Under Section 263 of the Income Tax Act, an assessment order is subject to revision if it is passed without proper inquiry or application of mind, particularly concerning the verification of claims for exempt income like agricultural land sales where statutory criteria under Section 2(14) must be satisfied.

O R D E R

PER RAJ KUMAR CHAUHAN (J.M.):

1. This appeal is filed by the appellant/assessee against the order dated 29.03.2025 of Ld. Principal Commissioner of Income Tax, Mumbai [hereinafter referred to as the “PCIT”], passed under section 263 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the A.Y. 2020-21, wherein the assessment order dated 06.09.2022 was set aside on the ground that the same has been suffered from infirmity being erroneous and also prejudicial to the interest of revenue for allowing ineligible claim of exempt income of Rs. 3,74,91,265/- u/s 2(14) of the Act.

2. The brief facts as culled out from the proceedings of authorities below are that the assessee is a private limited company and e-filed its return of income for the assessment year 2020-21 on 10.01.2021, admitting the total income of Rs. Nil. Subsequently, the case was selected under CASS as limited scrutiny to examine mainly the issue of ‘Agricultural Income’. As per the information available with the department, the assessee has claimed large agricultural income in ITR and accordingly, notice u/s 143(2) of the Act was issued to the assessee on 29/06/2021 and duly served through e-mail on ITBA to the assessee. Subsequently, notice u/s 142(1) of the Act was issued on 15/11/2021 and which was duly served on the assessee through e-mail on ITBA Portal. In response to the notices issued, the assessee company furnished required details online on e-proceedings module. The explanation submitted by the assessee were collated and examined and on the basis of material available on record, the explanations of the assessee on the issues were accepted and no addition was made by the AO.

3. Further the Ld. PCIT exercised jurisdiction u/s 263 of the Act and observed that as per profit and loss account of the assessee, the assessee has shown at Schedule (c) Any other exempt income Sr. No.1 Sale of rural agricultural land to the tune of Rs.3,74,91,265/- and the same has been claimed as exempt u/s 2(14) of the Act. Ld. PCIT further noticed that there was nothing on record to show that the land is assessed to land revenue as agricultural land under the relevant revenue enactment and in absence of any documentary evidence on record such as 7/12 extracts, Khasra Girdwari etc., to show that the land was agricultural land, the assessee was not eligible for exemption. It was further observed that the assessment order was passed by AO without making enquiry or verification on the above issues as regards the eligibility of the assessee company to hold agricultural land as such, purchase document of the said agricultural land to ascertain if it was purchased as agricultural or non-agricultural etc. and this discrepancy rendered the assessment order suffer from infirmity and it is prejudicial to the interest of the revenue. Accordingly, a notice u/s. 263 of the Act dated 03/03/2025 was issued and provided opportunity to the assessee of being heard. In response to the said notice, assessee made submission on 27.03.2025. In the reply made by the assessee with respect to observation of the revenue that as per the current laws in India, a private limited company cannot directly purchase agricultural land unless it is for agricultural purposes, such as farming or allied activities, the assessee submitted that assessee has purchased land in the state of UP and buying agricultural land in India is governed by state-specific laws, with some states restricting purchases to existing farmers and the states like Uttar Pradesh allows land purchase subject to ceilings of 12.5 acres. It was further submitted that provision of section 63 of the Bombay Tenancy & Agricultural Lands Act, 1948 were not applicable i