Case Law Details
IN THE ITAT DELHI BENCH ‘B’
Eldeco Infrastructure & Properties Ltd.
v.
Commissioner of Income-tax, Delhi-IV
IT Appeal NO. 3677 (DELHI) OF 2011
[ASSESSMENT YEAR 2008-09]
MARCH 30, 2012
ORDER
Rajpal Yadav, Judicial Member
The assessee is in appeal before us against the order of Learned Commissioner dated 22.06.2011 passed for assessment year 2008-09 under section 263 of the Income-tax Act, 1961. The grounds of appeals taken by the assessee are not in consonance with Rule 8 of the ITAT’s Rules, they are descriptive and argumentative in nature. In brief, the grievance of the assessee is that Learned Commissioner has erred in taking cognizance under section 263 of the Act and thereby modifying the assessment order, directing the Assessing Officer to substitute full value of consideration with the alleged fair market value of Rs. 33,47,66,257 for computing the capital gain on transfer of the capital assets.
2. The brief facts of the case are that the assessee is a limited company. It has filed its return of income electronically on 26.09.2008 declaring total income at Rs. 22,42,86,363 after claiming deduction under section 80IB of the Income-tax Act, 1961 of Rs. 22,20,17,423. Learned Assessing Officer has passed an assessment order under section 143(3) of the Act on 26.4.2011. The assessee company had purchased a leasehold plot. Measuring 302.90 sq.mtr. in an open auction held by the DDA on 19.1.2005 for a consideration of Rs.700,85,000. The FAR allowed to the assessee on this plot was 1160.125 sq. mtr. in four stories. The assessee has constructed the building and shown the assets as a capital asset. The assessee had rented out the property to ICICI Prudential Life Insurance Company for a sum of Rs. 23.40 lacs per month vide leasehold agreement dated 28.6.2007. The lease was for nine years w.e.f. 28.6.2007 with monthly rental increase @ 15% every three year’s term. The lease was terminated by ICICI Prudential Life Insurance Co. vide letter dated Ist of October 2009. The assessee company had valued the property after construction at Rs. 11,58,81,000 through an independent valuer’s report dated 20.6.2007. It had entered into an agreement for sale with Smt. Asha Bajaj, mother of Managing Director of the Co. on 31.7.2007. The sales consideration was settled at Rs. 11.70 crores. A sum of Rs. 25 lacs was taken from Smt. Asha Bajaj on 16.5.2007. During the assessment proceedings, it revealed that Learned Commissioner, Delhi-IV, appointed a special auditor in the case of the assessee company under section 142(2A) of the Act. The special auditor has determined the F.M.V. of this property as on 31.7.2007, by net maintainable rent capitalization method at Rs. 29,83,50,000. Assessing Officer after considering the recommendations of the special auditor referred the matter to the Valuation Officer on 16.3.2011. The V.O. has submitted his report on 19.4.2011 wherein he has determined the fair market value of the property at Rs. 12,78,79,481. Assessing Officer has computed the capital gain by adopting this value instead of sales consideration shown by the assessee at Rs.11.70 crores.
3. Learned Commissioner on an analysis of this record, formed an opinion that the valuation officer determined the fair market value of the property after taking into consideration the sales instances of Dwarka, whereas auction of similar type of property had been carried out by the DDA in Vasant Kunj itself. According to the Learned Commissioner, DDA auctioned a comparable plot of land in Vasant Kunj on 17.1.2007. This plot is almost similar to that of the assessee. He discussed the similarity of both the plots and the price at which plot at Vasant Kunj was auctioned. The auction had taken place on 17.1.2007, plot area is of 2885 sq. mtr. The permissible FAR is 4688. The rate at which this plot was sold is Rs.02,70,950. Learned Commissioner formed an opinion that assessment order is erroneous and prejudicial to the interest of the revenue because the Assessing Officer failed to take cognizance of sales instances of a adjoining property which is similar to the assessee while determining the fair market value of the plot sold by the assessee for the purpose of computing capital gain. Thus, this action is prejudicial to the interest of the revenue also. He issued a show-cause notice under sec. 263. In response to the show-cause notice, assessee has pointed out various difference between the two properties in their size, geographical location, their commercial potentiality etc. The assessee thereafter pointed out that Assessing Officer has made a reference to the V.O. and it is obligatory for him to complete the assessment inconformity with the estimated value of the DVO. It also pointed out that once a reference has been made to the V.O. under sec. 16A(1) of the Wealth-tax Act, the valuation made by the V.O. is binding on the WTO, implying that it is binding under the Income-tax Act, 1961 also upon the Assessing Officer. There was no scope for the Assessing Officer to deviate from the FMV estimated by the V.O. and, therefore, the Assessing Officer cannot be said to have committed an error. The exercise of valuation is subjective and any valuation carried out by the expert cannot be said to be erroneous. Apparent consideration agreed and negotiated between the two parties cannot be substituted with the fair market value of the property. Learned Commissioner rejected all the contentions of the assessee and pointed out that fair market value of the property would be computed by adopting the rate at which Vasant Kunj plot was sold, it comes out to Rs.33,47,66,257. He modified the assessment order directed the Assessing Officer to adopt this fair market value in place of full consideration received by the assessee and shown for the computation of capital gain under section 48 of the Income-tax Act, 1961. In other words, Learned Commissioner has substituted full value of consideration shown by the assessee with the fair market value.
4. The learned counsel for the assessee while impugning the order of Learned Commissioner raised number of propositions. In his first proposition, he pointed out that section 45 of the Act provides that any profit or gains arising from the transfer of a capital assets effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E etc. be chargeable to income-tax under the head “capital gains” and shall be deemed to be the income of the previous year in which the transfer took place. He further pointed out that section 48 of the Act provides the mode of computation and it states that the income chargeable under the head “capital gain” shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital assets, the amounts, namely (a) expenditure incurred wholly and exclusively in connection with such transfer; (b) the cost of acquisition of the assets and the cost of any improvement thereto. He emphasized that this section contemplates expression “full value of the consideration”. This full value cannot be substituted by fair market value. There is no provision for such substitution as suggested by the Learned Commissioner in the impugned order. In support of his contentions, he relied upon the decision of the Hon’ble Supreme Court in the case of KP Verghese v. ITO reported in 131 ITR 597. He further relied upon the decision of Hon’ble Delhi High Court in the case of CIT v. Smt. Nilofer I. Singh reported in 309 ITR 233. In his next fold of submissions, he pointed out that for the purpose of computing capital gain, Assessing Officer cannot take help of section 55A of the Act and he cannot make any reference to the VO. Though the Assessing Officer has made the reference and computed the capital gains on the basis of the valuer’s report. The assessee is challenging that the aspect in the appeal which is a separate issue. In that issue, assessee is impugning whether the full value of the sales consideration is to be taken at Rs.11.70 crores disclosed by the assessee or Rs.12,78,79,481 adopted by the Assessing Officer on the basis of valuation report. In support of his contentions, he relied upon the decision of Ahmedabad Bench of the ITAT in the case of Chandrakant R. Patel & Ors. reported in 131 ITD 1 wherein ITAT has considered the scope and interpretation of section 50C, 55A for the purpose of computing capital gain under sec. 48 of the Act, on transfer of a capital assets. In his next fold of submissions, he submitted that the Assessing Officer cannot adopt F.M.V. which is higher than the stamp duty valuation as provided in sec. 50C of the Act. The learned counsel for the assessee while elaborating his arguments pointed out that in section 50C, a deeming fiction has been created which authorized the Assessing Officer to deem full sales consideration received by an assessee or accrued to an assessee as a result of the transfer of a capital assets, equivalent to the amount adopted by the stamp valuation authority for the purpose of payment of stamp duty while registering the sales deed on such transfer. The learned counsel for the assessee submitted that the Assessing Officer can only adopt the valuation determined by the stamp valuation authority for the purpose of payment of the stamp duty. If an assessee has an objection about adoption of a higher valuation for the purpose of stamp duty then under sub-section(2) a mechanism has been provided for making a reference to the V.O. If an assessee has disclosed consideration higher than the stamp duty valuation then there cannot be any further substitution with F.M.V. In support of his contentions, he relied upon the decision of ITAT, Delhi Bench in the case of Ravikant v. ITO reported in 110 TTJ 297. In his next fold of submissions, he pointed out that Assessing Officer could not deviate from estimate made by the V.O. therefore, there is no apparent error in the order of the Assessing Officer which authorized the Learned Commissioner to take cognizance under sec. 263 of the Act.
5. In his next fold of submissions, he pointed out that assessment order cannot be termed as erroneous for not taking action which he was not empowered to do so in law. According to the learned counsel for the assessee, the Assessing Officer adopted the rates mentioned in the report. He was not supposed to deviate from the report and further took into consideration the sale deed of adjoining plot. He further pointed out that Assessing Officer has acted in accordance with law. His order cannot be termed as erroneous, therefore, no action under sec. 263 is permissible. For buttressing his contentions, he relied upon the order of the Special Bench of the ITAT in the case of Simbhaoli Industries Ltd. v. DCIT reported in 78 ITD 161. He also relied upon the decision of Hon’ble Rajasthan High Court in the case of Rajasthan Spinning & Weaving Mills v. DCIT reported in 281 ITR 177.
6. Learned DR on the other hand submitted that the expression “full value of consideration” referred in section 48 of the Act does not mean the sales consideration disclosed in the sale deed only. The true import of this expression would be the fair market value of an asset which were sold by an assessee. Had that was an intention ? Then the legislature would have incorporated the expression “consideration disclosed in the registered deed”. In order to ascertain fair market value, learned Assessing Officer has made a reference under sec. 55A of the Act to the V.O. However, learned V.O. determined the fair market value by not taking into consideration the sale deed of adjoining plot, thus, the error committed by him has been amplified by inaction of the Assessing Officer. He further submitted that section 263 authorizes the Learned Commissioner to call for and examine the record of any proceedings under this Act, therefore, the action committed at the end of the V.O. would come within the ambit of expression, “the record of any proceedings” employed in section 263 and the Learned Commissioner has rightly taken cognizance of section 263 of the Act. He further pointed out that Hon’ble Delhi High Court in the case of Gee Vee Enterprises reported in 99 ITR 373 propounded the role required to be played by an Assessing Officer. In this case, Assessing Officer failed to conduct a proper inquiry while computing the capital gain shown by the assessee.
7. We have duly considered the rival contentions and gone through the record carefully. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy v. ITO, Mumbai, 101 TTJ 1095, has analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 as well as Hon’ble Bombay High Court rendered in the case of Gabriel India Ltd. reported in 203 ITR 108 and has propounded the following broader principle to judge the action of CIT taken under section 263.
(i) The CIT must record satisfaction that the order of the A.O is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled.
(ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the A,O and it was only when an order is erroneous that the section will be attracted.
(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.
(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.
(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the A.O has adopted one of the courses permissible under law or where two views are possible and the A.O has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order, unless the view taken by the A.O is unsustainable under law.
(vi) If while making the assessment, the A.O examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s. 263 is not permitted to substitute his estimate of income in place of the income estimated by the A.O.
(vii) The A.O exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrives at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion.
(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.
(ix) If the A.O has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the A.O allows the claim on being satisfied with the explanation of the assessee, the decision of the A.O cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.”
8. Before embarking upon an inquiry about the facts of the present case and how those facts have been considered by the learned revenue authorities below, we deem it appropriate to make a reference of the observations of the Hon’ble Delhi High Court in the case of Vee Gee Enterprises reported in 99 ITR 373 wherein Hon’ble High Court has expounded the approach of the Assessing Officer while passing assessment order. The observations of the Hon’ble High Court read as under:-
“It is not necessary for the Commissioner to make further inquiries before canceling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the ITO to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word “erroneous” in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.”
9. In the light of above proposition, let us examine the facts of the present case. Section 263 of the Income-tax Act, 1961 contemplates that the Learned Commissioner may call for and examine the record of any proceedings under this Act, and if, he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving an opportunity of hearing to the assessee and after making an inquiry pass such order thereon as the circumstances of the case justify. He may enhance the assessment order by modifying it, he may cancel it and he may direct a fresh inquiry. In the present case, Learned Commissioner has modified the assessment order by enhancing the capital gain disclosed by the assessee. Learned V.O. failed to take cognizance of a similarly situated sales instances which were available to him at the time of determining the fair market value. The auction at Vasant Kunj is prior to the sales effected by the assessee, therefore, to the extent that he failed to take cognizance of a similarly situated sales instances, the report of the V.O. can be termed as an erroneous one which has been effected in the assessment order and which resulted the assessment order as erroneous. The cognizance taken by the Learned Commissioner to that extent can be justified and we uphold the action to this extent.
10. The next fold of issue agitated before us is whether the Learned Commissioner is justified in substituting full value of consideration disclosed by the assessee on transfer of a capital asset with the fair market value. Sections 45, 48 and 50C of the Act have a direct bearing on the issue, therefore, we deem it appropriate to take note of the relevant part of these sections. The same are as under:
“Capital gains.
45. (I) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H be chargeable to income tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place”.
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“48. The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:-
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the asset and the cost of any improvement thereto”.
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Special provision for full value of consideration in certain cases.
50C. (1) where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed [or assessable] by any authority of a State Government (hereinafter in this section referred to as the “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed [or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer”.
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11. A bare perusal of section 45 would suggest that on transfer of a capital assets, the capital gain or profit arising to an assessee would be deemed to be the income of the assessee of the previous year in which the transfer took place. This action provides certain conditions if those are adhere to by an assessee then such gain would be exempt from tax. These conditions are provided in sections 54, 54B, 54D and 54E etc. In those clauses a mechanism has been provided for utilization of the capital gain and further investment. These are not relevant for the controversy in hands. Thereafter, section 48 provides mode of computation and it suggests that from full value of the consideration, the expenditure enumerated in clause (i) and (ii) would be deducted. This section talks of full value of consideration. Section 50C is a special provision which creates a deeming fiction, where full value of consideration can be substituted by an amount which has been adopted as a value of the capital assets for the purpose of making payment of stamp duty as determined by the stamp valuation authority. In the present case, the assessee has shown the full value of consideration more than this stamp duty valuation, therefore, this section is also not very relevant. The case of the revenue is that it wants to replace the full value of consideration provided in section 48 with the fair market value. This aspect has been dealt with elaborately by the ITAT in the case of Chanderkant R. Patel and we cannot do better than to extract the lucid discussion made by the ITAT in that case. The brief facts in that case are that assessee was a co-owner in two plots bearing Nos. 181/1 and 161/1, situated at T.P. Scheme, Vejalpur, Ahmedabad. These plots were sold. The Assessing Officer has made a reference to the DVO in order to determine the fair market value of the property for computing the capital gain. It emerges out that assessee has shown capital gain at Rs.1032,32,364. The DVO has determined the fair market value at Rs.6613,74,000. Assessing Officer sought to compute the capital gain on the basis of this report. The ITAT did not approve this course of the Assessing Officer by observing as under:
“9. We have heard both the sides at some length and also carefully perused the orders of the authorities below in the light of short compilation filed before us as also the case laws cited. A question has time and again cropped up before us being raised from the side of the Revenue that what are the implications of deletion of section 52 from I. T. Act. From the side of the Revenue, it has always been challenged, that too fervently, that in case of understatement of consideration whether the A.O. is powerless in not substituting the sale consideration for the purpose of computation of capital gain. In addition to this basic apprehension as also contention, as far as this appeal is concerned, few other points on merits have also been contested before us. We shall first take up the legal aspect as strongly contested before us by both the sides.
9.1. Section 52 of the Act was an empowering section through which the ITO had been enshrined with the powers to substitute the amount of consideration by the fair market value in respect of transfer of a capital asset if in his opinion the consideration for such transfer was under-stated. It was very wide and effective section through which the A.O. used to make reference to DVO to ascertain the fair market value of the property. This section was considered to be arbitrary in nature, hence it was omitted from the statute by the Finance Act, 1987 w. e. f. 1-4-1988. In the wisdom of Hon’ble Parliament if a section is no more in the statute then naturally the intention of the constitutional body has to be followed and respected. It is worth to mention that section 52, as it stood before its omission, has used two phraseology, one was “fair market value” and the other was “full value of consideration”. In that section it was very much clear that where a person transfer a capital asset with the object to avoid or reduce the liability u/s. 45 then the full value of consideration for the transfer shall be substituted by the Fair market value of the capital asset as determined by the A.O. After its deletion, there is no such wordings in any of the sections relevant for the said purpose. We shall take up right now hereinbelow those applicable provisions, through which the fair market value can take place the full value of the consideration. The reason for this discussion is the apprehension expressed by Ld. D.R. Mr. Madhusudan but his apprehension cannot be answered by this forum and we have to confine ourselves within the ambits of the provisions of the I. T. Act as applicable on the present facts and circumstances of this case.
9.2 Now, we shall deal with the provisions of section 55A of the I. T. Act, as contested by Mr. Madhusudan before us. The language of the section reads as follows:-
Section 55A.
“With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of capital asset to a Valuation Officer-
(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less than its fair market value ;
(b) in any other case, if the Assessing Officer is of opinion :
(i) that the fair market value of the asset exceeds the value of the assets as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or
(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do,
and where any such reference is made, the provisions of subsections (2), (3), (4), (5), and (6) of section 16A, clauses (ha) and (i) of sub-section (3A) and (4) of section 23, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.
Explanation.-In this section, “Valuation Officer” has the same meaning, as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).”
10. This section is meant only to ascertain the “fair market value of a capital asset”. This section is operative on Chapter IV of I. T. Act, i.e. for the purpose of computation of capital gains. Charging section for Capital gain is section 45 which prescribes that any profits and gains shall be chargeable to Income-tax under the head capital gains for the purpose of section 48. For the purposes of section 48, whatsoever, either value of any money or the fair market value of the asset on the date of such receipt shall be deemed to be full value of the consideration received or accruing as a result of transfer of such asset. However, section 48 prescribed that for the purposes of the computation of capital gain the full value of consideration, has to be taken into account. This section does not refer the fair market value for the purposes of charging capital gain. For the sake of ready reference relevant portion is reproduced ….
Section 48
Mode of computation. The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :-
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the asset and the cost of any improvement thereto:
11. In this context the Ld., A.R. Mr. Shah has further explained that in section 45 at some places the term “fair market value” has been mentioned for e.g. section 45(4) of I. T. Act, but that mention is for the specific purpose of determining the value of distribution of capital asset on the dissolution of a firm. Then he has quoted section 45(2) which is with a specific purpose of transfer by way of conversion of a personal capital asset into the stock in trade. Mr. Shah has also pointed out that in section 45(1A), as well, there is a mention of fair market value but it is in respect of profits and gains to be received from an insurer on account of damage or destruction due to natural calamity, flood, earthquake etc., On the basis of these arguments a conclusion can be drawn that since the language in section 55A do not refer “value of consideration’ but only used the wordings ‘fair market value’ then its applicability for the purpose of reference to a valuation officer has to be exercised within that limited area, so the scope is also confined to determine the fair market value of a capital asset only. The outcome of this discussion thus, leads to a conclusion that even if the AO has called for a report to determine the fair market value of a capital asset but considering the language of section 48 of the I.T. Act, the same cannot be substitute the “full value of the consideration”. In fact, this issue had come up before the Hon’ble Delhi High Court in the case of CIT v. Smt. Nilefer I. Singh reported at 309 ITR 233 (Del), wherein it was dealt with in the following manner:-
“When a sale of property takes place, the capital gains arising out of such a transfer has to be computed by taking into account the full value of the consideration received or accruing as a result of such transfer. From the full value of the consideration, the amount of expenditure incurred wholly and exclusively in connection with such transfer as also the cost of acquisition of the asset and the cost of any improvement thereto have to be deducted. The expression “full value of consideration” cannot be construed as having reference to the market value of the asset transferred but only means the full value of consideration received by the transferor in exchange of the capital asset transferred by him. In the case of a sale the full value of consideration is the full sale price actually paid. “Full value” means the whole price without any deduction, whatsoever, and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor does it have any necessary reference to the market value of the capital asset which is the subject matter of the transfer. The full value of consideration does not have any reference to the market value but only to the consideration referred to in the sale deeds as the sale price of the assets which have been transferred.
The reference to a Valuation Officer under section 55A is for the object of ascertaining the fair market value of a capital asset. It is only when the Assessing Officer is required to ascertain the fair market value of a capital asset in such cases as covered by section 45(4) or section 45(1A) that the provisions of section 55A can be invoked.”
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“Held, dismissing the appeal, that the full value of the consideration was the sale price of the two properties sold by the assessee. In such a case, there was no necessity for computing the fair market value. Thus, the Assessing Officer could not have referred the matter to the Valuation Officers.”
12. On careful reading of the above judgement of Hon’ble Delhi High Court it emerges that the area of operation of Section 55A of the Act is “to ascertain the fair market value of a capital asset”. Since section 48 of the Act through which capital gain is computed prescribe to compute the gain on the “full value of the consideration received or accruing as a result of the transfer”. Therefore, section 55A cannot give any assistance to compute the capital gain u/s.48 of the I.T. Act. In our humble understanding the expression “full value of consideration” (Sec. 48 ) does not have the same meaning and can not be used in place of “fair market value” (Sec. 55A). To elaborate this point, section 48 do not prescribe that the capital gain is to be computed on the fair market value of a capital asset, but it only prescribes to charge capital gain on the consideration received, therefore , section 55A cannot be used for the purpose of computation of capital gain u/s.48 of I.T. Act. Even further, we elaborate that section 55A is meant only to ascertain the fair market value of a capital asset but not meant to determine the full value of the consideration received as a result of the transfer therefore section 55A has its own limitation for its operation. The Hon’ble Delhi High Court had taken into consideration the language of both the sections and thereupon given a verdict that the events under which a reference to a Valuation Officer can be made is like the once acquiring in section 45(4) or section 45(1A) of I.T. Act. The Court has concluded that since section 48 do not prescribe the determination of capital gain on “Fair Market Value”, hence out of the ambits of reference prescribe u/s. 55A of the Act. In the light of the above discussion as also following the case law cited supra, we hereby reject the Ground No. 1 of the Revenue.
12.1 The expression ‘fair market value’ has also been used in respect of ‘cost of acquisition’ where a capital asset became the property of the assessee before 1st day of April 1981 as per Section 55(2)(b) of the Act. For the purpose of computation of Capital Gain U/s 48 the fair market value can be taken into consideration in place of cost of acquisition and for that purpose the valuation can be referred to a Valuation Office. Therefore, this provision further strengthen the argument that the Legislature has provided in the statute to determine the fair market value of the cost of acquisition but it has not been provided to disturb the sale price with the fair market value.
13. Scope of reference u/s.55A vis-a-vis section 50C of I.T. Act. As discussed hereinabove section 50C of the Act is titled as “Special provision for full value of consideration in certain cases”. Meaning thereby this section is not applicable to each and every case of sale but this is to be applied in respect of those sales instances where consideration received is less than the value adopted by the stamp valuation authority for the purpose of payment of stamp duty in respect of such transfer. In that situation, for the purpose of section 48 of the Act i.e. computation of capital gain, value so adopted by the stamp valuation authority be deemed to be the full value of the consideration received as a result of such transfer. Meaning thereby the substitution of full value of consideration is possible, if the disclosed consideration is less than the value determined for payment of stamp duty. It has also been prescribed that where the assessee claims that the value adopted by the stamp valuation authority exceeds their fair market value or the value so adopted by the stamp valuation authority is not decided by any other Court or High Court, then the AO may refer the valuation of the capital asset to a Valuation Officer u/s. 55A of I.T. Act. Therefore the conclusion is that the Act has prescribed that a reference u/s. 55A can be made for a limited purpose as prescribed u/s. 50C of the I.T. Act. Wherever the legislature considered it proper, a provision for reference to DVO has been prescribed in the Statute, but reference u/s. 55A is not prescribed to be applied in each such case merely on the sweet will of the AO. We can, therefore, hold that if a reference can be made to ascertain the fair market value of a property, then wherever this phrase i.e. “to determine the fair market value of the property” is used there only the recourse of section 55A is possible. In this context, few decisions, namely Jitendra Mohan Saxena 117 TTJ 975/ 305 ITR 62 ( AT) (Lucknow) and the decision Punjab Poly Jute Corporation 120 TTJ 1113/313 ITR 178 (AT) (Amritsar) can also be cited. It was ruled that the scope of section 50C of the Act is in respect of arriving at the full value of consideration if it is lower than the stamp duty value, then the AO is justified to make a reference u/s. 55A to DVO. In other words, we can thus hold that for the purposes of the computation of capital gain u/s. 48, a reference can be made to DVO only in a situation as prescribed u/s. 50C of the Act. and not otherwise. In the light of the above discussion, we hereby dismiss ground No.2 of the Revenue.
14. In this regard, we have also examined the provisions of Section 142A of the I.T. Act titled as “Estimate by Valuation Officer in certain cases”. This section prescribes that for the purpose for making an assessment where an Estimate of the value of any investment referred to in section 69, 69B, 69A is required to be made the AO may require the Valuation Officer to make an estimate of such value and report the same to AO. Therefore, the area of operation and the scope of section 142A is limited in its span i.e. only to determine the value of investment in respect of certain assets, such as, bullion, jewellery, valuable articles etc. In this section as well there is no power vest with AO to seek the help of Valuation Officer in respect of determination of capital gain prescribed u/s.48 of the Act.
14.1 It is very interesting, as also important, to note that with effect from 01/07/2010 a clause has been inserted by the Finance Act, 2010 which says, quote, “of fair market value of any property referred to in sub-section (2) of section 56”, unquote. By the insertion of this clause, the scope of valuation U/s 142A has been enlarged by including the property referred in section 56(2) to determine its fair market value. Section 56(2) is in respect of certain assets, the income from which is subject to tax u/s.56 i.e. under the head “Income from other sources”. The fair market value of the properties which generate dividend income, interest income, hiring income, etc. can now be determined by the DVO. To remove any doubt vide an Explanation annexed to section 56(2), “fair market value” is defined that the value is to be determined in respect of the properties in accordance with the method as prescribed under Rule 11U and 11UA of the I.T. Rules, 1962. Rule 11UA is in respect of determination of fair market value for the purposes of section 56 of the property, such as, valuation of jewellery, valuation of archaeological collection, drawings, paintings, valuation of shares and securities, fair market value of unquoted equity shares and securities, etc. Therefore, the area operation of section 142A is limited in its range and confined to the provisions of section 69, etc. and section 56(2) of I.T. Act. A conclusion therefore can be drawn and it is significant to mention that while inserting a clause of valuation for the properties prescribed u/s.56(2), the legislature had in its wisdom thought it proper not to include any other kind of property within the scope of valuation as per section 142A of the Act. Hence, again a conclusion can be drawn that even the provisions of section 142A of the Act, do not subscribe to substitute the full value of consideration for the purpose of capital gain u/s.48 of the Act.
15. Before we part with, we may like to refer that in the case of Punjab Poly Jute Corporation 313 ITR 178 (AT) (Amritsar) the Respected Co-ordinate Bench has opined that where a property is registered at a particular rate, which was adopted for registration purpose, then there was no question of replacing the valuation adopted by the stamp valuation authority with the value determined by the Departmental Valuation Officer for the purpose of computing the capital gain. Since the stamp valuation authority had accepted the consideration declared by the assessee in the sale deed, there was no question of once again referring the matter to the Departmental Valuation Officer. Our attention has also been brought on an another decision of Hon’ble Delhi High Court in the case of Dev Kumar Jain 309 ITR 240 (Del) wherein it was observed that a combined reading of section 55A and section 48 shows that when a sale of property takes place the capital gains arising out of such a transfer has to be computed by looking at the full value of the consideration received or accruing as a result of such transfer. The expression “full value of sale consideration” is not the same as “fair market value” as appearing in section 55A. It was held that for the purposes of computing capital gains, there is no necessity for computing the “fair market value”.
16. The summum bonum of above legal and factual discussion is that section 45 talks about substitution of fair market value with the full value of consideration only in certain special circumstances, such as, determination of value of damage as a result of flood, riot, accident, fire, etc (Sec. 45(1A). Section 45(4) also prescribes that the fair market value be deemed to the full value of the consideration in respect of distribution of capital asset on the dissolution of a firm. Certain specific instances have been prescribed under the Act and only under those circumstances the fair market value can be substituted with the amount of full value of consideration. But as per above discussion, there is no such clause of substitution while computing the capital gain u/s. 48 of the Act and the gain has to be computed on the basis of the “full value of the consideration”. We have also arrived at a conclusion that a reference to Valuation Officer u/s.55A of the Act can be made to ascertain the fair market value of a capital asset. We have also concluded that section 48 is, therefore, out of the scope of Valuation made u/s.55A because capital gain is to be taxed on the amount of consideration received on transfer of asset. We hereby also opine that having regard to the nature of the asset, if the AO is of the opinion, that valuation of the capital asset is required, but such reference can be made only to ascertain the fair market value, therefore, the applicability of section 55A(b)(ii) is also limited one. We have read section 50C alongwith these connected sections and then arrived at a conclusion that the AO is empowered to refer for valuation of a capital asset under specific circumstances as prescribed under this section provision of section 50C where he has found that the consideration received is less than the stamp duty. Whereas in the present appeal there is a finding on facts that the consideration is not less than the stamp duty. Admitted factual position is that the “Jantri’ rate as per the ‘Stamp Duty Authority’ was at Rs. 4,500/- and Rs.7,000/- per sq.meter respectively for the Plot Nos. 161/1 & 181/1; whereas the assessee had sold them @ Rs. 41,860/- per sq.mtr. Therefore we hereby hold that the AO was not empowered to refer to DVO because as per section 50C(2) the AO may refer the valuation of a capital asset where assessee claims before AO that the value adopted by the Stamp Valuation Authority exceeds the fair market value of the property as on the date of transfer. Due to this reason, the valuation as suggested by DVO and the consequential addition as made by the Assessing Officer is hereby reversed. In the result, the view taken by the ld.CIT(A) is hereby upheld and the Ground No.3 raised by the Revenue is dismissed. Resultantly, all the grounds are dismissed. 17. In the result, all the appeals of the Revenue are hereby dismissed”.
12. The ITAT, Ahmedabad Benches has considered the judgment of Hon’ble Delhi High Court in the case of Smt. Nilofer I. Singh (supra) apart from the other decisions. In our opinion, this judgment is fully applicable on the facts of the present case. The full value of consideration cannot be replaced by fair market value. Respectfully following the orders of the Co-ordinate Bench, which is based on the authoritative pronouncement of the Hon’ble Delhi High Court, we are of the view that the action of the Learned Commissioner for substituting the full value of consideration disclosed by the assessee with the fair market value is not sustainable. The order of the Learned Commissioner is quashed to this extent.
13. Since the issue whether the sales consideration disclosed by the assessee at Rs.11.70 crores is to be adopted or an amount of Rs. 12,78,79,481 adopted by the Assessing Officer on the strength of valuation report is not before us. We have informed that it is being agitated in a separate proceedings, therefore, it is not within our purview to disturb the figure adopted by the Assessing Officer in the present proceedings. Our finding is confined to the amount of Rs. 33,47,66,257 directed to be substituted in place of Rs. 12,78,79,481 by the Learned Commissioner. This amount of Rs. 33,47,66,257 cannot be substituted. The appeal of the assessee is partly allowed.
