Unsustainable to claim jurisdiction under Section 263 in order to demand tax on interest granted under the Land Acquisition Act

Fact and issue of the case

This appeal is filed by the assessee against the order dated 31.07.2012 of the ld. Commissioner of Income Tax (Appeals) [(hereinafter referred to CIT(Appeals)], Hissar, for assessment year 2008-09.

The assessee has raised the following grounds of appeal :-

“Order passed under section 263 by the CIT is erroneous and bad law as it is passed without laying the foundation for the assumption of jurisdiction.

The CIT ought to have appreciate that at the time of examination of records of the assesse order passed by the Assessing Officer was not prejudicial to the interest of the revenue.

The CIT ought to have appreciated that in the return filed by the assesse interest income was inadvertently shown as taxable which was rectified by the assessing officer.

The CIT ought to have appreciated that the Union of India does not require to levy tax on an amount returned by mistake. The sovereign authority does not want to take advantage of a mistake committed by an assesse. It is not the policy of the Sovereign State to crave for undue enrichment.

The CIT ought to have appreciated that the Circular issued by the 11.04.1955 enjoins upon the assessing officers not to take advantage of the ignorance of the assesse. This circular is binding on the revenue authorities. As such the Assessing Officer followed the spirit of the Circular while rectifying the order under section 154.

The CIT failed to appreciate that the Assessing Officer is concerned with the assessment and collection of the revenue, and the power to rectify the order is conferred upon him to ensure that no injustice to the revenue or to the assesse in done.

Your petitioner has reserve to right to change, alter, add or modify the any grounds of appeal. 8. That the order passed by the CIT Hissar (Haryana) shall be set aside and grant necessary relief to your petitioner.”

Observation of the court

In view of the above discussion and considering the fact that the interest awarded under Land Acquisition Act is not taxable as held by the Hon’ble Supreme Court, the department cannot demand to pay the tax on the same by way of invoking section 263 of the Act, therefore, we hold that the order of the ld CIT is erroneous. Accordingly, we quash the impugned order passed by the ld CIT u/s 263 and uphold the order passed by the ld AO u/s 154 of the Act.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on : 23/03/2023.