TaxTMI 
TaxTMI 
1986 (4) TMI 111
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....e land and building transferred to the company. The ITO observed that a property which was acquired for Rs. 8 lacs in 1959 and which had been assessed at Rs. 13,51,000 in the asst. yr. 1967-68 could not be worth only Rs. 14 lacs, as on31st March, 1973. Having regard to this, the ITO held that the assessee had under-stated the sale price of this asset and the object of this understatement was avoidance of tax on capital gains on transfer. The ITO, therefore, proceeded to take the consideration at the fair market value as determined by the Valuation Officer. The assessee objected to him and in this connection referred to the decision of the Supreme Court in the case of K. P. Varghese vs. ITO (1981) 24 CTR (SC) 358 : (1981) 131 ITR 597 (SC). He held that the assessee had understated the consideration and further held that the transfer was made to a company which was closely connected with the assessee as its shareholders were the assessee and the members of this family. The ITO was of the view that provisions of s. 52(1) were attached, as there was direct or indirect relationship between the transferor and the transferee and there was material to show that the consideration had been u....
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....t case. He referred to the requirements of s. 52(1) which was the transfer to a closely connected person and understatement of the consideration for transfer. The CIT(A) was of the view that the provisions of this section do not discourage or avoid honest or bona fide transaction made out for good reasons. In this connection, a reference was made to the decision in the case of K. P. Verghese. He accepted the plea of the assessee that there was no material to show that the consideration which had been stated in sale-deed was an under-statement. He further pointed out that the limited company to which the transfer has been made is owned by the family of the assessee and there could not be any dispute that there was a direct connection between the transfer and the transferee. However, the question for consideration was whether the transfer at Rs. 14 lacs was with the object of avoidance or reduction of the liability of the assessee under s. 45 of the Act and whether the consideration declared was less than that was actually received. The CIT(A) further pointed out that as far as the understatement of consideration is concerned, the requirement in ss. 52(1) and 52(2) were not different....
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.... Thereafter the ITO got information such as valuation report and sale of comparable properties to the effect that the market value of the property on the date of sale was very much more than what was stated in the deed. On this information the ITO issued notice under s. 148 of the Act for the reopening of the assessment. On these facts, the High Court held that action could not have been taken under s. 147(a) but it was open to the Department to sustain the majority of the notice by reference to cl. (b) of s. 147 notwithstanding the fact that clause had not been specifically pleaded by the Department. However, the High Court further held that since the fair market value of the capital asset was not considered by the ITO at the time of the original assessment and, the ITO had computed the capital gains on the basis of the sale-price disclosed by the assessee and later on information was received regarding the market value of the asset at the time of sale, he had reason to believe the capital gains had escaped assessment and thus provisions of s. 147(b) were applicable. Their Lordships further observed that s. 52 was a specified provision which enables the ITO to ignore the sale pric....
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.... the value of the shares received by the assessee would be more than its face value and on the basis of the intrinsic value of the shares the consideration could be determined. The learned Counsel for the assessee, on the other hand, submitted that this was never the case of the ITO and he had merely proceeded on the basis of the market value of the land the building transferred. He also submitted that the company had come into existence only last year and its intrinsic value should not have gone up during the short period. 10. We have considered the facts of the case and the rival arguments. As regards the validity of the reopening of the assessment, the CIT(A) has mainly relied on the decision of the Delhi High Court in the case of Ganga Saran & Sons (HUF). It was on this basis that he held that though the reassessment proceedings could not be taken under s. 147(a), it could certainly justify under s. 147(b). For this purpose the valuation report giving the market value of the assets transferred was taken as the 'information'. We, however, find force in the submission of the ld. counsel for the assessee that after the decision of the Supreme Court in the case of K. P. Verghese....