2023 (5) TMI 1364 - AT - Income Tax

Revision u/s 263 - deduction u/s 54B allowed by AO during the assessment was not regular and liable for disallowance - lack of inquiry v/s inadequate inquiry - As per CIT AO has not made any inquiry to verify if the assessee was using the said land for agricultural purposes for two years immediately preceding the date on which transfer took place and considering that the assessee has not disclosed any agricultural income for A.Y. 2016-17 in her return of income. HELD THAT - As during the assessment stage, AO asked the assessee to furnish the details and documents which are placed in paper book. In response, the assessee submitted reply which is placed at paper book. Thus, all the documents, details and the explanations required by the AO were submitted by the assessee. Just because the AO does not bring these documents and details in his assessment order does not mean that AO has not conducted proper enquiry during the assessment stage. In fact, assessing officer has applied his mind. Assessee is right in his submission that one has to keep in mind the distinction between lack of inquiry and inadequate inquiry . If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders u/s 263 of the Act, merely because he has different opinion in the matter. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. Therefore, in the assessee s case, it cannot be said that it is a case of 'lack of inquiry'. As well established that the impugned order passed u/s. 143(3) of the Act, was passed by AO, after calling for relevant information and after detailed examination of the same. AO has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. PCIT s finding fault, with the order of the AO is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. We quash the order passed by the ld PCIT under section 263 of the Act - Assessee appeal allowed.

Summary

Issues Involved:
1. Validity of the revisionary order under Section 263 of the Income Tax Act, 1961.
2. Classification of land as agricultural or non-agricultural.
3. Eligibility for deduction under Section 54B of the Income Tax Act, 1961.

Detailed Analysis:

1. Validity of the Revisionary Order under Section 263 of the Income Tax Act, 1961:
The assessees challenged the revisionary orders passed by the Principal Commissioner of Income Tax (PCIT) under Section 263, arguing that the original assessment orders were neither erroneous nor prejudicial to the interest of revenue. The PCIT had exercised jurisdiction under Section 263, observing that the Assessing Officer (AO) failed to make necessary inquiries and verifications regarding the deduction claimed under Section 54B. The Tribunal noted that during the assessment proceedings, the AO had issued multiple notices under Section 142(1) and had received detailed replies from the assessee, including documentary evidence related to agricultural activities. The Tribunal concluded that the AO had conducted a detailed inquiry and applied his mind before passing the assessment order. Therefore, the assessment order could not be considered erroneous or prejudicial to the interest of revenue, and the revisionary order under Section 263 was quashed.

2. Classification of Land as Agricultural or Non-Agricultural:
The PCIT contended that the land sold by the assessee was non-agricultural, as evidenced by the sale deed and the lack of agricultural income reported in the preceding years. The assessee argued that only a portion of the land had been converted to non-agricultural use by the previous owner, while the remaining portion was sold as agricultural land. The Tribunal examined the sale deed and other documentary evidence, including certificates from local authorities and donation receipts for agricultural produce. It was found that the land was used for agricultural purposes for more than two years before the sale, and the conversion to non-agricultural use was only partial. The Tribunal concluded that the land sold by the assessee was indeed agricultural, thereby fulfilling the criteria for deduction under Section 54B.

3. Eligibility for Deduction under Section 54B of the Income Tax Act, 1961:
The PCIT had observed that the AO erred in allowing the deduction under Section 54B without verifying whether the land was used for agricultural purposes in the two years preceding the sale. The assessee provided evidence of agricultural activities, including expenditure on agricultural operations, bills, vouchers, and certificates from local authorities. The Tribunal noted that the AO had considered these documents and allowed the deduction after due verification. Additionally, it was highlighted that in the case of one of the co-owners, the AO had allowed the deduction under Section 54B in a subsequent order passed under Section 143(3) read with Section 263. The Tribunal held that the other co-owners should not be treated differently and were also entitled to the deduction under Section 54B.

Conclusion:
The Tribunal quashed the revisionary orders passed by the PCIT under Section 263, holding that the original assessment orders were neither erroneous nor prejudicial to the interest of revenue. The land sold by the assessees was classified as agricultural, and the deduction under Section 54B was rightly allowed by the AO. Consequently, the appeals filed by the assessees were allowed.