Principal CIT's revision order upheld for inadequate verification of Section 54B deduction claim requiring proper enquiry

The ITAT Cochin upheld the Pr. CIT's revision order u/s 263 regarding inadequate verification of deduction claim u/s 54B. The tribunal found the AO's assessment lacked proper enquiry into specific aspects and was not a speaking order. However, ITAT modified the Pr. CIT's finding that assessee "is not eligible" to "may not be eligible" for s. 54B claim, directing de novo assessment. The tribunal clarified that eligibility depends on whether land was actually used for agricultural purposes in the two-year period prior to sale, not merely its fitness for agriculture.

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Issues Involved:
1. Validity of the revision order u/s 263 of the Act.
2. Compliance with conditions for exemption u/s 54B of the Act.
3. Adequacy of the Assessing Officer's (AO) inquiry and examination.
4. Maintainability of the stay application.

Summary:

1. Validity of the revision order u/s 263 of the Act:
The Principal Commissioner of Income Tax (Pr.CIT) invoked section 263 of the Income Tax Act, 1961, to revise the assessment order dated 15.03.2021 for AY 2018-19. The Pr.CIT found that the AO had not verified whether the land sold was used for agriculture for two years preceding the transfer and whether the properties purchased were agricultural and used exclusively for agriculture. The Pr.CIT's order was based on the lack of inquiry and non-application of mind by the AO, rendering the assessment order erroneous and prejudicial to the interest of the Revenue.

2. Compliance with conditions for exemption u/s 54B of the Act:
The Pr.CIT highlighted several infirmities in the assessee's claim for exemption u/s 54B, including:
- The land purchased for Rs. 1.18 crore was not fit for agricultural use.
- The agreement for the second land purchase was not per registered Deed but on a stamp paper of Rs. 100, and there was non-compliance with s. 54B(2) regarding the utilization of capital gains.
- Non-completion of the purchase agreements and the land not being fit for agricultural use.

3. Adequacy of the Assessing Officer's (AO) inquiry and examination:
The Tribunal noted that the AO failed to conduct a proper inquiry and verification process as required. The AO did not examine the satisfaction of conditions u/s 54B(2) or the fitness of the land for agricultural purposes. The Tribunal emphasized that the AO must ascertain the truth of the facts stated in the return, especially when circumstances call for further inquiry. The Tribunal found the assessment order sub silentio on critical aspects germane to the assessee's claim, validating the Pr.CIT's revision order.

4. Maintainability of the stay application:
The stay application filed by the assessee was dismissed as not maintainable since the impugned order did not result in any demand against the assessee.

Conclusion:
The Tribunal partly allowed the assessee's appeal, directing a de novo assessment by the AO, uninfluenced by the findings of the Pr.CIT, and dismissed the stay application. The AO is to make an assessment afresh, ensuring proper verification and examination of the assessee's claim u/s 54B.

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