M/s Cranes Polymers Pvt. Ltd, Jalandhar V. The Dy Commissioner of Income Tax, Jalandhar

ITA 119/ASR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3287 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 20-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 12-12-2018
• Assessment Year: 2008-2009
• Appeal Filed On: 06-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J S BHASIN
• Keywords: Capital asset; Depreciation; Cost of acquisition; Fair market value; Avoidance of tax; Valuation report; Onus to prove; Unabsorbed depreciation; Set aside; Capital Gains
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR (SMC) BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. NO. 119/ASR/2017 AS SESSMENT YEAR: 2008-09 CRANES POLYMERS PVT. LTD., B-17, FOCAL POINT EXTENSION, JALANDHAR [PAN: AACCC 0131F] VS. DEPUTY. C. I. T., RANGE-II, JALANDHAR (APPELLANT) (RESPONDENT) I.T.A. NO. 169/ASR/2017 AS SESSMENT YEAR: 2008-09 THE INCOME TAX OFFICER, WARD-II(1), JALANDHAR VS. CRANES POLYMERS PVT. LTD., B-17, FOCAL POINT EXTENSION, JALANDHAR [PAN: AACCC 0131F] (APPELLANT) (RESPONDENT) APPELLANT BY : SH. J. S. BHASIN (ADV.) RESPONDENT BY: SH. CHARAN DASS (D.R.) DATE OF HEARING: 12.12.2018 DATE OF PRONOUNCEMENT: 28.02.2019 ORDER PER SANJAY ARORA, AM: THESE ARE CROSS APPEALS ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, JALANDHAR ('CIT(A)' FOR SHO RT) DATED 20.01.2017, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREINAFTER) DA TED 14.12.2010 FOR THE ASSESSMENT YEAR (AY) 2008-09. ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 2 2. THE ASSESSEE, A COMPANY MANUFACTURING PVC PIPES AND FITTINGS, WAS OBSERVED DURING ASSESSMENT PROCEEDINGS BY THE ASSES SING OFFICER (AO) TO HAVE INCURRED AND CLAIMED A CAPITAL LOSS OF RS.30,85,007 ON SALE OF FIXED ASSETS, BEING THAT FALLING UNDER THE CATEGORY PLANT AND MACHINER Y, HAVING BEEN SOLD (ON 14.04.2007) AT RS.6,81,900 AS AGAINST THEIR WRITTEN DOWN VALUE (WDV) AT RS.37,66,907, I.E., PER ITS RETURN OF INCOME FILED ON 30.9.2008 AT A LOSS OF RS.36,57,392. TO VERIFY THE ADEQUACY OF THE SALE CO NSIDERATION THE ASSETS HAVING BEEN SOLD TO A SISTER CONCERN, M/S. HORIZON POLYMER S (HP), WITH REFERENCE TO THE FAIR MARKET VALUE (FMV) OF THE CAPITAL ASSETS SOLD, THE MATTER WAS REFERRED BY THE AO TO THE VALUATION OFFICER (VO) U/S. 55A OF THE AC T. THE SCOPE OF REFERENCE WAS LATER ENHANCED TO INCLUDE ALL THE ASSETS SOLD, ALL OF WHICH FELL UNDER THE BROAD CATEGORY OF PLANT AND MACHINERY, VIZ. MOULDS AND DIES, GENERATOR, ELECTRICAL INSTALLATION AND FITTINGS, ETC. (I.E., INSTEAD OF O NLY THAT ACCOUNTED FOR UNDER THE ACCOUNT HEAD PLANT AND MACHINERY). THE VO VALUED THE FMV OF THE ASSETS SOLD AT RS. 122.16 LACS, ADOPTING WHICH THE SHORT-TERM CAPI TAL AGAIN (STCG) WAS COMPUTED AT RS.76,02,134, I.E., AFTER REDUCING WDV OF THE RELEVANT ASSETS, IN TERMS OF SECTION 50 OF THE ACT. THE ASSESSEE RAISED SEVER AL ISSUES IN APPEAL, WHICH THOUGH DID NOT FIND FAVOUR WITH THE LD. CIT(A) WHO, HOWEVE R, ALLOWING FOR SOME INFIRMITIES IN THE VALUATION REPORT, ESTIMATED THE SALE CONSIDERATION AT 50% OF THE FMV ARRIVED AT BY THE VO. AGGRIEVED, BOTH THE ASSES SEE AND THE REVENUE ARE IN APPEAL, I.E., FOR THE RELIEF NOT ALLOWED AND, AS CA SE MAY BE, ALLOWED BY THE LD. CIT(A). 3.1 BEFORE ME, THE ASSESSEE CHALLENGED, AS BEFORE T HE FIRST APPELLATE AUTHORITY, THE REFERENCE U/S. 55A, CLAIMING THAT THE PARAMETER S OF SECTION 55A(2)(B) ARE NOT MET. THAT APART, THE CAPITAL GAIN U/S. 50 IS TO BE ARRIVED AT WITH REFERENCE TO THE FULL VALUE OF THE CONSIDERATION, SO THAT NOTWITHSTANDIN G THE DETERMINATION OF FMV BY ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 3 THE VO, AND EVEN AS THE SAME IS ALSO DISPUTED, IT W OULD BE OF NO CONSEQUENCE. THERE IS NO DOUBT EXPRESSED ON THE GENUINENESS OF T HE TRANSACTION; THE ASSESSEE HAVING IN FACT BROUGHT FORWARD CLAIMS OF RS.73.81 L ACS, SO THAT IT IS NOT A CASE OF CLAIM OF LOSS TO SET OFF INCOME TO AVOID TAX. RATHE R, THE SISTER CONCERN (HP), THE BUYER, WOULD STAND TO GAIN IF THE ASSETS WERE INDEE D SOLD AT A HIGHER PRICE BY BEING ENTITLED TO CLAIM DEPRECIATION AT A HIGHER VALUE. R ELIANCE WAS PLACED ON THE DECISION IN PR. CIT V. QUARK MEDIA HOUSE PVT. LTD. [2017] 391 ITR 145 (P&H) AND CIT V. NILOFER I. SINGH [2009] 309 ITR 233 (DEL). FURTHER, THERE WAS IN FA CT LACK OF OPPORTUNITY BEFORE THE VO IN FRAMING HIS RE PORT, WHICH THEREFORE CANNOT BE RELIED UPON. THE DETERMINATION OF THE SALE CONSIDER ATION AT 50% BY THE LD. CIT(A) WAS, IN ANY CASE, AD HOC . 3.2 THE LD. DEPARTMENTAL REPRESENTATIVE (DR), SH. C HARAN DASS, WOULD SUBMIT THAT THE VERY FACT OF THE ASSETS BEING SOLD AT A FR ACTION OF FMV IS ITSELF A CLEAR INDICATION OF THE TRANSACTION BEING NOT GENUINE. N O CIRCUMSTANCE FOR THE SAME HAS BEEN EXPLAINED, MUCH LESS SHOWN, AND AT ANY STAGE. THE AO WAS THUS RIGHT IN HAVING REGARDED THE FMV AS THE FULL VALUE OF THE CO NSIDERATION ARISING TO THE ASSESSEE ON THE TRANSFER OF THE RELEVANT CAPITAL AS SETS, WHICH ALSO JUSTIFIES HIS REFERENCE TO THE VO. THE LD. CIT(A), THUS, ALSO NOT CORRECT IN, WHILE UPHOLDING THE ASSESSMENT, I.E., IN PRINCIPLE, ALLOWING AN AD HOC RELIEF TO THE ASSESSEE. 3.3 IT WAS MADE CLEAR TO THE PARTIES THAT THE DECIS ION BY THE HONBLE JURISDICTIONAL HIGH COURT IN QUARK MEDIA HOUSE PVT. LTD . (SUPRA), BEING BY THE HONBLE JURISDICTIONAL HIGH COURT, ALSO READ OUT DU RING HEARING IN PART, WOULD BE PERUSED AT LENGTH AND FOLLOWED; THE HONBLE COURT H AVING ALSO CONSIDERED SEVERAL JUDICIAL PRECEDENTS, INCLUDING BY THE APEX COURT. A ND THE HEARING CLOSED. ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 4 4. I HAVE HEARD THE PARTIES, AND PERUSED THE MATERI AL ON RECORD. 4.1 SECTION 48 DELINEATES THE MODE OF COMPUTATION O F CAPITAL GAINS IN GENERAL. SECTION 50 PRESCRIBES THE MANNER OF SAID COMPUTATIO N MODIFYING SECTION 48 TO THAT EXTENT, IN CASE OF DEPRECIABLE ASSETS, I.E., I N RESPECT OF WHICH DEPRECIATION HAS BEEN CLAIMED AND ALLOWED, AS THE PLANT AND MACHINER Y TRANSFERRED IN THE INSTANT CASE. BOTH THE SECTIONS STATE OF THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TRANSFER AS THE AMOUNT, AND NOT THE FMV, WHICH IS TO BE TAKEN INTO ACCOUNT. THIS STANDS, FURTHER, ABUNDANTLY CLAR IFIED BY THE APEX COURT PER ITS DECISIONS IN CIT V . GILLANDERS ARBUTHNOT & CO . [1973] 87 ITR 407 (SC) AND CIT V. GEORGE HENDERSON & CO. LTD. [1967] 66 ITR 622 (SC). 4.2 THE QUESTION ARISING IS WHETHER THE STATED CONS IDERATION COULD BE ALTERED IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, I.E. , IN TERMS OF THE LAW AS EXPLAINED BY THE HIGHER COURTS OF LAW. THIS IS AS ONLY WHERE IT IS SO THAT THE FMV, OR ANY VALUE BASED THEREON, AS THE LD. CIT(A) ADOPTS (AT 50% THE REOF), WOULD BE RELEVANT. TRUE, THE FMV IS NOT NECESSARILY THE FULL VALUE OF THE CO NSIDERATION RECEIVED OR ACCRUING ON THE TRANSFER OF A CAPITAL ASSET/S, AND WHICH ONL Y IS RELEVANT. HOWEVER, WHEN SHOWN THAT THE STATED CONSIDERATION CANNOT BE ACCEP TED AS THE PRICE ACTUALLY BARGAINED BETWEEN THE PARTIES, AN INFERENCE AS TO W HAT THAT CONSIDERATION, CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTA NCES, COULD BE ARRIVED AT, AND IT IS IN THIS CONTEXT THAT THE FMV ASSUMES SIGNIFICANCE. IN OTHER WORDS, THERE SHOULD BE CIRCUMSTANCE/S WHICH LEAD TO AN INFERENTIAL FINDING OF THE ASSET/S UNDER REFERENCE HAVING BEEN SOLD AT MARKET VALUE. THIS, STANDS, IN FACT, ABUNDANTLY CLARIFIED BY THE HONBLE COURT IN QUARK MEDIA HOUSE PVT. LTD . (SUPRA), REPRODUCING THE DECISION IN GEORGE HENDERSON & CO. LTD . (SUPRA) WITH SPECIAL REFERENCE TO THE OBSERVATION S BY THE TRIBUNAL IN-AS-MUCH AS A FINDING AS TO THE STAT ED VALUE BEING NOT THE ACTUAL CONSIDERATION IS ESSENTIALLY A QUESTION OF FACT. IN THE FACTS OF THAT CASE AS WELL, THE ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 5 TRANSACTION WAS AT A FRACTION OF THE MARKET PRICE - NOT DISPUTED, WITH NO EXPLANATION FOR THE SAME, SO THAT THE TRIBUNAL UPHELD THE MARKE T VALUE AS THE FULL VALUE OF THE CONSIDERATION. THE APEX COURT, AFTER CLARIFYING THE LAW IN THE MATTER, RESTORED THE MATTER BACK TO THE TRIBUNAL, AS IT FOUND THE LANGUA GE USED BY THE TRIBUNAL IN RECORDING THE ACTUAL PRICE PAID AS OBSCURE, WITH A DIRECTION TO RECORD A CLEAR FINDING OF FACT, I.E., AS TO THE ACTUAL PRICE. THE OBSERVAT IONS BY THE HONBLE HIGH COURT IN THE MATTER, WHICH REPRESENT ITS UNDERSTANDING OF TH E SAID DECISION, REFERRED BEFORE IT, ARE AS UNDER: 15. THE JUDGMENT UNDOUBTEDLY HOLDS THAT THE EXPRES SION FULL VALUE OF THE CONSIDERATION CANNOT BE CONSTRUED AS THE MARKET VALUE BUT AS THE PRICE BARGAINED FOR BY THE PARTIES TO THE SALE. IT IS NECESSARY FOR THE ASSESSING OFFICER TO ASCERTAIN AS TO WHAT WAS THE PRICE BARGAINED FOR BY THE PARTIES TO THE SALE. 16. THE JUDGMENT, HOWEVER, DOES NOT SUPPORT MRS. SU RIS FURTHER SUBMISSION THAT THE PRICE STATED IN THE SALE-DEED MUST IRRESPECTIVE OF ANYTHI NG ALSO BE CONSIDERED TO BE THE SALE PRICE FOR THE PURPOSE OF COMPUTING THE CAPITAL GAIN. IN OUR VIEW THIS ABSOLUTE PROPOSITION IS NOT WELL FOUNDED . THE ASSESSING OFFICER MUST DETERMINE WHETHER THE PRICE STATED IN THE AGREEMENT FOR SALE IS INFACT THE PRICE BARGAINED FO R BY THE PARTIES THERETO. IN OTHER WORDS, THE FULL VALUE OF THE CONSIDERATION IS NEITHER THE MARK ET VALUE NOR NECESSARILY THE PRICE STATED IN THE DOCUMENT FOR SALE BUT THE PRICE ACTUALLY ARRIVE D AT BETWEEN THE PARTIES TO THE TRANSACTION. IF THEREFORE IT IS FOUND THAT THE PRICE ACTUALLY AR RIVED UPON BETWEEN THE PARTIES IS NOT THE PRICE REFLECTED IN THE DOCUMENT, IT IS THE PRICE BARGAINE D FOR BY THE PARTIES TO SALE THAT MUST BE CONSIDERED FOR DETERMINING THE CAPITAL GAIN UNDER S ECTION 48. THE SUPREME COURT DID NOT HOLD THAT INFERENCES CANNOT BE DRAWN BY THE ASSESSI NG OFFICER FROM THE FACTS ESTABLISHED. IN FACT IN PARAGRAPH-5 THE SUPREME COURT OBSERVED THAT THERE WAS NO INFERENTIAL FINDING THAT THE SHARES WERE SOLD AT THE MARKET PRICE OF RS.620/ - PER SHARE . THIS READ WITH THE OPERATIVE PART OF THE ORDER IN PARAGRAPH-6 REMANDING THE MATT ER TO RECORD A FINDING AS TO THE ACTUAL PRICE RECEIVED MAKES IT CLEAR THAT THE FINDING CAN BE BASED ON INFERENCES AS WELL. IN PARAGRAPH-6 THE ASSESSEE IS GIVEN AN OPPORTUNITY TO EXPLAIN THE UNUSUAL NATURE OF THE TRANSACTION. IT CANNOT BE SUGGESTED THAT EVEN IF THERE WAS NO EX PLANATION BY THE ASSESSEE, THE ASSESSING OFFICER WAS BOUND NOT TO DRAW AN ADVERSE INFERENCE . 17. EVEN ON PRINCIPLE WE SEE NO REASON TO DENUDE THE AS SESSING OFFICER THE RIGHT TO DRAW AN INFERENCE ESPECIALLY AN IRRESISTIBLE INFERENCE . TAKE FOR INSTANCE A CASE WHERE THE PROPERTY WORTH CRORES OF RUPEES IS SOLD FOR MERELY RS.1 LAKH AND THERE IS NO EXPLANATION FOR THE SAME DESPITE THE PARTIES BEING AT ARMS LENGTH. THE ASSES SING OFFICER IS NOT BOUND TO ACCEPT THE STATEMENT IN THE SALE DEED UNLESS HE CAN PROVE THAT ADDITIONAL CONSIDERATION WAS PAID. THE INITIAL BURDEN TO PROVE THE SAME IS UNDOUBTEDLY ON THE DEPARTMENT. BUT IN SUCH A CASE THE ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 6 ONUS CLEARLY SHIFTS UPON THE ASSESSEE. IF THE ASSES SEE IS UNABLE TO OFFER AN EXPLANATION, THE DEPARTMENT MUST BE TAKEN TO HAVE DISCHARGED THE BUR DEN . THE JUDGMENT CERTAINLY DOES NOT HOLD THAT THE PRICE MENTIONED IN THE DOCUMENT IS SACROSANCT AND THAT THE SAME MUST BE CONSIDERED TO BE THE PRIC E BARGAINED BETWEEN THE PARTIES TO THE TRANSACTION. THAT WOULD INDEED RESULT IN AN ABSURDI TY FOR THE PARTIES COULD THEN BY MERELY STATING AN INCORRECT PRICE IN THE SALE DEED AVOID T HE TAX ON CAPITAL GAINS ALTOGETHER. (EMPHASIS, SUPPLIED) AGAIN, AFTER REPRODUCING THE DECISION IN NILOFER I. SINGH (SUPRA) AT PARA 19 OF ITS JUDGMENT, THE HONBLE COURT HOLDS AS UNDER: 20. WE DO NOT READ THE OBSERVATIONS IN PARAGRAPH-7 TO MEAN THAT THE CONSIDERATION REFERRED TO IN THE SALE DEED CANNOT BE QUESTIONED AT ALL. TH E JUDGMENT IF READ AS A WHOLE DOES NOT INDICATE SUCH AN ABSOLUTE OR BLANKET RULE. THERE IS NOTHING IN THE JUDGMENT TO INDICATE THAT THE REVENUE HAD CONTENDED THAT THE FULL VALUE OF CONSID ERATION RECEIVED OR ACCRUING WAS OTHER THAN WHAT WAS MENTIONED IN THE SALE DEED. IT IS PRO BABLY IN THAT VIEW OF THE MATTER THAT THE DIVISION BENCH HELD THAT THE EXPRESSION FULL VALUE OF CONSIDERATION REFERS ONLY TO THE CONSIDERATION REFERRED TO IN THE SALE DEED. IF, HOWEVER, THAT IS WHAT WAS MEANT, WE RESPECTFULLY DISAGREE . THE FULL VALUE OF CONSIDERATION REFERRED TO IN SE CTIONS 45 AND 48 OF THE ACT REFERS TO THE FULL VALUE ACTUALLY RECEIVED OR A CCRUING AND NOT WHAT THE PARTIES MERELY STATE OR DECLARE IN THE SALE DEED AS WAS PAID OR PAYABLE AND RECEIVED OR ACCRUING . SUCH A VIEW WOULD AS WE MENTIONED EARLIER ENABLE A PARTY TO AVO ID THE LIABILITY TO TAX ON ACCOUNT OF CAPITAL GAINS BY MERELY STATING THE INCORRECT PRICE TO BE THE CONSIDERATION FOR SALE OR TRANSFER OF THE ASSET. THAT COULD NOT HAVE BEEN THE INTENTION OF THE LEGIS LATURE . (EMPHASIS, SUPPLIED) AS PER THE HONBLE JURISDICTIONAL HIGH COURT, IT IS , THEREFORE, PERMISSIBLE IN LAW FOR THE AO TO ADOPT THE FMV (OR ANY OTHER VALUE FOR THA T MATTER) AS THE CONSIDERATION THAT HAS, IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, PASSED, OR CAN BE SAID TO HAVE PASSED, BETWEEN THE PARTIES. WHY, THE APEX COURT IN ALA FIRM V. CIT [1991] 189 ITR 285 (SC), ALSO REFERRED DURING HEARING, CLARIFI ED THAT THE PARTNERS IN A FIRM, BEING MEN OF COMMERCE, WOULD, UPON DISSOLUTION OF T HE FIRM, AND THEREFORE CAN ONLY BE REGARDED AS HAVING VALUED THE FIRMS ASSETS , FOR THE PURPOSE OF ADJUSTMENT OF THEIR RIGHTS AND LIABILITIES INTER SE , AT THE FMV OF THOSE ASSETS. THOUGH THE ISSUE IN THAT CASE AROSE PRINCIPALLY IN THE CONTEXT OF CLOSI NG STOCK, A TRADING ASSET, THE SAME, IT MUST BE APPRECIATED, FOR THE PARTNERS DISTRIBUTI NG THE ASSETS OF A FIRM BEING WOUND UP, IT IS ONLY AN ASSET, REPRESENTING A VALUE , THAT COULD BE REALIZED IN THE ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 7 MARKET, I.E., IN THE NATURE OF A CAPITAL ASSET. WHA T HOLDS GOOD FOR THE PARTNERS, MUST, EQUALLY, HOLD FOR SISTER CONCERNS AS WELL. FURTHER, AN ADVERSE INFERENCE COULD BE DRAWN IN THE ABSENCE OF THE ASSESSEE FURNISHING ANY EXPLANATION FOR THE LOW CONSIDERATION. IT WENT ON TO SAY THAT IF WHAT WAS B EING SUGGESTED (IN NILOFER I. SINGH (SUPRA)) WAS THAT THE AO WAS BOUND BY THE STATED V ALUE OF THE CONSIDERATION, IT WAS IN RESPECTFUL DISAGREEMENT THEREWITH. NOW, W ITHOUT DOUBT, IT IS ONLY A REFERENCE TO THE VO THAT WOULD ENABLE THE AO TO ASC ERTAIN THE FMV OF THE RELEVANT ASSETS, AND ONLY WHERE UPON HE COULD POSSIBLY, WHER E SO, SEEK EXPLANATION WITH REGARD TO THE STATED CONSIDERATION FROM THE ASSESSE E. THE SAID VALUE, THUS, IS AS RELEVANT AN INPUT AS ANY OTHER IN DETERMINING THE A CTUAL CONSIDERATION IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE PROCESS REQUIRED TO BE ADOPTED FOR DETERMINING THE FULL VALUE OF THE CONSIDERATION ITSELF INVOLV ES, AS A NECESSARY STEP, ASCERTAINING THE FMV, JUSTIFYING THE REFERENCE U/S. 55A. IN THE INSTANT CASE, THE STATED CONSIDERATION BEING MUCH LOWER EVEN THAN THE WDV, W HICH ON ACCOUNT OF HIGHER DEPRECIATION RATES UNDER THE ACT IS GENERALLY LOWER , THE AO HAD SOUND BASIS TO REFER THE MATTER TO THE VO WHICH U/S. 55A COULD BE FOR TH E PURPOSE OF CHAPTER IV OF THE ACT. AGAIN, THE APEX COURT IN POORAN MAL V. DOI (INV.) [1974] 93 ITR 505 (SC) (AS WELL AS OTHERS, VIZ. DR. PRATAP SINGH V. DOE [1985] 155 ITR 166 (SC); BHUPENDRA RATILAL THAKAR V. CIT [1976] 102 ITR 531 (SC) HAS VALIDATED THE USER OF THE MATERIAL GATHERED BY THE AO EVEN WHERE THE M ANNER FOLLOWED FOR THE PURPOSE THE REFERENCE U/S. 55A IN THE INSTANT CAS E, IS NOT LEGAL. THE ASSAILING OF THE REFERENCE BY THE ASSESSEE IS WITHOUT MERIT. I MAY ALSO, BEFORE PROCEEDING FURTHER, CLARIFY THAT WHEN THE LD. DR STATES OF THE TRANSACTION BEING NOT GENUINE, HE ADVERTS ONLY TO THE STATED CONSIDERATION. IMPUGNING THE GENUINENESS OF THE TRANSACTION PER SE WOULD IMPLY NO ACTUAL TRANSFER, SO THAT THERE IS NO QUESTION OF ANY CAPIT AL GAIN, WHICH THE REVENUE ITSELF ASSESSES. AFTER ALL, A TRANSACTION ENTERED BONA FIDE CANNOT BE REGARDED AS NOT ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 8 CORRECTLY STATED AS TO ITS VALUE. THE ARGUMENT OF THE LD. DR IS TO BE UNDERSTOOD IN PERSPECTIVE. 4.3 I MAY, NEXT, EXAMINE THE FACTS AND CIRCUMSTANCE S OF THE CASE TO SEE FOR ANY CIRCUMSTANCE WHICH COULD LEAD TO AN INFERENTIAL FIN DING AS TO THE STATED CONSIDERATION AS NOT BEING THE FULL VALUE OF THE CO NSIDERATION. IN THE FACTS OF THE PRESENT CASE, THE ASSETS HAVE BEEN SOLD TO A SISTER CONCERN, AND NOT TO A THIRD PARTY, SO THAT FROM THE COMMERCIAL STAND-POINT, THE MATTER OF FMV STANDS DILUTED TO A CONSIDERABLE EXTENT. THE WORD CONSIDERABLE IS USE D AS THE SHARE-HOLDING OF THE TWO COMPANIES, I.E., THE TRANSFEROR AND THE TRANSFE REE, MAY WELL BE SUBSTANTIALLY DIFFERENT, MAKING THE CASE AKIN TO THAT OF THE PART NERS OF A FIRM BEING DISSOLVED; THE TRANSFEROR COMPANY ALSO, AS STATED BY THE LD. COUNS EL, SH. BHASIN, BEING WOUND UP. AGAIN, IT COULD BE A DEVICE TO TRANSFER ASSETS AT A LOWER COST. NO SUCH EXERCISE, HOWEVER, HAS BEEN DONE BY THE REVENUE. FURTHER, THE ASSESSEE HAS BROUGHT FORWARD CLAIMS OF LOSSES AND UNABSORBED DEPRECIATION; THE A SSESSMENT OF IMPUGNED CAPITAL GAINS YET RESULTING IN A TAXABLE INCOME OF ONLY RS. 2.21 LACS. THE INCENTIVE, UNDER THE CIRCUMSTANCES, WOULD BE TO STATE THE WDV, IF NO T A HIGHER SUM, AS THE CONSIDERATION, WITH A VIEW TO ABSORB THE BROUGHT FO RWARD LOSS/CLAIM, I.E., WITHOUT ATTRACTING TAX, AS WELL AS FOR THE SISTER CONCERN ( HP) TO CLAIM DEPRECIATION AT A HIGHER AMOUNT, I.E., AT ITS COST. THERE IS, THUS, ON THE CONTRARY, AT LEAST ON RECORD, NOTHING TO DOUBT THE STATED CONSIDERATION AS BEING INFLATED OR DECLARED AT THE STATED SUM WITH SOME ULTERIOR MOTIVE. IN OTHER WORDS, THE GENUINENESS OF THE TRANSACTION, I.E., WITH REFERENCE TO THE CONSIDERATION STATED, I S, AT LEAST PRIMA FACIE , NOT IN DOUBT, WHICH IS THE ONLY EXCEPTION WHERE THE STATED CONSID ERATION COULD BE SUBSTITUTED BY ANOTHER SUM; THE FMV, FOR INSTANCE, WHICH CANNOT, O N THE BASIS OF FACTS AND CIRCUMSTANCES AS SHOWN, BE REGARDED AS THE ACTUAL P RICE/CONSIDERATION. ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 9 CONCLUSION 5. THAT IT IS THE FULL VALUE OF THE CONSIDERATION R ECEIVED OR ACCRUING ON TRANSFER OF A CAPITAL ASSET, DEPRECIABLE OR OTHERWISE, IS RE LEVANT FOR COMPUTING THE CAPITAL GAIN ARISING ON ITS TRANSFER, IS WELL SETTLED. THE SAME MAY OR MAY NOT BE THE STATED CONSIDERATION. THE ADOPTION OF THE FMV COULD ONLY B E ON THE BASIS OF AN INFERENCE AS TO THE STATED CONSIDERATION BEING NOT THE ACTUAL CONSIDERATION, I.E., WHERE COUPLED WITH THE INFERENTIAL FINDING OF THE SAME BEING THE FMV. IN OTHER WORDS, THE MATTER IS PRINCIPALLY ONE OF FACT, AND ONLY THE VALUE FOUND T O HAVE BEEN AGREED TO OR PASSED BETWEEN THE PARTIES FMV OR ANY OTHER, THAT SHALL STAND TO BE ADOPTED. THE EXCEPTION, AS EXPLAINED, IS WHERE THE TRANSFER IS B Y THE EXCHANGE OF THE CAPITAL ASSET/S, IN WHICH CASE THEIR FMV AS ON THE DATE OF TRANSFER (EXCHANGE) WOULD BE RELEVANT. THE ENTIRE CASE HAS TILL NOW PROCEEDED ON THE FOOTI NG OF THE ACCURACY (OR OTHERWISE) OF THE VALUATION REPORT DATED 26/11/2010 , VALUING THE FMV AT RS.122.16 LACS , AS AGAINST THE STATED CONSIDERATION OF RS.6.82 LA CS , I.E., AT 5.6% OF THE FMV (AS PER THE VO). WHY, EVEN THE WDV OF THE RELEVANT ASSE TS, AND EVEN AS THE DEPRECIATION RATES UNDER THE ACT EXCEED THE NORMATI VE DEPRECIATION RATES, IS AS HIGH AS RS.46.13 LACS . THE BASIS OF THE STATED CONSIDERATION WHICH THE PARTIES BEING MEN OF COMMERCE, OUGHT TO BE THE FMV, HAS NOWHERE B EING EXPLAINED BY THE ASSESSEE, WHO ONLY IS IN THE INTIMATE KNOW OF ITS AFFAIRS. AN ADVERSE INFERENCE, EVEN AS EXPLAINED IN QUARK MEDIA HOUSE INDIA PVT. LTD . (SUPRA), WOULD, UNDER THE CIRCUMSTANCES, ARISE, AND THE REVENUE REGARDED AS H AVING DISCHARGED THE ONUS ON IT. IN FACT, THE PERUSAL OF THE VALUATION REPORT (A T PB PGS. 17-27) REVEALS THE FMV ARRIVED AT BY THE VO TO BE ON THE BASIS OF A LIFE E XPECTANCY OF 20 YEARS, APPLIED ON PRORATA BASIS (I.E., AT 5% P.A.), AFTER ADJUSTING T HE COST OF ACQUISITION FOR INFLATION (AT WHOLESALE PRICE INDEX). THIS SEEMS FAIR, PARTICULAR LY CONSIDERING THAT THE PLANT AND MACHINERY, ON PHYSICAL INSPECTION BY THE VO (ON 21. 10.2010) WAS FOUND TO BE IN ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 10 GOOD WORKING CONDITION, I.E., EVEN 3 YEARS AFTER SALE, AND TO JUSTIFY WHICH THE VO REFERS TO THE PRODUCTION FIGURES (AT ANNEXURE A 1 A ND B 1 TO HIS REPORT). IN MY VIEW, IN THE GIVEN FACTS AND CIRCUMSTANCES O F THE CASE, AND IN VIEW OF THE FINDINGS AT PARA 4.3 OF THIS ORDER, WHICH THOUG H MAY BE REGARDED AS PRELIMINARY, THE REVENUE SHALL FIRST HAVE TO SHOW THAT THE ASSES SEE HAS DERIVED A TAX ADVANTAGE BY STATING A LOWER VALUE AS THE SALE CONSIDERATION. IF, AS STATED, THE CAPITAL LOSS CLAIMED HAS NOT BEEN SET OFF AGAINST I NCOME, RESULTING IN TAX SAVING, WHICH MAY BE IN A SUBSEQUENT YEAR/S, THE MATTER SHO ULD REST AT THAT; THE LOSS BEING ACADEMIC. THIS IS ALSO AGREES WITH THE DECISION IN QUARK MEDIA HOUSE INDIA PVT. LTD . (SUPRA) IN-AS-MUCH AS THE AVOIDANCE OF TAX ON CAP ITAL GAINS BY STATING AN INCORRECT VALUE IS THE PREMISE ON WHICH THE SAID VA LUE IS REGARDED AS NOT ACCEPTABLE. THE TAX ADVANTAGE, IF ANY, ARISING TO T HE TRANSFEREE, HOWEVER, WOULD ALSO HAVE TO BE TAKEN INTO ACCOUNT AS THE TRANSACTI ON IS ONE AND THE PARTIES RELATED, SO THAT IT COULD BE A DEVICE SET UP TO AVOID TAX, T HE ONUS TO SHOW WHICH, THOUGH, IS ON THE REVENUE. IF AND TO THE EXTENT, IT IS NOT SO, AND THE ASSESSEE HAS INDEED SAVED ON THE TAX ON ACCOUNT OF THE RETURNED CAPITAL LOSS, OR WHERE THE TRANSACTION, CONSIDERED AS A WHOLE, RESULTS IN A TAX ADVANTAGE W ITH REFERENCE TO THE VALUE THAT MAY BE REGARDED AN ARMS LENGTH VALUE, THE REVENUE HAS DISCHARGED THE BURDEN ON IT, AND THE ASSESSEE SHALL HAVE TO EXPLAIN THE PRIC ING OF THE RELEVANT CAPITAL ASSETS, BEING OSTENSIBLY SOLD FAR BELOW THE FMV, CASTING A SERIOUS DOUBT ON THE VERACITY OF THE STATED CONSIDERATION AS THE ACTUAL CONSIDERATIO N. THE STATED CONSIDERATION IN GEORGE HENDERSON & CO. LTD . (SUPRA), WHEREIN THE APEX COURT APPROVED, IN PRINCIPLE, THE TRIBUNALS INFERENCE AS TO THE FULL VALUE OF THE CONSIDERATION WHICH, THEREFORE MAY OR MAY NOT BE THE STATED CONSIDERATIO N, WAS AT 4.6 TIMES (620/136) OF THE STATED CONSIDERATION, AS AGAINST ~ 18 TIMES IN THE INSTANT CASE. THE BONA FIDES OF THE TRANSACTION AS A GENUINE TRANSACTION, I.E., AS REGARDS THE STATED TRANSACTION VALUE, BECOME VERY DOUBTFUL. THE ONUS ON THE REVENUE IS TO BE REGARDED AS DISCHARGED. ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 11 THE ASSESSEES EXPLANATION, WHERE FURNISHED WHICH IT HAS NOT, UPTILL NOW, IS TO BE CONSIDERED FROM A PRACTICAL, BUSINESS-MAN STANDPOIN T, AND IN FACT ONLY WHICH IS RESPONSIBLE FOR THE APEX COURT IN ALA FIRM (SUPRA) HOLDING THAT BUSINESSMEN WOULD ORDINARILY DEAL WITH EACH OTHER ON THE BASIS OF FMV. THE PRODUCTIVE LIFE (CAPACITY) OF THE ASSETS AS WELL AS THE DEMAND FOR THE OUTPUT THEREOF ARE VERY RELEVANT IN THIS REGARD, AS AN ASSET NOT CAPABLE OF YIELDING REVENUE IS OF LITTLE VALUE IN THE MARKET. THE VO HAS IN THIS REGARD CORRECTLY REFERRED TO THE PRODUCTION DATA AND GROSS PROFIT. THE MATTER, ACCORDINGLY, VACATING THE FINDINGS BY THE ASSESSING AND THE FIRST APPELLATE AUTHORITY, IS SET ASIDE TO THE FILE OF TH E AO FOR ADJUDICATION OF THIS ISSUE AFRESH IN LIGHT OF THE FOREGOING PER A SPEAKING ORD ER, ISSUING DEFINITE FINDINGS OF FACT. THE ASSESSEE CLAIMING NON-GRANT OF OPPORTUNIT Y BY THE VO, SHALL BE ALLOWED REASONABLE OPPORTUNITY OF HEARING BEFORE HIM, I.E., WHERE HIS REPORT BECOMES RELEVANT. THIS IS EVEN OTHERWISE NECESSARY AS VALUA TION IS A TECHNICAL MATTER. IT MAY THOUGH BE CLARIFIED THAT A FAILURE TO EXPLAIN THE T RANSACTION VALUE MAY INVITE ADVERSE INFERENCE THE ADOPTION OF FMV, OR ANY OTHER VALUE , SHOULD ONLY BE A CLEAR INFERENTIAL FINDING OF THAT BEING THE ACTUAL CONSID ERATION. IT IS FOR THIS REASON THAT IT STANDS CLARIFIED THAT THE MATTER SHOULD BE CLOSED W HERE NO TAX ADVANTAGE IS FOUND. HERE IT MAY BE EQUALLY RELEVANT TO STATE THAT THE A PEX COURT IN K. P. VERGHESE V. ITO [1981] 131 ITR 597 (SC) READ DOWN SECTION 52(2) (S INCE OMITTED) DEEMING THE FMV AS THE FULL VALUE OF THE CONSIDERATION ON THE S HORTFALL IN THE LATTER EXCEEDING 15% BY HOLDING THAT THE SAME SHALL NOT IMPINGE ON A HONEST AND BONA FIDE TRANSACTION. THE PARTIES IN THAT CASE WERE RELATED, AND THE ASSET, PERSONAL. IN THE INSTANT CASE, THOUGH THE PARTIES ARE RELATED, THE A SSETS ARE BUSINESS ASSETS. ALSO FIRMS ARE SEPARATE PERSONS UNDER THE ACT, SO THAT T HERE COULD BE NO QUESTION OF THE EMOTIONS HAVING INFLUENCED THE TRANSACTION, WHICH I S COMMERCIAL IN NATURE. THE SAID DECISION SHOULD, IN MY VIEW, BE REGARDED AS FI NAL ARBITER IN THE MATTER. THAT IS, ITA NOS. 119&169/ASR/2017 (AY 2008-09) CRANES POLYMERS PVT. LTD. 12 ONLY ON THE BONA FIDES BEING IMPUGNED, AS WHERE THE RE IS A TAX AVOIDANCE COUPLED WITH NO REASONABLE EXPLANATION WITH REGARD TO THE S TATED CONSIDERATION, THAT THE SAME COULD BE DISTURBED. AND, FURTHER, ONLY CONSIST ENT WITH THE IRRESISTIBLE INFERENTIAL FINDINGS. I DECIDE ACCORDINGLY. 6. IN THE RESULT, BOTH THE ASSESSEES AND THE REVEN UES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN CO URT ON FEBRUARY 28, 2019 SD/- (SANJAY ARORA) ACCOUNTANT MEMBER DATE: 28.02.2019 /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: CRANES POLYMERS PVT. LTD., B -17, FOCAL POINT EXTENSION, JALANDHAR (2) THE RESPONDENT: DEPUTY. C. I. T., RANGE-II, JALANDHAR (3) THE CIT(APPEALS)-1, JALANDHAR (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T TRUE COPY BY ORDER