The Commissioner Of Income Tax,Faridabad v. Shri Sohan Pal, Huf

In the High Court for the States of Punjab and Haryana at Chandigarh … ITA No. 582 of 2007 Date of decision:5.2.2008 The Commissioner of Income Tax,Faridabad ..Appellant Versus Shri Sohan Pal, HUF, s/o Shri Ram Singh,village Jharsaintly, Ballabgarh .. Respondent Coram: Hon’ble Mr.Justice Satish Kumar MittalHon'ble Mr.Justice Rakesh Kumar Garg Present:Mr.Yogesh Putney, Advocatefor the appellant-revenue. .. Rakesh Kumar Garg,J 1. The Revenue has filed the present appeal against the order dated12.12.2006 passed by the Income Tax Appellate Tribunal, Delhi Bench 'H' NewDelhi in ITA No.793/Del/2006 in the case of respondent/assessee for theAssessment Year 1998-99 raising the following substantial questions of law:- “i) Whether the Hon'ble ITAT was right in law in deleting thepenalty levied u/s 271(1)(c) of Income Tax Act,1961 whereas ithad already confirmed the addition made u/s 45(5) of the IncomeTax Act on account of enhanced compensation received duringthe previous year relating to Assessment Year 1998-99? ii) Whether on the facts and circumstances of the case, theHon'ble ITAT was right in holding that the view of assesseeregarding non-taxability of enhanced compensation was bonafideparticularly in view of provisions of section 45(5) of Income TaxAct ?” 2.The brief facts of the case are that the respondent-assessee is anagriculturist whose agriculture land was acquired by the Haryana Urban Development Authority(HUDA) and the assessee was awarded compensation inlieu of that by the Land Acquisition Officer. Not satisfied with the rate ofcompensation, the assessee filed the reference application under section 18 ofthe Land Acquisition Act before the Additional District Judge, Faridabad, whoenhanced the compensation and also ordered HUDA to pay interest onenhanced compensation. 3.The respondent-assessee filed return declaring income ofRs.29646/- on 19.11.1999. However, the assessee did not declare receipt onaccount of additional compensation and interest on enhanced compensation totax appending a note in the return stating therein that the HUDA has notaccepted the judgment of Additional District Judge, Faridabad and has filedappeal in this High Court and in case the appeal of HUDA is allowed by the HighCourt, the amount so received would be liable to be refunded. So the amount soreceived would assume the character of capital gain/income only when theassessee is finally determined and hence the amount received is on account andnot the income of the assessee. It was noticed by the Assessing Officer thatSohan Pal is Karta of the HUF was paid the following amount by the LandAcquisition Collector:- The assessee relied upon a judgment of the Hon'ble Supreme Court of Indiacited as Commissioner of Income Tax Vs. Hindustan Housing & LandDevelopment Trust Ltd.161 ITR 524(SC). The Hon'ble Supreme Court in thesaid judgment has held that right to receive the compensation would accrue onlyafter final determination by the Court and the decision was rendered in thecontext of deciding the issue on accrual of compensation. However, theAssessing Officer completed the assessment under section 143(3) on 8.1.2001and accordingly capital gain on enhanced compensation and interest onenhanced compensation was taxed. Against the order of the AssessingOfficer,the assessee filed an appeal. The Commissioner of Income Tax The assessee relied upon a judgment of the Hon'ble Supreme Court of Indiacited as Commissioner of Income Tax Vs. Hindustan Housing & LandDevelopment Trust Ltd.161 ITR 524(SC). The Hon'ble Supreme Court in thesaid judgment has held that right to receive the compensation would accrue onlyafter final determination by the Court and the decision was rendered in thecontext of deciding the issue on accrual of compensation. However, theAssessing Officer completed the assessment under section 143(3) on 8.1.2001and accordingly capital gain on enhanced compensation and interest onenhanced compensation was taxed. Against the order of the AssessingOfficer,the assessee filed an appeal. The Commissioner of Income Tax (Appeals) set aside the assessment order of the Assessing officer and directedhim to verify the issue of HUF and claim of deduction under Sections 54B and54F if admissible. As per the direction, the Assessing Officer completed theassessment u/s 143(3) on 11.2.2002 in the status of HUF holding that the landswere acquired by the assessee from his fore-fathers and the assessee himselffiled the return in HUF status and accordingly capital gain on enhancedcompensation and interest on enhanced compensation was taxed as it wasalready taxed in the original assessment u/s 143(3) dated 8.1.2001. Penaltyproceedings u/s 271(1)(c) were also initiated. 4.The appeal filed by the assessee against the order of theAssessing Officer challenging the taxability of the enhanced compensation wasdismissed by the Commissioner of Income Tax(Appeals) Faridabad. 5.A show cause notice dated 13.1.2005 was issued to the assesseefixing the penalty proceedings for hearing on 28.2.2005 and after hearing theassessee, the Income Tax Officer Ward-1(3), Faridabad vide his order dated28.3.2005 held that he is satisfied that the assessee has concealed theparticulars of its income amounting to Rs. 4142490/- for assessment year 1998-99 and therefore, the assessee was directed to pay penalty u/s 271(1)(c) of theIncome Tax Act,1961, equal to 100% of tax sought to be evaded.The appealfiled by the assessee against the order of penalty was accepted by theCommissioner of Income Tax (Appeals), Faridabad vide order dated 4.1.2006.The relevant part of the order of the Commissioner of Income Tax is reproducedbelow:- “7.3. I have considered the issue, the appellant had disclosed allthe particulars of his income by appending a note and placing abona fide reliance on the decision of the Hon’ble Supreme Court inthe case of CIT Vs. Hindustan Housing & Land Development TrustLtd. Moreover, there is an ongoing litigation on the issue oftaxability of enhanced compensation and interest thereon whether itwill be taxed on the actual receipt basis or on accrual basis. In this case since the matter is pending before the Hon’ble Punjab &Haryana High Court as observed by the Hon’ble ITAT, the right ofthe appellant has not become final. The AO in this case has taxedthe interest on enhanced compensation on receipt basis whereasthe Hon’ble Jurisdictional High Court of P & H in an unquoted caseof this charge in CITR Vs. Dilbagh Singh, VPO Sukhrali, Gurgaon,has dismissed the plea of the department and has decided as follows: - “We are of the opinion that the appeal is bereft of anymerit. It is manifestly clear from the impugned order that theonly issue before the Tribunal was whether the interestreceived by the assessee on enhanced compensation was tobe taxed on accrual basis i.e. on year-to-year basis or onreceipt basis, i.e., in the year of its actual receipt. Whileholding that the interest has to be taxed on accrual basis,the Tribunal has relied on the decision of the Apex Court inRama Bai Vs. Commissioner of Income Tax, AndhraPradesh (1990) 181 ITR 400, wherein it has been held thatthe interest on enhanced compensation is to be taxed onyear to year basis. follows: - “We are of the opinion that the appeal is bereft of anymerit. It is manifestly clear from the impugned order that theonly issue before the Tribunal was whether the interestreceived by the assessee on enhanced compensation was tobe taxed on accrual basis i.e. on year-to-year basis or onreceipt basis, i.e., in the year of its actual receipt. Whileholding that the interest has to be taxed on accrual basis,the Tribunal has relied on the decision of the Apex Court inRama Bai Vs. Commissioner of Income Tax, AndhraPradesh (1990) 181 ITR 400, wherein it has been held thatthe interest on enhanced compensation is to be taxed onyear to year basis. In the light of the said authoritative pronouncement,no fault can be found with the view taken by the Tribunal.Thus, no question of law, much less a substantial questionof law, survives for our consideration. Accordingly, wedecline to entertain the appeal. Dismissed. 7.4Therefore, taking into consideration, that the assessee hasdisclosed the particulars of income, the status of the assessee is indispute, the Hon’ble Jurisdictional High Court has held that intereston enhanced compensation is taxable on accrual basis, the standtaken by the AO that it is taxable on receipt basis clearly brings about the ambiguity in the law. Moreover, the assessee was in abonafide belief that it is not taxable on actual receipt basis byplacing reliance on the decision of the Supreme Court. Since, boththe elements of bona fide belief and ambiguity in law are presentin this case; the penalty u/s 271(1)(c ) is not justified. Hence, theaction of AO can not be upheld.” 6. The revenue filed the appeal before the Income Tax Appellate Tribunal,Delhi Bench, New Delhi against the order of the Commissioner of Income Tax(Appeal) dated 4.1.2006 whereby he canceled the penalty imposed by theAssesssing Officer under Section 271(1)(c ). The said appeal filed by theRevenue was dismissed by the Tribunal. While dismissing the appeal of theRevenue, the Tribunal after noticing the contentions of the parties held asunder:- “ As is evident from the aforesaid observations recorded bythe learned CIT(A) in his impugned order, the issue as to whetherthe amounts of enhanced compensation and interest on suchenhanced compensation received by the assessee were taxable inthe hands of the assessee for the year under consideration onreceipt basis when the matter relating to the enhancedcompensation was still in dispute was a highly debatable issueinasmuch as two views were clearly possible on the said issue asis apparent from the decisions of various High Courts as well asHon’ble Supreme Court referred to in the relevant portion of thelearned CIT(A)’s impugned order reproduced above. The claim ofthe assessee on this issue thus was based on one possible viewand although the said claim was not accepted in the quantumproceedings on a difference of opinion, we are of the view thatmaking of such claim bona fide on the basis of possible view couldnot be treated as concealment of its income by the assessee orfurnishing or inaccurate particulars of such income so as to attract the penal provisions of Section 271(1)(c) as rightly held by thelearned CIT (A).His impugned order canceling the penaltyimposed by the AO u/s 271(1)(c) is, therefore, upheld and thisappeal preferred by the Revenue is dismissed.” 7. Mr. Sanjeev Bansal, Advocate, learned counsel for theRevenue/appellant has strenuously argued that the enhanced compensation andinterest on enhanced compensation are taxable on receipt basis and the samewas not deliberately offered to tax by the assessee. Though the same wastaxable and had the return, was accepted as correct income, the Revenue wouldhave suffered loss on account of tax and, therefore, explanation offered by theassessee in respect of the facts material to the computation of total income havebeen found to be false and therefore, the penalty under Section 271(1)(c ) hasbeen rightly imposed. 7. Mr. Sanjeev Bansal, Advocate, learned counsel for theRevenue/appellant has strenuously argued that the enhanced compensation andinterest on enhanced compensation are taxable on receipt basis and the samewas not deliberately offered to tax by the assessee. Though the same wastaxable and had the return, was accepted as correct income, the Revenue wouldhave suffered loss on account of tax and, therefore, explanation offered by theassessee in respect of the facts material to the computation of total income havebeen found to be false and therefore, the penalty under Section 271(1)(c ) hasbeen rightly imposed. 8.Learned counsel for the Revenue has been heard and record perused. 9.We find that the arguments raised by the counsel for the Revenueare without any merit and no substantial question of law arises from the order ofthe Tribunal. The Tribunal has given a finding of fact to the effect that theamount of enhanced compensation and interest on such enhancedcompensation received by the assessee were taxable in the hands of theassessee for the year under consideration on receipt basis when the matterrelating to the enhanced compensation was still in dispute was a highlydebatable issue inasmuch as two views were clearly possible on the said issueas is apparent from the decisions of various High Courts as well as of theHon’ble Supreme Court of India and the claim of the assessee was on this issuethus was based on one possible view and although the said claim was notaccepted in the quantum proceedings on a difference of opinion, we are of theview that making of such claim bona fide on the basis of a possible view couldnot be treated as concealment of its income by the assessee or furnishing orinaccurate particulars of such income so as to attract the penal provisions of Section 271(1)(c ) of the Income Tax Act. The said finding of fact has been givenby the Tribunal after perusing the relevant material on record and the orders ofthe lower authorities and there is no such material to show that the assesseehas filed inaccurate particulars in the return of income. Thus no question of lawarises in the present appeal and the same is dismissed. (RAKESH KUMAR GARG) JUDGE February 5, 2008 nk (SATISH KUMAR MITTAL) JUDGE