RAJA GOPAL REDDY GOLI,HYDERABAD vs. ITO WARD-11(5), HYDERABAD

The grounds raised

Facts of the case, in brief, are that the assessee is an individual and is associated with M/s. Lara Drugs (P) Ltd, Hyderabad and getting remuneration from the said company. He filed his return of income on 30.09.2016 declaring total income at Rs.4,16,400/-. The case was selected for “limited scrutiny” under CASS guidelines. Accordingly, statutory notices u/s 143(2) of the I.T. Act were issued and served on the assessee in response to which the A.R of the assessee appeared before the Assessing Officer from time to time and submitted requisite clarification/details as called for. After examining the information/clarifications, the Assessing Officer completed the assessment u/s 143(3) on 19.12.2017 accepting the returned income of Rs.4,16,400/-.

He noted that the AO verified with the local revenue authorities and the Tahsildar certified that the extent of assessee's agricultural land is 11 Acres 80 Cents. It was also certified by the Tahsildar that the annual income that can be derived from said extent of land is Rs. 5,00,000/- only. Thus, the assessee should have earned Rs. 10,00,000/- proportionately on ITA 139 of 2021 Raj Gopal Reddy Goli cultivation of 24 acres 80 cents. Further, during the assessment proceedings, the assessee stated that he earned Rs. 20,01,360/- through paddy canvassing agent. In reply to show cause letter issued by the Assessing Officer, the assessee submitted that he cultivated various crops such as Mirchi, Mango, Tobacco, Sweet corn along with paddy and earned a net agricultural income of Rs. 20,01,000/-. The assessee also submitted that during the year under consideration, he did not sell any land. Therefore, even if it is presumed that the entire land was put to cultivation, he would have earned agricultural income of Rs.10,00,000/- approximately, but not Rs.20,01,386/-. Thus, the difference of Rs. 10,01,386/- should have been disallowed by the Assessing Officer and treated as excess claim of agricultural income which needs to be brought to tax. Therefore, he was of the opinion that the order passed u/s 143(3) of the Income Tax Act, 1961 by the Assessing Officer on 19-12-2017 is erroneous and prejudicial to the interest of the revenue.

Accordingly, he issued a show cause notice dated 8-03-2019 u/s 263 of the Income Tax Act asking the assessee to explain as to why the order passed by the Assessing Officer should not be revised. The contents of the show-cause notice issued by the PCIT read as under: "By virtue of powers vested in me u/s 263 of the Income tax Act, 1961, the records pertaining to the Income tax Assessment in your case for the Asst. year 2015-16 were called for and examined. As seen from the said records, it is found that the return of for the AY 2015-16 was filed declaring total income at Rs. 4,16,400/-. The case was taken up for Limited scrutiny under CASS guidelines and scrutiny proceedings were completed u/s 143(3) of the Income tax Act on 19-12-2017 by accepting the income returned. 2. On perusal of the records, it is noticed that you have claimed Agricultural Income of Rs.20,01,386/- as Exempt income. It is also noticed that you were in the ownership of land to the extent of 24.30

Therefore, you are requested to show cause either by appearing personally or through an authorized representative in my office at the address given above on 21-03-2019 at 11.30 AM or by filing written submissions, as to why the above mentioned order for the Asst. Year 2015-16 should not be revised suitably, 5. Please note that, if you fail to respond to this notice, it will be presumed that you have no objection/submissions to make in respect of the above issue and the assessment will be revised accordingly”

The AR of the assessee appeared before the PCIT and furnished copy of Pattadar Passbook of the assessee. From the details so furnished by the assessee, the PCIT noted that the Tehsildar, Chintalapudi Mandal of West Godavari Distt of Andhra Pradesh certified that the assessee was having a total extent of land to the tune of 24.80 acres, spread in 15 survey numbers. He informed the assessee that as per the details gathered by the Page 4 of 12

In view Or the above discussions, it is established that there was incorrect application of law which constitutes an error and as such the assessment is erroneous and prejudicial to the interests of the Revenue since there is loss of revenue. In this regard, support is drawn from the following decisions. i. CIT Vs. Siddharth J Desai (10 Taxman 1), Gujarat High Court ii. CIT Vs Emery Stone Manufacturing company (213 ITR 843) 9. In the case of CIT Vs Emery Stone Manufacturing company (213 ITR 843) (Raj), it was held that even though the assessee had disclosed all the facts before the Assessing officer, the CIT can very well exercise his power u/s 263 of the IT Act if the correct provisions of law have not been examined by the Assessing Officer.

It is the bounden duty of the Assessing Officer to collect and appreciate the facts collected and proper application of law is to be made while making the assessment. The Assessing Officer should have investigated the aspect of area of land independently by physic verification and should have arrived at the agricultural income based on evidence.

In the interest of justice and since the twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the Revenue, are satisfied, the assessment order passed u/s 143(3) of the Income Tax 1961 on 19-12-2017 needs to be set aside.

In view of the above discussion, assessment order u/s 143(3) of the Income Tax 1961 dated 19-12-2017 for the AY 2015-16 in the case of the assessee-company is set aside to redo the assessment after examining the issues as discussed above and after allowing opportunity of being heard to the assessee.”

The learned Counsel for the assessee at the outset drew the attention of the Bench to the office note, that was inadvertently supplied to the assessee along with a copy of the assessment order, which reads as under:

Relying on various decisions, she submitted that merely because the PCIT does not agree with the view taken by the Assessing Officer, he cannot assume jurisdiction u/s 263 of the I.T. Act to thrust his views on the Assessing Officer. She submitted that for assuming jurisdiction u/s 263 of the I.T. Act, the twin conditions namely the order of the Assessing Officer is erroneous and the order is prejudicial to the interest of the Revenue must be satisfied. However, in the instant case although the order may be prejudicial to the interest of the Revenue, however, the same cannot be treated as erroneous since the Assessing Officer taken a possible view.

Referring to the order of the learned PCIT, she submitted that the learned PCIT is also trying to estimate the income of the assessee after assuming jurisdiction u/s 263 of the I.T. Act. She submitted that estimation at a higher rate or a lower rate cannot be a ground for assuming jurisdiction u/s 263 of the I.T. Act, 1961.. Relying on various other decisions, she submitted that the learned PCIT has wrongly assumed the jurisdiction u/s 263 of the I.T. Act. She accordingly submitted the order passed by the learned PCIT should be set aside and that the grounds raised by the assessee should be allowed.

The learned DR, on the other hand, heavily supported the order of the learned PCIT. He submitted that for assuming jurisdiction u/s 263 of the I.T. Act, the twin conditions namely the order is erroneous and the order is prejudicial to the interest of the Revenue and the order is erroneous must be satisfied. In the instant case the order is erroneous as well as prejudicial to the interest of the Revenue since the Assessing Officer has not properly verified the landholding details of the assessee despite being aware that the details of the land holding shown by the assessee and the details given by the Tehsildar are different and are not matching. He submitted that the various decisions cited by the learned Counsel for the assessee are not applicable to the facts of the present case and are distinguishable. He accordingly submitted that the order of the learned PCIT should be upheld and the grounds raised by the assessee should be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned PCIT and the paper book filed on behalf of the assessee. We have also ITA 139 of 2021 Raj Gopal Reddy Goli considered the various decisions cited before us by both sides. We find the AO in the instant case completed the assessment u/s 143(3) on 19.12.2019 accepting the returned income of Rs. 4,16,400/- and agricultural income of Rs.20,01,386/-. We find the learned PCIT called for the record and noted that as per the certificate issued by the Tehsildar, Chintalapudi Mandal of West Godavari Distt of Andhra Pradesh, the extent of assessee’s agricultural land is 11.80m acres and not 24.80 acres as claimed by the assessee and therefore, the agricultural income earned by the assessee could not have exceeded Rs.10.00 lakhs. Therefore, the Assessing Officer had wrongly treated the difference of Rs.10,01,386/- as agricultural income which should have been brought to tax. He accordingly rejected the various explanations given by the assessee and invoking jurisdiction u/s 263 of the I.T. Act directed the Assessing Officer to redo the assessment after necessary verification. It is the submission of the learned Counsel for the assessee that during the course assessment proceedings the Assessing Officer after being satisfied that out of the total extent of 24.80 acres of land, 13 acres were converted into horticultural land during the financial year 2015-16 had accepted the agricultural income shown by the assessee for the impugned assessment year and therefore, the learned PCIT could not have invoked jurisdiction u/s 263 of the I.T. Act.

We find merit in the above arguments of the learned Counsel for the assessee. A perusal of the office note of the Assessing Officer, which was inadvertently supplied to the assessee shows that the Assessing Officer has obtained the details from the Tehsildar, Chintalapudi Mandal of West Godavari Distt of Andhra Pradesh wherein the Tehsildar has certified that the ITA 139 of 2021 Raj Gopal Reddy Goli assessee’s landholding is 11.80 acres and during the financial year 2015-16, 13 acres of land was converted into horticultural land and that is why it is not appearing in the revenue record. Thus, during the financial year 2014-15, the assessee was having 24.80 acres of land. Therefore, it is a clear case of due application of mind by the Assessing Officer and therefore, the order cannot be stated to be erroneous although it may be prejudicial to the interest of the Revenue since according to the learned PCIT the agricultural income from 14.08 acres of land could not have exceeded Rs.10.00 lakhs. We find the PCIT has also gone for estimation of the agricultural income. It is the settled proposition of law that for assuming jurisdiction u/s 263 of the I.T. Act, the twin conditions namely (a) order is erroneous and (b) order is prejudicial to the interest of the Revenue must be satisfied. In the instant case, the office note of the Assessing Officer clearly shows that he has accepted the agricultural income declared by the assessee after due verification and due application of mind and therefore, it cannot be said that the order passed by the Assessing Officer is erroneous. Therefore, even if the order is prejudicial to the interest of the Revenue, however, the other condition that the order is erroneous is absent. Therefore, the learned PCIT, in our opinion, is not justified in assuming jurisdiction u/s 263 of the I.T. Act. Further, it has been held in various decisions that merely because the learned PCIT does not agree with the view taken by the Assessing Officer, he cannot assume jurisdiction u/s 263 of the I.T. Act or thrust upon his view as against the view taken by the Assessing Officer unless the view taken by the Assessing Officer is perverse one or not a possible view. However, as mentioned earlier, the view taken by the Assessing Officer in the instant case is a possible view. In this view of the matter and considering the totality of the facts of the case and considering the Page 11 of 12