Revision under section 263 upheld where agricultural income was accepted without enquiry into banana sapling receipts.

An assessment order that accepts a claim of agricultural income without any specific enquiry on a material issue can be treated as erroneous and prejudicial to the interests of the Revenue under Explanation 2 to section 263 of the Income-tax Act, 1961. Here, the scrutiny assessment did not call for a questionnaire or other information on the nature of receipts from banana saplings, and the claim was accepted mechanically. The Tribunal held that this lack of enquiry justified revision, and it was reinforced by later assessment years in which similar receipts were treated as business income. The revisionary order was upheld and the assessee's challenge failed.

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Issues: Whether the revisionary order under section 263 of the Income-tax Act, 1961 was justified on the ground that the assessment order accepted the assessee's claim of agricultural income without enquiry.

Analysis: The scrutiny assessment had been selected to verify whether the income claimed was agricultural income. The assessment record disclosed that no specific enquiry, questionnaire, or information call was made on the nature of the income from banana saplings, and the claim was accepted without examination. The Tribunal held that, in such a situation, Explanation 2 to section 263 of the Income-tax Act, 1961 squarely applies, because an assessment order passed without enquiry can be treated as erroneous and prejudicial to the interests of the Revenue. The Tribunal also noted that in later assessment years the same receipts were treated as business income, reinforcing the view that the nature of the activity required proper enquiry and could not be accepted mechanically in the year under appeal.

Conclusion: The revision under section 263 of the Income-tax Act, 1961 was upheld and the assessee's challenge failed.

Final Conclusion: The appeal was dismissed, and the Principal Commissioner's exercise of revisionary power was sustained.

Ratio Decidendi: An assessment order passed without conducting enquiry on a material issue can be revised under section 263 of the Income-tax Act, 1961 as erroneous and prejudicial to the interests of the Revenue.

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