2022 (5) TMI 1334 - AT - Income Tax

Revision u/s 263 by CIT - eligibility of claim of agricultural income to be exempt as contemplated under section 10 (1) - scope of agreement entered into by the assessee with the farmer - proof of specific query relating to agricultural income - HELD THAT - We have perused the agreement with the farmer relied by the Ld.AR. This agreement reveals that the farmer was absolute owner or the leased land and the assessee agreed to supply fertilisers and pesticides as per the schedule therein at specified time. It is also agreed by the assessee that a particular variety of seed would be supplied to the farmer on credit basis. Before us the assessee has not filed any agreement showing the lands being leased in favour of the assessee. It is submitted that these were the documents filed by the assessee in reply to the query raised by the Ld.AO at the time of original assessment proceedings. Even there are no agreements placed before us that reveals ownership in land by the assessee on which farming was carried out. From the materials placed before the Ld.AO it is prima facie inferred that the no details are filed by the assessee and the Ld.AO has not verified the exemption claimed by the assessee under section 10(1) of the Act. Thus in our view the original assessment is completed without proper enquiries that necessitated the Ld.Pr.CIT to issue section 263. Ld.Pr.CIT has directed the Ld.AO to carry out necessary verification in respect of the exemption by the assessee under section 10(1) of the Act. This in no manner will prejudice the assessee. We direct the Ld.AO to grant proper opportunity of being heard to the assessee - Decided against assessee.

Summary

Issues:
Validity of proceedings initiated under section 263 of the Act by Ld.Pr.CIT.

Analysis:
The case involved an appeal against the order passed under section 263 of the Income Tax Act, 1961. The appellant, a company engaged in R&D and seed production, claimed agricultural income exemption under section 10(1) of the Act. The Ld.Pr.CIT found the original assessment order erroneous and prejudicial to revenue's interest due to insufficient inquiry by the Ld.AO. The Ld.Pr.CIT directed a fresh examination of the claim of agricultural income exemption. The appellant contended that its activities qualified as agricultural operations eligible for exemption. The Ld.AR argued that all relevant details were provided during assessment, and reliance was placed on various decisions supporting the appellant's position.

The Ld.AR highlighted that the Ld.AO had sought details on the exempt income during the original assessment. However, the Ld.Pr.CIT found the original assessment lacking in proper inquiry, necessitating the section 263 proceedings. The Ld.Pr.CIT directed the Ld.AO to verify the exemption claim thoroughly. The tribunal noted the agreements between the appellant and farmers, showing the nature of the arrangements for seed production. However, no agreements indicating ownership of land by the appellant were presented, leading to the conclusion that proper inquiries were not conducted during the original assessment.

The tribunal upheld the Ld.Pr.CIT's decision, emphasizing the need for thorough verification of the exemption claim. It cited a High Court decision to support the view that the original assessment lacked proper inquiries. The tribunal dismissed the appellant's grounds, affirming the Ld.Pr.CIT's directive for the Ld.AO to conduct a detailed examination of the exemption claim. The appellant was directed to provide all necessary details to support the claim. Ultimately, the tribunal dismissed the appeal, affirming the Ld.Pr.CIT's order under section 263 of the Act.

In conclusion, the tribunal upheld the Ld.Pr.CIT's decision to invoke section 263 due to inadequate inquiry in the original assessment. The appellant's claim for agricultural income exemption required further verification, and the tribunal directed the Ld.AO to conduct a thorough examination. The case serves as a reminder of the importance of meticulous assessment procedures to ensure accurate determination of tax liabilities.