By C. N. Vaze, Shailesh Kamdar, Chartered Accountants
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Part A — Reported Decisions
46 (2008) 22 SOT 156 (Delhi)
Tej Pratap Singh v. ACIT
ITA No. 4601 (Del.) of 2004
A.Y. 1999-2000. Dated : 31-12-2007
S. 48 read with S. 147 of the Income-tax Act, 1961 — Capital
gain is to be computed and taxed on the basis of provisions contained u/s.48 and
it cannot be computed on the basis of fair market value of asset as determined
by Valuation Officer. Therefore, assessment cannot be reopened for taxing
capital gain in respect of an asset on basis of market value of asset as
estimated by DVO.
The return filed by the assessee was processed u/s.143(1)(a)
by the Assessing Officer. Subsequently, the Assessing Officer reopened the said
assessment of the assessee for the reason that the valuation of the land was
estimated by the DVO at Rs.2,73,281 as against Rs.50,000 shown by the assessee
and, thus, the income chargeable to tax had escaped assessment for the A.Y.
1999-2000.
The Assessing Officer completed the reassessment proceedings
by calculating capital gains based on the fair market value as determined by the
DVO. The CIT(A) confirmed the computation done by the Assessing Officer.
The Tribunal ruled in the assessee’s favour. The Tribunal
noted as under :
(a) A perusal of the reasons recorded for the reopening
indicates that the belief of the Assessing Officer regarding escapement of the
income of the assessee is based only on the opinion of
the Valuation Officer. It is also found that before making reference no
material was examined by him. He did not see any other material except the
valuation report. Thus, it is clear that the Assessing Officer has not made
any judicial application of mind for reopening the assessment. He made no
enquiry from the assessee or from any other source, nor examined the books of
account of the assessee before doing so.
(b) In view of the above facts, the reference made to the
Valuation Officer was itself illegal and consequently non est. When the
reference itself is illegal and non est in law, the report submitted in such
reference, consequently, cannot be relied upon to initiate reassessment
proceedings. It was so held by the Rajasthan High Court in the case of
Brig. B. Lall v. ITO, (1981) 127 ITR 308. In the case of Bhagwandas
Jain v. Dy. CIT, (2000) 246 ITR 632, the M.P. High Court, after following
the decision of the Rajasthan High Court in the case of Brig. B. Lall (supra),
held that reopening of the assessment on the basis of valuation report is not
valid.
(c) On examination of S. 48, it is clear that the capital
gain is to 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 cost
of acquisition and expenditure incurred in connection with the transfer. The
expression ‘full value of the consideration’ does not mean ‘market value’ or
‘fair market value’ of the asset transferred. Hence, capital gain tax cannot
be computed and levied with reference to the market value determined on the
basis of valuation report.
(d) The Delhi Bench of the ITAT in the case of Ashok
Soni v. ITO, (2006) 10 SOT 39 (URO), after following the decisions of the
Supreme Court in the cases of K. P. Verghese v. ITO, (1981) 131 ITR 597
and CIT v. George Henderson & Co. Ltd., (1967) 66 ITR 622 (SC) and
various other authorities, has observed as under :
“In the absence of any material with the Assessing Officer
to show that the assessee has received more amount than the consideration
shown in the concerned document, the action of the Assessing Officer in
substituting the full value of consideration by the fair market value as
stated by the Departmental Valuation Officer in his report for computation of
capital gains was not valid.”
(e) The valuation report is an expert opinion at the most.
In relation to the transaction of transfer such report cannot be treated to be
proof of the fact that there is some underhand dealing and consideration has
passed more than what is disclosed.
