2010 (6) TMI 640 - AT - Income Tax

Computation of capital gains - assessee had sold the property - value of consideration was accepted by the registering authorities - AO referred the assessability of fair market value of the property - DVO computed the value which was adopted by the AO as the basis for computing the long-term capital gains Held that - Under the provisions of s. 50C of the Act fair market value estimated by the registering authority is deemed to be the full value of consideration. However there is no provision under the Act under which the fair market value assessed by the DVO is to be taken as the full value of consideration - no merit in the order of the AO in adopting the fair market value determined by the DVO as the full value of consideration for computing the income from capital gains - appeal of the Revenue is dismissed.

Summary

Issues:
Computation of capital gains based on fair market value versus sale consideration.

Analysis:
The appeal before the Appellate Tribunal ITAT Chandigarh involved a dispute regarding the computation of capital gains for the assessment year 2006-07. The Revenue challenged the order of the CIT(A)-II, Ludhiana, which deleted an addition of Rs. 8,77,400 made by the Assessing Officer based on the Departmental valuer's report. The core issue revolved around whether the fair market value determined by the Departmental valuer under section 55A of the IT Act could replace the full value of consideration for computing capital gains. The assessee had sold a property and shown the sale consideration at Rs. 15,25,000, while the Departmental valuer assessed the fair market value at Rs. 24,02,400. The CIT(A) held that since section 50C was not applied, the fair market value could not substitute the full value of consideration under section 48. The CIT(A) relied on the Delhi High Court's decision in CIT v. Smt. Nilofer I. Singh [2009] 176 Taxman 252 to support this interpretation.

The Tribunal analyzed the legal provisions and precedents to determine the correct approach for computing capital gains. Referring to a previous decision in Dy. CIT v. Dharam Pal Aggarwal, the Tribunal emphasized that under section 48, the full value of consideration received or accruing from the transfer of a capital asset must be considered for computing capital gains. It further highlighted that section 55A empowers the Assessing Officer to refer to the Valuation Officer for determining fair market value. However, the Tribunal reiterated the Delhi High Court's stance that the full value of consideration does not equate to fair market value and must be based on the actual consideration received by the transferor. In the present case, where section 50C was not invoked, and the sale consideration exceeded the value as per the registering authority, the Tribunal upheld the CIT(A)'s decision to consider the sale value agreed between the parties as the full value of consideration.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming that the fair market value determined by the Departmental valuer cannot replace the full value of consideration for computing capital gains unless specific statutory provisions like section 50C are invoked. The decision aligned with established legal principles and judicial precedents, emphasizing the importance of actual consideration received in determining capital gains and rejecting the substitution of fair market value without statutory mandate.

By considering the legal provisions, precedents, and factual circumstances of the case, the Tribunal provided a comprehensive analysis and upheld the CIT(A)'s decision, ultimately dismissing the Revenue's appeal.