CIT revision under section 263 upheld for wrongly allowing section 54B exemption without verifying agricultural land use

The ITAT Ahmedabad upheld the CIT's revision order under section 263, dismissing the assessee's appeal. The CIT found that the AO had wrongly allowed capital gains exemption under section 54B without conducting basic inquiry into whether the land was used for agricultural purposes for two years preceding the transfer. The assessee's counsel admitted that neither the AO made proper inquiry nor did the assessee provide supporting documents to establish agricultural use. The ITAT confirmed the CIT's finding that the AO's order was erroneous and prejudicial to revenue interests.

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Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of the revisionary order under section 263 of the Income Tax Act, 1961.
3. Eligibility for exemption under section 54B of the Income Tax Act, 1961.

Summary:

Condonation of Delay:
The appeal was time-barred by 525 days, primarily due to the Covid-19 pandemic, which halted normal activities. The assessee relied on the Hon'ble Supreme Court's decision extending the limitation period for filing litigations. The Tribunal noted the Supreme Court's order extending the limitation period and condoned the delay, allowing the appeal to be adjudicated on merits.

Validity of the Revisionary Order under Section 263:
The assessee challenged the order of the Pr. Commissioner of Income Tax (Pr. CIT) under section 263, which held that the assessment order passed under section 143(3) was erroneous and prejudicial to the interest of the revenue. The Pr. CIT noted that the Assessing Officer (AO) had wrongly allowed the assessee exemption of capital gains claimed under section 54B. The Tribunal found that the grounds of appeal focused on challenging the validity of the revisionary order and the invocation of section 54B.

Eligibility for Exemption under Section 54B:
The Pr. CIT observed that the land sold by the assessee was converted from agricultural to non-agricultural land before the sale, making it ineligible for exemption under section 54B. The Tribunal noted that the AO did not conduct any inquiry to verify if the land was used for agricultural purposes for two years preceding the sale, nor did the assessee provide any evidence of such use. The Tribunal confirmed the Pr. CIT's order, stating that the AO had erroneously allowed the exemption without basic inquiry, thus making the assessment order erroneous and prejudicial to the revenue.

Conclusion:
The Tribunal upheld the Pr. CIT's order under section 263, finding no infirmity in the decision to set aside the assessment order and direct a fresh assessment after proper inquiry and verification. The appeal of the assessee was dismissed.

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