2023 (10) TMI 1142 - HC - Income Tax

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 ... Revisionary powers under Section 264 of the Income Tax Act - rectification under Section 154 of the Income Tax Act - mistake apparent from record - scope of 'record' in revisionary proceedings - remand for de novo consideration with reasoned order and personal hearing Revisionary powers under Section 264 of the Income Tax Act - scope of 'record' in revisionary proceedings - Validity of rejection of the application under Section 264 and scope of the Commissioner's power to grant relief notwithstanding earlier assessment proceedings. - HELD THAT: - The Court held that Section 264 confers wide jurisdiction on the Commissioner to prevent miscarriage of justice and to grant relief where the law permits, including situations where an assessee discovers an error after filing the return and raises it for the first time before the Commissioner. The Commissioner is required to apply his mind to whether the petitioner was taxable on the income and is not confined to correcting only errors of subordinate authorities; the power can extend to errors committed by the assessee. Consequently, the impugned order rejecting the Section 264 application without adequate consideration of these aspects was unsustainable. [Paras 11] Impugned order dated 22nd March 2017 rejecting the Section 264 application quashed and set aside; matter remanded to the Commissioner for de novo consideration. Rectification under Section 154 of the Income Tax Act - mistake apparent from record - Whether the petitioner's recourse to Section 264 was time-barred or impermissible because the relief sought arose from rejection of a Section 154 application. - HELD THAT: - The Court found no delay in invoking Section 264 because the revision was directed against the order passed under Section 154 (dated 8th December 2015) and the Section 264 application was filed within one year of that order. The procedural objection that petitioner could have raised the claim earlier was rejected in light of the remedial scope of Section 264 where no alternate effective remedy is available. [Paras 10] Application under Section 264 was held timely and not barred by delay. Scope of 'record' in revisionary proceedings - remand for de novo consideration with reasoned order and personal hearing - Whether the petitioner must produce fresh documentary proof of indexed renovation cost and directions on further proceedings after quashing the impugned order. - HELD THAT: - The Court held that additional proof was unnecessary because the assessing officer in the assessment of a co-owner had accepted the indexed renovation cost figure, making that amount part of the relevant record. On remand, the Commissioner must give the petitioner a personal hearing (with at least five working days' notice) and pass a reasoned order dealing with all submissions within the stipulated time frame. [Paras 14, 15] No fresh proof required of the accepted renovation cost; matter remanded for fresh consideration with directions for personal hearing and a reasoned order to be passed within eight weeks. Final Conclusion: The writ petition succeeds: the order dated 22nd March 2017 rejecting the Section 264 application is quashed and set aside. The matter is remanded to the Commissioner for de novo consideration, with a direction to afford personal hearing after at least five working days' notice and to dispose the application by a reasoned order within eight weeks. 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.