2022 (8) TMI 1222 - AT - Income Tax

Revision u/s 263 - validity of reassessment proceedings - Lack of enquiry v/s Inadequate enquiry - exact nature of agricultural income and justification for claiming it as exempt being income derived from agricultural operations - As per CIT reassessment order passed by AO is without conducting suitable, independent inquiries and non-application of mind by the AO, thus it is an erroneous order and prejudicial to the interest of Revenue - HELD THAT - Evidences and other materials on record, the Assessing Officer satisfied that cultivation of Teak trees and Sevan trees by the assessee s firm. Thus, the assessing officer accepted the income derived on the sale of Teak trees and Sevan trees rom the agricultural land. However, the claim of expenditure incurred by the assessee was found to be on a very lower side and therefore adopted at 5% on the sale of agricultural income as allowable expenditure by the assessee. Thus we are of the considered view that the AO while framing assessment order as well as reassessment order made proper enquiries with evidences - AO has accepted the explanations and completed the reassessment order u/s. 143(3) rws 147 of the Act. It is not the case of the assessee that the A.O. has not conducted necessary inquiry, verification before passing the reassessment order. The same cannot be construed either as Lack of enquiry or as Inadequate enquiry . Thus the ld. PCIT cannot revise the reassessment order merely because he held a different opinion than that is verified by the Assessing Officer during the reassessment proceedings. In the present case, the Assessing Officer has issued a detailed notice u/s. 142(1) calling for various details from the assessee and the assessee also had made detailed replies to the above notice with proper evidences and necessary records which are discussed in para 12 of this order. Thus the Assessing Officer having carried out such detailed enquiries satisfied with the explanation offered by the assessee, it is not open for the Ld. PCIT to thereafter Revise the assessment on mere apprehensions and surmises. We are of the considered view that the Assessing Officer had made detailed enquiries and after applying his mind and satisfied genuineness of the claim of agricultural income, which is plausible view adopted by the Assessing Officer. Therefore the Revisional proceedings initiated u/s. 263 is liable to be quashed. Thus, we find no error in the reassessment order passed by the Assessing Officer so as to justify initiation of revision proceedings u/s. 263 - Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of agricultural income claimed as exempt under Section 10(2A) of the Income Tax Act.
2. Validity of the reopening of assessment under Section 148 of the Income Tax Act.
3. Legitimacy of the revision proceedings under Section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (PCIT).

Issue-wise Detailed Analysis:

1. Legitimacy of Agricultural Income Claimed as Exempt:
The assessee, a partnership firm engaged in agricultural activities, claimed an income of Rs. 7,83,72,835/- as exempt agricultural income under Section 10(2A) of the Income Tax Act for the assessment year 2009-10. The initial assessment was completed under Section 143(3) after verifying various records, including ledger accounts, sales invoices, and other relevant documents. The Assessing Officer (AO) accepted the income as derived from agricultural operations involving Teak and Sevan trees cultivated on the firm's land.

2. Validity of the Reopening of Assessment:
The assessment was reopened under Section 148 on the grounds that the assessee failed to disclose fully and truly all material facts necessary for the assessment. The AO alleged that there was a lack of evidence regarding agricultural operations and expenses incurred. The assessee objected to the reopening, providing detailed explanations and evidence, including sales invoices, bank statements, and approvals from the Forest Department. The AO, after considering these submissions, upheld the reopening but accepted the agricultural income, disallowing only a part of the claimed expenses as unexplained under Section 69C.

3. Legitimacy of the Revision Proceedings under Section 263:
The PCIT issued a show-cause notice under Section 263, arguing that the reassessment order was erroneous and prejudicial to the interests of the Revenue due to the AO's failure to conduct independent inquiries. The assessee contended that the revision proceedings were invalid because:
- The source of agricultural income had already been thoroughly examined by the AO and confirmed by the CIT(A) for a different assessment year.
- The revision under Section 263(1)(b) was not applicable as the explanation inserted by the Finance Act 2015 with effect from 01-04-2016 does not apply to the assessment year 2009-10.

The Tribunal found that the AO had made detailed inquiries during both the original and reopened assessment proceedings. The AO had verified the agricultural income and related expenses and accepted the explanations provided by the assessee. The Tribunal held that the PCIT's invocation of Section 263 was unjustifiable as the AO had conducted proper inquiries and the reassessment order was neither erroneous nor prejudicial to the interests of the Revenue. The Tribunal also noted that the CIT(A) had already considered and decided the issue of agricultural income, and thus, the PCIT could not revise the same matter under Section 263.

Conclusion:
The Tribunal quashed the revision order passed by the PCIT under Section 263, upholding the reassessment order by the AO. The appeal filed by the assessee was allowed, confirming that the agricultural income claimed as exempt was legitimate and the reassessment proceedings were validly conducted. The detailed inquiries and evidence provided by the assessee were sufficient to support the claim, and the PCIT's revision proceedings were deemed unjustifiable and beyond jurisdiction.