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Income Tax Appellate Tribunal, DELHI BENCHES : C : NEW DELHI
Before: SHRI R.S. SYAL & SHRI N.K. CHOUDHARY
Date of Hearing : 25.07.2018 Date of Pronouncement : 26.07.2018 ORDER PER R.S. SYAL, VP: This appeal filed by the assessee arises out of the order passed by the CIT on 28.03.2018 in relation to the assessment year 2012-13.
Briefly stated, the facts of the case are that the assessee furnished original return declaring total income of Rs.17,17,610/-, which was subsequently revised declaring Nil income on the ground that the amount of income offered earlier for taxation was deductible u/s 80IC of the Income- tax Act, 1961 (hereinafter also called `the Act’). The A.O. determined total income at Rs.23,75,422/- by disallowing deduction u/s 80IC amounting to Rs.17,17,610/- and also making disallowance u/s 14A to the tune of Rs.6,57,812/-. The ld. CIT held the assessment order to be erroneous and prejudicial to the interest of the Revenue on the ground that the Assessing Officer accepted, without any application of mind, the assessee’s claim of exempt income of Rs.15,12,47,000/-, being, agricultural income which was actually generated from growing mushroom. After thoroughly discussing the point, the ld. CIT set aside the assessment order and directed the Assessing Officer to verify the assessee’s claim of production of mushroom resulting into agricultural income and also to: “verify the quantum of actual profit earned.” The assessee is aggrieved against this order.
We have heard both the sides perused the relevant material on record. It is overt that the ld. CIT held the assessment order to be erroneous and 2
Revenue on two counts, viz., first, that the production of mushroom does not lead to agricultural income; and, second, that the A.O. did not verify the quantum of actual profit earned from such activity. It can be seen from the assessment order dated 17.09.2015 passed u/s 143(3) of the Act that there is no discussion whatsoever on any of these two aspects as discussed by the ld. CIT in the impugned order.
In so far as the first aspect is concerned, the Hyderabad Special Bench of the Tribunal recently in DCIT vs. Inventta Industries Pvt. Ltd. has held vide its order dated 09.07.2018 that the income from production and sale of Mushroom can be termed as ‘agricultural income’ under the Act. It further laid down that anything which is produced by performing basic operations on the soil is an "agricultural product" and the income therefrom is "agricultural income" and the nature of the product is irrelevant. In holding so, the Special Bench noticed that there were two types of views prevalent on that point.
The very fact that the Special Bench had to be constituted due to divergence of opinion on the point, makes it explicitly clear that the issue at the time of passing of the order by the ld. CIT, was debatable. The Hon’ble Supreme Court in CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC) has held that 3
ITO has taken one view, with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law. It goes without saying that debatable issues are outside the ken of section 263. An assessment order must be necessarily, inter alia, erroneous so as to be eligible for revision u/s 263. If a point is debatable and the two views are prevalent on a particular point and the Assessing Officer adopts one view, whereas the CIT considers the other view to be more plausible, it cannot be said that the assessment order is erroneous so as to clothe the CIT with the power to revise the assessment order. Since there was a cleavage of judicial opinion on the point as to whether or not income from growing of mushoroom is agricultural, which issue has now been settled in favour of the assessee by virtue of the Hyderabad Special bench of the tribunal, we hold, in principle, that the ld. CIT was not justified in not approving the stand of the Assessing Officer that income from growing of mushroom was agricultural income. Impugned order is set aside pro tanto.
As regards the second aspect, being, the verification of quantum of income from growing of mushroom, it is found that the assessment order is 4
totally silent on the same. The ld. CIT has discussed certain aspects regarding quantification of income from mushroom which are germane to the computation, but were not considered by the Assessing Officer. Such aspects have been enumerated in para 3 of the impugned order. Thereafter, the ld. CIT recorded in para 6.2 of the impugned order that though the Assessing Officer called for information regarding other points, : `but at no point of time details pertaining to claimed agricultural income and its related expenses were called for by the Assessing Officer’. In the next para, he noted that :
`the AO had even failed to ask for details of the land claimed to have been utilized for growing mushorooms, which were given during proceedings u/s 263 only, vide letter dated 28.02.2018’. This shows that the AO did not examine the quantification of the extent of income claimed as exempt. No material has been placed before us to demonstrate that such findings recorded by the revisionary authority are not correct.
Clause (a) of Explanation 2 to section 263 states that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue if, in the opinion of the Principal CIT or Commissioner: “the order is passed without making inquiries or 5
verification which should have been made.” Clause (b) further provides that an order is deemed to be covered within the purview of section 263 if :`the order is passed allowing any relief without inquiring into the claim’.
Explanation 2 has been inserted by the Finance Act, 2015 w.e.f. 01.06.2015 and the same is applicable to the facts of the instant case. We are confronted with a situation in which there is no shred of evidence that the AO inquired into the aspects of the quantification of income from growing of mushroom.
It is a trite law that when an assessment order is passed in a hurried manner without making proper inquiries, such an order is liable to be set aside. The Hon'ble Supreme Court in Ram Pyari Devi Sarogi vs. CIT (1968) 67 ITR 84 (SC) has held that where an assessment is done in undue hurry, the order can be revised u/s 263. Similar view has been reiterated in several judgments of the Hon'ble Supreme Court and several Hon'ble High Courts including the Hon'ble Bombay High Court in CIT vs. Hindustan Level Ltd. (2012) 343 ITR 161 (Bom).
The ld. AR raised another issue by submitting that the notice u/s 263 of the Act did not refer to any quantification aspect and the same was only on the point that income from growing of mushroom was not an agricultural 6
income. It was, therefore, urged that in giving direction to the AO for verifying the quantum of income from mushroom, the ld. CIT transgressed the boundaries set out in the notice and his action should be quashed.
We are not convinced with the argument advanced by the ld. AR. In the notice dated 29.01.2018, the ld. CIT discussed about the AO not making any inquiry as to the correctness of the agricultural income in view of the fact that the same was generated from growing mushroom. However, it is graphically clear that the quantification of income from growing of mushroom is not a new issue, but simply another aspect of the same issue.
Further, we do not find any reason to restrict the jurisdiction of the CIT only to the extent of issues taken up in the notice. The raison d`etre of our such conclusion is the language used in section 263(1) of the Act, which uses the expression ‘after giving the assessee an opportunity of being heard’ which is different from ‘after the service of notice.’ If an opportunity has been given during the course of revisionary proceedings, no challenge can be laid to the power of the CIT in considering the assessment order as erroneous and prejudicial to the interest of the Revenue on a count which is not the subject matter of notice u/s 263. The Hon'ble Supreme Court in CIT vs. Electro 7
House (1971) 82 ITR 824 (SC) has held that it is not necessary for the CIT to issue notice before assuming jurisdiction. Recently, the Hon'ble Supreme Court in CIT vs. Amitabh Bachchan (2016) 384 ITR 200 (SC) has reiterated the same view by holding that : `It may be that in a given case and in most cases it is so done a notice proposing the revisional exercise is given to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt necessary. But there is nothing in the section (Section 263) to raise the said notice to the status of a mandatory show cause notice affecting the initiation of the exercise in the absence thereof or to require the C.I.T. to confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact. This is not the purport of Section 263. Of course, there can be no dispute that while the C.I.T. is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the C.I.T. prior to the finalization of the decision.’ Adverting to the facts of the instant case, as is also palpable from the impugned order, that it is not the case of the assessee that the ld. CIT did not give opportunity of hearing in this regard. Thus, no fault can be found with the ld. CIT in directing the AO to verify the quantum of the income from the growing of mushroom. We, therefore, approve the view of the ld. CIT in so far as the second aspect is concerned, namely, the Assessing Officer failed to make proper verification of the quantum of income arising from growing of mushroom, etc., claimed by the assessee as exempt agricultural income. The impugned order is upheld to this extent.
To sum up, we hold that the ld. CIT was not justified in invoking section 263 in holding that income from growing of mushroom is an agricultural income. However, no fault can be found with the order of the ld. CIT in directing the Assessing Officer to verify the quantum of income from growing of mushroom.
In the result, the appeal is partly allowed.
The decision was pronounced in the open court on 26th July, 2018.