Padma Plastic Vs CIT (ITAT Mumbai)
Entire Sale Consideration Cannot Be Taxed as Capital Gain: Mumbai ITAT Orders Fresh Computation
Capital Gain Means Gain, Not Gross Sale Value: ITAT Rejects Taxation of Entire ₹4.42 Crore Sale Consideration.
The Mumbai ITAT held that the Assessing Officer was not justified in taxing the entire sale consideration of ₹4.42 crore as long-term capital gains without allowing any deduction towards cost of acquisition, indexed cost, fair market value as on 01.04.2001, or transfer-related expenses. The Tribunal observed that the charging provisions of section 45 and the computation provisions of sections 48 and 55 form an integrated code and capital gains can be taxed only after applying the statutory computation mechanism.
The assessee, a partnership firm, had sold two MIDC industrial units for an aggregate consideration of ₹4.42 crore. Since both assets were acquired prior to 01.04.2001, the assessee claimed the statutory right under section 55(2)(b) to substitute the fair market value (FMV) as on 01.04.2001 as the cost of acquisition and furnished valuation reports from a Government Approved Valuer during appellate proceedings. The assessee also claimed deduction of ₹22.20 lakh paid as MIDC transfer premium.
The Tribunal found that the CIT(A) had rejected the valuation reports primarily because they were obtained immediately after completion of the assessment. However, the ITAT noted that the assessee had already sought time during assessment proceedings stating that the valuation report was awaited and the report became available just a day after completion of assessment. In such circumstances, the appellate authority ought to have examined the evidence on merits instead of rejecting it on technical grounds.
The ITAT further observed that one of the industrial units had been purchased through a Court Receiver auction conducted by Bank of India, and therefore the distress-sale purchase price could not automatically be treated as reflecting its fair market value. The Tribunal noted that neither the Assessing Officer nor the CIT(A) pointed out any specific defect in the valuation report, referred the matter to the Departmental Valuation Officer, or brought any contrary evidence on record. A Government Approved Valuer’s report could not be discarded merely on suspicion.
Relying also on CBDT Circular No. 14 of 1955, the Tribunal reiterated that tax authorities should determine the correct tax liability and not deny lawful reliefs on hyper-technical grounds. Since the valuation reports and MIDC premium claim required factual verification, the matter was restored to the Assessing Officer with directions to examine the valuation reports, consider the FMV option under section 55(2)(b), verify the MIDC transfer premium claim and recompute capital gains in accordance with law.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the assessee against the impugned order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, for the Assessment Year 2017-18 arising out of the assessment framed under section 147 read with sections 143(3) and 144B of the Income Tax Act, 1961.
