Interest awarded under Section 28 of the Land Acquisition Act on enhanced compensation for compulsory acquisition of agricultural land constitutes an integral part of the compensation itself and is exempt from income tax under Section 10(37) of the Income Tax Act.

ORDER

PER: RATHOD KAMLESH JAYANTBHAI, AM

Feeling dissatisfied with finding so recorded in the order of the ld. CIT(A), National Faceless Appeal Centre, dated 27.08.2024 the present appeal was filed by the revenue. The dispute relates to the assessment year 2018-19. Ld. CIT(A) passed that order because the assessee challenged the order of assessment of income passed upon him u/s 143(3) read with sections 143(3A) & 143(3B) of the Income Tax Act, 1961 (for short “Act”) dated 11.03.2021 passed by National e-Assessment Centre, Delhi [for short AO] before him.

2. The grounds upon which the revenue has challenged that order of the ld. CIT(A) reads as under: -

“1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 4,43,36,980/- made by the Assessing Officer u/s 57(iv) r.w.s. 56(2)(ii) r.w.s 145B on account of interest received u/s 28 of LAC Act on enhanced compensation is taxable u/s 56(2)(viii) as income from other sources.

3. Brief facts of the case are that the assessee filed his return of income on 05.01.2019 declaring total income at Rs. 25,25,930/-. The case was selected for complete scrutiny assessment under E assessment Scheme 201 on the following issues;

Statutory notices as required from time to time were issued and served on the assessee. In response the assessee submitted the details along with requisite documents and evidences called for which are kept on record by the ld. AO. On the basis of details submitted by the assessee, the issues on which the case was selected for scrutiny was examined and verified.

Ld. AO noted that the assessee has shown the exempt income of Rs. 8,86,73,959/- as interest on compensation fully exempt. It includes interest and claims exemption u/s. 10(37) of the Act. Record reveals that the assessee has received enhanced compensation of Rs. 5,60,56,954/- and interest u/s 28 of the Land Acquisition Act of Rs. 8,86,73,959/-. On this interest amount so received the assessee tax was deducted at source. While filling the ITR the assessee claimed that interest received by him on enhanced compensation is nothing but compensation and therefore, even for the interest received was eligible for exemption u/s. 10(37) of the Act. To support this contention before the ld. AO, the assessee relied upon the decision of the Apex Court in the case of CIT Vs. Ghanshyam (HUF) and Gujarat High Court in the case of Movaliya Bhikhubhai Balabhai Vs. ITO . The ld. AO considered that contention but was not found acceptable because there was change in the provision of section 145B(1) r.w.s. 56(2)(viii) of the Act interest received by the assessee on Compensation or Enhanced Compensation Amount is taken as an income in which year it has been received irrespective of the method of accounting followed by the assessee subject to deduction 50 % u/s. 57(iv) of the Act of such interest income referred to in clause (viii) of sub-section (2) of section 56 of the Act. Accordingly, a sum of Rs. 4,43,36,980/- which was the net interest income, after allowing deduction of 4,43,36,980/- u/s. 57(iv) of the Act was added to the total income of the assessee.

4. Aggrieved by the above order of the Assessing Officer the assessee preferred an appeal before the ld. CIT(A). After perusing the submissions of the assessee, the ld. CIT(A) has allowed the appeal of the assessee thereby observing as under :

“5. Observation and Decision:

Ground No. 1 is general in nature.

In ground No. 2,3 and 4, the Appellant h