The Central Board of Direct Taxes (CBDT) issued a circular (F. No. 173/49/2022-ITA-I) dated October 29, 2025, to address inconsistencies and errors in the assessment of agricultural income, as highlighted in the Comptroller and Auditor General’s (C&AG) performance Audit Report No. 9 of 2019. The C&AG report found that Assessing Officers (AOs) were making common mistakes, including improper verification of essential documents. To correct this, the CBDT has directed AOs to independently verify documentary evidence, such as land records (e.g., Khasra-khatauni), input expenses (e.g., fertilizer, labour costs), and sales documents (e.g., buyer receipts) before allowing exemptions. Furthermore, AOs are mandated to ensure that exemptions are not incorrectly granted to income from non-agricultural activities (like the sale of fish or milk) and to correctly characterize claims of rent/revenue derived from agricultural land. The circular also stresses the need for AOs to apply the apportionment rules (Rules 7, 7A, 7B, and 8 of the Income-tax Rules, 1962) accurately in cases of partial agricultural income. This advisory aims to promote a consistent and legally compliant approach across all assessments involving agricultural income claims.
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
Room No. 245A, North Block, New Delhi
*******
F. No. 173/49/2022-ITA-I dated 29 October, 2025
To
All Principal Chief Commissioners of Income Tax,
Madan/Sir
Subject: C & AG’s performance Audit report No. 9 of 2019 On “Assessment of Agriculture, income”- observations and suggested course of action during assessment proceedings-reg
Kind reference is invited to .C&AG’s performance Audit report No.9 of 2019 on “Assessment of Agricultural income (available at: https://cag.gov.in/en/audit-report/details/121129).
2. In the above performance audit report of C & AG, it was pointed out that there are some common mistakes in the assessment proceedings despite the facts and circumstances being similar in nature indicating inconsistent approach adopted by Assessing Officers (AOs) in these cases.
3. In this connection, a brief summary of the major issues pointed out by the C & AG in Report No. 9 Of 2019 is tabulated and suggested course of action, wherever necessary, is as indicated below:
| Sr. No. | Observation of CAAG | Summary of issue | Suggested course of action for AOs |
| (i) | Improper Verification and lack of independent cross- verification | “…agricultural income was allowed without proper verification of land records, sales invoices, and agricultural expenses.” | AOs may call for and verify documentary evidences pertaining to:
-land records (ownership & land type/ use- viz. Khasra-khatauni/7-12 extract/Mutation etc.), – input expenses (viz. tilling, irrigation, fertilizer/pesticides, electricity, labour, storage, transport etc), – sales documents (viz. Mandl/Buyers receipts, bank statements etc.). |
| (ii) | Exemptions granted to Nonagricultural activities. | “Exemptions were granted for income derived from activities not qualifying as agricultural income under Section 2(IA) of the Income Tax Act, such as sale of fish, goats, dry grapes, and milk.” | The definition of Agricultural Income u/s 2(1A) of the Income-tax Act,1961 and correct position of law laid down by judicial precedents in this regard may be looked in order to ensure correct application of law on the facts and circumstances of the given case. |
| (iii) | Income derived from agricultural land | “Incorrect exemption granted for Income derived from agricultural land” | This refers to incorrect exemption granted to claims of rent and revenue derived from agricultural land. AOs may verify the correct characterisation of income derived from land claimed to be agricultural land. |
| (iv) | Partial agricultural income | “Incorrect allowance of exemption for partial income agricultural | This refers to lack of conceptual clarity about the scope of agricultural income as well as the principle of apportionment embodied in Rules 7, 7A, 7B and 8 of the Income-tax Rules, 1962. AOs may examine each case thoroughly to identify cases meriting apportionment. |
4. In order to facilitate proper verification during assessment of agricultural income, suggested course of action (as above) is only indicative & not exhaustive. The Assessing Officers (AOs) are required to verify every case based on the facts and circumstances of that case,
5. The above may be brought to the notice of all officers posted in your region.
(Meenakshi Singh)
Deputy Secretary
ITA-I, CBDT
Copy to:
1. PS to FM/PS to MoS (F)
2. PS to Secretary (Revenue)
3. PS to Chairman. CBDT & all Members, CBDT
4. All Pr. DGsIT/DGsIT
5. I)GIT (Systems)
6. All Joint Secretaries/CsIT, CBDT
