9911796707
TMI Blog2025 (1) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... medabad, that the assessee had received cash of Rs. 4,32,36,000/- during the Financial Year (FY) 2011-12 relevant to AY 2012-13. This income had not been reported in any return of income. Based on this credible information, the AO formed the belief that income chargeable to tax had escaped assessment. Consequently, the AO reopened the assessment under section 147 of the Act and issued a notice under section 148 of the Act on 28/03/2019. In response to the notice under section 148, the assessee filed his return of income on 22/05/2019, declaring total income of Rs. 1,40,764/-. The assessee also claimed exemption of Rs. 6,22,38,075/- under section 10(37) of the Act on account of compensation received for the compulsory acquisition of agricultural land situated at Survey Nos. 56/1 and 56/2, Dholakuva, Gandhinagar. The brief facts relating to land and its dispute are summarized below form the order of AO - 2.1. Shri Abhraji Ataji Thakor, Shri Baldevji Ataji Thakor, and Shri Ambaji Ataji Thakor (Thakor Brothers) were in possession of agricultural land situated at Survey Nos. 56/1 and 56/2, Dholakuva, Gandhinagar. These properties were inherited from their forefathers and used for agri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,355/- paid by cheque dated 07/12/2005, and Rs. 4,86,64,822/- by cheque dated 10/01/2006. The total compensation deposited with the Principal Senior Civil Judge, Gandhinagar, was Rs. 14,93,60,177/-. The Detail are tabulated as below: L.R.C. No. 1 06/04 36/04 Total Survey No. 2 56/1 56/2 Area in Sq. M. 3 11,020 9,004 Add. Amount Awarded by Court (Rs. 3385 per Sq. M.) 4 3,73,29,780 3,04,78,540 6,78,08,320 Solatium 30% 5 1,11,98,934 91,43,562 2,03,42,496 12% Interest (15/04/2002 to 31/10/2003, 18.5 months) 6 69,06,009 56,38,530 1,25,44,539 Total Amount (Add + Solatium + Interest) 7 5,54,34,723 4,52,60,632 10,06,95,355 9% Interest (18/04/2002 to 17/04/2003) 8 49,89,125 40,73,457 90,62,582 15% Interest (18/04/2003 to 17/04/2005, 2 Years) 9 1,66,30,416 1,35,78,189 3,02,08,605 15% Interest (227 days, 18/04/2005 to 30/11/2005) 10 51,71,376 42,22,259 93,93,635 Total of Interest (9% + 15% + 15%) 11 2,67,90,917 2,18,73,905 4,86,64,822 Total Amount (Column 7 + 11) 12 8,22,25,640 6,71,34,537 14,93,60,177 2.2. The ownership dispute between the Thakor Brothers and Shri Ranjitsinh Narsinh Vaghela resulted in the compensa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was finalized. 2.5. In response to the show-cause notice dated 24/12/2019, the assessee, Shri Ranjitsinh Narsinh Vaghela, submitted a detailed reply on 25/12/2019. The assessee contended that the interest received or receivable on compensation amounts is not chargeable to tax as it forms an integral part of the compensation awarded by the Hon'ble Civil Court. In support of this contention, the assessee referred to the following: * Tribunal Decision in Urvi Chirag Sheth (ITA No. 630/Ahd/16; 70 taxmann.com 33): In this case, the Ahmedabad Tribunal held that interest received on compensation in a motor accident claim is part of the compensation itself and, hence, is not taxable as "income from other sources." * Gujarat High Court Decision in the case of Movaliya Bhikhubhai Balabhai v. ITO (Special Civil Application No. 17944 of 2015): The Hon'ble Gujarat High Court held that interest on compensation awarded for land acquisition forms part of the compensation and is not subject to Tax Deducted at Source (TDS). * Circular from Revenue Department of Gujarat State: The assessee furnished a copy of the circular issued by the Gujarat Revenue Department, which directed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that an income of Rs. 4,32,36,000/- had escaped assessment. Hence, the CIT(A) dismissed the objection as the reopening was as per law. The CIT(A) held that the AO's failure to propose the specific addition in the initial reasons recorded did not invalidate the proceedings. The addition related to FD interest of Rs. 7,11,37,986/- emerged from facts disclosed during the reassessment. The CIT(A) further observed that the amounts deposited by the Civil Court were kept in fixed deposits (FDs) to earn interest until the dispute over ownership of land was resolved. The CIT(A) concluded that the interest earned on the FDs is distinct from the compensation awarded and constitutes "income from other sources" under Section 56 of the Act. The CIT(A) referred to the provisions of Section 10(37), which exempts capital gains arising from the compulsory acquisition of agricultural land, including any compensation or consideration enhanced by courts. However, the CIT(A) held that the interest on FDs made by the Civil Court does not qualify as "compensation or enhanced consideration" under the section's Explanation. The CIT(A) noted that the provisions of Sections 28 and 34 of the Land Acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of Rs. 14 crores odd, which, pending settlement of the dispute, the Principal Civil Judge had deposited in a FD, in a bank account. That subsequent to settlement of the dispute, interest of Rs. 7 crores accrued on it; thus, a total amount of Rs. 21 crores became payable on the land acquired by the Government to the owner of the land. It was pointed out that this amount of Rs. 21 crores was paid by cheque by the Principal Civil Judge to the three co-owners to in turn pay the amount in cash to the assessee who, it was stated, was decided to be the true owner the course of hearing, it was pointed out to the ld. Counsel for the assessee that if the assessee was found to be the true owner of the land, then why was the amount of compensation paid by the Principal Civil Judge to the three other co-owners when ideally it should have been paid directly to the assessee. Neither the ld. Counsel for the assessee nor the ld. DR had any clue or idea about the reason for doing so. This fact is very pertinent for determining the true nature of the amount received by the assessee in cash, since his contention is that the amount received by way of compensation and the interest accrued thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment. As per the settled principles of law, the reassessment must be based on the reasons recorded for reopening, but additions that flow naturally from the inquiry related to the recorded reasons can be made. We note that since the assessee did not file a return of income, the AO had no information about the substantial receipts during the year. The AO's belief that income chargeable to tax had escaped assessment was based on credible information from the investigation. We find that the failure to file a return amount to non-disclosure of material facts necessary for assessment. As per settled law, even if the AO obtains information from external sources, the reassessment proceedings remain valid if they are based on new facts that the assessee failed to disclose. We also observe that while the reasons for reopening referred to Rs. 4,32,36,000/-, the inquiry revealed that Rs. 7,11,37,986/- was interest income accrued on FDs created from the compensation amount. Since this discovery was directly linked to the reassessment inquiry, the addition was incidental to the primary reason and not a new issue unrelated to the recorded reasons. We are guided by the principle that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racter of interest and not compensation. 8.2. While going through the orders of AO and CIT(A) we noted that the total compensation was paid to the original landowner by the court and the original landlord withdrew the cash and paid to the assessee. It was also observed that the distribution of amount of compensation totalling to Rs. 14,93,60,177/- as paid by the Court to the parties are not coming out properly and are not getting reconciled with the orders of both AO and CIT(A). Therefore, the hearing seeking clarification was fixed on 03-01-2025 which was adjourned to 10-01-2025. During the clarification hearing the AR agreed that the reconciliation is not coming out from the order of AO properly however the assessee can prepare the reconciliation and present the same. In our considerate opinion such reconciliation provided by the assessee will have to be verified by the AO and commented upon therefore it will be fit to remand the matter back to the AO for fresh assessment after taking into consideration the reconciliation as provided by the assessee. The AR did not object to the same and stated that a specific direction may be given to the AO that if the interest is treated as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econciliation submitted by the assessee, we are of the view that a fresh assessment is necessary to address these issues comprehensively. 9.4. We are not expressing any opinion on the merits of the assessee's claim for exemption under Section 10(37) of the Act or the alternate claim for a deduction under Section 57(iv) of the Act at this stage. The AO is directed to: 1. Verify the reconciliation of the compensation and interest amounts, including the cash withdrawals by the original landowner and their subsequent distribution to the assessee and other parties. 2. Assess the nature and taxability of the amounts received by the ultimate recipient in accordance with the provisions of the Act. 3. Ensure that there is no double taxation by cross verifying the assessments of the co-owners and reconciling their respective claims. 9.5. The AO shall provide the assessee with a fair opportunity to present all relevant details and submissions. Accordingly, the order of the CIT(A) is set aside, and the matter is restored to the AO for a fresh assessment. 10. Other grounds are generic in nature and, hence, not adjudicated. 11. In the result, the appeal of the assessee is treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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