INTECH CORPORATION,MUMBAI vs. ITO 20(1)(3), MUMBAI

The assessee has filed this appeal challenging the order dated 12- 08-2013 passed by Ld CIT(A)-31, Mumbai for the assessment year 2005- 06 confirming the penalty of Rs.16,74,180/- levied by the assessing officer u/s 271(1)(c) of the Act.

The assessee had sold a factory premises and land during the year under consideration. In respect of land, the assessee computed long term capital loss by adopting the fair market value of the land as on 1.4.1981 at Rs.25.00 lakhs on the basis of valuation report obtained from an approved valuer. In the assessment proceedings, the AO referred the matter of valuation to the DVO, who estimated the fair market value as on 1.4.1981 at Rs.3,22,940/-. Accordingly the AO computed the Long term capital gain at Rs.1,00,56,584/- by adopting the FMV as on 1.4.1981 as determined by the DVO. In the appellate proceedings, the Ld CIT(A) held that the reference to DVO was not valid. Hence the Ld CIT(A) made enquiries with MIDC and on the basis of comparable cases determined the FMV at Rs.750 per Sq. Mt or Rs.75/- per sq. Ft. Accordingly, the amount of Long term capital gain came down to Rs.80,06,600/-. Further the AO also noticed that the stamp duty valuation of the property was more by Rs.99,000/-. Hence by applying the provisions of sec. 50C, the AO enhanced the sale consideration by Rs.99,000/-The AO levied penalty on the long term capital gain determined after the order of Ld CIT(A) and also on the addition made u/s 50C of the Act for furnishing of inaccurate particulars of income. The Ld CIT(A) confirmed the penalty levied by the AO and hence the assessee has filed this appeal before us.

With regard to the Long term capital gain computed by the tax authorities, the Ld A.R submitted that the assessee did not furnish any inaccurate particulars of income, since the fair market value as on 1.4.1981 was a matter of estimation only and normally two different persons would arrive at two different valuation only. He submitted that the assessee had obtained valuation report from an approved value, who had estimated the fair market value as on 1.4.1981 at Rs.25.00 lakhs and adopted the same for computing the long term capital gain. The Ld A.R placed reliance on the decision rendered by Hon’ble Supreme Court in the case of Dilip N Shroff (291 ITR 519)(SC) and submitted the estimation of fair market value cannot lead to furnishing of inaccurate particulars of income. With regard to the addition made u/s 50C of the Act, he submitted that the said addition has been made on account of legal fiction brought under that section and the same would not result in furnishing of inaccurate particulars of income. In this regard, he placed reliance on the decision rendered by the Hon’ble jurisdictional Bombay High Court rendered in the case of CIT Vs. Fortune Hotels and Estates Pvt Ltd (ITA No.1164 of 2012 dated 26-09-2014) and also the decision rendered by Calcutta High Court in the case of CIT Vs. Madan Theaters Ltd (2013)(88 DTR 217).

On the contrary, the Ld D.R placed strong reliance on the order passed by Ld CIT(A).

We heard the parties and perused the record. We notice that the difference in the computation of Long term capital gain has arisen only on account of the difference in the amount of fair market value (FMV) adopted by the assessee as well as the tax authorities. While the assessee had adopted the FMV at Rs.25.00 lakhs on the basis of the valuation obtained from an approved valuer, the AO has adopted the same at Rs.3,22,940/- as per the value estimated by the DVO. Thus, we notice that the two technical experts, i.e., approved valuer and the DVO has reached two different fair market values as on 1.4.1981 in respect of same property. However, the Ld CIT(A) did not consider both the values. In fact, the Ld CIT(A) held that the reference made by the AO to the DVO was not valid and hence proceeded to ascertain the value from MIDC and also on the basis of comparable sales instances. Ultimately, the Ld CIT(A) determined the FMV as on 1.4.1981 at a value, which was more than the value determined by the DVO, but less than the value determined by the approved valuer. These discussions would show that the determination of FMV as on 1.4.1981 was a matter of estimation and hence we find merit in the submissions of the assessee that the difference in the estimation would not lead to furnishing of inaccurate particulars of income.

In view of the above, we are unable to agree with the order passed by Ld CIT(A). Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the penalty levied in the impugned order.