2022 (12) TMI 285 - AT - Income Tax

Revision u/s 263 - business income OR agricultural income - AO examined the agricultural income admitted and accepted the same as exempted income - income derived from the above activity does not fall under the definition of agricultural income as defined u/s 2(1A) for which exemption is allowed and the said income should be treated as business income - HELD THAT - The case was selected for scrutiny to verify whether the income claimed by the assessee was agricultural income or not. In the present case, no question was asked by the AO during the scrutiny assessment to verify whether the income disclosed by the assessee to an extent was an agricultural income. Nothing has been done by the AO and the AO without making any enquiry had allowed the claim of the assessee treating the same as agricultural income. In our view, the Explanation 2 to section 263 make it abundantly clear that the order passed by the AO would be erroneous and prejudicial to the interest of revenue, when no enquiry has been made by the AO. In the present case, neither any enquiry has been made by the Assessing Officer nor any questions were asked to the assessee nor any information was called for. Therefore, we have no hesitation to hold that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the Act. In view of the above, we do not find any error in the order passed by ld.PCIT. Addition by treating the same as business income as against agricultural income claimed by the assessee - Similarly, for A.Y. 2017-18 the Assessing Officer after elaborate discussion had also concluded that the activities of the assessee do not fall within the realm of Agriculture and had held the amount as business income instead of agricultural income. It was submitted by the ld. AR that the appeals for these two assessment years were filed by the assessee before the ld.CIT(A). We notice that in the present case, a show cause notice was issued on 03.02.2020 i.e., much after passing of these orders for two assessment years u/s 263 and the ld.PCIT had come to conclusion that the assessee is not into agricultural activities. However, the ld.PCIT had thoroughly examined the activities of the assessee during 263 proceedings and had recorded the finding that the activities of the assessee though are in the nature of business however, the Assessing Officer has not recorded any finding in the assessment order despite the specific selection of the CASS for treating the income as agricultural income . In the light of the above, we do not find any merit in the appeal of the assessee and accordingly, the appeal of the assessee is dismissed.

Summary

Issues:
1. Appeal against Principal Commissioner of Income Tax invoking proceedings under section 263 of Income Tax Act, 1961.
2. Condonation of delay in filing appeal.
3. Assessment of income derived from banana saplings as agricultural income.
4. Whether Assessing Officer's order was erroneous and prejudicial to the interest of revenue.
5. Justification for treating income from banana saplings as agricultural income.

Analysis:

Issue 1:
The appeal arises from the Principal Commissioner of Income Tax invoking proceedings under section 263 of the Income Tax Act, 1961. The appellant challenges the order on grounds of factual and legal errors.

Issue 2:
The appeal filed was delayed by 334 days, but the delay was condoned due to reasons beyond the appellant's control, as supported by relevant case laws. The case proceeded for adjudication on merits.

Issue 3:
The dispute revolves around the classification of income derived from banana saplings as agricultural income. The Principal Commissioner held that the activity did not qualify as agricultural under section 2(1A) of the Act, while the Assessing Officer allowed exemption under section 10(1) treating it as agricultural income.

Issue 4:
The Principal Commissioner found the Assessing Officer's order erroneous and prejudicial to revenue as no enquiry was conducted to verify the nature of the income claimed by the appellant. The lack of scrutiny and assessment led to the conclusion that the order was flawed under section 263 of the Act.

Issue 5:
The appellant argued that the activities involved in cultivating banana saplings constituted agricultural operations, supported by legal precedents and definitions of agricultural income. The appellant contended that the Assessing Officer failed to consider the nature of the activities, leading to the erroneous classification of income.

The Tribunal upheld the Principal Commissioner's decision, citing the lack of enquiry by the Assessing Officer and subsequent findings in other assessment years. The Tribunal concluded that the activities did not qualify as agricultural, dismissing the appeal based on the thorough examination during the proceedings under section 263.

In summary, the Tribunal upheld the decision to treat income from banana saplings as business income, as the Assessing Officer's order was found to be erroneous and prejudicial to revenue due to the lack of enquiry and assessment of the nature of the activities. The appellant's arguments regarding the agricultural nature of the operations were not considered sufficient to overturn the decision.