2020 (1) TMI 734 - HC - Income Tax

Revision of other orders u/s 264 in favor of assessee - Seraulim property was not at all reflected in the returns for A.Y. 2012-13, 2013- 14, 2014-15 and 2015-16. - HELD THAT - According to us, although, it is true that neither the books of account/ledgers nor the balance sheets were produced by the petitioners along with their applications under Section 264 of the I.T. Act or during the course of personal hearing thereon, the interests of justice would require that the petitioners are given an opportunity to produce this material before respondent no.1. The impugned order, makes reference to certain reasons or circumstances, which, may not be entirely relevant. In any case, the impact of such irrelevant circumstances on the ultimate decision is also not quite clear from perusal of the impugned order. The fact that for A.Y. 2015-16, the respondents themselves treated the Seraulim property as capital asset is really begging the point because it is the case of the petitioners that this was the error committed by them on account of which they filed their applications under Section 264 of the I.T. Act. The aforesaid means that the impugned order is based upon certain circumstances, which can be styled as irrelevant. The petitioners, though had not placed any contemporaneous material before respondent no.1 at the time of hearing of their applications under Section 264 of the I.T. Act, have, in the course of present hearing, placed some material. The effect of such material cannot be decided by this Court and it is only appropriate that the same is decided by the respondent no.1 afresh. The impugned order also does not reflect that the same was based on the alleged failure on the part of the petitioners to make any fair valuation of the Seraulim property at the stage of their alleged conversion into stock in trade. No doubt, all these matters might be relevant for determining whether this is a case where the petitioners had made a genuine error, as contended by them, or whether, this is a case where the petitioners, merely, by way of an afterthought, seek to invoke provisions of Section 264 of the I.T. Act and thereby avoid paying capital gains tax. Interest of justice would be met if the impugned order is set aside and the respondent no.1 is directed to once again consider the petitioners' applications under Section 264 of the I.T. Act and to dispose of the same on their own merits and in accordance with law.

Summary

Issues:
Challenge to order dismissing applications under Section 264 of the Income Tax Act for revising returns for Assessment Year 2015-16.

Analysis:
The petitioners, a married couple under the Portuguese Civil Code, sought to revise their returns for AY 2015-16, claiming the apportionment of income earned based on the Code. They purchased property in Goa and disclosed it in their returns for AY 2013-14 and 2014-15. They converted the property into stock in trade and sold it for a profit. However, they erroneously reported the profit as short term capital gain in their AY 2015-16 return. The Principal Commissioner rejected their revision applications under Section 264 of the IT Act, leading to the present petition.

The petitioners argued that the rejection was based on incorrect observations and failure to consider relevant evidence. They claimed to have converted the property into stock in trade, supported by entries in their books of account. They cited a Circular and Section 45(2) of the IT Act to justify their position. The respondents contended that the petitioners failed to provide contemporaneous evidence of the conversion, labeling it an afterthought.

The High Court found discrepancies in the impugned order's reasoning and directed a fresh consideration of the revision applications. It noted the petitioners' submission of balance sheets indicating the property's conversion into stock in trade, which was not presented during the initial hearing. The Court emphasized the need for the petitioners to provide additional material to the Principal Commissioner for a fair assessment. It set aside the impugned order and instructed the Commissioner to review the applications within four months, emphasizing that the decision should be based on merits and in accordance with the law.

In conclusion, the High Court allowed the petition, remanding the matter for reevaluation, with the burden on the respondents to prove the alleged error in the petitioners' filing. The Court clarified that its observations were not conclusive and that the decision should be independent of previous remarks. The ruling underscored the importance of a fair and thorough review of the petitioners' applications under Section 264 of the IT Act.