High Court grants stay on proceedings challenging disputed LTCG assessment under Income Tax Act

The High Court granted a stay on further proceedings following a Section 263 notice challenging an alleged erroneous assessment under the Income Tax Act. The petitioner argued that the disputed LTCG amount was disclosed in the return and exempted under Section 10(38) of the IT Act. The court found merit in the petitioner's arguments, considering potential irreparable loss and ordered a stay on proceedings pending further directives, directing the respondents to provide explanations within six weeks.

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Issues:
Notice under Section 263 of the Income Tax Act 1961 regarding alleged erroneous assessment and prejudicial interest of revenue.

Analysis:
The petitioner received a notice dated 24.03.2021 for a revision proceeding under Section 263 of the Income Tax Act, claiming the assessment made on 28.12.2018 was erroneous and prejudicial to the interest of revenue. The notice highlighted a discrepancy in the long term capital gains (LTCG) from the sale of shares, indicating an amount of Rs. 5,30,257 not brought to tax. The petitioner argued that this amount was clearly stated in the income tax return submitted, and the Principal Commissioner concluded that the Assessing Officer failed to consider this omission. Furthermore, the petitioner contended that the items in question were exempted under Section 10(38) of the IT Act, and any discrepancy would not be prejudicial to revenue.

The petitioner's counsel, Dr. Saraf, referred to the return submitted by the petitioner, emphasizing the LTCG loss of Rs. 5,30,257, which, when deducted from the total LTCG, resulted in a balance of Rs. 31,58,782. Dr. Saraf pointed out that the Principal Commissioner's conclusion was based on the absence of an explanation from the assessee regarding the discrepancies, leading to a decision to rely on available records. The counsel argued that the assessment should not be deemed erroneous as the LTCG amount was disclosed in the return, and the Assessing Officer's failure to consider this fact was highlighted.

The High Court acknowledged the prima facie case made by the petitioner, considering the balance of convenience and the potential irreparable loss the petitioner might face. Consequently, the court ordered a stay on further proceedings pursuant to the Section 263 order until further directives. The respondents were directed to file an affidavit explaining the submissions made by the petitioner's counsel within six weeks for the next hearing.

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