DR. PRATAP PANDHIRANATH PATIL,PUNE vs. PCIT - 2, PUNE

4. Assessee has raised following grounds of appeal :

“1. The Ld. PCIT has failed to appreciate that for invoking Section 263, both conditions must be satisfied simultaneously: (i) The assessment order must be erroneous, and (ii) Such error must be prejudicial to the interest of the revenue. In the absence of both conditions being met, the invocation of Section 263 is unjustified and bad in law.

2. The Learned PCIT has erred in law and on facts in assuming jurisdiction U/s 263 of the act on the erroneous ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue.

5. The Ld. PCIT has erred in using his powers U/s 263 of the Income Tax Act That does not empower him to impose his view over a judicious view adopted by the Learned AO unless the latter's view is proven to be legally unsustainable.

6. The Ld. PCIT failed to appreciate that when one possible view has been taken by AO the same cannot be treated as erroneous and prejudicial to the interest of the revenue merely because the PCIT holds a different opinion. Accordingly, revisionary order U/s 263 of the Income Tax Act based on mere change of opinion is unsustainable in law.

7. The Ld. PCIT overlooked the fact that the assessee had already filed an appeal before the Ld. CIT(A) against the additions made by the Ld. AO in the assessment order. As per the proviso to Section 263(1) of the Income Tax Act, 1961, once an appeal is pending before the Ld. CIT(A), the PCIT has no jurisdiction to revise the same matter.

Furthermore, the Ld. PCIT erred in law by invoking Section 263 based on a mere change of opinion on the additions made by the Ld. AO, without demonstrating any error that is prejudicial to the interest of revenue, as required by law. Such an action is legally unsustainable & bad in law,

8. Your appellant prays leave to produce such other evidence as may be necessary to substantiate its case.

The appellant craves leave to add, amend, modify, or delete any of the grounds of appeal at or before the hearing.”

7. Thereafter, ld. Principal Commissioner of Income-tax (PCIT) called for the assessment records and issued show cause notice u/s.263 of the Act on 25.10.2024 referring to the sole issue that ld. AO erred in making the addition for income of Rs.42,83,244/- as ‘Income from Other Sources’ rather than invoking section 68 of the Act for unexplained Agricultural Receipts at Rs.38,46,424/- and also erred in invoking section 69C of the Act for unexplained Agricultural Expenses at Rs.4,36,820/-.

8. In the revisionary proceedings, assessee again furnished the details stating that ld. AO has called for all the relevant details. After examining the same, ld. AO was partly satisfied with the details as certain details relating sale bills were not available on record. He therefore made the addition and further for the expenditure for carrying out agricultural operations, an adhoc disallowance was made. He submitted that the assessee has already challenged the addition made by ld. AO before ld.CIT(A) and the same is still pending for adjudication. However, ld. PCIT was not satisfied with these submissions and he directed the ld. AO to carry out the assessment proceedings on the issues dealt in the impugned order and relevant finding of ld.PCIT reads as under :

“06. I have carefully gone through the facts of the case, the Assessment record and the submissions made by the assessee during the revision proceedings u/s 263 Act. Section 68 of the Act mandates that if any credit appears in the books of an assessee, and the assessee fails to satisfactorily explain the nature and source of such credit, the amount is treated as income of the assessee. Similarly, section 69C of the Act mandates that if any expenditure is incurred in the books of an assessee, and the assessee fails to satisfactorily explain the nature and source of such expenditure, the amount is treated as income of the assessee. With the introduction of Section 115BBE, such unexplained credits are taxed at a higher rate from AY 2013-14.

II. To examine the feasibility of addition on account of agriculture expenditure of Rs.4,36,820/- under Section 69C of the Income Tax Act, 1961.” 9. Aggrieved assessee is now in appeal before this Tribunal.

10. Ld. Counsel for the assessee made multifold arguments. Firstly, he stated that ld. PCIT erred to assume jurisdiction u/s.263 of the Act on the issue which is already subject matter of appeal before ld.CIT(A). Secondly, he stated that when the issue has already been examined by ld. AO in detail, ld. PCIT erred in assuming jurisdiction. Further, he referred and relied on various decisions mentioned in the case law paper book including that of Hon’ble Apex Court in the case of M/s. The Malabar Industrial Company Ltd. (2000) 243 ITR 83 (SC), CIT Vs. Max India Ltd. (2007) 295 ITR 282 (SC) and Judgment of Hon’ble Bombay High Court in the case of CIT Vs. Gabriel India Ltd. (1993) 203 ITR 108 (Bom.).

11. On the other hand, ld. Departmental Representative vehemently argued supporting the order of ld. PCIT.

263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.

There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - RampyariDevi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). [Emphasis Supplied]

“9 In response to the above show cause notice, the assessee has filed reply on 22/03/2022 which is reproduced as under: “.......This has reference to Limited Scrutiny Notice U/s 143 (2) dated 29/06/2021 bearing No. ITBA/AST/S/143 (2)/2021-22/10337 59438 (1), and subsequent Notice u/s 142(1), bearing No. ITBA/AST/F/142(1)/2021-22/L037 tso 531 (1) dated 23.11.2021 issued by Your Honour in case of above named assessee, for assessment year 2020-21. Copy of both the Notices are enclosed herewith for Your ready reference' sir, as per the Notice u/s 143(2), the Limited scrutiny has been initiated with regard to Agricultural income of Rs. 53,02,491/-, shown by the assessee in his return of Income for assessment Year 2020-21. In this connection, We wish to submit as under: 1) The assessee is a Homeopath Doctor by qualification, but does not practice as a HomeoPathic Doctor. 2) The assessee runs a Medical shop supplying Homeopathic Medicines, in Pune, which is looked after and managed by his wife Dr. Bharati Patil, who is also a qualified Homeopathic Doctor. 3) The assessee spends his entire time in looking after and managing the –Agricultural Land belonging to him and his family members., located at village Shirgaon (Visapur), Taluka Tasgaon, District Sangli, in the state of Maharashtra. 4) Thus the Assessee has two source of income; a) Income from Homeopathic Medical Shop at Pune; and b) Agricultural Income. 5) The Agricultural produce, which are mainly cultivated in the Agricultural Land Holdings of Assessee and his Family members consists of: a) Sugarcane: b) Soya bean; c) Groundnut d) Barley and e) Different type of Vegetables 6) As far as Sugarcane is concerned, it is sold to nearby Sugar factories and Payment thereof is received through Account payee Cheques. As far as other Produce are concerned, they are sold in the market and payments at maximum times are received in cash. 7) In case of assessee, as has been mentioned above, he manages and looks after the land of all the Family members. Accordingly, as per the Oral family agreement and understanding, the sugarcane sale proceeds are received by the family members, in their respective bank accounts and shown as Agricultural Income in their respective Income Tax returns. As far as Sugarcane is concerned, it is sold to nearby Sugar factories and Payment thereof is received through Account payee Cheques. As far as other Produce are concerned, they are sold in the market and payments at maximum times are received in cash. As far as Sale proceeds of other Products are concerned, it is collected and kept by the assessee and shown as Agricultural income in his Income Tax Return 8) The bifurcation of Agricultural Income of Rs.53,02,491/-, shown in the Income tax Return of assessee is as under a) Sale of Sugarcane to Udgir Sugar and Power Limited - Rs.13,29,654/- received through banking channels in the Bank account maintained with Sangli Co-operative Bank b) Sale of other products through APIYC - Rs.9,37,791/- payments for which were received through Banking Channels in Shirgoan (Visapur) Credit Co-operative Society, from which the assessee has taken Agricultural Loan and Car Loan. c) Sale of other products through APMC - Rs. 3,90,711/- payments for which were received through Banking Channels, in the Bank account maintained with Sangli Co-operative Bank d) Sum of Rs.22,335/- subsidy received from Government and directly deposited in the Bank account maintained with Sangli Co-operative Bank e) Sum of Rs. 26,22,000/- has been received on account of sale in Market. As a policy matter the cash sale proceeds are immediately deposited in Bank. 9) As stated above, the assessee has only two source of income. Thus all the Amount deposited in sanagri co-operative Bank constitute only agricultural income. The assessee does not have any other source of income, which he has shown, in the grab of agricultural income, to avoid tax.

In support of our contention, we are enclosing herewith: 1) Copy of Financial Statements of assessee for the financial year 2019-20 pertaining to assessment year 2020-27, 2) Copy of Statement of Total Income and Acknowledgement of Income tax Return filed. 3) Detailed chart showing Land. Holding of family members of assessee along With the copies of Land Holding extract in form 8A, issued by, Talati of Village Shirgaon (Visapur). 4) Ledger extract of assessee in the books of Udgir Sugar and power Limited. 5) Extract of Agricultural Loan and Car Loan account with Shirgoan (Visapur) Credit Co- operative Society. 6) Detailed Ledger extract of Agriculture income of assessee. Hope this meets with Your requirements. We shall be glad to submit any more information, that your honour may require for an early assessment.

“9.1 The reply of the assessee has been duly considered. The reply submitted by the assessee is nothing but copy of earlier reply filed on 16/02/2022 which has already been taken into consideration before issuing the show cause notice. Thus, nothing new has brought on record by the assesee in response to the show cause notice. The contention of the assessee is not supported by necessary evidence such as sales bills and bank statement. The assessee was also requested to submit bank statement as well as details of agricultural expenses vide notice u/s. 142(1) of the Act dated 11/11/2021 and 22/02/2022. However, the assessee has again failed to submit the same in response to show cause notice also. In this case, the assessee has not submitted sales bills in respect of remaining agricultural income of Rs.39,72,837/- (53,02,491-13,29,654). Thus, the assessee has failed to submit supporting details / evidences in respect of agricultural receipts of Rs.39,72,837/-. It is worthwhile to mention here that the assessee has reported agricultural expenses as NIL in the return of income. One has to incur agricultural expenses such as labour charges, electricity expenses, labour charges, expenses for seeds, pesticides to earn agricultural income. Despite of repeated requests, the assessee failed to produce evidence of agricultural expenses also.

12. From the above, it can be seen that sufficient opportunities have been given to the assessee to submit evidence of agricultural income. In the absence of supporting details i.e. sales bills as well as bank statement, the agricultural receipts of Rs.42,83,244/- remained unexplained. In the absence of supporting details / documents, the claim of agricultural income to the extent of Rs.42,83,244/- is not found admissible to the assessee. Therefore, I hereby treat the agricultural receipts of Rs.42,83,244/- as "income from other sources". Therefore, addition of Rs.42,83,244/- is hereby made to the total income of the assessee. Penalty proceedings u/s. 270A of the Act for underreporting of income is hereby initiated separately.”

Order pronounced on this 23rd day of September, 2025.