Assessee Not Required To Produce Documents When AO Accepted Co-Owner’s Indexed Renovation Expenses in Income Tax Assessment order: Gujarat HC [Read Order]

The Gujarat High Court in a recent case has held that the assessee is not required to produce documents when the Assessing officer ( AO ) accepted co-owner’s indexed renovation expenses in income tax assessment order.

Surat Trade And Mercantile Limited, the petitioner submitted that the person, who was responsible for filing return of income, forgot to claim ‘Long Term Capital Loss’ ( LTCG ) arising on account of extinguishment of shares of Garden Silk Mills Ltd which were acquired by the petitioner since 1994. The National Company Law Tribunal ( NCLT ) passed the order in the beginning of the Financial Year 2020-2021 relevant to the year under consideration the petitioner had 4,80,878 shares of the said company.

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The company was subjected to the proceedings under the Insolvency and Bankruptcy Code,2016 before the NCLT who, by order directed the extinguishment of the equity shares of the Company. The petitioner submitted that Fair Value of the investment in 4,80,878 shares of Garden Silk Mills Ltd at the commencement of the year under consideration was Rs. 25.25 lakhs which was reduced to Nil at the end of the year under consideration on account of the order passed by the NCLT and corresponding adjustments were made in relation to such investment in the books of accounts reflected in audited account for the Financial Year 2021.

The petitioner, upon realizing that the legitimately allowable claim/carried forward was left out to be claimed in the return of income for the year under consideration, filed application under section 264 of the Income Tax Act before department but by that time, the intimation under section 143(1) was already issued by which, refund due to the petitioner was determined at Rs. 18,50,310/-.

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The assessee contended that the department has misinterpreted provisions of section 2(22)(d) as there is no distribution of profit on account of reduction of capital but the share capital of the company in liquidation before the NCLT under IBC was extinguished and as such, the petitioner was entitled to claim LTCG on account of extinguishment of the value of the investment as per the settled legal position.

On the other hand, the department contended that the department has rightly rejected the revision application under section 264 of the Act as there is no error in the order/ intimation passed under section 143(1) of the Act and merely because the petitioner has erroneously not claimed the LTCG in the return of income, the petitioner cannot be allowed a second inning to revise the return of income which is beyond the purview of provisions of section 264 of the Income Tax Act.

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The court quashed the order passed by the department and the matter was remanded back to the Principal Commissioner Surat-I to decide the revision petition filed by the petitioner under section 264 of the Act on merits after giving opportunity of hearing to petitioner to submit requisite documents which the petitioner is intended to submit.

The division bench of Justice Bhargav D. Karia and Justice Mauna M. Bhatt has observed that the assessee should not produce documents to prove his share of the indexed renovation expenses because in the assessment order passed under Section 143(3) of the Income Tax Act in the case of Ravi R Agarwal, the other co-owner of the flat, the assessing officer has accepted the amount of Rs.2,95,859/- as the cost of renovation of indexation. Therefore, this figure has to be accepted as correct and suitable allowance should be made while arriving at the long term capital gain.

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