W.p.(C)/8035/2016 Of Ram Kumar v. Income Tax Officer, Ward-64(2) & Anr

SANJIV KHANNA, J. (Oral) The Petitioner, Ram Kumar by way of the present writ petition haschallenged the reassessment proceedings under Sections 147 read withSection 148 of the Income Tax Act, 1961 (‘the Act’ ) initiated vide noticedated 24[th]September, 2015 for the Assessment Year (‘AY’) 2011-12. ThePetitioner has also challenged the order dated 8[th]August, 2016 rejecting thePetitioner’sobjections/representationagainstthere-openingoftheassessment proceedings. 2.For AY 2011-12, the Petitioner had filed return of income declaringan income of Rs. 5,52,308 on 1[st]July, 2011 on which tax, including tax atsource, of Rs. 45,796/- was duly paid. 3.On 19[th]March, 2012 the Petitioner filed a revised return for AY 2011- W.P.(C) 8035/2016 12 seeking refund of Rs.12,94,962/- on account of TDS deducted by theLand Acquisition Collector (‘LAC’). 4.The Petitioner’s case was taken up for scrutiny assessment vide noticeunder Section 143(2) of the Act dated 2[nd]May, 2013. 5.The Petitioner had claimed that the enhanced compensation of Rs.64,75,249/- paid by the LAC relating to agricultural land was exempt fromtax under Section 10(37) of the Act. 6.The Assessing Officer (‘AO’) passed the assessment order dated 14[th]February, 2014 on a total income of Rs. 6,28,376/- making an addition ofRs.10,800/- on account of interest income. The AO accepted the claim of thePetitioner that enhanced compensation of Rs.64,75,249/- was exemptedunder Section 10(37) of the Act. 7.As noticed above, the aforesaid assessment has now been madesubject matter of the reassessment proceedings vide notice under Section148 of the Act dated 24[th]September, 2015 which is the subject matter of thechallenge before this Court. 8.In order to decide the aforesaid challenge, we would like to reproducethe reasons recorded by the AO for reopening of the assessment, which readas under:- Please refer to you letter dated 20.10.2011 seeking copy ofreasons for issuance of notice u/s 148 of IT Act in your casefor A. Y. 2011-12. The reasons recorded in your case are asunder:- The assessee has filed original return of Income of Rs.5,52,310/- on 01.07.2011 for A.Y.2011-12 claiming TDSamounting to Rs. 45,796/- . Later, the assessee filed arevised return of income of Rs. 5,52,310/- on 19.03.2012 W.P.(C) 8035/2016 Page 2 of 9 claiming TDS of Rs. 13,40,758/- and claim a refund ofRs.12,94,962/-. However the return was processed u/s143(1) of the Income Tax Act, 1961 at Rs. 5,52,310/-, on17.01.2013 by allowing TDS of Rs.45,796/-. The case was selected for scrutiny under CASS to examinethe reasons and genuineness for high claimed of refund outof TDS. However, the Assessing Officer while completingthe assessment on 14.02.2014 omitted to considered thetaxability of TDS received of Rs. 80,02,471 which wasinterest on enhanced compensation which has to be taxed inthe said assessment year u/s 56(2) (viii) of Income Tax Act,1961. The Assessing Officer assessed at total income of Rs.6,28,376/- by making an addition of Rs.10800/- and Rs.65266/- on account of difference in gross receipts as perForm 16 issued from Ministry of Labour and Employmentand on account of undisclosed bank interest incomerespectively. On perusal of TDS certificate showing credits amount ofRs.7,46,90,061 issued on 10.06.2010 by Land AcquisitionOffice, Panchkula Haryana on enhanced compensation onaccount of land acquisition in the name of four personsincluding the assessee jointly, it is revealed that saidamounts includes interest on enhanced compensation of Rs.3,20,09,884/- out of which¼ the share belongs to the saidassessee amounting to Rs.80,02,471/- which has not beentaxed in said assessment year u/s 56 (2)(viii) of the Incometax Act, 1961 . On perusal of TDS certificate showing credits amount ofRs.7,46,90,061 issued on 10.06.2010 by Land AcquisitionOffice, Panchkula Haryana on enhanced compensation onaccount of land acquisition in the name of four personsincluding the assessee jointly, it is revealed that saidamounts includes interest on enhanced compensation of Rs.3,20,09,884/- out of which¼ the share belongs to the saidassessee amounting to Rs.80,02,471/- which has not beentaxed in said assessment year u/s 56 (2)(viii) of the Incometax Act, 1961 . As per Section 56 (2)(viii) of the Income tax Act, 1961, theinterest amount on enhanced compensation is taxableincome in the hands of the said assessee w.e.f. 01.04.2010.It is seen from assessment order dated 14.02.2014 u/s143(3),theAssessingofficerhasneitherconsideredtaxation of such interest amount on enhanced compensationof Rs.80,02,4711- nor any discussion has been made by theAssessing Officer in the body of the assessment order /office note / or order sheet entries regarding such taxation of interest on enhanced compensation received by theassesee for A.Y. 2011-12 as per TDS statement receipt fromLand Acquisition Office, Panchkula shown in the revisedreturn filed by said assesee. Then Assessing Officer omittedto consider taxability of interest on enhanced compensationof Rs. 80,02,471/- in the hands of said assessee for A.Y.2011-12 as per Section 56 (2)(viii) of the Income tax Act,1961, in the assessment made on 14.02.2014 u/s 143(3) oflncome Tax Act, 1961. Since, such interest income on enhanced compensation dueto land acquisition of Rs. 80,02,471/- was neither offeredfor taxation by the assessee nor Assessing Officer made anyassessment of this amount by omitting such taxation ofinterest on enhanced compensation, I have reason tobelieve that income of Rs. 80,02,471/- chargeable to tax inthe hands of above said assesee for A.Y. 2011-12 hasescaped assessment. Hence I am satisfied that it is a fit caseto issue notice u/s 148 of Income Tax Act, 1961 in the saidcase for the assessment year 2011-12 after taking necessarystatutory approval u/s 151(2) r.w.s. u/s 147/148/149 of theIncome Tax Act, 1961. After supplying of reasons, you are requested to cooperatewith the assessment proceedings and file necessary detailsasked for.” 9.The contention raised by the Learned Counsel for the Petitioner is thatthe reasons recorded do not show nexus and connection with the allegationof escapement of income. It is submitted that the reasons recorded areincorrect as the figures taken from the TDS certificate did not relate to theAssessee alone, but reflect the entire amount of compensation which waspaid and was to be shared between the Legal Representatives / successors-in-interest of the owner of the land. 10.The learned counsel for the Petitioner has also objected to the W.P.(C) 8035/2016 reasoning given by the AO in the order dated 8[th]August, 2016 which merelyrecords that on merits the interest component received as enhancedcompensation was taxable as per Section 56 (ix) [sic (viii)] read with Clause(b) to Section 145A of the Act. 11.Counsel for the Respondent has submitted that in the present case theAO while passing the original assessment order was not aware and did nothave knowledge that enhanced compensation had included an element ofinterest as also the nature and character of the interest. In thesecircumstances, there is no question of change of opinion as the question oftaxability of the interest element was not considered, examined and opinedby the Assessing Officer. It is further stated that the question of taxability ofinterest would be examined on merits in the reassessment proceedings.Regarding the question of amounts mentioned in the reasons to believe it issubmitted that the AO had to proceed on the basis of the documents andpapers available on record which had indicated the total amount ofcompensation received. 11.Counsel for the Respondent has submitted that in the present case theAO while passing the original assessment order was not aware and did nothave knowledge that enhanced compensation had included an element ofinterest as also the nature and character of the interest. In thesecircumstances, there is no question of change of opinion as the question oftaxability of the interest element was not considered, examined and opinedby the Assessing Officer. It is further stated that the question of taxability ofinterest would be examined on merits in the reassessment proceedings.Regarding the question of amounts mentioned in the reasons to believe it issubmitted that the AO had to proceed on the basis of the documents andpapers available on record which had indicated the total amount ofcompensation received. 12.We have considered the contentions raised by the Petitioner and theRespondent and are not inclined to interfere with the reassessmentproceedings, at this stage. We record our reasons for the same. 13.Examination of the order sheet of the original assessment proceedingsreflects and establishes that the AO had not examined the question whetherthe enhanced compensation had an element of interest or not. The AO in theoriginal assessment proceedings had proceeded on the basis that the TDScertificate and enhanced compensation was in respect of the land withoutexamining whether or not it had included an interest component. To this W.P.(C) 8035/2016 extent learned counsel for the Petitioner has not disputed the assertions madeby the learned counsel for the respondents, who has drawn our attention tothe order sheets. In the order sheet dated 18[th]April 2013, which refers tointerest component, it is pointed out was with reference to the differencebetween the interest disclosed by the Petitioner in his original return and asper Form 26AS. As noticed above, an addition of Rs.10,800/- was made bythe AO in the assessment order dated 14[th]February,2014 on this account.This amount of interest is different and distinct from the interest componentwhich formed part of the enhanced compensation. The assessment order alsodoes not mention or record that the Petitioner had received interest whichwas part of the enhanced compensation. 14.Noticeably, the office note to the assessment order records that theTDS of Rs.12,94,962/- issued by the LAC, on which the refund has beenclaimed, was not being taken into consideration as it was not reflected inForm 26AS.This note also mentions that the Petitioner has receivedenhanced compensation of Rs.64,75,249/- for compulsory acquisition ofagricultural land in Karnal from the Land Acquisition Officer (‘LAO’),Panchkula and this amount was exempted under Section 10(37) of the Act. 15.Subsequently, on verification the TDS certificate of Rs.12,94,962/-, itwas found to have been issued by the LAO and credit of this amount wasgiven to the Petitioner and refund order was issued.Copy of the refundorder and the date on which the said refund order was issued has not beenindicated and stated in the writ petition. 16.We have also examined the TDS certificate placed on record. Underthe heading ‘Nature of payment’, the word ‘Enhanced Compensation’ is W.P.(C) 8035/2016 Page 6 of 9 recorded. The TDS certificate was issued in the name of several personsincluding the Petitioner. Under the heading ‘Amounts paid/credit’, in thesubsequent column three amounts are indicated as below: PR (i.e. Principal) - Rs.4,26,79,407/-INT (i.e. Interest) - Rs.3,20,09,554/- andCosts- Rs.1,100/- The TDS certificate shows that tax was deducted at the flat rate of 20%. 17.It is apparent and obvious to us that the AO in the original assessmentproceedings did not examine the question of taxability of interest as thisaspect appears to have completely escaped his attention. It is not even thecase of the Petitioner that the AO had examined the said question in theoriginal assessment proceedings. W.P.(C) 8035/2016 Page 6 of 9 recorded. The TDS certificate was issued in the name of several personsincluding the Petitioner. Under the heading ‘Amounts paid/credit’, in thesubsequent column three amounts are indicated as below: PR (i.e. Principal) - Rs.4,26,79,407/-INT (i.e. Interest) - Rs.3,20,09,554/- andCosts- Rs.1,100/- The TDS certificate shows that tax was deducted at the flat rate of 20%. 17.It is apparent and obvious to us that the AO in the original assessmentproceedings did not examine the question of taxability of interest as thisaspect appears to have completely escaped his attention. It is not even thecase of the Petitioner that the AO had examined the said question in theoriginal assessment proceedings. 18.On the question of figures given in the reasons to believe, we wouldrecord that the AO had to proceed on the basis of documents available onrecord. It is not the case of the Assessee that he had not received interestamount as indicated in the reasons to believe. The figure or quantum isdisputed. Even if we are inclined to accept the contention of the Petitionerthat the figures of interest as indicated in the reasons to believe recorded forissue of reassessment notice are not correct, it cannot be disputed that thePetitioner was also entitled to a part of the interest.The figures may bewrong or incorrect for the reason that the interest had to be bifurcated anddivided amongst several recipients and the details of such recipients was notavailable with the AO when he recorded the said reasons. 19.Learned counsel for the Petitioner has submitted that the interest inthe present case, in terms of the decision of the Supreme Court, in W.P.(C) 8035/2016 Commissioner of Income Tax v. Ghanshyam (HUF) (2009) 325 ITR 1(SC) (hereafter ‘Ghanshyam (HUF)’) would be part of the enhancedcompensation and not interest which is taxable. In particular, our attention isdrawn to paragraphs 24, 25, 26, 33 and 35 of the said decision. Theaforesaid decision draws a difference between interest which is payableunder Section 34 of the Land Acquisition Act, 1894 which would be taxableand interest payable under Section 23 (1A), 23(2) and 28 which as per thePetitioner is not taxable. According to the Petitioner, the interest received, asper the Award, was under Sections 23(1A), 23(2) and 28, and hence wouldnot be taxable. 20.Learned counsel for the Respondents on the other hand submits thatthe decision in Ghanshyam (HUF) (supra) is dated 16[th]July, 2009 and theAct has been subsequently amended in the form of enactment of Clause(viii) to sub section 2 to Section 56 read with Clause (b) to Section 145Awith effect from 1[st]April, 2010 by Finance (2) Act, 2009. 21.Learned counsel for the petitioner however has drawn our attention tothe judgment of the Supreme Court in Ramabai v. Commissioner of IncomeTax, (1990) 181 ITR 400 (SC) and Memorandum/Circular No.5/2010 (FNo.142 /13/2010 – SO (TPL) dated 3[rd]June, 2010 explaining the newlyenacted provisions of Clause (viii) inserted to sub-section 2 to Section 56and Clause (b) to Section 145A of the Act. 22.We have considered the contention raised by the Petitioner that theinterest element would partake the character of enhanced compensation andis not taxable, on the basis of the ratio in the case of Ghanshyam (HUF) butwe are not giving any opinion on the same at this stage. These aspects, we W.P.(C) 8035/2016 Page 8 of 9 believe, are matters which the AO will have to examine in detail during thecourse of reassessment proceedings. We would not like to comment on theissues which the AO will have to determine and decide in the course ofreassessment proceedings. 22.We have considered the contention raised by the Petitioner that theinterest element would partake the character of enhanced compensation andis not taxable, on the basis of the ratio in the case of Ghanshyam (HUF) butwe are not giving any opinion on the same at this stage. These aspects, we W.P.(C) 8035/2016 Page 8 of 9 believe, are matters which the AO will have to examine in detail during thecourse of reassessment proceedings. We would not like to comment on theissues which the AO will have to determine and decide in the course ofreassessment proceedings. 23.We would, however, like to observe that the AO should have beenmore careful while disposing of the objections/representation made by thePetitioner vide order dated 8[th]August, 2016.Though the Petitioner hadraised similar objections at that time and also cited the judgement of theSupreme Court, the same have not been considered in depth and detail. Itwould have been more appropriate for the AO to clarify that the saidsubmissions and contentions would be examined in depth and on meritsduring the course of reassessment proceedings. The assessment order shoulddeal and answer the said contentions including the question of nature ofinterest and the section under which it was paid, and the effect and impact ofthe decisions relied upon by the petitioner. These issues would beconsidered and determined in the re-assessment proceedings. We have notmade any observations on merits. We also clarify that in case the Petitioneris aggrieved by the final assessment order, he would be at liberty tochallenge the said order, in accordance with law. 24.With the above observations, the writ petition is dismissed withoutany order of costs. SANJIV KHANNA, J OCTOBER 27, 2017/R PRATHIBA M. SINGH, J W.P.(C) 8035/2016