Income Tax Appellate Tribunal - Pune
Rikhabchand M. Lalwani (Huf) vs Joint Commissioner Of Income Tax ... on 31 July, 2003
Equivalent citations: (2003)81TTJ(PUNE)964
ORDER
Income of block period assessed by assessing officer without proper verification and inquiry Catch Note:
At the time of framing of block assessment neither trading account nor profit and loss account and balance sheet were made available to the assessing officer. The same furnished only on show-cause notice issued under section 263. On facts, it is clear that the assessing officer passed block assessment without verification of certain details and necessary investigation was also not made. The order of block assessment passed by the assessing officer was thus clearly erroneous and prejudicial to revenue. Revision under section 263 justified.
Ratio:
On facts, it is clear that the assessing officer passed block assessment without verification of certain details and necessary investigation was also not made. The order of block assessment passed by the assessing officer was thus clearly erroneous and prejudicial to revenue. Revision under section 263 justified.
Held:
It is seen from the perusal of the order of Commissioner that there is categorical assertion by the Commissioner that on perusal of the records of the assessing officer available at the time of assessment that the submissions of the assessee was not correct and there was no such profit and loss account and balance sheet as stated by the assessee. In such circumstances, the conclusion of the Commissioner was that the income of the various assessment years had not been computed by the assessing officer after a proper enquiry and verification. A perusal of the order of assessment indicates that the assessing officer had merely repeated the details given by the assessee and had not carried any investigation or verification. It is difficult to accept the plea of the assessee that the fact that no additions have been made by the assessing officer would not mean that no verification was made by the assessing officer. The action under section 263 is warranted on this ground. As far as the variation of the rent receipts is concerned, it was only in reply to the show-cause notice that the required details were furnished by the assessee. The plea of the assessee in this regard was that nothing prevented the Commissioner to examine the issue on the basis of the reply given by the assessee to the show-cause notice issued under section 263. There was a discretion vested in the Commissioner whether to examine the issue or to set aside the issue for reconsideration by the assessing officer. The assessee cannot, as a matter of right insist that the Commissioner should carry out the necessary investigation and render his findings in this regard in the proceedings under section 263. The action of the Commissioner was justified in this regard. As far as computation of capital gains on compensation received by the assessee relating to the assessment year 1991-92 falling, within the block period is concerned, the assessee had claimed huge expenses. According to the Commissioner, the assessing officer had not looked into the details of these expenses. Even with regard to the variation in agricultural income, the plea of the assessee is similar to the plea with regard to the computation of capital gain on compensation received for acquisition of lands. No merits are found in the submission of the learned counsel for the assessee. On perusal of the order of assessment it clearly reveals that the assessing officer did not carry out the necessary investigations and the order of the assessing officer is erroneous to this extent. The Commissioner was therefore justified in coming to the conclusion that the order of the assessing officer was erroneous and prejudicial to the interest of the revenue. He was, therefore, justified in setting aside the assessment in this regard and directing the assessing officer to recompute the undisclosed income.
Application:
Also to current assessment year.
Decision:
In favour of revenue.3 Assessment Year:
Block period : 1989-90 to 1999-2000 Cases Referred:
CIT v. Shah Constructions Co. Ltd. (1999) 10 DTC 387 (Bom-HC) : (1999) 237 ITR 814 (Bom), CIT v. Smt. M. Sarojini Devi (2002) 25 DTC 157 (AP-HC) : (2001) 250 ITR 759 (AP), Jehangir P. Vazifdar v. ITO (1992) 42 ITD 67 (Bom-Trib), Smt. Ramabai v. CIT (1990) 181 ITR 400 (SC) and Sureshkumar B. Jain v. Dy. CIT (ITA No. 1271/Pn/1992, dated 4-2-1994).
Income Tax Act 1961 s.263 Capital gains--ACCRUALEnhanced compensation on acquisition of land--Quantum of compensation challenged before higher forum Catch Note:
While completing block assessment the assessing officer did not consider the amount of enhanced compensation received by the assessee as same was challenged before the higher forum. The Commissioner invoking section 263 set aside the order passed by the assessing officer. The Commissioner also considered the clause (c), inserted by the Finance Act 2003 to section 45(5) with effect from 1-4-2003. The enhanced compensation received by the assessee was not taxable in the hands of the assessee as income till the quantum of enhanced compensation awarded is subject-matter of proceedings before the appellate forum by the State Government and the quantum has not attained finality, this is also true as regard to interest on enhanced compensation is concerned. Further, insertion of clause (c) to section 45(5) is of no consequence because the effect of clause (c) on existing provisions is matter of debate.
Ratio:
The enhanced compensation received by the assessee was not taxable in the hands of the assessee as income till the quantum of enhanced compensation awarded is subject-matter of proceedings before the appellate forum by the State Government and the quantum has not attained finality, this is also true as regard to interest on enhanced compensation is concerned. Further, insertion of clause (c) to section 45(5) is of no consequence because the effect of clause (c) on existing provisions is matter of debate.
Held:
The existence of the dispute is material and not the fact that the money is withdrawn from court on furnishing security or without furnishing any such security. If the decree of the lower court is reversed the unsuccessful party is bound to restore the status quo ante prior to the passing of the decree against which the appeal had been filed. This is the principle of restitution as laid down in section 144 of the Civil Procedure Code.
An argument was advanced on behalf of the revenue that with effect from 1-4-2003, there has been an amendment to the Act, whereby clause (c) to section 45(5) has been introduced whereby it has been provided that where the amount of the compensation or consideration is subsequently reduced by any court, Tribunal or other authority, the capital gain of that year in which the compensation or consideration received was taxed shall be recomputed accordingly. This amendment according to the revenue can only mean that the provisions of section 45(5) contemplate a situation where even when the dispute is not finally settled, enhanced compensation can be taxed on receipt basis. This argument cannot be accepted, firstly for the reason that the Commissioner while exercising his jurisdiction under section 263 has to go back to the order of assessment which he is seeking to revise and apply the legal position as it existed on that date and cannot seek to rely on any subsequent development. There are enough provisions in the Act for rectification and assessing income escaping assessment to take care of any such subsequent events and the Commissioner cannot on that ground seek to exercise his jurisdiction under section 263. Secondly, whether insertion of clause (c) will be of any consequence so long as by virtue of clause (b) only the amount received by the assessee as enhanced compensation is taxable on the proceedings for enhanced compensation attaining finality, is again the matter of debate. So long as the provisions of section 45(5) stand as it is without there being any amendment thereto to nullify the view taken by the various Benches of the Tribunal, the insertion of clause (c) is of no consequence.
Therefore, the enhanced compensation received by the assessee was not taxable in the hands of the assessee as income till the quantum of enhanced compensation awarded is subject-matter of proceedings before the appellate forum by the State Government and the quantum has not attained finality.
Case Law Analysis:
CIT v. Hindustan Housing & Land Development Trust Ltd. (1986) 161 ITR 524 (SC), Smt. Gulabsundri Bapna v. Dy. CIT (2001) 79 ITD 455 (Del-Trib), Asstt. CIT v. Smt. Mangala S. Mutha (ITA No. 315/Pn/1995, dated July, 2002), CIT v. Abdul Mannan Shah Mohammed (2001) 248 ITR 614 (Bom), CIT v. Jeevan & Sons (2000) 17 DTC 612 (Raj-HC) : (2001) 116 Taxman 565 (Raj), Ramanathan Chetiar & Ors. v. Ramanathan Chetriar AIR 1968 SC 1047, Produce Brokers Co. v. Oil Olympia & Cake Co. (1916) 1 AC 314, Union of India v. Kamalakshi Finance Corpn. Ltd. (1991) 55 ELT 433 (SC) and Bank of Baroda v. H.C. Srivastav (2002) 256 ITR 385 (Bom) relied on. Polyflex India (P) Ltd. v. CIT (2003) 30 DTC 262 (SC) : (2002) 257 ITR 343 (SC) distinguished.
Application:
Also to current assessment year.
Decision:
In favour of assessee.3 Assessment Year:
Block period : 1989-90 to 1999-2000 Income Tax Act 1961 s.45(5) Search and seizure--BLOCK ASSESSMENTComputation of undisclosed income--Enhanced compensation, quantum of which challenged before higher forum Catch Note:
The amount of enhanced compensation received by the assessee cannot be held to be income of the assessee at all, therefore, the receipt of enhanced compensation was disclosed or not is purely an academic question and therefore there was no case for the Commissioner to exercise jurisdiction under section 263. The receipt of enhanced compensation by the assessee cannot be said to be undisclosed income of the assessee which could have been subjected to tax as undisclosed income of the block period.
Ratio:
The receipt of enhanced compensation by the assessee cannot be said to be undisclosed income of the assessee which could have been subjected to tax as undisclosed income of the block period.
Held:
The amount of enhanced compensation received by the assessee cannot be held to be income of the assessee at all. Consequently the question whether these incomes were undisclosed does not arise for consideration at all. An assessee is not under any obligation to disclose in his return receipt of money by him which does not partake the character of income and non-disclosure of the same would not attract the provisions of section 132(1)(c) of the Act. In view of the above, the question whether the receipt of enhanced compensation was disclosed or not is purely an academic question and, therefore, there was no case for the Commissioner to exercise jurisdiction under section 263 on this ground also. The receipt of enhanced compensation by the assessee cannot be said to be undisclosed income of the assessee which could have been subjected to tax as undisclosed income of the block period.
Case Law Analysis:
L.R. Gupta & Ors. v. Union of India & Ors. (1992) 194 ITR 32 (Del) applied.
Application:
Principle enunciated in this case is applicable to current assessment year also Decision:
In favour of assessee.3 Assessment Year:
Block period : 1989-90 to 1999-2000 Income Tax Act 1961 s.158BC Revision under s. 263--ERRONEOUS AND PREJUDICIAL ORDERIncome of block period assessed by assessing officer without proper verification and inquiry Catch Note:
At the time of framing of block assessment neither trading account nor profit and loss account and balance sheet were made available to the assessing officer. The same furnished only on show-cause notice issued under section 263. On facts, it is clear that the assessing officer passed block assessment without verification of certain details and necessary investigation was also not made. The order of block assessment passed by the assessing officer was thus clearly erroneous and prejudicial to revenue. Revision under section 263 justified.
Ratio:
On facts, it is clear that the assessing officer passed block assessment without verification of certain details and necessary investigation was also not made. The order of block assessment passed by the assessing officer was thus clearly erroneous and prejudicial to revenue. Revision under section 263 justified.
Held:
It is seen from the perusal of the order of Commissioner that there is categorical assertion by the Commissioner that on perusal of the records of the assessing officer available at the time of assessment that the submissions of the assessee was not correct and there was no such profit and loss account and balance sheet as stated by the assessee. In such circumstances, the conclusion of the Commissioner was that the income of the various assessment years had not been computed by the assessing officer after a proper enquiry and verification. A perusal of the order of assessment indicates that the assessing officer had merely repeated the details given by the assessee and had not carried any investigation or verification. It is difficult to accept the plea of the assessee that the fact that no additions have been made by the assessing officer would not mean that no verification was made by the assessing officer. The action under section 263 is warranted on this ground. As far as the variation of the rent receipts is concerned, it was only in reply to the show-cause notice that the required details were furnished by the assessee. The plea of the assessee in this regard was that nothing prevented the Commissioner to examine the issue on the basis of the reply given by the assessee to the show-cause notice issued under section 263. There was a discretion vested in the Commissioner whether to examine the issue or to set aside the issue for reconsideration by the assessing officer. The assessee cannot, as a matter of right insist that the Commissioner should carry out the necessary investigation and render his findings in this regard in the proceedings under section 263. The action of the Commissioner was justified in this regard. As far as computation of capital gains on compensation received by the assessee relating to the assessment year 1991-92 falling, within the block period is concerned, the assessee had claimed huge expenses. According to the Commissioner, the assessing officer had not looked into the details of these expenses. Even with regard to the variation in agricultural income, the plea of the assessee is similar to the plea with regard to the computation of capital gain on compensation received for acquisition of lands. No merits are found in the submission of the learned counsel for the assessee. On perusal of the order of assessment it clearly reveals that the assessing officer did not carry out the necessary investigations and the order of the assessing officer is erroneous to this extent. The Commissioner was therefore justified in coming to the conclusion that the order of the assessing officer was erroneous and prejudicial to the interest of the revenue. He was, therefore, justified in setting aside the assessment in this regard and directing the assessing officer to recompute the undisclosed income.
Application:
Also to current assessment year.
Decision:
In favour of revenue.3 Assessment Year:
Block period : 1989-90 to 1999-2000 Cases Referred:
CIT v. Shah Constructions Co. Ltd. (1999) 10 DTC 387 (Bom-HC) : (1999) 237 ITR 814 (Bom), CIT v. Smt. M. Sarojini Devi (2002) 25 DTC 157 (AP-HC) : (2001) 250 ITR 759 (AP), Jehangir P. Vazifdar v. ITO (1992) 42 ITD 67 (Bom-Trib), Smt. Ramabai v. CIT (1990) 181 ITR 400 (SC) and Sureshkumar B. Jain v. Dy. CIT (ITA No. 1271/Pn/1992, dated 4-2-1994).
Income Tax Act 1961 s.263 ORDER N.V. Vasudevan, J.M.
1. All these appeals involve some common issues and were heard together and are therefore being disposed by a common order for the sake of convenience.
2. ITA No. 748/PN/2002 is an appeal by the assessee against the order dt. 22nd March, 2002 of CIT-II, Nashik passed in exercise of his powers under Section 263 of the IT Act setting aside the order of assessment dt. 29th March, 2000 passed by the Jt. CIT, Special Range-I, Nashik under Section 158BC(c) r/w Section 143(3) of the IT Act relating to the block period from asst, yr. 1989-90 to 1999-2000.
3. ITA No. 312/PN/2002 is an appeal by the Revenue against the order dt. 20th Dec., 2001 of CIT(A)-II, Nashik for the asst. yr, 1998-99. Since both these appeals involve a common issue, we find it convenient to dispose of the same by a consolidated order for the sake of convenience.
First we shall take up ITA No, 748/Pn/2002 the appeal by the assessee.
4. There was a search under Section 132 of the Act on 17th Nov., 1998 at the premises of the assessee and there, were similar search carried out in the case of Lalwani Group. The assessee was a person belonging to the said group. In the course of search, certain assets were found namely gold ornaments, silver utensils, National Saving Certificates, furniture, investment in sony music system, shares etc. In the block assessment proceedings, the assessee filed a return of income declaring undisclosed income of Rs. 12,64,075. The AO completed the block assessment by accepting the income returned by the assessee.
5. One of the issue that came up for consideration in the course of block assessment proceedings and which is the main issue that arises for consideration in this appeal was the question of taxability of enhanced compensation which the assessee received in respect of compulsory acquisition of his agriculture lands. The assessee owned lands to the extent of 8 hectors and 72R in Survey No. 383 at Manmad, Nashik Dt. This land was acquired by the special land acquisition officer, Nashik vide notification dt. 26th March, 1981. The possession of the land was taken on 26th Sept., 1983 by invoking the urgency clause. A sum of Rs. 1,74,400 was paid on 12th Dec., 1983 as advance pending passing of the award by the Collector. The assessee had deposited this receipt in his saving a/c No. 6162 with the Bank of Maharashtra.
Thereafter, the assessee received the following compensation as per the award of the Collector: Date Amount (Rs.) 27-04-1987 1,97,880 12-03-1991 3,79,801 12-03-1991 2,63,750 The assessee was not satisfied with the amount awarded by the Collector and therefore a reference was made to the Jt. District Judge, Nashik for enhanced cdmpensation. The District Judge by his judgment and decree dt. 28th June, 1996 directed payment of enhanced compensation of Rs. 83,65,261 upto 23rd Sept., 1986 together with future interest at 15 per cent per annum from 24th Sept., 1986, till the realization of the sum of Rs. 60,10,054. The Government of Maharashtra did not accept the judgment and decree of Jt. District Judge at Nashik granting enhanced compensation and therefore it filed an appeal before the Hon'ble High Court. The State Government also sought stay of the execution of the judgment and decree of the Jt. District Judge at Nashik before the Hon'ble High Court. The application for stay was considered by the Hon'ble High Court and by their order dt. 6th Dec., 1996, the Hon'ble High Court directed the Government to deposit 30 per cent of total decretal amount into Court and the assessee was permitted to withdraw the amount deposited on furnishing a personal bond. Subject to the said deposit the Hon'ble High Court stayed the execution of decree of the Jt. District Judge, Nashik. The State Government in the appeal had challenged the entire decree awarding enhanced compensation and the prayer was that the award by the Collector was proper and the reference at the instance of the land owner ought to have been dismissed by the District Judge, Nashik. The Government deposited a sum of Rs. 51,45,590 on 30th May, 1997 as per the directions of the Hon'ble High Court and the amount of Rs. 51,45,590 was paid to the assessee and the same was credited in the cash book of the assessee on 10th July, 1997.
6. In the block assessment proceedings, the AO had made a reference about the taxability of capital gain arising out of the compulsory acquisition of the land belonging to the assessee. The AO observed that the assessee received enhanced compensation in the month of July, 1997 and had utilized the amount so received in his regular business. He therefore concluded that taxability of capital gains will have to be examined only in the regular assessment for asst. yr. 1998-99. He therefore held that the issue of capital gain will not be considered in the assessment for the block period. The AO accordingly completed the block assessment by his order dt. 29th March, 2000 accepting the return of income for the block period filed by the assessee without making any additions whatsoever.
7. The AO issued notice under Section 147 for the asst. yr. 1998-99, in the case of the assessee. The said notice was issued for the purpose of taxing enhanced compensation which the assessee had received in the previous year. According to the AO, in the course of block assessment proceedings it had come to his notice that the assessee had received enhanced compensation in respect of compulsory acquisition of his land at Manmad and the said capital gain was a long-term capital gain assessable to tax for asst. yr. 1998-99. Since the assessee did not file any return of income in this regard, notice under Section 147 was issued to tax the income that had escaped assessment. In respect of this notice under Section 147, the assessee filed a return of income in which he did not offer any long-term capital gain for taxation on the ground that enhanced compensation received by the assessee was not liable to tax in the asst. yr. 1998-99. According to the assessee, since the amount received was in dispute and no finality has been attained in view of the appeal filed by the State against the judgment and decree of the Jt. District Judge, Nashik, no income, in the strict sense of the term, accrued to the assessee. According to the assessee, the amount received assumes the character of compensation received only when the dispute reaches its finality by the highest forum, The assessee relied on the decision of Hon'ble Supreme Court in the case of CIT v. Hindustan Housing and Laud Development Trust Ltd. (1986) 161 ITR 524 (SC). The assessee also relied on the following decisions of the various Benches of Tribunal in which it was held that enhanced compensation cannot be taxed if the same is challenged by either of the parties and finality had not been arrived at on the exact quantum of enhanced compensation that would be payable to the assessee.
1. Jehangir P. Vazifdar v. ITO (1992) 42 ITD 67 (Bom);
2. Sureshkumar B. Jain v. Dy. CIT (ITA No. 1271/Pn/1992, dt. 4th Feb., 1994, Pune);
3. Smt. Gulabsundri Bapna v. Dy. CIT (2001) 79 ITD 455 (Del);
4. Asstt. CIT v. Smt. Mangala Section Mutha (ITA No. 315/Pn/1995, dt. July, 2002, Pune).
The AO however did not accept the contention of the assessee and he held that the decision of the Hon'ble Supreme Court was rendered on 29th July, 1986 and the decision of the Tribunal had followed the decision of the Hon'ble Supreme Court. According to the AO, the provisions of Section 45(5) was inserted in the Act by the Finance Act, 1987 w.e.f. 1st April, 1988. In his opinion, the provisions of Section 45(5) provide that the money received by the assessee as enhanced compensation irrespective of the finality of the litigation regarding the quantum of enhanced compensation is taxable on receipt basis. He therefore, held that the sum of Rs. 51,45,490 being the amount received by withdrawal from the Court was taxable. He worked out the taxable long-term capital gain at Rs. 13,87,190. In this regard another aspect which is worthwhile to mention is that the AO gave a deduction in respect of cost of acquisition while arriving at the taxable long-term capital gain. According to the provisions of Section 45(5) in the case of enhanced compensation the deduction to be given in respect of cost of acquisition was 'NIL' (nothing was to be deducted towards cost of acquisition). It is worthwhile to mention that this order of assessment was subject-matter of appeal preferred by the assessee before the CIT(A)-II, Nashik and the CIT, Nashik by his order dt. 20th Dec., 2001, held that the enhanced compensation received by the assessee cannot be subjected to tax in the asst. yr. 1998-99, In coming to the above conclusion, the CIT(A)-II, Nashik followed the decision of Pune, Delhi and Bombay Benches of the Tribunal. Thus the appeal of the assessee was allowed holding that the amount withdrawn by the assessee from Court and being the part of the enhanced compensation awarded by the Jt. District Judge, Nashik cannot be subjected to tax till the litigation attains it's finality.
8. In the light of the above facts, the CIT-II, Nashik in exercise of his powers under Section 263 issued a show-cause notice on 7th Jan., 2002, which was a combined show-cause notice in respect of the order of assessment for the block period as well as the order of assessment for asst. yr. 1998-99. In the opinion of the CIT, the order of assessment for the asst. yr. 1998-99 and also the order of assessment by the AO for the block period from 1st April, 1988 to 17th Nov., 1998, was erroneous and prejudicial to the interest of the Revenue. The reply of the assessee to the show-cause notice was that the issue raised by the CIT in the show-cause notices had already been considered by the CIT(A) in the appeal filed by the assessee against the order of assessment for asst. yr. 1998-99, wherein the CIT(A) held that enhanced compensation received is not taxable in view of the pendency of dispute regarding the grant of enhanced compensation and the dispute had not attained finality in view of the appeal preferred by the State Government. Since the decision on the issue raised had already merged in the order of CIT(A) the CIT cannot seek to exercise of his jurisdiction under Section 263 of the Act.
9. In view of the aforesaid reply of the assessee, separate show-cause notices were issued under Section 263 on 24th Jan., 2002, one seeking to revise the order of assessment for the block period and another seeking to revise the order of assessment for asst. yr. 1998-99. The authorized representative of the assessee filed written submission wherein he again pointed out that as far as order of assessment for asst. yr. 1998-99 in concerned, the assessee has already filed an appeal against the order of assessment of the AO and the CIT(A) in the said appeal had already deleted the addition made in the order of assessment regarding the capital gains of compulsory acquisition of his land. In view of this, it was submitted that the proposed actions under Section 263 was not maintainable. The CIT however held that the regular assessment for the asst. yr. 1998-99 was alone subject to appeal before the CIT(A). The order of assessment for block period was not subject-matter of any appeal and therefore in respect of the order of assessment of block period, the CIT has jurisdiction under Section 263. The CIT thereafter proceeded to exercise his jurisdiction under Section 263 by considering the reply of the assessee to the show-cause notice issued for revising the order of assessment for the block period.
10. In the show-cause notice issued under Section 263 of the Act, seeking to revise the order of assessment passed for the block period, the CIT has pointed out that there were basically three errors in the orders of the AO which were as follows :
(a) enhanced compensation received by the assessee during the previous year relevant to asst. yr. 1989-90 which was part of the block period was not considered as undisclosed income.
(b) the interest on enhanced compensation awarded by the Court was to be considered as accrued to the assessee and taxed for the period comprised in the block period as undisclosed income on accrual basis from year to year.
(c) the AO failed to carry out necessary enquiry and verification regarding agricultural income, income from house property disclosed in respect of the various previous years comprised in the block period, the details of which were filed by the assessee alongwith the return of income filed for the block period.
11. The reply of the assessee in respect of the order of assessment for the block period was as follows :
(a) That the assessee had withdrawn money from Court only on furnishing the security. In the event of Hon'ble High Court reversing the order of Jt. District Judge, Nashik, the money will have to be refunded and the question of taxing the said receipt under the head capital gains cannot arise for consideration at all. The assessee relied on the decisions which we have already referred to above. It was also submitted that since the payments were by a/c payee cheques and the payments have been duly gazetted, the same cannot be construed as undisclosed income.
(b) With regard to taxation of interest on enhanced compensation the plea of the assessee was that when enhanced compensation itself is not liable to tax, the question of taxing interest on enhanced compensation will not arise for consideration at all. What applies to enhanced compensation will equally apply to interest on enhanced compensation also and the same will not assume the character of income in the hands of the assessee until conclusion of the proceedings relating to grant of enhanced compensation.
(c) With regard to the failure on the part of the AO to make necessary enquiries with regard to income from business, agricultural income, income from house property disclosed as undisclosed income in the various previous years comprised in the block period, the plea of the assessee was that P&L a/c, balance sheet were filed and the reason for change in income from house property was also explained and the AO was satisfied with the explanation of the assessee.
12. The reply of the assessee on the above issue was considered by the CIT and he held that the order of assessment for the block period was erroneous for the following reasons :
(1) The capital gain which accrued to the assessee by virtue of receipt of enhanced compensation from the State Government had not been subjected to tax in the block assessment. The reason given by the AO in the block assessment order was that the assessee had utilized the amount of compensation received in his regular business and therefore the same will be taken up for consideration only in the assessment for the relevant assessment year namely asst. yr. 1998-99. According to the CIT, the fact that the compensation received was utilized in the business of the assessee would not make any difference. Since the assessee did not disclose this income by filing a return of income for the relevant assessment years within the due date for filing of return of income as per the provisions of IT Act the entire capital gain ought to have been construed as undisclosed income. The CIT relied on the provisions of Section 158BB(l)(c) in this regard. According to the CIT, the income from capital gains if it had been considered in the block period would have been subjected to tax at higher rate of tax than the rate of tax applicable in the assessment made under Section 143(3) and there is therefore loss to the Revenue.
(2) The CIT further held that the crux of the assessee's argument was that where enhanced compensation is subjected to appeal before an appellate forum and since the dispute has not attained its finality, the amount received by the assessee cannot be said to be compensation received and in making the above submission the assessee had placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Hindustan Housing and Land Development Trust Corpn. (supra). He held that the decision of the Hon'ble Supreme Court and the decisions of the Tribunal on which the assessee placed reliance will not be applicable to the present case. The conclusions of the CIT in this regard can be divided into three parts. In the first part the CIT discussed various rules of statutory interpretation and finally came to the conclusion that the amendment made to the provisions of Section 45(5) clearly contemplate that the enhanced compensation is liable to be taxed on its receipt by the assessee irrespective of the final outcome in the proceedings that may be preferred either by the assessee or by the State. He also held that the decision of the Hon'ble Supreme Court was rendered in the context of the provisions prior to insertion of Section 45(5) and the provisions of Section 45(5) override the decisions of the Hon'ble Supreme Court. In the second part, the CIT dealt with the decision of the Hon'ble Tribunal which was rendered in the context of Section 45(5) of the Act which followed the decisions of the Hon'ble Supreme Court in the case of CIT v. Hindustan Housing and Land Development Corpn. (supra) by holding that the Tribunal had overlooked the provisions of Section 45(5) which were meant mainly for taxing the enhanced compensation on receipt basis irrespective of outcome or its finality of the proceedings relating to grant of additional compensation. The CIT in this regard referred to Circular No. 495 dt. 22nd Sept., 1987 and also the clarification given by the Finance Minister while introducing the Finance Bill, 1987 wherein the provisions of Section 45(5) were inserted in the Act. Thereafter, in the third part he analysed the provisions of Section 45(5) and came to the conclusion that the words 'shall be deemed to be the income of the previous year in which such amount is received by the assessee,' found in Section 45(5) can only mean that it is a deeming provision whereby irrespective of the finality of the litigation the amount has to be taxed on receipt basis. According to him, since the assessee has received the amount, the same ought to have been subjected to assessment in the asst. yr. 1998-99, He thereafter commented on the decisions of the Tribunal Benches in which the assessee placed reliance and held that the same was not binding on him. The reasons stated by the CIT in this regard are that several decisions of Hon'ble Supreme Court have laid down that certain principles of interpreting the provisions of Section 45(5) and therefore the decision cannot be said to be binding precedent. The CIT thereafter took up other submissions made by the assessee. He concluded that since the return of income had not been filed prior to the date of search for asst. yr. 1998-99 the receipt of enhanced compensation has to be held as undisclosed income. The CIT accordingly directed the AO to treat the enhanced compensation as undisclosed income of the assessee for block period. The order of the AO was thus held to be erroneous and prejudicial to the interest of the Revenue.
(3) For similar reasons he also held that interest on enhanced compensation which was also referred to in the show-cause notice issued under Section 263 was to be taxed on year to year basis spread over the various assessment years included in the block period. Since there was no mention about the interest on enhanced compensation in the order of assessment, the CIT directed the AO to compute interest accrued to the assessee on the enhanced compensation from year to year for the whole block period and include the same in the total undisclosed income of the assessee, The order of the AO was thus held to be erroneous and prejudicial to the interest of the Revenue.
(4) The returns for the asst. yrs. 1992-93 to 1998-99 had not been filed by the assessee. The income in respect of this period was accepted by the AO without verifying and applying his mind with regard to income from agriculture disclosed by the assessee or income from house property disclosed by the assessee. The order of assessment without enquiry in respect of these matters was held by CIT to be erroneous and prejudicial to the interest of the Revenue.
The CIT gave his final directions to the AO which reads as follows :
'The show-cause under Section 263 has been in respect of three points discussed above: calculation of capital gains under Section 45(5) on the enhanced compensation, calculation of taxable interest on due basis from year to year on the compensation amount and verification and scrutiny of total income shown for different assessment years. These may have a bearing on one another. Therefore, it will be appropriate to set aside the assessment order for the block period so that the AO can compute the undisclosed income for the block period afresh: Accordingly, the assessment order for the block period is set aside to be made afresh by the AO after giving adequate opportunity to the assessee of being heard and furnishing details and information.'
13. At this juncture, it is useful to point out that while in respect of taxing enhanced compensation and interest on enhanced compensation the CIT had given a specific direction revising the order of the AO by directing him to include them as undisclosed income for the block period, the question of computation of undisclosed income after verifying the agricultural income and other incomes and income from house property was remanded to the AO for fresh determination after making necessary enquiries.
14. Aggrieved by the order of the CIT passed under Section 263 partly revising the order of block assessment and setting aside a part of the order of block assessment as stated above, the assessee had preferred the present appeal i.e., ITA No. 748/PN/2002.
15. We have heard the elaborate submission on behalf of the Department and also on the side of the assessee. The issues that arise for our consideration in this appeal may be briefly stated as follows :
1. Whether the CIT was justified in coming to the conclusion that the order of assessment of the AO passed for the block period was erroneous and prejudicial to the interest of the Revenue on the ground that (a) enhanced compensation received by the assessee during the previous year relevant to asst. yr. 1989-90 which was part of the block period was not considered as undisclosed income (b) the interest on enhanced compensation awarded by the Court was to be considered as accrued to the assessee and taxed for the period comprised in the block period as undisclosed income on accrual basis from year to year and on these grounds directing the AO to treat the aforesaid incomes as undisclosed income for the block period ?
If enhanced compensation received by the assessee by virtue of interim order of the Hon'ble High Court pending disposal of the appeal by the State Government on furnishing of personal bond security, cannot be considered as income in the hands of the assessee on the ground that the proceedings relating to grant of the same have not attained finality in view of the appeal by the State Government before the Hon'ble High Court, then the question of taxing the interest awarded on enhanced compensation will assume the same character as that of enhanced compensation and therefore the same would not be income in the hands of the assessee. The answer to part (a) and (b) of the above question would therefore depend on the following question :
2. Whether the enhanced compensation received by the assessee was taxable in the hands of the assessee as income despite the fact that the quantum of enhanced compensation awarded is subject-matter of proceedings before the appellate forum by the State Government and the quantum has not attained finality ?
3. If the answer to the above question is in the affirmative whether the same would constitute as undisclosed income which can be subject-matter of an assessment in proceedings under Chapter XIV-B relating to taxing undisclosed income discovered as a result of search ?
4. Whether the findings of the CIT that the AO failed to carry out necessary enquiry and verification regarding agricultural income, income from house property disclosed in respect of the various previous years comprised in the block period and on that ground whether the CIT was justified in holding that the order of the AO was erroneous and prejudicial to the Revenue and whether the CIT was justified in setting aside the order of the AO on this issue with a further direction to the AO to conduct the necessary enquiries and investigations and decide the issue afresh ?
16. We shall first take up the second issue for consideration. The facts regarding the award of enhanced compenstion are not in dispute. The assessee was awarded enhanced compensation and also interest on enhanced compensation by the Jt. District Judge, Nashik. The State Government was aggrieved by the order of the Jt. District Judge and it preferred appeal before the Hon'ble High Court. The grounds of appeal of the State Government also included a ground to the effect that the learned Jt. District Judge erred in allowing the reference filed by the assessee. The State Government sought stay of execution of the judgment, decree and order of the learned Jt. District Judge before the Hon'ble High Court pending disposal of their appeal. The Hon'ble High Court passed the following order :
'On appellant/petitioner depositing 30 per cent of the total decretal amount in the trial Court, within eight weeks from today, rule and interim relief in terms of prayer Clause (a).
The trial Court is directed to allow the respondent No. 1-claimant to withdraw the amount deposited by the appellant/petitioner on furnishing personal bond.' It is pursuant to this order of the Hon'ble High Court that the assessee withdrew a sum of Rs. 51,45,490 from Court deposit and the sum was credited in the books of accounts of the assessee on 10th July, 1997 falling within the previous year 1997-98 relevant to asst. yr. 1998-99. The question is what is the character of the receipt of this sum in the hands of the assessee and whether the same would be considered as income which can be subjected to tax. This will necessarily take us to the provisions of the IT Act, 1961 as well as the decisions of the Hon'ble Supreme Court and Hon'ble High Courts on this issue.
17. Provisions of Section 45 (in so far as they are relevant for the purpose of the present case) which is the charging section as far as charge to tax on capital gains reads as follows :
Capital gains:
Sec. 45 : (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Section 54 ..... be chargeable to income tax under the head 'capital gains', and shall be deemed to be the income of the previous year in which the transfer took place.
(5) Notwithstanding anything contained in sub-s. (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any Court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely :
(a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head capital gains of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received, and
(b) the amount by which the compensation or consideration is enhanced or further enhanced by the Court, Tribunal or other authority shall be deemed to be income chargeable under the head 'capital gains' of the previous year in which such amount is received by the assessee Explanation : For the purpose of this sub-section
(i) in relation to the amount referred to in Clause (b) the cost of acquisition and the cost of improvement shall be taken to be nil;
(ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st April, 1988;
(iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in Clause (b) shall be deemed to be the income, chargeable to tax under the head 'capital gains', of such other person.
18. The charging section as far as taxation of capital gains arising on compulsory acquisition is Section 45(5) as it starts with a non obstante clause excluding the provisions of Section 45(1). The provisions of Section 45(5) were inserted by the Finance Act, 1987, w.e.f. 1st April, 1988. The question of year of taxation of capital gains on compulsory acquisition of land had come up for consideration before the Hon'ble Supreme Court prior to insertion of the provisions of s, 45(5) in the case of CIT v. Hindustan Housing and Land Development Trust (supra). The facts before the Hon'ble Supreme Court were identical to the facts of the present case where the enhanced compensation was subject-matter of appeal by the State and the assessee had withdrawn a portion of the enhanced compensation deposited in Court on furnishing of security. The facts before the Hon'ble Supreme Court and the decision rendered thereon were as follows :
"Certain lands belonging to the respondent-company, which carried on the business of dealing in land and -maintained its accounts on the mercantile system, were first requisitioned and then compulsorily acquired by the State Government. The Land Acquisition Officer awarded a sum of Rs. 24,97,249 as compensation. On an appeal preferred by the respondent-company, the arbitrator made an award dt. 29th July, 1955, fixing the compensation at Rs. 30,10,873 and directing payment of interest of 5 per cent from the date of acquisition. The arbitrator also awarded an annual sum for the period of requisition. Thereupon, the State Government preferred an appeal to the High Court. Pending the appeal, the State Government deposited in the Court Rs. 7,36,691 being the additional amount payable under the award on 25th April, 1956, and the respondent was permitted to withdraw that amount on 9th May, 1956, only on furnishing a security bond for refunding the amount in the event of the appeal being allowed. On receiving the amount, the respondent credited it in its suspense account on the same date. The question was whether a sum of Rs. 7,24,914 (the balance having been already taxed) could be taxed as the income of the respondent for the asst. yr. 1956-57 on the ground that it became payable pursuant to the arbitrator's award. The Tribunal held that the amount did not accrue to the respondent as its income during the relevant previous year ending on 31st March, 1956, and was, therefore, not taxable in the asst. yr. 1956-57. On a reference, the High Court affirmed the decision of the Tribunal. On an appeal to the Supreme Court : it was held, affirming the decision of the High court, that although the award was made by the arbitrator on 29th July, 1955, enhancing the amount of compensation payable to the respondent, the entire amount was in dispute in the appeal filed by the State Government. And the dispute was regarded by the Court as real and substantial because the respondent was not permitted to withdraw the amount deposited by the State Government without furnishing a security bond for refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal were allowed in its entirety, the right to payment of enhanced compensation would have fallen altogether. The extra amount of compensation of Rs. 7,24,914 was not income arising or accruing to the respondent during the previous year relevant to the asst. yr. 1956-57.
By the Court : There is clear distinction between cases such as the present case, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles."
19. The position after insertion of the provisions of Section 45(5) had come up for consideration before the Tribunal Benches of Pune, Bombay and Delhi and the consistent view taken by these Benches was that the decision of the Hon'ble Supreme Court in the case of Hindustan Housing (supra) will apply even after insertion of the provisions of Section 45(5). The decision of the Delhi Bench of the Tribunal in the case of Smt Gulabsundri Bapna (supra) was considered by the Pune Bench in the decision in the case of Asstt. CIT v. Mrs. Mangala Section Mutha (supra) and the Pune Bench held as follows :
"We have carefully considered the rival submissions vis-a-vis the facts of the case and have also gone through the judicial pronouncements cited before us. There is no dispute about the factual aspect of the controversy. The short question which requires to be determined is as to whether under provisions of Section 45(5) of the IT Act, the amount received by the assessee during the previous year relevant to the assessment year under appeal, can be brought to the charge of tax by way of capital gains for this assessment year. The relevant provisions of Section 45(5) read as under:
(6) Notwithstanding anything contained in sub-s. (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any Court, Tribunal or other authority, the capital gain shall be dealt with in the following manner, namely :
(a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head capital gains of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received, and
(b) the amount by which the compensation or consideration is enhanced or further enhanced by the Court, Tribunal or other authority shall be deemed to be income chargeable under the head 'capital gains' of the previous year in which such amount is received by the assessee.
Clause (b) of sub-s. (5) of Section 45, as reproduced also shows that by virtue of a deeming provision, enhanced compensation shall be chargeable under the head 'capital gains' for the previous year in which the amount is received by the assessee. On a careful analysis of Clause (b), it is seen that there are two important ingredients of this clause, namely, (i) the amount should be in the nature of compensation and (ii) it must be actually received by the assessee. In the present case, as already discussed supra, the compensation awarded to the assessee can be segregated into two parts. The first part is the quantum of compensation accepted by the Government and paid to the assessee. The second part is the quantum of compensation disputed by the State Government and deposited with the Court and ultimately released to the assessee on furnishing of full bank guarantee with the stipulation that the amount would be returnable to the State Government in the eventuality of High Court deciding the issue in Government's favour. We find that in identical circumstances similar issue has been decided by the Tribunal Delhi Bench in the case of Smt. Gulabsundri Bapna reported in (2001) 79 ITD 455 (Del) relied upon on behalf of the assessee. It would be worthwhile to reproduce the ratio of this case as under:
'It was palpable that the assessee had received enhanced compensation during the year under consideration after furnishing the necessary security/guarantee, which was put to tax by the Revenue. There was no dispute about the fact that the judgment of the Distt. Judge, enhancing compensation was not accepted by the Union Government and appeal was filed before the High Court.
A bare perusal of the Section 45(5) brings to light that the enhanced compensation is taxable in the year of receipt under the head 'capital gains'. The key word used in this section is 'received'. Now the question arises as to what is the significance of the word 'received' as employed in this section. There can be two situations, first, wherein the assessee has received the enhanced compensation against which the Government is not in appeal and second, in which the Government is aggrieved against the enhancement and has filed an appeal against the said enhancement. The second category of 'receipt' does not mean 'receiving compensation' within the meaning of Section 45(5) for the reason that if the Government succeeded before the High Court, the assessee could become liable to refund the amount already received, Had there been the situation in which the assessee after receiving enhanced compensation, agitates for further enhancement for which the Government does not make any counterclaim for the reduction in the already enhanced compensation, then the provisions of Section 45(5) would have been clearly attracted. But, in the instant case, the Government came up in appeal against the enhancement made by the Distt. Judge, thus, jeopardizing the enhancement. The fate of the enhancement already received by the assessee got disturbed, the finality in respect of which became dependent on the outcome of the final judicial pronouncement. Till then it could not be said that the assessee had received the enhancement within the meaning of Section 45(5) entitling the Revenue to charge tax thereon. Unless the enhanced compensation was received without any embargo, leaving thereby no scope or likelihood of the return the same could not be said to fall within the scope of Section 45(5)'.
Thus, in similar facts it has been held by the Tribunal Delhi Bench that receipt of amount cannot be said to be 'receiving compensation' within the meaning of s, 45(5) of the IT Act. A reference may also be made to the Bombay High Court decision in the case of Shah Construction Co. Ltd. relied upon the assessee's counsel wherein the Hon'ble Bombay High Court laid down the following ration:
'Held, affirming the decision of the Tribunal, that the amount lying in the foreign exchange reserve account did not belong to the assessee. It was part of the amount received by the assessee from the parties in the Middle East by way of advance to be adjusted against the running bills, and till the amount was adjusted against the running bills, it did not belong to the assessee. The conversion into Indian rupees at the end of the year was only for account purposes. The amount could not be regarded as income of the assessee till it was adjusted against the future bills. Therefore, the Tribunal was justified in deleting the addition of Rs. 4,59,098 from the income of the assessee.' Regarding the Hon'ble Supreme Court decision in the case of CUT v. Hindustan Housing and Land Development Trust Ltd. (1986) 161 ITR 524 (SC) it is. true that this judgment was rendered before the amended Section 45(5) came into operation. However, the ratio laid down by the Supreme Court in the case is worth reproducing below :
'Held, affirming the decision of High Court that although the award was made by the arbitrator on 29th July, 1955, enhancing the amount of compensation payable to the respondent, the entire amount was in dispute in the appeal filed by the State Government. And the dispute was regarded by the Court as real and substantial because the respondent was not permitted to withdraw the amount deposited by the State Government, without furnishing a security bond or refunding the amount in the event of the appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal were allowed in its entirety, the right to payment of enhanced compensation would have fallen altogether. The extra amount of compensation of Rs. 7,24,914 was not income arising or accruing to the respondent during the previous year relevant to the asst. yr. 1956-57.' The crux of this Supreme Court decision as also the Bombay High Court in CIT v. Shah Constructions Co. Ltd. (1999) 237 ITR 814 (Bom) and Tribunal Delhi Bench (2001) 79 ITD 455 (Del) (supra) is that if the enhanced compensation is not accepted by the Government, even though the amount to be paid on furnishing of adequate security and without manipulation that such amount would be returnable, it cannot be said that such payment is in the nature of income of compensation assessable to charge of tax. The Andhra Pradesh High Court decision in CIT v. Smt. M. Sarojini Devi (2001) 250 ITR 759 (AP) relied upon by the learned CIT(DR) is not of much held as the issue was totally different. After considering the entire facts and circumstances, we find ourselves in agreement with the view taken by the Tribunal, Delhi Bench in the case of Smt. Gulabsundri Bapna. Accordingly, we hold that the amount paid to the assessee was not in the nature of 'compensation actually received' within the meaning of Section 45(5) of the IT Act. Therefore, we do not find any infirmity in the order of learned CIT(A) of this issue which is confirmed."
20. The Hon'ble Bombay High Court in the case of CJT v. Abdul Mannan Shah Mohammed (2001) 248 ITR 614 (Bom) has approved the interpretation placed on Section 45(5) of the Act by the various Benches of the Tribunal by dismissing the appeal of the Revenue by following the decision of the Hon'ble Supreme Court in the case of Hindustan Housing (supra). Similar view has been taken by the Hon'ble Rajasthan High Court in the case of CIT v. Jeevan and Sons.
21. The interpretation placed by the Tribunal on the provisions of Section 45(5) Clause (b) was that it is not any amount received by the assessee that is taxable but only enhanced compensation i.e., when the amount assumes the character of an enhanced compensation by a final decision without there being any chance of the same being taken back by the Government consequent to any appellate order in which the grant of enhanced compensation is challenged. This also goes well with the concept of taxing receipts in the hands of an assessee only when the same is held by him as his income without there being any chance of his title to the amount received being in dispute.
22. The submission on the side of the Revenue is that the interpretation placed by the various Benches of the Tribunal was not correct. According to Revenue the word 'enhanced' and 'further enhanced' used in Section 45(5) clearly contemplates an ongoing dispute when enhanced amounts are to be subjected to tax and the section does not talk anything about the finality of the proceedings as to additional compensation. According to them the language of Section 45(5) deems the enhanced compensation to be the capital gains of the previous year in which the amount is received by the assessee. The receipt of the amount is the determining factor as to the taxability of such income. In this regard they relied upon the speech of the Hon'ble Finance Minister while introducing the Finance Bill, 1987 whereby provisions of Section 45(5) were introduced wherein the Hon'ble Finance Minister has referred to the fact that enhanced compensation will be charged to tax as capital gains in the year in which such amount is received. According to the Revenue the question was decided in Hindustan Housing's case (supra) by the Hon'ble Supreme Court in the context of the method of accounting employed by the assessee in that case and since the assessee followed a mercantile system of accounting the amount was held to be not taxable till finality of the proceedings relating to grant of enhanced compensation. The further submission of the Revenue in this regard is that the provisions of Section 45(5) overrides the method of accounting employed by an assessee and deems as income the very receipt of enhanced compensation irrespective of the method of accounting employed by the assessee. We may at this juncture point out that we are unable to agree with such a submission. The provisions of Section 43-B, which provide for allowing certain deductions only on payment start with a non obstante clause., 'notwithstanding anything contained in any other provisions of the Act'. Even provisions of Section 145 dealing with method of accounting is by implication overridden. The provisions of Section 43-B are a departure from the method of accounting employed by the assessee and certain statutory payments are allowed only on actual payment irrespective of the method of accounting employed by the assessee. The provisions of Section 43-B are very specific that irrespective of the year to which the liability relates to the deduction will be allowed only on actual payment. Such are not the provisions of Section 45(5). It was also submitted on behalf of the Revenue the CBDT in Circular No. 495 dt. 22nd Sept., 1987, has also explained the scope of Section 45(5) as follows :
"In respect of Section 45(5), Circular No. 495 dt. 22nd Sept, 1987, states as below :
24.5. Under the existing provisions where capital gains accrue or arise by way of compulsory acquisition of assets, the additional compensation is taken into consideration for determining the capital gain for the year in which the transfer took place. To provide for rectification of assessment of the year in which capital gain was originally assessed, Section 155(7A) was introduced. The additional compensation is awarded in several stages by different appellate authorities and necessitates rectification of the original assessment at such stage. This causes great difficulty in carrying out the required rectification and in effecting the recovery of additional demand. Another difficulty which arises is in cases where the original transferor dies and the additional compensation is received by his legal heirs. In the latter type of cases, proceedings have to be initiated against the legal heirs. Repeated rectifications of assessments on account of enhancement of compensation by different Courts often results in mistakes of computation of tax.
24.6 With a view to removing these difficulties, the Finance Act, 1987 has inserted a new sub-s. (5) in Section 45 to provide for taxation of additional compensation in the year of receipt instead of in the year of transfer of the capital asset. The additional compensation will be deemed to be income in the hands of the recipient even if the actual recipient happens to be a person different from the original transferor by reason of death, etc. For this purpose, the cost of acquisition in the hands of the receiver of the additional compensation will be deemed to be nil. The compensation awarded in the first instance would continue to be chargeable as income under the head 'capital gains' in the previous year in which the transfer took place".
23. We are of the view that even as per CBDT the purpose of amendment of Section 45(5) is to tax the enhanced compensation received in the year of receipt rather than by passing an order of rectification under Section 155(7A). The condition that the amount should be received as compensation without there being a dispute by way of appeal challenging the same is a requirement even under the provisions of Section 45(5). The purpose of introducing the provisions of Section 45(5) is to enable taxing of enhanced compensation in the year of its receipt without there being any dispute about the enhanced compensation. The legislature if it wanted that enhanced compensation received by the assessee were also to be taxed in the year of its receipt irrespective of the challenge to the same in an appeal before a higher forum, it would have certainly used an expression, 'irrespective of its challenge before a higher forum by the authority paying the enhanced compensation' be taxed on receipt basis. The legislature while enacting Section 45(5) is deemed to have knowledge of the judicial decision of the Hon'ble Supreme Court in Hindustan Housing's case (supra) and yet thought it fit not to make such a provision in Section 45(5). This can lead to only one conclusion that it is not any amount received by the assessee that is liable to be taxed as income in his hands but only enhanced compensation in the sense enhanced compensation the adjudication of which had attained finality before the highest forum.
24. This is the only way in which the provisions of Section 45(5) can be interpreted as on the date when the CIT exercised his jurisdiction under Section 263 of the Act, there being no other decision of the Hon'ble High Courts or that of the Hon'ble Supreme Court on the provisions of Section 45(5).
25. Some argument on the side of the Revenue proceeded on the footing that since the assessee was required to furnish personal bond as against furnishing of security in the case before the Hon'ble Supreme Court in the case of Hindustan Housing (supra), before withdrawing the amounts from Court deposit, and therefore the Court did not regard the dispute in the present case as substantial and therefore the amount received by the assessee has to be construed as enhanced compensation in his hands. We are again unable to accept this argument also. The existence of the dispute is material and not the fact that the money is withdrawn from Court on furnishing security or without furnishing any such security. If the decree of the lower Court is reversed the unsuccessful party is bound to restore the status quo ante prior to the passing of the decree against which the appeal had been filed. This is the principle of restitution as laid down in Section 144 of the CPC. The real character of amount deposited into Court pending adjudication of dispute has been explained by the Hon'ble Supreme Court in the case of Ramanathan Chettiar and Ors. v. Ramanathan Chettiar AIR 1968 SC 1047. The facts of the case were as follows :
The respondent's father made a deposit of Rs. 5,000 with the appellant's father in 1926 repayable with interest at Rangoon Nadappu rate (i.e., as per rates prevailing in Rangoon). A demand was made for repayment in 1944 and a suit for recovery of the amount was filed on 16th March, 1945. The trial Court decreed the suit in the year 1946 for Rs. 11,459-14-0. The appellant's father preferred an appeal therefrom to the High Court and pending disposal of the same deposited Rs. 3,500 in Court on 16th April, 1947. The High Court confirmed the decree on 14th Sept., 1951. There is some dispute about the actual date but there is no contest that the appellant's father deposited Rs. 11,098-10-2 to obtain stay of execution of decree. On 20th Aug., 1947, the Court passed an order to the effect that the decree-holder would be allowed to draw out the amount on furnishing security. Although an Act styled, the Madras Agriculturists Relief Act, 1948 was passed on 22nd March of that year wherein provision was made for giving relief to agriculturist debtors, inter alia, by scaling down decrees passed against them, no attempt was made by the defendants to take advantage thereof either in the trial Court or before the Court of appeal. On execution proceedings being commenced, the judgment-debtors filed an application under the aforesaid Act for scaling down the decree under s, 19(2) thereof.
It was argued that as the full amount of the decree had been put in Court before 1948, the judgment-debtors could not apply for scaling down thereafter.
The Hon'ble Supreme Court explained the position with regard to the money deposited in Court pending determination of dispute as follows :
"On principle, it appears to us that the facts of a judgment-debtor's depositing a sum in Court to purchase peace by way of stay of execution of the decree on terms that the decree-holder can draw it out on furnishing security, does not pass title to the money to the decree-holder. He can, if he likes, take the money out in terms of the order, but so long as he does not do it, there is nothing to prevent the judgment-debtor from taking in out by furnishing other security, say, of immovable property, if the Court allows him to do so and on his losing the appeal putting the decretal amount in Court in terms of Order 21, Rule 1 CPC in satisfaction of the decree.
The real effect of deposit of money in Court as was done in this case is to put the money beyond the reach of the parties pending the disposal of the appeal. The decree-holder could only take it out on furnishing security which means that the payment was not in satisfaction of the decree and the security could be proceeded against by the judgment-debtor in case of his success in the appeal. Pending the determination of the same, it was beyond the reach of the judgment-debtor.'
26. From the above observation of the Hon'ble Supreme Court it is amply clear that the person drawing money from Court deposit does not derive any title to the amount withdrawn. The assessee can therefore never claim any ownership of the amount in the strict sense of the term till final determination of the dispute by the highest forum.
27. We have also considered the various rules of interpretation, which the CIT has set out in his order under Section 263 of the Act and we are in complete agreement with the rules of interpretation as set out therein. But we are unable to agree with the application of those principles to the facts of the present case and the interpretation of the provisions of Section 45(5) that have been placed by the various Benches of the Tribunal. The learned CIT has sought to overlook the decision of the Tribunal by observing that the said decisions are in conflict with the various rules of interpretation as set out in his order under Section 263 and therefore not binding precedent. The CIT does not dispute the fact that the various benches of the Tribunal have taken a view which is contrary to the view which he has taken in his order under Section 263 of the Act. We have already held that the interpretation placed by the learned CIT on the provisions of Section 45(5) in his order under Section 263 was not correct and that of the various Benches of the Tribunal are alone to be followed. We shall now examine the judicial propriety and discipline on the part of the CIT in not following the decision of a higher forum which is binding on him.
28. Judicial decisions become binding precedents for the determination of like cases in the future and so contribute to the material content of the legal system. Adherence to precedent is necessary if litigants are to have faith in the evenhanded administration of justice and the legal system is to attain any degree of certainty. Blackstone says :
'For it is an established rule to abide by former precedents, where the same points come again in litigation : as well as to keep the scale of justice even and steady and not liable to waver with every new Judge's opinion, as also because the law in that case being solemnly declared and determined, what before was uncertain and perhaps indifferent, is now become a permanent rule, which it is not in the breast of any subsequent Judge to alter or vary from, according to his private sentiment.
29. Precedents are authoritative or persuasive. It is persuasive when it has only persuasive efficacy. It is entitled to high respect, but will be followed by a Court only if its reasoning commends itself to that Court as sound, cogent and flawless. In India, the decision of one High Court are only persuasive precedents in the other High Court. A precedent is said to be authoritative when the Court to which it is cited is bound to follow it quite irrespective of whether in the opinion of that Court it is right decision or a wrong one, If its binding character is absolute, the Judge's discretion is altogether excluded and the precedent is said to be absolutely authoritative. Such a decision has a legal claim to implicit obedience. In the case of Produce Brokers Co. v. Oil Olympia and Cake Co. (1916) 1 AC 314, Buckley, L.J. opens his judgment thus :
'I am unable to adduce any reason to show that the decision which I am about to pronounce is right. On the contrary, if I were free to follow my own opinion, my own powers of reasoning such as they are, I should say that it is wrong. But I am bound by authority-which, of course, it is my duty of follow and, following authority, I feel bound to pronounce the judgment which I am about to deliver'.
30. The Hon'ble Supreme Court in the case of Union of India v. Kamalakshi Finance Corpn. Ltd. (1991) 55 ELT 433 (SC), has dealt with the issue of binding nature of precedents vis-a-vis Tribunals. In the appeal before the Hon'ble Supreme Court the question was expunging strictures passed by the Hon'ble' High Court against two Asstt. Collector who had in passing the impugned orders overlooked one decision of the Collector (A) and other of the Tribunal which were cited before them. The Hon'ble Supreme Court held as follows :
The learned Addl. Solicitor General submits that the learned Judges have erred passing severe strictures (1990) 47 ELT 231 (Bom) against the two Asstt. Collectors who had dealt with the matter. He submitted that these officers had given reasons for classifying the goods under heading 39.19 and not 85.46 and could do no more. He submitted that they acted bona fide in the interests of Revenue in not accepting a claim which, they felt, was not tenable. Sri Reddy is perhaps right in saying that the officers were not actuated by any mala fides in passing the impugned orders. They perhaps genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual mala fide but with the fact that the officers, in reaching their conclusion, bypassed two appellate orders in regard to the same issue which were placed before them, one of the Collector (A) and the other of the Tribunal. The High Court has, in our view, rightly criticized this conduct of the Asstt, Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. The impression or anxiety of the Asstt. Collector that, if he accepted the assessee's contention, the Department would lose Revenue and would also have no remedy, to have the matter rectified is also incorrect. Section 35E confers adequate powers on the Department in this regard, In the light of these amended provisions, there can be no justification for any Asstt. Collector or Collector refusing to follow the order of the Appellate Collector or the Tribunal, as the case may be, even where he may have some reservations on its correctness. He has to follow the order of the higher appellate authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under Section 35E(1) or (2) to keep the interests of the Department alive. If the officers' view is the correct one, it will no doubt be finally upheld and the Revenue will get the duty, though after some delay which such procedure would entail. It is clear the observations of the High Court, seemingly vehement, and apparently unpalpable to the Revenue, are only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assessee public without nay benefit to the Revenue. We would like to say that the Department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them.'
31. In Bank of Baroda v. H.C. Snvastava (2002) 256 ITR 385 (Bom) the Hon'ble Bombay High Court has held that it was necessary for judicial unity and discipline that all the authorities below Tribunal accept as binding the judgment of the Tribunal. In the hierarchical system of Courts, it is necessary for each lower tier to accept loyally the decisions of the higher tiers. The judicial system only works if someone is allowed to have the last word, and that last word once spoken is loyally accepted. The better wisdom of the Court below must yield to the higher wisdom of the Court above.
32. The principles as laid down by the Hon'ble Supreme Court and the Hon'ble Bombay High Court discussed above would show that the learned CIT in exercise of his jurisdiction ought not to have overlooked the binding decision of the various Benches of the Tribunal. He has not only refused to follow the said decisions but has also been very critical about the decisions of the Tribunal. It would have been much desirable if the learned CIT had followed the decisions of the Tribunals, which was a binding precedent as far as he was concerned. The only option open to the Revenue if aggrieved by the decision of the Tribunal was to challenge them in the appellate forums available under the provisions of IT Act.
33. There were other submissions made on behalf of the Revenue on the provisions of the Land Acquisition Act, the difference between the wordings of Sections 45(1) and 45(5), meaning of the word 'receive' etc. We do not propose to deal with all those submissions for the reason that they are neither relevant nor necessary for disposal of the dispute involved in the present appeal.
34. An argument was advanced on behalf of the Revenue that w.e.f., 1st April, 2003, there has been an amendment to the Act, whereby Clause (c) to Section 45(5) has been introduced whereby it has been provided that where the amount of the compensation or consideration is subsequently reduced by any Court, Tribunal or other authority, the capital gain of that year in which the compensation or consideration received was taxed shall be recomputed accordingly, This amendment according to the Revenue can only mean that the provisions of s: 45(5) contemplate a situation where even when the dispute is not finally settled, enhanced compensation can be taxed on receipt basis. We are again unable to accept this argument firstly for the reason that the CIT while exercising his jurisdiction under Section 263 has to go back to the order of assessment which he is seeking to revise and apply the legal position as it existed on that date and cannot seek to rely on any subsequent development. There are enough provisions in the Act for rectification and assessing income escaping assessment to take care of any such subsequent events and the CIT cannot on that ground seek to exercise his jurisdiction under Section 263. Secondly, whether insertion of Clause (c) will be of any consequence so long as by virtue of Clause (b) only the amount received by the assesses as enhanced compensation is taxable on the proceedings for enhanced compensation attaining finality, is again the matter of debate. So long as the provisions of Section 45(5) stand as it is without there being any amendment thereto to nullify the view taken by the various Benches of the Tribunal, the insertion of Clause (c) in our view is of no consequence.
35. Another submission on behalf of the Revenue which is worth considering is the reliance placed by them on the decision of the Hon'ble Supreme Court in the case of Polyflex India (P) Ltd. v. CIT (2002) 257 ITR 343 (SC). The facts in the said case were that the assessee had claimed deduction in respect of excise duty paid as an expenditure while computing his income. The assessee disputed the chargeability of excise duty and succeeded before the Hon'ble High Court. Consequently the amount of excise duty paid by the assessee was refunded. The excise authorities had moved the Supreme Court against the order of the Hon'ble High Court by virtue of which the assessee got refund of excise duty. The refund received was sought to be taxed in the hands of the assessee in the assessment for the relevant assessment year in which the refund was received. The assessee pleaded that since the dispute on the chargeability of excise duty payable was pending determination by Supreme Court the refund received could not be considered as income in his hands. The Supreme Court in answering the above question held that the fact that the dispute was pending adjudication by the appellate forum was immaterial and in view of the clear porvisions of Section 41(1") the amount was held taxable. We may mention that the decision rendered by the Hon'ble Supreme Court in the case of M/s Polyflex India (P) Ltd. (supra) was in the context of specific wordings of Section 41(1) where the reference was to obtaining of any amount in respect of any trading liability by way of cessation or remission thereof. The provisions of Section 45(5) to which we have already referred to above place emphasis on the receipt of amount as compensation and not receipt of any amount. Moreover the provisions of Section 41(1) are found in Chapter IV-D which deal with computation of profits and gains of business or profession, while provisions of Section 45(5) are found in Chapter IV-E dealing with computation of capital gains. The reliance placed by the Revenue, on the aforesaid decision of the Hon'ble Supreme Court, is therefore of no use to the case pleaded by the Revenue.
36. For the reasons stated above, our conclusion on the 2nd issue which we have formulated above is that the enhanced compensation received by the assessee was not taxable in the hands of the assessee as income till the quantum of enhanced compensation awarded is subject-matter of proceedings before the appellate forum by the State Government and the quantum has not attained finality.
37. We shall now take up for consideration the 1st issue which we have formulated above viz., whether the order of the AO was erroneous for the two reasons given by the CIT in his order under Section 263. As far as the first reason given by the CIT viz., not brining to tax the capital gain on compulsory acquisition of land, we have already held that the enhanced compensation received by the assessee was not income and therefore there can be no error if the AO has failed to bring it to tax in the block assessment. Even the AO has gone on the footing that the amount is taxable but only in the regular assessment and therefore the only grievance which the CIT can have while invoking his powers under Section 263 was to see if it is of the character of undisclosed income. We shall deal with this aspect while dealing with the 3rd issue which we have formulated for consideration.
38. The next aspect on which the CIT considered the order of the AO as erroneous was on the ground that the interest on enhanced compensation ought to have been brought to tax by spreading over the quantum of interest awarded by the Jt. District Judge, Nashik relatable to the block period. The CIT placed reliance on the decision of the Hon'ble Supreme Court in the case of Smt. Ramabai v. CIT (1990) 181 ITR 400 (SC). The question decided by the Hon'ble Supreme Court in Ramabai's case (supra) was the point of time at which interest on enhanced compensation accrues or arises. It held that it accrues or arises from year to year and cannot be taxed as lump sum in the previous year in which the interest is received. The said decision never dealt with taxability of enhanced cdmpensation or interest on enhanced compensation where there is no finality of litigation regarding the enhanced compensation. When once it is held that enhanced compensation cannot be brought to tax unless the litigation regarding the grant of enhanced compensation has attained finality, the same principle should hold good to interest granted on enhanced compensation also, since interest on enhanced compensation is consequential to the grant of enhanced compensation. We therefore, hold that there was no error in the order of the AO in not considering the interest on enhanced compensation for the purpose of taxation in the block assessment. Therefore, our conclusion of the 1st issue is that the order of the AO for the block period was not erroneous as concluded by the CIT in His order under Section 263 on the ground that money received from Court deposit in respect of enhanced compensation in respect of compulsory acquisition of land and interest on enhanced compensation was taxable, The CIT in our view therefore erred in directing the AO to consider the amount received by the assessee as enhanced compensation pending finality of dispute regarding the enhanced compensation as income of the assessee for the block period (i.e., asst. yr, 1998-99 comprised in the block period). Similarly the CIT erred in directing the AO to tax the interest received on enhanced compensation by spreading it over from year to year for the years comprised in the block period. The directions of the CIT in this regard are therefore set aside.
39. We shall now consider the 3rd issue which we have formulated above, viz., whether the enhanced compensation received by the assessee which was sought to be brought to tax as capital gain on compulsory acquisition of land of the assessee, can be said to be undisclosed income. We have already held that the amount of enhanced compensation received by the assessee cannot be held to be income of the assessee at all. Consequently the question whether these incomes were undisclosed does not arise for consideration at all. Nevertheless the fact remains that the AO both in the block assessment proceedings as well as in the regular assessment proceedings for asst. yr. 1998-99 considered this as income of the assessee but not undisclosed income. The crux of the issue in the appeal against the order under s, 263 should have been as to whether the enhanced compensation received by the assessee can be said to be undisclosed income or not. The provisions of Chapter XIV-B of the Act dealing with undisclosed income detected as a result of search which are relevant for the purpose of deciding the controversy in issue are as follows :
158B Definitions, In this chapter, unless the context otherwise requires, --
(a) 'block period' means...
(b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false.
"158BB Computation of undisclosed income of the block period.
(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with AO, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,-
(a).......
(b).......
(c) where the due date for filling a return of income has expired but no return of income has been filed, as nil;
(d).......
The question whether the receipt of enhanced compensation can be said to have been discovered only as a result of search had come up for consideration befor the Hon'ble Delhi High Court in the context to the provisions of Section 132 of the Act in the case of L.R. Gupta and Ors. v. Union of India and Ors. (1992) 194 ITR 32 (Del). It was held by the Hon'ble Delhi High Court that an assessee is not under any obligation to disclose in his return receipt of money by him which do not partake the character of income and non-disclosure of the same would not attract the provisions of Section 132(l)(c) of the Act. In view of the above, the question whether the receipt of enhanced compensation was disclosed or not is purely an academic question and therefore there was no case for the CIT to exercise jurisdiction under Section 263 on this ground also. We therefore hold on the 3rd issue that the receipt of enhanced compensation by the assessee cannot be said to be undisclosed income of the assessee which could have been subjected to tax as undisclosed income of the block period,
40. The 4th issue on which the CIT sought to set aside the order of the AO for the block period is on the grounds (a) that the AO did not make the necessary enquiries and verification with regard to determination of undisclosed income for the asst. yr. 1991-92 to 1998-99. That the undisclosed income for the block period was determined with reference only to the TDS and advance tax paid by the assessee without obtaining even P&L a/c or balance sheet; (b) the rental income disclosed by the assessee considerably varied for the different assessment years comprised in the block period and the reason for such variation had not been enquired into by the AO; (c) The assessee had received original compensation of Rs. 7,04,550 on 12th March, 1991 which was not offered to tax by filing any regular return of income. In the block assessment he had filed a detailed note stating that cost of land and other expenses on levelling, pumpset, pipeline etc., was to the tune of Rs. 7,13,500 and the AO did not make any enquiries regarding the claim of the assessee.
41. The case of the assessee in this regard is that in the course of block assessment proceedings the details regarding the business income with necessary P&L a/c and balance sheet were filed and the AO had carried out the necessary verification and enquiry in this regard. The details of agricultural income were also filed to show the source of agricultural income. The reason for variation in house property income had also been given and the reason was that close relatives initially occupied the property and thereafter the assessee himself occupied at higher rent and thereafter close relatives occupied the property on still higher rent. Regarding the capital gain on original compensation received, the assessee pointed out that the necessary details were filed before the AO and on being satisfied about the claim of the assessee the AO computed the income for the asst. yr. 1991-92 which was part of the block period.
42. The CIT however held in his order under Section 263 as follows :
'I have carefully considered the submissions of the assessee and gone through the case records and also the papers which were available with the AO at the time of assessment and form part of the records. The first point that strikes is that all explanations and papers that the assessee is offering now are not available on the records and there is nothing on the records to indicate that the AO looked into them, ascertained/verified them, applied his mind and then came to conclusions.
Some of the discrepancies in the assessee's submissions are very obvious. Although the agreement for agricultural income is of January, 1990, the same is being filed now in the course of present proceedings and are nowhere on the records nor came to light in the course of search proceedings. It is rather curious that for six subsequent years, the agreement is made on the similar amounts for all the years. In fact, for the asst. yr. 1991-92, the return of income shows the agricultural income at Rs. 23,000 but the agreement shows it at Rs. 25,000. Further, for the asst. yr. 1991-92, in the list of expenses claimed (vide para. 17 of the show-cause notice reproduced above) is also included standing crop of Rs. 60,000. Obviously, when the land was given on rent, standing crop could no form part of assessee's cost.
The wide variation in the house property income from Rs. 6,000 to Rs. 54,000 has been shown in respect of rent from own close relations. There is no scrutiny as to actual annual letting value.
As mentioned in para 17 of the show-cause notice, reproduced above in para 29 against the receipt of amount of compensation, capital gains was required to be computed. The assessee has claimed in the computation of income for the asst. yr. 1991-92 a large number of expenses. There is nothing on record to indicate that details of such expenses were looked into. All the expenses running into 16 items are in rounded figures. The assessee has only submitted that the various items of expenses were explained to the AO during the course of hearing. But the records show that no supporting details were filed which could be verified by the AO.
The records clearly indicate that the assessee had never filed return of income in the past for any of the assessment years. The details of computation of total income for each of assessment year were filed along with the return for the block period for the first time. Therefore, the AO was duty bound, when he was scrutinizing the case, to verify the claims of the assessee from various angles. But the papers and details on record do not indicate that scrutiny of income for the different assessment years was carried out. The returned undisclosed income is the same as the assessed income. There is no addition to the returned income whatsoever. The facts and details filed before me have to be examined, verified and scrutinized by the AO.
The assessment order which has been passed without enquiry and verifications is prejudicial to the interest of Revenue and hence erroneous.'
43. It was submitted by the learned counsel for the assessee that the assessee had filed copies of trading a/c, P&L a/c and balance sheet before the AO in the assessment proceedings during the course of hearing. According to him, the conclusion of the CIT that the AO had computed the assessment for the block period on the basis of TDS and advance tax paid by the assessee was not correct. In this regard, it is seen from the perusal of the order of CIT that there is categorical assertion by the CIT that on perusal of the records of the AO available at the time of assessment that the submissions of the assessee was not correct and there was no such P&L a/c and balance sheet as stated by the assessee. In such circumstances, the conclusion of the CIT was that the income of the various assessment years had not been computed by the AO after a proper enquiry and verification. A perusal of the order of assessment indicates that the AO had merely repeated the details given by the assessee and had not carried any investigation or verification. It is difficult to accept the plea of the assessee that the fact that no additions have been made by the AO would not mean that no verification was made by the AO. We are of the view that the action under Section 263 is warranted on this ground. As far as the variation of the rent receipts are concerned, it was only in reply to the show-cause notice that the required details were furnished by the assessee. The plea of the assessee in this regard was that nothing prevented the CIT to examine the issue on the basis of the reply given by the assessee to the show-cause notice issued under Section 263. There was a discretion vested in the CIT whether to examine the issue or to set aside the issue for reconsideration by the AO. The assessee cannot, as a matter of right insist that the CIT should carry out the necessary investigation and render his findings in this regard in the proceedings under Section 263. We are of the view that the action of the CIT was justified in this regard. As far as computation of capital gains on compensation received by the assessee relating to the asst. yr. 1991-92 falling within the block period is concerned, the assessee had claimed huge expenses. According to the CIT, the AO had not looked into the details of these expenses. In this regard, the plea of the assessee is that details were explained by the assessee to the AO. The assessee mainly relies on the reply filed to the show-cause notice under Section 263 wherein the details of expenses were explained. The submission of the learned counsel for the assessee is that the CIT could have verified the explanation provided by the assessee. We are unable to accept this contention raised on behalf of the assessee. The fact remains that the assessee had not filed necessary details and the AO had not carried out any investigation in this regard. Even with regard to the variation in agricultural income, the plea of the assessee is similar to the plea with regard to the computation of capital gain on compensation received for: acquisition of lands. We find no merits in the submission of the learned counsel for the assessee. On perusal of the order of assessment it clearly reveals that the AO did not carry out the necessary investigations and the order of the AO are erroneous to this extent. The CIT was therefore justified in coming to the conclusion that the order of the AO was erroneous and prejudicial to the interest of the Revenue. He was therefore, justified in setting aside the assessment in this regard and directing the AO to recompute the undisclosed income. Our conclusions to the 4th issue is that the action of the CIT was justified.
44. We therefore hold that the order in respect of which the CIT sought to invoke his jurisdiction under Section 263 was not erroneous in so far as the non-taxing of enhanced compensation and non-taxing of interest on enhanced compensation as undisclosed income of the block period. The order of the CIT revising the order of the AO by directing the AO to treat these incomes as undisclosed income is therefore set aside. The order of the CIT in so far as it relates to setting aside the order of the AO on the ground that the AO has not carried out necessary verification and directing the AO to make the necessary verification and thereafter compute the undisclosed income for the block period is however sustained. The appeal of the assessee i.e., ITA No 748/PN/2002 is thus allowed in part.