TaxTMI 
TaxTMI 
2019 (4) TMI 756
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.... Rs. 6,81,900 as against their written down value (WDV) at Rs. 37,66,907, i.e., per its' return of income filed on 30.9.2008 at a loss of Rs. 36,57,392. To verify the adequacy of the sale consideration - the assets having been sold to a sister concern, M/s. Horizon Polymers ('HP'), with reference to the fair market value (fmv) of the capital assets sold, the matter was referred by the AO to the Valuation Officer (VO) u/s. 55A of the Act. The scope of reference was later enhanced to include all the assets sold, all of which fell under the broad category of 'plant and machinery', viz. moulds and dies, generator, electrical installation and fittings, etc. (i.e., instead of only that accounted for under the account head 'plant and machinery'). The VO valued the fmv of the assets sold at Rs. 122.16 lacs, adopting which the short-term capital again (STCG) was computed at Rs. 76,02,134, i.e., after reducing WDV of the relevant assets, in terms of section 50 of the Act. The assessee raised several issues in appeal, which though did not find favour with the ld. CIT(A) who, however, allowing for some infirmities in the valuation report, estimated the sale consideration at 50% of the fmv arri....
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....erused the material on record. 4.1 Section 48 delineates the mode of computation of capital gains in general. Section 50 prescribes the manner of said computation - modifying section 48 to that extent, in case of depreciable assets, i.e., in respect of which depreciation has been claimed and allowed, as the plant and machinery transferred in the instant case. Both the sections state of the full value of the consideration received or accruing as a result of transfer as the amount, and not the fmv, which is to be taken into account. This stands, further, abundantly clarified by the Apex Court per its' decisions in CIT v. Gillanders Arbuthnot & Co. [1973] 87 ITR 407 (SC) and CIT v. George Henderson & Co. Ltd. [1967] 66 ITR 622 (SC). 4.2 The question arising is whether the stated consideration could be altered in the given facts and circumstances of the case, i.e., in terms of the law as explained by the higher courts of law. This is as only where it is so that the fmv, or any value based thereon, as the ld. CIT(A) adopts (at 50% thereof), would be relevant. True, the fmv is not necessarily the full value of the consideration received or accruing on the transfer of a capital a....
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....ually arrived at between the parties to the transaction. If therefore it is found that the price actually arrived upon between the parties is not the price reflected in the document, it is the price bargained for by the parties to sale that must be considered for determining the capital gain under section 48. The Supreme Court did not hold that inferences cannot be drawn by the Assessing Officer from the facts established. In fact in paragraph-5 the Supreme Court observed that there was no inferential finding that the shares were sold at the market price of Rs. 620/- per share. This read with the operative part of the order in paragraph-6 remanding the matter to record a finding as to the actual price received makes it clear that the finding can be based on inferences as well. In paragraph-6 the assessee is given an opportunity to explain the unusual nature of the transaction. It cannot be suggested that even if there was no explanation by the assessee, the Assessing Officer was bound not to draw an adverse inference. 17. Even on principle we see no reason to denude the Assessing Officer the right to draw an inference especially an irresistible inference. Take for....
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....adopt the fmv (or any other value for that matter) as the consideration that has, in the facts and circumstances of the case, passed, or can be said to have passed, between the parties. Why, the Apex Court in ALA Firm v. CIT [1991] 189 ITR 285 (SC), also referred during hearing, clarified that the partners in a firm, being men of commerce, would, upon dissolution of the firm, and therefore can only be regarded as having valued the firms' assets, for the purpose of adjustment of their rights and liabilities inter se, at the fmv of those assets. Though the issue in that case arose principally in the context of closing stock, a trading asset, the same, it must be appreciated, for the partners distributing the assets of a firm being wound up, it is only an asset, representing a value, that could be realized in the market, i.e., in the nature of a capital asset. What holds good for the partners, must, equally, hold for sister concerns as well. Further, an adverse inference could be drawn in the absence of the assessee furnishing any explanation for the low consideration. It went on to say that if what was being suggested (in Nilofer I. Singh (supra)) was that the AO was bound by the sta....
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....eree, may well be substantially different, making the case akin to that of the partners of a firm being dissolved; the transferor company also, as stated by the ld. counsel, Sh. Bhasin, being wound up. Again, it could be a device to transfer assets at a lower cost. No such exercise, however, has been done by the Revenue. Further, the assessee has brought forward claims of losses and unabsorbed depreciation; the assessment of impugned capital gains yet resulting in a taxable income of only Rs. 2.21 lacs. The incentive, under the circumstances, would be to state the WDV, if not a higher sum, as the consideration, with a view to absorb the brought forward loss/claim, i.e., without attracting tax, as well as for the sister concern (HP) to claim depreciation at a higher amount, i.e., at its' cost. There is, thus, on the contrary, at least on record, nothing to doubt the stated consideration as being inflated or declared at the stated sum with some ulterior motive. In other words, the genuineness of the transaction, i.e., with reference to the consideration stated, is, at least prima facie, not in doubt, which is the only exception where the stated consideration could be substituted b....
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.... In my view, in the given facts and circumstances of the case, and in view of the findings at para 4.3 of this order, which though may be regarded as preliminary, the Revenue shall first have to show that the assessee has derived a tax advantage by stating a lower value as the sale consideration. If, as stated, the capital loss claimed has not been set off against income, resulting in tax saving, which may be in a subsequent year/s, the matter should rest at that; the loss being academic. This is also agrees with the decision in Quark Media House India Pvt. Ltd. (supra) in-as-much as the avoidance of tax on capital gains by stating an incorrect value is the premise on which the said value is regarded as not acceptable. The tax advantage, if any, arising to the transferee, however, would also have to be taken into account as the transaction is one and the parties related, so that it could be a device set up to avoid tax, the onus to show which, though, is on the Revenue. If and to the extent, it is not so, and the assessee has indeed saved on the tax on account of the returned capital loss, or where the transaction, considered as a whole, results in a tax advantage with reference to....