BHANWARLAL CHAMPALAL KANUNGA,UNJHA V. THE PR. CIT, AHMEDABAD-3, AHMEDABAD

ITA 1040/AHD/2025

AI Insights

The case involves Bhanwarlal Champalal Kanunga, the appellant, contesting a revisional order by the Principal Commissioner of Income Tax, Ahmedabad, which deemed the original assessment order as erroneous and prejudicial to the interests of the Revenue. The original assessment accepted the appellant's declared agricultural income and did not find any undisclosed agricultural expenses. The PCIT, however, proposed a revision citing inadequate inquiries into the agricultural income and expenses. The Tribunal's decision emphasized that the AO had indeed made specific inquiries and accepted the explanations and documents provided by the appellant, thus rejecting the PCIT's revision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 771923 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2020-2021
• Other Referred Cases: Vivaa Tradecomm Pvt. Ltd. Vs. PCIT, Nileshbhai Savjibhai Patel Vs. PCIT, PCIT Vs. Maheshwari Logistics Ltd., PCIT Vs. M/s Asiasat Bearing Co.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: PARMANAND KHATRI
• Keywords: Set aside; Opportunity of being heard; Unexplained expenditure; Income from undisclosed sources; Principle of natural justice; Assessment record; Revision of order; Related party transaction
• Section: 144; 143(3); 142(1); 263; 69C

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद Ɋायपीठ “ C”, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “ C ” BENCH, AHMEDABAD सुŵी सुिचũा काɾले, Ɋाियक सद˟ एवं ŵी मकरंद वसंत महादेवकर, लेखा सद˟ क े समƗ। ] ] BEFORE Ms SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No. 1040/Ahd/2025 िनधाŊरण वषŊ /Assessment Year : 2020-21 Bhanwarlal Champalal Kanunga, A-43, Old Gunj Bazar, APMC Market Yard, Main Line, Unjha-384170. (Gujarat) बनाम/ v/s. The Principal Commissioner of Income Tax, Ahmedabad-3, Ahmedabad. ̾थायी लेखा सं./PAN: ACMPK0172H अपीलाथŎ/ (Appellant) Ů̝ यथŎ/ (Respondent) Assessee by : Shri Parmanand Khatri, AR Revenue by : Shri Rignesh Das, CIT-DR सुनवाई की तारीख/Date of Hearing : 31/07/2025 घोषणा की तारीख /Date of Pronouncement: 28/08/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: ] ] This appeal by the assessee is directed against the revisional order dated 27.03.2025 passed by the Principal Commissioner of Income-tax-3, Ahmedabad [hereinafter referred to as “PCIT”] under section 263 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], whereby the assessment order dated 23.09.2022 passed under section 143(3) read with section 144B Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 2 by the Assessment Unit, Income Tax Department [hereinafter referred to as “Assessing Officer or AO”], has been held to be erroneous in so far as it is prejudicial to the interests of the Revenue. Facts of the Case 2. The brief facts, as emanate from the record, are that the assessee is an individual. For A.Y. 2020-21 he filed the return of income on 19.10.2020 declaring total income of Rs. 63,44,860 and showing exempt agricultural income of Rs. 1,16,77,688. The case was selected for complete scrutiny under CASS inter alia for verification of large agricultural income and substantial loans. Notice under section 143(2) was issued on 29.06.2021. Thereafter the Assessing Officer issued detailed notices under section 142(1) on 06.11.2021 and again on 06.09.2022 and 12.09.2022 calling for, among other things, computation of income, profit and loss account, balance sheet, capital account, ledger accounts of loans and confirmations, copies of bank statements, cash flow statement with evidence of inflow and outflow relatable to agricultural income and expenses, documentary evidence regarding the purchase of agricultural land in October 2016, details and mode of sale of agricultural produce with copies of contracts and sale bills, crop records as maintained by the State authorities, and reconciliation of loans and related party transactions. The assessee responded with written explanations Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 3 and voluminous attachments, initially on 30.11.2021 and again on 15.09.2022, and also uploaded the documents as required. 3. On going through the material so furnished, the Assessing Officer issued a show cause notice dated 16.09.2022 specifically requiring the assessee to explain, inter alia, why the production of jeera had allegedly doubled for the year even though the land under ownership had marginally decreased when compared with the earlier year, and why agricultural income had increased. The assessee furnished further reply on 19.09.2022 together with documents. After verifying the details placed on record, the Assessing Officer completed the assessment under section 143(3) read with section 144B on 23.09.2022 at the returned income of Rs. 63,44,860. In the body of the assessment order it is recorded that the assessee had submitted ledgers, confirmations and bank statements in support of loans, and in respect of agricultural income had submitted ledger copies for the year together with copies of sale bills and bank statements highlighting the transactions; the balance sheet and copies of personal capital account with bank statement were also filed. The Assessing Officer recorded that the details and documents submitted by the assessee were duly verified and found satisfactory and that there was no adverse inference in the case. 4. Subsequently, the PCIT of Income-tax-3 examined the assessment record and issued a show cause notice under section 263 dated 22.01.2025 proposing to revise the assessment on the Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 4 premise that the Assessing Officer failed to make proper inquiries into the claim of large exempt agricultural income without any corresponding agricultural expenditure shown in the books. The show cause proceeded on the footing that, having regard to the materials referred to in the record, necessary verification was required on the location of the land stated to be at Sanchor, Rajasthan, the nature and type of crop, the total quantity of crop produced, the turnover and the agricultural market in which the produce was sold, the source of agricultural expenses, and the genuineness of the agreement said to have been entered into with one Shri Govindbhai Purshottambhai Patel for carrying out agricultural activities on a sharing ratio. The assessee filed a detailed reply on 31.01.2025 objecting to the assumption of jurisdiction, pointing out the inquiries actually made by the Assessing Officer through notices under section 142(1) and the replies with annexures, and further explaining that as per the arrangement with the cultivator the expenses were borne by the cultivator and that the assessee’s share was 59 percent of the produce which was duly accounted and reflected in the return. 5. The PCIT, after considering the reply, passed the impugned order dated 27.03.2025 under section 263 holding that the assessment order was erroneous in so far as it was prejudicial to the interests of the Revenue. In reaching this conclusion, the PCIT recorded, inter alia, that during the year the assessee had claimed exempt agricultural income of Rs. 1,16,77,893/- without showing any agricultural expenditure. Reference was made to a copy of an Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 5 Agreement to Sale dated 02.04.2016 for purchase of agricultural land with standing crop at Sanchor, Rajasthan for a consideration of Rs. 66 lakhs stated to be paid in cash; the PCIT doubted the bonafides and genuineness of this document because it was neither registered nor notarised and only written on Rs. 20 stamp paper. It was further noticed that the assessee had claimed to have entered into an agreement dated 09.06.2017 with Shri Govindbhai Purshottambhai Patel for carrying out agricultural activities, packing and delivery, and that as per the assertion the assessee was entitled to 59 percent share in the produce while 41 percent was retained by the cultivator. The PCIT observed that, despite opportunity, the assessee did not furnish verifiable details such as the complete identification and PAN of the said cultivator, the crop-wise 7/12 or Khasra Girdhawri abstracts evidencing crops grown and quantities, the market details and confirmations of sales, and that the sale bills produced were unsigned and handmade. The order also compares the yield declared by the assessee with the average yield of cumin as per the Spices Board of India for 2019-20. Taking the total area of land under cultivation at 157.64 acres and applying the average yield of 4.942 quintals per acre, the PCIT observed that the production as per the assessee’s figures at 2,092.63 quintals was far higher than what the official average would suggest. A comparison was also drawn with A.Y. 2018-19 where, despite land area of 163.53 acres, the assessee had declared lower agricultural income. Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 6 6. In paragraph 2.1 of the revisional order, the PCIT referred to the assessment framed for A.Y. 2017-18 in the assessee’s case pursuant to an earlier order under section 263 and to the assessment order dated 29.03.2023 passed under section 144 read with section 263 and section 144B for that year. It is noted that in A.Y. 2017-18 the Assessing Officer, following the ratio laid down by the Ahmedabad Benches of the Tribunal in Dhirubhai L. Narula and others, had considered forty percent of the gross agricultural receipts as agricultural expenditure and treated the same as income from undisclosed sources under section 69C. On that basis, the PCIT expressed the view that similar treatment was called for in the present year and quantified forty percent of the agricultural income at Rs. 46,71,075 as unexplained expenditure under section 69C. 7. The PCIT finally set aside the assessment with a direction to the Assessing Officer to make a de novo assessment after proper inquiry and to allow the assessee adequate opportunity of being heard. It is also recorded that penalty proceedings under section 271AAC(1) are to be initiated separately. 8. Aggrieved by the order of PCIT, the assessee is in appeal before us raising following grounds of appeal: 1.1 The order passed Us. 263 passed on 27.03.2025 by Pr. CIT-3, A'bad. holding the assessment order passed u/s 143(3) on 23.09.2022 by AO as erroneous and prejudicial to the interest of Revenue in respect of agricultural expenses not accounted in the books, meaning it has been incurred out of undisclosed income by Id. PCIT is wholly illegal, unlawful and against the principles of natural justice. Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 7 2.1 The Id. Pr. CIT-3 Abad has grievously erred in law and or on facts in invoking the provisions of revision u/s 263 of the Act and holding that the order of original assessment passed u/s 143(3) on 23.09.2022 by AO was erroneous and prejudicial to the interest of Revenue in so far as the same related to incurring agricultural expenses. The Id. Pr. CIT-3 A'bad has grievously erred in law and or on facts in holding that the AO had not carried out examination in respect of location of land, type of crop produced, total quantity of crop produced, total turnover and in which agriculture market the produce was sold during the assessment proceedings. 2.2 That in the facts and circumstances of the case, Id. Pr. CIT-3 A'bad has grievously erred in law and or on facts in invoking the provisions of revision /s 263 and in holding that the AO had not carried out examination in respect of agricultural expenses. 2.3 The observations made and conclusions reached by Pr. CIT-3 A'bad to hold that the agricultural expenses were incurred out of undisclosed sources was unjustified are denied in toto. 2.4 That in the facts and circumstances of the case, Id. Pr. CIT-3 A'bad has grievously erred in law and or on facts in invoking the provisions of revision u/s 263 of the Act by taking the base from A.Y.2017-18 without verifying the facts of the case of year under appeal was unjustified. 3.1 The Id. Pr. CIT has grievously erred in law and or on facts in directing the AO to make fresh assessment in respect of non- incurrence of agricultural expenses. It is, therefore, prayed that the impugned order passed u/s 263 by Pr. CIT may kindly be quashed and assessment order dt 23.09.2022 be restored. 9. The learned Authorised Representative (AR) appearing for the assessee submitted that the Assessing Officer (AO) had conducted detailed inquiries during the course of assessment proceedings by issuing multiple notices under section 142(1) dated 06.11.2021 and 06.09.2022, in which specific queries were Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 8 raised regarding the assessee’s claim of agricultural income and the absence of agricultural expenses. The assessee had duly furnished comprehensive replies dated 30.11.2021, 15.09.2022 and 19.09.2022 along with voluminous documentary evidence including copy of the sale agreement, cash flow statement, sale bills of agricultural produce, ledger accounts, balance sheet, capital account, and bank statements evidencing inflow and outflow. These were all examined by the AO and only thereafter the assessment was framed under section 143(3) on 23.09.2022 by accepting the returned income. 10. The AR drew our attention to the specific show cause notice dated 16.09.2022 issued by the AO, wherein the assessee was asked to explain why the jeera production had allegedly doubled in comparison with earlier year despite marginal decrease in land area. The assessee submitted a reply on 19.09.2022 explaining that as per the agreement with Shri Govindbhai Purshottambhai Patel, the expenses of cultivation were borne by the cultivator and the assessee’s share of 59% of produce was duly accounted. The reply was supported with evidences. After considering the same, the AO accepted the claim. Thus, it cannot be said that the AO failed to examine the issue; rather, he applied his mind to the materials furnished, took a plausible view, and completed the assessment. 11. The AR further submitted that the ld. PCIT has misdirected himself in invoking section 263 on the ground that no agricultural Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 9 expenses were shown and, therefore, such expenses were deemed to have been incurred out of undisclosed income. It was argued that there is a specific arrangement with a cultivator, duly explained before the AO, that the cultivator would bear 41% share of the produce in lieu of incurring all expenses. Thus, the AO having accepted this explanation after inquiry, the order cannot be branded as erroneous merely because the ld. PCIT entertains a different opinion. The AR contended that the ld. PCIT’s reliance on the assessment of A.Y. 2017–18 is wholly misplaced. In that year, the facts were materially different, since the assessee had purchased agricultural land with standing crops ready for harvest and the AO had treated 40% of receipts as unexplained expenditure under section 69C pursuant to an earlier 263 directions. In the year under appeal, i.e. A.Y. 2020–21, the lands were cultivated afresh by a cultivator under an arrangement whereby all expenses were borne by the cultivator. 12. The AR also argued that the ld. PCIT has travelled beyond jurisdiction by drawing conclusions on merits, such as doubting the genuineness of agreement to sale dated 02.04.2016 and alleging that the sale bills are handmade and unsigned. It was emphasised that the AO had called for these very documents, examined them, and taken a considered view. Once the AO has made inquiries, the revisional jurisdiction cannot be exercised merely to substitute the PCIT’s opinion for that of the AO. 13. The AR placed reliance on the following judicial precedents: Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 10 i. Vivaa Tradecomm Pvt. Ltd. Vs. PCIT in ITA No. 328/Ahd/2020 ii. Nileshbhai Savjibhai Patel Vs. PCIT in ITA No. 214/Ahd/2022 iii. PCIT Vs. Maheshwari Logistics Ltd. – Tax Appel No. 190 of 2024 (Gujarat High Court) iv. PCIT Vs. M/s Asiasat Bearing Co. – Tax Appeal No. 331 of 2024 (Gujarat High Court) 14. Per contra, the learned Departmental Representative (DR) strongly supported the impugned order passed by the ld. PCIT under section 263 of the Act. The DR submitted that the AO had grossly failed to conduct proper and meaningful inquiry with regard to the assessee’s claim of substantial agricultural income of Rs. 1,16,77,688/- without showing even a single rupee as agricultural expenditure. It was contended that during the course of assessment proceedings, though certain notices under section 142(1) were issued, the assessee did not produce any verifiable or reliable evidence to substantiate the claim that agricultural operations were carried out and that expenses were borne by the cultivator Shri Govindbhai Purshottambhai Patel. 15. We have carefully considered the rival submissions of both sides, perused the impugned order passed by the ld. PCIT, the assessment order and material placed on record. It is not in dispute that the assessee had declared agricultural income of Rs. 1,16,77,688/- for the year under consideration. We note that the Assessing Officer issued multiple notices under section 142(1), Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 11 namely on 06.11.2021, 06.09.2022, and 16.09.2022, calling upon the assessee to furnish documentary evidence in support of the claim of agricultural income. In response, the assessee filed voluminous details including the agreement to purchase land, the arrangement with Shri Govindbhai Purshottambhai Patel for cultivation, copies of sale bills of jeera, and replies dated 30.11.2021, 15.09.2022, and 19.09.2022. The AO also issued a show cause notice dated 16.09.2022 specifically questioning the yield of jeera, the decrease in landholding, and the increase in agricultural income. After considering these details, the AO completed assessment under section 143(3) accepting the returned income. 16. The contention of the ld. PCIT is that the AO had failed to make adequate enquiries in respect of (i) location of land, (ii) nature and type of crop produced, (iii) total quantity of crop produced, (iv) turnover, and (v) the agricultural market in which the produce was sold. On this premise, the ld. PCIT has invoked clause (a) of Explanation 2 to section 263 of the Act, treating the assessment order as deemed to be erroneous in so far as prejudicial to the interests of the Revenue, and set aside the order with direction to make de novo assessment. 17. The ld. AR, on the other hand, demonstrated from the record that specific enquiries were raised by the AO, replies were furnished on multiple occasions with supporting documents, and the AO applied his mind before accepting the agricultural income Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 12 as returned. It was argued that where the AO has made enquiries and taken one of the plausible views, the order cannot be revised under section 263 merely because the ld. PCIT holds a different opinion. 18. Having given our thoughtful consideration, we note the settled position of law that the jurisdiction under section 263 can be exercised only when the twin conditions are satisfied, namely: (i) the order of the AO is erroneous, and (ii) it is prejudicial to the interests of the Revenue. We have taken note of judicial precedents relied on by the ld. AR which cite various judgements. In case of Malabar Industrial Co. Ltd. [2000] 243 ITR 83, the Hon’ble Supreme Court has held that if the AO adopts one of the courses permissible in law and it has resulted in loss of Revenue, or where two views are possible and the AO has taken one view with which the Commissioner does not agree, the assessment order cannot be treated as erroneous unless the view taken by the AO is unsustainable in law. Similarly, in case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108, the Hon’ble Bombay High Court held that the Commissioner cannot initiate proceedings with a view to substitute his judgment for that of the AO. The Delhi High Court in CIT v. Sunbeam Auto Ltd. [332 ITR 167] has also laid down that “inadequate enquiry” does not confer jurisdiction under section 263; only “lack of enquiry” would do so. 19. We have also perused the Paper Book filed by the assessee which has been duly placed before us. At page 33 thereof is a Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 13 copy of the notice issued by the Assessing Officer under section 142(1) dated 06.11.2021, wherein specific queries have been raised with regard to the assessee’s claim of agricultural income, the source of agricultural expenditure, details of crop-wise production, mode of cultivation, details of land holdings and supporting documentary evidence such as sale bills and market confirmations. Further, at pages 48 to 83 of the Paper Book are copies of the assessee’s replies together with annexures filed in response to the said notice, which inter alia contain details of sale of agricultural produce, cash flow statements, and supporting ledgers. Again, at pages 168 to 173 of the Paper Book are placed the subsequent submissions filed before the Assessing Officer on 19.09.2022 (in reply to notice dated 16.09.2022). A conjoint reading of these documents clearly evidences that the Assessing Officer had specifically raised questions relating to the assessee’s claim of agricultural income and expenditure, and the assessee had filed replies along with supporting documents which were part of the assessment record. This, in our view, establishes that the Assessing Officer had indeed conducted inquiries on the issue and applied his mind before completing the assessment. 20. In the present case, the assessment records unmistakably show that enquiries were in fact made by the AO. The notices under section 142(1) specifically raised queries relating to the assessee’s claim of agricultural income, and the assessee filed replies along with documents. The AO also issued a show cause notice questioning the high yield of jeera and increase in Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 14 agricultural income despite reduction in landholding. After considering the explanations and documents, the AO accepted the claim. Thus, this is not a case where the AO passed the assessment order without any enquiry at all. At best, it may be a case of inadequate enquiry or acceptance of explanation which, in the opinion of the ld. PCIT, was not sufficient. However, as per the ratio of the judicial precedents referred above, inadequacy of enquiry cannot be equated with “no enquiry” so as to render the order erroneous and prejudicial to the Revenue. 21. We also find merit in the contention of the assessee that the ld. PCIT has erred in drawing comparison with AY 2017-18 where agricultural income was partly disbelieved in proceedings under section 263. The facts of AY 2017-18 and the year under consideration are distinct. Each assessment year is separate and independent, and the outcome of one year cannot be imported mechanically into another year without independent enquiry into the facts of the relevant year. 22. Explanation 2 to section 263, no doubt, expands the scope of revision by deeming an order erroneous if passed without making inquiries which should have been made. But once it is demonstrated from record that inquiries were indeed made and AO has taken a possible view, Explanation 2 does not empower the Commissioner to reappraise evidence and substitute his own opinion. Printed from counselvise.com ITA No.1040/Ahd/2025 Bhanwarlal Champalal Kanunga. Vs. PCIT Assessment Year 2020-21 15 In view of the above discussion and judicial precedents, we are of the considered opinion that the assumption of jurisdiction by the ld. PCIT under section 263 in the present case is not valid in law. The assessment order passed under section 143(3) cannot be termed as erroneous and prejudicial to the interest of the Revenue. 23. We accordingly set aside the impugned order passed by the ld. PCIT under section 263 and restore the assessment order framed under section 143(3). 24. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 28th August, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V.MAHADEOKAR) ACCOUNTANT MEMBER (True Copy) Ahmedabad, Dated 28/08/2025 Manish, Sr. PS आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ ) अपील ( / The CIT(Exemption)-Ahmedabad 5. िवभागीय Ůितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाडŊ फाईल /Guard file. आदेशानुसार/ BY ORDER, सȑािपत Ůित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad Printed from counselvise.com "