2019 (3) TMI 1461 - AT - Income Tax

Tribunal upholds Principal Commissioner's Section 263 decision on tax assessment inquiries

The Tribunal upheld the Principal Commissioner of Income Tax's decision to invoke Section 263, finding that the Assessing Officer failed to conduct ... Revision u/s 263 by Pr. CIT - non consideration of taxability of sale proceeds under the provisions of Income Tax Act - HELD THAT:- Assessment order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue, if the assessment order is passed without making enquiries or verification which should have been made by the AO and that orders have been passed allowing any relief without enquiry into the claim. The above facts clearly show that though the AO asked for the explanation of the assessee but the AO never made any enquiry or verification of such a claim and allowed the relief to the assessee without passing any order thereon and without enquiry into the claim of the assessee. Therefore, Explanation 2 to section 263 is clearly attracted in the case of the assessee. Assessee submitted that since AO has taken one of the possible view, therefore, Pr. CIT has no jurisdiction to take a different view. AO has not taken any view on the matter in issue about taxability of sale proceeds under the provisions of Income Tax Act, therefore, there is no question of taking the AO one of the possible view into the matter. Therefore, the decisions relied for assessee would not support the claim of the assessee. During the course of arguments, for assessee admitted that AO after making enquiry into the matter in issue i.e. issue of taxability of sale proceeds on the above referred sale deeds has rejected the claim of the assessee and made the addition against the assessee which is subject matter in appeal before CIT(A). This fact would strengthen the findings of the Ld. Pr. CIT that AO did not examine the issue as per law. Therefore, CIT correctly considered the assessment order to be erroneous in so far as prejudicial to the interest of the Revenue. No infirmity in the impugned order. - Decided against assessee. Issues Involved:1. Validity of proceedings initiated under Section 263 of the Income Tax Act.2. Taxability of sale proceeds from the sale of land.3. Whether the land qualifies as agricultural land exempt under Section 2(14)(iii).Detailed Analysis:1. Validity of Proceedings Initiated Under Section 263:The Principal Commissioner of Income Tax (Pr. CIT) initiated proceedings under Section 263 of the Income Tax Act to examine the taxability of the sale proceeds of lands sold on various dates. The Pr. CIT issued a show cause notice to the assessee, questioning the assessment order passed by the Assessing Officer (AO) under Sections 143(3)/147, which had accepted the return of income without proper examination of the sale proceeds from the land. The Pr. CIT found that the AO did not make adequate inquiries or verifications regarding the taxability of these proceeds and thus considered the assessment order to be erroneous and prejudicial to the interests of the Revenue. The Pr. CIT's action was supported by Explanation 2 to Section 263, which states that an order passed without necessary inquiries or verification is deemed erroneous.2. Taxability of Sale Proceeds from the Sale of Land:The Pr. CIT scrutinized the sale deeds and found that the lands were sold in pieces to different purchasers and were situated within an industrial notified area in Uttaranchal. The sale deeds indicated that the land was purchased for industrial purposes, contradicting the assessee's claim that the land was agricultural. The Pr. CIT concluded that the AO failed to examine the taxability of the sale proceeds correctly, leading to the cancellation of the assessment order and directing a fresh assessment to determine the taxability of the sale proceeds.3. Whether the Land Qualifies as Agricultural Land Exempt Under Section 2(14)(iii):The assessee argued that the land was inherited and used for agricultural purposes, thus qualifying for exemption under Section 2(14)(iii) as it was situated more than 8 kilometers away from the municipal limits. However, the Pr. CIT observed that the land was within an industrial notified area and sold for industrial purposes, which disqualified it from being considered agricultural land. The AO's failure to verify these facts and the subsequent acceptance of the assessee's claim without proper examination rendered the assessment order erroneous.Conclusion:The Tribunal upheld the Pr. CIT's decision to invoke Section 263, confirming that the AO did not conduct necessary inquiries or verification regarding the nature and taxability of the land sold. The Tribunal dismissed the appeals for both assessment years 2006-07 and 2007-08, affirming the Pr. CIT's order for a fresh assessment to properly examine the taxability of the sale proceeds. The Tribunal emphasized that the AO's lack of inquiry and verification justified the Pr. CIT's intervention under Section 263.