Case Law Details
Madhu Velayudhan Vs ITO (ITAT Hyderabad)
ITAT Hyderabad held that AO has neither made any enquiry nor asked any questions to the assessee nor any information was called for. Therefore, the order passed by AO was erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the Income Tax Act.
Facts-
PCIT on perusal of record noted that as the assessee kept the purchased plants in the laboratory for further growth under special conditions using chemicals, controlled temperature etc. and thereafter, sold them to the farmers. As such, the income derived from the above activity does not fall under the definition of ‘agricultural income’ as defined u/s 2(1A) of the Act for which exemption is allowed and the said income should be treated as ‘business income’.
However, AO had accepted the said income derived from sale of banana saplings as ‘agricultural income’ and allowed exemption u/s 10(1) of the Act. Hence, the order of AO passed u/s 143(3) of the Act dt.19.12.2017 was erroneous and prejudicial to the interest of revenue. He therefore, issued a show cause notice u/s 263 of the Act to the assessee on 03.02.2020 asking to file his objections as to why the sale of banana saplings shall not be treated as business activity and not as agricultural activity. The objections of the assessee were rejected and the PCIT held that the order of Assessing Officer was erroneous and prejudicial to the interest of revenue and hence, he had set aside the order passed by the Assessing Officer. Feeling aggrieved with the order of PCIT passed u/s 263 of the Act, assessee is now in appeal before us.
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