Suguni Constructions Pvt Ltd., Hyd, Hyderabad V. ITO, Ward 3(2), Hyderabad, Hyderabad

ITA 582/HYD/2015

• Counselvise Citation: 58222514 RSA 2015
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 07-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: E SUNIL BABU
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Cost of acquisition; Fair market value; Onus to prove
• Section: 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P.MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO.582/HYD/2015 (ASSESSMENT YEAR 2010-11) M/S. SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD (PAN - AAICS 5153 R ) V/S INCOME TAX OFFICER, WARD 3(2), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.A.SAI PRASAD RESPONDENT BY : SHRI E. SUNIL BABU DATE OF HEARING 12.11. 015 DATE OF PRONOUNCEMENT 20.11.2015 O R D E R PER P.MADHAVI DEVI, JUDICIAL MEMBER : THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2 010-11. IN THIS APPEAL, ASSESSEE IS AGGRIEVED BY THE ORDER OF THE C IT(A) IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN SUBSTITUTING THE FULL VALUE OF THE CONSIDERATION WITH FAIR VALUE OF CONSIDERATION, FOR COMPUTING THE CAPITAL GAINS UNDER S.48 OF THE I.T. ACT ON TRANSFER OF EQUITY SHARES. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 14.10.2010 DECLARING AN INCOME OF RS.60,430. DURING THE ASSESSMENT PROCEE DINGS UNDER S.143(3) OF THE INCOME TAX ACT,1961, THE ASSESSING OFFICER OBS ERVED THAT THE ASSESSEE IS HOLDING 2,54,545 UNQUOTED SHARES @ RS.275 EACH OF M /S. SILICON BUILDERS PVT. LTD. WITH THE VALUE WORKING OUT TO RS.6,99,99,875; AND 1,37,931 SHARES @ RS.1,450 EACH OF M/S. BHARATI CEMENTS PVT. LTD., WI TH THE VALUE WORKING OUT TO RS.19,99,99,950. DURING THE YEAR UNDER CONSIDERATI ON, THE ASSESSEE COMPANY HAD SOLD ALL THE SHARES AT COST. THE ASSESSEE WAS THEREFORE QUESTIONED ABOUT THE SALE OF SHARES OF M/S. SILICON BUILDERS AT COS T. THE ASSESSEE EXPLAINED THAT THE ASSESSEE WAS HOLDING 2,54,545 SHARES OF M/ S. SILICON BUILDERS WITH A ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 2 PAID UP CAPITAL OF 2,57,93,406, EQUITY SHARES CONST ITUTING 0.99% OF THE COMPANY AND M/S. SILICON BUILDERS WAS HOLDING 1,5 0,00,000 EQUITY SHARES IN M/S. BHARATI CEMENTS. IT WAS SUBMITTED THAT THE AS SESSEES GROUP COMPANIES AGREED TO SELL THEIR ENTIRE EQUITY IN M/S. BHARATI CEMENTS TO M/S. PARFICIM, FRANCE AT RS.671.20 PER SHARE AND THE PROMOTERS OF THE CEMENT COMPANY HAVING TAKEN SEPARATE CONSIDERATION FOR TRANSFERRIN G THE CONTROLLING STAKES, HAD ALSO PROVIDED AN EXIT TO THE INVESTMENT WITH ALMOST 100% APPRECIATION ON THEIR INVESTMENT. IT WAS SUBMITTED THAT THE ASSESS EE HAD SOLD THE SHARES OF M/S. SILICON BUILDERS AT COST CONSIDERING THE COMME RCIAL EXPEDIENCY AND THE INTEREST OF THE GROUP. AFTER CONSIDERING THE ASSES SEES SUBMISSIONS AS ABOVE, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE S HARES OF M/S. BHARATI CEMENTS P. LTD. WERE PURCHASED AT RS.671.20 PER SH ARE AND THEREFORE, THE VALUE OF EACH SHARE OF M/S. SILICON BUILDERS SOLD B Y THE ASSESSEE ALSO SHOULD BE ADOPTED AT RS.671.20 PER SHARE AND THE LONG TER M CAPITAL GAIN ON THE SALE OF SHARES HAS TO BE COMPUTED ACCORDINGLY. ACCORDIN GLY, HE BROUGHT AN AMOUNT OF RS.2,96,73,200 TO TAX. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE ASSESSING OFFICER, AND HENCE, ASSESSEE IS IN SECOND APPEAL BEFORE US. 4. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THA T THE ASSESSING OFFICER HAS COMMITTED FACTUAL ERROR IN OBSERVING TH AT THE SALE PRICE OF SHARES OF BHARATI CEMENTS IS TO BE ADOPTED AS SALE PRICE OF M /S. SILICON BUILDERS LTD. HE FURTHER SUBMITTED THAT THE AUTHORITIES BELOW HAVE N OT DENIED THE RECEIPT OF THE SALE CONSIDERATION AT COST BY THE ASSESSEE. HE SUB MITTED THAT THE AUTHORITIES BELOW HAVE ONLY ARRIVED AT A NOMINAL SALE CONSIDERA TION, AS AGAINST THE ACTUAL SALE CONSIDERATION RECEIVED BY THE ASSESSEE, WHICH IS NOT PERMISSIBLE. IN SUPPORT OF THESE CONTENTIONS OF THE ASSESSEE, THE L EARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING DECIS IONS- ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 3 (A) CIT V/S. GEORGE HENDERSON (66 ITR 622)-SC (B) CIT VS. GILLANDERS ARBUTHNOT & CO.(1973 AIR 989 ) S C (C) RELIANCE COMMUNICATIONS INFRASTRUCTURES V/S.CIT(34 SOT 245)- MUM (D) MORARJEE TEXTILES LTD. V/S. ACIT (ITA 1979/MUM/2009 FOR ASSESSMENT YEAR 2005-06) DATED 10.5.2013) (E) NARIMAN POINT BUILDING SERVICES & TRADING P. LTD. V /S. CIT(ITA NO.798/M/2011 FOR ASSESSMENT YEAR 2006-07) DATED 25 .7.2012) (F) VENUS FINANCIAL SERVICES LTD. V/S. ACIT (ITA NO.533 5/DEL/2012) FOR ASSESSMENT YEAR 2009-10 DATED 28.9.2015 THUS, ACCORDING TO HIM, THE ORDERS OF BOTH THE AUTH ORITIES BELOW HAVE TO BE SET ASIDE. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE SALE OF SHARES BY THE ASSESSEE TO M/S. PARFICIM, FRANCE, OF BOTH THE COMPANIES, I.E. M/.S. SILICON BUILDERS AS WELL AS BHARATI CEMENTS IS NOT DOUBTED BY THE AUTHORITIES BELOW. NOR IS THE SA LE CONSIDERATION RECEIVED BY THE ASSESSEE QUESTIONED. THE REASON FOR COMPUTING THE CAPITAL GAIN BY THE ASSESSING OFFICER BY ESTIMATING THE SALE CONSIDERAT ION IS THAT THE SHARES OF BHARATI CEMENTS HAVE FETCHED A HIGHER AMOUNT AS CO MPARED TO THE SHARES OF SILICON BUILDERS, WHICH IS HOLDING THE SHARES OF BH ARATI CEMENTS. AS SEEN FROM THE ORDER OF THE CIT(A), THE ASSESSING OFFICER HAS WORKED OUT THE NET WORTH OF BHARATI CEMENTS TO ARRIVE AT THE SHARE VALUE OF BHA RATI CEMENTS TO ESTIMATE THE SHARE VALUE OF M/S. SILICON BUILDERS. THIS, IN OUR OPINION, IS FALLACIOUS. HONBLE SUPREME COURT IN THE CASE OF CIT V/S. GEORG E HENDERSON (66 ITR 622) HAS HELD THAT THE EXPRESSION FULL CONSIDERATION I N THE MAIN PART OF S.12(B)(2) OF THE INDIAN INCOME-TAX ACT, 1922 CANNOT BE CONSID ERED AS HAVING A ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 4 REFERENCE TO THE MARKET VALUE OF THE ASSET TRANSFER RED, BUT THE EXPRESSION ONLY NAMED THE FULL VALUE OF THE THING RECEIVED BY THE T RANSFEROR IN EXCHANGE FOR THE CAPITAL ASSET TRANSFERRED BY HIM. S.12(B)(2) OF THE INDIAN INCOME TAX ACT, 1922 IS ANALOGOUS TO S.48 OF THE INCOME TAX ACT,196 1. THIS FACT HAS BEEN TAKEN NOTE OF BY THE COORDINATE BENCH OF THE TRIBUN AL (MUMBAI BENCH) IN THE CASE OF RELIANCE COMMUNICATIONS INFRASTRUCTURES V/S . CIT (34 SOT 245) AS UNDER- 24. IN OUR OPINION, AS A PROVISIONOF S.48 OF THE ACT OF 1961 IS ANALOGOUS TO S.12B(2) OF THE ACT OF 1922 AND HENCE, THE INTERPRETATION GIVEN BY THEIR L ORDSHIPS TO THE EXPRESSION FULL VALUE OF THE CONSIDERATION IS EQUALLY APPLICABLE TO THE EXPRESSION APPEARING IN S.48 OF T HE ACT OF 1961. EVEN AFTER GIVING ANXIOUS CONSIDERATION TO THE SCHE ME OF COMPUTATION OF CAPITAL GAIN, IT IS SEEN THAT THERE IS NO PROVISION TO SUBSTITUTE SALE CONSIDERATION DECLARED BY THE ASSES SEE WITH THAT OF MARKET VALUE, SAVE PROVISION OF S.50C WHICH IS ONLY APPLICABLE TO CAPITAL ASSET IN THE FORM OF LAND OR BUILDING. IN THE PRESENT CASE, THERE IS NO DISPUTE ABOUT THE FACT THAT THE A SSESSEE HAS RECEIVED ONLY RS.50 CORES AND IT IS ALSO NOT THE CA SE OF THE DEPARTMENT THAT OVER AND ABOVE RS.50 CORES THE ASSES SEE HAS RECEIVED ANY AMOUNT, AND HENCE, AS THE FULL VALUE O F THE CONSIDERATION IS RS.50 CRORES AS AGAINST THE VALUE OF THE SHARES OF 50 CRORES, THE CAPITAL GAIN WORKED OUT TO BE NI L UNDER S.48 OF THE ACT. FOR THE REASONS GIVEN ABOVE, IT CANNOT BE SAID THAT SHORT-TERM CAPITAL GAINS AS HELD BY THE LEARNED CIT IN THE ORDER PASSED UNDER S.263 HAS ESCAPED ASSESSMENT . MOREOV ER, THE CASE OF THE ASSESSEE IS SUPPORTED BY THE INTERPRETA TION GIVEN BY THE HON'BLE SUPREME COURT TO THE EXPRESSION FULL V ALUE OF CONSIDERATION IN THE CASE OF GEORGE HENDERSON & CO . LTD. (SUPRA). SIMILAR VIEW HAS ALSO BEEN EXPRESSED BY ANOTHER BEN CH OF THIS TRIBUNAL AT MUMBAI IN THE CASE OF MORARJEE TEXTILES LTD. AND AN OTHER V/S. ACIT (ITA NO.1979/MUM/2009 FOR ASSESSMENT YEAR 2005-06) DATED 10.5.2013, TO WHICH ONE OF US, VIZ. ACCOUNTANT MEMBER, IS A SIGNATORY, WHEREIN, VIDE PARAS 15 TO 21, IT WAS HELD AS UNDER- 15. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE RECORD. AS FAR AS THE PRICE ADOPTED BY THE AO, WE CANNOT APPROVE T HE VALUE AS TAKEN BY THE DEMAT AUTHORITIES AS THERE SEEMS TO BE AN ERROR IN ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 5 MENTIONING THE VALUE AS THE SAID COMPANY IS A PRIVA TE LIMITED COMPANY AND THERE CANNOT BE ANY MARKET VALUE AS IT IS NOT QUOTED IN THE STOCK EXCHANGE. THEREFORE, PART OF AO'S FIND ING ABOUT THE VALUE OF DEMAT STATEMENT IS NOT CORRECT. WITH REFER ENCE TO THE FUTURE PROFIT AND ALSO ADOPTION OF BOOK VALUE THERE IS NOTHING BROUGHT ON RECORD BY THE AO HOW THESE AMOUNTS WERE ARRIVED AT. THEREFORE, WE ARE UNABLE TO SUPPORT THE SUBSTITUTIO N OF VALUE EVEN ON FACTS. BE THAT AS IT MAY, FIRST OF ALL, THE AO D OES NOT HAVE POWER UNDER THE I.T. ACT TO SUBSTITUTE 'FAIR MARKET VALUE ' FOR 'FULL VALUE OF CONSIDERATION'. THERE ARE SPECIFIC PROVISIONS FOR S UBSTITUTION OF FAIR MARKET VALUE FOR FULL VALUE OF CONSIDERATION L IKE COMPUTATION UNDER SECTION 50C AND 50D IN THE I.T. ACT AT PRESEN T BUT IN THE RELEVANT ASSESSMENT YEAR, THE AO HAS NO POWER TO AD OPT THE 'FAIR MARKET VALUE' IN PLACE OF 'FULL VALUE OF CONSIDERAT ION'. THE METHOD OF COMPUTATION AS PRESCRIBED UNDER SECTION 48 SUPER FICIALLY MENTION THAT 'INCOME CHARGEABLE UNDER THE HEAD 'CAP ITAL GAINS' SHALL BE COMPUTED, BY DEDUCTING FROM THE FULL VALU E OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF T HE TRANSFER OF THE CAPITAL ASSET THE FOLLOWING AMOUNT, NAMELY: - ( I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER, AND (II) THE COST OF ACQUISITION OF THE ASSET AND T HE COST OF ANY IMPROVEMENT THERETO'. THE 'FULL VALUE OF CONSIDERAT ION' IS CLEARLY DIFFERENT FROM THE 'FAIR MARKET VALUE'. SECTION 50D INSERTED W.E.F. 01.04.2013 PERMITS FAIR MARKET VALUE BEING THE FULL VALUE OF CONSIDERATION IN CERTAIN CASES WHERE AS A RESULT OF TRANSFER OF CAPITAL ASSET BY AND ASSESSEE THE CONSIDERATION REC EIVED OR ACCRUING IS NOT ASCERTAINABLE OR CANNOT BE DETERMIN ED. UNDER SECTION 50C, THERE IS SPECIAL PROVISION FOR SUBSTIT UTION OF FULL VALUE OF CONSIDERATION IN CASES WHERE STAMP AUTHORITIES A DOPTS A PARTICULAR VALUE, I.E. DEEMED TO BE THE FULL VALUE OF CONSIDERATION RECEIVED OR ACCRUING. REFERENCE TO VALUATION OFFICE R UNDER SECTION 55A IS ALSO FOR THE LIMITED PURPOSE OF ARRIVING AT THE COST OF ASSET AT THE FAIR MARKET VALUE IN CERTAIN CIRCUMSTANCES B UT IT DOES NOT EMPOWER THE AO TO SUBSTITUTE THE 'FAIR MARKET VALUE ' TO 'FULL VALUE OF CONSIDERATION'. THESE TWO WORDS, 'FULL VALUE OF CONSIDERATION' AND 'FAIR MARKET VALUE ' ARE DIFFERENTLY USED IN TH E INCOME TAX ACT AND FAIR MARKET VALUE CANNOT BE SUBSTITUTED IN PLAC E OF FULL VALUE OF CONSIDERATION, UNLESS IT IS SPECIFICALLY EMPOWER ED BY THE ACT. THE AO HAS ALSO WRONGLY RELIED ON SECTION 2(22B)(I) , WHICH IS AS UNDER: 'THE FAIR MARKET VALUE, IN RELATION TO A CAP ITAL ASSETS, MEANS - (I) THE PRICE THAT THE CAPITAL ASSET WOULD ORDINARILY FETCH ON SALE IN THE OPEN MARKET ON THE RELEVANT DATE'. T HIS FAIR MARKET VALUE SUBSTITUTION IS APPLICABLE ONLY TO THE SITUAT ION WHERE THE AO IS EMPOWERED TO DETERMINE THE FAIR MARKET VALUE UND ER THE ACT. AS FAR AS COMPUTATION OF CAPITAL GAINS ON SALE OF S HARES ARE CONCERNED UNDER SECTION 48 IT DOES NOT EMPOWER THE AO TO SUBSTITUTE THE FAIR MARKET VALUE FOR THE FULL VALUE OF CONSIDERATION.. ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 6 16. THE HON'BLE SUPREME COURT IN CIT VS. GEORGE HEN DERSON AND CO. LTD. (1967) 66 ITR 622 (SC) ON THE ISSUE THAT T HE MARKET VALUE OF THE SHARES WHICH WERE ALLOTTED AT RS. 136/- PER SHARE WAS RS. 620/- PER SHARE CONSIDERED THE EXPRESSION ' FULL VA LUE OF CONSIDERATION' AS OCCURRING IN SECTION 12B(2) OF TH E INDIAN INCOME TAX ACT AND , 1922, WHICH IS ANALOGOUS TO SE CTION 48 OF THE ACT HAS HELD AS UNDER:- ' ............ IT IS MANIFEST THAT THE CONSIDERATION FOR THE TRANSFER OF CAPITAL ASSET IS WHAT THE TRANSFEROR RECEIVES IN LI EU OF THE ASSET HE PARTS WITH, NAMELY, MONEY OR MONEY'S WORTH AND, THE REFORE, THE VERY ASSET TRANSFERRED OR PARTED WITH CANNOT BE THE CONSIDERATION FOR THE TRANSFER. IT FOLLOWS THAT THE EXPRESSION 'FULL CONSIDERATION' IN THE MAIN PART OF SECTION 12B(2) CA NNOT BE CONSTRUED AS HAVING A REFERENCE TO THE MARKET VALUE OF THE ASSET TRANSFERRED BUT THE EXPRESSION ONLY MEANS THE FULL V ALUE OF THE THING RECEIVED BY THE TRANSFEROR IN EXCHANGE FOR THE CAPITAL ASSET TRANSFERRED BY HIM. THE CONSIDERATION FOR THE TRANSF ER IS THE THING RECEIVED BY THE TRANSFEROR IN EXCHANGE FOR THE ASSET TRANSFERRED AND IT IS NOT RIGHT TO SAY THAT THE ASS ET TRANSFERRED AND PARTED WITH IS ITSELF THE CONSIDERATION FOR THE T RANSFER. THE MAIN PART OF SECTION 12B(2) PROVIDES THAT THE AMOUNT OF A CAPITAL GAIN SHALL BE COMPUTED AFTER MAKING CERTAIN DEDUCTIO NS FROM THE 'FULL VALUE OF THE CONSIDERATION FOR WHICH THE SALE, EXCHANGE OR TRANSFER OF THE CAPITAL ASSET IS MADE.' IN CASE OF A SALE, THE FULL VALUE OF THE CONSIDERATION IS THE FULL SALE PRICE AC TUALLY PAID. THE LEGISLATURE HAD TO USE THE WORDS 'FULL VALUE OF THE CONSIDERATION' BECAUSE IT WAS DEALING NOT MERELY WITH SALE BUT WIT H OTHER TYPES OF TRANSFER, SUCH AS EXCHANGE, WHERE THE CONSIDERATI ON WOULD BE OTHER THAN MONEY. IF IT IS THEREFORE HELD IN THE PRES ENT CASE THAT THE ACTUAL PRICE RECEIVED BY THE RESPONDENT WAS AT THE RATE OF RS.136 PER SHARE THE FULL VALUE OF THE CONSIDERATION MUST BE TAKEN AT THE RATE OF RS.136 PER SHARE. THE VIEW THAT WE HA VE EXPRESSED AS TO THE INTERPRETATION OF THE MAIN PART OF SECTION 12B(2) IS BORNE OUT BY THE FACT THAT IN THE FIRST PROVISO TO SE CTION 12B(2) THE EXPRESSION 'FULL VALUE OF THE CONSIDERATION' IS USED IN CONTRADISTINCTION WITH 'FAIR MARKET VALUE OF THE CAPI TAL ASSET' AND THERE IS AN EXPRESS POWER GRANTED TO THE INCOME -TAX OFFICER TO 'TAKE THE FAIR MARKET VALUE OF THE CAPITAL ASSET T RANSFERRED' AS 'THE FULL VALUE OF THE CONSIDERATION' IN SPECIFIED C IRCUMSTANCES. IT IS EVIDENT THAT THE LEGISLATURE ITSELF HAS MADE A D ISTINCTION BETWEEN THE TWO EXPRESSIONS 'FULL VALUE OF THE CONSID ERATION' AND 'FAIR MARKET VALUE OF THE CAPITAL ASSET TRANSFERRED' AND IT IS PROVIDED THAT IF CERTAIN CONDITIONS ARE SATISFIED AS MENTIONED IN THE FIRST PROVISO TO SECTION 12B(2), THE MARKET VAL UE OF THE ASSET TRANSFERRED, THOUGH NOT EQUIVALENT TO THE FULL VALUE OF THE CONSIDERATION FOR THE TRANSFER, MAY BE DEEMED TO BE T HE FULL VALUE OF THE CONSIDERATION. TO GIVE RISE TO THIS FICTION THE TWO CONDITIONS OF THE FIRST PROVISO ARE(1) THAT THE TRANS FEROR WAS ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 7 DIRECTLY OR INDIRECTLY CONNECTED WITH THE TRANSFEREE , AND(2) THAT THE TRANSFER WAS EFFECTED WITH THE OBJECT OF AVOIDAN CE OR REDUCTION OF THE LIABILITY OF THE ASSESSEE UNDER SECT ION 12B. IF THE CONDITIONS OF THIS PROVISO ARE NOT SATISFIED THE MAIN PART OF SECTION 12B(2) APPLIES AND THE INCOME-TAX OFFICER MU ST TAKE INTO ACCOUNT THE FULL VALUE OF THE CONSIDERATION FOR THE TR ANSFER.' 17. IN CIT VS. GILLANDERS ARBUTHNOT & CO. (1973) 87 ITR 407 (SC) THEIR LORDSHIPS AFTER APPLYING THE PRINCIPLES ENUNC IATED IN GEORGE HENDERSON AND CO. LTD. SUPRA HAS OBSERVED AN D HELD AS UNDER ( PAGE 419):- 'NOW LET US SEE WHAT IS THE IMPACT OF SECTION 12B(2) ON THE TRANSACTION? UNDER THAT PROVISION, THE AMOUNT OF CAP ITAL GAINS HAS TO BE COMPUTED AFTER MAKING CERTAIN DEDUCTIONS FR OM THE FULL VALUE OF THE CONSIDERATION FOR WHICH THE SALE IS MAD E. WHAT EXACTLY IS THE MEANING OF THE EXPRESSION 'FULL VALUE OF THE CONSIDERATION FOR WHICH SALE IS MADE'? IT IS THE CON SIDERATION AGREED TO BE PAID OR IS IT THE MARKET VALUE OF THE C ONSIDERATION ? IN THE CASE OF SALE FOR A PRICE, THERE IS NO QUESTI ON OF ANY MARKET VALUE UNLIKE IN THE CASE OF AN EXCHANGE. THEREFORE, I N CASE OF SALES TO WHICH THE FIRST PROVISO TO SUB-SECTION (2) OF SECTION 12B IS NOT ATTRACTED, ALL THAT WE HAVE TO SEE IS WHAT IS T HE CONSIDERATION BARGAINED FOR. AS MENTIONED EARLIER, TO THE FACTS OF T HE PRESENT CASE, THE FIRST PROVISO IS NOT ATTRACTED. AS SEEN EA RLIER, THE PRICE BARGAINED FOR THE SALE OF THE SHARES AND SECURITIES W AS ONLY RUPEES SEVENTY-FIVE LAKHS. THE FACTS OF THIS CASE SQU ARELY FALL WITHIN THE RULE LAID DOWN BY THIS COURT IN COMMISS IONER OF INCOME-TAX VS. GEORGE HENDERSON & CO. LTD. THEREIN THIS COURT OBSERVED:- 'IN CASE OF A SALE, THE FULL VALUE OF THE CONSIDERATIO N IS THE FULL SALE PRICE ACTUALLY PAID. THE LEGISLATURE HAD TO US E THE WORDS 'FULL VALUE OF THE CONSIDERATION' BECAUSE IT WAS DEA LING NOT MERELY WITH SALE BUT WITH OTHER TYPES OF TRANSFER, S UCH AS EXCHANGE, WHERE THE CONSIDERATION WOULD BE OTHER TH AN MONEY. IF IT IS THEREFORE HELD IN THE PRESENT CASE THAT THE ACTUAL PRICE RECEIVED BY THE RESPONDENT WAS AT THE RATE OF RS.136 PER SHARE THE FULL VALUE OF THE CONSIDERATION MUST BE TAKEN AT THE RATE OF RS.136 PER SHARE. THE VIEW THAT WE HAVE EXPRESSED AS TO TH E INTERPRETATION OF THE MAIN PART OF SECTION 12B(2) IS BORNE OUT BY THE FACT THAT IN THE FIRST PROVISO TO SECTION 12B(2) THE EXPRESSION 'FULL VALUE OF THE CONSIDERATION' IS USED IN CONTRAD ISTINCTION WITH 'FAIR MARKET VALUE OF THE CAPITAL ASSET' AND THERE IS AN EXPRESS POWER GRANTED TO THE INCOME-TAX OFFICER TO 'TAKE THE FAIR MARKET VALUE OF THE CAPITAL ASSET TRANSFERRED' AS 'THE FULL VALUE OF THE CONSIDERATION' IN SPECIFIED CIRCUMSTANCES. IT IS EV IDENT THAT THE LEGISLATURE ITSELF HAS MADE A DISTINCTION BETWEEN TH E TWO EXPRESSIONS 'FULL VALUE OF THE CONSIDERATION' AND 'FAI R MARKET ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 8 VALUE OF THE CAPITAL ASSET TRANSFERRED' AND IT IS PR OVIDED THAT IF CERTAIN CONDITIONS ARE SATISFIED AS MENTIONED IN TH E FIRST PROVISO TO SECTION 12B(2), THE MARKET VALUE OF THE ASSET TRA NSFERRED, THOUGH NOT EQUIVALENT TO THE FULL VALUE OF THE CONSID ERATION FOR THE TRANSFER, MAY BE DEEMED TO BE THE FULL VALUE OF T HE CONSIDERATION. TO GIVE RISE TO THIS FICTION THE TWO CONDITIONS OF THE FIRST PROVISO ARE(1) THAT THE TRANSFEROR WAS DI RECTLY OR INDIRECTLY CONNECTED WITH THE TRANSFEREE , AND(2) T HAT THE TRANSFER WAS EFFECTED WITH THE OBJECT OF AVOIDANCE OR REDUCTION OF THE LIABILITY OF THE ASSESSEE UNDER SECTION 12B. IF T HE CONDITIONS OF THIS PROVISO ARE NOT SATISFIED THE MAIN PART OF SECTI ON 12B(2) APPLIES AND THE INCOME-TAX OFFICER MUST TAKE INTO AC COUNT THE FULL VALUE OF THE CONSIDERATION FOR THE TRANSFER.' APPLYING THE PRINCIPLES ENUNCIATED IN THAT DECISION WE THINK THAT THE FULL VALUE OF THE SALE PRICE RECEIVED BY THE ASSE SSEE WAS ONLY RUPEES SEVENTY- FIVE LACKHS. THAT BEING SO, THE CAPI TAL GAINS MADE BY THE COMPANY WERE RS. 27,04,772 AS HELD BY THE HI GH COURT.' 18 IN K.P.VARGHESE VS. ITO (1981) 7 TAXMAN 13(SC); (1981) 131 ITR 597 (SC) IT HAS BEEN HELD VIDE PARA 15 AND 18 AS UN DER:- '15. IT IS, THEREFORE, CLEAR THAT SUB-SECTION (2) CA NNOT BE INVOKED BY THE REVENUE UNLESS THERE IS UNDERSTATEMENT OF THE CONSIDERATION IN RESPECT OF THE TRANSFER AND THE BUR DEN OF SHOWING THAT THERE IS SUCH UNDERSTATEMENT IS ON THE REVENUE. ONCE IT IS ESTABLISHED BY THE REVENUE THAT THE CONS IDERATION FOR THE TRANSFER HAS BEEN UNDERSTATED OR, TO PUT IT DIF FERENTLY, THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAT WHAT IS DECLARED OR DISCLOSED BY HIM, SUB-SECTION ( 2) IS IMMEDIATELY ATTRACTED, SUBJECT, OF COURSE, TO THE FUL FILLMENT OF THE CONDITION OF 15 PER CENT OR MORE DIFFERENCE, AND THE REVENUE IS THEN NOT REQUIRED TO SHOW WHAT IS THE PRECISE EXTEN T OF THE UNDERSTATEMENT OR, IN OTHER WORDS, WHAT IS THE CONS IDERATION ACTUALLY RECEIVED BY THE ASSESSEE. THAT WOULD IN MO ST CASES BE DIFFICULT , IF NOT IMPOSSIBLE, TO SHOW AND HENCE SUB -SECTION (2) RELIEVES THE REVENUE OF ALL BURDEN OF PROOF REGARDING THE EXTENT OF UNDERSTATEMENT OF CONCEALMENT AND PROVIDES A STATUTO RY MEASURE OF THE CONSIDERATION RECEIVED IN RESPECT OF T HE TRANSFER. IT DOES NOT CREATE ANY FICTIONAL RECEIPT. IT DOES NO T DEEM AS RECEIPT SOMETHING WHICH IS NOT IN FACT RECEIVED. IT MERELY PROVIDES A STATUTORY BEST JUDGMENT ASSESSMENT OF THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE AND BRINGS TO TAX CAPITAL GAINS ON THE FOOTING THAT THE FAIR MARKET VAL UE OF THE CAPITAL ASSET REPRESENTS THE ACTUAL CONSIDERATION UNTRULY DECLARED OR DISCLOSED BY HIM. THIS APPROACH IN CONS TRUCTION OF SUB-SECTION (2) FALLS IN LINE WITH THE SCHEME OF THE PROVISIONS RELATING TO TAX ON CAPITAL GAINS. IT MAY BE NOTED T HAT SECTION 52 IS NOT A CHARGING SECTION BUT IS A COMPUTATION SECTION . IT HAS TO BE ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 9 READ ALONG WITH SECTION 48 WHICH PROVIDES THE MODE OF COMPUTATION AND UNDER WHICH THE STARTING POINT OF CO MPUTATION IS 'THE FULL VALUE OF THE CONSIDERATION RECEIVED OR A CCRUING'. WHAT IN FACT NEVER ACCRUED OR WAS NEVER RECEIVED CANNOT B E COMPUTED AS CAPITAL GAINS UNDER SECTION 48. THEREFORE, SUB-SE CTION (2) CANNOT BE CONSTRUED AS BRINGING WITHIN THE COMPUTAT ION OF CAPITAL GAINS AN AMOUNT WHICH, BY NO STRETCH OF IMAG INATION, CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE OR BEEN REC EIVED BY HIM AND IT MUST BE CONFINED TO CASES WHERE THE ACTUAL CO NSIDERATION RECEIVED FOR THE TRANSFER IS UNDERSTATED AND SINCE I N SUCH CASES IT IS VERY DIFFICULT , IF NOT IMPOSSIBLE, TO DETERMINE AND PROVE THE EXACT QUANTUM OF THE SUPPRESSED CONSIDERATION, SUBSE CTION (2) PROVIDES THE STATUTORY MEASURE FOR DETERMINING THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE AND PERMITS THE REVENUE TO TAKE THE FAIR MARKET VALUE OF THE CAPITAL ASSET AS THE FULL VALUE OF THE CONSIDERATION RECEIVED IN RESPECT O F THE TRANSFER. XXXXXX XXXXXX XXXXXXXX 18. WE MUST, THEREFORE, HOLD THAT SUB-SECTION (2) O F SECTION (2) OF SECTION 52 CAN BE INVOKED ONLY WHERE THE CONSIDERAT ION FOR THE TRANSFER HAS BEEN UNDERSTATED BY THE ASSESSEE OR, I N OTHER WORDS, THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAN WHAT IS DECLARED OR DISCLOSED BY HIM AND THE BURDEN OF PROVING SUCH UNDERSTATEMENT OR CONCEALMENT IS ON THE REVENU E. THIS BURDEN MAY BE DISCHARGED BY THE REVENUE BY ESTABLIS HING FACTS AND CIRCUMSTANCES FROM WHICH A REASONABLE INFERENCE C AN BE DRAWN THAT THE ASSESSEE HAS NOT CORRECTLY DECLARED OR DISCLOSED THE CONSIDERATION RECEIVED BY HIM AND THERE IS UNDE RSTATEMENT OR CONCEALMENT OF CONSIDERATION IN RESPECT OF THE TRA NSFER. SUB- SECTION (2) HAS NO APPLICATION IN CASE OF AN HONEST AND BONA FIDE TRANSACTION WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE HAS BEEN CORRECTLY DECLARED OR DISCLOSED BY HIM, AND TH ERE IS NO CONCEALMENT OR SUPPRESSION OF THE CONSIDERATION..... ...... ' 19. . IN RUPEE FINANCE & MANAGEMENT (P) LTD. (2008) 22 SOT 174 (MUM); (2009) 120 ITD 539 (MUM) IT HAS BEEN HELD IN PENULTIMATE PARA OF THE ORDER THAT: ' AS ALREADY HELD IN THE ORDER OF RUPEE FINANCE & MA NAGEMENT PVT. LTD. THERE IS NO ALLEGATION MUCH LESS, ANY EVI DENCE TO SHOW THAT THESE ASSESSES BEFORE US HAVE RECEIVED MONIES I N EXCESS OF AMOUNTS OF SALE CONSIDERATION RECORDED AND DISCLOSED IN THE TRANSACTION FOR THE SALE OF SHARES. THE FIRST APPELLA TE AUTHORITY HAS RIGHTLY NOTED THAT UNDER SECTION 48 THE STARTIN G POINT FOR COMPUTATION OF CAPITAL GAINS IS THE AMOUNT OF FULL VAL UE OF CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF TR ANSFER OF THE CAPITAL ASSET. THE HON'BLE SUPREME COURT IN THE CAS E OF K.P.VARGHESE (SUPRA) HELD THAT SUB-SECTION (2) OF SE CTION 52 CAN ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 10 BE INVOKED ONLY WHEN THE FULL VALUE OF THE CONSIDERAT ION IS RECEIVED IN RESPECT OF A TRANSFER IS SHOWN AT A LESS ER FIGURE THAN THAT WHICH IS ACTUALLY RECEIVED BY THE ASSESSEE. IT FURTHER LAID DOWN THAT THE BURDEN OF PROVING SUCH UNDERSTATEMENT OF CONSIDERATION IS ON THE REVENUE AND THAT THE SUB-SE CTION HAS NO APPLICATION IN THE CASE OF A BONA FIDE TRANSACTION, W HERE THE TRUE CONSIDERATION RECEIVED BY THE ASSESSEE HAS BEEN DEC LARED OR DISCLOSED BY HIM. SECTION 50C, HAS COME INTO THE ST ATUTE ONLY WITH EFFECT FROM 1.4.2003 BY FINANCE ACT, 2002 AND IS NOT APPLICABLE TO THE IMPUGNED ASSESSMENT YEARS. HENCE, FOR THE PERIOD PRIOR TO THE INSERTION OF SECTION 50C NO ADDI TION CAN BE MADE BY INVOKING THE RATIO OF THIS SECTION. THE FIRS T APPELLATE AUTHORITY AT PAGE 21 OF HIS ORDER HAS RIGHTLY OBSERV ED THAT, WHAT IN FACT NEVER ACCRUED OR WAS NEVER RECEIVED CANNOT BE COMPUTED AS CAPITAL GAIN. HE RELIED ON THE DECISION OF THE CA LCUTTA HIGH COURT IN THE CASE OF CIT VS. SMT. NANDINI NOPANI (19 98) 230 ITR 679. HE RIGHTLY HELD THAT IT IS MANIFEST THAT THE CO NSIDERATION FOR THE TRANSFER OF CAPITAL ASSET IS WHAT THE TRANSFEROR RECEIVES, IN LIEU OF ASSETS HE PARTS WITH, I.E. MONEY OR MONIES W ORTH AND THAT THE EXPRESSION 'FULL CONSIDERATION' CANNOT BE CONSTR UED AS HAVING REFERENCE TO THE MARKET VALUE OF THE ASSETS TRANSFERR ED BUT REFERS TO THE PRICE BARGAINED FOR BY THE PARTIES AND IT CAN NOT REFER TO THE ADEQUACY OF THE CONSIDERATION. HE ALSO RIGHTLY OBSER VED THAT THE LEGISLATURE HAS USED THE WORDS 'FULL VALUE OF THE CON SIDERATION' AND NOT 'FAIR MARKET VALUE OF THE ASSETS TRNSFERRED'. HE RECORDED THAT THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT THE ASSESSEE HAS RECEIVED MOR E THAN WHAT HAS BEEN DISCLOSED IN THE BOOKS AND UNDER THESE CIR CUMSTANCES THE DIFFERENCE CANNOT BE BROUGHT TO TAX UNDER THE H EAD 'CAPITAL GAINS'. WE FULLY AGREE WITH THESE FINDINGS AND THE A PPEALS FILED BY THE REVENUE FAIL.' 20. IN VIEW OF THE PRINCIPLES LAID DOWN ABOVE, WE C ANNOT UPHOLD THE ORDERS OF THE AO AND THE CIT(A) IN REDETERMININ G THE FULL VALUE OF CONSIDERATION BY ADOPTING THE FAIR MARKET VALUE. SINCE THE PROVISIONS OF THE ACT DOES NOT PROVIDE FOR SUBSTITU TION OF THE VALUES AND THE SAID PROVISIONS FOR SUBSTITUTION PRO VIDED UNDER THE ACT IS NOT APPLICABLE TO THE FACTS OF THE CASE, WE CANNOT APPROVE THE ACTION OF THE AO IN REVALUING THE SALE PRICE. SIMIL AR VIEW WAS TAKEN BY THE COORDINATE BENCH IN THE CASE OF MGM SH AREHOLDERS BENEFIT TRUST (SUPRA) WHEREIN THE ITAT ULTIMATELY D ID NOT APPROVE THE SUBSTITUTION OF SALE PRICE ON THE FACTS OF THAT CASE. THE FINAL FINDING IN PARA 41 IS AS UNDER: - '41. THERE IS NO QUARREL ON THE PRINCIPLE OF LAW LAI D DOWN IN THE OTHER DECISIONS RELIED ON BY LD. D.R. HOWEVER, IN V IEW OF THE PRINCIPLES ENUNCIATED BY THE HON'BLE SUPREME COURT, IN THE ABOVE DECISIONS REFERRED IN PARA 31 TO 36 AND THE T RIBUNAL DECISION IN PARA 37 OF THIS ORDER WE ARE OF THE VIEW THAT THE FULL ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 11 VALUE OF THE SALE PRICE RECEIVED BY THE ASSESSEE WAS ONLY RS.0.10P PER SHARE AND, HENCE, THE SHORT TERM CAPITAL LOSS S HOWN BY THE ASSESSEE AT RS.5,21,28,059/- IS ACCEPTED AND THE OR DER PASSED BY THE ASSESSING OFFICER AND THE LD. CIT(A) IN THIS RE GARD ARE SET ASIDE. THE GROUNDS TAKEN BY THE ASSESSEE ARE, THERE FORE, ALLOWED AND THE GROUNDS TAKEN BY THE REVENUE ARE REJECTED.' 21. IN VIEW OF THE ABOVE, WE HAVE NO HESITATION IN ALLOWING THE GROUNDS RAISED BY THE ASSESSEE ON THE ISSUE AND DIR ECT THE AO TO ADOPT THE FULL VALUE OF CONSIDERATION AS RECEIVED B Y THE ASSESSEE AND TO RECOMPUTE THE LONG TERM CAPITAL GAINS OR LOS SES ACCORDINGLY. THE ORDERS OF THE AO AND THE CIT(A) TO THAT EXTENT ARE MODIFIED. GROUND IS ALLOWED. THUS, IT IS SEEN THAT THE APPROACH OF THE ASSESSING OFFICER AS WELL AS THE CIT(A) IS AGAINST THE LEGAL PRECEDENTS ON THE ISSUE. RESPE CTFULLY FOLLOWING THE LEGAL PRECEDENTS CITED SUPRA, WE DIRECT THE ASSESSING OFF ICER TO ADOPT THE FULL VALUE OF CONSIDERATION AS RECEIVED BY THE ASSESSEE ON SAL E OF SHARES OF M/S. SILICON BUILDERS AT COST TO BE THE FULL CONSIDERATION FOR C OMPUTATION OF CAPITAL GAINS ON SUCH SALE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. PRONOUNCED IN THE COURT ON 20 TH NOVEMBER, 2015 SD/- SD/- (B.RAMAKOTAIAH) (P.MADHAVI DEVI) ACCOUNTANT MEMBER. JUDICIAL MEMBER DT/- 20 TH NOVEMBER, 2015 COPY FORWARDED TO: 1. M/S. SUGUNI CONSTRUCTIONS PVT. LTD., M/S CH. PAR THASARATHY & CO., 1-1-298/2/B/3, 1 ST FLOOR, SOWBHAGYA AVENUE, ST. NO.1, ASHOK NAGAR, HYDERABAD. 2. INCOME TAX OFFICER WARD 3(2), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) III, HYDERABAD ITA NO.582/HYD/2015 M/S.SUGUNI CONSTRUCTIONS PVT. LTD., HYDERABAD 12 4. COMMISSIONER OF INCOME-TAX 3, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S.