2019 (6) TMI 469 - AT - Income Tax

Tribunal decision on capital losses: Appeal partly allowed, land sale remitted, share sale disallowance upheld

DCIT-1 (1) (2), Mumbai Versus M/s. Hardcastle & Waud Manufacturing Co. Ltd.

The Tribunal partly allowed the appeal by the Revenue. The issue of long-term capital loss on the sale of land was remitted back to the AO for fresh ... Disallowance of Long Term Capital Loss - sale of land at Kalyan - correctness of FMV as on 1.4.1981 adopted for computing the Long Term Capital Loss - HELD THAT:- Valuation has not been obtained from a registered valuer. In this view of the matter, entire premise of learned CIT(A) that valuation has been done by the registered valuer and hence its veracity cannot be doubted, is found to be untenable at the threshold. However, assessee has subsequently furnished a letter from the said valuer claiming be is a registered valuer. Admittedly this is an additional evidence. Furthermore, valuer has adopted a bizarre method. The valuer has taken the stamp value rate of year 2012 and worked its backward @ 10% growth rate to obtain fair market value at 1.9.1981. In our considered opinion this is not at all an acceptable method. This submission of valuation report by unregistered valuer later on claiming to be a registered valuer without any sale instances of the period has to be looked into by taking into account the surrounding circumstances. The assessee has duly booked huge profit on the transaction in its books of account. The transaction has been done to group concern to whom land was already leased out. CIT(A)’s acceptance of the said valuer’s report as sacrosanct despite the papable lack of veracity of the valuer or method of valuation is not at all sustainable. The lack of cogency of the valuation report is further highlighted by the huge difference found by the AO when compared to data noted from website of Megabricks. The surrounding circumstances couple with these information clearly indicate towards of lack of veracity in said valuer’s determination - the issue needs to be remitted to the file of the Assessing Officer. The Assessing Officer is directed to consider the issue afresh after obtaining valuation report from the departmental valuer. Needles to add assessee should be provided adequate opportunity of being heard. Bogus short term capital loss and long term capital loss on sale of shares - Assessee has got higher price than the NAV of such share - HELD THAT:- We find that the Assessing Officer has no material whatsoever with him to conclude that transactions of sale are not genuine or that the price based on the sale is understated rather he has not at all doubted the fact that net asset of the company was negative and NAV was minus ₹ 3.18/-. The findings of CIT(A) and case laws relied upon by him are flawless and duly support the case of the assessee. Hence, we do not find any infirmity in the order of learned CIT(A) and accordingly we uphold the same - Decided in favour of assessee. Issues Involved:1. Deletion of disallowance of Long Term Capital Loss on sale of land at Kalyan.2. Deletion of disallowance of Short Term Capital Loss and Long Term Capital Loss on sale of shares of Global Trendz Ltd.Issue-wise Detailed Analysis:1. Deletion of disallowance of Long Term Capital Loss on sale of land at Kalyan:The primary issue revolves around the correctness of the Fair Market Value (FMV) as on 1.4.1981 adopted by the assessee for computing the Long Term Capital Loss on the sale of land at Kalyan. The Assessing Officer (AO) found the valuation report submitted by the assessee to be unreliable. The valuer, M/s. Anmol Sekhari Consultants Pvt. Ltd., admitted that no published ready reckoner rates were available for Kalyan for the year 1981, and the valuation was based on back-calculating from 2012 rates using an average growth rate of 10% per annum. The AO rejected this valuation, deeming it fabricated and not at arm's length, especially since the land was sold to an associated party.The CIT-A, however, found the methodology adopted by the valuer to be correct and noted that the AO had not pointed out any specific defect. The CIT-A also dismissed the AO's reliance on a private website (Megabricks) for current land prices, as it was not recognized by the government. The CIT-A allowed the long-term capital loss claimed by the assessee.Upon appeal, the Tribunal noted that the valuation report was not initially prepared by a registered valuer, which undermined the CIT-A's acceptance of the report. The Tribunal found the method of valuation (back-calculating from 2012 rates) to be unacceptable. The Tribunal remitted the issue back to the AO for fresh consideration, directing the AO to obtain a valuation report from a departmental valuer and provide the assessee with an opportunity to be heard.2. Deletion of disallowance of Short Term Capital Loss and Long Term Capital Loss on sale of shares of Global Trendz Ltd:The AO disallowed the capital losses on the sale of shares of Global Trendz Ltd. (GTL), as the shares were sold to group companies at Rs. 1 per share, despite the Net Asset Value (NAV) being negative (-Rs. 3.18 per share). The AO considered the transaction not at arm's length and a colorable device to reduce tax liability.The CIT-A found that the NAV method is a recognized method of valuation and that the assessee had sold the shares at a price higher than the NAV. The CIT-A justified the sale to group companies to maintain control within the group and referred to case laws supporting the legitimacy of such transactions.The Tribunal upheld the CIT-A's decision, noting that the AO had no material to conclude that the transactions were not genuine or that the sale price was understated. The Tribunal found the CIT-A's findings and reliance on case laws to be flawless, thereby confirming the deletion of the disallowance of the capital losses on the sale of shares.Conclusion:The appeal by the Revenue was partly allowed. The issue of long-term capital loss on the sale of land was remitted back to the AO for fresh consideration with a directive to obtain a valuation report from a departmental valuer. The deletion of disallowance of short-term and long-term capital losses on the sale of shares was upheld by the Tribunal.