as business income or exempt income.

(c) Whether the addition of Rs. 47,46,537/- on account of interest received on enhanced compensation under section 56 was justified.

(d) Whether the restriction of deduction under section 80GGB of the Income Tax Act to 7.5% of average net profits of the preceding three financial years was legally sustainable, considering the amendments made by the Finance Act, 2017 to section 182 of the Companies Act, 2013.

(e) Whether the provisions of the Companies Act, 2013 can be invoked to restrict deductions under the Income Tax Act, and the legality of such disallowance.

(f) Whether the levy of interest under sections 234B and 234C was justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a), (b), and (c): Disallowance and classification of enhanced compensation received on compulsory acquisition of agricultural land

Legal Framework and Precedents: The Income Tax Act provides that certain compensation received on compulsory acquisition of agricultural land is exempt from tax. Section 143(1) pertains to summary assessment and processing of returns, and disallowance under this section is limited to certain prescribed circumstances. The classification of income under correct heads is essential for accurate tax computation.

Court's Interpretation and Reasoning: The Tribunal observed that the assessee had claimed the enhanced compensation as exempt income in the return but due to a clerical and inadvertent error, the amount was recorded under "Income/receipts credited to profit and loss account considered under other heads of income (other sources)" instead of the correct exempt income head. Consequently, the Central Processing Centre (CPC) disallowed the exemption under section 143(1) and added the compensation to total income.

The Tribunal found merit in the assessee's submission that the disallowance under section 143(1) was not justified as the issue was beyond the scope of summary assessment under this section. The Tribunal emphasized that the error was inadvertent and clerical, and the enhanced compensation was rightly exempt under the law.

Key Evidence and Findings: The assessee's return, the classification of income heads, and the CPC's disallowance under section 143(1) were examined. The assessee's written submissions and the relevant pages of the paper book were considered.

Application of Law to Facts: The Tribunal applied the principle that disallowance under section 143(1) is limited and that the enhanced compensation, being exempt, should not have been added to income due to a clerical error. The matter was remitted to the Assessing Officer (AO) for recomputation of income after correcting the classification.

Treatment of Competing Arguments: The Revenue's stand on sustaining the disallowance was rejected as it failed to appreciate the nature of the error and the exemption claim. The Tribunal sided with the assessee's contention.

Conclusion: The Tribunal disposed of issues relating to disallowance under section 143(1) and classification of enhanced compensation as exempt income by remitting the matter to the AO for recomputation.

Issue (d) and (e): Restriction of deduction under section 80GGB for political contributions

Legal Framework and Precedents: Section 80GGB of the Income Tax Act allows deductions for political contributions made by companies. Earlier, section 182 of the Companies Act, 2013 imposed a restriction limiting political contributions to 7.5% of the average net profits of the preceding three financial years. However, the Finance Act, 2017 deleted this restriction effective from 31.03.2017.

Court's Interpretation and Reasoning: The Tribunal noted that the AO and CIT(A) had restricted the deduction under section 80GGB to 7.5% of average net profits, relying on the erstwhile section 182 restriction. The assessee contended that the restriction was no longer applicable due to the 2017 amendment.

The Tribunal agreed with the assessee's submission that the deletion of the first proviso to section 182 of the Companies Act removed the 7.5% cap on political contributions. Therefore, the restriction applied by the AO and CIT(A) was incorrect.

Key Evidence and Findings: The Tribunal examined the amendment made by the Finance Act, 2017 and the corresponding provisions of the Companies Act and Income Tax Act.

Application of Law to Facts: The Tribunal restored the issue to the AO for verification of the political contribution and recomputation of the allowable deduction under section 80GGB in accordance with the amended law.

Treatment of Competing Arguments: The Revenue's reliance on the earlier restriction was rejected in light of the legislative amendment.

Conclusion: The Tribunal allowed the assessee's contention and remitted the matter for recomputation without the 7.5% restriction.

Issue (c): Addition of interest income on enhanced compensation under section 56

Legal Framework and Precedents: Section 56 of the Income Tax Act deals with income from other sources. Interest received on compensation under the Land Acquisition Act, 1894, particularly under sections 28 and 34, may have specific tax treatment depending on its nature.

Court's Interpretation and Reasoning: The AO made an addition of Rs. 47,46,537/- being 50% of the interest received on enhanced compensation under section 56. The assessee submitted that the interest income had been duly offered to tax to the extent applicable and that the addition was unwarranted.

The Tribunal found that the nature of the interest and the rival contentions required factual verification. It observed that the CIT(A) upheld the addition without proper verification of facts and appreciation of the nature of interest under the Land Acquisition Act.

Key Evidence and Findings: The Tribunal considered the assessee's claim of having offered the interest income to tax and the AO's addition.

Application of Law to Facts: Given the factual disputes, the Tribunal restored the issue to the AO for proper verification and recomputation in accordance with law.

Treatment of Competing Arguments: The Tribunal did not accept the CIT(A)'s confirmation of the addition without proper factual scrutiny and allowed the assessee's plea for reconsideration.

Conclusion: The issue was restored for factual verification and recomputation.

Issue (f): Levy of interest under sections 234B and 234C

Legal Framework and Precedents: Sections 234B and 234C of the Income Tax Act pertain to interest for default in payment of advance tax and deferment of advance tax installments.

Court's Interpretation and Reasoning: The assessee challenged the levy of excess interest under these sections. The Tribunal did not elaborate extensively on this issue but included it in the grounds raised.

Key Evidence and Findings: No detailed findings were recorded in the judgment on this issue.

Application of Law to Facts: The Tribunal's order primarily focused on other issues and did not specifically address this ground.

Treatment of Competing Arguments: Not applicable due to lack of detailed treatment.

Conclusion: No specific determination recorded on this issue in the present order.

3. SIGNIFICANT HOLDINGS

"We find material substance in the submissions on behalf of the assessee and remit back this issue to the Ld. AO to recompute the total income of the assessee as above."

This statement encapsulates the Tribunal's approach to the disallowance under section 143(1) and classification of enhanced compensation as exempt income, emphasizing correction of clerical errors and adherence to proper income classification.

"In view of the above and to meet the ends of justice, we restore this issue to the file of the Ld. AO for purpose of verification of the political contribution made, and thereafter to recompute/recalculate the allowable deduction u/s 80GGB of the Act in accordance with prevailing law."

This pronouncement establishes the principle that legislative amendments must be duly considered in tax assessments and that outdated restrictions cannot be imposed post amendment.

"On consideration of the material placed on record and the legal position, we are of the view that the nature of the interest and rival contention requires factual verification. We, accordingly, deem fit to restore this issue to the file of the Ld. Assessing Officer for proper verification of the facts and re-computation, in accordance with law."

This holding underscores the necessity for factual scrutiny in tax matters involving complex income components, particularly interest under special statutes.

Overall, the Tribunal's final determinations directed the Assessing Officer to:

• Recompute total income by correctly classifying enhanced compensation as exempt income and not under other heads.
• Verify and recompute the allowable deduction under section 80GGB without applying the now-deleted 7.5% restriction.
• Verify the nature and taxability of interest income on enhanced compensation and recompute accordingly.
• Provide effective opportunity of hearing and allow submission of relevant documents by the assessee.