Case Law Details

Case Name : Income tax Officer Vs Mohinder Nath Sehgal & Sons (ITAT Chandigarh)
Appeal Number : IT Appeal No. 444 (CHD.) OF 2010
Date of Judgement/Order : 11/06/2010
Related Assessment Year : 2006-07
Courts : All ITAT (4213) ITAT Chandigarh (105)

IN THE ITAT CHANDIGARH BENCH ‘A’

Income tax Officer

V/s.

Mohinder Nath Sehgal & Sons

IT APPEAL NO. 444 (CHD.) OF 2010

[ASSESSMENT YEAR 2006-07]

JUNE 11, 2010

ORDER

Ms. Sushma Chowla, Judicial Member

The appeal by the Revenue is against the order of CIT(A)-II, Ludhiana, dt. 17th Feb., 2010 relating to asst. yr. 2006-07 against the order passed under s. 143(3) of the IT Act.

2. The Revenue has raised the following ground of appeal :

“On the facts and circumstances of the case the learned CIT(A) has erred in deleting the addition of Rs. 8,77,400 made by the AO on the basis of port of Departmental valuer.”

3. The only issue raised in the present appeal is in respect of computation of capital gains. The assessee during the year under consideration had sold the property against which income from long-term capital gains was shown. The assessee had shown the sale consideration at Rs. 15,25,000. The AO referred the valuation in the case to the Departmental valuer under s. 55A of the IT Act to assess the fair market value of the property. As per the report of the DVO, the fair market value on the date of sale was Rs. 24,02,400. The learned counsel for the assessee pointed out that the rates adopted by the valuer were of Devi Talab Mandir locality, whereas property was situated in Gali Palian. The AO made local enquiries and it was gathered that the property was situated in Devi Talab Mandir locality not in Gali Palian, which was in conformity with the report of the Valuation Officer. The AO computed the income from long-term capital gain by adopting the fair market value of the property at Rs. 24,02,400. The CIT(A) observed that in the facts of the present case provisions of s. 50C of the Act have not been applied and as the said provisions were not applied, the contention of the learned counsel for the assessee, that provisions of s. 55A of the Act do not empower the AO to make a reference to the DVO for determining “full value of consideration” does not apply, are correct. The computation is to be made under s. 48 under which ‘full value of consideration’ is to be taken into account, whereas under s. 55A of the Act, fair market value of a capital asset is determined. The CIT(A) thus held that the fair market value estimated by the DVO under s. 55A of the Act could not be substituted for the full value of consideration. Reliance was placed on the ratio laid down by the Hon’ble Delhi High Court in CIT v. Smt. Nilofer I. Singh [2009] 176 Taxman 252. The CIT(A) deleted the addition made by the AO. The Revenue is in appeal against the order of the CIT(A).

4. Mr. S.S. Kemwal appeared for the Revenue and Shri Navneet Sehgal appeared for the assessee and put forward their contentions.

5. We have heard the rival contentions and perused the records. The only issue arising in the appeal is whether while computing the income from capital gains, the fair market value of the property on the date of sale can be adopted as against the sale consideration received by the assessee. We find that similar issue as in the present appeal has arisen before the Tribunal in the case of Dy. CIT v. Dharam Pal Aggarwal in IT Appeal No. 498/Chd./2008, relating to asst. yr. 2006-07, wherein vide order dt. 7th Oct., 2009 it was held as under :

“9. The said s. 48 of the Act provides that for computing the income under the head capital gains, the full value of consideration received or accruing as a result of the transfer of the capital asset is to be taken and thereafter any expenditure incurred wholly and exclusively in connection with such transfer and also the cost of acquisition of the asset and the cost of any improvement is to be deducted for computing the income.

10. Under s. 55A of the Act, the AO is empowered to make a reference to the Valuation Officer for ascertaining the fair market value for the purposes of this chapter.

11. Their Lordships of Hon’ble High Court in the case of CIT v. Smt. Nilofer I. Singh (supra) on similar issue as arisen before us, had held as under :

‘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 of 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.’

Their Lordships further held as under :

‘The reference to a Valuation Officer under s. 55A is for the object of ascertaining the fair market value of a capital asset. It is only when the AO is required to ascertain the fair market value of a capital asset in such cases as covered by s. 45(4) or s. 45(1A) that the provisions of s. 55A can be invoked.’

12. In the facts of the present case before us, the provisions of s. 50C of the Act were not invoked and applied by the AO. In any case, the sale consideration received by the assessee was higher than the value as per the registering authority, as claimed by the assessee. The AO made a reference under s. 55A of the Act and adopted the value determined by the DVO as on the date of sale as consideration for computing the capital gains on sale of asset. The DVO in the present case had worked out the value of property as on the date of sale at Rs. 2,40,00,400. Applying the ratio of the Hon’ble Delhi High Court in the case of CIT v. Smt. Nilofer I. Singh (supra) to the facts of the present case before us, we find no merit in the order of the AO in making a reference to the Valuation Officer and adopting the fair market value determined by the DVO in place of value of consideration disclosed by the assessee. The AO has failed to bring on record any evidence to prove that the assessee has received any consideration other than the consideration mentioned in the sale agreement. Under the provisions of s. 48 of the Act for computing the income from long-term capital gains on sale of the capital asset the full value of consideration is to be adopted as the starting point and thereafter deductions are to be allowed as per the provisions of the said section. We are in conformity with the order of the CIT(A) in holding that the full value of consideration in the present facts is to be adopted at Rs. 1.60 crores being the sale value of the transaction agreed between the parties and thereafter compute the income from long-term capital gains on sale of property. Thus, we dismiss the around of appeal raised by the Revenue.”

6. In the facts of the present case, the assessee had sold the property situated in Gali Talien, Jalandhar for a total consideration of Rs. 15.25 lacs. The said value of consideration was accepted by the registering authorities and was not disturbed. The provisions of s. 50C of the Act were neither applicable nor applied by the AO. The AO referred the assessability of fair market value of the property sold by the assessee to the Departmental valuer under s. 55A of the Act. The DVO computed the value at Rs. 25,02,400, which was adopted by the AO as the basis for computing the long-term capital gains. Under the provisions of the IT Act under s. 45, the full value of consideration is to be adopted for computing the income from capital gains. Under the provisions of s. 50C of the Act, fair market value estimated by the registering authority is deemed to be the full value of consideration. However, there is no provision under the Act under which the fair market value assessed by the DVO is to be taken as the full value of consideration. We find no merit in the order of the AO in adopting the fair market value determined by the DVO as the full value of consideration for computing the income from capital gains. We are in conformity with the order of CIT(A) that the issue in hand is covered by the ratio laid down by the Hon’ble Delhi High Court in Smt. Nilofer I. Singh (supra) and also following the ratio laid down by the Tribunal in the case of Dharam Pal (supra), we uphold the order of CIT(A) and dismiss the grounds of appeal raised by the Revenue.

7. In the result, appeal of the Revenue is dismissed.

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