Section 264 revision allowed for claiming renovation expenses deduction in long term capital gains computation

The Bombay HC allowed a revision petition under Section 264 regarding computation of long term capital gains from flat sale. The petitioner sought deduction of renovation expenses after indexing, which the co-owner had successfully claimed. The HC held there was no delay in filing the Section 264 application as it was filed within one year of the Section 154 order. The Commissioner's revisionary powers under Section 264 extend beyond correcting subordinate authority errors to include situations where assessees fail to claim legitimate deductions due to oversight. The HC quashed the impugned order and remanded the matter to PCIT for fresh consideration, directing disposal within 8 weeks.

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Issues Involved:
1. Rejection of application under Section 264 of the Income Tax Act, 1961.
2. Allowance of indexed cost of improvement for capital gains computation.
3. Jurisdiction and powers of the Commissioner under Section 264 of the Act.
4. Timeliness and procedural aspects of filing applications under Sections 154 and 264 of the Act.

Summary:

1. Rejection of Application under Section 264:
The petitioner was aggrieved by the order dated 22nd March 2017, passed by respondent no. 1, rejecting the application filed under Section 264 of the Income Tax Act, 1961. The petitioner had initially filed a return of income for A.Y. 2007-08, which included long-term capital gains from the sale of a flat but did not account for the indexed cost of improvement.

2. Allowance of Indexed Cost of Improvement:
The petitioner, a co-owner of the flat, did not claim renovation expenses incurred in September 1990 in the original return. The assessing officer made additions under Section 50C of the Act during scrutiny. The petitioner later discovered that another co-owner had successfully claimed a deduction for similar expenses. Consequently, the petitioner filed an application under Section 154, which was rejected on the grounds that the claim was not made earlier.

3. Jurisdiction and Powers of the Commissioner under Section 264:
The petitioner argued that Section 264 confers wide jurisdiction on the Commissioner to provide relief even if a legitimate claim was not made initially due to an error. The court agreed, citing multiple judgments, including Hindustan Diamond Company Pvt Ltd. Vs. CIT and Smita Rohit Gupta Vs. CIT, which emphasize the broad powers of the Commissioner under Section 264 to correct errors, whether by the assessing officer or the assessee.

4. Timeliness and Procedural Aspects:
The court found no delay in filing the application under Section 264, as it was against the order passed under Section 154 and not Section 143(3). The application under Section 264 was filed within one year of the order under Section 154. The court also rejected the respondent's argument that the petitioner could not file an application under Section 264 after filing an appeal against the assessment order.

Conclusion:
The court quashed the impugned order dated 22nd March 2017 and remanded the matter to respondent no. 1 for reconsideration. The court emphasized that the Commissioner should provide a reasoned order after giving a personal hearing to the petitioner. The application under Section 264 should be disposed of within eight weeks. The court noted that the indexed renovation expenses of Rs. 2,95,859/- should be accepted as correct, as they were acknowledged in the assessment order of another co-owner.

Final Order:
Petition disposed of with instructions for denovo consideration by the Commissioner.

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