2022 (3) TMI 1158 - AT - Income Tax

Tribunal rules in favor of assessee, finding PCIT's jurisdiction under sec 263 unjustified.

Shri Surinder Pal Singh Versus The Pr. CIT-1 Ludhiana

Shri Surinder Pal Singh Versus The Pr. CIT-1 Ludhiana - [2022] 94 ITR (Trib) 458 (ITAT [Chand]) Issues Involved:1. Jurisdiction assumed by the Principal Commissioner of Income Tax (PCIT) under section 263(1) of the Income Tax Act, 1961.2. Whether the assessment order dated 14.07.2017 was erroneous and prejudicial to the interest of revenue.3. Whether the Assessing Officer (AO) conducted a thorough investigation and applied due diligence.4. Validity of the PCIT's action based on audit objections.5. Application of Explanation 2 to section 263 by the PCIT.Issue-wise Detailed Analysis:1. Jurisdiction Assumed by PCIT under Section 263(1):The primary grievance of the assessee was the jurisdiction assumed by the PCIT under section 263 of the Income Tax Act, 1961. The PCIT exercised his jurisdiction under section 263 and issued a notice through ITBA for compliance, observing that the assessment was completed without making proper and in-depth enquiries. The PCIT noted that the AO did not adequately verify the agricultural income and expenses incurred to earn the said income, rendering the assessment erroneous and prejudicial to the interest of the Revenue.2. Assessment Order Dated 14.07.2017 - Erroneous and Prejudicial:The PCIT held that the assessment order dated 14.07.2017 was erroneous and prejudicial to the interest of revenue. The AO accepted the agricultural income disclosed by the assessee without proper verification. The PCIT highlighted that the AO failed to call for evidence regarding the 60 acres of agricultural land taken on lease and did not examine the expenses incurred to earn the agricultural income. The PCIT concluded that the AO completed the assessment without making necessary enquiries.3. Thorough Investigation and Due Diligence by AO:The assessee contended that the AO conducted a thorough investigation and applied due diligence. The AO issued a questionnaire, and the assessee provided detailed responses, including copies of J-Forms, Jamabandi, and an affidavit from the Sarpanch. The AO, after considering the replies and documents, accepted the agricultural income declared by the assessee. The AO's office note indicated that the case was selected for scrutiny under CASS to verify the 'Large Agricultural Income,' which was examined and verified, with no adverse inference drawn.4. Validity of PCIT's Action Based on Audit Objections:The assessee argued that the PCIT's action under section 263 was based on audit objections, which is contrary to the decision of the Jurisdictional Punjab and Haryana High Court in the case of CIT Vs. Sohana Woollen Mills (296 ITR 238). The assessee contended that the PCIT initiated proceedings merely on the basis of information received from the audit wing without independent application of mind. The PCIT's reliance on audit objections was evident from the timing of the show cause notice, which was issued close to the expiration of the limitation period.5. Application of Explanation 2 to Section 263:The PCIT invoked Explanation 2 to section 263, asserting that the AO failed to apply his mind to the issues taken up under section 263. The assessee argued that the AO had duly applied his mind and conducted a detailed inquiry during the original assessment proceedings. The assessee provided multiple replies and documents to substantiate the agricultural income and landholding, which the AO considered before finalizing the assessment.Conclusion:The Tribunal concluded that the AO framed the assessment after making proper inquiries and applying his mind. The assessment order was passed after due verification of the agricultural income declared by the assessee. The Tribunal held that the PCIT was not justified in exercising his power under section 263 based on audit objections, as the AO had conducted a thorough investigation. The Tribunal set aside the impugned order passed by the PCIT, allowing the appeal of the assessee.