CBDT prescribes course of action for verification of agricultural income in assessment

CBDT prescribes course of action for verification of agricultural income during assessment proceedings.

CBDT has issued a Circular/Instruction dated 29/10/2025 prescribing suggested course of action for verification of claim of agricultural income/activity during assessment proceedings.

The action has been taken in view of the performance audit report of C&AG, wherein mistakes and inconsistent approach adopted by the Assessing Officers (AOs) were pointed out for verification of claim regarding agricultural income and/or agricultural activity despite the facts and circumstances being similar in nature.

A brief summary of the major issues pointed out by the C&AG and has suggested course of action as under:

(i) Issue – Agricultural income was allowed without proper verification of land records, sales invoices, and agricultural expenses.

C&AG Observations-  Improper verification and lack of independent cross-verification

Suggested course of action:

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. Mandi/Buyers receipts, bank statements etc.).

(ii) Issue – Exemptions were granted for income derived from activities not qualifying as agricultural income under Section 2(1A) of the Income Tax Act, such as sale of fish, goats, dry grapes, and milk.

C&AG Observations – Exemptions granted to Non agricultural activities

Suggested course of action: 

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) Issue – Incorrect exemption granted for Income derived from agricultural land

C&AG Observations – Income derived from agricultural land

Suggested course of action: 

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) Issue – Incorrect allowance of exemption for partial agricultural income

C&AG Observations – Partial agricultural income

Suggested course of action:

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

It has been clarified that the above suggested course of actions are meant to facilitate proper verification during assessment of agricultural income and are only indicative & not exhaustive. The Assessing Officers (AOs) are required to verify every case based on the facts and circumstances of that case.

Download CBDT Instruction on Agricultural income verification Click Here >>

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