2012 (2) TMI 7 - HC - Income Tax

Composite sale - Capital Gains - Allocation of sale value towards land and the factory building composite sale of Rs 17. 50 lacs reference made to Departmental Valuation Officer on direction of Tribunal DVO bifurcated sales and estimated sale consideration to be 21.42 lacs A.O. computed capital gain taking sale consideration to be Rs 21.42 lacs and not Rs 17.50 lacs Held that - D.V.O. and A.O. was not required and permitted by the said order to examine the total sale consideration as the appellant in the present case had applied under Chapter XXC and the appropriate authority had accepted the sale consideration mentioned by the appellant. The sale consideration and the quantum thereof was never in question and need not be re-examined. Thus, the enhancement made by the A.O. was not justified and as per law Decided in favor of assessee.

Summary

Issues:
1. Interpretation of Section 260A of the Income Tax Act, 1961
2. Re-examination and re-computation of sale consideration for property transfer
3. Application of Section 50 of the Act for depreciable assets
4. Validity of Departmental Valuation Officer's report

Issue 1: Interpretation of Section 260A of the Income Tax Act, 1961
The appellant filed an appeal under Section 260A of the Income Tax Act against the Tribunal's order pertaining to the assessment year 1994-95. The substantial question of law framed was whether the Assessing Officer had the right to re-examine and re-compute the sale consideration received for the property transfer. The High Court proceeded to hear the arguments with the consent of the parties.

Issue 2: Re-examination and re-computation of sale consideration for property transfer
The case involved the sale of a property consisting of land and a factory building. Various rounds of litigation occurred, leading to the assessment of long-term capital gains. The Assessing Officer initially computed the taxable amount, disallowed business losses, and made additional adjustments. Subsequent appeals and orders by the CIT (Appeals) and the Tribunal resulted in directions to re-examine the allocation of sale value between the land and building. The Departmental Valuation Officer's report valued the land and building, leading to an increase in the sale consideration from Rs. 17,50,000 to Rs. 21,42,502. However, the High Court found this enhancement unjustified as the original sale consideration was accepted by the appropriate authority under Chapter XXC.

Issue 3: Application of Section 50 of the Act for depreciable assets
The appellant had questioned the computation of long-term capital gains, arguing that Section 50 of the Act should have been applied for depreciable assets. The Tribunal directed a re-examination of the allocation of sale value between the land and building, emphasizing the need for a valuation report from a specialist valuer. The Departmental Valuation Officer's report was accepted, leading to an increase in the sale consideration.

Issue 4: Validity of Departmental Valuation Officer's report
The Departmental Valuation Officer's report played a crucial role in determining the revised sale consideration. However, the High Court found that the Officer's valuation and the subsequent increase in sale consideration were not justified under the law. The Court highlighted that the original sale consideration accepted under Chapter XXC was not in question, and the enhancement made by the Assessing Officer was deemed unwarranted.

In conclusion, the High Court ruled in favor of the appellant, stating that the enhancement of the sale consideration was not justified. The appeal was allowed, and no costs were imposed.