The Income Tax Appellate Tribunal, Agra, has reaffirmed that the revisional power under Section 263 of the Income Tax Act cannot be exercised merely because the Commissioner disagrees with the Assessing Officer’s reasoned conclusion. The Tribunal set aside a revisional order that sought to reopen an assessment based on a perceived lack of inquiry, emphasizing that a difference of opinion does not equate to an erroneous or prejudicial order.
Background & Facts
The Dispute
The dispute centers on cash deposits of Rs. 77,73,275/- made in the bank account of the assessee, Shri Ajit Singh, during the financial year 2009-10. The assessee, a non-filer, received these amounts as advances on behalf of his two sons, Shri Amir Singh and Shri Shabeer Singh, for the sale of their agricultural land. The land was located in rural areas of Shivpuri, Madhya Pradesh, and the transaction was conducted in cash, consistent with customary practices in rural land sales.
Key Facts
- The assessee received cash advances totaling Rs. 77,73,275/- from four buyers: Shri Rajeev Sharma, Shri Satendra Singh Sengar, Shri Naresh Singh Parmar, and Shri Devi Pratap Singh Chauhan, between 2009 and 2010.
- The assessee’s sons, who were residing outside Shivpuri at the time, verbally authorized their father to receive the advances on their behalf.
- The assessee deposited the cash into his own bank account, as was common practice in family-based rural transactions.
- The final sale deeds for the land were executed in June-July 2017, and the advance payments were recorded in those registered documents.
- A written Power of Attorney was executed on 09.02.2011, but the assessee claimed verbal authorization existed during the relevant financial year.
- The sons submitted affidavits and written statements confirming the verbal authorization and the nature of the transaction.
- The assessee also submitted Mandi receipts, Khasra Khatauni copies, and land registry documents to substantiate the agricultural nature of the land.
- The assessee declared income of Rs. 1,50,420/- and agricultural income of Rs. 9,75,240/- in his return filed on 09.11.2017.
Procedural History
- 29.03.2017: Notice under Section 148 issued for A.Y. 2010-11 due to cash deposits exceeding Rs. 10 lakh.
- 09.11.2017: Assessee filed return declaring income and agricultural income.
- 22.12.2017: Assessing Officer completed assessment under Section 143(3) read with Section 147, accepting the declared income and finding the source of cash advances explained.
- 26.03.2020: PCIT invoked Section 263, holding the assessment erroneous and prejudicial to revenue, citing lack of formal Power of Attorney and questioning human probability.
- 13.09.2021: Reassessment order passed under Section 69A adding Rs. 82,30,000/- as unexplained cash credit.
- 18.03.2024: CIT(A) allowed the assessee’s appeal against the reassessment order, upholding the original assessment.
- 20.09.2023: ITAT Agra set aside the original revisional order dated 26.03.2020 and remanded the matter to PCIT for fresh consideration with opportunity of hearing.
- 18.03.2025: PCIT passed impugned revisional order, reiterating the same grounds.
- 19.01.2026: Hearing held before ITAT Agra.
- 17.04.2026: Judgment pronounced.
The Parties' Positions
For the Assessee
- The Assessing Officer conducted thorough inquiries, recording sworn statements of all four buyers.
- The AO’s conclusion was based on evidence and was a plausible view, not a perfunctory one.
- Verbal authorization under Section 187 of the Indian Contract Act is valid, especially in rural India.
- The transaction was for sale of agricultural land, exempt from tax.
- Even if taxable, capital gains would arise only in the year of sale (2017-18), not 2009-10.
- The CIT(A)’s order dated 18.03.2024, which upheld the original assessment, was ignored by the PCIT.
For the Revenue
- The absence of a Power of Attorney at the time of receipt of advances rendered the transaction suspicious.
- Depositing large cash amounts in the father’s account instead of the sons’ was inconsistent with normal practice.
- The AO’s inquiry was superficial and did not satisfy the requirements of Section 147.
- The assessment order was erroneous and prejudicial to revenue under Section 263.
Relief Sought
The assessee sought quashing of the impugned order dated 18.03.2025, restoration of the original assessment order dated 22.12.2017, and dismissal of the reassessment order dated 13.09.2021. The assessee also sought costs.
The Legal Issue
The central question was whether the PCIT’s invocation of Section 263 was justified merely because he disagreed with the Assessing Officer’s conclusion regarding the source of cash advances, when the AO had recorded sworn statements from buyers and accepted corroborative documentary evidence.
Arguments Presented
For the Appellant
The assessee relied on the settled principle that Section 263 cannot be invoked for a mere difference of opinion. The Assessing Officer had recorded statements of all four buyers on oath, examined land records, and accepted the explanation for the cash deposits. The Tribunal in CIT v. Smt. Sushila Devi held that where the AO has applied his mind and taken a plausible view, the order cannot be termed erroneous. The PCIT’s reliance on "human probability" was misplaced, as rural land transactions often operate on verbal agreements. The CIT(A)’s favorable order, passed after full consideration, further validated the AO’s view.
For the Respondent
The Revenue contended that the AO’s inquiry was inadequate because no formal Power of Attorney existed at the time of receipt of advances. The PCIT argued that depositing Rs. 77 lakh in the father’s account without documentation was improbable and that the AO failed to verify the legitimacy of the verbal authorization. The Revenue maintained that the assessment order was erroneous and prejudicial to revenue under Section 263.
The Court's Analysis
The Tribunal emphasized that Section 263 is not a tool for re-appreciation of evidence or for substituting the Commissioner’s opinion for that of the Assessing Officer. The Court noted that the AO had recorded sworn statements from all four buyers, none of whom retracted their testimony or expressed any doubt about the transaction. The fact that the buyers corroborated the assessee’s version was decisive.
"The assessing officer... recorded the statements of the buyers... without any adverse comment... is self explanatory that the deponents/buyers corroborated assessee's submissions."
The Tribunal rejected the PCIT’s reliance on "human probability" as articulated in Sumati Dayal v. CIT, observing that rural India operates on customary practices where verbal agreements are common and legally valid under the Indian Contract Act. The Tribunal held:
"Law does not mandate that there should be a written agreement before the execution of sale deed of an immovable property. Past considerations in India is valid, enforceable and tenable under law differing from English law where it is typically not."
The Tribunal further noted that the final sale deeds executed in 2017 explicitly recorded the advance payments, thereby validating the assessee’s claim. The PCIT’s conclusion that the AO had not applied his mind was contradicted by the record, which showed multiple inquiries and evidentiary submissions.
The Tribunal also held that the CIT(A)’s order dated 18.03.2024, which had upheld the original assessment, was binding on the PCIT, especially after the Tribunal had already set aside the first revisional order. The PCIT’s failure to consider this order rendered the impugned order legally unsustainable.
The Verdict
The assessee succeeded. The ITAT Agra allowed the appeal and set aside the impugned revisional order dated 18.03.2025. The original assessment order dated 22.12.2017 is sustained. The reassessment order dated 13.09.2021 is quashed. The stay application SA No. 02/Agr/2025 is dismissed as infructuous. No costs were awarded.
What This Means For Similar Cases
Revisional Powers Are Not for Re-Appreciation
- Practitioners must argue that Section 263 cannot be invoked merely because the Commissioner prefers a different interpretation of evidence already on record.
- If the AO has recorded witness statements, examined documents, and taken a plausible view, the order is not erroneous even if the Commissioner disagrees.
Verbal Authorization in Rural Transactions Is Legally Valid
- In cases involving rural land sales, verbal authorization under Section 187 of the Indian Contract Act must be accepted as legally sufficient.
- The absence of a formal Power of Attorney at the time of receipt does not invalidate the transaction if corroborated by subsequent documentation and witness testimony.
CIT(A) Orders Must Be Considered in Revisional Proceedings
- When a CIT(A) order has been passed on the same facts and has upheld the original assessment, the PCIT must account for it in any revisional proceeding.
- Ignoring a higher authority’s reasoned order renders the revisional order legally defective.
Human Probability Cannot Override Documentary Evidence
- The doctrine of "human probability" cannot override specific evidence such as sworn witness statements and registered sale deeds.
- Tax authorities must not substitute conjecture for proof.
Agricultural Land Advances Are Not Taxable Income
- Advances received for sale of agricultural land are not taxable income in the year of receipt if the land qualifies for exemption under Section 54B.
- Capital gains, if any, arise only in the year of actual transfer, not the year of advance receipt.
