Facts of the Case

The assessee, an individual government employee, received compensation of ₹5,89,563 during Assessment Year 2014-15 on compulsory acquisition of three plots of land measuring 260 square meters by the National Highway Authority of India. The Assessing Officer computed long-term capital gains of ₹99,977 on the said compensation and brought the same to tax. The Assessing Officer also made an addition of ₹3,32,600 on account of unexplained cash deposits in the assessee’s bank account by applying peak credit theory and denied deduction of ₹11,020 claimed under Section 80C towards tuition fees of the assessee’s children. The CIT(A) confirmed the additions. Aggrieved, the assessee filed an appeal before the Tribunal.

Issues Involved

Whether capital gains arising from compulsory acquisition of agricultural land were eligible for exemption under Section 10(37), whether the computation of cost of construction and capital gains was correctly made, whether addition of ₹3,32,600 on account of cash deposits was sustainable in light of the cash flow explanation, and whether deduction under Section 80C for tuition fees could be denied despite allowance by the employer while issuing Form 16.

Petitioner’s Arguments

The assessee contended that the land acquired by NHAI was agricultural in nature and compulsorily acquired, satisfying all conditions of Section 10(37), and therefore the entire capital gain was exempt. It was submitted that copies of purchase deeds evidencing agricultural nature of land were already on record. Alternatively, it was argued that the Assessing Officer arbitrarily estimated cost of construction at ₹350 per square foot without any basis, ignoring PWD rates relied upon by the assessee. Regarding cash deposits, the assessee submitted that deposits were fully explained from prior withdrawals supported by a detailed cash flow statement and that there was no valid admission to addition. On Section 80C, it was contended that deduction of tuition fees was reflected and allowed by the employer in Form 16 and therefore should not be denied.

Respondent’s Arguments

The Revenue objected to the exemption claim being raised for the first time before the Tribunal but fairly conceded that relevant facts were already on record and required verification by the Assessing Officer. On cash deposits and Section 80C deduction, the Revenue relied on the orders of the lower authorities.

Court Order / Findings

The ITAT Jaipur held that exemption under Section 10(37) in respect of capital gains arising from compulsory acquisition of agricultural land is a settled legal position. The Tribunal observed that the Assessing Officer himself recorded the fact of compulsory acquisition by NHAI and that purchase deeds indicated agricultural nature of land. Since the claim had not been examined earlier, the Tribunal restored the issue to the file of the Assessing Officer for verification and fresh adjudication. The Tribunal also restored the alternate issue relating to computation of capital gains and cost of construction, noting that the assessee’s submissions based on PWD rates were not examined.

On the issue of cash deposits, the Tribunal found that the CIT(A) confirmed the addition despite rejecting the peak credit theory and without examining the detailed cash flow statement filed by the assessee. Accordingly, this issue was also restored to the Assessing Officer for fresh consideration after granting due opportunity.

With respect to deduction under Section 80C, the Tribunal held that where the employer had allowed the deduction while issuing Form 16, the Assessing Officer ought to have verified the basis from the employer before denying the claim. This issue was also restored for fresh adjudication.

Important Clarification

The Tribunal clarified that legitimate exemption claims under Section 10(37) can be raised even at the appellate stage when all relevant facts are already on record. It further clarified that additions and disallowances cannot be sustained without proper verification of explanations and evidence furnished by the assessee, and mechanical confirmation of additions violates principles of natural justice.

Final Outcome

The appeal filed by the assessee was allowed for statistical purposes. All three issues relating to exemption of capital gains under Section 10(37), addition of ₹3,32,600 on account of cash deposits, and deduction of ₹11,020 under Section 80C were set aside and restored to the file of the Assessing Officer for fresh adjudication in accordance with law after granting adequate opportunity of being heard to the assessee.

Link to download order-https://www.mytaxexpert.co.in/uploads/1768993505_TEJPALSINGHREENGUSVS.INCOMETAXOFFICERWARDNEEMKATHANANEEMKA.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.