TMI Blog2022 (10) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... taken plausible view which is not controverted that why the view taken by the ld. AO is not correct view, considering the compensation received by the assessee company as the agriculture income and also exempt. DR merely argued that section 10(1) exclude only agriculture income and it does not include compensation but he has not referred the definition of section 2(14)(iii) of the Act which exclude the agriculture land as a capital asset and these facts is also not disputed that the assessee is having land which is agriculture land when the ld. AO and ld. PCIT accepted that the assessee earns agriculture income the compensation received on account of compulsory acquisition of land why cannot be considered as part of agriculture income. He has not pointed out any provision of the law to support their views so as to show that the same is required to be excluded while computing the book profit u/s. 115JB of the Act. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary to the facts, evidence on record and the provisions of Income tax Act, and is therefore perverse. It is therefore prayed that the impugned order may kindly be cancelled. 2. The Pr. CIT has erred in passing order u/s. 263 without following the Principles of Natural justice in as far as not providing adequate opportunity to the appellant to place its cards. 3. The Pr. CIT has erred in passing order u/s. 263 without going through the assessment record which contained all evidence in support of the income claimed as exempt. 4. The Pr. CIT has erred in passing order u/s. 263 holding the order passed by the AO to be erroneous and prejudicial to the interest of Revenue, observing that here is nothing on record to show that the land under acquisition was not a capital asset, particularly when the Acquisition order clearly mentions the alleged land as CHAHI situated in Village - Ullawas, tehsil - Sohna, distt. - Gurgaon, which is further fortified by the Tehsildar's certificate as to distance from Municipal limits, was annexed with the assessee's reply dated 04/12/2017. 5. The Pr. CIT has erred in passing the order completely ignoring the mandate of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act accepting the returned income. It is seen that in the year under consideration assessee received compensation on acquisition of land amounting to Rs. 88,98,605/- and have also shown agricultural income of Rs. 1,66,086/- which were credited to the profit loss account as other income. While computing book profit u/s. 115JB of the Act it is seen that the assessee reduced sum of Rs. 90,64,691/- from the profit as per the profit and loss account exempt income which also included compensation received on compulsory acquisition of land amounting to Rs. 88,98,605/-. The ld. PCIT further observed that the assessee had claimed compensation received as exempt. The ld. Pr. CIT further noted that there is nothing on record to show that the land under acquisition was agriculture land and not a capital asset in terms of provision of section 2(14) of the Act. Therefore, the ld. Pr. CIT noted that it appears that compensation received on acquisition of land which was claimed as exempt under normal provision and so reduced while computing book profit was not in order. 7. The show cause notice based on this observation was issued u/s. 263 of the Act by the ld. Pr. CIT and further noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of clause (14) of section 2. The explanation 1 to section 2(1A) is reproduced below for ready reference. [[Explanation 11-For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section.] It is clear from the above that income arising from the transfer of any land as mention in item (a) or (b) of sub-clause (iii) of clause (14) of section 2 shall not be included or treated as revenue derived from land and therefore the same shall not be agricultural income. Further sub-section (37) of section 10 deals with the exemption granted in respect of transfer of agricultural land. Sub-section (37) of section 10 is reproduced below: in the case of an assessee, being an individual or a Hindu undivided family, any income chargeable under the head capital gains arising from the transfer of agricultural land, where (1) Such land is situate in any area referred to in item (a) or item (b) of sub clause (iii) of clause (140 of section 2; (ii) Such land, duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n below: Brief facts of the case are that assessee is a private limited company. During the year under consideration, no business activity was carried out by the assessee and only income generated was from interest, agriculture income and compensation plus interest on compulsory acquisition of agricultural land owned by it. Return of Income for the year under consideration was filed on 29.03.2017 declaring total income at Rs. 41,17,990/- under normal provisions of the Act (APB 2-5) and book profit of Rs. 69,65,538/- u/s. 115JB of the Income Tax Act (APB 2-5). Case of assessee was selected for scrutiny assessment for the reason that it has shown large exempt income. Ld. AO called for various details and information which were submitted. After examination of details and being satisfied from details vis- -vis the income shown in the return, ld. AO passed order u/s. 143(3) of the Income Tax Act dated 14.12.2017 at Returned Income. Subsequently, ld. Pr. Commissioner of Income Tax-2, Jaipur on the observation that while computing Book profit, assessee has reduced a sum of Rs. 90,64,691/- from profit as per Profit Loss Account as exempt income which includes compensation recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and was reduced from profit as per Profit Loss account while computing book profit u/s. 115JB. Ld. CIT in the order passed u/s. 263 has observed that the AO did not inquire about if the land under compulsory acquisition was an agricultural land in terms of the provisions of section 2(14)(iii) of the Act and that the compensation received on compulsory acquisition of land was allowed to be reduced while computing income under normal provisions and also while computing book profit u/s. 115JB of the Act and without verifying if the said compensation was exempt u/s. 10 or not. In this regard, it is submitted that during the course of assessment proceedings, ld. AO specifically sought documentary evidences for acquisition of Agriculture land and interest paid on compensation. In response to such query, assessee vide letter dated 04.12.2017 (APB-17) submitted copy of notice of land Acquisition officer (APB 18-25) as per which the land was acquired u/s. 4 of the Land Acquisition Act, 1894 and since the land was used as agriculture. It is thus submitted that issue was thoroughly examined by ld. AO that said land was agricultural land in terms of provisions of Section 2(14)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the Capital Asset and thereby gain on transfer/compulsory acquisition is not at all chargeable to tax. Further the ld. CIT herself has excluded the agriculture income earned from such land to be included in the book profit for Mat u/s. 115JB which otherwise established that the said land was agricultural land and the income arisen from such land is exempt from tax. Moreover, ld. PCIT has not doubted the assessment done under the normal provisions of Income Tax where such income was claimed as exempt. Once the income is admitted as exempt for the purpose of levy of normal tax than how it could be taxable for the purpose of MAT u/s. 115JB. In this regard reliance is placed on the decision of hon'ble ITAT, Vizag branch in the case of M/s. Agri Gold Foods and Farms Products Ltd. Vs. CIT in ITA No. 451/JP/2012 dt. 30.7.2014 wherein the hon'ble bench in para 7 of the order has observed as under: (case law compilation pages 34-37) 7. After hearing rival submissions, we hold as follows : The undisputed fact in the case of the assessee is that, the land transferred is agricultural land. This is so because the assessing officer has not assessed the income arising out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed u/s. 115JB of the Act. The detailed finding so recorded by the ld. CIT(A) after applying judicial pronouncements are as per the material on record which do not require any interference on our part. Hence, we uphold the same. 13. In the result, the appeal of the revenue is dismissed. Hon'ble Cochin bench of ITAT in the case of The Nilgiri Tea Estate Ltd. Vs ACIT [TS-345-ITAT-2014 (COCH)], (case law compilation pages 19-24) has held that capital profit on sale of rural agricultural land had to be excluded for computing minimum alternate tax (MAT), having observed that section 115JB contained in Chapter XII-B did not extend to cover section 5 of the Income Tax Act, 1961 (the Act). Chapter XII-B only provided an alternate mechanism for computation of tax and could not be invoked to cover transactions which were not intended to be taxed. Hon'ble Cochin bench of the Tribunal in the case of Harrisons Malayalam Ltd. Vs. ACIT [2009] 32 SOT 497 (case law compilation pages 25-33) and hon'ble ITAT Mumbai Bench in the case of Shivalik Venters Pvt. Ltd. in ITA No. 208/Mum/2012 dt. 19.08.2015 (case law compilation pages 7-18) also expressed the same view. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arifies that order passed by assessing officer shall be deemed to be erroneous and prejudicial to the interest of the revenue if AO has passed such order without making inquiries or verification which should have been made; It is worthwhile to note here that the phrase which should have been made here in no way means that enquiries should have been made in manner as desired by CIT, rather it means that assessing officer should conduct necessary enquiries or verification which a reasonable and prudent officer shall carry out in normal circumstances. This phrase in no way means that enquiries should have been conducted in the manner Principal Commissioner wishes the same to be. In this regard reliance is placed on the following decisions: (1) Shri Narayan Tatu Rane vs ITO ITA No. 2690 2691/Mum/16 dated 06.05.2016 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. We also rely on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Max India Limited reported in 295 ITR 282 wherein it was held as under: When the CIT passed the impugned order under s. 263, two views were inherently possible on the word profits occurring in the proviso to s. 80HHC(3) and therefore, subsequent amendment of s. 80HHC made in the year 2005, though retrospective, did not render the order of the AO erroneous and prejudicial to the interest of the Revenue, and CIT could not exercise powers under s. 263. In view of the above proposition, and respectfully following principle laid down by the Hon'ble courts and keeping in view all these discussion, as also bearing in mind entirety of the case, we deem it fit and proper to uphold the grievance of the assessee and quash the impugned revision order as devoid of jurisdiction. The assessee gets the relief, accordingly. In view of above, it is submitted that: 1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that the land compulsorily acquired was an agriculture land and thus it was not the Capital Asset within the meaning of sec. 2(14)(iii) of Income Tax Act and therefore amount received as compensation on compulsory acquisition of this agriculture land is neither an income nor the Capital gain as prescribed under Income Tax Act and thereby does not fall within the charging section of Income Tax Act read with section 5 of Income Tax Act. Thus, the action of the Ld. AO was not at all prejudicial to the interest of revenue. Section 263 cannot be permitted to be brought into play unless both the conditions are satisfied i.e. the order has to be prejudicial as well as erroneous both, meaning thereby that the twin conditions are to be cumulatively satisfied before proceeding to revise an assessment order. In the instant case it is submitted as above that the order of ld. AO is neither erroneous nor it is prejudicial to the interest of revenue and thereby none of the conditions are satisfied, what to talk about twin conditions to be cumulatively satisfied. In view of above facts and in the circumstances and various judicial pronouncements which are directly on the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that why the compensation received on agricultural land is not to be considered as agricultural income. The ld. AR of the assessee further submitted that in response to various notices, the specific questions were raised about the exempted income claimed by the assessee and the same was replied vide letter dated 14.11.2017 04.12.2017. The relevant reply is extracted herein below. Extract from the letter dated 14.11.2017 4. Exempted Income As narrated in above para 1, the assessee company has received compensation of Rs. 88,98,605/- on acquisition of agriculture land which is exempted under income tax act and thus the assessee has correctly shown the same in their return of income. As regards the supporting documents and power of attorney are concern, we will submit the same in next date of hearing; as the directors of the company are presently out of station. Extract from the letter dated 04.12.2017 During the course of assessment proceedings, you have asked us to submit documentary evidence for acquisition of agriculture land and interest paid on compensation. In this regard, we are submitting copy of notice of Land Acquisition officer, with copy of award an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cements are as per the material on record which do not require any interference on our part. Hence, we uphold the same. 11. Based on the above written submission relied upon the decision and the above argument placed by the ld. AR of the assessee. He emphasized that the order is neither erroneous nor prejudicial in the interest of the Revenue and therefore, the order is required to be quashed. 12. Per contra, the ld. DR appearing on behalf of revenue submitted that the provision of the Act does not include the compensation received on land. Therefore, while computing the profit u/s. 115JB of the Act same is wrongly excluded by the assessee and there upon by the AO. This provision are alternative taxation provision they requires seriously attention so as to achieve the object behind such alternative taxation scheme under the Act. These all provisions are deeming provisions and are required to be treated separately from the normal provision of the Act. Section 115JB specifically gives certain exclusion and not which the income of the assessee which specifically does not fall under that provision of law are not required to be excluded. Therefore, ld. Pr. CIT has rightly invoke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not apply to the fact in the case of hand. The same is rightly excluded by the assessee and rightly allowed by the Assessing Officer and for that he has relied upon the decision of Cochin Bench of ITAT in ITA No. 37/Coch/2014 in the case of ACIT Vs. M/s. The Nilgiri Tea Estate Limited, wherein the similar issue has been dealt with at length and relevant extract and relied upon finding of the Co-ordinate Bench decision is reiterated herein below. 7. There should not be any dispute that the Profit arising on sale of agricultural land, which does not fall in the category of Capital Asset as defined under sec. 2(14) of the Act does not come under the purview of the Income tax Act at all. For example, the profit arising on sale of personal effects is not exigible to Income tax Act. In the similar manner, the profit arising on sale of agricultural land, which is not a Capital asset, is also not exigible to Income tax. Hence, in our view, an item of income which does come under the purview of Income tax cannot be subjected to tax under any of the provisions of the Act. Hence, the Tribunal, in the assessee's own case referred above, has expressed the following view:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which exclude the agriculture land as a capital asset and these facts is also not disputed that the assessee is having land which is agriculture land when the ld. AO and ld. PCIT accepted that the assessee earns agriculture income the compensation received on account of compulsory acquisition of land why cannot be considered as part of agriculture income. He has not pointed out any provision of the law to support their views so as to show that the same is required to be excluded while computing the book profit u/s. 115JB of the Act. The bench notes that the prerequisite exercise of jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Principal CIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake ..... X X X X Extracts X X X X X X X X Extracts X X X X
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