2022 (8) TMI 1307 - AT - Income Tax

Revision u/s 263 by CIT - Doctrine of merger - As per CIT AO has not applied higher rate of tax u/s 115BBE of the Act on income assessed by the AO as unexplained but declared by assessees as agricultural income - HELD THAT - Admitted facts are that the assessee s income declared from agricultural activities as assessed by AO as unexplained income. Admittedly this addition of agricultural income as unexplained income is a matter is being contested before CIT(A) - We noted that this issue has been dealt by Hon ble Madras High Court in the case of Smt. Renuka Philip 2018 (12) TMI 129 - MADRAS HIGH COURT wherein had dealt with exactly identical situation where the addition was subject matter of appeal before CIT(A) was held to be covered by the concept of doctrine of merger in view of the provisions of clause (c) of Explanation (1) to section 263. Addition of agricultural income by the AO as unexplained income is contested before the CIT(A) by the assessee and once this being contested before CIT(A) in view of the provisions of clause (c) of Explanation (1) to section 263 of the Act the doctrine of merger will apply and the PCIT cannot take any cognizance of the matter while adjudicating u/s. 263 CIT(A) s powers are co-terminus with those of the AO and he can do what the AO could do and can also direct the later to do what the later failed to do on that very issue. In the present case the CIT(A) can also rectify charging of higher rate of tax during appeal proceedings in case the provisions of the Act so provides and income of the assessee declared as agricultural income is upheld to be assessed as unexplained income. Accordingly we are of the view that the revision order passed by PCIT u/s.263 is bad in law and without jurisdiction. Hence we quash the revision order passed by PCIT and allow the appeal of the assessee.

Summary

Issues involved:
1. Revision orders passed by Principal Commissioner of Income Tax (Central) under section 263 of the Income-tax Act, 1961 regarding the application of higher tax rate under section 115BBE on income declared as agricultural income by the assessees.

Detailed Analysis:
1. The appeals by two different assessees challenged the revision orders passed by the Principal Commissioner of Income Tax (Central) regarding the original assessments framed by the Assessing Officer. The main issue was the application of a higher tax rate under section 115BBE on income declared as agricultural income by the assessees, deemed unexplained by the AO.

2. The assessees raised multiple grounds of appeal, arguing that the revision orders were contrary to law and unsustainable. They contended that the assessment was not erroneous or prejudicial to the revenue, and the PCIT had violated the provisions of the Act by exercising jurisdiction over an issue pending before the Commissioner of Income Tax (Appeals).

3. The facts revealed that the AO assessed the agricultural income declared by the assessees as unexplained income, which was being contested before the CIT(A). The PCIT issued show cause notices to tax the agricultural income under section 69 read with 115BBE of the Act, leading to the appeal challenging the revision orders.

4. The arguments presented by the parties focused on whether the application of the higher tax rate on the disputed agricultural income was justified. The CIT(DR) supported the revision orders, emphasizing the AO's failure to apply the correct tax rate under section 115BBE, while the assessees argued against the revision orders.

5. The Tribunal analyzed the case law, particularly decisions by the Hon'ble Madras High Court and Hon'ble Allahabad High Court, regarding the jurisdiction of the PCIT under section 263 of the Act when an issue is pending before the CIT(A). The doctrine of merger and the powers of the CIT(A) in rectifying tax assessments during appeal proceedings were crucial in determining the validity of the revision orders.

6. Ultimately, the Tribunal held that since the addition of agricultural income was contested before the CIT(A), the doctrine of merger applied, barring the PCIT from adjudicating on the matter under section 263. The Tribunal quashed the revision orders, stating that the PCIT's actions were without jurisdiction. Both appeals were allowed in favor of the assessees.

7. The judgment emphasized the importance of procedural fairness and adherence to statutory provisions in tax assessments, ensuring that the rights of assessees are protected during appeal proceedings. The decision provided clarity on the limits of the PCIT's jurisdiction and the application of the doctrine of merger in tax matters under the Income-tax Act, 1961.