The Baranagar Jute Factory PLC, Kolkata V. Principal CIT - 1, Kolkata , Kolkata

ITA 1149/KOL/2018

AI Insights

The case involves The Baranagar Jute Factory PLC appealing against the order of the Principal Commissioner of Income Tax - 1, Kolkata, which was passed under section 263 of the Income Tax Act, 1961. The Principal CIT had revised the assessment order for the Assessment Year 2013-14, initially framed under section 143(3) of the Act, due to perceived underassessment of income from various sources including interest on delayed compensation and incorrect set off of long term capital loss. The Tribunal examined the legal interpretations and applications of sections 145A(b) and 56(2)(viii) of the Act, alongside various judicial precedents, to determine the correct tax treatment of the income in question.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132640 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-04-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 24-05-2018
• Other Referred Cases: CIT vs. Polar Fan Industries Ltd, CIT vs. Ghanshyam (HUF), Sahebrao Kishanrao More, Pranav Saran vs. ACIT, ITO vs. Prabhayya Basayya Saragachari, Movaliya Bhikhubhai Vs ITO, Mahender Pal Narang v. Central Board of Direct Taxes, New Delhi
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Revision of order; Assessment record; Tax effect; Sham transactions; Capital Gains
• Section: 145; 56; 263; 28; 143(3); 45(5); 56(2); 194A

Judgement Text

| आयकर अपीलीय अिधकरण ᭠यायपीठ, कोलकाता | IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, HON’BLE ACCOUNTANT MEMBER & SHRI SONJOY SARMA, HON’BLE JUDICIAL MEMBER I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC C/o Subash Agarwal & Associates Siddha Gibson 1, Gibson Lane Suite-213, 2 nd Floor Kolkata - 700069 [PAN : AABCT0134C] Vs Principal CIT-1, Kolkata अपीलाथᱮ/ (Appellant) ᮧ᭜ यथᱮ/ (Respondent) Assessee by : Shri Siddharth Agarwal, A/R Revenue by : Shri G.H. Sema, CIT, D/R सुनवाई कᳱ तारीख/Date of Hearing : 20/04/2023 घोषणा कᳱ तारीख /Date of Pronouncement: 16/06/2023 आदेश/O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER : This is the appeal preferred by the assessee against the order of the Learned Principal Commissioner of Income Tax - 1, Kolkata (hereinafter referred to as the ld. Pr. CIT”], passed u/s 263 of the Income-tax Act, 1961 (hereinafter the ‘Act’), dated 28/03/2018 for the Assessment Year 2013-14. The assessee has challenged the order of the ld. Pr. CIT u/s 263 of the Act through the various grounds of appeal. 2. Facts in brief are that the assessment was framed u/s 143(3) of the Act vide order dt. 31/03/2016. The ld. Pr. CIT, upon perusal of the assessment records, observed that the Assessing Officer has not examined the four issues which were discussed by the ld. Pr. CIT in the revisionary order which are extracted below:- “2. On a perusal of the assessment record of the assessee, it was observed as under: I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 2 (i) During F.Y.2012-13(A.Y.2013-14), the assessee received an additional sum comprising of compensation for value of land of Rs. 56,99,12,543/- and interest thereon amounting to Rs.47,66,44,977/- vide award dated 13.09.2012 treating compensation as well as the entire interest income under the head Long Term Capital gain. The interest received of Rs.47,66,44,977/- on delay payment of compensation of Rs.56,99,12,543/ for compulsory land acquisition during the year has been treated under the head income from LTCG instead of income from business or income from other sources as per provision of sec. 145A(b) of the IT Act, 1961. The same was allowed in the assessment which has resulted in underassessment of business income by an identical amount with consequent potential tax effect of Rs. 15,46,47,463/- (ii) LTCG of Rs.91,97,43,881/- was available to be set off till A.Y.2013-14 but the assessee company was allowed set off of LTCL of Rs.102,98,41,167/- of A.Y.2006- 07 thereby resulting in excess set off of LTCL of Rs. 11,00,97,286/- with consequent tax effect of Rs. 2,37,92,336/-. (iii) An additional interest of Rs.4,94,32,713/- included in the compensation amount of Rs.52,04,79,830/- received over and above the original interest received during A.Y. 2006-07 is required to be treated as business income was determined 12 during A.Y. 2006-07 as per sec.56(viii) of the Act. But the same was not treated either as business income or income from other sources in A.Y.2013-14 which has also resulted in underassessment of business income by an identical amount with consequent potential tax effect of Rs. 1,60,38,444/-. (iv) That an amount of Rs. 23,33,357/- though disallowed in course of assessment but inadvertently escaped addition during computation. Again deduction on account of "Bad Debt Written Off" though claimed by the assessee company of Rs.3,63,43,711/- but during computation deduction was allowed of Rs.3,66,67,920/- thereby inadvertently allowed excess deduction of Rs.3,24,209/-. Therefore this has resulted in underassessment of income of Rs.26,57,566/- (Rs.23,33,357/-+Rs.3,24,209/-) with potential tax effect of Rs. 8,62,247/-.” 3. The ld. Pr. CIT in para 2 (i) observed that the assessee has received a additional compensation of Rs.56,99,12,543/- and interest thereon amounting to Rs.47,66,44,977/- vide award dated 13/09/2012 and returned the same as income under the head long term capital gain. According to the ld. Pr. CIT, since the amount of Rs.47,66,44,977/- is received as interest on delayed payment of compensation, the same has to be treated as I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 3 income from other sources in terms of Section 145A(b) of the Act, which has resulted in under assessment of the business income by an identical amount with consequent potential tax effect of Rs.15,46,47,463/-. 3.1. Similarly, in para 2 (iii), the ld. Pr. CIT noted that assessee has received additional interest of Rs.4,94,32,713/- which was included in compensation received over and above the original interest received during the Assessment Year 2006-07, which is required to be treated as income from business or other sources but the same has not been done which has resulted in underassessment of income leading to potential tax effect of Rs.1,60,38,444/-. The ld. Pr. CIT has also held the assessment order to be bad insofar as it was prejudicial to the interest of the revenue on the issues which were stated in paras 2 (ii) and 2 (iv) above. Thereafter he issued showcause notice u/s 263 of the Act to the assesse as to why the assessment order should not be revised and finally set aside the assessment framed by the Assessing Officer by directing the Assessing Officer to frame the assessment afresh after providing reasonable opportunity to the assessee. 4. The ld. A/R vehemently submitted before us that the ld. Pr. CIT has wrongly exercised the revisionary jurisdiction so far as the issue raised in para 2 (i) & 2(iii) are concerned, due to which the assessment framed by the Assessing Officer cannot be said be erroneous. The ld. A/R contended that the order passed u/s 263 of the Act may kindly be modified to the extent the same relates to the issues as stated in para 2 (i) and 2 (iii) of the revisionary order. In defense, the ld. A/R relied on the judgment of the Hon’ble Jurisdictional High Court of Calcutta in the case of CIT vs. Polar Fan Industries Ltd. reported in 197 ITR 718 (Calcutta). I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 4 4.1. The ld. A/R stated that the issues raised in para 2 (i) of the revisionary order relates to the taxability of enhanced compensation of Rs.47,63,44,577/- (and not Rs.47,66,44,977/-). The ld. A/R contended that the interest received on enhanced compensation on compulsory acquisition of land under the National Highways Authority of India Act, 1936 (NHAI Act), has rightly been treated as long term capital gains and such an inference drawn by the ld. Pr. CIT that interest was on delayed payment of compensation has to be treated as income under the head income from business or income from other source as per provisions of Section 145A(b) of the Act, is not correct. 4.2. The ld. A/R submitted that nature of interest on enhanced compensation of land partook the character of long term capital gain and not income from other sources as has been held by the Hon’ble Supreme Court in the case of CIT vs. Ghanshyam (HUF) reported in 128 Taxman 368 (SC), wherein it has been held that interest awarded on compulsory acquisition of land partakes the character of compensation itself and has to be assessed as part of the income under the head long term capital gains. The ld. A/R further placed reliance on the following decisions:- i. CIT vs. Ghanshyam (HUF) [182 Taxman 368 (SC)] ii. Sahebrao Kishanrao More [ITA No. 1805/PUN/2017] (Pune Bench) iii. Pranav Saran vs. ACIT [ITA No. 499/Delhi/2021] (Delhi Bench) iv. ITO vs. Prabhayya Basayya Saragachari [ITA No. 858/Bang/2018] v. Movaliya Bhikhubhai Vs ITO (2016) 70 taxmann.com 45 (Guj) 4.3. The ld. A/R also contended that where two views are possible on a particular issue and the Assessing Officer has taken one of the two possible I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 5 views then the Assessing Officer’s order cannot be treated as erroneous order if the ld. Pr. CIT holds a different view. In defense of the arguments the ld. A/R relied on the decision the Hon’ble Supreme Court in the case of CIT v. Max India Ltd (2007) 295 ITR 282(SC). The ld. A/R also relied on the decision Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC), to corroborate his contentions that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. The ld. A/R finally submitted that in view of the above decisions and facts of the case, the revisionary jurisdiction exercised by the ld. Pr. CIT, may kindly be modified so far as the issues discussed by the ld. Pr. CIT in para 2 (i) and 2 (iii) of the revisionary order are concerned. 5. The ld. D/R on the other hand heavily relied on the order passed by the ld. Pr. CIT passed u/s 263 by submitted that the interest on enhanced compensation received is not taxable as income from long term but as income from other sources. The ld. D/R also drew our attention to the fact that by treating the interest under the head capital term capital gain, the assessee seeks to set off the huge brought forward losses and, therefore, it is a sham transactions intended and initiated for the purpose of evading the tax liability and for availing the benefit of set off of losses against the said amount. Had the income been assessed under the head income from other sources which is the true character of the income, the said provisions for set off of losses against the said amount would not have been available to the assessee. I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 6 5.1. The ld. D/R in defense of his arguments relied on the decision of the Hon’ble Punjab & Haryana High Court in the case of Mahender Pal Narang v. Central Board of Direct Taxes, New Delhi reported in [2020] 120 taxmann.com 400 (Punjab & Haryana) wherein it has been held that interest received on enhanced compensation of compulsory land acquisition under the Land Acquisition Act, has to be treated as not under the head capital gain. The ld. D/R also pointed out that the decision relied upon by the ld. A/R in the case of CIT vs. Ghanshyam (HUF) (supra), has been distinguished by the hon’ble Punjab and Haryana High court in the decision as discussed above. 6. In the rebuttal, the ld. A/R submitted that the issue of brought forward losses from the earlier years has been settled prior to the initiation of the assessment proceedings and has attained finality and, therefore, the ld. D/R cannot be allowed to raise argue this issue as it has attained finality. So far as the decision on the issue is referred to by the ld. D/R which is certainly in favour of the revenue wherein the Hon’ble Punjab & Haryana High Court has held that interest received on compensation under the Land Acquisition Act, 1894, has to be treated as income not under the head capital gains wherein the decision in the case of CIT vs. Ghanshyam (HUF) (supra) has been distinguished. The ld. A/R submitted that if there are two interpretation of law are possible on the same issue, then the one construction which is favorable to the assessee has to be followed and in defense of contentions he relied on the decision of CIT Vs vegetable Products Ltd (1973) 88 ITR 192(SC). 7. After hearing rival contentions, we observe that during the year, the assessee has received additional compensation of Rs.56,99,12,543/- and I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 7 interest thereon amounting to Rs.47,66,44,977/- vide award dated 13/09/2012 and the assesse has treated the said compensation as well as interest thereon as part of the compensation and returned the same as income under the head long term capital gains which has been accepted by the Assessing Officer in the assessment framed u/s 143(3) of the Act dt. 31/03/2016. The ld. Pr. CIT observed from the assessment records that the Assessing Officer has incorrectly allowed the interest to be treated as part of the compensation and has erroneously assessed the same under the head long term capital gain whereas as a matter of fact, the interest allowed to be part of the compensation by the Assessing Officer arbitrarily, has to be treated as income from other sources and to that extent, the order passed by the Assessing Officer was erroneous insofar as it was prejudicial to the interest of the revenue on the three other counts, namely,:- i. Assessee set of long term capital loss of Rs.102,98,41,167/- with consequent tax effect of Rs.2,37,92,336/-. ii. Additional interest of Rs.4,94,32,713/- included in the compensation is required to be treated as business income or income from other sources. iii. Bad debt written off to the tune of Rs.3,63,43,711/- was allowed as Rs.3,66,67,920/- thereby allowing excess deduction of Rs.3,24,209/-. According to the assessee, the order of the ld. Pr. CIT is wrong and invalid so far as the exercise of jurisdiction relates to issue no. 1 & 3 i.e., interest on additional compensation or enhanced compensation. 7.1. It is also pertinent to note that the amount of compensation awarded by the arbitrator vide award dt. 13/09/2012 has been deposited with the I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 8 Registrar of the Hon’ble High Court and assessee has not received even a penny out of the said compensation. Having perused the nature of interest and the fact that the said interest is awarded on the enhanced compensation by the arbitrator, we are of the considered view that this has to be treated as part of the additional compensation for the purpose of computing long term capital gain from the acquisition of the said land. We also note that the assessee has treated the same as part of the compensation and returned the same as long term capital gain which has been accepted by the Assessing officer in the assessment framed vide order dt. 31/03/2016 u/s 143(3) of the Act. We have also carefully perused the decision relied upon by the assessee and find that the Hon’ble Apex Court in the case of CIT vs. Ghanshyam (HUF) (supra) has held that interest on excess compensation u/s 28 of the Land Acquisition Act forms part of the enhanced compensation u/s 145A(b) of the Act and, therefore, taxable under the head capital gains u/s 45(5) of the Act. Similarly, the Hon'ble Gujarat High Court in case of Movaliya Bhikhubhai Balabhai vs. ITO, (supra), held that interest on compensation or enhanced compensation u/s. 28 of the land acquisition act forms part of compensation and not an interest as contemplated under the provisions of Section 145A of the Act and therefore same are not taxable under the head income from other sources and thus revenue was not justified in deducting tax at source u/s 194A of the act. The Hon'ble Gujarat High Court after considering all the decisions of the various courts disagreed with the view taken by the Hon'ble Punjab and Haryana High Court and held that interest received u/s 28 of the income tax Act is part of the compensation and is not an interest as contemplated u/s 145 A of the income tax act and therefore same is I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 9 not taxable u/s 56 (2) of the Act.On the applicability of the provisions of Sec. 57(iv) read with 56(2)(viii) and Sec. 145A(b) of the Act, the Hon'ble Gujarat High Court held: "Section 145A of the IT. bears the heading "Method of accounting in certain cases". Section 145A(b) provides that notwithstanding anything to the contrary contained in section 145, interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received. Clause (viii) of sub-section (2) of section 56 of the I.T. Act provides for income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A which is chargeable as income from other sources. The first respondent Income Tax Officer seeks to tax the interest received by the petitioner under section 28 of the Act of 1894 as income from other sources under section 56(2) (viii) read with section 145A(b) of the I.T. Act. In the opinion of this court, in the light of the law laid down by the Supreme Court in the case of Ghanshyam (HUF) (supra), the interest received under section 28 of the Act of 1894 would not fall within the ambit of the expression "interest" as envisaged under section 145A(b) of the I.T. Act, inasmuch as, the Supreme Court in the above decision has held that interest under section 28 of the Act of 1894 is not in the nature of interest but is an accretion to the compensation and, therefore, forms part of the compensation. It was argued on behalf of the Revenue before the Hon'ble Gujarat High Court in the above mentioned case of Movaliya Bhikhubhai Balabhai vs. ITO, that the decision of Hon'ble Supreme Court in the case of Ghanshyam (HUF) was rendered prior to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability cases pertaining to AY 2010-11 and afterwards. Such an argument was repelled by the Hon'ble Gujarat High Court as follows: "11. It has been vehemently contended on behalf of the first respondent that the above decision has been rendered prior to the substitution of section 145A of the I.T. Act by Finance (No. 2) Act, 2009 with effect from 1st April, 2010, and hence, would have no applicability to the facts of the present case. The scope and effect of the substitution (with effect from 1st April, 2010) of section 145A, as also amendment made in section 56(2) by Act 33 of 2009 have been elaborated in the following portion of the departmental circular No. 5/2010, dated 3.6.2010, as follows: I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 10 "Rationalizing the provisions for taxation of interest received on delayed compensation or on enhanced compensation.- 46.1 The existing provisions of Income Tax Act, 1961, provide that income chargeable under the head "Profits and gains of business or profession" or "Income from other sources", shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further the Hon'ble Supreme Court in the case of Smt. Rama Bai v. CIT (1990) 84 CTR (SC) 164 (1990) 181 ITR 400 (SC) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers. 46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be deemed to be his income for the year in which it was received, irrespective of the method of accounting followed by the assessee. 46.3 Further, clause (viii) is inserted in sub-section (2) of the section 56 so as to provide that income by way of interest received on compensation or enhanced compensation referred to in clause (b) of section 145A shall be assessed as "income from other sources" in the year in which it is received. 46.4 Applicability. This amendment has been made applicable with effect from 1 st April, 2010, and it will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years." - Thus, the substitution of section 145A by Finance (No. 2) Act, 2009 was not in connection with the decision of the Supreme Court in Ghanshyam (HUF)'s case (supra) but was brought in to mitigate the hardship caused to the assessee on account of the decision of the Supreme Court in Rama Bai v. CIT [1990] 181 ITR 400/[1991] 54 Taxman 496 whereby it was held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. Therefore, when one reads the words "interest received on compensation or enhanced compensation" in section 145A of the I.T. Act, the same have to be construed in the manner interpreted by the Supreme Court in Ghanshyam (HUF)'s case (supra)." Similar ratio has been laid down in the other judicial precedent relied upon by the assessee. We also note that the issue has been distinguished by the Hon’ble Punjab & Haryana High Court in the case of Mahender Pal Narang v. Central Board of Direct Taxes, New Delhi (2020) 120 taxmann.com 400(P&H). In that scenario where the Assessing Officer has adopted one of the permissible course in the Act and has resulted in the loss of revenue and the Assessing Officer has taken one of the plausible views with which the I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 11 ld. Pr. CIT does not agree, again the order of the ld. AO cannot be treated as erroneous and prejudicial to the interest of the revenue as the view taken by the AO is not unsustainable in law and this view finds force from the decision of the Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (supra). 8. Considering the facts of the case in the light of the judicial precedents, we are inclined to modify the order passed by the ld. Pr. CIT u/s 263 of the Act, so far as it relates to the issue nos. (i) & (iii) mentioned in para 2 of the impugned order, which relate to interest on compensation or enhanced compensation. Our view is fortified by the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Polar Fan Industries (supra) in partially sustaining the revisionary order passed u/s 263 of the Act. Accordingly so far as the issue nos. (i) & (iii) mentioned in para 2 of the order passed u/s 263 of the Act, the jurisdiction of the ld. Pr. CIT is quashed. 9. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 16 th June, 2023 at Kolkata. Sd/- Sd/- (SONJOY SARMA) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated 16/06/2023 *SC SrPs I.T.A. No. 1149/Kol/2018 Assessment Year: 2013-14 The Baranagar Jute Factory PLC 12 आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant 2. ᮧ᭜यथᱮ / The Respondent 3. संबंिधत आयकर आयुᲦ / Concerned Pr. CIT 4. आयकर आयुᲦ)अपील (/ The CIT(A)- 5. िवभागीय ᮧितिनिध ,आयकर अपीलीय अिधकरण, कोलकाता/DR,ITAT, Kolkata, 6. गाडᭅ फाईल /Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Kolkata