2024 (3) TMI 1017 - HC - Income Tax

Revisional jurisdiction u/s 264 - Application u/s 264 rejected as intimation u/s 143(1) of the Act is not an order amenable to revisional jurisdiction u/s 264 - Computation of Capital Gains - Exclusion of the portion of the sale consideration that was never received - HELD THAT - Since we have held in Diwaker Tripathi 2023 (9) TMI 159 - BOMBAY HIGH COURT that the intimation under Section 143(1) of the Act was amenable to revisional jurisdiction under Section 264 of the Act, we hereby quash and set aside the impugned order dated 23rd March 2016 passed by Respondent No. 1. atter is remanded to Respondent No. 1 to pass a fresh order on the application of Petitioner on the basis that the capital gains on the transfer of shares of the company should be computed after reducing proportionate amount withdrawn from the escrow account from the full value of consideration and allow the refund of additional tax paid with interest. Unless there is any other claim of Revenue against Petitioner that would permit Revenue to legally adjust the refund amount, the refund with interest shall be paid over within two weeks of passing the assessment order. The order shall be passed within six weeks from the date this order is being uploaded, after giving a personal hearing to Petitioner, notice whereof shall be communicated atleast seven working days in advance.

Issues Involved:
1. Validity of the order under Section 264 of the Income Tax Act, 1961.
2. Computation of capital gains considering the escrow amount.
3. Applicability of Section 143(1) and Section 264 for revisional jurisdiction.

Summary:

1. Validity of the order under Section 264 of the Income Tax Act, 1961:
The petitioner challenged the order dated 23rd March 2016 passed by Respondent No. 1 under Section 264 of the Income Tax Act, 1961. The petitioner argued that the amount of Rs. 9,17,04,240/- withdrawn from the escrow account should be deducted from the capital gains computation. The court found that Respondent No. 1 erred in rejecting the petitioner's application and held that the impugned order was incorrect and had to be quashed and set aside.

2. Computation of capital gains considering the escrow amount:
The petitioner had sold shares and initially included the escrow amount in the capital gains computation. However, certain liabilities led to the withdrawal of Rs. 9,17,04,240/- from the escrow account, which the petitioner argued should reduce the capital gains. The court agreed, stating that the real income (capital gain) should be computed by considering the actual sale consideration received, which excludes the escrow amount withdrawn. The court emphasized that the full value of consideration for computing capital gains should be the net amount received after adjustments for liabilities as per the agreement.

3. Applicability of Section 143(1) and Section 264 for revisional jurisdiction:
The court addressed the issue that the petitioner's Return of Income (RoI) was processed under Section 143(1) of the Act, while in a similar case, the assessment was completed under Section 143(3). The court referred to its previous decision in Diwaker Tripathi v. Principal Commissioner of Income Tax, holding that intimation under Section 143(1) is amenable to revisional jurisdiction under Section 264. Consequently, the court quashed the impugned order and remanded the matter to Respondent No. 1 to pass a fresh order computing capital gains after reducing the escrow amount and allowing the refund of additional tax paid with interest.

Conclusion:
The court concluded that the petitioner should be entitled to a refund of excess tax paid due to the incorrect computation of capital gains. The Assessing Officer was directed to pass a fresh assessment order within six weeks, considering the reduced capital gains and allowing the refund with interest. The petition was disposed of with no order as to costs.

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