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2006 (6) TMI 147 - AT - Income TaxComputation of Capital gain - Valuation of the property - The full value of consideration by the fair market value on the basis of the DVO's report? - HELD THAT - From the facts available on record it is clear that the sale consideration as per the registered document was only a sum of Rs. 18 lakhs. There was no material available with the AO to show that the assessee received much more than a sum of Rs. 18 lakhs as shown in the registered documents. We are bound to follow the decision of the Hon'ble Supreme Court in the case of K.P. Verghese 1981 (9) TMI 1 - SUPREME COURT and in the case of C.B. Gautam 1992 (11) TMI 1 - SUPREME COURT . As observed by us, there is no evidence before the Revenue authorities to show or suspect that the sale value declared in the instrument of transfer was understated and that consideration over and above what was stated in the instrument of transfer had passed between the parties. We, therefore, hold that the action of the AO in substituting the full value of the consideration received by the fair market value as stated by the DVO in his report was not in accordance with law. In the circumstances, we hold that there was no capital gain which could be brought to tax in the hands of the assessee. The appeal of the assessee is allowed. In the result, the appeal by the assessee is allowed.
Issues:
1. Justification of substituting full value of consideration with fair market value. 2. Validity of reference to District Valuation Officer for valuation. 3. Interpretation of provisions regarding computation of capital gain. 4. Rejection of claim for long-term capital loss on property sale. Analysis: Issue 1: Justification of substituting full value of consideration with fair market value The primary question in this case was whether the Assessing Officer (AO) was justified in substituting the full value of consideration with the fair market value based on the District Valuation Officer's (DVO) report. Section 48 of the Income Tax Act lays down the method for computing capital gain, deducting expenses and cost of acquisition from the full value of consideration. The registered sale deed indicated a consideration of Rs. 18 lakhs, and there was no evidence to suggest the assessee received more than this amount. Judicial pronouncements, including CIT vs. George Henderson & Co. Ltd., emphasized that the consideration for transfer is what the transferor receives in exchange for the asset, not the market value of the asset itself. Issue 2: Validity of reference to District Valuation Officer for valuation The AO referred the valuation of the property to the DVO, who reported a fair market value higher than the registered sale deed amount. The assessee contended that no reference could be made to the DVO for estimating the full value of consideration. Judicial precedents, such as CIT vs. Godavari Corporation Ltd., clarified that in the absence of evidence showing more consideration received, the AO cannot make a reference to the DVO. The deletion of Section 52 of the IT Act in 1988 restricted the AO from adopting values other than the apparent consideration for sale. Issue 3: Interpretation of provisions regarding computation of capital gain The case involved interpreting provisions related to the computation of capital gains, emphasizing that the AO must establish with evidence that more consideration was received to tax at a higher value. The court referred to various judgments, including CIT vs. Shivakami & Co. (P) Ltd., to highlight that capital gains tax is intended to tax actual gains received by the assessee, not hypothetical gains. The decision underscored the need for evidence supporting any claim of understated consideration. Issue 4: Rejection of claim for long-term capital loss on property sale The assessee claimed a long-term capital loss on the sale of the property, which was disputed by the AO due to lack of details provided. The AO computed the capital gain based on the fair market value determined by the DVO. The CIT(A) upheld the AO's order, rejecting the objections raised by the assessee regarding valuation. Ultimately, the Tribunal allowed the appeal, holding that there was no capital gain to be taxed in the hands of the assessee, as the AO's action of substituting the full value of consideration with fair market value was deemed improper based on the available evidence. In conclusion, the Tribunal allowed the appeal by the assessee, emphasizing the importance of evidence in determining capital gains and restricting the AO from substituting the full value of consideration without sufficient proof of additional consideration received.
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