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2021 (6) TMI 935 - AT - Income TaxLTCG - cost of acquisition of 925 shares of Somani Company - Adoption of FMV - assessee has re valued the fair market value as on 1st April 1981 - HELD THAT - We are in agreement with the assessee that the assessee has an option to replace the value of market value as on 1st April 1981 as per section 55(2)(b)(i) of the Act and also the judicial precedence suggest that wealth tax valuation cannot be adopted for Income Tax purpose.Assessing Officer cannot fully rely upon the value declared for wealth tax purpose in Income Tax assessment. Even the learned CIT(A) accepted provisions of rule 1D of the Wealth Tax rules. We are in agreement that the assessee can adopt fair market value based on the re valuation of the assets held by the company as on 1st April 1981. Further, we note that the learned CIT(A) observed that even under rule 11UA of the I.T. Rules, the fair market value of the un quoted equity shares shall be calculated based on the net assets as per the Balance Sheet and re valuation in the Balance Sheet is not permitted. We notice that no doubt the assessee has re valued the fair market value as on 1st April 1981, at ₹ 3,833 per share and we also notice that the assessee has purchased 2,000 shares @ ₹ 1,250 per share in assessment year 2003 04 and we notice that the assessee has claimed indexed cost based on this valuation only. Therefore, it is impractical to calculate the value of un quoted equity shares @ ₹ 3,833, as on 1st April 1981 and the same shares valued and purchased at ₹ 1,250 per share in the assessment year 2003 04. Since the assessee has not submitted Balance Sheet as on 1st April 1981 of the company M/s. Somani Co. Pvt. Ltd., in our considered view, the assessee intend to adopt ₹ 3,883, on 1st April 1981, and at the same time, the assessee cannot claim the value for the assessment year 2003 04 at ₹ 1,250. Therefore, in our considered view, the best possible option available to the assessee is only to adopt the value of fair market value in assessment year 2003 04 and re calculate by adopting reverse indexation to determine the value as on 1st April 1981. Therefore, the value of each share will be @ ₹ 1,250 x ₹ 100 463 ₹ 270 per share. Since the Assessing Officer cannot adopt the value as per wealth tax valuation considering the judicial precedent, we deem it fit to direct the Assessing Officer to adopt the fair market value as on 1st April 1981 @ ₹ 270 per share. As assessee prayed to restore this issue to the file of the Assessing Officer to refer this matter to the valuation officer. In view of our above observations, we do not see any reason to refer this issue to the valuation officer at this stage. Accordingly, ground no.2, is partly allowed. Reference to DVO - Deemed sale consideration (being the market value on which stamp duty is paid) as against agreement value and the amount actually received - HELD THAT - We notice that even in case of Mahalaxmi Rope Works Ltd 2019 (3) TMI 1889 - ITAT MUMBAI stamp duty authorities have applied TDR @ 140% and upon agitation the issue was referred to the DVO and the DVO has valued the property without applying the TDR. Since the issue under consideration is similar to the issue in Mahalaxmi Rope Works Ltd. (supra) case, therefore, in our considered view, for the sake of justice, we restore this issue also to the file of the Assessing Officer and also direct him to refer this case to the DVO and adopt the value based on the report of the DVO to determine the actual capital gains as per law. Accordingly, ground no.3 raised by the assessee is allowed for statistical purposes. Disallowance of deduction u/s 54F - assessee failed to provide any documentary proof that he had invested / purchased a new property - HELD THAT - Assessee had entered into escrow arrangement with a clear purpose of purchasing the above said flat and accordingly and based on the agreement with the buyer of the land, the assessee has left a portion of the sale consideration in escrow arrangement. When the taxing authorities intend to tax the whole sale consideration as taxable consideration which includes the portion of the cost of flat then the assessee has deemed to have paid for the flat as purchase consideration. We notice that the Assessing Officer has taken a stand that in order to claim deduction under section 54F of the Act, the assessee has to demonstrate documentary evidences of the new property and the assessee should have invested / purchased new residential property within the prescribed time. We notice that in this situation the assessee has already kept the agreed settlement amount for purchase of flat with buyer of the land and accepted to receive the promised allotted flat within the prescribed time. Since there was a dispute between the assessee and the builder the flat was not allotted to the assessee within the prescribed time. We notice that the Courts have held that when the assessee performs his part of the duty before the prescribed time and incase there is a reasonable delay or default on the part of builder and failed to comply the agreement within the prescribed time and when the assessee demonstrated the reasonableness of the time frame of investment then the Courts have taken liberal view in giving deduction under section 54F - in the given case the assessee has not received sale consideration to the extent of value of flat and there is no mistake on the part of the assessee, therefore the assessee had paid full purchase consideration for flat, therefore, the assessee is eligible for the claim under section 54F.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961. 2. Cost of acquisition of shares for capital gains calculation. 3. Deemed sale consideration under Section 50C of the Income Tax Act. 4. Disallowance of deduction under Section 54F of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act, 1961: During the hearing, the learned Counsel for the assessee submitted that he did not wish to press this ground. Consequently, the ground was dismissed as not pressed. 2. Cost of Acquisition of Shares for Capital Gains Calculation: The assessee declared long-term capital gain on the sale of 3,425 equity shares of M/s. Somani & Co. Pvt. Ltd. The dispute arose regarding the cost of acquisition of 925 shares acquired prior to 01.04.1981. The assessee provided a valuation report determining the fair market value of these shares as ?3,833 per share as of 01.04.1981, based on the net asset valuation method. The Assessing Officer (AO) rejected this valuation, considering it unreasonable, and instead adopted a value of ?120 per share based on the wealth tax return for the assessment year 1979-80. The learned CIT(A) upheld the AO's decision, rejecting the valuation method used by the assessee. The Tribunal, however, found merit in the assessee's argument that the wealth tax valuation should not be used for income tax purposes and directed the AO to adopt a fair market value of ?270 per share as of 01.04.1981, calculated using reverse indexation based on the purchase price in the assessment year 2003-04. 3. Deemed Sale Consideration under Section 50C of the Income Tax Act: The AO invoked Section 50C to adopt the stamp duty valuation of ?8,44,18,460 as the deemed sale consideration for a plot of land sold by the assessee, instead of the actual sale consideration of ?5,72,76,000. The assessee argued that the sale was agreed upon in December 2011, before the ready reckoner rate increased on 01.01.2012, and that the stamp duty valuation included an unjustified TDR loading. The learned CIT(A) upheld the AO's decision, noting that the assessee did not challenge the stamp duty valuation during the assessment proceedings. The Tribunal, however, found that the issue was similar to a case involving Mahalaxmi Rope Works Ltd., where the matter was referred to the DVO for valuation. The Tribunal directed the AO to refer the case to the DVO to determine the actual capital gains based on the DVO's report. 4. Disallowance of Deduction under Section 54F of the Income Tax Act: The assessee claimed a deduction under Section 54F for the purchase of a residential flat, which was part of the sale consideration for a plot of land. The AO disallowed the deduction, noting that the builder denied allotting any flat to the assessee and that the assessee failed to provide documentary proof of the purchase. The learned CIT(A) upheld the AO's decision, but the Tribunal found that the assessee had entered into an escrow arrangement for the flat and that the delay in allotment was due to a dispute with the builder. The Tribunal held that the assessee was eligible for the deduction under Section 54F, as the assessee had performed his part of the agreement within the prescribed time, and the delay was not attributable to him. Separate Judgments Delivered: No separate judgments were delivered by the judges in this case. Summary: The Tribunal addressed four primary issues in the appeals filed by the assessee and the Revenue. The disallowance under Section 14A was dismissed as not pressed. For the cost of acquisition of shares, the Tribunal directed the AO to adopt a fair market value of ?270 per share as of 01.04.1981. The deemed sale consideration under Section 50C was referred to the DVO for fresh valuation. The deduction under Section 54F was allowed, recognizing the escrow arrangement and the dispute with the builder. The Tribunal's decisions were based on judicial precedents and the specific facts of each issue.
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