Capital gains must be computed under the statute; gross sale proceeds cannot be taxed without lawful cost and valuation adjustments.

Capital gains on transfer of the two industrial units had to be computed under the integrated scheme of sections 45, 48 and 55, so gross sale proceeds could not be taxed without allowing permissible deductions and valuation adjustments. Where the assets were acquired before 01.04.2001, the assessee was entitled to adopt fair market value on that date as cost of acquisition under section 55(2)(b), and approved valuer reports could not be rejected without contrary material or technical defect. The claim for transfer premium paid to MIDC also required factual verification. The computation issues were set aside and the matter restored for fresh assessment and recomputation.

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Issues: (i) whether the entire sale consideration on transfer of the two industrial units could be taxed as long-term capital gain without applying the statutory computation mechanism; (ii) whether the assessee was entitled to substitute the fair market value as on 01.04.2001 as the cost of acquisition under section 55(2)(b) and rely on the approved valuer's reports; (iii) whether the claim for transfer premium paid to MIDC required fresh examination.

Issue (i): whether the entire sale consideration on transfer of the two industrial units could be taxed as long-term capital gain without applying the statutory computation mechanism

Analysis: The sale consideration was brought to tax in full without granting any deduction towards actual cost, indexed cost, fair market value substitution, or transfer-related expenditure. The computation provisions under sections 45, 48 and 55 form an integrated scheme, and capital gains can be assessed only by applying that scheme.

Conclusion: The gross sale proceeds could not be treated as capital gain without proper computation under the Act, and the assessment approach was unsustainable.

Issue (ii): whether the assessee was entitled to substitute the fair market value as on 01.04.2001 as the cost of acquisition under section 55(2)(b) and rely on the approved valuer's reports

Analysis: Both units were acquired before 01.04.2001, so the statute conferred the right to adopt fair market value as on that date. The valuation reports were contemporaneous with the appellate stage, and no contrary valuation material, departmental valuation reference, or technical defect in the reports was shown. The appellate stage is meant to determine the correct tax liability and not to perpetuate an incorrect computation merely because the evidence emerged shortly after assessment.

Conclusion: The claim under section 55(2)(b) could not be rejected on the grounds adopted below and required fresh examination on merits.

Issue (iii): whether the claim for transfer premium paid to MIDC required fresh examination

Analysis: The premium appeared connected with the transfer of leasehold rights and was part of the computation of capital gains. The issue was factual and had not been meaningfully verified on the record.

Conclusion: The claim required reconsideration and verification in the remand proceedings.

Final Conclusion: The orders below were set aside on the computation issues, and the matter was restored to the Assessing Officer for fresh adjudication and recomputation of capital gains in accordance with law.

Ratio Decidendi: Capital gains must be computed only by applying the statutory mechanism under sections 45, 48 and 55, and gross sale consideration cannot be taxed as capital gain without giving effect to legally permissible cost and valuation adjustments.

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