The court ruled that the Commissioner must consider the merits of a revision application under Section 264 of the Income Tax Act, emphasizing the need for a fair hearing and the inclusion of all relevant materials in the decision-making process.

JUDGMENT :

BHARGAV D. KARIA, J.

1. Heard learned Senior Advocate Mr. Tushar Hemani with learned advocate Mr. Vaibhavi Parikh for the petitioner and learned Senior Standing Counsel Mr. Karan Snaghani for Kalpana K. Raval for the respondent.

2. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Karan Sanghani waives service of notice of rule on behalf of the respondent.

3. Having regard to the controversy which is in narrow compass with the consent of the learned advocates for the respective parties, the matter is taken up for hearing.

4. By this petition under Article 227 of the Constitution of India, the petitioner has challenged the order dated 30.03.2024 passed by the respondent No.1-Principal Commissioner of Income Tax, Surat-I under section 264 of the Income Tax Act,1961 [for short ‘the Act’] for the Assessment Year 2021-2022.

5. Brief facts of the case are that the petitioner filed return of income for A.Y. 2021-2022 on 18.02.2022 declaring total income of Rs. 14,30,22,235/-.

6. It is the case of the petitioner that the person, who was responsible for filing return of income, forgot to claim ‘Long Term Capital Loss’ (for short ‘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 for short] 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. The said company was subjected to the proceedings under the Insolvency and Bankruptcy Code,2016 [for short ‘IBC’] before the NCLT who, by order dated 01.01.2021 in IA No. 661/2020 CP(IB) 453/2018, directed the extinguishment of the equity shares of the said Company.

7. According to the petitioner, 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 Notes 3 and 26 forming part of the audited account for the Financial Year 2021.

8. 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 Act before respondent No.1 but by that time, the intimation under section 143(1) of the Act dated 22.11.2022 was already issued whereby, refund due to the petitioner was determined at Rs. 18,50,310/-.

9. The petitioner therefore, by letter dated 16.02.2023 filed on 28.02.2023 approached respondent No.1 in the application under section 264 of the Act contending inter alia as under:

“All the relevant facts (as discussed hereinabove) were categorically stated.

Inadvertently, legitimate LTCL of Rs.32,72,77,339/- was left out to be claimed in the return of income.

Section 264 uses the expression “any order” which implies that section is not limited to the power to correct errors committed by “subordinate authorities” but also cover errors committed by the “assessee”. Accordingly, it would also cover a situation where an assessee, because of an error, has not put forth a legitimate claim at the time of filing the return which is discovered subsequently and is raised for the first time in an application under section 264 of the Act.

Accordingly, the respondent was requested to pass necessary orders or give necessary direction to allow the petitioner to claim and carry forward legitimate LTCL (arising on extinguishment of shares of GSML) to subsequent years.”

10. Respondent No.1 issued the notice dated 27.10.2023 calling upon the petitioner as to why the revision application filed by the petitioner should not be rejected.

11. Respondent No.1 thereafter passed the impugned order dated 30.03.2024 rejecting the revision application fi