Section 28 Interest on Enhanced Compensation Cannot Be Taxed as "Income from Other Sources" — ITAT Mumbai Deletes ₹14,26,743 Addition in Manjeet Digambar More Vs ITO

Overview

A recent ruling by the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, has reinforced a well-established but frequently contested principle: interest awarded under Section 28 of the Land Acquisition Act, 1894 does not constitute ordinary interest income. It is, in substance and law, an inseparable component of the enhanced compensation paid upon compulsory acquisition of land. Consequently, it cannot be independently assessed under Section 56(2)(viii) read with Section 57(iv) of the Income Tax Act, 1961. The Tribunal accordingly deleted the addition of ₹14,26,743 that had been sustained by both the Assessing Officer and the CIT(A)/NFAC.

This decision in Manjeet Digambar More Vs ITO (ITAT, Mumbai) — concerning Assessment Year 2020-21 — is significant for any assessee whose agricultural land has been compulsorily acquired and who has received court-awarded interest under Section 28 of the Land Acquisition Act.

Condonation of Delay: 131-Day Delay Overlooked in the Interest of Substantial Justice

Before proceeding to the merits, the Tribunal addressed a procedural hurdle. The appeal had been filed with a delay of 131 days beyond the prescribed limitation period.

The assessee submitted a petition for condonation of delay accompanied by a notarised affidavit sworn on 04.03.2026, setting out the reasons that prevented timely filing. The Departmental Representative did not raise any meaningful objection to this request.

The Tribunal examined the affidavit and was satisfied that:

  • The delay was not a product of any deliberate inaction or want of good faith.
  • The assessee had demonstrated sufficient cause as contemplated under the law.

Invoking the powers vested under Section 253(5) of the Income Tax Act, 1961, and placing the imperatives of substantial justice above technicality, the ITAT condoned the 131-day delay and admitted the appeal for adjudication on merits.

Section 253(5) of the Act expressly empowers the Tribunal to condone delay in filing an appeal if the appellant demonstrates sufficient cause for the delay.

Background and Facts of the Case

The assessee was an individual. The Assessing Officer, acting on inputs received through the Risk Management Strategy of the Department, identified that the assessee had received aggregate interest income of ₹34,83,868 during the previous year relevant to AY 2020-21.

On the basis of this information, the AO initiated reassessment proceedings and served a notice under Section 148 of the Income Tax Act, 1961 on 28.03.2024.

In response, the assessee filed a return of income on 28.06.2024, declaring a total income of ₹4,44,360.

During the course of reassessment, Form 26AS disclosed that the assessee had received a sum of ₹28,53,487 from the Deputy Collector, Land Acquisition Officer. This receipt was described as interest on enhanced compensation. Tax of ₹2,85,349 had been deducted at source under Section 194A of the Act.

Assessee's Explanation

The assessee clarified that: