2008 (8) TMI 165 - HC - Income Tax

Computation of capital gains - in the case where full value of consideration was the sale price of two properties sold by the assessee, there is no need to compute fair market value hence AO could not have referred the matter to Valuation Officers in respect of assessee writing off bad dept in relevant previous year, revenue is not justified in disallowing the same on the ground that RBI s permission to write off the debts communicated to assessee only after end of the previous year

Summary

Issues:
1. Tribunal's deletion of addition on account of capital gains based on Valuation Officers' reports.
2. Tribunal's deletion of disallowance of bad debts claimed by the assessee.

Issue 1: Tribunal's deletion of addition on account of capital gains based on Valuation Officers' reports:

The appellant challenged the Tribunal's decision to delete the addition of Rs. 34,72,000 as capital gains made by the Assessing Officer based on Valuation Officers' reports. The appellant argued that the fair market value determined by the Valuation Officers was higher than what was disclosed by the assessee, justifying the addition. The appellant cited the provisions of section 55A of the Income-tax Act, emphasizing the need to determine fair market value. However, the court clarified that the expression "full value of consideration" in section 48 does not refer to market value but to the consideration stated in the sale deeds. Citing precedents, the court established that fair market value is not relevant in straightforward sales cases. The court rejected the appellant's argument and upheld the Tribunal's decision, stating no substantial question of law arose.

Issue 2: Tribunal's deletion of disallowance of bad debts claimed by the assessee:

Regarding the second issue of disallowance of bad debts, the court analyzed section 36(1)(vii) of the Act, which allows deduction if bad debts are written off as irrecoverable in the assessee's accounts for the relevant previous year. The Revenue argued that the Reserve Bank of India's permission for debt write-off was communicated after the previous year. However, the court noted that the debt was written off as irrecoverable in the relevant previous year, as required by law. The court found no provisions in section 36(2) hindering the deduction. The Tribunal's factual finding aligned with the law, and no substantial question of law was identified. Consequently, the court dismissed the appeal.

This detailed analysis of the judgment covers the issues of capital gains addition and bad debts disallowance comprehensively, providing a clear understanding of the court's reasoning and decision.