SUSHILA MARUTI MHATRE,RAIGAD V. ASSESSING OFFICER, ASSESSMENT UNIT, ITD

ITA 2787/PUN/2025

AI Insights

The case involves Sushila Maruti Mhatre, whose father's agricultural land was compulsorily acquired by the government in 1986 under the Land Acquisition Act, 1894. Following the acquisition, enhanced compensation including interest was awarded, which the appellant claimed was exempt from tax under section 10(37) of the Income Tax Act, 1961. The Assessing Officer taxed the interest as income, leading to the imposition of a penalty for concealment of income. The Tribunal's decision reversed the taxability of the interest and the associated penalty, referencing several judicial precedents that support the appellant's position.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 838229 (ITAT-PUNE)
• Duration Of Justice: 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 22-11-2025
• Other Referred Cases: CIT-vs-Ghanshyam (HUF), Movaliya Bhikhubhai Balabhai-vs-ITO-TDS, Rupesh Rashmikant Shah-vs-Union of India, Kusum Jayram Thakur Dhutum-vs-ITO, Sanjay Bhimrao Patil-vs-ITO, Anwar Ali Poolakkodan-vs-ITO, ITO-vs-Vinayak Hari Palled
• Laws Referred To: Income Tax Act, 1961, Land Acquisition Act, 1894
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHASHANK OJHA VIRTUAL
• Assessee Lawyers: GAURAV DINESH SHAH; SACHIN
• Keywords: Capital asset; Capital Gains; TDS; Earning of tax free income
• Section: 147; 56(2); 28

Judgement Text

" आयकर अपीलीय अधिकरण ”एस एम सी” न्यायपीठ पुणेमें। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “SMC” :: PUNE BEFORE MS.ASTHA CHANDRA, JUDICIAL MEMBER AND DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकरअपऩलसं. / ITA Nos.2786 & 2787/PUN/2025 निर्धारणवषा / Assessment Years: 2016-17 Sushila Maruti Mhatre, 625, At Post Chirner, Madhilpada, Chirner, Raigad – 410206. Vs Income Tax Officer. PAN:CRLPM0789G Appellant/ Assessee Respondent /Revenue Assessee by Shri Gaurav Dinesh Shah & Sachin Maheshwari Revenue by Shri Shashank Ojha – Sr.DR (Virtual) Date of hearing 12/02/2026 Date of pronouncement 19/02/2026 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: The ITA No.2786/PUN/2025 is an appeal filed by the Assessee against the order of Ld.Commissioner of Income Tax(Appeal)[NFAC], passed under section 250 of the Income Tax Act, 1961 for the A.Y.2016-17dated 25.09.2025 emanating from the Assessment Order passed under section 147 r.w.s144 read with section 144Bof the I.T.Act, 1961 dated 27.03.2022. Printed from counselvise.com ITA Nos.2786 &2787/PUN/2025 [A] 2 1.1 The ITA No.2787/PUN/2025 emanates from penalty order u/s.271(1)(c) of the Act, for A.Y.2016-17. 1.2 For the sake of convenience with consent of ld.AR for the Assessee and ld.DR for the Revenue, both the appeals were heard together and disposed by common order. We treat appeal in ITA No.2786/PUN/2025 as “Lead Appeal”. The grounds of appeal raised in ITA No.2786/PUN/2025 are as under : “1) The Hon CIT (A) erred in Upholding addition of Rs. 43,82,008/- made by Learned AO by relying upon the provisions of section 56(2)(viii) r.w.s. 57 (iv) r.w.s. 145A(b) of the IT Act, 1961, not appreciating that the said amount was interest granted u/s 28 of the Land Acquisition Act, 1894 and thus bore the character of enhanced compensation on acquisition of agricultural land situated Village Bokadvira, Tal Uran, Dist Raigad, Maharashtra and was therefore exempt from tax and the addition is required to be deleted. 2) The Appellant craves leave to add, alter, amend and/or vary the grounds of appeal at any time before the decision of the appeal.” Submission of ld.AR : 2. Ld.Authorised Representative(ld.AR) for the Assessee submitted that Assessee’s Father’s Agricultural Land was acquired by Government in 1986. Assessee’s Father has expired. In the Return of Income filed in response to notice u/s.148 of the Act, on 08.03.2022, Assessee had claimed the interest received under section 28 of the Land Acquisition Act as exempt income. In the Printed from counselvise.com ITA Nos.2786 &2787/PUN/2025 [A] 3 Return of Income, Assessee had shown Return of Income at Rs.13,500/-. Ld.AR submitted that Assessee’s Agricultural Land was compulsorily acquired. Ld.AR submitted that Agricultural Land is not a capital asset and hence, no capital gain is chargeable. 2.1 The relevant written submission of ld.AR is reproduced here as under : “1. The appellant is a Housewife not having income liable to tax for the year under appeal. The Appellant's father's agriculture land was compulsorily acquired under Land Acquisition Act. 1884. The additional compensation to the extent of her share was received during the year under consideration by Appellant. The appellant alongwith his other family members (co-owners) had received compensation for their agricultural lands at Village Bokadvira, Tal Uran, Dist Raigad. The said agricultural lands were compulsorily acquired by the State Government in the year 1986, under Section 4 of the Land Acquisition Act, 1894 for the New Bombay Project. 2. The appellant and his family members contested the award by way of a reference under The Land Acquisition Act, 1894, The Hon. Civil Judge, Senior Division, Raigad by way of order dt. 13.05.2013 granted Additional Compensation, Solatium as well as Additional Component u/s 23(1)(A) as well as Interest u/s section 28 of the Land Acquisition Act, 1894. 3. The interest component which is the subject matter of dispute is Rs. 81,79,189/- on which TDS of Rs. 8,17,919/- was deducted. 4. As the Additional Consideration (including interest/s 28 of LA Act) was received against compulsory acquisition of agricultural lands, the same was claimed as exempt as per the provisions of section 10(37) of the 1. T. Act, 1961. The fact that the acquired land are agricultural lands is not disputed by the Id AO/Hon. CIT (A). 5. The Id AO/Hon. CIT (A) have allowed the claim for exemption u/s 10(37) in respect of the Additional Compensation as well as Solatium received on compulsory acquisition of the agricultural lands, while at the same time holding that interest of Rs. 81.79,189/-received u/s 28 of the Land Acquisition Act, 1894 was liable to tax as provided by sections Printed from counselvise.com ITA Nos.2786 &2787/PUN/2025 [A] 4 56(2)(viii) r. w. s. 57(iv) and section 145A(b) of the L. T. Act, 1961. Deduction of 50% as per section 57(iv) is granted in respect of such interest income. 6. It is the claim of the appellant that interest as per section 28 of the Land Acquisition Act, 1894 is part of compensation for the acquired agricultural land and hence the same shall also be exempt from Income Tax u/s 10(37) of the 1. T. Act, 1961. 7 The issue that interest u/s 28 of the Land Acquisition Act, 1894 is part of Additional Compensation has undergone judicial examination. The appellant relies upon the under mentioned decisions in support of his claim. (i) CIT-vs-Ghanshyam (HUF), 315 ITR 1 (SC) [2009] (ii) MovaliyaBhikhubhaiBalabhai-vs-ITO-TDS, 70 taxmann.com 45 (Gujarat) [2016] (iii) Rupesh Rashmikant Shah-vs-Union of India, 108 tarmann.com 181 (Bombay) [2019] (iv) Kusum Jayram Thakur Dhutum-vs-ITO, 162 taxmann.com 388 (Pune - Trib.) [2024] (v) Sanjay Bhimrao Patil-vs-ITO, 150 taxmann.com 153 (Pune - Trib.) [2023] (vi) Anwar Ali Poolakkodan-vs-ITO 2025 TAXSCAN (HC) 516 [2025] (vii) ITO-vs-Vinayak Hari Palled, 99 taxmann.com 90 (Bangalore - Trib.) [2018] 8. The appellant submits that interest income of Rs. 81,79,189/-, being interest u/s 28 of the Land Acquisition Act, 1894, is part of compensation amount and therefore is also exempt from tax u/s 10(37). The ground of appeal may kindly be allowed.” Submission of ld.DR : 3. Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A). Ld.DR submitted that the acquired land was in a village near Uran, hence, it was a Printed from counselvise.com ITA Nos.2786 &2787/PUN/2025 [A] 5 capital asset. However, we brought to the notice of ld.DR that Assessing Officer has not discussed whether the land was capital asset or not! Therefore, we brought to the notice of ld.DR that Assessment Order cannot be improved at this stage. Findings & Analysis : 4. We have heard both the parties and perused the records. In this case, Agricultural Land of Assessee’s Father situated in BOKADVIRA Village, Taluka Uran, District Raigad was compulsorily acquired under Land acquisition Act on 25.11.1986 as noted from the judgment or Civil Court, Alibagh(page no.4 to 20 of the paper book). 5. Assessing Officer issued notice u/s.148 for A.Y.2016-17 on 31.03.2021 based on the information received on Portal of Income Tax Department. Then, Assessing Officer issued notice u/s.142 on various dates. Assessee filed Return of Income in response to notice u/s.148 on 08.03.2022 declaring total income at Rs.13,500/-. In the Return of Income, Assessee has claimed interest received on enhanced compensation under section 28 of Land Acquisition Act, of Rs.87,64,016/- as exempt income. Printed from counselvise.com ITA Nos.2786 &2787/PUN/2025 [A] 6 6. The Assessing Officer in the assessment order held that interest income of Rs.87,64,016/- received under section 28 of Land Acquisition Act, on enhanced compensation is taxable under section 56(2)(viii) of the Income Tax Act. Assessing Officer allowed deduction u/s.57(iv) of the Income Tax Act and taxed Rs.43,82,008/-. Aggrieved by the assessment order, Assessee filed appeal before ld.CIT(A). 7. Assessee relied on the decision of Hon’ble Supreme Court in the case of CIT Vs. Ghanshyam (HUF) 315 ITR 1 and other decisions before ld.CIT(A). The ld.CIT(A) upheld the assessment order. Aggrieved by the order of the ld.CIT(A), Assessee has filed appeal before this Tribunal. 7.1 Thus, the only issue before us is that whether interest received u/s.28 of the Land Acquisition Act on enhanced compensation is taxable under section 56(2)(viii) of the Income Tax Act or not! 8. It is an admitted fact that Assessee’s Father’s Agricultural Land was compulsorily acquired by the Government of Maharashtra in 1986 under the Land Acquisition Act. Printed from counselvise.com ITA Nos.2786 &2787/PUN/2025 [A] 7 9. Assessee’s father has expired. Senior Division Civil Judge, District Raigad vide his order dated 13.05.2013 has enhanced the compensation paid by the State Government of Maharashtra. 9.1 Admittedly, Assessee has received interest income of Rs.87,64,016/- under section 28 of the Land Acquisition Act, on enhanced compensation. 10. The Hon’ble Supreme Court in the case of CIT Vs. Ghanshyam(HUF) [2009] 315 ITR 1 vide order dated 16.07.2009 has observed as under, while explaining taxability under compulsory land acquisition : “14. The following conditions need to be satisfied for taxing a transaction as capital gains, viz., the subject-matter must be a capital asset, the transaction must fall in the definition of \"transfer\", there must be profit or loss called \"Capital Gains\" and that the taxpayer has claimed exemption in whole or in part by complying withlegal provisions (Like section 54F). …………….. 33.…………………..Interest under section 28 unlike interest undersection 34 is an accretion to the value, hence it is a part of enhanced compensation or consideration which isnot the case with interest under section 34 of the 1894 Act.” 101 Thus, Hon’ble Supreme Court held that interest income under section 28 of Land Acquisition Act is part of enhanced compensation. Printed from counselvise.com ITA Nos.2786 &2787/PUN/2025 [A] 8 11. Hon’ble Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai Vs. Income-tax Officer-TDS-1-Surat in Special Civil Application No.17944 of 2015 vide order dated 31.03.2016; 388 ITR 343 (Gujarat) has held as under : “13. The upshot of the above discussion is that since interest under section 28 of the Act of 1894, partakes thecharacter of compensation, it does not fall within the ambit of the expression \"interest\" as contemplated insection 145A of the I.T. Act. 12. Before the Hon’ble Gujarat High Court(supra), Revenue had taken the plea that Income Tax Act was amended w.e.f. 01.04.2010 and hence, decision of Hon’ble Supreme Court in the case of CIT Vs. Ghanshaym(HUF) was not applicable after the amendment. However, Hon’ble Gujarat High Court in para 11 held as under : “11………………………. 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 ITR400/[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).” 12.1 Thus, Hon’ble Gujarat High Court held that Hon’ble Supreme Court’s decision in the case of CIT Vs. Ghanshyam(HUF) is applicable even after the amendment introduced from 01.04.2010. Printed from counselvise.com ITA Nos.2786 &2787/PUN/2025 [A] 9 13. No contrary decision of Hon’ble Jurisdictional High Court has been brought to our notice. 14. ITAT Pune Bench in the case of Sanjay Bhimrao Patil Vs. ITO [2023] 200 ITD 575 vide order dated 08.02.2023 has held as under : “Therefore, respectfully following the decision of Hon'ble Jurisdictional High Court of Bombay in the case of Rupesh Rashmikant Shah (supra), we hold the interest received u/s. 28 of the Land AcquisitionAct would not fall within the ambit of the expression interest as envisaged u/s. 145A(b) of the Act, further,hold that the amendment by way of substitution of section 145A by Finance (No. 2) Act, 2009 w.e.f. 1-04- 2010 and amendment by way of insertion of clause (iii) in section 56(2) by Finance Act, 2009 would have noapplicability to the facts of the present case and in view of the same the order of CIT(A) in confirming theorder of AO is not justified. 14.1 Thus, the proposition of law laid down by Hon’ble Supreme Court, Hon’ble Gujarat High and ITAT Pune Bench is that the interest income under section 28 of Land Acquisition Act, is not taxable under section 56(2)(viii) of the Income Tax Act, 1961. 15. Respectfully following the decision of Hon’ble Supreme Court, Hon’ble Gujarat High Court and ITAT Pune Bench, the Ground No.1 raised by the Assessee is allowed. 15.1 Ground No.2 is general in nature, does not need adjudication, hence, dismissed as unadjudicated. Printed from counselvise.com ITA Nos.2786 &2787/PUN/2025 [A] 10 16. Accordingly, ITA No.2786/PUN/2025 for A.Y.2016-17 is allowed. ITA No.2787/PUN/2025(Penalty Appeal) 17. This appeal is against the ld.CIT(A)’s order dated 25.09.2025 confirming the penalty u/s.271(1)(c) of the Act, dated 01.03.2024 for A.Y.2016-17. For A.Y.2016-17, Assessing Officer had taxed the interest received u/s.28 of the Land Acquisition Act under section 56(2)(viii) of the Income Tax Act. Accordingly, Assessing Officer had levied penalty u/s.271(1)(c) of the Act, alleging concealment of income. 18. In this case, in ITA No.2786/PUN/2025 we have already held that interest received by Assessee u/s.28 of Land Acquisition Act is not taxable under section 56(2)(viii) of the Income Tax Act. Therefore, penalty cannot be sustained, accordingly, we direct Assessing Officer to delete the penalty. Even otherwise, Assessee has not concealed any income. In the Return of Income, Assessee had claimed the impugned interest income as exempt. Therefore, even on this ground, penalty u/s.271(1)(c) is not sustainable. Accordingly, grounds of appeal raised by the Assessee are allowed. Printed from counselvise.com ITA Nos.2786 &2787/PUN/2025 [A] 11 19. In the result, appeal in ITA No.2787/PUN/2025 is allowed. 20. To sum up, both appeal of the assessee are allowed. Order pronounced in the open Court on 19 February, 2026. Sd/- Sd/- ASTHA CHANDRA Dr.DIPAK P. RIPOTE JUDICIAL MEMBER ACCOUNTANT MEMBER पपणे / Pune; ददिधंक / Dated : 19 Feb, 2026/ SGR आदेशकीप्रनिनलनपअग्रेनषि / Copy of the Order forwarded to : 1. अपऩलधर्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. नवभधगऩयप्रनिनिनर्, आयकर अपऩलऩय अनर्करण, “एस एम सऩ” बेंच, पपणे / DR, ITAT, “SMC” Bench, Pune. 6. गधर्ाफ़धइल / Guard File. आदेशधिपसधर / BY ORDER, / / TRUE COPY / / सहधयक रनिस्ट्रधर /Assistant Registrar आयकर अपऩलऩय अनर्करण, पपणे/ITAT, Pune. Printed from counselvise.com "