SATYAPAL SINGH CHAUHAN HUF,AMBALA CANTT vs. INCOME TAX OFFICER, WARD-4 AMBALA, INCOME TAX OFFICE, AMBALA

This is an appeal filed by the assessee HUF against the order of Ld. PCIT passed u/s 263 dated 27.03.2025 for Assessment Year 2020-21. Following grounds of appeals have been taken before us:-

The facts, in brief, are that the assessee HUF have been filing the returns year after year disclosing agricultural income besides normal rental income. Agricultural income disclosed in the previous years and in the year under consideration is as under:- Assessment Year Agricultural Income disclosed Remarks 2018-19 26,93,780/- Accepted u/s 143(1) 2019.-20 29,79,216/- Accepted u/s 143(1) 2020-21 34,46,523/-. Accepted originally u/s 143(3).

The Ld. Counsel of the assessee pointed out that for the year under consideration, there has been due application of mind by the Assessing Officer and invited our attention to the assessment order as passed by the AO u/s 143(3), dated 16.09.2022. At page- 1 of the order, it has been mentioned that the case was taken for 'limited scrutiny' under CASS to verify the issue of agricultural income and, thereafter, the detailed questionnaire was issued as per copy placed at pages 35 to 37 of the Paper Book, alongwith Show Cause Notice, dated 09.02.2022. To which, a detailed reply was submitted by the assessee and a copy of that reply has been placed at pages 51 to 52 of the paper book alongwith that certain Annexures had been filed to support the earning of agricultural income by the assessee HUF.

The Ld. Counsel argued that the HUF is having 36 acres of agricultural land and has Tubewell connection' as well. Copies of the J.Forms, Jamabandi, copies of account of Ahartias to whom, the agricultural produce has been sold, copies of the bank accounts of the Assessee HUF were also furnished during assessment proceedings which prove that the agricultural 3 produce has been received through banking channels, It was further stated that the agricultural income as disclosed at Rs. 34,46,523/- is the net agricultural income and expenses of Rs. 23,99,589/- have been incurred to earn this net Agricultural Income.

The Assessing Officer after going through all such details has given a finding in para 3.4 of his order as under: - "The details furnished have been duly verified and after verifying all the documents furnished by the assessee, no adverse inference could be noticed, the assessment is concluded accepting the returned income. In view of the above and verification of the details, claim made by the assessee is found to be in order and accordingly, no adverse inference is drawn."

Thus, it was argued by the Ld. Counsel that the Assessing Officer has duly applied his mind to the issue under consideration and the AO was fully conscious of the reason as to why that case has been taken under scrutiny for verifying Agricultural Income. Thus, he has taken a possible view, based on the documents furnished by the assessee and past history of the case.

Our attention has been drawn to the show cause notices u/s 263, dated 05.03.2025 and 13.03.2025, placed at pages 86 to 88 of the Paper Book and 91 to 92 of the Paper Book. The assessee had submitted part reply at pages 89 to 90 of the Paper Book and a detailed reply had been furnished, dated 18.03.2025, copy placed at pages 93 to 97 of the Paper Book, in which, same contentions were raised and further, confirmed copies of accounts of the commission agents, to whom, the agricultural produce of the HUF had been sold were furnished alongwith J- 4 Forms of M/s Hari Om Trading Co., Kalra Trading Co.,, confirmed copy of account of Naraingarh Sugar Mill, confirmed copy of account ofM/s Sant Lai Sandeep Kumar, copies of jamabandi, copies of bank account, wherein, the said agricultural produce income has been deposited.

It was also contended by the assessee during the course of proceedings that the said agricultural income has regularly been disclosed in the earlier years and the Assessing Officer had duly verified all such facts and accepted the said agricultural income. Thus, the order as passed by the Ld. PCIT was not sustainable.

The Ld. Counsel of the assessee submitted a chart before us highlighting the various observations of the PCIT and the contentions of the assessee based on documentary evidence during the course of hearing as under:- OBSERVATION OF THE PCIT OUR REPLY At page 10, para 5, he has mentioned This establishes the fact that all the fact that there is HUF Bank account documentary evidences of earing the with PNB, in which, receipt of agricultural agricultural income has been given. produce has been credited from different commission agent. It has been stated that "Id" is in the name Please, refer to pages 53 to 55 of the of Sh. Satyapal Singh Chauhan HUF, but paper book, there is clear mention and the narration in the bank account do not receipt of the amount from Naraingarh indicate the name of the commission Sugar. Further, at page 58, there are agent and also confirmed copies of receipts which have been credited and account of commission agent have not which correspond to page 61, 66 and 67, been submitted and, accordingly, the copies of account of the parties i.e. claim is not acceptable. commission agent. Thus, the observation of the PCIT is not correct. The PAN is in the name of HUF. Further before PCIT confirmed copies of account of commission agents with J forms have been filed. It has been further stated by PCIT that The status of the HUF may or may not there is bank account with Axis Bank Ltd, have been mentioned, but from the bank though, certain agricultural income has account, it is clear that agricultural been received therein, but in the bank receipts has been credited in the bank statement, HUF status has not been account and this account is in existence mentioned. for the past few years and is a HUF 5 account, for which, there is no doubt, it is only doubt for the sake of doubt by the PCIT. it has been mentioned that the assessee This observation of the PCIT is not correct owns 36 Acres of land and Nakal, as per our reply at page 51, it has clearly Jamabandi has been filed but then has been mentioned that it as an ancestral mentioned that status of HUF has not agricultural land and no land has been been mentioned and that how the land purchased in financial year 2019-20. has been acquired by the HUF is not Further, it is not required that the status of clear. HUF is to be mentioned in the Jamabandi. In para-9 of the order, it has been The assessee has been filing the return of mentioned that the return for the Asstt. income for the past more than 15 years Year 2018-19 and 2019-20 have been showing the agricultural income and the processed u/s 143(1) and no assessment same has been accepted year after year framed u/s 143(3)/147 showing the claim without any adverse inference and of agricultural income could have been separate bank account is there for such examined. agricultural income. The assessee has no control as to whether the cases are scrutinized or not and, thus, the assessee cannot be held to be responsible. No assessment has been re-opened u/s 148. In para 10, it has been mentioned that There is no requirement that on J-Form the J-Form do not mentions the HUF status of HUF is required to be mentioned status and also source of irrigation i.e. and, though, originally, before the AO, Tube Well and confirmation from copies of accounts were filed and some commission agent and expenditure on of them were not confirmed, but before account of the agricultural operation have not been PCIT, confirmed copies of account submitted. mentioning the status of HUF has been filed at pages 118 to 119 and confirmed copies of account of other parties alongwith their J-Forms have been submitted from pages 108 to 110, from pages 111 to 115 and from pages 118 to page 137. Even evidence of 'Tube well' connection has been submitted before the AO as per copy of the letter at page 51 and electricity bills copies have, been placed at pages 62 to 65 of the Paper Book. In para 11, it has been stated that the The AO was fully conscious as to why the detail of receipts and expenses have not case has been reopened and he called been given and the AO completed the for all the details and even the receipt of assessment in slip shod manner without agricultural produce has been submitted application of mind. and expenses have been stated to be incurred and what more was required to prove the agricultural income has not been substantiated by the PCIT.

It was thus, argued that the order of PCIT setting aside the order be reversed and that of order of Assessing Officer as passed u/s 143(3), dated 16.09.2023 should be restored.

The CIT (DR) referred to the order of PCIT u/s 263 and relied upon the finding of the PCIT as contained from para 5 to para 11 of the order and, thus, sought the confirmation of order of PCIT setting aside the order of Assessing Officer.

We have gone through the order of Assessing Officer as passed by him u/s 143(3), the detailed questionnaire and replies submitted before the AO during the course of proceedings u/s 143(3), show cause notice as issued by the PCIT and reply filed by the assessee to show cause notice u/s 263. The order passed by the PCIT u/s 263 and the arguments as advanced before us. The undisputed facts are that the AO was very much conscious of the factthat the case has been taken under limited scrutiny for verification of agricultural income as disclosed by the assessee and in consequent thereof, he had issued a detailed questionnaire to which, the assessee replied in detail, alongwith confirmed copies of accounts of the commission agents, copies of J,Forms, copy of the Jamabandhi of land, copies of the bank accounts of the assessee HUF, where the sale proceed in respect of agricultural income have been credited. It has also been 8 observed that in the earlier years, the HUF had declared agricultural income, which has been accepted. Further, there is a tubewell connection, for which, the evidence had been furnished before the AO and copy of which have been placed before us in the form of electricity bills at pages 62 to 65 of the paper book. Even in reply to show cause notice u/s 263, further submissions have been made before the PCIT, alongwith confirmed copies of account of all the commission agents in their books of accounts, alongwith copies of J.Forms, proof of agricultural land, copies of the bank accounts to establish, that the agricultural produce has been received through banking channels and the PCIT in his order has not been able to pin out any discrepancy in such documents as furnished before him,.

We have gone through the tabular chart as reproduced above with regard to the observation of the PCIT and the arguments advanced by the assessee and we find that merely in one of the bank account with Axis Bank, the status of HUF had not been mentioned, but the agricultural receipts have been credited therein. It proves that it is an HUF account. In the other account, status of HUF has been mentioned. Further, no such agricultural income have been disclosed by the assessee in his individual capacity. We have also observed that in the earlier years, agricultural income has been accepted by the department without any adverse inference and all evidences of agricultural income had been furnished before the AO/PCIT and even adequate expenses to the tune of Rs. 23,909,589/- have been incurred to earn the net agricultural income of Rs. 34,46,523/-.. Further, we hold that invoking of clause (a) to explanation-2 to 9 section 263 by the PCIT is not correct, since adequate enquiries have been made by the AO and possible view have been taken. The judgment of Hon'ble Supreme Court, where the judgment of Punjab & Haryana High Court in the case of V.Con Integrated Solutions Pvt. Ltd., reported in 173 taxmann.774 (SC), is very much applicable to the facts and circumstances of the case. In the said judgment, it has been held as under:- "Section 68, read with section 263, of the Income-tax Act, 1961 - Cash Credit (Share capital) - Assessment year 2018-19 - Assessee-company received share capital of certain amount - Assessing Officer passed assessment order accepting share capital received by assessee - Principal Commissioner invoked revisionary jurisdiction under section 263 on ground that Assessing Officer had not made any enquiry in respect of share capital received by assessee - It was noted that Assessing Officer had issued a questionnaire and had also asked for documents, which were answered and furnished to Assessing Officer by assessee - Same were also informed to Principal Commissioner, who ensued proceedings under section 263 - However, Principal Commissioner had not pointed out any further enquiries which were required to be made by Assessing Officer in this case - High Court by impugned order held that since Assessing Officer had made adequate inquiries, order passed by Principal Commissioner under section 263 was rightly quashed by Tribunal - Whether power under section 263 can be exercised by Commissioner, but by going into merits and making an addition, and not by way of a remand, recording that there was failure to investigate - Held, yes - Whether Commissioner must record abject failure and lapse on part of Assessing Officer to establish both error and prejudice caused to revenue - Held, yes - Whether order passed by High Court, which upheld decision of Tribunal was correct on facts and in law and, thus, SLP filed by revenue against impugned order of High Court was to be dismissed - Held, yes [Paras 2, 4, 5 and 6] In favour of assessee."

Similarly, the other judgements as cited before us of the Chandigarh Bench of the ITAT and the judgment of Apex Court in the case of PCIT Vs SPML Infra Ltd., 164 taxmann.com 505 are quite relevant to the facts of the case. Each and every finding of 10 the AO have been discussed in detail by the Ld. Counsel of the assessee, thus, after analyzing the above facts , various case laws and arguments of both the sides, we hold that the order u/s 263 as passed by the PCIT cannot be sustained in the above facts and circumstances. Therefore, the said order of PCIT u/s 263, dated 27.03.2025 is hereby cancelled and that of Assessing Officer order, dated 16.09.2022 is hereby restored.

In the result, appeal of the Assessee is allowed.