2019 (4) TMI 756 - AT - Income Tax

Reference u/s. 55A to DVO - capital gain u/s. 50 to be arrived at with reference to the full value of the consideration - FMV determination of depreciable assets - HELD THAT - The matter, accordingly, vacating the findings by the assessing and the first appellate authority, is set aside to the file of the AO for adjudication of this issue afresh in light of the foregoing per a speaking order, issuing definite findings of fact. The assessee claiming non-grant of opportunity by the VO, shall be allowed reasonable opportunity of hearing before him, i.e., where his report becomes relevant. This is even otherwise necessary as valuation is a technical matter. It may though be clarified that a failure to explain the transaction value may invite adverse inference the adoption of fmv, or any other value, should only be a clear inferential finding of that being the actual consideration. It is for this reason that it stands clarified that the matter should be closed where no tax advantage is found. In K. P. Verghese v. ITO 1981 (9) TMI 1 - SUPREME COURT read down section 52(2) (since omitted) deeming the fmv as the full value of the consideration on the shortfall in the latter exceeding 15% by holding that the same shall not impinge on a honest and bona fide transaction. The parties in that case were related, and the asset, personal. In the instant case, though the parties are related, the assets are business assets. Also firms are separate persons under the Act, so that there could be no question of the emotions having influenced the transaction, which is commercial in nature. The said decision should, in my view, be regarded as final arbiter in the matter. That is, only on the bonafides being impugned, as where there is a tax avoidance coupled with no reasonable explanation with regard to the stated consideration, that the same could be disturbed. And, further, only consistent with the irresistible inferential findings - assessee s and the Revenue s appeal is allowed for statistical purposes

Summary

Issues Involved:
1. Validity of the reference to the Valuation Officer (VO) under section 55A of the Income-tax Act.
2. Determination of the full value of consideration for the computation of capital gains under section 50 of the Income-tax Act.
3. Genuineness of the transaction and adequacy of the sale consideration.

Issue-wise Detailed Analysis:

1. Validity of the Reference to the Valuation Officer (VO) under Section 55A:
The assessee challenged the reference to the VO under section 55A, claiming that the parameters of section 55A(2)(b) were not met. However, the tribunal concluded that the reference to the VO was justified. The tribunal highlighted that the stated consideration being much lower than the written down value (WDV) provided a sound basis for the Assessing Officer (AO) to refer the matter to the VO. The tribunal also cited the Supreme Court's validation of using material gathered by the AO even if the manner followed was not legal, thus dismissing the assessee's challenge to the reference.

2. Determination of the Full Value of Consideration for the Computation of Capital Gains:
The tribunal emphasized that under sections 48 and 50 of the Income-tax Act, the full value of the consideration received or accruing as a result of the transfer is relevant for computing capital gains. It was clarified that the full value of the consideration is not necessarily the fair market value (fmv) but the actual price agreed upon between the parties. The tribunal referred to the Supreme Court's decisions in CIT v. Gillanders Arbuthnot & Co. and CIT v. George Henderson & Co. Ltd., which established that the full value of consideration refers to the price actually bargained for by the parties. The tribunal noted that the adoption of fmv could only be on the basis of an inference that the stated consideration was not the actual consideration, and such an inference must be based on the entirety of the facts and circumstances.

3. Genuineness of the Transaction and Adequacy of the Sale Consideration:
The tribunal examined whether the stated consideration could be altered based on the facts and circumstances of the case. It was noted that the assets were sold to a sister concern, which diluted the significance of fmv from a commercial standpoint. The tribunal found no evidence of the transaction being not genuine or the stated consideration being inflated for ulterior motives. The tribunal concluded that there was no prima facie doubt about the genuineness of the transaction with reference to the stated consideration. However, it was also noted that the Revenue had not conducted an exercise to show that the assessee derived a tax advantage by stating a lower value as the sale consideration.

Conclusion:
The tribunal vacated the findings of the assessing and the first appellate authority and set aside the matter to the file of the AO for fresh adjudication. The AO was directed to issue definite findings of fact and allow the assessee a reasonable opportunity of hearing. The tribunal emphasized that the adoption of fmv or any other value should be based on a clear inferential finding of it being the actual consideration. It was clarified that the matter should be closed where no tax advantage is found. The tribunal allowed both the assessee's and the Revenue's appeals for statistical purposes.