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2013 (10) TMI 516 - AT - Income TaxAssessment u/s 153A - Difference of long term capital gain on sale of unquoted equity shares - Search and seizure done - CIT deleted addition - Held that - There was no evidence found and seized during the search operation with regard to the valuation of shares transferred which were from Aggarwal Group to the Mittal Group. The only basis for not accepting the assessee s valuation of shares was valuation report obtained u/s 133(6) from the banker for availing the loan to M/s. Superior Builders Limited. This valuation report was also not confronted with assessees. There is nothing on the record that shareholders had received more than what is disclosed in the books of account. The fact that company was also having huge liabilities outstanding at relevant time cannot be ignored for valuing the value of unquoted shares. The Assessing Officer was fully empowered to refer capital asset to the District Valuation Cell u/s 55A of the Income-tax Act. Assessing Officer had not done so. The Assessing Officer simply relied on the valuation report made for obtaining the bank loan and made the addition - Decided in favour of Revenue.
Issues Involved:
1. Deletion of addition on account of difference in long-term capital gain on the sale of unquoted equity shares. 2. Procedural shortcomings of the Assessing Officer. 3. Requirement of corroborative evidence during search and seizure operations. 4. Methods for determining the intrinsic value of unquoted equity shares. 5. General errors in the CIT (A)'s order. Issue-Wise Detailed Analysis: 1. Deletion of Addition on Account of Difference in Long-Term Capital Gain: The primary issue in the appeals was the deletion of the addition made by the Assessing Officer (AO) regarding the difference in long-term capital gain on the sale of unquoted equity shares of M/s Superior Builders Limited. The AO argued that the intention behind transferring the shares was to transfer the immovable property owned by the company, and thus, the market value of the property should be considered in determining the intrinsic value of the shares. The AO relied on a valuation report dated 28.11.2005, which was prepared for obtaining a bank loan and reflected a higher market value of the property. However, the Tribunal noted that this valuation report was not seized during the search and seizure operations and was obtained post-search through a notice under section 133(6). The Tribunal found that no incriminating documents were found during the search to support the AO's valuation, and the valuation report was not confronted with the assessees. The Tribunal concluded that the addition based on this valuation report was not justified. 2. Procedural Shortcomings of the Assessing Officer: The revenue contended that the CIT (A) failed to remove procedural shortcomings of the AO and ignored various decisions of the Apex Court, which cast a legal obligation on the CIT (A) to remove procedural defects. The Tribunal noted that the AO did not refer the property to the District Valuation Officer under section 55A of the Income-tax Act to ascertain the fair market value, which was within the AO's powers. Instead, the AO relied on a valuation report prepared for a different purpose (bank loan), which was not appropriate. The Tribunal upheld the CIT (A)'s decision, indicating that the procedural shortcomings were significant and the AO's approach was flawed. 3. Requirement of Corroborative Evidence During Search and Seizure Operations: The revenue argued that the CIT (A) erred in insisting upon corroborative evidence during search and seizure operations while framing assessments under Section 153A of the Act. The Tribunal observed that no incriminating documents or papers were found during the search and seizure operations that could show any unaccounted investment in the property or shares. The Tribunal emphasized that without supporting incriminating documents, the AO's reliance on a valuation report prepared for a bank loan was unjustified. 4. Methods for Determining the Intrinsic Value of Unquoted Equity Shares: The AO adopted the intrinsic value method for determining the value of unquoted equity shares, considering the market value of the property owned by the company. However, the Tribunal noted that the Income-tax Act does not prescribe a specific method for valuing unquoted equity shares. The Tribunal referred to the Wealth-tax Act, which recognizes the break-up value method for such valuations. The Tribunal found that the AO's method was not justified and that the valuation adopted by the assessees at Rs.67.50 per share was realistic, considering the company's liabilities and the circle rates of the property. 5. General Errors in the CIT (A)'s Order: The revenue claimed that the CIT (A)'s order was erroneous and not tenable in law and on facts. However, the Tribunal upheld the CIT (A)'s order, emphasizing that the AO did not follow the proper procedure for valuing the shares and relied on a valuation report prepared for a different purpose. The Tribunal also noted that the AO did not confront the assessees with the valuation report or refer the property to the District Valuation Officer, which were significant procedural errors. Conclusion: The Tribunal allowed the appeals filed by the revenue with observations, indicating that the AO may take appropriate action if deemed fit, considering the proper valuation methods and procedural requirements. The Tribunal emphasized the importance of following the correct procedures and relying on appropriate evidence for determining the fair market value of assets and shares.
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