Refex Industries Receives Mixed Verdict in Tax Appeal

Depreciation disallowance of Rs 0.36 crore deleted; Rs 17.48 crore capital gains addition remanded.

Reader Takeaway: Partial tax relief for the company, though the Rs 17.48 crore capital gains issue remains pending.

What just happened

Refex Industries received an appellate order from the Commissioner of Income Tax (Appeals)-20, Chennai, regarding its reassessment for the 2014-15 assessment year. The order is a result of an appeal filed by the company in May 2022. The appellate authority has upheld the validity of the reassessment proceedings while providing mixed outcomes on specific additions previously made by the tax department.

Why this matters

The order provides immediate relief by deleting a depreciation disallowance of Rs 36.40 lakh, confirming the company’s stance on that specific item. However, the significantly larger addition of Rs 17.48 crore concerning long-term capital gains has been set aside. The tax authorities have remanded this matter to the Assessing Officer. The officer is now required to recalculate the gains based on the final valuation provided by the competent stamp valuation authority under the Indian Stamp Act.

What changes now

For the company, the depreciation issue is resolved. However, the Rs 17.48 crore capital gains matter remains a work-in-progress. Refex Industries has indicated it is currently evaluating the order and the specific directions given to the Assessing Officer. The company is considering further legal recourse, including potentially filing an appeal with the Income Tax Appellate Tribunal (ITAT) to protect its financial interests.

Risks to watch

The primary risk remains the final quantification of the Rs 17.48 crore capital gains addition. If the fresh assessment by the tax officer results in a liability, it could impact the company's financial books. The company has clarified that it will account for any resulting tax liability only once it fully crystallizes in accordance with accounting standards.

What to track next

Investors should monitor future regulatory filings for updates regarding the company’s decision to approach the ITAT or any further communications from the Assessing Officer regarding the fresh valuation of the capital gains.