SHASHI DHARNIDHARKA, MUMBAI V. ITO 25(3)(4), MUMBAI

ITA 5314/MUM/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4302 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 13-10-2010
• Assessment Year: 2007-2008
• Appeal Filed On: 21-08-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: VIPUL B JOSHI
• Keywords: Capital asset; Depreciation; Principle of natural justice; Cost of acquisition; Fair market value; Valuation report
• Section: 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI R.K.PANDA ,(AM) ITA NO.5314/MUM/2008 ASSESSMENT YEAR : 2005-06 MRS. SHASHI DHARNIDHARKA A/503, SABARMATI SAHAKAR GRAM CROSS ROAD NO.3, ASHOK NAGAR KANDIVALI (EAST) MUMBAI-400 101. ..( APPELLANT ) P.A. NO. (AAEPD 3461 E) VS. INCOME TAX OFFICER WARD 25(3)(4) MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI VIPUL B. JOSHI RESPONDENT BY : SHRI D. SONGATE O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 25.6.2008 PASSED BY THE LD. CIT(A) FOR THE AS SESSMENT YEAR 2005-06 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE AN INDIVIDUAL, IS ENGAGED IN PETTY JOB WORK OF STITCHING AND EMBROIDE RY. APART FROM THIS THE ASSESSEE HAS ALSO SHOWN INCOME FROM CAPITAL GAINS A ND OTHER SOURCES. SHE FILED RETURN DECLARING TOTAL INCOME OF RS.57,608/-. DURING THE COURSE OF ASSESSMENT PROCEEDING IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS SHOWN NIL LONG TERM CAPITAL GAIN O N SALE OF 80 SHARES OF M/S. MYSORE ARTS & WOOD WORKS CO. PVT. LTD. ON BEI NG ASKED IT WAS SUBMITTED BY THE ASSESSEE THAT THESE SHARES WERE GI VEN BY HER MOTHER-IN- LAW SMT. CHIMADEVI MADANLAL DHARNIDHARKA ON OR ABOU T JULY 1985. SHE ITA NO.5314/M/08 A.Y:05-06 2 EXPIRED ON 4.10.1985 .SHE WAS A MEMBER SHARE HOLDER OF THE COMPANY. THESE SHARES WERE TRANSFERRED TO THE ASSESSEE AND T HEREAFTER SHE BECAME MEMBER SHARE HOLDER. THE SHARES OF THE COMPANY WER E IN PHYSICAL FORM ONLY. THE ASSESSING OFFICER FURTHER OBSERVED THAT IN THE RETURN OF INCOME THE ASSESSEE HAS SHOWN THE COMPUTATION OF LONG TERM CAP ITAL GAIN AS UNDER :- STATEMENT OF LONG TERM CAPITAL GAIN ON SALE OF SHARE S DETAILS OF SHARES SOLD NAME OF THE COMPANY:- THE MYSORE ARTS & WOODS WORKS CO. PVT. LTD. NO. OF SHARES SOLD 80 NATURE OF SHARE SOLD ORDINARY SHARES. NAME OF BUYERS : MR. MOHAMMED SAYEED KADLI MRS. SAMEENA ABDUL KADLI DATE OF ACQUITSITION NO. OF SHARES 18/12/1956 80 DATE OF SALES 10/01/05. CALCULATION OF CAPITAL GAIN: 1) SALE CONSIDERATION 3550000 2) VALUE AS ON 01/04/1981 698080 3) INDEXED COST 3350784 LONG TERM CAPITAL GAIN 199216 LESS : BENEFIT UNDER SECTION 54EC OF IT ACT 500000 NIL NOTE : BENEFIT UNDER SECTION 54 EC IN THE F.Y. 2004-05 THE ASSESSEE HAS PURCHASED BONDS OF RUR AL ELECTRIFICATION CORPORATION LTD. ON 24/03/05 50 BONDS @ 10000EACH. TOTAL COST OF BONDS 500000. THEREFORE THE ASSESSEE IS ENTITLED TO BENEFIT UNDER SECTI ON 54 EC FOR A.Y.2005-06. HENCE LONG TERM CAPITAL GAIN IS RS.NIL. THE ASSESSING OFFICER FURTHER OBSERVED THAT IN THE RETURN OF INCOME THE ASSESSEE HAS SUBMITTED A VALUATION REPORT OF REGIST ERED VALUER (MR. N.S. RAO) DATED 12.03.2005 WHEREIN THE VALUER HAS VALUED THE PROPERTY / ASSETS OF THE COMPANY I.E. M/S. MYSORE ARTS & WOOD WORKS P VT. LTD. AT RS.112,21 ITA NO.5314/M/08 A.Y:05-06 3 LAKHS. ON THE BASIS OF THE ABOVE VALUATION AS ON 01 .04.1981 THE ASSESSEE HAS WORKED OUT THE VALUE OF HER SHARE WHICH IS AS U NDER: VALUE OF ORDINARY SHARES AS ON 01.04.1981 OF M/S. MYSO RE ARTS & WOODS WORKS COMPANY PVT. LTD. LAND & BUILDING 11221000 ADD : OTHER ASSETS 56171 11277171 LESS : LIABILITIES 107809 NET WORTH 11169362 NO. OF TOTAL SHARES 1280 VALUE OF EACH SHARES 8726 VALUE OF 80 SHARES AS ON 01.04.1981 698080 THE ASSESSING OFFICER FURTHER OBSERVED THAT IN THE COMPUTATION OF LONG TERM CAPITAL GAIN THE ASSESSEE HAS COMPUTED THE CAPITAL GAIN ON SALE OF 80 SHARS OF M/S. MYSORE ARTS & WOODS WORKS PVT. LTD. TO THE TUNE OF RS.1,99,216/-. WHILE COMPUTING THE VALUE OF SHARES THE ASSESSEE HA S ADOPTED THE PROCEDURE OF VALUING THE ASSETS OF THE COMPANY. THE COST OF S HARES HAS BEEN CALCULATED ON THE BASIS OF VALUE OF SHARES CALCULATED ON THE N ET ASSETS VALUATION OF THE COMPANY AND THE ASSESSEE HAS COMPUTED PER SHARE VAL UE OF COMPANY AT RS.8,726/-. ACCORDINGLY THE CAPITAL GAIN WORKED OUT AT RS.1,99,216/-. FURTHER THE ASSESSEE HAS INVESTED RS.5,00,000/- IN THE BOND S OF RURAL ELECTRIFICATION CORPORATION LTD. AND CLAIMED THE BENEFIT OF PROVISI ONS OF SECTION 54 EC OF I.T. ACT. IN THE SUBMISSION IN RESPECT OF THE CAPITAL G AIN ON SHARES THE ASSESSEE HIMSELF RELIED ON THE BREAK UP METHOD WHICH IS MOST SUITABLE. VIDE ORDER SHEET NOTING DATED 28.09.07 THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE VALUE OF SHARES SHOULD NOT BE ADOPTED AS PER THE PR OVISIONS OF RULE 1D OF WEALTH TAX ACT ON THE BASIS OF THE BALANCE SHEET AS ON 01.04.81. IN RESPONSE TO THE SAME THE ASSESSEE SUBMITTED THAT : ITA NO.5314/M/08 A.Y:05-06 4 AS PER SECTION 55(2)(B) THE COST OF SHARES SOLD SH ALL BE AT THE OPTION OF ASSESSEE THE FAIR MARKET VALUE OF THE SHA RES AS ON 01.04.81. THE ASSESSEE HAS DETERMINED FAIR MARKET V ALUE OF THE SHARES ON THE BASIS OF VALUES OF THE ASSETS OF THE COMPANY AS PER THE REPORT OF THE APPROVED REGISTERED VALUER GI VEN THE VALUE OF ASSETS ON 01.04.81 AND COPY OF THE VALUATION REP ORT HAS ALREADY SUBMITTED BY ASSESSEE. THE ASSESSEE HAS TA KEN THE FAIR MARKET VALUE AS PER PROPER AND SCIENTIFIC MANN ER OF CALCULATING FAIR MARKET VALUE. THIS METHOD IS MOST PROPER AND SCIENTIFIC. THIS IS BASED ON KNOWLEDGE AND SCIENCE OF VALUATION OF SHARES OF UNQUOTED COMPANY. THIS IS TAKEN FROM B OOKS OF ACCOUNTANCY AS TAUGHT TO THE STUDENTS OF COMMERCE A ND CHARTERED ACCOUNTANCY. THIS METHOD ADOPTED IN RETUR N OF INCOME (FOR VALUATION OF THE SHARES SOLD) IS BEING FOLLOWED BY ACCOUNTANCY PROFESSIONALS AND OTHER EXPERTS AND PRO FESSIONALS EVERY WHERE. THE COMPANY IS THE OWNER OF THE LAND AND BUILDING. AS ON 01.04.81 THE AMOUNT OF FAIR MARKET VALUE OF LAND AND BUILDING IS MUCH HIGHER TO THE AMOUNT OF A SSET IN THE BALANCE SHEET. THE DIFFERENCE IN AMOUNTS OF FAIR MA RKET VALUE AND THE BOOK VALUE AS PER BALANCE SHEET OF THE COMP ANY IS TOO BIG AND SUBSTANTIALLY HIGH. THEREFORE, IN THE CALCU LATION OF FAIR MARKET VALUE OF THE SHARES THE VALUE OF LAND AND BU ILDING MUST BE TAKEN AS PER THE REPORT OF THE VALUER. THE ASSES SEE HAS ALREADY SUBMITTED A COPY OF THE REPORT OF THE VALUE R. THE RELIANCE WAS ALSO PLACED IN SMT. B. SUBHADRA VS . ITO (2005) 92 ITD 285(HYD.) AND ADDL. CIT VS. SMT. INDI RABAI (1985) 151 ITR 692(AP). HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE PROPERTY OR ASSETS OF THE COMPANY ARE NOT IN THE POSSESSION AND CONTROL OF THE ASSESSEE, THE QUESTION OF VALUATION OF THE COMPANYS ASSETS D OES NOT ARISE IN THIS CONTEXT. THE ASSESSEE HAS TO VALUE THE PREVAILING COST OF SHARES WHICH WOULD HAVE FETCHED IN THE OPEN MARKET AS ON 1.4.1981. TH E ASSESSING OFFICER WHILE RELYING ON THE DECISION OF THE TRIBUNAL IN CIT VS. AYESHA ASHOK SONI (2007) 106 TTJ (MUM) 1053: (2006) 103 ITD 81 (MUM.) AND TH E DECISION IN THE CASE OF DY. CIT VS. SIRHIND STEELS LTD.(2005)98 TTJ (AHD.) 586: (2005) 97 ITD 12 (AHD.) WHEREIN IT HAS BEEN HELD THAT RULE 1D OF THE WEALTH-TAX RULES BEING MANDATORY, BREAK-UP METHOD IS THE APPROPRIATE METHOD FOR VALUATION OF UNQUOTED EQUITY SHARES AND HENCE, THE SAME IS AP PLICABLE IN THE ASSESSEE'S CASE AS THE SHARES OF THE COMPANY WERE N OT LISTED IN THE STOCK EXCHANGE, THEREFORE, THE VALUATION SHOULD BE DONE A S PER PROCEDURE LAID ITA NO.5314/M/08 A.Y:05-06 5 DOWN UNDER RULE 1D OF THE WEALTH-TAX RULES. THE ASS ESSING OFFICER AFTER APPLYING THE RULE 1D OF THE WEALTH-TAX RU LES WORKED OUT THE VALUATION RS. (-) 33.62 PER SHARE AS UNDER :- AS PER THE METHOD PRESCRIBED UNDER RULE 1D OF WT RULE S: BASE BALANCE SHEET AS ON 31.12.1981 (A) ASSETS :- FIXED ASSETS (AFTER DEPRECIATION) LAND & BUILDING AT COST 6115.97 PLANT & MACHINERY 2494.17 FURNITURE & FIXTURE 128.96 CURRENT ASSETS (I) RENT DUE 39437.82 (II) OTHERS 2800.00 (III) CASH 49.45 (IV) BANK 910.57 (V) SUNDRY DEPOSITS 1106.37 (VI) ADVANCE INCOME TAX 10676.89 (VII) PRELIMINERY EXP. 1060.62 (A) 64780.82 PROFIT & LOSS A/C. (LOSS) 171028.30 (B) LIABILITIES (A) UNSECURED LOANS 81890.27 (B) CURRENT LIABILITIES I. FOR EXPENSES 1615.00 II. FOR ADVANCE RECEIVED 24303.85 107808.27 NET SURPLUS OVER LIABILITIES = (A) (B) = 64780.82 107808.27 = (-) 43027.45 TOTAL NO. OF FULLY PAID UP EQUITY SHARES = 1280 BREAK UP OF EACH FULLY PAID EQUITY SHARES = (-)43027.4 5 = (-) 33.62 1280 HOWEVER, THE ASSESSING OFFICER FOLLOWING THE PRINCIP LE OF NATURAL JUSTICE HAS TAKEN THE COST OF SHARES AT RS.100/- PER SHARE AN D ACCORDINGLY COMPUTED THE LONG TERM CAPITAL GAIN RS.30,11,600/- AFTER GI VING BENEFIT U/S.54EC OF THE ACT RS.50,000/- AND ACCORDINGLY COMPLETED THE A SSESSMENT AT AN INCOME OF RS.30,69,210/- VIDE ORDER DATED 18.12.2007 PASSE D U/S.143(3) OF THE ACT. ON APPEAL, THE LD. CIT(A) WHILE RELYING ON THE DECI SIONS RELIED ON BY THE ITA NO.5314/M/08 A.Y:05-06 6 ASSESSING OFFICER HAS UPHELD THE VIEW TAKEN BY THE ASSESSING OFFICER VIDE PARA-4.10 OF HIS ORDER WHICH IS EXTRACTED AS UNDER :- 4.10 IN VIEW OF THE ABOVE, I AM CONVINCED THAT FM V OF SHARES AS ON 01.04.1981 IN THE CASE OF APPELLANT WO ULD BE RS.100 PER SHARE AS CALCULATED BY ASSESSING OFFI CER AND NOT RS.8726 PER SHARE. IT IS BEYOND COMMON PARL ANCE THAT A LOSS MAKING COMPANYS SHARE WOULD BE OF RS.8 726 PER SHARE AS ON 01.04.1981. ONE HAS TO SEE THE FAC TS OF EACH CASE WHILE DECIDING THE ISSUE. ONE HAS ALSO TO SEE THE REASONABILITY AND ACCEPTABILITY. ASSETS OF MYSO RE ARTS & WOODS WORKS PVT. LTD. WERE OF RS.64,780.82 AS ON 31.12.1981 AND ITS LIABILITIES WERE OF RS.107808.27 . THUS NET SURPLUS OVER LIABILITIES WAS (-) RS.43,027/-. A S PER BALANCE SHEET OF AFORESAID COMPANY, VALUE OF SHARES WOULD BE MINUS. SINCE APPELLANTS PREDECESSOR(MOTHE R-IN- LAW) PURCHASED SHARES FOR RS.100 EACH, ASSESSING OF FICER ADOPTED MARKET VALUE OF 80 SHARES AT RS.8,000/- AND PROVIDED BENEFIT OF INDEXATION. ASSESSING OFFICER I S ACCURATE AND SPECIFIC WHILE MAKING CALCULATION OF C APITAL GAIN. HE ADOPTED MORE SCIENTIFIC METHOD TO THE FACTS OF THE CASE OF THE APPELLANT. HONBLE JURISDICTIONAL IT AT IN SEVERAL CASES HAS UPHELD ABOVE METHOD OF WORKING OU T FMV OF UNQUOTED EQUITY SHARES. RULE 1D OF WEALTH TA X RULES IS ACCEPTED RULE FOR VALUATION OF UNQUOTED EQ UITY SHARES FOR INCOME-TAX PURPOSE. IN VIEW OF DETAILED DISCUSSION HELD BY ITO IN THE ASSESSMENT ORDER AS W ELL AS DISCUSSION HELD HEREIN ABOVE, I UPHOLD THE VIEW TAK EN BY THE ASSESSING OFFICER. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO.1 READS AS UNDER :- 1.1 THE LD. CIT(A) ERRED IN PASSING THE APPELLATE ORDER WITHOUT GIVING ADEQUATE, PROPER AND FAIR OPPORTUNIT Y OF BEING HEARD TO THE APPELLANT. 5. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT HE DOES NOT WANT TO PRESS THE ABOVE GROUND WHICH WAS N OT OBJECTED TO BY THE ITA NO.5314/M/08 A.Y:05-06 7 LD. DR . THIS BEING SO, AND IN THE ABSENCE OF ANY S UPPORTING MATERIAL, THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, REJECTE D. 6. GROUND NO.2.1, 2.2 AND 3.1 READ AS UNDER :- 2.1 THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN WHICH THE ASSESSING OFFICER HA D SUBSTITUTED THE FAIR MARKET VALUE, AS ADOPTED BY THE APPELLANT, BY THE VALUE AS PER RULE 1D OF THE WEALTH TAX RULES, 1957. 2.2 IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTA NCES OF THE CASE AND IN LAW, NO SUCH SUBSTITUTION WAS CALLE D FOR. 3.1 WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) ERRE D IN NOT CALCULATING THE TAX LIABILITY OF THE ASSESSEE I N A PROPER MANNER AS PER THE PROVISIONS OF THE INCOME TAX ACT, 1961. 7. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE ASSESSING OFFICER AND THE LD. CIT(A) FURTHER SUBMITS AS UNDER :- MYSORE ARTS AND WOOD WORKS CO. PVT. LTD. [THE COMP ANY] WAS INCORPORATED ON DATED 06.09.1941 UNDER THE MYSORE C OMPANIES ACT, XVIII OF 1938. THE FIRST OWNER OF THE FACTORY WAS MR. H. I. L ALAJI. HE BORROWED AND TOOK LOAN FROM BANK OF MYSORE. MR.LALAJI ALSO TOOK THE LAND ON LEASE IN THE YEAR 1922 FOR THE PERIOD OF 50 YEARS @ RS.500 P.A. THE BANK OF MYSORE AUCTIONED BUSINESS OF MR. LALAJI IN THE YEAR 1941. THE COMPANY PURCHASED THE BUSINESS IN AUCTION. IN THE YEAR 1944, BY THE A GREEMENT DATED 05.01.1944, THE COMPANY PURCHASED THE LAND FROM MR. B.M. CHANDRASHEKHARA GOWDA ON OWNERSHIP BASIS (FREEHOLD) IN FULL. THE BUSINESS OF THE COMPANY WAS MANUFACTURING OF SOME WOODEN PAR TS ETC. THE COMPANY DISCONTINUED THE BUSINESS, BECAUSE THE COMPANY SUFF ERED CONTINUOUS LOSSES. ITA NO.5314/M/08 A.Y:05-06 8 TO THE BEST OF INFORMATION, THE COMPANY DID NOT DO ANY BUSINESS FROM THE YEAR 1960 ONWARDS. HOWEVER, THE COMPANY WAS RECEIVIN G RENT INCOME FROM SOME OF THE FACTORY BUILDING, WHICH WERE RENTED OUT , WHICH AFTER MEETING THE EXPENSES RESULTED IN LOSSES. REFER THE STATEMENT OF LOSSES AT PAGE 191 OF THE COMPILATION. THE SHEDS AND THE FACTORY WAS ON A VAS T STRECH OF LAND ADMEASURING AROUND 1,04,544, SQ. FT., ABUTTING WELL DEVELOPED AND FULLY DEVELOPED COMMERCIAL AREA. THE ENTIRE PROPERTY IS I N THE COMMERCIAL HUB INTO A WELL DEVELOPED AREA WITH GOOD ROADS. 2. RE: RELIANCE ON WEALTH TAX ACT, 1957 A. BOTH ENACTMENTS FOR DIFFERENT PURPOSES AND CONTEXTS - RULE 1D AND SEC.55 (2) DIFFERENT PURPOSES AND CONTEXTS - RULE 1D WAS INTRODUCED FOR SIMPLIFICATION, UNIFORMLY AND TO AVOID CONTROVERSY. {REF: CIRCULAR NO.559 DATED 4.5.1990 AT PAGES 188-9 OF COMPILATION} - RULE 1D FOR ARRIVING AT MARKET VALUE AND NOT FAIR MARKET VALUE. B. EVEN OTHERWISE, NO BLIND RELIANCE ON THE PROVISI ONS OF OTHER ALLIED ACT IN VIEW OF THE FOLLOWING DECISI ONS:- (I) [(1997) 226 ITR 625 (SC)] CIT VS. PODAR CEMENT (P) LTD. SO FAR AS THE VIEW TAKEN BY THE APEX COURT IN THE CASE OF OSMAN ALI KHAN VS. CWT [(1986) 162 ITR 888 (SC)] IS CONCERNED THAT WAS IN THE CONTEXT OF ITA NO.5314/M/08 A.Y:05-06 9 THE WT ACT WHERE THE LANGUAGE OF THE SECTION WAS DIFFERENT. (II) [(1986) 162 ITR 888 (SC) NAWAB SIR MIR OSMAN ALI KHAN THE FACT THAT THE LEGISLATURE HAS DELIBERATELY AND SIGNIFICANTLY NOT USED THE EXPRESSION ASSETS OWNED BY THE ASSESSEE BUT ASSETS BELONGING TO THE ASSESSEE, IN OUR OPINION, IS AN ASPECT WHICH HAS T O BE BORNE IN MIND. (III) [(1980) 122 ITR 633 (BOM)] CIT V/S . NEW INDIA ASSURANCE CO. LTD. (IV) [(1980) 121 ITR 727 (CAL)] CIT V/S. GENERAL ASSURANCE SOCIETY LTD. (V) [(1997) 223 ITR 25 (AP)] CGT V/S. SMT. K.V. RAJYALAKSHMI C. IN ANY CASE, RULE 1D WAS NOT IN STATUE BOOK DURI NG THE PREVIOUS YEAR. IN FACT, EVEN SCHEDULE III, PART C SHARES IN OR DEBENTURES OF COMPANIES HAS BEEN OMI TTED BY FINANCE ACT, 1992, W.E.F. 01.04.1993. 3. RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISI ONS:- 1. DY. CIT V/S. ROHTAS PROJECT LTD. {(2006) 100 ITD 11 3 (LUCK) (TM)} 2. SIXTH WEALTHTAX OFFICER V/S. B.R. SHELLY-{(1986) 1 6 ITD 76 (BOM)} 3. SHANTI COMPLEX V/S. ITO {(1997) 63 ITD 181 (PAT) (TM)} 4. SMT. NEENA SYAL V/S. ACIT {(1999) 70 ITD 62 (CHD) } 5. CGT V/S. SMT. KUSUMBEN D. MAHADEVIA {(1980) 122 I TR 38 (SC)} 6. ADDL. CIT V/S. SMT. INDIRA BAI {(1985) 151 ITR 692 (AP)} 7. CIT V/S. RAJIV GUPTA {(2007) 292 ITR 263 (DEL)} 8. ACIT V/S. MARIWALA FAMILY (NO.2) TRUST {(2006) 8 SO T 38 (MUM)} ITA NO.5314/M/08 A.Y:05-06 10 9. SMT. B. SUBHADRA V/S. ITA {(2005) 92 ITD 285 (HYD)} 10.SMT. MADHU TYAGI V/S. DY. CIT {(2008) 19 SOT 612 (DEL)} 11.G.L. SULTANIA AND ANR. V/S. SEBI {(AIR 2007 SC 2 172)} 12.ICBI (INDIA) (P.) LTD. V/S. JCIT {(2008) 166 TAX MAN 123 (BANG) (MAG.)} 13.CALCULATION OF FAIR MARKET VALUE OF THE SHARES S OLD, IF RULE 1 D APPLIED WORKED OUT TO A NEGATIVE FIGURE OF RS.(-)129.60. HE THEREFORE, SUBMITS THAT THE APPLICATION OF RULE 1 D OF THE WEALTH-TAX RULES APPLIED BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) FOR VALUATION OF FAIR MARKET VALUE OF SHARES AS ON 1.4. 1981 IS NOT APPLICABLE, BAD IN LAW AND BE DELETED. 8. ON THE OTHER HAND THE LD. DR WHILE RELYING ON TH E ORDER OF THE ASSESSING OFFICER AND THE LD. CIT(A) FURTHER SUBMIT S THAT IN VIEW OF THE DECISION OF THE TRIBUNAL IN AYESHA ASHOK SONI (SUP RA), THE ASSESSING OFFICER WAS JUSTIFIED IN VALUING THE FAIR MARKET VALUE OF T HE UNQUOTED SHARES AS PER RULE 1D OF THE WEALTH TAX RULES, THEREFORE, THE ORD ER PASSED BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) B E UPHELD. 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS THERE IS NO DISPUTE THAT THE AS SESSEE HAS SOLD 80 SHARES OF M/S. MYSORE ARTS & WOODS WORKS PVT. LTD. ON 10.1 .2005 FOR A SALE CONSIDERATION OF RS.35,50,000/-. SINCE THE PRICE OF THESE SHARES ARE NOT QUOTED IN THE MARKET, THE ASSESSEE HAS VALUED THE F AIR MARKET VALUE OF THESE SHARES AS ON 1.4.1981 AT RS.6,98,080/- AND AFTER IN DEXATION COST AND BENEFIT U/S.54EC OF THE ACT, THE ASSESSEE WORKED OUT THE LO NG TERM CAPITAL GAIN AT RS.NIL. THE ASSESSEE HAS ALSO FILED NET WORTH CERT IFICATE OF M/S. MYSORE ARTS & WOODS WORKS PVT. LTD. SHOWING THE FAIR MARKET VAL UE OF SHARE AT RS.8,719/- PER SHARE AS ON 1.4.1981, APPEARING AT P AGE-6 OF ASSESSEE'S PAPER BOOK. THE ASSESSING OFFICER WITHOUT REJECTIN G THE SAID NET WORTH ITA NO.5314/M/08 A.Y:05-06 11 CERTIFICATE OF M/S. MYSORE ARTS & WOOD WORKS PVT. L TD. ISSUED BY M/S. P. SHAH & CO. CA HAS VALUED THE FAIR MARKET VALUE OF S HARES AS ON 1.4.1981 AS PER RULE 1D OF THE WEALTH TAX RULES AT RS.(-)33.62 PER SHARE AND KEEPING IN VIEW PRINCIPLE OF NATURAL JUSTICE HE HAS TAKEN THE FAIR MARKET VALUE OF SHARES AS ON 1.4.1981 AT RS.100/- PER SHARE. THE CONTENTI ON OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT RULE 1D OF WEALTH TAX RULES HA S BEEN OMITTED BY THE WEALTH TAX (SECOND AMENDMENT) RULE 1989 W.E.F. 1.4. 1989, THEREFORE, IT CANNOT BE APPLIED IN THE ASSESSEE'S CASE WHICH IS R ELEVANT FOR THE ASSESSMENT YEAR 2005-06. IT WAS FURTHER SUBMITTED THAT PART-C OF SCHEDULE III DEALING WITH THE VALUATION OF SHARES / DEBENTURES WAS ALSO OMITTED BY THE FINANCE ACT, 1992 W.E.F. 1.4.1993, THEREFORE, THE SAME IS A LSO NOT APPLICABLE IN THE ASSESSEE'S CASE PERTAINING TO THE ASSESSMENT YEAR 2005-06. PER CONTRA THE CASE OF THE REVENUE IS THAT IN VIEW OF THE DECISION OF THE TRIBUNAL IN AYESHA ASHOK SONI (SUPRA), THE VALUATION OF FAIR MARKET VA LUE OF UNQUOTED SHARES AS ON 1.4.1981 CAN BE MADE AS PER RULE 1D OF THE I.T. RULES. 10. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES W E DO NOT FIND MERIT IN THE PLEA OF THE LD. DR THAT THE VALUATION OF FA IR MARKET VALUE OF UNQUOTED SHARES AS ON 1.4.1981 CAN BE MADE AS PER RULE 1D OF THE WEALTH TAX RULES AS THE SAME I.E. RULE 1D HAS BEEN OMITTED BY THE (S ECOND AMENDMENT) RULE, 1989 W.E.F. 1.4.1989 AND SCHEDULE-III OF THE WEALTH TAX ACT HAS BEEN OMITTED BY THE FINANCE ACT 1993, W.E.F. 1.4.1993, T HEREFORE, THE SAME CANNOT BE APPLICABLE TO THE ASSESSEE'S CASE FOR ASS ESSMENT YEAR 2005-06. 11. IN THE CASE RELIED ON BY THE LD. DR IN AYESHA ASHOK SONI (SUPRA) IT HAS BEEN OBSERVED AND HELD BY THE TRIBUNAL THAT FOR DET ERMINING FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES AS ON 1 ST APRIL, 1981, FOR THE PURPOSE OF COMPUTING CAPITAL GAINS, THE BREAKUP METHOD AS PER RULE 1D OF THE WEALTH TAX RULES HAS TO BE APPLIED. ITA NO.5314/M/08 A.Y:05-06 12 12. IN SMT. MADHU TYAGI VS. DCIT (2008) 19 SOT 612( DEL.) THE TRIBUNAL AFTER CONSIDERING ALL THE CASES RELIED ON BY THE LD . COUNSEL FOR THE ASSESSEE WHILE DISTINGUISHING THE DECISIONS OF THE TRIBUNAL IN AYESHA ASHOK SONI,(SUPRA) AND IN SIRHIND STEELS LTD. SUPRA, RELI ED ON BY THE LD. DR, HAS HELD AS UNDER (HEADNOTE PAGE-613-614):- THE FAIR MARKET VALUE OF A CAPITAL ASSET UNDER TH E ACT IS TO BE TAKEN IN TERMS OF SECTION 55(2)(B)(II), READ WITH S ECTION 2(22B). THUS, OPEN MARKET VALUE ON THE RELEVANT DATE WAS RE QUIRED TO BE TAKEN AND NOT SOME ARTIFICIAL VALUE AS PER RULES , WHICH HAD NO APPLICATION. IN THE INSTANT CASE, SHARES HAD BEEN SOLD AT THE RA TE OF RS.1,83,250 PER SHARE. THAT VALUE HAD BEEN ACCEPTE D BUT IF VALUE OF THE SHARES SOLD ON THE DATE OF SALE AS ON 28.9.2000 WAS TAKEN UNDER THE RULE 1D, IT WAS MUCH LESS THAN THE PRICE RECEIVED. OBVIOUSLY, THE PRICE CHARGED HAD NOT BEE N WORKED OUT AS PER RULE 1D. THEREFORE, IT WOULD NOT BE LEG ALLY FAIR OR EQUITABLE TO APPLY RULE 1D FOR WORKING OUT THE COST OF ACQUISITION. ONE CANNOT HAVE A DIFFERENT APPROACH IN FIXING THE PRICE OF SAME ASSET FOR A SINGLE PURPOSE OF COMPUTI NG CAPITAL GAIN. FURTHER, WRITTEN DOWN VALUE OR VALUE SHOWN I N THE BALANCE SHEET WAS JUST A FRACTION OF THE VALUE OF M AIN ASSET HELD BY THE COMPANY, I.E., CINEMA HALL. IF ONE WOU LD TAKE ONLY A FRACTION OF THE MARKET VALUE FOR COMPUTING VALUE OF SHARE AS ON 1.4.1981, THE VALUE TAKEN, COULD BY NO STRETCH O F IMAGINATION, BE SAID TO BE THE FAIR MARKET VALUE OF THE ASSET. OBVIOUSLY, ONE ACTS NOT ONLY CONTRARY TO THE STATUT ORY PROVISIONS, BUT ALSO TO ADVANCE INJUSTICE. THEREFO RE, ON FACTS AND CIRCUMSTANCES OF THE CASE, THERE WAS NO JUSTIFI CATION FOR NOT TAKING THE FAIR MARKET VALUE OF CINEMA BUILDING AS ON 1.4.1981 AS PER RELEVANT PROVISIONS OF INCOME-TAX ACT ON WHI CH NO DISPUTE HAD BEEN RAISED. FURTHER, THERE WAS NO JUS TIFICATION AS TO WHY THE MARKET VALUE OF THE CINEMA HALL WOULD NO T BE ADOPTED IN TAKING THE VALUE OF THE UNQUOTED SHARES OF THE COMPANY. THERE WAS NO JUSTIFICATION FOR TAKING ONL Y A FRACTION OF MARKET VALUE ON SOME TECHNICAL GROUNDS. 13. IN KAPURCHAND SHRIMAL VS. CIT (1981) 131 ITR 45 (SC) IT HAS BEEN HELD (HEADNOTE): IT IS WELL KNOWN THAT AN APPELLATE AUTHORITY HAS T HE JURISDICTION AS WELL AS THE DUTY TO CORRECT ALL ERRORS IN THE PR OCEEDINGS UNDER APPEAL AND TO ISSUE, IF NECESSARY, APPROPRIAT E DIRECTIONS TO THE AUTHORITY AGAINST WHOSE DECISION THE APPEAL IS PREFERRED TO DISPOSE OF THE WHOLE OR ANY PART OF THE MATTER A FRESH, UNLESS FORBIDDEN FROM DOING SO BY STATUTE. ITA NO.5314/M/08 A.Y:05-06 13 14. APPLYING THE RATIO OF THE ABOVE DECISIONS TO TH E FACTS OF THE PRESENT CASE WE FIND THAT THE FAIR MARKET VALUE OF THE SHAR ES AS ON 1.4.1981 IS TO BE WORKED OUT AS PER RELEVANT PROVISIONS OF THE INCOME TAX ACT. SINCE THE ASSESSING OFFICER HAS FAILED TO APPLY THE CORRECT M ETHOD OF VALUATION OF FAIR MARKET VALUE OF SHARES AS ON 1.4.1981 AND HAS NOT C ONSIDERED THE NET WORTH CERTIFICATE FILED BY THE ASSESSEE AND ALSO FAILED T O CONSIDER THE VALUATION REPORT OF THE VALUER VALUING THE LAND AND BUILDING OF THE COMPANY AT RS.112.21 LACS, WE ARE OF THE VIEW THAT IN THE INTE REST OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICE R WHO SHALL DECIDE THE SAME AFRESH IN THE LIGHT OF OUR OBSERVATIONS HEREIN ABOV E AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEA RD TO THE ASSESSEE . THE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES . 15. IN THE RESULT ASSESSEE'S APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22.10.2010. SD/- SD/- (R.K.PANDA) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22.10.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.