2012 (1) TMI 427 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the order passed u/s 263 of the Income-tax Act, 1961.
2. Enquiry regarding agricultural income.
3. Enquiry regarding unsecured loan.

Summary:

1. Validity of the order passed u/s 263 of the Income-tax Act, 1961:
The appeals were preferred by the assessee against the orders of the CIT passed u/s 263 of the Income-tax Act, 1961, setting aside the assessment orders for the assessment years 2006-07 and 2007-08. The CIT issued a show cause letter u/s 263(1) of the Act to the assessee based on a proposal from the Additional CIT. The Tribunal found that the CIT acted on the proposal of the Additional CIT and did not form his own opinion. The Tribunal held that for exercising jurisdiction u/s 263 of the Act, the CIT must be satisfied that the assessment order is both erroneous and prejudicial to the interest of the Revenue. Since the assessment order was not erroneous, the Tribunal set aside the CIT's order passed u/s 263 of the Act.

2. Enquiry regarding agricultural income:
The main objection raised by the CIT was regarding the agricultural income shown by the assessee. The CIT observed that the Assessing Officer (AO) did not make any enquiry regarding the agricultural land obtained on lease and the agricultural operations conducted thereon. The assessee contended that detailed enquiries were made by the AO, including verification by the Inspector, who submitted a report confirming the agricultural activities. The Tribunal noted that the AO issued a questionnaire, received replies, and deputed Inspectors for physical verification and spot enquiries. The Inspectors' report confirmed the assessee's agricultural activities. The Tribunal concluded that the AO made proper enquiries and the assessment order could not be called erroneous.

3. Enquiry regarding unsecured loan:
The CIT also raised an issue regarding an unsecured loan of Rs. 1.25 lakhs. The assessee explained that the loan was taken from Smt. Sunita Rohati through an account payee cheque in an earlier assessment year and repaid in the assessment year 2007-08. Relevant evidence was placed before the AO, who accepted the claim after verification. The Tribunal found that the AO made proper verification and enquiry regarding the unsecured loan, and thus, the assessment order was not erroneous on this ground.

Conclusion:
The Tribunal held that the CIT did not properly exercise jurisdiction u/s 263 of the Act as the assessment orders were not erroneous, though they might be prejudicial to the interest of the Revenue. Therefore, the Tribunal set aside the CIT's order passed u/s 263 of the Act and allowed the appeals of the assessee.