TaxTMI 
TaxTMI 
2011 (4) TMI 868
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....s of the opinion that fair market value of assets exceeds the value shown having regards to the fact and circumstances of the case. 2. The Ld. CIT(A) erred in law in not disposing the appeal on facts and merits of the case by questioning the reference made to the DVO under section 55A of the I.T. Act. 3. The Ld. CIT(A) erred in law and on facts in deleting the addition of Rs. 62,34,459 made by the Assessing Officer. A. Facts in Brief 2. During the course of assessment proceedings it was noticed by the Assessing Officer that the assessee had shown long term capital gain on sale of land situated at Vejalpur. In respect of the Two plots bearing numbers 181/1 & 161/1 situated at T. P. Scheme, Vejalpur there was a common sale deed executed along with other co-owners. Assessee's share in the sale price was at Rs. 10,47,19,391 and the capital gain was shown at Rs. 10,32,32,367. The A.O. has observed "considering the area of property etc., the same was referred to the Departmental Valuation Unit i.e. DVO." A valuation report was obtained dated 26-12-2008 according to which the valuation was made at Rs. 66,13,74,000. As against that the tot....
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....tment in the Notified Three year bonds (section 54EC) Rs. 10,32,32,367 Taxable LTCG from land : Rs. 62,34,459 Total income assessed included LTCG (Agricultural income Rs. 5,000For rate purpose)" Rs B. Observation of First Appellate Authority :- 3. The matter was carried before the First Appellate Authority. The Ld. CIT(A) had made the opening remarks vide para-2 of the judgment that the two plots have been sold and the assessee happened to be one of the co-owners of the property. He had affirmed that the 'jantri rate' adopted by 'stamp duty authority' was at Rs. 4,500 and Rs. 7,000 per sq. mtr. for plot No.161/1 and 181/1 respectively. The Ld. CIT(A) has mentioned that as against that the sale consideration shown by the assessee was at Rs. 41,860 per sq. mtr. Thereafter, the Ld. CIT (A) has mentioned that the matter was referred before the DVO who has worked out the "fair market value "at Rs. 45,000 per sq. mtr. Before Ld. CIT (A) assessee has furnished written submissions and in those submissions firstly it was contested that there was no scope for invocation of the provision of section 50C of the I.T. Act. In the ....
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....4. The estimates the price at Rs. 45,000 per sq.mtr. There cannot be double rise in one year. The DVO does not give any reasons for estimating at Rs. 45,000 therefore the DVO's estimate is on very high side." 5. A query has also been raised that whether AO can made reference under section 55A by Ld. CIT(A). In this regard it was explained from the side of the assessee that in case of a transfer taking place w.e.f. 1-4-2003 by insertion of section 50C by Finance Act, 2002 from A.Y. 2003-04, then only section 50C is the governing section and that was to be applied. It has also been argued that after the insertion of section 50C the applicability of section 55A had become redundant. Alternatively, it was contested that section 55A can be applied if the difference is more than the percentage prescribed under Rule 111AA. It was reiterated that if a reference is made under section 55A and a Valuation report is obtained by the AO, even then the value cannot be substituted because of the omission of section 52 from the I.T. Act, w.e.f. 1-4-1998 (Finance Act,1987). Few case laws cited were in the case of Jitendra Mohan Saxena v. ITO [2008] 117 TTJ (Luck.) 974 and in the case of Punjab Po....
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....set and other relevant circumstances, if it is necessary so to do it a view to ascertain the fair market value of the capital asset for the purposes of this chapter, the A.O. may refer the valuation of capital asset to a valuation officer. The AO had thought it proper, considering the nature of asset and the circumstances of the case, to make the reference to DVO which was wrongly held illegal by Ld. CIT(A). His second limb of argument was that Ld. CIT(A) had decided the appeal under wrong presumption that the A.O. had made the assessment considering the provisions of section 50C of I.T. Act. The order of Ld. CIT(A) was erroneous because the A.O. has not at all discussed the provisions of section 50C of I.T. Act, nor he had referred for valuation under section 50C(2) of I.T. Act, pleaded by Ld. D.R. The Ld. D.R. has also placed before us a short submission in writing, relevant paras reproduced: "2. It may be noted here that, reference to DVO can be made under sections 142A, 55A and 50C for the purposes and assessment under the sections mentioned therein. Here in this case the Assessing Officer made reference under section 55A 'considering the area of the property etc.' as clearl....
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....ated that in-spite of the fact that there are two other sections under which a reference can be made to DVO as per section 142A and section 50C of I.T. Act, but those sections are meant for specific purpose but 55A(b) is wider in its scope to determine fair market value of a capital asset, if it is under-stated by the assessee. D. Assessee's Arguments :- 8. From the side of the respondent-assessee Ld. A.R. Mr. A.C. Shah is equally vehement in opposing the arguments of Ld. D.R. His opening remark was that though the A.O. has not specifically mentioned section 50C of I.T. Act, but likewise he has not even mentioned section 55A of I.T. Act in the body of assessment order. Mr. Shah has also argued that the scope of reference to DVO in either of three sections is limited and the statute has prescribed a limited purpose for which a reference can be made to DVO. The Ld. A.R. has also remarked that considering the difficulty of the tax payers and the hardship experienced due to the arbitrary powers given by section 52 of I.T. Act, the same was deleted by the Hon'ble Parliament. Ld. A.R. has also pointed out that section 55A only speaks about 'fair market value' but on th....
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.... if in his opinion the consideration for such transfer was under-stated. It was very wide and effective section through which the A.O. used to make reference to DVO to ascertain the fair market value of the property. This section was considered to be arbitrary in nature, hence it was omitted from the statute by the Finance Act, 1987 w.e.f. 1-4-1988. In the wisdom of Hon'ble Parliament if a section is no more in the statute then naturally the intention of the constitutional body has to be followed and respected. It is worth to 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 under section 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 ta....
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....45 which prescribes that any profits and gains shall be chargeable to Income-tax under the head capital gains for the purpose of section 48. For the purposes of section 48, whatsoever, either value of any money or the fair market value of the asset on the date of such receipt shall be deemed to be full value of the consideration received or accruing as a result of transfer of such asset. However, section 48 prescribed that for the purposes of the computation of capital gain the full value of consideration, has to be taken into account. This section does not refer the fair market value for the purposes of charging capital gain. For the sake of ready reference relevant 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.....
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....duction, whatsoever, and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor does it have any necessary reference to the market value of the capital asset which is the subject matter of the transfer. The full value of consideration does not have any reference to the market value but only to the consideration referred to in the sale deeds as the sale price of the assets which have been transferred. The reference to a Valuation Officer under section 55A is for the object of ascertaining the fair market value of a capital asset. It is only when the Assessing Officer is required to ascertain the fair market value of a capital asset in 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 judgment of Hon'ble Delhi High Court it emerges that the area of operation of se....
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....ed to disturb the sale price with the fair market value. 13. Scope of reference under section 55A vis-a-vis section 50C of I.T. Act. As discussed hereinabove section 50C of the Act is titled as "Special provision for full value of consideration in certain cases". Meaning thereby this section is not applicable to each and every case of sale but this is to be applied in respect of those sales instances where consideration received is less than the value adopted by the stamp valuation authority for the purpose of payment of stamp duty in respect of such transfer. In that situation, for the purpose of section 48 of the Act i.e. computation of capital gain, value 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 ....
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....inserted by the Finance Act, 2010 which says, quote, "of fair market value of any property referred to in sub-section (2) of section 56", unquote. By the insertion of this clause, the scope of valuation under section 142A has been enlarged by including the property referred in section 56(2) to determine its fair market value section 56(2) is in respect of certain assets, the income from which is subject to tax under section 56 i.e. under the head "Income from other sources". The fair market value of the properties which generate dividend income, interest income, hiring income, etc. can now be determined by the DVO. To remove any doubt vide an Explanation annexed to section 56(2), " 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 ar....
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....on in respect of distribution of capital asset on the dissolution of a firm. Certain specific instances have been prescribed under the Act and only under those circumstances the fair market value can be substituted with the amount of full value of consideration. But as per above discussion, there is no such clause of substitution while computing the capital gain under section 48 of the Act and the gain has to be computed on the basis of the "full value of the consideration". We have also arrived at a conclusion that a reference to Valuation Officer under section 55A of the Act can be made to ascertain the fair market value of a capital asset. We have also concluded that section 48 is, therefore, out of the scope of Valuation made under section 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 sec....