The Income Tax Appellate Tribunal (ITAT), Surat bench has held that the addition of capital gain on account of compulsory acquisition of land is not taxable and can claim exemption u/s10 (37) of Income Tax Act,1961.
The land of the appellant was acquired by Special Land Acquisition Officer and the Revenue made a re-opening u/s147 of the Income Tax Act, 1961. The Assessing Officer made an addition of Rs. 23,09,700/-on account of LongTerm Capital Gains (LTCG) on the transfer of land. capital gain on the certain amount received for permanent (pacca) structure was treated as income from other sources and agriculture income shown by the appellant assessee was treated as unexplained cash credit under section 68 of the Act. The assessing officer levied a penalty under section 271(1)(c) on various additions.
It was observed that the addition of capital gain on account of transfer of land/ acquisition of land is not taxable as the impugned land is not a ‘capital asset’ as defined under section 2(14)(iii)(a) of the Act.
The appellant argued that they were eligible for exemption under section 10(37) of the Act as the land was compulsorily acquired by the Government of Gujarat by completing statutory formalities under Land Acquisition Act, 1882. The appellant fulfilled all the requisite conditions for seeking exemption under section 10(37) of the Act.
The Tribunal consisted of Shri Pawan Singh, JM, and Dr. Arjun Lal Saini, AM allowed 60% as the cost of acquisition or cost of the improvement. Further, the agricultural income offered by the assessee(s) was treated as “income from other sources” and has been held as “income from agricultural activities”. The Tribunal held that penalty under section 271(1)(c) of the Act is leviable on the appellant and allowed the appeal.
Shri Mehul Shah and Shri J.K. Chandani appeared on behalf of the appellant and respondent respectively.
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