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TMI Blog2012 (12) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... revised return of income, the assessee admitted capital gain arising from sale of 25962 shares of M/s Indian Express Newspaper (Mumbai) Ltd to Shri Vivek Goenka at the rate of Rs.. 105/-per share. The capital gain was offered at Rs.. 27,26,010/- which was accepted by the Assessing Officer while completing the assessment under section 143 (3) on 26/12/2008. Subsequently, from the examination of assessment records, the CIT noticed from the schedule "investment in shares and debentures" to the balance sheet that Rs.. 105/- per share was the book value of the shares and in the immediate preceding year relevant to the assessment year 2005 - 06, the assessee sold the shares of the same company at Rs.. 15,000/-per share. Thus, the CIT observed that capital gain offered by the assessee on the basis of book value of sale is not tandem with the sale price adopted in the assessment year 2005 - 06. Since the Assessing Officer had not examined this fact of the issue, it is felt by the CIT that the assessment order dated 26/12/ 2008 is erroneous and prejudicial to the interest of the revenue. Accordingly, show cause notice under section 263 of I T Act was issued to the assessee. 3.2 The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, cannot be compared to the sale price of other shares, which were acquired at the rate of Rs..10,000 per share. He has pointed out that in the meeting of Board of Directors of Indian Express Newspaper (Bombay) Ltd held on 17/06/98, 50,000 shares of that company were allotted to the assessee as a bonus shares. Out of this bonus shares, 25962 shares were sold to Shri Vivek Goenka on 31st March 1998 for a total consideration of Rs.. 27,26,010/-at Rs. 105/-per share. 4.1 Even otherwise, the net worth of Indian Express Newspaper (Bombay) Ltd was negative. He has referred section 2 (29A) of Companies Act and submitted that the net worth means "the sum total in the paid-up capital and free reserves after deducting the provisions or expenses as may be prescribed." As per explanation to section 2 (29A) of Companies Act for the purpose of this clause " free reserves" means "all reserves created out of the profits and share premium account but does not include reserves created out of revaluation of assets, write back of depreciation provision and amalgamations." Thus, the learned A.R. has submitted that for the purpose of net worth, the capital reserves are to be considered ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer cannot adopt the market price as full value of consideration, then the Commissioner cannot direct the Assessing Officer to consider the market price of the shares for computation of capital gains. The learned A.R. has also relied upon the decision of honourable Madras High Court in case of Commissioner of Income-tax v. Jayakumar (A.S.) reported in 215 ITR 422 and decision of honourable Supreme Court in case of Commissioner of Income-tax v. G.M. Mittal Stainless Steel P. Ltd. reported in 263 ITR 255 and submitted that the full value of consideration can not be the market value of the capital asset on the date of transfer but it shall mean price bargain for by the parties to the transaction. 4.3 The learned A.R. has pointed out that the honourable Madras High Court has held that unless the proof of extra consideration paid by the purchaser over and above what is stated in the sale deed, section 52 (2) of the I T Act cannot be invoked and such a enquiry would not serve any purpose. The learned A.R of the assessee has further submitted that as held by the honourable Calcutta High Court in case of Nandini Nopany (Smt.) (supra) that no inference can be drawn that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was aware about the disallowances and the issues involved in the assessment year 2005-06. There is no quarrel on the point that if the Assessing Officer has not made any enquiry and thereby has not applied his mind while framing the assessment order, then the CIT has the jurisdiction under section 263 to revise such an assessment, if the same is erroneous and prejudicial to the interest of revenue. 5.1 In the case in hand the Commissioner has proceeded on the premises that the Assessing Officer should have verified the market value of the shares of the Indian Express Newspaper (Bombay) Ltd on the date of sale. The relevant findings of the CIT in para 7 and 8 of the impugned order are as under: 7. The submissions have been considered. Full details have been filed before me for the first time, which were not filed before the AD. It is clear from the record that the A.O did not bring on record and examine all material necessary for a proper decision on the issue. The A.O., in the least, ought to have verified the market value of the shares of IENB / IENM as on the date of sale by the assessee company to Shri. Vivek Goenka at Rs. 105/- per share. To this extent, the assessment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d jurisdiction to examine and verify the fact, if the Assessing Officer has doubted that the assessee has understated the sale consideration. But when the bonafide of the transaction and the actual sale consideration received by the assessee has not been suspected, then for the purpose of computation of capital gains, the full value of consideration can not be substituted by market price or value of the capital asset as on the date of transfer. It is not a case of the Commissioner that the assessee has understated the sale consideration and actually received more sale consideration than shown by the assessee; therefore, in the absence of any inference by the Commissioner that the assessee has concealed the actual sale consideration, the capital gain cannot be computed by taking the full value consideration as market value as on the date of transfer. On this point, there are series of decisions of honourable Supreme Court as well as honourable High Court as relied upon by the learned A.R. of the assessee. 6 The honourable jurisdictional High Court in case of M/s Texspin Engineering and Manufacturing Works( supra) has held at page number 354 & 355 as under: "Now, in the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the asset and the expenditure incurred in connection with the transfer. Section 45(4) is mutually exclusive to section 45(1). Section 45(4) categorically states that where there is a transfer by way of distribution of capital assets and where such transfer is due to dissolution or otherwise of the firm, the Assessing Officer was entitled to treat the market value of the asset on the date of the transfer as full value of the consideration received. This latter part of section 45(4) is not there in section 45(1). Therefore, one has to read the expression "full value of the consideration received/accruing" under section 48 de hors section 45(4) and if one reads section 48 with section 45(1) de hors section 45(4) then the expression "full value of consideration" in section 48 cannot be the market value of the capital asset on the date of transfer. In such a case, we have to read the said expression in the light of the two judgments of the Supreme Court in the case of CIT v. George Henderson and Co. Ltd [1967] 66 ITR 622 and in the case of CIT v. Gillanders Arbuthnot and Co. [1973] 87 ITR 407 in which it has been held that the expression "full value of the consideration" does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to transfer, the computation is not possible because it has been laid down in the above judgment of the Supreme Court that full consideration cannot be construed to mean the market value of the asset transferred. The Legislature, in its wisdom, has amended only section 45(4) by which the market value of the asset on the date of the transfer is deemed to be the full value of consideration. However, such amendment is not there in section 45(1)." 7 Similarly, the honourable Madras High Court in case of Jayakumar (A.S.) (supra) has held that unless there is a proof for extra consideration paid by the purchaser over and above what is stated in the sale deed, section 52(2) of the I T Act cannot be invoked. 8 In view of the above discussions as well as the decision of honourable Supreme Court as well as honourable High Court, we hold that the market price of the shares cannot be taken as full value consideration for the purpose of computation of capital gain as per section 48 and accordingly, the directions given by the Commissioner for verifying the market value of the shares in question, are contrary to the settled proposition of law and hence, liable to be set aside. Accordingly, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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