TMI Blog2012 (7) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... 5A cannot give any assistance to compute the capital gain u/s.48 of the I.T. Act. - The expression "full value of consideration" (Sec. 48 ) does not have the same meaning and can not be used in place of "fair market value" (Sec. 55A). Scope of reference u/s.55A vis-a-vis section 50C of I.T. Act. - for the purposes of the computation of capital gain u/s. 48, a reference can be made to DVO only in a situation as prescribed u/s. 50C of the Act. and not otherwise. Section 142A - "Estimate by Valuation Officer in certain cases" - In this section as well there is no power vest with AO to seek the help of Valuation Officer in respect of determination of capital gain prescribed u/s.48 of the Act. The expression "full value of sale consideration" is not the same as "fair market value" as appearing in section 55A. Action of CIT for substituting the full value of consideration disclosed by the assessee with the fair market value is not sustainable. - IT Appeal NO. 3677 (DELHI) OF 2011 - - - Dated:- 30-3-2012 - RAJPAL YADAV, K.D. RANJAN, JJ. ORDER Rajpal Yadav, Judicial Member The assessee is in appeal before us against the order of Learned Commissioner dated 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00. Assessing Officer after considering the recommendations of the special auditor referred the matter to the Valuation Officer on 16.3.2011. The V.O. has submitted his report on 19.4.2011 wherein he has determined the fair market value of the property at Rs. 12,78,79,481. Assessing Officer has computed the capital gain by adopting this value instead of sales consideration shown by the assessee at Rs.11.70 crores. 3. Learned Commissioner on an analysis of this record, formed an opinion that the valuation officer determined the fair market value of the property after taking into consideration the sales instances of Dwarka, whereas auction of similar type of property had been carried out by the DDA in Vasant Kunj itself. According to the Learned Commissioner, DDA auctioned a comparable plot of land in Vasant Kunj on 17.1.2007. This plot is almost similar to that of the assessee. He discussed the similarity of both the plots and the price at which plot at Vasant Kunj was auctioned. The auction had taken place on 17.1.2007, plot area is of 2885 sq. mtr. The permissible FAR is 4688. The rate at which this plot was sold is Rs.02,70,950. Learned Commissioner formed an opinion that ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar shall, save as otherwise provided in sections 54, 54B, 54D, 54E etc. be chargeable to income-tax under the head "capital gains" and shall be deemed to be the income of the previous year in which the transfer took place. He further pointed out that section 48 of the Act provides the mode of computation and it states that the income chargeable under the head "capital gain" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital assets, the amounts, namely (a) expenditure incurred wholly and exclusively in connection with such transfer; (b) the cost of acquisition of the assets and the cost of any improvement thereto. He emphasized that this section contemplates expression "full value of the consideration". This full value cannot be substituted by fair market value. There is no provision for such substitution as suggested by the Learned Commissioner in the impugned order. In support of his contentions, he relied upon the decision of the Hon'ble Supreme Court in the case of KP Verghese v. ITO reported in 131 ITR 597. He further relied upon the decision of Hon'ble Delhi High Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not deviate from estimate made by the V.O. therefore, there is no apparent error in the order of the Assessing Officer which authorized the Learned Commissioner to take cognizance under sec. 263 of the Act. 5. In his next fold of submissions, he pointed out that assessment order cannot be termed as erroneous for not taking action which he was not empowered to do so in law. According to the learned counsel for the assessee, the Assessing Officer adopted the rates mentioned in the report. He was not supposed to deviate from the report and further took into consideration the sale deed of adjoining plot. He further pointed out that Assessing Officer has acted in accordance with law. His order cannot be termed as erroneous, therefore, no action under sec. 263 is permissible. For buttressing his contentions, he relied upon the order of the Special Bench of the ITAT in the case of Simbhaoli Industries Ltd. v. DCIT reported in 78 ITD 161. He also relied upon the decision of Hon'ble Rajasthan High Court in the case of Rajasthan Spinning Weaving Mills v. DCIT reported in 281 ITR 177. 6. Learned DR on the other hand submitted that the expression "full value of considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous. ( iv ) If the order is passed without application of mind, such order will fall under the category of erroneous order. ( v ) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the A.O has adopted one of the courses permissible under law or where two views are possible and the A.O has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the A.O is unsustainable under law. ( vi ) If while making the assessment, the A.O examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s. 263 is not permitted to substitute his estimate of income in place of the income estimated by the A.O. ( vii ) The A.O exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. ( viii ) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he light of above proposition, let us examine the facts of the present case. Section 263 of the Income-tax Act, 1961 contemplates that the Learned Commissioner may call for and examine the record of any proceedings under this Act, and if, he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving an opportunity of hearing to the assessee and after making an inquiry pass such order thereon as the circumstances of the case justify. He may enhance the assessment order by modifying it, he may cancel it and he may direct a fresh inquiry. In the present case, Learned Commissioner has modified the assessment order by enhancing the capital gain disclosed by the assessee. Learned V.O. failed to take cognizance of a similarly situated sales instances which were available to him at the time of determining the fair market value. The auction at Vasant Kunj is prior to the sales effected by the assessee, therefore, to the extent that he failed to take cognizance of a similarly situated sales instances, the report of the V.O. can be termed as an erroneous one which has been effected in the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer took place. This action provides certain conditions if those are adhere to by an assessee then such gain would be exempt from tax. These conditions are provided in sections 54, 54B, 54D and 54E etc. In those clauses a mechanism has been provided for utilization of the capital gain and further investment. These are not relevant for the controversy in hands. Thereafter, section 48 provides mode of computation and it suggests that from full value of the consideration, the expenditure enumerated in clause (i) and (ii) would be deducted. This section talks of full value of consideration. Section 50C is a special provision which creates a deeming fiction, where full value of consideration can be substituted by an amount which has been adopted as a value of the capital assets for the purpose of making payment of stamp duty as determined by the stamp valuation authority. In the present case, the assessee has shown the full value of consideration more than this stamp duty valuation, therefore, this section is also not very relevant. The case of the revenue is that it wants to replace the full value of consideration provided in section 48 with the fair market value. This aspect has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mention that section 52, as it stood before its omission, has used two phraseology, one was "fair market value" and the other was "full value of consideration". In that section it was very much clear that where a person transfer a capital asset with the object to avoid or reduce the liability u/s. 45 then the full value of consideration for the transfer shall be substituted by the Fair market value of the capital asset as determined by the A.O. After its deletion, there is no such wordings in any of the sections relevant for the said purpose. We shall take up right now hereinbelow those applicable provisions, through which the fair market value can take place the full value of the consideration. The reason for this discussion is the apprehension expressed by Ld. D.R. Mr. Madhusudan but his apprehension cannot be answered by this forum and we have to confine ourselves within the ambits of the provisions of the I. T. Act as applicable on the present facts and circumstances of this case. 9.2 Now, we shall deal with the provisions of section 55A of the I. T. Act, as contested by Mr. Madhusudan before us. The language of the section reads as follows:- Section 55A. "With a view to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t portion is reproduced . Section 48 Mode of computation. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- ( i ) expenditure incurred wholly and exclusively in connection with such transfer; ( ii ) the cost of acquisition of the asset and the cost of any improvement thereto: 11. In this context the Ld., A.R. Mr. Shah has further explained that in section 45 at some places the term "fair market value" has been mentioned for e.g. section 45(4) of I. T. Act, but that mention is for the specific purpose of determining the value of distribution of capital asset on the dissolution of a firm. Then he has quoted section 45(2) which is with a specific purpose of transfer by way of conversion of a personal capital asset into the stock in trade. Mr. Shah has also pointed out that in section 45(1A), as well, there is a mention of fair market value but it is in respect of profits and gains to be received from an insurer on account of damage or destruction due to natural calamity, flood, earthquake etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such cases as covered by section 45(4) or section 45(1A) that the provisions of section 55A can be invoked." ** ** ** "Held, dismissing the appeal, that the full value of the consideration was the sale price of the two properties sold by the assessee. In such a case, there was no necessity for computing the fair market value. Thus, the Assessing Officer could not have referred the matter to the Valuation Officers." 12. On careful reading of the above judgement of Hon'ble Delhi High Court it emerges that the area of operation of Section 55A of the Act is "to ascertain the fair market value of a capital asset". Since section 48 of the Act through which capital gain is computed prescribe to compute the gain on the "full value of the consideration received or accruing as a result of the transfer". Therefore, section 55A cannot give any assistance to compute the capital gain u/s.48 of the I.T. Act. In our humble understanding the expression "full value of consideration" (Sec. 48 ) does not have the same meaning and can not be used in place of "fair market value" (Sec. 55A). To elaborate this point, section 48 do not prescribe that the capital gain i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue so adopted by the stamp valuation authority be deemed to be the full value of the consideration received as a result of such transfer. Meaning thereby the substitution of full value of consideration is possible, if the disclosed consideration is less than the value determined for payment of stamp duty. It has also been prescribed that where the assessee claims that the value adopted by the stamp valuation authority exceeds their fair market value or the value so adopted by the stamp valuation authority is not decided by any other Court or High Court, then the AO may refer the valuation of the capital asset to a Valuation Officer u/s. 55A of I.T. Act. Therefore the conclusion is that the Act has prescribed that a reference u/s. 55A can be made for a limited purpose as prescribed u/s. 50C of the I.T. Act. Wherever the legislature considered it proper, a provision for reference to DVO has been prescribed in the Statute, but reference u/s. 55A is not prescribed to be applied in each such case merely on the sweet will of the AO. We can, therefore, hold that if a reference can be made to ascertain the fair market value of a property, then wherever this phrase i.e. "to determine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "fair market value" is defined that the value is to be determined in respect of the properties in accordance with the method as prescribed under Rule 11U and 11UA of the I.T. Rules, 1962. Rule 11UA is in respect of determination of fair market value for the purposes of section 56 of the property, such as, valuation of jewellery, valuation of archaeological collection, drawings, paintings, valuation of shares and securities, fair market value of unquoted equity shares and securities, etc. Therefore, the area operation of section 142A is limited in its range and confined to the provisions of section 69, etc. and section 56(2) of I.T. Act. A conclusion therefore can be drawn and it is significant to mention that while inserting a clause of valuation for the properties prescribed u/s.56(2), the legislature had in its wisdom thought it proper not to include any other kind of property within the scope of valuation as per section 142A of the Act. Hence, again a conclusion can be drawn that even the provisions of section 142A of the Act, do not subscribe to substitute the full value of consideration for the purpose of capital gain u/s.48 of the Act. 15. Before we part with, we may like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, out of the scope of Valuation made u/s.55A because capital gain is to be taxed on the amount of consideration received on transfer of asset. We hereby also opine that having regard to the nature of the asset, if the AO is of the opinion, that valuation of the capital asset is required, but such reference can be made only to ascertain the fair market value, therefore, the applicability of section 55A(b)(ii) is also limited one. We have read section 50C alongwith these connected sections and then arrived at a conclusion that the AO is empowered to refer for valuation of a capital asset under specific circumstances as prescribed under this section provision of section 50C where he has found that the consideration received is less than the stamp duty. Whereas in the present appeal there is a finding on facts that the consideration is not less than the stamp duty. Admitted factual position is that the "Jantri' rate as per the 'Stamp Duty Authority' was at Rs. 4,500/- and Rs.7,000/- per sq.meter respectively for the Plot Nos. 161/1 181/1; whereas the assessee had sold them @ Rs. 41,860/- per sq.mtr. Therefore we hereby hold that the AO was not empowered to refer to DVO because ..... X X X X Extracts X X X X X X X X Extracts X X X X
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