1. The assessee possessed 2 acres of land in Survey No. 51 and 63 acres and 39 gunthas in Survey No. 52 of Mallasandra, Yeswanthapur Hobli and Bangalore North Taluk. The land was taken over by the defence department on 1-7-1941. The Government, by a notification, dated 5-3-1973, acquired the land finally and compensation was awarded. It appears that the assessee did not accept the compensation awarded by the Land Acquisition Officer (LAO). The matter went up further and additional compensation was awarded on 28-11-1978. The actual figures have not been furnished. The Government's appeal was dismissed by the High Court on 4-1-1980 and we understand that the special leave petition was also rejected by the Supreme Court. The compensation was paid to the assessee on 21-4-1983 and the amount was invested in Rural Development Bonds. The ITO completed the assessment by valuing the land at Rs. 25,000 per acre on the date of acquisition and the cost at Rs. 2,000 per acre as on 1-1-1954. He determined the capital gains, by applying Section 52(2) of the Income-tax Act, 1961 ('the Act') at Rs. 9,94,160.
2. Before the Commissioner (Appeals) the assessee claimed deduction of expenses under Section 48(i) of the Act to the extent of Rs. 29,500 and relief under Section 54E(3) of the Act. The Commissioner (Appeals) directed the ITO to look into the claim of the assessee for deduction of expenses under Section 48(i) on production of necessary evidence. He similarly directed that the ITO should give relief under Section 54E(3) on production of necessary evidence. The revenue is in appeal.
3. It is contended on behalf of the revenue that the expenditure incurred by the assessee in claiming higher compensation cannot be allowed under Section 48. This stand does not appear to be correct since Section 48(i) allows expenditure incurred wholly and exclusively in connection with such transfer. But for this expenditure incurred by the assessee in challenging the compensation given by the LAO, the assessee would not have obtained a higher compensation. Naturally when the higher compensation received by the assessee is reckoned as the consideration received by the assessee in respect of the transfer of capital asset, there is no reason to deny the expenditure incurred in obtaining that higher compensation. It might be mentioned that the Commissioner (Appeals) originally disposed of the appeal on 30-1-1979 where he had directed the ITO to allow the expenditure under Section 48(i) incurred by the assessee in connection with the acquisition proceedings, after verification. The ITO, while implementing this order on 16-8-1979, had allowed expenses of Rs. 15,000. The Commissioner (Appeals), however, had rejected the assessee's claim under Section 54E(3). In the order, which is under appeal, the Commissioner (Appeals) had again directed allowance of expenditure under Section 48(i). We do not see any reason to differ from the Commissioner (Appeals) in this behalf.
4. The second ground urged by the revenue is that the assessee is not entitled to relief under Section 54E(3). It also relies on the decision of the Supreme Court in the case of Addl. CIT v. Gurjargravures (P.) Ltd.  111 ITR 1 to the effect that the claim for relief under Section 54E(3) which was not made before the I.TO, should not have been admitted by the Commissioner (Appeals) particularly when he had rejected this claim in his original order on 30-1-1979. It was further urged that Section 54E having come on the statute book with effect from 1-4-1978, was not applicable for the year in question.
5. Against the original order of the Commissioner (Appeals), the revenue had come up in appeal before the Tribunal on the ground that the Commissioner (Appeals) overlooked the provisions of Section 249(4) of the Act. On this ground, the appeal was restored to the Commissioner (Appeals). He passed a fresh order on 11-9-1981 wherein he failed to consider the two grounds on deduction under Section 48(i) and relief under Section 54E(3).
There is no substance in the revenue's ground that the claim of the assessee under Section 54E should not be considered. It is common knowledge that the award of compensation on the property acquired takes a long time. There were also difficulties in ascertaining the actual capital gains involved in the transfer since the compensation finally awarded may be quite different from the award given by the LAO. To avoid these difficulties the Legislature has inserted Section 155(7A) of the Act which reads as follows: Where in the assessment for any year, the capital gain arising from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, is computed under Section 48 and the compensation for such acquisition or the consideration for such transfer is enhanced or further enhanced by any Court, Tribunal or other authority, the computation or, as the case may be, computations made earlier shall be deemed to have been wrongly made and the Income-tax Officer shall, notwithstanding anything contained in this Act, recompute in accordance with Section 48 the capital gain arising from such transfer by taking the compensation or the consideration as enhanced or further enhanced, as the case may be, to be the full value of the consideration received or accruing as a result of such transfer and shall make the necessary amendment; and the provisions of Section 154 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being reckoned from the end of the previous year in which the additional compensation or consideration was received by the assessee.
It is obvious that when once the quantum of award is disturbed, the assessment has also to be rectified. Correspondingly Section 54E(3) also provides for exemption when the enhanced value of the compensation is invested in specified assets, There is, therefore, no point in the revenue urging that the assessee cannot make a claim under Section 54E at the appeal stage. Further, Sections 155(7A) and 54E(3) will apply to all assessments involving additional compensation irrespective of the year in which the acquisition took place. We, accordingly, hold that the assessee is entitled to relief under Section 54E(3) which the ITO will grant, after verification.