DCIT-AKOLA-CIRCLE, Akola V. SHRI GHANSHYAMDAS GOPALDAS MOHTA, Akola

ITA 267/NAG/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1586 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 09-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Capital asset; Additional evidence; Cost of acquisition; Reasonable cause; Fair market value; Valuation report

Judgement Text

1 ITA NO . 267 /NAG/2014 IN TH E INCOME TAX APPELLATE TRIBUNAL: NAGPUR BENCH: NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO.267 /NAG/2014 ASSESSMENT YEAR: 2009 - 10 THE DY. COMMISSIONER OF INCOME TAX, AKOLA CIRCLE, FIRST F LOOR, AAYAKAR BHAVAN, MURTIZAPUR ROAD, AKOLA PIN - 444001 VS SHRI GHANSHYAMDAS GOPALDAS MOHTA, MOHTA HOUSE, MOHTA NAGAR, NEAR MOHTA MILL, AKOLA 444 001 PAN:ABLPM5258M (APPELLANT) (RESPONDENT) APPELLANT BY SHRI NARENDRA KANE, DR RESPONDENT BY SHRI K. P. DEWANI, ADVOCATE DATE OF HEARING: 08 - 09 - 2015 DATE OF PRONOUNCEMENT: 24 - 11 - 2015 O R D E R PER MUKUL K. SHRAWAT, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE ARISING FROM THE ORDER OF THE LEARNED CIT (A) - I, NAGPUR DATED 23 - 01 - 2014. THE GR OUNDS RAISED ARE AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) ERRED IN ACCEPTING ADDITIONAL EVIDENCE EVEN THOUGH NONE OF THE FOUR CONDITIONS MENTIONED IN RULE 46(1) APPLY TO THE ASSESSEES CASE: 2. ON THE FACTS AND CIRCUMSTANCES O F THE CASE THE CIT (A) ERRED IN APPRECIATING EVEN THE ADDITIONAL EVIDENCE I.E. THE VALUATION REPORT ALSO DOES NOT PROVIDE ANY8 INSTANCE OF SALE OF COMPARABLE PROPERTY AND THUS DOES NOT OFFER ANY EVIDENCE OF THE FMV OF PROPERTY SOLD BY ASSESSEE; 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) ERRED IN NOT APPRECIATING THAT THE BOOK VALUE OF THE ASSET IS AS LOW AS 2 ITA NO . 267 /NAG/2014 RS.72,653/ - WITH A NEGATIVE PROFIT SO THE VALUE OF SHARES WILL WORK OUT EVEN BELOW COSTS; 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW LD. CIT (A) ERRED IN NOT ADOPTING BREAKUP VALUE METHOD OR THE VALUE AT WHICH SHARES ARE RECEIVED IN 2004 I.E. @ RS.2000 PER SHARE FOR 9 SHARES AS ON 1.04.1981. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) ERRED IN NOT APPRECIATING THAT THE ASSESSEE HAS NOT GIVEN ANY PROOF TO ESTABLISH THAT THE FMV OF THESE SHARES WERE RS.14,55,003/ - AS ON 01.04.1981; 2. THE FIRST OBJECTION OF THE REVENUE DEPARTMENT WAS PERTAINING TO THE ADMISSION OF ADDITIONAL EVIDENCES IN CONTRAVENTION OF RULE 46 (1) OF THE INCOME TAX RULES. AS PER GROUND NO.2, IT IS CLARIFIED THAT THE VALUATION REPORT WAS ADDITIONAL EVIDENCE WHICH WAS CONSIDERED BY THE LEARNED CIT (A) AGAINST THE SAID RULE. ON THIS PRELIMINARY OBJECTION, WE HAVE HEARD BOTH THE SIDES. IT IS WORTH T O MENTION THAT A REMAND REPORT WAS CALLED FOR BY THE LEARNED CIT (A) FROM THE AO. THE AO HAD SUBMITTED THE REMAND REPORT DATED 11 - 10 - 2013. THE AO HAS OBJECTED THE FURNISHING OF THE SAID ADDITIONAL EVIDENCE AT THE STAGE OF FIRST APPELLATE PROCEEDINGS . THE A O HAS ALSO OBJECTED IN THE REMAND REPORT THAT NONE OF THE FOUR CONDITIONS AS PRESCRIBED IN RULE 46 (1) OF THE INC OME TAX RULES WOULD APPLY. TH E APPELLANT WAS NOT PREVENTED BY SUFFICIENT OR REASONABLE CAUSE FROM PRODUCING THE VALUATION REPORT BEFORE THE AO. AS AGAIN ST THAT, THE ARGUMENT OF T HE ASSESSEE IS THAT THE VALUATION REPORT WAS AN IMPORTANT LEGAL EVIDENCE TO ADJUDICATE THE GROUNDS OF APPEAL RAISED BEFORE THE TRIBUNAL. THE ASSESSEES COUNSEL HAS PLACED RELIANCE ON THE DECISION OF SMT. PRABHAVATI S. SHA H VS CIT, 231 ITR 1 (BOM.). 3 . HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDES, WE ARE OF THE VIEW THAT IN A SITUATION WHEN THE FIRST APPELLATE AUTHORITY HAS PROVIDED AN OPPORTUNITY TO THE AO TO COMMENT ON THE ADDITIONAL EVIDENCE, THEN, INSTEAD OF OBJECTING THE ADMISSION OF THE ADDITIONAL EVIDENCE, THE AO WOULD HAVE EXAMINED THE MERITS 3 ITA NO . 267 /NAG/2014 OF THE ISSUE. IN THE CASE OF SMT. PRABHAVATI S. SHAH REPORTED IN 231 ITR 1 (SUPRA), THE HONBLE BOMBAY HIGH COURT HAS DISCUSSED THE SCOPE AND AMBIT OF RULE 46(A) OF THE INCOME TAX RULES. AS PER THE HONBLE COURT, IF THE ASSESSEE CAN DEMONSTRATE THAT THERE WAS A REASONABLE CAUSE FOR NON - PRODUCTION OF THE SAID EVIDENCE, THEN, THE FIRST APPELLATE AUTHORITY CAN EXERCISE ITS POWERS TO ADMIT SUCH ADDITIONAL EVIDENCE. UNDISPUTEDLY, TH E ASSESSEE IS AGED ABOUT 84 YEARS AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE VALUATION REPORT COULD NOT BE PROCURED; HENCE, COULD NOT BE FILED BEFORE THE AO. THE FIRST APPELLATE AUTHORITY HAS GIVEN AN OPPORTUNITY TO EXAMINE THE CORRECTNESS OF THE VALUATION REPORT BY CALLING A REPORT FROM THE AO. IN OUR CONSIDERED OPINION, IT IS JUSTIFIABLE TO TAKE COGNIZANCE OF THE VALUATION REPORT WHICH WAS THE ROOT OF THE MATTER. HENCE, THERE WAS NO FALLACY IN THE ADMISSION OF THE IMPUGNED ADDITIONAL EVIDENCE BY THE LEARNED CIT (A). T HE AO HAS SIMPLY OBJECTED THE ADMISSION OF THE ADDITIONAL EVIDENCE BUT, INSTEAD OF RAISING LEGAL GROUNDS, THE AO COULD HAVE EXAMINED THE CORRECTNESS OF THE VALUATION REPORT. AS A RESULT, THIS PRELIMINARY OBJECTION OF THE REVENUE IS HER EBY DISMISSED. 4. REST OF THE GROUNDS ARE IN RESPECT OF THE ISSUE OF DETERMINATION OF THE FAIR MARKET VALUE AS ON 1 ST DAY OF APRIL, 1981. FACTS OF THE CASE HAVE REVEALED THAT THE ASSESSEE HAD SOLD 27 SHARES OF UNLISTED COMPANY NAMELY M/S. M. P. MERCHANT C HAMBERS OF COMMERCE PVT. LTD. THE ASSESSEE HAS DISCLOSED LONG TERM CAPITAL GAIN OF RS.2,65,95,636/ - AS UNDER: - THE LONG TERM CAPITAL GAIN CHARGEABLE TO TAX OF RS.2,65,96,636 IS WORKED OUT AS UNDER: 4 ITA NO . 267 /NAG/2014 SR. NO. LONG TERM 1 SALE OF SHARES IN UNLISTED C O M P STOCK EXCHANGE, DATE OF SALE :03/07/2008 FAIR MARKET VALUE AS ON 01/04/1981 RS.14,55,003/ - PURCHASE DATE 30/03/1981 WITH INDEXATION @ 582/100 CAPITAL GAIN 13370002 8468117 4901885 2 SALE OF SHARES IN UNLIS TED CO. M. P. STOCK EXCHANGE, DATE OF SALE: 03/07/2008 COST OF ACQUISITION RS.36000/ - , 30/03/2004 WITH INDEXATION @ 582/463 CAPITAL GAIN INVESTMENT OF RS.5000000/ - U/S. 54 EC INVESTMENT OF CAPITAL GAIN IN CERTAIN FUNDS, HENCE DEDUCT TOTAL LONG TERM CAPI TAL GAIN 26740004 45253 26694751 5000000 26596636 IT WAS INFORMED THAT THE SAID SHARES OF THE SAID COMPANY WERE HELD PRIOR TO 1 ST APRIL, 1981 AND SOLD FOR A CONSIDERATION OF RS.1,32,50,000/ - . THE ASSESSEE HAS ALSO SOLD 18 SHARES OF THE SAID COMPANY WHICH WERE STATED TO BE ACQUIRED ON 30 - 03 - 2004 @ RS.36,000 / - . THE OBJECTION OF THE AO WAS THAT THE FAIR MARKET VALUE OF THE 9 SHARES HELD PRIOR TO 1 ST APRIL, 1981 WAS ADOPTED BY THE ASSESSEE @ RS.40,50,003/ - . THE INDEXED COST WAS WORKED OUT A T RS.84,68,117/ - BY THE ASSESSEE. ACCORDING TO THE AO THE WORKING OF THE COST AS ON1ST APRIL, 1981 WAS INFLATED BY THE ASSESSEE . T HE AO HAS WORKED OUT THE CAPITAL GAIN AS UNDER: - 5 ITA NO . 267 /NAG/2014 I. 9 SHARES NET CONSIDERATION 1,33,70,002 LESS: INDEXED COST : 18000 X 58 2 / 100 1,04,760 LONG TERM CAPITAL GAIN 1,32,65,242 II. 18 SHARES NET CONSIDERATION 2,67,40,004 LESS INDEXED COST: 36000 X 582/463 45,253 LONG TERM CAPITAL GAIN 2,66,94,751 TOTAL LONG TERM CAPITAL GAIN CHARGEABLE TO TAX 3,99,59,993 LESS: EXEMPTION U/S. 54EC 50,00,000 NET LONG TERM CAPITAL GAIN CHARGEABLE TO TAX 3,49,59,993/ - 5. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, THE LEARNED CIT (A) HAS DEALT WITH THE SAID PRELIMINARY OBJECTION PERTAINING TO ADMISSION OF ADDITIONAL EVIDENCE. THE ADDITIONAL EVIDENCE WAS ADMITTED AND THE CASE WAS DECIDED ON MERITS BY THE LEARNED CIT (A). ON MERITS, THE OBSERVATION OF THE LEARNED CIT (A) WAS THAT THE COMPANY IN QUESTION WAS HOLDING A PLOT OF LAND WHICH WAS HAVING SUBSTANTIAL HIGH VALU E IN THE MARKET. AFTER CONSIDERING THOSE FACTS, IT WAS HELD BY HIM THAT THE AO WAS NOT JUSTIFIED IN SUBSTITUTING THE FAIR MARKET VALUE. THE VERDICT OF THE LEARNED CIT (A) IS REPRODUCED BELOW: 6.9 IN THE LIGHT OF THE ABOVE, IT CLEARLY TRANSPIRES THAT THE V ALUE OF ASSET BEING LAND OWNED BY THE COMPANY IS SUBSTANTIALLY HIGH AS THE PROPERTY IN QUESTION IS LOCATED IN THE PRIME LOCALITY I.E. CIVIL LINES IN NAGPUR IN VIEW OF THE FACT THAT THE LAND IN QUESTION WAS ACQUIRED BY THE APPELLANT IN THE YEAR 1953. THEREF ORE, ITS VALUE HAS GONE SUBSTANTIALLY HIGH BY WAY OF APPRECIATION. THEREFORE, THE FMV OF THE 9 SHARES OF THE COMPANY HELD BY THE APPELLANT PRIOR TO 01.04.1981 DETERMINED AND ADOPTED AFTER TAKING IN TO CONSIDERATION THE FMV OF THE ASSETS OWNED BY THE COMPAN Y, TO MY CONSIDERED OPINION, IS FAIR AND JUSTIFIED, IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 55 (2) (B) OF THE I. T. ACT, 1961. THE BASIS ADOPTED BY THE AO TO ADOPT RS.2,000/ - PER SHARE IS WITHOUT ANY BASIS AND IS NOT BASED ON ANY SCIENTIFIC METHOD. T HEREFORE, THE ADDITION MADE BY THE AO IS DIRECTED TO BE DELETED. 6. ON THIS ISSUE, WE HAVE HEARD BOTH THE SIDES. FROM THE SIDE OF THE REVENUE, LEARNED DR, MR. NARENDRA KANE HAS SUPPORTED THE ORDER OF THE AO 6 ITA NO . 267 /NAG/2014 AND PLEADED THAT TH ERE WAS NO BASIS ON WHICH THE ASSESSEE HAD ANNOUNCED THE COST AS ON 1 ST APRIL, 1981. WHEN THE ASSESSEE HAS BOUGHT TH E RIGHT ISSUE AS ON 31 - 03 - 2004 AT RS.36,000/ - I.E. RS.2,000/ - PER SHARE, THEN, THERE WAS NO REASON TO INCREASE THE FAIR MARKET VALUE OF THESE SHARES. HE HAS PLEADED TO U PHOLD THE CALCULATION OF CAPITAL GAIN AS PER AO. 7. ON THE OTHER HAND, FROM THE SIDE OF THE RESPONDENT ASSESSEE, THE LEARNED AR, MR. K. P. DEWANI APPEARED AND INFORMED THAT THE COMPANY IN QUESTION WAS AN UNLISTED COMPANY. AN OBJECTION WAS RAISED THAT THERE WAS NO BASIS AVAILABLE TO THE AO TO ADOPT FAIR MARKET VALUE OF THE SHARES AS ON 01 - 04 - 1981, BECAUSE BEING COST OF THE SHARES ALLOTTED TO THE ASSESSEE ON RIGHT BASIS WAS IN THE YEAR 2004. 8. WE HAVE HEARD BOTH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITI ES BELOW IN THE LIGHT OF THE COMPILATION FILED. THE SHORT ISSUE IS IN RESPECT OF THE FAIR MARKET VALUE OF THE SHARES AS ON 01 - 04 - 1981. THE FAIR MARKET VALUE OF THE NINE SHARES AS ON 01 - 04 - 1981 WAS ADOPTED AT RS.14,55,003/ - BY THE ASSESSEE . ON THE OTHER HAN D, THE AO HAD DETERMINED THE VALUE OF THE NINE SHARES AS ON 01 - 04 - 1981 AT RS.18,000/ - THE ASSESSEES EXPLANATION WAS THAT THE COMPANY WAS OWNING A VALUED PROPERTY AT CIVIL LINES, NAGPUR, THEREFORE, THE WORKING OF THE FAIR MARKET VALUE WAS BASED UPON THE VA LUE OF THE SAID PROPERTY LOCATED AT A PRIME LOCALITY OF THE CITY , NAGPUR. THE UNDISPUTED FACT IS THAT THE SAID COMPANY WAS A UNLISTED COMPANY. THE OBJECTION OF THE ASSESSEE IS THAT THE AO HAD ESTIMATED THE FMV OF THE SHARES @RS.2,000/ - PER SHARE WITHOUT CO NSIDERING THE NET WORTH OF THE SHARES AND THE PROPERTY OWNED BY THE COMPANY. BEFORE US, THE RELEVANT SECTION 55 (2) (B) OF THE ACT HAS BEEN CITED WHICH STIPULATES THAT IN RELATION TO A CAPITAL ASSET WHICH BECAME THE PROPERTY OF THE ASSESSEE BEFORE THE FIRS T DAY OF APRIL, 1981, MEANS THE COST OF ACQUISITION OF THE ASSET TO THE ASSESSEE OR FAIR MARKET VALUE OF THE ASSET AS ON THE FIRST DAY OF APRIL, 1981, AT THE OPTION OF THE ASSESSEE. OUR ATTENTION HAS ALSO BEEN DRAWN ON ANOTHER 7 ITA NO . 267 /NAG/2014 PROVISION DEFINING FAIR MARK ET VALUE I.E. SECTION 2 (22B) OF THE ACT IN RELATION TO A CAPITAL ASSET MEANS THE PRICE OF THE CAPITAL ASSET WOULD ORDINARILY FETCH ON SALE IN THE OPEN MARKET ON THE RELEVANT DATE AND WHERE THE PRICE IS NOT ASCERTAINABLE, SUCH PRICE AS MAY BE DETERMINED IN ACCORDANCE WITH THE RULES UNDER THE IT ACT. IN THE LIGHT OF THESE TWO PROVISIONS, THE LEGAL ARGUMENT IS THAT THE BREAKUP VALUE OF THE SHARES HAS TO BE COMPUTED CONSIDERING THE FAIR MARKET VALUE OF THE IMMOVABLE PROPERTY. CASE LAW CITED IS SMT. MADHU TY AGI VS DCIT, 19 SOT 612 (DEL.). IT HAS ALSO BEEN PLEADED THAT IT WAS WRONG ON THE PART OF THE AO TO ADOPT THE VALUE OF THEE SHARES AS ON 1 ST APRIL, 1981, ON THE BASIS OF THE PRICE AT WHICH THOSE SHARES WERE ALLOTTED ON RIGHT BASIS IN THE YEAR 2004. HENCE , THE ARGUMENT IS THAT THE ALLOTMENT OF SHARES AS RIGHT ISSUE SHOULD NOT BE ADOPTED AS THE BASE PRICE WHILE DETERMINING THE MARKET VALUE FOR CAPITAL GAIN PURPOSE AS ON 1 ST APRIL, 1981. IT WAS VEHEMENTLY CONTESTED THAT THE FIXATION OF PRICE FOR ALLOTMENT OF RIGHT ISSUE NEVER REPRESENTS OR DENOTES THE FAIR MARKET PRICE. THE FIXATION OF THE PRICE OF RIGHT SHARES IS A PREROGATIVE OF A COMPANY. ON THIS LEGAL ARGUMENT, FEW DECISIONS WERE CITED NAMELY CIT VS AYESHA ASHOK SONI (2007) 106 TTJ (MUM) 1053, AND DCIT VS SIRHIND STEELS LTD., 98 TTJ 586 (AHD), WHEREIN IT WAS HELD THAT BREAK - UP METHOD IS THE APPROPRIATE METHOD FOR VALUATION OF UNQUOTED EQUITY SHARES. ALTHOUGH, RULE 1D OF THE WEALTH TAX RULES WAS MENTIONED BUT, SIDE - BY - SIDE IT IS ALSO WORTH MENTIONING TH AT RULE 1D OF THE W. T. TAX RULES HAD BEEN OMITTED BY THE SECOND AMENDMENT RULE 1989 WITH EFFECT FROM 1 ST APRIL, 1989. WE, THEREFORE, HOLD THAT THERE WAS A MISTAKE ON THE PART OF THE AO TO ADOPT THE VALUE OF THE SHARES ON WHICH ALLOTTED AS A RIGHT ISSUE. THE FIXATION OF THE PRICE FOR THE PURPOSE OF ALLOTMENT OF RIGHT ISSUE IS ALTOGETHER DIFFERENT BEING A PREROGATIVE OF THE COMPANY WHICH IS NOT TO BE APPLIED FOR THE PURPOSE OF DETERMINATION OF FAIR MARKET VALUE AS ON 1 ST APRIL, 1981. WE ARE ALSO OF THE VIE W THAT THE BREAK - UP VALUE OF THE SHARES MAY SOMETIMES REPRESENT THE FAIR MARKET VALUE OF THE SHARES. THEREFORE, FAIR MARKET VALUE OF THE SHARES IS TO BE DETERMINED ON THE BASIS OF THE MARKET PRICE WHICH 8 ITA NO . 267 /NAG/2014 CAN BE FETCHED, IF, SOLD IN THE OPEN MARKET. FOR THE PURPOSE OF ASCERTAINING THE FAIR MARKET VALUE, A VALUATION HAS ALSO BEEN SUBMITTED BY THE ASSESSEE. THEREFORE, UNDER THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE HEREBY UPHOLD THE VIEW TAKEN BY THE LEARNED CIT (A). AS A RESULT, THE G ROUNDS RAISED BY THE REVENUE ARE HEREBY DISMISSED. 9. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF NOV., 2015. SD/ - SD/ - (SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER NAGPUR, DATED: 24 TH NOV., 2015. LAKSHMIKANT DEKA/SR. PS COPY FORWARDED TO : 1. APPELL ANT 2. RESPONDENT 3. C.I.T., CONCERNED 4. CIT ( APPEALS) - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. 9 ITA NO . 267 /NAG/2014 DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 19.11.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 20.11.2015 SR.PS 3. DRAFT PROPOSED & PLACED B EFORE THE SECOND MEMBER 23.11.2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 23.11.2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 24.11.2015 SR.PS 6. DATE OF PRONOUNCEMENT SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER