2025 (3) TMI 518 - AT - Income Tax

Agricultural income exemption claim revision upheld due to inadequate inquiry on land title verification under section 263

Vipul Mittal (HUF), Naresh Mittal (HUF) Versus PCIT, Delhi-15, Delhi

ITAT Delhi upheld PCIT's revision under section 263 regarding agricultural income exemption claim under section 10(1). The assessee's title/leasehold ... Validity of Revision u/s 263 - entitlement of claim section 10(1) agricultural income exemption - HELD THAT:- As given the fact that even the assessee’s title or lease hold rights on the corresponding agricultural land have neither been examined nor verified till date despite the fact that the limited scrutiny raised the sole issue of “larger agricultural income”, we are of the considered view that even if there were some other inadequate enquiries with the commission agents concerned would not negate applicability of section 263(1) explanation-2 of the Act (supra). Non-application of mind as the agricultural income exemption claim has been treated as the one falling under chapter-VIA of the Act - We find no merit in the assessee’s instant argument(s) as once the PCIT had already concluded upto para 9 of his revision directions that the assessment had been framed by the AO without carrying out an adequate enquiries as the above sole issue, merely because there are certain inconsistencies in the last para 10 thereof would not vitiate the entire revision proceedings. PCIT ought to have carried out the necessary enquiry himself before terming the assessment herein as an erroneous one causing prejudice to the interest of the Revenue - We hold that the assessee’s instant last argument also does not carry any substance once the learned PCIT has clearly made out a case of “no enquiry” by the assessing authority which attracts both the limbs of it’s assessment as an erroneous one as well as causing prejudice to the interest of the Revenue in light of Malabar Industries Ltd. [2000 (2) TMI 10 - SUPREME COURT] We accordingly conclude in light of our preceding detailed discussion that the learned PCIT has rightly exercised his impugned revision jurisdiction in the given facts of the case. Decided against assessee. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment is whether the Principal Commissioner of Income Tax (PCIT) correctly exercised jurisdiction under Section 263 of the Income Tax Act, 1961, to revise the assessment order passed by the Assessing Officer (AO). The specific question is whether the AO's acceptance of the assessee's claim for agricultural income exemption was erroneous and prejudicial to the interests of the Revenue, due to inadequate inquiries into the claim.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework revolves around Section 263 of the Income Tax Act, which allows the PCIT to revise an assessment order if it is deemed erroneous and prejudicial to the interests of the Revenue. Explanation 2 to Section 263, inserted by the Finance Act, 2016, clarifies that an order is considered erroneous if it is passed without making inquiries or verification that should have been made. The court also referenced the precedent set in Malabar Industries Ltd. vs. CIT, which outlines the conditions under which an order can be revised under Section 263.Court's Interpretation and ReasoningThe Tribunal interpreted that the AO's assessment was erroneous due to a lack of adequate inquiries into the agricultural income exemption claimed by the assessee. The PCIT's revision jurisdiction was justified as the AO failed to verify the genuineness of the agricultural income, particularly since the assessee did not own any land but claimed to cultivate leased land. The Tribunal emphasized that the AO should have verified the lease agreements and the actual cultivation activities.Key Evidence and FindingsThe Tribunal noted that the assessee claimed an agricultural income exemption of Rs. 97,22,240 without owning any land. The lease agreements presented were unregistered and self-serving, and there was no verification of these documents by the AO. Furthermore, the Tribunal highlighted discrepancies in the transportation bills and the lack of independent verification of the transactions with commission agents.Application of Law to FactsThe Tribunal applied Section 263 and its Explanation 2 to the facts, concluding that the AO's failure to conduct thorough inquiries into the agricultural income exemption claim rendered the assessment order erroneous and prejudicial to the Revenue. The Tribunal found that the AO's acceptance of the claim without proper verification justified the PCIT's revision of the order.Treatment of Competing ArgumentsThe assessee argued that the AO had conducted detailed inquiries and that the PCIT's revision was based on a misinterpretation of Chapter VIA deductions. However, the Tribunal dismissed these arguments, stating that the AO's inquiries were inadequate and that the PCIT's revision was based on a lack of inquiry, not on misinterpretation of deductions. The Tribunal also rejected the argument that the PCIT should have conducted further inquiries before revising the order, as the lack of initial inquiry by the AO was sufficient to justify revision.ConclusionsThe Tribunal concluded that the PCIT correctly exercised revision jurisdiction under Section 263, as the AO's assessment was erroneous due to inadequate inquiries into the agricultural income exemption claim. The Tribunal dismissed the assessee's appeals, upholding the PCIT's decision to remand the matter to the AO for fresh examination.SIGNIFICANT HOLDINGSThe Tribunal held that the AO's failure to verify the genuineness of the agricultural income exemption claim justified the PCIT's revision under Section 263. The Tribunal emphasized that an order is erroneous if it is passed without the necessary inquiries, as per Explanation 2 to Section 263. The Tribunal's decision reinforced the principle that the AO must conduct thorough inquiries into claims made by the assessee to ensure that the assessment is not prejudicial to the interests of the Revenue.The Tribunal's final determination was to dismiss the assessee's appeals, affirming the PCIT's decision to revise the assessment order and remand the case for further examination by the AO.