Capital loss valuation must be supported by reliable evidence; land valuation was remitted, but share-sale loss relief was upheld.

Where the fair market value adopted for land as on 1.4.1981 was challenged, the Tribunal held that the valuation required closer scrutiny because the report was not shown to be from a registered valuer at the relevant stage and appeared to rest on unreliable extrapolation; the matter was remitted for fresh valuation with departmental assistance. For unlisted shares, the Net Asset Value method was a recognised basis, and in the absence of material showing sham, understatement, or non-genuine sale, the deletion of disallowance of short-term and long-term capital loss was upheld.

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Issues: (i) Whether the disallowance of long-term capital loss on sale of land was sustainable in view of the valuation adopted as on 1.4.1981. (ii) Whether the deletion of disallowance of short-term capital loss and long-term capital loss on sale of shares was justified.

Issue (i): Whether the disallowance of long-term capital loss on sale of land was sustainable in view of the valuation adopted as on 1.4.1981.

Analysis: The assessee had adopted fair market value as on 1.4.1981 for computing capital loss on land sold to a group concern. The valuation report was challenged on the ground that it was not shown to be from a registered valuer at the relevant stage and that the method used was unreliable, as it was based on backward extrapolation from later stamp duty rates without comparable sale instances. The surrounding circumstances, including the large book profit and the nature of the transaction, indicated that the valuation required closer scrutiny. The existing valuation could not be accepted as sacrosanct, and the matter needed fresh examination with departmental valuation assistance.

Conclusion: The issue was remitted to the Assessing Officer for fresh adjudication after obtaining a valuation report from the departmental valuer; the Revenue succeeded on this issue.

Issue (ii): Whether the deletion of disallowance of short-term capital loss and long-term capital loss on sale of shares was justified.

Analysis: The shares were unlisted, and the Net Asset Value method was a recognised valuation method under the income-tax rules. On the material before the Assessing Officer, the NAV was negative, and the assessee had sold the shares at Rs. 1 per share, which was above the NAV. No material was brought to show that the sale was sham, non-genuine, or that the price was understated. The commercial explanation for sale within the group was accepted, and the record did not justify treating the loss claim as fictitious.

Conclusion: The deletion of disallowance was upheld and the assessee succeeded on this issue.

Final Conclusion: The Revenue appeal succeeded only in part, with the land valuation issue restored for fresh determination while the relief granted on the share-sale loss claims was sustained.

Ratio Decidendi: Where the genuineness of a capital gains valuation is doubtful on surrounding circumstances, the valuation report may be rejected and the matter remitted for fresh valuation, but a recognised valuation method applied to unlisted shares cannot be disturbed without contrary material showing understatement or sham transaction.

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