DCIT, Mohali V. M/s Quark Media House India Pvt. Ltd., Mohali

ITA 415/CHANDI/2010

• Counselvise Citation: 41521514 RSA 2010
• Duration Of Justice: 5 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 22-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: RAMAN AGGARWAL
• Keywords: Related party transaction; Capital asset; Opportunity of being heard; Cost of acquisition; Fair market value

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 415/CHD/2010 ASSESSMENT YEAR: 2006-07 THE DCIT, VS. M/S QUARK MEDIA HOUSE INDIA PVT. LT D CIRCLE 6(1), MOHALI MOHALI PAN NO. AAACQ00535F (APPELLANT) (RESPONDENT) APPELLANT BY : SH. S.K. MITTAL RESPONDENT BY : SH. RAMAN AGGARWAL DATE OF HEARING : 05.10.2015 DATE OF PRONOUNCEMENT : 05 .11.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A), CHANDIGARH DATED 29.01.2010 RELATING TO ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF T HE CASE. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT (A) VIDE HER ORDER DATED 29/01/2010 IN APPEAL NO. 360/P/2009-10 FOR THE A.Y. 2006-07 WAS JUSTIFIED IN DECIDING THE APPEAL OF TH E ASSESSEE WITHOUT AFFORDING AN OPPORTUNITY OF BEING HEARD THE ASSESSING OFFICER WHICH WAS SPECIFICITY REQUEST ED FOR IN THE ITNS 51 SUBMITTED TO THE CIT(A). 2 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) WAS JUSTIFIED IN HOLDING THA T IT WAS TO A RELATED PARTY TRANSACTION IN TERMS OF SECTION 40A(2)(B) OF THE IT ACT, 1961 WHEREAS THE PROVISIO N OF THIS REACH WERE CLEARLY APPLICABLE TO THE FACTS OF THE CASE. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) WAS JUSTIFIED IN HOLDING REFE RENCE MADE U/S 55A OF THE I.T. ACT WAS BAD IN LAW WHEREAS THE ASSESSING OFFICER HAD RIGHTLY INVOKED THE PROVISION S OF THIS SECTION TO DETERMINE THE FAIR MARKET VALUE OF THE SOLD PROPERTY. 5. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE HON'BLE SUPREME COURT'S DECISION RENDERED IN THE CA SE MCDOWELL & CO LTD. VS. CTO 154 ITR 148 AND AZA DI BACHAO ANDOLAN AND ANR (2003) 263 ITR 706 (SC) WERE NOT APPLICABLE ON THE FACTS OF THE CASE. 3. GROUND NO.1 OF THE APPEAL IS GENERAL IN NATURE A ND, HENCE, NO COMMENTS ARE BEING GIVEN. 4. GROUND NO. 2 TO 5 OF THE APPEAL ARE INTERRELATED AND REFER TO COMPUTATION OF CAPITAL GAIN, SO, THESE WILL BE DISCUSSED TOGETH ER. 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD SOLD PROPERTIES COMPRISING OF LAND, BUILDING AND EQUIPMENT LOCATED AT A-45, INDUSTRIAL AREA, PHASE V III-B MOHALI FOR A TOTAL CONSIDERATION OF RS. 25.10 CRORES. THE ASSESSING OF FICER DID NOT ACCEPT THE SALE CONSIDERATION AND REFERRED THE MATTER U/S 55A OF TH E INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') TO THE DISTRICT VALUATION OFFICER (DVO) FOR THE PURPOSE OF DETERMINING THE MARKET PRICE SO AS TO COMPUTE THE L ONG TERM CAPITAL GAIN. THE 3 DVO DETERMINED THE VALUE OF THE PROPERTY AT RS. 70. 08 CRORES. THE ASSESSING OFFICER ADOPTED THE VALUE DETERMINED BY THE DVO AND COMPUTED THE LONG TERM CAPITAL GAIN AS UNDER:- COMPUTATION OF LONG TERM CAPITAL GAIN YEAR OF PURCHASE : FY 1999-2000 (CII 389) ACTUAL COST - RS. 3,13,48,649/- YEAR OF SALE - FY 2005-06(C.I.I 497) LONG TERM CAPITAL GAIN(LTCG) SALE CONSIDERATION RS. 70,08,70,000 LESS : 1. INDEXED COST OF ACQUISITION LAND 1348649 X 497 = RS. 4,00,52,130/- 389 2. VALUE OF BUILDING (AS PER BOOKS) = 17,06,91,824/- RS. 21,07,43,954/- THEREFORE, LTCG RS. 21,07,43,954/- 6. ON APPEAL, THE CIT(A) DELETED THE ADDITION OF RS . 49,38,39,159/- STATING THAT THE ASSESSING OFFICER WAS NOT PERMITTED TO SUB STITUTE THE SALE CONSIDERATION BY THE FAIR MARKET VALUE AND THE REFERENCE MADE BY THE ASSESSING OFFICER U/S 55A OF THE ACT WAS BAD IN LAW AND WITHOUT JURISDICT ION. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ASSESSEE HAD SOLD PROPERTI ES COMPRISING OF LAND, BUILDING AND EQUIPMENT AT A-45, INDUSTRIAL AREA, PH ASE VII B, MOHALI FOR A TOTAL CONSIDERATION OF RS. 25.10 CRORES. SECTION 48 OF T HE ACT PROVIDES FOR MODE OF COMPUTATION OF CAPITAL GAINS, WHICH READS AS UNDER: - MODE OF COMPUTATION. 48. THE INCOME CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS' SHALL BE COMPUTED, BY DEDUCTING FROM THE FUL L VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RES ULT OF THE 4 TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNTS , NAMELY : (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER; (II) THE COST OF ACQUISITION OF THE ASSET AND THE C OST OF ANY IMPROVEMENT THERETO: 8. ON A PERUSAL OF THE ABOVE PROVISIONS, IT WOULD B E CLEAR THAT IT IS THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING TH AT SHALL BE CONSIDERED FROM WHICH EXPENDITURE AND COST OF ACQUISITION WILL BE D EDUCTED IN ORDER TO COMPUTE THE CAPITAL GAINS. THE EXPRESSION FULL VALUE OF CO NSIDERATION RECEIVED OR ACCRUING IS AN IMPORTANT INGREDIENT WITH REGARD TO THE COMPUTATION OF CAPITAL GAIN. IN THE CASE OF CIT V GEORGE HEANDAERSON & CO . LTD (1967) 66 ITR 622 (SC) THE HON'BLE SUPREME COURT HAD OCCASION TO INTE RPRET THE EXPRESSION FULL VALUE OF CONSIDERATION. IN THIS REGARD, THE HON' BLE SUPREME COURT HAS OBSERVED AS UNDER:- THE MAIN PART OF SECTION 12B(2) PROVIDES THAT THE AMOUNT OF A CAPITAL GAIN SHALL BE COMPUTED AFTER MAKING CERTA IN DEDUCTIONS FROM THE 'FULL VALUE OF THE CONSIDERATIO N FOR WHICH THE SALE, EXCHANGE OR TRANSFER OF THE CAPITAL ASSET IS MADE'. IN CASE OF A SALE, THE FULL VALUE OF THE CONSIDERAT ION IS THE FULL SALE PRICE ACTUALLY PAID. THE LEGISLATURE HAD TO US E THE WORDS 'FULL VALUE OF THE CONSIDERATION' BECAUSE IT WAS DE ALING NOT MERELY WITH SALE BUT WITH OTHER TYPES OF TRANSFER, SUCH AS EXCHANGE, WHERE THE CONSIDERATION WOULD BE OTHER TH AN MONEY. THE EXPRESSION 'FULL VALUE' MEANS THE WHOLE PRICE WITHOUT ANY DEDUCTION WHATSOEVER AND IT CANNOT REFE R TO THE ADEQUACY OR INADEQUACY OF THE PRICE BARGAINED FOR. NOR HAS IT ANY NECESSARY REFERENCE TO THE MARKET VALUE OF THE CAPITAL ASSET WHICH IS THE SUBJECT-MATTER OF THE TRANSFER. 9. SIMILARLY, THE HON'BLE DELHI HON'BLE HIGH COURT IN THE CASE OF CIT V SMT. NILOFER I. SINGH (2009) 176 TAXMAN 252 (DELHI.) HEL D THAT EXPRESSION FULL VALUE OF CONSIDERATION I.E USED IN SECTION 48 OF THE I.T . ACT DOES NOT HAVE ANY 5 REFERENCE TO MARKET VALUE, BUT ONLY TO THE CONSIDE RATION TO REFER TO IN THE SALE DEEDS AS A SALE PRICE OF THE ASSET WHICH HAS BEEN T RANSFERRED. NOW, IT IS ALMOST SETTLED LAW THAT IN THE CASE OF SALE OF PROPERTIES, THE FULL VALUE OF CONSIDERATION IS FULL SALE PRICE ACTUALLY PAID. IN OUR OPINION, E XPRESSION FULL CONSIDERATION CANNOT BE CONSTRUED AS HAVING A REFERENCE TO THE MA RKET VALUE OF THE ASSET/PROPERTY TRANSFERRED. THUS, THERE IS NO QUES TION OF ANY MARKET VALUE IN THE CASE OF SALE AND IT HAS TO BE SEEN AS TO WHAT IS TH E CONSIDERATION BARGAINED FOR. IT IS ALSO TRITE LAW THAT IT CANNOT REFER TO THE ADEQU ACY OR THE INADEQUACY OF THE PRICE BARGAINED. FROM THE ABOVE DECISIONS, IT IS CL EAR THAT EXPRESSION FULL VALUE OF CONSIDERATION I.E. USED IN SECTION 48 OF THE AC T, DOES NOT HAVE ANY REFERENCE TO THE MARKET VALUE BUT ONLY TO THE CONSIDERATION R EFERRED TO IN THE SALE DEEDS AS THE SALE PRICE OF THE ASSET WHICH HAS BEEN TRANSFER RED AND THERE IS NO CONCEPT OF FAIR MARKET VALUE IN SECTION 48 OF THE ACT, WHICH R ELATES TO MODE OF COMPUTATION OF CAPITAL GAINS. THE ASSESSING OFFICER HAS NO AUTH ORITY TO SUBSTITUTE THE FAIR MARKET VALUE INTO THE CONSIDERATION INSTEAD OF FULL VALUE OF CONSIDERATION AS MENTIONED IN THE SALE DEED UNLESS IT IS DEMONSTRATE D BY THE ASSESSING OFFICER THAT ASSESSEE HAD RECEIVED MORE THAN WHAT WAS DECLA RED BY HIM AND, THEREFORE, CAPITAL GAIN HAS TO BE COMPUTED AS PER THE FULL VAL UE OF CONSIDERATION AS MENTIONED IN THE SALE DEED. IN THE INSTANT CASE, IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD RECEIVED TH E CONSIDERATION MORE THAN WHAT WAS MENTIONED IN THE SALE DEED. IN OUR VIEW, T HE LD. CIT(A) HAS CORRECTLY OBSERVED THAT THE ASSESSING OFFICER HAS ERRED IN CO NSIDERING THE FAIR MARKET VALUE FOR THE PURPOSE OF CAPITAL GAIN AS THE ASSESS ING OFFICER HAS NOT SHOWN THAT ASSESSEE HAS RECEIVED ANY CONSIDERATION OTHER THAN THE CONSIDERATION MENTIONED IN THE SALE AGREEMENT. AS REGARDS THE REFERENCE MAD E BY THE ASSESSING OFFICER U/S 55A OF THE ACT FOR THE PURPOSE OF DETERMINING T HE MARKET PRICE, WE ARE IN AGREEMENT WITH THE CIT(A) THAT ACTION OF THE ASSESS ING OFFICER WAS BAD IN LAW AND WITHOUT JURISDICTION. THE VIEW TAKEN BY THE CIT (A) IS DULY SUPPORTED BY THE DECISION OF THE HON'BLE DELHI HON'BLE HIGH COURT IN THE CASE OF DEV KUMAR JAIN 6 V ITO (2009) 180 TAXMAN 110 (DELHI) WHEREIN THE HO N'BLE DELHI HELD AS UNDER;- 7. WE FIND THAT A DIVISION BENCH OF THIS COURT 27 -8- 2006 IN THE CASE OF CIT V SMT. NILOFER I. SINGH [20 09] 309 ITR 233 DATED 27.8.2008 IN ITA NO. 154/2008 HAS HELD THAT PROVISIONS OF SECTION 55A OF THE ACT APPL Y ONLY WHERE THE ASSESSING OFFICER IS REQUIRED TO ASCERTAI N THE 'FAIR MARKET VALUE' OF A CAPITAL ASSET. IN A CASE W HERE CAPITAL GAINS HAVE TO BE BROUGHT TO TAX THE PROVISI ONS OF SECTION 45 AND 48 OF THE ACT COME INTO PLAY. SECTIO N 45(1) OF THE ACT PROVIDES THAT ANY PROFIT OR GAINS ARISIN G FROM THE TRANSFER OF ASSET EFFECTED IN THE PREVIOUS YEAR SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'CAPITAL GA INS'. IT STIPULATES THAT CAPITAL GAINS SHALL BE COMPUTED BY DEDUCTING FROM THE 'FULL VALUE OF CONSIDERATION' RE CEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPI TAL ASSET, THE AMOUNT OF EXPENDITURE INCURRED WHOLLY AN D EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AS ALS O THE COST OF ACQUISITION OF THE ASSET AND THE COST OF AN Y IMPROVEMENT THERETO. THE DIVISION BENCH WENT ON TO HOLD THAT A COMBINED READING OF SECTION 45(1) AND SECTIO N 48 OF THE ACT WOULD SHOW THAT IT IS APPARENT THAT WHEN A SALE OF PROPERTY TAKES PLACE, THE 'CAPITAL GAINS ARISIN G OUT OF SUCH A TRANSFER HAS TO BE COMPUTED BY LOOKING AT TH E 'FULL VALUE OF THE CONSIDERATION' RECEIVED OR ACCRUING AS A RESULT OF SUCH TRANSFER. IT WENT ON TO HOLD THAT TH E EXPRESSION 'FULL VALUE OF SALE CONSIDERATION' IS NO T THE SAME AS 'FAIR MARKET VALUE' AS APPEARING IN SECTION 55A OF THE ACT. IN COMING TO THIS CONCLUSION THE DIVISI ON BENCH OF THIS COURT RELIED UPON THE SUPREME COURT JUDGMENT IN THE CASE OF CIT V. GEORGE HENDERSON & C O. LTD. [1957] 66 JTR 622 AS ALSO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT V. GILLANDERS ARBUTHNOT & CO. [1973] 87J ITR 407 WHEREIN THE 7 EXPRESSION 'FULL VALUE OF CONSIDERATION' WAS INTERP RETED IN THE CONTEXT OF PARI MATERIA PROVISIONS FOUND IN THE INDIAN INCOME-TAX ACT, 1922. BASED ON THESE DECISIO NS THE DIVISION BENCH CONCLUDED THAT FOR THE PURPOSE O F COMPUTING 'CAPITAL GAINS' THERE IS NO NECESSITY FOR COMPUTING THE MARKET VALUE' AND, THEREFORE, THE ASSESSING OFFICER COULD NOT HAVE REFERRED THE MATTE R TO THE VALUATION OFFICER. 8. BEFORE US THE LEARNED COUNSEL FOR THE REVENUE SUBMITTED THAT THIS WAS A CASE WHERE THE ASSESSEE HAD NOT SUP PLIED DOCUMENTS, THEREFORE, THE RATIO OF THE JUDGMENT IN THE CASE OF THE SMT. NILOFER I. SINGH (SUPRA) WAS NOT APPLICABL E WE ARE NOT IN AGREEMENT WITH THE SUBMISSION MADE BY THE LEARNE D COUNSEL FOR THE REVENUE FOR THE REASONS THAT THERE IS NOTHI NG ON RECORD TO SHOW THAT THE ASSESSEE RECEIVED A CONSIDERATION FOR THE SALE OF THE SAID PROPERTY IN EXCESS OF THAT WHICH WAS SH OWN IN THE AGREEMENT TO SELL. THAT BEING THE CASE THE DECISION IN THE CASE OF SMT. NILOFER I. SINGH (SUPRA) WOULD BIND THE REV ENUE. THE TRIBUNAL, IN OUR VIEW ERRED IN ACCEPTING THE STAND OF THE REVENUE THAT ACTUAL SALE CONSIDERATION RECORDED IN THE AGREEMENT TO SELL WOULD BE SUBSTITUTED BY THE VALUE ARRIVED AT BY THE DVO UNDER SECTION 55(A) OF THE ACT. THE QUES TION OF LAW AS FRAMED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 10. IN THE INSTANT CASE ALSO, THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT ASSESSEE HAD RECEIVED CONSID ERATION FOR SALE OF PROPERTY IN QUESTION IN EXCESS OF THAT WHAT WAS SHOWN IN THE SALE DEED. THE HON'BLE DELHI HIGH COURT HAS CATEGORICALLY HELD THAT THE AC TUAL SALE CONSIDERATION RECORDED IN THE AGREEMENT TO SELL OF ASSETS AND REC EIVED BY THE ASSESSEE CANNOT BE SUBSTITUTED BY VALUE AS ADOPTED BY THE DVO U/S 5 5A OF THE ACT FOR THE PURPOSE OF COMPUTING CAPITAL GAIN CHARGEABLE TO TAX . IN THE CASE OF HIABEN 8 JAYANTILAL SHAH VS. ITO (2009) 181 TAXMAN 191 (GUJ ), THE HON'BLE GUJARAT HON'BLE HIGH COURT HAS HELD THAT THE ASSESSING OFFI CER BY INVOKING SECTION 55A, CANNOT DISTURB THE SALE CONSIDERATION AND AT LEAST SECTION 55A CANNOT BE INVOKED FOR THE SAID PURPOSE. 11. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE FULLY IN AGREEMENT WITH THE FINDINGS OF THE CIT(A) THAT IN THE INSTANT CASE THERE WAS NO NECESSITY FOR COMPUTING THE FAIR MARKET VALU E AND, THEREFORE, ASSESSING OFFICER COULD NOT HAVE REFERRED THE MATTER TO DVO A ND ASSESSING OFFICER IS NOT PERMITTED TO DISTURB THE SALE CONSIDERATION OR SUBS TITUTE THE SALE CONSIDERATION BY FAIR MARKET VALUE AS STATED IN THE SALE DEED. TH EREFORE, THE REFERENCE MADE BY THE ASSESSING OFFICER U/S 55A OF THE ACT WAS WITHOU T ANY JURISDICTION. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) AND DISM ISS THE APPEAL OF THE REVENUE. WE MAY ADD HERE THAT DECISIONS MENTIONED BY THE REVENUE IN GROUND NO.5 OF THE APPEAL ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS IN THIS CASE WE ARE CONCERNED WITH THE COMPUTATION OF CAPIT AL GAIN ONLY. THERE IS NOTHING ON RECORD TO SHOW THAT THE TRANSACTION INVO LVED IN THIS CASE FALLS IN THE CATEGORY OF COLOURABLE DEVICE OR A DUBIOUS METHOD O R A SUBTERFUGE. THEREFORE, THE CONTENTION RAISED BY THE REVENUE VIDE GROUND N O.5 OF THE APPEAL IS REJECTED. 12. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.11.2015 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : NOVEMBER, 2015 RKK 9 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR