Income Tax Appellate Tribunal - Delhi
Raj Kumar & Sons Huf,Gurgaon vs Pcit , Fridabad on 18 March, 2026
P a g e |1
ITA No.6032/Del/2024
Raj Kumar & Sons HUF (2019-20)
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, DELHI
BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER &
SHRI MANISH AGARWAL, ACCOUNTANT MEMBER
ITA No.6032/Del/2024
(Assessment Year: 2019-20)
Raj Kumar & Sons HUF Vs. PCIT,
1540 Mata Road CGO Complex, New
Gurgaon Industrial Township 4,
Haryana - 122001 Faridabad
Haryana - 121001
ायीले खासं . /जीआइआरसं . /PAN/GIR No: AAFHR5523J
Appellant .. Respondent
Appellant by : Sh. Vijay Kumar Singla, CA
Ms. Erik Singla, Adv.
Respondent by : Sh. Jitender Singh, CIT, DR
Date of Hearing 02.02.2026
Date of Pronouncement 18.03.2026
ORDER
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 20.12.2023 of Ld. Principal Commissioner of Income Tax, P a g e |2 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) Faridabad(hereinafter referred to as the First Appellate Authority or 'the ld.
FAA' for short) in DIN & Order No : ITBA/REV/F/REV5/2023- 24/10589272241(1)arising out of the assessment order dated 28.02.2021 u/s 143 read with section 144B of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') passed by National Faceless Assessment Centre, Delhi,for AY: 2019-20.
2. Heard and perused the records. The assessee filed return of income declaring total income of Rs.12,57,888/- have interest income along with exempt income of Rs.45,48,864/- being compensation received from enhanced compensation which includes Rs.2,41,52,724/- interest on enhanced compensation and the assessment was completed at the returned income. Subsequently, PCIT Faridabad started proceedings u/s 263 of the Act and questioned the allowance of exemption u/s 10(37) of the Act with regard to interest received on enhanced compensation on the basis that jurisdictional High Court of Punjab & Haryana decision has not been considered and no inquiry with regard to eligibility was conducted. Assessee had filed written submissions and the relevant part of the same is reproduced below:
"Taxability of Interest on compensation P a g e |3 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) 7.1 Background Government on the one hand extends exemptions especially for the cause of a national interest. A look to the list of such exemptions conveys the same explicitly. But, at the same time the revenue tries to snatch a share from the exemptions given to the citizens.
The capital incentive (popularly known as subsidy) given to promote industrial growth in rural and industrially backward areas, is a glaring example. The incentive received is a Capital Receipt and was rightly exempt from income tax. The issue was settled with an Apex Court judgment (P.J. Chemicals, 210 TR 830). But, the revenue twisted it, first by a provision to reduce the same from the cost of the assets, and consequently by inserting the provisions to make it completely taxable.
Similar turns are taking place in the story of compensations given to the citizens for acquiring their land by Govt. for various purposes.
Sec. 10(37) clearly exempts the compensation from income tax. Section 96 of RCTRR Act 2013 specifically provides to exempt the compensation from Income Tax Act, 1961. This Act is now applicable to all the Acts mentioned in its Fourth Schedule. (Annexed at the end of this article for ready reference.) However, there are various amendments inserted in the Income Tax Act, 1961 which make some portion of the compensation taxable. The present author personally feels that the revenue is slowly moving to take its bites from the compensation given to the citizens.
7.2 The settled position Two issues were debated-
1. the year of taxability of compensation especially when the same is received in multiple stages due to the disputes in rate of compensation enhanced/reduced by various authorities; and
2. taxability of two types of interests received and what is included in the term compensation for the purpose of capital gain.
Hon. Supreme Court has decided both the issues as follows-
In Rama Baivs CIT, (1990) 181 ITR 400 (SC), dt. 8/11/1989, case of AY 1967-68-69, it is has held that - arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis.
This settled the issue of year of taxability of interest.
The second issue arose from the fact that LA Act 1894 provided two types of interest, hence, what constitutes compensation to be taxed under Capital gain. In P a g e |4 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) Ghanshyam(HUF) (315 ITR 1), dt. 16/07/2009, case of AY 1999-2000, it is settled by Hon.Supreme Court that-
24. To sum up, interest is different from compensation. However, interest paid on the excess amount under s. 28 of the 1894 Act 28 Jee depends upon a claim by the person whose land is acquired whereas interest under s. 34 is for delay in making payment. This delayed vital difference needs to be kept in mind in deciding this matter.Interest under s. 28 is part of the amount of compensation whereas interest under S. 34 is only for delay in making payment after the compensation amount is determined.Interest under s. 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under s. 34.
Thus, it is settled that the interest u/s 28 of the LA Act is part of the compensation and is accordingly chargeable to tax under the head of capital gain and interest u/s 34 is only for delay and is accordingly not chargeable under the head of capital gain.
7.3 The amendments by Finance (No.2) Act of 2009 However, year of taxability due the changes in compensation by various authorities in litigation under the LA Act posed a problem and the assessments had to be rectified year after year at every enhancement. Amendments were carried out to mitigate the hardships posed and Finance (No. 2) Act, 2009 (33 of 2009), s. 26(b) (w.e.f. 1-4-2010) inserted sec. 145B, amended 145A and inserted clause (vil in section 56(2) and 145B and amended 145A. 56(2) (viii) reads as -
(viii) income by way of interest received on compensation or on enhanced compensation referred to in sub-section (1) of section 145B.
The underlined words were substituted for "clause (b) of section 145A", by the Finance (No. 2) Act, 2019 (23 of 2019), s. 21(ii) (w.r. e. f. 1-4-2017) consequent to simultaneous insertion of Sec. 145B in the statute to specify the year of taxability of the interest.
CBDT issued Circular No. 5 of 2010, dt.03/06/2010 to clarify the amendments as under-
"46. Rationalizing the provisions of taxation of interest received on delayed compensation or on enhanced compensation.
46.1 The existing provisions of Income Tax Act provide that income chargeable under the head "Profits and gains of business or profession" or "Income from other sources", shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Further, the Hon'ble Supreme Court in the case of Rama Bai vs. CIT (181 IT 400) has held that arrears of interest computed on delayed or enhanced compensation shall be taxable on accrual basis. This has caused undue hardship to the taxpayers.
46.2 With a view to mitigate the hardship, section 145A is amended to provide that the interest received by an assessee on compensation or enhanced compensation shall be P a g e |5 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) deemed to be his income for the year in which it was received, irrespective of the method of accounting followed by the assessee.
46.3 Further, clause (viii) is inserted in the sub-section (2) of the section 56 so as to provide that income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A shall be assessed as "income from other sources" in the year in which it is received.
At the time of issue of the circular both the judgments of Hon. Supreme Court had been delivered and it cannot be said that the CBDT was oblivion of the same. Hence, it has to be assumed that the cognizance is taken while issuing the circular. The circular mentions about the Rama Bal's case only and there is no mention of Ghanshyam's case. Obviously, the position settled of Interpretation of the word "compensation" is not disturbed by any amendment or the circular. Hence, it is obvious that the positon of interpretation settled by both the above decisions of Hon. SupremeCourt has remained settled even after insertion of cl. (vili) in Sec. 56(2). There is no amendment in the LA Act w.r.t. both the interests in question. Not only this but the new RECTLRR Act 2013 contains similar sections 72 and 80 respectively for sec. 28 and 34 of the LA Act 1894.
Various High Courts and Tribunals and lower authorities have, and rightly so, followed Hon. Apex court's verdict in Ghanshyam's case.
7.4 Dispute due to contrary judgment of Hon. P & H High court The twist came by the decisions of Hon. Punjab & Haryana High Court-first in case of Manjeet Singh (HUF) Karta Manjeet Singh vs. UOI, (2016) 237 TAXMAN 0116 (P&H), dt 14/01/2014, AY 2010-11; and in Mahender Pal Narang (423 ITR 13), dt.19/02/2020, AY 2007-08 and 2008-09, where the interest income is decided to be taxable u/s 56(2)(viii). Further the SLP against Mahender Pal Narang's judgment is dismissed by Hon. Supreme Court without any speaking order.
Surprisingly the ratio and case of Ghanshyam (HUF) was brought to the notice of the Hon. P&HHigh Court but even then the same was not followed.
7.5 Decisions after Hon. P & H High Court After Hon. P&HHigh Court's judgments, there are catena of judgments and orders where the principle settled in the case of Ghanshyam (HUF) is followed even though Hon. P& High court's judgments were brought to the notice by the Dept. Hon. Gujarat High Court MovaliyaBhikhubhaiAlibhai v. ITO (TDS) (383 ITR 343), dt. 31/03/2016 held that the interest income is exempt after the insertion of cl. (viii) in Sec. 56(2). This was brought to the notice of Hon. P& H High court in the case of Mahender Pal Narang.
The issue involves as to whether in respect of interest income u/s 28 of the LA Act 1894, Sec. 56(2)(viii) overrides Sec. 10(37)? The answer is no as the income travels u/s 56 only P a g e |6 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) if it is not to be excluded from total income and not covered under any other heads of income.
Hon. Supreme Court has made distinction between interest u/s 28 and Sec. 34 of the LA Act, 1894. From the reported facts in the case before Hon. P & H High court, it is clear that the land is acquired under the LA Act, 1894, and the assessee had stated that the interest is u/s 28 of that Act. This fact is nowhere disputed by the Dept. also.
The interest u/s 28 of the LA Act is part of the compensation only and exempt being part of accretion to the value of the land acquired. Thus, it forms part of the compensation and is taxable u/s 45 and not u/s 56.
Hon. Supreme Court has itself reiterated the principles pronounced in case of Ghanshyam (HUF) in its later decision in case ofCIT vs. GovindbhaiMamaiya, (2014) 367 ITR 0498 (SC), dt. 04/09/2014 CIT vs. vs. Chet Ram, (2018) 400 /TR 0023 (SC), dt. 12/09/2017/ UOI &Ors vs. vs. Hari Singh and Ors., (2018) 302 CTR 0458 (SC), dt. 15/09/2017.
In the following cases the judgments of Hon. P& HHigh court are considered but are not followed with detailed discussions and the principles set by Hon. Apex Court in Ghanshyam (HUF) are followed-
DnyanobaShajiraoJadhav vs. ITO, (2018) 169 ITD 0291 (Pune), 29/01/2019 [P & H not referred] Sh. Satbir&Ors vs. ITO, ITA Nos. 1413 to 1431/CHD/2016, and. 77 to 82/CHD/2017, A.Y.: 2007-08 to 2009-10, dt. 09/07/2018 Sh. Varinder Singh vs. ACIT, ITANo. 399/CHD/2016, AY 2011-12, dt. 13/12/2018 BALDEV SINGH VS. ITO, (2019) 176 ITD 0001 (Delhi-Trib), AY 2011- 12, dt. 08/03/2019 ITO vs. Sh. Dhanender Kumar HUF, ITA No. 1591/Chd/2018, AY2010-11, dt. 30/09/2019 Ram Kishanvs /TO, ITA No. 5391/Del/2017, AY 2014-15, dt.
RupeshRashmikant Shah vs UO/ &Ors. (2019) 417 ITR 0169 (Bom), AY 2016-17, dt.08/08/2019.
7.6 Interest on compensation - Conclusion The case before Hon. Bombay High court (417 ITR 0169) was of a motor accident claim and it has followed the principles set by Hon. Supreme Court in Ghanshyam (HUF) case, and after analysing the case has held that,
49. We may apply these conclusions to the relevant provisions contained in the Income Tax Act. Section 56 pertains to income from other sources. Sub-section (1) of section 56 P a g e |7 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) provides that income of every kind which is not to be excluded from the total income under the Act shall be chargeable to income tax under the head of income from other sources, if it is not chargeable to income tax under any of the heads specified in section 14, items (A) to (E), Section 56(1) of the Act thus, makes a residuary provision for charging income of every kind, not falling under items (A) to (E) of section 14, to be charged as income from other sources. Sub- section (2) of section 56 provides that in particular and without prejudice to the generality of the provisions of sub-section (1), the incomes contained in the following clauses shall be chargeable to income tax under the head income from other sources. Clause (vili) inserted by the Finance Act, 2009 w. e. f. 1.4.2010 sub-section (2) of section 56 pertains to income by way of interest received on compensation or enhanced compensation referred to in clause (b) of section 145A.
50. Before proceeding to analyse clause (b) of section 145A, we may note that section56 of the Act per se does not make a particular receipt chargeable to tax if it otherwise does not happen to be income. This section merely provides for taxing an income not falling under the other heads as income from other sources. Sub-section (2) of section 56 when it lists various incomes, which would be treated as income from other sources, merely amplifies this purpose. Therefore, clause (vili) of sub-section (2) of section 56 by itself would not make the receipt of interest on compensation chargeable to tax as income from other sources, if such receipt is not income."
Hon. ITAT, Delhi bench in Ram Sharan's case (ITA No. 5391/Del/2017) has analysed the issue in depth and has observed in para 8 that, Despite the above changes made u/s 14 5A and u/s. 56 (2) with effect from 1 June 2010, so as to tax the interest on compensation or enhanced compensation as income from other sources u/s 56 in the year of receipts, the judicial precedents held that the interest awarded to land owners uls 28 of the land acquisition act, 1894 on enhanced compensation is still a part of compensation and is a capital receipt taxable under the head capital gains. Such is the judicial precedent of the honourable Himachal Pradesh High Court in case of CiversusJoginder Singh 217 taxmann 208 and honourable Gujarat High Court in case of MovaliyaBhikhaBhaiBalabhai 70 taxmann.com 45 /388 TR343). Further we are also mindful of the fact that the honourable Punjab and Haryana High Court in the case of MahenderpalNarang versus CBDT CP 17971 of 2019 dated 19/2/2020 as well as in case of Puneet Singh V CIT 110 taxmann.com 16 and Manjeet Singh HUF V Union of India 137 taxman 116 has decided in favour of revenue. It is a settled law that Statute must be interpreted according to the intention of the legislature and the court should act upon the true intent of the legislation while applying the law and its interpretation. If a statutory provision is open to more than one meaning, the Court has to choose the interpretation which represents the intention of the legislature. In the present case the Department circular number 5/2010 dated 3/6/2010 clearly demonstrates the intention of the legislature. Accordingly, we hold that interest on u/s 28 of the land acquisition act, 1894 being part of the compensation shall be treated as a tax free in the case of an individual and HUF u/s 10(37) if transfer is of an agricultural land. In view of above facts and judicial precedence we hold that the interest received by the assessee u/s 28 of the land acquisition act is not taxable.
P a g e |8 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) Hon. Supreme Court has in the case of CIT vs Vegetable Products Ltd., (1973) 88 ITR 0192 (SC) while interpreting a penal provision has observed that-
"... the duty of the Court is to read the section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well- accepted rule of construction recognised by this Court in several of its decisions."
Very important observations of Hon. Apex Court in the case of Ghanshyam (HUF) were-
"35. It is important to note that compensation, including enhanced compensation/ consideration under the 1894 Act, is based on the full value of property as on the date of notification under Section 4 of that Act. When the court/tribunal directs payment of enhanced compensation under Section 23(1-A), or Section 23(2) or under Section 28 of the 1894 Act, it is on the basis that award of the Collector or the court, under reference, has not compensated the owner for the full value of the property as on date of notification."
This is very important as it decides the taxability of the amount but unfortunately not discussed in the case before Hon. P & H High court (423 ITR 13). Further Hon. P & H High Court has stated in para 10 that -
10. In view of the amendments, the decision of Apex Court in Ghanshyam's case (supra) does not come to the rescue of the petitioner to claim that interest received under Section 28 of the 1894 Act is to be treated as compensation and to be dealt with under "Capital gains". The fact that there is no amendment carried out under Section 10(37) of the 1961 Act will not change the position. Section 10 deals with deductions and sub-section (37) thereof deals with capital gains arising from transfer of agricultural land, it nowhere provides as to what is to be included under the head"Capital gains". The argument raised is not well founded.
With due respect, it must be stated that the observation is wrong, as the case before Hon. Supreme Court was with that specific question. Not only this but the Hon. Apex court has discussed the issue with threadbare analysis leaving no point undiscussed.The question before Hon. Supreme Court was very specific as follows-
32. The issue to be decided before us - what is the meaning of the words "enhanced compensation/consideration" in s. 45(5)(b) of the 1961 Act? Will it cover "interest"? Hence, the observations of Hon. P & H High Court as underlined above with due respect are not correct.
P a g e |9 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) Under these facts about the laws regarding acquisition of land and its compensation, the interest received u/s 28 of LA Act 1894 is a part of compensation.
In support of our contention, we have relied upon the following latest case Laws:-
i) ITO vsGordhan ITA No 3996/2018/Delhi Date of order 15.01.2019
i) Smt. Sumitra Gupta vs ITO ITA No. 1823/2016 Date of order 31.01.2019/Delhi.
iii) ITO vs Shri VinayakHari Palled ITA No 05/2017 Date of order 12.10.2018/ Banglore.
iv) Jagmal Singh vs /TO ITA No. 2340/2018 Date of order 20.09.2018/ Delhi.
v) ITO vsBasavaraj M Kundarikannur ITA 1747 AND 1750/2017 Date of order 01.06.2018/ Banglore.
vi) Shri Yashpal Singh vs /TO ITA No.755/2013 Date of order 18.03.2014/Asr.
vii) Sumesh Kumar vs /TO ITA No.5207/2017 Date of order
18.03.2014/Delhi.
viii) Shri Baldev Singh vs /TO ITA No.2970/2015 Date of order 08.03.2019/ Delhi,
ix) ITO vs Shri Dhan ender Kumar HUF ITO ITA No. 1591/2018 Date of order 30.09.2019/Chd.
x) Shri Ummed Singh & Others vs ITO ITA No.5774 & 5777/2016 Date of order 30.01.2020 / Delhi.
xi) Mahesh Kumar Gupta vs DCIT ITO ITA No.5986/2016 Date of order 16.10.2019/Delhi
xii) Pranav saran vs ACIT Circle 32(1) New Delhi ITA No. 499/Delhi/2021 Date of order 04.05.2022
xiii) Smt. UrmilaGargvs ITO Ward Sangrur ITA 1183/ Chd/2019 Date of order 31.08.2021.
xiv) Satish Kumar vs ITO Ward Sangrur (TA 1182/Chd/2019 Date of order 31.08.2021.
In view of the above facts, circumstances of the case, statutory Intend u/s 10(37) of the Income Tax Act, Section 96, sections 72 and 80 of RCTRR Act 2013, sec. 28 and 34 of the LA Act 1894 and Landmark Judicial Pronouncements by Hon'ble Supreme Court and other judiciary of the Country, interest received U/S 28 of the LA Act is part of Consideration and not liable to tax and rightly Assessed. Hence request your honour to kindly drop the Proceedings Initiated /S 263 of the Act to meet the end of justice."
3. However, ld. PCIT was not satisfied and held as follow:
"42. The analysis of the various judgements of Hon'ble Supreme Court and Punjab & Haryana High Court on the issues arising out of acquisition of agricultural land and P a g e | 10 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) provisions of section 2(28), 56(2)(viii), 57(iv), 145B and 194LA show that the following three issues were raised repeatedly in various appeals and writ petitions: -
(a) Deduction of TDS u/s 194LA on the payment of compensation on acquisition of agricultural land under State/ Central Government laws.
(b) In which year the interest received on enhanced compensation is to be taxed?
(c) Whether the interest u/s 28 of the Land Acquisition Act, 1894 is taxable or not under Income Tax Act, 1961?
42.1 In all these situations both the Hon'ble Supreme Court and Punjab & Haryana High Court has held repeatedly as follows: -
(a)The Land Acquisition Officer is bound to deduct TDS u/s194LA on the compensation paid on acquisition of land and the assessee has to file the Income Tax Return before the territorial jurisdictional Assessing Officer of the Income Tax Department and the said Assessing Officer will determine the taxability of the amount and applicability of section 10(37). After determining the applicability of provisions of section 10(37) the Assessing Officer may allow refund accordingly.
(b)The interest is taxable in the year of receipt except in one case of Ramabaivs CIT reported in (1990] 181ITR400 (SC) where the Hon'ble Supreme Court held that the interest received on enhanced compensation will be taxed on year-to-year basis. The said controversy has been set at rest by section 145B of Income Tax Act, 1961.
(c)The interest received u/s 28 of the Land Acquisition Act, 1894 is taxable under Income Tax Act, 1961 as income from other sources which has been provided u/s 56(2)(viii) r.w.s. 2(28). Further, section 57(iv) even provides a deduction of 50% interest of income considering various expenses and any further deduction to be allowed.
43. In no case the provisions of sub-section 2(28), 56 2(viii); 57(iv) &145A/145B have been held to be not applicable in any judgements of the Hon'ble Supreme Court or Punjab & Haryana Court. Once again it is retreated that in the case of assessee, the judgements of Hon'ble Punjab & Haryana Court and Hon'ble Supreme Court are applicable irrespective of any other Hon'ble High Court, Appellate Tribunal or the First Appellate Authority i.e., Commissioner of Income Tax (Appeals). The Income Tax Appellate Tribunal and Commissioner of Income Tax (Appeals) have to follow the judgements of Punjab & Haryana Court whilediscussing the issues applicable to the assessee being issued by Assessing Officer having territorial jurisdiction over them in the state of Punjab & Haryana and Union Territory of Chandigarh.
44. The assessee is resident of Gurugram in Haryana and his case which is being assessed by NaFAC Delhi, hence, the judgements of Punjab & Haryana High Court and Hon'ble Supreme Court are applicable. As discussed repeatedly both Punjab & Haryana High Court and Hon'ble Supreme Court has held interest of enhanced compensation is taxable.
45. It is clear that Assessing Officer had done only a semblance of enquiry and; that too, in very slipshod manner and Assessing Officer had accepted version of assessee without P a g e | 11 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) proper enquiry, as a result of which substantial amount of taxable income was not brought to tax. The Assessing Officer mechanically and casually accepted what the assessee wanted him to accept without any application of mind. The evidence available on record shows that the returns of the assessee were not objectively examined or considered by the Assessing Officer and it is because of such non-consideration of the issues on the part of the Assessing Officer that the return filed by the assessee stood automatically accepted without examination, verification and investigation in scrutinyproceedings. The assessment order is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claims made by the assessee and the Assessing Officer has completely omitted to examine the issues in question from consideration and made the assessment in an arbitrary manner.
46. Non holding such inquiry as is normal and not applying mind to relevant material would certainly be 'erroneous' assessment warranting exercise of revisional jurisdiction. The AO did not record a specific finding in regard to the chargeability of tax on interest from enhanced compensation and chargeability thereof as income from "other sources". It demonstrates the non-application of his mind and the PCIT is required to cancel the order under section 263. It is a settled position of law that the failure to make enquiries which are called for on the facts of the case would itself make the assessment erroneous and prejudicial to the interest of revenue. If this kind of order is not subject to review, it may hamper the implementation of the provisions of Income Tax Act in true and correct manner.The Commissioner u/s. 263 has been assigned the duty in the interest of justice to review such kinds of order. The order of the Commissioner of Income Tax itself is subject to judicial scrutiny and order of the Assessing Officer made u/s 143(3) in furtherance to the order u/s 263 is further subject to judicial scrutiny, thereby giving the full opportunity to the assessee to express its views before the appropriate authorities. The Department will not have an opportunity if this wrong order has to be accepted although erroneous and prejudicial to the interest of revenue because the Assessing Officer has expressed his opinion although it may be on wrong assumption of facts and application of law."
4. Thereby holding that:
"66. After due consideration it is observed that the decisions of Hon'ble jurisdictional High Court of Punjab & Haryana are applicable along with Hon'ble Supreme Court in your case and therefore, interest received is not exempt from taxation.Accordingly, it is held that interest is liable to be taxed as per provisions of section 2(28A) r.w.s. 56(2)(viii), 57(iv) and 145A(B) of the Income Tax Act, 1961 in the year of receipt. The provisions of 2(28A) r.w.s. 56(2)(viii), 57(iv) r.w.s.145A(B) of the Income Tax Act, 1961 are very loud and clear to held that interest received on all compensations of land acquisitions are taxable under Income Tax Act, 1961 as income under the Head income from "Other Sources". The interest received on enhanced compensation received on acquisition of agricultural land is not exempt u/s 10(37) of Income Tax Act, 1961. The P a g e | 12 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) assessment order of the Assessing Officer is found to be erroneous and prejudicial to the interest of revenue on the above issues.
67. The Commissioner u/s. 263 has been assigned the duty in the interest of justice to review such kinds of erroneous orders which are also prejudicial to the interest of revenue. The order of the Commissioner of Income Tax itself is subject to judicial scrutiny and order of the Assessing Officer made u/s 143(3) in furtherance to the order u/s 263 is further subject to judicial scrutiny, thereby giving the full opportunity to the assessee to express its views before the appropriate authorities. The Department will not have an opportunity if this wrong order has to be accepted although erroneous and prejudicial to the interest of revenue because the Assessing Officer has expressed his opinion although it may be on wrong assumption of facts and application of law. If this order is not revised or cancelled, the assessee will enjoy the tax benefit by not filing its return truly and correctly as per the law of the jurisdictional High Court.
68. Therefore, in the facts & circumstances and the legal provisions applicable in this case, therefore the Assessing Officer may examine the facts and legal issues to charge tax on interest received on enhanced compensation during the year under consideration under the head as Income from "Other Source", initiate penaltyproceedings, if deemed fit in the facts and charge interest as per law.
69. In view of facts and legal position stated above, it is hereby held that assessment order u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 vide order dated 28.09.2021 passed in this case for Assessment Year 2019-20 is erroneous in so far as it is prejudicial to the interest of revenue. Consequently, in exercise of the power conferred in the Section 263 of the Income Tax Act, 1961, the said assessment order dated 28.09.2021 is set aside, but only to the extent as discussed in the order. Accordingly, the Assessing Officer is directed to work out the amount of additional compensation and Interest thereon. Thereafter the AO is directed to pass a fresh assessment order and re-compute the assessee's income after making further enquiries as directed in the foregoing paragraphs and after giving due opportunity to the assessee& perusing the necessary evidence."
5. The assessee is in appeal raising following grounds:
"1. The Ld. PCIT has erred in law while passing the order dated 20-12-2023 u/s. 263 of the Act by Ld. PCIT, Faridabad has been made without satisfying the statutory pre conditions contained in the Act and is therefore without jurisdiction and thus, deserves to be quashed as such.
2. The Ld. PCIT has erred in law that initiation of proceedings u/s. 263 of the Act on the basis of proposal of Ld. AO is void-ab-initio therefore both initiation and consequent order u/s. 263 of the Act without jurisdiction and thus, deserves to be P a g e | 13 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) quashed as such. Moreover, such impugned order has never been communicated at any point of time by any mode what-so-ever is, thus the assumption of jurisdiction by Ld PCIT is void ab initio
3. The Ld. PCIT has erred in law because Ld. PCIT has failed to appreciate that once the AO on examination of the fact on record and after making all possible enquiries had accepted claim of the appellant then such an order of assessment could not be regarded as erroneous in as much as prejudicial to the interest of revenue merely because the Ld. CIT had a different opinion and that too, without having established in any manner that, view adopted by the Ld. AO was an impossible or unsustainable view.
4. The Ld. PCIT has erred in law that action u/s. 263 of the Act is otherwise too inapplicable on the factual matrix of the facts of the instant case since it is not a case of "lack of enquiry" or "lack of investigation" and therefore the invocation u/s: 263 of the Act is not in accordance with law.
5. The Ld. PCIT has erred in law as Ld. PCIT has proceeded to set aside the order on mere speculation, generalized observations, theoretical allegations and assertions, without there being any supporting evidence and is therefore not in accordance with law.
6. The findings of the Ld. PCIT that "the AO had passed the order dated 28-09-2021 in a very casual manner without due diligence and without conducting proper enquiries and verification which should have been made with respect of amended provisions of the Finance Act, 2015 and binding decision of Jurisdictional Hon'ble Punjab & Haryana High Court and Hon'ble Apex Court on the taxability of interest on enhanced compensation is factually incorrect, legally misconceived, contrary to the facts on record and wholly untenable.
7. The Ld. PCIT has erred in law that even the conclusion that "interest on enhanced compensation during the assessment year under consideration ought to be treated as income from other sources u/s. 56(2)(viii) of the Act" is not based on correct appreciation of facts and therefore untenable.
8. The La. PCIT has erred in law that has also failed to appreciate that, u/s. 263 of the Act, an order of assessment cannot be set aside to simply to make further enquiries and thereafter pass fresh order of assessment and as such, impugned order is contrary to law and hence, unsustainable.
9. That the Appellant prays for the grant of permission to add, alter, delete, modify, any or all of the grounds of appeal at any time on or before or during the time of hearing before the Hon'ble ITAT."
P a g e | 14 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20)
6. At the time of hearing ld. Counsel has submitted and relevant inquiries were made by the assessing officer and in that context he referred to the paper book wherein there is notice dated 05.08.2021 u/s 142(1) by which assessing officer had called for information with regard to enhanced compensation and receipt of interest followed by reply of assessee dated 26.08.2021. The primary contention of ld. Counsel was that as there are decision in favour of the assessee and which have been followed by the Assessing Officer the impugned order of the Assessing Officer cannot be held to be erroneous so far as prejudicial to the interest of revenue. It was submitted that where Assessing Officer has taken one of the two permissible views then powers u/s 263 of the Act cannot be invoked. It was submitted that the Coordinate Bench in the case of Sanjay Kumar Sharma Vs. PCIT, Faridabad, ITA No. 357/Del/2023 by order dated 24.01.2024 in identical facts has allowed the appeal of the assessee.
7. On the other hand, Ld. DR has relied decision of the Coordinate Bench in Subhash Chand Dhingra & Ors Vs. ACIT, ITA No.1063/Del/2022 order dated 07.02.2023. It was contended by way of written submissions filed that P a g e | 15 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) Assessing Officer was bound to follow the Hon'ble Punajab & Haryana High Court decision and they were against the assessee's claim.
8. After taking into consideration the facts and circumstances and submissions we are of the considered view that the fact the assessing officer of assessee and the issue under contest is governed by the jurisdictional Hon'ble High Court of Punjab & Haryana is not disputed. In similar facts and circumstances the Coordinate Bench in the case of Subhash Chand Dhingra & Ors (supra) in which one of us, judicial member, was also in Coram has considered all the arguments as raised by ld. Counsel and has held as follows:
"34. The bench is of considered opinion that certainly judicial decision subsequent to the assessment order may not be the valid basis for exercising the revisionary powers. However, in the case in hand the assessment order is infact silent as to the fact that if the Ld. AO had made any enquiry into the issue and if Ld. AO had taken into consideration the judicial pronouncements, relied on behalf of the assessee, then for what substantial reasons the judgments of jurisdictional High Court, i.eHon‟ble Punjab and Haryana High Court in favour of Revenue have not been relied.
35. Pertinent here is to take not of the law that decision of jurisdictional High Court is binding, even if contrary view is held by non-jurisdictional High Courts. It is also now settled that if there is conflicting views rendered by different High Courts, the view taken by the jurisdictional High Court is binding in the jurisdictional area of the respective High Court. The Hon'ble Bombay High Court in the case of Subramaniam vs. Siemens India Ltd. (1985) 156 ITR 11 (Bom.) has held that the AO is supposed to follow a decision of the Supreme Court and of the High Court of the State within whose jurisdiction he is functioning and in the case where there is conflict of views between different High Courts, AO must follow the decision of the High Court within whose jurisdiction he is functioning. The Hon‟ble Rajasthan High Court in the case of CIT vs. Sunil Kumar (1996) 212 ITR 238 (Raj.) has further held held that the decision of the Jurisdictional High Court is binding on the Income tax Authorities and the Tribunal within the jurisdiction of the Court andthe contrary decision of another High Court is not P a g e | 16 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) relevant, and that a point decided by the Jurisdictional High Court can no longer be considered to be a debatable issue.
36. There is no doubt to the legal proposition, as cited by Ld Counsel of appellant, that the assessment order need not be disclosing all the facts and reasoning for accepting the claim. But when the question is of taking a call on the basis of judicial pronouncements qua the issues, then to the mind of this Bench, there should be very categorical reasoning reflected in the assessment order that for what good reasons a particular view is accepted to benefit or deny the claim. The absence of same can very well be taken to be a case to assume there was no enquiry. The questions of fact may not require much reasoning and can be collated and correlated by reading the notice and replies, but how a legal controversy is dealt with by Ld. AO, needs to be exhibited and reflected in the form of reasons recorded in the assessment order. That not being done, the Ld. Revisional Authority was right to conclude that Ld. AO has not taken into consideration the relevant and prevalent principles of law as laid by Jurisdictional High Court in favour of Revenue. Assessment in the absence of such reasoning is certainly erroneous and prejudicial to the interest of the Revenue.
37. Thus, without any doubt the matter in dispute was one which had divergent views. Certainly in one of the connected cases one of the CIT(A) has also given benefit to brother of the assessee but the matter of fact is that as far as the Hon‟ble jurisdictional Punjab and Haryana High court‟s view is concerned the consistent view was that it is an income to be treated under the head „income from other sources‟. The co-ordinate benches at Delhi have also recognized the same. So the ld AO, while exercising powers in regard to compensation for the land falling in the State of Haryana, was supposed to follow the same. If he intended to distinguish it shouldhave been reflected in the order. A case of lack of enquiry by the Ld. AO, as held by the Ld. Revisional Authority, needs to be sustained. This discussion thus distinguished all the case laws cited on behalf of the Ld. AR. Thus, the grounds raised by the assessee have no substance. The appeals are dismissed."
9. At the same time, if he considered decision in case of Sanjay Kumar Sharma (supra) relied by Ld. counsel for assessee we find that the Coordinate Bench had not at all gone into question about binding ratio which had to be followed by the Assessing Officer but only examined the issue to the limited extent that Assessing Officer had conducted inquiry and therefore, having taken a view in favour of assessee the same cannot be subject of proceeding P a g e | 17 ITA No.6032/Del/2024 Raj Kumar & Sons HUF (2019-20) u/s 263 of the Act.The question about implications of not following jurisdictional High Court decision by the Assessing Officer was not considered at all. Thus decision in Sanjay Kumar Sharma (supra) does not held the assessee and the decision of the Coordinate Bench in in the case of Subhash Chand Dhingra & Ors (supra) squarely applies and consequently we find no substance in the ground raised.
10. The appeal of the assessee is accordingly, dismissed.
Order pronounced in the open court on 18.03.2026
Sd/- Sd/-
(Manish Agarwal) (Anubhav Sharma)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated 18.03.2026
Rohit, Sr. PS
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI