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Facts
The assessee, a firm deriving agricultural income, filed a nil return. The AO accepted the claim of agricultural income without proper enquiry. The PCIT initiated revision proceedings under Section 263, holding the AO's order erroneous and prejudicial to revenue.
Held
The Tribunal held that the AO accepted the assessee's claim of agricultural income without conducting necessary enquiries and without considering the provisions of Rule 7B of the Income Tax Rules. The PCIT was justified in exercising jurisdiction under Section 263.
Key Issues
Whether the AO's assessment order accepting the claim of agricultural income without proper enquiry is erroneous and prejudicial to the interest of revenue under Section 263.
Sections Cited
263, 143(3), 7B
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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI PRAKASH CHAND YADAV
PER PRAKASH CHAND YADAV, JUDICIAL MEMBER:
Present appeal of the assessee is arising from the order of ld. PCIT Bengulru-2 passed u/s 263 of the Act, dated 6.2.2025 vide DIN & Order No.ITBA/REV/F/REV5/2024-25/1072988586(1) and relates to assessment year 2020-21.
Brief facts of the case as coming out from the orders of authorities below are that the assessee is a firm and deriving income agricultural income and other sources, filed its return of income declaring nil income on 5.10.2020. Thereafter, the case of the assessee was selected for scrutiny and assessment u/s 143(3) of the Income Tax Act, 1961 (in short “The Act”) was passed by the AO vide order dated 21.9.2022. Thereafter, the office of the Principal Commissioner of Income Tax, Bengaluru-2 called for the assessment
Page 2 of 6 record and observed that the AO’s order is erroneous and prejudicial to the interest of revenue in as much as the AO has wrongly accepted that the assessee is deriving income from agriculture. The ld. PCIT observed that assessee firm is engaged in the business of manufacturing of Coffee and declaring its income at NIL, on the ground that the income of the assessee falls under the category of agricultural income. The ld. PCIT observed that the AO ought to have considered the claim of the assessee having regard to the provisions of Rule 7B of the Income Tax Rules, 1962. Further, the ld. PCIT has observed that the AO has not enquired as to the process followed by the assessee for growing and selling coffee. In a nutshell, the ld. PCIT observed that AO has accepted the fact that the assessee is an agriculturist without conducting any enquiries and hence the order of AO is erroneous and prejudicial to the interest of revenue.
Aggrieved with the order of ld. PCIT, the assessee has come up in appeal before us. The assessee has raised following grounds:-
4. At the outset, the ld. Counsel for the assessee appearing on behalf of the assessee argued that there is no error in the order of assessment as the AO has duly verified the claim of the assessee i.e. the assessee is an agriculturist and engaged in the agriculture of Page 4 of 6 coffee beans. The ld. A.R. referred to the notice of AO dated 14.9.2022 for buttressing his argument. The Ld AR further argued that perusal of this notice would show that it is a comprehensive notice and hence the order of AO cannot be treated as erroneous and prejudicial to the interest of revenue. Counsel for the assessee further referred to page 7 of the paper book and contended that in previous years also the claim of the assessee has been accepted by the AO without referring to the provisions of Rule 7B of the IT Rules. He placed reliance on the judgment of Hon’ble Apex Court in the case of Radha Sawami Satsang reported in 193 ITR 321(SC).
Ld. D.R. appearing on behalf of revenue argued that principle of res judicata are not applicable to the income tax proceedings and each year is to be examined, having regard to the facts involved therein. Further, ld. D.R. relied upon the order of ld. PCIT.
We have heard the rival submissions and perused the materials available on record. Perusal of page 3 of the paper book, which is the copy of show cause notice would show that the AO has categorically observed in this notice dated 14.9.2022 that “the assessee has not submitted details as to how coffee is grown and sold. As per income tax act, if coffee is grown, cured, roasted and grounded, 40% of such composite income is to be treated as income from business and balance 60% to be treated as agricultural income”. Perusal of these observations would show that despite the fact the assessee has not submitted the details vis-à-vis growing of coffee beans, the AO has accepted the version of the assessee that the assessee without invoking the provisions of rule 7B. The provisions of explanation (2) of the section 263 of the Act provides that where the ld. PCIT is of the opinion that the order is passed without making enquiries or verification, which should have been made, then such order should be deemed to be erroneous and prejudicial to the interest of revenue.
Page 5 of 6 Perusal of the relevant questions as mentioned in show cause notice, referred by us herein above would prove beyond doubt that the AO has accepted the claim of the assessee, without there been any documents filed from the side of assessee. The role of the AO during the course of assessment proceedings is that of investigator as well as an adjudicator. If during the course of assessment proceedings, he accepts any claim of the assessee without enquiring into the facts then such an order is erroneous order. While acting as an adjudicator if he takes a view, overlooking the provisions of law then also his order is erroneous. When we examined the facts of the present case then it would be abundantly clear that present is a case where the AO has accepted the claim of the assessee without conducting any enquiries and without referring to the provisions of rule 7B of the I.T.Rule, which rules are specifically applicable to the coffee growers. So far as the contention of the assessee that in previous years also the provisions of rule 7B are not invoked, would not in any way made the order of the AO justiciable. Further the case law relied upon by the assessee are on different facts and not applicable to the facts of the present case. Therefore, we are of the firm opinion that the ld. PCIT is justified in exercising jurisdiction u/s 263 of the Act. With these observations, the appeal of the assessee stands dismissed.
In the result, appeal of the assessee is dismissed. Order pronounced in the open court on 19th June, 2025