2012 (9) TMI 693 - AT - Income Tax

Ascertaining the fair market value of a capital asset for determining capital gain - revenue appeal against CIT(A) not considering the applicability of the provisions of section 55A by referring the valuation to Valuation Officer - Held that - The appellant had shown sale value as a result of transfer at Rs.14,00,000/- whereas stamp authority has taken this value at Rs.13,83,600/- it means that assessee had shown more sale consideration in sale deed, thus, this case cannot be referred u/s 50C (2) to the DVO. The capital gain can be calculated under chapter IV of computation of income from capital gain. Section 48 empowered to AO to calculate the capital gain. For calculation of capital gain full value of the transaction received or accruing as a result of the transfer of the capital assets following amount is to be deducted (i) expenditure incurred wholly and exclusive in connection with such transfer (ii) the cost of acquisition of the assets and the cost of any improvement there on. Further, indexation on cost of acquisition and cost of improvement is to be allowed. The various High Courts have held that full value of consideration u/s 48 cannot be construed fair market value as per Section 55A of the IT Act, thus A.O. was not justified in substituting the fair market value in place of full value of consideration - against revenue. Wrong computation of LTCG by adopting incorrect indexation - assessee had constructed additional floor at different times - Held that - As the appellant had admitted the fact during the course of assessment proceeding that A.O. computed the capital gain on the basis of indexation on construction in different years at the time of assessment which was not challenged by the appellant before the CIT(A) & CIT(A) also had not given any findings in his appeal order on cost of improvement and indexation there on. Thus, this ground of Revenue appeal is dismissed - against revenue.

Summary

Issues:
1. Applicability of section 55A of the IT Act in determining fair market value for capital gains.
2. Incorrect indexation in calculating long-term capital gain.
3. Validity of the CIT(A)'s decision in deleting the addition made by the AO.
4. Consideration of additional construction made by the appellant in different years.

Issue 1: Applicability of section 55A of the IT Act:
The appeal concerns the Revenue challenging the CIT(A)'s decision regarding the applicability of section 55A of the IT Act. The AO referred the property for valuation under section 55A to ascertain the fair market value. The DVO estimated the fair market value higher than the consideration in the sale agreement. The appellant claimed indexation benefits from 1991-92. The AO computed the capital gain based on the DVO report. The CIT(A) deleted the addition, citing the absence of material showing higher actual consideration received. The appellant argued against the AO's valuation method and the necessity of challenging the valuation. The Tribunal upheld the CIT(A)'s decision, emphasizing that full value consideration under section 48 does not equate to fair market value under section 55A.

Issue 2: Incorrect indexation in calculating long-term capital gain:
The AO revised the indexation for determining the cost of acquisition, resulting in long-term capital gains. The appellant had initially shown long-term capital loss, which was recalculated by the AO. The CIT(A) deleted the addition, considering the AO's error in adopting fair market value as full consideration. The Tribunal confirmed the CIT(A)'s decision, emphasizing the full value of consideration as the actual sale price received, not the fair market value.

Issue 3: Validity of the CIT(A)'s decision:
The Revenue argued that the AO had the power to refer the case for fair market value determination under section 55A. The appellant's written reply contested the AO's reference to the valuer and the valuation process. The Tribunal upheld the CIT(A)'s decision, stating that full value consideration does not equate to fair market value and that the AO erred in substituting fair market value for consideration received.

Issue 4: Consideration of additional construction:
The AO noted the appellant's construction of different floors in various years, which impacted the computation of capital gain. The CIT(A) did not address this aspect in the appeal order, and the appellant did not challenge the AO's calculation during assessment. Consequently, the Tribunal dismissed this ground of the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, emphasizing the distinction between full value consideration and fair market value. The Tribunal dismissed the Revenue's appeal on both grounds, affirming the CIT(A)'s decision.