2023 (1) TMI 210 - AT - Income Tax

Revision u/s 263 - excess claim of agricultural income - in absence of any material evidence to reconcile the discrepancy of the agricultural land holding or to show that some agricultural land have been converted into horticultural land, the learned PCIT rejected the various explanations given by the assessee and set aside the order of the Assessing Officer with a direction to redo the assessment after examining the issues as discussed - HELD THAT - A perusal of the office note of the AO, which was inadvertently supplied to the assessee shows that the AO has obtained the details from the Tehsildar, Chintalapudi Mandal of West Godavari Distt of Andhra Pradesh wherein the Tehsildar has certified that the assessee s landholding is 11.80 acres and during the financial year 2015-16, 13 acres of land was converted into horticultural land and that is why it is not appearing in the revenue record. Thus, during the financial year 2014-15, the assessee was having 24.80 acres of land. Therefore, it is a clear case of due application of mind by the Assessing Officer and therefore, the order cannot be stated to be erroneous although it may be prejudicial to the interest of the Revenue since according to the learned PCIT the agricultural income from 14.08 acres of land could not have exceeded Rs.10.00 lakhs. In the instant case, the office note of AO clearly shows that he has accepted the agricultural income declared by the assessee after due verification and due application of mind and therefore, it cannot be said that the order passed by the Assessing Officer is erroneous. Even if the order is prejudicial to the interest of the Revenue, however, the other condition that the order is erroneous is absent. Therefore, the learned PCIT, in our opinion, is not justified in assuming jurisdiction u/s 263 - it has been held in various decisions that merely because the PCIT does not agree with the view taken by the AO he cannot assume jurisdiction u/s 263 or thrust upon his view as against the view taken by the AO unless the view taken by the AO is perverse one or not a possible view. The view taken by the Assessing Officer in the instant case is a possible view. We, therefore, set aside the order passed by the learned PCIT and the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Whether the order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961 is erroneous and prejudicial to the interest of the revenue.
2. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking jurisdiction under section 263 of the Income Tax Act, 1961.
3. Whether the agricultural income declared by the assessee was correctly assessed by the AO.

Issue-wise Detailed Analysis:

1. Whether the order passed by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961 is erroneous and prejudicial to the interest of the revenue:

The PCIT observed that the AO accepted the assessee's declared agricultural income without adequate verification. The AO had accepted the agricultural income of Rs. 20,01,386/- based on the assessee's claim of cultivating 28 acres of land. However, the PCIT noted discrepancies in the extent of land, as per the Pattadar Passbook (24.80 acres) and the certification by the Tahsildar (11.80 acres). The PCIT concluded that the AO should have disallowed the excess claim of Rs. 10,01,386/- and treated it as taxable income. Therefore, the PCIT deemed the AO's order as erroneous and prejudicial to the interest of the revenue.

2. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking jurisdiction under section 263 of the Income Tax Act, 1961:

The PCIT issued a show-cause notice under section 263, citing inadequate verification by the AO. The assessee argued that the AO had verified the land details and agricultural income during the assessment proceedings. The PCIT, however, found inconsistencies in the assessee's explanations regarding the land area and its conversion into horticultural land. The PCIT directed the AO to redo the assessment after proper verification. The Tribunal found that the AO had indeed verified the details, including obtaining a certificate from the Tahsildar. Since the AO had applied his mind and taken a possible view, the Tribunal held that the PCIT was not justified in invoking section 263.

3. Whether the agricultural income declared by the assessee was correctly assessed by the AO:

The assessee claimed agricultural income from 24.80 acres, including land converted into horticultural use. The AO had accepted this claim after verification. The PCIT argued that the income could not exceed Rs. 10,00,000/- based on the Tahsildar's certification for 11.80 acres. The Tribunal noted that the AO had considered the total land area, including the converted horticultural land, and had taken a possible view. The Tribunal emphasized that merely because the PCIT disagreed with the AO's view, it did not render the AO's order erroneous. The Tribunal concluded that the AO's order was not erroneous, even if it was prejudicial to the revenue.

Conclusion:

The Tribunal found that the AO had conducted due verification and applied his mind while assessing the agricultural income. The PCIT's invocation of section 263 was deemed unjustified as the AO's order was not erroneous, although it might have been prejudicial to the revenue. The Tribunal set aside the PCIT's order and allowed the assessee's appeal. The appeal filed by the assessee was allowed, and the order pronounced in the open court on 19th December 2022.