Enhanced compensation for agricultural land is exempt and recharacterization of capital gains is valid.

ORDER

S.S. Viswanethra Ravi, Judicial Member. – This appeal filed by the Revenue is directed against the order dated 28.11.2025 passed by the ld. Commissioner of Income Tax (Appeals), Chennai-20, for the assessment year 2017-18.

2. Brief facts as emanating from the record, we note that the assessee is an individual filed return of income declaring a total income of Rs.49,94,600/-. Under scrutiny notices u/s. 143(2) & 142(1) of the Act were issued. In response to the same the assessee filed required details which is evident from para no.2 of the original assessment order dated 03.05.2018 at page no.94 of the paper book. Further, we note that the AO accepted the assessee’s contention as long term capital gain arising out of sale of office premises situated at Raigad, Maharashtra, instead of short term capital gain as was claimed in return of income. Further, a claim u/s. 10(37) of the Act with reference to receipt of enhanced compensation from the National Highways Authority of India on account of compulsory acquisition of land being an agricultural land. Thereafter, the ld.PCIT u/s. 263 of the Act held the above said assessment order as erroneous and prejudicial to the interest of revenue vide his order dated 26.03.2021 which is at page no.97 of the paper book, wherein he directed the AO to conduct a fresh assessment after proper verification. In pursuance of directions u/s. 263 of the Act by the ld.PCIT, the AO held the gain arising from the sale of office premises as short term capital gain for having not claimed in the return of income and denied claim of exemption u/s. 10(37) of the Act for not producing any documentary evidence to establish that agricultural operations were carried on, for not registering with any mandi for sale of agricultural produce and not being used for agricultural purposes during the two years immediately preceding the transfer, vide its order dated 27.03.2022 passed u/s. 143(3) r.w.s. 263 of the Act. Having not satisfied with the said order, the assessee preferred an appeal before the ld.CIT(A). The assessee filed written submissions in respect of claim under long term capital gain and claim u/s. 10(37) of the Act before the ld.CIT(A) which are reproduced from page no. 7 to 10 of the impugned order. Considering the same, the ld.CIT(A) held the claim u/s. 10(37) of the Act is not admissible and denied long term capital gain for not revising return of income. Having aggrieved by the said order of the ld.CIT(A), the assessee is before us.

3. Ground nos. 2 to 6 raised by the assessee challenging the action of ld.CIT(A) in confirming the order of the AO in denying the claim u/s. 10(37) of the Act.

4. The ld.AR, Shri. D.Anand, Advocate, refers to issue of exemption u/s. 10(37) of the Act in respect of enhanced compensation received during AY 2016-17 and submits that the finding recorded in the impugned assessment order that the assessee failed to satisfy the conditions prescribed under section 10(37) of the Act, the exemption was erroneously allowed in the original assessment completed under section 143(3) vide order dated 03.05.2018 is wholly misconceived, contrary to the material available on record, and unsustainable both on facts and in law. He submits that the compensation received during the previous year relevant to A.Y. 2016-17 did not represent compensation on a fresh acquisition of land and the land had already been compulsorily-acquired by the National Highways Authority of India (NHAI), the original compensation had been received and assessed in the immediately previous year relevant to A.Y. 2015-16,drew our attention to page 30-39 of the paper book and enhanced compensation at page 40. He submits that the amount received during A.Y. 2016-17 represented only enhanced compensation arising out of the very same compulsory acquisition. He argued vehemently once the original compensation arising from compulsory acquisition of the land was examined and accepted as exempt under section 10(37), the enhanced compensation received subsequently partakes the same character and cannot be viewed independently by reopening issues that had already been examined and concluded in relation to the original acquisition. He submits that the conditions prescribed under section 10(37) were subjected to detailed scrutiny by the Assessing Officer during the assessment proceedings for A.Y. 2015-16 and in the said proceedings the assessee had furnished elaborate submissions vide letter dated 11.10.2017 and drew our attention to pages 64 to 74 of the paper book explaining the nature of the land, the circumstances under which the land was acquired by NHAI, the extent of land acquired, the ownership of the land, and the basis for claiming exemption under section 10(37). Further, the assessee specifically furnished copies of the award proceedings, Chitta, Adangal and drew our attention to Pages 41-43 of paper book, and other revenue records demonstrating that the lands acquired by NHAI were agricultural lands.

5. He, further explains that an extent of 1.97 acres of agricultural land situated in various survey numbers had been compulsorily acquired by NHAI and compensation had been received therefor. He submits that the assessing officer while completing the assessment for the AY:2015-16 did not merely accept the claim of the assessee on the basis of the assessee’s submissions but on the contrary did an independent verification and the same is specifically recorded in assessment order dated 26.12.2017 for A.Y. 2015-16 and drew our attention to pages 75-77 of paper book. The assessee’s claim of exemption on sale of agricultural landwas independently verified by the Department and that the Inspector of the Department conducted enquiries and reported that the land acquired by NHAI was indeed agricultural land and the Assessing Officer categorically recorded a finding that the genuineness of the claim was verified and that the land in question was agricultural land.

6. The ld.AR further submits that, the issue relating to ownership of the land was also subjected to detailed examination during the scrutiny assessment proceedings for A.Y. 2015-16 and he submits that the Assessing Officer had specifically raised queries regarding the assessee’s title to the land, particularly in view of the fact that the properties acquired by NHAI had not originally stood registered in the assessee’s name. In response, the assessee furnished copies of the Lok Adalat settlement and drew our attention to page 23-29 of paper book, Memorandum of Understanding at page 1-7 of paper book, possession documents and other supporting evidence establishing his beneficial ownership and possession over the land. He vehemently argued that the Assessing Officer examined the said documents and recorded that the District Revenue Officer, before disbursing compensation, had conducted independent enquiries and had recognized the assessee as the rightful owner of the acquired lands, accepted the assessee’s ownership claim and completed the assessment. The ld.AR further submits that equally significant is the fact that the existence of agricultural operations was also verified during the original proceedings and the assessment order for A.Y. 2015-16 records that the assessee furnished Chitta, Adangal, details of crops cultivated, yield particulars relating to agricultural operations.

Further, he submits the material evidence were examined by the Assessing Officer before completing the assessment and the allegation in the impugned order that there was no evidence of agricultural activity is contrary to the assessment records themselves.

7. He submits that the very same issue was again examined in the scrutiny assessment for A.Y. 2016-17 and the original assessment order passed under section 143(3) for A.Y. 2016-17 and drew our attention to pages 94 to 96 of paper book which records that the assessee had claimed exemption under section 10(37) in respect of enhanced compensation of Rs.5.23.29.323/ arising from acquisition of agricultural land. He argued that the Assessing Officer specifically noted that the genuineness of the claim and the agricultural character of the land had already been verified during the scrutiny assessment for A.Y. 2015-16 through departmental enquiry and Inspector verification. He submits that the observation in the impugned order that the assessee failed to establish the land was agricultural in nature or that agricultural operations were carried on for the prescribed period is wholly unsustainable. He concludes by submitting that the compensation received during A.Y.2016-17 constituted merely enhanced compensation arising from the same compulsory acquisition for which the original compensation had already been examined and accepted as exempt and further, once the eligibility of the land and satisfaction of the conditions under section 10(37) had been examined and accepted the original compensation, there was no justification for reopening the very same factual issues while assessing the enhanced compensation. He prayed that the character of the receipt does not change merely because a part of the compensation is received subsequently as enhanced compensation and to allow ground no’s 2 to 6 raised by the assessee.

8. The ld.DR Ms. R. Anitha, CIT, with regard to Enhanced compensation of Rs. 5,23,29,323/-received from NHAI, submits that during the course of hearing, the appellant counsel relying on the Encumbrance Certificate and the Adangal for fasli years 1423 & 1424 corresponding to FY 2013-14 & 2014-15 at Page no 43 of EC and Adangalat page no 41 & 42, argued that the above documents prove the fact of the land being acquired are agriculture in nature and were used for agricultural purposes for 2 years before the date of transfer. She submits that in this regard, land acquired by NHAI are three patches of land in different survey numbers. Regarding the land in survey nos. 136/4, 136/5B, she submits that the said lands were purchased by the assessee on 03/04/2006 vide purchase deed nos. 309/2006 at Page nos. 8 to 18 of Paper Book. She argued that the land purchased by the assessee in survey nos. 136/4, 136/5 are of vacant residential plots in naturereferred to page no 9 of Paper Book. Further, the Encumbrance Certificate furnished by the assessee at Page no. 43 of the Paper Book, does not list the above survey numbers as agricultural lands. She argued vehemently that the lands acquired in survey nos. 136/4, & 136/5B corresponding to the enhanced compensation of amount Rs.1,21,29,533/- are in no way connected to an agricultural land.

9. Further in respect of properties acquired in survey nos. 136/2A2, 136/2C2, 137/1B, 137/2 137/3B, 137/10B, 137/12B, 137/19B & 137/20 and another patch of land at 136/2B, she submits that while as per the EC, the lands in such survey no. are shown as agricultural lands regarding the condition of having used for agricultural purposes for two years before date of transfer, refers to tabular form below as relevant.

10. The ld.DR submits with reference to above details that out of total extent of land in these survey nos., only a small portion is shown as under cultivation as per village record Adangal and the compensation amount of Rs. 4,01,99,790/- (Rs. 5,23,29,323 – Rs. 1,21,29,533) received by the assessee from NHAI in respect of the above survey numbers, not conclusively proved as to whether the land acquired by NHAI in these survey nos. are really under cultivation during the two years before the transfer. Further, she submits that out of the total compensation received of Rs. 5,23,29,323, in respect of amount of Rs. 1,21,29,533, the land acquired by NHAI is not an agricultural land but residential plot. She argued vehemently that in respect of the remaining compensation of Rs. 4,01,99,790/- received while land acquired is agricultural land as per the EC, the assessee has failed to conclusively prove the fact of said lands being under cultivation for the 2 years before the date of transfer and requested that the order of AO and the ld.CIT(A) holding the said lands acquired to be dry lands be upheld and the entire compensation of Rs. 5,23,29,323/- be brought to tax. Sheprayed to dismiss ground nos. 2 to 6 raised by the assessee.

11. In reply, ld.AR submits that with reference to the Department’s contention that the lands comprised in Survey Nos. 136/4 and 136/5 are vacant residential plots, is factually incorrect and contrary to the documentary evidence available on record. He argued vehemently that the Department seeks to draw an inference from an isolated description in the purchase deed while completely overlooking the nature and character of the property conveyed under the registered document. He refers to the schedule to the sale deed and argued that the schedule clearly establishes that the property transferred was described as “dry agricultural land” and not as residential plots. Further, the Ld.AR submits that the Department’s submission that only a small portion of the land was under cultivation is founded on a complete misreading of the Adangal records and is factually unsustainable. The Department has erroneously treated the extent recorded in the Adangal in hectares as though it were recorded in cents, resulting in a fundamentally incorrect computation.

12. Heard both the parties and perused the material available on record. On an examination of the submissions dated 10.10.2017 of the assessee in response to notice u/s. 143(2) of the Act at page no.78 to 93 of the paper book, we note that the assessee contended that the compensation given by the NHAI on account of agricultural land and furnished details of agricultural land taken over by the NHAI. We find the said details in para no.3 & 4 of the submissions at page no. 81 of the paper book. For AY 2014-15, we find the AO in pursuance of the details as provided by the assessee conducted enquiries with reference to the nature of land. In this regard, we find the original assessment order dated 26.12.2017 for AY 14-15 passed u/s. 143(3) of the Act is at page no.75 of the paper book. On perusal of the same, we note that the AO deputed inspector of his office for verification of genuineness of claim of the assessee whether the land acquired by NHAI is an agricultural land or not? it is noted that the inspector caused an enquiry and reported that the land at issue is an agricultural land which is evident from para no.3 of the said order. Further, the AO raised a doubt whether any transfer by way of registration to the assessee or not?.In response to the said doubt the assessee has furnished an explanation stating that the sellers of the agricultural land in survey nos. 136/2A2, 2B, 136/2C2, 137/1B, 3B, 1Bad, 2, 10B, 10Bad, 12B, 12Bad, 19B and 137/20 handed over to the assessee on 30.05.2014 as per directions of Lok Adalat Thiruvallur. It was further explained that the District Revenue Officer, Thiruvallur, District of NHAI has caused an enquiry and decided that the assessee is rightly owner of above said properties and disbursed the compensation. Having considered the same issue in original assessment order for AY 14-15 with reference to enquiry by inspector of AO’s office on the basis of details as furnished by the assessee, we find force in the arguments of ld.AR that the submissions of the ld.DR, order of PCIT and giving effect order in pursuance of the 263 order in holding the subjected lands are not agricultural lands are contrary to findings of assessment orders for AY’s 14-15 and 16-17 concluded under section 143(3) of the Act.

13. We find revenue records in Adangal issued by the Village Administrative Officer at page no. 41 of the paper book in vernacular language for FY 2014-15 stated to be agricultural land. Further, on perusal of the Adangal for FY 2013-14 in vernacular language with reference to survey nos. 136(4), 136(5) and 136(2B) are agricultural lands according to Lok Adalat District Legal Services Authority, Thiruvallur in IAC No. Settlement Memo, OS No.57/2009 (ADJ TVR). Therefore, we find force in the arguments of ld.AR that the schedule of the conveyance document constitutes the most authoritative description of the property conveyed and identifies the land as dry agricultural in nature. Therefore, the Department’s attempt to characterize the property as residential plots is contrary to the recitals contained in the registered sale deed itself and we agree with the Ld AR that mere use of the expression “vacant” cannot alter the fundamental character of the land when the conveyance specifically identifies it as dry agricultural land. Further, we note that the revenue records produced by the assessee show complete support to the agricultural character of the land. The extract of the Adangal placed at page 41as discussed above, shows agricultural operations were in fact carried on in the relevant lands. We note that the Revenue records maintained by the Village Administrative Authorities are statutory records and constitute the best evidence regarding the nature and use of agricultural lands. The mentioning of cultivation in the Adangal shows the Respondent’s allegation that the land was merely a vacant residential plot, is incorrect.Therefore, the title deed documents and the revenue records establish that the lands in Survey Nos. 136/4 and 136/5 were agricultural lands on which agriculturalactivities were carried on, and the revenue’s contention is rejected.

14. Coming to the reply of ld.AR, we find that comparison of the Adangal entries at Page 41-42 with the actual conversion figures demonstrates that the extents recorded as 0.085, 0.105, 0.100, 0.110, 0.095 hectares, etc., have been wrongly interpreted by the revenue as 8.5 cents, 10.5 cents, 10 cents, 11 cents and 9.5 cents respectively. We agree with the reply offered by the Ld AR that when units are properly converted from hectares into cents, the cultivated extents are substantially larger and correspond with the extent of land owned and acquired. We find the correct conversion table furnished by the assessee is reproduced hereinbelow

15. On perusal of the above, we find it shows that the total land owned by the assessee was 233 cents, the total land acquired by NHAI was 150 cents and the total extent under cultivation as reflected in the Adangal works out to approximately 211 cents. Thus, we find the cultivation mentioned in the revenue records covers the entire landholding of the assessee.

16. Further, we find from the tabulation above, as it reconciles the extent owned, acquired and the cultivation as reflected in the Adangal records and the above said details establishes that agricultural operations were carried on in the lands acquired by NHAI which supports the assessee’s claim for exemption under section 10(37) of the Act and, therefore, we hold that the denial of exemption under section 10(37) in respect of the enhanced compensation of Rs.5,23,29,323/- is contrary to the facts on record and is deleted. Thus, order of the ld.CIT(A) is not justified and thus, set aside, therefore, ground nos. 2 to 6 raised by the assessee are allowed.

17. Ground no’s. 7 to 9 raised by the assessee challenging the action of ld.CIT(A) in confirming the order of the AO in denying long term capital gains.

18. The Ld. AR submits that the entire premise on which the impugned addition has been made is fundamentally misconceived. The sole objection raised by the Principal Commissioner was that the claim was entertained by the Assessing Officer on the basis of a letter filed during the course of assessment proceedings, not through a revised return of income and held the decision of the Hon’ble Supreme Court in Goetze (India) Ltd. v. CIT 284 ITR 323 (SC) was attracted. The Ld.AR submits that the reliance placed on the decision in Goetze (India) Ltd. (supra) is wholly misplaced, and the assessee is not seeking to make a fresh claim for deduction, exemption or relief which was omitted from the return of income. The assessee had already disclosed the transaction in the return of income and offered the resultant capital gain to tax. The only error was in the classification of the capital gain as Short-Term Capital Gain instead of Long-Term Capital Gain, and the case does not involve a new source of income, a fresh deduction, or an altogether new claim rather it concerns the correct characterization and computation of an already disclosed transaction. The assessee merely brought to the notice of the Assessing Officer that the gain had been inadvertently offered under the wrong head and requested that it be assessed in accordance with law on the basis of the facts already available on record. He vehemently argued that such correction of an inadvertent error cannot be equated with making a fresh claim so as to attract the ratio of Goetze (India) Ltd (supra).

19. He submits that it is now well settled that the appellate authorities, including the Commissioner (Appeals) and the Income Tax Appellate Tribunal, possess wide powers to entertain and adjudicate a legal claim even if the same was not made through a revised return. He referred to the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT  (SC)/[1998] 229 ITR 383 (SC) and argued that the Tribunal has jurisdiction to examine a question of law arising from the facts already on record, notwithstanding that such a claim was not raised before the lower authorities.

20. He prayed that since the factual foundation for treating the gain as Long-Term Capital Gain already exists on record and has never been disputed on merits by either the Assessing Officer in the original assessment or by the Principal Commissioner in the revisionary proceedings, the benefit of Long-Term Capital Gain treatment cannot be denied merely on a procedural objection based on the filing of a revised return. He refers to CBDT Circular No. 14 (XL-35) dated 11.04.1955, and submits that the Central Board of Revenue categorically instructed that officers of the Department must not take advantage of an assessee’s ignorance and are duty-bound to assist taxpayers in securing all legitimate reliefs and benefits available under law. He argued that the Circular specifically emphasizes that tax authorities should draw the attention of the assessee to any refund or relief to which he is lawfully entitled, even if such claim has not been properly made.

21. The ld.DR, Ms R. Anita, CIT, refers to the issue of short Term Capital Gain v. Long Term Capital Gain in respect of Office space sold atRaigad and submits that while the assessee claims the said sale of office space resulted in LTCG, the assessee himself in his Return of Income filed, had offered the income only under Short Term Capital Gain. She submits that the assessee claims to have been in possession of the said property since, 1/7/1995, the actual conveyance happened only on 13/02/2015 by way of Registered Deed. Assessee sold the said property on 12/08/2015, which resulted in capital gain. Regarding the claim of assessee of being in possession of the said office space since 1995 and the resultant gain to be LTCG, she refers to Clause 8 at Page no 6 & 27 of additional Paper Book Vol.2 which is reproduced as under:

“8. It is specially agreed that the legal possession of flat / offices shall be handed over at the time of executing conveyance only. If possession handed over earlier, that will be as a licensee only”.

22. By referring to above, she argued that the assessee has been in possession of the property since 1995 only as a licensee and not as the owner of the property. When on 13/02/2015, the land was conveyed to the assessee by way of Registered deed, then only the assessee became the owner and the resultant Capital Gain is only Short Term Capital Gain and prayed to dismiss the ground nos. 7 to 9 raised by the assessee.

23. In reply, ld.AR. Shri Anand, submits that the capital gain arising from the transfer of the office premises at Raigad constitutes ShortTerm Capital Gain solely because the registered conveyance deed was executed on 13.02.2015 is legally unsustainable and proceeds on an erroneous understanding, argued that for the purposes of determining the period of holding under the Income-tax Act, what is relevant is the date on which the assessee acquired rights in the property and not merely the date on which the formal conveyance deed came to be executed. He submits that the assessee had acquired valuable and enforceable rights in the office premises as early as on 01.07.1995 pursuant to the Memorandum of Understanding entered into with the developer and prayed to allow ground no’s 7 to 9 raised by the assessee.

24. Heard both the parties and perused the material available on record. We find the Assessing Officer who completed the original assessment under section 143(3) of the Act at page 94 to 96, we note that the AO had examined the facts relating to the acquisition, possession, ownership and period of holding of the property and accepted the assessee’s contention that the gain was assessable as Long-Term Capital Gain. We find that neither the Principal Commissioner in the order passed under section 263, nor the Assessing Officer in the consequential assessment proceedings, nor even the learned Commissioner of Income Tax (Appeals) in the impugned order has disputed the fundamental fact that the office premises at Raigad constituted a long-term capital asset. We find no finding anywhere the revisionary order nor in the consequential assessment order, the quantum appellate order disputing the date of acquisition, the period of holding, the assessee’s ownership, possession, or the factual basis on which the original Assessing Officer accepted the gain as Long-Term Capital Gain. We find the action of the Assessing Officer in the original assessment proceedings in correctly assessing the gain as Long-Term Capital Gain was in consonance with the Circular No.14 dated 11.04.1955 (supra).

25. In this regard, we find the judgment of the Hon’ble Madras High Court in CIT v. Perlo Telecommunication and Electronic Components India (P.) Ltd.  (SC) (TCA No.413 of 2014 dated 20.09.2021), wherein the Hon’ble High Court was pleased to hold after considering Goetze (India) Ltd, (supra) that the restriction contained therein is limited to the powers of the Assessing Officer and does not affect the jurisdiction of the appellate authorities to entertain and adjudicate a claim. The Hon’ble Court further upheld the Tribunal’s finding that where the assessee merely furnishes a revised computation during the course of assessment proceedings, such claim cannot automatically be treated as a fresh claim and that substantive relief cannot be denied on mere technicalities.

26. Further, on a perusal of the original assessment order under section 143(3) dated 03.05.2018 at pages 94-96 of paper book would clearly demonstrate that the Assessing Officer did not mechanically accept the assessee’s claim merely on the basis of a letter filed during the course of assessment proceedings. On the contrary, the claim was accepted only after a detailed verification of the facts relating to the acquisition, possession, ownership and period of holding of the property. We find during the course of the original assessment proceedings, the assessee furnished complete details relating to the acquisition of the office premises bearing Nos. D-105 and D-106 situated in Nandavan Complex, C & D Wings CHS Limited, Raigad, Panvel Taluk and District, Maharashtra and assessee explained and we find that

27. Further, we find the Assessing Officer recorded a categorical finding in the original assessment that the assessee had become the legal and beneficial owner of the property from 01.07.1995 itself notwithstanding the fact that formal registration had taken place subsequently. We find the Assessing Officer concluded that the asset had been held by the assessee for a period far exceeding the statutory period prescribed for a long-term capital asset. Therefore, only issue raised by the Revenue throughout has been whether the Assessing Officer could have accepted the assessee claim of Long-Term Capital Gain on the basis of a letter filed during the assessment proceedings without the filing of a revised return of income or not?

28. We find that the decision of the Hon’ble Supreme Court in Goetze (India) Ltd.(supra) has no application to the facts of the present case, as the assessee is not seeking to raise a fresh claim for deduction, exemption, allowance or relief which was omitted from the return of income. We find the transaction giving rise to the capital gain was duly disclosed as short term in the return and the resultant gain was offered to tax. The assessee merely pointed out that the gain had been inadvertently classified as Short-Term Capital Gain instead of Long-Term Capital Gain and requested that the same be assessed under the correct head based on the facts already available on record. Therefore, we hold this is not a case of fresh claim but only a case of correct characterization of an already disclosed transaction and the said gains, in our opinion, are assessable as Long-Term Capital Gains, as originally accepted by the Assessing Officer in the assessment completed under section 143(3) of the Act dated 03.05.2018 and the addition is deleted. Thus, order of the ld.CIT(A) is set aside and ground nos. 7 to 9 raised by the assessee are allowed.

29. In the result, appeal filed by the assessee is allowed.