Delhi High Court: Enhancement of compensation after legal proceedings should be disclosed in the current relevant assessment year.

The Central India Electric Supply Co. Ltd. v. Income Tax Officer, on 28 January, 2011

Assessment Year: 1979-80

Question/s before the Hon’ble Court:

(1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that re-assessment proceedings under Section 147(a) read with Section 148 of the Income-tax Act, 1961 had been rightly initiated against the assessee?

(2) Whether the Tribunal was right in holding that valid approval had been accorded by the Central Board of Direct Taxes under Section 151(i) of the Income-tax Act for re- opening of the assessment of the assessee?

Relevant facts: The assessee company was engaged in the generation and supply of electricity from its units at Bilaspur and Katni. These units were acquired by the Government of Madhya Pradesh in the year 1964 when the appellants licence expired & not renewed. The compensation for compulsory acquisition of both the units was fixed at Rs.5,85,000/- and paid to assessee in the year 1964 itself. It is not disputed that the assessee received some payment in the previous year 1978-79 relatable to the assessment year 1979-80 (after eliciting more compensation pursuant to legal proceedings). A notice dated 15.11.1981 under Section 148 of the IT Act was issued to the assessee appellant company requiring it to furnish its return for assessment.

Upholding the appeal of the assessee, the Hon’ble Court held that:

(1) They should reveal a rational nexus between the facts considered and the conclusions reached. Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable. This is completely absent in the present case.

(2) There is no finality emerging in matters of enhancement of compensation as none of the parties can contemplate in advance as to what would be the fate of the appeal proceedings. On receipt of the enhancement compensation, the appellant disclosed the same in its return as was the case in P.C. Gulati, Voluntary Liquidator, Panipat Electric Supply Co. Ltd.s case (supra); Harish Chandra & Ors.s case (supra); Hindustan Housing & Land Development Trust Limiteds case (supra); and New Friends Co-operative House Building Society Ltd. v. CIT & Anr. case (supra).

The decision is available here.