2012 (7) TMI 121 - AT - Income Tax

Whether Commissioner is justified in substituting full value of consideration disclosed by the assessee on transfer of a capital asset with the fair market value validity of revisionary proceedings - V.O. failed to take cognizance of auction at Vasant Kunj is prior to the sales effected by the assessee - report of the V.O. can be termed as an erroneous one which has been effected in the assessment order and which resulted the assessment order as erroneous. The cognizance taken by the Learned Commissioner to that extent can be justified Amount of Rs. 33,47,66,257 directed to be substituted in place of Rs. 12,78,79,481 by the Learned Commissioner. This amount of Rs. 33,47,66,257 cannot be substituted. The appeal of the assessee is partly allowed. Area of operation of Section 55A of the Act is to ascertain the fair market value of a capital asset . Since section 48 of the Act through which capital gain is computed prescribe to compute the gain on the full value of the consideration received or accruing as a result of the transfer . Therefore, section 55A cannot give any assistance to compute the capital gain u/s.48 of the I.T. Act. - The expression full value of consideration (Sec. 48 ) does not have the same meaning and can not be used in place of fair market value (Sec. 55A). Scope of reference u/s.55A vis-a-vis section 50C of I.T. Act. - for the purposes of the computation of capital gain u/s. 48, a reference can be made to DVO only in a situation as prescribed u/s. 50C of the Act. and not otherwise. Section 142A - Estimate by Valuation Officer in certain cases - In this section as well there is no power vest with AO to seek the help of Valuation Officer in respect of determination of capital gain prescribed u/s.48 of the Act. The expression full value of sale consideration is not the same as fair market value as appearing in section 55A. Action of CIT for substituting the full value of consideration disclosed by the assessee with the fair market value is not sustainable.

Issues Involved:

1. Validity of the Commissioner's invocation of Section 263 of the Income-tax Act, 1961.
2. Determination of the full value of consideration for computing capital gains.
3. The binding nature of the Valuation Officer's report on the Assessing Officer.
4. Applicability of Section 50C and Section 55A of the Income-tax Act for computing capital gains.

Detailed Analysis:

1. Validity of the Commissioner's Invocation of Section 263 of the Income-tax Act, 1961:

The assessee challenged the Commissioner's order under Section 263, which modified the assessment order by directing the Assessing Officer to substitute the full value of consideration with the alleged fair market value of Rs. 33,47,66,257 for computing capital gains. The Commissioner formed an opinion that the assessment order was erroneous and prejudicial to the interest of the revenue because the Assessing Officer failed to consider sales instances of a comparable property auctioned by the DDA in Vasant Kunj. The Commissioner issued a show-cause notice under Section 263, and despite the assessee's objections, the Commissioner directed the Assessing Officer to adopt the fair market value of Rs. 33,47,66,257.

2. Determination of the Full Value of Consideration for Computing Capital Gains:

The assessee argued that Section 48 of the Act provides the mode of computation of capital gains by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset. The assessee emphasized that "full value of the consideration" cannot be substituted by fair market value, citing the Supreme Court's decision in KP Verghese v. ITO and the Delhi High Court's decision in CIT v. Smt. Nilofer I. Singh. The assessee contended that the Assessing Officer cannot adopt a fair market value higher than the stamp duty valuation as provided in Section 50C of the Act.

3. The Binding Nature of the Valuation Officer's Report on the Assessing Officer:

The assessee argued that once a reference has been made to the Valuation Officer under Section 16A(1) of the Wealth-tax Act, the valuation made by the Valuation Officer is binding on the Assessing Officer. The assessee contended that there was no scope for the Assessing Officer to deviate from the fair market value estimated by the Valuation Officer, and therefore, the Assessing Officer cannot be said to have committed an error.

4. Applicability of Section 50C and Section 55A of the Income-tax Act for Computing Capital Gains:

The assessee argued that Section 50C creates a deeming fiction where the full value of consideration can be substituted by the amount adopted for stamp duty purposes. The assessee contended that if the disclosed consideration is higher than the stamp duty valuation, there cannot be any further substitution with the fair market value. The assessee cited the ITAT's decision in Chandrakant R. Patel & Ors., which discussed the scope and interpretation of Sections 50C and 55A for computing capital gains.

Tribunal's Observations and Judgment:

The Tribunal considered the broader principles to judge the action of the Commissioner under Section 263, as propounded in various authoritative pronouncements, including the Supreme Court's decision in Malabar Industries and the Bombay High Court's decision in Gabriel India Ltd. The Tribunal noted that the Commissioner must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. The Tribunal observed that the Commissioner's action can be justified to the extent that the Valuation Officer failed to take cognizance of similarly situated sales instances, making the assessment order erroneous.

However, the Tribunal held that the Commissioner's action of substituting the full value of consideration disclosed by the assessee with the fair market value is not sustainable. The Tribunal cited the ITAT's decision in Chandrakant R. Patel & Ors. and the Delhi High Court's decision in Smt. Nilofer I. Singh, which held that the full value of consideration cannot be replaced by fair market value for computing capital gains under Section 48. The Tribunal quashed the Commissioner's order to the extent that it directed the substitution of the full value of consideration with the fair market value of Rs. 33,47,66,257.

The Tribunal clarified that the issue of whether the sales consideration disclosed by the assessee at Rs. 11.70 crores or the amount of Rs. 12,78,79,481 adopted by the Assessing Officer on the basis of the valuation report is to be adopted, is being agitated in separate proceedings and is not within the Tribunal's purview in the present proceedings.

Conclusion:

The Tribunal partly allowed the assessee's appeal, holding that the Commissioner's action of substituting the full value of consideration with the fair market value is not sustainable. The Tribunal quashed the Commissioner's order to this extent but did not disturb the figure adopted by the Assessing Officer in the present proceedings.

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