TMI Blog2003 (7) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and there were similar search carried out in the case of Lalwani Group. The assessee was a person belonging to the said group. In the course of search, certain assets were found namely gold ornaments, silver utensils, National Saving Certificates, furniture, investment in sony music system, shares etc. In the block assessment proceedings, the assessee filed a return of income declaring undisclosed income of Rs. 12,64,075. The AO completed the block assessment by accepting the income returned by the assessee. 5. One of the issue that came up for consideration in the course of block assessment proceedings and which is the main issue that arises for consideration in this appeal was the question of taxability of enhanced compensation which the assessee received in respect of compulsory acquisition of his agriculture lands. The assessee owned lands to the extent of 8 hectors and 72R in Survey No. 383 at Manmad, Nashik Dt. This land was acquired by the special land acquisition officer, Nashik vide notification dt. 26th March, 1981. The possession of the land was taken on 26th Sept., 1983 by invoking the urgency clause. A sum of Rs. 1,74,400 was paid on 12th Dec., 1983 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of July, 1997 and had utilized the amount so received in his regular business. He therefore concluded that taxability of capital gains will have to be examined only in the regular assessment for asst. yr. 1998-99. He therefore held that the issue of capital gain will not be considered in the assessment for the block period. The AO accordingly completed the block assessment by his order dt. 29th March, 2000 accepting the return of income for the block period filed by the assessee without making any additions whatsoever. 7. The AO issued notice under s. 147 for the asst. yr. 1998-99, in the case of the assessee. The said notice was issued for the purpose of taxing enhanced compensation which the assessee had received in the previous year. According to the AO, in the course of block assessment proceedings it had come to his notice that the assessee had received enhanced compensation in respect of compulsory acquisition of his land at Manmad and the said capital gain was a long-term capital gain assessable to tax for asst. yr. 1998-99. Since the assessee did not file any return of income in this regard, notice under s. 147 was issued to tax the income that had escaped assessment. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition while arriving at the taxable long-term capital gain. According to the provisions of s. 45(5) in the case of enhanced compensation the deduction to be given in respect of cost of acquisition was NIL (nothing was to be deducted towards cost of acquisition). It is worthwhile to mention that this order of assessment was subject-matter of appeal preferred by the assessee before the CIT(A)-II, Nashik and the CIT, Nashik by his order dt. 20th Dec., 2001, held that the enhanced compensation received by the assessee cannot be subjected to tax in the asst. yr. 1998-99. In coming to the above conclusion, the CIT(A)-II, Nashik followed the decision of Pune, Delhi and Bombay Benches of the Tribunal. Thus the appeal of the assessee was allowed holding that the amount withdrawn by the assessee from Court and being the part of the enhanced compensation awarded by the Jt. District Judge, Nashik cannot be subjected to tax till the litigation attains it s finality. 8. In the light of the above facts, the CIT-II, Nashik in exercise of his powers under s. 263 issued a show-cause notice on 7th Jan., 2002, which was a combined show-cause notice in respect of the order of assessment for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod, the CIT has pointed out that there were basically three errors in the orders of the AO which were as follows: (a) enhanced compensation received by the assessee during the previous year relevant to asst. yr. 1989-90 which was part of the block period was not considered as undisclosed income. (b) the interest on enhanced compensation awarded by the Court was to be considered as accrued to the assessee and taxed for the period comprised in the block period as undisclosed income on accrual basis from year to year. (c) the AO failed to carry out necessary enquiry and verification regarding agricultural income, income from house property disclosed in respect of the various previous years comprised in the block period, the details of which were filed by the assessee alongwith the return of income filed for the block period. 11. The reply of the assessee in respect of the order of assessment for the block period was as follows: (a) That the assessee had withdrawn money from Court only on furnishing the security. In the event of Hon ble High Court reversing the order of Jt. District Judge, Nashik, the money will have to be refunded and the question of taxing the said receip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B(1)(c) in this regard. According to the CIT, the income from capital gains if it had been considered in the block period would have been subjected to tax at higher rate of tax than the rate of tax applicable in the assessment made under s. 143(3) and there is therefore loss to the Revenue. (2) The CIT further held that the crux of the assessee s argument was that where enhanced compensation is subjected to appeal before an appellate forum and since the dispute has not attained its finality, the amount received by the assessee cannot be said to be compensation received and in making the above submission the assessee had placed reliance on the decision of the Hon ble Supreme Court in the case of CIT vs. Hindustan Housing Land Development Trust Corpn.. He held that the decision of the Hon ble Supreme Court and the decisions of the Tribunal on which the assessee placed reliance will not be applicable to the present case. The conclusions of the CIT in this regard can be divided into three parts. In the first part the CIT discussed various rules of statutory interpretation and finally came to the conclusion that the amendment made to the provisions of s. 45(5) clearly contemplate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as undisclosed income of the assessee for block period. The order of the AO was thus held to be erroneous and prejudicial to the interest of the Revenue. (3) For similar reasons he also held that interest on enhanced compensation which was also referred to in the show-cause notice issued under s. 263 was to be taxed on year to year basis spread over the various assessment years included in the block period. Since there was no mention about the interest on enhanced compensation in the order of assessment, the CIT directed the AO to compute interest accrued to the assessee on the enhanced compensation from year to year for the whole block period and include the same in the total undisclosed income of the assessee. The order of the AO was thus held to be erroneous and prejudicial to the interest of the Revenue. (4) The returns for the asst. yrs. 1992-93 to 1998-99 had not been filed by the assessee. The income in respect of this period was accepted by the AO without verifying and applying his mind with regard to income from agriculture disclosed by the assessee or income from house property disclosed by the assessee. The order of assessment without enquiry in respect of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised in the block period as undisclosed income on accrual basis from year to year and on these grounds directing the AO to treat the aforesaid incomes as undisclosed income for the block period? If enhanced compensation received by the assessee by virtue of interim order of the Hon ble High Court pending disposal of the appeal by the State Government on furnishing of personal bond security, cannot be considered as income in the hands of the assessee on the ground that the proceedings relating to grant of the same have not attained finality in view of the appeal by the State Government before the Hon ble High Court, then the question of taxing the interest awarded on enhanced compensation will assume the same character as that of enhanced compensation and therefore the same would not be income in the hands of the assessee. The answer to part (a) and (b) of the above question would therefore depend on the following question: 2. Whether the enhanced compensation received by the assessee was taxable in the hands of the assessee as income despite the fact that the quantum of enhanced compensation awarded is subject-matter of proceedings before the appellate forum by the State Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee and whether the same would be considered as income which can be subjected to tax. This will necessarily take us to the provisions of the IT Act, 1961 as well as the decisions of the Hon ble Supreme Court and Hon ble High Courts on this issue. 17. Provisions of s. 45 (in so far as they are relevant for the purpose of the present case) which is the charging section as far as charge to tax on capital gains reads as follows: Capital gains: Sec. 45: (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in s. 54 be chargeable to income tax under the head capital gains , and shall be deemed to be the income of the previous year in which the transfer took place. (5) Notwithstanding anything contained in sub-s. (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any Court, Tribunal or other au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of dealing in land and maintained its accounts on the mercantile system, were first requisitioned and then compulsorily acquired by the State Government. The Land Acquisition Officer awarded a sum of Rs, 24,97,249 as compensation. On an appeal preferred by the respondent-company, the arbitrator made an award dt. 29th July, 1955, fixing the compensation at Rs. 30,10,873 and directing payment of interest of 5 per cent from the date of acquisition. The arbitrator also awarded an annual sum for the period of requisition. Thereupon, the State Government preferred an appeal to the High Court. Pending the appeal, the State Government deposited in the Court Rs. 7,36,691 being the additional amount payable under the award on 25th April, 1956, and the respondent was permitted to withdraw that amount on 9th May, 1956, only on furnishing a security bond for refunding the amount in the event of the appeal being allowed. On receiving the amount, the respondent credited it in its suspense account on the same date. The question was whether a sum of Rs. 7,24,914 (the balance having been already taxed) could be taxed as the income of the respondent for the asst. yr. 1956-57 on the ground t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the controversy. The short question which requires to be determined is as to whether under provisions of s. 45(5) of the IT Act, the amount received by the assessee during the previous year relevant to the assessment year under appeal, can be brought to the charge of tax by way of capital gains for this assessment year. The relevant provisions of s. 45(5) read as under: (6) Notwithstanding anything contained in sub-s. (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any Court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely: (a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head capital gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be two situations, first, wherein the assessee has received the enhanced compensation against which the Government is not in appeal and second, in which the Government is aggrieved against the enhancement and has filed an appeal against the said enhancement. The second category of receipt does not mean receiving compensation within the meaning of s. 45(5) for the reason that if the Government succeeded before the High Court, the assessee could become liable to refund the amount already received. Had there been the situation in which the assessee after receiving enhanced compensation, agitates for further enhancement for which the Government does not make any counterclaim for the reduction in the already enhanced compensation, then the provisions of s. 45(5) would have been clearly attracted. But, in the instant case, the Government came up in appeal against the enhancement made by the Distt. Judge, thus, jeopardizing the enhancement. The fate of the enhancement already received by the assessee got disturbed, the finality in respect of which became dependent on the outcome of the final judicial pronouncement. Till then it could not be said that the assessee had received the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fallen altogether. The extra amount of compensation of Rs. 7,24,914 was not income arising or accruing to the respondent during the previous year relevant to the asst. yr. 1956-57. The crux of this Supreme Court decision as also the Bombay High Court in CIT vs. Shah Constructions Co. Ltd. (1999) 153 CTR (Bom) 160: (1999) 237 ITR 814 (Bom) and Tribunal Delhi Bench (2001) 79 ITD 455 (Del) is that if the enhanced compensation is not accepted by the Government, even though the amount to be paid on furnishing of adequate security and without manipulation that such amount would be returnable, it cannot be said that such payment is in the nature of income of compensation assessable to charge of tax. The Andhra Pradesh High Court decision in CIT vs. Smt. M. Sarojini Devi (2001) 250 ITR 759 (AP) relied upon by the learned CIT(DR) is not of much held as the issue was totally different. After considering the entire facts and circumstances, we find ourselves in agreement with the view taken by the Tribunal, Delhi Bench in the case of Smt. Gulabsundri Bapna. Accordingly, we hold that the amount paid to the assessee was not in the nature of compensation actually received within the meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text of the method of accounting employed by the assessee in that case and since the assessee followed a mercantile system of accounting the amount was held to be not taxable till finality of the proceedings relating to grant of enhanced compensation. The further submission of the Revenue in this regard is that the provisions of s. 45(5) overrides the method of accounting employed by an assessee and deems as income the very receipt of enhanced compensation irrespective of the method of accounting employed by the assessee. We may at this juncture point out that we are unable to agree with such a submission. The provisions of s. 43-B, which provide for allowing certain deductions only on payment start with a non obstante clause., notwithstanding anything contained in any other provisions of the Act . Even provisions of s. 145 dealing with method of accounting is by implication overridden. The provisions of s. 43-B are a departure from the method of accounting employed by the assessee and certain statutory payments are allowed only on actual payment irrespective of the method of accounting employed by the assessee. The provisions of s. 43-B are very specific that irrespective of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the amount should be received as compensation without there being a dispute by way of appeal challenging the same is a requirement even under the provisions of s. 45(5). The purpose of introducing the provisions of s. 45(5) is to enable taxing of enhanced compensation in the year of its receipt without there being any dispute about the enhanced compensation. The legislature if it wanted that enhanced compensation received by the assessee were also to be taxed in the year of its receipt irrespective of the challenge to the same in an appeal before a higher forum, it would have certainly used an expression, irrespective of its challenge before a higher forum by the authority paying the enhanced compensation' be taxed on receipt basis. The legislature while enacting s. 45(5) is deemed to have knowledge of the judicial decision of the Hon ble Supreme Court in Hindustan Housing s case and yet thought it fit not to make such a provision in s. 45(5). This can lead to only one conclusion that it is not any amount received by the assessee that is liable to be taxed as income in his hands but only enhanced compensation in the sense enhanced compensation the adjudication of which had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on furnishing security. Although an Act styled, the Madras Agriculturists Relief Act, 1948 was passed on 22nd March of that year wherein provision was made for giving relief to agriculturist debtors, inter alia, by scaling down decrees passed against them, no attempt was made by the defendants to take advantage thereof either in the trial Court or before the Court of appeal. On execution proceedings being commenced, the judgment-debtors filed an application under the aforesaid Act for scaling down the decree under s. 19(2) thereof. It was argued that as the full amount of the decree had been put in Court before 1948, the judgment-debtors could not apply for scaling down thereafter. The Hon ble Supreme Court explained the position with regard to the money deposited in Court pending determination of dispute as follows: "On principle, it appears to us that the facts of a judgment-debtor s depositing a sum in Court to purchase peace by way of stay of execution of the decree on terms that the decree-holder can draw it out on furnishing security, does not pass title to the money to the decree-holder. He can, if he likes, take the money out in terms of the order, but so long as he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he determination of like cases in the future and so contribute to the material content of the legal system. Adherence to precedent is necessary if litigants are to have faith in the evenhanded administration of justice and the legal system is to attain any degree of certainty. Blackstone says: For it is an established rule to abide by former precedents, where the same points come again in litigation: as well as to keep the scale of justice even and steady and not liable to waver with every new Judge s opinion, as also because the law in that case being solemnly declared and determined, what before was uncertain and perhaps indifferent, is now become a permanent rule, which it is not in the breast of any subsequent Judge to alter or vary from, according to his private sentiment..... 29. Precedents are authoritative or persuasive. It is persuasive when it has only persuasive efficacy. It is entitled to high respect, but will be followed by a Court only if its reasoning commends itself to that Court as sound, cogent and flawless. In India, the decision of one High Court are only persuasive precedents in the other High Court. A precedent is said to be authoritative when the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of the Collector (A) and the other of the Tribunal. The High Court has, in our view, rightly criticized this conduct of the Asstt. Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. The impression or anxiety of the Asstt. Collector that, if he accepted the assessee s contention, the Department would lose Revenue and would also have no remedy to have the matter rectified is also incorrect. Sec. 35E confers adequate powers on the Department in this regard. In the light of these amended provisions, there can be no justification for any Asstt. Collector or Collector refusing to follow the order of the Appellate Collector or the Tribunal, as the case may be, even where he may have some reservations on its correctness. He has to follow the order of the higher appellate authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under s. 35E(1) or (2) to keep the interests of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) and 45(5), meaning of the word 'receive' etc. We do not propose to deal with all those submissions for the reason that they are neither relevant nor necessary for disposal of the dispute involved in the present appeal. 34. An argument was advanced on behalf of the Revenue that w.e.f., 1st April, 2003, there has been an amendment to the Act, whereby cl. (c) to s. 45(5) has been introduced whereby it has been provided that where the amount of the compensation or consideration is subsequently reduced by any Court, Tribunal or other authority, the capital gain of that year in which the compensation or consideration received was taxed shall be recomputed accordingly, This amendment according to the Revenue can only mean that the provisions of s. 45(5) contemplate a situation where even when the dispute is not finally settled, enhanced compensation can be taxed on receipt basis. We are again unable to accept this argument firstly for the reason that the CIT while exercising his jurisdiction under s. 263 has to go back to the order of assessment which he is seeking to revise and apply the legal position as it existed on that date and cannot seek to rely on any subsequent development. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis on the receipt of amount as compensation and not receipt of any amount. Moreover the provisions of s. 41(1) are found in Chapter IV-D which deal with computation of profits and gains of business or profession, while provisions of s. 45(5) are found in Chapter IV-E dealing with computation of capital gains. The reliance placed by the Revenue, on the aforesaid decision of the Hon ble Supreme Court, is therefore of no use to the case pleaded by the Revenue. 36. For the reasons stated above, our conclusion on the 2nd issue which we have formulated above is that the enhanced compensation received by the assessee was not taxable in the hands of the assessee as income till the quantum of enhanced compensation awarded is subject-matter of proceedings before the appellate forum by the State Government and the quantum has not attained finality. 37. We shall now take up for consideration the 1st issue which we have formulated above viz., whether the order of the AO was erroneous for the two reasons given by the CIT in his order under s. 263. As far as the first reason given by the CIT viz., not brining to tax the capital gain on compulsory acquisition of land, we have already held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t received by the assessee as enhanced compensation pending finality of dispute regarding the enhanced compensation as income of the assessee for the block period (i.e., asst. yr. 1998-99 comprised in the block period). Similarly the CIT erred in directing the AO to tax the interest received on enhanced compensation by spreading it over from year to year for the years comprised in the block period. The directions of the CIT in this regard are therefore set aside. 39. We shall now consider the 3rd issue which we have formulated above, viz., whether the enhanced compensation received by the assessee which was sought to be brought to tax as capital gain on compulsory acquisition of land of the assessee, can be said to be undisclosed income. We have already held that the amount of enhanced compensation received by the assessee cannot be held to be income of the assessee at all. Consequently the question whether these incomes were undisclosed does not arise for consideration at all. Nevertheless the fact remains that the AO both in the block assessment proceedings as well as in the regular assessment proceedings for asst. yr. 1998-99 considered this as income of the assessee but not u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of s. 132(1)(c) of the Act. In view of the above, the question whether the receipt of enhanced compensation was disclosed or not is purely an academic question and therefore there was no case for the CIT to exercise jurisdiction under s. 263 on this ground also. We therefore hold on the 3rd issue that the receipt of enhanced compensation by the assessee cannot be said to be undisclosed income of the assessee which could have been subjected to tax as undisclosed income of the block period. 40. The 4th issue on which the CIT sought to set aside the order of the AO for the block period is on the grounds (a) that the AO did not make the necessary enquiries and verification with regard to determination of undisclosed income for the asst. yr. 1991-92 to 1998-99. That the undisclosed income for the block period was determined with reference only to the TDS and advance tax paid by the assessee without obtaining even P L a/c or balance sheet; (b) the rental income disclosed by the assessee considerably varied for the different assessment years comprised in the block period and the reason for such variation had not been enquired into by the AO; (c) The assessee had received original com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, for the asst. yr. 1991-92, in the list of expenses claimed is also included standing crop of Rs. 60,000. Obviously, when the land was given on rent, standing crop could no form part of assessee s cost. The wide variation in the house property income from Rs. 6,000 to Rs. 54,000 has been shown in respect of rent from own close relations. There is no scrutiny as to actual annual letting value. As mentioned in para 17 of the show-cause notice, reproduced above in para 29 against the receipt of amount of compensation, capital gains was required to be computed. The assessee has claimed in the computation of income for the asst. yr. 1991-92 a large number of expenses. There is nothing on record to indicate that details of such expenses were looked into. All the expenses running into 16 items are in rounded figures. The assessee has only submitted that the various items of expenses were explained to the AO during the course of hearing. But the records show that no supporting details were filed which could be verified by the AO. The records clearly indicate that the assessee had never filed return of income in the past for any of the assessment years. The details of computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etion vested in the CIT whether to examine the issue or to set aside the issue for reconsideration by the AO. The assessee cannot, as a matter of right insist that the CIT should carry out the necessary investigation and render his findings in this regard in the proceedings under s. 263. We are of the view that the action of the CIT was justified in this regard. As far as computation of capital gains on compensation received by the assessee relating to the asst. yr. 1991-92 falling within the block period is concerned, the assessee had claimed huge expenses. According to the CIT, the AO had not looked into the details of these expenses. In this regard, the plea of the assessee is that details were explained by the assessee to the AO. The assessee mainly relies on the reply filed to the show-cause notice under s. 263 wherein the details of expenses were explained. The submission of the learned counsel for the assessee is that the CIT could have verified the explanation provided by the assessee. We are unable to accept this contention raised on behalf of the assessee. The fact remains that the assessee had not filed necessary details and the AO had not carried out any investigation i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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