2025 (9) TMI 1573 - AT - Income Tax

Revision under Section 263 quashed as assessing officer's inquiry was adequate and assessment not erroneous or prejudicial

ITAT PUNE - AT held the revision under section 263 invalid, finding the AO had conducted adequate inquiry and permissibly recorded that the assessee ... Revision u/s 263 - as per CIT addition towards unexplained Agricultural Receipts and unexplained Agricultural Expenditure as been wrongly added by the AO by treating as ‘Income from Other Sources’ rather than making addition for the sum invoking u/s. 68 and 69C r.w.s.115BBE - HELD THAT:- We fail to find any justification in the observation by PCIT and the basis for assumption of jurisdiction because the issue has already been dealt by AO in detail. He has also verified that the assessee is having Agricultural land and Agricultural activities have been carried out. AO has also verified that part of the Receipts are duly supported by evidence of sale of Agricultural produce. The bank statements were also verified. Assessee is also showing such income from past many years. Agricultural expenses have been disallowed on adhoc basis. All these observations of the AO clearly demonstrated that assessee is carrying out the Agricultural activities and earning income therefrom. However, just for want of certain details AO has not allowed the exemption but has taxed it as ‘Income from Other Sources’. As decided in the case of Max India Ltd. [2007 (11) TMI 12 - SUPREME COURT] has held that when two views are possible and AO has adopted one, the PCIT cannot revise the order merely because he prefers another view. Secondly, we also note that in the case of Gabriel India Ltd. [1993 (4) TMI 55 - BOMBAY HIGH COURT] has held that if AO has made enquiry and applies his mind revision u/s. 263 is not valid even if PCIT believes further enquiry was needed. We find that ld. AO has taken a permissible view for the year under consideration and therefore it is a case where adequate enquiry has already been conducted by AO and therefore leaves no room for assuming jurisdiction by PCIT because the order of the ld. AO is neither erroneous nor prejudicial to the interest of Revenue. Respective grounds on the assumption of jurisdiction by assessee are hereby allowed. Impugned order is hereby quashed and the assessment order is restored to its original place. Appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Tribunal should condone a 23-day delay in filing the appeal on the basis of 'reasonable cause'. 2. Whether the Commissioner's exercise of revisionary power under Section 263 is justified where the Assessing Officer (AO) has examined material, applied mind and taken a permissible view by treating unexplained agricultural receipts and ad hoc agricultural expenditure as 'Income from Other Sources'. 3. Whether the Commissioner was correct in directing the AO to examine the feasibility of invoking Sections 68 and 69C (and consequent applicability of Section 115BBE) for unexplained agricultural receipts and unexplained agricultural expenditure when the AO had already made additions under the head 'Income from Other Sources'. 4. Whether a pending appeal before the first appellate authority (CIT(A)) ousts the jurisdiction of the Commissioner to invoke Section 263 on the same issue (proviso to Section 263(1)). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay Legal framework: Procedural discretion exists to condone delay where 'reasonable cause' prevents timely filing. Precedent treatment: Reliance on established principles that personal medical incapacity of counsel and being out-of-town can constitute reasonable cause. Interpretation and reasoning: The Tribunal examined the condonation application facts (counsel on bed rest; appellant out of town) and found them to constitute reasonable cause. The Tribunal noted there was no gain to the appellant from delay and invoked relevant Apex Court authorities on reasonable cause for condonation. Ratio vs. Obiter: Ratio - delay of 23 days was condoned on the stated facts as reasonable cause; factual determination governing exercise of discretion. Conclusion: Delay of 23 days in filing the appeal is condoned. Issue 2 - Scope and limits of Section 263 where AO has taken a permissible view Legal framework: Section 263 empowers the Commissioner to revise any order if it is 'erroneous in so far as it is prejudicial to the interests of the revenue', subject to procedural safeguards; the power is to call records, form opinion, issue show cause, inquire and then pass order including modification or setting aside. Precedent treatment: The Tribunal applied the principles from the Apex Court in Malabar Industrial Co. Ltd. and subsequent authorities: Section 263 is not to be used to replace one permissible view by another; an order is 'erroneous' if there is incorrect assumption of fact, incorrect application of law, want of application of mind, or where the view taken is unsustainable in law; mere difference of opinion is insufficient. Interpretation and reasoning: The AO had conducted limited scrutiny, issued queries under Sections 142(1) and 143(2), considered the assessee's replies, verified presence of agricultural land and sales to sugar factory, examined bank entries and ledgers, and made reasoned additions treating unexplained agricultural receipts and ad hoc agricultural expenses as chargeable as 'Income from Other Sources'. The Tribunal found that the AO applied his mind and adopted a permissible view in the face of incomplete documentary support for the entire agricultural receipts and for expenses. The Commissioner's view, preferring Sections 68/69C treatment and higher taxation under Section 115BBE, amounted to substitution of his opinion where the AO had already made reasoned inquiry. Precedents were held to require that revision under Section 263 cannot be based merely on disagreement or a view preferred by the Commissioner when the AO's approach is sustainable. Ratio vs. Obiter: Ratio - where AO has made inquiry and adopted a permissible view on admissibility of claimed agricultural income and expenses, Section 263 cannot be invoked merely to prefer the Commissioner's alternate view; such invocation is impermissible unless the AO's view is legally unsustainable or there is a manifest error prejudicial to revenue. Conclusion: The Commissioner's assumption of jurisdiction under Section 263 in respect of the AO's treatment of agricultural receipts/expenses was unjustified; the AO's order is neither erroneous nor prejudicial to revenue within the meaning of Section 263. The grounds challenging the exercise of jurisdiction succeed and the revisionary order is quashed; original assessment order is restored. Issue 3 - Appropriateness of directing AO to invoke Sections 68 and 69C and application of Section 115BBE Legal framework: Section 68 treats unexplained credits as income when the assessee fails to satisfactorily explain nature and source; Section 69C treats unexplained expenditure similarly; Section 115BBE prescribes tax consequences for unexplained credits. Precedent treatment: Authorities require that shifting classification (from one head to another or invoking specific penal provisions) must be predicated on the AO's failure to satisfactorily explain credits/expenditures or on combination of facts demonstrating manifest error. Interpretation and reasoning: The AO had assessed agricultural receipts as 'Income from Other Sources' after considering available evidence and making a reasoned ad hoc disallowance for expenses. The Commissioner's direction to examine invoking Sections 68/69C (with higher tax under Section 115BBE) sought a reclassification and heavier tax consequence despite the AO's considered approach. The Tribunal found no fresh material or demonstration that the AO's findings were legally unsustainable; the Commissioner's approach therefore amounted to supplanting the AO's permissible view by preferring a different legal characterization without requisite basis. Ratio vs. Obiter: Ratio - recharacterisation to invoke Sections 68/69C and statutory high-tax provisions is impermissible under Section 263 where AO has already applied mind and taken a permissible view unless the AO's view is shown to be unsustainable in law or there is manifest error prejudicial to revenue. Conclusion: Direction to examine Sections 68/69C and application of Section 115BBE lacked justification; the Commissioner could not validly set aside the assessment for that limited purpose. Issue 4 - Effect of pending appeal before CIT(A) on Commissioner's jurisdiction under Section 263 Legal framework: Proviso to Section 263(1)(c) limits Commissioner's powers as to matters that have been considered and decided in appeal; powers extend to matters not considered or decided in such appeal. Precedent treatment: Authorities indicate that pendency of appeal does not necessarily oust revisional jurisdiction if there are aspects not considered in appeal; conversely, where AO has applied mind and matter is under challenge, mere pendency does not preclude jurisdictional limits of Section 263. Interpretation and reasoning: The Commissioner invoked Section 263 notwithstanding that the addition by AO was under challenge before the first appellate authority. The Tribunal observed that the Commissioner did not identify new material or matters not considered; rather, he challenged the legal characterization and preferred an alternative view. As the AO had applied mind and the issue was being appealed, the Commissioner's action was held to be an impermissible substitution of views rather than correction of an error not subject to appeal consideration. Ratio vs. Obiter: Ratio - pendency of appeal before CIT(A) reinforces that Section 263 cannot be used to supplant reasonable views taken by AO; the proviso reinforces limits on revisional power when matters are before appeal unless there are unconsidered aspects. Conclusion: The pendency of appeal before CIT(A) underlines the impropriety of the Commissioner's exercise of Section 263 in the present facts; Commissioner's order was invalid insofar as it sought to reopen the same issue already examined by the AO and under appeal.