2023 (7) TMI 238 - AT - Income Tax

Revision u/s 263 by CIT - profit on sale of agricultural land - allegation of Non independent application of mind and solely on the basis of Revenue Audit Objection - HELD THAT - Information/objection gathered by the Pr. CIT from the audit party vide its memo/letter squarely falls within the scope and ken of the term records as used in Section 263 of the Act. CIT in order to fortify his aforesaid conviction had categorically observed that the claim of the assessee that the land under consideration was not a capital asset was not supported by any documentary evidence, viz. (i) that no certificate from the land records authority certifying that the agricultural land sold by the assessee was situated beyond the specified distance from the municipal limits as mentioned in Section 2(14)(iii) of the Act was available on record ; (ii) that there were no documents available on record which would corroborate that the lands in question were used for agricultural purposes for two years immediately preceding the date of transfer as was a pre-condition per clause (ii) of Section 10(37) of the Act; and (iii) the lands were acquired not for any agriculture purposes as the same were acquired by NRDA. We are unable to concur with the Ld. AR that the Pr. CIT had merely acted upon the suggestion of the audit party and had failed to independently apply his mind while assuming jurisdiction u/s. 263 of the Act. As observed by the Pr. CIT, and, rightly so, as the A.O had failed to verify the maintainability of the assessee s claim that the transaction of sale of land at Village Baroda to NRDA was exempt from tax and in absence of any supporting material had summarily accepted his claim, therefore, it was clearly a case where the order on the said aspect had been passed without making any enquiry or verification which should have been made. No reason to dislodge the well-reasoned order of the Pr. CIT, who by specifically referring to Explanation 2 to Section 263 of the Act had held the order passed by the A.O u/s. 143(3) as erroneous in so far it was prejudicial to the interest of the revenue u/s. 263 of the Act, uphold the same. Decided against assessee.

Summary

Issues Involved:
1. Validity of the jurisdiction assumed by the Principal Commissioner of Income Tax (Pr. CIT) under Section 263 of the Income-tax Act, 1961.
2. Whether the Pr. CIT's order was based solely on an audit objection without independent application of mind.
3. Whether the assessment order passed by the Assessing Officer (A.O) was erroneous and prejudicial to the interests of the revenue.

Summary:

Issue 1: Validity of Jurisdiction Assumed by Pr. CIT under Section 263
The assessee challenged the jurisdiction assumed by the Pr. CIT under Section 263 of the Income-tax Act, claiming it was based solely on an audit objection and lacked independent application of mind. The Tribunal examined whether the information received from the audit party could be considered part of the "record" under Explanation 1(b) of Section 263. The Tribunal referred to the statutory provisions and judicial precedents, concluding that the term "record" includes all records relating to any proceeding under the Act available at the time of examination by the revisional authority. Therefore, the information/objection from the audit party was validly considered by the Pr. CIT.

Issue 2: Pr. CIT's Order Based on Audit Objection
The assessee argued that the Pr. CIT acted merely on the audit objection without independent application of mind. However, the Tribunal found that the Pr. CIT had thoroughly examined the assessment records and identified specific deficiencies in the A.O's order. The Pr. CIT noted that the A.O failed to verify the assessee's claim that the agricultural land sold was not a capital asset and thus exempt from tax. The Pr. CIT's observations were supported by the lack of documentary evidence, such as certificates from land records authorities and documents corroborating the use of the land for agricultural purposes.

Issue 3: Erroneous and Prejudicial Assessment Order
The Tribunal upheld the Pr. CIT's view that the A.O's order was erroneous and prejudicial to the interests of the revenue. The Pr. CIT had pointed out that the A.O did not make necessary inquiries or verifications regarding the assessee's claim about the agricultural land. As per Explanation 2(a) to Section 263, an order passed without making inquiries or verification which should have been made is deemed erroneous and prejudicial to the interests of the revenue. The Tribunal agreed with the Pr. CIT that the A.O's failure to verify the claim rendered the assessment order erroneous.

Conclusion
The Tribunal found no merit in the assessee's appeal and upheld the Pr. CIT's order passed under Section 263 of the Income-tax Act. The appeal filed by the assessee was dismissed.