Income Tax Appellate Tribunal - Delhi
Ashok Soni vs Income Tax Officer on 9 June, 2006
Equivalent citations: (2006)102TTJ(DELHI)964
ORDER
N.V. Vasudevan, J.M.
1. This is an appeal by the assessee against the order dt. 8th Sept., 2002 of learned CIT(A)-XIX, New Delhi, relating to the asst, yr. 1997-98.
2. The facts and circumstances under which the present appeal arises are as follows. The assessee is an individual. He had filed a return of income declaring an income of Rs. 1,42,730. This income was nothing but the salary income from the firm M/s Super Chemical Distributors of which he was a partner and interest on capital contributed to the aforesaid firm. The return was accepted under Section 143(1) of the Act.
3. In the course of assessment proceedings under Section 143(3) in the case of Super Chemical Distributors, the AO noticed that there was an addition of Rs. 19,30,000 to the capital account of the assessee as partner of M/s Super Chemical Distributor as appearing in the books of M/s Super Chemical Distributors. Rs. 18,00,000 out of the aforesaid addition was explained as contribution out of sale consideration received on sale of plot at Pusa Road. The assessee had sold the aforesaid property, viz., Plot No. 6, Site No. 21, New Rajendra Nagar measuring 126 sq. mts to one Sri Bhupendra Singh. The sale consideration as per the registered sale deed was Rs. 18 lakhs. In the return of income, the assessee had not furnished any information in respect of the capital gain on sale of this property. The AO referred the valuation of the aforesaid property to the District Valuation Officer (DVO for short), Rohith House, New Delhi, who reported that the fair market value of the property was Rs. 28,46,214. Reassessment proceedings were, therefore, initiated in the case of the assessee under Section 148 of the IT Act. In the reassessment proceedings, the assessee claimed that there was a long-term capital loss on the sale of this property. This was found to be not correct by the AO since no details were furnished by the assessee. The assessee further submitted that the AO cannot make a reference to the DVO for ascertaining the full value of the consideration received by the assessee on transfer of the property for the purpose of computation of capital gain. In this regard the assessee relied on the decision of the Hon'ble Supreme Court in case of K.P. Varghese v. ITO . The AO however held that the decision of the Supreme Court was rendered in the context of Section 52(2) of the Act and that section was no longer on statute. The assessee had also submitted that 50 per cent of the unearned increase in land rent is payable to DDA and the same has to be deducted from the value determined from the DVO. This was also rejected by the AO and he computed the capital gain on sale of the property as follows:
____________________________________________________________________ Capital gain 1,45,560 _____________________________________________________________________ Sale consideration being fair market value as per valuer's report as discussed above 28,46,214 Less : Indexed cost of acquisition of the plot 1610000x305 22,02,017 __________ _________ 223 6,44,197 _______________________________________________________________________
4. Before the learned CIT(A), the assessee reiterated its claim that no reference could be made to the DVO for estimating the full value of consideration received by an assessee on transfer. This was rejected by the learned CIT(A). All other objections regarding valuation of the property was also rejected by the learned CIT(A). The learned CIT(A) thus confirmed the order of the AO, hence the present appeal by the assessee before the Tribunal.
5. We have heard the submissions of the learned Counsel for the assessee and the learned Departmental Representative. The primary question that would arise for our consideration would be as to whether the AO was justified in substituting the full value of consideration by the fair market value on the basis of the DVO's report. Section 48 of the Act lays down the method of computation of capital gain. It says that from the full value of consideration received on transfer of a capital asset, the expenses incurred in connection with the transfer and the cost of acquisition of the capital asset has to be deducted. From the facts available on record it is clear that the sale consideration as per the registered document was only a sum of Rs. 18 lakhs. There was no material available with the AO to show that the assessee received much more than a sum of Rs. 18 lakhs as shown in the registered documents. The question as to whether the AO could make a reference to the DVO in the circumstances set out above had come up for consideration in several judicial pronouncements. In the case of CIT and Anr. v. George Henderson and Co. Ltd the meaning of the term "full value of consideration" came up for consideration. The question before the Government (Court) was as to whether the very asset parted with itself be regarded as consideration for transfer. The Court held as follows:
It is manifest that the consideration for the transfer of capital asset is what the transferor received in lieu of the asset he parts with, namely, money or money's worth and, therefore, the very asset transferred or parted with cannot be the consideration for the transfer. It follows, that the expression 'full consideration' in the main part of Section 12B(2) of Indian IT Act, 1922, cannot be construed as having a reference to the market value of the asset transferred but the expression means only the full value of the thing received by the transferor in exchange for the capital asset transferred by him. The consideration for the transfer is the thing received by the transferor in exchange for the asset transferred and it is not right to say that the asset transferred and parted with is itself the consideration for the transfer. The main part of Section 12B(2) provides that the amount of capital gain shall be computed, after making certain deductions from the 'full value of the consideration for which the sale, exchange or transfer of the capital asset is made'. In the case of a sale, the full value of the consideration is the full sale price actually paid. The legislature had to use the words 'full value of the consideration' because it was dealing not merely with sale but with other types of transfer, such as exchange, where the consideration would be other than money.
Section 52 of the IT Act, 1961 provided as follows:
Section 52. Consideration for transfer in cases of understatement(1) Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the ITO has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under Section 45, the full value of the consideration for the transfer shall, with the previous approval of the TAG, be taken to be the fair market value of the capital asset on the date of the transfer.
(2) Without prejudice to the provisions of Sub-section (1), if in the opinion of the ITO the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the full value of the consideration declared by the assessee in respect of the transfer of such capital asset by an amount of not less than fifteen per cent of the value so declared, the full value of the consideration for such capital asset shall, with the previous approval of the IAC, be taken to be its fair market value on the date of its transfer.
The provisions of Section 52 of the IT Act, 1961 existed upto 30th March, 1988 and was deleted by the Finance Act, 1989 w.e.f. 1st April, 1988.
The Hon'ble Supreme Court in the case of CIT v. Shivakami and Co. (P) Ltd. was concerned with' the case of computation of capital gains on sale of shares. The shares were not quoted in the stock exchange. There was no evidence to show that the consideration over and above what was stated to have passed between the parties had in fact passed. The question was whether in the circumstances whether the AO was entitled to value the sale value received by the assessee adopting the break-up value method of valuation of shares. The first proviso to Section 12B(2) of the Act of 1922 was in existence at the relevant point of time. These provisions were the same as Section 52(1) of the Act of 1961. The Hon'ble Supreme Court held as follows :
(i) Though the legislation in question is to remedy a social evil and should be read broadly and should be so read that the object is fulfilled, yet the onus of establishing a condition of taxability must be fulfilled by the Revenue.
(ii) Unless there is evidence that more than what was stated was received, no higher price can be taken to be the basis for computation of capital gains.
(iii) Capital gains tax was intended to tax the gains of an assessee, not what an assessee might have gained. What is not gained cannot be computed as gained. All laws, fiscal or otherwise, must be both reasonably and justly interpreted whenever possible. Capital gains tax is not a tax on what might have been received or could have been taxed.
6. After deletion of Section 52 w.e.f. asst. yr. 1988-89 it is not possible for the AO to adopt the market value or any other value other than the apparent consideration for sale.
7. In the case of CIT v. Godavari Corporation Ltd. in the context of Section 52(2) which empowered the AO to substitute fair market value when the full value of consideration received by an assessee on transfer is less than the fair market value by 15 per cent, whether in such circumstances, the AO was empowered to make a reference to the DVO to determine the fair market value and whether a reference made by the AO to the DVO in the absence of any material to show that more consideration was received by the assessee was valid or not came up for consideration. The Court held that in the absence of any material to show that more consideration was received the AO cannot make a reference to the DVO. The decision of the Hon'ble" Supreme Court in the case of K.P. Verghese v. ITO (supra) was followed. Again the Hon'ble Madras High Court in the case of CIT v. Sudha Transports held that in absence of evidence that the transferor has received an amount greater than that was disclosed, the Revenue was not entitled to assess the capital gain at a higher value than declared by the assessee. The judicial pronouncements referred to above are quite clear and lay down the ratio uniformly. The learned Departmental Representative however filed before us a copy of the decision of the Delhi Bench of the Tribunal in the case of Hanemp Properties Ltd. v. Asstt. CIT in ITA 3811/Del/2005 wherein the Hon'ble Bench has made the following observations:
It would be seen that in the case of C.B. Gautam, the Hon'ble Supreme Court have laid down that in a case where there is significant undervaluation of the immovable property in the apparent consideration disclosed in the agreement that would give rise to a rebuttable presumption of tax evasion and they have held that this proposition is supported by the earlier decision of the Court in the case of K.P. Verghese v. ITO. On a combined reading of the judgments of the Hon'ble Supreme Court in the case of K.P. Verghese (supra) and in the case of C.B. Gautam (supra), it would be seen that the argument that no matter what is the difference between the fair market value of the property and the apparent consideration disclosed by the parties, there ought to be further positive evidence of any concealed or suppressed consideration being paid to the transferor by the transferee is not legally tenable. In a case where there is significant undervaluation of the immovable property in the disclosed apparent consideration, there would be a rebuttable presumption of understatement of consideration also. In the instant case according to the Revenue while the fair market value of the property on the material date was Rs. 19,45,300 and Rs. 28,38,500, the assessee claimed to have purchased these two properties for Rs. 1,50,000 and Rs. 4,50,000 only. It is not correct proposition in law that no matter what the fair market value of the property is, even the ridiculous consideration shown in the agreement between the parties is binding upon the Department unless and until there is prima facie evidence in possession of the Department of something over and above the disclosed consideration having exchanged hands between the parties. To hold such a view would be nothing short of rendering the task of laundering black money very simple and easy.
8. We may mention here that the decision in the case of C.B. Gautam v. Union of India and Ors. was rendered in the context of provisions of Chapter XX-C of the IT Act whereby the Revenue had a pre-emptive right to purchase an immovable property for the consideration stated in an agreement for transfer between the parties in certain circumstances. The observations of the Bench are contrary to the various judicial pronouncements laid down by Hon'ble Supreme Court in the cases referred to above. We are, therefore, bound to follow the decision of the Hon'ble Supreme Court. As already observed by us, there is no evidence before the Revenue authorities to show or suspect that the sale value declared in the instrument of transfer was understated and that consideration over and above what was stated in the instrument of transfer had passed between the parties. We, therefore, hold that the action of the AO in substituting the full value of the consideration received by the fair market value as stated by the DVO in his report was not in accordance with law. In the circumstances, we hold that there was no capital gain which could be brought to tax in the hands of the assessee. The appeal of the assessee is allowed.
9. In the result, the appeal by the assessee is allowed.