Bombay High Court Allows Revision Petition Under Section 264 of Income Tax Act, 1961 for Non-Grant of Indexed Cost of Improvement in Capital Gains Computation. The Principal Commissioner's rejection of the revision application was set aside as the claim for indexed cost of renovation expenses incurred in 1990 was a lawful claim that ought to have been considered.

Writ petition challenging the order of the Principal Commissioner of Income Tax rejecting the petitioner's application under Section 264 of the Income Tax Act, 1961 for revision of the assessment order.

The petitioner sought a writ of certiorari or any other appropriate writ to quash the order dated 22 March 2017 passed by respondent no.1 and to direct respondent no.1 to reconsider the application under Section 264 of the Act on merits.

The petitioner's application under Section 264 of the Income Tax Act, 1961 for revision of the assessment order for A.Y. 2007-08 was rejected by the Principal Commissioner of Income Tax on the ground that the claim for indexed cost of improvement was not made during the assessment proceedings.

The Assessing Officer passed an assessment order on 30 November 2009 under Section 50C of the Act. The CIT(A) on 21 September 2010 directed a reference to the Valuation Officer under Section 50C(2). The Valuation Officer submitted a report on 23 May 2011. The Principal Commissioner rejected the revision application on 22 March 2017.

Whether the Principal Commissioner of Income Tax erred in rejecting the petitioner's application under Section 264 of the Income Tax Act, 1961 without considering the merits of the claim for indexed cost of improvement. Whether the claim for indexed cost of improvement in respect of renovation expenses incurred in September 1990 is allowable under the Income Tax Act, 1961.

The petitioner argued that the Principal Commissioner has wide powers under Section 264 to revise any order passed by an Assessing Officer and can consider claims not raised earlier if they are lawful. The claim for indexed cost of improvement was a legitimate deduction and should have been allowed. The respondents argued that the claim for cost of improvement was not made during the assessment proceedings and the revision application was not maintainable as the petitioner had an alternative remedy of appeal.

The Principal Commissioner under Section 264 of the Income Tax Act, 1961 has wide revisional powers to correct any order passed by an Assessing Officer, including to consider claims not raised earlier if they are lawful and just. The rejection of a revision application without considering the merits of a claim for indexed cost of improvement, which is a legitimate deduction under the Act, is erroneous and liable to be set aside.

Petitioner is aggrieved by an order dated 22nd March 2017 passed by respondent no.1 rejecting an application dated 18th January 2016 filed by petitioner under Section 264 of the Income Tax Act, 1961 (the Act). Petitioner inherited the flat alongwith three other persons on the death of his father which took place in the year 2002. Petitioner was therefore, a co-owner of the said flat to the extent of 25%. The said figure was arrived at without considering the allowance of indexed cost of improvement in respect of renovation expenses incurred in September 1990 amounting to Rs.2,95,859/-.

The petitioner filed his return of income for A.Y. 2007-08 on 21 August 2007. The Assessing Officer passed an assessment order under Section 50C on 30 November 2009. The petitioner appealed to the CIT(A), who on 21 September 2010 directed a reference to the Valuation Officer. The Valuation Officer submitted a report on 23 May 2011. The petitioner filed an application under Section 264 on 18 January 2016, which was rejected by the Principal Commissioner on 22 March 2017. The petitioner then filed the present writ petition before the Bombay High Court.

• Income Tax Act, 1961: Section 264, Section 50C, Section 50C(2), Section 48, Section 55