2022 (2) TMI 638 - AT - Income Tax

Revision u/s 263 by CIT - Denial eligibility for exemption under Explanation 3 to 2(1A) r.w.s. 10(1) - directions to treat the assessee's income arrived from banana saplings as a business activity than that derived from agricultural operations eligible for the foregoing exemption - HELD THAT - PCIT has elucidated the detailed process in tissue culture activity which had neither been examined by the Assessing Officer nor the assessee had filed the corresponding details. We also deem it appropriate to quote that the legislative amendment made in section 263 by way of insertion of Explanation 2 in Finance Act, 2015 w.e.f. 01.06.2015 that an assessment order passed without making enquiry or verification is deemed to be an erroneous one in so far as it is prejudicial to the interest of Revenue. We thus uphold the learned PCIT's revision jurisdiction direction herein in principle. It shall however be open to the assessee to raise all factual as well as legal arguments before the Assessing Officer in support of her impugned exemption claim as per law; if so advised in consequential proceedings. The assessee fails in all of her substantive grounds.

Summary

Issues:
1. Timeliness of the appeal filed by the assessee.
2. Nature of activities carried out by the assessee - whether agricultural or business activity.
3. Validity of the Principal Commissioner's order invoking section 263 revision jurisdiction.
4. Compliance with the provisions of section 263 of the Income Tax Act, 1961.

Issue 1: Timeliness of the appeal:
The appeal filed by the assessee was found to be barred by limitation by 11 days. The assessee provided reasons for the delay and sought condonation. After hearing both parties, the tribunal decided to condone the delay and admit the appeal for hearing.

Issue 2: Nature of activities - Agricultural or Business:
The assessee was engaged in the production and sale of tissue cultured plants. The Assessing Officer had accepted the income as agricultural income eligible for exemption under the Income Tax Act. However, the Principal Commissioner invoked section 263 revision jurisdiction, considering the income from banana saplings as business income rather than agricultural. The PCIT detailed the tissue culture process involved in the business, emphasizing that the activity did not involve traditional agricultural practices on land but rather a scientific process of plant reproduction.

Issue 3: Validity of Principal Commissioner's Order:
The tribunal upheld the Principal Commissioner's decision to invoke section 263 revision jurisdiction, as the original assessment lacked factual verification regarding the eligibility for agricultural income exemption. The tribunal noted that the legislative amendment mandated verification for such claims, and the PCIT's direction was deemed appropriate. The assessee's arguments challenging the PCIT's order were dismissed.

Issue 4: Compliance with Section 263 of the IT Act:
The tribunal emphasized the necessity for factual verification in assessing agricultural income claims under section 2(1A) of the Act. The tribunal upheld the PCIT's decision, stating that the Assessing Officer had not conducted the required verification before granting the exemption. The tribunal highlighted the importance of complying with the legislative amendments introduced to ensure proper verification in assessment orders.

In conclusion, the tribunal ruled in favor of the Principal Commissioner's decision to invoke section 263 revision jurisdiction due to the lack of factual verification in the original assessment regarding the eligibility for agricultural income exemption. The tribunal emphasized the importance of complying with legislative amendments and conducting thorough verification in assessing such claims. The assessee's appeal was dismissed, and the decision was pronounced on 3rd February 2022.